Criminal Finances Bill

Lord Flight Excerpts

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

[Lord Flight (Con)]

My Lords, I first declare my interest as in the register, and in particular as director of Metro Bank and as a regulator in Guernsey. I very much echo Dominic Raab’s comments on this Bill in the other place. I want Britain to be a competitive and successful global hub open to international talent, as it has been for 400 years, and I want us to be known the world over for our integrity, our commitment to the rule of law and our adherence to moral principles. We need to stop turning a blind eye to the blood money of despots that may flow all too freely through London and other UK businesses, through banks and into properties. The new sections in Clause 1 are designed to address the weakness in the current UK asset-freezing regime.

I briefly make the point that I do not actually agree that compulsory public registers are going to help with the issue, particularly in Guernsey and Jersey. The law enforcement agencies do not support public registers. David Lewis, head of anti-money-laundering standards in the Financial Action Task Force has made the point that incomplete and unverified public registers are not nearly as useful as law enforcement agencies keeping the right and detailed information. Tax authorities do not support public registers, as they reduce the candour of reporting in central platforms. UK intelligence and law enforcement is a key foreign policy asset, and will be undermined. The proliferation of standards hurts multilateralism, and the OECD reported, when the UK announced its own plan, that,

“proliferation of inconsistent models is in nobody’s interest”.

The most positive organisational aspects of the Bill are the greater contact and interaction that it facilitates among the various entities working in the area, in both public and private sectors. It has been the absence of this to date which is largely responsible for a pretty poor showing in terms of actual success of anti-money-laundering activities.

I support particularly the objective of stronger partnership with the private sector. I am pleased to report that Metro Bank has signed up to be part of the Joint Money Laundering Intelligence Taskforce and I believe that that entity can be much more effective in increasing the volume of discoveries. The BBA will create a register of the business specialities of particular banks and make it available to the Joint Money Laundering Intelligence Taskforce, to bring the relevant experience into JMLIT to work on money laundering and terrorist financing. The BBA, Home Office and Treasury will operate a public private partnership to educate consumers and businesses about the risks of becoming involved in money laundering.

The Bill will create some key new relevant instruments, particularly the unexplained wealth order. The noble Lord, Lord Rooker, raised that issue. It is an extremely important instrument and I believe that huge use will be made of it in the future. Part 3 creates an offence of corporate failure to prevent tax evasion. If the person acting on behalf of a company criminally facilitates a tax evasion offence by another person, that company would be guilty of the offence. There are various other measures which, in the main, will be effective in increasing the volume of money laundering discovered.

However, I have concerns that the additional costs created versus the likely cash recovery will continue to be unsatisfactory. As others have pointed out, the NCA estimates that the amount of money laundered in the UK could be up to £90 billion. In the period 2014-15 the NCA received 381,882 suspicious activity reports, but the amounts of money that have been recovered look pathetically poor. In 2015-16 only £255 million was recovered under the Proceeds of Crime Act. In the whole period between 2010 and 2016, £2 billion was recovered using all powers in the Proceeds of Crime Act. In 2015-16 HMRC secured 1,135 charging decisions and collected £2.7 billion in additional tax and penalties, but that was significantly less than forecast and anticipated. The BBA estimates that its members are now spending £5 billion annually on core financial crime compliance. A lot of that seems to me to be pretty wasted. I accept the problems that are presented, but what is missing are more effective and determined policies to deal with the real criminals.

Let me also raise the issue of PEPs, which is relevant to this House. The Bill defines a PEP as an individual who is or has been entrusted with prominent public functions by an international organisation or by a state other than the UK, another EEA state or a family member of that person. Yet the FCA requires banks to treat domestic UK politicians as PEPs. I would be grateful if the Minister could clarify the law. At a personal level, I was somewhat surprised to discover that the bank where one of my daughters banks was inquiring about her boyfriend’s income as part of a PEP inquiry, arising from my political involvement. That struck me as somewhat inappropriate; the time and effort might have been better spent somewhere else.

The key objective should be to improve the identification of those involved in corruption overseas and the laundering of the proceeds of their crimes in London. That is why collaboration is so important, to enable law enforcement agencies to satisfy demands at the outset of such investigations, given that all the relevant information may be outside the UK. An unexplained wealth order made in relation to a PEP living overseas does not require a suspicion of serious criminality. This should be particularly helpful in cleaning up the UK money laundering activities of corrupt overseas politicians. The Bill also provides for the civil recovery of assets belonging to those involved in or profiting from human rights violations.

As I said, I am concerned that the Bill will add substantially to costs, so it will be important that it achieves a major increase in the amounts recovered from money laundering and terrorist funding activities. I believe that the most useful change will be that of allowing entities within the regulated sector, such as banks, to voluntarily share information on suspected money-laundering activities—subject, that is, to informing the NCA. The private sector holds data on financial transactions and related personal data. The law enforcement agencies hold details of criminals and intelligence on crime. When these data have been shared in the past under the Joint Money Laundering Intelligence Taskforce, there have been positive outcomes for both sectors. Although existing data protection legislation allows for the sharing of information for prevention and detection of crime, regulated companies are understandably concerned that there should be express legal cover directly related to the anti-money-laundering regime to reduce the risk of civil litigation for breach of confidentiality.

It is the Government’s intention that allowing entities to share information should allow so-called super SARs to be submitted to the NCA which would draw on multiple sources of information on suspected money laundering. At present, I feel that the NCA is just weighed down with hundreds of thousands of reports which often amount to little more than many banks protecting themselves.