Criminal Finances Bill

Baroness Butler-Sloss Excerpts

Committee: 2nd sitting (Hansard): House of Lords
Monday 3rd April 2017 Lords Chamber

Of course one problem is that getting convictions against large companies is notoriously difficult but the point of principle, clearly brought out in a failure to prevent conviction, is: “What was the role of the directors in making sure that the appropriate procedures were in place?”. This goes to the heart of governance. There is no other public accountability mechanism and if it is right for competition, why not for bribery, tax avoidance or other serious criminality? Why should the specialist prosecutor not have the full toolkit?

[Baroness Butler-Sloss (CB)]

My Lords, I have some doubts about Amendment 165. I find a corporate probation order to be rather unusual and although I am not an expert on crime, it seems to me that there would be considerable difficulties with it. Also, if one looks at subsection (5) of the proposed new clause in Amendment 165, the liability is,

“on conviction on indictment, to a fine”,

but it does not say how much. There would be a fine,

“on summary conviction in England and Wales”,

but there are limits to fines in the magistrates’ court. Whatever that figure is, it is not included. This seems an inadequately drafted amendment.

[Lord Judge]

My Lords, I add my voice to that. I support the general idea behind Amendment 165 but it proposes rather a bureaucratic new clause. Why cannot the court simply have power to make orders in accordance with its subsections (2)(a) and (2)(b), where it thinks it appropriate? Why do we need subsections (3) and (4) at all, as company B has already been convicted? It is a matter for the court to decide what sentence should be imposed; it does not need permission or an application by the prosecution. If I may say so, it seems that this would make a complex process to deal with something very straightforward. The court needs to be vested with the powers which are understood to be included on the basis of this amendment. Its compliance procedure would require an external body and, if we are doing that, can we perhaps add that there should be a report to the court about whether the appointed verifier is satisfied that verification has taken place?

As to Amendment 170, I am just a little troubled about subsection (2ZB) in its proposed new clause. It says:

“The court must not make any order under this section unless it is satisfied that the person bears responsibility”.


Fine—I understand that—but this is a penal decision. Are we saying that the court must be satisfied to a criminal standard or to a civil standard?

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Finally, in 2009, at the meeting at Lancaster House, the Cayman Islands entered into a new constitution. That is not very long ago. That constitution contained measures on the rule of law and human rights that meet the most stringent international and European standards, including a bill of rights which includes a right to privacy and laws on data protection. That was entered into after much discussion and is working and successful. I submit to your Lordships that the amendments before us are certainly extremely premature in terms of the world situation, and not needed in relation to the Bill. This Bill is a good Bill and needs to be supported.

[Baroness Butler-Sloss]

My Lords, as vice-chairman of the All-Party Parliamentary Group on Gibraltar I am grateful to the noble Baroness, Lady Stern, for having noticed that I was here and expressly excluded Gibraltar from Amendment 167. It is possible, however, that the omission of Gibraltar might be misunderstood; consequently I want to put on record Gibraltar’s position on its financial affairs. It is compliant with all the financial requirements. The OECD, in its phase 2 review of Gibraltar, ranks it equal with the United Kingdom and the United States on transparency, effectiveness and exchange of information.

Gibraltar, as we know from earlier discussions in this House, is the only overseas territory within the European Union at the moment. It continues to be bound by EU law for at least the next two years and is transposing the fourth anti-money laundering directive by June of this year. That includes the creation of a central register of beneficial ownership, which points out that Gibraltar is doing well as a financial centre and is compliant.

[Lord Hodgson of Astley Abbotts]

My Lords, the theme of corruption and the damage it does to society has been the thread running through all our debates this afternoon and, indeed, on our first day in Committee last week. When you have powerful speeches from the noble Baronesses, Lady Stern and Lady Meacher, the right reverend Prelate the Bishop of Peterborough and my noble friend Lord Kirkhope, you have to be influenced by what they are telling you. When they link it to the idea of a gold standard of a publicly available register—although after the noble Lord, Lord Eatwell, had finished with Companies House, gold was no longer the metal that I would associate with that institution—you feel that there may be an exceptionally strong case. Equally, as you reflect on it, you begin to wonder whether the best may not become the enemy of the good.

In trying to clarify my thinking on this very difficult issue, I ask my noble friend on the Front Bench to focus in her reply on three points that are important to me. They relate to the big three of the overseas territories mentioned in the amendment: Bermuda, the British Virgin Islands and the Cayman Islands. The others are much smaller; they may be important in the future but the major difficulties will arise with the first three.

First, can my noble friend confirm what the noble Lord, Lord Beith, said—that those three territories are going to have an up-to-date register of company ownership—and the date by which it is going to be in place? If it is going to be in place, are the Government satisfied that each register operates effectively and accurately?

Secondly, I come to the verification point raised by the noble Lords, Lord Eatwell and Lord Naseby. Since information is put into these registers by third parties, which have titles such as corporate service providers—CSPs—trust or company service providers, and so forth, are the UK Government satisfied that the regulatory regime in each of these territories ensures that the CSPs operate to timely and accurate standards? Are there adequate checks on their performance? For example, are there, as we have in the City of London, fit and proper person tests to make sure that those who are providing the information have decent standards of behaviour imposed on them?

Thirdly and finally, as my noble friend Lord Kirkhope said, are UK law enforcement agencies satisfied with the level of co-operation and assistance provided by these regulatory authorities? Do they get prompt and helpful responses or are the responses dilatory and evasive? If my noble friend was to say that she could give the Committee assurances on those points, my concerns about the best being the enemy of the good would rise in significance. Of course we are seeking a gold standard but surely in the short term what is vital is not that I or other Members of your Lordships’ House should be able to interrogate the register but that the relevant law enforcement agencies should be able to do so, and should be able to do so promptly and to get information promptly. Then, I hope, as enforcement standards rise and, as my noble friend Lord Naseby said, the United States begins to bring all parts of its dominion into proper behaviour, the gold standard of full public disclosure may well be appropriate.

I quite understand why the noble Baroness wishes to do this but my concern is that if we go too far, too fast now, the malfeasant—and it will be those who go first—will drift away to still murkier regimes. We may have only half a loaf and the noble Baroness would like the full loaf, but at least we have half a loaf. If we go to murkier regimes, there will be no way of getting any sort of collaboration, co-operation or help at all to tackle what I think everybody in your Lordships’ House agrees is a really important problem and is imposing terrific damage and harm on our fellow citizens, particularly in the developing world.

I hope my noble friend can answer my questions. Are there going to be prompt and accurate registers in the major territories—and, if so, by when—or are they there now? Are those who upload information into the registers properly checked, verified and regulated? Do our law enforcement agencies really get wholehearted collaboration and assistance from their opposite numbers in those three territories?

Criminal Finances Bill

Baroness Butler-Sloss Excerpts

3rd reading (Hansard): House of Lords & Report stage (Hansard): House of Lords
Tuesday 25th April 2017 Lords Chamber

[Lord Luce (CB)]

My Lords, I support government Amendment 8. I apologise to the House for the fact that I have not been here for the earlier proceedings because, among other things, I have been visiting one of the overseas territories, Gibraltar, as I am chancellor of the new university there. As a former Governor of Gibraltar I am probably the only person in the Chamber who has been a governor of an overseas territory, so I thought I ought to say something in this very important debate.

The noble Baroness, Lady Stern, and all those who have added their names to the amendment have done a service to the House in ensuring that we debate the vital issue of standards of regulation in overseas territories. After all, at the end of the day it is our Government who are ultimately accountable to Parliament for the performance in our overseas territories. Therefore the Government must satisfy themselves that the standards both in this country and in the overseas territories meet those required by the OECD and elsewhere, so I congratulate my noble friend on the leadership that she has shown in ensuring that we debate this issue.

However, there is a delicate balance to be struck—from listening to the debate, I think the House understands that—because we are now in a non-colonial era. I remember that after I became Governor of Gibraltar, the late Robin Cook became Foreign Secretary two or three months later and one of the first things he did, very sensibly, was to drop the term “colonial” from our overseas territories so that we have the title we use at present, “British Overseas Territories”. We have to approach these issues in a very non-paternalistic and non-colonial fashion. To my mind, that is essential. The danger with the devolved powers that we have in these overseas territories—quite rightly, in my view—is that if we try to impose in a paternalistic fashion our views and policies upon them, we will be doing them a great disservice. Above all, we want to avoid having to impose direct rule, which could be the implication of taking some of these measures. At the same time, we have to ensure that there is a level playing field, which includes us as well, and that in making progress on this we do not do so at the expense of the overseas territories.

The Government have shown tremendous initiative in responding to the amendment from the noble Baroness, Lady Stern, with their Amendment 8 because it provides a framework with which we can move forward in negotiation and dialogue with the overseas territories over the next two or three years to try to move the whole issue forward. Many of the overseas territories, as we have already heard today, have made good progress. I congratulate the Government on this and strongly support their amendment.

[Baroness Butler-Sloss (CB)]

My Lords, I support very much what the noble Lord, Lord Luce, has just said and respectfully associate myself with it. I strongly support Amendment 8. If I may put it this way, I think the Government, and particularly the Minister, have been extremely shrewd in taking the sting out of the points made by the noble Baroness, Lady Stern, who has very wisely brought these issues to this House. The Government have picked them up and produced what seems to me to be the right approach to dealing with the overseas territories. The amendment provides a useful nudge to the overseas territories that the Government are looking at what they are doing, without imposing what is unacceptable upon these independent countries with their own constitutions and parliaments.

I do not agree with Amendment 14. I was at the meeting this morning where representatives from a number of overseas territories explained to us what they were doing. We have already heard about Bermuda and the Cayman Islands, the British Virgin Islands, which are doing very good work, and from Anguilla and Montserrat about the efforts they are making. We have heard from the Minister about the Turks and Caicos Islands, which with their new Government are now working to get this through. So the areas contained within Amendment 14 are already on the way, if not ahead of us in some cases, and it is not necessary that they should be referred to specifically in it. I do not want to hold everyone up. I support Amendment 8 and I do not think Amendment 14 is really necessary now.

[Lord Faulks]

My Lords, I shall speak to Amendment 24 in my name and that of my noble friend Lord Hodgson of Astley Abbotts in this group. It concerns the setting up of a public register of beneficial ownership of UK property by companies and other legal entities registered outside the UK. Those are more or less the words that are the subject of a call for evidence issued by the Department for Business, Energy and Industrial Strategy in April this year. I do not know but I assume that the Home Office did a great deal to bring forward the publication of that report in the light of the debates which took place in Committee about the concern that was generally expressed about corruption and the acquisition of property in central London by overseas companies hiding behind anonymity.

The establishment of a public register was indeed a commitment made by the Government. Why do we need a register of this sort? I can do no better than quote briefly from the call for evidence, which says,

“the government is concerned about the potential for illegal activity to take place through overseas companies investing in the property sector. Some properties are owned through off-shore companies in order to obscure their true owners. This can make it difficult for regulators, legitimate businesses and the general public to know who the true owners are and can make it very difficult for law enforcement agencies to carry out effective investigations … Greater transparency of property ownership will make the job … easier and will discourage criminals and the corrupt from choosing the UK to hide or launder their money”.

It is made quite clear that the Government intend to introduce a register of beneficial owners of overseas companies but, as it is a call for evidence, it does not seek to prescribe the nature of that register but calls for advice and information to assist it in formulating the register. It may well be influenced by what the noble Lord, Lord Eatwell, said about verification to make any such register particularly useful.

The amendment in my name and that of my noble friend Lord Hodgson simply asks the Government to do that and make it a part of the Bill. If we do not, there is real feeling that there will not be legislative time even in the Parliament that may start in June. I ask the Minister to reassure us that the register will be set up in short order.

--- Later in debate ---

[Lord Hodgson of Astley Abbotts]

My Lords, in moving Amendment 20, I will speak also to Amendments 21 and 22. With these amendments we return to an issue we discussed in Committee in a somewhat different format, but the underlying purpose this evening is the same: to increase the effectiveness and value for money of the current money laundering regime. Let me make it clear again, as I did in Committee, that this is not an attack on the utility of money laundering regulation in the fight against financial crime. However, I argue strongly that the present regime encourages mindless compliance, whereas it should be encouraging principled behaviour. As a consequence of this, the money laundering regime enjoys a very low level of public support and is too often regarded as a form-filling joke. That is a bad place for a regulatory regime to find itself. Its efficacy would be greatly improved if it were able to win over the hearts and minds of people, as opposed to earning their solemn acceptance.

Why do I think the present regime is ineffective? It is based very largely on the SAR regime—the suspicious activity report regime. Last year, just under 400,000 SARs were delivered. In the years since the present regulations were introduced in 2007, probably over 2 million SARs have been recorded. Consider the cost of their preparation and analysis. According to a freedom of information request, the outcome was that there were no convictions at all under the regulations in the first five years, from 2007 to 2012, and only four convictions and five more proceedings in the five years since. The National Crime Agency managed to recover assets totalling only £25 million last year, but claims that there are billions passing through London illegally all the time. If that represents success, I find it hard to think what failure would look like.

There is a Faustian pact between, first, the regulators, who are pressed to gather even little scraps of information, no matter how irrelevant; secondly, the compliance departments of the regulated firms, which are enjoying the opportunity for untrammelled growth in their activities and personnel; and thirdly, the professional firms that enjoy the fees earned from checking these ever-increasing compliance activities. No one ever steps back to get perspective and to see how this undoubtedly important activity could be done more effectively.

In Committee, I argued that to break into the cycle the National Crime Agency should be required to follow the principles of best regulatory practice, as laid out in Amendment 21, which we are discussing tonight. My noble friend would not, I am afraid, accept this line of argument, saying that:

“The NCA can and will act where there is criminal activity relating to money laundering. However, it does not have a regulatory remit, and to require it to have one would deflect it from its purpose of tackling serious and organised crime”.—[Official Report, 28/3/17; col. 532.]


I am not sure that I follow exactly that line of argument, but never mind—we have moved on from there. Now, we have the new body: the office for professional body anti-money laundering supervision, or OPBAS. It clearly should follow the principles of best regulatory practice. Amendment 20 requires the Government to set this body up within six months. This is an important body with an important role and therefore we need to get on with it, and to give Parliament sight of its structure and remit by means of requiring its establishment through an affirmative statutory instrument.

Amendment 22 lays down the principles that the body must follow. It must be proportionate, accountable, consistent, transparent and, most importantly, targeted at cases in which action is needed. Amendment 22 also lays down a series of processes by which the new body will ensure that the bodies it is responsible for regulating follow these principles. There is a series of ways of doing that, including publishing advice and guidance, and carrying out investigations to ensure that the operation is working effectively.

Before I conclude, to underline the seriousness of the situation we now find ourselves in, let me give the House a couple of examples of the mindlessness and the consequent drawbacks of the present regime. My most recent money laundering inquiry included a couple of dozen questions. Among them was the following: “We see you have links with a company called NS&I. Please explain these”. Since the inquirer had access to my bank account, they could see that it was an entry of £25 alongside NS&I. NS&I is, of course, National Savings & Investments. It was a premium bond winning; sadly, not £1 million, but never mind—every little helps. Does the NCA really think that the Government’s own saving authority is involved in money laundering?

A second question was: “We see that you worked in North America in the 1960s. What were your earnings?”. That was half a century ago. It is hard to think that I started money laundering the year after I left university and have so far carried on for more than 50 years, undetected. I was sufficiently irritated to answer this second question with the words, “I haven’t a clue”. Patently, that was an inadequate response, but comeback there was none. Perhaps the form was not read and just filed and the box ticked, or it was read and it was concluded that this was not an important or relevant question. Either way, it was an awful waste of the bank’s and my time. This is going on thousands and thousands of times around the country.

One can laugh about my case, but for many people triggering a money laundering inquiry catapults them into a Kafkaesque world where no one can discover who is accusing them or what they are being accused of. Since we last met in Committee, I have been sent various examples but will give only one this evening. A 43 year-old ex-soldier with a 16-year good-service record built up a capital sum of about £69,000 from his Army redundancy and other sources. On 14 February it was paid into his account at the bank where he had banked for 20 years. On 27 March, when he tried to withdraw part of the money to make his annual ISA subscription and to buy a car, he was told that the account had been frozen. Now, a month later, it still is. He has missed the opportunity to make his ISA investment because the tax year has ended. The bank will not—perhaps cannot because of the regulations—tell him what the problem is, and the Financial Ombudsman appears unable to intervene. He is also concerned that this incident will damage his future credit rating and he will have no way of obtaining redress. So there are very serious cases where this money laundering regime is not working effectively to catch the individuals it should really be aiming at.

In Committee, I referred to the increasing prevalence of de-risking by regulated entities. Under pressure from the money laundering authorities, they close down whole categories of accounts irrespective of their behaviour and performance because they might be risky from a money laundering point of view. I referred to a long-standing friend of mine who lives in Pakistan—a British citizen—who has had his account unilaterally closed. Since Committee, I have heard more examples of smaller charities about how they are finding it difficult to operate overseas because of money laundering regulations. Most recently, the Gurkha Welfare Trust is having difficulty obtaining banking facilities to transmit money to ex-Gurkha soldiers living in Nepal who have fallen on hard times. They live in Nepal and that is a red flag.

In the event that my noble friend cannot accept my amendments, although I am sure she is going to—

[Baroness Butler-Sloss]

I am extremely interested to hear—I fear that I did not hear it in Committee—about the proposal in Amendments 21 and 22. But how does the noble Lord see this office of professional body anti-money laundering supervision working, for instance in the case of the man whose money has been frozen? It is an interesting idea but I just wonder, as a former lawyer, how it would work in practice.

[Lord Hodgson of Astley Abbotts]

I am grateful to the noble and learned Baroness for that intervention, but I can glide this down to third man, if I may use a cricketing analogy, because this is a government proposal. The Government are proposing to set up this new body, so I am sure my noble friend, when she comes to wind up, will have all the detail of how this body will work. I merely wish to ensure that it is sent down the right channels. I know that my noble friend, with her usual aplomb and ability, will deal with that by stroking it effortlessly to the boundary, if I may continue the cricketing analogy.

It is important to do some serious re-engineering of the general approach to money laundering to increase its effectiveness and public confidence in it. That the National Crime Agency can, in its annual report, trumpet the fact that SARs went up by 7.82% over the last year as a badge of success without any reference to the impact it is having, shows that there is much to do. I beg to move.