Financial Services Bill (Fourth sitting)

Julie Marson Excerpts

Committee stage & Committee Debate: 4th sitting: House of Commons
Thursday 19th November 2020 Public Bill Committees

[Alison Thewliss]

Q Even when fines ought to be due, they are not enforced. I ask periodically about Scottish limited partnerships and how many people have been fined for failing to register a person with significant control. Every time I ask, it is not in, which is ridiculous. My last question is about the issues to do with Gibraltar. Do you have any concerns about that, or anything that the Committee ought to know?

Duncan Hames: I do not think that the measures with regard to Gibraltar particularly focus on money laundering. Obviously, Gibraltar is covered by the fifth anti-money laundering directive. I think they would consider themselves to be among the earlier adopters of the measures required under that directive. What we see in the Government’s language is an emerging global standard. That has been recognised in the past year or so by the Crown dependencies and, increasingly, by British overseas territories.

Although the US starts from a very far-back position on public beneficial ownership transparency, on the basis of bipartisan—as I think they call it, or on both sides of the aisle—working on this issue, even with a Republican Senate it seems set to advance new regulatory requirements around a central register of beneficial ownership. The tide is definitely moving in the direction of greater transparency. I think it would help British overseas territories to be encouraged to keep up with that direction of change.

[Julie Marson (Hertford and Stortford) (Con)]

Q Thank you for your evidence; it is really interesting and this is an important area. We have heard reference to—you used the phrase—the UK outsourcing the prosecution of financial crime to the US. I am sure you will correct me if I am wrong—I do not have it in front of me—but on Transparency International UK’s own list of corruption, the UK comes out 12th out of 198, whereas the US comes out at 23rd, so by comparison with the US, the UK does very well.

I am interested to hear your reaction to the criticisms of the report that that phrase came from. It was felt that the scope of the report did not include, for example: the bribery and corruption statistics, including on the “failure to prevent” provisions; the period after the financial crisis, which meant that much implementation was not included in the report; or the way prosecuting in the US often involves plea bargains, which are used to extract fines, so the measurement of the extraction of fines is not necessarily a justified comparison between the UK and the US. What is your reaction to that?

Duncan Hames: The corruption perceptions index measures views of the prevalence of corruption in public sectors, whereas for the most part here we are talking about enforcement of corporate wrongdoing. None the less, you are right to record where those countries are in the index.

“Exporting corruption”, our recent report produced for the OECD anti-bribery working group—part of a series of reports published every other year—is the one in which the UK is recognised to be an active enforcer of anti-bribery laws and laws to prevent foreign corporate bribery. None the less, the US is top of the table and, while it is good that Britain remains an active enforcer, the calculation that grants that assignation is such that the UK hung on by a hair’s breadth this year and there is no room for complacency.

The statement that I reference from the Secretary of State for Justice was made when he was Solicitor General, at the Cambridge International Symposium on Economic Crime. His words were that these differences in how the law operates

“result in other jurisdictions holding British companies to account where ours has not.”

He said he was making that observation in an argument in favour of moving towards the “failure to prevent” approach to economic crime.

For all of America’s challenges, I do not think anyone would criticise it for being less assertive in enforcement of the law that it has. Even at a time when one might have feared political interference or the undermining of the Department of Justice, its level of enforcement has remained high, without signs that it is falling back. I think we have to reflect on why that is. It is partly to do with resourcing, but it is principally to do with the challenges of our arrangements for prosecutors.

Lisa Osofsky, the director of the Serious Fraud Office, describes what we have as “a very antiquated system”. She said:

“We are hamstrung right now by the identification principle”.

She explained to the Justice Committee that she can “go after Main Street”—forgive the American references; I am sure you will be able to translate them—but she

“cannot go after Wall Street, and that is unfair”.

When we think about the businesses that each of you represent, you would want there to be a level playing field, where traditional businesses with perhaps traditional ownership models are not facing a greater requirement to uphold the law than much larger, perhaps more anonymous, conglomerates in complex corporate structures spread over many jurisdictions.

[Julie Marson]

Q You mention Lisa Osofsky. I was looking at various practitioners who work on fraud and corporate fraud, and they have welcomed the fact that the Law Commission is going to conduct a review. It is easy to scoff, I suppose, about, “Let’s wait to the end of the review,” but this actually has huge cost implications for business. It is a very complex area. Those practitioners have actually said that it can only be a good thing that the Government are not amending the current law without full consideration and that the Government are taking a very measured approach.

Duncan Hames: I think Ministers observed that responses to the consultation were mixed. It is regrettable that responses to the consultation are not public and people can form their own views about them. If you conduct a consultation about enforcing criminal law and those who might be subject to that enforcement, in a way that they are not currently, are able to make submissions in response to that proposition, then one would hope that in evaluating those responses they would not carry the same weight as more objective respondents. If we were asking how much chicken wire we should put around the hen coop, I would hope that we would largely disregard the foxes’ views.

[Julie Marson]

That is an interesting comparison.

[Stella Creasy]

Q I was thinking more of asking turkeys whether Christmas was a good idea. I want to follow up on this, because I have been waiting for the Law Commission on another piece of work that I worked on, which is already a year and a half overdue. It is not connected to financial services, but it indicates some of the challenges of waiting for the Law Commission to follow up on the FATF report, which makes some specific requirements about Gibraltar. This legislation is about the ability to trade between Gibraltar and the UK.

I want to ask your opinion on whether we might be able to learn from the specific proposals in that report. In particular, it recognises that although this does tend to happen, there is no legal requirement to reject applicants with a criminal background in Gibraltar. If we will allow Gibraltar and the UK to operate in the way that this Bill does, do you think we could make it a requirement in the Bill to look at the criminal background of people applying for financial services?

Duncan Hames: I should acknowledge that Gibraltar is not within the scope of the work that I do. I will not profess expertise on the rules as they apply in Gibraltar. I think Bloomberg reported today on a bank in Luxembourg and some of its practices. You ask a good question about the personal credentials that enable one to take on responsible roles in our financial system, whether in banks or other institutions.

I note, for example, that the proposals in relation to Companies House are not that it should be more discerning in the acceptance of the directors of companies registering, but rather that it should simply verify the accuracy of the identity and the information provided. Current initiatives do not go as far as you are suggesting would be reasonable. It seems hard enough just to get us responsible for ensuring the accuracy of the data, which is provided as a piece of our economic infrastructure, without getting to a position of demanding some kind of individual assessment.