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

Alan Duncan Excerpts

Thursday 1st March 2018 Public Bill Committees

[Helen Goodman]

Of course, sanctions also have an impact on British commercial and economic interests, and on British commercial and economic actors. I will give the Committee a couple of examples of that.

In a more recent example, from 2014, we decided to impose sanctions against Russia after the intervention in Ukraine and the annexation of Crimea. One of the things that the sanctions covered was technology for oil and gas, which is obviously a very big sector in the Russian economy. SMD, a specialist engineering firm in Newcastle, makes sophisticated robots that operate on the seabed, doing the job of deep-sea divers. Those robots were banned and the chief executive of SMD—Andrew Hodgson, who I have met—highlighted the damage to his business. He said:

“Imagine we’re a 500 employee business and 20% of your business doesn’t exist, that’s 100 jobs and obviously we’ve been working hard on the technology”,

which is very modern technology. Normally, the company would have exported £20 million worth of equipment, but that business was lost, straight away. Another reason for considering the impact of sanctions on British citizens and the cost to the British economy is the possibility of counter-sanctions imposed by the person or country we are sanctioning. Russia retaliated by banning imports of agricultural and other produce from both the European Union and the United States, including mackerel from Scotland. That was not great for Scottish fishermen.

Nissan was also extremely badly affected, because the effect of the sanctions on Russia was that the rouble plummeted. Nissan had been paid for its car exports in roubles and was not hedged sufficiently to deal with a big drop in the rouble. It halted all the orders because it could not afford to take the loss, which was significant, although not as bad as if it had sold the cars at a loss.

We are pleased that the Government inserted clause 27 and that they are taking a consensual approach to the Bill—

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

Yo!

[Helen Goodman]

The Minister is encouraging me to go for it—

[Sir Alan Duncan]

Consensus.

[Helen Goodman]

I will therefore ask for an extension to what is covered in the review. We have given an explanation as to how we think that should be done.

[Sir Alan Duncan]

The Government are well aware of the concerns in the House about the humanitarian impact of sanctions. We are committed to finding constructive solutions through close engagement with non-governmental organisations and other humanitarian actors.

As part of the process of considering when to apply sanctions, the Government already consider the humanitarian impact on the individual or entity being sanctioned and on the general population, if the sanctions are countrywide. That is kept under close review, and we will continue to ensure that NGOs and other humanitarian actors can access the licences and exemptions needed to carry out their work in countries that are subject to sanctions.

In 2016, the UK secured amendments to the EU’s sanctions regime on Syria to provide a specific exemption for fuel purchases by humanitarian organisations, which assisted them in carrying out their operations in Syria while ensuring that they were still compliant with sanctions. As part of the consultation on the Bill, we hold regular roundtable meetings with NGOs and we take into account their concerns about the humanitarian impact of sanctions. A variety of tools and guidance are available for assessing that humanitarian impact, of which the UN handbook, which the hon. Member for Bishop Auckland referred to, is just one.

We take a case-by-case approach to the assessment of the humanitarian impact of each sanctions regime. We work closely with Department for International Development, as I recall happening when I was a DFID Minister, and with staff from the Foreign and Commonwealth Office, who may be in the relevant country —I am now familiar with what the FCO does on this as well. That ensures that the humanitarian impact is minimised and that licences and exemptions can be made available to NGOs carrying out humanitarian work.

The design and implementation of sanctions has moved on considerably since the handbook was drafted more than 10 years ago. Sanctions are now more targeted and focused directly on people whose behaviour we are trying to change. To restrict the way in which we assess the humanitarian impact to the methodology laid out in the UN handbook would limit our flexibility in making that assessment. In any case, of course, handbooks can change.

The hon. Lady also mentioned Iraq, where sanctions were imposed almost 30 years ago. Those were blanket sanctions. Modern sanctions practice is very different: sanctions are precise and targeted, and the humanitarian implications are much better taken into account. We have learned lessons from historical sanctions regimes. The example of Iraq is useful because it shows exactly the journey that we have been on to make sanctions more precise and effective.

The Government recognise the risks of unintended effects of sanctions on British citizens, as mentioned in the amendment, and on other individuals and entities. A thorough consideration of the possible unintended effects of sanctions is already part of the process of designing and implementing sanctions regimes, and it will continue to be in future. Given that sanctions have an international dimension, it is important that we do not just look at British citizens, but have safeguards for anybody who is unintentionally affected by a sanctions regime. Our concern for justice should not be confined to British citizens.

I assure the Committee that our review, which we will report annually to Parliament under clause 27, will assess the humanitarian impact of each sanctions regime; our approach to mitigating the risks of unintended effects; and our approach to humanitarian licences and exemptions that allow non-governmental organisations to continue their work in countries affected by sanctions.

I hope that that explanation has reassured the Committee sufficiently for the hon. Member for Bishop Auckland to withdraw her amendment.

--- Later in debate ---

[Richard Benyon (Newbury) (Con)]

The hon. Lady is right that this is a key part of the Magnitsky elements of the Bill. There may be a more elegant way of landing this and I am looking forward to hearing what the Minister says about it.

The review aspects are fundamental to achieving what I was talking about earlier: consistency with other jurisdictions. I know the Government are keen to work with us. It may be that that happens in the coming weeks and we find some mechanism by Report stage. Again, the Minister has this in his gift. There are those who say that what we propose would somehow be more than other countries have adopted as part of their Magnitsky legislation, but the US, for example, has a far more onerous oversight provision. It allows certain members of Congress the right to demand that the Government consider sanctioning certain individuals, and the Government have to respond within 120 days to give the reasons why they did or did not. That is called the congressional trigger, and there are other mechanisms in other jurisdictions elsewhere.

What we would like to achieve is that as soon as practicable after six months have elapsed, beginning with the day the Act is passed, and every 12 months thereafter, the Secretary of State prepares a report about the exercise of the powers conferred by the Act and lays that report before Parliament. Subject to issues of clear confidentiality—I absolutely accept that is a requirement—that report should include a summary of any representations made in relation to the exercise or proposed exercise of powers and the response of the appropriate Minister to do the same.

I think there may be some work to be done on the question of who the independent reviewer should be. I note the form of words, which I was initially attracted to by the hon. Member for Bishop Auckland. There may be machinery of Government issues, which mean that that is not the right place for the independent reviewer to reside, but I think there are many ways of skinning this particular cat. The review element is fundamental, because it is important that those organisations that are taking forward evidence are able to have that evidence independently verified and Government held accountable.

On a related issue, which is not specific to this Bill but that makes my point, campaigners—with very good evidence—have brought cases about people connected to serious organised crime from overseas who operate in this country. They have taken that to agencies such as the Serious Fraud Office, the National Crime Agency and others, but it has not been taken up. When they have done that in other countries, assets have been frozen, people have been subject to visa denials and other measures have been taken. Somehow, people slip between the cracks in our system, and this is an opportunity to close that gap.

On where that independent reviewer resides, I am open to suggestions from my right hon. Friend the Minister or anyone. I am glad that the hon. Member for Bishop Auckland has given us a bit of breathing room to resolve this. By Report, we really need to have a review process that is independent and comprehensive; that addresses the measures that we require to allow people who have access to information to bring it forward; and that holds Government accountable for how they deal with that kind of information.

[Sir Alan Duncan]

The amendment is important because it overlaps with our earlier discussions about the broader Magnitsky issue. It also introduces two other elements, so it has three distinct elements.

The first element is the issue of adopting sanctions on a multilateral basis, which is what sanctions are really for. It is quite rare for sanctions to be adopted by only one country. Their whole effectiveness depends on multilateral co-operation. UN sanctions, which we are obliged to implement, are multilateral by their very nature. All the other sanctions that we have imposed in the past have also been multilateral, because we have imposed them as part of the EU. Although our departure from the EU necessitates our having an autonomous sanctions regime, we envisage that its operation will almost inevitably be multilateral. We agree that sanctions are more effective when they are adopted by a greater number of countries.

The UK plays a leading role as a permanent member of the UN Security Council in negotiating sanctions measures that build on the entire international community. We also work closely with the EU and other international partners in a range of groupings, such as the G7, and we will continue to work hard internationally to gain the widest possible support for sanctions measures.

In the second element of the amendment, the hon. Member for Bishop Auckland asks us to show our hand at all stages and to show the manner in which we piece sanctions together. However, to publicly reveal our discussions and the steps that we take to work with international partners could be damaging to those efforts. We would not wish to embarrass partners who, for their own reasons, decline to align with our sanctions policy or to risk the targets of sanctions understanding too much about which country was in which position on any given sanctions regime.

A related issue is whether an individual can nominate someone to be sanctioned, which they can. Any person can write to the Government and the Government will respond. Individuals may request that the Government apply new or additional sanctions regimes, and we will of course consider that.

[Helen Goodman]

How often does that happen in the real world? Does the Minister get a long letter from Amnesty International every week or every month that says, “We’ve seen this person and this person, and we think there is a problem”? I give that as an example, because one might imagine that it happened in that kind of way.

[Sir Alan Duncan]

I cannot quite say that it happens in that way, although there are some issues, and of course countries being discussed in the UN—because, for instance, they may be developing nuclear weapons—obviously does come across a Minister’s desk. That happens less frequently in the case of any individuals, particularly because at the moment we do not have an autonomous sanctions regime that would make all such representations come directly to the desk of a Minister or his close officials, because we are part of the broader EU system. When we have an autonomous regime, I envisage that that type of thing is more likely to happen than it does now, because it tends to happen much more within the EU system at the moment.

The third issue about the amendment is the question of oversight. May I just say to my right hon. Friend the Member for Newbury that I totally understand that the two key words in what he is pressing for are “independent” and “reviewer”? He suggests the need for some kind of independent entity, force or person that perhaps represents the interests of those calling for sanctions, rather than just the interests of the Government in executing sanctions. I understand what he is saying and we will have to consider this matter further.

However, I have to be firm in my view that the counter-terrorism figure suggested in the amendment is not the suitable person to do this work. The amendment is about counter-terrorism, if it is counter-terrorism, but this measure is more broadly about sanctions. So what would happen under the amendment is that someone whose job at the moment is counter-terrorism would have their job widened. It may be too burdensome; the whole job description would have to be changed. They would not necessarily have the required skillset, so they would be the wrong person to try to designate for this purpose. In simple language, they are not the right horse for the course. However, given what my right hon. Friend has said, we will of course need to discuss this matter further, as we approach Report.

[Richard Benyon]

I am grateful for that assurance. I am not qualified to say who this person should be and where they should reside. However, my right hon. Friend is right to say that the words “independent” and “reviewer” are fundamental to those who have been campaigning for this change for some time, and they would put the final icing on the cake of the Magnitsky element to this Bill.

However, will my right hon. Friend allow me, in as mild-mannered a way as I can put it, to convey to him that if other forces in the orbit of the postal district of SW1 were to rain on his parade of the assurances he has given us—I am mixing my metaphors here—there would be a problem for him on Report, and I want to make his life easy? I want this Bill to breeze through the Chamber with universal support and adulation for him, and that we will not find any need to argue the point.

[Sir Alan Duncan]

I both thank and congratulate my right hon. Friend for the elegance with which he has made his point, and I can say in clear and simple language, “Message received.”

Perhaps I can also take this opportunity to inform the Committee, in a little more detail, our feeling and understanding of what we know are the independent oversight powers in the Bill, because they are a central part of the broader picture of oversight.

We think the Bill finds the right balance of powers and independent oversight of those powers, because—rightly—the powers to impose sanctions are placed in the hands of the Executive. As such, the Government will decide whether or not to impose sanctions and on whom. Likewise, in the first instance the Government will decide when to lift sanctions. That is in line with the standard practice of the Executive deciding foreign policy and is consistent with international practice.

However, the role of the courts—as the independent arbiter and judicial authority overseeing the powers in the Bill—is significant. The courts can look at decisions made by the Government under the Bill and judge whether those decisions were correct. If not, the courts’ judgment will of course be binding on the Government. Furthermore, the Bill has significant transparency requirements and the Minister has numerous reporting obligations to Parliament. The reports will all be laid before and scrutinised by Parliament. As is the case now, parliamentary Committees can produce their own independent reports and can take evidence and make recommendations. That will continue. There is far more scope for such independent oversight by Parliament than there is now, where decisions are taken in Brussels and there are limited reporting requirements to the UK Parliament. As such, we believe that the Bill finds the right balance of Executive decision making, independent judicial arbitration by the courts and independent political oversight and scrutiny by Parliament.

[Helen Goodman]

We have had another interesting exchange. We are extremely grateful to the right hon. Member for Newbury, who knows about the issues in great detail. When it was first suggested to me that we involve the independent reviewer for terrorism, I was a bit taken aback as well. At first blush, one thinks that sanctions and terrorism are not quite the same thing. However, that person is looking at assets frozen under terrorism legislation as well, so it is appropriate, and I do not think that the job description-type points that the Minister made quite hit the nail on the head.

Had the Minister said to us, “No, we have thought about this, but the independent reviewer for terrorism is not the right person—we would propose that it would be X,Y or Z,” that would have been a good response. Then, we would have had more confidence in the Minister’s willingness to engage in the consensus-building process that we are all, across the House, looking for on the Bill. It seems to me that the Minister is being extremely cautious, to the point of not acknowledging that some changes will have to be made if the Government are to get the Bill on to the statute book. The Minister would have done well to have thought about that between 20 February and today, and he would do well to be more flexible now than he has been.

The suggestion that we rely on the courts is not very practical. That means, in effect, that people have to take the Government to court using the judicial review processes. It is incredibly ad hoc and unsystematic. It will mean that somebody with a lot of money who is critical of the Government’s actions can go to court and get their justice. This is not a place where we are about to have legal aid, is it?

[Sir Alan Duncan]

There are many stages to be gone through before it ever needs to go to court. One of the provisions that I really pressed hard for in the preparation of the Bill was that there could be swift and direct redress for someone caught up in sanctions unfairly—as they might see it—who needs to defend themselves but does not have money. That is why there is a process for being able to submit arguments that say they have been wrongly caught up. If they are justified, those issues can hopefully be resolved before there is any need to go to court. The hon. Lady is making a very valid point, and, if it were the case, that is addressed in the Bill.

[Helen Goodman]

I am sorry, but I think we are now conflating two things. The Minister is conflating the arguments that were had in the other place on designated persons, and the arguments here. The changes that were made with respect to designated persons were completely reasonable. I would go further than that: I would say that the Minister in the other place, Lord Ahmad, was right to resist the blandishments of Lord Pannick, who wanted to provide a court process for UN sanctions as well as non-UN sanctions, but that is not what we are talking about here. I am disappointed that the Minister has not shown a more flexible posture, and indicated more clearly that he is prepared to think again. His intervention was really a defence of the Bill. He did not indicate that he was prepared to go some way, but not to have this precise wording. That being the case, I think we do want to test the will of the Committee.

[Helen Goodman]

I am grateful to the right hon. Gentleman. I do not know whether the Minister would like to intervene again in the light of that, or whether he is content with what he has said.

[Sir Alan Duncan]

Content.

[Helen Goodman]

Okay. In the light of the intervention from the right hon. Member for Newbury, I will stick with what I had first thought to do, and will not press the amendment. However, the Minister needs to understand that we will have to come back to this matter on Report. From his point of view, it would be best if he took the initiative. He has not taken any initiative so far. If he does not, we will. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

--- Later in debate ---

[Sir Alan Duncan]

I will explain the clause, and I hope answer the hon. Lady’s questions. As part of our membership of the UN and the European Union, we currently impose sanctions on more than 2,000 people and organisations. Upon our departure from the EU, it may be that there has been insufficient parliamentary time or civil service capacity to comprehensively review all EU sanctions listings, and to prepare and pass appropriate statutory instruments to incorporate them under the regular powers conveyed by the Bill.

In those circumstances, to ensure that we meet our international obligations and do not become a route through which sanctioned individuals can move their assets, it may be necessary to retain some lists of persons sanctioned by the EU, as frozen EU laws under the European Union (Withdrawal) Bill. The freezing of existing EU sanctions via the withdrawal agreement is a safeguard measure to make completely sure that there are no gaps in our sanctions regimes as a result of leaving the EU. If that proves necessary, Ministers will need powers to amend those lists by adding or removing individuals from them, and the clause provides that power. It is a backstop measure, operable only for a maximum period of two years after the date of departure. All it does is allow Ministers to amend the list of designated persons. It does not allow new regimes to be set up, or substantive changes to be made to retained regimes, such as setting up a new arms embargo. That would require action under clause 1.

[Helen Goodman]

We can debate the matter when we come to clause 55, if the Minister has been better briefed by then, but when does he picture Ministers starting to use the powers? Is it on 1 April 2019 or 1 January 2021? If it is not until 1 January 2021, what will happen during the intervening period? Is he satisfied that simply using the lists will work if we are in a period when we do not have integration on borders, criminal justice and so on?

[Sir Alan Duncan]

The clause enables us to exercise those powers, but we cannot at this stage provide the date specificity that the hon. Lady is seeking, because that is a matter of negotiation.

Question put and agreed to.

Clause 29 accordingly ordered to stand part of the Bill.

Clauses 30 to 33 ordered to stand part of the Bill.

Clause 34

court reviews: further provision

Question proposed, That the clause stand part of the Bill.

[Alison Thewliss (Glasgow Central) (SNP)]

I have a quick query about the clause raised in a briefing by the Law Society of Scotland about the extension of the measure to Scotland. Will the Minister tell us a wee bit more about that? Will he also tell us what consultation was done with Law Officers in Scotland?

[Sir Alan Duncan]

The purpose of the clause is to ensure that those acting in good faith and in compliance with this legislation are properly protected from damages being awarded against them. The clause will not protect individuals if they are found to have been negligent or to have acted in bad faith. The measure is aligned with existing EU law and is necessary to ensure, for example, that enforcement officers acting under the law may perform their duties without fear of destitution.

The clause also restricts the circumstances in which the court may award damages against the state. Sanctions are imposed to counter unacceptable behaviour. They may need to be applied quickly and in situations in which there is incomplete information. However, the clause will still allow damages awards where there is evidence of negligence or of acts in bad faith. In practice, therefore, the clause restricts damages awards only in cases where the Government act in accordance with the information available to them and lawfully apply a sanction on the basis of sufficient evidence.

If damages awards were allowed in those circumstances, applying sanctions would carry a very significant risk to the public purse. Indeed, it is likely that the larger and more important the sanction target, the higher the financial risk to the taxpayer. It is therefore important to allow the Government to respond swiftly to developing situations and to protect the taxpayer to restrict the availability of damages as a remedy in the specific circumstances of negligence or acts of bad faith.

There was consultation before the Bill. As a piece of legislation that covers the whole of the UK, we believe that the powers should be as consistent as possible.

Question put and agreed to.

Clause 34 accordingly ordered to stand part of the Bill.

Clauses 35 and 36 ordered to stand part of the Bill.

Clause 37

Guidance about regulations under section 1

[Helen Goodman]

I beg to move amendment 28, in clause 37, page 29, line 39, at end insert—

‘(d) reporting obligations;

(e) licensing requirement provisions.

(3) Where civilian payments and humanitarian activity are exempt from any prohibitions and requirements imposed by the regulations, the appropriate Minister must issue guidance.

(4) The guidance under subsection (3) must include—

(a) best practice for complying with the processing of civilian and humanitarian activities to reduce the risk of funds benefiting designated individuals, entities or organisations;

(b) mechanisms to limit the impact of prohibitions and requirements on a permissible civilian and humanitarian activity;

(c) circumstances where the prohibitions and requirements may be relevant in the context of the otherwise permissible delivery of a humanitarian activity; and

(d) options setting out effective banking and payment corridors for the processing of payments in support of a civilian and humanitarian activity which is not subject to any prohibitions or requirements.’

This amendment would require that the guidance issued about regulations under section 1 includes guidance on reporting obligations and licensing requirements. It would also require the Government to issue guidance on civilian payments and humanitarian activity exempt from prohibitions and requirements imposed by regulations.

--- Later in debate ---

[Alison Thewliss]

I want to express some concerns that I mentioned on Second Reading. The clause grants a lot of powers to Ministers. It allows them to amend the definition of sanctions. What I and the House of Lords Constitution Committee are concerned about is how that is then scrutinised by Parliament. I do not know whether the Minister has had any time to think about how it might work since Second Reading, but I am concerned that the legislation does not include a mechanism to look at sanctions that is similar to the one that exists in the European Scrutiny Committee. I would like a wee bit further clarity on whether the Government have plans to do that. If not, why not? What might the mechanism look like?

[Sir Alan Duncan]

The hon. Lady makes a perfectly fair request, and I think I can give her the reassurance she is seeking. Clause 41 enables an appropriate Minister to alter the legislation to introduce new types of sanctions measures where the UK has been subject to a UN or other international obligation to do so. That, I think, is the basis of her concern, but the power is for types of sanctions measures that have not previously been predicted and therefore cannot be and are not included in the Bill.

Common types of sanctions include asset freezes, travel bans, arms embargoes and prohibitions on aviation and maritime transport. These types of sanction are included in the Bill. A recent example of where the international community developed a new type of sanction was in the UN sanctions imposed in respect of North Korea. A recent UN resolution, which we are obliged to follow, requires that UN member states do not grant work permits to North Koreans, save where the UN agrees in advance on a case-by-case basis. That type of restriction did not exist prior to the resolution, and in the future there may be other unforeseen types of sanction that we would be under an obligation to introduce.

Under the powers in the clause, new types of sanction can be introduced only if the UK is, or has been, under a UN or other international obligation to impose them. The clause does not enable any modification to be made to the purposes for which sanctions can be made, as set out in clause 1(1) and (2). Changes will be made through regulations via the draft affirmative procedure, to ensure that Parliament is given a full role in scrutinising such changes.

The clause will ensure that we remain in close co-ordination with our international partners and can respond to changes in how sanctions are used as a foreign policy tool. That will help to maintain the UK’s leading role in this field and to address global challenges in collaboration with our partners.

Question put and agreed to.

Clause 41 accordingly ordered to stand part of the Bill.

Clause 42 ordered to stand part of the Bill.

Clause 43

Money laundering and terrorist financing etc

[Anneliese Dodds]

I beg to move amendment 38, in clause 43, page 33, line 12, at end insert—

“(1A) Provision made under subsection (1)(a) may in particular include provision for enabling or facilitating the detection or investigation of money laundering, or preventing money laundering, through limited partnerships registered in Scotland.”

This amendment would ensure that regulations under this section made in relation to money laundering particularly applied to money laundering through limited partnerships in Scotland.

It is a pleasure to serve under your chairmanship, Mr McCabe. I will probably try to move around a little bit while I am speaking to warm myself up. It is wonderful to be able to speak to amendment 38. As colleagues will have seen, it is designed to ensure that regulations made under clause 34 in relation to money laundering also apply to money laundering through Scottish limited partnerships—SLPs, as they are commonly known and as I will call them for the purpose of this speech.

SLPs are a unique form of company. We tabled the amendment because we are concerned that, in addition to their use for modern business purposes—particularly by private equity firms and property investment funds—there appears to be considerable evidence that the huge surge in their use may be linked to money laundering. That concern has certainly been raised extensively in Scotland. It needs to be heard in the House, and action surely needs to be taken.

The key difference between SLPs and other forms of limited partnership is that they have a distinct legal personality; an SLP is able to sue and be sued, but the liability of the directors is still limited. In many respects, principally on tax, the partners within an SLP behave as they would elsewhere in the UK as part of a normal partnership, but the structure enables the company to maintain secrecy. They can also carry out other activities that other partnerships cannot—it can open bank accounts on its own account, for example. SLPs also have limited management participation requirements; the limited partners do not have to be involved directly in management, so there is less of a necessity for accountability there.

There has been some suggestion that SLPs initially proliferated partly for tax reasons. They reduce the liability of partners to UK or foreign tax on income and chargeable gains, as well as to stamp duty land tax. However, the recent increase in their number has been quite astonishing. The number of limited partnerships in Scotland has more than doubled, from just over 6,000 to nearly 15,000, since 2009. Now Scotland has more of those partnerships than England and Wales put together have ordinary limited partnerships.