Economic Crime (Transparency and Enforcement) Bill

Lord Cromwell Excerpts

2nd reading
Wednesday 9th March 2022 Lords Chamber

[Lord Cromwell (CB)]

My Lords, although it does not say so on the Bill, it was perfectly clear before we even started, and has become manifestly clear throughout, that this Bill is largely about Russia. For that reason, I declare my interest as a director of the Britain-Russia Centre and British East-West Centre, an NGO set up in 1959 during the height of the Cold War. All noble Lords will agree that our disagreement is with the regime and particularly the man who leads it; it is not with the people of Russia, who suffer under that totalitarian system. We need to remember that, because many Russians are fed up with being referred to as “mafiosi” just because of their nationality.

As has been eloquently said by many, this Bill has been long awaited. It has been rapidly adapted in the light of current concerns about Russia and Ukraine, so it inevitably has gaps and shortcomings. We are told that ECB 1, if I may call it that, is going to be followed soon by ECB 2. I hope so, and that, in winding up, the Minister will assure us that the issues addressed today and by the NGOs, and the wider set of issues that have been identified, will be picked up in ECB 2 rather than it having a narrow focus.

I would like to spend what remains of my time—so many good points have already been made that I am skipping through my remarks—on the theme that compliance begins at home. The right reverend Prelate made a point about ethics; if he will forgive me for saying so, the only way is ethics.

Enablers such as law firms, accountancy firms and, if we are in a confessional mood, banks—I am a former banker—working with international clients whose source of wealth is opaque, have many questions to answer. The temptation of substantial new fee-earning opportunities has led some firms to take an accommodating, light-touch approach to anti-money laundering regulations—just within the letter of the rules, although sometimes not even that, and largely on a self-regulating, self-reporting basis: what we might call “marking your own homework”. Some enablers, as part of their onboarding process, actually coach clients in how to answer. They are tactical in what they ask—and do not ask—of clients, or accept pretty modest levels of proof, or even provide clients with services to mask their wealth and ownerships, or distance themselves from a rather disreputable hinterland.

I had hoped that the unexplained wealth orders that feature in the Bill would address this, and perhaps interim freezing orders, which do not seem to have been touched on tonight, might address some of the issues about the short notice required. But they appear to be directly almost exclusively at PEPs, politically exposed people, and those involved in serious and organised crime, which is not really defined in the Bill. I am not sure what “unserious and disorganised” crime would look like.

In asking Ministers about this narrow scope, I was told that existing anti-money laundering requirements on lawyers, banks and so on already require them to determine a client’s source of wealth and that they cannot take on clients who do not meet those requirements. “There’s no such word as can’t” is a weary old adage for anyone like me who had an old-fashioned upbringing. There are firms that can—and some of them do. Working in a private bank, it used to baffle me how we never took on Russian clients because it was just impossible to get them through all the tests, and yet I knew people who worked in other banks that were eagerly taking them on. I could not understand how they were doing it, but I think I know now.

For the past 25 years, I have worked with countries across the former Soviet Union, particularly Russia. Subsequently, for a period of about nine years, I worked in the private banking world, which bears out some of the points I have just made. For some, an occasional fine is just the cost of doing business. I do not know the full details but I noticed that, on Monday, the FT reported that an ex-partner of a leading firm was fined a mere £17,500 for lack of adequate due diligence in Russian transactions. That is a derisory amount.

The Bill needs to be strengthened in this area in two ways. First—this was touched on by the noble Lord, Lord Vaux—we want a named, senior-level sign-off by an enabler firm’s management to confirm that all wealth has been properly explained and evidenced, in compliance with the regulations. Given the existing rules, that may sound like belt and braces to some, but my goodness, that simple addition is needed. There is nothing like having a senior person sign off and remain on the hook. Could this perhaps be introduced as a modest but vital amendment to either this Bill or its successor, which, we are told, is imminent?

Secondly—this has been touched on by other noble Lords—with responsibility must come transparency. I am in no doubt that, unless there is properly resourced enforcement, abuse, rule-bending and blind eye-turning will continue. The National Crime Agency and others are almost on their knees from being understaffed; they are struggling and underresourced, as many noble Lords have said. Resourcing was also raised via amendments in the other place; I hope that this issue will be taken up by the Government to ensure that compliance is not only said to be done but regularly, independently and forensically checked. I would be grateful for the Minister’s commitment to that in winding up.

Finally, I want to touch on one aspect of the enablers’ work that has become a stain on the reputation of the UK. Many noble Lords have touched on this, notably the noble Lord, Lord Thomas—I look forward to supporting his Private Member’s Bill if we get the chance. Some call it strategic litigation against public participation. If you have a lisp, as I do, that is extremely difficult to say. I prefer to call it what it is: lawfare. It is the deliberate use of UK legal firms to intimidate and overwhelm authors, publishers, journalists and others who seek to bring into the light matters of public interest concerning the origins of unexplained wealth. Everyone has the right to defend their reputation robustly but what we have here goes way beyond that.

Examples abound but let me cite just one tactic. No matter how hard they have sought to engage with the parties they are reporting on, a journalist finds both themselves and their publisher receiving, at the last moment before publication, voluminous—there is sometimes truckloads of it—complex and menacing correspondence from heavy-hitting law firms threating ruinous legal action. Being on the receiving end is not only extremely intimidating; it also requires delay and specialist work that few can afford. It is indeed a brave journalist or publisher who, faced with this inequality of arms, still proceeds. Many, of course, do not. I also highlight—I do not think that we have touched on this tonight—that there are cases where human rights defenders, for example, working in other countries have, as a means of intimidating them, been sued or threatened with being sued in the UK courts.

UK firms have been systematically involved in these practices for far too long. I understand that there is a consultation going on; Dominic Raab’s work was mentioned earlier and I look forward to seeing the results. There are lessons that I believe we could learn, for example, from Australia’s model litigant principles in this area, which I will not elucidate now.

In closing, I ask the Minister: is he able to confirm, or at least offer some guidance on, whether the Government recognise the problem that I have highlighted, which arises directly from UK firms taking on wealthy clients of the sort that this Bill seeks to address? Will the Government, in ECB 2, include appropriate curative measures?