Sanctions and Anti-Money Laundering Bill [Lords]

Alison Thewliss Excerpts

2nd reading: House of Commons
Tuesday 20th February 2018 Commons Chamber

[Alison Thewliss (Glasgow Central) (SNP)]

This is another Bill that has been caused by Brexit. EU co-operation has been crucial to sanctions and anti-money laundering, and we have moved quite far along the road together as friends, neighbours and colleagues. A lot of concerns about the Bill have been voiced in relation to the justification of proportionality, and whether it takes us in the right direction to give us the opportunity to correct the flaws in our own systems.

Sanctions, as other hon. Members has said, are effective when we have co-operation, particularly as an EU block. That reflects the limitations of sanctions from the UN Security Council, because there is not always agreement among its permanent members. We need to find our place. Our place is not in the EU, as it was, but it is not entirely as other states are in the world. We need to find out where we are. Tom Keatinge from the Royal United Services Institute has said that we may have greater flexibility, but we will certainly have less influence. Ministers need to be reminded of that. I see that the Foreign Secretary has scuttled off without hearing me, which is kind of him. Without the active co-operation and engagement of Ministers with the EU, we will not be able to be the most effective at imposing sanctions. We should not pour our own collective efforts over the years down the stank just because we are leaving the EU. Unilateral sanctions bring with them a recognised risk that while we might want to do the right thing there may be repercussions. Being a part of EU collective action cushions us to an extent from that risk. We do not want to be marginalised in the world. We must take care to make sure that does not happen.

[Jim Shannon (Strangford) (DUP)]

The hon. Lady makes a valid point, although I have a different opinion on Brexit. Does she not agree that our ability to implement sanctions and address money laundering are essential components of our exit from Europe and that it is vital we have the same protections in place in the international market? We must look at the possibility of even enhancing them and making them even stronger.

[Alison Thewliss]

I agree that we perhaps can and should enhance what we do, but we must take care not to lose what we have so far. We must not lose that co-operation and sense of common purpose against evils in the world, which we have had as a part of the EU.

I support the points on human rights made by the hon. Member for Bishop Auckland (Helen Goodman). Ministers did not quite recognise the point that paragraphs (e), (f), (g) and (h) in clause 1(2) are in the Bill because they were put there by a Labour Lord. She may have made that point, but I did not want to let it pass without having recognised it. The Government should not be taking credit for things they did not do and did not put in the Bill. Those paragraphs should be in the Bill. Anything that can enhance the importance of human rights in the Bill should be there.

The NGO sanctions and counter-terrorism working group, chaired by Bond and the Charity Finance Group, has asked for protection in law for humanitarian and peace-building work, as that is, to a degree, currently inhibited by the EU regulatory framework on sanctions. As the right hon. Member for Sutton Coldfield (Mr Mitchell) set out, aid operations in parts of the world that are extremely dangerous and under sanctions from the UN and the EU still have to have aid workers. They have to build up relationships on the ground. They may not be comfortable with them and they may be difficult, but aid would not happen without them.

Currently, there is not sufficient protection in the Bill. There is reference to general licences with a bit more focus on guidance. Clause 37(1) states that the Minister who makes the regulations must issue guidance, but clause 37(2) states only that guidance “may” include guidance about compliance enforcement and disregards. That is not concrete enough. The guidance should be more certain, so that people know the regime they are working under, know the risks involved in what they are about to do and know if there will be any comeback from the actions they take. I do not think that that is clear enough, and I would like to see improvements in this area of the Bill. More concrete assurances are required.

That concern is shared by the banks. The UK Finance briefing on the Bill says that there is a fear of misuse, but there has to be a way to get around that. It provides the example of banks avoiding any transactions whatever with Iran, due to the risk of being sanctioned by the US—its sanctions regime is far-reaching. That risk alone has a chilling effect on its transactions in that area, regardless of any actual certainty. Sanctions will have an impact on such countries for many years to come, even after sanctions have ended. Banks need to have the confidence that they can deal with a country consistently over a number of years without falling foul of sanctions that suddenly reappear. The people working in such countries need to interact with donors, banks and transport and logistics companies. They need comfort on that. They need to buy fuel. They need to buy mobile phones. They need to make payments to move about the country and to let aid flow. For example, it is not possible to move around Yemen because there are different forces imposing different visa regimes. Moving around the country may involve making payments that fall foul of sanctions.

[Stephen Kerr (Stirling) (Con)]

Is the hon. Lady in effect agreeing with the Law Society of Scotland’s interpretation of the need in clause 1 for a list of all sanctions, including descriptions of any designated person and types of sanction imposed, and exemptions from such sanctions? Is that the thrust of the point she is making, because I agree with that?

--- Later in debate ---

[Alison Thewliss]

I thank the hon. Gentleman for agreeing with me. It is very rare and very nice, and I thank him for it. Yes, there has to be a good deal more clarity. I welcome the Law Society’s view, because that is not clear in the Bill. If people are working in that environment, they need certainty. For aid to flow and for banking transactions to flow, there has to be clarity.

UK Finance seeks further detail in clause 18 on extra-territorial application. It wants to know exactly what a UK element constitutes and what its reporting obligations might be under that regime, because it is not entirely clear.

Scrutiny and transparency are somewhat lacking. There is a lot of scope in the Bill for Ministers to create significant new criminal offences through secondary legislation, some of which would carry a sentence of 10 years in prison under clause 17(6). It is constitutionally unacceptable for that type of thing to be created by Ministers, and it is not just me saying that. The House of Lords Constitution Committee wants beefed-up parliamentary scrutiny, and the House of Lords Delegated Powers and Regulatory Reform Committee states that the provisions

“confer exceptionally wide powers which are capable of being applied to a very wide range of persons, with a very wide discretion being given to Ministers to determine the persons against whom sanctions measures may be applied.”

We should be concerned about that and seek corrections later in the process.

The Secretary of State, who has left his place, may not make decisions in haste, but we have to be concerned about the future. This is not a Bill for just now, but for many years to come, so the powers that we put in it are very important. The European Scrutiny Committee currently looks at EU sanctions that go through. We need to know what scrutiny process in this place will replace that, because it is important to ensure that things are being done properly and are above board.

At clause 21(4)(a) and (b) and clause 25(3)(a) and (b), a review process of three years from the laying of a sanction is mentioned. I would like clarity from the Government about why that is three years, because I understand that in the EU process it is only one. The Secretary of State said that a person who has been subject to a sanction has the ability to request from him that it is reviewed. Given that circumstances change and given the way of the world today, perhaps three years is a little too restrictive. We might want to push that down a bit further, or at least give scope for it to be varied, given the circumstances.

Clause 41—a Henry VIII clause, which has the power to authorise additional sanctions—is very like the other clause that I just mentioned, and again, the Lords Constitution Committee had concerns when it looked at it. The clause allows the amending of the definition of sanctions and puts a lot of powers into the hands of Ministers. What is the mechanism, the clause or the parliamentary check on that? Where is the means for Parliament and Committees of the House to have their say on the scrutiny of that? It is fundamentally important to have checks and balances in the system.

I am a member of the all-party parliamentary group on responsible tax, as is the right hon. Member for Barking (Dame Margaret Hodge), and I am pleased to see her amendment on beneficial ownership. I look forward to hearing her later on in the debate hopefully talking about that a wee bit more. There are a lot of issues about working with overseas territories and Crown dependencies. Much as I do not wish the House to legislate on Scottish matters, I do not want us to legislate for overseas territories or Crown dependencies without consent. That is very important. If we want to get buy-in and compliance, imposing things upon people may not necessarily be the best way to do it.

[Sammy Wilson]

The hon. Lady has hit on a very important point. If changes are to be made in the Crown dependencies and overseas territories, it must be by persuasion, rather than imposition. Does she agree that so far, by using persuasion, significant changes have been made in transparency in those countries? That should perhaps be the thrust of future Government policy to ensure that these areas do not become places where money can be hidden and laundered.

[Alison Thewliss]

We have to be very careful. To an extent, we push people and give them a carrot, and in a sense, we have a stick. We have to weigh up in all of this where exactly they are on that continuum and with compliance. Will Ministers tell us what conversations they have had with the likes of Guernsey and Jersey? Do they have confirmation of a permissive extent clause? I am very keen to see open registers. The right hon. Member for Sutton Coldfield laid out some points on that excellently. If the registers are there, they should be publicly available. We want to see transparency everywhere, but we also need to bear in mind that we have a long way to go on ensuring that everything that we do is absolutely correct and proper.

There are clearly issues and disputes among people about their interpretation of the proposals. Having read a submission from Jersey and Guernsey, I know that their account of affairs is quite different from other people’s. Perhaps we will have time in Committee to discuss this a wee bit more, take evidence and see in more detail exactly what needs to be done, how far people can be pushed, cajoled or brought along, or whether or not we need take this action and the extent to which it has a different force.

[Dame Margaret Hodge]

I am intrigued by the hon. Lady’s contribution. We all want to move forward on the basis of consent, but I slightly disagree with her about how fast the overseas territories are moving. It has been five years since David Cameron first encouraged them to develop public registers of interest. Will she give us some indication of when she thinks that the broader interest of having those public registers and the role that they could play in tackling financial crime would override her absolutely instinctive desire to seek consent in moving forward?

[Alison Thewliss]

I agree. That is the point I was trying to make, fairly badly I suppose: how long do we leave it? Has it been five years with no sign of anything, or five years with some sign of something? We need more conversations to see exactly where things are, but I am keen to support the right hon. Lady’s amendment.

There is slightly more concern about overseas territories such as the British Virgin Islands and Bermuda. When we look at the extent of the Panama papers and the Paradise papers, we cannot fail to be deeply concerned by the extent of nefarious transactions, out-and-out theft and money laundering, particularly when it involves, as other Members have said, the siphoning—the guzzling —of funds from countries whose populations can least afford it. We should be deeply concerned about that, and there seems to be little indication that they will comply at all. Perhaps there is a different approach from the Crown dependencies and the overseas territories on how willing they are to comply with what has to be done to make things transparent and open.

Moving on to part 2 and clauses 43 and 44, on the progress towards beneficial owners of overseas entities. This is very encouraging, but again the thing with the Bill is that action is required. Action is required to check up on all these companies and registrations. Action is required on enforcement and prosecution, and enforcement action requires agencies, intelligence, people and boots on the ground to make sure that it is done. It is fine to have law, but if we do not have anybody to enforce it, there is absolutely no point at all.

Scottish limited partnerships are a particular example of where things are not being enforced. This was bequeathed to me by Roger Mullin, and I am very grateful. It is estimated by Richard Smith and David Leask, who have been working hard on this issue—hon. Members will have seen some of David’s reports in The Herald—that an estimated 20,000 to 28,000 SLPs are of concern. The Herald recently reported that a former president of Peru has been accused of taking £4 million of bribes that have been funnelled through a shell firm based in Scotland. These things should be checked up on and enforcement action should have been taken, but SLPs have become a cover for all manner of murky and dubious behaviour.

As Transparency International and others have said, the missing link in all this is Companies House, because it does not have the duty to refuse a company’s registration; it has to register the company. It does not check up on whether it is legitimate, or whether the people who are registering it actually exist, and it is less compliant than the agents who use it, so there is no benefit to someone going through an agent if they can go through Companies House and avoid all the scrutiny. We have an opportunity in the Bill to close that loophole, because for me, Companies House is ignoring its money laundering duty.

There are wider concerns about shell companies. I invite the Minister to look at New Zealand, which was in a similar situation. However, its regulations have seen a near eradication of its 5,000 shell companies, which were registered to only about a dozen addresses in New Zealand. Part of the solution was a requirement for a New Zealand-based director, which made a huge difference almost overnight.

[Mr Sweeney]

Another interesting example from the recent Labour Government in New Zealand is the idea that they could ban the overseas ownership of property. Given the huge inflationary pressure in the UK housing market, usually from the opaque overseas ownership of UK property, perhaps we ought to consider that measure in this country as well.

[Alison Thewliss]

Yes, that would be a very useful addition. The Secretary of State did not answer the questions on the fifth money laundering directive: how it will be transposed; how it will be scrutinised; if there is a transitional phase; what that transition will look like; how we will prevent any loopholes; and how we will make sure that criminals do not exploit that transition.

[Sir Alan Duncan]

Perhaps at this stage I can give the hon. Members for Glasgow Central (Alison Thewliss) and for Bishop Auckland (Helen Goodman) the answer they are seeking on the fifth money laundering directive. It will be published in the summer of 2018 and member states will have 18 months to implement it. That will be after we leave the EU, so whether we or Gibraltar are legally required to transpose will depend on the terms of the implementation period, which of course are under negotiation.

[Alison Thewliss]

That sounds like a vague, “I don’t know” kind of answer.

[Helen Goodman]

Perhaps the hon. Lady would like to ask the Minister whether the powers he is taking in chapter 3—temporary powers in relation to EU sanctions lists—will not give him the power to enforce the fifth money laundering directive.

[Alison Thewliss]

That is a very good question. I do not know whether the Minister wants to take this opportunity to answer it—perhaps not. He has heard the question, so I need not repeat it.

Finally, I want to refer to the Scottish Government, because aspects of the Bill reflect some of the powers that lie within Scotland. The Court of Session is referred to in clause 33(2) and clause 34(2). What consultation has there been with the legal profession in Scotland and with the Scottish Government on that? On clause 47 —“Regulations: general”—the power to change devolved legislation under the negative procedure is really not cool. It is not just I who object to this; the Library briefing states that this will

“enable ministers to make supplemental, incidental, consequential, transitional or saving provisions repealing or otherwise amending existing legislation, including devolved legislation.”

Lord Judge referred to this clause as “monstrous”. Has the Scottish Government been consulted on this provision? What has the Minister got to say about this? This power grab, hidden on page 35 of the Bill, is something that I will seek to amend in Committee.

I support any moves to improve the scope of the Bill, and I look forward to hearing the rest of the debate.

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[Sir Alan Duncan]

The reason that we have made this distinction in terms of procedure is that we are obliged in law to implement UN sanctions. Once the sanctions have been agreed at the UN Security Council, the UK has an obligation to implement them under the UN charter. Not to do so would leave the UK in breach of international law—hence the distinction in the procedure that we are using.

Returning to what the hon. Member for Glasgow Central described as “monstrous”, I say again that sanctions are a matter of foreign policy and so are reserved to this Parliament.

[Alison Thewliss]

Will the Minister give way?

[Sir Alan Duncan]

No. We consulted the devolved Administrations—that answers a question that the hon. Lady asked—and they did not disagree with us. The ability to make changes to devolved legislation that can be used only to make changes required as a result of sanctions does not injure the devolution settlement. Their primary purpose is for a reserved matter.

Let me move on to the issue of Magnitsky. I recognise the concerns expressed about the importance of taking a stand against individuals responsible for committing gross abuses of human rights. We recognise and indeed share those concerns. I would like to make it clear that this Government are committed to promoting and strengthening universal human rights, and this Bill will permit us to do so. We already have a range of powers to take action against those who commit gross human rights abuses, most recently through the Proceeds of Crime Act 2002, as amended by the Criminal Finances Act 2017. The Home Secretary also has the power to exclude individuals whose presence we believe to be contrary to the public good, and we keep track of potentially dangerous individuals to prevent them from entering the UK. To complement this, we also have a range of domestic asset-freezing powers.

We are already committed to using sanctions in this area. This is demonstrated by the number of countries against whom we use human rights-related sanctions. They include the Democratic Republic of the Congo, Iran, Libya, Mali, South Sudan, Venezuela and Zimbabwe. The Bill will rightly continue this, allowing the UK to continue to implement existing sanctions regimes and to impose new sanctions in the future. I reiterate my point that paragraphs (f) and (h) of clause 1(2) will empower the Government to implement sanctions on human rights grounds. These are broad powers that will provide maximum flexibility and allow us to include all sorts of abuses, including but not only gross human rights abuses.

I should like to refer to the comments made by my right hon. Friend the Member for Sutton Coldfield about humanitarian access and freedoms. This is an important point. The Government recognise the concerns expressed in the House about the humanitarian impact of sanctions, and we understand the need for engagement with non-governmental organisations and other humanitarian actors. We fully support the work of NGOs operating in difficult areas, and we recognise that they are important partners in delivering the UK’s objectives in challenging environments. I want to reassure the House that the Government have been actively engaging with NGOs. As part of the consultation for the Bill, we held a roundtable to understand their concerns. Within the past couple of months, we have also met organisations involved in humanitarian, development and peace-building work.

The Bill provides a number of tools that will enable the Government to tailor each regime to help to meet the needs of NGOs. In particular, it will enable the Government to make exemptions for humanitarian reasons and to issue licences for legitimate activity. EU case law currently limits our ability to issue general licences, but the Bill will provide greater flexibility by allowing us to do so in circumstances where Ministers judge it appropriate. It will also help to prevent the exploitation of NGOs by those seeking to circumvent sanctions. We have committed to remain engaged with the humanitarian sector and to provide it with high-quality guidance on the implementation and enforcement of individual regimes. We will continue to work with NGOs and other stakeholders to develop the best possible system.

Beneficial ownership has been at the heart of tonight’s debate. We will no doubt discuss it in Committee and perhaps on Report. It is important to recognise that the UK is the only member of the G20 with a public register of company beneficial ownership. We welcome the fact that the EU is catching up with us, but, when it does, public registers of beneficial ownership will still not be a global standard. The non-EU members of the G20 will still not have them.

We hope to work with the Financial Action Task Force and other partners to establish registers of beneficial ownership as a global standard, the effect of which will be not to allow companies or people simply to shift from one regime to another and hide their assets somewhere else. In the meantime, we should remember that the overseas territories are well ahead of most jurisdictions, including many G20 partners, in developing private registers.

In the exchange of notes in 2016, the overseas territories with significant financial centres each committed to holding central or equivalent registers of company beneficial ownership and to making information held on those registers available to UK law enforcement and tax authorities. Those arrangements are almost complete, with some of the territories understandably slightly delayed by last year’s devastating hurricanes.

Moreover, the overseas territories are separate jurisdictions with their own democratically elected Governments. The UK respects the constitutional relationship with the overseas territories and Crown dependencies. It is entirely right to work consensually with them, rather than to impose legislation. The UK has only legislated directly without the overseas territories’ consent in the most exceptional of circumstances, such as on capital punishment.

We do not generally legislate for the overseas territories, and to do so would have the effect of overruling their own legislatures and could be interpreted as disenfranchising the citizens who voted for them. The overseas territories have taken great steps forward in this area, further indeed than many other jurisdictions, and I urge the House to appreciate the importance of not jeopardising what has been agreed with them.

Until we leave the European Union, the United Kingdom will continue to exercise all the rights and obligations of membership, including with respect to common foreign and security policy, sanctions and anti-money laundering. After we leave, this Government intend to continue working closely with our European neighbours to ensure our collective peace and security. Sanctions and anti-money laundering regulations will continue to be a powerful tool in that effort.

Through this Bill, the Government intend to ensure that these important foreign policy instruments continue to be fully available for the United Kingdom to use wherever it is deemed appropriate so to do. I commend the Bill to the House.

Question put and agreed to.

Bill accordingly read a Second time.

Sanctions and Anti-money Laundering Bill [Lords] (Programme)

Motion made, and Question put forthwith (Standing Order No. 83A(7)),

That the following provisions shall apply to the Sanctions and Anti-Money Laundering Bill [Lords]:

Committal

1. The Bill shall be committed to a Public Bill Committee.

Proceedings in Public Bill Committee

2. Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Tuesday 6 March.

3. The Public Bill Committee shall have leave to sit twice on the first day on which it meets.

Proceedings on Consideration and up to and including Third Reading

4. Proceedings on Consideration and any proceedings in legislative grand committee shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which proceedings on Consideration are commenced.

5. Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.

6. Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and up to and including Third Reading.

Other proceedings

7. Any other proceedings on the Bill may be programmed.—(Chris Heaton-Harris.)

Question agreed to.

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

Queen’s recommendation signified.

Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),

That, for the purposes of any Act resulting from the Sanctions and Anti-Money Laundering Bill [Lords], it is expedient to authorise the payment out of money provided by Parliament of:

(a) any expenditure incurred under or by virtue of the Act by the Secretary of State or the Treasury; and

(b) any increase attributable to the Act in the sums payable under any other Act out of money so provided.—(Chris Heaton-Harris.)

Question agreed to.

SANCTIONS AND ANTI-MONEY LAUNDERING BILL [LORDS] (WAYS AND MEANS)

Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),

That, for the purposes of any Act resulting from the Sanctions and Anti-Money Laundering Bill [Lords], it is expedient to authorise:

(1) the imposition, by regulations under the Act, of charges by persons exercising functions under the regulations in connection with the detection, investigation or prevention of money laundering or terrorist financing or the combating of threats to the integrity of the international financial system; and

(2) the payment of sums into the Consolidated Fund.—(Chris Heaton-Harris.)

Question agreed to.