Oral Answers to Questions

Anneliese Dodds Excerpts

Tuesday 17th April 2018 Commons Chamber

[Mr Hammond]

Thank you for your very carefully tailored piece of demand stimulation, Mr Speaker. It was much appreciated for the economy of the Chamber.

My hon. Friend is right. As I have already said, working with the EU on this interim proposal for a turnover-based tax is, we believe, the right thing to do. We have, of course, also introduced an interim measure of our own, seeking to tax licence fees that are paid to low-tax jurisdictions where we judge that the underlying basis of the licence fee is economic activity taking place in the UK. We have that measure already in place, and we will continue to work with the EU on its proposed measure.

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

Despite promising to tighten up on Scottish Limited Partnerships, not a single non-compliant SLP appears to have been fined, which could have raised up to £2.2 billion. When will SLPs be banned, and what action are the Government taking on other shell companies to stop tax fiddling and money laundering?

[Mr Hammond]

The hon. Lady asks a specific and detailed question about Scottish Limited Partnerships. The legislation is designed to deter the kind of activity to which she refers. The absence of fines should not be taken as an indication of an absence of activity. As she will know, Her Majesty’s Revenue and Customs always seeks, first of all, to deter non-compliant behaviour before it moves into hard compliance. If I may, I will write to her with a more detailed answer on the very specific point about Scottish Limited Partnerships.

Draft Finance Act 2003, Part 3 (Amendment) Order 2018

Anneliese Dodds Excerpts

Monday 26th March 2018 General Committees

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

It is a pleasure to serve with you in the Chair, Mr Davies. It is also a pleasure, as always, to sit across from the Minister, to whom I am grateful for his explanation of the measure.

Before this sitting, I attempted to access the tax information and impact note for this measure—the TIIN system is very good—and the most likely candidate appeared to be that entitled “Finance Act 2003: updates to Part 3”, published on 22 February. However, that refers to the draft statutory instrument being laid before the House of Commons on 5 March. It is not clear whether that is the right one. Perhaps this is more a point for the civil servants than the Minister, but could they not direct those interested to the exact URL for the TIIN concerned in the links of different tax-related SIs rather than to the generic TIIN webpage? Surely that would help all of us who want to look very closely at all the measures we cover in SI Committees and access the relevant information.

The measure at hand is an uncomplicated one, effectively substituting references to the Union customs code for mentions of the previous Community customs code. I do, however, have a couple of brief questions. First, as I understand it, and as the Minister has mentioned, the UCC came into action during spring 2016, so it is unclear why the changes to the Act were not made until now. That seems like a rather large time gap. Perhaps he can enlighten us and reassure us that all civil administrative financial penalties applied between spring 2016 and the current day will not be subject to any challenge as a result.

Secondly, I have found it difficult to access accurate information about how many civil administrative financial penalties have been levied over time. That is surely relevant, given that any effective customs regime needs to include the potential for fines to be levied when behaviour has not been in line with the law. However, the capacity of HMRC to do that currently—let alone in the future—does not appear to have been adequately thought through by the Government, let alone put into place.

The Minister probably recalls that during debate in the Taxation (Cross-border Trade) Bill Committee I indicated the rather extreme challenges facing HMRC—a number of colleagues and industry representatives also did so—especially if in the future it will be required to deliver a new approach to customs, including a potentially unique -in-the-world, highly experimental customs partnership. That would be coming on stream very soon after the implementation of the new customs declaration service system, and all at a time when HMRC’s headcount has been cut substantially compared with 2010.

As I put it in the Bill Committee, the customs function in the UK is arguably already overstretched. The Government have maintained that comparative analysis of its capacity is not possible, but perhaps they have not looked at the World Customs Organisation’s annual reports. The latest one suggests that the UK has about 5,000 customs officers. The Government—in fact, the Minister said this to me in Committee—have committed to providing, potentially, another 5,000, so doubling the number of customs officers. However, even with the existing load of customs declarations to process, each of the customs officers currently in HMRC has to process more than 15,000 customs declarations per annum. That is the number averaged across the workforce, and it is about 10 times as many as every US and Canadian customs officer, 15 times as many as their German counterparts and more than 30 times as many as their Australian counterparts. As I noted in Committee, although there may be issues with comparability, they would have to be enormous if that large gap could be accounted for simply through different reporting conventions.

All this is highly relevant to the statutory instrument, because we need to know that it can feasibly be implemented by an already overstretched HMRC. To finish, I ask the Minister what his assessment is of the ability of HMRC currently to detect activity that ignores, bends or breaks the customs rules and to ensure that that activity is effectively sanctioned through the use of civil administrative penalties.

Draft Scottish Rates of Income Tax (Consequential Amendments) Order 2018

Anneliese Dodds Excerpts

Monday 26th March 2018 General Committees

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

These measures address problems relating to the married couples’ allowance and other issues raised earlier in the year, following the publication of the Scottish Government’s income tax plans for 2018-19. The Financial Secretary has gone through the other areas that needed change, such as gift aid and pensions tax treatment.

Of course, Labour supported the devolution process in Scotland, and that includes decision making over income tax. I therefore do not want to comment extensively on the proposals, beyond putting on the record Scottish Labour’s concerns that the plans do not go far enough to make our tax system more progressive.

The Economy

Anneliese Dodds Excerpts

Thursday 22nd March 2018 Commons Chamber

[Vicky Ford]

I agree with my council leader in so many ways, but the leader of Chelmsford City Council is not responsible for the education budget; that is covered within the Essex County Council area, where more frontline delivery of children’s services is happening every year.

On the issue of tax, it is vital to remember that it is this Government who have made sure that the wealthier pay the largest share of tax, and the top 1% of earners are paying more tax than ever before.

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

Does the hon. Lady not acknowledge, however, that ONS statistics show that the top decile pays less than the bottom decile? I believe she is talking only about income tax, which is very limited, and not the whole burden of tax.

[Vicky Ford]

I refer the hon. Lady back to what my right hon. Friend the Prime Minister said at Prime Minister’s questions yesterday, when she reaffirmed that the top 1% of earners are paying more tax than ever before.

Skills are absolutely vital to our future. I remember that under the last Labour Government over 1 million young people—those under the age of 25—were not in employment, education or training. It was completely shocking, but now youth unemployment is at all-time lows, and that is not by accident. In my constituency, 5,350 young people have started apprenticeships since 2010.

--- Later in debate ---

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

It is real pleasure to close this debate for the Opposition and, it is a pleasure, as always, to follow the words of the hon. Member for Chelmsford (Vicky Ford). Like me, she entered this Parliament from the European Parliament, and while I may not always agree with everything she says, I know that she says it with a great deal of sincerity.

I am sure that we will all remember, back in 2010, when George Osborne, in his first speech as Chancellor to the Conservative party conference, maintained that we are

“all in this together.”

As he put it:

“The public must know that the burden”—

of deficit reduction—

“is being fairly shared.”

But opinion polls show that the public know that the opposite has occurred over the past eight years. The Conservatives have failed to deal with the long-term problems of our economy, at the same time as peoples’ living standards continue to fall. The Government have failed time and again—four times, precisely—to be on track to meet their own deficit elimination targets. The figures presented in the spring statement last week were hailed by the Chancellor as a turning point and, if I may say so, we had the same hubristic performance from the Government Front Bench today.

Closer examination reveals a deeply disturbing picture—a “lean, mean” picture, to use the perhaps rather ill-chosen phrase of the hon. Member for Clacton (Giles Watling). Public sector borrowing is still higher than was forecast a year ago, and debt is over £700 billion higher than when the Conservatives came to power. It is not “talking Britain down” to point out that the UK is headed for lower-than-expected growth by 2020 and 2021, as noted by the OBR. Expectations are not being exceeded, as suggested by the hon. Member for Angus (Kirstene Hair), but dashed.

I note that the Chief Secretary to the Treasury did not mention economic growth once. Perhaps the Exchequer Secretary to the Treasury, the hon. Member for Newark (Robert Jenrick), will come on to that in his final remarks, and I hope so because the Opposition believe, and many economists agree, that a significant reason for the lower-than-expected growth is the UK’s lower-than-expected productivity rates, with productivity increases having been revised down for 2018, 2019, 2021 and 2022. In fact, in 2017, business investment—a core element of improving productivity—was half its average level between 2010 and 2015.

Last year, economic growth in Britain was the slowest in the G7, which is in contrast with the situation when Labour left office. I take up the suggestion of the hon. Member for Chelmsford to remember the situation when Labour left office, because I do not want to forget it. When Labour left office, the economy was growing rapidly, and the second quarter of 2010 saw the fastest growth since 2008. Our economy recovered after the crash under Labour, and we have had eight wasted years that have led to a lower trajectory of growth than under Labour. It is necessary to look at the facts and to discover how this Government have slowed our economy, particularly in international comparisons.

The Opposition are the real optimists. When we look at our economy’s performance and compare it with those of other OECD and G7 nations, we see that we are not fulfilling our potential. That is holding our citizens and our country back. We can do so much better. We do not want to just talk things up, as the hon. Member for Strangford (Jim Shannon) advocates; we want to make them better. That is the difference between our position and that of the Government.

The Government’s economic policies have clearly failed on their own terms, but in addition the pain of deficit reduction—to the extent that deficit reduction has occurred—has not been equally distributed. I return to that conference speech by George Osborne, painful as it may be for the Government. In that speech, he stated that he would impose a permanent tax on banks, and that he would stick with the 50p tax rate for the highest earners. This Conservative Government have done the opposite. Just a few weeks ago, Labour gave the Conservatives the chance to reverse their reduction in the banking levy, to release funds to fill the gaping hole in children’s services, and they refused. In an eloquent and well-informed speech, my hon. Friend the Member for Peterborough (Fiona Onasanya) drew attention to the enormous stress that is being placed on children’s services in Peterborough. She is a very strong advocate for those children in her area.

Overall, this Government will have cut taxes for the best-off and for profitable corporations to the tune of £70 billion over the course of this Parliament. The Government have also failed to tackle illicit financial flows vigorously enough, as the hon. Member for Glasgow Central (Alison Thewliss) said. I can reveal to the House today, as a result of my own work and research, that this Government have lost the eye-watering sum of £2.2 billion by failing to tackle the problem of Scottish limited partnerships. That is a problem that many of us have been raising for many months, but the Government have not got a grip on it, and furthermore, they have not dealt with it through fines. They have lost £2.2 billion.

Everyone, aside from the very best-off, has felt the pinch from this Government’s approach. As many have mentioned, real wages continue to fall. We have had a tiny tick up—the first for very many months—but overall we have had the longest squeeze in wages in this country since Napoleonic times. Indeed, we learned yesterday that, according to the Office for National Statistics, the average worker now brings home about £15 less a week than they did before the financial crisis. Nurses, teachers, police and other public sector workers had their pay frozen until recently. The cost of lifting the cap for the police had to be found from existing funds; and it remains to be seen whether decent pay for nurses will be at the expense of terms and conditions. Teachers and other public sector workers must struggle on as their wages become increasingly out of step with the cost of living.

All that, of course, is before even mentioning the omnishambles of this Government’s approach to Brexit. I have lost count of the number of business people I have spoken to who are incredulous at the Government’s lack of grip on the negotiation process, and their ideological decision to rule out potential membership of a customs union. But it is all right; we learned today from the right hon. Member for Wokingham (John Redwood), to whom I am most grateful, that we can solve all these problems with just “a bit of electronics”. So that is fine. Just a bit of electronics and it will all be fine.

[David Linden]

Sorted.

[Anneliese Dodds]

All sorted.

The worst impacts have been concentrated on the least well-off people. Earlier this month, the Equalities and Human Rights Commission published its report, “The cumulative impact of tax and welfare reforms”. The report showed, on the basis of the commission’s exhaustive research and modelling, that overall, changes to taxes, benefits, tax credits and universal credit announced since 2010 have been regressive, however measured. Those in the bottom two deciles have lost, on average, approximately 10% of their net income, with much smaller losses for those higher up the income distribution.

The hon. Member for Chelmsford is usually very accurate and committed to accuracy, but I regret having to say that perhaps she needs to look again at the latest figures around taxation. Indeed, the Prime Minister was wrong on this. I was in a television studio with the Chief Secretary to the Treasury when I heard what the Prime Minister said, and the Prime Minister was incorrect on this. The most recent ONS statistics show that the best-off people pay 34% of their gross income in tax, and the worst-off 10% pay 42% of their gross income in tax under this Government. That is the reality. Yes, those at the top may pay more income tax, but the overall tax burden is unequal and regressive, and this Government are doing nothing to deal with that.

Moreover, the analysis by the Equality and Human Rights Commission showed that the changes put in place by the Conservative and coalition Governments will have a disproportionately negative impact on several protected groups, including disabled people, certain ethnic minorities and women. Appallingly—I will finish on this—for households with at least one disabled adult and a disabled child the average annual cash losses are just over £6,500—more than 13% of average net income for those families has been lost since 2010. The hon. Member for Hitchin and Harpenden (Bim Afolami), who is no longer in his place, stated that his Government were focused on practically achieving the best outcomes for people. Perhaps he can tell me and other Opposition Members, and indeed his constituents, how that loss represents a good outcome for disabled people. To use the buzzword of the right hon. Member for Witham (Priti Patel), the economy has been reset—it has been reset in the wrong direction.

I note that this Government are also trying to reset their economic language. We did not hear this during the debate, but perhaps we will hear it in the Minister’s closing remarks. We no longer hear from the Government about poverty according to its usual definition, which traditionally, in Britain, has been relative poverty. Now they will talk only about absolute poverty, because they know that when we talk about relative poverty, the usual measure in this country and internationally, we see that we are sliding backwards.

That is the legacy of this Government: tax cuts for the best-off, and reduced incomes for disabled people and those on average and low salaries. Another approach is possible; and it is the approach that Labour has developed. It is one that we have costed, unlike the Government in relation to many of their current items of spending. We need to have a Britain that is growing sustainably at a rate comparable to that of other countries like ours, rather than lagging behind them. We need to have a Britain that halts the scourge of child poverty, which will soar by 1 million children under this Government unless checked. We need a Britain that truly enables the potential of everyone. That is ambition, and we would like the Government to start listening to it.

--- Later in debate ---

[Anneliese Dodds]

Does the Minister acknowledge that under his Government, record levels of in-work poverty are affecting children?

[Robert Jenrick]

I am surprised that the hon. Lady cannot bring herself to welcome what I have just described, even in her own constituency, where jobs and employment are booming—

[Anneliese Dodds]

Answer the question.

[Robert Jenrick]

I will come to the hon. Lady’s point.

It is not just important to us to create a country of working people; it is our mission to create a nation of well-paid people in secure and fulfilling careers. We are doing that by tackling the root causes of our low national productivity as no Government have done before. We are seeing some positive signs. Inflation is falling—it fell from 3% to 2.7% in February—and the OBR has said that it will keep falling, leading to real wage growth.

--- Later in debate ---

[Robert Jenrick]

Well, we have been investing in all parts of the United Kingdom, including the east midlands. We created the midlands engine, which I just mentioned and which is designed to unleash the economic potential of the midlands. In the west midlands, we have seen the huge potential that Andy Street has now given to a city that has been run by the Labour party for too long.

What are we doing to invest in new technology? As my hon. Friend the Member for Chelmsford (Vicky Ford) described, we are investing more in research and development than has been invested since the 1970s, when the statistics were first recorded, so we are probably investing more than has ever been invested in modern times. We have made the R&D tax credits more generous. We are investing in the enterprise investment scheme and the entrepreneurs’ relief that are so important to crowd in investment to the United Kingdom from all over the world. The Chancellor is today at the FinTech summit that the Treasury is hosting, with 600 investors from all over the world coming to the United Kingdom to see some of our most exciting business that are creating 60,000 new jobs in the FinTech sector alone.

What have we done to create a business environment? We have lowered capital gains tax and corporation tax, and committed to lowering it still further. Labour would reverse those changes. Our reductions in corporation tax have actually resulted in more tax revenue for the Treasury and more money for public services. That is prosperity over ideology.

[Anneliese Dodds]

I am sure that the Minister wants to be accurate on these matters. Therefore, perhaps he will slightly correct his suggestion that the increased revenue was due to the reduction in corporation tax. So many commentators—including, I believe, the IFS—have said that the increase in revenue is due to, for example, banks returning to profitability, and it should not be connected with the reduction in rate.

[Robert Jenrick]

In the Treasury we try to deal in facts, rather than in comments, and the effect of reducing corporation tax has been an increase in revenue.

The Chief Secretary and other Conservative Members have said that we must make the case once again for free markets—something we thought we might never have to do again. However, as Margaret Thatcher and, I think, Tony Benn—an unusual pairing—used to say, “There are no final victories in politics, and if you want to continue to win important arguments, you have to keep making them and restating them over and over again.” The case for free markets is threatened as never before by the hard-left, heirloom policies and personalities of Labour Front Benchers. As someone who used to work in the auction business, I can spot an antique a mile away.

The central battle on this conflicting vision of our society is being fought again. That matters for two reasons. First, just as our parents and grandparents paid the price for this ideology last time it was employed in this country, we do not want our children and grandchildren to pay the price for its resurrection today. Last time, it left us a weak country saddled with debt and high taxes, unable and unwilling to embrace new technology or to invest in public services—and working people paid the price.

Secondly, to paraphrase Robert Kennedy, living in a democracy is not merely about the absence of tyranny but the presence of freedom. A free market matters to us and our constituents not just because we have learned that it is the best way to run an economy but because it underpins all our other freedoms. That is why we will continue to defend it as we build an economy and a country that works for everyone.

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

Anneliese Dodds Excerpts

Tuesday 6th March 2018 Public Bill Committees

[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.

--- Later in debate ---

[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.

--- Later in debate ---

[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 that to continue to focus our efforts on the consolidation of the existing arrangements.

The exchange of notes provide 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 the Minister those letters are exchanged, will it 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.

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[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, 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, 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 of 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.

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[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.

[John Glen]

I am very happy to confirm that in fact Deutsche Bank was fined £163 million in January 2017, and Barclays had a fine of £72 million in November 2015. I do not think that comparison is correct.

[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.

[The Chair]

New clause 9.

[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.

[Sir Alan Duncan]

Go ahead.

[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”.

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[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.

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[Anneliese Dodds]

I beg to move, 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 question 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 they will have to pursue, given the statistics discussed by my hon. Friend the Member for Bishop Auckland,

“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.

--- Later in debate ---

[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.

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[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.

--- Later in debate ---

Brought up, and read the First 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.

[The Chair]

May I ask the hon. Lady not to tempt fate?

[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 was 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.

[John Glen]

There was also a Tory MP of that name.

[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.

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[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.

[John Glen]

I would be happy to write to the hon. Lady to spell that out. My understanding is that UK-based TCSPs typically offer a wider range of services and there are vulnerabilities in the additional services, but I will investigate and write to her as quickly as I can.

[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.

--- Later in debate ---

Brought up, and read the First 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.

--- Later in debate ---

[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.

--- Later in debate ---

Brought up, and read the First time.

[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”—

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

Anneliese Dodds Excerpts

Tuesday 6th March 2018 Public Bill Committees

[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.

--- Later in debate ---

[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.

--- Later in debate ---

[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.

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[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.

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[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.

[John Glen]

I am very happy to confirm that in fact Deutsche Bank was fined £163 million in January 2017, and Barclays had a fine of £72 million in November 2015. I do not think that comparison is correct.

[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.

[The Chair]

New clause 9.

[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.

[Sir Alan Duncan]

Go ahead.

[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”.

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[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.

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[Anneliese Dodds]

I beg to move, 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.

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[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.

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[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.

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Brought up, and read the First 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.

[The Chair]

May I ask the hon. Lady not to tempt fate?

[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.

[John Glen]

There was also a Tory MP of that name.

[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.

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[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.

[John Glen]

I would be happy to write to the hon. Lady to spell that out. My understanding is that UK-based TCSPs typically offer a wider range of services and there are vulnerabilities in the additional services, but I will investigate and write to her as quickly as I can.

[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.

--- Later in debate ---

Brought up, and read the First 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.

--- Later in debate ---

[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.

--- Later in debate ---

Brought up, and read the First time.

[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”—

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

Anneliese Dodds Excerpts

Thursday 1st March 2018 Public Bill Committees

[The Economic Secretary to the Treasury (John Glen)]

I am grateful to the hon. Member for Bishop Auckland for not seeking to embarrass me again.

Amendment 36 requires the Government to provide quarterly reports on the impact of all sanction regimes, including the number and value of suspected breaches of sanctions. In considering the sorts of scenario that are in play here, hon. Members will remember that sanctions breaches are highly complex and involve multiple parties across various time periods. Sometimes they take place across borders and in different jurisdictions. The complexity of most sanctions breaches means that the investigation process from initial report to action often takes significant time and resources. There is also often a time lag between the breach taking place and being reported. The Government therefore continually adjust their figures as new information comes to light. Hence, it is very challenging to make the process fully accurate. It would be extremely difficult for the Government to report accurately on the number of breaches suspected or found at any one time. That would render the information published in the quarterly reports of little practical value.

The amendment would also place a significant burden on businesses. Currently, the Office of Financial Sanctions Implementation collects information on the value of funds frozen annually, which is onerous on businesses but important for compliance purposes.

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

I understand that the US Office of Foreign Assets Control routinely releases details of licences and other information. It believes it has achieved an appropriate balance between commercial confidentiality and public accountability, and it does not appear to be overly onerous in the US context. I wonder why we view it as being overly onerous in the UK context.

[John Glen]

It is not about the reporting, but the frequency of the reporting. The point I am making is that to increase it to quarterly would add unnecessary compliance cost to industry, when that cost is already considerable if necessary. It would also result in an administrative burden for Government to produce figures that may not be of much practical use. We do not think that is the best way to spend the limited resource of public money.

Providing quarterly reporting regime by regime may also risk breaking other laws. At the moment we only provide regime figures for the largest regimes. For the small regimes there may only be a small number of designated persons with frozen funds in the UK so providing that specific information, which can easily be traced back to them, may risk breaching data protection laws.

The Government have already committed to being transparent where appropriate. As part of the monetary penalty guidance published last year by the Office of Financial Sanctions Implementation, the Government committed to publishing details of breaches and criminal prosecutions. That is a matter of public record.

For those reasons, I urge the hon. Member for Bishop Auckland to withdraw the amendment.

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[Sir Alan Duncan]

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

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

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

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

Question put and agreed to.

Clause 41 accordingly ordered to stand part of the Bill.

Clause 42 ordered to stand part of the Bill.

Clause 43

Money laundering and terrorist financing etc

[Anneliese Dodds]

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

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

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

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

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

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

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

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[Hannah Bardell]

I congratulate the hon. Lady on making an excellent speech. Will she join me in paying tribute to the former Member for Kirkcaldy and Cowdenbeath, our colleague Roger Mullin, who did a huge amount of work on this? Will she acknowledge as well that despite their name—Scottish limited partnerships —these companies have little to do with Scotland? They were introduced by the UK Government under Liberal Chancellor Herbert Asquith in 1907. The operation, regulation and dissolution of SLPs remain exclusively the preserve of Westminster, so it is vital that this legislation goes through and the changes happen.

[Anneliese Dodds]

I am very grateful to the hon. Lady for bringing those matters to light; I will return to the point about this being a UK Government responsibility later, because it is enormously important. It is important to raise our recognition of those who have done so much to uncover what has been occurring with SLPs. I also pay tribute to The Herald newspaper, which has done a good investigative job in this regard, and I know that Labour’s Jackie Baillie has expressed her concern about Scotland’s name being used potentially to enable offshore tax arrangements and worse. It is important that we look at these arrangements.

Also related to the hon. Lady’s comment, there is huge concern that the unfortunate link between the name SLP and Scotland itself is potentially darkening Scotland’s name. I understand that there is an advertisement that is run on a Belarus TV station, Varyag, saying,

“A company operating in the UK does not need to register with the tax authorities and is therefore automatically freed from any tax payments on an absolutely legal basis. Having registered a company in Scotland, by using offshore rules, you do not need to carry out any audits and, furthermore, there is no requirement to provide financial reports.”

The TV station stressed the kudos of Scotland and the fact that it is part of Britain:

“As a result of Scotland being part of the United Kingdom it does not fall in to the black list of offshore zones”,

presumably meaning either the OECD blacklist or the EU blacklist.

I will briefly mention a couple of specific cases where SLPs have been shown to be problematic, before looking at the current legal context, why this is a UK Government responsibility, and why we require Government to act and hopefully to accept our amendment. The first, which is very worrying, is the Moldovan case. According to the Organised Crime and Corruption Reporting Project, in November 2014 $1 billion was reported to have gone missing from three Moldovan banks. Hon. Members will know that Moldova is not a well-off country—quite the opposite: although it is one of the most beautiful countries in Europe, it is one of the poorest. The corruption that was revealed in that case was enormously damaging for that nation, which has many governance challenges. The World Bank and the International Monetary Fund suspended financial aid to it after revelations about what had occurred in that siphoning off. Two companies registered on Brunswick Street in Edinburgh—a street I know well, as I am sure others do, too—kept coming up in the records for the case, which has had such a significant impact on that nation.

Another example that is commonly adduced in this regard is the Ukrainian one. A Lancashire-based firm called Fuerteventura Inter, which sounds rather like a football team, appears to have been used as an SLP. It was created in February 2015, and was used to siphon off funds from the sale of cannon shells to the United Arab Emirates. The SLP was an intermediary in that deal. The prosecutors allege that it enabled officials to take a large slice of the value of that contract.

Then there is the Azerbaijani laundromat, which I will come back to later. I am sure colleagues have heard of it, and I am sure we will hear a lot more about it in our discussions next Tuesday. “The Global Laundromat” was a piece of investigative journalism that looked into Russian money being laundered through different shell companies. That was going on until 2014. More recently, an investigation of Azerbaijani companies that came out in 2017 showed how companies including SLPs appear to have been used to hide the real ownership of payments.

This is not just about stealing from very poor people; it is about political influence. Some of the payments from the Azerbaijani laundromat were going to individuals who sit on Council of Europe working groups, including those involved in producing reports about human rights in Azerbaijan. Of course, many of the individuals involved have rejected any accusation that those funds had any influence on them. We will draw our own conclusions from looking at the paperwork and what has been said legally about that matter.

[Hannah Bardell]

I declare an interest: I represent my party in the Council of Europe. I spoke to some activists from Belarus, who raised that issue with me and talked about the damage and devastation it is causing in their country. That again highlights why this is so very important.

[Anneliese Dodds]

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

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

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

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

[Alison Thewliss]

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

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

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

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

--- Later in debate ---

[Anneliese Dodds]

I am grateful to the Minister for his comments. I know that he is a very sincere and engaged Minister, but I am concerned that the direct questions that we levelled have not been answered. We asked for an indication of exactly how many of these SLPs had provided that beneficial ownership information. We asked for an update on that, but we have not had it. I also asked for an indication of how many of these SLPs have been prosecuted; I did not receive that, either. I did not receive an indication of how many have been fined under this new regime, which was set up last June. Surely we have had a number of months of operation of that new regime in order to adjudge whether it is truly effective.

I appreciate what the Minister said about BEIS conducting a review, but if the existing system is not working correctly, or if we have doubts about its operation, given the huge damage that these structures already seem to have inflicted, surely we need to have a reference to them in the Bill? We need to show that we are taking this matter seriously, and particularly that the Westminster Government are taking it seriously, in the light of comments from Government figures in other nations and their concerns about the use of SLPs.

I give the Minister one last chance to answer those questions and give that information: the number of prosecutions, the number of fines, and the number of SLPs indicating beneficial ownership information. If we do not get that information, we will have no choice but to press our amendment to a vote.

[John Glen]

I am very sorry but I cannot give those precise details at this point. I undertake to write to the hon. Lady, as soon as I can with that information, but I can do nothing from this place at this moment to provide it.

[Anneliese Dodds]

I wish to press the amendment to a vote.

Question put, That the amendment be made.

--- Later in debate ---

Hon. Members should also be aware that the amendment is part of a wider package. Government amendment 11, to which I hope to speak very shortly, provides appropriate safeguards around the use of the power. When it is to be used, the appropriate Minister must report to Parliament that, on consideration, there are good reasons for creating an offence and for setting penalties at the given levels; and the Minister must inform Parliament what those good reasons are. Parliament may then consider those reasons before voting to bring the regulations into force. The safeguards were created specifically to address concerns expressed by Lord Judge in the other place. We listened carefully and Government amendment 11 is our response.

[Anneliese Dodds]

I am grateful to the Minister for his clarification. I do not want to go around the houses again, as we did at some length on Tuesday. I am grateful to my hon. Friend the Member for Bishop Auckland for explaining why we are concerned about the lack of accountability in general for measures imposing criminal sanctions throughout the Bill. I recognise what the Minister said about this being a separate regime; it is obviously not the same one as is applied in the case of sanctions. The offences that can be applied are lesser in their extent—for example, we are talking about shorter prison sentences in the Bill—but we still have many of the same concerns that we expressed previously.

There has been some shift on the part of the Government, but I suppose it is difficult for any of us to judge whether the spirit of Lord Judge has been complied with, or whether there has merely been some kind of interpretation of a clutch of some of his words. Certainly we will look at what is written on the tin, but to us it does not appear to constitute recognition of the concerns expressed or the kind of meaningful engagement that we need. We are doing something very significant in the Bill, which in effect creates de novo a sanctions and anti- money laundering regime. Much stronger accountability is needed than is in the Bill, even as amended by the Government. We have the same concerns as we expressed previously, so we will resist the amendment.

[John Glen]

I acknowledge the outstanding concerns. I think I have set out clearly the rationale, why we need the provisions and how they respond suitably to Lord Judge’s concerns. I acknowledge the genuine difference of opinion, but I have set out the Government’s position and it is now for the Opposition to do as they wish.

Question put, That the amendment be made.

--- Later in debate ---

[John Glen]

Amendment 10 is a consequence of the proposed new paragraph 20A, which will be inserted by amendment 11. Paragraph 20A(1) refers to offences created for the purposes of the enforcement of requirements imposed by or under regulations under clause 43.

The amendment further narrows the powers for future regulations to make provision for new criminal offences, as I referred to in the discussion on the previous amendment, as compared with the Bill when it was first introduced in the other place. It would make the powers subject to the requirement for a report to Parliament, along the same lines as amendments to part 1 of the Bill. That report would identify the offences created and their respective penalties, and would confirm that the Minister has considered that there are good reasons for creating those offences and setting the penalties at the levels at which they have been set. It would ensure that the Minister does not use the power lightly and is fully accountable to Parliament for doing so.

I take the opportunity to remind hon. Members that these safeguards are contained in Government amendment 11, to which I will turn shortly. These amendments are part of the wider package that inserts safeguards on the use of this power, and have been designed to directly address the concerns raised by Lord Judge and others in the other place.

The amendment restricts the scope of the power to create future offences to offences created for the purposes of enforcing future anti-money laundering regulations. Amendment 12 ensures that references made to regulations made under clause 43, with respect to paragraph 15 of schedule 2, and requirements imposed by regulations made under clause 43, with respect to paragraph 20A of schedule 2, also include reference to, or requirements imposed by, the Money Laundering Regulations 2017. That ensures that the safeguards proposed by Government amendment 11 will also apply to possible future changes made to the 2017 regulations.

The amendment ensures that it is possible for new money laundering offences to be created by amending the 2017 regulations. It will therefore enable the Government to create new offences in order to respond to, for example, emerging risks identified by the national risk assessment of money laundering and terrorist financing, which was published in October 2017, or in response to the ongoing review of the financial action taskforce of the UK’s anti-money laundering and counter-terrorist finance regime. When the Government do so, using the powers contained in clause 43, the enhanced procedural protections set out in the amendment will apply.

[Anneliese Dodds]

I am grateful to the Minister for that explanation. First, in relation to Government amendments 10 and 11, the Opposition would like the accountability provisions to be much more extensive than they are. However, given that the Government just won the last vote on an amendment, it would be rather self-defeating for us to oppose these amendments at this stage.

I have a question on Government amendment 12; perhaps the Minister can enlighten us a little bit. I understood that the whole Bill, when it comes to its money laundering provisions, amends the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. I am therefore slightly confused about the timing and scheduling. Why are the Government bringing those regulations into the Bill when they were not there in the first place? I wonder whether the Minister can enlighten us.

[John Glen]

This is an enabling measure that allows us to take the action necessary. I am not sure I quite grasped the hon. Lady’s point. I think I will need to write to her to clarify that so that I do not say anything that misrepresents the Government’s position.

Amendment 10 agreed to.

[John Glen]

I beg to move amendment 11, in schedule 2, page 54, line 11 at end insert—

“20A (1) In this paragraph ‘relevant regulations’ means regulations under section 43 which create any offence for the purposes of the enforcement of any requirements imposed by or under regulations under section 43.

(2) The appropriate Minister making any relevant regulations (‘the Minister’) must at the required time lay before Parliament a report which—

(a) specifies the offences created by the regulations, indicating the requirements to which those offences relate,

(b) states that the Minister considers that there are good reasons for those requirements to be enforceable by criminal proceedings and explains why the Minister is of that opinion, and

(c) in the case of any of those offences which are punishable with imprisonment—

(i) states the maximum terms of imprisonment that apply to those offences,

(ii) states that the Minister considers that there are good reasons for those maximum terms, and

(iii) explains why the Minister is of that opinion.

(3) Sub-paragraph (4) applies where an offence created by the regulations relates to particular requirements and the Minister considers that a good reason—

(a) for those requirements to be enforceable by criminal proceedings, or

(b) for a particular maximum term of imprisonment to apply to that offence,

is consistency with another enactment relating to the enforcement of similar requirements.

(4) The report must identify that other enactment.

(5) In sub-paragraph (3) ‘another enactment’ means any provision of or made under an Act, other than a provision of the regulations to which the report relates.

(6) In sub-paragraph (2) ‘the required time’ means the same time as the draft of the statutory instrument containing the regulations is laid before Parliament.

(7) This paragraph applies to regulations which amend other regulations under section 43 so as to create an offence as it applies to regulations which otherwise create an offence.”

This amendment requires that where regulations under Clause 43 are made which include offences, a report specifying the offences and giving reasons for any terms of imprisonment that apply to them must be laid before Parliament.

As I said earlier, amendment 11 provides for an important safeguard that will apply when powers are used to create criminal offences. It will require the Government to lay a report before Parliament explaining the Minister’s reasons for using the powers—amendments 10, 11 and 12 are really a package—whenever a criminal offence is created in new or amended anti-money laundering regulations under clause 43.

The amendment requires such a report to be laid at the same time as the draft statutory instrument containing the relevant regulations. Regulations under clause 43 will of course be made using the draft affirmative procedure, unless they update the UK’s list of high-risk jurisdictions in connection with which enhanced due diligence measures are required. The report will therefore facilitate effective parliamentary scrutiny of changes to the UK’s AML regime and will go further than the status quo in enabling Parliament to scrutinise the creation of criminal offences through money laundering regulations.

The amendment specifies that the following elements should be included in the report: the offences that have been created and the requirements to which they refer; the good reasons why those requirements need criminal offences; the maximum prison terms for any offences created that are punishable by imprisonment; the good reasons for setting the maximum prison terms at the levels at which they have been set; and, where the creation of an offence is justified by reference to an existing offence in another enactment, reference to that other enactment.

The requirement for the Minister to demonstrate that they have good reasons for using the power ensures that it cannot be used lightly. I hope hon. Members agree that such reports will provide increased transparency about the reasons for creating criminal offences and give Members a solid basis for holding the Government to account when debating anti-money laundering regulations made under the Bill.

Nevertheless, the Government remain very aware that creating criminal offences and setting penalties in regulations is a serious matter that is not to be undertaken lightly. I am therefore happy to repeat reassurances and existing safeguards that the Government introduced in the other place. As it stands, a criminal offence can be established under clause 43 only if regulations provide either a mental element necessary for the commission of the offence or a defence to it, or both. That will maintain the existing policy position under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 and preserve the deterrent effect established by criminalising breaches of anti-money laundering and terrorist financing regulations.

The amendment is an additional safeguard to the changes the Government have already introduced in response to concerns raised in the other place by Lord Judge and others. We listened to those concerns, and the amendment addresses them. It will ensure that Ministers cannot create criminal offences or set penalties —up to a maximum of two years’ imprisonment—without good reasons, and that Parliament has all the information it needs to hold Ministers to account.

That contrasts starkly with current practice, in which new criminal offences are created through statutory instruments made under section 2(2) of the European Communities Act 1972 under the negative procedure, without any need to state reasons, with no information about such reasons being provided to Parliament, and with no requirement for a vote in Parliament to approve them. The measure is, therefore, a better way of ensuring that proper safeguards are placed in the Bill with respect to offences, rather than removing the ability to create them, and so weakening the UK’s anti-money laundering regime.

[Anneliese Dodds]

I am grateful to the Minister for his comments. I shall not dwell on the matter, because we have already talked about the amendment to an extent in a previous debate. I repeat our concern that the regime is not sufficiently accountable. Reference to the previous regime may be inappropriate, because the framework in that case was set at EU level, and it was a question of implementing it in the UK. Surely with the brave new dawn that some see coming as we leave the EU, we should be aiming at a system that is as accountable as possible.

In our previous discussions about offences in relation to sanctions, Ministers suggested that there could be a need for speed in the creation of new regimes or new types of criminal offence, because, for example, a human rights challenge could arise suddenly, or there could be gross violations of human rights in a particular country, and we might need to respond quickly. Surely such a situation does not apply to money laundering. It is peculiar that the same almost fast-track, post hoc style of system should be applied to criminal offences to do with money laundering. It would be helpful to have more information about why the Government believe that in the relevant category of criminal offence, there cannot be the same—or at least movement towards the same—degree of scrutiny as there would be in other contexts, when the question of speed surely does not apply. In fact, the Minister did not mention speed.

[John Glen]

I take the hon. Lady’s concerns seriously. As my right hon. Friend the Minister said earlier, when we were discussing similar matters on Tuesday, we should be happy for hon. Members to meet officials to discuss outstanding concerns. I have set out in the amendments a clear affirmative process for laying a statutory instrument before the House, in a situation where Parliament will be able to discuss the requirement and its extent, the underlying rationale, and a mechanism for reporting to Parliament. If there are particular issues and specific cases that the hon. Lady wants to raise, I suggest that we convene a conversation with officials to deal with them. As we move forward, I am keen to secure the widest possible support and consensus about the Bill.

Amendment 11 agreed to.

Amendment made: 12, in schedule 2, page 54, line 39, at end insert—

‘( ) In paragraph 15 (offences), any reference to regulations under section 43 includes the Money Laundering Regulations 2017.

( ) In paragraph 20A (report in respect of offences)—

(a) the reference in sub-paragraph (1) to requirements imposed by or under regulations under section 43 includes requirements imposed by or under the Money Laundering Regulations 2017, and

(b) the reference in sub-paragraph (7) to other regulations under section 43 includes the Money Laundering Regulations 2017.”—(John Glen.)

This amendment has the effect that, while the Money Laundering Regulations 2017 remain in force, offences may be created by regulations under Clause 43 for the purposes of enforcing requirements in the 2017 regulations.

Schedule 2, as amended, agreed to.

Ordered, That further consideration be now adjourned. —(Mike Freer.)

Oral Answers to Questions

Anneliese Dodds Excerpts

Tuesday 27th February 2018 Commons Chamber

[Mr Speaker]

Order. This is a rather extraordinary state of affairs. I hope that the hon. Member for Hyndburn (Graham P. Jones) is not indisposed, and if he is I am sorry, but otherwise there is absolutely no basis for his leaving the Chamber during the exchanges on his question. That is a rank discourtesy to the House—and a discourtesy to the Chancellor as well, for that matter. It must not happen.

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

The shadow Chancellor recently wrote to the Chancellor asking when he will produce revised value for money guidance, as highlighted by the National Audit Office; an updated list of PFIs, as existing data is nearly two years old; and details of any assessment the Treasury carried out on Carillion’s readiness to fulfil its PFI contracts. When will we get them?

[Mr Hammond]

I have not yet received a letter from the shadow Chancellor, but if he has written to me, I shall of course reply to him and answer his questions.

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

Anneliese Dodds Excerpts

Tuesday 27th February 2018 Public Bill Committees

[Sir Alan Duncan]

I fully respect the fact that the hon. Member for Bishop Auckland has served in the House for 13 years; in the same spirit, I am sure she will respect my 26 years of service. The motion does nothing more than to reflect the understanding that we reached last night, namely that we would debate a very significant amendment in a full session on Thursday. There is no attempt not to discuss anything, because the whole point of Committee is that everything is discussed. There is nothing that will not be discussed as a result of our adjournment this afternoon.

This matter is important, and we are genuinely trying to work out if there is some accommodation that we can make to deal with the issues raised by the hon. Lady and the wider House. There is no game playing and this is not obstruction; it is in the spirit of what was agreed last night. I say that with a smile, looking especially at her. Come Thursday, we will be able to spend a good amount of time getting into the matter in great detail. On that basis, I support the wish to adjourn.

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

I appreciated our discussions last night. As a new Member, I found them very helpful. I took a great deal of notice of what was said during the meeting by both Ministers and by everybody else who was there. I am sorry; we have spent so much time together that I am imagining that the Economic Secretary was there. I remember it being suggested at the meeting that we needed to get into a rhythm of working and establish how the Committee would operate, and that that was the reason for taking clause 1 after clause 18. Having served on two Finance Bill Committees, I absolutely understand the need to get into a rhythm and work out how we will operate as a Committee. I do not, however, recall anybody saying that that meant that we could not consider clause 1 on the first day of Committee. Perhaps other Members can contradict my recollection, but that is certainly what I took from the meeting.

Question put, That further consideration be now adjourned.

Finance (No. 2) Bill

Anneliese Dodds Excerpts

3rd reading: House of Commons & Report stage: House of Commons
Wednesday 21st February 2018 Commons Chamber

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

The number of home-owning households increased by 1 million under the Labour Government and has fallen under Conservative Governments. I thought it important to correct the record.

[Mr Speaker]

It may be important to correct the record and I know that the hon. Member for Oxford East (Anneliese Dodds) was led into that by the observations of the hon. Member for Faversham and Mid Kent (Helen Whately)—it is quite easy to elide into disorderly conduct—but it is important that we try to focus the exchanges on new clause 9, to which with laser-like intensity I know the hon. Member for Faversham and Mid Kent will now turn.

--- Later in debate ---

[Stephen McPartland]

The hon. Lady makes a very good point, but I cannot support the new clause because it will not do anything to help people practically. It will just allow academics and economists to argue over moot points, whereas I am interested in actually helping people from disadvantaged backgrounds who want the opportunity to go off and aspire to achieve and to be anything they want to be. It is very sad, in this day and age, that we are discussing the fact that we need to identify whether certain sections of society need more support than others. We should be aiming to get to a society—

[Anneliese Dodds]

Given that, for example, over 80% of the social security cuts enacted by Conservative Governments have fallen on the shoulders of women, would it not have been helpful for those women, and indeed for us as decision makers, to know about that before the decisions to implement them were taken?

[Stephen McPartland]

The hon. Lady makes a very earnest point, but I cannot accept those figures.

A huge amount of money has gone into social care. At the moment, there are people in my constituency on fixed and low incomes who are very disappointed about the 3% that is going to be levied on their council tax for social care, because that will have a negative impact on their income, although it helps other sections of society and is the right thing to do. This new clause is about academics and economists as opposed to helping real people on the ground on a day-to-day basis. Some Labour Members are shaking their heads, but they got involved in politics for the same reason that I did, which is to help people to get on in life and achieve the best that they can. That is why I am a Conservative and why most people in this Chamber are Conservatives.

Returning briefly to the welfare system, as that is my area of expertise, we want a system that works. When we look at universal credit, the Treasury’s distributional analysis provides an analysis of the cumulative impact on welfare and public services. My view is very much about developing policies to help people get on in life. New clause 9 is just about providing some information on what has affected people in the past over a number of years, and by the time we are focused on the next Budget or other fiscal event, things have moved forward again.

--- Later in debate ---

[Mel Stride]

The hon. Lady is suggesting that one particular set of analyses is an ideal set to present, and can be seen as in no way misleading, but entirely robust and entirely objective. If we are to reach such a quality of data, we will have to achieve certain specific aims, and one of the aims is to deal with the fact that a lot of the analysis to which she is referring is very selective—it does not look at the entire picture. For example, some of the analysis reflecting changes in income tax may show a benefit for one sex over another, but it may not take into account the impact of increased spending on childcare.

[Anneliese Dodds]

Will the Minister give way?

[Mel Stride]

If I may finish this point, I will then certainly give way to the hon. Lady.

A lot of these analyses simply look at the static situation, without taking into account the fact that the measures we are bringing forward will in themselves have a dynamic effect on the economy—for example, by driving up employment. Several Members have spoken very eloquently about the record level of female employment at the moment. That is benefiting women, but the interaction of our policies with that benefit would not be reflected in such an analysis. I have already mentioned that a lot of the information being sought is very difficult to verify and very difficult to obtain, particularly where it pertains to protected characteristics, such as sexuality, gender reassignment and pregnancy. It is very hard to identify those groups and the way in which they are affected, particularly in terms of all the taxes in new clause 9—I will come on to them in a moment—that the Opposition want us to address.

[Anneliese Dodds]

rose—

[Mel Stride]

I will make a final point before I give way to the hon. Lady. It has been a long time since we have jousted, and I have missed it, so I will certainly give way to her. There is a very important point about the impact in particular on households, which is one of the major thrusts of new clause 9. It is very difficult to disentangle the effect of income that may go to one member of the household, but is of course subsequently shared across the household. The Institute for Fiscal Studies has itself highlighted that as a particular barrier to getting robust information. I will now gladly give way.

[Anneliese Dodds]

I am very grateful to the Minister for his generosity in giving way, and for his kind words. I want briefly to mention that the Department for Work and Pensions does produce this kind of modelling for social security changes, which may be similarly complex in looking at the interactions of different elements, so why does the Treasury take a different approach? In relation to that, would not the assumptions be spelled out, so that any ambiguity could be made clear?

[Mel Stride]

I thank the hon. Lady for her intervention, but I bring her back to new clause 9. Whatever the DWP happens to be doing, whether it is right or wrong or whether it works, what we are facing here today and making a decision on is new clause 9. As I am working through new clause 9, I am arguing that it is not a practical way to seek to achieve that which the Opposition, quite genuinely and sincerely, are attempting to achieve.

--- Later in debate ---

[Rachel Maclean]

My hon. Friend is right. The spectre of the Laffer curve raises its head yet again, but it is a fact that lowering the tax rate increases the tax take. That is a fact that we have observed time and time again, and it has benefited our economy.

[Anneliese Dodds]

Will the hon. Lady give way?

[Rachel Maclean]

I am sorry, but I cannot take any more interventions, because time is short.

I hope that, when he winds up the debate, the Minister will touch on the important issues of cryptocurrencies and bitcoin which, I believe, are not currently covered by regulation. I think we would all like to be assured that the Treasury is ensuring that no loopholes can develop that might allow tax evasion and avoidance. There are some alarming reports of people being arrested for money-laundering billions of pounds by that means.

The hon. Member for Walthamstow (Stella Creasy) is very well informed. I recognise the hard work that she has done, and I share a number of her concerns about the private finance initiative. A hospital in Worcester serves my constituents in Redditch. It is in special measures, and it has a financial issue. All of us in Redditch are very worried about that. I do not think that the new clause is the right way of dealing with the situation, but I should like to know what action the Minister will take to reassure my constituents that no one is reaping profits that they should not be reaping.

May I ask the hon. Member for Walthamstow to clarify the position of Labour Front Benchers? Do they not intend to take all the PFI contracts back into public ownership? She said that it would cost £220 billion, but I believe that that is the official position of the Labour party. It is a little confusing. It is difficult to know what the Labour party supports—whether it is the proposals of the hon. Lady or those of the Leader of the Opposition—so some clarity would be welcome.

Coming to my final point, Brexit was mentioned earlier, and we heard remarks about Brexit and the Labour party’s position, with claims that somehow Brexit is damaging our economy. [Interruption.] Well, Brexit was mentioned in a sedentary intervention. In my experience, businesses fear the spectre of a Labour Government more than Brexit, as a Labour Government would damage jobs and business investment. That is what businesses are worried about.

--- Later in debate ---

[Mel Stride]

There was a ripple of dissatisfaction when you failed to call me to speak, Madam Deputy Speaker, but it was almost imperceptible. Thank you for correcting your error.

In this debate we have heard about a range of issues, including the changes the Finance Bill makes to the bank levy, the taxation of private finance initiatives, and tax avoidance and evasion. I will respond to each in turn, starting with the bank levy. Opposition Members have raised a number of objections to the changes to the levy made by the Finance Bill and to the Government’s broader approach to bank taxation. These are unjustified. This Government remain committed to ensuring that banks make an appropriate additional tax contribution, beyond that paid by other businesses, that reflects the unique risks they pose to the UK financial system and to the wider economy.

I shall address some of the arguments put forward by the shadow Chief Secretary to the Treasury, the hon. Member for Bootle (Peter Dowd), which I felt focused far too much on the bank levy. It is indeed declining, but there is good reason for that. In 2015, when we took the relevant decisions on this, we recognised that the risks presented by our banks had eased quite considerably. Indeed, the Bank of England has recently carried out rigorous stress testing on the banks, and that was the first occasion on which not a single bank failed its stress test. That is indicative of the fact that one of the raisons d’être for the bank levy has started to recede. That is to say that the banks are less of a risk than they were before, and the charges on the assets and liabilities that they hold are therefore becoming less relevant. The hon. Gentleman did not focus so much on the surcharge to the banking tax, which came in from 1 January 2016 and which represents an additional 8% on the profitability of banks at the present time. Whereas corporations are paying 19%, we are now looking at a total rate of around 27% for banks.

[Anneliese Dodds]

I am grateful to the Minister for that explanation, but as we have said before, when we take both those measures together, we see that the reduction in the levy along with the surcharge results in a lower overall contribution over time. We have spelled out clearly in our previous debates that the overall amount coming from the banks is receding over time, even with the surcharge.

[Mel Stride]

That is not the case. I will explain some of the figures in a moment, but there are other elements that are not being taken into account. One is that the banks are not permitted to offset against their profits the PPI compensation payments. Also, they are now working to a more restrictive corporate interest restriction regime, under which they are allowed to roll forward only 25% of their interest chargeable to offset against profits. Taking all those measures together, we have raised some £44 billion more from the banks since 2010 than we would have done if we had treated them simply as any other corporate business.

Opposition Members have cited changes in revenue from the bank levy. They argue that this is declining, but it is misleading to consider bank levy changes in isolation when they form part of a set of wider changes to bank taxes announced in 2015 and 2016, including introducing the 8% surcharge. Overall, rather than reducing revenue, these tax changes are expected to raise £4.6 billion over the current forecast period. I think that the hon. Lady will be interested to hear that figure.

[Anneliese Dodds]

We have just looked at the projections up to 2022-23. For the current year, we see £3 billion coming in from the levy and £1.6 billion coming in from the surcharge. The projection for 2022-23 is £1.3 billion from the levy and £1.1 billion from the surcharge. That appears to be a significant reduction; in fact, it is almost half.

[Mel Stride]

Taking into account the respective changes, we will raise £4.6 billion over the forecast period as a consequence. My point is that it is simply not right to focus only on the declining part of the equation—the reduction in the banking levy charge—and not on the fact that we are raising more as a consequence of the 8% surcharge and the increased profitability of banks on our watch.

[Anneliese Dodds]

rose—

[Mel Stride]

Perhaps we can get into the nitty-gritty of this offline.

The average revenue from the bank levy between its introduction in 2011 and 2015-16 was around £2.6 billion. As a result of this package, however, yield from the surcharge and the levy in 2022-23 is forecast to be £3.2 billion. By 2023, as I have said, we will have raised around £44 billion in additional bank taxes since the 2010 election.

Opposition Members have also suggested that our bank levy is set at a low level compared with other countries. In fact, not all financial centres have a bank levy. The USA, for example, chose not to introduce one at all, and while several EU countries introduced bank levies following the financial crisis, it is not possible to make direct comparisons between these levies as the rules for each are different.

We have heard the argument this afternoon that we should reintroduce a tax on bankers’ pay. One of the aims of the changes to bank taxation announced in 2015 and 2016 is to ensure a sustainable long-term basis for taxing banks, based on taxing bank profits and the bank levy. By contrast, the bank payroll tax referred to in new clause 3 was always intended as a one-off tax. Reintroducing it would be ineffective and unsustainable compared with the package of banking tax measures that we have introduced. Even the last Labour Chancellor pointed out that it could not be repeated without significant tax avoidance.

Opposition Members also propose that HMRC should publish a register of tax paid by individual banks under the levy. Taxpayer confidentiality is rightly a core principle for trust in our tax system and HMRC does not publish details of the amount of tax paid by any individual business. While the Government continue to consider measures to support transparency over businesses’ tax affairs, we must balance that with maintaining taxpayer confidentiality in order to maintain public confidence in our tax system.

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[Anneliese Dodds]

I beg to move, That the clause be read a Second time.

[Madam Deputy Speaker (Mrs Eleanor Laing)]

With this it will be convenient to discuss the following:

New clause 8—Annual report on relief for first-time buyers—

“(1) The Chancellor of the Exchequer must prepare and lay before the House of Commons a report for each relevant period on the operation of the relief for first-time buyers introduced in Schedule 6ZA to FA 2003 not less than three months after the end of the relevant period.

(2) The report shall include, in particular, information in respect of the relevant period on—

(a) the number of first-time buyers benefiting from the relief,

(b) the number of purchases benefiting from the relief,

(c) the average age of first-time buyers benefiting from the relief,

(d) the effects on the operation of the private rented sector,

(e) the effects on council housing and other social housing,

(f) the effects on the supply of affordable housing, and

(g) the effects on the operation of collective investment schemes under Part 17 of the Financial Services and Markets Act 2000.

(3) For the purposes of this section, ‘relevant period’ means—

(a) the period from 22 November 2017 to 5 April 2018,

(b) each period of 12 months beginning on 6 April during which the relief is in effect, and

(c) the period beginning on 6 April and ending with the day on which the relief ceases to have effect.”

This new clause requires an annual report on the operation of the relief for first-time buyers, including information on the beneficiaries and effects on different aspects of housing supply.

New clause 2—Review of income tax revenue—

“(1) The Office for Budget Responsibility must review the revenue raised by the rates of income tax within six months of the passing of this Act.

(2) A review under this section must consider revenue raised by the rates of income tax specified in sections 3 and 4.

(3) A review under this section must also consider the effect on revenue of raising each of the rates of income tax specified in sections 3 and 4 by one percentage point.

(4) The Chancellor of the Exchequer must lay before the House of Commons the report of the review under this section as soon as practicable after its completion.”

This new clause provides for a review of the revenue raised at the rates of income tax specified by Clauses 3 and 4 of the Bill and the effect on revenue of raising each of those rates by one percentage point.

New clause 10—Review of retrospective VAT refunds for the Scottish Fire and Rescue Service and the Scottish Police Authority—

“(1) Within one month of this Act receiving Royal Assent, the Chancellor of the Exchequer shall commission a review of the potential consequences of allowing the Scottish Fire and Rescue Service and the Scottish Police Authority to claim VAT refunds under section 33 of VATA 1994 retrospective to the date of their establishment.

(2) The review shall consider—

(a) the administrative consequences of allowing retrospective claims, and

(b) the impact on revenue of allowing retrospective claims.

(3) The Chancellor of the Exchequer shall lay the report of this review before the House of Commons within six months of this Act receiving Royal Assent.”

This new clause would require the Chancellor of the Exchequer to commission a review into what the potential consequences of allowing the Scottish Fire and Rescue Service and the Scottish Police Authority to make retrospective claims for VAT refunds would be.

New clause 11—Analysis of effect of income tax rates on incentives into employment—

“(1) The Office for Budget Responsibility must review the impact of the rates of income tax specified in sections 3 and 4 in accordance with this section within six months of the passing of this Act.

(2) A review under this section must consider the impact of the rates of income tax specified in sections 3 and 4 on the incentives for individuals to seek employment, including—

(a) whether those rates create, or detract from, an incentive for those not employed to enter into employment,

(b) whether those rates create, or detract from, an incentive for those currently in employment entering into new employment at a different level of income, and

(c) to what degree those rates create, or detract from, any such incentive.

(3) A review under this section must also consider those rates in the context of—

(a) National Insurance contributions,

(b) tax credits, and

(c) social security benefits.

(4) A review under this section must give separate analyses in relation to the impact of the rates of income tax specified in sections 3 and 4 in different parts of the United Kingdom.

(5) In this section—

‘parts of the United Kingdom’ means—

(a) England,

(b) Scotland,

(c) Wales, and

(d) Northern Ireland.

(6) The Chancellor of the Exchequer must lay before the House of Commons the report of the review under this section as soon as practicable after its completion.”

Government amendments 6 to 8.

Amendment 10, in clause 44, page 38, line 30, at end insert—

“(4A) In paragraph 1GE (higher rates of duty) after paragraph (3)(c) insert—

‘(d) the vehicle is not a taxi.

(3A) For the purposes of this paragraph, ‘taxi’ has the same meaning as in section 64 of the Transport Act 1980.’”

Amendment 11, page 39, line 1, after “section”, insert

“(other than those made by subsection (4A)”.

Amendment 12, page 39, line 2, at end insert—

“(8) The amendments made by subsection (4A) have effect in relation to licences taken out on or after the day on which this Act is passed.”

Amendment 13, in schedule 3, page 65, line 32, leave out from “and” to “or” in line 36 and insert

“each of the conditions in subsection (1A) is met”.

This amendment, together with Amendment 14, provides that a pension scheme cannot be de-registered on grounds of the dormancy of a single company within the scheme, but only if conditions are met in relation to the date of first registration and the trading status of participating companies.

Amendment 14, page 65, line 37, at end insert—

“(4A) In section 158 (grounds for de-registration), after subsection (1), insert—

(1A) The conditions in this subsection are that—

(a) the scheme was registered in the current tax year or in the six preceding tax years,

(b) no sponsoring employer in relation to the scheme is a body corporate that is actively trading at the time that withdrawal is being considered, and

(c) no sponsoring employer in relation to the scheme is a body corporate that was actively trading for a period of at least twenty four months.”

See explanatory statement for Amendment 13.

Government amendment 9.

[Anneliese Dodds]

With permission, Madam Deputy Speaker, I will speak briefly to the SNP’s new clause 10 and to amendment 12, which was tabled by my hon. Friend the Member for Ilford North (Wes Streeting), both of which the Opposition support. I will then speak in more detail about our new clauses 7 and 8.

On new clause 10, Labour Members welcome the Government’s decision to allow the Scottish Fire and Rescue Service and the Scottish Police Authority to claim retrospective VAT refunds. The measures in the new clause follow the Scottish Government’s decision in 2012 to establish a nationwide fire and rescue service for Scotland. The then Treasury Minister, who is now the Justice Secretary, wrote:

“Based on the information currently available it seems that, following the Scottish government’s planned reforms, neither the new police authority nor the fire and rescue service will be eligible for VAT refunds under Section 33 of the VAT Act 1994.”

As colleagues will know, that Government decision meant that the Scottish police and fire services lost out on VAT refunds worth more than £30 million, with the Scottish police losing out on about £26 million. To some extent, I would argue it was a sign of recklessness that, at a time of austerity, the Government effectively left Scottish firefighters and police officers to fend for themselves. While Labour Members welcome the Government’s change of heart, we recognise the need for a proper process covering retrospective claims for VAT refunds.

The review proposed by the hon. Member for Aberdeen North (Kirsty Blackman) would ensure that the process for VAT refunds was transparent, and that the VAT claims of the Scottish Fire and Rescue Service and the Scottish Police Authority were properly refunded by the Government. The review would also ensure that such an ill-informed decision, backed up by insubstantial reasoning, would not be allowed to happen again. That is why we support the new clause.

Amendment 12 focuses on an issue that I raised in Committee: the fact that taxi drivers with a zero-emission capable vehicle will not be exempt from vehicle excise duty until next year. As we discussed in Committee—I am sure that the Minister remembers this—taxi drivers need to purchase their car over a long period due to its relatively high cost. In many areas of the country, taxi drivers are shifting to lower or zero-emission capable taxis. I asked the Minister whether further changes were needed to the Bill so that the take-up of zero-emission capable taxis would not be choked off. I was grateful to the Minister for stating that there would be a consultation on the new measures in the spring, but I do not know whether that consultation has yet begun, so perhaps the Minister will enlighten us on that point. In the meantime, it seems sensible, as my hon. Friend the Member for Ilford North proposes, to prevent taxi drivers from taking a hit when they have taken an environmentally friendly choice, which has considerable financial consequences for them because the vehicles are more expensive than standard taxis.

I now come on to Labour’s new clauses 7 and 8, which would require a review of the proposed relief on stamp duty for first-time buyers, followed by an annual report on the policy’s effectiveness. The review and the report would consider the impact of the new measure on house prices and housing supply, and cover who benefits from the policy. The need for such reviews is very clear. The Office for Budget Responsibility’s assessment of the measure is set out in black and white: it is likely to increase prices by 0.3% and benefit a very small number of people. In its words, the main gainers from the new stamp duty policy are people who already own property, not first-time buyers. It added that some potential first-time buyers with smaller deposits might now be able to borrow a little more, therefore allowing them to buy properties that they otherwise could not afford, but that the process would be more expensive. That is in the context in which the average price of a home in England for first-time buyers has gone up by almost £40,000 since 2010. In fact, only about 3,500 additional homes are predicted to be sold as a result of the new incentive.

[Sir Desmond Swayne (New Forest West) (Con)]

Has the hon. Lady spotted that house prices are now falling, notwithstanding the change?

[Anneliese Dodds]

I do not believe that that is uniform across the country. Of course there would be implications if there were very rapid changes. That would concern many people, but we feel that in this area, when it comes to the cost for first-time buyers, there has not been a significant change. If the right hon. Gentleman has evidence that there has been a change for first-time buyers, I would certainly like to see it. There might have been a change across the whole piece, but it certainly has not had an impact on first-time buyers who are trying to buy the lowest cost houses, as many are struggling more than ever before.

Labour Members say that the situation might be different if the measure was accompanied by others that promoted the production of genuinely affordable homes. As it stands, however, any additional homes—at least those promoted by any Government policy—will not be in place before the stamp duty cut takes place. The funding allocated in this regard is woefully inadequate. Our most recent debate about this matter in this Chamber revealed that the Government’s new housing infrastructure fund moneys, such as they are, will not start to come forward until 2019-20, which means that the £585 million cost of stamp duty cuts in 2018-19 will not be accompanied by housing infrastructure measures, and the same will be the case the following year. It is only two years later that extra money for the infrastructure fund will be forthcoming. In any case, that will amount to less than half of what the public purse will have renounced that year because of the cut in stamp duty. It is extremely disturbing that the Government have chosen to plough ahead with this approach in the absence of measures to significantly boost supply.

I repeat the calls we made in previous debates on the Bill for the Government to come clean on the advice they received about this measure. What do the economists in the Treasury say about this approach in the absence of measures to substantially increase supply? Ministers can claim—we have heard this from the Chancellor—that the OBR has not taken the small clutch of housing measures in the Budget into account in its analysis, but most experts who have taken those very small changes into account concur with the OBR’s original assessment. Was that also the case with Treasury officials? We in this House deserve to know, as do our constituents, particularly if they are faced with any rise in house prices for first-time buyers, as anticipated by the OBR. I point out that the Government’s own assessment of a previous stamp duty cut, again in the absence of measures to boost substantially the supply of affordable housing, indicated that

“the tax relief has not had a significant impact on improving affordability for first-time buyers.”

We also need to know the regional impact of the measure. As colleagues mentioned in our previous debate on this matter, the upper limit of £500,000 in high-cost areas and £300,000 elsewhere means that the change will not have a positive impact in huge swathes of the country, aside from reducing the revenue pot overall, with the result that other taxes on individuals and companies have to take up the slack, unless public services are to be cut further. For many people, home ownership is a distant dream when there is no way they can afford the necessary deposit. Today’s figures showing that real wages have fallen for the seventh month in a row should give us all pause for thought about whether the proposed measure is appropriate.

[Helen Whately]

It is difficult for first-time buyers in my area to afford a deposit and they welcome the help the Government are giving to increase their opportunities when they are competing against people who are selling properties and are therefore more able to afford a deposit. This sort of policy is therefore very welcome, and it goes hand in hand with measures to increase housing supply. We are seeing significant—and not necessarily popular—increases in the housing targets for areas such as my constituency, coupled with work to make sure that houses are built when planning permission has been granted. I therefore contest the hon. Lady’s remarks on that point.

[Anneliese Dodds]

In practice, most of the commentary that I have seen from experts and those working in the housing sector suggests that in areas where there is extreme competition between different types of buyer—for example, first-time buyers, those buying additional properties, investors, and those moving to a second or third property—such a measure may help initially, but the overall cost increase will also affect first-time buyers. They will therefore be buying at a higher price, so most of the impact of the measure—as with previous stamp duty changes without a boost in supply—will help sellers, not buyers. That was the Conservative Government’s own assessment of the impact of their previous cut to stamp duty in the absence of additional measures to boost supply.

[Mr Simon Clarke (Middlesbrough South and East Cleveland) (Con)]

The hon. Lady gave us a tour de force in the Public Bill Committee, but on the narrow point about the proposed changes’ impact on prices, the director of the Institute for Fiscal Studies, Paul Johnson, said that although there may be an increase in the price faced by first-time buyers,

“this does not mean first-time buyers are worse off as a result. They are in general better off. Instead of paying, say, £100,000 for £98,000 worth of house plus £2,000 of tax they might be paying £102,000 for £102,000 worth of house.”

What is her response to that point?

[Anneliese Dodds]

I am aware of what Mr Johnson said, but I think he has fallen into the trap of looking only at the impact of the change on an individual buyer and forgetting that it will have an impact on the housing market, particularly in areas where there is strong supply and strong demand, and where such a change is likely to push up prices. I agree with Mr Johnson on many things, but in this case, unfortunately, the context has been missed, and it is important that we bear it in mind.

[Michelle Donelan (Chippenham) (Con)]

The evidence suggests that house prices are not increasing—in fact, the Royal Institution of Chartered Surveyors has echoed the point, saying that although there was scaremongering, the evidence suggests that prices are not rising.

[Anneliese Dodds]

I am sure the hon. Lady is well versed in the subject, but when it comes to the cost for first-time buyers, there has been an increase. That assertion is supported by the evidence, and that is exactly what we are concerned about. We need to take action. The Government often say they want to help first-time buyers, and I think it is important that we take them at their word. We should also look at what the OBR said in its assessment of the policy. Again, I go back to whether the Government received any advice about the likely impact of their policy. It is disappointing that we have not had any clarity on that matter.

[Sir Desmond Swayne]

I am struggling with the concept that a price that is available to a first-time buyer differs from the prices paid by anyone else. I can accept that there are segmented markets in which there might be a difference, but if prices are falling marginally, that will be to the benefit of all buyers, whether it is the first or the seventh time that they have bought a property.

[Anneliese Dodds]

I am always delighted to hear from the right hon. Gentleman. It might be instructive for us to look at the shape of the market, and at which elements may be reducing in price and which may not. I have seen media coverage suggesting that any reduction seems to have been reversed recently. In any case, it appears that there might have been a price reduction in the highest-cost areas with the most expensive properties, but are those the properties that first-time buyers are likely to be considering unless they are incredibly well off? Some may well be, but most first-time buyers in this country are not looking to move into properties worth multiples of a million pounds. They are looking to move into properties that are much more affordable, so the lack of Government action to help them is enormously disturbing. That is why we do not support this measure; others would have been more effective. In particular, we do not support the measure in the absence of action to boost the supply of affordable housing.

I should mention that the Government’s definition of affordable housing enables a home worth £400,000 to be classified as affordable. I am sure that Members on both sides of the House would not appreciate that definition of affordability.

[Mr Mark Francois (Rayleigh and Wickford) (Con)]

My hon. Friend the Member for Faversham and Mid Kent (Helen Whately) talked about constraints on supply, and she specifically mentioned dealing with land banking by property developers. They are often given planning permission but, because of their financial models, choose not to build for long periods of time. As the hon. Member for Oxford East (Anneliese Dodds) will know, we have proposals to punish developers that continue to work in such a way. What is Labour’s view about them?

[Anneliese Dodds]

I am grateful to the right hon. Gentleman for mentioning that. For some time, Labour has proposed changes in this area, but they were dismissed as “Venezuelan-style socialism,” which I think was the phrase that we heard from Government Members. We are concerned about this issue, but we are also concerned about matters in the planning system that the Government have not touched, such as the fact that the rules on viability put all the cards in the developers’ pockets. That means that, if someone wants to develop any social supply, there are pressures on the affordability of the rest of that development. We are very aware of that and have worked on it consistently. Sadly, we have not always been supported in that, but I am happy that the right hon. Gentleman has come on board with Labour policy, and that the Government have as well.

There is a general lack of measures and lack of action on other elements of the housing crisis, which is so problematic—the stamp duty change seems to be the only real, significant change in relation to housing policy. Sadly, all of us as Members are seeing the impact of the housing crisis in our postbag, in our surgeries and, very sadly, on many of our streets. Rough sleeping has more than doubled under the Conservatives. It is the No. 1 issue that is mentioned to me on the doorstep in my constituency. I am sure that is the case for many other urban MPs. Even those who do not see it in their constituency probably see it, sadly, when they come to work here. Of course, we had a terrible tragedy in that regard recently.

[Mr Simon Clarke]

Housing stress is a major driver of homelessness, the causes of which are very complex. Does the hon. Lady accept that the Homelessness Reduction Act 2017 is major step in unlocking the resource that is required and in getting people to focus, crucially, on getting into a home, as the first step towards making a more lasting move forward in their lives?

[Anneliese Dodds]

I am grateful to the hon. Gentleman for that intervention. I will come later to some of the other contributors to this problem, which are not dealt with in the Bill or the rest of the Budget. I would just say that, although we supported many of the principles in the Homelessness Reduction Act 2017, again the problem is that, while we can place new requirements and duties on local authorities, if we do not fund them or provide the supply of accommodation to discharge them, local authorities will end up having to make invidious choices between individuals, as my own local authority has discovered. There is support for the principle of the Act, but without the means to deliver it there is considerable concern.

I am grateful to the hon. Gentleman, however, for focusing on that issue. His focus is not reflected, sadly, in the Budget or the Bill. We have only had mention of three small-scale pilots to help to deal with rough sleeping, which is woefully inadequate and no match for Labour’s commitment to a proper rough-sleeping strategy. Under Labour Governments, we had one of those and we got rough sleeping down and virtually eliminated it in many areas. We have also said that we would reserve 8,000 units for people with a history of rough sleeping.

The Government have a commitment to halving rough sleeping by 2022, but to do this they have to change their policies. There is huge uncertainty about the funding of supported housing, which has led to a reduction in investment in that area—unnecessarily—particularly following the negative lessons of the Supporting People funding: there was initially a ring fence, but then it was taken away. We hope that that will not happen with supported housing. We have also seen swingeing cuts to council budgets in this area, which has meant that the county council in my area and many others will not be supporting any homelessness places, at least initially. Coupled with reductions in social security and mental health support, this has led to burgeoning numbers of people sleeping on our streets.

This is not just about rough sleeping, of course; it is also about homelessness generally. On housing provision, recent research from the Institute for Fiscal Studies has shown that the Government are still failing to tackle the fundamental problems in our broken housing market, and it does not conclude that the stamp duty change will deal with those fundamental problems. For example, the Government promised to build 200,000 new cut-price starter homes in 2015. Three years on, not a single one has been built. Before Christmas Ministers said they would be working out the definition of “starter home”, so they do not even know what their policy is going to deliver. They have not even decided on their definitions, let alone delivered those starter homes. In contrast, Labour would commit to building 100,000 social and affordable homes a year, focus Help to Buy funding on first-time buyers on ordinary incomes and build 100,000 discounted first-buy homes.

Overall, the Government’s own figures speak for themselves. The number of home-owning households rose by 1 million under the last Labour Government but has fallen under the Conservatives.

[Neil O'Brien (Harborough) (Con)]

Will the hon. Lady acknowledge that the fall in home ownership began under Labour in 2003?

[Anneliese Dodds]

I would accept that there have been changes from year to year in the overall level of home ownership, but the cumulative reduction in home ownership under Conservative Governments has been far more substantial. Across the piece, we saw that increase of 1 million—

[Neil O'Brien]

rose—

[Anneliese Dodds]

No, I will not give way, because I think I have answered the point. As I say, it is very clear; the figures speak for themselves, very obviously, on this point. The point is particularly and disturbingly clear in relation to home ownership among under-45 households—so for younger people—where the number of homeowners has fallen by 1 million since 2010.

We had a debate earlier about home ownership, and the hon. Member for Faversham and Mid Kent (Helen Whately) stated, “It’s not just about home ownership. We need to think about other areas as well”. That is absolutely right. We have 1.3 million additional private renters in this country. Many on the Opposition Benches would not necessarily see that as a terrific thing; we would see it as lots of people stuck in private rented accommodation who do not want to be there, and we do not see measures in the Budget or Bill to deal with that problem.

[Madam Deputy Speaker (Mrs Eleanor Laing)]

Order.

[Anneliese Dodds]

If I can end—

[Madam Deputy Speaker]

Ah, I was about to draw to the hon. Lady’s attention the fact that we only have an hour for this debate, but she has already counted that.

[Anneliese Dodds]

Thank you, Madam Deputy Speaker. I do beg your pardon.

Let me end by quoting, very briefly, what I think was a devastating assessment of this policy by my hon. Friend the Member for Wirral South (Alison McGovern), because not every Member who is present now was present then. She said:

“what is really unpopular in our country is having to step over rough sleepers while walking home. What is really unpopular in our country is having to watch other parents taking paper into schools because our schools cannot even afford the basic necessities. And what is deeply unpopular in our country is watching the number of food banks grow because jobs do not pay enough.

People will remember that while all that was going on, the Tories were busy cutting stamp duty for people who could afford to buy houses. I do not think they will ever forget that.”—[Official Report, 18 December 2017; Vol. 633, c. 867.]

[Colin Clark (Gordon) (Con)]

The autumn Budget was a triumph for Scotland, and a vindication of the constructive approach of the Scottish Conservatives. I hope that members of the Scottish National party, and other Scottish MPs, will feel able to welcome and embrace it. Unfortunately, however, SNP Members appear to have learnt little. They created the mess over VAT for the police and fire services, and this Conservative Government have had to clear it up. New clause 10 seeks to point the finger, but the mess in the first place was of the SNP’s own creation. That is disappointing.

The SNP Scottish Government messed up. They knew that they were messing up even as they did so, not least because they had been warned. Indeed, when they were estimating the budgetary effects of these centralisation plans, they specifically factored in the great multi-million-pound VAT giveaway. They pressed on regardless. It is extraordinary that Labour Front Benchers are supporting new clause 10.

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[Mel Stride]

If we look at bringing forward this exemption, the important thing is that we should look solely at that element that relates to low-emission vehicles, rather than applying it to all taxis, as indeed amendments 10, 11 and 12 do, as tabled by the hon. Member for Ilford North (Wes Streeting). However, having listened to the representations from my hon. Friends the Members for Hornchurch and Upminster (Julia Lopez) and for Rugby (Mark Pawsey) and indeed from the hon. Gentleman who has tabled the amendments, we are minded to look sympathetically at bringing forward the exemption by a year for those taxis that have low emissions, albeit that they cost £40,000 or more. I know that my hon. Friend the Exchequer Secretary will shortly be meeting representatives from the London Taxi Company and that he will be furthering those discussions with them.

In the one minute remaining, perhaps I could turn to new clause 10, which calls for a review of the consequences of not backdating the refund of VAT in respect of the Scottish Fire and Rescue Service. The Chancellor made it clear in the Budget that, after lobbying from our Conservative colleagues in particular, we would allow such refunds going forward. In 2012, when the Scottish Government entered into those arrangements, they did so knowing what the VAT consequences would be, but we are taking action going forward.

Finally, I understand the desire of the right hon. Member for Twickenham (Sir Vince Cable) to have information on the effects of increases of income tax by 1%. However, there is no need for that now, as information is available on that. Time does not allow me to explain what that is, but I will speak to him after this debate, and on that basis, I hope that he will not press his amendment. I also take on board his comments about dormant companies and pension fund arrangements, but we do have to look to HMRC to make those judgments so that we ensure that these scams are prevented.

[Anneliese Dodds]

We have no time left, so I will press new clause 7 to a Division.

Question put, That the clause be read a Second time.