Sanctions and Anti-Money Laundering Bill [ Lords ] (Sixth sitting) Debate
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Anneliese Dodds
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Sanctions and Anti-Money Laundering Bill [ Lords ] (Sixth sitting)
Anneliese Dodds Excerpts(6 years, 8 months ago)
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Alex Norris
I thank my hon. Friend for that useful intervention. I absolutely agree. We should not see the Paradise papers and the Panama papers as the past, and assume that we will not see anything about this issue again. We are likely to see such things periodically on different programmes and in different newspapers. Every time that happens, people will ask, “What did you do about it? When you heard about it last time, how did you act?” If we say, “Well, we have this brilliant law, which we consider world-leading, but we stopped short of doing this,” people will wonder why we did that, and that will damage our brand.
This is not just about the British overseas territories—people will say, “Hang on a minute. They are British. What are you doing in your engagement with them?”—but about the Crown dependencies. The Crown will, dare I say, be a very important part of brand Britain, and people will draw a very straight line. Even if we feel that we should not be able to act in this area, people will expect that we can, so we ought to have a pretty clear picture on it. What is being asked for in the two new clauses is proportionate and sensible, and hopefully something that we can all support.
Anneliese Dodds (Oxford East) (Lab/Co-op)
I do not want to speak for very long, or repeat what colleagues have said. I very much agree with the comments made by my hon. Friends the Members for Nottingham North and for Bishop Auckland. However, there are a couple of aspects that I would like to emphasise, and provide the Committee with a bit more information on.
First, it is the friends of the overseas territories and Crown dependencies who are deeply concerned about the lack of action in this area. I have had many meetings with representatives from both groups of jurisdictions over the years, both as an MP and as a Member of the European Parliament before that, when I sat on tax committees and the Panama papers committees in the European Parliament. I have had many discussions on these topics. I acknowledge that there is currently some resistance, but there is also an awareness of the reputational damage that is being done to their jurisdictions, as my hon. Friend the Member for Nottingham North mentioned.
There is also concern about having the resource necessary to implement more transparency. I strongly agree with what the hon. Member for Ochil and South Perthshire said in that regard. That is why our new clause calls for support for the overseas territories to implement the changes. We do not want to end up in a situation similar to what happened in the Turks and Caicos Islands, where there were repeated warnings that there were problems but nothing was done until it got to such a height that there had to be what some would say was a very draconian response. We do not want to get to that situation; we want to see change. I will go on to explain what happened in the Turks and Caicos Islands in a moment, because colleagues need to know about that. We have not yet talked about the instances where Britain has exercised its relationships and the levers it possesses.
It is also important that we acknowledge that for many of the overseas territories and Crown dependencies there has been positive legislative change, particularly around 2013 and 2014. However, that has died off a bit recently. One thing that worried me was the fact that the British Virgin Islands have passed new laws against whistleblowers. That has caused a lot of concern, and appears to suggest a shift in the wrong direction. The US State Department, for example, has commented on the fact that low numbers of prosecutions are coming from some of the jurisdictions. Frankly, it is a bit of an embarrassment that the US State Department has commented on that, and we have not seen the necessary action.
It is also a major concern for our country. Others have commented on this, but we have not yet quoted from the National Crime Agency’s “National Strategic Assessment of Serious and Organised Crime 2016”. That report spelled out the problem with having our open register of beneficial ownership without having commensurate obligations in our associated jurisdictions—not to mention the register’s own problems, which we will come on to. The report said:
“When legislation to report beneficial ownership begins to be fully enforced…the UK will be less vulnerable to shell companies formed by professional enablers and others within the UK for the purposes of enabling bribery, corruption and money laundering. The UK will remain at risk from company formation in overseas jurisdictions where similar legislation is not in place.”
It is a direct concern for Britain that we have this leaky fence, to stretch again the metaphor of my hon. Friend the Member for Nottingham North.
It is particularly worrying that the British Government’s position seems to have shifted backwards. Other colleagues have mentioned that, and I wanted to draw attention to the precise language that is now being used by the Government. David Cameron gave us a commitment to beneficial ownership registers—not to public ones. We wanted him to go further, but he committed to getting registers that could at least be used by law enforcement agencies.
As of the debate on the Bill in the other place, we have a new formulation of words, talking instead about either registers, or similarly effective mechanisms to beneficial ownership registers. It would be helpful to hear from the Minister exactly how they are similarly effective. I asked a parliamentary question about this issue and I was told that, for example, electronic search platforms are a technical solution designed to achieve precisely the same result. Well, they do not achieve the same result if it takes longer for law enforcement agencies to get the information they need to root out crooks and prosecute them.
The Minister for Europe and the Americas (Sir Alan Duncan)
Unfortunately for the hon. Lady, she seems unaware that I was the Minister responsible for Turks and Caicos, as a Minister in the Department for International Development at the time. The reasons she cited for our intervention are completely inaccurate. There was a growing financial deficit of £30 million, forecast to be £60 million and then £90 million—it would have been half a billion pounds within a very short time. On that basis, we stepped in and parachuted in a chief financial officer to get the public finances back into shape. It was a great success and is a good example of us intervening in a perfectly proper way in co-operation with the Governor and the Government there.
Anneliese Dodds
I am grateful to the Minister for those comments; I might agree with the second half of them. I wonder whether his remembering of the time is the same as that of the relevant FCO Minister. I am terribly sorry; I do not know who the individuals were, but I was not in the House at the time. He or she commented:
“These are some of the worst allegations that I have ever seen about sitting politicians”
and
“when things go badly wrong…we need to act”.
I suspect that they were not talking simply about a budget deficit at that stage; they may have been talking about other matters.
Sir Alan Duncan
The hon. Lady is conflating two separate issues. There was a parallel legal issue over the plight and fleeing of Mr Misick, but that was not the basis on which we intervened.
Anneliese Dodds
Whether the intervention was due to alleged corruption in the activities of the former leader or budgetary matters, the arguments point in the same direction. When the British Government saw there was a problem, they decided it was appropriate to take action. We are lucky to have the Minister here. We are grateful to hear of his experience, and I hope he will inform us of how, in that regard, we can use that experience, in a consensual, respectful manner, to deal with our associated territories in relation to ownership registers.
Sir Alan Duncan
This has been a lively and interesting debate on an issue that we all agree is of importance. It boils down to how we think it appropriate for the Government to act. I am grateful to hon. Members for tabling new clauses, and I appreciate the desire for the overseas territories and Crown dependencies to adopt public registers. However, we should acknowledge the significant steps already taken by those jurisdictions in this area and continue to build on that progress.
While we continue to push for public registers to become the global standard, we should recognise that the arrangements that the territories and dependencies have concluded with the UK exceed the international standards set by the Financial Action Task Force, which do not require private registers, let alone public registers. Nevertheless, should public registers become the global standard, we would expect the overseas territories and Crown dependencies to meet that standard.
As the Committee knows, the overseas territories and Crown dependencies are separate jurisdictions with their own democratically elected Governments. We have therefore legislated for them without their consent only in exceptional circumstances—for example, to decriminalise homosexuality in certain territories, to ensure they were compliant with international human rights obligations. By contrast, financial services are an area of domestic responsibility for territory and dependency Governments.
Legislating for those jurisdictions without their consent effectively disenfranchises their elected representatives and risks harming our overall relationship with them. It also risks leading to a flight of business to other, less regulated jurisdictions, with the undesirable consequence that our law enforcement authorities would not have the same level of access to beneficial ownership information as under the existing bilateral arrangements. Imposing public registers of company beneficial ownership on the overseas territories would carry with it the risk that the territories would be less willing to work with us on this important issue.
[Dame Cheryl Gillan in the Chair]
I would like to draw parallels with the devolved Administrations and the Sewel convention. The hon. Member for Glasgow Central addressed the point on Second Reading:
“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.”—[Official Report, 20 February 2018; Vol. 636, c. 92.]
I agree with her that that is the right approach.
The overseas territories and Crown dependencies have already made significant progress on beneficial ownership. Since we concluded our exchanges of notes with them in 2016, they have passed new primary legislation and delivered technological improvements to comply with the terms of the arrangements. They have committed to provide UK law enforcement authorities with automatic access to beneficial ownership information within 24 hours of a request being made, or within one hour in urgent cases. Those arrangements strengthen our law enforcement authorities’ ability to investigate serious organised crime, including money laundering and tax evasion.
The hon. Member for Oxford East asked about what are termed similarly effective systems. Some jurisdictions have opted under the bilateral arrangements concluded with the UK to establish an electronic search platform, allowing them to gain access to beneficial ownership information held by their authorities or by corporate service providers.
The exchanges of notes permit such similarly effective arrangements, provided that the following criteria are met. Law enforcement authorities can obtain beneficial ownership information without restrictions, and that information is available for use in both civil and criminal proceedings. Law enforcement authorities can also quickly identify all corporate and legal entities connected to a beneficial owner, without needing to submit multiple and repeated requests. Corporate and legal entities, or those to whom the beneficial ownership information relates, are not to be alerted to the fact that a request has been made or that an investigation is under way. We will monitor that arrangement to ensure that it does indeed provide the same results.
I hope that hon. Members agree that the overseas territories, in some cases in the most challenging circumstances, and the Crown dependencies have made significant efforts to move forward on this agenda. The effective implementation of the exchanges of notes will put them ahead of many G20 countries and many individual states of the USA, and demonstrates what can be achieved through working co-operatively.
Sir Alan Duncan
The hon. Lady is not being unreasonable; there are some arguments where some people say compel, and others say urge and consult. My argument would be that we are consulting—we do it all the time. We have a regular dialogue, and in that, we are urging them in the right direction. Anything that smacks of us in any way telling them what to do is counterproductive, because rather than imposing new requirements on these jurisdictions, it is better to continue to focus our efforts on the consolidation of the existing arrangements.
The exchange of notes provides for the operation of these arrangements to be reviewed six months after they come into force. We are working very closely with the territories and dependencies on this review, and plan to conclude it by the end of March. That is a very good example of the sort of consultation we are engaging in on a regular basis.
Anneliese Dodds
When those letters are exchanged, will they include the logistics of this operation? I am trying to get my head round how we can genuinely say that contacting potentially myriad trust and company service providers and getting information from them is equivalent to having access to a register. How are the Government truly going to assess that in this exchange of letters? Will it be a question of time? We could be talking about hundreds of TCSPs.
Sir Alan Duncan
I am not directly involved in this, but as I have said frequently, I am very happy to offer the expertise of officials to the hon. Lady so that she can fully get to grips with the intricate detail of the question she has asked.
Hon. Members will recall that the Criminal Finances Act 2017 provides for a review of the effectiveness of the bilateral arrangements. That report must be prepared before 1 July 2019, and it will then be published and laid before Parliament. The reviews will provide a clear understanding of how the jurisdictions are meeting their commitments. At that point, we will be in a better position to consider what more might need to be done. I stress once again that we will engage with the overseas territories and dependencies; we do so already and we will continue to do so on a regular basis, with the clear objectives in mind of wanting consistent and constant improvements in the way in which their finances are organised.
A key feature of the Government’s approach has been to maintain a level playing field between all the overseas territories with financial centres and the Crown dependencies. As I have described, we have robust review processes regarding the implementation of these arrangements. If these reviews demonstrate that the full implementation of the exchanges of notes is not taking place in any individual jurisdiction, it would be right for hon. Members to consider this issue further. For the time being, however, we should continue to focus on the full implementation of the existing bilateral arrangements. We are on a good and solid track; therefore, I urge hon. Members to withdraw the new clause.
John Glen
I will come on to explain the history of this and why we are where we are. I am happy for the hon. Gentleman to intervene if he does not feel satisfied at the end of that.
Mindful that the eyes of the world are on us, hon. Members should recognise that this legislation would be a world first. Successful delivery raises significant challenges and it is right that the Government achieve the right balance in an effective regime with robust enforcement that does not have a negative impact on land registration processes across the UK. I acknowledge that some have accused the Government—and we have also been accused this afternoon—of not acting swiftly enough to implement this policy. Let me address those concerns.
We have committed to publishing a draft Bill before the summer to introduce the Bill early in the second Session and for the register to be operational in 2021. Publishing a Bill in draft is the right approach. As I said before, this register will be the first of its kind in the world, and it will affect people’s property rights, including not just new purchasers but existing owners. This is a sensitive and delicate area. Getting it wrong would have significant adverse consequences.
Anneliese Dodds
The Minister is being generous. He has kindly set out for us a three-year timetable, adding on a couple of years before that when Government committed to this. Is he aware of the Private Eye map, which has been in existence for some time? Through civil society and journalistic activity, Land Registry and Companies House data were put together and a map produced. That appears to have been done quite quickly.
John Glen
I am not familiar with that particular map but I would be very happy to examine it. For clarity, and addressing the hon. Lady’s previous point, the register will capture the details of beneficial owners of all non-UK companies—including those in the overseas territories—that own UK property. This will be a world first, so we are moving as fast as possible, while ensuring that the register is as comprehensive as possible.
As the Government set out in last year’s call for evidence, for the register to be effective the sanctions to be applied for non-compliance must be a meaningful deterrent. Enforcement must be energetic. Simple criminal sanctions may not be sufficient in isolation. The draft Bill will include enforcement through land registration law. Where an overseas entity buys property, it will never be able to obtain legal title to that property without having complied with the register’s requirements. Similarly, a restriction on the title register for property owned by an overseas entity will signal to third parties that the overseas entity must comply with the regime before selling the property, creating a long lease or legal charge. Those are significant steps on which it is right to consult.
Hon. Members will recognise that there are separate Land Registries in Scotland and Northern Ireland, as well as the Land Registry for England and Wales. The approaches taken to land registration and overseas entities by each of those Land Registries have been different until now. That too will need be streamlined. Delivery of an holistic outcome that complements all three land registration regimes is an exercise touching multiple teams across Government and the Land Registries. Put simply, it is an exercise that will take time to get right and a further demonstration of why publishing the legislation in draft is the appropriate next step if we are to get it right. Although I appreciate that the motive underlying the new clause supports the policy as a whole and demonstrates a desire for early delivery and implementation, it does not take account of the complexities that I have set out or the challenges of delivery and implementation.
The register will further demonstrate the Government’s commitment to combating money laundering through the property market. Hon. Members will have seen recent press reports—the hon. Member for Bishop Auckland drew our attention to the splash on 3 February—that two unexplained wealth orders have been obtained by the National Crime Agency in connection with two properties worth £22 million.
Those are the first orders obtained under the relevant powers conferred by the Criminal Finances Act 2017, which commenced at the end of January. They were obtained only a few days after it came into effect. As the Minister for Security and Economic Crime has said, the orders are an important addition to the UK’s ability to tackle illicit finance, and it is great to see them already in use.
The Government will continue to take action. BEIS’s response to last year’s call for evidence will be published shortly, and it will set out the Government’s approach to areas of particular complexity. BEIS has already made significant progress in preparing draft legislation; the work with the office of the parliamentary counsel to draft the Bill is under way.
Separately, BEIS is working to quantify the impact of the legislation on the UK. The impact assessment will quantify the register’s potential impact on the property market and investment flows, around which foreign direct investment is very specific, to pick up on the point made by the hon. Member for Bishop Auckland. The register will rightly make the UK more hostile to illicit flows of money, but we must understand the potential impact on legitimate inward investment.
All those issues were considered in last year’s call for evidence. Scrutiny of the draft Bill will further stress-test whether it will be effective. I hope that that process demonstrates the Government’s continued commitment to enact the policy, and our commitment to get it right. For those reasons, I hope that the hon. Lady will withdraw the new clause.
The Chair
With this it will be convenient to discuss new clause 15—Disqualification—
In the event that adequate procedures under subsection (3) of section [Failure to prevent money laundering] are found not to be in place, the Secretary of State must refer to the court a disqualification order under section 8 of the Company Directors Disqualification Act 1986 (disqualification of director on finding of unfitness).”.
This new clause would require the Minister to ask the courts to investigate whether directors of a company are fit and proper, if it was found that proper procedures against money laundering were not in place.
Anneliese Dodds
I beg to move, That the clause be read a Second time.
It is a pleasure to serve under your chairmanship, Dame Cheryl, and in rather warmer circumstances than the last time. New clause 9 seeks to create an offence if a relevant body failed to put in place adequate procedures to prevent a person associated with it from carrying out a money laundering facilitation offence. New clause 15 creates a process for disqualification for those at the top level who have failed to prevent money laundering.
I will deal with each new clause in turn and then speak briefly about the overall regulatory context, which creates a necessity for these new approaches. First, on new clause 9 and the failure to prevent the facilitation of money laundering, there are many problems with the existing system. The FCA has found weaknesses in governance and long-standing and significant under-investment in resourcing for control systems, even in the sector that is actually regulated for money laundering. I will talk about some of the problems there later on.
Many of those who investigate in this area find that rules are intermittently enforced, penalties are low and senior executives face few personal, financial or reputational consequences. It is constructive to compare some of the penalties that have been levied in the UK with those levied in the US. As I understand, the largest fine levied in the UK for anti-money laundering or sanctions offences—the Minister may contradict me if I am wrong—was levied against Coutts & Co for £8.75 million. That is six hundred times less than the penalty that was levied by the United States on BNP Paribas for sanctions-related offences.
Anneliese Dodds
It would be helpful to know under which pieces of legislation those fines were levied, because I am uncertain whether they were directly under money laundering legislation. I will come back to that, particularly in relation to some of the outcomes of some parliamentary questions that I have asked to try to dig into this and find out what prosecutions have been enabled by existing legislation.
I am grateful for the information that the Economic Secretary has provided; however, there is still a lot of concern about banks’ and others’ ability to root out money laundering and the facilitating of money laundering. The FCA found—admittedly, in 2014—that there was
“significant and widespread weaknesses in most banks’ anti-money laundering systems and controls”.
That is revealed in the case of HSBC. Many members of the Committee will know that it was involved in a money laundering scandal that led to the US fining it £1.2 billion. There was a large investigation into that matter in the United States Senate, where it was said that our UK-based bank had been a conduit for
“drug kingpins and rogue nations”,
including Mexican drug cartels and North Korea. In fact, that case has been referred to already in this Committee.
Particularly worryingly, a congressional report found that George Osborne and the Financial Services Authority—now the FCA—corresponded on numerous occasions with their US counterparts about the case; in fact, they urged a less aggressive judicial approach on the US side. Apparently, the congressional report said that the UK interventions played a significant role in ultimately persuading the US Department of Justice not to prosecute HSBC. I find it quite concerning that the UK actually argued against measures being taken by other countries to try to deal with this problem.
We were hoping to have some change; the Serious Fraud Office has called for the broadening of existing economic offences to cover a kind of umbrella approach, also to cover failure to prevent. It thinks that that would be helpful to hold large companies to account criminally across the board. At the moment, we have the ability to prosecute the failure to prevent bribery and corruption, but those activities are rarely committed in isolation from instances of money laundering by corporate entities. Therefore, it seems to make sense to try to extend corporate liability to money laundering. That would push in the same direction as existing pieces of legislation. Of course, the Bribery Act 2010 created a new offence of corporate failure to prevent. I believe that Act was put in place because of the same kind of repeated criticism of the UK regime that we have seen in relation to money laundering. We also now have the offence of failure to prevent criminal tax evasion in the Criminal Finances Act 2017. Surely there is now a strong case for an explicit reference to failure to prevent money laundering.
Many of us thought that we were not going to have to push for a separate offence of money laundering because we were to have an umbrella approach. In May 2016, the Government committed to consult on a broad offence of failure to prevent economic crime, which would cover fraud, false accounting and money laundering. In January 2017, the Government downgraded that commitment and instead published a call for evidence on whether there was a case for economic crime corporate liability law reform.
As I understand it, the call for evidence closed in March 2017. I have not yet seen the results of that call for evidence. It would be helpful for the Minister to let us know the outcome of that call for evidence, the main findings and how the Government have decided to act on them. Will they introduce the umbrella offence or create a discrete offence, as we are asking for? Because we think we need action now. That is new clause 19.
Anneliese Dodds
I beg your pardon. I am getting over-excited and trying to hurtle towards the end of the programme. I am sorry, Dame Cheryl.
Anneliese Dodds
No; we are very keen to have a thorough discussion on every one of our new clauses.
New clause 15 focuses on disqualification. The purpose is to ensure that directors specifically take responsibility for their organisation’s mistakes, and to ensure that the Secretary of State may hold them to account for a failure to prevent money laundering, in the instance where procedures have not been put correctly in place.
Many colleagues might have served as directors and will know the rules on being a director—that directors can already be disqualified if they display unfit conduct. Unfit conduct is defined as including allowing a company to continue trading when it cannot pay its debts, not keeping proper company accounts and so on.
With the new clause, we wish to extend that to include a commitment for every director to ensure that they are not ignoring money laundering concerns. We want to mirror what happens under competition law in Britain, where a director’s role is looked at in the event of a breach of the law. That is necessary because of the situation we find ourselves in today.
I am sure many colleagues will have talked to professionals on the frontline of anti-money laundering. I have talked to quite a lot of people who work in banks and other organisations who have anti-money laundering responsibilities. I am sure there are people who work in accounting and other walks of life for whom this is a concern. Very often the clear message I get, as I am sure colleagues do, is that those individuals are working very hard to prevent money laundering but they are not supported by the leadership team within their firm. Global Witness has stated that,
“responsibility for compliance with anti-money laundering and other regulations is usually allocated to compliance teams, rather than to senior executives, who actually wield power within banks over what customers they take. This is a serious problem because it gives compliance staff none of the authority but all of the responsibility, breaking the important link between decision making and accountability.”
That is certainly what I find when I talk to individuals who are in that responsible position. They find they are often not supported by senior managements. That has also been discovered in some of the big corporate scandals—I referred to the HSBC case a moment ago. In his written evidence to the UK Parliament, David Bagley, who led on compliance at HSBC during the period of the failings we were just talking about, stated:
“as the Head of Group Compliance, my mandate was … limited to advising, recommending and reporting. My job was not—and I did not have the authority, resources, support or infrastructure—to ensure that all of these global affiliates followed the Group’s compliance standards”.
John Glen
I undertake to address the points raised by the hon. Member for Oxford East. I will come to the point about the directors’ responsibility in my scripted remarks and also to the issue of what provision the fines were imposed under.
On the specific question the hon. Lady asked, the Ministry of Justice’s call for evidence considered a wide range of reforms to the law relating to corporate liability for economic crime. That is against a backdrop of already significant reform in this area in recent years, including the Bribery Act 2010, the Criminal Finances Act 2017 and the introduction of deferred prosecution agreements, which the Government would contend have strengthened the UK’s defences against corporate criminality. The Ministry of Justice is carefully considering the responses received to the call for evidence and is analysing the impacts of the Government’s range of recent reforms in this area. It will respond to its call for evidence in due course. I do not have a specific timetable, but that is the best information I can give the hon. Lady.
New clauses 9 and 15 seek to create a corporate criminal offence of failure to prevent money laundering, with an obligation on the Secretary of State to submit a disqualification order to the court against directors of a company found guilty of such an offence without having adequate anti-money laundering procedures in place. New clause 9 provides that a company or partnership is guilty of a criminal offence where the company’s employee, agent or other service provider commits one of the substantive money laundering offences in part 7 of the Proceeds of Crime Act 2002. The relevant company would have a defence if it could prove that it had adequate procedures in place to prevent its employees or agents from committing such an offence.
The offence is not necessary in view of the extensive reforms to the UK’s anti-money laundering regime that the Government have put in place. The proposed offence is substantively applied to firms that are regulated for anti-money laundering purposes by part 2 of the Money Laundering Regulations 2017. Those require that regulated firms have policies, controls and procedures to mitigate and manage risks of money laundering and terrorist financing. The Government have legislated to require that these policies, controls and procedures are proportionate with regard to the size and nature of the firm’s business and proved by the firm’s senior management. Failure to comply with these requirements is a criminal offence in itself.
The Financial Conduct Authority and other supervisors are additionally able to take action against firms if their measures to counter money laundering are deficient. As was touched on in our exchange earlier, recent regulatory penalties related to firms’ anti-money laundering weaknesses include fines of £163 million for Deutsche Bank in January 2017 and £72 million for Barclays Bank in November 2015. They were a consequence of failures in anti-money laundering measures under the Financial Services and Markets Act 2000.
The new clause also seeks to address challenges that have arisen in apportioning responsibility for corporate failings. Within the financial services sector, that has been addressed through the senior managers regime, which was introduced after the financial crisis. Banks are now required to ensure that a named senior manager has unequivocal responsibility for overseeing the firm’s efforts to counter financial crime. That ensures that firms and individuals can be held to account for failing to put proper systems in place to prevent financial crime. If a relevant firm breaches its anti-money laundering obligations, the FCA can take action against a senior manager if it can prove that they did not take such steps as a person in their position can reasonably have been expected to take to avoid the breach occurring. The enforcement action includes fines and disbarment from undertaking regulated activities. The Government have legislated to extend the senior managers regime to apply across all financial services firms. That will be implemented in due course, and will further the Government’s reform programme. All those requirements are additional to the substantive money laundering offences in the Proceeds of Crime Act, such as entering into arrangements that facilitate the use of criminal property, which apply to any individual or company.
As hon. Members know, the Government have previously introduced two similar offences: the failure to prevent bribery, in 2010, and the failure to prevent the facilitation of UK and foreign tax evasion, in 2017. They are structured in a similar way to the proposed new clause, but they were introduced following clear evidence of gaps in the relevant legal frameworks that were limiting the bringing of effective and dissuasive enforcement proceedings. It is right that the offences that we have already established apply to legal entities, regardless of whether they operate in the regulated sector.
The situation in relation to money laundering is very different. The international standard is set by the Financial Action Task Force, which has been referred to numerous times in the Committee’s discussions. The UK’s money laundering regulations apply to banks, financial institutions, certain professional services firms and other types of entity, and act as gatekeepers to the financial system. As I have said, such firms are already required to have policies and procedures in place to prevent their services from being misused for money laundering.
Subsection (6) of new clause 9 would require all companies, regardless of whether they are incorporated, to have procedures in place to prevent persons connected to them from laundering money. The Government do not believe that that would be appropriate. It would risk making non-regulated firms liable for the actions of their regulated professional advisers. Instead, responsibility for anti-money laundering compliance should rest in the regulated sector, as is currently the case. The new clause would not go beyond the existing regulatory framework in that area, and it would blur where responsibility should lie for anti-money laundering compliance. Therefore, I respectfully ask the hon. Member for Oxford East to withdraw the new clause.
Anneliese Dodds
I am grateful to the Economic Secretary for those helpful explanations and clarifications. Despite his useful response, however, there are a number of areas where I am unclear. First, I appreciate that he has probably anticipated this question, but the Committee may ask why it has taken Government a whole year to assess the responses from their consultation on economic crime. Government frequently work at a far faster pace than that. He said that we will have the analysis of those consultation responses in due course. It would be helpful to know more about why it is taking so long for Government to analyse them.
Secondly, the Economic Secretary spoke about the requirement for all regulated firms to ensure that their policies, controls and procedures are appropriate to prevent money laundering, but there is a question about who assesses that and whose responsibility that is. That takes us back to the issue about there being myriad professional bodies, which all operate subtly different approaches towards regulation in this area. As I said, I appreciate that OPBAS has been created to try to draw them together, but I do not think we heard exactly what the status of that office is—I was trying to concentrate on what the Economic Secretary was saying. I have seen different descriptions of it as a team, an office and an organisation. It would be helpful to have a clearer indication, particularly because those professional bodies are, as I understand it, required to contribute financially to OPBAS, so a number of them are keen to understand what is happening with it. Furthermore, HMRC is not a member of it, as I said before, so the concern about a lack of regulatory co-ordination persists.
Finally, the Economic Secretary referred approvingly to the senior managers regime that has been brought in since the financial crisis, which looks like a positive step initially—of course, the HSBC problems occurred following that. In any case, as I understand it, the actual operation of this new regime and its extension are quite different from, for example, what was recommended by the Parliamentary Commission on Banking Standards. Under this approach, the burden to show that senior managers failed to take appropriate steps will be on the regulator, rather than the senior managers themselves.
That is different from the approach taken in many other areas, including road traffic, health and safety at work, the Bribery Act 2010—which the Minister referred to—terrorist legislation, the Misuse of Drugs Act 1971 and so on. It would be helpful to understand why, with the extension of this regime, the burden of proof has essentially now been placed on the shoulders of the regulator, rather than the shoulders of the managers.
Question put, That the clause be read a Second time.
The Chair
With this it will be convenient to discuss the following:
New clause 11—Due diligence—
“(1) For the purposes of preventing money laundering, when a company is formed, any company formation agent providing formation services must ensure that the identity and business risk profile of all beneficial owners of the company are established in accordance with—
(a) the customer due diligence measures under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (S.I. 2017/692),
(b) regulations made under section 41 of this Act, or
(c) the Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on anti-money laundering measures.
(2) For the purposes of subsection (1), Companies House is to be treated as a ‘company formation agent’.”
This new clause would ensure that when a company is formed in the UK, the relevant formation services must identify the beneficial owners of the company. It will also treat Companies House as a “company formation agent”, ensuring that the data on the public register of beneficial ownership for companies is accurate.
New clause 12—Companies House: due diligence and resources—
“(1) For the purposes of preventing money laundering, the Companies Act 2006 is amended as follows.
(2) In section 1061 (the registrar’s functions) after subsection (1) insert—
‘(1A) Functions directed by the Secretary of State under subsection (1)(b) must include due diligence on a person wishing to register a company.
(1B) In this section “due diligence” has the same meaning as “customer due diligence measures” in regulation 3 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (S.I. 692/2017).’
(3) In section 1063 (Fees payable to the registrar), in subsection (2)(a) after ‘Secretary of State’ insert ‘including the duty of due diligence under section 1061(1A).’”
This new clause would amend the duties of Companies House to ensure that any person wishing to register a company must be checked for due diligence by Companies House, in line with the measures included in the Money Laundering Regulations 2017. It also ensures that the Secretary of State can charge fees for due diligence checks to cover costs incurred by Companies House.
New clause 13—UK bank accounts—
“(1) For the purposes of tackling money laundering, the Companies Act 2006 is amended as follows.
(2) In section 853A (duty to deliver confirmation statements), after subsection (1) insert—
‘(1A) In subsection (1) “information” includes such information as is able to demonstrate that the company has a UK bank account.
(1B) Any company that is unable to provide the information required in subsection (1A) is liable to a fee which may be prescribed by regulations.’”
This new clause would ensure that all companies wishing to be created in the UK must provide evidence of a UK bank account to ensure it has gone through proper money laundering checks by a UK supervising body. If a company is unable to provide proof then they are liable to a fee which will cover the cost of such checks.
Anneliese Dodds
It is a pleasure to present the new clauses to the Committee. As colleagues will know, they all essentially call for an increase in the due diligence and anti-money laundering checks for those who register a company through Companies House.
There is a clear rationale for the new clauses. Around 40% of incorporations in the UK every year are done directly through Companies House, which in many ways offers an easy and helpful service. It is very quick; it is one of the fastest and easiest ways to form a company—it costs only £12 and takes a matter of minutes to complete the necessary paperwork online. That is all very positive, but the negative side comes from the risks that result from an approach where there is insufficient due diligence on the data submitted through that route.
The problem, as I am sure Ministers are well aware—I have asked a number of parliamentary questions to probe this—is that Companies House is exempt from the Money Laundering Regulations 2017 because of its not-for-profit status and the fact that it is not a company service provider. That means that a huge number of companies are created without any checks being made on the person setting up the company or the source of their wealth. We are talking about 251,628 companies last year.
As I said, there are very positive aspects to being able to create companies quickly, but the quality of data that results from that is potentially very poor; my hon. Friend the Member for Bishop Auckland talked of, potentially, 10% of company reports not including the appropriate information. There are some cases that might almost be humorous, but given the the circumstances they are deeply disturbing and indicate how little due diligence is taking place. An investigative journalist, Oliver Bullough, created a company called “Crooked Crook Crook Ltd.” With that name, many of us might think that this would be a company we would want to look into, but no, the confirmation documents were delivered within 36 hours. He details in an article, which colleagues can look up, should they wish, how easy it was to create that company. If he had not reported his activities in an article for a media outlet, his company could have gone on to partake in a myriad of activities, showing just how cheap, easy and disposable company formation through Companies House can be.
There are many concerns about that. We have a new regime in place now through the money laundering regulations, which covers trust and company service providers—TCSPs—as we have already mentioned. We have some amendments further down the agenda looking at some of those, because there is a particular issue around the operations of non-UK TCSPs. It is surely the case that when a company can be created through a TCSP, that TCSP has to follow all money laundering legislation, but when it does not go through a TCSP, and there is no money laundering legislation applying to it, we should be very concerned. Potentially, that money laundering regulation is undermined by having this massive loophole in place.
There are many disturbing findings from the data from Companies House that has been crunched by different investigative journalists and NGOs. We find that 4,000 beneficial owners named in the Companies House register are under the age of two. My daughter is two. She is really good at lots of things, such as climbing on to chairs. I am not sure that she or any of her playmates would be very good at being a person exercising significant control within a company. There are five beneficial owners registered who control more than 6,000 companies. Perhaps each one of those five are exercising all of their responsibilities perfectly in line with legislation and probity, but it must be very difficult for them to do that. We also have the fact that companies from secrecy jurisdictions can then be registered by Companies House through a UK company, or another formation agent, without there being any background or due diligence check.
I realise that some of these cases might sound a little bit silly, but potentially we are talking about some very worrying examples where there has not been that due diligence and there should have been. There was recently a BBC investigation—we have already referred to it within this Committee—into the case where a UK company registered at a Potters Bar address appeared to facilitate very complex financial arrangements involving the former President of Ukraine. At least £1.2 billion has been funnelled through companies registered at the same Potters Bar address, some of them potentially linked to the very complex situation where huge funds from the Eurovision song contest and lots of other activities seem to have somehow ended up in this company through very unclear routes.
It is concerning that we are in this kind of situation. Because of that, we find a number of professionals highlighting this as an area where we need to have reform. Frances Coulson, the head of insolvency and litigation at Moon Beever Solicitors, has been quoted as saying that this money is passing through Britain, through companies created with insufficient due diligence. She said:
“This is going on now and all the time…All the indicators are that it’s getting worse.”
And she said that,
“better due diligence—such as checking identification documents—by company formation agents and the UK corporate register, Companies House, would help combat fraud.”
Even if we do not manage to pass these new clauses at this stage, I hope that we will at least get some clarification on some of the rather unclear aspects of the regulatory regime. First, there is the role of Companies House. We are getting only a bit of an inkling of the role of Companies House through parliamentary questions. One response, given on 12 October 2017, said that the Government’s view is that Companies House
“does not have a front-line role in combatting money laundering”.
In the same month we were told:
“Companies House does not have powers to verify the authenticity of company directors, secretaries and registered office addresses. However, it does carry out a number of checks on all information received; ensuring it is valid, complete, correctly formatted and in compliance with company filing requirements.”
However, when we try to find out what this verification process involves, the picture gets rather complicated. Is any automated verification of beneficial ownership information occurring? I tried to find out in February, and no, there are “no current plans” to undertake that; however, Companies House is, it seems, undertaking activities, including,
“contacting companies where they believe the company has misunderstood the requirements…pursuing companies that have not provided PSC information”—
it seems that there is a huge number it will have to pursue, given the statistics discussed by my hon. Friend the Member for Bishop Auckland. It is also
“following up with companies and PSCs where they have issued notices to their PSC (asking the PSCs to provide them with information)”—
PSCs being “people with significant control”—and
“seeking compliance from companies where there has been a complaint about missing or incorrect PSC information.”
This was where the picture got more confused. [Interruption.]
I may have heard the Minister suggesting that I was rabbiting on. I am terribly sorry, but some of us are concerned about these matters and a number of professionals have contacted us about their concerns, so it is absolutely right that we deal with them in this Committee.
I tried to find out how many reports have been made about money laundering through the “report it” facility that Companies House has set up. The Minister of State, Department for Digital, Culture, Media and Sport, the hon. Member for Stourbridge (Margot James), responded to me on 19 December, stating:
“Eight reports about money laundering have been made through the Companies House report it facility.”
However, I was then told on 20 December that the new “Report It Now” feature had led to Companies House
“receiving between 180-200 contacts a day through this service.”
That seems like quite a big gap. Will the Economic Secretary please indicate how many of those reports are about money laundering? Is it eight, or is it 180 to 200 a day?
I have been very concerned by the Government’s claim, in the same written answer:
“Higher risk company formation activities in the UK will generally be done via Trust or Company Service Providers, who are subject to the Money Laundering Regulations.”
I want to illustrate that with one last example, which I was told about yesterday and is quite concerning. It is the case of an individual who has previously described himself as “The Chicken Thief”. That is his name as a person of significant control within the Companies House database. His real name is thought to be Antonio Righi—a mafia kingpin in Italy. If someone searches for his name on the Companies House website, as an academic did yesterday before informing me about this, they get a link to Business Bank Italy Ltd.
All banks should be regulated through the FCA nowadays. We are supposed to have that proper approach in place. The use of the word “bank” in a company name is restricted. Any would-be bank has needed to obtain a letter or email of non-objection from the FCA before being allowed to operate as a bank. Yet we see this company still apparently registered with Companies House.
That is deeply worrying because the individual concerned has been named as an active member of the Camorra—a very problematic criminal network that operates in Italy, with links in many other countries. The revelations about “The Chicken Thief” are not new, so one would have thought that Business Bank Italy would have been looked into carefully by the Government, but apparently not, and it still appears to be registered on the Companies House website. I hope the Minister can indicate why that is and whether he will look into this matter, if he has not done so already.
Anneliese Dodds
I am grateful to the Economic Secretary for those clarifications. He made several helpful points, but some concerns remain. He mentioned the FATF process, which the Committee has discussed previously, and seemed to suggest that we should not make alterations in this area of anti-money laundering activity because of the ongoing FATF assessment. Of course, that argument could stop action in any other area, because the FATF is looking at anti-money laundering and anti-corruption provisions across the board, so it is not clear that it is completely convincing. Furthermore, I understand that representations have been made to the FATF as part of its review that change is needed in this area, which suggests that the argument is the other way round. The Economic Secretary also suggested that there would be a much higher cost for those that want to incorporate through a TCSP. In practice, as I understand it, the cost may not be substantial—only a couple of pounds more in many cases.
Hannah Bardell
Does the hon. Lady agree that we are letting our citizens down if we do not legislate properly and close these loopholes? I am sure we have all had constituency cases where people have lost money to unscrupulous companies and company owners. We have an opportunity to take action, and we must take it. The Government are letting citizens down if they do not accept the new clauses.
Anneliese Dodds
I am grateful to the hon. Lady for making the point clearly that our proposal has been portrayed as only a burden, when it could help to prevent our constituents from being ripped off by unscrupulous individuals who are able to set themselves up as a company with only minimum requirements for due diligence. As I said, they can be there by day, fly off by night, and leave the unfortunate person who dealt with that company in a very difficult position.
To end my remarks specifically on the Minister’s comments on new clause 13, many of us are worried that, in practice, there are TCSPs that offer UK company formation with a range of optional services, including setting up bank accounts in other jurisdictions such as Latvia, Belize, Switzerland and Cyprus. That would not necessarily be a problem, were it not for the fact that, time and again, we have seen in the cases we have discussed in this Committee that reliance on the third parties—the banks in those other countries—does not lead to a real assurance that money laundering provisions are being followed. The reality is quite the opposite.
In the Russian laundromat scandal, which we have already talked about, of the 440 UK shell companies used in the scheme—in itself, a staggering statistic—392 of them had Baltic bank accounts, with 270 UK firms using Latvian banks and 122 using banks in Estonia. It may be that we are fully confident in every case that anti-money laundering regulations were followed in those countries, but given some of what came out of the Russian laundromat scandal, it could be suggested that that is not the case.
We do need to get at this problem through another route. We need reform of the Companies House system, but we also need the use of another prong, which is requiring a UK bank account.
Question put, That the clause be read a Second time.
Anneliese Dodds
I beg to move, That the clause be read a Second time.
It feels a little like going out of the freezer and into the fire, because it is rather warm on this side of the Committee Room, but I am sure that we will be rewarded somewhere else for our endurance.
Anneliese Dodds
We tabled the new clause because ineffective anti-money laundering supervision has a clear and obvious link with inadequate compliance and with low and poor-quality reporting of suspicious activity to the National Crime Agency. Research by a number of non-governmental organisations, particularly Transparency International, has indicated serious failings in the current framework for supervising money laundering compliance in the UK, especially with respect to trust and company service providers.
Under the Money Laundering Regulations 2017, only TCSPs carrying on business in the UK—that is their formulation in the legislation—have to register with an anti-money laundering supervisor and comply with MLR 2017. That means of course that TCSPs with no UK presence can incorporate UK companies without any oversight from an AML supervisor. They do not have to comply with UK standards for money laundering checks. We have seen a number of clear examples—I will talk about some in a moment—where that has allowed non-UK TCSPs to incorporate UK companies that have subsequently been used in large-scale money laundering schemes. I think many of the concerns raised a moment ago around undercutting existing legislation and the lack of a fair playing field for UK TCSPs come up again in this regard.
In 2012 the International Consortium of Investigative Journalists showed how a number of UK individuals offering company services had moved their base of operations outside our country but continued to form, and act as nominee directors for, UK companies. There are two examples that are particularly important. The first is Jesse Grant Hester, who was originally from the UK and who moved to Cyprus to form Atlas Corporate Services Ltd before moving to Dubai and, finally, Mauritius—he is somebody who has been lucky enough to travel much in life. Those jurisdictions have all been identified as presenting high money laundering risks. Mauritius in particular is very concerning: it scored 5.92 out of 10 on the Basel Institute on Governance money laundering risk index. Ten is the highest level of money laundering risk and zero is the least, so it is well up there. Jesse Grant Hester appeared on numerous occasions as a nominee director for companies embroiled in corruption scandals. In the Moldovan bank theft that we talked about earlier, he signed fake promissory notes using an alias on behalf of a UK firm, Goldbridge Trading Ltd, allowing £444 million to be stolen. Atlas Corporate Services is associated with eight people who, between them, have held directorships of 3,613 UK companies. Again, that is a staggering number of companies to be held by just eight people. As we discussed, that scandal caused enormous problems for the country of Moldova.
Another UK resident who became internationally renowned, although not in a positive way, for his company formation activities is Ian Taylor. That is not the famous social policy academic, who I had the pleasure of working with, but another Ian Taylor. He also moved around a lot: he moved to Vanuatu.
Anneliese Dodds
Oh, there was a Tory MP as well. Goodness—the name is frequently used. He moved to Vanuatu after he was banned from being a corporate director, first in New Zealand in 2011 and then in the UK in 2015, as a result of his companies’ involvement in numerous scandals, including a land banking scam in Somerset. Vanuatu’s self-assessment on money laundering risk found that its TCSP sector was among the most vulnerable to such activity. In 2015 the Asia/Pacific Group on Money Laundering found serious deficiencies in Vanuatu’s AML system. Despite being banned in the UK, Taylor seems to have retained a UK presence. Various investigations have identified the circle of nominee directors that he works with. One of them is a Vanuatu resident who is a director of more than 61 companies. He took over from Taylor as a director of 20 of them on the same date.
Those examples show that physically moving out of the UK does not result in a lack of activity in the UK. Networks of associates make it difficult to stop the formation of UK companies by individuals who have already been disqualified here. Such individuals, who have been shown to have engaged in money laundering activities or have otherwise been disqualified or viewed as not competent in this arena, can function in other countries and create companies. The checking that should go on does not happen, and there is inadequate anti-money laundering supervision. We do not have a means of dealing with that, because we do not have a regulatory system for TCSPs that are not based in countries with appropriate anti-money laundering provisions. That is not currently illegal, which is why we want to change the legal situation.
John Glen
I cannot comment on the specific cases that the hon. Lady mentions, because I have not seen or studied them. I imagine that there is a degree of variability in the effectiveness of regimes, but I am trying to set out the Government’s rationale for what we have in place. I do not suggest that it is perfect, but some of the developments have occurred in response to shortcomings that have been identified.
The individual anti-money laundering supervisors are under a duty to identify and assess international and domestic risks, including the money laundering and terrorism risk, which ensures that the most intensive supervision is applied where the highest risks of money laundering exist. The establishment of OPBAS will assist with the consistent identification of such risks across the TCSP sector. Our national risk assessment makes it clear that the Government are aware of the money laundering risks connected with TCSPs, and further reform in the area should take account of the conclusions of the ongoing FATF review. I assure Opposition Members that the regime is a searching and exacting one. I know from ministerial meetings concerning preparations for it that the evaluation will be exacting. We expect the observations to be meaningful, and we will need to respond carefully to them. However, until we receive the outcome of that review of the UK’s anti-money laundering regime and of the experience of OPBAS as its role develops, it would not be appropriate to adopt the amendment.
Hon. Members should be mindful of the fact that anti-money laundering supervision around the world follows a territorial model. Simply requiring non-UK TCSPs to have a UK supervisor when they set up UK companies will not address the challenges of extra-territorial supervision. Effective anti-money laundering supervision depends on measures that include supervisory on-site visits and close engagement with higher-risk firms. Requiring a UK supervisor to do that in relation to a non-UK firm will not, in and of itself, address the issue that hon. Members have identified.
As was noted in the other place, the most effective means of combating international money laundering is cross-border co-operation to drive up the standards of overseas supervision and enforcement. For those reasons, we have imposed a duty on each UK anti-money laundering supervisor to take such steps as they consider appropriate to co-operate with overseas authorities. That is the agenda we pursue through the global FATF process. I therefore respectfully ask the hon. Lady to withdraw the new clause.
Anneliese Dodds
I am grateful to the Minister for those remarks and clarifications. They have been genuinely helpful, but I regret that some areas are still rather unclear to me; perhaps they are not to other Committee members. He stated that the highest-risk TCSPs are assessed to be UK ones, but it has not been spelled out why. Perhaps he could write to me about that.
Anneliese Dodds
I am grateful to the Minister for offering to look into that. We must always be wary of talking about a general pattern of activity as necessarily reflecting the risk profile of that overall activity. Among those TCPS, there could be overseas ones that are not appropriately regulated and that also offer a wide range of services, in the same way as some UK TCSPs do.
I am also a bit confused about the professional regulators. As the Minister said, there are about 22 of them, and then on top of that we stick Her Majesty’s Revenue and Customs, the Financial Conduct Authority and so on. As I understand it, the professional regulators do not have members based in other countries; they cover only UK residents. We are talking about, for example, the Law Society of Scotland and the Law Society of England and Wales—professional bodies dealing with UK individuals. We are not talking about professional associations covering professionals in other countries.
The Minister seemed to talk about a process of liaison between these organisations and their counterparts in other countries. I am sure we all want to encourage that, because it sounds like a very good idea. Information sharing is wonderful, but information sharing is not the same as having an appropriate process of regulation to ensure that there is compliance with anti-money laundering requirements.
The Minister said that the approach was an extraterritorial one, because it affects bodies in other countries. That is absolutely right, but those bodies then interact with our company formation procedure. That is the reason why we, as a country, have a stake in this process—a rather large one, given the reputational damage that seems to be being caused by the activities of some unregulated or inappropriately regulated TCSPs. I will be pressing the new clause to a vote.
Question put, That the clause be read a Second time.
Anneliese Dodds
I beg to move, That the clause be read a Second time.
The new clause looks to ensure that standards published by the Financial Action Task Force in relation to combating money laundering, terrorist financing and other threats to the integrity of the financial system can be easily implemented in this country. We are also seeking to identify or revoke a designation of a high-risk country, taking account of best international practice, including EU sanctions regimes.
We have talked a bit about the FATF in the Committee. As colleagues will know, its objectives are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. It is a policy-making body that works to generate political will to bring about national legislative and regulatory reforms. We have talked about its reporting cycle already and the fact that the UK is currently being investigated in order for the FATF to report on us later in the year.
John Glen
I just want to clarify that, while I would not profess to be an expert on Pakistan’s compliance with the FATF, the concerns raised about its recent greylisting were around the specific handling of various banned terrorist organisations. I would not wish to cast any wider doubt over its intentions to improve the provision of services.
Anneliese Dodds
I thank the Minister for that helpful clarification. It is helpful to know the exact locus of FATF activity or the concerns about Pakistan that were focused on terrorist financing. That is not the area we are focused on now, but such financing and money laundering often go hand in hand.
Given the potential effects of such a ruling—we have talked about that in relation to Pakistan—we think it necessary that Ministers should have the flexibility to ensure that FATF standards can be implemented as soon as possible in our country in order to be on top of new international standards. That is particularly important because the UK was a founding member of the FATF, so we need to show that we are at the cutting edge of implementing its requirements.
As I mentioned, we also need to be able to identify or revoke high-risk countries quickly, taking account of the FATF’s standards and given the effect that it can have on the countries themselves and also on our reputation. If we are viewed as not following FATF recommendations, that prevents the co-ordinated approach that the FATF was set up to promote in the first place.
Finally on this amendment, we hope that Ministers will take account of aligning the designations with our EU partners. We have talked consistently in our deliberations about the need for co-ordination, which of course makes all the mechanisms much more effective. When they are not co-ordinated, there can be loopholes. In that regard, it is important to mention the case of Russia. In 2014, the Arms Export Controls Committees—we talked about their composition when we talked about scrutiny arrangements—reported that more than 200 licences to sell British weapons to Russia, including missile-launching equipment, were still in place, despite David Cameron’s claim that the Government had imposed an absolute arms embargo against Russia in alignment with the rest of the EU. We really need to make sure that that alignment is genuine in practice, not just on the surface and rhetorical.
John Glen
New clause 16 would limit amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 to those that would implement standards published by the Financial Action Task Force, or those whose purpose was identifying or revoking a designation of a high-risk third country. The 2017 regulations transpose the fourth EU anti-money laundering directive, which was in turn derived from the most recent major updates to the FATF standards, which were made in 2012. As the hon. Lady acknowledged, the UK is a founder member of the FATF and is committed to playing a leading role in its continuing work. It is right for the Government to have the power to update the UK regime when such standards change.
There are, however, several areas where the UK’s anti-money laundering regime already goes beyond those standards. Our recently established register of trusts generating tax consequences, for example, goes beyond the standards set by the FATF. Similarly, the UK announced at the time of the 2015 Budget that we intended to regulate virtual currency exchanges for AML purposes—an objective that was accomplished through negotiation of the fifth EU anti-money laundering directive—but that was not required by the FATF. So although we will remain aligned with the FATF standards after the UK ceases to be a member of the EU, our anti-money laundering regime exceeds those standards in certain areas.
The Government are determined to ensure that our defences against misuse of a financial system remain ahead of global standards rather than solely reflecting them. That is reflected in our commitment to the establishment of a public register of the beneficial ownership of non-UK companies that own UK property, which the Committee debated earlier, even if we did not agree on the timeline for it. The new clause would reduce our ability to do so. Under the power in question, the UK’s anti-money laundering regime could not go further in areas where we would otherwise want to.
As I said previously, in debating amendment 7, and as my right hon. Friend the Minister said about new clause 3, we do not believe that a bar on new offences is the right way to address the concerns raised by Lord Judge and others. We have instead tabled amendments to ensure that the power is used only where it is needed, and that Ministers are properly accountable to Parliament for it.
Ensuring that we can make regulations to prevent, or to enable or facilitate the detection or investigation of, money laundering or terrorist financing, as well as to implement the standards of the FATF, is the most certain method of placing future changes to our anti-money laundering system on a sound legal basis. The new clause would limit our ability to do so in the future, and I am sure that is not the intention behind it. I respectfully suggest that the hon. Lady might withdraw it.
Anneliese Dodds
I am grateful to the Minister for his explanation. It may be the fact that we have been in this room for a few hours, but I am struggling a little with, in particular, the suggestion that new clause 16 would somehow tie the UK’s hands in implementing additional requirements beyond the FATF standards.
The Minister referred to the public register of property owned by non-UK entities. We had a discussion about that, but he is right: it would arguably be an innovation in the UK. Of course it is one that we need more than other countries, because of the use of our property market in many such cases, and the exponential rise in house prices. He could have talked—although he did not—about the register of beneficial ownership of companies being an innovation as well, but countries such as the Netherlands and Norway are putting those into practice anyway, so perhaps we are not quite as far-reaching in what we are doing as we might suggest. Particularly in relation to the charges and fines levied against those found guilty of money laundering offences, we seem to be in a different position from that of our North American counterparts, for example, as we have discussed. None the less, it is not clear how the new clause would stop us going further than those other jurisdictions where we wished to do so. It says that we would take account of the
“best international practice including EU sanctions regimes”,
not that we would be led by it.
Helen Goodman
On a point of order, Dame Cheryl, in the light of what the Minister said earlier, I would like to read precisely what was published by The Independent. I misinterpreted it and, consequently, I misled the Committee. I wish to apologise to him and to the Committee for that. This is what The Independent published in 2014:
“According to Electoral Commission records, New Century Media gave the Conservatives £85,000 in the months leading up to the 2010 general election…New Century represents the personal foundation of the Ukrainian billionaire Dmitry Firtash, who has been indicted on bribery and corruption charges, which he denies, in the United States…David Burnside, New Century’s executive chairman, has made…claims about his connections with senior Tories…The company has paid for a table at the last four Conservative summer balls and paid for…the International Development minister”—
who is now the Minister for Europe and the Americas—to be its guest
“at Conservative events at a cost of…£800”.
I am sorry. I misread it and misunderstood it, and consequently I misled the Committee.
Anneliese Dodds
I beg to move, That the clause be read a Second time.
It is good that we can continue proceedings, because there are many matters that we still need to consider, not least this new clause and the others on the selection list. I am grateful for the opportunity to do so.
New clause 17 requires a public consultation on corporate liability for money laundering within six months. We have already discussed what occurred with the Government’s evidence-gathering exercise—as I think they described it—in relation to a broader economic crime offence, and how the results of that exercise have been with the Government since last March. We still have no indication of how that will be dealt with, aside from the Economic Secretary’s helpful remark that it will be dealt with in due course. I know he always tries to be helpful, but I am afraid that that is not good enough for those of us who want to see change in this area.
We are specifically requesting a public consultation to get the process moving and to promote it, not least because of what the Government have committed to—or at least, what past Conservative leaders have committed to. In 2016, at the time of the anti-corruption summit, David Cameron wrote an article for The Guardian in which he claimed:
“In the UK, in addition to prosecuting companies that fail to prevent bribery and tax evasion”—