Sanctions and Anti-Money Laundering Bill [HL]

Lord Davidson of Glen Clova Excerpts

Committee: 3rd sitting (Hansard): House of Lords
Wednesday 6th December 2017 Lords Chamber

Moved by

[Lord Davidson of Glen Clova]

68ZA: Clause 41, page 28, line 34, at beginning insert “improving”

[Lord Davidson of Glen Clova (Lab)]

My Lords, I beg to move Amendment 68ZA and will refer to the other amendments standing in my name. The rationale for this amendment springs from the considerable and widespread concern that there is insufficient democratic oversight of the future anti-money laundering and counterterrorist financing regime, which together with broad delegated powers will permit any future Government to both bypass Parliament and weaken the UK’s anti-money laundering and terrorist financing regime. Accordingly, the amendment seeks to impose an expressly ameliorative obligation on ministerially created regulation in detecting, investigating or preventing money laundering or terrorist financing, or indeed implementing the standards of the Financial Action Task Force.

When the current Foreign Secretary talks of a low-tax, low-regulation dream of a post-Brexit UK, it will be appreciated that he creates concern over whether this includes deregulating our current anti-money laundering and terrorist financing regime in due course. Given the importance hitherto of the UK’s AML and terrorist financing regime marching in lockstep with the EU, the low-regulation rhetoric has a destabilising impact on the perceptions of our European partners. A low-regulation AML and terrorist financing regime in the UK would of course create a new and substantial weakness in the global battle against economic crime, and would be an allurement to organised crime.

The role of the City as the pre-eminent global financial centre places certain responsibilities on the Government, including the maintenance of a strong and up-to-date AML and terrorist financing regime. It would be interesting to hear from the Minister what consideration the Government have given to the adverse effect on access to EU financial markets if UK financial services were subject to an AML and terrorist financing regime diverging materially from the EU regime. Obviously, there will not be an impact assessment of this, but some indication might be helpful.

Be that as it may, the amendment would improve confidence that the UK will not succumb to any temptation to weaken its current regime, and go for a low-regulation regime, in the event that the UK leaves the EU. I beg to move.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I will speak to the amendments tabled in my name and in that of my noble friend Lady Kramer. First let me take a brief moment to set the context. At Second Reading the Minister, the noble Lord, Lord Ahmad, said that this Bill was,

“about powers and not policy—it is a technical Bill”—[Official Report, 1/11/17; col. 1374].

Later, when replying to the debate, stimulated by comments by my noble friend Lord McNally, he amended his comment that the Bill was technical and said that it was about principles.

I do not agree. I would say that the problem with the Bill is that there are no principles, because they have not been carried over; there are only unconstrained powers. That is even more the case in the money-laundering part of the Bill. The principles, the starting points, are not defined. In fact, current law is undermined—and, as has already been well expounded on previous days in Committee, the good intentions of the current Minister and the Opposition Front Bench are no safeguard for the future.

There is also the widening effect when EU legislation is no longer governed by the policy constraints of EU treaties or the Charter of Fundamental Rights, which has a particular place in relation to the subject matter of the Bill. In transposition, all that has gone. This leaves us with two fears to address: first, that good law might be wantonly minimised or revoked, and, secondly, that wide powers might be used oppressively or for the wrong purpose. Both those prospects take advantage of the inadequacy of statutory instruments as a way to deal with fundamental matters.

Amendment 68A, which would replace Clause 41, Amendment 69E, which is about standards and designations, Amendment 72A, which would delete Clause 44(3), and Amendment 69A, which deals with exemptions from amendment and revocation, together address the fears that I have outlined. Before getting into the detail I will explain how they fit together. Of course, at this stage they are probing and illustrative, and I know that they are not perfect.

Amendment 68A would delete Clause 41 and replace it with an anchored principle that the money laundering regulations 2017 will continue, and that if they are to be amended, it must be done by an Act of Parliament. Amendment 69E, which could have been rolled up into the same amendment but stands separately, would provide an exception to the requirement for an Act of Parliament for amendment, and would allow for regulations to follow Financial Action Task Force standards and to update the definition of high-risk countries.

I think that there is general agreement that that is needed, but within that context—my Amendment 69E is not perfect in this respect—I have to caution that following FATF standards does not necessarily take into account civil liberties, so a framework of policy is also needed for that. Clause 41 does not give any guarantees of any such framework being carried over, and that aspect needs more attention. So the two amendments that I have outlined lay the general shape as I see that it should be. There are, however, many ways in which the provisions of the Bill, and elsewhere, can render complete change or revocation to whatever shape is laid out.

Amendment 72A to Clause 44(3) would remove the prospect of shape shifting from within the Bill. It would remove the potential to change, by regulation, the definitions of terrorist financing that were themselves made in separate Acts of Parliament that did not envisage change by regulation.

Amendment 69A is there to remind us that shape shifting and revocation options exist externally of this Bill via the European Union (Withdrawal) Bill and the Legislative and Regulatory Reform Act 2006, which can, by regulation, revoke all or part of any Act or regulation in the name of efficiency. Of course, there is no escaping the fact that procedures to combat money laundering and terrorist financing must impose burdens, which to some means inefficiency. The noble and learned Lord, Lord Davidson, has already hinted at some of that. Amendment 69A would, therefore, exempt from revocation or amendment under the two Acts that I have just mentioned.

As regards the deletion of Clause 41, I, too, have had emails from NGOs and others raising concern about the lowering of standards, including one from Global Witness suggesting that Clause 41 be narrowed to permit only enhancement of legislation. I appreciate that is what the amendment moved by the noble and learned Lord, Lord Davidson, sets out to do, and I borrowed some of the language from that to use in one of my amendments. However, the problem is that it is not only in Clause 41(1) that legislation can be done away with by regulation. It appears again, particularly in Schedule 2, where, under paragraph 20, there is carte blanche to change or revoke the money laundering regulations 2017, and one can only interpret that as some kind of intention so to do. I have already mentioned the withdrawal Bill—Clauses 7 and 17 of that Bill are prime suspects—and the “revoke anything” provision in the Legislative and Regulatory Reform Act. So we need to do more to protect against revocation of things that we do not want to see revoked.

On the other fear, of being overbearing, there is the prospect that the already wide definitions of money laundering or terrorist financing could be extended. This is where Clause 44(3) comes in, which uses Clause 1 to modify definitions of terrorist financing that appear in the four other pieces of legislation mentioned in Clause 41(3). Thus Clause 1, which we have already heard quite a lot about as regards the sanctions part of this Bill, now creeps into the anti-money laundering part. It is also worth reminding ourselves that the Delegated Powers and Regulatory Reform Committee has already said in paragraph 37 of its report that each of prevention, detection and investigation have the potential to allow the grant of significant powers affecting the rights of individuals and bodies—and that is before any tinkering with the definition of terrorist financing and before considering the removal of European protections on civil liberties.

Of course, under Clause 1, one of the objectives for change includes furthering a foreign policy objective of the United Kingdom. I pointed out on the first day of debate how UK terrorist legislation was used to freeze the assets of Landsbanki for having reckless capital adequacy and interest rate policies. This was what got them into difficulty—things that were nothing to do with terrorism. Is that the kind of thing that in future might be a foreign policy objective? In that particular instance, I know that it was cooked up in the Treasury. But what guarantees are there against all kinds of disconnected foreign policy objectives? All that flows from Clause 1 becomes relevant in the money-laundering part of the Bill.

--- Later in debate ---

[Lord Ahmad of Wimbledon]

My Lords, I am sure that the noble Baroness will accept that there are times when it makes sense to discuss certain regulations together in a group. At other times, they will be discussed individually. We will certainly look at the context of each regulation and introduce it in the appropriate manner. The key point I would make in all this is that, under the procedure we have adopted, we want to ensure that there is effective scrutiny.

I totally accept the point of principle and have noted our difference of opinion on the point made by both noble Baronesses and others on primary and secondary legislation. However, I have explained why the Government believe their approach is the right one. I also appreciate the patience of Members of the Committee in our detailed discussions setting the context, which I am sure will be reflected in our discussions today. I thank noble Lords for their patience and indulgence, and hope that they are minded to withdraw or not move their amendments.

[Lord Davidson of Glen Clova]

My Lords, the patience of this side has not been strained by the Minister, who provided a complex and interesting setting-out of the way in which the UK envisages the future. The debate in this complicated and difficult area has been most useful.

The noble Baroness, Lady Bowles, provided an intensive forensic analysis, which, I suspect, may leave one or two questions that require answers that we may, no doubt, look at on Report. Plainly, there is a difference of view between the Government and the Opposition as to the way forward on minor matters but not on the substantive way forward. While I therefore recognise the tack made on the Bill by the noble Baroness, Lady Bowles, we do not share the way forward that she suggests. However, we recognise a number of the concerns she identifies.

The noble Baroness, Lady Kramer, set out her assessment of the damage to democratic scrutiny that this approach adopts. One does, of course, speculate what would happen if a Labour Government had proposed such wide powers for Ministers. One might imagine that certain Brexiteers would have fairly vociferous views on any such proposal.

The speed argument for the anti-money laundering aspect of this clause is not entirely clear, to this side at least. As to the answer stating that there are emerging risks, it would perhaps be useful to have some examples of how they have emerged and how the current system has failed to deal with them.

The noble Baroness, Lady Kramer, identified the possibility of a sunset clause. She will be pleased to see that my noble friend Lord Collins has an amendment proposing such a clause.

I must reject the ovine reference. We are trying to find a way forward that is consonant with a good, strong regime on AML and terrorist financing. I welcome the Minister’s intention to get it right. He sees improvement as a way forward and we share that approach. Our concern is that not every future Minister might share this Minister’s good intentions and is therefore to push the legislation in an improving direction, and it is for that reason alone that we advanced this amendment.

The Minister set out the UK position at length. Long may it continue; it certainly puts the UK in a strong, leading position in relation to money laundering and terrorist financing protection. At this stage, we will go way and think about this further. I beg leave to withdraw the amendment.

Amendment 68ZA withdrawn.

--- Later in debate ---

The message from our Parliament should be loud and clear: no UK commercial entity should have anything to do with the Guptas or Zumas. By accepting this amendment, the Government would at last demonstrate that the UK is serious about ensuring that its financial institutions stop being used to pilfer public money from countries around the world and ensure that banks do not put profit before ethics when handling risky money.

[Lord Davidson of Glen Clova]

My Lords, I pay tribute to my noble friend Lord Hain for that remarkable and well-researched analysis of the real problems that money laundering can cause, and the need perhaps to look at money laundering enforcement in the UK rather more sharply than has been done in the past. He has set out the most remarkable tale of corruption in South Africa and the impact it has had on global banking, and not just within the UK.

On Amendment 69B, we are wholly supportive of the underlying principle of criminalising corporate failure to prevent money laundering. I assume that this amendment cannot be contentious. As the noble Baroness, Lady Bowles, pointed out, the Government and the Law Commission both concur in assessing the nigh impossibility of prosecuting large global commercial actors under current corporate liability legislation. It is clear that identifying the involvement of the directing mind in such entities is a major obstacle. Of course, as the noble Baroness pointed out, that skews prosecutions towards the SME sector and risks leaving major crimes unprosecuted. The Serious Fraud Office, which has the difficult and complex task of prosecuting such offenders, repeatedly has called for such an offence, as do Transparency International, Global Witness and Corruption Watch. It will be especially helpful to hear the Minister’s response given the terms of the EU’s current proposed money laundering directive, particularly Article 7, which covers a not dissimilar approach to questions of failures in the corporate sector.

Is it correct to assume the Government will adopt the proposed new EU directive? More generally, are the Government committed to maintaining regulatory alignment—to use a phrase—with the EU’s AML terrorist financing regime? Or do they envisage a different autonomous regime in due course? The autonomous regime approach has the potential to freeze the access of UK financial services to EU financial markets. I am not sure that I have detected thus far what the Minister’s response is to that particular concern.

The amendment standing in my name regarding consultation, to which the noble Baroness, Lady Bowles, kindly referred, resulted partly from the Government having opened a call for evidence in January this year on corporate liability for economic crime, which inevitably covers money laundering, but nothing appears to have emerged from the Ministry of Justice thus far.

True it is that the Government are reported to have proposed consultation for reform this year, but this year is running out. Amendment 69F seeks to create an obligation within a timeframe for consultation on corporate liability for money laundering, terrorist financing and other financially threatening offences. True it is that there has been a consultation process, a discussion of this area, for very many months, indeed years. As has been pointed out, perhaps we are getting to the point where action is required rather than further consultation. But consultation with a timeframe might at least assist the Government in moving forward even earlier. The fight against economic crime must have a real priority. Economic crime destabilises both fragile and developed economies, as my noble friend Lord Hain has pointed out so eloquently. Of course, one recognises that this Government sometimes seem to be having difficulty concentrating on any issue other than Brexit. This amendment will oblige the Secretary of State to give priority to corporate liability for economic crime.

[Lord Bates]

My Lords, I thank the noble Baroness, Lady Bowles, for introducing this amendment; she brings her own expertise in this area from her role in the European Parliament. That was evident in the way she went through a very complex issue, and I will come to the response on that.

These amendments propose creating a new corporate criminal offence for the failure to prevent money laundering, and launching a public consultation within six months of this Bill receiving Royal Assent regarding possible further reform of the law relating to corporate liability for money laundering, terrorist financing and offences which pose a threat to the integrity of the international financial system.

I understand and sympathise with the need to ensure that policies are in place which effectively prevent money laundering. However, I hope that the Committee will agree that it is of paramount importance to consider the evidence and current context before creating a new corporate offence, as the noble and learned Lord, Lord Davidson, invited us to do before introducing this element. He referred to the Ministry of Justice call for evidence earlier this year on potential reforms of the law relating to corporate liability for economic crime. Indeed, one of the options considered within that call for evidence was the potential for creating a corporate criminal offence of failure to prevent economic crime. I am sure the Committee can see the overlap with the new offence proposed by Amendment 69B and the provisions of Amendment 69C. The Ministry of Justice is considering the responses to its call for evidence, and will publish a response in the new year.

I should say that the responses to these consultations are like buses: you wait for a few months and then three of them come along together. The other one is of course on our anti-corruption strategy, which the noble Lord, Lord Collins, referred to. I mention it in this context to say that my noble friend Lord Ahmad and I have just been discussing it, and we will seek to provide a substantive update on progress towards the strategy by Report in the new year. Of course, because some of the consultations are outstanding, some of the elements of that strategy may need to wait until they are clarified.

Sanctions and Anti-Money Laundering Bill [HL]

Lord Davidson of Glen Clova Excerpts

Committee: 3rd sitting (Hansard - continued): House of Lords
Wednesday 6th December 2017 Lords Chamber

[Lord Naseby]

My Lords, I shall speak to Amendment 69K, which contains a new clause that I believe would meet a need arising from an apparent money laundering loophole to do with Companies House. Before I get on to it, I thank the Minister and particularly his staff for the consultation periods that were made available to Members of your Lordships’ House; they were extremely well run. I have also had correspondence with his office and I found it extremely helpful, so I put on record my personal thanks.

There are two ways of registering a company in this country, either directly through Companies House or via a company formation agent. Currently, 40% of all companies are incorporated through Companies House. As we probably all know, in July this year the fourth EU anti-money laundering directive came into force. It required considerable change for company formation agents in that they now had to take out enhanced due diligence checks when registering a company. Obviously this increased their workload and indeed the cost considerably, but nevertheless it was to the credit of the industry that it welcomed the changes that came with the directive.

However, under current provisions, fraudsters can still register a business direct with Companies House, either on paper or via the GOV.UK website, and, through that, avoid all the checks now required when company formation agents carry out exactly the same process. My understanding of the rationale behind this is that Companies House is not a business provider, but instead is fulfilling a statutory duty just to register businesses and issue incorporation certificates. Legally, Companies House has to accept in good faith all documents sent to it, and has no statutory power whatever to verify or validate the information contained in them. It can act only within the parameters of the Companies Act, and it has no investigatory powers under that legislation.

In reality, that means that for just £12 someone can set up a company using entirely false details without having to go through any verification checks on beneficial ownership, and with limited checks on registered directors. Individuals who have been involved in money laundering, who have convictions or who have been disbarred as owners in other jurisdictions can therefore gain access to UK companies through Companies House. This loophole cannot be justified; by incorporating at Companies House, fraudsters are able to create the illusion of their company being financially secure and sustainable. That leaves British business, consumers and taxpayers open to abuse through fraud or money laundering.

The organisation Transparency International reports that in the UK last year 251,628 UK companies were created with no checks being made on the person setting up the company or their source of wealth. A further TI report found that there were hundreds of British shell companies implicated, in its judgment, in nearly £80 billion of money laundering. The report goes on to say:

“The fact that a large proportion of firms are incorporated directly through Companies House and undergo no due diligence checks creates a significant money laundering risk to the UK framework”.


That lack of checks and balances harms Britain’s reputation as a leading place to do business, and in my judgment it is essential that that reputation is protected in the lead-up to Brexit. To protect businesses, taxpayers, and the UK’s reputation, it is essential that this loophole is closed.

I do not necessarily expect the Minister to take the precise wording in my amendment. It was written largely by myself with the help of the Public Bill Office, so in a sense it is a probing amendment, but I believe it is one with such depth of information that I would be enormously surprised if Her Majesty’s Government did not respond to it and come back with something similar on Report.

[Lord Davidson of Glen Clova (Lab)]

My Lords, the Opposition are sympathetic to many of the points that have been made, and I single out Amendment 69H. The capacity to carry out UK company formation from outside the UK is a real lacuna in the current money laundering regime. Monitoring within the UK is difficult enough, as is evidenced by the use of, for example, Scottish limited partnerships in Russian and former eastern-bloc bank fraud and money laundering of gigantic proportions. This vulnerability is of course magnified when the company information provider eludes the UK’s money laundering oversight.

Amendment 69J provides, we respectfully suggest, a useful additional hurdle for any prospective money launderer to negotiate. While the provision of the requisite materials for opening a bank account no doubt seems irksome to many, it none the less provides an additional external check on the background of those seeking to operate via a UK company.

The amendment of the noble Lord, Lord Naseby, offers a clear and useful mechanism for combating money laundering and I share his observation that it would be surprising if the Government did not support this measure with considerable force.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, there are two issues here. The first is to make sure that money laundering checks are carried out somewhere in the chain. There could be various mechanisms to do so, some of which are suggested in the amendments. Then there is the issue of how Companies House itself will get the money to conduct the checks. That is the point of the provision in Amendment 69L for a mechanism to levy a fee. Obviously, there could be other mechanisms. As to Amendment 69J, if there is no bank account, the fee could be levied at that point. Ways in which to tighten up and get the money are the objectives of this family of amendments.

Sanctions and Anti-Money Laundering Bill [HL]

Lord Davidson of Glen Clova Excerpts

Committee: 4th sitting (Hansard): House of Lords
Tuesday 12th December 2017 Lords Chamber

[Lord Beith (LD)]

My Lords, I add to my noble friend’s wise reference to the Constitution Committee the fact that the committee also pointed out that there is ample precedent for the sort of amendment that is being discussed here. For example, certain statutory instruments made under the Legislative and Regulatory Reform Act 2006 and the Public Bodies Act 2011 have comparable provisions, and there seems no reason why the committee’s advice should not be taken in this case.

[Lord Davidson of Glen Clova (Lab)]

My Lords, this amendment is a useful reminder that the Brexit process needs to reflect the devolved nature of the United Kingdom. I take this opportunity of looking at this amendment to make certain observations more broadly and, indeed, to go back to the previous group where the Minister referred to a UK property register. He will be aware—and if he is not aware, he will no doubt be told by those sitting beside him—that the United Kingdom property register covers the whole United Kingdom via three separate registers. Indeed, two of those registers come from jurisdictions which voted by a majority to remain in the EU. Plainly the Minister does not intend to give ammunition to those who wish to withdraw from the UK. This Bill, and this part, are aimed at enabling withdrawal from the EU. That is one objective. There is a body of people who will find ground for complaint in more or less anything that in some way does not take account of the separate nature of various bits of the United Kingdom. With that small warning, I commend this amendment, and leave it at that.

[Lord Ahmad of Wimbledon]

My Lords, the Bill provides powers to be used in pursuit of the UK’s foreign policy and to ensure our national security. Under the UK’s constitutional settlement, these matters are reserved to Westminster. This Bill is accordingly one that is so reserved.

The amendment would, in effect, give the devolved Administrations the right to veto legislation related to UK foreign and security policy. This is contrary to the devolution settlement between Westminster and the devolved legislatures. Devolved legislatures do not have any right to veto measures where they relate to matters of foreign and security policy, including decisions of the UN Security Council. Any such amendments can arise only as the consequence of the sanctions themselves. Their primary purposes will always be a reserved matter.

I reassure noble Lords that during the preparation of the Bill the devolved Administrations were fully consulted on this point and they have not disagreed with our assessment that the Bill is reserved. The amendment would rewrite the devolution settlement, and I am sure that was not the intention behind it.

On the observation and implementation of international obligations within the competence of the devolved Administrations, while they have the power to legislate to implement measures required as a result of international obligations entered into by the UK, that does not provide them with any right to veto UK measures for the purposes of foreign and security policy, including measures negotiated and agreed by the UK in the UN. As I have already said, we have consulted extensively with the devolved Administrations on this very point and they have not disagreed with the Government’s assessment.