Sanctions and Anti-Money Laundering Bill [Lords]

Helen Goodman Excerpts

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

[Helen Goodman (Bishop Auckland) (Lab)]

This is one of many Bills that we need because of our impending departure from the European Union. We agree that sanctions are a crucial lever in our foreign policy armoury. Indeed, their use and usefulness is demonstrated by the fact that we have 36 sanctions regimes on countries ranging from Afghanistan to Zimbabwe, and covering terrorist organisations such as Daesh and al-Qaeda. We accept that the repeal of the European Communities Act 1972 in the EU (Withdrawal) Bill means that the Government must replace it with domestic powers. However, we have a number of questions, criticisms and challenges for the Government about the way in which they are doing that in the Bill.

Money laundering through the City of London is now estimated at £100 billion a year, and the two clauses in the Bill devoted to the matter are wholly inadequate to tackle this massive problem, which is illegal in itself and also hides and enables other crimes, perverts justice, distorts the economy and is seriously undermining our reputation. International standards to prevent it are set out by the Financial Action Task Force and translated—currently via the EU—to national level. We agree that legislation is needed so that we can continue to honour our international obligations.

[Lloyd Russell-Moyle (Brighton, Kemptown) (Lab/Co-op)]

Does my hon. Friend agree that if we tackled tax evasion and avoidance, we would not see such modest levels of overseas development? Countries around the world—in Africa and Asia—would be able to finance their own basic services. Those places do have the money, but companies are stealing it via evasion and avoidance.

[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.

[The Minister for Europe and the Americas (Sir Alan Duncan)]

May I draw the hon. Lady’s attention again to clause 1(2)? Paragraph (e) mentions exactly what she is talking about—promoting

“the resolution of armed conflicts or the protection of civilians in conflict zones”.

Paragraphs (f), (g) and (h) refer exactly to the human rights abuses that my right hon. Friend the Foreign Secretary mentioned in response to her earlier comments.

[Helen Goodman]

That is absolutely true, but if the Minister reads a little further into the Bill and looks at clauses 6 and 7 on aircraft and shipping, he will see that there are some problems at that point. Again, we can come back to this in Committee.

The Bill states that prohibitions can be applied to UK nationals and companies based in the United Kingdom, but not against companies based or incorporated in the British overseas territories. Recent reports from UN monitors implicate territories such as the British Virgin Islands in the setting up of front companies that helped North Korea to evade the sanctions imposed on it. The problem of sanctions avoidance is very serious. Last week, I was told in answer to a written parliamentary question that the total cost of financial sanctions reported as having been breached last year was £170 million. This afternoon, I received a letter from the Treasury, which has looked at the numbers again and says that the number is £1.4 billion. We need to look at this in more detail in Committee.

I now turn to the anti-money laundering provisions—what one might call the McMafia section of the Bill. To set this in context, the Home Affairs Committee report of June 2016 found:

“Money laundering is undoubtedly a problem in the UK…It is disgraceful that at least a hundred billion pounds is being laundered through the UK every year. If the UK is to remain the centre of global finance, this must be addressed.”

It pointed out that

“money laundering takes many…forms…from complex financial vehicles and tax havens around the world through to property investments in London…and high value jewellery. It is astonishing that just 335 out of some 1.2 million property transactions…were deemed to be suspicious. This suggests to us that supervision of the property market is totally inadequate”.

At the moment, it is far too easy—

[Layla Moran (Oxford West and Abingdon) (LD)]

Is the hon. Lady aware of the geographical targeting orders piloted by the USA that we were told about in the Public Accounts Committee during our trip to Washington last week? Does she know that 30% of the properties investigated were found, in the end, to be owned by nefarious people?

[Helen Goodman]

That is very shocking. I did not know about it. I hope that the hon. Lady will dilate on the matter further during the debate.

It is obviously possible for people to buy a property, take in rent in perpetuity and have a clean income. In evidence to the Home Affairs Committee, the surveyor Henry Pryor said:

“we do have the equivalent of a welcome mat out for anybody to come if you want to launder your money.”

Money laundering enables the corrupt to live in comfort and security. It is also used to finance other serious and organised crime such as drug dealing, human trafficking, terrorism and even the illegal arms trade and WMD sanctions busting. The click of a computer mouse in London or the overseas territories can mean untold misery across the globe. The Government’s own impact assessment for the Bill says:

“As a global financial centre, the UK is particularly exposed to the threat of being exploited as a destination or transit point for illicit funds”.

Ministers know that this is a problem. Between 2013 and 2016, David Cameron’s Government issued increasingly strong statements and promises, culminating in the May 2016 global summit. There were three specific proposals: a transparent register of beneficial owners of all companies registered in the UK, similar registers in the British overseas territories and Crown dependencies, and a public register of foreign owners of UK property. However, the implementation has been halting, under-resourced, partial and confused. Currently we have at least 25 different regulatory bodies. It is true that we can now see on the Companies House register who the person is with significant control, but last year 400,000 companies failed to submit the information. Companies House has no due diligence procedure and employs only 20 people to supervise 4 million entries.

[Lloyd Russell-Moyle]

Does my hon. Friend share my concern that, when one of my constituents reported a fraudulent entry in the Companies House register, the response from Companies House was that it does not do the enforcement, but is just the registry? This fraud is a mockery of the whole registry system.

[Helen Goodman]

My hon. Friend has brought precisely the point to the House in highlighting that unfortunate episode.

Registers have been introduced in some of the British overseas territories, but they can be accessed by the authorities in London only when the authorities have a reason to be suspicious. The inadequacy of that approach was demonstrated by the publication of the Panama papers and the Paradise papers. According to the Guardian investigators, the law firm Mossack Fonseca, operating out of Panama, acted for 113,000 companies incorporated in the British Virgin Islands, which hosts 950,000 offshore companies. That is a country with a population of 30,000. This is public interest journalism at its best—fearless, determined and forensic. Had it not been for the excellent investigatory journalism, we would not have known that Britain’s high street banks processed $740 million from a vast money-laundering operation run by Russian criminals through anonymously owned firms, nor that Mukhtar Ablyazov, who fled Kazakhstan in 2009 after $10 billion went missing from the bank he chaired, had a Cayman Islands trust set up by law firm Appleby.

Significantly, HMRC has been able to use the information revealed in Panama and Paradise to open civil and criminal investigations into 66 people and pursue arrests for a £125 million fraud, tackle insider trading and place dozens of high net worth individuals under review. Imagine how much more effective it could be if transparency were the rule and not the exception.

[Mr Paul Sweeney (Glasgow North East) (Lab/Co-op)]

My hon. Friend makes a good series of points about the nature of the British overseas territories and Crown dependencies. Given that the Bill considers the whole nature of our governance structures after Brexit, does she agree that we should look in a broader sense at the curious structure of British overseas territories and Crown dependencies? We should perhaps follow the example of France, which has incorporated its overseas territories into its metropolitan country and given them a democratic place in its legislature. We could consider the same thing.

[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”.

--- Later in debate ---

[Alison Thewliss]

That sounds like a vague, “I don’t know” kind of answer.

[Helen Goodman]

Perhaps the hon. Lady would like to ask the Minister whether the powers he is taking in chapter 3—temporary powers in relation to EU sanctions lists—will not give him the power to enforce the fifth money laundering directive.

[Alison Thewliss]

That is a very good question. I do not know whether the Minister wants to take this opportunity to answer it—perhaps not. He has heard the question, so I need not repeat it.

Finally, I want to refer to the Scottish Government, because aspects of the Bill reflect some of the powers that lie within Scotland. The Court of Session is referred to in clause 33(2) and clause 34(2). What consultation has there been with the legal profession in Scotland and with the Scottish Government on that? On clause 47 —“Regulations: general”—the power to change devolved legislation under the negative procedure is really not cool. It is not just I who object to this; the Library briefing states that this will

“enable ministers to make supplemental, incidental, consequential, transitional or saving provisions repealing or otherwise amending existing legislation, including devolved legislation.”

Lord Judge referred to this clause as “monstrous”. Has the Scottish Government been consulted on this provision? What has the Minister got to say about this? This power grab, hidden on page 35 of the Bill, is something that I will seek to amend in Committee.

I support any moves to improve the scope of the Bill, and I look forward to hearing the rest of the debate.

--- Later in debate ---

[The Minister for Europe and the Americas (Sir Alan Duncan)]

As my right hon. Friend the Foreign Secretary said in his opening speech, this Bill is necessary to ensure that we can continue to use sanctions and anti-money laundering regulations to support our foreign policy and national security goals as we leave the European Union. We have had a lively and passionate Second Reading debate, but I sense that the setting up of a UK sanctions regime on our departure from the EU would appear to enjoy the broad support of this House.

It is often invidious in winding up a debate to pick out some speeches but not all, but forgive me, Mr Speaker, if I do that this evening, because I think the two strongest and most remarkable speeches were those of the right hon. Member for Barking (Dame Margaret Hodge) and my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell), with whom I worked very closely as his deputy in DFID. I appreciate the passion of the right hon. Lady; we will no doubt debate these matters at great length in Committee and on Report, and we will take on board the strength of the arguments we have heard tonight, and which, of course, we have heard before. Likewise, my right hon. Friend made an impassioned plea for humanitarian agencies to be fully considered, and I will come to that shortly. He also spoke of Magnitsky, as did many Members; I will go into more detail later, but for now I will say that this Bill has wide-ranging powers to sanction people for human rights abuse. On open registers, we share my right hon. Friend’s view on wanting to bear down on illicit money flows; as he said, the registers are open to instant access by regulatory authorities, but I quite understand his view that such action alone does not suffice.

I have a small point to make to my hon. Friend the Member for Huntingdon (Mr Djanogly), who asked if we could publish the anti-corruption strategy; we did so in December of last year. The hon. Member for Brighton, Kemptown (Lloyd Russell-Moyle) asked why nobody has been prosecuted for export control offences; in fact, there have been 23 not just prosecutions, but convictions, for export control offences in the 10 years from 2006 to 2016, and a number of these prosecutions relate to exports to countries covered by UN and EU sanctions regimes.

This being a Second Reading debate, I want to dwell on a few key principles contained in the legislation, as I have no doubt that we will discuss the closer detail further in Committee. The first such issue is that of delegated powers. They are rightly coming under scrutiny in this place today. However, it is important to recognise that Ministers implement sanctions and anti-money laundering regulations by using delegated powers now, through secondary legislation under the European Communities Act 1972, and this Bill will not change that approach. In fact, in the future Parliament will have greater oversight of sanctions than it currently does, with votes needed in both Houses when the UK acts outside the requirements of the UN, and given the need to respond quickly to global events, the Government believe that regulations remain the best mechanism for implementing and amending sanctions and anti-money laundering regimes.

There is, however, the question of creating criminal offences, as referred to by the hon. Member for Glasgow Central (Alison Thewliss), and I am confident this will be addressed before Report. We have listened to these concerns and we are working on a solution that we hope will be accepted by those who expressed them in another place. Indeed, Lord Judge, whom we have been talking to, and his colleagues did not disagree that breaches of sanctions should be criminal offences, and we will introduce amendments to fix this and address their concerns in due course.

On procedure, we believe we have the right balance of affirmative and negative resolutions. Regulations that implement UN regimes will be made under the negative procedure; regulations that do not implement UN sanctions regimes will be made under the made-affirmative procedure.

The hon. Member for Glasgow Central talked about the ability to amend devolved legislation as being “monstrous”. I think she slightly misunderstands the process here. Sanctions are a matter of foreign policy.

[Helen Goodman]

On negative and affirmative resolutions, the Minister is choosing to draw a distinction based on the origin of the sanctions—whether they are from the UN or the EU—but would there not be a greater logic in drawing a distinction between individual sanctions on people, which obviously have to be done quickly, and the rules of the game for the regimes, where the House would be reasonable in seeking to be consulted before they are introduced?

[Sir Alan Duncan]

The reason that we have made this distinction in terms of procedure is that we are obliged in law to implement UN sanctions. Once the sanctions have been agreed at the UN Security Council, the UK has an obligation to implement them under the UN charter. Not to do so would leave the UK in breach of international law—hence the distinction in the procedure that we are using.

Returning to what the hon. Member for Glasgow Central described as “monstrous”, I say again that sanctions are a matter of foreign policy and so are reserved to this Parliament.