Corruption (International Business)

Catherine McKinnell Excerpts

Wednesday 11th December 2013 Westminster Hall

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

It is a pleasure to serve under your chairmanship this morning, Mr Howarth. I am pleased to have been granted this debate, which I secured as co-chair of the all-party group on anti-corruption, a role that I share with my hon. Friend the Member for Glasgow Central (Anas Sarwar). I am pleased that a number of other members of the all-party group are present today.

We are here to highlight the United Nation’s international anti-corruption day, which took place on Monday this week. Citizens and parliamentarians have been marking the day right around the world, and I am pleased that the United Kingdom is playing its part, too. It is very appropriate that legislators in this country should highlight international anti-corruption day, because we are in a particularly good position to do something about it. Many of the tools that allow corruption to happen are within our control. I therefore hope that today’s debate, albeit brief, will contribute to the momentum of calls for change.

When we speak about corruption, we think about malevolent characters in places far removed from the UK, such as Nigeria, Afghanistan and the Democratic Republic of the Congo. While those might be the sites of theft and where the devastating consequences impact on people, the deals themselves might be taking place just down the road from Parliament, in our capital city. In truth, corrupt officials in developing countries would find it much harder to steal from their citizens if they were unable to use the tools provided by international business, which includes UK citizens, UK-based companies and those listed on the London stock exchange. Those are all elements over which we can exercise some control. We are rightly proud of our aid spending in this country, and I strongly welcome the Chancellor’s confirmation in Budget 2013 that the Government intend to meet and build on Labour’s legacy, which was to set the UK’s historic target of spending 0.7% of gross national income on overseas aid.

It is time, however, to take that a step further. We must ensure that resources are provided in a broader context that ultimately reduces developing countries’ dependence on aid. To do so, we have to look in our own backyard at how domestic business legislation can have a major impact on international poverty. Western business frameworks facilitate illicit financial flows out of Africa. Shockingly, those flows outweigh the amounts that those countries receive from aid and foreign direct investment. We have the power to prevent that, but until we do so, we will effectively keep giving with one hand and taking away much more with the other.

[Jim Shannon (Strangford) (DUP)]

I congratulate the hon. Lady on the hard work that she does in her all-party group, as well as on bringing this matter to Westminster Hall for consideration. Does she agree that, while it is important that we strengthen business connections across the whole world, those businesses must be transparent and accountable? Does she agree that the UK ambassadors in those countries could act as a catalyst to make change happen and to prevent corruption?

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[Catherine McKinnell]

The hon. Gentleman makes an interesting point, and I am interested in what the Minister will say in responding to this debate. As the Government, they could exercise their influence to ensure that UK ambassadors play their part in tackling international corruption, which we know damages developing countries.

It is important to recognise the context in which we are speaking. Today is 11 December, and on this day, 800 women will die unnecessarily in childbirth, 29,000 under-fives will die from preventable causes, 67 million children are not in school when they should be and almost 1 billion people will go to bed hungry. The money to remedy that appalling situation is entirely available but is often being stolen for private gain.

Since the creation of the Department for International Development by the previous Labour Government in 1997, the UK has played a leading role in tackling these problems, and we should celebrate that important work and recognise that it is very much being continued under the coalition Government. It is vital that we continue to provide targeted, efficient and comprehensive aid where we know it will have a significant impact on the life chances of our fellow global citizens. However, those citizens are not simply asking us for direct assistance; they are asking us to look at how the conditions that we regulate continue to make and keep poor people poor.

To consider the role of western countries in this scandal, let us take a hypothetical example. A corrupt Minister tenders the mining rights to his country’s substantial mineral wealth. A multinational company guarantees winning the tender by sweetening its application with a large bribe. It most likely does so using a shell company to provide anonymity and an almost total guarantee that the money will be unrecoverable by officials. Alternatively, perhaps the Government sell the mines directly to a recently registered company with no employees, premises or registered activities. The Minister oversees the sale of the assets at as little as 5% of their market value, and the company then sells the assets on for a hefty profit, making sure that the corrupt Minister is well compensated personally for his generous deal. The shell company hides the often overly close relationship between the individual buying the assets and the person selling them, and corporate vehicles essentially render owners unaccountable for their actions.

After the deal, both the Minister and the company have illegitimate wealth from which they wish to benefit, and that is where the second element implicating international business comes to the fore: the laundering of ill-gotten gains through western financial institutions. To access the global marketplace, individuals need reputable banks in countries with strong property rights, such as our own. Without banks willing to take their cash, criminals would be unable to reap the rewards.

Shell companies and money laundering are two major tools provided by western businesses that facilitate devastating global corruption. Before I go on, it is worth commenting on the scale of the problem. Deals very similar to those that I just described lost the Democratic Republic of the Congo—a country at the very bottom of the UN’s human development index—more than its total annual health and education budget combined. In Nigeria, General Sani Abacha stole an estimated $1.3 billion while in power from a country where the national income is just $260 a head.

I suspect that the Minister, who is from the Department for Business, Innovation and Skills, is wondering what he is doing here, or is slightly concerned that he has arrived to respond to the wrong debate, because much of what I have discussed so far relates to the Department for International Development. However, many of these deals, such as the lost funds in the Abacha case, are alleged to have been laundered through British banks, and it is our own country’s role in this global scandal to which I turn.

[Anas Sarwar (Glasgow Central) (Lab)]

I congratulate my hon. Friend on securing the debate. Does not the point that she just made highlight the fact that this issue needs a cross-governmental approach? It is not about one Department looking at this, but a joined-up approach that includes the Department for International Development, the Treasury, the Department for Business, Innovation and Skills and the Foreign and Commonwealth Office. Through that, we can ensure that the UK continues to be a gold standard when it comes to its relationship with the world.

[Catherine McKinnell]

My hon. Friend makes the case very well and I thank him for his work in the all-party group promoting these issues. He succinctly highlights the key message that we want to convey to the Minister. He can work with other Departments, which will help us do what we can to bring an end to some of the corruption that is causing devastation in developing countries.

Our role is in part a consequence of the sheer scale of our financial services, which undoubtedly play a major role in the nation’s economy. The UK accounts for 18% of cross-border banking and houses 251 foreign banks—more than any other country. London has been voted the most attractive financial centre for asset management and is the largest currency trading centre in the world. However, we are also implicated through our links to British overseas territories and Crown dependencies, which, together with the UK mainland, account for one third of all shell companies. A number of thefts from the Democratic Republic of the Congo, for example, were routed through the British Virgin Islands.

Thirdly, and on a very positive note, we are also linked by our potential international leadership on this issue. Since 1997, the UK has proved itself at the forefront of international development work and has recently taken steps to lead the world in global transparency too. We very much support the steps that the Government have taken in relation to transparency, particularly the recent Lough Erne declaration, after the G8 summit there.

[Tessa Munt (Wells) (LD)]

I just wanted to comment on the benefits that the Government have introduced through the G8 open data charter and getting agreement to have more transparent company ownership and more transparency about those who control companies. I just wonder what the hon. Lady thinks about beneficial company ownership registry. We have agreed that it will be open, but there is an awful lot that we can do in the way that companies are formed in this country to ensure that this problem is sorted out and that Companies House helps to do so.

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[Catherine McKinnell]

I thank the hon. Lady for that intervention. In fact, I was just coming to that point about what we can do on the issue of shell companies and beneficial ownership. I very much welcome—we all do—the steps that the Government have taken to date. Indeed, I personally called for those steps to be taken in my role as shadow Treasury Minister during the consideration of this year’s Finance Act. We have become the first country in the world to commit to developing a public register of beneficial ownership, but it is vital that we implement it effectively. Above all, it must achieve its fundamental purpose of identifying the individuals who benefit from and control a company.

[Mark Durkan (Foyle) (SDLP)]

Like my colleagues, I congratulate my hon. Friend on her success in securing this debate and on her work with the all-party group. As she says, the Government’s commitments in relation to making public the register of ownership are very important, but we have to be absolutely clear that the register will extend to trusts, because trusts in particular have been used to hide ownership, not least—as she said herself—in some of the overseas territories and Crown dependencies.

[Catherine McKinnell]

The hon. Gentleman makes an important point. The key is that this register of beneficial ownership cannot be used as a smokescreen to hide the identities of companies and the individuals who control them. It must be part of the solution to ensure that we have greater transparency, and it must have the effect that I know the Government want it to have.

It is important that beneficial owners are required to provide information such as a passport number or date of birth, so that the register provides a unique, verifiable identifier for every person listed. It is also important that the information goes through some means of verification by Companies House. For example, it could be cross-checked with other registers, such as those of the Driver and Vehicle Licensing Agency or the passport authority. Where company ownership is not direct, individuals should be asked to explain how they exercise control, and when control changes it should be noted within a reasonable time period. Lastly, it is important that the information is published in line with the principles outlined in the G8 open data charter, to which the UK is a signatory, and on a very practical note, it must be machine-readable and searchable, because the amount of information contained will be vast and it is of no use if it cannot be searched.

[Tessa Munt]

The UK Companies Registry already requires changes of names of directors to be made within a 14-day period, so it should not be difficult to require other changes, particularly as something like 98% of companies that are registered with the UK Companies Registry are actually private, small, family businesses, where the ownership is terribly clear already. It is only the very small percentage of companies that are trying to hide things that we need to get to.

[Catherine McKinnell]

The hon. Lady makes a very important point. This register of beneficial ownership should not be an onerous burden on business. It should not only make it as easy as possible for banks’ due diligence officers, civil society groups, investigative journalists and foreign law enforcement officials to use the information on it, but for companies themselves to register the relevant information with the necessary authorities. The more people who are able to access this information easily, the more we can guarantee its accuracy.

It is vital that the register is fit for purpose, so the eyes of parliamentarians from across the House will be on the Government as they implement their own pledge next year. I and other members of the all-party group on anti-corruption will make sure that the Government make every effort to introduce the legislation to make that happen.

Money laundering has been much discussed in recent days, during the passage of the Financial Services (Banking Reform) Bill. Noble members, including former members of the respected Parliamentary Commission on Banking Standards, not least the Archbishop of Canterbury, have been calling on fellow legislators to take this opportunity to tighten up our anti-money laundering regulations, because our current checks are inadequate. In 2011, the Financial Services Authority found that 75% of banks, including the major ones, had inadequate checks in place and a Treasury report published just last month described the common failures as

“fundamental Anti-Money Laundering/Counter-Terrorist financing obligations... that all firms should be aware of.”

The new banking standards created by the Bill present an ideal opportunity to embed anti-money laundering compliance, both at the very top and throughout the culture of British banking.

Finally on the subject of money laundering, it is worth noting that this week is the anniversary of the imposition of a $1.9 billion fine on HSBC for transacting with Mexican drug lords, terrorist financers and those in countries subject to sanctions, including Libya, Burma and Iran. As a result of the deferred prosecution agreement that HSBC signed in order to avoid more serious punishment, its compliance with anti-money laundering laws is being independently monitored for five years. HSBC will be monitored not just in the United States; the Financial Conduct Authority will also be monitoring HSBC’s compliance with UK laws during the next five years. I would be interested to hear the Minister’s views on whether those monitoring reports should be published.

There are some general anti-corruption steps that the Government should consider taking. I draw to the Minister’s attention a Transparency International report on asset recovery that was released this week. Clawing back the money stolen in the type of deals that I have talked about is vital, but at present it is extremely rare. Currently, 99% of illegally obtained money flows undetected through the financial system. The seizure rate could be as low as 0.2%. How many people would steal millions of pounds if they had a 99.8% chance of keeping it?

The report suggests that there should be a new law against corrupt enrichment, which would allow suspicious assets that vastly outweigh the declared wealth of a politician or public official to be seized until proven legitimate. That would shift the burden of proof to the individuals wishing to invest, and away from businesses, which are already under significant obligations. I would be interested to hear the Minister’s views on this proposal.

It is also important to stress the important work of law enforcement in this area. As legislators, we are often very quick to add to the statute book, but of course it is vital that existing laws are enforced. The all-party group on anti-corruption was recently briefed by the head of the Metropolitan police’s proceeds of corruption unit. The unit, which is funded by DFID, costs just 2% of the amount of money that it has recovered, and just 0.3% of the amount of money that it is currently investigating. A £50 return for every pound of investment seems to be a pretty good deal.

The overseas anti-corruption unit, which sits within the City of London police, is also funded by DFID and since its creation in 2006 it has investigated more than 155 cases where corruption or bribery were alleged, resulting in more than 115 suspects being investigated and in the arrest of 80 individuals involving a number of sectors, including energy and natural resources, security, humanitarian aid, construction and engineering, and publishing. For every pound invested in that unit, Her Majesty’s Revenue and Customs retrieves between £10 and £30 from the clutches of shell companies and returns it to the UK public purse. In times of austerity, the Government should clearly be prioritising areas of work that provide such good value for money.

I will conclude by turning once again to those who suffer the impact of these devastating crimes. I would like to relay the words of a Zambian nurse quoted by ActionAid in one of its reports about the alleged abuse of shell companies. She describes what her hospital would do if it received the money that was owed to it. She says that

“maybe that money would be used...to access hard to reach places.”

She goes on to say that at present the hospital staff can only reach

“surrounding areas which we are able to walk to.”

The President of Equatorial Guinea’s son purchased a Gulfstream jet with suspicious funds, so he could probably solve that problem for them. However, I doubt that he will do so on his own. Instead, let us take the opportunity that we have here in the UK Parliament to do it.

[The Minister of State, Department for Business, Innovation and Skills (Michael Fallon)]

This is an important topic and I, too, congratulate the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) on securing this debate. The trade and investment White Paper, published in 2011, stated:

“Bribery and corruption are barriers to trade and growth. They hinder development, distort competition and perpetuate poverty.”

That is the Government’s view.

The hon. Lady paid tribute to the United Kingdom’s strong reputation for tackling corruption. Earlier this month, the respected non-governmental organisation Transparency International released its latest corruption perceptions index, which ranks 177 countries and territories around the world on the perceived levels of public corruption. Of those 177 countries, the United Kingdom was ranked 14th. Transparency International’s 2011 bribe payers index ranks 28 of the world’s largest economies according to the perceived likelihood of companies from those countries paying bribes abroad. The United Kingdom ranks joint sixth, alongside Australia, Canada and Singapore. We are ahead of the United States and France.

In its “Exporting Corruption: Progress Report 2013”, which assesses enforcement of the OECD convention on combating foreign bribery, Transparency International recognises the United Kingdom as one of only four active enforcers of foreign bribery. That is the challenge. Beyond the United Kingdom, Germany, Switzerland and the United States, enforcement effort is poor or non-existent.

The United Kingdom is a signatory to the United Nations convention against corruption and the OECD bribery convention. Those conventions require the signatories to criminalise the bribery of foreign public officials by individuals and companies. Transparency International believes that 20 countries, accounting for about a quarter of the world’s exports, including major exporting nations, such as Japan, the Netherlands, South Korea, Russia, Mexico, Brazil and Turkey, do little or no enforcement. Enforcement in France, Canada and Argentina is limited.

To be effective in tackling corruption and bribery, both the demand and supply of bribes must be addressed. That means that we cannot address the problem alone; it requires a concerted and co-ordinated effort, and other countries must contribute more equally to tackling corruption. The reality is that the risks of wrongdoing being discovered and of being prosecuted around the world are uneven. To address that, we are increasingly leading the international agenda on these issues.

When we held the G8 presidency earlier this year, my right hon. Friend the Prime Minister championed an agenda of tax, transparency and trade, and put tackling corruption at the heart of the G8 agenda. At Lough Erne he secured landmark agreements on tax transparency, transparency in the extractives industries and transparency of company ownership and control. That is in the interests of British firms, and those across the world, that play by the rules. It is about ensuring a level playing field for companies, so that trade delivers the benefits that it should for both rich and poor countries.

We are now taking forward those commitments, including establishing a central registry of company beneficial ownership information, and will be ensuring that the other G8 countries meet their obligations, too. We are working actively with our international partners in the fight against foreign bribery. UK law enforcement departments and agencies have provided training and technical assistance to a wide range of overseas law enforcement and anti-corruption agencies, including the Afghan Attorney General’s Office and Bangladeshi prosecutors, and we have participated in a number of joint investigations.

One of the strengths of the OECD convention is that 40 countries have signed it: more than just the OECD members. Through the OECD bribery working group, the monitoring body of the OECD bribery convention, countries are held to account for their efforts to tackle corruption through peer review. We are fully committed to the OECD bribery convention and we make a full contribution to the working group, which is meeting in Paris at the OECD this week and includes a review of the position in Ireland, in which the UK is a lead reviewer.

[Catherine McKinnell]

I apologise for taking the Minister back slightly, but he somewhat glossed over the register of beneficial ownership. I welcome the Government’s making a verbal commitment—he said that they are working on producing that register—but will he comment on the specific requirements that I proposed about the detail in respect of how it will be produced? He must accept that it is not enough simply to have a registry that is titled “Beneficial Ownership” but has no practical function, as such.

[Michael Fallon]

The hon. Lady knows that we are about to publish our formal response to the “Transparency and Trust” discussion paper and we will take forward primary legislation to implement a publicly accessible central registry, as soon as we find parliamentary time to do so. I will, if I may, respond to the hon. Lady in detail in writing on her specific point about monitoring.

The working group on bribery has not been shy about shining the spotlight on the UK. In 2008, it made a point of criticising the UK for having prosecuted no legal persons. Today only nine of the 40 signatory countries—Canada, Germany, Italy, Japan, Korea, Norway, Switzerland, the United States and the UK—have sanctioned a company for foreign bribery. Italy’s first corporate sanction was a temporary ban on public procurement. The German corporate sanctions have all been administrative fines. Our first corporate conviction for foreign bribery in July 2009 may well be the first in the European Union.

The Bribery Act 2010 provides the legal foundation here. In that Act, we have a modern, effective law against bribery that is second to none. It encourages and supports the establishment of ethical standards that are meaningful in the commercial world and society generally. The offence in the Act of failure to prevent bribery reflects the best practice from the working group, in terms of an effective model of corporate liability for foreign bribery. That has better equipped investigators and prosecutors to tackle bribery in the 21st century. Alongside the Act, investment in dedicated anti-corruption police resources has seen a dramatic increase in the number of investigations into allegations of foreign bribery by UK nationals and companies—up from just four investigations in 2006 to more than 20 live cases currently.

Foreign bribery offences are complex and demand considerable international co-operation, and can take years to investigate and bring to court. Consequently, although there have been several domestic bribery convictions using Bribery Act offences, we have yet to see a foreign bribery prosecution using those same offences.

The Serious Fraud Office also continues to pursue foreign bribery cases under the law that preceded the Bribery Act. In August, it charged four individuals with the first Bribery Act offences in relation to corporate behaviour.

Our ambition is to go beyond minimal technical compliance with the various UN and OECD conventions and to maintain a leadership position through best practice legislation that provides a fully effective deterrent to rogue traders. That means ensuring that we have the right tools. The Serious Fraud Office was given new legal tools to investigate foreign bribery allegations and confiscate the proceeds of crime through civil recovery. Earlier this year, we consulted on the introduction of deferred prosecution agreements for use in cases of economic crime, including Bribery Act offences, by corporate offenders. A new scheme for deferred prosecution agreements is provided for in schedule 17 to the Crime and Courts Act 2013, which received Royal Assent in the spring. We intend to implement that legislation in spring next year.

It is understandable that businesses will want to know how they can best comply with the law. We have published advice and guidance on UK Trade & Investment’s overseas business risk website, to ensure that businesses do not spend unnecessary time on disproportionate measures.

The issues that we are debating today are important for the well-being of our economy and the global economy, and for the standing of British businesses across the world. We are committed to ensuring that the UK leads the fight against practices of bribery and corruption. We have come a long way, but we are not complacent. Many points made in this debate challenge us to go further.