Criminal Finances Bill (Second sitting)

Ben Wallace Excerpts

Committee Debate: 2nd sitting: House of Commons
Tuesday 15th November 2016 Public Bill Committees

[Peter Dowd]

Q Do you think that the amount of training within the system fits the Bill, so to speak? Is there enough there?

Anthony Browne: There are certainly a lot of training providers. I should declare an interest here in that the BBA provides training, although we are a tiny part of the whole. Larger banks tend to do in-house training. There are a lot of third companies, external to banks, that provide training. There could be an almost unlimited supply of training, so I do not think that that is a constraint.

Nausicaa Delfas: We have talked about training in firms but there also is training for investigators exercising the powers in the Bill and other legislation. There is accreditation and monitoring of them, so the system is robust.

[The Minister for Security (Mr Ben Wallace)]

Q Thank you very much for your input into the formation of the Bill. It helps the Government, and hopefully the Bill reflects some of that. I am keen to find out from the regulated sectors and the professions what you envisage could or would happen to any one of your members should they be convicted of the offence of corporate tax evasion or money laundering. What penalties are available to you to deal with either law firms or the individuals who could be convicted?

Amy Bell: In relation to law firms, while the Law Society is the named supervisor, we delegate enforcement responsibilities to the Solicitors Regulation Authority. Its powers are incredibly wide and include restricting or stopping a firm from practising, intervening in a firm, closing the firm down, stopping the individual solicitors involved from being able to practise and ultimately referring them to the solicitors disciplinary tribunal, where they can lose their right to practise and be removed from the role. Quite serious options are open to the SRA.

[Mr Wallace]

Q And for the banking and financial sector?

Nausicaa Delfas: From our perspective, obviously, individuals could be prohibited from the industry. In terms of firms, there are significant fines and reputational damage.

[Mr Wallace]

Q And they could potentially lose their banker’s licence, if they are a bank.

Nausicaa Delfas: Removal of permissions, yes.

[Mr Wallace]

Q Ultimately, if an international bank loses its British banker’s licence, what does it mean for that bank in the global world? Is it usually the case that if they lose their banker’s licence in a developed market, it is pretty much curtains for them in the rest of the world?

Nausicaa Delfas: It would have a significant impact, yes.

Anthony Browne: If you lost your licence to operate in London, it would clearly have a dramatic effect on an international bank.

[Mr Wallace]

Q Do you think some of the overseas offences here will have a change of behaviour effect on foreign-owned banks that operate here as well? Ones that may previously have been able to exploit their jurisdiction elsewhere will find that the stakes are higher for them.

Nausicaa Delfas: Undoubtedly so. Obviously, where controls are exercised from the UK, those powers already exist, but this certainly goes further.

Anthony Browne: One aspect of the criminal offence of failing to prevent tax evasion about which we do have concerns is its extraterritorial impact and the degree of extraterritoriality. For example, if a US citizen who is a customer of a US bank operating in the US evades tax in the US and that US bank has a branch in the UK, the entire US bank could become criminally liable for an action that has no nexus in the UK whatsoever—it is a US citizen, US tax and a bank operating in the US under US law. The same goes for Japan, and so on. Effectively, that would place us as regulators for jurisdictions overseas. The US Department of Justice, for example, does not have such authority over UK banks operating in the US. It could have a dramatic impact on the UK’s competitiveness as an international financial centre.

[Mr Wallace]

Q But the US regulator does have a say in things like foreign and corrupt practices over examples such as the one you used. You do not have to have an entity with their extraterritorial reach in their other legislation.

Anthony Browne: It has to be a nexus in the US, I think. That is my understanding of that, but we can get back to you on the detail of it. Our understanding is that there no legislation which has this impact, in the sense that it is entirely extraterritorial without any nexus. It does not involve UK taxes, UK citizens, UK banks or UK laws.

[Mr Wallace]

Q But we do not really want tax evaders anywhere, do we? We do not want to allow tax evaders to rob other countries of their wealth either. We do not want to be a permissive society.

Anthony Browne: No, but obviously, the US, Japan and other countries have very sophisticated tax evasion laws already. Getting them to comply with two different laws simultaneously on a global basis, for both the UK and other jurisdictions, would have quite big implications. I do not know whether you have spoken to other Governments about the impact of this.

[Mr Wallace]

We have not had any representations from the United States objecting to this.

[Roger Mullin]

Q I would like the panel’s views on whether there is a case for strengthening protection for whistleblowers in the financial sector.

Anthony Browne: The protection for whistleblowers has just been strengthened in the financial sector. Ms Delfas might know more about it. We have been working with the regulators to ensure that each bank has a proper independent whistleblowing regime that does exactly that: protect whistleblowers. There is a senior manager or a board director who is a champion of the whole whistleblowing regime within the bank. That is a process that we have been going through over the past 18 months or so, to strengthen it.

--- Later in debate ---

[Dr Huq]

Q Can you think of anything that is not in the Bill that you would have liked to have seen in it? I was kind of thinking sideways—maybe enhanced supervision of the property market or something. I know that is not one for you three directly, but if there is anything you would like to see in the Bill, we are told that the Minister is in listening mode.

[Mr Wallace]

Always.

Anthony Browne: We broadly support this Bill and almost all the provisions in it. The one thing we would like to see changed in the Bill is the threshold for intelligence sharing, which is a point that Ms Delfas made earlier. It would be beneficial and make the regime more effective if you lowered the threshold for intelligence sharing. If there was activity that was just below the formal level of suspicion, so that banks do not deal with it as a suspicious activity report, if they could at that stage share intelligence with other banks like two pieces of a jigsaw, they could find out that something happening in bank A is also happening in bank B.

That could raise it to a suspicious activity and so enhance the intelligence sharing and make it far more useful and effective. We are worried that the way it is prescribed at the moment would actually be a lot less effective than either the Government or the banks want.

[Dr Huq]

Q Do you think that the £100,000 for an unexplained wealth order is about right as the threshold where that kicks in? Would you like to see it higher or lower?

Anthony Browne: I do not have a view on that, but I can get back to you.

Nausicaa Delfas: I do not particularly have a view but, certainly from our experience, the cases of money laundering tend to be of higher value. I do not have a view on the figure as such.

--- Later in debate ---

[Mrs Drummond]

Yes, but I think Mr Leask was talking about other countries and corrupt Governments. We cannot cover that in the Bill. We can cover the overseas territories. Were you not talking about other countries outside the overseas territories when responding to Mr Mullin?

David Leask: We were talking about the use of both English limited liability partnerships and Scottish limited partnerships as shell companies. Those shell companies often provide cover and a way for people in Russia, for example, to buy a company in the British Virgin Islands. Often the shell on the outside will be British, but, when you crack it open, on the inside you get the British Virgin Islands or another Commonwealth or British overseas territory. Sometimes it is a country such as Belize or Panama.

One of the things said to me by a colleague—a lot of work is being done on these stories by colleagues in countries like Ukraine and Latvia—was, “We keep coming up with that British Commonwealth problem.” That really struck me, once you start unwrapping these shells. One final point I will make is that, in many countries, there are blacklists of offshore fiscal paradises and tax havens, and the British and Scottish companies enable you to bypass those blacklists.

Toby Quantrill: In the recent Panama papers data that were revealed, just under half of companies in the documents in Mossack Fonseca in Panama were registered in the British Virgin Islands. It was by far and away the most utilised location. It is at the heart of the system. With the ability to deal with that comes a responsibility to do so.

[Mr Wallace]

Q I thank The Herald for what you have done. I have read some of your stuff and it has been quite an eye-opener. The SNP obviously raised it in the debate and that prompted me to have a meeting with one of my business Minister counterparts to see where we can go forward with it. Some of the stuff that you have identified—well done for it—is the truest form of good investigative journalism that can be produced. It was the Glasgow Herald when my grandmother wrote for it way back 40 or 50 years ago. It is clearly a structure that has been abused, and I think we want to ensure that that does not happen.

I want to ask Mr Quantrill about a bigger issue: the Crown dependencies and overseas territories. If we stack it up, going back to the anti-corruption summit chaired by David Cameron back in May, we have got to a position now where all of them will have a central register of beneficial ownership, except the Caymans, which will have a linked register of ownership. Our law enforcement agencies will have access to them. We are the only country in the G20 to have a public one. Never mind the dependencies or anywhere else; our neighbours in Europe do not have them yet, so the trajectory is in the right direction. It seems to boil down to a call to make the Crown dependencies make them public—that we, the UK Government, impose our will on the Crown dependencies and territories, in primary legislation.

Do you recognise what that actually means? I have many constituents who, for example, have very strong feelings on abortion. Does that give this sovereign Parliament the right—technically, we are sovereign over Scotland and the Crown dependencies—to impose that very strong will on those Crown dependencies? That is the next step. The step you are suggesting is for us to ignore their own Parliaments and impose our will on them, because it is a subject that you and many other people feel passionately about. I respect that, but it is what you are proposing. Is that something that you are happy to do?

Toby Quantrill: Not happy—

[Mr Wallace]

By working with them, we have got to a position rather quickly of having central registers and getting our law enforcement automatic access to those data without long, drawn-out court cases. We have done that in the space of a year. Is Christian Aid proposing that we override the democratic expression of those countries, whether they like it or not, because it is a subject that you have decided is more important than other issues?

Toby Quantrill: I certainly recognise the difficulties. I would also very much prefer that we did not have to go down the path of legislation. I do not necessarily think that we would need to, but it ought to be available, and it ought to be made clear that it is available. There have been precedents in the past.

That is one thing, but what we are looking for is a timeline and to be really clear by when this will happen, so that we know what is happening and can see the UK using all its powers to persuade and support these places to go in that direction, primarily. However, we do not think it is acceptable for this not to happen within a timeline. The reason for that is that the impact globally is so great. The Panama papers are a game-changer in this respect. It puts these places right at the heart of the system. The damage being done globally, to our mind, overrides the very real discomfort of taking this action, but it is not an action without any precedent. The UK has gone down that route in the past, as I am sure you are aware, on a number of different issues.

Also, interestingly, I had sight of a paper recently, the Foreign Office annual report on the Cayman Islands Government from 2003; it goes back some time. In it, there was a single paragraph relating to the EU savings directive. At that time, the Caymans Government clearly did not want to implement it; it was a similar issue of making certain information available. The paragraph stated that voluntary action by the Caymans Government meant, effectively, that we did not have to legislate. It was clear that the threat of legislation had been used, and had been effective in that case. It has been done in the past, in a similar incident.

Yes, I recognise the difficulty—I honestly do—but there are potential implications of maintaining secrecy in these places. It is not just one particular place; it was, as I said, one of the most important centres of financial secrecy in the world. I think the potential impact of that staying in place is too great to ignore, but what we are looking for is a timeline, persuasion and all means possible first.

[Mr Wallace]

Q You quote the Panama papers, which was a significant leak, and there have been previous ones—Liechtenstein and others. The access that our law enforcement agencies will now get will be greater than the Panama papers. The Panama papers are not complete, and they are effectively within the control of the journalists in the sense that they were selectively leaked to them and then published. No one is able to get the full picture because we do not have open access to Panama, which is not a Crown dependency or an overseas territory; it is a place that Scotland had a bad relationship with a few hundred years ago.

What we are proposing, and what the Crown dependencies are giving our law enforcement access to, is the complete picture. In one sense, we will have a greater advantage than the Panama papers because our law enforcement agencies will be able to have full access to the full range automatically. Therefore, in one sense we are 90% there. As you said, we do not have the transparency bit, but the Government’s intention is to do that. We are doing it, first, by leadership. We are the first in the G20 to say it is our aspiration. The step that seems to be mooted is to impose the sovereign will of Parliament on them, but in 12 months we have gone 90% of the way.

Toby Quantrill: We are looking for a timeline. We must give time and support to moving in that direction and be clear about when we are going to reach it. The Panama papers demonstrated the power of making this information public, because the impact has been global. In countries all around the world, citizens have gained information about people often within their Government and judiciary, and they have been able to investigate, follow those leads and hold their Governments to account. That is the power of transparency. It should be full transparency, not just the bits and bobs. We should not have to rely on leaks to hold our Governments to account. That is the point we are making.

[Carolyn Harris (Swansea East) (Lab)]

Q Have you ever heard of the Magnitsky clause?

Toby Quantrill: No.