Criminal Finances Bill (Fifth sitting)

Debate between Ben Wallace and Peter Dowd

Committee Debate: 5th sitting: House of Commons
Tuesday 22nd November 2016 Public Bill Committees

[Mr Wallace]

Perhaps I may clarify for the hon. Member for Ealing Central and Acton that I said she used the word “neo-imperialism”—I never implied that she wanted to be neo-imperialist, but some people could describe it as that if we were to impose our will on Parliaments in some of our overseas territories.

Clause 38 creates a new offence that will be committed by relevant bodies that fail to prevent persons associated with them from criminally facilitating evasion of taxes owed to a country other than the United Kingdom. We have seen that criminals seeking to provide services to further their clients’ tax evasion will try to operate between the gaps between the legal systems of different countries. The measure will ensure that the UK is not a safe harbour for professional facilitators or the businesses for which they work. The new overseas tax evasion offence can be committed by relevant bodies that are formed or incorporated in the UK, or which are carrying out a business activity in the UK, or where the criminal act of facilitation occurs within the UK.

There is a necessarily broad scope for the new offence. It holds corporations that carry out a business in the UK, or the representatives of which are acting in the UK, to operate to the same high standards as UK businesses. The message is clear. Tax evasion is a crime. It is wrong. It is no less wrong where the revenue loss is suffered by another country. If a body is part of UK plc, or sends people to the UK, it is not okay to allow people to criminally facilitate the evasion of taxes, wherever they are owed.

The offence requires a dual criminality. Essentially, that means that, for a relevant body to be liable, the criminal law of the country suffering the tax loss must recognise tax evasion and the facilitating of tax evasion as criminal offences in their jurisdiction, and the laws must be broadly equivalent to those in the UK.

The offence does not require relevant bodies to have a thorough understanding of the tax laws in each jurisdiction, but rather to ask itself the question, “If we were providing these services to a UK taxpayer client, would this be legal?” If the answer is yes, there is no question of criminal liability under the new overseas fraud offence.

The offence is not about the UK policing the world’s tax affairs. We envisage that a prosecution for the overseas tax evasion offence will take place only where there would otherwise be a failure of justice—for example, where the country suffering the tax loss was unwilling or unable to take action because of an inability to handle a complex international fraud trial, or was unable to investigate and prosecute because of corruption concerns. I will leave my explanation of the clause there and allow the hon. Member for Ealing Central and Acton to speak to her new clauses before I respond.

[Peter Dowd (Bootle) (Lab)]

It is a pleasure to serve under your stewardship, Mrs Main. The Minister referred to this as the Criminal Finances Bill and the clue is in the name. People who commit an offence and go to prison come out and go on probation. New clause 7 would create a similar thing—a sort of corporate probation order that would allow courts to require bodies found guilty of a UK or foreign tax evasion facilitation offence to take steps to improve their internal procedures and minimize the chance of a person working for that company committing the same offence in future. That would be an important step in encouraging large organisations to take responsibility for those they hire and the actions they undertake, and more importantly in ensuring that financial crime and misconduct is not repeated by others in the organisation.

Before making an application for a probation order, the prosecution would have to consult enforcement agencies. Once a corporate probation order had been issued, any organisation that failed to comply with it would be subject to a fine. Currently, the only remedies a court may impose upon a company convicted of an offence is a fine, disgorgement of profit and compensation. Corporate probation orders would be an additional tool that prosecutors could seek. Courts could impose conditions requiring companies to undertake remedial action to their management and compliance procedures to ensure that the offending is not repeated.

Under the Corporate Manslaughter and Corporate Homicide Act 2007, courts can impose remedial orders on companies to require them to remedy any management failure that led to an offence occurring. This provides a workable pre-existing model for such orders. Under the Crime and Courts Act 2013, if a company is offered a deferred prosecution agreement, or DPA, a prosecutor can require a company to implement a compliance programme or make changes to an existing compliance programme. There is no equivalent power in relation to convictions. DPAs are reserved for companies that self-report their misdemeanours and co-operate with enforcement authorities.

Although prosecutors could, theoretically at least, use financial reporting orders to require a company to provide financial information, under the Serious Organised Crime and Police Act 2005, it is not clear that that would include information on compliance procedures. Additionally, such orders are heavy-handed, require separate court proceedings and require a prosecutor to prove that the risk of reoffending is sufficiently high.

The effect of that discrepancy is a ridiculous imbalance: companies that self-report and co-operate may be subject to greater monitoring of their compliance programme than companies that do not and are convicted. The result is that the companies that most need monitoring of their compliance procedures—those whose procedures did not pick up the wrongdoing in the first place—get none, which is a huge deterrent to self-reporting, and puts a greater burden on enforcement agencies.

The Opposition believe that corporate probation orders are required to remedy that clear anachronism. Companies and defence lawyers have noted the more stringent compliance programme monitoring requirements under DPAs as one factor, among others, that puts companies off self-reporting wrongdoing to the Serious Fraud Office. The discrepancy between what happens under DPAs and what happens on conviction is creating a disincentive for companies to self-report.

At the end of the day, we need to encourage self-reporting in a framework in which companies feel that they are able to work with enforcement agencies to deal with rogue elements or individuals. The alternative would see the continuation of a culture of secrecy in which those at the top deliberately turn a blind eye to what those at the bottom do, and in which financial misconduct is not limited to an individual, but instilled and passed on to others in an organisation.

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[Mr Wallace]

I thank the hon. Gentleman for his kind words. As the son of a Fifer, I know that one always does well to listen to a Fifer—or one faces the consequences.

I am also grateful to the Scottish National party and The Herald newspaper for raising this issue. It is a genuine issue of abuse, as they have rightly pointed out. We have taken important steps to prevent the misuse of corporations for money laundering, corruption and tax evasion. The UK’s public register of company beneficial ownership went live this year—we were the first G20 country to put such a register in place. At the London anti-corruption summit, we committed to going further and creating a register of the beneficial ownership of foreign companies that own real property or wish to be involved in public sector procurement contracts in the UK.

However, we must not be complacent. Hon. Members have rightly raised the issue of Scottish limited partnerships a number of times. I hope they are assured that I take it very seriously. The stories in The Herald and the intelligence assessments that I have received from our law enforcement agencies are very concerning.

As I committed to do on Second Reading, I have spoken on this subject to the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Stourbridge (Margot James), who is responsible for small business, consumers and corporate responsibility, and she shares my concerns about the abuse of SLPs. We agreed that we need to get the balance right between ensuring that the UK remains a good place to do business for the law abiding and cracking down on abuse. Her Department recently published a discussion paper that invites views on a number of questions about transposing corporate transparency requirements under the fourth anti-money laundering directive. The catchy name is “Implementation of the Fourth Money Laundering Directive—Discussion paper on the transposition of Article 30: beneficial ownership of corporate and other legal entities”.

[Peter Dowd]

Too pithy.

[Mr Wallace]

I can repeat it for those who want to write it down. That was launched on 3 November. I think that it is a six-week consultation. As a starting point, I strongly urge the Scottish National party to make a submission.

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[Peter Dowd]

I started by talking about Parliament being able to have reports from the agencies concerned, given the seriousness of the issue facing us. The Minister, reasonably, told us that 100% of the proceeds will go to the appropriate agencies and be divvied up as appropriate. I completely accept that, in good faith, and repeat the point made earlier: that he is a reasonable man. I do not challenge the Minister’s reasonableness; my challenge is based on the fact that Parliament, given the nature of this issue, is perfectly entitled to receive reports from agencies—no doubt articulated through the Departments in some fashion—on their resources. A definition of “adequacy” is that something is proportionate, or sufficient for its purpose. That is a matter for Parliament to discuss. It will not necessarily be able to do anything other than discuss it, but the discussion may produce views and experiences for the Minister to consider.

As to the Minister’s point that this is not something to go into primary legislation, about this time last year I was on the Committee that for 17 sittings considered the Housing and Planning Bill. There were all sorts of things in that Bill far less important to the health and integrity of the nation. Indeed, in the past, local government Acts—primary legislation—have even included provisions on how many hours off a person in one local authority can have, compared with a person in another. Primary legislation can be used in a range of ways. It is for the Government of the day to say, “We have nothing to fear from the reports coming before Parliament, from openness and transparency, or from challenge.”

[Mr Wallace]

Anyone who is a victim of financial crime takes that crime incredibly seriously; the same goes for victims of violent crime. The National Crime Agency has a number of threats to deal with, including drugs, firearms, child sexual exploitation, financial crime and foreign national offenders. Our police forces deal with a range of threats. Are we to say, on the principle that the hon. Gentleman has set out, that primary legislation should require our law enforcement agencies to produce a report every year, under each heading across the whole range of crime, on whether they believe they have adequate funding to do their job? If so, I envisage that our law enforcement agencies will be full of people doing reports all year, arguing about whether resourcing is “adequate”, and submitting them to Parliament, rather than getting on and prosecuting the people we need prosecuted.

[Peter Dowd]

That is a fair point, but we know that, every day, Parliament debates issues that are far less important for the body politic, security and the safety of the country. The point that I am trying to make is that the issue is of great importance and significance. It is so different in degree as to be different in kind. My hon. Friends and I therefore say that Parliament should have this opportunity. This is not a technical proposal. I repeat that, given the nature of the threat to the country, and the importance that people place on the safety of the country, we would like the report to be made to Parliament.

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

Criminal Finances Bill (Sixth sitting)

Debate between Ben Wallace and Peter Dowd

Committee Debate: 6th sitting: House of Commons
Tuesday 22nd November 2016 Public Bill Committees

[The Minister for Security (Mr Ben Wallace)]

New clause 6 highlights an issue raised on a number of occasions when we heard from interested parties about the Bill last week. I am pleased that the Opposition have tabled it, because it allows me to restate that the Government appreciate those concerns and agree that the damage caused by economic crime facilitated by those working for major companies is serious and affects individuals, businesses and the wider economy, and indeed the reputation of the United Kingdom as a place to do business.

As the hon. Member for Ealing Central and Acton is aware, the Labour Government took action in the Bribery Act 2010 in respect of bribery committed in pursuit of corporate business objectives. The Act is widely respected as both a sound enforcement tool and a measure incentivising bribery prevention as part of good corporate governance. We have already debated the new corporate offence of failure to prevent tax evasion created in the Bill. The provisions followed a process of extensive consultation, as did the Bribery Act 2010. I trust that hon. Members will agree that such an approach is necessary when considering the adequacy of the existing legal framework in matters involving complex legal and policy issues.

In respect of the current law governing corporate criminal liability for economic crime, the Government announced that a consultation would take place in May this year. I confirm that we will publish a call for evidence on the subject. In keeping with the considered and methodical approach adopted for the reforms on bribery and tax evasion, the call for evidence will form part of a two-part consultation process. It will openly request and examine evidence for and against the case for reform and seek views on a number of possible options. Should the responses that we receive justify changes to the law, the Government will then consult on firm proposals. The Government believe that it would be wrong to rush into legislation in this area for the reasons I have given. In the light of my assurances and the forthcoming publication of the call for evidence, I invite the hon. Gentleman to withdraw the new clause.

[Peter Dowd]

As I have said, the job of the Opposition is to push the issue as much as we can. As to what the hon. Member for Dumfries and Galloway said about subsection (2), the reality is that we are building into the new clause the capacity for someone to defend themselves, but not stating categorically, “Someone commits an offence if this happens.” There is room for manoeuvre, which is only right. However, in the light of what the Minister has said and the assurance he has given, I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 11

Unexplained wealth orders: reporting requirements

‘In Chapter 2 of Part 8 of the Proceeds of Crime Act 2002, after section 362H insert—

“362HA Unexplained wealth orders: reporting requirements

(1) The Secretary of State must make an annual report to Parliament setting out the number of unexplained wealth orders applied for by enforcement agencies under section 362A of this Act (and by Scottish Ministers under section 396A of this Act) during the previous 12 month period.

(2) The report must also provide information in respect of each unexplained wealth order about—

(a) the value of property subject to the order,

(b) whether the respondent was—

(i) a politically exposed person,

(ii) a person involved in serious crime (whether in a part of the United Kingdom or elsewhere)

(c) whether the order was granted,

(d) the value of the property reclaimed as a result of the order.

(3) For the purposes of this section “enforcement agencies” has the same meaning as in subsection 362A(7).”’—(Tristram Hunt.)

This new clause would require the Secretary of State to make an annual report to Parliament about the number of unexplained wealth orders made each year.

Brought up, and read the First time.

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

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[Peter Dowd]

Three!

[Mr Wallace]

It is getting higher—we will be getting into double figures for The Observer’s readership if we are not careful.

The best time to examine the register is when we have had a full consultation. We have worked closely with the Scottish Government and the Northern Ireland Executive to ensure that we get it right. As the Scottish National party has pointed out, things such as Scottish limited partnerships were set up often for landowners to avoid ownership obligations way back in 1907, if I am not mistaken. Therefore, legislating is easier said than done, and we want to ensure that we get it right so that there are no loopholes or areas in which people can hide in the shadows, which might happen if we rushed it. We want to ensure that public means public. I therefore urge the hon. Gentleman to withdraw his new clause.

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[Mr Wallace]

I am grateful to the hon. Gentleman for tabling his new clause because it allows us to cover another important element of the tax evasion offence we debated earlier. I also thank him for meeting me to discuss those proposals.

New clause 15 would create mandatory exclusion from public contracts of a relevant body convicted of an offence under part 3 of the Bill. I fully agree that, where an organisation has been convicted under the new offences and grave professional misconduct has taken place, it should be possible to exclude that organisation from public contracts.

I am pleased to say that existing law already allows for that by virtue of the Public Contracts Regulations 2015, which allow for the exclusion of a body from a public contract

“where the contracting authority can demonstrate by appropriate means that the economic operator is guilty of grave professional misconduct, which renders its integrity questionable”.

That is quite a low threshold if you ask me; nevertheless, it allows us to do it. I know the hon. Gentleman will be interested in this part, because it is a European angle to his proposal. I am advised that it is not possible lawfully to include a new mandatory exclusion under regulation 57, as proposed by the amendment. Regulation 57 contains a list of offences based on the six categories set out in the EU public contracts directive. The categories outlined in the directive are exhaustive. Case law indicates that member states are not free to add new additional grounds for exclusion to those set out in the directive.

[Peter Dowd]

Not yet.

[Mr Wallace]

I hope the Committee is satisfied that, where there has been grave professional misconduct by an organisation convicted under the new offences, contracting authorities will have the discretion to exclude them from public contracts.

Criminal Finances Bill (Second sitting)

Debate between Ben Wallace and Peter Dowd

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.