Sanctions and Anti-Money Laundering Bill [ Lords ] (Second sitting)

Alan Duncan Excerpts

Tuesday 27th February 2018 Public Bill Committees

[Helen Goodman]

I beg to move amendment 22, in clause 18, page 17, line 7, leave out subsection (4) and insert—

“(4) For the purposes of subsection (2)(b), a body incorporated or constituted under the law of any part of the United Kingdom includes a body incorporated or constituted under the law of the following—

(a) any of the Channel Islands;

(b) the Isle of Man;

(c) any of the British Overseas Territories.”

This amendment would require the Government to include any of the Channel Islands, the Isle of Man and any of the British Overseas Territories in the definition of “United Kingdom person” under subsection(2).

Clause 18 was not much discussed in the other place, but the Opposition tabled amendment 22 because we think it important that part 1, which relates to sanctions, be extended automatically to the Channel Islands, the Isle of Man and the British overseas territories. We will be able to revisit the subject at the very end of our deliberations when we consider clauses 54 and 55, but I thought we should take the opportunity to consider it now.

As a matter of constitutional law, the UK Parliament has unlimited power to legislate for the overseas territories. Some overseas territories and Crown dependencies have their own legislatures, but they legislate on domestic matters, whereas sanctions are a lever in foreign policy—a Foreign Minister is leading the Bill, and the Foreign and Commonwealth Office is very much in the lead when it comes to driving sanctions policy. It cannot be argued that legislation on sanctions policy is domestic or in the normal purview of Crown dependencies and overseas territories, so the amendment seems logical.

There is a further reason for extending the definition automatically. There is a lot of controversy about the secrecy in how some Crown dependencies and overseas territories run their financial services, which gives them scope to be part of sanctions busting, whether deliberately—which I doubt—or inadvertently. That brings us back to the question of North Korea. The US Department of Justice alleges that companies based in the British Virgin Islands and Anguilla are linked to a North Korean bank. The Guardian reported on 20 February:

“The China-based Dandong Hongxiang Industrial Development Company was placed under US sanctions in 2016.”

I am sure the Minister is familiar with the Dandong Hongxiang Industrial Development Company. It was sanctioned after it was

“accused of operating on behalf of the Korean Kwangson Banking Corporation, which was itself sanctioned in 2009 over alleged links to North Korean weapons development. The shell companies, some of which appear in the Panama Papers, were part of a network of offshore entities used to obscure the acquisition of millions of dollars of fertiliser, coal and other commodities, according to the complaint.”

The report continued:

“US sanctions prevent North Korean financial institutions from dealing in US dollars. However, because some commodities vendors require sales to be conducted in dollars, North Korea needs to be able to access the currency in order to obtain goods and services that are unavailable domestically.

The criminal complaint, filed in 2016, alleges that KKBC used DHID to obtain access to US dollars, in part by establishing a network of 22 different shell companies in various jurisdictions that would obscure its role in the commodity transactions.”

I think I have made it clear that there is a case for applying sanctions in a straightforward and automatic way to the Crown dependencies and the overseas territories. It is clear, as the Government stated in 2012:

“As a matter of constitutional law, the UK Parliament has unlimited power to legislate.”

Given that is the case, I am sure Ministers will be keen to accept amendment 22.

[The Minister for Europe and the Americas (Sir Alan Duncan)]

The UK is responsible for the foreign affairs and security of the Crown dependencies and overseas territories. That is the constitutional position. However, there is another important constitutional point, which is that our long-standing practice is not generally to legislate for those jurisdictions without their consent.

Sanctions are a tool of foreign policy or are used to protect our national security. We have been clear that the overseas territories and Crown dependencies must follow the UK Government’s foreign policy, including the sanctions we apply. The Foreign Office has discussed that with the overseas territories and Crown dependencies, and they also accept that point of principle.

The hon. Lady referred to the current distinction. There are two ways in which sanctions are implemented by the overseas territories and Crown dependencies. The UK legislates directly for the majority of the jurisdictions with their consent through Orders in Council. Other jurisdictions choose to legislate for themselves but follow precisely the sanctions implemented in the UK. That model is well established and respects the rights of those different jurisdictions.

The Bill is drafted to reflect that reality. It is consistent with the current implementation model for UN and EU sanctions, as well as measures under the Terrorist Asset-Freezing etc. Act 2010. It allows those jurisdictions that choose to follow UK sanctions through their own legislation to continue to do so. It also allows the UK to legislate directly for certain overseas territories.

The amendment would drive a coach and horses through that well established model by deeming legal entities formed or incorporated in the overseas territories or Crown dependencies to be UK persons. At a stroke, it would bring those legal entities within the ambit of UK sanctions confined to the territory of the UK and subject to UK courts. It would disenfranchise those overseas territories or Crown dependencies by legislating for their legal entities without their consent. It would also give rise to the unusual situation in which a legal entity incorporated in an overseas territory is bound by UK sanctions, but those UK sanctions do not extend to the overseas territory in question and so do not bite on the entity’s activities in that territory. The amendment in such a case would not seem, therefore, to have any practical purpose.

I do not see the Bill as the right place to change these long-standing constitutional arrangements, nor do I see a compelling case for needing to do so. I am sure Members would not wish to jeopardise the achievements that friendly co-operation with these jurisdictions has already made. Nor would they seek to disenfranchise those territories that have chosen to legislate for themselves. For those reasons, I ask the hon. Lady to withdraw the amendment.

[Helen Goodman]

I accept that the Government are right to proceed through mutual agreement with the Crown dependencies and the overseas territories. I can also see, from what the Minister said, that there is a more elegant way of achieving what I wish to achieve with the amendment later in our proceedings. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 18 ordered to stand part of the Bill.

Motion made, and Question proposed, That further consideration be now adjourned.—(Mike Freer.)

[Alison Thewliss (Glasgow Central) (SNP)]

I agree that this motion is quite disrespectful to the Committee. We have only been here for half an hour, and we all want to press on. We have got only two more days to look at this huge number of amendments to a very important Bill. It smacks to me of game playing on the part of the Government to move the motion and to be so disrespectful. We are all here in this House, and if the Minister turns around, he will see that the weather outside indicates that we are not going anywhere soon. We are pretty much getting snowed into the building as we speak. We may as well sit here, huddled together, and finish the work that we have begun here this afternoon.

[Sir Alan Duncan]

I fully respect the fact that the hon. Member for Bishop Auckland has served in the House for 13 years; in the same spirit, I am sure she will respect my 26 years of service. The motion does nothing more than to reflect the understanding that we reached last night, namely that we would debate a very significant amendment in a full session on Thursday. There is no attempt not to discuss anything, because the whole point of Committee is that everything is discussed. There is nothing that will not be discussed as a result of our adjournment this afternoon.

This matter is important, and we are genuinely trying to work out if there is some accommodation that we can make to deal with the issues raised by the hon. Lady and the wider House. There is no game playing and this is not obstruction; it is in the spirit of what was agreed last night. I say that with a smile, looking especially at her. Come Thursday, we will be able to spend a good amount of time getting into the matter in great detail. On that basis, I support the wish to adjourn.

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

I appreciated our discussions last night. As a new Member, I found them very helpful. I took a great deal of notice of what was said during the meeting by both Ministers and by everybody else who was there. I am sorry; we have spent so much time together that I am imagining that the Economic Secretary was there. I remember it being suggested at the meeting that we needed to get into a rhythm of working and establish how the Committee would operate, and that that was the reason for taking clause 1 after clause 18. Having served on two Finance Bill Committees, I absolutely understand the need to get into a rhythm and work out how we will operate as a Committee. I do not, however, recall anybody saying that that meant that we could not consider clause 1 on the first day of Committee. Perhaps other Members can contradict my recollection, but that is certainly what I took from the meeting.

Question put, That further consideration be now adjourned.