Criminal Finances Bill (First sitting)

Flick Drummond Excerpts

Committee Debate: 1st sitting: House of Commons
Tuesday 15th November 2016 Public Bill Committees

[The Chair]

Order. Can I just say to the witnesses that we have only a very short period of time and there are at least five other members who want to ask questions? The Minister may also do so at the end. Your replies are very informative and welcome, but could you make them more succinct? Similarly, could Members confine themselves to instant questions that people want immediate replies to and that can be given?

[Mrs Flick Drummond (Portsmouth South) (Con)]

Q Are you confident that the enforcement agencies will have sufficient resources to make full use of the new powers in the Bill?

Detective Superintendent Harman: Yes I am. In fact, the Bill is very helpful for counter-terrorism in that one of its sections allows us to make more of the resources we have. To be brief, about 40% of our financial investigators are police staff, or “civilians”, as they used to be called. Under current legislation, you have to be a warranted police constable to conduct a lot of the financial inquiries that we need to do. The Bill offers those civilian investigators new powers similar to those of a constable, allowing us to make the most of the resources we have. We are very pleased to see that in the Bill and confident we will make good use of it.

Mick Beattie: Likewise, I gave an example of the attendance at court which can be reduced by the disclosure orders. Obviously the policing bill has been cut, as is well documented and, yes, that has been challenging, but there have been some positives. The Government have recently provided additional funding for ACE teams—asset confiscation enforcement teams—which allows us to go chasing confiscation. They have provided additional funding for section 22 where you can revisit outstanding orders—it is a little technical—and, only recently, they have announced additional funding for the regional asset recovery teams, all of which will benefit from the improvements identified in the Bill.

Donald Toon: You have already heard about the disclosure orders but I also think the power to require information for the Financial Intelligence Unit and the information sharing provisions are important in making us more efficient. The one thing I would bring out is that it is not just about resources in law enforcement. We are talking about the ability to harness resources and capability from across the regulated sector, in particular financial institutions. From that perspective, I think it is a huge strengthening of capability.

[Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)]

Q I would like to take a slightly different tack and ask about the existing powers that you have that this Bill seeks to build upon. I am concerned that the National Crime Agency has declined to deal with the Hermitage case, which has been discussed, and which involves about $30 million laundered in London. Although the evidence provided to the National Crime Agency has been sufficient in other jurisdictions to take action, there has been a refusal to take action here. Why is that the case? Is it a lack of resources or a lack of will?

Donald Toon: Frankly, it is neither. In the Hermitage case, the overwhelming majority of the actual criminality took place outside the UK. One of the key issues in terms of where we focus our attention has got to be the prospects of actually being able to bring the major criminality in front of a court, and hopefully achieve a conviction. The fact is that a number of overseas jurisdictions are investigating criminality that took place in their jurisdiction. The vast majority of the criminality did not take place in the UK, and those responsible are not in the UK. We have supported, we are supporting and we will continue to support inquiries in the UK that are designed to help to bring those people to justice in the jurisdictions where they can actually be targeted.

--- Later in debate ---

[The Chair]

Order. We have 11 minutes left and I will stop this at 11.30 am, so help yourselves: please give yourselves more time for each other.

[Mrs Drummond]

Q I will be quick because you have touched on a lot of the stuff about which I was going to ask, particularly about the overseas corporate offence and how that works in practice. Mr York, will this actually pick up companies that operate mainly out of the overseas territories and the Crown dependencies?

Simon York: Yes if they are facilitating tax evasion in the UK or if their representatives carry out their business in the UK and are facilitating tax evasion that happens somewhere else. It catches Crown dependencies and overseas territories in the same way it catches other jurisdictions.

[Mrs Drummond]

Q Even though they have headquarters over there?

Simon York: Yes. That is precisely one of the targets of the legislation. If a company is facilitating tax evasion that is occurring in the UK—someone evading UK taxes—it would absolutely catch that. Equally, if that organisation is based overseas but its representatives are doing business in London to help someone in London to evade taxes in France, it would catch that as well.

[Richard Arkless]

Q First, to Mr York, the UK tax code has a reputation for being unnecessarily complicated. I am sure you are acutely aware of those allegations. To what extent does that complication play a role in criminality? Does it make it more susceptible to criminality? Do any specific examples arise out of the complication that would encourage, facilitate or make criminality easier?

Simon York: I am not sure that it does. Criminality is always pretty straightforward at its core. It is people lying, misrepresenting things and forging things. Sometimes that is disguised within the complexity of the tax system. I mentioned some times when people disguise a fraud as avoidance. We also get quite a lot of criminal attacks over the years that revolve around the VAT system, particularly the cross-border European stuff, known colloquially as MTIC—missing trader intra-community—fraud or carousel fraud. That can appear quite complicated but it is typically the criminal who is creating the complication to try to disguise the activity.

Criminal Finances Bill (Second sitting)

Flick Drummond Excerpts

Committee Debate: 2nd sitting: House of Commons
Tuesday 15th November 2016 Public Bill Committees

[Roger Mullin]

Q I will allow other Members to speak, but I want to ask one more follow-up question. I can understand why you are reticent to suggest what legislators should do but, as far as I am aware, you have been one of the leading researchers in the field. However talented you may be, Mr Leask, you are limited in your resources to research further. Would you welcome the UK Government putting their shoulder to the wheel, as it were, and conducting a detailed review of the use of SLPs for criminal purposes?

David Leask: That is a reasonable ask. As I said earlier, we are talking about companies that are trading on the brand of Scotland and the brand of Britain. When they are offering these services, they are stressing that the addresses that they are using are British. The United Kingdom’s status is part of the reason that these companies are popular. That is part of the reason that you may want to look at the matter.

One of the reasons that people in countries such as Ukraine or Russia may wish to use a Scottish or British company as a shell company is that it lends the enterprises respectability. I am not sure that our authorities will want to lend the respectability of countries such as Scotland, which have an image in the world of being stand-up places where there is the rule of law, to some of the enterprises we are talking about.

One thing I urge you to do if you are remotely interested in the issue is simply to go online and google “Scotland” and “offshore”. If you can do so in Russian, all the better. You will see the most extraordinarily explicit explanations of how these companies do not need to pay tax, report any financial findings or reveal who their owners are, because those owners will be in entirely opaque jurisdictions.

Q Toby Quantrill: So much of what Mr Leask has talked about in terms of how anonymous companies are used applies equally to our overseas territories, including the issue of respectability by connection to the UK.

I want to say a couple of things on volume, especially with respect to developing countries and the impact there. A high-level panel was put together by the United Nations economic and financial committee. It was run by Thabo Mbeki, so it is known as the Mbeki panel. That panel estimated that illicit financial flows out of Africa run at somewhere in the region of at least $15 billion a year. That is money being lost from Africa at a far greater rate than aid is going in. That money is either illegally obtained, illegally transferred or illegally utilised, so it covers a range of activities including transfer pricing—the illegal movement and transfer of finances—and criminal activities and many of the kind of things that have been described. It is worth noting that the sort of picture being painted there would apply equally and, in many respects, more so.

One little pertinent fact that I have written down is that 11% of foreign-owned companies operating in Russia are apparently registered in the British Virgin Islands, but we do not know who sits behind them.

[Mrs Flick Drummond (Portsmouth South) (Con)]

Q This question is really a supplementary to some of Dr Huq’s comments on the overseas territories. I asked a previous panel including the Serious Fraud Office, HMRC and the Crown Prosecution Service whether they thought they had the resources to go in there. They have automatic access to all the records, although I know that it is not public document. I want to know a bit more about that, Mr Quantrill, because obviously you are a great expert on it. To add to that, are you confident that the enforcement agencies have enough resources and the capability to do what is in the Bill and prosecute people in the overseas territories and Crown dependencies?

Toby Quantrill: It would be an awful lot easier if we had transparency in regard to beneficial ownership. It is true that all of the overseas territories have now agreed to share information with the UK Government and a number of other Governments on a Government-to-Government basis. However, from the perspective of a citizen in a developing country who may well not trust their Government and wants to know what is going on, they will not be happy. First, they cannot hold their Government to account to use that data even if they get it—most developing country Governments will not. As long as it is shared only between Governments, there is a limit to who will see it and who can act on the information. That is critical.

We cannot put this an awful lot better than David Cameron did when he was talking about the UK’s beneficial ownership register. He was asked, “Is it not enough for it to be available to Government officials?” and he said:

“we in government will use this data to pursue those who break the rules, and we’re going to do that relentlessly, but there are also many wider benefits to making this information available to everyone. It’s better for businesses here, who’ll be better able to identify who really owns the companies they’re trading with. It’s better for developing countries, who’ll have easy access to all this data without having to submit endless requests for each line of inquiry. And it’s better for us all to have an open system which everyone has access to, because the more eyes that look at this information the more accurate it will be.”

Yes, there is a question of resources and availability to use the information once it is provided, but the more people who have access to it, the more likely it is first to be accurate and secondly to be utilised.

I was talking to a colleague from Global Witness just before last weekend. They spent the whole weekend with a group of data analysts sitting and looking at the information now available through the UK’s beneficial ownership register, making connections and linking that with other databases they have. This information does get utilised, and the more people utilising it, the more likely it is to be helpful. Our sense is that it is not enough just for the authorities to have access.

[Mrs Drummond]

Q As far as the Bill goes on transparency, obviously it is only for the UK. You have also been talking about other countries and it is up to them to follow our lead and have more transparency.

Toby Quantrill: The UK has legislative authority over the overseas territories.

[Mrs Drummond]

Yes, but I think Mr Leask was talking about other countries and corrupt Governments. We cannot cover that in the Bill. We can cover the overseas territories. Were you not talking about other countries outside the overseas territories when responding to Mr Mullin?

David Leask: We were talking about the use of both English limited liability partnerships and Scottish limited partnerships as shell companies. Those shell companies often provide cover and a way for people in Russia, for example, to buy a company in the British Virgin Islands. Often the shell on the outside will be British, but, when you crack it open, on the inside you get the British Virgin Islands or another Commonwealth or British overseas territory. Sometimes it is a country such as Belize or Panama.

One of the things said to me by a colleague—a lot of work is being done on these stories by colleagues in countries like Ukraine and Latvia—was, “We keep coming up with that British Commonwealth problem.” That really struck me, once you start unwrapping these shells. One final point I will make is that, in many countries, there are blacklists of offshore fiscal paradises and tax havens, and the British and Scottish companies enable you to bypass those blacklists.

Toby Quantrill: In the recent Panama papers data that were revealed, just under half of companies in the documents in Mossack Fonseca in Panama were registered in the British Virgin Islands. It was by far and away the most utilised location. It is at the heart of the system. With the ability to deal with that comes a responsibility to do so.

[Mr Wallace]

Q I thank The Herald for what you have done. I have read some of your stuff and it has been quite an eye-opener. The SNP obviously raised it in the debate and that prompted me to have a meeting with one of my business Minister counterparts to see where we can go forward with it. Some of the stuff that you have identified—well done for it—is the truest form of good investigative journalism that can be produced. It was the Glasgow Herald when my grandmother wrote for it way back 40 or 50 years ago. It is clearly a structure that has been abused, and I think we want to ensure that that does not happen.

I want to ask Mr Quantrill about a bigger issue: the Crown dependencies and overseas territories. If we stack it up, going back to the anti-corruption summit chaired by David Cameron back in May, we have got to a position now where all of them will have a central register of beneficial ownership, except the Caymans, which will have a linked register of ownership. Our law enforcement agencies will have access to them. We are the only country in the G20 to have a public one. Never mind the dependencies or anywhere else; our neighbours in Europe do not have them yet, so the trajectory is in the right direction. It seems to boil down to a call to make the Crown dependencies make them public—that we, the UK Government, impose our will on the Crown dependencies and territories, in primary legislation.

Do you recognise what that actually means? I have many constituents who, for example, have very strong feelings on abortion. Does that give this sovereign Parliament the right—technically, we are sovereign over Scotland and the Crown dependencies—to impose that very strong will on those Crown dependencies? That is the next step. The step you are suggesting is for us to ignore their own Parliaments and impose our will on them, because it is a subject that you and many other people feel passionately about. I respect that, but it is what you are proposing. Is that something that you are happy to do?

Toby Quantrill: Not happy—