Countering Russian Aggression and Tackling Illicit Finance

Debate between Bob Stewart and Pat McFadden

Wednesday 23rd February 2022 Commons Chamber

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

I thank all the right hon. and hon. Members who have contributed to this debate. Many points have been made over the past few hours, but two in particular stand out. First, there was a consensus across all parts of the House—with the exception of one Member who spoke—that the Government have not gone anywhere near far enough with the package of sanctions that was announced yesterday. Secondly, there is an enormous gulf between the rhetoric employed by Ministers and the lack of action that we have seen on illicit finance over many years.

Let me reiterate the Opposition’s position on these issues. We support the Government in taking a firm stand against Russian aggression and in favour of Ukraine’s freedom to decide its future. We support solidarity with our NATO allies. We reject the imperialist notion of “spheres of influence” by which Russia seeks to limit the choices and freedoms of its neighbours.

There can, of course, always be a nationalist appeal to people who speak the same language living across different borders, but if we follow that route, we will be in a never-ending cycle of ethnically based conflicts. No one has pointed out the dangers of that road more eloquently this week than Martin Kimani, the Kenyan ambassador to the UN Security Council, who urged the world to leave behind the mindset of dead empires. His warning not to take refuge in nostalgia and grievance but to look to the future was a leadership lesson for our times. What a contrast between that powerful eloquence and the recent essay on Ukraine by President Putin. Anyone reading that will have seen declarations of love and common history laced with threats and denial of freedom on every single page, and the desperate, needy pleas for respect.

[Bob Stewart (Beckenham) (Con)]

I thank the right hon. Member, my friend, for allowing me to intervene. The real worry is that Putin’s forces have now gone into the area where his proxy forces have operated: Luhansk and Donetsk. Two thirds of those provinces are still in Ukraine, yet the Duma has said that they are now Russian, so at any moment, we can expect Russian troops to go across those demarcation lines. We therefore have to be extremely strong in response and our sanctions have to be much harder.

[Mr McFadden]

I respect the right hon. Member’s experience and agree absolutely with his intervention. Let us call things what they are: not breakaway republics, but step-by-step annexation; not peacekeepers, but an invading force. We have seen the pattern over and over again.

The former High Representative of the European Union, Baroness Ashton, has spoken about President Putin’s strategy of the wedge. He seizes part of the territory of a neighbouring country—Abkhazia and South Ossetia in Georgia, or parts of the Donbas in Ukraine. By holding the wedge, he seeks to limit the freedom of those countries to join international associations. He seeks to absorb the rest of the country in managing the conflict that he has created. He uses up resources, he creates a refugee problem and, if he cannot take over neighbouring countries entirely, he at least ensures that they are not free to develop as they wish because they are not whole and their freedom is compromised.

That “Greater Russia” mindset has been behind President Putin’s policy towards Ukraine for the past eight years. Right now, it is not fully clear whether he will be content just to hold the wedge or whether he will go further, but even what he has done so far is already limiting Ukraine’s options and choices for the future.

How should we respond? Some lessons have been learned. The solidarity shown by the United States, the United Kingdom and most European countries in recent weeks has been important and impressive. Calling out the troop build-up and the creation of flashpoint incidents and false flag pretexts has shone a welcome light on what is happening. The development of open source intelligence has exposed the ham-fisted propaganda emerging from Russia and its troll factories.

Allied unity is important, but so too is allied resolve. In the past, we have set red lines, but when they were breached we have drawn back. The result in Syria was the repeated use of chemical weapons and the ability for Russia to dictate the course of events for years afterwards. This time, if we talk about maximum sanctions for military action, we have to be prepared to carry them out. Who really believes that sanctioning just three people who have already been on the US list for years will deter President Putin from acting further? No wonder the Royal United Services Institute, the respected defence and foreign policy think-tank, described yesterday’s actions as like having

“turned up to a gunfight with a peashooter.”

The Government’s actions have to match their rhetoric. Yesterday, that simply was not the case. The Minister’s defence is that this is simply the first tranche and that there is more to come, but what is the case for waiting, given what we have seen? Is there anything in President Putin’s actions in recent days to suggest that he is in compromise mode? He is not. He is testing us every hour.

Not only do we need a sanctions regime that matches the seriousness of what has been done, but we need determined action to clean up what the Intelligence and Security Committee has called the London laundromat.

Critical Benchmarks (References and Administrators’ Liability) Bill [Lords]

Debate between Bob Stewart and Pat McFadden

2nd reading
Thursday 18th November 2021 Commons Chamber

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

The programme motion we approved a short time ago allocated up to six hours for this process. As I look around the Chamber, Madam Deputy Speaker, I feel that span of time may prove adequate for our purposes today, but one cannot be sure.

I am grateful to the Minister for his explanation of the Bill and for the briefing he arranged prior to today’s debate. I am also grateful to the FCA for the briefing on the Bill that I requested a week or so ago.

As the Minister said, we all know the background to the desire to move away from LIBOR as a benchmark for financial contracts. A decade or so ago, a scandal of LIBOR manipulation was uncovered, whereby traders who submitted estimates of borrowing rates were manipulating the submissions for the benefit of the institutions they worked for, and indeed for themselves and the accounts they managed. That left financial markets subject to corruption for private gain.

Not surprisingly, in the wake of that there were inquiries, including a major cross-party one in this House on which I served. It opened the door to wider cultural issues in banking about risk and reward, and asked the question: for whose benefit exactly were those institutions being run? It also provided the spectacle of the chief executives of some of the banks, some of the highest paid people in the world, claiming, one after another, that they did not know what was going on in their organisations until they first learned about it through the newspapers.

In the wake of all that, regulators around the world agreed to move away from a benchmark based on supposed expert judgments, to benchmarks based on actual trades. However, that move away from LIBOR has been more difficult than first thought, because of the volume and the endurance of the contracts involved. As the Minister mentioned, it is thought that there are some $300 trillion-worth of contracts based on that benchmark. Some of those will not be transferred to new benchmarks by the deadline set at the end of this year, and that is where the Bill comes in.

Clause 1 seeks to ensure continuity between LIBOR and its successor for contracts which have not managed to move to a new benchmark by the end of the year. There was an exchange during the Minister’s speech, between him and the SNP spokesperson, the hon. Member for Glenrothes (Peter Grant), where the question was asked: how much are we talking about here? In the debates in the other place on the Bill, the figure of about £450 billion was, I believe, mentioned as the worth of such outstanding contracts. If that estimate is correct, then there are still very substantial contracts that could be affected by the switch.

The Bill empowers the FCA to produce a new benchmark, to be called synthetic LIBOR, which, as the Minister said, will be regarded as LIBOR for the purposes of the contracts involved. That will run alongside the Bank of England’s new benchmark, called SONIA—sterling overnight index average. If SONIA is the daughter of LIBOR, then synthetic LIBOR can be regarded as the ghost of LIBOR. The Bill sees the two walking together, travelling side by side.

In both the public debates on the Bill and at briefings from the FCA, it has been estimated that, in terms of what it would mean as an actual interest rate, synthetic LIBOR will be about 12 basis points higher than actual LIBOR now. My first question for the Minister, therefore, is why should synthetic LIBOR be set at 12 basis points higher than actual LIBOR and what will that mean for the contracts involved?

[Bob Stewart]

Forgive me for intervening yet again, but, for the normal person, does synthetic LIBOR and 12 basis points mean a 12% increase on what he or she might pay?

[Mr McFadden]

No, it does not mean that. It means just over one-tenth of 1%, as there are 100 basis points in 1%.

Twelve basis points, or just over a tenth of 1%, might not sound like a huge margin, but when we are talking about contracts worth up to £450 billion, small differences in rates can add up to a lot of money. To illustrate that, let us consider the position of mortgage holders. There are an estimated 200,000 mortgages based on LIBOR. My next question to the Minister is why have those mortgages not moved away from LIBOR in the years since the regulator encouraged contracts to do so? What has left them stuck on LIBOR before the approaching deadline of the end of the year? Will the move to synthetic LIBOR mean that these mortgages will pay rates of 12 basis points higher than if the move had not taken place?

The FCA published a Q&A on these matters earlier this week, which stated that

“there may be a small increase in your mortgage payment in January 2022 compared with your mortgage payment in December 2021.”

It looks as though a payment rise is on the way for those 200,000 mortgages. That, of course, comes alongside a very live debate in the Monetary Policy Committee about changes to the Bank rate. Does the Minister think that those who hold mortgages based on LIBOR, which, in the buy-to-let sector, means about one in 20 mortgages—that is not an insignificant proportion—realise that that change, which was flagged by the FCA the other day, is coming as a result of the Bill? Have the Treasury or the FCA estimated what the total cost of that might be to UK mortgage holders?

That brings us to the potential for legal action over the changes envisaged in the Bill. That is the difference between this proposal and what the Minister referred to as changes in the Bank rate, because this change is being brought about through legislative action whereas Bank rate changes are as a result of a decision by the Monetary Policy Committee. The question of legal action arises because if contracting parties have agreed a contract on the basis of one benchmark, might they take legal action if the move to a new benchmark ends up costing them more?

As I understand it, proposed new article 23FA(6) in clause 1 attempts to close off the possibility of legal action as a result of a contract moving from LIBOR to synthetic LIBOR—the ghost of LIBOR—which, in this example, would close the door on any potential legal action from disgruntled mortgage holders. I would be grateful if the Minister confirmed that that is the correct interpretation of proposed new article 23FA(6). To make this matter even more complex, proposed new article 23FA(7) in clause 1 leaves open the possibility of legal action, as long as the basis for it is not action taken under clause 1 of this Bill—that is, it is not simply the move from LIBOR to another benchmark authorised by the FCA. Again, I would be grateful if the Minister confirmed that my understanding of that is correct.

In the equivalent American legislation—LIBOR is used all around the world—there is what is known as a safe harbour provision: a mechanism to prevent contracting parties from engaging in legal action as a result of these changes. Will the Minister explain why the Government rejected that option for the UK? What is the difference between the restrictions in proposed new article 23FA(6) in clause 1 and the safe harbour legislation that has been put on the statute book in the United States?

Clause 2 also deals with legal action. It insulates from legal action the administrators of benchmarks, who in this case will work on behalf of the FCA, who, in turn, will work on behalf from Parliament, assuming that the Bill is passed. We can see the logic of insulating a public agency from legal action if it is carrying out a duty that stems directly from legislation, but the same clause states that it does not remove liability entirely—for example, over the exercise of discretion or timing of the publication of a benchmark. Will the Minister explain to the House, under clause 2, just how insulated from legal action are the FCA and the administrators that are authorised as a result of the Bill?

Underlying all that is the question of why we need this legislation at all. Around a year ago, the Minister and I spent many a happy hour debating the Financial Services Act, both on the Floor of the House and in Committee. That Act, as we will both fondly remember, authorised the publication of the alternative benchmarks in the first place, so why, after our spending all those happy hours putting that Act through Parliament, have the Government concluded that they have to return with further legislation? What was it about the Financial Services Act that left the picture incomplete? How do we know that this is the last piece of the jigsaw and that the Treasury will not have to come back a third time to fill in other potential gaps?

There is also the important issue of the timescale or longevity of these measures. They are being sold by the Government as a transitionary process—a bridge from LIBOR to a world without LIBOR—but, as long as they are in place, we have SONIA, LIBOR’s replacement, operating alongside the ghost of LIBOR in the form of synthetic LIBOR. Is all this just kicking the can down the road or do the Government really have an exit plan for these tough legacy contracts? If they have not been able to move these contracts away from LIBOR now, when, for years, the regulators have been flagging that they should do so, why does the Minister think that they will move away from the ghost of LIBOR?

It is now almost a decade since the original scandal of LIBOR rate manipulation was uncovered. The Financial Services Act, which gives rise to the powers that we are debating, talked about a transitional period of up to 10 years while this new alternative benchmark might run alongside others that have succeeded LIBOR, so it is conceivable that it could take the best part of 20 years to go from the uncovering of the original scandal to the final move away from LIBOR. What is the likelihood that the Minister, who has been very long-serving in his post, or his successor will have to come back to the House with more legislation on this matter because, even after all that length of time, it is not enough to wind down all the contracts that we are talking about?

We will not oppose the Bill today because we understand that continuity of contracts is in the public interest, but it is not clear to us how temporary a regime this is. I would be very grateful if the Minister could respond on exactly why this legislation was needed in the first place and how long it may last, and to the other questions that I have put to him this afternoon.

Famagusta

Debate between Bob Stewart and Pat McFadden

Monday 16th November 2015 Commons Chamber

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

I congratulate the hon. Member for Enfield, Southgate (Mr Burrowes) and his co-signatories on tabling the motion for debate. The division of Cyprus for more than 40 years is often referred to as a frozen conflict. The motion gives some sense of how long the situation has gone on for. It mentions the UN resolutions, the high-level agreements reached, and the efforts made, and as it says, all that effort was aimed at a “comprehensive settlement”—that is the phrase that is continually used—of the problem of the island’s division. The aim, as the motion says, is

“a bi-communal, bi-zonal federation with political equality”

guaranteed for the whole population of the island.

[Bob Stewart]

I would like to put on record that one reason why the conflict was frozen for a very long time was that the actions of so many United Nations troops on the green line stopped the conflict from breaking out again. It may have been sterile and boring for the troops, but by goodness, they have prevented people from dying.

[Mr McFadden]

The hon. Gentleman makes a very good point. I suppose he is gently reminding us that a frozen conflict is better than an unfrozen one, without a settlement. The frozen nature of the conflict is perhaps at its most graphic in the city of Famagusta, and specifically in Varosha, where homes, hotels and other buildings have lain dormant for 40 years, trapped in a specific moment in time. Those buildings are still standing, but year after year, they have been devoid of the people and the changes that give a city life; they are overgrown with vegetation, and are gradually rotting away. It is no accident that the term “ghost town” has been used to describe it, both in tonight’s debate and before it.

It is of course right that the city and its properties be returned to their rightful owners. When people left, they thought they would be able to return within days, or perhaps weeks. They have had no access to their homes, businesses and other places of real importance to them for more than 40 years. People lost their houses, land, money, and access to places of worship. It is no wonder that this enforced absence is a source of such heartbreak and sorrow to all those affected. They are right to not only hope but expect that they will be able to return. The broader question is how that happens, and the relationship to a wider settlement of Cyprus’s division and issues.

As has been mentioned several times in the debate, the omens are better than they have been for some time. Both Mr Anastasiades and Mr Akinci seem genuinely committed to a settlement, and optimism is higher than it has been for many years. The prospect for progress on this agenda seems stronger than in the past. I am sure that the whole House hopes that that applies to the wider issues, including that of Famagusta, on which we have focused tonight. The Foreign Secretary is due in Cyprus later this week. The hon. Member for Enfield, Southgate, asked the Minister a few questions; I wonder whether I might add to the list. Will the Minister tell us the Government’s agenda for that visit, and what more the UK Government can do, as a friend of Cyprus, to encourage momentum, and ultimately agreement, in the talks?

Given that the political atmosphere is more positive than it was, how does the Minister see the Government using their position as a guarantor to press for a settlement that leads to the reunification of the island, as set out in the various UN resolutions that have been adopted? Does he believe that Mr Akinci, who represents Northern Cyprus, and in whom a great deal of hope has been invested, is free to make an agreement if he wishes to? Can the Minister say more about Turkey’s role in the process? That is particularly important with regard to Famagusta. It is important to mention that the frozen area of Varosha is in the hands of not the Turkish Cypriots, but the Turkish military. It is important that we consider not only the people on the island, but the Turkish military’s role.

Could the Minister also say what the relationship is between this process and the issues raised tonight that are being discussed by Turkey and the European Union? Specifically, I am thinking of the huge refugee problem affecting both Turkey and the European Union, and the question of future accession to the EU. How possible is it to make progress on these other issues while the situation in Cyprus remains as it is? What is their effect on the process taking place in Cyprus?

Much has happened in recent months and days that is a cause for grief and heartbreak on the human level, and huge concern on the political level. In the statement earlier today, the House set out its views on the terrible events in Paris a few days ago. We have talked, understandably, of a generational struggle against Islamist extremism. The world has failed to find a solution to the terrible war in Syria, which has been unfolding for years, and which is driving much of the refugee problem facing Europe. Yet on the Cyprus issue, there are grounds for hope and optimism. Inevitably, that will be tempered with caution, given how many setbacks there have been over the years—the hon. Member for North Thanet (Sir Roger Gale) referred to having been involved in this issue for decades—but as we know from our experience, making peace is hugely dependent on leadership. Among both Greek Cypriots and Turkish Cypriots, there is a leadership in place that seems committed to finding a way forward. We Labour Members will support their efforts, and we hope that the UK Government play as positive a role as possible, so that this conflict, which I have referred to as being frozen, can be resolved, and the island of Cyprus can be unified on the basis of mutual respect among all parts of its population.