Corporate Structures and Financial Crime

Helen Goodman Excerpts

Thursday 4th July 2013 Commons Chamber

[Helen Goodman (Bishop Auckland) (Lab)]

I am pleased to have the opportunity to speak in this debate and am grateful to my hon. Friend the Member for Bassetlaw (John Mann) for persuading the Backbench Business Committee to hold it. I am extremely concerned, as are all hon. Members, about the morality of cheating in the tax system and, as my hon. Friend said, the economic distortions it creates.

Ordinary small and medium-sized enterprises cannot cheat in that way, and the collapse in the high street is being exacerbated by the tax advantages enjoyed by the internet companies that facilitate online shopping. Indeed, the international internet companies are among the most significant offenders when it comes to tax avoidance. Their business model is built on an apparently free offer to consumers, but the services are paid for by advertising, which is targeted through the collection of personal data from consumers based on the cookie system. I have secured a separate debate in a fortnight’s time on the internet companies’ use of personal data. Today I wish to say something about their business model and its implications.

A Public Accounts Committee report found that between 2006 and 2011, Google paid the equivalent of $16 million in income tax in this country on revenues estimated at $18 billion. It claimed that advertising sales were being made in Ireland, when in fact the two contracting parties were in the UK.

Facebook, another US-based company, has 33 million users in the UK, with 25 million people visiting the site each day. Its revenues from advertising are estimated at around £170 million a year, but last year it reported sales of only £20.4 million. Using that figure for its sales, it reported a pre-tax loss of £13.9 million in 2011, enabling it to pay just £238,000 in tax last year. The position with Twitter is even worse, if that is possible to imagine. It did not even submit any accounts last year.

I want to set the behaviour of those companies, in relation to their corporate structures and tax performances, in the context of the cost to society and the public purse that they are creating. Everyone agrees that online child abuse is a serious crime. We in Parliament, the public and the industry are committed to its eradication. The Internet Watch Foundation is a fantastic organisation that takes down sites that carry child abuse images. It is a membership organisation for the industry, so we were all shocked to hear of the very small contributions that the industrialists were making to its work. Until a month ago, Google was donating £20,000 to the Internet Watch Foundation. In recent weeks, it has upped its contribution to £250,000 a year for four years, and the other media organisations have collectively offered a further £250,000 a year for the same period. I learned this week that Facebook makes a contribution of only £10,000 a year.

The problem with that is that the Internet Watch Foundation is hugely strapped for cash and unable to deal with all the alerts it receives. It is worried, because a survey that it undertook has suggested that, although 1.5 million people have seen child abuse images, only 40,000 reports have been made to the organisation. It is calling on the public to report more, in the interests of child protection, but it requires more resources to enable it to respond. Furthermore, once members of the public start to respond, they are not going to be able to distinguish between the different categories of image—illegal, obscene and indecent—and they will report everything that disgusts them.

We have a similar situation with the Child Exploitation and Online Protection Centre—CEOP—which is the part of the police force that deals with these issues. It believes that 60,000 people in this country are downloading child abuse images, yet its resources are so limited that it was able to secure only 1,570 convictions last year. At the same time, the companies that distribute that material are not paying the taxes that would help properly to resource the police. I have met representatives of those companies and written to Ministers about these issues. I am still waiting for a reply from Ministers.

Returning to the business model that Facebook uses to generate its revenues, I want to explain a further connection between the two kinds of crime. A whistleblower recently informed us that advertisements were appearing alongside the indecent images of children. They were advertising the services of a large number of household-name companies, including PayPal, John Lewis, Procter & Gamble, EE, Hewlett Packard, Betfred, Bing, Johnson & Johnson, Google, BSkyB and Western Union. Facebook has now agreed to do a manual sweep to remove the advertisements from the sites, because the advertisers do not want to finance them and do not want to be seen to finance them. It would be helpful if we had public statements from those companies on their views on that, and on whether they are happy to have so much advertising being channelled to other organisations that are not paying their proper taxes.

[Charlie Elphicke (Dover) (Con)]

I might have misheard her, but it sounded to me as if the hon. Lady was making serious allegations about John Lewis. Will she please reconfirm them for the benefit of Government Members?

[Helen Goodman]

rose—

[Madam Deputy Speaker (Dawn Primarolo)]

Order. Before the hon. Lady returns to her point, I am sure she is going to tell us how what she is talking about connects with financial crime. We are discussing corporate structures, tax evasion, money laundering and financial crime. The crime she was describing was serious, but she said there was a link between it and financial crime, and I would quite like to hear what it is.

[Helen Goodman]

Thank you, Madam Deputy Speaker.

Let me respond to the hon. Member for Dover (Charlie Elphicke). The companies that I listed have been inadvertently caught up in financing in this particular way, but the question for them is whether they have made it clear, publicly, that they do not wish to be financing the distribution.

In response to your point, Madam Deputy Speaker, the problem is that we have a system through which money is hoovered up in one way and can then be used to finance any other kind of crime—the crimes that I have described, but also those mentioned by my hon. Friend the Member for Bassetlaw. What we do not have from these organisations is any proper accountability that would allow us to get to the bottom of the issues and tackle them properly. It is extremely problematic that we do not have international agreements about how to deal with these internet companies when it comes to their taxes and their other behaviour. Although it is true that tax avoidance is a scourge and tax evasion is a crime, the industry’s use of these sites helps to promote other kinds of crime. I believe that there is a serious cultural issue about these companies that must be addressed.

[Charlie Elphicke]

I thank the hon. Lady for giving way again. I have used privilege in this place to name and shame financial wickedness and, indeed, industrial scale tax avoidance. I have always done so, however, in an attempt to provide evidence. The hon. Lady has made some serious allegations in respect of which I am concerned she has not provided us with any evidence.

[Helen Goodman]

The hon. Gentleman may not be aware that a whistleblower showed me a large number of pages on which I saw some of these advertisements. The point I am trying to make to him is that the companies are inadvertently drawn into this through the targeting and retargeting of advertisements. Their money is being used to finance the internet companies according to the business model that operates, so if they do not want to be involved, they must take steps to avoid doing so.

To offer the hon. Member for Dover some comfort, Marks & Spencer, for example, took the view that it really wanted action to be taken—and it took it publicly, which had a tremendous impact on Facebook and on what Facebook was doing. The other companies have not yet come out as clearly as Marks & Spencer did.

I had better not speak for too long. This is an important debate, and I am grateful to my hon. Friend the Member for Bassetlaw for opening it up. I am very concerned, however, about what the debate is uncovering.

--- Later in debate ---

[Sir Edward Garnier]

The hon. Lady urged us to look to the future. Does she agree that one thing that we need to consider with reasonable urgency is an alteration in how corporate criminal liability is described in law? At the moment, we have the Victorian “directing mind” principle, which is not really appropriate for vast international companies. Does she agree that we need to Americanise the system—

[Helen Goodman]

She’s just said that. If you’d been here, you’d have heard it.

[Sir Edward Garnier]

It is always so lovely to hear the hon. Lady, but I am actually addressing the shadow Attorney-General.