War in Ukraine: Illicit Finance

Catherine West Excerpts

Thursday 17th November 2022 Westminster Hall

[Catherine West (Hornsey and Wood Green) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Efford. I think it is for the first time and it is lovely to see you in the Chair.

I thank the Chair of the Foreign Affairs Committee, the hon. Member for Rutland and Melton (Alicia Kearns), who is not currently present, and the other Committee members who have been here today: my hon. Friend the Member for Bermondsey and Old Southwark (Neil Coyle) and, of course, the hon. Member for Isle of Wight (Bob Seely), who knows Russia well and has been talking about these issues since before February 2022. I am sure the Committee will be as concerned as I am about the events of recent days. My thoughts and my condolences are with the people of both Poland and Ukraine at this immensely challenging time for both countries.

Labour is unwavering in its commitment to NATO, to Europe’s collective security and to providing long-term support to Ukraine and its people as they put everything into the defence of their country and the values of democracy, freedom, peace, security and self-determination. Labour also maintains that the bravery, courage and resolve of Ukrainians must be met with commensurate action, not only in our direct support to President Zelensky and his people but by eradicating Russian influence from our economy and our politics.

The Select Committee report states:

“The Integrated Review named Russia as the ‘most acute threat to our security.’”

It should not require a war on our continent for there finally to be the impetus to do something about illicit Russian finance, which has polluted our society and economy for decades. The hon. Member for Isle of Wight and my right hon. Friend the Member for Barking (Dame Margaret Hodge) have worked consistently on the issue in the all-party parliamentary group on anti-corruption and responsible tax. I was a member of that group before I became a Front Bencher—or rather, in my time between being a Front Bencher and a Back Bencher.

Years of inaction have seen our capital dubbed “Londongrad”. My hon. Friends the Members for Bermondsey and Old Southwark and for Putney (Fleur Anderson) were quite right to talk about the heavy influence that inaction has had on property prices for Londoners trying desperately to get on to the housing ladder, and the way in which prices have rushed up, particularly in the current climate. We are now reaping the impact of hundreds of billions of pounds having been laundered here in the UK, much of which will be being deployed to fund Putin’s war machine.

The Labour party has been pressing the Government for action for years and has raised the issue of illicit finance on the Floor of the House dozens of times. At our conference in 2021, prior to the invasion of Ukraine, my hon. Friend the Member for Wigan (Lisa Nandy), then shadow Foreign Secretary, committed to a specific taskforce to look at the matter in depth.

Even now, it is fair to assert that the measures adopted in the Economic Crime (Transparency and Enforcement) Act 2022 do not go far enough to tackle the problem. The report says that the steps taken by the Government since February

“are not preventative but rather constitute damage limitation”,

brought about by years of apathy. The report catalogues a litany of errors and shortfalls and the Government’s unwillingness to bring forward legislation and the culture change required, which could truly stem the flow of dirty money, deal with its enablers and provide sufficient resourcing to enforce any changes in the law.

This challenge did not originate in February 2022; the Opposition have been calling for action on it for years. We have known of Putin’s corrupt regime—and the risks that it has posed for our region and globally—since 2008, when he flagrantly broke international law to invade Georgia to retain control over the Caucasus, after brutally repressing the people of Chechnya. He did it again in Crimea in 2014, and later unleashed a brutal attack against the people of Syria. Who can forget the images of blown-out Idlib and how similar many of the bombed-out cities in the east of Ukraine appear now?

As well as Putin’s heinous war against Ukraine and his bid to wipe it from the map—the latest manifestation of almost two decades of relentless warmongering at the expense of civilians around the world—we are also aware of the threat posed by Russia as a state of sprawling kleptocracy. Oligarchs have exploited our economic set-up to expand their wealth, protect their assets and further the Kremlin’s nefarious intent. As the report highlights, we are still nowhere near where we need to be to remedy years of inaction in rowing back the tides of polluted Russian finance.

On the substance of the report, I am sure that the Minister will cite the 2022 Act, which Labour supported and welcomed earlier this year as a step in the right direction. The hon. Member for Isle of Wight and my right hon. Friend the Member for Barking tabled amendments and brought improvements to the Bill. The report rightly asserts that although the legislation makes welcome changes in some areas, it represents only a fraction of the changes needed to address the systemic vulnerability to Russia’s illicit finance. It was also lacking in reforms to Companies House, which are still not sorted, and it failed entirely to get to grips with cryptoassets to strengthen anti-money laundering regimes.

To inject a little bit of humour into this rather dry topic, I am sure Members will be interested in the Royal United Services Institute video in which an individual called “Mr Crooked Crook Crook” bowled up to Companies House to register his business and was welcomed with open arms. RUSI being that worried about a dodgy crook trying to register their company with Companies House highlights, with some humour, the issue that we face.

Even the limited progress that the legislation offers is hampered by the fact that the Government are not sufficiently resourcing the UK bodies that are tasked with enforcing the changes. The report finds that only 0.042% of GDP is spent on funding national-level economic crime and enforcement bodies. As a result, money laundering prosecutions have dropped by 35% over the past five years. We have talked about the issue regularly in the House, yet the opposite seems to have occurred in terms of the number of successful money laundering prosecutions.

The existing budget for economic crime law enforcement is £400 million, with only £100 million of that coming from the Treasury. That appears to be entirely inadequate. The National Crime Agency, the Serious Fraud Office and other bodies urgently need more funding to row back years of inactivity in this area, protect legitimate business and safeguard our national security.

We must also do far more to oppose those who seek to use their wealth to avoid scrutiny, skirt the law and remain beyond the reach of those who enforce it. The non-governmental organisation Spotlight on Corruption highlights the fact that money laundering prosecutions have dropped by 35% over the past five years. The UK is by far the most frequent country of origin for SLAPPs, with 31% of cases originating in the UK.

The hon. Member for Isle of Wight mentioned the famous author Catherine Belton; I recommend that everybody goes and buys her book for Christmas. “Putin’s People” comes highly recommended by members of the Foreign Affairs Committee. It considers the connections between kleptocracy, the UK and Londongrad, and the serious action that needs to be taken. Unfortunately, the judicial system was used to bully her publisher, as the hon. Member said. That is something we need to stop. It is a waste of court time and we must tighten things up and not allow such disgraceful acts to occur.

Although Labour welcomes changes brought in through the statutory instrument debated in October, which introduced a cap on the damages that oligarchs can win through protracted legal showdowns, we must go further. These oligarchs are concerned with only one thing: retaining their ostentatious wealth of questionable origin. They are litigious and resourceful, many will circumvent any rule to keep what they have and, in many cases, the Government do not have the basics in place to oppose them. Even the former Foreign Secretary—and briefly Prime Minister—the right hon. Member for South West Norfolk (Elizabeth Truss) slammed the Government’s record as a “decade of drift” on Russia.

Labour maintains that, in expanding our regime against Russia, the Government have been taking time that the people of Ukraine simply do not have. We have been sounding the alarm for years and will continue to do so. Today’s Financial Times reports that the Russian economy has contracted by 4%. It is an interesting percentage because I think it is about the same amount as ours has contracted since 2016. It shows that this is a very slow process and we need to get a wriggle on and get a move on. The report clearly states:

“Last-minute changes to last-minute legislation”

are not indicative of an effective or coherent policy, so we need to get moving. Labour will be very happy to hear of further amendments and statutory instruments that will push this further.

On 11 October 2022, the Government were asked in a parliamentary intervention what consideration had been given to sanctioning cryptocurrency mixers Tornado Cash and Blender. I do not expect the Minister to have the answer right now, but perhaps he could write to me with it and put a copy in the Library for members of the Foreign Affairs Committee to look at as well. Mixers such as these obfuscate the origins of transactions, making them virtually untraceable. Indeed, Tornado Cash has been used to launder more than $7 billion-worth of virtual currency since 2019. The US Treasury has sanctioned both; why have we not? Will the Government bring the UK into line with the US Treasury’s approach? Putin and his cronies are more than capable of exploiting such gaps in our regime, so why are we so slow and allowing this to persist?

Finally, I put on the record a question for the Minister. Will he assure us that the funding that has enabled an increase in full-time staffing numbers will not quietly be depleted following today’s announcements of tax increases for working people and a decrease in public spending? We desperately need excellent Treasury officials to keep on at this and must provide long-term funding for the critical units across both the FCDO and the Treasury. Prior to the war, some countries, such as the US, were well prepared to apply sanctions clearly and efficiently, but the UK was not. The Government have lagged behind and we must close the gaps in export bans to Russia regarding materials that have a potential for internal oppression. Some of that has now been dealt with by statutory instruments, but I would like to see a complete approach and not a colander effect that sees things slipping through.

I conclude by thanking the Select Committee for its challenging and crucial work on illicit finance. I look forward to further action in this regard and further statutory instruments, so that we can increase the pressure on the Kremlin to stop its vile activity in Ukraine.

[The Parliamentary Under-Secretary of State for Foreign, Commonwealth and Development Affairs (Leo Docherty)]

It is a pleasure to serve under your chairmanship, Mr Efford, and to respond to the debate on the Government’s behalf. I thank all Members for a constructive and useful debate.

I am grateful to my hon. Friend the Member for Isle of Wight (Bob Seely) for leading the debate. I acknowledge his long-standing interest and expertise in this field. We are grateful to the members of the Foreign Affairs Committee for producing this extremely useful report. I hope the Government response shows that we regard it as a serious and useful piece of work, and that the overall tone of the response shows that we treat it as a grave matter that requires our urgent attention.

I was grateful for the contributions from the hon. Member for Bermondsey and Old Southwark (Neil Coyle), my hon. Friend the Member for Cheadle (Mary Robinson), and the hon. Members for Strangford (Jim Shannon), for Stirling (Alyn Smith) and for Hornsey and Wood Green (Catherine West). I should say that this topic lies in the portfolio of my departmental colleague, the noble Lord Ahmad; I am pleased to respond today on his behalf. I will try to cover off as many of the questions raised as possible, while giving some assurance that the Government’s response treats the issue extremely gravely and seriously.

The hon. Member for Hornsey and Wood Green asked about our approach to tackling the use of cryptocurrencies. We recently introduced legislation to tackle their use when it comes to sanctions. I will write to her, or have the noble Lord Ahmad write to her, with an update on that statutory instrument, which sought to ensure that the application of sanctions keeps pace with the developments in financial markets, especially when it comes to the use of cryptocurrencies and platforms such as Blender.

A number of colleagues asked about the use of offshore shell companies to purchase property in London. We are tackling the use of offshore shell companies. We are reforming the role of Companies House and improving transparency over UK companies and properties in order to strengthen our business environment and support our national security, while delivering a more reliable companies register to underpin what is important business activity.

The reforms will bear down on the use of thousands of UK companies and other corporate structures as vehicles for facilitating international money laundering, corruption, terrorist financing and the illegal arms movement. The reforms will include the identity verification of people who manage or control companies and other UK-registered entities; greater powers for Companies House to query and challenge the information it receives; enhanced protection of personal information provided to Companies House to protect individuals from fraud and other harms; more effective investigation and enforcement powers for Companies House; and better cross-checking of data. Those are some of the reforms; that is not the entire list. We are aware of the issue and we are tightening up the relevant legislation.

A number of colleagues mentioned the use of SLAPPs and eloquently painted a picture of how they are hugely detrimental to the fabric of civil life. We are committed to protecting free speech and the rule of law in this country; they are cornerstones of our democracy. We are clear that SLAPPs are an abuse of the legal system. They involve the use of legal threats and litigation to silence journalists, campaigners and public bodies. That is deeply detrimental to a free and fair media and to the freedom of individuals. Addressing SLAPPs is a key part of the Government’s work to combat corruption and kleptocracy.

Colleagues will know that earlier this year the Government ran a call for evidence on SLAPPs reform. Our response, published on 20 July, outlined plans for a legislative definition of SLAPPs and an early dismissal process, supported by a formal cost-protection scheme to shield defendants and neutralise the chilling effect of high costs. I am sure colleagues will be reassured to hear that, and we will keep colleagues updated as the process develops.

A number of colleagues mentioned tier 1 investor visas, which they will know are now closed to new entrants. The Home Office lead on visas. We are currently finalising the historical review of the tier 1 provision. We expect the response to be published in the near future. We recognise the interest in the issue, and it is a complex piece of work. The Home Office is of course looking at how to operate a safe and sustainable approach while also attracting investment. We have to get the balance right, but we are clear that any future system must make sure that settlement must be earned and not bought, through applicants actively engaging in the UK economy and delivering job creation and other tangible economic benefits. I hope that information is useful.

[Catherine West]

Is the Minister aware that just two weeks ago the Home Secretary mentioned in the House of Commons that a number of visas had been sold? She was referring to the change in policy, but I note the difference in the language that the Minister has used today. Will he clarify what the Home Secretary meant when she said that certain visas had been sold?

[Leo Docherty]

Although I am grateful for the invitation to speak for the Home Secretary, I am going to pass on that opportunity. The hon. Member might seek clarification from the Home Secretary herself.

We are proud that we have sanctioned more than 1,200 individuals and 120 entities since the start of Putin’s outrageous invasion of Ukraine. That includes sanctioning Russia’s major banks, as well as more than 120 oligarchs with a combined net worth of more than £140 billion. This was made possible due to cross-Government planning months before the Russian invasion. Our planning proved pivotal to the swift designation of individuals and the introduction of new measures within days of the invasion. The legislation enabled the Foreign Secretary to sanction more individuals and entities at a greater pace.

We are taking robust action across Government, and with our international partners, to ensure that sanctions are effectively enforced. That is done through the Russian elites, proxies and oligarchs taskforce, which brings together international partners to ensure the effective enforcement of financial sanctions implemented against Kremlin-linked elites and entities.