Sanctions and Anti-Money Laundering Bill [Lords]

Lloyd Russell-Moyle Excerpts

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

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

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

[Helen Goodman]

My hon. Friend is absolutely right. Quite a lot of the money that is hidden is hidden by corrupt regimes, particularly in Africa.

A major criticism of the Bill as first drafted was of its Henry VIII clauses. Throughout, the Bill was giving Ministers the power to make regulations—in other words, to make law that cannot be amended by Parliament and is sometimes made without even any debate. In our consideration of the EU (Withdrawal) Bill, Members across the House complained that the level of the Henry VIII powers was so excessive that the Government agreed to a sifting Committee in order to limit the concentration of the power of the Executive. Arguably, with no sunset clause, this Bill is even worse in this respect. Speaking in the other place, the well-named and noble Lord Judge described it as a “bonanza of regulations” and the “Regulation Bulk Buy” Bill. Their lordships defeated the Government twice in votes on this. I hope that the Government will not now seek to undo those changes to the Bill. If so, we will oppose them.

It is surely obvious to everyone that sanctions regimes are effective only when they are co-ordinated internationally, as the Foreign Secretary acknowledged, and we need maximum support across the world and agreed implementation mechanisms to enforce them. However, he did not really answer some of the questions as to how that is going to be done post Brexit. Half our sanctions emanate from the EU. I am not saying that this is necessarily a matter for legislation, but surely the Government should have a plan for how we are going to be involved in EU decision making on sanctions regimes and the implementation of those regimes. Ukraine is a good example of where that is needed. What specific plans has the Foreign Secretary developed for a framework to provide for continued co-operation with the EU on foreign policy issues after we leave? What discussions have been held on that particular issue in the Brexit talks? What are the Government seeking to achieve in their negotiations with the EU on that matter? We were warned last week by the three spy chiefs that, without co-operation with our EU partners in intelligence sharing, policing and judicial matters, it would be difficult to enforce compliance on sanctions, which are vital for dealing with terrorism and proliferation.

Labour’s view is that the core principles of sanctions policy should be that sanctions are targeted to hit regimes rather than ordinary people; minimise the humanitarian impact on innocent civilians; and have clear objectives, including well-defined and realistic demands against which compliance can be judged, with a clear exit strategy. There should be effective arrangements for implementation and enforcement, especially in neighbouring countries, and sanctions should avoid unnecessary adverse impacts on UK economic and commercial interests. We will seek to amend the Bill to ensure that those principles are adhered to throughout.

One very big and obvious hole in the Bill is its failure to incorporate Magnitsky clauses, which the House has repeatedly supported and voted for. Sergei Magnitsky was a Russian lawyer who uncovered large-scale tax fraud in Russia. For his pains, he was imprisoned and tortured throughout a whole year, finally dying having been brutally beaten up while chained to a bed. We will be tabling a Magnitsky clause that would enable sanctions to be made in order to prevent or respond to gross human rights violations. Such provisions have been adopted in the United States and Canada, and they were also reflected in the Criminal Finances Act 2017. I cannot understand how or why the Foreign Secretary has missed this opportunity; perhaps he has been too busy designing bridges. Such a step is not just about Russia. We are now in the strange position that the United States has tougher sanctions than we do on Myanmar.

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[Helen Goodman]

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

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

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

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

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

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

[Lloyd Russell-Moyle]

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

[Helen Goodman]

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

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

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

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[Dame Margaret Hodge]

I strongly concur. Interestingly enough, David Cameron recognised that in 2013 when he told the overseas territories to rip aside the “cloak of secrecy” by establishing public registers of beneficial ownership. He wrote to them in 2014 saying that public registers were

“vital to meeting the urgent challenges of illicit finance and tax evasion.”

In September 2015, he accused them of

“frankly…not moving anywhere near fast enough.”

He said that

“if we want to break the business model of stealing money and hiding it in places where it can’t be seen: transparency is the answer.”

When he launched the UK’s public register, he argued that

“it’s better for us all to have an open system which everyone has access to, because the more eyes that look at this information the more accurate it will be.”

I agree with all those sentiments and arguments. All that we are asking of the present Government is that they stand by the promises made by their colleagues, their right hon. and hon. Friends, in a Conservative-led Government nearly five years ago. I also agree with the current Prime Minister, who said:

“If you’re a tax-dodger, we’re coming after you. If you’re an accountant, a financial adviser or a middleman who helps people to avoid what they owe to society, we’re coming after you”.

However, our tax havens are “middlemen”. It is time that the Prime Minister and her Government turned their rhetoric into practical action, and put an end to the nefarious activities that take place in so many of our jurisdictions.

[Lloyd Russell-Moyle]

Many of our tax havens, and some of our Crown dependencies, were put on the EU watch list. They had to demonstrate that they were making improvements. I understand that one of the ways in which they could get on to the watch list was for the UK Government to underwrite that progress by indicating that they would support it, which would enable them to avoid being put on the blacklist. Is it not imperative for us to enforce the commitment that we made to the European Union in preventing them from being put on the blacklist by ensuring that they implement what they promised?

[Dame Margaret Hodge]

I entirely agree. Indeed, if we leave the EU without having implemented reforms that would have an impact on the overseas territories, the EU will blacklist them.

I know that there are many principled Conservative Members—including the right hon. Member for Sutton Coldfield (Mr Mitchell)—who care passionately about transparency, and have championed the cause from both the Back Benches and the Front Bench for many years. I urge them all to make clear to their Front-Bench colleagues that they will support a cross-party amendment setting a clear and reasonable timeframe within which the overseas territories would be required to prepare and launch public registers of beneficial ownership. I hope that the Government will listen to the advice of leading Back Benchers on their own side. Those of us who are involved in campaigning for transparency are not seeking short-term political advantage. What we want is an important, sustainable change that will have a lasting impact on the process of stamping out financial skulduggery, and a considerable impact not just on the United Kingdom’s public finances but on those of the poorest nations in the world.

We can never build a global Britain on dirty money. We will not create a strong economy on the back of being the jurisdiction of choice for every kleptocrat and crook in the world. Our British overseas territories will not prosper over time on the basis of being safe havens for illicit wealth. Transparency is an essential tool in the battle against all financial crimes. Exchanging information behind closed doors, which the Government claim is sufficient, particularly disadvantages the very same countries that suffer the most from financial crime and money laundering, because they have the weakest regulatory agencies in operation.

Relying on regulatory bodies is also very much second best. Even our under-resourced bodies such as Companies House are at best reactive in their work on uncovering financial crimes; there is very little evidence that they are undertaking proactive investigations. Indeed, the constant flow of scandals is strong evidence that the system based on the private automatic exchange of information is not working.

Let us consider the case highlighted recently by Global Witness of the $75 million paid by Glencore to Dan Gertler, a controversial businessman accused of bribing senior officials in the Democratic Republic of the Congo to advance mining interests. The money was originally due to be paid to Congo’s state mining company, but following a secret agreement was paid into one of Dan Gertler’s companies registered in the Cayman Islands. Or let us consider the case revealed in the Paradise papers of Jean-Claude Bastos, who managed Angola’s sovereign wealth fund and was paid more than $41 million from the fund via a secretive British Virgin Islands company. The BVI company was itself owned by a series of secretive offshore companies, but the ultimate beneficial owner was Mr Bastos.

Today’s Guardian contains disturbing revelations that North Korea broke international sanctions aimed at inhibiting the development of weapons by using a network of companies based in our tax havens to acquire millions of dollars-worth of fertiliser, coal and other commodities—our tax havens, undermining our national security and that of other western nations. Secrecy enables wrongdoing.

Ironically, the British Government have accepted that argument, because we are ourselves publishing our national register of beneficial ownership. The standard that we accept for ourselves should be the standard we expect for our overseas territories. To pretend, as the Government do, that the overseas territories are making good progress is nonsense. It was 2013 when David Cameron first demanded public registers; nearly five years later, we are still waiting for a number of the jurisdictions, including Anguilla and the Turks and Caicos Islands, to set up a central register.

Let me take this opportunity to debunk some of the myths that were prayed in aid when this matter was debated in the House of Lords. Raising the spectre of identity theft and personal security risks is wide of the mark. Public registers can have tightly defined case-by-case exemption policies to protect individuals who are genuinely at risk. Ministers claim that no other countries are adopting public registers. Again, that is not true: the EU is currently implementing the fifth anti-money laundering directive requiring all EU members to implement public registers by 2019, including Gibraltar, and we should be implementing that.

Arguing, as Ministers do, that we should not act until others have acted is a wretched excuse. We have been bold in leading the movement to stamp out corruption; we should pursue that course and be proud of it. As the number of tax havens decreases and the noose tightens around the remaining tax havens, our action will make action elsewhere in the world inevitable.

I welcome today’s statement from the Secretary of State for Exiting the European Union that the UK wants to lead a global race to the top in rights and standards. There is no better way of leading that race to the top than by insisting that our overseas territories adopt public registers of beneficial ownership.

Public registers will not undermine legitimate businesses or individuals who want to continue to take advantage of low-tax regimes. They will expose those who seek to hide their money because they have received it corruptly, or who unlawfully evade tax, all too often at the expense of poor people and poor countries.

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

I agree with many of the comments we have heard today from both sides of the House, which I would summarise as a necessary start but not good enough, not far enough, not strong enough.

One area I am interested in is arms control, which the Bill misses an opportunity to address. The arms export control system we use in the UK goes hand in hand with the sanctions system we use to stop arms getting to certain regimes. The arms export regime we operate in this country is, of course, underpinned by EU consolidated criteria. There is no mention of consolidated criteria or of bringing the arms licensing regulations into a system such as the sanctions regulations. It is, I suggest, a great shame. The Bill does not touch on that area.

All of this is all very good, but enforcement is needed. Without enforcement, there is no point and the Bill is not worth the paper it is written on. Since 2011, there have been no prosecutions by Her Majesty’s Revenue and Customs of people who have broken the arms export regime or broken sanctions on arms sales. What is the point of introducing a Bill with a raft of sanctions against arms sales to certain regimes if we are not going to enforce them? It is not as though during this time there have not been significant and very credible reports that arms export controls have been breached and that arms have been sold to some of the most dangerous regimes in the world. We have just failed on enforcement because HMRC is under-resourced and these issues are under-prioritised in that department.

Turning to another area, I have a constituent who is a local business owner with a foreign national. She has reported many times her feeling that the company that she co-owns has been engaged in money laundering. She reported it to Action Fraud, Sussex police and HMRC, but for over a year, nothing was done. It took us hiring forensic accountants for HMRC suddenly to realise that hundreds of thousands of pounds might well have been laundered through the company. This was a director who wanted to blow the whistle, but HMRC and Action Fraud were just not interested. That is another example of how what is written in the Bill is all well and good, but the enforcement is just no good.

When Labour Members talk about wanting to give more money to our nurses, teachers and firefighters, we are often mocked by Government Members, who say that we want a magic money tree. It seems to me that a crop of magic money trees is growing with incredible health in some of our 14 British overseas territories. They are very clean because they are laundered daily, and they clearly like the climes—the balmy 32° that it is right now—in the British Virgin Islands. I note that many of the people in the Virgin Islands never really see these trees because they are lovely brass-plate trees.

Maybe it is not the climate that encourages magic money trees to locate in our overseas territories. Perhaps they thrive as part of a protection racket to shelter the very wealthiest in our society from paying their fair share. As we leave the European Union, it is vital that we have the mechanisms in place to replace the sanctions and money laundering provisions of the EU. I commend the Government for taking the first steps, but the Bill falls very short of creating a public, central and open register of beneficial ownership for our overseas territories.

More than 70% of corruption cases surveyed by the World Bank between 1980 and 2010 rely on anonymously owned companies helping to obscure what they are doing. It is the overseas territories that fly the flag of brand Britain and endanger that flag by not opening up—[Interruption.] I am sure that you will have a moment to reply later on, Mr Foreign Secretary. You do not need to chunter from your seat. These corrupt regimes are under the British flag. We have seen in the Paradise papers how companies such as Appleby—I call them crooked Appleby—advertise themselves as respectable offshore sector companies. However, they are now suing The Guardian for telling the truth that six of their 10 offices are located in overseas territories and are involved in money laundering. What will the Bill do to help people? Not enough.

We might hear from Government Members that we cannot do much on these issues, but a raft of people from overseas territories have written to me, begging us to take action, saying that they see no benefits in the territories for people on the ground from this tax evasion. It does not benefit our overseas territories. It benefits a small, super-elite and if we do not take action on enforcement in our overseas territories, who will? The Bill must go further. If it does not, we must ensure that amendments are forced in Committee and on the Floor of the House because there is cross-party support for ensuring that brand Britain stays clean and that we kick out the dodgy dark money from our country and our overseas territories.