War in Ukraine: Illicit Finance

Leo Docherty Excerpts

Thursday 17th November 2022 Westminster Hall

[The Parliamentary Under-Secretary of State for Foreign, Commonwealth and Development Affairs (Leo Docherty)]

It is a pleasure to serve under your chairmanship, Mr Efford, and to respond to the debate on the Government’s behalf. I thank all Members for a constructive and useful debate.

I am grateful to my hon. Friend the Member for Isle of Wight (Bob Seely) for leading the debate. I acknowledge his long-standing interest and expertise in this field. We are grateful to the members of the Foreign Affairs Committee for producing this extremely useful report. I hope the Government response shows that we regard it as a serious and useful piece of work, and that the overall tone of the response shows that we treat it as a grave matter that requires our urgent attention.

I was grateful for the contributions from the hon. Member for Bermondsey and Old Southwark (Neil Coyle), my hon. Friend the Member for Cheadle (Mary Robinson), and the hon. Members for Strangford (Jim Shannon), for Stirling (Alyn Smith) and for Hornsey and Wood Green (Catherine West). I should say that this topic lies in the portfolio of my departmental colleague, the noble Lord Ahmad; I am pleased to respond today on his behalf. I will try to cover off as many of the questions raised as possible, while giving some assurance that the Government’s response treats the issue extremely gravely and seriously.

The hon. Member for Hornsey and Wood Green asked about our approach to tackling the use of cryptocurrencies. We recently introduced legislation to tackle their use when it comes to sanctions. I will write to her, or have the noble Lord Ahmad write to her, with an update on that statutory instrument, which sought to ensure that the application of sanctions keeps pace with the developments in financial markets, especially when it comes to the use of cryptocurrencies and platforms such as Blender.

A number of colleagues asked about the use of offshore shell companies to purchase property in London. We are tackling the use of offshore shell companies. We are reforming the role of Companies House and improving transparency over UK companies and properties in order to strengthen our business environment and support our national security, while delivering a more reliable companies register to underpin what is important business activity.

The reforms will bear down on the use of thousands of UK companies and other corporate structures as vehicles for facilitating international money laundering, corruption, terrorist financing and the illegal arms movement. The reforms will include the identity verification of people who manage or control companies and other UK-registered entities; greater powers for Companies House to query and challenge the information it receives; enhanced protection of personal information provided to Companies House to protect individuals from fraud and other harms; more effective investigation and enforcement powers for Companies House; and better cross-checking of data. Those are some of the reforms; that is not the entire list. We are aware of the issue and we are tightening up the relevant legislation.

A number of colleagues mentioned the use of SLAPPs and eloquently painted a picture of how they are hugely detrimental to the fabric of civil life. We are committed to protecting free speech and the rule of law in this country; they are cornerstones of our democracy. We are clear that SLAPPs are an abuse of the legal system. They involve the use of legal threats and litigation to silence journalists, campaigners and public bodies. That is deeply detrimental to a free and fair media and to the freedom of individuals. Addressing SLAPPs is a key part of the Government’s work to combat corruption and kleptocracy.

Colleagues will know that earlier this year the Government ran a call for evidence on SLAPPs reform. Our response, published on 20 July, outlined plans for a legislative definition of SLAPPs and an early dismissal process, supported by a formal cost-protection scheme to shield defendants and neutralise the chilling effect of high costs. I am sure colleagues will be reassured to hear that, and we will keep colleagues updated as the process develops.

A number of colleagues mentioned tier 1 investor visas, which they will know are now closed to new entrants. The Home Office lead on visas. We are currently finalising the historical review of the tier 1 provision. We expect the response to be published in the near future. We recognise the interest in the issue, and it is a complex piece of work. The Home Office is of course looking at how to operate a safe and sustainable approach while also attracting investment. We have to get the balance right, but we are clear that any future system must make sure that settlement must be earned and not bought, through applicants actively engaging in the UK economy and delivering job creation and other tangible economic benefits. I hope that information is useful.

[Catherine West]

Is the Minister aware that just two weeks ago the Home Secretary mentioned in the House of Commons that a number of visas had been sold? She was referring to the change in policy, but I note the difference in the language that the Minister has used today. Will he clarify what the Home Secretary meant when she said that certain visas had been sold?

[Leo Docherty]

Although I am grateful for the invitation to speak for the Home Secretary, I am going to pass on that opportunity. The hon. Member might seek clarification from the Home Secretary herself.

We are proud that we have sanctioned more than 1,200 individuals and 120 entities since the start of Putin’s outrageous invasion of Ukraine. That includes sanctioning Russia’s major banks, as well as more than 120 oligarchs with a combined net worth of more than £140 billion. This was made possible due to cross-Government planning months before the Russian invasion. Our planning proved pivotal to the swift designation of individuals and the introduction of new measures within days of the invasion. The legislation enabled the Foreign Secretary to sanction more individuals and entities at a greater pace.

We are taking robust action across Government, and with our international partners, to ensure that sanctions are effectively enforced. That is done through the Russian elites, proxies and oligarchs taskforce, which brings together international partners to ensure the effective enforcement of financial sanctions implemented against Kremlin-linked elites and entities.

[Neil Coyle]

Ten of the people sanctioned by the Government are Russian nationals who were recipients of tier 1 visas. Does the Minister have any sense of shame at the level of misuse of that system? When will the review of the 6,000 people who took tier 1 visas but were under investigation for being a national security risk conclude? He has not given us any information on that.

[Leo Docherty]

I repeat that the review will be published in due course. We recognise that there has been a problem, which is why it is under review. It will come forward in good time, I hope.

Let me turn to the resources committed to sanctions. As noted in the Government’s response to the report, we agree that the skillset of staff focused on sanctions has been central to our success in bringing those sanctions to bear. In recognition of the central role that sanctions continue to play as a key part of UK foreign policy, our Department has established a permanent sanctions directorate, in line with one of the report’s recommendations. As part of this new directorate, our Department has established a cadre of sanctions experts to build the enduring expertise that we need in the long term.

Additionally, I can confirm that the Office of Financial Sanctions Implementation will have more than 100 staff by the end of this financial year, with current staffing having already more than double compared to last year. That will enable the OFSI to continue to lead the implementation of UK sanctions and ensure that assets in the UK are frozen.

On our approach to asset freezes as opposed to seizures, and getting that balance right—many colleagues have mentioned this and it has come up on the Floor of the House—we are exploring further options to finance the reconstruction of Ukraine using Russian-linked assets. That presents complex legal and policy challenges that officials are considering in detail with other Departments. We are looking at it seriously because we recognise that the scale of assets currently frozen is very significant. I am sure we would all be pleased if there was a route through good legal policy to ensure that that money could be used to make a positive difference.

On overall funding, combatting illicit finance requires the necessary resources to enforce our anti-money laundering laws and bring kleptocrats to justice, which is why the Government have developed a sustainable funding model that demonstrates our commitment to tackling economic crime. We are investing in the National Crime Agency and have increased its budget year on year since 2019. Since February, we have also created a new unit in the NCA, the combating kleptocracy cell, which is focused on targeting corrupt elites and their wealth in the UK. The combination of last year’s spending review settlement and private sector contributions through the new economic crime levy will provide funding of £400 million over the spending review period. That includes £63 million for Companies House to implement its transformation programme, which I already mentioned.

On the speed and scale of our response, we have taken robust action over the past decade. We published a landmark economic crime plan in 2019; we increased the number of investigations into corrupt elites; we established the National Economic Crime Centre; we passed the Criminal Finances Act 2017; and we became the first major economy in the world to implement a public register of beneficial ownership of domestic companies.

Earlier this year, the Government took swift action by passing the expedited Economic Crime (Transparency and Enforcement) Act 2022. The Act is already helping us to crack down on dirty Russian money in the UK. The Economic Crime and Corporate Transparency Bill, which builds on that Act, is currently in Committee. The Bill will help us to bear down on kleptocrats, criminals and terrorists who abuse our open economy, thus strengthening the UK’s reputation as a place where legitimate business can thrive while driving dirty money out of the UK.

A number of colleagues, particularly the hon. Member for Stirling, mentioned the role of Crown dependencies and overseas territories. Of course, all Crown dependencies and overseas territories with financial centres are committed to meeting international standards on illicit finance, tax transparency and anti-money laundering, including those set by the OECD and the Financial Action Task Force. All Crown dependencies and inhabited overseas territories have committed to introducing publicly accessible registers of company beneficial ownership. That is a major shift that puts them ahead of most jurisdictions.

I am pleased that significant progress has been made by several of the jurisdictions, including Gibraltar, which I visited recently. Gibraltar’s register is already operational. The Cayman Islands is working at pace and is completing a consultation on the details of its register. The British Virgin Islands also recently passed legislation that will enable the framework for regulations to be made for a register, in preparation for 2023. Smaller overseas territories, such as Montserrat and Anguilla, are working with the FCDO to update their systems to enable public access. We have funded Open Ownership, a specialist NGO, to provide technical assistance to each overseas territory.

I reiterate our gratitude to the Foreign Affairs Committee for its detailed and useful report. We hope that the Government’s response will assure colleagues that we are gripping the issue at the policy and technical levels. We also hope that it sends the message that London and the UK are no place for dirty Russian money and that our legal framework and institutional strength will deter anyone who thinks that is not true. I also hope it will provide reassurance to our friends and allies, especially Ukraine. We are determined to ensure that we are able to help Ukraine to rebuild its country and defend its sovereignty against outrageous Russian aggression, which all too often has been connected to Kremlin-linked international assets. I hope the Government’s response reassures people that we are getting after it.