Economic Crime: Law Enforcement

Andy Slaughter Excerpts

Thursday 7th July 2022 Commons Chamber

[Dame Margaret Hodge]

I will keep it tight.

It is shocking but true that it was the tragedy of the war in Ukraine that got our Government to start thinking about the serious threat that the country faces, in both our economy and our society, from the spiralling menace of illicit finance and all that goes with it. I have said many times in the House, and I repeat today, that we will never enjoy sustained, good economic prosperity on the back of dirty money. We earned the reputation on which our superb, successful financial sector was built by being a trusted jurisdiction, and we must maintain that. Today, we are in danger of losing that trust.

The US sees us as a high-risk jurisdiction similar to Cyprus, and Londongrad is becoming a popular term among many. We have moved off our perch as the world’s leaders in fighting economic crime. Moody’s has downgraded us, and we are slipping down the ranks of Transparency International’s corruption perception index. Everything is moving in the wrong direction. That is no surprise because, as the hon. Member said, economic crime is now massive. It costs the country £290 billion annually—more than a quarter of the Government’s total public expenditure—and all of us who are concerned with this area know that that figure is conservative. The latest figures from UK Finance that came out last week suggest that in 2020 there was an 8% increase in fraud, which of course is the biggest component of economic crime.

Much illicit finance, but not all, comes from Russia, through Russian companies and Russian individuals. As various Select Committee reports on the subject show, for too long we have turned a blind eye to the threat that Putin’s kleptocratic regime poses to our economy. Why did we do nothing after the assassination of Alexander Litvinenko in 2006, or after the poisoning of Sergei Skripal in 2018? Those were two brutal attacks on British soil.

We must add to that the findings of a recent report by Buzzfeed News investigations, which established that between 2003 and 2016, there were 14 more suspicious deaths in the UK of individuals who were hostile to the Russian state. I will mention just three of them. Stephen Curtis, the British lawyer who helped the laundering of money—potentially billions of pounds—in the UK for wealthy Russian oligarchs, died in a helicopter crash in 2004. Alexander Perepilichnyy blew the whistle on a multimillion-pound Government fraud in Russia. He flew to Britain, and died of a so-called heart attack when jogging near his home in Surrey in 2012. The coroner’s inquest said that he died of natural causes, but evidence given, I gather, behind closed doors for national security reasons said that there was no natural cause determined. Some suspect that he was poisoned. Boris Berezovsky, who made his wealth during the collapse of the Soviet Union, was famous because he was key in supporting Putin and getting him into power in Russia. In 2013, he was found hanged in his home.

Those are only three of 14 cases, but in all of them the police concluded that the deaths were not suspicious. There was no investigation, or indeed any suggestion that those were Russian state-sanctioned murders, although the US intelligence services told our police that they thought the deaths were likely sanctioned by the Kremlin. Were the police just incompetent? I doubt it. Was there pressure from somewhere else—from either our security services or our Government—to turn a blind eye to the possibility that those were state-sanctioned murders? American intelligence officials told Buzzfeed journalists that Russian killers had been able to kill in Britain with impunity. They said that one of the reasons for the reticence of enforcement agencies to act was

“a desire to preserve the billions of pounds of Russian money that pour into British banks and properties each year.”

As we debate the failures of our enforcement agencies in tackling illicit wealth, we should bear in mind that the problem goes well beyond the funding, the skills and the effectiveness of the enforcement agency. If we are really to eradicate dirty money, we require action on a wide number of fronts, as the all-party parliamentary group for fair business banking and the all-party parliamentary group on anti-corruption and responsible tax have said. We have put together a good manifesto that could form the start of concerted action to rid us of this terribly bad thing. We talk in the manifesto about action on four fronts. We need smart regulation, much greater transparency, proper accountability and enforcement. We are debating enforcement today.

All those measures are interdependent, and I worry a lot that the Government’s response through the economic crime Bill, which should be with us in the autumn, will be too little and too fragmented. Reform of Companies House, for which we have argued for a long time, is necessary but not sufficient. So are reform of anti-money laundering regulations, and an open register of property owned by foreign countries. We need co-ordinated action on many fronts if we are to clean up dirty Britain.

Today, we are focusing on enforcement. Our performance is abysmal, our record in successfully bringing bad players to account is miserable and our commitment to doing the job properly is questionable. The evidence—the hon. Member already talked about some of it—is overwhelming. The Bribery Act was introduced in 2010, and in the UK we have had 99 criminal convictions and six deferred prosecution agreements. The USA, with a similar legislative framework, has had 236 convictions in the same period. As I understand it—I could not find one, but if I am wrong, I stand to be corrected—we have never pursued a criminal prosecution against a bank for money laundering or sanctions busting. We use civil measures, but never criminal ones. In 2019, we had civil fines of £260 million. In the same year, the Americans pursued criminal action against and secured £2.5 billion from just six banks, and they secured £5 billion in civil fines.

As the hon. Member said—it is worth repeating, because it is so shocking—the Financial Conduct Authority fined HSBC £64 million in 2021 for AML failures, but nearly a decade before, it was fined £1.4 billion in America for AML offences. Standard Chartered is a British bank, so we ought to be the ones who are really responsible for ensuring that it behaves itself. What do we get from it? Fines for wrongdoing under anti-money laundering regulations of £102 million. What do the Americans get? Over 800% more: £842 million. Yet we know from the FinCEN—the Financial Crimes Enforcement Network—files that too many of our banks and too many individuals who work in our banks either passively collude with economic crime, or actively promote and facilitate money launderings. The banks that are implicated are so often the biggest British-based banks: HSBC, Barclays, Standard Chartered.

What we do in Britain is pursue the little businesses, the little men and women who are trying hard to establish new businesses here. That came home to me very much when I chaired the Public Accounts Committee and we had the leaks relating to HSBC—they were called the Falciani leaks. There were more documents relating to British accounts than, I think, for any other nation. There were 3,600 British accounts. At the time, the tax authorities said to us that there was cause for concern with about a third of those. Out of that third—about 1,200—they finally found 150 cases. How many did they pursue? One individual was charged. I could not find, in my search of Google, whether that individual was ever convicted. Look at how other countries dealt with it: every other country managed to charge more people, fine more people and get some compensation. The only thing that happened with us was that Rona Fairhead, now in the House of Lords, was on the board of HSBC at the time and was responsible for the audit committee. I cannot understand how anybody with that responsibility could not have seen a red flag when looking through the accounts from the Swiss branch of HSBC and seeing the profits being secured. The only thing she said was that she declared that the whistleblower was a criminal and that the only thing that HSBC should do was pursue the whistleblower and try to get him imprisoned.

Fraud is the crime that now affects one in 11 adults in the UK, yet convictions for fraud have collapsed by two-thirds in the past three years—cases up and convictions down. The number of criminal cases the Serious Fraud Office, in which we had great confidence, has under investigation has halved over the past three years. There have been some disastrous failures in the courts through the SFO with Serco and Unaoil, where it lost cases simply because it did not share information in a proper way—it failed to disclose relevant material to the defendants. There are lawyers in the Chamber. I am not one, but I cannot believe that it actually did that.

[Andy Slaughter (Hammersmith) (Lab)]

My right hon. Friend is making an excellent analysis of the situation. At the moment, the SFO is itself being investigated by a former Director of Public Prosecutions and being sued by the people it should be investigating. It lacks the money, the personnel and the powers to do its job. It has a £53 million a year budget against hundreds of billions of dirty money. This is a peashooter against an elephant, is it not? This needs reform urgently.

[Dame Margaret Hodge]

I completely agree with those observations, which are so well made.

The National Crime Agency has dropped its prosecutions by 35% in the past five years. The record of Her Majesty’s Revenue and Customs, which we do not often talk about, is equally awful. It sees its purpose entirely as simply getting tax revenues in. That is important, but it also has a duty to ensure that anybody who acts unlawfully in the way that they deal with the revenue authorities—or, more seriously, evade tax—is pursued. Yet it simply does not see that as part of its functions. Compare that to the Department for Work and Pensions, where anybody who has an allegation of fraudulently claiming benefit is pursued with vigour by the authorities in that agency. A similar attitude should be taken to what I consider the serious crime of deliberately avoiding tax and not paying into the common pot for the common good.

There are some egregious cases of schemes dreamt up with no purpose other than to avoid tax. One example was Working Wheels, which hit my desk when I was Chair of the Public Accounts Committee. In that instance, the person who wanted to avoid tax pretended that they were selling second-hand cars. That created money that then whirled through the system to create a debt, which they were able to claim against the tax liability from their legitimate earnings. Chris Moyles was persuaded that he could become a second-hand car dealer. Telling people that you are a second-hand car dealer is fraudulent. It is a fraud. And why that is not pursued with the same vigour as somebody who tries to lie about their circumstances to get a better benefit settlement is beyond belief. One of our recommendations is that HMRC should have an absolute statutory duty to pursue wrongdoing with the same vigour with which it pursues getting money into our coffers.

All the agencies are grossly underfunded. The Government trumpet the £100 million they will get from the economic crime levy, but that is peanuts when set alongside what the banks themselves spend on anti-money laundering and what other countries spend. Under Biden, the Americans have increased their expenditure on enforcement by more than 30%, because they define it as a security issue. What have we done here? We have had a real cut of 4.5%.

We have lots of ideas that would not require a call on taxpayers’ money. We could enable a percentage of the fines collected from successful actions to be used to fund further activity and staffing within the enforcement agency. We could follow the American example and say that costs incurred by the defendant, were we to lose cases, should in no way be met from the public purse. Why should people against whom we allege wrongdoing in relation to Government funding be allowed such a contribution? One thing we will come back to is the sanctioning of individuals. We have frozen the assets of a lot of Russian oligarchs, but we have no mechanism to seize those assets. A move from freezing to seizing—we are doing some work next week to look at the practical changes that would have to be brought in to enable that to happen—would release more resources not just for enforcement activity but, in this instance, to help with the reconstruction of Ukraine after the war.

Staffing must grow. For example, there are only 118 employees to deal with more than half a million suspicious activity reports a year that the agencies receive. By my arithmetic, that is 4,250 reports per official. In Germany, there are 500 reports per official. In Australia, there are 1,400 reports per official. They are all better staffed than we are here. This is so much an invest-to-save activity. It is a nonsense that the Government do not distribute their resources in a way that enables that to happen.

There is also the chaos of our existing regulatory infrastructure, which is fragmented. As the hon. Member for Thirsk and Malton said, lots of stuff falls through the holes. A lot of whistleblowers and people come to me with cases, and I refer a case to one agency, which tells me to refer it to another, and it then disappears and I never hear about it again.

We must take on board the failure of the professionals to self-regulate. There are too many bodies; 13 bodies supervise the accountancy sector. The hon. Member and I met representatives of one of those the other day. I think that they have suspended seven people in the past year. That is a nonsensical figure in relation to the activity that is taking place—the collusion and facilitation of wrongdoing—so we have to sort out the regulation of the enablers and the regulator. There is an overarching regulator, which regulates all the regulators. That should be sorted out and personal responsibility must be taken.

I will make two other points. The most egregious case that I have come across—this is a comment on all our regulatory systems and our failure to enforce—relates to Lebanon, where there was a tragic explosion in a warehouse that had fertiliser, which was supposed to go to Mozambique. That resulted in hundreds of deaths, thousands of injuries and massive damage to property. A few weeks after that occurred, I got a phone call from a Reuters journalist with whom I regularly work. He told me that the company that owned the fertiliser was British-registered. I gave my usual comment about “hopeless, lax regulation” and did not think twice about it. About three weeks after that, I got a number of phone calls from people in Lebanon, the Lebanese Bar Association and others. It emerged that the company had been set up here as a UK-based company by a woman in Cyprus who was in fact the company service provider. She put herself down as the beneficial owner, but she obviously was not. She told HMRC that it was a dormant company, but it obviously was not because it was dealing in fertiliser. It then emerged that the real owners were Russian-Syrians and that the fertiliser was going nowhere near Mozambique, but to Assad to be used in barrel bombs to kill his people. That is a shocking story, but it demonstrates how our regulatory infrastructure and the failure of our enforcement agencies damages the lives of people not just here at home but abroad.

I have a final story, which, again, causes me great concern. After the Kazakhstan tragedy—a demonstration against the kleptocrats who run the regime where Russian soldiers were used to fire at the crowds and people were killed—two British academics came to me with their research, which demonstrated that there were 30 individuals in Kazakhstan who were involved in money laundering and human rights abuses and whom we should sanction. I used the privilege of the House to mention the 30 individuals in an Adjournment debate and then sent the list to the Foreign Office. A few days after that, I got a letter from one of the people I had named, asserting his innocence. Obviously, he wanted me to respond outside the House, so I acknowledged the letter and did nothing more. I then got a second letter with a phone call, asking whether we had received the letter. My assistant said that we had. I then got a letter from the desk at the Foreign Office asking me whether we had received the letter, whether we were responding and what we were going to do about it. I asked the Foreign Office why it was pursuing this and on whose behalf it was working. It said that it thought that it was important to facilitate relations between kleptocrats and British politicians.

That is shocking and leads me to think: are the Government really serious about bearing down on all the economic crime and corruption that week after week, year after year, we talk about in the House? If they are, they must pursue consistently and vigorously every instance of it, and not just the Russian kleptocrats—evil though they are—but kleptocrats elsewhere who are stealing from and killing their people and creating instability in the world.

--- Later in debate ---

[Liam Byrne (Birmingham, Hodge Hill) (Lab)]

I thank the hon. Member for Thirsk and Malton (Kevin Hollinrake) and my right hon. Friend the Member for Barking (Dame Margaret Hodge) for bringing this debate to the House and for all their work in bringing together the superb set of proposals in the economic crime manifesto. It is an important debate for us to have, even on a day like this, for the simple reason that at the heart of every autocracy, every dictatorship and every tyranny is corruption. Those who enable that corruption enable dictatorship, tyranny and autocracy. Our country led the industrial revolution and is a proud hub for the global financial services industry. Just as we once destroyed slave trading around the world, it is imperative that we destroy economic crime around the world in the 21st century. That is why the debate is so important.

I commend the all-party groups for the publication of their economic crime manifesto. I draw the House’s attention to the Foreign Affairs Committee’s contribution to the debate—our report published last week. The conclusion that we reached, which is set out clearly at paragraph 14, is a pretty damning indictment of where we have ended up:

“The Government’s unwillingness to bring forward legislation to stem the flow of dirty money is likely to have contributed to the belief in Russia that the UK is a safe haven for corrupt wealth.”

The ecosystem of wealth managers, lawyers, PR merchants, bankers and estate agents who enabled Putin’s kleptocrats have contributed to the strength of Putin in Russia and therefore to the prosecution of war in Ukraine—that is the conclusion that the Foreign Affairs Committee came to last week.

[Andy Slaughter]

My right hon. Friend is speaking very well on the subject, as he always does. We have heard that the oligarchs use Londongrad as a playground, not just for leisure and lifestyle but for criminal activity, because law enforcement is too weak. What adds insult to injury is that when journalists and private investigators step up to expose what is going on, they are subject to punishment from the institutions of this country—the courts—through SLAPP, or strategic litigation against public participation. The people who are getting away with it are the people who should be in the dock.

[Liam Byrne]

Exactly. My hon. Friend is absolutely right.

I will quickly run through five parts of the economic manifesto that have to be at the core of the next economic crime Bill. One of the virtues of having this debate today, at this moment of great flux in our politics, is that I hope to put on the record the cross-party consensus that now exists about the provisions that need to go into economic crime Bill 2.

Many of us argued for a long time for the first Bill, which was rushed through the House in record time for obvious reasons. Many of the amendments that improved the Bill came from participants in this debate. What we are saying to the Government today, through the good offices of the Minister, is that the Bill did not go far enough—it did not begin to touch the scale of the problem. There is therefore an expectation that when the Government draw together the provisions of economic crime Bill 2, they will look at the economic crime manifesto, the Foreign Affairs Committee’s report and the text of this debate.

--- Later in debate ---

[Sir Robert Neill]

The Law Commission often offers a sensible way forward, and I urge the Government to adopt those recommendations and try to implement them swiftly. This involved considerable work and a great deal of expertise and advice, and I see no reason for us not to move on the “controlling mind” test quite quickly, even if we needed to look a little further at the “duty to prevent” test. Neither of those is unfixable. They offer a sensible way forward in relation to the “controlling mind” test”, and I hope the Government will act.

The other matter I want to raise in respect of larger-scale frauds is the work of the Serious Fraud Office. It certainly involves controversy, and there are some issues to which the SFO needs to respond in relation to the conduct of certain cases. I hope very much that we will see the full publication of Sir David Calvert-Smith’s report on one of those cases. On the other hand, to its credit, with a staff of 250-odd, the SFO has secured for the Consolidated Fund, through payments under deferred prosecution agreements—of which there are now 12—the recovery of some £1.6 billion. If a modest percentage of that were ringfenced, and, rather than going back to the Treasury, were held and reinvested in the budget of the SFO and allied crime-fighting agencies, that would be a massive step forward in providing it with the resources with which to deal with serious international and corporate crime.

In one of the cases that we spoke about recently when the Justice Committee visited the SFO, the disclosure material involved some 1.9 million documents. Dealing with those is a massive task. The SFO could invest in more artificial intelligence for searching documents. There are some legal complexities surrounding that, but it is doable, and is already done in commercial civil litigation. However, it is necessary to invest in it. If some of that money from the deferred prosecution agreements were ringfenced and reinvested, it would be money very well spent.

Having spoken about those large-scale matters, I hope that we will not forget that there is a great deal of “small-scale” fraud—small-scale in the global picture, that is, but very big and important to the victims of fraud. The Justice Committee recently conducted a number of hearings on fraud in the justice system. The message of the evidence we heard from Victim Support was “Do not think that fraud is a victimless crime, which is all too easy to do”. That view was supported by the Association of Police and Crime Commissioners, which reported that some 74% of fraud victims were emotionally impacted by the crime. At the very least, someone will feel that they have been made an idiot of; more often, they will have lost what may be a small sum of money for a bank, but is a lot of money to them. They will feel vulnerable thereafter, almost betrayed. So this is not a victimless crime, and we should never allow it to be thought to be so. This is coming from the people who have been talked to because they have reported the offence of fraud. There are estimated to be 3.7 million incidents of fraud but according to Her Majesty’s inspectorate of constabulary and fire and rescue services, the majority of them are not reported. We need to do a lot more on that everyday fraud.

[Andy Slaughter]

The hon. Gentleman talks about this subject as well as about the major frauds. I was shocked to find out that in 2020-21 fraud accounted for 39% of all crime and that the average investment fraud deprived the victim of £14,000, which is a significant sum of money to an individual. Is it part of the problem that we are not taking this seriously enough? If we were, we would no longer be relying on Action Fraud, which I thought the Government had agreed to wind up and replace with something effective.