Criminal Finances Bill

Baroness Williams of Trafford Excerpts

2nd reading (Hansard): House of Lords
Thursday 9th March 2017 Lords Chamber

Moved by

[Baroness Williams of Trafford]

That the Bill be now read a second time.

[The Minister of State, Home Office (Baroness Williams of Trafford) (Con)]

My Lords, serious and organised crime threatens our national security and prosperity, but for the victims the greatest impact is the harm that it inflicts on their lives and personal well-being. This criminality can affect anyone: from those caught up in gang warfare to the slaves forced to work or subjected to abuse by human-trafficking gangs, to the victims of scams and cyberattacks designed to steal their money and that of their friends and families. It is all-pervading—it undermines our safety, prevents prosperity and corrodes communities. The perpetrators of these crimes do so largely to make money—that is almost always their primary motivation. The Government have therefore brought forward the Criminal Finances Bill to combat the money laundering that allows criminals to fund their lavish lifestyles and reinvest their illicit gains in their criminal enterprises.

The origins of this legislation lie in the Government’s 2013 Serious and Organised Crime Strategy, which sets out a clear goal of working with the private sector to make the UK a more hostile place for financial criminals. More recently, last year the Government’s Action Plan for Anti-money Laundering and Counter-terrorist Finance identified how to build on the UK’s risk-based approach to addressing these parallel threats. As noble Lords may well be aware, the tactics used by serious criminals are often employed by those seeking to fund terrorist-related activity, so the police and others must use similar methods in their response to both. The Bill will give effect to the legislative aspects of the action plan, making it a key part of one of the most significant changes to our anti-money laundering and counterterrorist finance regime in over a decade.

Specifically, the Bill will help law enforcement officers to tackle money laundering, recover the proceeds of crime and international corruption, and, where possible, return these assets to victims. Part 1 provides for unexplained wealth orders, or UWOs, as I will refer to them—a valuable new device to investigate those suspected of money laundering, requiring them to explain the source of their wealth to a court. Where they cannot do so, law enforcement agencies can look to recover those assets. I recognise that there may be questions about the operation of this power and it may help noble Lords if I briefly clarify how it will work.

If a law enforcement agency suspects someone of involvement in serious crime where their wealth appears to exceed their known income, it can apply to the court for a UWO. The power can also be applied to non-European politicians or officials who may be involved in corrupt activities but where evidence of their links to criminality is not easily available. The individual would then need to satisfy the court that their property had been lawfully acquired. If they did not provide an adequate explanation, the authorities could seek to recover their property. Crucially, these orders are only an investigative tool; the tests for any further legal action, including prosecution or civil recovery, would still need to be satisfied.

The Bill will also enhance the existing seizure and forfeiture powers in the Proceeds of Crime Act 2002, also known as POCA. Although the police can currently seize cash, they cannot do likewise with money in bank accounts or where criminals store their profits within other items of value, such as casino chips, precious metals and jewels. As criminals adapt, so must we, and we are extending these powers accordingly. The provisions seek to extend the use of another useful investigative tool—disclosure orders—to money-laundering investigations.

This Government are committed to working in partnership with business on these crucial issues. A key element of this partnership will be the changes that we are making to the suspicious activity reports, or SARs, regime, which allows regulated companies such as banks to provide critical intelligence to our law enforcement agencies. In particular, the Bill will create a specific gateway to allow the sharing of information between regulated companies so that they can submit better-quality reports.

This approach has been piloted under the Joint Money Laundering Intelligence Taskforce, otherwise known as JMLIT, and I have heard first hand from both banks and the NCA about the positive results that it is delivering. For example, from May to July 2016 the JMLIT helped to deliver 37 arrests of individuals suspected of money laundering, the closure of 114 suspicious bank accounts and the restraint of £145,000 of suspected criminal funds.

In addition to these measures on money laundering, Part 3 of the Bill creates vital new offences of corporate failure to prevent tax evasion. This means that we will be able to hold to account companies which unreasonably fail to prevent their staff criminally facilitating the evasion of taxes, either in the UK or overseas. These measures will ensure that anyone wishing to do business here must have the highest possible standards of compliance and enforcement, helping the UK to maintain our place as a world leader in tackling corruption and tax evasion.

I have spoken primarily about criminal activity but, as I have said, we must also address the vulnerabilities in our financial system that are exploited by terrorists. As such, Part 2 of the Bill makes complementary changes to ensure that relevant measures being provided for money-laundering investigations will also be available for investigations into terrorist financing. By starving terrorist groups of funding, we aim to take away their ability to buy weapons, plan attacks and fund the propaganda that incites others to follow their evil ideologies.

Throughout the Bill’s scrutiny in the House of Commons, the Bill was the subject of notable cross-party support. There is consensus that these measures will make a real difference in the fight against money laundering and terrorist finance, and I trust that noble Lords will reach the same conclusion. However, there have been, as ever, some areas where we have been pushed to do more. I am pleased to say that the Government have listened and we have amended the Bill on Report in the Commons to allow for the civil recovery of any proceeds of gross human rights abuse overseas. This amendment was prompted by the horrific treatment of Sergei Magnitsky, a Russian tax lawyer. I have read about this case; Magnitsky’s treatment was truly shocking, and it is only one example of the many atrocious human rights violations committed globally every year. I welcome the fact that we have taken action, sending a clear statement that we will not allow human rights abusers to launder their criminal assets through the UK.

I am also sure that noble Lords will be interested in the issue of company ownership transparency in the British Overseas Territories and Crown dependencies. I stress that this Government have led the way in the fight against global corruption and we remain committed to working with these territories on this agenda.

I know that these topics, and others, will be of interest to many noble Lords and I look forward to debating them today and over the coming weeks. This is an important piece of legislation. It will make a significant contribution towards tackling the twin threats of money laundering and terrorist financing. The men and women of our law enforcement agencies do great work in combating those threats, and many in the private sector are dedicated to helping with this effort. The Bill will help provide them with the powers and legislative framework they need to do so more effectively. We continue to work closely with law enforcement agencies, the regulated sector and the devolved Administrations on the provisions and may bring forward some further technical, but essential, amendments in Committee. I will, of course, keep noble Lords updated.

The UK is a great place to do business. We should be proud of our status as a global financial centre, and we must protect it. We are a world leader in the fight against global corruption: this is important work and it must continue. We must do all we can to protect the most vulnerable in our society, to keep everyone safe and prosperous. I beg to move.

--- Later in debate ---

[Baroness Williams of Trafford]

My Lords, I thank all noble Lords who have taken part in this Second Reading. We have had a very constructive debate and consensus across the piece that there should be general support for the Bill. Clearly, we will take a few things further in Committee—I think I know what they are.

The noble Baroness, Lady Stern, said that I must be very happy to be introducing a Bill such as this. Yes, I am. It will further enhance our ability to bring to book those who seek to engage in corruption and tax evasion and benefit from all those other proceeds of crime.

I will turn first to the Crown dependencies and overseas territories, because it is what most noble Lords have mentioned today. The Government agree about the importance of combating grand corruption. International corruption threatens the progress of many developing nations, and this country must do everything in its power to leverage our international status, and that of our financial sector, to combat it.

There is clearly still much to do, but the Crown dependencies and overseas territories with a financial centre have made significant progress on the commitments that they made in the run-up to the London anti-corruption summit last year. That summit positioned the UK as a global leader in the fight against corruption, and the Government have not changed their position. As the noble Lord, Lord Rosser, and many other noble Lords pointed out, the UK has created its own public register. We are leading the way, and we hope that others will follow. Progress is being made, and I encourage noble Lords to recognise the considerable amount of work that is going on in this area. I take this opportunity to thank my noble friends Lord Flight and Lord Faulks for outlining the progress that is going on in the Crown dependencies as we speak.

The noble Lord, Lord Rosser, asked whether we can legislate for the overseas territories and Crown dependencies. We have the power to legislate for the overseas territories and Crown dependencies, but we do so almost always with consent. Where we do not, it is on moral and human rights issues, such as homosexuality and the death penalty. However, just because we can legislate for them does not mean that we should do so when we are working with them to implement existing agreements on a consensual basis. This has already delivered significant achievements, and it is right that we continue with this approach.

Obviously, our long-term ambition remains that publicly accessible registers of beneficial ownership will become the global standard. Should this happen, we would expect all jurisdictions to meet this standard, including the overseas territories and the Crown dependencies.

[Lord Watson of Invergowrie]

I welcome the fact that discussions are continuing with the overseas territories, but they seem to be left entirely open-ended. In my contribution, I asked for a deadline. I do not believe that the Minister will give me one now, but there has to be some point beyond which we say to the overseas territories, “We’ve tried discussing this with you, we’ve tried to carry you with us, but if you’re not coming, then we have to take positive action”.

[Baroness Williams of Trafford]

I hope I can be helpful to the noble Lord. Progress is being made, but at a point at which progress is not made, we may have to take a different view. As we see it now, the overseas territories have come an awfully long way from where they were even this time last year. My noble friends have given the House an update on how much progress the Crown dependencies are making. The point is that there is progress. Were progress not to be there, I might have given a different response to the noble Lord. I hope he is satisfied thus far with what I am saying.

[Lord Anderson of Swansea]

Is there not the danger in the argument of a level playing field of a comprehensive public register across the board that that will never be achieved, because there will always be some countries which would hold out against it? All one can reasonably hope for is the greatest measure of agreement.

[Baroness Williams of Trafford]

The noble Lord is absolutely right that we will never get a global homogenous position with every country being equally compliant. We are aiming for those territories and Crown dependencies to work towards the standard to which we aspire. That is where we are at this point. I hope both noble Lords are satisfied with that.

I trust that this House, like the Commons, will recognise the constitutional settlement that we have with these territories and agree that we should look to work consensually with them rather than enforcing legislation.

The noble Lord, Lord Rosser, and my noble friend Lord Faulks made the point that there is no point in legislating if law enforcement agencies do not have the resources to deliver. I understand the concerns raised regarding law enforcement and the resources available fully to implement these new powers. I am pleased to say that £764 million has been invested in law enforcement agencies since 2006 and that more than £257 million has been invested over the past three years under the asset recovery incentivisation scheme—otherwise known as ARIS—which returns recovered assets back to the front line. These moneys are used by law enforcement for reinvestment in law enforcement capabilities or in community crime prevention schemes.

In addition, the Home Office share of ARIS is invested in front-line capabilities, including the regional organised crime units, ROCUs, which have received more than £100 million in direct funding from the Home Office since 2013-14. We reformed ARIS to boost the resources available to tackle serious and organised crime. A top slice of £5 million has been set aside every year until the end of this Parliament to fund key national asset recovery capabilities.

The noble Lord, Lord Rosser, also asked which agencies can use the powers in the Bill. The powers in the Bill can be used by a variety of law enforcement agencies, not just the NCA. The police, the Serious Fraud Office, HMRC, the Crown Prosecution Service and immigration officers will be able to use the new powers in the Bill to investigate money laundering and seize criminal assets.

My noble friend Lord Faulks asked about the effect of partial compliance with a UWO. If there is compliance or purported compliance, the rebuttable presumption that the property is recoverable does not arise. However, law enforcement has valuable information and can pursue an investigation, if relevant. If the purported compliance is false or misleading, it will be an offence.

My noble friend also asked why so few UWOs are predicted—20 per year—and why the amount expected to be recovered as a result of UWOs is so small. A number of other noble Lords alluded to this. I reassure noble Lords that the figure given in the impact assessment is a conservative estimate based on the views of operational practitioners. It is not a definitive indication of how often this power will be used. The Government are keen that these powers are used in as broad a range of cases as possible, and we are already actively engaging with law enforcement and prosecutors to encourage the use of all the new powers being introduced by the Bill. Ultimately, it will be for the enforcement authorities, which are operationally independent, to decide when and how often to use these new powers. We will carefully monitor and review the use of UWOs once they are introduced. This will inform future changes that may be needed to ensure that they are being used to their maximum effect.

My noble friend also asked what we have learned from the use of UWOs in Australia. As part of the work developing our draft legislation, we have noted with interest the experience of other jurisdictions which have existing provisions for UWOs, Australia being one of them.

The noble Lord, Lord Rosser, and other noble Lords spoke about corporate failure to prevent other economic crime and asked why the Government have not created a corporate liability offence in respect of failure to prevent economic crime. The damage caused by economic crime perpetrated on behalf of, or in the name of, companies to individuals, businesses, the wider economy and the reputation of the United Kingdom as a place to do business is a very serious matter. However, the Government believe that it would be wrong to rush into legislation in this area and that there is a need to establish whether changes to the law are justified.

On corporate criminal liability for economic crime, the Government launched a public call for evidence on 13 January—which I think one noble Lord alluded to—which is open until 24 March. This is part of a potentially two-part consultation process. It has requested and will examine evidence for and against the case for reform and seeks views on a number of possible options, such as the Bribery Act failure to prevent model. Should the response the Ministry of Justice receives justify changes to the law, a consultation on a firm proposal would follow. We are therefore not in a position to comment on the timetable for reform, should that be the way forward.

The noble Lord, Lord Rosser, made a point about SARs reform, which was mentioned during the consultation on the Bill but is distinctly lacking in the Bill. He asked whether SARs will be prioritised as major and trivial. Reform of the SARs regime is a crucial part of the Government’s Action Plan for Anti-money Laundering and Counter-terrorist Finance. We have established a programme to reform the SARs regime, working collaboratively with partners in line with commitments published in that plan. The Government are seeking improvements in the short, medium and long term, and the legislative elements in the Bill are only one element of the wider reform that is required. During the review of the SARs regime that the Home Office ran in 2015, a number of regulated-sector companies suggested that suspicious activity reports should be prioritised. We will consider this as part of the SARs reform programme.

The noble Lord, Lord Rosser, suggested that the anti-money laundering regime is confused and ineffective and asked what HMG are doing to reform the 27 supervisory bodies. The Government consulted on reforms to the anti-money laundering supervisory regime in the autumn and have considered the responses. The Treasury intends to publish the outcome of that review in the coming weeks in order to ensure the most effective possible supervision of the regulated sector.

The noble Baroness, Lady Kramer, talked about whistleblower protection.

[Lord Hodgson of Astley Abbotts]

My Lords, does that mean that the results of the consultation will be available in time for Committee? What was discovered as a result of that consultation will inform our debate on money laundering in a very important way.

[Baroness Williams of Trafford]

I can find out and let my noble friend know. I did say a matter of weeks, so we may be in luck.

Protection for whistleblowers under the Employment Rights Act 1996 means that dismissal for whistleblowing is automatically unfair. BEIS is reviewing legislative provisions around protecting whistleblowers in the workplace and will make recommendations on how we might strengthen them.

My noble friend Lord Faulks and another noble Lord referred to the Observer article about individuals using the tax on enveloped properties and asked what was to become of that. We are providing new investigate powers, including UWOs, which will make it easier for our law enforcement agencies to investigate money laundering in the London property market and recover the proceeds of crime. However, the issue will not be solved by law enforcement action alone. We need to ensure that lawyers, estate agents and other professions, as many noble Lords have mentioned, are complying with their obligations under the Money Laundering Regulations. To that end, the Treasury has launched a review of the anti-money laundering supervisory regime and will publish the findings imminently.

In addition, the Government intend to publish a call for evidence, seeking views on a new register of overseas companies that own property in the UK. We hope to do so shortly and will then introduce the relevant legislation when parliamentary time allows.

Lord Rookie—sorry, I mean the noble Lord, Lord Rooker; I do not know why I called him “rookie”—talked about the Government ensuring that the Magnitsky power will be used. The expansion of the civil recovery regime is a significant step and adds to the suite of powers available to UK law enforcement agencies, including the NCA, to combat money laundering and other serious crime. Ultimately, it will be a matter for the agencies to decide which powers are justified on a case-by-case basis, but the use of this power will be subject to the relevant safeguards in Part 5 of POCA. In particular, law enforcement agencies will need to be satisfied and have the evidence required to satisfy a court on the balance of probabilities that property in the UK is the proceeds of gross human rights abuses or violations overseas.

The noble Lord, Lord Rooker, talked about fines on banks in the UK. He raised the issue of banks in the UK not being penalised for laundering funds from overseas. I have a huge list of fines, which I will not read out today, because it would take up valuable time in responding to the noble Lord’s point, but I will send it to him and other noble Lords and place a copy in the Library.

My noble friend Lord Faulks asked about deferred prosecution agreements in the Bribery Act, and I thank him for his words on DPAs. I agree that they are a very useful tool that encourages companies to engage with law enforcement and self-report wrongdoing. It is used effectively for bribery overseas, for example, in the case of Rolls-Royce, and it will be useful in bringing new offences under Part 3.

The noble Lord, Lord Flight, asked what the Home Office is doing to improve asset recovery and said that not enough is being recovered. More assets have been recovered under this Government than ever before. In 2015-16, we recovered more than £255 million-worth of criminal assets using the POCA powers. We have delivered our 2015 manifesto commitment to return a greater share of recovered assets to the police. When performance exceeds the baseline set in 2015-16, additional receipts will be invested in the regional asset recovery teams, which I think is the right way. The 50% share of recovered moneys that are already invested, including in local police forces, will be unaffected.

The right reverend Prelate the Bishop of Oxford talked about the large proportion of African wealth invested in tax havens. The UK is working precisely on that to bring corrupt leaders to justice and recover the assets that they have stolen, quite often from their own people, as the right reverend Prelate said.

In 2014-15, DfID’s gross losses to fraud and corruption were approximately £2.3 million, recoveries were £1.5 million and the net loss was therefore £750,000, which is a recovery rate of 67%.

The noble Lord, Lord Rooker, asked about procurement, particularly in the public sector. HMG are acutely aware of the risks that central and local government face, and that is why procurement is one of the priorities in the forthcoming anti-corruption strategy. He and other noble Lords have praised my right honourable friend in the other place, Sir Eric Pickles, and I join them in that praise.

The noble Lord, Lord Flight, and other noble Lords made a point about domestic PEPs. According to the Financial Action Task Force and EU law, politically exposed persons must be subject to some sort of enhanced due diligence in recognition of their influence, their authority and their prominence in public life. Our view is that banks should take a proportionate and sensible approach to know-your-customer measures for Members of Parliament, Peers and other UK PEPs. I fully accept, because I have heard various anecdotal evidence, that perhaps this is not being consistently applied across the piece.

I hope noble Lords will indulge me for one more minute, because I have quite a few things to get through. The noble Baroness, Lady Whitaker, asked when UWOs will take effect and when the code of practice will be available. At the earliest opportunity is the answer to that.

The noble Baroness, Lady Bowles, made a very good point about company director disqualification. Where a director is convicted, they can be disqualified as part of their sentence. Where a company is convicted of a Part 3 offence and the director is not party to that, fairness requires a separate hearing of application to disqualify. Where a director of a corporation is implicated in wrongdoing, they can be subject to prosecution. If their actions amount to criminality or facilitating tax evasion where their actions fall short of being criminal, investigators can already investigate whether they are fit and proper to continue to hold the position of a company director and report their findings to the Secretary of State.

I realise that I am well over my time and will have to write to noble Lords, as I still have a wad of answers here. I finish by again thanking noble Lords for what has been a very enjoyable debate.

Bill read a second time and committed to a Committee of the Whole House.