Criminal Finances Bill

Lord Faulks Excerpts

2nd reading (Hansard): House of Lords
Thursday 9th March 2017 Lords Chamber

[Lord Faulks (Con)]

My Lords, the Bill is largely a legislative reflection of the Action Plan for Anti-Money Laundering and Counter-Terrorist Finances published jointly by the Home Office and HM Treasury in April 2016. The objectives of both the plan and the Bill are to be welcomed. This country has a remarkable reputation for the rule of law, the independence of the judiciary and the integrity of our law enforcement agencies, but we face significant challenges from money laundering, financing of terrorism and major fraud. At a time of significant change in our international role, it is vital that we maintain this reputation. To do this we need to work with international groups and with the private sector. We should also ensure that our enforcement agencies have the resources they need. The Bill should help considerably, although legislation on its own will not be enough.

The National Crime Agency estimates that serious and organised crime costs the United Kingdom at least £24 billion annually and that money laundering could be taking place at a scale between £36 billion and £90 billion per annum, as the noble Lord, Lord Rosser, suggested. For understandable reasons these latter figures are rather vague.

The Bill was broadly welcomed when it was introduced and debated in the House of Commons. Some useful amendments expanding the definition of cash were made and, as we have heard, the Magnitsky amendment. The definition of cash to which the amendments referred was that in the Proceeds of Crime Act 2002—I have always pronounced the acronym “pokka” rather than “poker”; we may get into the same debate that they had in the Supreme Court about the pronunciation of “De Keyser”.

The amendment was introduced by a cross-party group of Back-Bench MPs led by my former ministerial colleague, Dominic Raab. The new provisions, although not as robust as those who put forward the amendment would have liked, nevertheless provided that the High Court could make an order to freeze the UK assets of individuals implicated in gross human rights abuses. A number of MPs emphasised that it was important that the new clause be actually used. The Minister in the Commons, Ben Wallace MP, agreed that the Government would collect data on the exercise of the new clause. I am glad about that confirmation, since it will enable Parliament to see whether the clause does not remain simply an aspiration.

UWOs mean that an individual or company will have to explain the origin of the assets that appear to be disproportionate to their known income and if they are suspected of involvement in or association with serious criminality. There are safeguards for this power and the decision to make an order will be made by a High Court judge. The orders have been widely used in Australia, among other jurisdictions, and are broadly considered to have been successful, although there was some pushback from the courts there where it was felt they had been used as a trigger response by enforcement agencies. It seems to me, however, that there are sufficient safeguards to ensure that the power is not resorted to in lieu of normal investigations. I understand that there will be a statutory code of practice, about which the House will no doubt want to hear.

In a sense, because the burden of proof will be on the individual or company to explain the origin of the assets, there will be very little that can be done to conceal matters, but one should not underestimate the ingenuity of lawyers who may be involved, at considerable expense, in representing wealthy individuals and companies that may be the subject of UWOs. I have seen the helpful Home Office flowchart indicating how the UWOs will work in practice, and my one concern is what happens if the subject responds with some sort of explanation but not much of one. It is suggested that the law enforcement agency will then decide whether the issue has been resolved or further investigation is required. I can imagine there may be something of a stonewall response; is it anticipated that the agencies will go back to court, or how will matters proceed generally?

Criticism of the Government was made in the House of Commons—and by the noble Lord, Lord Rosser, here—about the absence in the Bill of provisions covering overseas territories and Crown dependencies. I should declare an interest, having been the Minister at the Ministry of Justice with responsibility for the constitutional relationship between the United Kingdom and the Crown dependencies. I know that Jersey, Guernsey and the Isle of Man have been anxious to work effectively with the United Kingdom to assist in the international efforts to increase corporate transparency and to tackle tax evasion and corruption. All three have agreed to hold company beneficial ownership information in central electronic registers, or similarly effective systems, with near real-time access for UK law enforcement. Jersey has a non-public central register, accessible to UK law enforcement on request. Both Guernsey and the Isle of Man have agreed to establish a central register or similarly effective system, and work is under way to ensure implementation. In the case of the Isle of Man, legislation will be introduced in 2017; as to Guernsey, work is under way to ensure implementation by 2018.

The cost of taking measures to obtain the proceeds of crime from individuals and companies, or indeed to prosecute for fraud or related offences, can be very considerable. It is necessary sometimes to be pragmatic about these things and in this context I pay tribute to the Government for accepting the use of deferred prosecution agreements. These were introduced following an initiative by the former Solicitor-General, Sir Edward Garnier QC, and have been used effectively to obtain significant sums of money and to avoid the costs of prosecution. Most recently, the SFO entered into a DPA with Rolls-Royce, which was approved by Sir Brian Leveson, the President of the Queen’s Bench Division. The total sum in the UK settlement was £497.25 million plus interest and the SFO’s costs of £13 million.

We will no doubt discuss in Committee the provisions about terrorist financing, disclosure orders and suspicious activity reports. I accept the point made by the noble Lord, Lord Rosser, about not being obsessed by de minimis provisions in SARs. They will assist in the overall strategy that lies behind the Bill. Most of the changes seem sensible.

I cannot sit down before mentioning a story published in the Observer last Sunday about the enormous price the super-rich pay to keep their privacy. It appears that they are prepared to pay some £218,000 a year in tax rather than declare who owns the £20 million-plus megamansions in which they live—or do not live. The Government introduced this so-called envelope tax. The idea, presumably, was to crack down on dirty money. It has certainly brought in tax. The story suggests that tax receipts on all envelope properties worth more than £1 million came in at £178 million. Privacy is one thing, but this sort of tax deal seems contrary to the underlying philosophy which informs the Government’s approach, or certainly should. There may be respectable reasons for privacy, but equally, there may be some very far from respectable reasons. As many noble Lords know, large parts of the most expensive areas of central London are dark at night, and I suspect that many of these properties are owned by rich international financiers, some of whom will not have obtained their money honestly. Are the Government happy with this state of affairs? Perhaps the Minister can tell the House.

With some difficulty, and with the invaluable assistance of the Printed Paper Office, I managed to obtain a revised impact assessment in relation to UWOs. It suggested that perhaps 20 UWOs a year might be obtained. This was based on practitioners’ experience, presumably with freezing orders. This seems a rather modest ambition. Are UWOs going to be considered as simply part of the investigative toolkit, as the Minister seemed to suggest, or are they likely to be the basis of a major initiative? There are clearly opportunities, as I have indicated, but the agencies may have to be ready for expensive legal tactics to frustrate them.

I hope that some modest improvements in the Bill may be effected. The Minister always displays a willingness to listen, and she can count on my support in taking this Bill through your Lordships’ House. However, I ask all those who may be contemplating amendments to bear in mind what the noble and learned Lord, Lord Brown, said about the complexity that these provisions have previously involved and the risk that further elaboration may be required by the courts, so I hope amendments can be kept as simple as possible.

I hope that the legislative ambitions are reflected in an increase in the recovery of assets from criminals and in the enhancement of our reputation both nationally and internationally.