Sanctions and Anti-Money Laundering Bill [Lords]

Boris Johnson Excerpts

2nd reading: House of Commons
Tuesday 20th February 2018 Commons Chamber

[The Secretary of State for Foreign and Commonwealth Affairs (Boris Johnson)]

I beg to move, That the Bill be now read a Second time.

I should begin by paying tribute to my noble Friend Lord Ahmad for piloting the Bill through the other place with such skill and finesse. The aim of the Bill is to grant Her Majesty’s Government full power over British sanctions policy after we leave the EU and, in a memorable phrase, to take back control.

This Government’s driving purpose is to strengthen Britain’s global role and widen the horizons of our foreign policy in order to advance the interests and promote the values of the British people, but if our diplomacy is to be effective, it cannot be solely declaratory: we must have the means to impose a price on those who would threaten to do us harm. In the last resort, that will sometimes mean the use of force—this Government will not resile from acting when necessary—but more often, we back our diplomacy through sanctions. Today, the UK enforces 36 sanctions regimes, targeted on countries such as North Korea, Syria and Russia and terrorist organisations including al-Qaeda and Daesh. In total, about 2,000 individuals and entities are listed for sanctions, varying from asset freezes and travel bans to trade restrictions and arms embargos. At this moment, assets worth £12.5 billion are frozen in the UK.

Our powers to impose those sanctions and measures against money laundering derive almost entirely from the European Communities Act 1972. I am delighted to say that Parliament will soon repeal that Act by means of the European Union (Withdrawal) Bill, which is now before the other place. When that Act comes into force, it will freeze Britain’s adherence to the existing sanctions regimes, but if we do nothing, we will lose the ability to impose new sanctions or remove current ones. That is why the Sanctions and Anti-Money Laundering Bill is necessary. It will give any British Government the power to impose, amend or lift an independent battery of UK sanctions, and update measures against money laundering and terrorist financing, thereby restoring our sovereignty over a vital tool of foreign policy.

The House will readily understand the freedom of action that all British Governments today and in the future will regain. If, for example, there is an international crisis and we judge that sanctions are the best response, we will no longer be compelled to wait for consensus among 28 members of the EU. The Bill will give us the freedom to decide on national sanctions as we see fit, bearing in mind that Britain possesses the fifth biggest economy in the world and the largest financial centre in Europe.

Hon. Members will know that sanctions are most effective when jointly enforced by many nations. Nothing in the Bill will stop us concerting our sanctions with any measures imposed by the EU, but if there is no agreement in the EU, as there often is not, Britain can act independently or alongside other allies. If the EU shares our position, we can act together. The outcome will be that Britain enjoys both freedom of manoeuvre and the option of working alongside our European friends. In the main, I hope that the latter will continue and that we can act in tandem, because the truth is that Britain and our European neighbours will always confront the same threats and defend the same values.

As my right hon. Friend the Prime Minister has said, Britain’s unconditional and immoveable commitment to the security and defence of Europe will not change one iota when we leave the EU, and this country has always played a leading role in devising EU sanctions—it is thanks to our national expertise in this field that the UK proposed more than half of all the individuals and entities currently listed for EU sanctions. The EU will have every reason to concert its sanctions policy with us in future, just as we will be happy in principle to work hand in glove with the EU. The Bill will place this British Government and our successors in the strongest possible position. We will be equipped with the power to impose sanctions independently, but without prejudice to our ability to co-ordinate with our European allies.

The Bill is also necessary for the UK to continue to play its full part in the struggle against money laundering and terrorist financing. Without the Bill, we should soon find ourselves in breach of international standards. I am proud to say that Britain was the first G20 country to introduce a public register of beneficial owners of companies, thanks to the Conservative-led Government. We are now going further by creating a public register of the beneficial owners of any non-UK entities that possess or buy property in this country, or that participate in UK Government procurement. No other state is compiling such a register, which will be the first of its kind in the world.

[Mr Jonathan Djanogly (Huntingdon) (Con)]

May I ask my right hon. Friend to confirm this: when he says property, is that all property or just real property?

[Boris Johnson]

I am grateful to my hon. Friend for that intervention—I was referring to real estate. As I am sure he knows, the proposal has the same intention as the tax on enveloped dwellings that was introduced by the former Chancellor of the Exchequer, which has proved, to the best of my knowledge, to be extremely lucrative for the Exchequer.

[Dame Margaret Hodge (Barking) (Lab)]

Given the Secretary of State’s commitment to the EU’s action on money laundering, is he saying that the Government will implement the fifth EU anti-money laundering directive, which requires that we all have public registers of beneficial ownership by the end of 2019?

[Boris Johnson]

As the right hon. Lady will be aware, the UK is already out in front of the rest of the world in insisting on public registry of beneficial ownership, irrespective of the implementation of the fifth EU anti-money laundering directive. As I will explain to the House, we already ask the overseas territories to do far more than other jurisdictions that offer financial services advantages.

[Dame Margaret Hodge]

I would be most grateful if the Secretary of State would give way again.

[Boris Johnson]

Oh, go on.

[Dame Margaret Hodge]

I am extremely grateful to the Secretary of State. The reason I asked the question is that the EU’s anti-money laundering directive would have an impact on the UK and Gibraltar. I am interested in whether the Foreign Secretary will implement the directive, given that implementation is required by 2019.

[Boris Johnson]

I do not know the exact stage of the directive at the moment. To the best of my knowledge, we are in the process of implementing it. It should creep in under the wire and will, I hope, have the beneficial effect that the right hon. Lady desires.

[Sammy Wilson (East Antrim) (DUP)]

Will the Secretary of State give way?

[Boris Johnson]

I will not, if the right hon. Gentleman will forgive me.

As sanctions have serious consequences for the individuals and entities that are singled out, they should be employed only in accordance with the rule of law, so it may be helpful to the House if I describe the scrupulous procedure laid out in the Bill.

Whenever the Government intend to impose a new sanctions regime, a statutory instrument will be laid before Parliament. When selecting targets, we will apply the legal threshold of “reasonable grounds to suspect”, which is the standard that we currently use for UN and EU sanctions. Both the British Supreme Court and the EU’s general court—the former court of first instance—have endorsed the use of that threshold in recent cases, and it is vital that the UK and our international partners continue to employ the equivalent threshold so that our sanctions policies and theirs can be co-ordinated.

The Bill contains safeguards allowing those listed for sanctions to challenge their designation and receive swift redress if it is warranted. Sanctions are not ends in themselves; they must not be maintained simply out of inertia or force of habit once the necessity for them dies away. The Bill will entitle any designated person to request an administrative reassessment by the Secretary of State, who will have a duty to consider any such request as soon as reasonably practicable. The Secretary of State can amend or revoke the designation in response to new information or a change in the situation. As a last resort, the designated person can apply to challenge the Government’s decision in the courts under the principles of judicial review, and the Bill provides for classified evidence to be shared with the court as appropriate.

Britain is obliged by international law to enforce any sanctions agreed by the UN Security Council. If a court in this country believes that such a designation is unlawful, the Secretary of State can use his or her best endeavours to remove a name from a UN sanctions list, bolstered by the fact that Britain has permanent membership of the Security Council. If a Secretary of State declines to seek a delisting at the UN, the relevant individual could challenge that decision before the courts. In addition, the Bill obliges the Government to conduct an annual review of every sanctions regime and place a report before Parliament. The Government are also required to review each individual designation under all regimes every three years.

The Bill allows the Government to grant licences to allow certain activities that would otherwise be prohibited—for instance, to permit any individuals subject to asset freezes to pay for essential needs such as food or medicine. The Bill will also give the Government the power and flexibility to issue general licences that could, for example, allow aid agencies to provide humanitarian supplies in a country subjected to sanctions.

[Nigel Mills (Amber Valley) (Con)]

Where assets have been frozen—for example, in the case of Libya and its support for the IRA—does the Secretary of State see any scope for a licence to allow that money to be used to help the victims of such outrageous crimes?

[Boris Johnson]

I completely concur with the objectives espoused by my hon. Friend. Many people would like to see some compensation flowing from a more prosperous Libya to the victims of IRA terrorism and, indeed, to other victims of terrorism. Given what we have done so far with Libya, it would be very difficult to unfreeze the assets; they are not our assets and it would be difficult for us to procure them. On the other hand, there is scope—working with the Libyan Government as Libya gets back on its feet, which is what we are currently working for —to set up a fund for the victims not just of IRA terrorism in this country, but of terror in Libya as well. That is the way forward: the UK and Libya working together to address that historical injustice. I am grateful to my hon. Friend for raising that subject, on which there are strong feelings both in this House and in the other place.

We must never lose the ability to keep pace with the criminals and terrorists who strain every nerve and sinew to confound and evade our efforts. The Bill provides the Government with the power to make, amend or repeal secondary legislation to combat money laundering and terrorist financing. Behind all this lies our primary goal: to restore the independent power of a global Britain to defend our interests and to exert our rightful influence on the world stage, acting in concert with our European friends whenever possible, sure in the knowledge that we are a force for good. I commend this Bill to the House.

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[Helen Goodman]

My hon. Friend is absolutely right. Quite a lot of the money that is hidden is hidden by corrupt regimes, particularly in Africa.

A major criticism of the Bill as first drafted was of its Henry VIII clauses. Throughout, the Bill was giving Ministers the power to make regulations—in other words, to make law that cannot be amended by Parliament and is sometimes made without even any debate. In our consideration of the EU (Withdrawal) Bill, Members across the House complained that the level of the Henry VIII powers was so excessive that the Government agreed to a sifting Committee in order to limit the concentration of the power of the Executive. Arguably, with no sunset clause, this Bill is even worse in this respect. Speaking in the other place, the well-named and noble Lord Judge described it as a “bonanza of regulations” and the “Regulation Bulk Buy” Bill. Their lordships defeated the Government twice in votes on this. I hope that the Government will not now seek to undo those changes to the Bill. If so, we will oppose them.

It is surely obvious to everyone that sanctions regimes are effective only when they are co-ordinated internationally, as the Foreign Secretary acknowledged, and we need maximum support across the world and agreed implementation mechanisms to enforce them. However, he did not really answer some of the questions as to how that is going to be done post Brexit. Half our sanctions emanate from the EU. I am not saying that this is necessarily a matter for legislation, but surely the Government should have a plan for how we are going to be involved in EU decision making on sanctions regimes and the implementation of those regimes. Ukraine is a good example of where that is needed. What specific plans has the Foreign Secretary developed for a framework to provide for continued co-operation with the EU on foreign policy issues after we leave? What discussions have been held on that particular issue in the Brexit talks? What are the Government seeking to achieve in their negotiations with the EU on that matter? We were warned last week by the three spy chiefs that, without co-operation with our EU partners in intelligence sharing, policing and judicial matters, it would be difficult to enforce compliance on sanctions, which are vital for dealing with terrorism and proliferation.

Labour’s view is that the core principles of sanctions policy should be that sanctions are targeted to hit regimes rather than ordinary people; minimise the humanitarian impact on innocent civilians; and have clear objectives, including well-defined and realistic demands against which compliance can be judged, with a clear exit strategy. There should be effective arrangements for implementation and enforcement, especially in neighbouring countries, and sanctions should avoid unnecessary adverse impacts on UK economic and commercial interests. We will seek to amend the Bill to ensure that those principles are adhered to throughout.

One very big and obvious hole in the Bill is its failure to incorporate Magnitsky clauses, which the House has repeatedly supported and voted for. Sergei Magnitsky was a Russian lawyer who uncovered large-scale tax fraud in Russia. For his pains, he was imprisoned and tortured throughout a whole year, finally dying having been brutally beaten up while chained to a bed. We will be tabling a Magnitsky clause that would enable sanctions to be made in order to prevent or respond to gross human rights violations. Such provisions have been adopted in the United States and Canada, and they were also reflected in the Criminal Finances Act 2017. I cannot understand how or why the Foreign Secretary has missed this opportunity; perhaps he has been too busy designing bridges. Such a step is not just about Russia. We are now in the strange position that the United States has tougher sanctions than we do on Myanmar.

[Boris Johnson]

I hesitate to accuse the hon. Lady of failure to read the Bill, but clause 1(2) makes it absolutely clear that sanctions can be imposed to promote human rights. A fortiori, that obviously involves a Magnitsky clause to prevent the gross abuse of human rights. The measure that she seeks is in the Bill.

[Helen Goodman]

I am afraid that I do not think the Bill makes that clear. First, it does not include the phrase, “gross human rights abuses”, which the Foreign Secretary just used, and furthermore, it does not refer to public officials. This is a matter that we can debate upstairs in Committee, and I will be happy to do so with the Minister.

Another key area that the Government have failed to address properly is the position of refugees and victims of human trafficking. Last month, the House unanimously resolved:

“That…conflict resolution…and the protection of human rights should be at the heart of UK foreign policy and that effective action should be taken to alleviate the refugee crisis”.

There are now 66 million refugees—more than there have ever been and more than the population of the United Kingdom. The flow of desperate people across the Mediterranean and through Turkey is continuing. Yet the Bill gives no impression that Ministers have given any thought whatsoever to the plight of these people, who are seeking refuge from desperate and protracted conflicts around the world.

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[Helen Goodman]

My hon. Friend is right that the situation is complex—we have one legal regime for the overseas territories and another for the Crown dependencies—but I think that that would be beyond the scope of the Bill.

The all-party parliamentary group on responsible tax, led by my right hon. Friend the Member for Barking (Dame Margaret Hodge), has been pursuing this agenda energetically for several years now, and across the House, Members want effective action.

Another scandal is the use of London property by oligarchs, corrupt officials and gangsters from across the globe. I am talking about people like Karime Macías, the Mexican wife of the former Veracruz Governor Duarte. He has been imprisoned and charged with corruption, money laundering and involvement in organised crime. His years in office saw a spike in disappearances and murders, while she claims to be a fugitive in London.

When I was young, if you drove through Chelsea at night, it was full of light because people actually lived there. Now, swathes of London are pitch black, as properties are bought simply as money safes. Meanwhile, in the outer boroughs, which the Foreign Secretary never visits—

[Boris Johnson]

As the hon. Lady may recollect, I was never out of the outer boroughs when I was Mayor of London, and the former Mayor of London visited Havana more often than he visited Havering.

[Helen Goodman]

I wish the Foreign Secretary was as energetic in his pursuit of the corrupt in this Bill as he is concerned to defend his own record on travelling around the London underground.

In the outer-London boroughs, new buildings are bought off plan and some never even have the cellophane unwrapped. Global Witness has found that 86,000 properties in this country are owned by companies in secrecy jurisdictions. The Cayman Islands representatives told me, when they came to see me in preparation for the Bill, that they were responsible for 11% of the property investment in Britain, pushing up prices so that they are unaffordable, and young people’s home ownership in this country is now at an all-time low.

The new register promised by the Government in 2015 has been put back by six years. There must be a suspicion that this secrecy continues because some senior Tories use it. Just one example will suffice. Lord Sassoon was revealed by the Paradise papers to have been a beneficiary of a Bahamas trust fund that has sheltered a family fortune worth hundreds of millions of dollars, yet he was a Treasury Minister and the man charged with presiding over the Financial Action Task Force—the very body tasked with setting the standards to combat money laundering.

We are going to pursue all these issues over the coming weeks. I cannot do better than quote the global summit communiqué, which said:

“Corruption is at the heart of so many of the world’s problems. It erodes public trust in government, undermines the rule of law, and may give rise to political and economic grievances that…fuel violent extremism. Tackling corruption is vital for sustaining economic stability and growth, maintaining security of societies, protecting human rights, reducing poverty, protecting the environment for future generations and addressing serious and organised crime…We need to face this challenge openly and frankly”.

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[Anneliese Dodds (Oxford East) (Lab/Co-op)]

It is a real pleasure to respond to the debate on behalf of the Opposition. The Bill, as many colleagues have indicated, purportedly aims to provide the UK with an appropriate system to stop the corrupt and the criminal from benefiting from our British financial system. I will first consider the sanctions-related matters before looking at the money laundering matters, although they are of course intrinsically linked.

As with much of the Government’s Brexit-related legislation, many concerns have been expressed about the lack of parliamentary oversight of the Bill’s provisions. As my hon. Friend the Member for Bishop Auckland (Helen Goodman) set out, many positive changes were made when the Bill was discussed in the other place, and they must not now be rolled back in this place. Other matters of concern persist, as indicated by the hon. Members for Glasgow Central (Alison Thewliss) and for East Dunbartonshire (Jo Swinson), and echoed in the calls for clarity from the hon. Member for Huntingdon (Mr Djanogly).

We still lack clarity over the extent to which our sanctions regime will be aligned with that of the EU 27. The evidence is clear that sanctions are more effective when imposed collectively—the hon. Members for Glasgow Central and for Huntingdon made that point very well. I was disappointed by the Foreign Secretary’s comments in this regard, which I thought were contradictory; he simultaneously admitted that unilateralism might not be effective while vaunting the possibilities of a totally independent regime. There are no indications in the Bill of how we will concretely ensure the continued co-ordination that is so necessary in this area.

We heard in the debate some persuasive arguments about the need for stronger commitments in the Bill, not just fleeting mentions, on the necessity for sanctions to target those responsible for human rights violations, particularly those responsible for gross human rights violations, as in the so-called Magnitsky regimes. The right hon. Member for Sutton Coldfield (Mr Mitchell) spelled out clearly the reasons for such an explicit approach. I hope that Government Members will have listened to those arguments.

Finally in relation to the sanctions-related provisions, the hon. Members for Glasgow Central and for East Dunbartonshire mentioned the need to ensure that measures are appropriately calibrated so that they target criminal individuals and terrorists, not legitimate aid agencies and financial service providers delivering legitimate services. It is essential that we have accurate and appropriately granular mechanisms in that regard.

Let me move on to money laundering. I was very pleased, as I am sure were many Members, about the informative and courteous style of debate that we have had on money laundering tonight. I am afraid that is in contrast to the comments on money laundering from the Government when introducing the Bill, which I thought were disturbingly brief. It is clear that the problem of money laundering is getting worse, not better. I will not go into all the arguments and evidence on that now, because that has been done very ably by other Opposition Members, not least my hon. Friend the Member for Ealing Central and Acton (Dr Huq). At the centre of the UK’s problems with money laundering lies a lack of transparency and accountability, both of which are essential if we are to ensure that the criminal and the corrupt do not profit from our leaky financial system.

On the issue of public registers of beneficial ownership in our associated territories, may I say what a powerful tour de force we have had from the right hon. Members for Arundel and South Downs (Nick Herbert) and for Sutton Coldfield? I am sure that the right hon. Member for Arundel and South Downs, as a former Home Office Minister, has a huge insight into the damage being done by the lack of transparency in this area, aiding international criminals. The Government must listen to the uncomfortable truth that he has set out so ably tonight.

My right hon. Friend the Member for Barking (Dame Margaret Hodge) set out how long this process has been running, as the Government requested beneficial ownership registers from the overseas territories five years ago. Many Members have indicated that we have had a slippage from the Government’s initial commitments in this regard. The failure to clean up their act by some of our overseas territories is having a severe impact on their reputation. As someone who has had many meetings with representatives of those jurisdictions, and who supports them tremendously, let me say that it is not their foes but their friends who are arguing for more transparency, because we see the reputational damage that the lack of transparency is doing to them. As my right hon. Friend the Member for Barking said, the Government’s failure to act constitutes complicity. I agree with the hon. Member for Amber Valley (Nigel Mills) that the UK must exercise leadership.

There has also been a lack of clarity from the Government over whether they are minded to follow EU-level developments, particularly the anti-money laundering directive known as AMLD 5. I agree with the hon. Member for Chelmsford (Vicky Ford) about many things—we worked together previously in the European Parliament—but I am afraid I cannot agree with her assessment that we know for certain that the Government will continue to cohere with EU-level developments. The hon. Member for East Dunbartonshire (Jo Swinson) and my hon. Friend the Member for Enfield, Southgate (Bambos Charalambous) explained very clearly why we do not have the clarity that we need.

I think it especially important to focus on the regulation of trusts. Under David Cameron, the Government argued against their inclusion in EU registers of beneficial ownership. The Foreign Secretary claimed that the UK was ahead of the rest of the EU with our register of beneficial ownership, but we have been a drag on the EU when it comes to more transparency on trusts.

[Boris Johnson]

A drag?

[Anneliese Dodds]

At EU level, we have been. David Cameron argued against the inclusion of trusts in EU beneficial ownership registers, but we now have a chance to change. I can see that the Foreign Secretary is appalled by the idea that we might have acted as a drag in that regard, but I am sure that he will be converted to the cause of more transparency.

As the hon. Member for East Dunbartonshire rightly mentioned, it is deeply concerning that the timetable for the foreign-owned property register has slipped so substantially. I take on board what was said by the hon. Member for Amber Valley—we already have a register of sorts, in the guise of Private Eye’s tax haven property map—but that map was created, essentially, by mistake. It was created when the Land Registry released data, by mistake, which was then matched up with Companies House data. The Government should be delivering the register themselves. I appreciate that there should be additional disincentives, but that is not a reason not to act now.

Finally, let me say something about the issue of due diligence in relation to British company ownership. Yes, we do have a public register run by Companies House, but the responses to a series of parliamentary questions that I have tabled have shown that there is little or no oversight of the veracity of the data supplied to it. That is illustrated by the worrying case mentioned by my hon. Friend the Member for Brighton, Kemptown (Lloyd Russell-Moyle), to whom I pay tribute for all his effort to help his constituent. There are not enough resources in Companies House, and there is a regulatory gap in respect of those registering companies with it directly. There are even problems for those who register through company formation providers, many of which have been shown not to be fulfilling their responsibilities. In that context, it may be necessary to launch a pincer movement requiring all such firms to have UK bank accounts: at least they would then be covered by anti-money laundering legislation through the bank account system.

The Financial Action Task Force is due to report next month on the UK’s approach to money laundering and ensuring the integrity of the international financial system. I am sure Members in all parts of the House agree that it would be a huge international embarrassment if the taskforce concluded that the UK Government had chosen not to adopt measures that would help to clean up our financial system. I am afraid I agree with my right hon. Friend the Member for Barking that there are grim stains on the UK’s reputation in this regard.

Let me issue one last plea. I have been very disturbed by the Government’s decision not to defend publicly the journalists who were singled out by Appleby. It picked on British companies, the BBC and The Guardian, which were taken to court after releasing details that were in the public interest. Sadly, the Treasury team—I see that some of its members are present—has not yet been willing to condemn that behaviour. I appeal to Ministers, including those in charge of foreign policy, to do so now, and to confirm that those disclosures were in the public interest.