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

Alison Thewliss Excerpts

Thursday 1st March 2018 Public Bill Committees

[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

--- Later in debate ---

[Helen Goodman]

The amendments relate to the importance of having guidance. There is considerable concern in the voluntary and financial sectors that the regulations as provided for under clause 36—

“an appropriate Minister may make regulations”—

are a piece of volunteerism and not an obligation on the Minister. That is causing some anxiety and confusion among those actors who have to implement the sanctions, whether NGOs or the financial sector. I will give a slightly more detailed description of this, because it is a bit complicated.

Last year Chatham House looked at the issue in some detail. It concluded that a number of UN Security Council sanctions regimes authorise the imposition of targeted sanctions against non-state armed group parties to armed conflicts. Of particular relevance to humanitarian action are financial sanctions such as asset freezes, which, among other things, require member states to ensure that funds, financial assets or economic resources are not made available to or for the benefit of designated entities. Asset freezes can be problematic for humanitarian action. There is a risk that the obligation not to make assets available to designated groups will be interpreted as covering incidental payments that must be made to such groups—for road tolls or locally purchased fuel, for example—so that humanitarian relief reaches civilians in need. It may also be interpreted as covering humanitarian goods or equipment that are diverted to such groups or otherwise benefit them, directly or indirectly. The scope of potential liability for violating asset freezes is very broad, and no intent or knowledge is required for that to be an offence, which is harsher than the bar for other kinds of breaches.

Although asset freezes are most likely to have an adverse impact on humanitarian action and, consequently, they have received the greatest attention, other forms of sanction may have a similar impact. In Syria, the problem was oil and petrol. Broader financial crimes risks arising from the Financial Action Task Force have also complicated humanitarian work.

The role of the UK financial sector in implementing sanctions is also relevant. It is not clear whether, when assessing the impact of sanctions, the UK intends to borrow the EU’s 50% rule for ownership and control. UK Finance states that

“the clarity of the ownership and control structures becomes of paramount importance and can be one of the most complex elements of ensuring sanctions compliance. If ownership or control is established in accordance with set criteria, the making available of funds or economic resources to non-listed legal persons or entities which are owned or controlled by a listed person or entity will in principle be considered a sanctions breach. The EU, and indeed many other jurisdictions, tend to apply a 50 percent rule and criterion to establish the ownership and control of an entity…if a listed individual has 50 percent or more ownership of a non-listed entity, EU persons/entities are prohibited from making available funds”.

There is no reference in the Bill to existing EU standards. The purpose of amendment 27 is to clarify that.

[Alison Thewliss]

I am concerned about the use of the word “may” in the clause, which states that the guidance “may include guidance” about certain things. I am concerned that that is not sufficiently well developed. I very much support the hon. Member for Bishop Auckland’s amendments, which would add a wee bit more clarity, detail and guidance. The clause is worth while, but the Government would do well to listen to the detail that she laid out.

[John Glen]

I am grateful for those questions. I am a little confused, because both hon. Members referred to clause 36, which states, “An appropriate Minister may,” but I thought these amendments were pursuant to clause 37, which states in subsection (1) that

“the appropriate Minister who made the regulations must issue guidance”.

I acknowledge that these amendments are about guidance. We have just agreed clause 36, which states, in subsection (1),

“An appropriate Minister may make regulations”.

The two amendments as tabled by the hon. Member for Bishop Auckland are on clause 37, subsection (1) of which states

“the regulations must issue guidance”.

[Alison Thewliss]

We seem to be at cross purposes. The amendment is about the line further to that; subsection (2) states, further to “regulations must issue guidance”, that

“guidance may include guidance about”.

It is about the expansion of what that guidance may be.

[John Glen]

I am very grateful for that clarification. I hope that I will be able to address that in my remarks and give sufficient reassurance about the Government’s plan.

I should make clear from the outset that the Government are in favour of good guidance and we intend to produce it. It is in the Government’s interest to produce thorough guidance, to improve sanctions implementation and to ensure that sanctions can be enforced robustly. It was clearly set out that amendment 27 would require Government to provide guidance on the definition of ownership and control on the face of the Bill.

[John Glen]

I will address those points in my remarks, and I will be happy for the hon. Lady to come back if she is not content at the end.

Amendment 28 would broaden the scope of guidance to areas such as providing best practice on compliance with financial sanctions and establishing effective banking and payment corridors. As I said at the start, the Government are committed to producing clear and accessible guidance on sanctions implementation and enforcement. Clause 37 requires Ministers to issue guidance about any prohibitions and requirements imposed by sanctions regulations. There is already a mandatory requirement to provide comprehensive guidance for all those affected by sanctions and implementation.

The Government have been consulting extensively; across Whitehall, they have been meeting with NGOs and financial institutions that have asked for this guidance. I can reassure the Committee that we will give them what they have asked for. The Government do not believe that further amendments to clause 37 are needed to provide the type of guidance sought on “owned” and “controlled” in amendment 27. Where sanctions regulations contain prohibitions or requirements about entities that are owned and controlled by a designated person, we are already under a duty to issue guidance. I can reassure hon. Members that the Government already provide guidance on ownership and control and will continue doing so.

The additional guidance sought in amendment 28 would greatly extend the scope of the guidance to specific areas such as mechanisms to limit the impact of prohibitions and requirements on civilian and humanitarian activity, and establishing effective banking and payment corridors. Although I can understand the concerns of NGOs that lie behind this amendment, some of them clearly are beyond the remit of the Government to provide. For example, the Government do not have the powers to require banks to make payments on behalf of particular customer or to open new payment channels. Although I appreciate the spirit of the amendments, the Bill already caters for them in so far as it addresses matters within the Government’s control. Adding extra text to the Bill will only create confusion.

[Alison Thewliss]

Does the Minister not agree that it is in the public interest for the Government to support payment channels being created? If, for example, there is a Disasters Emergency Committee emergency appeal and the NGOs gather lots of funds, but those funds cannot reach the beneficiaries because there is no appropriate payment channel that gives everybody reassurance, surely it is in the Government’s interest to make that happen.

[John Glen]

I acknowledge what the hon. Lady says, but this is a non-exhaustive list. We intend to issue guidance on those issues listed in the Bill and more, as new issues evolve. We may also not need guidance in some areas that the sanctions do not cover. Where we are at cross purposes here is that people think the list is exhaustive when it is enabling and allows the Government to give the necessary guidance as required and as circumstances evolve.

We understand the concerns behind the amendments and have worked closely with NGOs to understand their needs, and we will continue to do so.

--- Later in debate ---

[Helen Goodman]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 37 ordered to stand part of the Bill.

Clause 38 ordered to stand part of the Bill.

Clause 39

Revocation and amendment of regulations under section 1

Amendment made: 6, in clause 39, page 30, line 24, leave out “(d)” and insert “(h)”—(Sir Alan Duncan.)

The provision amended here is a condition which applies to the power to amend regulations made under Clause 1 which state a purpose within Clause 1(2). The amendment expands the reference to Clause 1(2) so that it covers paragraphs (e) to (h) of Clause 1(2) (as well as paragraphs (a) to (d)).

Clause 39, as amended, ordered to stand part of the Bill.

Clause 40 ordered to stand part of the Bill.

Clause 41

Power to amend Part 1 so as to authorise additional sanctions

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

[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

--- Later in debate ---

[Anneliese Dodds]

I am grateful to the hon. Lady for raising that issue. It is particularly important that highly respected international bodies are above any insinuation or reproach. It may be that there has been confusion and a lack of knowledge about the provenance of some of those funds, but we need to remove from the system any opacity that could give that impression.

Operation Car Wash, which came up only last month—it is funny that all of these cases use the washing metaphor, but it is clearly because they are about washing out the provenance of money—covered Brazil and Peru. A giant construction firm in those countries paid £1 billion in bribes for, it appears, political purposes, and it appears that some of the payments went through SLPs. When we look at the evidence, we see we need to have a far stronger grip on this problem.

In early summer last year, legislation was introduced by the Department for Business, Energy and Industrial Strategy to try to regulate SLPs, under which they were to be forced to disclose their beneficial owners within the next 28 days or face daily fines. I am concerned that we still do not know how many such firms have genuinely indicated their beneficial owners—I hope we will hear from the Minister on that now. I am not privy to information on how many fines have been levied, and most commentators suggest that not a single business has been prosecuted. Perhaps some have been fined but not prosecuted. Perhaps we can find out more about that.

The Opposition are concerned that more action needs to be taken. To return to our earlier exchange, it is important that the UK Government take responsibility, because they have reserved powers over Scots corporate law. The Scottish Government have asked the UK Government to act, and it appears that previous actions to require more ownership information may not have gone far enough. I hope the Minister will enlighten us on that and support our amendment.

[Alison Thewliss]

The hon. Lady has already said much of what I was going to say, so I am sure that, if that I am a bit briefer, that will be okay with everyone. We have serious concern about SLPs, and the Bill provides an opportunity to do something about it. When we know there is a problem and an opportunity to put it right, it would be negligent of us as parliamentarians to look the other way.

I understand that, even in the new regime where people with significant control should be registered, up to December 127 or so SLPs had registered via law firms, but 489 had registered via anonymous mailbox addresses, which means that the people with significant control are not there, are barely identifiable and are very hard to trace. We know from recurring stories in The Herald worked on hard by David Leask and the researcher and expert in this field, Richard Smith, that such companies keep the issues, scandals and money laundering behind the scenes, and that it keeps going on. We therefore need to do everything we can in every area to tackle these problems.

There is the broader issue of SLP non-compliance and the inadequacies of Companies House, which we may speak about later in our proceedings. Not having a postcode when registering a company should be a pretty simple compliance issue—the process could be stopped at that point, never mind going into the more technical detail. We therefore need to look at this issue carefully. Never mind all the overseas territories; we are allowing it to happen here, in this country, behind mailboxes in Scotland. Frankly, that is unacceptable. We need to do something about it. If we continue to let it go, the problem will not go away.

We can talk about how we might go ahead with this issue in terms of enforcement, because other countries have tackled it. My colleague Roger Mullin and others have worked on it for many years, and we should take the opportunity to look at it here and now. If the Government are not willing to accept any of the amendments, I urge them to table their own and not to let the opportunity pass.

[John Glen]

I am grateful to both Front-Bench spokespeople for their speeches, and I will try to address the detail of the points they raised. The essence of the case made by the hon. Member for Oxford East was about whether the Bill covers SLPs. First, I draw attention to clause 9(5), which confirms that “person” includes individuals, corporate bodies, unincorporated bodies, organisations and

“any association or combination of persons.”

The Bill therefore does include SLPs, and we can make anti-money laundering provisions for them.