Economic Crime and Corporate Transparency Bill Debate
Full Debate: Read Full DebateLord Agnew of Oulton
Main Page: Lord Agnew of Oulton (Conservative - Life peer)Department Debates - View all Lord Agnew of Oulton's debates with the Ministry of Justice
(1 year, 7 months ago)
Grand CommitteeMy Lords, I rise to express my concerns. It is not that I do not support the amendments or the comments made by other noble Lords, but calling these things crypto assets in an economic crime Bill, when we know that their origin seems to have been organised crime finding a way to money launder its ill-gotten rewards I find deeply troubling. A number of leading bankers, with whom I agree, have suggested that these things have no value. I urge the Government to be very alert to the potential risk of trying to make cryptocurrency—I am not talking about blockchain technology—and these so-called assets, which actually do not exist, appear to be reasonable things for British citizens to put their money into.
My Lords, I support the noble Lord, Lord Fox, in his amendment to make sure we have a review point quite soon after this Bill. I acknowledge my noble friend Lady Altmann’s point about the strange context to put this in, but given that we have this Bill on the table, it would be very easy to put in a reference point because the climate for this asset is moving enormously fast. Between November 2021 and November 2022, the value of bitcoin fell by $2 trillion, which is not far short of the UK’s total annual GDP, although it has recovered a little since then. This is a vast sum of theoretical money that is swilling around, and we do not yet really understand how to manage it, so I strongly support the noble Lord, Lord Fox.
My Lords, I thank noble Lords for the points that have been raised in this debate so far, and I specifically thank the noble Lord, Lord Fox, for tabling Amendment 78. I also thank him for his kind words about the detailed technical briefing that he received from officials on these provisions, and I am glad it proved valuable.
The proposed clause seeks to impose a duty on the Secretary of State to lay before Parliament a report reviewing the definitions of crypto assets contained in the Bill within 18 months of its passage. We believe this is unnecessary. The definitions in the Bill are in line with existing definitions in the Proceeds of Crime Act 2002 and the Terrorism Act 2000 and follow the approach recommended by the joint Treasury, Financial Conduct Authority and Bank of England Cryptoassets Taskforce: Final Report in 2018—I imagine that goes some way towards answering the questions asked by the noble Lord, Lord Ponsonby.
As to the issue of UK-connected firms raised by the noble Lord, Lord Fox, the provisions enable the seizure of crypto assets from wallets and firms. They were developed with partners and were based on operational insights and are valuable and necessary. These definitions will be reviewed whenever and as often as needed. There is general agreement that the world is moving at an incredibly fast pace, and therefore there is a provision in the Bill for the Secretary of State to amend the definitions of crypto assets in future through regulations which will be subject to debate in Parliament.
To go into a little more detail on future-proofing, the specific delegated powers allow the Secretary of State to amend definitions associated with crypto assets as part of these new crypto-asset confiscation and civil recovery regimes. The definitions in the confiscation and civil recovery provisions reflect those already in POCA, TACT and other linked legislation. Home Office officials will be working closely with law enforcement agencies to monitor the effectiveness of the crypto-asset powers post-implementation and, if necessary, the Government would look to update crypto-asset definitions. Noble Lords made very good points about the pace of change, and this legislation recognises that. The regulation- making power is intended for the express purpose of being able to respond dynamically to changes in technology or criminal behaviour rather than at arbitrary points in time.
The noble Lord, Lord Ponsonby, asked about stable- coins and decentralised finance. He mentioned emerging technologies in the crypto-asset ecosystem. This Bill caters for criminal abuse of these as far as is practically possible. For example, stablecoins are captured by our definition of crypto assets. However, the definitions have been developed in consultation with industry so as not to stifle legitimate innovation.
Having mentioned “legitimate innovation”, I heard what my noble friend Lady Altmann had to say on the subject and she made some very good points.
I hope this provides reassurance that the definitions of crypto assets will remain subject to review with the ability to be updated in a responsive way. The provision to amend the definitions of crypto assets would be used appropriately and afford Parliament the opportunity for scrutiny, so I ask the noble Lord not to move his amendment.
My Lords, I will speak first to the government amendments in this group. The first of these is Amendment 78C. This is intended to avoid unnecessary burdens on business from having to submit the same information for immigration purposes and under the SARs regime. The new clause creates a defence for people who fail to report money laundering if their knowledge or suspicion of money laundering arises solely as a result of an immigration check carried out using data supplied by the Home Office.
Under the Immigration Act 2014, banks and building societies are required to check whether their existing account holders or applicants for a current account are disqualified persons. Should banks match any of their existing customers against the disqualified persons list—the DPL—they will be required to notify the Home Office. At the same time, a match against the DPL could also trigger a requirement under the Proceeds of Crime Act 2002 to submit a suspicious activity report, known as a SAR, to the NCA. This would require banks and building societies to report the same information twice, placing a financial and administrative burden on both them and the NCA.
By creating a defence against the offence of failing to report in Section 330 or Section 331 of POCA when the suspicion is solely the result of an immigration check using information provided by the Home Office, we will essentially remove the requirement for banks and building societies to submit a SAR under those circumstances. This will help mitigate the burden of such reports and the potential for dual reporting in the case of existing accounts. This amendment modifies existing POCA obligations and provides certainty on reporting requirements; failure to provide this certainty risks reporters taking a risk-averse approach to reporting and continuing to overreport.
I turn to Amendments 78D and 78G, tabled by the Government. These amendments ensure that applications for information orders can be made only where an authorised NCA officer reasonably believes that the foreign Financial Intelligence Unit—FIU—is requesting the information for strategic or operational intelligence analysis.
These amendments seek to address concerns from stakeholders that information orders could be used for purposes beyond those for which they are intended—specifically, that they may otherwise be used by foreign FIUs to circumvent existing intelligence and information-sharing procedures, under mutual legal assistance processes, by using the information shared through the information order as evidence in legal proceedings. Although information-sharing between international FIUs is crucial to combating economic crime and terrorist financing at an international level, a foreign partner should use existing mutual legal assistance processes if they wish to request evidentiary material from the UK. This is because the mutual legal assistance process is tightly regulated and has appropriate procedures and safeguards in place for sharing information of this kind. This amendment is essential to ensure that the information order measures in the Bill work as intended and that applications made for the orders are proportionate and justified.
Amendment 78E amends Section 339ZH of the Proceeds of Crime Act to remove the extension of the definition of money laundering to include predicate offences. The inclusion of these offences in the definition of money laundering would have broadened the scope of the clause beyond its intended purposes. We will rely on the existing definition of money laundering in Section 340 of the Proceeds of Crime Act 2002; this will ensure there is a consistent definition of money laundering across the Act. The exclusion of predicate offences from the definition does not affect law enforcement’s ability to investigate or pursue cases of money laundering. It is for these reasons that I ask the Committee to support this government amendment.
Amendments 78F and 78H are small amendments to Section 339ZL of the Proceeds of Crime Act 2002 and Section 22F of the Terrorism Act 2000, allowing certain preliminary steps in relation to making a code of practice under these provisions, such as consultation on the draft code of practice, to be carried out prior to Royal Assent. This amendment will also bring the duty to issue a code into force on Royal Assent, ensuring that we avoid any unnecessary delays in laying a code of practice and operationalising the powers.
I hope that those explanations have provided further clarity on why these government amendments are needed, and I ask the Committee to support them. I beg to move.
My Lords, I speak in favour of my own amendment, which is part of this group—Amendment 86, which is about asking for prioritisation of SARs reporting. Just to set the scene for noble Lords, according to the UK Financial Intelligence Unit, the praetorian guard of the NCA in this respect, there were 901,000 SAR reports in 2021-22, 70% of which related to banks. That is a number far in excess of what institutions can meaningfully deal with, so huge opportunities are being missed.
The Home Office itself has just produced its own report, called Transparency Data: Accounting Officer Memorandum: Suspicious Activity Reports (SARs) Reform Programme, published on 24 February, just a few weeks ago. It accepts that there are at least four problems in our management of the SAR regime:
“Inconsistent levels of compliance reporting in some parts of the regulated sector … Insufficient human resource capacity within the UKFIU which limits their ability to analyse financial intelligence or engage with partners to improve the quality of SARs … Under-utilisation of SARs by law enforcement … Legacy IT systems which cause inefficiency and ineffectiveness throughout the regime”.
That is in the words of the Home Office, from literally only a few weeks ago. What is so frustrating is that the Government have been talking about this for at least four years. In April 2019, a strategic outline business case for the programme was reviewed by the Home Office. An economic crime plan was produced in July 2019 and then the full business case was subsequently reviewed and approved by the Home Office in April 2021. Yet we still do not seem to have a lot of action.
All my amendment is trying to do is to push the machine to get on with this. Of course, the Minister will ask me not to press the amendment, but I would ask him whether, in so doing, he can give us a date—maybe not today but in writing to the Committee—by when all this stuff will start to happen, because we are missing huge opportunities to identify economic crime. My simple proposal is to triage the SARs, so that the shortage of resource, which no doubt will remain for a while, can at least be concentrated on areas of greatest risk to our system.
First, the noble Lord, Lord Agnew, makes a very interesting point and I should like to hear the Minister’s views on it. I should also be interested to hear how many of the 900,000-odd SARs are acted on and followed up each year. That would be an interesting statistic to understand.
I wish to ask about Amendment 78E, which I do not fully understand. It would remove the reference being inserted into the Proceeds of Crime Act to predicate offences. I am not sure why we should take it out. It would be interesting to understand from the Minister why it was in the Bill in the first place and why the Government have now changed their mind and are taking it out. As I understand it, a predicate offence is the offence that creates the finances that are then laundered. It must in many cases be quite hard to untie those two things. I should have thought that it must be useful to any crime agency looking into these things to understand the full chain, from the original offence to the laundering of the funds. Clause 172 is talking only about information orders, not about creating new offences or anything else, so I am unclear why we would want to remove the predicate offence from the information order and would like to understand it a little more.
My Lords, my Amendment 79 asks that HMRC be given a specific requirement to prioritise the exercise of its AML supervisory role. The reason I ask is the criticism that the Government have raised against HMRC. The Financial Action Task Force observed that tax issues
“carried too much weight compared to other”
money laundering risk factors. It is concerning that HMRC has a repeated tendency to view AML risks from a more narrow tax perspective instead of considering a broader set of AML risks, despite being identified as a weakness. That is not my diagnosis but the Government’s diagnosis of the problem.
I raised several specific issues in our previous days in Committee, but they are absolutely relevant to support this amendment. The most recent assessment of HMRC’s effectiveness in this area showed that it was failing to keep pace with the requirement to register a business within 45 days, with performance worsening over the year from 78% in 2020-21 to only 70.71% in 2021-22. In practice, this means that more businesses—nearly one-third—are operating outside the scope of its supervision for longer periods than in previous years.
The next point is that the self-assessment highlights issues in the ECS recruitment process and delays in appointing staff, which have resulted in existing staff members being asked to fill in with training duties. That goes back to my earlier point on the last amendment about the lack of qualified resource. HMRC discloses that there continues to be delays in publishing guidance for businesses under its supervision on the steps required to meet their regulatory obligations as well as on responding to specific money laundering risks.
Fourthly, the volume of face-to-face visits conducted by HMRC has slowed down—there has been a downward tendency in the number of on-site visits. There were 1,265 in 2018-19, and in the year 2021-22 that had slumped to 289—for most people, Covid was behind us, so I am not sure that that is an entirely legitimate explanation.
The next point is that HMRC has not yet used civil powers it has at its disposal to issue censuring statements for failing to comply with the MLR, or injunction powers to prevent a future breach. Again, I am sure that is happening because it simply does not have the resources available.
Lastly, an increase shows signs that HMRC is ramping up its enforcement as a supervisor, but the penalty amounts being recovered are reducing. A total of £44.8 million in fines were issued between 2018-19 and 2021-22 have now been revised down to just £8.6 million. Again, I am sure that this all goes back to resource and specifically to focus.
As I said in my opening comments—I know this from my experience of being an HMRC oversight Minister for Brexit border readiness—there is a huge cultural focus on tax collection in HMRC. There is nothing wrong with that, but this is a first cousin and it is HMRC’s responsibility to look after this stuff, and, frankly, it is not doing the job properly. My amendment would simply put some focus on that in the Bill. Again, I know from my experience as a Minister for five years that officials respond to these kinds of controls in the way they manage the resources in their department. I hope my noble friend the Minister will listen. I beg to move.
My Lords, I will make a disclosure further to my subsequent disclosure of being a member of the Institute of Chartered Accountants in England and Wales; I am also a member of the Chartered Institute of Taxation, also by examination, which means that in theory I am capable of giving tax advice but, sadly, not in respect of anything after 1985. None the less, I feel that I should disclose that when discussing this issue.
It is customary to congratulate a noble friend on the introduction of an amendment, and I very much congratulate my noble friend on the introduction of this amendment. He speaks with great knowledge of the inside track of what is going on in the Treasury, and he is the one person who stood up against potential fraud taking place. As such, I hope that my noble friend the Minister, the noble Lord, Lord Sharpe of Epsom, will listen to my noble friend’s words. I appreciate that this has been thrust upon the Minister and it is not normal Home Office territory; it is not even the Business and Trade territory of my noble friend Lord Johnson of Lainston but Treasury territory.
However, this amendment is particularly important. It seeks to amend the HMRC Act of 2005. The problem with the Act as it stands is that it does not make stopping tax avoidance or even evasion a big enough priority for HMRC, and as a result HMRC views it as part of a sort of cost-benefit analysis rather than as a deterrent. This is particularly worrying with regards to VAT, where VAT avoidance can distort competition. As a result, the EU Commission used to occupy an oversight function with regard to the application of VAT and would always take action where a member state did something with VAT that distorted competition. For example, Italy tried to give an amnesty to companies which had not paid VAT in order to save money in Italy, but the Commission stepped in and stopped that. However, now it has lost that oversight, so the question is: who polices HMRC with regard to the application of VAT?
Noble Lords will recall that we discussed at Second Reading the case of 11,000 Chinese businesses that registered themselves at the flat of a Mr Dylan Davies in Wales, who was subsequently pursued by HMRC and the bailiffs for unpaid VAT. When we discussed the issue, we referred to it from a Companies House perspective, which had not picked up that 11,000 companies were registered in a two-bedroom flat in Wales. Actually, HMRC should have picked up on that; had this amendment been in place, maybe it would have done so. There is a history of HMRC not seeking to pursue fraud, never mind money laundering, so the very least we can do is make sure that it has a duty to detect money laundering where it sees it. I am indebted to Richard Allen of RAVAS, who has pretty much run a one-man campaign against VAT fraud and highlighted these sorts of issues. There are clearly other issues in the 2005 Act, but this is an opportunity to plug one very important hole.
Ah, the noble Lord said ACSPs—my apologies. I misheard an acronym. In that case, I shall have to write on that, because I do not know the answer.
My Lords, I hate to intrude on disputes between lawyers, even though the lawyers in this case seem to be on different sides. Like the noble Baroness, Lady Wheatcroft, I will intervene briefly as a journalist. At times, I was deputy editor and had charge of all the libel cases that came before us. In truth, there was an inequality of armaments. We had wonderful lawyers in-house, Mr Murdoch’s very deep pockets and an evidential base which would normally have been compiled by a journalist working to good standards. Many of the people wanting to sue us were not in that position at all; they took offence at something, whether it was right or wrong, but if the paper took a hard line, then they would go away.
We need to emphasise that the world has changed. Not only—and this is a perfectly valid point—are newspapers poor, but there are a number of extremely unscrupulous, very rich people, be they Russian oligarchs or any kind of oligarch, who are prepared to try anything they can to get a journalist or, even better, to stop the journalist publishing. I admire the courage of the FT in going ahead with the case the noble Baroness, Lady Wheatcroft, mentioned. I do not think many editors would have been so brave. This is the modern world. I am always disappointed when I find that legal firms are willing to go along with this kind of stuff.
There are not many laughs in the committee chaired by the noble Baroness, Lady Stowell—not because of her, as she is an admirable chair, but because the subjects of the committee do not lead to a lot of laughs. However, I laughed out loud when I found that the maximum fine that can be applied by the Solicitors Regulation Authority is £25,000; that does not buy you a coffee with a decent KC any more. It is a different world with the people who are operating in it now.
I shall conclude as the noble Lord did. We have heard that it will take years before anything happens. It will not be this year because we are in recession, nor next year because there is a general election coming up; so it will go on, and those who are against making the change will continue their lobbying. We now have an opportunity, by the ingenious use of this Bill by the noble Baroness, Lady Stowell, to force action now. We should seize it.
I support Amendment 80, tabled by the noble Lord, Lord Thomas, and the amendments tabled by my noble friend Lady Stowell and the noble Lord, Lord Cromwell. I think there is a strong consensus—I will come to my noble and learned friend Lord Garnier’s point in a moment—that we should not just keep kicking this can down the road.
To give the Committee a little perspective, we are dragging our feet relative to the rest of the civilised world. The EU took steps a year ago to propose an anti-SLAPP directive and 34 US states already have anti-SLAPP laws in place. The need for reform is urgent. The figures put forward by the Foreign Policy Centre and members of the UK Anti-SLAPP Coalition show that SLAPPs are on the rise and that the UK is the number one originator of abusive legal actions. In fact, the UK has been identified as the legal source of SLAPPs. It is almost as frequent a source as all European Union countries and the US combined. That is the reality.
On journalists, obviously I defer to the noble Baroness, Lady Wheatcroft, who has been in the hot seat herself. They play an important role in transparency and in shining a light on bad behaviour. We have heard before in this debate and in other committees about the Azerbaijani laundromat, which was investigated by the NCA only following the light that journalists shone on it.
I think my noble and learned friend Lord Garnier is misled in that the vast majority of these cases never get to court. They are invisible, other than to the person who has been subjected to that action. I can speak with some passion on this because it happened to me only a year or so ago by an organisation that had received billions of pounds of public money. The implication in the letter I received was essentially a SLAPP, so I had to take a view. No lawyer ever heard about that, let alone a judge. That is happening on a far more regular basis than people are prepared to accept.
We come to the last part, which the noble Lord, Lord Thomas, and others have talked about—that there is not enough room in the legislative calendar to get this done. But here we are: we have an economic crime Bill on the books, whose drafting work has been done by very clever people—at least as clever as parliamentary draftspeople. Surely, they and the Peers in this place can get together to get the right clauses and then we will have done it. I get so frustrated about this. The Government seem so feckless in not getting on with it. What is the excuse? It is crystal clear to any thinking person that we need to have some legislation on the statute book to contain this.
Of course, there must be safeguards against reckless accusations that damage the reputations of decent people and the right to recover costs where that happens. But, as we heard from the noble Lord, Lord Lipsey, and the noble Baroness, Lady Wheatcroft, the reality is that there is an asymmetric warfare going on today which is completely different from anything that existed probably 20 years ago.
Here we have the chance for a clause that is well drafted—although I am a non-legal person—by the noble Lord, Lord Thomas, with supporting clauses from my noble friend Lady Stowell and the noble Lord, Lord Cromwell. Why will the Government not sit down and have a proper, grown-up conversation about doing this? As the noble Lord, Lord Cromwell, said, please do not just fob us off with, “No, we’re not going to do it. Withdraw your amendment”. I am prepared to have a fight about this on Report and to lead a Division in the House, because I am sick of it. It is time for this Government to wake up from their complacency and always looking to delay until we do not exist any more. I strongly support these amendments and I hope the Minister will have a credible answer to the question of why they are not getting on with it.
My Lords, I will make one or two brief observations, because almost everything that could be said has been said.
First, it is important to distinguish between the threat of litigation and the use of litigation. If you look at the threat of litigation, the arguments so powerfully put forward by the noble and learned Lord, Lord Garnier, go away. Going back more than 30 years, the late Captain Robert Maxwell MC was the past master in the use of threats. It was the courage of Bronwen Maddox of the Financial Times and her then editor that exposed him. She did not have to undergo an examination of what had happened because he died at almost exactly the same time. When people say, “This is very difficult. We need more time”, I say that we have had 30-plus years to deal with it.
Secondly, the problem of the use of litigation is, in a sense, a separate issue. As the amendment in the name of the noble Lord, Lord Thomas of Gresford, makes clear, it is important that this is looked at separately. Most urgent is dealing with the threat. I very much hope that the Bill will also deal with use, but that involves different considerations because, by that stage, you will have involved a court and the balance between the actions of the court and the regulator is more difficult.
However, saying “This is all very difficult” is no excuse for delay. This is damaging to the UK, and things have got worse in 30 years for two reasons. First, most lawyers jealously guarded their reputation, but I am afraid that a number now take the view that any publicity is good publicity and they do not guard their reputations as carefully as they once did. That is not true of many, but a few take that view. Secondly, the cost of litigation has escalated out of all proportion to the position 30 years ago.
In response to, “This is all too difficult. We need more time”, I say that we have had 30 years. Even for the Ministry of Justice, that is a very long time. At times I felt that it could be said of the Ministry of Justice what was said of Philip II of Spain: if death came from Spain, we would all be immortal. Let us therefore hope that the ministry will engage with this and get on with the matter.
I want to make one final observation. There is always this very real problem of lawyers using funds. However, the fact that it is a real problem means that we should investigate it and not just put it in the “Too difficult” box. I am afraid that the Ministry of Justice has too many large “Too difficult” boxes as an excuse for inaction, and the time for inaction has ended. I am very glad that the noble Lord, Lord Agnew, has taken the view that this is something on which we must make progress.
My Lords, I warmly thank all noble Lords who have spoken in this debate and who have spoken to me directly on this issue. I also thank noble Lords for the enormous amount of thought and consideration that has been put into this issue by those who have spoken. There is significant strength of feeling across the Committee on this important issue. I begin by providing an assurance that the Government share those concerns and that it is clear to the Government that we should take legislative action against SLAPPs. As the Government have set out, for many reasons that have been mentioned in this debate, we are firmly committed to legislating effectively, comprehensively and without undue delay on this issue.
Noble Lords will not necessarily be entirely happy when I say that we do not think this Bill is the correct vehicle for tackling this issue. There are essentially two reasons for that. One is that here we are dealing with economic crime. I take my noble and learned friend Lord Garnier’s technical point about the scope of the Bill, but the major issue here is that, even if we were to put in an amendment to this Bill, it would still be too narrow because we are not covering matters that are not economic crime, such as freedom of expression, political interference, national security and so forth. The Government’s preference would be to handle the entire landscape of SLAPPs in one place, and that is not this Bill.
The Minister talks about introducing some SLAPPs legislation “without undue delay”, but there is no possibility of a timetable to introduce that. We are only 15 or so months away from a general election, and the legislative timetable is jammed solid already. There is no fixed slot for it to come in. I utterly reject the idea that the Government want the perfect to be the enemy of the good: “We are going to do everything in one Bill”. Why not do this bit now, which will take very little parliamentary time? As the noble Lord, Lord Cromwell, said, it will deal with probably 80% of the problem, because we know that shutting down debate on economic crime is probably our biggest problem. When in 10 or 15 years’ time—this point was made by the noble and learned Lord, Lord Thomas—the Government finally find the perfect moment, although some of us will be dead by then, they could then repeal the relevant clauses of this Bill and do it all in one bit. But I utterly reject the pathetic excuse that this is not the right moment. I ask my noble and learned friend to be a little more straightforward in his commitment.
My Lords, I entirely understand the frustrations felt by my noble friend Lord Agnew and others. It is not to be ruled out that we could find an appropriate legislative vehicle for this matter before the next general election. That is not to be ruled out. However, I cannot today go further than to say that this issue will be brought forward by the Government when parliamentary time allows. That is normally a long-grass phrase—kicking it into the long grass. I regard it today, and say it today, as a short-grass phrase because I am not at the moment giving up on having legislation relatively soon, but I can give absolutely no commitment on that matter.