Corporate Structures and Financial Crime

Jim Cunningham Excerpts

Thursday 4th July 2013 Commons Chamber

[John Mann]

The hon. Lady makes a valuable point about the importance of compliance and how that must take place at senior level. Everyone at senior level in a bank must take responsibility and be held accountable for the structures within it.

This is not simply a banking problem. Money laundering and some aspects of criminality are the biggest problems in terms of the volume of money involved, but there is also an issue of percentages and actuality of individual companies. Banks are not setting up opaque structures to create criminality; they are turning a blind eye while their structures facilitate criminality. Others are using weaknesses in corporate structure to create criminality.

Of the half a million companies that struck themselves off the UK corporate register in 2010, 40% had never filled in accounts with Companies House, and 33% had paid no corporation tax that year. If large numbers of companies are not submitting accounts and returns to Companies House, we have a fundamental problem. Our problem in dealing with this issue is demonstrated, rather ironically, if we look at the two Front Benches. The hon. Members present are excellently and diligently representing their parties, but one notes that they come from different Departments. That is part of the problem when it comes to Companies House, and I hope the Minister will clarify—we hope on behalf of the Government —who is responsible for Companies House and who should be holding it to account in Parliament.

Companies House is underfunded, under-resourced and perhaps under-specialised, and such opaqueness in our country has grown dramatically, allowing the creation of opaque corporate entities. That encourages criminality and discourages transparency for the general public, decision makers in Parliament and others.

On the impact of such actions, valid estimates indicate that Africa is losing twice as much in tax it cannot collect because of opaque corporate structures as it gets in development aid. In other words, if we cracked this problem, the amount of development aid required from the west to Africa would diminish dramatically because the tax base itself would be generating income, which is, of course, a key component of a vibrant democracy.

[Mr Jim Cunningham (Coventry South) (Lab)]

I have never understood why successive British Governments have not tightened up in this area. I understand that there needs to be international agreement, but at least in America there would be some accountability; we only have to look at Lehman Brothers and others to see that. I do not understand why we allow tax havens not too far from these shores to exist.

[John Mann]

Let me come on to that. In Davos in 2010, the Prime Minister said that he wished to “shine a light” on corporate ownership. In the Lough Erne declaration, the calls were for more transparency, more international co-operation and stopping firms shifting profits to avoid tax.

What needs to be done by Government in these areas? On transparency, it is essential that the Government follow up their G8 commitment and create a UK register of beneficial owners, making things transparent and traceable and deterring people from using this country for illegal purposes. All major countries—not least those in the G8 and the EU—need to collaborate. I note that Italy is already suggesting that it will not collaborate, and we need to tackle those countries that are suggesting that they will not co-operate even with the modest proposals emanating from the G8.

We need effective enforcement with, as we have heard, clear sanctions for law breaking; we need criminal sanctions; we need the collecting of fines. On the corporate structure, I suggest that raising the cost of setting up a company from the current £15 and hypoth—[Interruption]—and using that money explicitly and exclusively to ensure better regulation and policing. Hon. Members know which word I mean but I will not try to spit it out; we might be here for the rest of the afternoon. Hypothecating is the word. [Hon. Members: “Hear, hear.”]

Firms that have not filed up-to-date tax returns need much greater sanction for not doing so. The fact that so many choose not to do so and get away with it is a fundamental and major weakness. This is where this House needs to put its beady eye on what is going on at Companies House. Is it properly resourced? Are its powers great enough? Is it doing the job properly? I would suggest that out of those, at least two must be at issue; perhaps all three. We must get on top of this in the near future.

The question of tax liabilities and of how much liability and responsibility are needed for directors in relation to the law needs to be reconsidered. As a specific micro-proposal that I think could have a huge impact, it should be illegal for anyone to set up a bank account outside this country without informing HMRC and Companies House first. In other words, if people are using British corporate structure, we should stop letting them set up overseas operation without anybody knowing what is going on.

We need legislation relating to the Crown dependencies. I have made this point on many occasions and I will make it again briefly now. It is unacceptable that our taxpayers provide defence and legal structures for those countries when they have an opaqueness that, whatever tax system and regime they end up having, does not allow anyone to know what is going on. The football industry in this country provides a good example. In vast numbers of football clubs nobody, including the spectators and those who are owed money when the clubs go bust, has a clue who owns what bit and where and how. These major institutions are an example of how deep the problem has become and how we have failed to deal with it. We need to look to our regulations, such as those being introduced on banking, and think about how they can be applied to UK dependencies. Leaving them as they are is simply unacceptable, and it is becoming increasingly counter-productive for this country.

--- Later in debate ---

[Keith Vaz (Leicester East) (Lab)]

It is a pleasure to follow the hon. Member for Daventry (Chris Heaton-Harris) and I associate myself with his remarks about my hon. Friend the Member for Bassetlaw (John Mann), who is an assiduous campaigner on this and so many other issues.

My small contribution will be about the way in which proceeds of crime have found their way into the financial sector, and I will seek assurances from the Minister that the Government are doing everything they can to deal with the issue of proceeds of crime within our financial structures. Some £675 million is owed by 178 criminals who were each ordered to pay back £1 million or more after their conviction. Prosecutors are unable to force repayment by 45 offenders whose debts to the taxpayer total £225 million. Clearly, the law as currently written and the existing structures are not sufficiently able to deal with the way in which these proceeds are kept by the Mr Bigs who, having committed horrendous crimes, are able to continue with their life after prison and are not asked to pay back what they owe.

I am glad that the Government are proposing changes to the law. I recently had a letter from both the Metropolitan Police Commissioner and the Director of Public Prosecutions about a wish to examine default sentences, changing the definition of “confiscation” in the Proceeds of Crime Act 2002, amending the Bail Act 1976 to prevent absconding—once somebody is out of prison, there is no way in which they can be made to pay this money—implementing the EU Council framework decisions on the execution of orders freezing property or evidence, and making sure that agencies work together so that if someone has committed an offence, they do not rush out of the country because the Passport Office has given them a passport.

On money laundering, as the House knows, 85% of drugs profits are earned by distributors in the United States or Europe. The current estimate is that global drugs profits are £380 billion, the majority of which enters the financial system. Antonio Maria Costa, the former head of the UN Office on Drugs and Crime, has said:

“I cannot think of one bank in the world that has not been penetrated by mafia money.”

Banks with British bases, such as Coutts and HSBC, have been found guilty of money laundering.

As the Home Affairs Committee said recently, until these companies hear the rattling of handcuffs in their boardrooms, they will not take seriously the issue of drugs money within our financial systems. Indeed, we recommended new legislation to extend the personal criminal liability of those who hold the most senior positions in banks and are found to have been involved in money laundering. As my hon. Friend the Member for Bassetlaw said, it is hoped that the new Financial Conduct Authority will be much tougher than the Financial Services Authority, which in our view did not do enough to deal with the issue.

Yesterday the Home Secretary reclassified khat as a class C drug because she believes that sales of it have entered our financial systems and fund Islamic extremist groups such as al-Shabaab. In January the Advisory Council on the Misuse of Drugs said there was “insufficient evidence” that khat caused health problems. The panel found “no evidence” that khat, made from the leaves and shoots of a shrub cultivated in the horn of Africa and the Arabian peninsula, was directly linked with serious or organised crime. The problem is that once these drugs are banned, they go underground and the drugs barons are able to launder even more money.

[Mr Jim Cunningham]

The hon. Member for Daventry (Chris Heaton-Harris) has raised the issue of Coventry football club. I do not want to go too far down that road, except to say that the parent company should be investigated. It set up two sub-companies, one of which went into administration and was then given by the administrator to the other company. It is a ludicrous situation for the people of Coventry to find themselves in: the fans are up in arms, they do not know where they are going to play next season and all sorts of threats are being made.

[Madam Deputy Speaker (Dawn Primarolo)]

Order. Before the right hon. Member for Leicester East (Keith Vaz) responds to that point, I remind Mr Cunningham that the courtesies of the House indicate that he should not enter a debate at the end and immediately intervene, because he has not been present at any stage during the debate.

[Mr Cunningham]

rose—

[Madam Deputy Speaker]

We will not discuss this now, but I am sure Mr Cunningham will remember it for the future.