Reinsurance (Acts of Terrorism) Act 1993
John Glen Excerpts(6 years, 8 months ago)
Written StatementsRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Economic Secretary to the Treasury (John Glen)
I am today announcing that the Government intend to legislate as soon as parliamentary time allows to amend the Reinsurance (Acts of Terrorism) Act 1993. This amendment will enable an extension of the cover provided by the Government-backed terrorism reinsurer Pool Re to include business interruption losses that are not contingent on damage to commercial property. I will announce further details in due course.
This Government remain committed to ensuring that businesses can continue to secure insurance against the financial costs of terror attacks.
[HCWS579]
Banking in North Ayrshire
John Glen Excerpts(6 years, 8 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Economic Secretary to the Treasury (John Glen)
I sincerely commend the hon. Member for North Ayrshire and Arran (Patricia Gibson) for securing this debate. She has once again spoken very powerfully on behalf of her constituents, and I know that she is passionate about this issue. The RBS executives will note that there are more than 20 Members of Parliament here and that a number have spoken. They will also want to reflect on the views that have been expressed.
Since becoming Economic Secretary on 9 January, I have had the privilege of responding to a number of debates on the closures of bank branches across the UK and in specific local areas. In each, I have heard important stories about what the local bank branch can mean to the community, as I have heard again this evening. It means a great deal in terms of practical access to services. I will return to that point in more detail. Banks can also be at the heart of how people feel about their local high street and the future of their community. Putting my Treasury responsibilities aside, I visited a bank in my constituency that is facing closure in exactly the same way that the hon. Lady set out. I had to sit down with the bank manager and go through the same sorts of arguments, but these are commercial decisions. I will say a little bit more about that.
John Glen
No, I am not going to give way because I have only eight and a half minutes, and I want to do justice to all the points that have been raised.
This Government are very aware of the issues. I will talk about the challenges facing the banking sector and our communities. I think that the hon. Lady has said in a previous debate that she does not bank online, and that is her choice, but whatever our personal preferences, banking is going through a period of unprecedented technological change and consumer behaviour is changing significantly. Banks are having to adapt to those shifting patterns of behaviour. The decisions that they are making are sometimes not popular and I understand why, but the hon. Lady will be well aware that those decisions are not for the Government.
The hon. Lady made a point about the former Chancellor, the former Member for Tatton, signing off on the chief executive post. There is a big difference between signing off on strategic leadership and getting involved in day-to-day commercial decisions.
John Glen
I am not going to give way; I am just going to continue.
Each bank’s branch strategy, including whether to open or close individual branches, is for the management of that bank to determine. I understand that that is frustrating. It is frustrating to all of us who face this issue. The Government rightly do not intervene in these commercial decisions, nor do the Government manage the RBS Group. RBS is headed by its own board, which is responsible for strategic direction and management decisions. All businesses strive to deliver for their customers, but they also need to be able to plan for the future and to make changes where they are needed. These are complex commercial decisions. RBS has made its decisions in line with its commercial strategy.
John Glen
No, I will not.
The hon. Lady and her colleagues are entitled to ask questions, as they have done very effectively this evening, and to press RBS on its rationale. Although I do not agree that the Government should or could cancel RBS’s decisions, I am certain that the hon. Lady’s views, expressed here again this evening on behalf of her constituents, will have been heard by RBS.
I turn to the Government’s role with respect to the Post Office. The hon. Lady has previously said that the Government have “not lifted a finger” to help. I beg to differ. The Government are taking action, and I welcome the opportunity to reiterate that. For those who still need or want to bank in person, we have helped to expand and improve face-to-face banking services at the Post Office. There are 11,600 post office branches in the UK, 24 of them in the hon. Lady’s constituency. There is a post office in each of the three towns that she mentioned—Kilwinning, Kilbirnie, and Saltcoats. Indeed, across the UK, 99% of personal customers and 95% of business customers can do their day-to-day banking at the post office.
In response to the hon. and learned Member for Edinburgh South West (Joanna Cherry), who was concerned about—
John Glen
I am going to response to the points raised. I have five minutes.
On the concern about small businesses and cash lodgements, RBS offers cash courier services, while the post office can accept up to £2,000 without prior notice, and further arrangements can be made on a case-by-case basis. As the hon. Member for North Ayrshire and Arran has mentioned previously, this might not be a service that people are yet fully familiar with, but I believe that it offers a valuable alternative and that people are adjusting to the reality of what can be obtained from a post office. It is important that the people who can benefit from these services know about them, so I will keep pushing the banks and the Post Office to do more to raise awareness of the expanded services that they jointly offer. It is important that they make this case proactively and publicly. We should spread the message far and wide. We can all do our day-to-day banking at the post office. We in this House can help to reassure people who may be worried about this issue.
On the oversight of banks, where they do decide to close branches, the Government’s ongoing support for the industry’s access to banking standard is making a real difference. All the major high street banks have signed up to the standard, which commits banks to a number of outcomes when a branch closes: first, that they will give at least three months’ notice—I think that RBS, certainly in some cases, has given six months’ notice—secondly, that they will consider what services can still be provided locally and communicate clearly with customers about alternative ways to bank; and thirdly, that they will ensure that there is support available for customers who need extra help to bank online or to access services at the local post office.
The standard is not just a list of outcomes—it has teeth, because the Lending Standards Board monitors and enforces it. It is actively monitoring how RBS Group and other banks fulfil their obligations to their customers when branches close. It has a range of tools and sanctions at its disposal should a bank fall short. I know that it is very open to talking to Members on behalf of their communities, and I encourage the hon. Lady—
John Glen
No.
I encourage the hon. Lady—and her colleagues—to talk to the board if she has concerns about the steps that RBS is taking, or not taking, in her constituency. The access to banking standard is the practical way to shape a bank’s approach to local areas. I encourage all Members in all parts of the House to ensure that their community is aware and able to engage with the bank directly.
Several Members have mentioned access to cash. The Government continue to work with industry to ensure the provision of widespread free access to cash. In December, LINK, the organisation that runs the ATM network in the UK, committed to protecting all free-to-use ATMs that are 1 km or more away from the next or nearest free-to-use ATM. This is a welcome strengthening of its financial inclusion programme, and one that I hope will reassure members across the House.
The hon. Lady fights hard for her constituents in North Ayrshire, as do a number of other Members who have spoken, and I am sure that their concerns have been heard. We all understand the frustration and disappointment caused by bank closures, but these are not Government decisions. The Government’s policy remains clear: RBS is responsible for these decisions, and RBS must defend them.
John Glen
No.
Banking is changing rapidly—we cannot deny that reality—but the Government believe that banks must support communities across the UK when their local branches close. That is a dialogue that we are all deeply engaged with in trying to find the best solution for communities. In this place, we can help to draw attention to these issues and work constructively to help our constituents to access the services they need. For my part, I will keep pushing for everyone to be able to access the banking services they need, wherever they live.
Question put and agreed to.
Financial Services
John Glen Excerpts(6 years, 8 months ago)
Written StatementsRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Economic Secretary to the Treasury (John Glen)
Following the Financial Conduct Authority’s (FCA) announcement that it has now concluded its enforcement investigations into the Co-op Bank and related individuals, I have today laid a direction before Parliament requiring the Prudential Regulation Authority (PRA) to carry out an independent review into the prudential supervision of the Co-operative Bank between 2008 and 2013, using powers under section 77 of the Financial Services Act 2012.
In November 2013, the then Chancellor of the Exchequer announced the Government’s intention to direct the regulators to launch an investigation into the events at the Co-operative Bank, following its withdrawal from the bidding process to purchase 632 bank branches from Lloyds Banking Group — known as Project Verde. It was stated at the time that this review would not take place until the conclusion of all regulatory enforcement action relating to the Co-operative Bank. Today’s announcement by the FCA means that this has now happened.
The review will look at the actions, policies and approach of the Financial Services Authority, and latterly the PRA, as the institutions with statutory responsibility for the prudential supervision of the Co-op Bank during the period in question. It will focus on the outstanding questions identified by the House of Commons Treasury Committee in its 2014 report ‘Project Verde’ (HC 728-I). As recommended by the Committee, the review will have access to all relevant documents and correspondence, including the record of Government contacts concerning the Lloyds “Verde” bidding process.
I have approved the PRA’s appointment of Mr Mark Zelmer to carry out the independent review on its behalf. The review is expected to run for 12 months, after which HM Treasury will publish a report of the review’s findings. A copy of this report will be laid before Parliament.
The Government are committed to creating a stronger and safer banking system. A vital part of this is ensuring that our regulatory system can learn from past events. The launch of this independent review is a further demonstration of this commitment.
[HCWS512]
Sanctions and Anti-Money Laundering Bill [Lords] (Sixth sitting)
John Glen Excerpts(6 years, 8 months ago)
Public Bill CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Economic Secretary to the Treasury (John Glen)
May I say what a pleasure it is to serve under your chairmanship once again, Dame Cheryl? I acknowledge that the amendment seeks to set in legislation an obligation on the Government to implement, within 12 months of Royal Assent, our commitment to establish a public register of company beneficial ownership information for foreign companies that already own or buy property in the UK or who bid on UK central Government contracts. It puts an accelerated timetable on something that the Government are doing anyway. In the next few minutes, I will remind the Committee of the timetable to which the Government are committed for delivery of this policy. I will set out the challenges and complexities of the policy and demonstrate why setting an early and artificial deadline for implementation would inadvertently undermine its aims. I know that these are supported across the House, so it is important to ensure that we get the detail of the policy right.
In listening to the remarks made by the hon. Member for Bishop Auckland, I acknowledge the frustration around this; but this Government are committed to continue to lead by example and improve corporate transparency. Over the past five years, the reforms delivered by the Department for Business, Energy and Industrial Strategy have made the UK a global leader on corporate transparency issues. We were the first country in the G20 to establish a fully and publicly accessible company beneficial ownership register and, across the world, non-governmental organisations lobby their Governments to follow the UK example. There is a reason we have that world-leading reputation: it is because of the quality of the measures we have passed and it is a reputation we would lose if this measure were accepted. A 12-month timetable to draft and pass primary and secondary legislation, empower the responsible agencies and commence the obligations is not realistic. The rush to meet such an unrealistic deadline would inevitably lead to loopholes that would be readily exploited by those seeking to evade the new requirements.
Alex Norris
We are not just talking about a 12-month timetable; this was first announced by a Conservative Prime Minister in 2015. What have Ministers been doing since then?
John Glen
I will come on to explain the history of this and why we are where we are. I am happy for the hon. Gentleman to intervene if he does not feel satisfied at the end of that.
Mindful that the eyes of the world are on us, hon. Members should recognise that this legislation would be a world first. Successful delivery raises significant challenges and it is right that the Government achieve the right balance in an effective regime with robust enforcement that does not have a negative impact on land registration processes across the UK. I acknowledge that some have accused the Government—and we have also been accused this afternoon—of not acting swiftly enough to implement this policy. Let me address those concerns.
We have committed to publishing a draft Bill before the summer to introduce the Bill early in the second Session and for the register to be operational in 2021. Publishing a Bill in draft is the right approach. As I said before, this register will be the first of its kind in the world, it will affect people’s property rights, including not just new purchasers but existing owners. This is a sensitive and delicate area. Getting it wrong would have significant adverse consequences.
Anneliese Dodds
The Minister is being generous. He has kindly set out for us a three-year timetable, adding on a couple of years before that when Government committed to this. Is he aware of the Private Eye map, which has been in existence for some time? Through civil society and journalistic activity, Land Registry and Companies House data were put together and a map produced. That appears to have been done quite quickly.
John Glen
I am not familiar with that particular map but I would be very happy to examine it. For clarity, and addressing the hon. Lady’s previous point, the register will capture the details of beneficial owners of all non-UK companies—including those in the overseas territories—that own UK property. This will be a world first, so we are moving as fast as possible, ensuring that the register is as comprehensive as possible.
As the Government set out in last year’s call for evidence, for the register to be effective the sanctions to be applied for non-compliance must be a meaningful deterrent. Enforcement must be energetic. Simple criminal sanctions may not be sufficient in isolation. The draft Bill will include enforcement through land registration law. Where an overseas entity buys property, it will never be able to obtain legal title to that property without having complied with the register’s requirements. Similarly, a restriction on the title register for property owned by an overseas entity will signal to third parties that the overseas entity must comply with the regime before selling the property, creating a long lease or legal charge. Those are significant steps on which it is right to consult.
Hon. Members will recognise that there are separate Land Registries in Scotland and Northern Ireland, as well as the Land Registry for England and Wales. The approaches taken to land registration and overseas entities by each of those Land Registries have been different until now. That too will need be streamlined. Delivery of an holistic outcome that complements all three land registration regimes is an exercise touching multiple teams across Government and the Land Registries. Put simply, it is an exercise that will take time to get right and a further demonstration of why publishing the legislation in draft is the appropriate next step if we are to get it right. Although I appreciate that the motive underlying the new clause supports the policy as a whole and demonstrates a desire for early delivery and implementation, it does not take account of the complexities that I have set out or the challenges of delivery and implementation.
The register will further demonstrate the Government’s commitment to combating money laundering through the property market. Hon. Members will have seen recent press reports—the hon. Member for Bishop Auckland drew our attention to the splash on 3 February—that two unexplained wealth orders have been obtained by the National Crime Agency in connection with two properties worth £22 million.
Those are the first orders obtained under the relevant powers conferred by the Criminal Finances Act 2017, which commenced at the end of January. They were obtained only a few days after it came into effect. As the Minister for Security and Economic Crime has said, the orders are an important addition to the UK’s ability to tackle illicit finance, and it is great to see them already in use.
The Government will continue to take action. BEIS’s response to last year’s call for evidence will be published shortly, and it will set out the Government’s approach to areas of particular complexity. BEIS has already made significant progress in preparing draft legislation; the work with the office of the parliamentary counsel to draft the Bill is under way.
Separately, BEIS is working to quantify the impact of the legislation on the UK. The impact assessment will quantify the register’s potential impact on the property market and investment flows, around which foreign direct investment is very specific, to pick up on the point made by the hon. Member for Bishop Auckland. The register will rightly make the UK more hostile to illicit flows of money, but we must understand the potential impact of legitimate inward investment.
All those issues were considered in last year’s call for evidence. Scrutiny of the draft Bill will further stress-test whether it will be effective. I hope that that process demonstrates the Government’s continued commitment to enact the policy, and our commitment to get it right. For those reasons, I hope that the hon. Lady will withdraw the new clause.
Richard Benyon (Newbury) (Con)
I think it is worth saying for the record that there is a chill wind blowing through the financial lives of some of the people who have used our economy, particularly our property sector, for nefarious purposes and money laundering. From my conversations with a current Security Minister, and from what I know the Government are doing to implement the asset freeze legislation, I have no doubt that that is being taken forward aggressively and in a determined way. That is being recognised abroad; it is certainly being recognised by some of those people who have used the ability of our economy, through good title deeds, to make property a means by which to bury nefarious funds.
We are talking about legislation to hold future Governments to account. I entirely accept my hon. Friend the Economic Secretary’s assertion that this a complex situation to get right. I would like a little more clarification, and I am prepared to cut him some slack on this because if this is not done properly, it will be exploited and people will be able to move wealth in a globalised economy in a much freer way. It should be tied down in a way that encourages people still to invest in this country. I welcome the fact that people want to invest in our property, whether commercial or residential, but not, as the hon. Member Bishop Auckland says, just to leave homes empty. I recognise that that is a real issue, but there is the sheer importance of making sure that all of the provisions are correct. I know it has been complicated: in the asset freeze legislation, there was institutional resistance to what are called Magnitsky-lite measures that were introduced. In a classic piece of good ministerial play, the Government faced down those institutional problems that existed in parts of the civil service and elsewhere and took that forward. To their credit, they are now implementing the measures. I would just like some more assurance from my hon. Friend that this complexity will be tackled with urgency.
John Glen
I am grateful to my right hon. Friend the Member for Newbury and to the Member for Nottingham North for their further observations. I understand the sentiments of frustration and impatience with the Government on this matter. I hope I have spelled out in some detail—in the areas of land registration; alignment around the different parts of the United Kingdom; and making sure that the penalties are appropriate and that the enforcement measures are set to meet the challenge—that the Government have bold ambitions to get this right and to be a world leader in this area. I acknowledge that this has taken rather longer than it would have done in ideal circumstances, but I can confirm and reiterate to my right hon. Friend that the Government are fully committed to delivering this as soon as possible, and that there is a commitment across multiple Departments and the ministerial team to ensure that this reflects the bold aspirations that we have as a nation. I hope that that would be sufficient for us to move on.
Helen Goodman
Ministers have heard that this is an issue of significant concern, and interest in making speedy progress has been expressed on both sides. We will return to this on Report and, that being the case, I do not intend to press it to a vote. I beg to move that the clause be withdrawn.
Clause, by leave, withdrawn.
New Clause 6
Alignment of sanctions
(1) It shall be a negotiating objective of Her Majesty’s Government in negotiations on the matters specified in subsection (2) to continue the United Kingdom’s participation in the Political and Security Committee of the European Union in order to align sanctions policy with the European Union.
(2) Those matters are—
(a) the United Kingdom’s withdrawal from the European Union, and
(b) a permanent agreement with the European Union for a period subsequent to the transitional period after the United Kingdom’s withdrawal from the European Union.
(3) It shall be the duty of the Secretary of State to lay a report before both Houses of Parliament in accordance with either subsection (4) or subsection (5).
(4) A report under this subsection shall be to the effect that the negotiating objective specified in subsection (1) has been achieved.
(5) A report under this subsection shall be to the effect that the negotiating objective specified in subsection (1) has not been achieved.
(6) This Act shall not come into force until a report under either subsection (4) or (5) has been approved via resolution of the House of Commons and considered by the House of Lords.—(Helen Goodman.)
This new clause would require the UK Government to seek continued participation in the Political and Security Committee so as to allow alignment on international sanctions.
Anneliese Dodds
I beg to move, That the clause be read a Second time.
It is a pleasure to serve under your chairmanship, Dame Cheryl, and in rather warmer circumstances than the last time. New clause 9 seeks to create an offence if a relevant body failed to put in place adequate procedures to prevent a person associated with it from carrying out a money laundering facilitation offence. New clause 15 creates a process for disqualification for those at the top level who have failed to prevent money laundering.
I will deal with each new clause in turn and then speak briefly about the overall regulatory context, which creates a necessity for these new approaches. First, on new clause 9 and the failure to prevent the facilitation of money laundering, there are many problems with the existing system. The FCA has found weaknesses in governance and long-standing and significant under-investment in resourcing for control systems, even in the sector that is actually regulated for money laundering. I will talk about some of the problems there later on.
Many of those who investigate in this area find that rules are intermittently enforced, penalties are low and senior executives face few personal, financial or reputational consequences. It is constructive to compare some of the penalties that have been levied in the UK with those levied in the US. As I understand, the largest fine levied in the UK for anti-money laundering or sanctions offences—the Minister may contradict me if I am wrong—was levied against Coutts & Co for £8.75 million. That is six hundred times less than the penalty that was levied by the United States on BNP Paribas for sanctions-related offences.
Anneliese Dodds
It would be helpful to know under which pieces of legislation those fines were levied, because I am uncertain whether they were directly under money laundering legislation. I will come back to that, particularly in relation to some of the outcomes of some parliamentary questions that I have asked to try to dig into this and find out what prosecutions have been enabled by existing legislation.
I am grateful for the information that the Economic Secretary has provided; however, there is still a lot of concern about banks’ and others’ ability to root out money laundering and the facilitating of money laundering. The FCA found—admittedly, in 2014—that there was
“significant and widespread weaknesses in most banks’ anti-money laundering systems and controls”.
That is revealed in the case of HSBC. Many members of the Committee will know that it was involved in a money laundering scandal that led to the US fining it £1.2 billion. There was a large investigation into that matter in the United States Senate, where it was said that our UK-based bank had been a conduit for
“drug kingpins and rogue nations”,
including Mexican drug cartels and North Korea. In fact, that case has been referred to already in this Committee.
Particularly worryingly, a congressional report found that George Osborne and the Financial Services Authority—now the FCA—corresponded on numerous occasions with their US counterparts about the case; in fact, they urged a less aggressive judicial approach on the US side. Apparently, the congressional report said that the UK interventions played a significant role in ultimately persuading the US Department of Justice not to prosecute HSBC. I find it quite concerning that the UK actually argued against measures being taken by other countries to try to deal with this problem.
We were hoping to have some change; the Serious Fraud Office has called for the broadening of existing economic offences to cover a kind of umbrella approach, also to cover failure to prevent. It thinks that that would be helpful to hold large companies to account criminally across the board. At the moment, we have the ability to prosecute the failure to prevent bribery and corruption, but those activities are rarely committed in isolation from instances of money laundering by corporate entities. Therefore, it seems to make sense to try to extend corporate liability to money laundering. That would push in the same direction as existing pieces of legislation. Of course, the Bribery Act 2010 created a new offence of corporate failure to prevent. I believe that Act was put in place because of the same kind of repeated criticism of the UK regime that we have seen in relation to money laundering. We also now have the offence of failure to prevent criminal tax evasion in the Criminal Finances Act 2017. Surely there is now a strong case for an explicit reference to failure to prevent money laundering.
Many of us thought that we were not going to have to push for a separate offence of money laundering because we were to have an umbrella approach. In May 2016, the Government committed to consult on a broad offence of failure to prevent economic crime, which would cover fraud, false accounting and money laundering. In January 2017, the Government downgraded that commitment and instead published a call for evidence on whether there was a case for economic crime corporate liability law reform.
As I understand it, the call for evidence closed in March 2017. I have not yet seen the results of that call for evidence. It would be helpful for the Minister to let us know the outcome of that call for evidence, the main findings and how the Government have decided to act on them. Will they introduce the umbrella offence or create a discrete offence, as we are asking for? Because we think we need action now. That is new clause 19.
Alison Thewliss (Glasgow Central) (SNP)
I do not want to add a huge amount, but I very much welcome the new clause. As the hon. Member for Oxford East said, there is a big issue of incentive and authority for organisations, particularly for those that facilitate the formation and operation of Scottish limited partnerships in the private fund sector.
There has to be an effort to ensure that compliance with the rules is extended as far as possible. For example, a legal firm may be asked to register an SLP to get it up and going, and operating, but if no buck stops with it, there is no punishment for not ensuring that the SLPs are operating as we would want them to. For example, if a firm asks its client to register a person of significant control, and the client does not do so, where is the incentive for that firm to remove that client altogether? The firm has to decide for itself whether the cost of reputational damage from being named in the press is enough. That is the balance that it has at the moment. It is not obliged not to have that SLP within its client base. There is no comeback and no consequence.
There needs to be some means by which the firm is forced to do something to put that right. If the SLPs under its umbrella do not register a person of significant control, and continue not to register them, there is no fine to that legal firm, as I understand it. The SLP may face a fine—I am trying to get to the bottom of how many fines have been issued to those who have not registered a person of significant control—but there is no comeback to the legal firm, other than potential reputational damage.
The Government need to think about where the buck really stops in these arrangements , and this type of new clause would put some emphasis on the firm to do something about failing to prevent money laundering, rather than allowing things to continue as they are. As I understand it, there is no comeback at the moment to the legal firm that is protecting the SLPs underneath its umbrella.
John Glen
I undertake to address the points raised by the hon. Member for Oxford East. I will come to the point about the directors’ responsibility in my scripted remarks and also to the issue of what provision the fines were imposed under.
On the specific question the hon. Lady asked, the Ministry of Justice’s call for evidence considered a wide range of reforms to the law relating to corporate liability for economic crime. That is against a backdrop of already significant reform in this area in recent years, including the Bribery Act 2010, the Criminal Finances Act 2017 and the introduction of deferred prosecution agreements, which the Government would contend have strengthened the UK’s defences against corporate criminality. The Ministry of Justice is carefully considering the responses received to the call for evidence and is analysing the impacts of the Government’s range of recent reforms in this area. It will respond to its call for evidence in due course. I do not have a specific timetable, but that is the best information I can give the hon. Lady.
New clauses 9 and 15 seek to create a corporate criminal offence of failure to prevent money laundering, with an obligation on the Secretary of State to submit a disqualification order to the court against directors of a company found guilty of such an offence without having adequate anti-money laundering procedures in place. New clause 9 provides that a company or partnership is guilty of a criminal offence where the company’s employee, agent or other service provider commits one of the substantive money laundering offences in part 7 of the Proceeds of Crime Act 2002. The relevant company would have a defence if it could prove that it had adequate procedures in place to prevent its employees or agents from committing such an offence.
The offence is not necessary in view of the extensive reforms to the UK’s anti-money laundering regime that the Government have put in place. The proposed offence is substantively applied to firms that are regulated for anti-money laundering purposes by part 2 of the Money Laundering Regulations 2017. Those require that regulated firms have policies, controls and procedures to mitigate and manage risks of money laundering and terrorist financing. The Government have legislated to require that these policies, controls and procedures are proportionate with regard to the size and nature of the firm’s business and proved by the firm’s senior management. Failure to comply with these requirements is a criminal offence in itself.
The Financial Conduct Authority and other supervisors are additionally able to take action against firms if their measures to counter money laundering are deficient. As was touched on in our exchange earlier, recent regulatory penalties related to firms’ anti-money laundering weaknesses include fines of £163 million for Deutsche Bank in January 2017 and £72 million for Barclays Bank in November 2015. They were a consequence of failures in anti-money laundering measures under the Financial Services and Markets Act 2000.
The new clause also seeks to address challenges that have arisen in apportioning responsibility for corporate failings. Within the financial services sector, that has been addressed through the senior managers regime, which was introduced after the financial crisis. Banks are now required to ensure that a named senior manager has unequivocal responsibility for overseeing the firm’s efforts to counter financial crime. That ensures that firms and individuals can be held to account for failing to put proper systems in place to prevent financial crime. If a relevant firm breaches its anti-money laundering obligations, the FCA can take action against a senior manager if it can prove that they did not take such steps as a person in their position can reasonably have been expected to take to avoid the breach occurring. The enforcement action includes fines and disbarment from undertaking regulated activities. The Government have legislated to extend the senior managers regime to apply across all financial services firms. That will be implemented in due course, and will further the Government’s reform programme. All those requirements are additional to the substantive money laundering offences in the Proceeds of Crime Act, such as entering into arrangements that facilitate the use of criminal property, which apply to any individual or company.
As hon. Members know, the Government have previously introduced two similar offences: the failure to prevent bribery, in 2010, and the failure to prevent the facilitation of UK and foreign tax evasion, in 2017. They are structured in a similar way to the proposed new clause, but they were introduced following clear evidence of gaps in the relevant legal frameworks that were limiting the bringing of effective and dissuasive enforcement proceedings. It is right that the offences that we have already established apply to legal entities, regardless of whether they operate in the regulated sector.
The situation in relation to money laundering is very different. The international standard is set by the Financial Action Task Force, which has been referred to numerous times in the Committee’s discussions. The UK’s money laundering regulations apply to banks, financial institutions, certain professional services firms and other types of entity, and act as gatekeepers to the financial system. As I have said, such firms are already required to have policies and procedures in place to prevent their services from being misused for money laundering.
Subsection (6) of new clause 9 would require all companies, regardless of whether they are incorporated, to have procedures in place to prevent persons connected to them from laundering money. The Government do not believe that that would be appropriate. It would risk making non-regulated firms liable for the actions of their regulated professional advisers. Instead, responsibility for anti-money laundering compliance should rest in the regulated sector, as is currently the case. The new clause would not go beyond the existing regulatory framework in that area, and it would blur where responsibility should lie for anti-money laundering compliance. Therefore, I respectfully ask the hon. Member for Oxford East to withdraw the new clause.
Anneliese Dodds
I am grateful to the Economic Secretary for those helpful explanations and clarifications. Despite his useful response, however, there are a number of areas where I am unclear. First, I appreciate that he has probably anticipated this question, but the Committee may ask why it has taken Government a whole year to assess the responses from their consultation on economic crime. Government frequently work at a far faster pace than that. He said that we will have the analysis of those consultation responses in due course. It would be helpful to know more about why it is taking so long for Government to analyse them.
Secondly, the Economic Secretary spoke about the requirement for all regulated firms to ensure that their policies, controls and procedures are appropriate to prevent money laundering, but there is a question about who assesses that and whose responsibility that is. That takes us back to the issue about there being myriad professional bodies, which all operate subtly different approaches towards regulation in this area. As I said, I appreciate that OPBAS has been created to try to draw them together, but I do not think we heard exactly what the status of that office is—I was trying to concentrate on what the Economic Secretary was saying. I have seen different descriptions of it as a team, an office and an organisation. It would be helpful to have a clearer indication, particularly because those professional bodies are, as I understand it, required to contribute financially to OPBAS, so a number of them are keen to understand what is happening with it. Furthermore, HMRC is not a member of it, as I said before, so the concern about a lack of regulatory co-ordination persists.
Finally, the Economic Secretary referred approvingly to the senior managers regime that has been brought in since the financial crisis, which looks like a positive step initially—of course, the HSBC problems occurred following that. In any case, as I understand it, the actual operation of this new regime and its extension are quite different from, for example, what was recommended by the Parliamentary Commission on Banking Standards. Under this approach, the burden to show that senior managers failed to take appropriate steps will be on the regulator, rather than the senior managers themselves.
That is different from the approach taken in many other areas, including road traffic, health and safety at work, the Bribery Act 2010—which the Minister referred to—terrorist legislation, the Misuse of Drugs Act 1971 and so on. It would be helpful to understand why, with the extension of this regime, the burden of proof has essentially now been placed on the shoulders of the regulator, rather than the shoulders of the managers.
Question put, That the clause be read a Second time.
Alison Thewliss
I support the new clauses proposed by the hon. Member for Oxford East. They flag up a huge loophole in the anti-money laundering regime, which is the inability of Companies House to do anything about what comes through its door. By not acting on information, and expecting company formation agents to behave in a different way from the way the Government’s own agency behaves, the Government become complicit in the money laundering that is clearly going on through companies that are registered for only £12.
The situation is curious. Last week I sat on a delegated legislation Committee that discussed passport fees and the need for full cost recovery of those fees by the Government because the Passport Agency wants to ensure that it is not making a loss. There is an argument about whether passports are too expensive, which I think they are, but it costs £12 for the registration of a company. If Companies House is not getting full-cost recovery for that, and that is the reason for not carrying out the due diligence that ought to be done on anti-money laundering, that is an argument to find a reasonable cost of registration that would allow Companies House to operate, make money and have sufficient funds to carry out the due diligence it ought to. If there is an incentive not to play by the rules, and the Government are incentivising that through the operation of its own agency, that is nonsense. That is highlighted in Global Witness’s “The Idiot’s Guide to Money Laundering”:
“Step 4: open your company direct with the corporate registry—they don’t do any checks on you!”
It seems ludicrous that the Government are going to encourage agents who want to set up companies for people to do that and go through the anti-money laundering things that they have to do, but the Government are not enforcing that. That seems absolutely ludicrous. I cannot for the life of me think how the Government will defend that unjustifiable loophole.
Transparency International reported that in the UK last year, 251,628 companies were created with no checks being made on the person setting up the company or their source of wealth. It is a scandal that these companies can be set up, facilitated by the Government, because Companies House has to accept their documents in good faith without doing due diligence checks that we would expect of other agents. If they are not going to support the new clauses, I urge the Government to propose a measure themselves, because this simply cannot continue.
John Glen
The new clauses are broadly similar in purpose and intention. Each would expand the role that Companies House plays in relation to anti-money laundering checks, whether by conducting due diligence directly, confirming that due diligence has been carried out, or confirming that a company seeking to be incorporated has a UK bank account.
I will turn to the practical difficulties of these proposals in a moment, but the first point to make in connection with each is that the UK’s anti-money laundering regime is undergoing an assessment by the Financial Action Task Force. The FATF is the international standard setter in this area and will report publicly later this year on its findings. The report will consider matters, including the effectiveness of how the UK prevents the misuse of legal persons, such as companies, for money laundering purposes. Hon. Members will appreciate that this report will greatly inform the future of the UK’s anti-money laundering regime, including in relation to how we can best prevent the misuse of legal entities, some of which have been described in the course of this debate.
Once the FATF has reported, the Government will actively consider its conclusions, including those in relation to any areas in which the UK’s anti-money laundering framework can be improved. These new clauses pre-empt the review process already under way. It would be more sensible to allow the review to identify specific areas where action is necessary before making further changes to our AML regime.
New clause 10 would require anti-money laundering checks to be undertaken before any UK company can be incorporated by preventing the registrar of companies from registering a company unless she is satisfied that such checks have been carried out. It then says that the registrar is entitled to accept the anti-money laundering registration number of the UK body that has submitted the application as evidence that such checks have taken place. The effect would be to require all incorporations to be made through a UK body regulated for anti-money laundering purposes. This would prevent people from applying directly to Companies House to register and set up their own business; any person seeking to set up a business would be required to use the services of a professional agent that is also regulated for anti-money laundering purposes, and pay for those services, which will in turn increase the cost of setting up businesses.
The proposed new clause assumes that all bad companies are set up directly with Companies House, and that only companies set up through the agency of a regulated professional can be trusted. That is simply not true. Only the simplest companies—those using standard-form constitutions—can be set up directly with Companies House online in the way described by the hon. Member for Glasgow Central. Typically they are self-standing, family-run and family-operated businesses. More complex corporate structures will, in contrast, frequently be established through trust or company service providers. The UK’s national risk assessment of money laundering and terrorist financing noted last year that
“While companies can be registered directly with Companies House, criminals continue to make use of third party TCSPs, to establish the structures within which illegitimate activity subsequently takes place.”
The fact that TCSPs are legally required to conduct customer due diligence does not in and of itself solve the problem. The new clause would therefore impose an across-the-board administrative burden on individuals seeking to establish companies, without adding any significant new obstacles to money laundering. Companies incorporated directly through Companies House are overwhelmingly likely to interact with the UK regulated sector, and so face anti-money laundering checks either by having a UK bank account or through having a UK accountant.
We discussed in the previous debate the 22 different regimes, and this speaks to the necessity for some degree of complexity to minimise the risks as far as possible. New clauses 11 and 12 are similar in outcome to new clause 10: they would require company formation agents—defined for these purposes as including the UK registrar of companies at Companies House—to conduct customer due diligence to establish the identity and risk profile of all beneficial owners of such companies registered at Companies House. The key difference is the reclassification of Companies House, which would now be required to deliver its statutory duties as if it were a private sector business. The accompanying explanatory statement suggests that these clauses will identify the beneficial owners of a company and make information held at Companies House more accurate. Although similar to the proposed new clause 10, these new clauses would go further in imposing expansive new obligations upon Companies House, requiring significant changes to the UK company law system.
Given the overlap with the lead new clause group, I will focus on the most novel element: the proposal that Companies House be treated as a company formation agent. Since the registrar of companies was first created, it has been required to accept any application that is validly and correctly submitted, and to duly incorporate the company as requested. Companies House does not help customers through this process, and is responsible solely for conducting the process of company incorporation. Company formation agents, known as TCSPs, are entirely distinct from Companies House. They are already subject to due diligence obligations through the Money Laundering Regulations 2017, and these extend to being required to terminate any existing business relationship when they are unable to meet their due diligence obligations. In contrast, Companies House has no legal right to refuse or decline a request to incorporate a company if the application is valid, and therefore it does not have the ability to decline a business relationship in the way that TCSPs must when they cannot discharge their due diligence obligations. If accepted, these amendments would essentially require fundamental reform of the Companies Act 2006.
To emphasise the scale of that proposed reform, 3.9 million companies are currently registered at Companies House and approximately 600,000 new companies register each year. The impact on resource to carry out due diligence on that number of companies would be considerable. The burdens and cost would fall on those 3.9 million companies, and specifically on the vast majority of legitimate companies, many of which are very small businesses. They would be forced to pay to duplicate the cost of due diligence checks that are already conducted by banks and other regulated professionals. The overall cost to the UK economy could run into hundreds of millions of pounds each year.
New clause 13 would amend part 24 of the Companies Act so as to require UK companies to establish a UK bank account and evidence that to Companies House on an annual basis or pay a fee or financial penalty. As with other new clauses in this group, new clause 13 will not achieve its stated intention. The wider purpose behind that part of the Act is to provide a simple mechanism for companies to confirm that corporate information registered with Companies House, as required under other obligations, is accurate and up to date in relation to company share capital, business activities and the address of a company’s registered office.
That is not to say that the new clause’s underlying principle does not merit further consideration. Evidence of a UK bank account is intended to demonstrate that a company has been through proper money laundering checks by a UK supervising body related to the financial activities of that company. However, the practical implications need careful consideration. To make the proposal operational, Companies House would require new systems with access to UK and international banking information. The costs associated with the development and operation of such systems would inevitably be large and would need to be recovered from UK businesses. Once again, that would necessarily establish a new reporting burden that would essentially target the overwhelming majority of law-abiding UK businesses.
The new clause suggests that companies that cannot provide evidence that they have a UK bank account would be liable to a fee, although that could better be characterised as a penalty—its purpose is not specified. If it is intended to incentivise companies that are established to launder money to open a UK bank account, it would need to be set sufficiently high to achieve that objective, which would be disproportionate to the notional offence of not providing evidence of a UK bank account.
The Government are already active in that sphere. Under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, regulated bodies such as banks are obliged to carry out CDD checks on their customers on an ongoing basis. That is a rich field of data, and the regulated sector is already closely engaged with UK law enforcement to identify and report suspicious behaviour. In parallel, Companies House has an extensive outreach programme to the regulated sector to promote use of its data and encourage bodies to report possible errors back to it.
To sum up, a simple demonstration of a bank account is a blunt instrument. As drafted, the new clause simply adds a burden to UK companies to report more information. We should not proceed down that path without being much clearer that the information we require them to disclose is valuable, that it is necessary and that it cannot be achieved by other less burdensome means. On that basis, I ask the hon. Member for Oxford East to withdraw the amendment.
Anneliese Dodds
We tabled the new clause because ineffective anti-money laundering supervision has a clear and obvious link with inadequate compliance and with low and poor-quality reporting of suspicious activity to the National Crime Agency. Research by a number of non-governmental organisations, particularly Transparency International, has indicated serious failings in the current framework for supervising money laundering compliance in the UK, especially with respect to trust and company service providers.
Under the Money Laundering Regulations 2017, only TCSPs carrying on business in the UK—that is their formulation in the legislation—have to register with an anti-money laundering supervisor and comply with MLR 2017. That means of course that TCSPs with no UK presence can incorporate UK companies without any oversight from an AML supervisor. They do not have to comply with UK standards for money laundering checks. We have seen a number of clear examples—I will talk about some in a moment—where that has allowed non-UK TCSPs to incorporate UK companies that have subsequently been used in large-scale money laundering schemes. I think many of the concerns raised a moment ago around undercutting existing legislation and the lack of a fair playing field for UK TCSPs come up again in this regard.
In 2012 the International Consortium of Investigative Journalists showed how a number of UK individuals offering company services had moved their base of operations outside our country but continued to form, and act as nominee directors for, UK companies. There are two examples that are particularly important. The first was Jesse Grant Hester, who was originally from the UK and who moved to Cyprus to form Atlas Corporate Services Ltd before moving to Dubai and, finally, Mauritius—he is somebody who has been lucky enough to travel much in life. Those jurisdictions have all been identified as presenting high money laundering risks. Mauritius in particular is very concerning: it scored 5.92 out of 10 on the Basel Institute on Governance money laundering risk index. Ten is the highest level of money laundering risk and zero is the least, so it is well up there. Jesse Grant Hester appeared on numerous occasions as a nominee director for companies embroiled in corruption scandals. In the Moldovan bank theft that we talked about earlier, he signed fake promissory notes using an alias on behalf of a UK firm, Goldbridge Trading Ltd, allowing £444 million to be stolen. Atlas Corporate Services is associated with eight people who, between them, have held directorships of 3,613 UK companies. Again, that is a staggering number of companies to be held by just eight people. As we discussed, that scandal caused enormous problems for the country of Moldova.
Another UK resident who became internationally renowned, although not in a positive way, for his company formation activities, is Ian Taylor. That is not the famous social policy academic, who I had the pleasure of working with, but another Ian Taylor. He also moved around a lot: he moved to Vanuatu.
Anneliese Dodds
Oh, there was a Tory MP as well. Goodness—the name is frequently used. He moved to Vanuatu after he was banned from being a corporate director, first in New Zealand in 2011 and then in the UK in 2015, as a result of his companies’ involvement in numerous scandals, including a land banking scam in Somerset. Vanuatu’s self-assessment on money laundering risk found that its TCSP sector was among the most vulnerable to such activity. In 2015 the Asia/Pacific Group on Money Laundering found serious deficiencies in Vanuatu’s AML system. Despite being banned in the UK, Taylor seems to have retained a UK presence. Various investigations have identified the circle of nominee directors that he works with. One of them is a Vanuatu resident who is a director of more than 61 companies. He took over from Taylor as a director of 20 of them on the same date.
Those examples show that physically moving out of the UK does not result in a lack of activity in the UK. Networks of associates make it difficult to stop the formation of UK companies by individuals who have already been disqualified here. Such individuals, who have been shown to have engaged in money laundering activities or have otherwise been disqualified or viewed as not competent in this arena, can function in other countries and create companies. The checking that should go on does not happen, and there is inadequate anti-money laundering supervision. We do not have a means of dealing with that, because we do not have a regulatory system for TCSPs that are not based in countries with appropriate anti-money laundering provisions. That is not currently illegal, which is why we want to change the legal situation.
John Glen
I am grateful to the hon. Lady for setting out her new clause, which would prohibit TCSPs that do not conduct business in the UK from incorporating UK companies, unless they are overseen by a UK anti-money laundering supervisor. As hon. Members will know, the Money Laundering Regulations 2017 specifically provide for TCSPs conducting business in the UK to be subject to a fitness and propriety test and to register with either Her Majesty’s Revenue and Customs or the Financial Conduct Authority. In borderline cases where it is unclear whether a TCSP is conducting business in the UK—in which case it would be supervised by a UK anti-money laundering supervisor—HMRC would consider on a case-by-case basis whether registration for supervision is necessary. This acts as an anti-evasion mechanism preventing TCSPs from artificially claiming that they are outside the scope of the UK’s anti-money laundering regime.
The hon. Member for Oxford East asked earlier where this was based. The Government recently established the Office for Professional Body Anti-Money Laundering Supervision, known as OPBAS, within the Financial Conduct Authority. It works to secure consistently high standards of AML supervision of professional bodies, including TCSPs. These reforms follow the identification of risks associated with TCSPs in the Government’s 2016 action plan for anti-money laundering and counter-terrorist financing. This found that service sectors such as TCSPs were a significant money-laundering threat.
Although it is for anti-money laundering supervisors to determine their areas of focus, they are required to have regard for the UK’s national risk assessment of money laundering and terrorist financing when assessing risks in their own sector. The risk assessment that the Government published in October last year concludes:
“The highest risk TCSPs are assessed to be UK TCSPs which offer a wide range of services (including nominee directors, registered office services, and banking facilities)”.
Additionally, individual anti-money laundering supervisors are under a duty to identify and assess the international and domestic risks of money laundering and terrorist financing to which their sectors are subject.
Helen Goodman
I am surprised by what the Minister is saying. He obviously did not listen to the BBC “Analysis” programme that was broadcast about three weeks ago on the role of overseas TCSPs. We think it is great when people build real-life factories as a jumping-off point into the single market, but it is evident that TCSPs and banks located in the Baltic states, which do not have such good anti-money laundering regulatory regimes, attract money and are used as a jumping-off point to move that money into the European system. Does the Minister really think that the anti-money laundering regimes throughout the European Union are as effective the one in the UK?
John Glen
I cannot comment on the specific cases that the hon. Lady mentions, because I have not seen or studied them. I imagine that there is a degree of variability in the effectiveness of regimes, but I am trying to set out the Government’s rationale for what we have in place. I do not suggest that it is perfect, but some of the developments have occurred in response to shortcomings that have been identified.
The individual anti-money laundering supervisors are under a duty to identify and assess international and domestic risks, including the money laundering and terrorism risk, which ensures that the most intensive supervision is applied where the highest risks of money laundering exist. The establishment of OPBAS will assist with the consistent identification of such risks across the TCSP sector. Our national risk assessment makes it clear that the Government are aware of the money laundering risks connected with TCSPs, and further reform in the area should take account of the conclusions of the ongoing FATF review. I assure Opposition Members that the regime is a searching and exacting one. I know from ministerial meetings concerning preparations for it that the evaluation will be exacting. We expect the observations to be meaningful, and we will need to respond carefully to them. However, until we receive the outcome of that review of the UK’s anti-money laundering regime and of the experience of OPBAS as its role develops, it would not be appropriate to adopt the amendment.
Hon. Members should be mindful of the fact that anti-money laundering supervision around the world follows a territorial model. Simply requiring non-UK TCSPs to have a UK supervisor when they set up UK companies will not address the challenges of extra-territorial supervision. Effective anti-money laundering supervision depends on measures that include supervisory on-site visits and close engagement with higher-risk firms. Requiring a UK supervisor to do that in relation to a non-UK firm will not, in and of itself, address the issue that hon. Members have identified.
As was noted in the other place, the most effective means of combating international money laundering is cross-border co-operation to drive up the standards of overseas supervision and enforcement. For those reasons, we have imposed a duty on each UK anti-money laundering supervisor to take such steps as they consider appropriate to co-operate with overseas authorities. That is the agenda we pursue through the global FATF process. I therefore respectfully ask the hon. Lady to withdraw the new clause.
Anneliese Dodds
I am grateful to the Minister for those remarks and clarifications. They have been genuinely helpful, but I regret that some areas are still rather unclear to me; perhaps they are not to other Committee members. He stated that the highest-risk TCSPs are assessed to be UK ones, but it has not been spelled out why. Perhaps he could write to me about that.
Anneliese Dodds
I am grateful to the Minister for offering to look into that. We must always be wary of talking about a general pattern of activity as necessarily reflecting the risk profile of that overall activity. Among those TCPS, there could be overseas ones that are not appropriately regulated and that also offer a wide range of services, in the same way as some UK TCSPs do.
I am also a bit confused about the professional regulators. As the Minister said, there are about 22 of them, and then on top of that we stick Her Majesty’s Revenue and Customs, the Financial Conduct Authority and so on. As I understand it, the professional regulators do not have members based in other countries; they cover only UK residents. We are talking about, for example, the Law Society of Scotland and the Law Society of England and Wales—professional bodies dealing with UK individuals. We are not talking about professional associations covering professionals in other countries.
The Minister seemed to talk about a process of liaison between these organisations and their counterparts in other countries. I am sure we all want to encourage that, because it sounds like a very good idea. Information sharing is wonderful, but information sharing is not the same as having an appropriate process of regulation to ensure that there is compliance with anti-money laundering requirements.
The Minister said that the approach was an extraterritorial one, because it affects bodies in other countries. That is absolutely right, but those bodies then interact with our company formation procedure. That is the reason why we, as a country, have a stake in this process—a rather large one, given the reputational damage that seems to be being caused by the activities of some unregulated or inappropriately regulated TCSPs. I will be pressing the new clause to a vote.
Question put, That the clause be read a Second time.
John Glen
I just want to clarify that, while I would not profess to be an expert on Pakistan’s compliance with the FATF, the concerns raised about its recent greylisting were around the specific handling of various banned terrorist organisations. I would not wish to cast any wider doubt over its intentions to improve the provision of services.
Anneliese Dodds
I thank the Minister for that helpful clarification. It is helpful to know the exact locus of FATF activity or the concerns about Pakistan that were focused on terrorist financing. That is not the area we are focused on now, but such financing and money laundering often go hand in hand.
Given the potential effects of such a ruling—we have talked about that in relation to Pakistan—we think it necessary that Ministers should have the flexibility to ensure that FATF standards can be implemented as soon as possible in our country in order to be on top of new international standards. That is particularly important because the UK was a founding member of the FATF, so we need to show that we are at the cutting edge of implementing its requirements.
As I mentioned, we also need to be able to identify or revoke high-risk countries quickly, taking account of the FATF’s standards and given the effect that it can have on the countries themselves and also on our reputation. If we are viewed as not following FATF recommendations, that prevents the co-ordinated approach that the FATF was set up to promote in the first place.
Finally on this amendment, we hope that Ministers will take account of aligning the designations with our EU partners. We have talked consistently in our deliberations about the need for co-ordination, which of course makes all the mechanisms much more effective. When they are not co-ordinated, there can be loopholes. In that regard, it is important to mention the case of Russia. In 2014, the Arms Export Controls Committees—we talked about their composition when we talked about scrutiny arrangements—reported that more than 200 licences to sell British weapons to Russia, including missile-launching equipment, were still in place, despite David Cameron’s claim that the Government had imposed an absolute arms embargo against Russia in alignment with the rest of the EU. We really need to make sure that that alignment is genuine in practice, not just on the surface and rhetorical.
John Glen
New clause 16 would limit amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 to those that would implement standards published by the Financial Action Task Force, or those whose purpose was identifying or revoking a designation of a high-risk third country. The 2017 regulations transpose the fourth EU anti-money laundering directive, which was in turn derived from the most recent major updates to the FATF standards, which were made in 2012. As the hon. Lady acknowledged, the UK is a founder member of the FATF and is committed to playing a leading role in its continuing work. It is right for the Government to have the power to update the UK regime when such standards change.
There are, however, several areas where the UK’s anti-money laundering regime already goes beyond those standards. Our recently established register of trusts generating tax consequences, for example, goes beyond the standards set by the FATF. Similarly, the UK announced at the time of the 2015 Budget that we intended to regulate virtual currency exchanges for AML purposes—an objective that was accomplished through negotiation of the fifth EU anti-money laundering directive—but that was not required by the FATF. So although we will remain aligned with the FATF standards after the UK ceases to be a member of the EU, our anti-money laundering regime exceeds those standards in certain areas.
The Government are determined to ensure that our defences against misuse of a financial system remain ahead of global standards rather than solely reflecting them. That is reflected in our commitment to the establishment of a public register of the beneficial ownership of non-UK companies that own UK property, which the Committee debated earlier, even if we did not agree on the timeline for it. The new clause would reduce our ability to do so. Under the power in question, the UK’s anti-money laundering regime could not go further in areas where we would otherwise want to.
As I said previously, in debating amendment 7, and as my right hon. Friend the Minister said about new clause 3, we do not believe that a bar on new offences is the right way to address the concerns raised by Lord Judge and others. We have instead tabled amendments to ensure that the power is used only where it is needed, and that Ministers are properly accountable to Parliament for it.
Ensuring that we can make regulations to prevent, or to enable or facilitate the detection or investigation of, money laundering or terrorist financing, as well as to implement the standards of the FATF, is the most certain method of placing future changes to our anti-money laundering system on a sound legal basis. The new clause would limit our ability to do so in the future, and I am sure that is not the intention behind it. I respectfully suggest that the hon. Lady might withdraw it.
Anneliese Dodds
I am grateful to the Minister for his explanation. It may be the fact that we have been in this room for a few hours, but I am struggling a little with, in particular, the suggestion that new clause 16 would somehow tie the UK’s hands in implementing additional requirements beyond the FATF standards.
The Minister referred to the public register of property owned by non-UK entities. We had a discussion about that, but he is right: it would arguably be an innovation in the UK. Of course it is one that we need more than other countries, because of the use of our property market in many such cases, and the exponential rise in house prices. He could have talked—although he did not—about the register of beneficial ownership of companies being an innovation as well, but countries such as the Netherlands and Norway are putting those into practice anyway, so perhaps we are not quite as far-reaching in what we are doing as we might suggest. Particularly in relation to the charges and fines levied against those found guilty of money laundering offences, we seem to be in a different position from that of our North American counterparts, for example, as we have discussed. None the less, it is not clear how the new clause would stop us going further than those other jurisdictions where we wished to do so. It says that we would take account of the
“best international practice including EU sanctions regimes”,
not that we would be led by it.
Sanctions and Anti-Money Laundering Bill [ Lords ] (Sixth sitting)
John Glen Excerpts(6 years, 8 months ago)
Public Bill CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Economic Secretary to the Treasury (John Glen)
May I say what a pleasure it is to serve under your chairmanship once again, Dame Cheryl? I acknowledge that the amendment seeks to set in legislation an obligation on the Government to implement, within 12 months of Royal Assent, our commitment to establish a public register of company beneficial ownership information for foreign companies that already own or buy property in the UK or who bid on UK central Government contracts. It puts an accelerated timetable on something that the Government are doing anyway. In the next few minutes, I will remind the Committee of the timetable to which the Government are committed for delivery of this policy. I will set out the challenges and complexities of the policy and demonstrate why setting an early and artificial deadline for implementation would inadvertently undermine its aims. I know that these are supported across the House, so it is important to ensure that we get the detail of the policy right.
In listening to the remarks made by the hon. Member for Bishop Auckland, I acknowledge the frustration around this; but this Government are committed to continue to lead by example and improve corporate transparency. Over the past five years, the reforms delivered by the Department for Business, Energy and Industrial Strategy have made the UK a global leader on corporate transparency issues. We were the first country in the G20 to establish a fully and publicly accessible company beneficial ownership register and, across the world, non-governmental organisations lobby their Governments to follow the UK example. There is a reason we have that world-leading reputation: it is because of the quality of the measures we have passed and it is a reputation we would lose if this measure were accepted. A 12-month timetable to draft and pass primary and secondary legislation, empower the responsible agencies and commence the obligations is not realistic. The rush to meet such an unrealistic deadline would inevitably lead to loopholes that would be readily exploited by those seeking to evade the new requirements.
Alex Norris
We are not just talking about a 12-month timetable; this was first announced by a Conservative Prime Minister in 2015. What have Ministers been doing since then?
John Glen
I will come on to explain the history of this and why we are where we are. I am happy for the hon. Gentleman to intervene if he does not feel satisfied at the end of that.
Mindful that the eyes of the world are on us, hon. Members should recognise that this legislation would be a world first. Successful delivery raises significant challenges and it is right that the Government achieve the right balance in an effective regime with robust enforcement that does not have a negative impact on land registration processes across the UK. I acknowledge that some have accused the Government—and we have also been accused this afternoon—of not acting swiftly enough to implement this policy. Let me address those concerns.
We have committed to publishing a draft Bill before the summer to introduce the Bill early in the second Session and for the register to be operational in 2021. Publishing a Bill in draft is the right approach. As I said before, this register will be the first of its kind in the world, and it will affect people’s property rights, including not just new purchasers but existing owners. This is a sensitive and delicate area. Getting it wrong would have significant adverse consequences.
Anneliese Dodds
The Minister is being generous. He has kindly set out for us a three-year timetable, adding on a couple of years before that when Government committed to this. Is he aware of the Private Eye map, which has been in existence for some time? Through civil society and journalistic activity, Land Registry and Companies House data were put together and a map produced. That appears to have been done quite quickly.
John Glen
I am not familiar with that particular map but I would be very happy to examine it. For clarity, and addressing the hon. Lady’s previous point, the register will capture the details of beneficial owners of all non-UK companies—including those in the overseas territories—that own UK property. This will be a world first, so we are moving as fast as possible, while ensuring that the register is as comprehensive as possible.
As the Government set out in last year’s call for evidence, for the register to be effective the sanctions to be applied for non-compliance must be a meaningful deterrent. Enforcement must be energetic. Simple criminal sanctions may not be sufficient in isolation. The draft Bill will include enforcement through land registration law. Where an overseas entity buys property, it will never be able to obtain legal title to that property without having complied with the register’s requirements. Similarly, a restriction on the title register for property owned by an overseas entity will signal to third parties that the overseas entity must comply with the regime before selling the property, creating a long lease or legal charge. Those are significant steps on which it is right to consult.
Hon. Members will recognise that there are separate Land Registries in Scotland and Northern Ireland, as well as the Land Registry for England and Wales. The approaches taken to land registration and overseas entities by each of those Land Registries have been different until now. That too will need be streamlined. Delivery of an holistic outcome that complements all three land registration regimes is an exercise touching multiple teams across Government and the Land Registries. Put simply, it is an exercise that will take time to get right and a further demonstration of why publishing the legislation in draft is the appropriate next step if we are to get it right. Although I appreciate that the motive underlying the new clause supports the policy as a whole and demonstrates a desire for early delivery and implementation, it does not take account of the complexities that I have set out or the challenges of delivery and implementation.
The register will further demonstrate the Government’s commitment to combating money laundering through the property market. Hon. Members will have seen recent press reports—the hon. Member for Bishop Auckland drew our attention to the splash on 3 February—that two unexplained wealth orders have been obtained by the National Crime Agency in connection with two properties worth £22 million.
Those are the first orders obtained under the relevant powers conferred by the Criminal Finances Act 2017, which commenced at the end of January. They were obtained only a few days after it came into effect. As the Minister for Security and Economic Crime has said, the orders are an important addition to the UK’s ability to tackle illicit finance, and it is great to see them already in use.
The Government will continue to take action. BEIS’s response to last year’s call for evidence will be published shortly, and it will set out the Government’s approach to areas of particular complexity. BEIS has already made significant progress in preparing draft legislation; the work with the office of the parliamentary counsel to draft the Bill is under way.
Separately, BEIS is working to quantify the impact of the legislation on the UK. The impact assessment will quantify the register’s potential impact on the property market and investment flows, around which foreign direct investment is very specific, to pick up on the point made by the hon. Member for Bishop Auckland. The register will rightly make the UK more hostile to illicit flows of money, but we must understand the potential impact on legitimate inward investment.
All those issues were considered in last year’s call for evidence. Scrutiny of the draft Bill will further stress-test whether it will be effective. I hope that that process demonstrates the Government’s continued commitment to enact the policy, and our commitment to get it right. For those reasons, I hope that the hon. Lady will withdraw the new clause.
Richard Benyon (Newbury) (Con)
I think it is worth saying for the record that there is a chill wind blowing through the financial lives of some of the people who have used our economy, particularly our property sector, for nefarious purposes and money laundering. From my conversations with a current Security Minister, and from what I know the Government are doing to implement the asset freeze legislation, I have no doubt that that is being taken forward aggressively and in a determined way. That is being recognised abroad; it is certainly being recognised by some of those people who have used the ability of our economy, through good title deeds, to make property a means by which to bury nefarious funds.
We are talking about legislation to hold future Governments to account. I entirely accept my hon. Friend the Economic Secretary’s assertion that this a complex situation to get right. I would like a little more clarification, and I am prepared to cut him some slack on this because if this is not done properly, it will be exploited and people will be able to move wealth in a globalised economy in a much freer way. It should be tied down in a way that encourages people still to invest in this country. I welcome the fact that people want to invest in our property, whether commercial or residential, but not, as the hon. Member Bishop Auckland says, just to leave homes empty. I recognise that that is a real issue, but there is the sheer importance of making sure that all of the provisions are correct. I know it has been complicated: in the asset freeze legislation, there was institutional resistance to what are called Magnitsky-lite measures that were introduced. In a classic piece of good ministerial play, the Government faced down those institutional problems that existed in parts of the civil service and elsewhere and took that forward. To their credit, they are now implementing the measures. I would just like some more assurance from my hon. Friend that this complexity will be tackled with urgency.
John Glen
I am grateful to my right hon. Friend the Member for Newbury and to the Member for Nottingham North for their further observations. I understand the sentiments of frustration and impatience with the Government on this matter. I hope I have spelled out in some detail—in the areas of land registration; alignment around the different parts of the United Kingdom; and making sure that the penalties are appropriate and that the enforcement measures are set to meet the challenge—that the Government have bold ambitions to get this right and to be a world leader in this area. I acknowledge that this has taken rather longer than it would have done in ideal circumstances, but I can confirm and reiterate to my right hon. Friend that the Government are fully committed to delivering this as soon as possible, and that there is a commitment across multiple Departments and the ministerial team to ensure that this reflects the bold aspirations that we have as a nation. I hope that that would be sufficient for us to move on.
Helen Goodman
Ministers have heard that this is an issue of significant concern, and interest in making speedy progress has been expressed on both sides. We will return to this on Report and, that being the case, I do not intend to press it to a vote. I beg to move that the clause be withdrawn.
Clause, by leave, withdrawn.
New Clause 6
Alignment of sanctions
(1) It shall be a negotiating objective of Her Majesty’s Government in negotiations on the matters specified in subsection (2) to continue the United Kingdom’s participation in the Political and Security Committee of the European Union in order to align sanctions policy with the European Union.
(2) Those matters are—
(a) the United Kingdom’s withdrawal from the European Union, and
(b) a permanent agreement with the European Union for a period subsequent to the transitional period after the United Kingdom’s withdrawal from the European Union.
(3) It shall be the duty of the Secretary of State to lay a report before both Houses of Parliament in accordance with either subsection (4) or subsection (5).
(4) A report under this subsection shall be to the effect that the negotiating objective specified in subsection (1) has been achieved.
(5) A report under this subsection shall be to the effect that the negotiating objective specified in subsection (1) has not been achieved.
(6) This Act shall not come into force until a report under either subsection (4) or (5) has been approved via resolution of the House of Commons and considered by the House of Lords.—(Helen Goodman.)
This new clause would require the UK Government to seek continued participation in the Political and Security Committee so as to allow alignment on international sanctions.
Anneliese Dodds
I beg to move, That the clause be read a Second time.
It is a pleasure to serve under your chairmanship, Dame Cheryl, and in rather warmer circumstances than the last time. New clause 9 seeks to create an offence if a relevant body failed to put in place adequate procedures to prevent a person associated with it from carrying out a money laundering facilitation offence. New clause 15 creates a process for disqualification for those at the top level who have failed to prevent money laundering.
I will deal with each new clause in turn and then speak briefly about the overall regulatory context, which creates a necessity for these new approaches. First, on new clause 9 and the failure to prevent the facilitation of money laundering, there are many problems with the existing system. The FCA has found weaknesses in governance and long-standing and significant under-investment in resourcing for control systems, even in the sector that is actually regulated for money laundering. I will talk about some of the problems there later on.
Many of those who investigate in this area find that rules are intermittently enforced, penalties are low and senior executives face few personal, financial or reputational consequences. It is constructive to compare some of the penalties that have been levied in the UK with those levied in the US. As I understand, the largest fine levied in the UK for anti-money laundering or sanctions offences—the Minister may contradict me if I am wrong—was levied against Coutts & Co for £8.75 million. That is six hundred times less than the penalty that was levied by the United States on BNP Paribas for sanctions-related offences.
Anneliese Dodds
It would be helpful to know under which pieces of legislation those fines were levied, because I am uncertain whether they were directly under money laundering legislation. I will come back to that, particularly in relation to some of the outcomes of some parliamentary questions that I have asked to try to dig into this and find out what prosecutions have been enabled by existing legislation.
I am grateful for the information that the Economic Secretary has provided; however, there is still a lot of concern about banks’ and others’ ability to root out money laundering and the facilitating of money laundering. The FCA found—admittedly, in 2014—that there was
“significant and widespread weaknesses in most banks’ anti-money laundering systems and controls”.
That is revealed in the case of HSBC. Many members of the Committee will know that it was involved in a money laundering scandal that led to the US fining it £1.2 billion. There was a large investigation into that matter in the United States Senate, where it was said that our UK-based bank had been a conduit for
“drug kingpins and rogue nations”,
including Mexican drug cartels and North Korea. In fact, that case has been referred to already in this Committee.
Particularly worryingly, a congressional report found that George Osborne and the Financial Services Authority—now the FCA—corresponded on numerous occasions with their US counterparts about the case; in fact, they urged a less aggressive judicial approach on the US side. Apparently, the congressional report said that the UK interventions played a significant role in ultimately persuading the US Department of Justice not to prosecute HSBC. I find it quite concerning that the UK actually argued against measures being taken by other countries to try to deal with this problem.
We were hoping to have some change; the Serious Fraud Office has called for the broadening of existing economic offences to cover a kind of umbrella approach, also to cover failure to prevent. It thinks that that would be helpful to hold large companies to account criminally across the board. At the moment, we have the ability to prosecute the failure to prevent bribery and corruption, but those activities are rarely committed in isolation from instances of money laundering by corporate entities. Therefore, it seems to make sense to try to extend corporate liability to money laundering. That would push in the same direction as existing pieces of legislation. Of course, the Bribery Act 2010 created a new offence of corporate failure to prevent. I believe that Act was put in place because of the same kind of repeated criticism of the UK regime that we have seen in relation to money laundering. We also now have the offence of failure to prevent criminal tax evasion in the Criminal Finances Act 2017. Surely there is now a strong case for an explicit reference to failure to prevent money laundering.
Many of us thought that we were not going to have to push for a separate offence of money laundering because we were to have an umbrella approach. In May 2016, the Government committed to consult on a broad offence of failure to prevent economic crime, which would cover fraud, false accounting and money laundering. In January 2017, the Government downgraded that commitment and instead published a call for evidence on whether there was a case for economic crime corporate liability law reform.
As I understand it, the call for evidence closed in March 2017. I have not yet seen the results of that call for evidence. It would be helpful for the Minister to let us know the outcome of that call for evidence, the main findings and how the Government have decided to act on them. Will they introduce the umbrella offence or create a discrete offence, as we are asking for? Because we think we need action now. That is new clause 19.
Alison Thewliss (Glasgow Central) (SNP)
I do not want to add a huge amount, but I very much welcome the new clause. As the hon. Member for Oxford East said, there is a big issue of incentive and authority for organisations, particularly for those that facilitate the formation and operation of Scottish limited partnerships in the private fund sector.
There has to be an effort to ensure that compliance with the rules is extended as far as possible. For example, a legal firm may be asked to register an SLP to get it up and going, and operating, but if no buck stops with it, there is no punishment for not ensuring that the SLPs are operating as we would want them to. For example, if a firm asks its client to register a person of significant control, and the client does not do so, where is the incentive for that firm to remove that client altogether? The firm has to decide for itself whether the cost of reputational damage from being named in the press is enough. That is the balance that it has at the moment. It is not obliged not to have that SLP within its client base. There is no comeback and no consequence.
There needs to be some means by which the firm is forced to do something to put that right. If the SLPs under its umbrella do not register a person of significant control, and continue not to register them, there is no fine to that legal firm, as I understand it. The SLP may face a fine—I am trying to get to the bottom of how many fines have been issued to those who have not registered a person of significant control—but there is no comeback to the legal firm, other than potential reputational damage.
The Government need to think about where the buck really stops in these arrangements , and this type of new clause would put some emphasis on the firm to do something about failing to prevent money laundering, rather than allowing things to continue as they are. As I understand it, there is no comeback at the moment to the legal firm that is protecting the SLPs underneath its umbrella.
John Glen
I undertake to address the points raised by the hon. Member for Oxford East. I will come to the point about the directors’ responsibility in my scripted remarks and also to the issue of what provision the fines were imposed under.
On the specific question the hon. Lady asked, the Ministry of Justice’s call for evidence considered a wide range of reforms to the law relating to corporate liability for economic crime. That is against a backdrop of already significant reform in this area in recent years, including the Bribery Act 2010, the Criminal Finances Act 2017 and the introduction of deferred prosecution agreements, which the Government would contend have strengthened the UK’s defences against corporate criminality. The Ministry of Justice is carefully considering the responses received to the call for evidence and is analysing the impacts of the Government’s range of recent reforms in this area. It will respond to its call for evidence in due course. I do not have a specific timetable, but that is the best information I can give the hon. Lady.
New clauses 9 and 15 seek to create a corporate criminal offence of failure to prevent money laundering, with an obligation on the Secretary of State to submit a disqualification order to the court against directors of a company found guilty of such an offence without having adequate anti-money laundering procedures in place. New clause 9 provides that a company or partnership is guilty of a criminal offence where the company’s employee, agent or other service provider commits one of the substantive money laundering offences in part 7 of the Proceeds of Crime Act 2002. The relevant company would have a defence if it could prove that it had adequate procedures in place to prevent its employees or agents from committing such an offence.
The offence is not necessary in view of the extensive reforms to the UK’s anti-money laundering regime that the Government have put in place. The proposed offence is substantively applied to firms that are regulated for anti-money laundering purposes by part 2 of the Money Laundering Regulations 2017. Those require that regulated firms have policies, controls and procedures to mitigate and manage risks of money laundering and terrorist financing. The Government have legislated to require that these policies, controls and procedures are proportionate with regard to the size and nature of the firm’s business and proved by the firm’s senior management. Failure to comply with these requirements is a criminal offence in itself.
The Financial Conduct Authority and other supervisors are additionally able to take action against firms if their measures to counter money laundering are deficient. As was touched on in our exchange earlier, recent regulatory penalties related to firms’ anti-money laundering weaknesses include fines of £163 million for Deutsche Bank in January 2017 and £72 million for Barclays Bank in November 2015. They were a consequence of failures in anti-money laundering measures under the Financial Services and Markets Act 2000.
The new clause also seeks to address challenges that have arisen in apportioning responsibility for corporate failings. Within the financial services sector, that has been addressed through the senior managers regime, which was introduced after the financial crisis. Banks are now required to ensure that a named senior manager has unequivocal responsibility for overseeing the firm’s efforts to counter financial crime. That ensures that firms and individuals can be held to account for failing to put proper systems in place to prevent financial crime. If a relevant firm breaches its anti-money laundering obligations, the FCA can take action against a senior manager if it can prove that they did not take such steps as a person in their position can reasonably have been expected to take to avoid the breach occurring. The enforcement action includes fines and disbarment from undertaking regulated activities. The Government have legislated to extend the senior managers regime to apply across all financial services firms. That will be implemented in due course, and will further the Government’s reform programme. All those requirements are additional to the substantive money laundering offences in the Proceeds of Crime Act, such as entering into arrangements that facilitate the use of criminal property, which apply to any individual or company.
As hon. Members know, the Government have previously introduced two similar offences: the failure to prevent bribery, in 2010, and the failure to prevent the facilitation of UK and foreign tax evasion, in 2017. They are structured in a similar way to the proposed new clause, but they were introduced following clear evidence of gaps in the relevant legal frameworks that were limiting the bringing of effective and dissuasive enforcement proceedings. It is right that the offences that we have already established apply to legal entities, regardless of whether they operate in the regulated sector.
The situation in relation to money laundering is very different. The international standard is set by the Financial Action Task Force, which has been referred to numerous times in the Committee’s discussions. The UK’s money laundering regulations apply to banks, financial institutions, certain professional services firms and other types of entity, and act as gatekeepers to the financial system. As I have said, such firms are already required to have policies and procedures in place to prevent their services from being misused for money laundering.
Subsection (6) of new clause 9 would require all companies, regardless of whether they are incorporated, to have procedures in place to prevent persons connected to them from laundering money. The Government do not believe that that would be appropriate. It would risk making non-regulated firms liable for the actions of their regulated professional advisers. Instead, responsibility for anti-money laundering compliance should rest in the regulated sector, as is currently the case. The new clause would not go beyond the existing regulatory framework in that area, and it would blur where responsibility should lie for anti-money laundering compliance. Therefore, I respectfully ask the hon. Member for Oxford East to withdraw the new clause.
Anneliese Dodds
I am grateful to the Economic Secretary for those helpful explanations and clarifications. Despite his useful response, however, there are a number of areas where I am unclear. First, I appreciate that he has probably anticipated this question, but the Committee may ask why it has taken Government a whole year to assess the responses from their consultation on economic crime. Government frequently work at a far faster pace than that. He said that we will have the analysis of those consultation responses in due course. It would be helpful to know more about why it is taking so long for Government to analyse them.
Secondly, the Economic Secretary spoke about the requirement for all regulated firms to ensure that their policies, controls and procedures are appropriate to prevent money laundering, but there is a question about who assesses that and whose responsibility that is. That takes us back to the issue about there being myriad professional bodies, which all operate subtly different approaches towards regulation in this area. As I said, I appreciate that OPBAS has been created to try to draw them together, but I do not think we heard exactly what the status of that office is—I was trying to concentrate on what the Economic Secretary was saying. I have seen different descriptions of it as a team, an office and an organisation. It would be helpful to have a clearer indication, particularly because those professional bodies are, as I understand it, required to contribute financially to OPBAS, so a number of them are keen to understand what is happening with it. Furthermore, HMRC is not a member of it, as I said before, so the concern about a lack of regulatory co-ordination persists.
Finally, the Economic Secretary referred approvingly to the senior managers regime that has been brought in since the financial crisis, which looks like a positive step initially—of course, the HSBC problems occurred following that. In any case, as I understand it, the actual operation of this new regime and its extension are quite different from, for example, what was recommended by the Parliamentary Commission on Banking Standards. Under this approach, the burden to show that senior managers failed to take appropriate steps will be on the regulator, rather than the senior managers themselves.
That is different from the approach taken in many other areas, including road traffic, health and safety at work, the Bribery Act 2010—which the Minister referred to—terrorist legislation, the Misuse of Drugs Act 1971 and so on. It would be helpful to understand why, with the extension of this regime, the burden of proof has essentially now been placed on the shoulders of the regulator, rather than the shoulders of the managers.
Question put, That the clause be read a Second time.
Alison Thewliss
I support the new clauses proposed by the hon. Member for Oxford East. They flag up a huge loophole in the anti-money laundering regime, which is the inability of Companies House to do anything about what comes through its door. By not acting on information, and expecting company formation agents to behave in a different way from the way the Government’s own agency behaves, the Government become complicit in the money laundering that is clearly going on through companies that are registered for only £12.
The situation is curious. Last week I sat on a delegated legislation Committee that discussed passport fees and the need for full cost recovery of those fees by the Government because the Passport Agency wants to ensure that it is not making a loss. There is an argument about whether passports are too expensive, which I think they are, but it costs £12 for the registration of a company. If Companies House is not getting full-cost recovery for that, and that is the reason for not carrying out the due diligence that ought to be done on anti-money laundering, that is an argument to find a reasonable cost of registration that would allow Companies House to operate, make money and have sufficient funds to carry out the due diligence it ought to. If there is an incentive not to play by the rules, and the Government are incentivising that through the operation of their own agency, that is nonsense. That is highlighted in Global Witness’s “The Idiot’s Guide to Money Laundering”:
“Step 4: open your company direct with the corporate registry—they don’t do any checks on you!”
It seems ludicrous that the Government are going to encourage agents who want to set up companies for people to do that and go through the anti-money laundering things that they have to do, but the Government are not enforcing that. That seems absolutely ludicrous. I cannot for the life of me think how the Government will defend that unjustifiable loophole.
Transparency International reported that in the UK last year, 251,628 companies were created with no checks being made on the person setting up the company or their source of wealth. It is a scandal that these companies can be set up, facilitated by the Government, because Companies House has to accept their documents in good faith without doing due diligence checks that we would expect of other agents. If they are not going to support the new clauses, I urge the Government to propose a measure themselves, because this simply cannot continue.
John Glen
The new clauses are broadly similar in purpose and intention. Each would expand the role that Companies House plays in relation to anti-money laundering checks, whether by conducting due diligence directly, confirming that due diligence has been carried out, or confirming that a company seeking to be incorporated has a UK bank account.
I will turn to the practical difficulties of these proposals in a moment, but the first point to make in connection with each is that the UK’s anti-money laundering regime is undergoing an assessment by the Financial Action Task Force. The FATF is the international standard setter in this area and will report publicly later this year on its findings. The report will consider matters, including the effectiveness of how the UK prevents the misuse of legal persons, such as companies, for money laundering purposes. Hon. Members will appreciate that this report will greatly inform the future of the UK’s anti-money laundering regime, including in relation to how we can best prevent the misuse of legal entities, some of which have been described in the course of this debate.
Once the FATF has reported, the Government will actively consider its conclusions, including those in relation to any areas in which the UK’s anti-money laundering framework can be improved. These new clauses pre-empt the review process already under way. It would be more sensible to allow the review to identify specific areas where action is necessary before making further changes to our AML regime.
New clause 10 would require anti-money laundering checks to be undertaken before any UK company can be incorporated by preventing the registrar of companies from registering a company unless she is satisfied that such checks have been carried out. It then says that the registrar is entitled to accept the anti-money laundering registration number of the UK body that has submitted the application as evidence that such checks have taken place. The effect would be to require all incorporations to be made through a UK body regulated for anti-money laundering purposes. This would prevent people from applying directly to Companies House to register and set up their own business; any person seeking to set up a business would be required to use the services of a professional agent that is also regulated for anti-money laundering purposes, and pay for those services, which will in turn increase the cost of setting up businesses.
The proposed new clause assumes that all bad companies are set up directly with Companies House, and that only companies set up through the agency of a regulated professional can be trusted. That is simply not true. Only the simplest companies—those using standard-form constitutions—can be set up directly with Companies House online in the way described by the hon. Member for Glasgow Central. Typically they are self-standing, family-run and family-operated businesses. More complex corporate structures will, in contrast, frequently be established through trust or company service providers. The UK’s national risk assessment of money laundering and terrorist financing noted last year that
“While companies can be registered directly with Companies House, criminals continue to make use of third party TCSPs, to establish the structures within which illegitimate activity subsequently takes place.”
The fact that TCSPs are legally required to conduct customer due diligence does not in and of itself solve the problem. The new clause would therefore impose an across-the-board administrative burden on individuals seeking to establish companies, without adding any significant new obstacles to money laundering. Companies incorporated directly through Companies House are overwhelmingly likely to interact with the UK regulated sector, and so face anti-money laundering checks either by having a UK bank account or through having a UK accountant.
We discussed in the previous debate the 22 different regimes, and this speaks to the necessity for some degree of complexity to minimise the risks as far as possible. New clauses 11 and 12 are similar in outcome to new clause 10: they would require company formation agents—defined for these purposes as including the UK registrar of companies at Companies House—to conduct customer due diligence to establish the identity and risk profile of all beneficial owners of such companies registered at Companies House. The key difference is the reclassification of Companies House, which would now be required to deliver its statutory duties as if it were a private sector business. The accompanying explanatory statement suggests that these clauses will identify the beneficial owners of a company and make information held at Companies House more accurate. Although similar to the proposed new clause 10, these new clauses would go further in imposing expansive new obligations upon Companies House, requiring significant changes to the UK company law system.
Given the overlap with the lead new clause in the group, I will focus on the most novel element: the proposal that Companies House be treated as a company formation agent. Since the registrar of companies was first created, it has been required to accept any application that is validly and correctly submitted, and to duly incorporate the company as requested. Companies House does not help customers through this process, and is responsible solely for conducting the process of company incorporation. Company formation agents, known as TCSPs, are entirely distinct from Companies House. They are already subject to due diligence obligations through the Money Laundering Regulations 2017, and these extend to being required to terminate any existing business relationship when they are unable to meet their due diligence obligations. In contrast, Companies House has no legal right to refuse or decline a request to incorporate a company if the application is valid, and therefore it does not have the ability to decline a business relationship in the way that TCSPs must when they cannot discharge their due diligence obligations. If accepted, these amendments would essentially require fundamental reform of the Companies Act 2006.
To emphasise the scale of that proposed reform, 3.9 million companies are currently registered at Companies House and approximately 600,000 new companies register each year. The impact on resource to carry out due diligence on that number of companies would be considerable. The burdens and cost would fall on those 3.9 million companies, and specifically on the vast majority of legitimate companies, many of which are very small businesses. They would be forced to pay to duplicate the cost of due diligence checks that are already conducted by banks and other regulated professionals. The overall cost to the UK economy could run into hundreds of millions of pounds each year.
New clause 13 would amend part 24 of the Companies Act so as to require UK companies to establish a UK bank account and evidence that to Companies House on an annual basis or pay a fee or financial penalty. As with other new clauses in this group, new clause 13 will not achieve its stated intention. The wider purpose behind that part of the Act is to provide a simple mechanism for companies to confirm that corporate information registered with Companies House, as required under other obligations, is accurate and up to date in relation to company share capital, business activities and the address of a company’s registered office.
That is not to say that the new clause’s underlying principle does not merit further consideration. Evidence of a UK bank account is intended to demonstrate that a company has been through proper money laundering checks by a UK supervising body related to the financial activities of that company. However, the practical implications need careful consideration. To make the proposal operational, Companies House would require new systems with access to UK and international banking information. The costs associated with the development and operation of such systems would inevitably be large and would need to be recovered from UK businesses. Once again, that would necessarily establish a new reporting burden that would essentially target the overwhelming majority of law-abiding UK businesses.
The new clause suggests that companies that cannot provide evidence that they have a UK bank account would be liable to a fee, although that could better be characterised as a penalty—its purpose is not specified. If it is intended to incentivise companies that are established to launder money to open a UK bank account, it would need to be set sufficiently high to achieve that objective, which would be disproportionate to the notional offence of not providing evidence of a UK bank account.
The Government are already active in that sphere. Under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, regulated bodies such as banks are obliged to carry out CDD checks on their customers on an ongoing basis. That is a rich field of data, and the regulated sector is already closely engaged with UK law enforcement to identify and report suspicious behaviour. In parallel, Companies House has an extensive outreach programme to the regulated sector to promote use of its data and encourage bodies to report possible errors back to it.
To sum up, a simple demonstration of a bank account is a blunt instrument. As drafted, the new clause simply adds a burden to UK companies to report more information. We should not proceed down that path without being much clearer that the information we require them to disclose is valuable, that it is necessary and that it cannot be achieved by other less burdensome means. On that basis, I ask the hon. Member for Oxford East to withdraw the amendment.
Anneliese Dodds
We tabled the new clause because ineffective anti-money laundering supervision has a clear and obvious link with inadequate compliance and with low and poor-quality reporting of suspicious activity to the National Crime Agency. Research by a number of non-governmental organisations, particularly Transparency International, has indicated serious failings in the current framework for supervising money laundering compliance in the UK, especially with respect to trust and company service providers.
Under the Money Laundering Regulations 2017, only TCSPs carrying on business in the UK—that is their formulation in the legislation—have to register with an anti-money laundering supervisor and comply with MLR 2017. That means of course that TCSPs with no UK presence can incorporate UK companies without any oversight from an AML supervisor. They do not have to comply with UK standards for money laundering checks. We have seen a number of clear examples—I will talk about some in a moment—where that has allowed non-UK TCSPs to incorporate UK companies that have subsequently been used in large-scale money laundering schemes. I think many of the concerns raised a moment ago around undercutting existing legislation and the lack of a fair playing field for UK TCSPs come up again in this regard.
In 2012 the International Consortium of Investigative Journalists showed how a number of UK individuals offering company services had moved their base of operations outside our country but continued to form, and act as nominee directors for, UK companies. There are two examples that are particularly important. The first is Jesse Grant Hester, who was originally from the UK and who moved to Cyprus to form Atlas Corporate Services Ltd before moving to Dubai and, finally, Mauritius—he is somebody who has been lucky enough to travel much in life. Those jurisdictions have all been identified as presenting high money laundering risks. Mauritius in particular is very concerning: it scored 5.92 out of 10 on the Basel Institute on Governance money laundering risk index. Ten is the highest level of money laundering risk and zero is the least, so it is well up there. Jesse Grant Hester appeared on numerous occasions as a nominee director for companies embroiled in corruption scandals. In the Moldovan bank theft that we talked about earlier, he signed fake promissory notes using an alias on behalf of a UK firm, Goldbridge Trading Ltd, allowing £444 million to be stolen. Atlas Corporate Services is associated with eight people who, between them, have held directorships of 3,613 UK companies. Again, that is a staggering number of companies to be held by just eight people. As we discussed, that scandal caused enormous problems for the country of Moldova.
Another UK resident who became internationally renowned, although not in a positive way, for his company formation activities is Ian Taylor. That is not the famous social policy academic, who I had the pleasure of working with, but another Ian Taylor. He also moved around a lot: he moved to Vanuatu.
Anneliese Dodds
Oh, there was a Tory MP as well. Goodness—the name is frequently used. He moved to Vanuatu after he was banned from being a corporate director, first in New Zealand in 2011 and then in the UK in 2015, as a result of his companies’ involvement in numerous scandals, including a land banking scam in Somerset. Vanuatu’s self-assessment on money laundering risk found that its TCSP sector was among the most vulnerable to such activity. In 2015 the Asia/Pacific Group on Money Laundering found serious deficiencies in Vanuatu’s AML system. Despite being banned in the UK, Taylor seems to have retained a UK presence. Various investigations have identified the circle of nominee directors that he works with. One of them is a Vanuatu resident who is a director of more than 61 companies. He took over from Taylor as a director of 20 of them on the same date.
Those examples show that physically moving out of the UK does not result in a lack of activity in the UK. Networks of associates make it difficult to stop the formation of UK companies by individuals who have already been disqualified here. Such individuals, who have been shown to have engaged in money laundering activities or have otherwise been disqualified or viewed as not competent in this arena, can function in other countries and create companies. The checking that should go on does not happen, and there is inadequate anti-money laundering supervision. We do not have a means of dealing with that, because we do not have a regulatory system for TCSPs that are not based in countries with appropriate anti-money laundering provisions. That is not currently illegal, which is why we want to change the legal situation.
John Glen
I am grateful to the hon. Lady for setting out her new clause, which would prohibit TCSPs that do not conduct business in the UK from incorporating UK companies, unless they are overseen by a UK anti-money laundering supervisor. As hon. Members will know, the Money Laundering Regulations 2017 specifically provide for TCSPs conducting business in the UK to be subject to a fitness and propriety test and to register with either Her Majesty’s Revenue and Customs or the Financial Conduct Authority. In borderline cases where it is unclear whether a TCSP is conducting business in the UK—in which case it would be supervised by a UK anti-money laundering supervisor—HMRC would consider on a case-by-case basis whether registration for supervision is necessary. This acts as an anti-evasion mechanism preventing TCSPs from artificially claiming that they are outside the scope of the UK’s anti-money laundering regime.
The hon. Member for Oxford East asked earlier where this was based. The Government recently established the Office for Professional Body Anti-Money Laundering Supervision, known as OPBAS, within the Financial Conduct Authority. It works to secure consistently high standards of AML supervision of professional bodies, including TCSPs. These reforms follow the identification of risks associated with TCSPs in the Government’s 2016 action plan for anti-money laundering and counter-terrorist financing. This found that service sectors such as TCSPs were a significant money-laundering threat.
Although it is for anti-money laundering supervisors to determine their areas of focus, they are required to have regard for the UK’s national risk assessment of money laundering and terrorist financing when assessing risks in their own sector. The risk assessment that the Government published in October last year concludes:
“The highest risk TCSPs are assessed to be UK TCSPs which offer a wide range of services (including nominee directors, registered office services, and banking facilities)”.
Additionally, individual anti-money laundering supervisors are under a duty to identify and assess the international and domestic risks of money laundering and terrorist financing to which their sectors are subject.
Helen Goodman
I am surprised by what the Minister is saying. He obviously did not listen to the BBC “Analysis” programme that was broadcast about three weeks ago on the role of overseas TCSPs. We think it is great when people build real-life factories as a jumping-off point into the single market, but it is evident that TCSPs and banks located in the Baltic states, which do not have such good anti-money laundering regulatory regimes, attract money and are used as a jumping-off point to move that money into the European system. Does the Minister really think that the anti-money laundering regimes throughout the European Union are as effective the one in the UK?
John Glen
I cannot comment on the specific cases that the hon. Lady mentions, because I have not seen or studied them. I imagine that there is a degree of variability in the effectiveness of regimes, but I am trying to set out the Government’s rationale for what we have in place. I do not suggest that it is perfect, but some of the developments have occurred in response to shortcomings that have been identified.
The individual anti-money laundering supervisors are under a duty to identify and assess international and domestic risks, including the money laundering and terrorism risk, which ensures that the most intensive supervision is applied where the highest risks of money laundering exist. The establishment of OPBAS will assist with the consistent identification of such risks across the TCSP sector. Our national risk assessment makes it clear that the Government are aware of the money laundering risks connected with TCSPs, and further reform in the area should take account of the conclusions of the ongoing FATF review. I assure Opposition Members that the regime is a searching and exacting one. I know from ministerial meetings concerning preparations for it that the evaluation will be exacting. We expect the observations to be meaningful, and we will need to respond carefully to them. However, until we receive the outcome of that review of the UK’s anti-money laundering regime and of the experience of OPBAS as its role develops, it would not be appropriate to adopt the amendment.
Hon. Members should be mindful of the fact that anti-money laundering supervision around the world follows a territorial model. Simply requiring non-UK TCSPs to have a UK supervisor when they set up UK companies will not address the challenges of extra-territorial supervision. Effective anti-money laundering supervision depends on measures that include supervisory on-site visits and close engagement with higher-risk firms. Requiring a UK supervisor to do that in relation to a non-UK firm will not, in and of itself, address the issue that hon. Members have identified.
As was noted in the other place, the most effective means of combating international money laundering is cross-border co-operation to drive up the standards of overseas supervision and enforcement. For those reasons, we have imposed a duty on each UK anti-money laundering supervisor to take such steps as they consider appropriate to co-operate with overseas authorities. That is the agenda we pursue through the global FATF process. I therefore respectfully ask the hon. Lady to withdraw the new clause.
Anneliese Dodds
I am grateful to the Minister for those remarks and clarifications. They have been genuinely helpful, but I regret that some areas are still rather unclear to me; perhaps they are not to other Committee members. He stated that the highest-risk TCSPs are assessed to be UK ones, but it has not been spelled out why. Perhaps he could write to me about that.
Anneliese Dodds
I am grateful to the Minister for offering to look into that. We must always be wary of talking about a general pattern of activity as necessarily reflecting the risk profile of that overall activity. Among those TCPS, there could be overseas ones that are not appropriately regulated and that also offer a wide range of services, in the same way as some UK TCSPs do.
I am also a bit confused about the professional regulators. As the Minister said, there are about 22 of them, and then on top of that we stick Her Majesty’s Revenue and Customs, the Financial Conduct Authority and so on. As I understand it, the professional regulators do not have members based in other countries; they cover only UK residents. We are talking about, for example, the Law Society of Scotland and the Law Society of England and Wales—professional bodies dealing with UK individuals. We are not talking about professional associations covering professionals in other countries.
The Minister seemed to talk about a process of liaison between these organisations and their counterparts in other countries. I am sure we all want to encourage that, because it sounds like a very good idea. Information sharing is wonderful, but information sharing is not the same as having an appropriate process of regulation to ensure that there is compliance with anti-money laundering requirements.
The Minister said that the approach was an extraterritorial one, because it affects bodies in other countries. That is absolutely right, but those bodies then interact with our company formation procedure. That is the reason why we, as a country, have a stake in this process—a rather large one, given the reputational damage that seems to be being caused by the activities of some unregulated or inappropriately regulated TCSPs. I will be pressing the new clause to a vote.
Question put, That the clause be read a Second time.
John Glen
I just want to clarify that, while I would not profess to be an expert on Pakistan’s compliance with the FATF, the concerns raised about its recent greylisting were around the specific handling of various banned terrorist organisations. I would not wish to cast any wider doubt over its intentions to improve the provision of services.
Anneliese Dodds
I thank the Minister for that helpful clarification. It is helpful to know the exact locus of FATF activity or the concerns about Pakistan that were focused on terrorist financing. That is not the area we are focused on now, but such financing and money laundering often go hand in hand.
Given the potential effects of such a ruling—we have talked about that in relation to Pakistan—we think it necessary that Ministers should have the flexibility to ensure that FATF standards can be implemented as soon as possible in our country in order to be on top of new international standards. That is particularly important because the UK was a founding member of the FATF, so we need to show that we are at the cutting edge of implementing its requirements.
As I mentioned, we also need to be able to identify or revoke high-risk countries quickly, taking account of the FATF’s standards and given the effect that it can have on the countries themselves and also on our reputation. If we are viewed as not following FATF recommendations, that prevents the co-ordinated approach that the FATF was set up to promote in the first place.
Finally on this amendment, we hope that Ministers will take account of aligning the designations with our EU partners. We have talked consistently in our deliberations about the need for co-ordination, which of course makes all the mechanisms much more effective. When they are not co-ordinated, there can be loopholes. In that regard, it is important to mention the case of Russia. In 2014, the Arms Export Controls Committees—we talked about their composition when we talked about scrutiny arrangements—reported that more than 200 licences to sell British weapons to Russia, including missile-launching equipment, were still in place, despite David Cameron’s claim that the Government had imposed an absolute arms embargo against Russia in alignment with the rest of the EU. We really need to make sure that that alignment is genuine in practice, not just on the surface and rhetorical.
John Glen
New clause 16 would limit amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 to those that would implement standards published by the Financial Action Task Force, or those whose purpose was identifying or revoking a designation of a high-risk third country. The 2017 regulations transpose the fourth EU anti-money laundering directive, which was in turn derived from the most recent major updates to the FATF standards, which were made in 2012. As the hon. Lady acknowledged, the UK is a founder member of the FATF and is committed to playing a leading role in its continuing work. It is right for the Government to have the power to update the UK regime when such standards change.
There are, however, several areas where the UK’s anti-money laundering regime already goes beyond those standards. Our recently established register of trusts generating tax consequences, for example, goes beyond the standards set by the FATF. Similarly, the UK announced at the time of the 2015 Budget that we intended to regulate virtual currency exchanges for AML purposes—an objective that was accomplished through negotiation of the fifth EU anti-money laundering directive—but that was not required by the FATF. So although we will remain aligned with the FATF standards after the UK ceases to be a member of the EU, our anti-money laundering regime exceeds those standards in certain areas.
The Government are determined to ensure that our defences against misuse of a financial system remain ahead of global standards rather than solely reflecting them. That is reflected in our commitment to the establishment of a public register of the beneficial ownership of non-UK companies that own UK property, which the Committee debated earlier, even if we did not agree on the timeline for it. The new clause would reduce our ability to do so. Under the power in question, the UK’s anti-money laundering regime could not go further in areas where we would otherwise want to.
As I said previously, in debating amendment 7, and as my right hon. Friend the Minister said about new clause 3, we do not believe that a bar on new offences is the right way to address the concerns raised by Lord Judge and others. We have instead tabled amendments to ensure that the power is used only where it is needed, and that Ministers are properly accountable to Parliament for it.
Ensuring that we can make regulations to prevent, or to enable or facilitate the detection or investigation of, money laundering or terrorist financing, as well as to implement the standards of the FATF, is the most certain method of placing future changes to our anti-money laundering system on a sound legal basis. The new clause would limit our ability to do so in the future, and I am sure that is not the intention behind it. I respectfully suggest that the hon. Lady might withdraw it.
Anneliese Dodds
I am grateful to the Minister for his explanation. It may be the fact that we have been in this room for a few hours, but I am struggling a little with, in particular, the suggestion that new clause 16 would somehow tie the UK’s hands in implementing additional requirements beyond the FATF standards.
The Minister referred to the public register of property owned by non-UK entities. We had a discussion about that, but he is right: it would arguably be an innovation in the UK. Of course it is one that we need more than other countries, because of the use of our property market in many such cases, and the exponential rise in house prices. He could have talked—although he did not—about the register of beneficial ownership of companies being an innovation as well, but countries such as the Netherlands and Norway are putting those into practice anyway, so perhaps we are not quite as far-reaching in what we are doing as we might suggest. Particularly in relation to the charges and fines levied against those found guilty of money laundering offences, we seem to be in a different position from that of our North American counterparts, for example, as we have discussed. None the less, it is not clear how the new clause would stop us going further than those other jurisdictions where we wished to do so. It says that we would take account of the
“best international practice including EU sanctions regimes”,
not that we would be led by it.
Sanctions and Anti-Money Laundering Bill [Lords] (Fourth sitting)
John Glen Excerpts(6 years, 8 months ago)
Public Bill CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Richard Benyon
I will not detain the Committee long. The Government have an opportunity to show off their virtue here. Yesterday, we saw the first application of the criminal finance powers to go after the people we are talking about. I gather that yesterday the courts granted us the first unexplained wealth order on a foreign person to freeze £22 million-worth of property assets in London. Within the constraints of what is wise in terms of disclosure, I think that some element of this proposal might be acceptable to the Government, although I feel that it could all be drawn together in a much simpler amendment. I refer to my earlier comments about how I think we should take that forward.
The Economic Secretary to the Treasury (John Glen)
I am grateful to the hon. Member for Bishop Auckland for not seeking to embarrass me again.
Amendment 36 requires the Government to provide quarterly reports on the impact of all sanction regimes, including the number and value of suspected breaches of sanctions. In considering the sorts of scenario that are in play here, hon. Members will remember that sanctions breaches are highly complex and involve multiple parties across various time periods. Sometimes they take place across borders and in different jurisdictions. The complexity of most sanctions breaches means that the investigation process from initial report to action often takes significant time and resources. There is also often a time lag between the breach taking place and being reported. The Government therefore continually adjust their figures as new information comes to light. Hence, it is very challenging to make the process fully accurate. It would be extremely difficult for the Government to report accurately on the number of breaches suspected or found at any one time. That would render the information published in the quarterly reports of little practical value.
The amendment would also place a significant burden on businesses. Currently, the Office of Financial Sanctions Implementation collects information on the value of funds frozen annually, which is onerous on businesses but important for compliance purposes.
Anneliese Dodds (Oxford East) (Lab/Co-op)
I understand that the US Office of Foreign Assets Control routinely releases details of licences and other information. It believes it has achieved an appropriate balance between commercial confidentiality and public accountability, and it does not appear to be overly onerous in the US context. I wonder why we view it as being overly onerous in the UK context.
John Glen
It is not about the reporting, but the frequency of the reporting. The point I am making is that to increase it to quarterly would add unnecessary compliance cost to industry, when that cost is already considerable if necessary. It would also result in an administrative burden for Government to produce figures that may not be of much practical use. We do not think that is the best way to spend the limited resource of public money.
Providing quarterly reporting regime by regime may also risk breaking other laws. At the moment we only provide regime figures for the largest regimes. For the small regimes there may only be a small number of designated persons with frozen funds in the UK so providing that specific information, which can easily be traced back to them, may risk breaching data protection laws.
The Government have already committed to being transparent where appropriate. As part of the monetary penalty guidance published last year by the Office of Financial Sanctions Implementation, the Government committed to publishing details of breaches and criminal prosecutions. That is a matter of public record.
For those reasons, I urge the hon. Member for Bishop Auckland to withdraw the amendment.
Helen Goodman
I am sorry, but notwithstanding the blandishments of the right hon. Member for Newbury, I do not think that the Minister has made the case for keeping that information secret. The fact that the numbers can jump around in the way that they did last month suggests that the Government have not got a grip. One way to incentivise Ministers is through the OFSI, which after all is the body that the Treasury set up to run sanctions policy. We have a whole group of people there devoting their lives to that—perhaps they are even in room, supporting the Minister today—and to supporting Ministers to do that. It is a perfectly reasonable piece of information for us to be requesting. It would help Ministers to manage things better and help to give the public confidence that breaches of sanctions are being dealt with properly. I am afraid that I therefore wish to press the amendment to a vote.
Question put, That the amendment be made.
Alison Thewliss
I am concerned about the use of the word “may” in the clause, which states that the guidance “may include guidance” about certain things. I am concerned that that is not sufficiently well developed. I very much support the hon. Member for Bishop Auckland’s amendments, which would add a wee bit more clarity, detail and guidance. The clause is worth while, but the Government would do well to listen to the detail that she laid out.
John Glen
I am grateful for those questions. I am a little confused, because both hon. Members referred to clause 36, which states, “An appropriate Minister may,” but I thought these amendments were pursuant to clause 37, which states in subsection (1) that
“the appropriate Minister who made the regulations must issue guidance”.
I acknowledge that these amendments are about guidance. We have just agreed clause 36, which states, in subsection (1),
“An appropriate Minister may make regulations”.
The two amendments as tabled by the hon. Member for Bishop Auckland are on clause 37, subsection (1) of which states
“the regulations must issue guidance”.
Alison Thewliss
We seem to be at cross purposes. The amendment is about the line further to that; subsection (2) states, further to “regulations must issue guidance”, that
“guidance may include guidance about”.
It is about the expansion of what that guidance may be.
John Glen
I am very grateful for that clarification. I hope that I will be able to address that in my remarks and give sufficient reassurance about the Government’s plan.
I should make clear from the outset that the Government are in favour of good guidance and we intend to produce it. It is in the Government’s interest to produce thorough guidance, to improve sanctions implementation and to ensure that sanctions can be enforced robustly. It was clearly set out that amendment 27 would require Government to provide guidance on the definition of ownership and control on the face of the Bill.
Hannah Bardell (Livingston) (SNP)
Further to the points made by my hon. Friend the Member for Glasgow Central about the efficacy of these amendments, Governments come and go, and I fully appreciate that the Minister is committed to giving proper guidance, but with the greatest respect, his party may not always be in power. Is it not important that if they have the intention, they should put these things on a statutory footing?
John Glen
I will address those points in my remarks, and I will be happy for the hon. Lady to come back if she is not content at the end.
Amendment 28 would broaden the scope of guidance to areas such as providing best practice on compliance with financial sanctions and establishing effective banking and payment corridors. As I said at the start, the Government are committed to producing clear and accessible guidance on sanctions implementation and enforcement. Clause 37 requires Ministers to issue guidance about any prohibitions and requirements imposed by sanctions regulations. There is already a mandatory requirement to provide comprehensive guidance for all those affected by sanctions and implementation.
The Government have been consulting extensively; across Whitehall, they have been meeting with NGOs and financial institutions that have asked for this guidance. I can reassure the Committee that we will give them what they have asked for. The Government do not believe that further amendments to clause 37 are needed to provide the type of guidance sought on “owned” and “controlled” in amendment 27. Where sanctions regulations contain prohibitions or requirements about entities that are owned and controlled by a designated person, we are already under a duty to issue guidance. I can reassure hon. Members that the Government already provide guidance on ownership and control and will continue doing so.
The additional guidance sought in amendment 28 would greatly extend the scope of the guidance to specific areas such as mechanisms to limit the impact of prohibitions and requirements on civilian and humanitarian activity, and establishing effective banking and payment corridors. Although I can understand the concerns of NGOs that lie behind this amendment, some of them clearly are beyond the remit of the Government to provide. For example, the Government do not have the powers to require banks to make payments on behalf of particular customer or to open new payment channels. Although I appreciate the spirit of the amendments, the Bill already caters for them in so far as it addresses matters within the Government’s control. Adding extra text to the Bill will only create confusion.
Alison Thewliss
Does the Minister not agree that it is in the public interest for the Government to support payment channels being created? If, for example, there is a Disasters Emergency Committee emergency appeal and the NGOs gather lots of funds, but those funds cannot reach the beneficiaries because there is no appropriate payment channel that gives everybody reassurance, surely it is in the Government’s interest to make that happen.
John Glen
I acknowledge what the hon. Lady says, but this is a non-exhaustive list. We intend to issue guidance on those issues listed in the Bill and more, as new issues evolve. We may also not need guidance in some areas that the sanctions do not cover. Where we are at cross purposes here is that people think the list is exhaustive when it is enabling and allows the Government to give the necessary guidance as required and as circumstances evolve.
We understand the concerns behind the amendments and have worked closely with NGOs to understand their needs, and we will continue to do so.
Hannah Bardell
I appreciate the Minister’s response to my hon. Friend the Member for Glasgow Central, but if he does not think it is the Government’s role to create those channels, whose role is it?
John Glen
I am not necessarily denying the role of Government in issuing guidance in a whole range of areas. What I am dealing with here is the necessity of adding the provision into the Bill when the need to give guidance is sufficiently catered for in the text of the Bill.
The Bill will put the requirements in a better place because of the new flexibility on exemptions, licensing grounds and the ability to provide general licences. We are therefore unable to agree to the level of guidance sought, and I ask the hon. Member for Bishop Auckland to withdraw her amendment.
Helen Goodman
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 37 ordered to stand part of the Bill.
Clause 38 ordered to stand part of the Bill.
Clause 39
Revocation and amendment of regulations under section 1
Amendment made: 6, in clause 39, page 30, line 24, leave out “(d)” and insert “(h)”—(Sir Alan Duncan.)
The provision amended here is a condition which applies to the power to amend regulations made under Clause 1 which state a purpose within Clause 1(2). The amendment expands the reference to Clause 1(2) so that it covers paragraphs (e) to (h) of Clause 1(2) (as well as paragraphs (a) to (d)).
Clause 39, as amended, ordered to stand part of the Bill.
Clause 40 ordered to stand part of the Bill.
Clause 41
Power to amend Part 1 so as to authorise additional sanctions
Question proposed, That the clause stand part of the Bill.
Alison Thewliss
The hon. Lady has already said much of what I was going to say, so I am sure that, if that I am a bit briefer, that will be okay with everyone. We have serious concern about SLPs, and the Bill provides an opportunity to do something about it. When we know there is a problem and an opportunity to put it right, it would be negligent of us as parliamentarians to look the other way.
I understand that, even in the new regime where people with significant control should be registered, up to December 127 or so SLPs had registered via law firms, but 489 had registered via anonymous mailbox addresses, which means that the people with significant control are not there, are barely identifiable and are very hard to trace. We know from recurring stories in The Herald worked on hard by David Leask and the researcher and expert in this field, Richard Smith, that such companies keep the issues, scandals and money laundering behind the scenes, and that it keeps going on. We therefore need to do everything we can in every area to tackle these problems.
There is the broader issue of SLP non-compliance and the inadequacies of Companies House, which we may speak about later in our proceedings. Not having a postcode when registering a company should be a pretty simple compliance issue—the process could be stopped at that point, never mind going into the more technical detail. We therefore need to look at this issue carefully. Never mind all the overseas territories; we are allowing it to happen here, in this country, behind mailboxes in Scotland. Frankly, that is unacceptable. We need to do something about it. If we continue to let it go, the problem will not go away.
We can talk about how we might go ahead with this issue in terms of enforcement, because other countries have tackled it. My colleague Roger Mullin and others have worked on it for many years, and we should take the opportunity to look at it here and now. If the Government are not willing to accept any of the amendments, I urge them to table their own and not to let the opportunity pass.
John Glen
I am grateful to both Front-Bench spokespeople for their speeches, and I will try to address the detail of the points they raised. The essence of the case made by the hon. Member for Oxford East was about whether the Bill covers SLPs. First, I draw attention to clause 9(5), which confirms that “person” includes individuals, corporate bodies, unincorporated bodies, organisations and
“any association or combination of persons.”
The Bill therefore does include SLPs, and we can make anti-money laundering provisions for them.
Hannah Bardell
Does the Minister recognise the reputational damage to Scotland? We have a Liberal Chancellor to thank for that, but it is very important that we make these changes, because Scotland’s reputation is being damaged through no fault of its own and by legislation over which we have no power.
John Glen
Absolutely, and that is why it is important that the UK Government act. In June last year, Scottish limited partnerships were brought into the scope of the public register of corporate beneficial ownership maintained by Companies House. That was welcomed by the former Member for Kirkcaldy and Cowdenbeath, who is a leading campaigner on the issue, as was mentioned earlier. He said it was
“the first practical recognition SLPs have been a significant problem”.
That reform further required SLPs to submit an annual confirmation statement that information held on the register is accurate, and to keep the information updated on an ongoing basis. In cases of non-compliance with the duties to deliver information about people with significant control—PSC information—to Companies House and to keep it up to date, officers of Scottish limited partnerships convicted on indictment can face a sentence of up to two years’ imprisonment, a fine, or both.
Additionally, the Department for Business, Energy and Industrial Strategy sought views last year on whether changes need to be made to limited partnership law to further address the concerns that have been raised about misuse of structures, including Scottish limited partnerships. Responses to that call for views are being analysed and options for reform actively considered. BEIS will announce its next steps shortly, and after a response to the call for evidence is published, identified options for reform will be subject to public consultation in the usual way. That process will be used to inform any necessary further reforms to the UK’s treatment of limited partnerships, including Scottish limited partnerships.
I hope that I have addressed in detail the range of concerns about Scottish limited partnerships.
Alex Norris (Nottingham North) (Lab/Co-op)
Does the Minister feel that it is possible for just 20 Companies House staff to have oversight of perhaps 400,000 entities under these arrangements?
Jo Stevens (Cardiff Central) (Lab)
Is the Minister aware that Companies House has been making large-scale redundancies for the past few years?
John Glen
The issue is really about the effectiveness of the regime. As I said, it is matter of what BEIS determines it needs to do to address the problem. Clearly, questions can be asked about the plans that will be put in place when they are forthcoming.
As clause 43 already gives the Government the power to make provision for the purposes of combating money laundering by Scottish limited partnerships, I ask the hon. Member for Oxford East to withdraw the amendment.
Anneliese Dodds
I am grateful to the Minister for his comments. I know that he is a very sincere and engaged Minister, but I am concerned that the direct questions that we levelled have not been answered. We asked for an indication of exactly how many of these SLPs had provided that beneficial ownership information. We asked for an update on that, but we have not had it. I also asked for an indication of how many of these SLPs have been prosecuted; I did not receive that, either. I did not receive an indication of how many have been fined under this new regime, which was set up last June. Surely we have had a number of months of operation of that new regime in order to adjudge whether it is truly effective.
I appreciate what the Minister said about BEIS conducting a review, but if the existing system is not working correctly, or if we have doubts about its operation, given the huge damage that these structures already seem to have inflicted, surely we need to have a reference to them in the Bill? We need to show that we are taking this matter seriously, and particularly that the Westminster Government are taking it seriously, in the light of comments from Government figures in other nations and their concerns about the use of SLPs.
I give the Minister one last chance to answer those questions and give that information: the number of prosecutions, the number of fines, and the number of SLPs indicating beneficial ownership information. If we do not get that information, we will have no choice but to press our amendment to a vote.
Anneliese Dodds
I wish to press the amendment to a vote.
Question put, That the amendment be made.
John Glen
I beg to move Government amendment 7, in clause 43, page 33, line 13, leave out subsection (2).
This amendment removes the provision that prevents contraventions of regulations under Clause 43 (money laundering and terrorist financing etc) from being enforceable by criminal proceedings.
In moving this amendment, I acknowledge the recognition that this House has given to the importance of a rigorous anti-money laundering regime. To ensure the robustness of future anti-money laundering regulations, corresponding powers to create criminal offences are necessary. At the same time, I recognise that Lord Judge and others in the other place expressed significant concerns about the scope of criminal offence powers in the Bill upon its introduction. It is important to note that those concerns were not about the existence of offences for breaching anti-money laundering regimes; instead, they were concerns about the unchecked ability of Ministers to create offences.
The amendment reinstates the power to create criminal offences, while the package of amendments as a whole directly addresses those concerns through additional safeguards, which narrow the scope of and the ability to use these powers. I shall elaborate upon these safeguards, which the Government have discussed with Lord Judge since the passage of this Bill through the other place, and then I will turn to amendments 10, 11 and 12. Before I do so, however, it would be useful to consider how anti-money laundering regulations have operated with criminal offence powers in the past.
In accordance with standard practice, when implementing EU directives on money laundering, criminal offences in this area have been created by Ministers in secondary legislation made under the powers in the European Communities Act 1972. That was done under the negative procedure, with no prior consultation with Parliament and no need to seek Parliament’s consent. That position will be improved for future money laundering regulations made under the Bill. They will now be made under the draft affirmative procedure, so Parliament will consider and vote on them before they come into force. Using the affirmative procedure is a direct response to the concerns raised, to ensure that where changes need to be made, they will be properly scrutinised.
Criminal offences were created by both the Money Laundering Regulations 2017 and their predecessors, the Money Laundering Regulations 2007, which were brought into force by the then Labour Government. As hon. Members can see, the approach has been supported on a cross-party basis in the past. The detailed provisions in such regulations set standards and procedures for regulated businesses. They are designed to prevent money laundering and terrorist financing and to help law enforcement authorities to investigate those crimes, and should also be seen in the context of a separate penalty regime for the key substantive money laundering offences. Such offences are established under part 7 of the Proceeds of Crime Act 2002, which provides for more punitive prison sentences of up to 14 years, for example for those guilty of directly laundering the proceeds of crime. Money launderers are typically prosecuted through those offences as they allow for longer sentences.
Without the power to create new criminal offences in secondary legislation, the enforceability of new regulations would be seriously weakened. That would dramatically lower the effectiveness of the UK’s anti-money laundering regime. More generally, it is not unusual for requirements to be set in delegated legislation that can be enforced using criminal penalties, In the area of financial services, for example, the regulated activities order, made under the Financial Services and Markets Act 2000, specifies which activities are or are not regulated. Carrying on such activities without permission from the regulator is a criminal offence. It remains the position of the Government that it is neither unusual nor improper for Parliament to confer powers of that type to Ministers.
Helen Goodman
I just want to clarify with the Minister the status of his conversations with Lord Judge. I do not know if he was trying to give us the impression that Lord Judge had agreed the amendments. I felt on Tuesday that he was trying to give that impression, so I spoke to Lord Judge, who told me that he had indeed had conversations with Ministers, but he did not say to me that he had approved the amendments. Is the Minister now trying to tell us that Lord Judge has agreed Government amendment 7?
John Glen
What I can tell the Committee is that officials have had sensitive conversations with Lord Judge. It is not for us to presume the outcome of his deliberations at this point. I am setting out what we have discussed and the consequence of those discussions. Clearly, Lord Judge will make his position known in his own way in due course.
I would like to set out why the ability to create criminal offences for the UK’s anti-money laundering regimes is necessary. The issue has been considered previously, when the Government consulted specifically on whether to remove the criminal offence provisions in the Money Laundering Regulations 2007. The British Bankers Association stated that removing such provisions would be at odds with the objective of driving an effective anti-money laundering regime.
Further, the Crown Prosecution Service argued that provisions for creating criminal offences in the Money Laundering Regulations that are different from those of the Proceeds of Crime Act 2002 serve a separate and useful function in tackling money laundering. In some instances, prosecuting according to the Proceeds of Crime Act could jeopardise ongoing investigations. It said that in such cases, the ability to prosecute for a regulatory offence relating to defective anti-money laundering counter-terrorist financing systems can be an important tool. Finally, HMRC noted in response to the same consultation that abolishing criminal sanctions for breaches of regulations carries significant risk to its ability to tackle money laundering.
Anneliese Dodds
I am grateful to the Minister for his clarification. I do not want to go around the houses again, as we did at some length on Tuesday. I am grateful to my hon. Friend the Member for Bishop Auckland for explaining why we are concerned about the lack of accountability in general for measures imposing criminal sanctions throughout the Bill. I recognise what the Minister said about this being a separate regime; it is obviously not the same one as is applied in the case of sanctions. The offences that can be applied are lesser in their extent—for example, we are talking about shorter prison sentences in the Bill—but we still have many of the same concerns that we expressed previously.
There has been some shift on the part of the Government, but I suppose it is difficult for any of us to judge whether the spirit of Lord Judge has been complied with, or whether there has merely been some kind of interpretation of a clutch of some of his words. Certainly we will look at what is written on the tin, but to us it does not appear to constitute recognition of the concerns expressed or the kind of meaningful engagement that we need. We are doing something very significant in the Bill, which in effect creates de novo a sanctions and anti- money laundering regime. Much stronger accountability is needed than is in the Bill, even as amended by the Government. We have the same concerns as we expressed previously, so we will resist the amendment.
John Glen
I acknowledge the outstanding concerns. I think I have set out clearly the rationale, why we need the provisions and how they respond suitably to Lord Judge’s concerns. I acknowledge the genuine difference of opinion, but I have set out the Government’s position and it is now for the Opposition to do as they wish.
Question put, That the amendment be made.
John Glen
I beg to move Government amendment 10, in schedule 2, page 53, line 32, leave out paragraph 15 and insert—
“15 Make provision—
(a) creating criminal offences for the purposes of the enforcement of requirements imposed by or under regulations under section 43, and
(b) dealing with matters relating to any offences created for such purposes by regulations under section 43,
but see paragraphs 18 and 19.”
This amendment, read with Amendment 12, makes clear that any offences included in regulations under Clause 43 must be for the purposes of enforcing requirements imposed by or under regulations under Clause 43 or (while they remain in force) the Money Laundering Regulations 2017.
John Glen
Amendment 10 is a consequence of the proposed new paragraph 20A, which will be inserted by amendment 11. Paragraph 20A(1) refers to offences created for the purposes of the enforcement of requirements imposed by or under regulations under clause 43.
The amendment further narrows the powers for future regulations to make provision for new criminal offences, as I referred to in the discussion on the previous amendment, as compared with the Bill when it was first introduced in the other place. It would make the powers subject to the requirement for a report to Parliament, along the same lines as amendments to part 1 of the Bill. That report would identify the offences created and their respective penalties, and would confirm that the Minister has considered that there are good reasons for creating those offences and setting the penalties at the levels at which they have been set. It would ensure that the Minister does not use the power lightly and is fully accountable to Parliament for doing so.
I take the opportunity to remind hon. Members that these safeguards are contained in Government amendment 11, to which I will turn shortly. These amendments are part of the wider package that inserts safeguards on the use of this power, and have been designed to directly address the concerns raised by Lord Judge and others in the other place.
The amendment restricts the scope of the power to create future offences to offences created for the purposes of enforcing future anti-money laundering regulations. Amendment 12 ensures that references made to regulations made under clause 43, with respect to paragraph 15 of schedule 2, and requirements imposed by regulations made under clause 43, with respect to paragraph 20A of schedule 2, also include reference to, or requirements imposed by, the Money Laundering Regulations 2017. That ensures that the safeguards proposed by Government amendment 11 will also apply to possible future changes made to the 2017 regulations.
The amendment ensures that it is possible for new money laundering offences to be created by amending the 2017 regulations. It will therefore enable the Government to create new offences in order to respond to, for example, emerging risks identified by the national risk assessment of money laundering and terrorist financing, which was published in October 2017, or in response to the ongoing review of the financial action taskforce of the UK’s anti-money laundering and counter-terrorist finance regime. When the Government do so, using the powers contained in clause 43, the enhanced procedural protections set out in the amendment will apply.
Anneliese Dodds
I am grateful to the Minister for that explanation. First, in relation to Government amendments 10 and 11, the Opposition would like the accountability provisions to be much more extensive than they are. However, given that the Government just won the last vote on an amendment, it would be rather self-defeating for us to oppose these amendments at this stage.
I have a question on Government amendment 12; perhaps the Minister can enlighten us a little bit. I understood that the whole Bill, when it comes to its money laundering provisions, amends the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. I am therefore slightly confused about the timing and scheduling. Why are the Government bringing those regulations into the Bill when they were not there in the first place? I wonder whether the Minister can enlighten us.
John Glen
This is an enabling measure that allows us to take the action necessary. I am not sure I quite grasped the hon. Lady’s point. I think I will need to write to her to clarify that so that I do not say anything that misrepresents the Government’s position.
Amendment 10 agreed to.
John Glen
I beg to move amendment 11, in schedule 2, page 54, line 11 at end insert—
“20A (1) In this paragraph ‘relevant regulations’ means regulations under section 43 which create any offence for the purposes of the enforcement of any requirements imposed by or under regulations under section 43.
(2) The appropriate Minister making any relevant regulations (‘the Minister’) must at the required time lay before Parliament a report which—
(a) specifies the offences created by the regulations, indicating the requirements to which those offences relate,
(b) states that the Minister considers that there are good reasons for those requirements to be enforceable by criminal proceedings and explains why the Minister is of that opinion, and
(c) in the case of any of those offences which are punishable with imprisonment—
(i) states the maximum terms of imprisonment that apply to those offences,
(ii) states that the Minister considers that there are good reasons for those maximum terms, and
(iii) explains why the Minister is of that opinion.
(3) Sub-paragraph (4) applies where an offence created by the regulations relates to particular requirements and the Minister considers that a good reason—
(a) for those requirements to be enforceable by criminal proceedings, or
(b) for a particular maximum term of imprisonment to apply to that offence,
is consistency with another enactment relating to the enforcement of similar requirements.
(4) The report must identify that other enactment.
(5) In sub-paragraph (3) ‘another enactment’ means any provision of or made under an Act, other than a provision of the regulations to which the report relates.
(6) In sub-paragraph (2) ‘the required time’ means the same time as the draft of the statutory instrument containing the regulations is laid before Parliament.
(7) This paragraph applies to regulations which amend other regulations under section 43 so as to create an offence as it applies to regulations which otherwise create an offence.”
This amendment requires that where regulations under Clause 43 are made which include offences, a report specifying the offences and giving reasons for any terms of imprisonment that apply to them must be laid before Parliament.
As I said earlier, amendment 11 provides for an important safeguard that will apply when powers are used to create criminal offences. It will require the Government to lay a report before Parliament explaining the Minister’s reasons for using the powers—amendments 10, 11 and 12 are really a package—whenever a criminal offence is created in new or amended anti-money laundering regulations under clause 43.
The amendment requires such a report to be laid at the same time as the draft statutory instrument containing the relevant regulations. Regulations under clause 43 will of course be made using the draft affirmative procedure, unless they update the UK’s list of high-risk jurisdictions in connection with which enhanced due diligence measures are required. The report will therefore facilitate effective parliamentary scrutiny of changes to the UK’s AML regime and will go further than the status quo in enabling Parliament to scrutinise the creation of criminal offences through money laundering regulations.
The amendment specifies that the following elements should be included in the report: the offences that have been created and the requirements to which they refer; the good reasons why those requirements need criminal offences; the maximum prison terms for any offences created that are punishable by imprisonment; the good reasons for setting the maximum prison terms at the levels at which they have been set; and, where the creation of an offence is justified by reference to an existing offence in another enactment, reference to that other enactment.
The requirement for the Minister to demonstrate that they have good reasons for using the power ensures that it cannot be used lightly. I hope hon. Members agree that such reports will provide increased transparency about the reasons for creating criminal offences and give Members a solid basis for holding the Government to account when debating anti-money laundering regulations made under the Bill.
Nevertheless, the Government remain very aware that creating criminal offences and setting penalties in regulations is a serious matter that is not to be undertaken lightly. I am therefore happy to repeat reassurances and existing safeguards that the Government introduced in the other place. As it stands, a criminal offence can be established under clause 43 only if regulations provide either a mental element necessary for the commission of the offence or a defence to it, or both. That will maintain the existing policy position under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 and preserve the deterrent effect established by criminalising breaches of anti-money laundering and terrorist financing regulations.
The amendment is an additional safeguard to the changes the Government have already introduced in response to concerns raised in the other place by Lord Judge and others. We listened to those concerns, and the amendment addresses them. It will ensure that Ministers cannot create criminal offences or set penalties —up to a maximum of two years’ imprisonment—without good reasons, and that Parliament has all the information it needs to hold Ministers to account.
That contrasts starkly with current practice, in which new criminal offences are created through statutory instruments made under section 2(2) of the European Communities Act 1972 under the negative procedure, without any need to state reasons, with no information about such reasons being provided to Parliament, and with no requirement for a vote in Parliament to approve them. The measure is, therefore, a better way of ensuring that proper safeguards are placed in the Bill with respect to offences, rather than removing the ability to create them, and so weakening the UK’s anti-money laundering regime.
Anneliese Dodds
I am grateful to the Minister for his comments. I shall not dwell on the matter, because we have already talked about the amendment to an extent in a previous debate. I repeat our concern that the regime is not sufficiently accountable. Reference to the previous regime may be inappropriate, because the framework in that case was set at EU level, and it was a question of implementing it in the UK. Surely with the brave new dawn that some see coming as we leave the EU, we should be aiming at a system that is as accountable as possible.
In our previous discussions about offences in relation to sanctions, Ministers suggested that there could be a need for speed in the creation of new regimes or new types of criminal offence, because, for example, a human rights challenge could arise suddenly, or there could be gross violations of human rights in a particular country, and we might need to respond quickly. Surely such a situation does not apply to money laundering. It is peculiar that the same almost fast-track, post hoc style of system should be applied to criminal offences to do with money laundering. It would be helpful to have more information about why the Government believe that in the relevant category of criminal offence, there cannot be the same—or at least movement towards the same—degree of scrutiny as there would be in other contexts, when the question of speed surely does not apply. In fact, the Minister did not mention speed.
John Glen
I take the hon. Lady’s concerns seriously. As my right hon. Friend the Minister said earlier, when we were discussing similar matters on Tuesday, we should be happy for hon. Members to meet officials to discuss outstanding concerns. I have set out in the amendments a clear affirmative process for laying a statutory instrument before the House, in a situation where Parliament will be able to discuss the requirement and its extent, the underlying rationale, and a mechanism for reporting to Parliament. If there are particular issues and specific cases that the hon. Lady wants to raise, I suggest that we convene a conversation with officials to deal with them. As we move forward, I am keen to secure the widest possible support and consensus about the Bill.
Amendment 11 agreed to.
Amendment made: 12, in schedule 2, page 54, line 39, at end insert—
‘( ) In paragraph 15 (offences), any reference to regulations under section 43 includes the Money Laundering Regulations 2017.
( ) In paragraph 20A (report in respect of offences)—
(a) the reference in sub-paragraph (1) to requirements imposed by or under regulations under section 43 includes requirements imposed by or under the Money Laundering Regulations 2017, and
(b) the reference in sub-paragraph (7) to other regulations under section 43 includes the Money Laundering Regulations 2017.”—(John Glen.)
This amendment has the effect that, while the Money Laundering Regulations 2017 remain in force, offences may be created by regulations under Clause 43 for the purposes of enforcing requirements in the 2017 regulations.
Schedule 2, as amended, agreed to.
Ordered, That further consideration be now adjourned. —(Mike Freer.)
Draft Building Societies (Restricted Transactions) (Amendment To The Prohibition On Entering Into Derivatives Transactions) Order 2018
Draft Financial Services Act 2012 (Mutual Societies) Order 2018
Draft Co-Operative And Community Benefit Societies Act 2014 (Amendments To Audit Requirements) Order 2017
John Glen Excerpts(6 years, 8 months ago)
General CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Economic Secretary to the Treasury (John Glen)
I beg to move,
That the Committee has considered the draft Building Societies (Restricted Transactions) (Amendment to the Prohibition on Entering into Derivatives Transactions) Order 2018.
The Chair
With this it will be convenient to consider the draft Financial Services Act 2012 (Mutual Societies) Order 2018 and the draft Co-operative and Community Benefit Societies Act 2014 (Amendments to Audit Requirements) Order 2017.
John Glen
It is a pleasure to serve under your chairmanship, Mr Robertson, for I think my first time as a Minister. Today’s three orders relate to the mutuals sector, which encompasses co-operatives, community benefit societies, credit unions and building societies.
In the mutuals sector, the interests of members, not shareholders, are paramount—hence mutuals offer a viable and accessible finance alternative to millions of British people. Mutuals are an important part of Britain’s diverse and resilient economy, and we wish to keep it that way. Building societies are responsible for 27% of mortgages and hold 21% of the UK’s savings, and they offer important diversity and competition in the financial services sector. Their mutual structure means that members own the business, and all profits are returned to them rather than any shareholders. That gives them the ability to provide members with a more bespoke service. Credit unions are another mutually structured financial institution, offering their 2 million members affordable and responsible credit, savings and financial education, particularly focused on lower-income and financially excluded people.
Mutual societies allow millions of UK consumers to access the financial services that they need on a daily basis. This issue is very close to my heart—I am a passionate advocate for responsible capitalism and ensuring that the financial services sector does its bit. That is why I am chairing the Government’s financial inclusion policy forum with the Pensions and Financial Inclusion Minister, my hon. Friend the Member for Hexham (Guy Opperman). The forum will look at what more can be done to ensure that individuals, regardless of their background or income, have access to affordable financial products and services.
We are here today because the Government have introduced a package of measures to provide further support for the sector, and to help to level the playing field between mutuals and companies. The proposed legislative package does multiple things: it helps to reduce burdensome auditing requirements for co-operative societies; it allows building societies to join central clearing houses; and it consolidates the registration and regulation of Northern Irish credit unions. Those measures have all been requested by representatives of the mutuals sector and are practical ways for the Government to support it.
I will first introduce the Co-operative and Community Benefit Societies Act 2014 (Amendments to Audit Requirements) Order 2017. There are nearly 7,000 co-operatives in Britain today, which together contribute more than £36 billion to the UK economy. Those co-operatives employ more than 200,000 people and are part-owned by 13.6 million members of our society. The Government recognise the value of co-operatives and the need to ensure that their administrative requirements are proportionate and that they are not disadvantaged compared with companies of comparable size.
Since 2012, small companies have enjoyed an exemption from the requirement in the Companies Act 2006 to have their accounts fully audited. The order will increase the thresholds at which co-operatives are required to appoint a professional auditor, bringing their auditing requirements in line with companies legislation, which had its auditing threshold increased to keep pace with inflation. That means that co-operatives will enjoy a more proportionate auditing regime, but I should note that appropriate controls remain in place: members must vote to apply the exemption—they are not obliged to do so—and the regulators can still demand a full audit if they have concerns about the management of the co-operative. Furthermore, co-operatives that disapply the requirement to appoint a professional auditor will still be required to prepare a less onerous audit report. That will help co-operatives to save money and ensure that they are not saddled with unnecessary administrative burdens.
The next draft order before the Committee relates to building societies. Building societies serve more than 20 million UK customers and are an integral source of loans to first-time buyers, providing £2.9 billion in net mortgage lending in the last quarter. That constitutes a 27% market share of total net lending. In order to offer fixed-rate mortgages safely, building societies must hedge against the risk of interest rate changes, and may do so by buying derivatives.
The European market infrastructure regulation of 2012 requires all derivatives to be centrally cleared, which means that building societies must either become direct members of a clearing house or clear through third-party members. In practice, however, the legislation works to prevent building societies from complying with the membership rules of the main UK clearing house. As a result, building societies must clear indirectly through third parties that are members, incurring expensive broker fees and placing them on an uneven footing compared with other financial institutions.
The draft order will amend the Building Societies Act 1986 to allow building societies to trade derivatives—not only to hedge their balance sheet but to comply with the membership rules of a clearing house. That will help building societies to reduce costs and manage risks more effectively, all of which will support them to compete on a level playing field in the mortgage market.
The last draft order before the Committee concerns mutuals in Northern Ireland, including credit unions. Under the Financial Services and Markets Act 2000, mutuals in Great Britain are registered with, and regulated by, the Financial Conduct Authority and the Prudential Regulation Authority, and previously by the Financial Services Authority. Following the failure of the Presbyterian Mutual Society in October 2008, at a cost to the taxpayer of £50 million, Northern Ireland Ministers and the Treasury agreed that responsibility for regulating Northern Ireland credit unions and other mutuals should transfer to the FSA. Responsibility for that regulation was actually transferred in 2011. The aim of that transfer was to provide members of those mutuals with access to the Financial Services Compensation Scheme and the Financial Ombudsman Service, among other benefits.
Today we are completing that work by consolidating the registration and regulation of Northern Ireland mutuals by the FCA and the PRA. A good deal of preparatory work has now taken place, and officials from the Department for the Economy and the Foreign Office are working together closely to ensure that Northern Ireland’s mutuals are supported during the transfer or registration. Societies previously registered with the Department for the Economy will not have to re-register; their records will simply transfer to the FCA. The draft order will create a more sensible regulatory and registration regime for Northern Irish mutuals. It is clearly logical for registration and regulatory oversight to lie with a single authority, as it reduces complexity and red tape for both the mutuals and the regulators.
I trust that the Committee will agree that the draft orders are a welcome update to mutuals legislation, for the wider benefit of the sector across the country. I commend them to the Committee.
John Glen
I am grateful to the hon. Gentleman for his observations. I will seek to ensure that that letter is relayed to him and his Front-Bench colleagues.
On the specific question of the failure of a clearing house, since the financial crisis, the expansion of clearing has played a major part in the reforms to make derivative markets more transparent and resilient, and the UK has worked with global partners to develop international principles in regulating clearing houses to ensure that they are robust. The scenario the hon. Gentleman suggests is extremely unlikely. The strictest standards have been agreed to ensure that clearing houses are resilient and their members are protected, even in periods of extreme market distress. The Bank of England and the European Securities and Markets Authority conduct regular stress tests on the clearing houses and have found that they would remain solvent under the most severe extreme market scenarios, including the last financial crisis. I would respectfully submit that the situation the hon. Gentleman suggests is so unlikely to happen as to not be realistic, but it would be a matter for the PRA, the FCA and the Bank of England to deal with, in a crisis that I cannot foresee.
In the spirit of trying to abbreviate the proceedings as reasonably as I can, and given the widespread agreement, which I had hoped for on laying these measures before the House, I will now conclude. I hope that the Committee will agree to them.
Question put and agreed to.
DRAFT FINANCIAL SERVICES ACT 2012 (MUTUAL SOCIETIES) ORDER 2018
Resolved,
That the Committee has considered the draft Financial Services Act 2012 (Mutual Societies) Order 2018.—(John Glen.)
DRAFT CO-OPERATIVE AND COMMUNITY BENEFIT SOCIETIES ACT 2014 (AMENDMENTS TO AUDIT REQUIREMENTS) ORDER 2017
Resolved,
That the Committee has considered the draft Co-operative and Community Benefit Societies Act 2014 (Amendments to Audit Requirements) Order 2017.—(John Glen.)
Oral Answers to Questions
John Glen Excerpts(6 years, 8 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Imran Hussain (Bradford East) (Lab)
The Economic Secretary to the Treasury (John Glen)
The Government are taking a proactive approach to support borrowers, to aid people to manage their money well, and to help those in problem debt. We reformed the regulation, giving the Financial Conduct Authority considerable regulatory powers, and we are setting up a new single financial guidance body to make it easier for people to get help with money matters.
Imran Hussain
After seven wasted years, wages are still lower than they were in 2010. Self-employed people are paid less on average than they were a generation ago and 6 million people are earning less than the living wage. Does the Minister share my alarm that too many people have to worry about buying school uniforms, affording a family holiday, or even just paying their rent or mortgage?
John Glen
The Government recognise that it is very important that we focus on the poorest people in our society. That is why we have increased the national living wage by 4.7%, which will mean a pay rise of £600 for those working full time. We have also increased the personal allowance, frozen fuel duty and increased childcare support to attend to the concerns that the hon. Gentleman has raised.
Nicky Morgan (Loughborough) (Con)
As part of the Treasury Committee’s inquiry into household finances, we are looking at the problems facing financially vulnerable households. Last week, my Committee colleague, the hon. Member for Bassetlaw (John Mann), and I visited the citizens advice bureau in Nottingham. Caseworkers there told us about the problems caused by banks and companies, but said that the harshest creditor of all is the Government. There is little forbearance for late council tax or welfare overpayments, and bailiffs are often the first port of call, rather than a last resort. Is the Minister concerned by this heavy-handedness? Does he agree that central and local government should lead by example in their treatment of the most financially vulnerable?
John Glen
I acknowledge the vital work that my right hon. Friend and her Committee are undertaking in this important area. We will be implementing a breathing space as part of the work of the single financial guidance body. The Bill establishing that body is in Committee, as my right hon. Friend will know. I am absolutely determined that we will get this right and listen to best practice across the country. We committed in our manifesto to a six-week breathing space, and we will look carefully at the representations received from across the country.
Paul Blomfield (Sheffield Central) (Lab)
Antoinette Sandbach (Eddisbury) (Con)
Chris Green (Bolton West) (Con)
The Economic Secretary to the Treasury (John Glen)
By helping all places to access the benefits of technological progress and reach their full potential, we can drive growth at national level. Since autumn 2016, the Government have announced an additional £7 billion for science and innovation—an increase of about 20% to total Government R&D spending by 2021.
Chris Green
Does the Minister agree that digital technology enables further devolution away from London of high-tech industries? What are the Government doing to support that?
John Glen
The Government are expanding Tech City’s reach across the UK, creating Tech Nation by investing £21 million over four years to help people grow digital businesses. That includes a large-scale CityVerve smart city demonstrator in Manchester, which demonstrates how the internet of things, technologies and services can improve local services in transport, energy, health and culture.
Chi Onwurah (Newcastle upon Tyne Central) (Lab)
Newcastle has national centres of excellence in data, health and energy—key drivers of our future economy. On Saturday, I held a business summit with Sadiq Khan, the Mayor of London, at which start-ups identified attracting investment as a key barrier to their growth. What are the Government doing to attract investment to businesses in Newcastle? Does that include a regional business bank, as supported by Labour?
John Glen
We certainly have a national bank to encourage investment in small businesses. We also have the £400 million digital infrastructure fund. As a Minister, I am doing all I can to ensure that we find the best conditions for investing in small and medium-sized enterprises across the country.
Mike Amesbury (Weaver Vale) (Lab)
The Economic Secretary to the Treasury (John Glen)
In summer 2015, the Government asked Jayne-Anne Gadhia, CEO of Virgin Money, to lead a review into gender diversity in the financial services sector. In response, the Treasury launched the women in finance charter, which asks firms to commit to four key actions as recommended in the review. So far, 162 firms have signed the charter, which covers more than 600,000 UK financial service employees.
Rachel Maclean
I thank the Minister for that excellent answer. Following the Royal Mint’s appointment of its first female chief executive in its 1,100-year history, will the Minister join me in congratulating her on her new role?
John Glen
Yes, I am delighted to congratulate Anne Jessopp, and I wish her all the best in her new role. If I may, Mr Speaker, I would also like to take this opportunity to applaud and congratulate my own constituent, Minette Batters, who was elected as the first woman president of the National Farmers Union. I wish the Secretary of State for Environment, Food and Rural Affairs all the best with that.
Banking Act 2009 Reporting
John Glen Excerpts(6 years, 8 months ago)
Written StatementsRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Economic Secretary to the Treasury (John Glen)
The Treasury has laid before the House of Commons a report required under section 231 of the Banking Act 2009 covering the period from 1 April 2017 to 30 September 2017. Copies of the document are available in the Vote Office.
[HCWS494]
Sanctions and Anti-Money Laundering Bill [ Lords ] (Second sitting)
John Glen Excerpts(6 years, 8 months ago)
Public Bill CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Helen Goodman (Bishop Auckland) (Lab)
I beg to move amendment 21, in clause 17, page 16, line 36, at end insert—
“(8) An appropriate Minister must publish guidance from the Crown Prosecution Service on when it is in the public interest for a breach of a sanctions regulations to be prosecuted.”
This amendment would require the Government to publish guidance on when it is in the public interest for a breach of sanctions regulations to be prosecuted.
It is a great pleasure to see you in the Chair this afternoon, Dame Cheryl. It is not quite as sunny as it was this morning, but it is still very cold.
The clause is about enforcement of sanctions regulations. Breaching sanctions is a criminal offence, and this morning we discussed whether the legislation on those criminal offences is appropriate. It is fair and reasonable that people have a clear view of what the penalties will be for any breach of sanctions. Our amendment would require the Crown Prosecution Service to say when it is in the public interest that a breach of sanctions regulations be prosecuted.
The Treasury published some guidance a few months ago entitled “Monetary Penalties for Breaches of Financial Sanctions”. I am sorry to say that it does not include the sort of detail that we would expect. The stark reality was brought to our attention last week, when the Economic Secretary to the Treasury had to correct an answer to a written parliamentary question. I had asked him what the total level of breaches was in 2017 and on 8 February, he told me it was £117 million. On 22 February, he told me that the estimate had shot up to £1.4 billion—a tenfold increase, which suggests that the Treasury is not keeping the beady eye that it ought to be keeping on this matter.
Many years ago, I was a Treasury civil servant. One year, I was responsible for the Budget arithmetic and I had to go and tell Chancellor Nigel Lawson that I had lost £50 million from the Budget arithmetic and it was very embarrassing. I never lost £1.2 billion, which is what current Treasury Ministers seem to have managed to do. The fact that the figures are so large tells us that the level of breaches is significant. It is hard for us to believe that, in a great wodge of £1.2 billion, there are not some breaches that should be prosecuted. From the information Ministers have given us, we have no idea whether this figure involves many small breaches or three or four really big breaches.
A report published in December in a magazine called Nikkei Asian Review says that 49 nations have breached North Korean sanctions. The sanctions against North Korea have been agreed at the UN Security Council—they could not be more important. We have a situation where North Korea is trying to develop nuclear weapons. Everybody in this House and this country knows that that would be disastrous—completely destabilising to the region and potentially the whole world. If North Korea acquires nuclear weapons, the risk of proliferation is immense. I know Foreign Office Ministers understand this. The report suggests that 13 of the countries that have breached North Korean sanctions have engaged in arms trading; they are primarily countries with a history of political turmoil such as Syria, Angola, Iran, Myanmar and Sir Lanka, but even Germany and France were deemed culpable in certain respects.
Obviously, breaching weapons of mass destruction sanctions against North Korea is something that nobody would take lightly. One would think that this would be a case where it would be appropriate to prosecute, but because of the lack of transparency, we have no idea whether we in this country have made mistakes in the same way as the Germans and French have. Obviously there would be nothing intentional about it, but accidents too can be dangerous. That is why we think the Government should be stronger and clearer on enforcement. The Government could make matters clearer by publishing CPS guidelines explaining how and when they believe prosecutions are in the public interest. If the Economic Secretary could tell us a little more about what happened with this mistake—how the figure came to be £1.2 billion out—and whether the Treasury has looked back over previous years to see the pattern of breaches, I am sure that would be of great interest to the Committee.
The Economic Secretary to the Treasury (John Glen)
It is a pleasure to serve under your chairmanship for the first time, Dame Cheryl.
First, I would like to address the serious matter that the hon. Member for Bishop Auckland raised with respect to Office of Financial Sanctions Implementation data. She is quite correct to assert that there was an error; this was caused by technical and data problems. Officials have now manually checked each case by reference to the original information and have confirmed that the revised figures for suspected breaches reported in 2017 accurately answer the question. I wrote to the hon. Lady at the earliest opportunity and apologised to her.
The Government take financial sanctions evasion extremely seriously and have made an unprecedented commitment to tackling it, increasing the dedicated resources and providing new enforcement powers to deal with breaches, including new penalty powers and an increase in the criminal offence’s maximum sentence from two to seven years. We cannot go into specifics on the size of the breaches but I can assure the hon. Lady and the whole Committee that I do not anticipate difficulties in future.
Amendment 21 would require the Government to provide specific guidance, produced by the Crown Prosecution Service, on the prosecution of sanctions breaches. Hon. Members will be interested to know that the CPS already publishes guidance on how the public interest is taken into account in any decision to prosecute in “The Code for Crown Prosecutors”. This public interest test is the same one that we applied in decisions to prosecute sanctions offences. The Government’s view is that no additional public interest guidance is necessary for a sanctions prosecution decision. The public interest is a fundamental assessment in any decision to prosecute, and “The Code for Crown Prosecutors” includes factors relevant to public interest tests such as the seriousness of the offence and the level of culpability of the suspect. These and other factors included in the code are relevant to the decision to prosecute in sanctions cases. There is therefore no need for separate guidance on this amendment.
We will be discussing clause 37 and the Government’s duty to issue guidance later in Committee. Clause 37 sets out a comprehensive duty to provide guidance where it is required, but the Government believe that in this instance separate guidance is not required.
Helen Goodman
That is rather unsatisfactory, because the general guidance is intended for the practitioners. As we were discussing this morning, it is for the NGOs and for the banks. I am sure that the Minister understands that the CPS guidance is for the lawyers, and although the banks and NGOs may be advised by lawyers it does take a different form. The Treasury guidance addresses processes; it does not look at the public interest in this context. I am not satisfied with what the Minister says and I do wish to test the view of the Committee on this amendment.
Question put, That the amendment be made
John Glen
Sanctions are one of our most important foreign policy and national security tools. To ensure the effective implementation and enforcement of sanctions, it is important that we have the greatest possible range of enforcement measures at our disposal to deal with breaches of sanctions. Following the vote in the other place to remove key offences and penalties creation provisions from the Bill, I regret to say that we currently have no meaningful enforcement measures in the sanctions Bill.
It is important to remember that when these clauses were debated in the other place, those peers who objected to them did so not on the grounds that sanctions should not be enforced with a criminal offence, but out of concern about the division of powers between the Government and Parliament. The Government have been working with interested Peers and parliamentary counsel as a matter of urgency to consider the procedural safeguards that could be added to clause 17 to address those concerns and enable the key provisions on offences and penalties to be reinstated.