Sanctions and Anti-Money Laundering Bill [Lords]

Lord Herbert of South Downs Excerpts

2nd reading: House of Commons
Tuesday 20th February 2018 Commons Chamber

[Nick Herbert (Arundel and South Downs) (Con)]

I agree with what the right hon. Member for Barking (Dame Margaret Hodge) and my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) said in welcoming the measures in this Bill. I would go further and welcome the steps that the Government are taking to tackle corruption. However, I also agree with the right hon. Lady and my right hon. Friend that we need to go further now on the issue of transparency in our overseas territories—an issue I spoke about almost exactly a year ago in this House. Specifically, it is necessary in the fight against corruption that a public register of beneficial ownership of companies is established.

Much has been made of the effect of criminal activity, the ability of those engaged in such activities to launder money and the impact of the lack of transparency in supporting crime and corruption. The right hon. Lady pointed out that the United Nations Conference on Trade and Development estimates the cost of tax havens to developing countries to be some $100 billion a year. These are costs that are falling on the poorest developing countries. It should also be pointed out that tax avoidance costs us, too. It costs taxpayers in developed countries. A 2014 United States Senate report pointed out that the US loses some $150 billion in tax revenues a year because of offshore tax schemes.

The Panama papers, and subsequently the Paradise papers, revealed the extent of the problem. However, as President Obama said after publication of the Panama papers, the problem is that most

“of this stuff is legal, not illegal.”

That goes to the heart of the issue. Companies are able to operate perfectly legally in environments where there is not sufficient transparency. The losses are legitimate in the sense that they are not unlawful but they are avoiding taxation; the activities may be legally possible, but they are illegitimate morally. They may also, however, involve criminal activity. All of those are reasons why transparency is so important.

That is why it was such a major step forward when David Cameron announced in 2013 that action would be taken and when, in April 2014, he wrote to the leaders of the overseas territories, following the action taken in global summits, and said that Britain wanted the overseas territories, in partnership with us, to publish public registers. As he argued, these were the gold standard in transparency and would support law enforcement. That was the Government’s position at the time, but does it remain their position? They have never said that they will insist that the overseas territories produce public registers, even though the then Prime Minister urged them to do so in the strongest possible terms. I will explain why that is a necessity.

It is not clear to me whether it remains the Government’s position to urge the overseas territories to introduce public registers as soon as possible. That does not seem to be their position any longer. I think they are now saying that the overseas territories should move towards the creation of public registers once that becomes the gold standard globally. If hon. Members and non-governmental organisations have noticed this change of emphasis, surely the overseas territories will have noticed it, too. What progress can we reasonably expect them to make if they have sensed that the pressure from the UK Government to introduce those registers has eased?

[Luke Graham (Ochil and South Perthshire) (Con)]

I agree with many of my right hon. Friend’s points about transparency. I also agree with some of the fine points made by the right hon. Member for Barking (Dame Margaret Hodge). My right hon. Friend mentioned a change of emphasis. I am a member of the Public Accounts Committee. I understand from speaking to some of the United States authorities that there has clearly been a change of emphasis. We are getting quite a clear picture from the United States that it is not intending to go all the way with public registers of beneficial ownership, and certainly not as far as we would like to go. Therefore, we need to be clear about where we want to show leadership, but, at the same time, we have a duty to our overseas territories to ensure that, if we limit their economies in some way, we think about other measures that can support them in the short run.

[Nick Herbert]

I agree with my hon. Friend that it is necessary for us to show leadership, and I will say more about the support that we will need to give to the overseas territories in that respect.

A number of arguments have been advanced as to why it is not a good idea to require the overseas territories to introduce public registers. The first is that others will take advantage, and that criminal activity will simply relocate if we say that it can no longer take place in the overseas territories without visibility.

That argument is completely without moral credibility. It is also an admission that such activity is taking place in those areas. To say that we should not act because there might be an economic effect as a result of a reduction in criminal activity would be to argue that the Government should never take action against crime. We have to look at what steps might be necessary to compensate for and mitigate those effects, and to support the overseas territories, to whom we have an obligation in many ways. Simply to say that we will not insist on these changes because their economies would be damaged by the ensuing reduction in criminal activity would be akin to arguing that there would be no point in the police arresting a major drugs dealer in the UK because another drugs dealer might sell drugs in his place.

That argument cannot be sustained. If we believe that a wrong is being done to developed and developing countries—as it is—by the absence of transparency enabling tax evasion and worse, it is our responsibility to tackle that wrong by any means we can. If we simply stand back and wait for change to happen, we cannot expect it to do so.

The second argument that is put forward is that the measures are unnecessary because allowing law enforcement agencies specific access to information on the beneficial ownership of companies is better. It might be the case that law enforcement agencies require a particular level of information, and they can get it through the introduction of central registers, which is a welcome initiative, but if people are seriously arguing that transparency is unnecessary for law enforcement, why did we introduce transparency in the UK? It is self-evident and intuitively obvious that transparency is an aid to law enforcement, because law enforcement agencies cannot be expected always to go after criminals. Criminal activity has to be exposed, and publication is a way of exposing and preventing it. It is telling that a lot of this activity has surfaced only because of leaks. We cannot rely on the law enforcement agencies alone, even with the assistance of central registers and the exchange of information, to deal with all these issues. Also, they cannot deal with tax evasion issues that might be lawful but morally illegitimate. If it was right for the UK to do this, it is right for others to do it, especially our overseas territories.

That leads me to the third argument, which is an important and difficult one. To what extent should the UK insist that the overseas territories do anything? Would we be behaving in a neo-colonialist manner if we did so? This argument has surfaced more recently in relation to the decision by the legislature in Bermuda to reverse a decision of the Supreme Court relating to same-sex marriage. The UK Government made the difficult decision that it was not proper for them to intervene and that this was a matter for the Bermudian authorities. However, we took action in previous years when we reversed the colonial laws that we had bequeathed to the overseas territories in relation to the criminalisation of homosexuality. The very fact of the relationship between us and the overseas territories—and the very fact that we can change the law there by orders in the Privy Council—reveals a relationship that requires us to hold to certain standards.

I accept that there could be unusual circumstances in which the UK Parliament would seek to intervene, but when it comes to global law enforcement, the harm that is being done is so general that it surely justifies action. There is a danger that, if the Government are seen to be stepping back in relation to human rights issues and to corruption, far from winning praise for allowing the devolution of power and the expression of local democratic decision making in the overseas territories, we will actually be harming ourselves and our international reputation for not upholding our obligations to the highest standards. Therefore, on balance, the argument is made not only that we have the power to intervene but that we have a duty to do so if the harm that is being done is otherwise so great.

Let us be clear that the tide is now turning in the direction of increasing transparency. As we have heard from the official Opposition, the EU is adopting measures to ensure that that takes place, and it is significant that the developing countries—those that are most harmed by the absence of transparency—are often the most supportive of these measures. Countries such as Kenya, Nigeria and Afghanistan are committed to introducing public registers of beneficial ownership. Are we really saying that our own overseas territories will not be required to do so when developing countries such as those are committed to taking that action?

The uncomfortable truth is that some of our overseas territories are the worst culprits when it comes to tax havens. Everyone knows that; the papers that have been published reveal it, and the time has come to deal with it. I agree with the right hon. Member for Barking that the time has come to insist that our overseas territories deal with this issue because frankly we will not make progress unless we press them. That is why, if a sensible amendment is tabled to the Bill to set a reasonable timetable for the overseas territories to produce registers of beneficial ownership—an amendment that has cross-party support, that includes commitments to ensure redress for any economic harm and that is respectful of the great economic damage done by the terrible hurricanes to some of our overseas territories—I will support it. I hope that such an amendment will command support on both sides of the House. This is, after all, the policy set by a Conservative Prime Minister and this Conservative Government, and it is the right policy.

Tax havens harm the world’s poorest most of all. Tax havens harm developing countries, and they harm us. They harm us economically, but they also harm our reputation. We live in an age of accountability and transparency. We must continue to lead this argument and not be behind it, which is why I urge my right hon. and hon. Friends on the Front Bench to take very serious note of what is being said in the House this evening and to act.

Sanctions and Anti-Money Laundering Bill [Lords]

Lord Herbert of South Downs Excerpts

3rd reading: House of Commons & Report stage: House of Commons
Tuesday 1st May 2018 Commons Chamber

[Chris Bryant]

I agree; I do not think that there is a single Member of this House who does not have profound respect for the people of Russia and for the country of Russia, and for what it has given to us culturally and in so many other ways over the centuries. But what a pain it is to us to see a country that was reaching out for liberty suddenly find itself crushed under the heel again. It is a country that should be one of the great advancing economies of today, but it is in stagnation, with barely 1% growth. That is why all of us, from all parts of this House, have campaigned to take a robust attitude to Russia.

Finally, the Russian ambassador tweeted the other day that he wants to meet the all-party group for Russia, which I chair. He is not answering his phone—I am not sure whether he is busy on something else—but we will have him next Wednesday afternoon at 2.30 pm if anyone wants to hear his view of things.

[Nick Herbert (Arundel and South Downs) (Con)]

I was pleased to add my name to new clause 6, and I congratulate the right hon. Member for Barking (Dame Margaret Hodge) and my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) on bringing it forward. I will not repeat the powerful arguments that have been made for transparency today—they were also well made on Second Reading—other than to say that progress has been made in the overseas territories. Central registers have been introduced, but that is not sufficient for the reasons that have been given. We need that transparency to shine a light on what is happening. I suspect that there has been relatively little interrogation of the central registers by law enforcement authorities. There also needs to be a step up in law enforcement action as well as in these measures.

Two principal concerns were adduced to explain why we should at least hesitate before we compel the overseas territories to act. The first is the potential economic damage to the overseas territories. I argued strongly on Second Reading that that should not be an impediment to act. It can never be an argument that, where something wrong is being done, we fail to act simply because there might be some economic consequences. We do, however, have a duty to ensure that those economic consequences are addressed and that we help to mitigate them.

In accepting the new clause, there is a strong responsibility on this House, and now on the Government, to ensure that there is no damage to the economies of the overseas territories for taking action, especially as they may now be taking it more rapidly than they wished to, particularly when we consider, for instance, the impact of the hurricane damage on the British Virgin Islands. That concern should not prevent action, but it should be taken seriously.

The second concern is the constitutional objection: is it right for us to intervene? That is a serious argument. Again, on Second Reading, I argued that if the harm that is being done is so great that it can no longer be ignored, there is a justification to act, and there clearly is a power to do so. These are not just domestic matters for the overseas territories in which we have decided to intervene; they have a global impact. It is therefore very important for the Governments of the overseas territories to understand the reasons why this House has felt it so important to move. If they can act voluntarily, ahead of any action being taken legislatively, that would be very welcome.

[Robert Neill]

I thank my right hon. Friend for giving way on that important point. Does he accept that it is for that reason, and that reason only, that the Chief Minister of Gibraltar wrote the letter in the way that he did—because it is the constitutional convention that we do not normally legislate without the territories’ consent? And it is for that reason, and that reason only, that the Crown dependencies, which have a good record of compliance, had concerns about this form of legislation undermining the long-established doctrine that we do not legislate for them without their consent. It is not the objective that anyone objects to in any of those jurisdictions, but this should be done through the normal constitutional process.

[Nick Herbert]

The Crown dependencies do not fall within the ambit of new clause 6, as my right hon. Friend the Member for Sutton Coldfield pointed out. They are in a different constitutional position.

The wider point is this: I would have been minded to accept the Government’s compromise amendments and new clauses had the House had the opportunity to consider them. We should have avoided, if at all possible, dictating to the overseas territories what to do, but that option was not available. None the less, I welcome the fact that action is being taken.

In agreeing to new clause 6, the key concession that the Government made was that it was no longer acceptable that the overseas territories should move only at the pace of the rest of the world. As my right hon. Friend the Minister for Europe and the Americas said, the key concession was that he accepted that the will of the House was that the overseas territories should move ahead of the pace of the rest of the world for reasons that have been very well made by Members on both sides of the House. That said, we should not lose sight of the objective here. The objective is not to force the overseas territories to take action, but to ensure that we tackle corruption where we find it, and that has to be done on a global basis.

The arguments that there will be displacement should not be an impediment to action, because we can never argue that we will not tackle a crime on one street corner in case it moves to the next. That can never be a moral argument or a reason not to take action. Nevertheless, it is a serious argument. What are we going to do to avoid displacement? The imperative is therefore on the Government and on this place, which has now forced this action, to support every effort possible to mobilise the global community behind transparency for everyone.

This House and the UK will be taking a lead, and we will be requiring our overseas territories to take a lead, but we now have to step up. That may mean taking initiatives such as having another global summit to encourage action, as the anti-corruption champion, my hon. Friend the Member for Weston-super-Mare (John Penrose), suggested. Whether it is through means such as the G20 or the G7, we must now drive action on a broader basis than simply the overseas territories or the Crown dependencies.

[John Penrose]

I completely back up what my right hon. Friend is saying. The time for global action must be now. We need to use the lead that we will create by imposing this measure to drive and exert a global leadership. It must be about not just the transparency of company disclosures but the transparency of trust disclosures and other kinds of asset classes as well as company shares.

--- Later in debate ---

[Nick Herbert]

I agree. In taking this action and ultimately, if necessary, requiring the overseas territories to act, we will be taking a grave step—one that has only been used twice before, in relation to the decriminalisation of homosexuality and to capital punishment. It is a serious move. The justification must therefore be that we use this step to encourage action globally, and that is what I urge the Government to do.

[Sammy Wilson]

On behalf of the Democratic Unionist party, may I welcome the changes that the Government have made regarding the Magnitsky amendment? It is likely to have an impact on those who think that they can get away with human rights abuses and hide behind and use their wealth in the United Kingdom. However, I am disappointed that we have not discussed on the Floor of the House the Government amendment and new clauses that were tabled as alternatives to new clause 6.

I have two main concerns. Coming from Northern Ireland, I know the impact on devolved Administrations of interference in devolved matters by the Government at Westminster, and I also know the impact that this can have on those with nationalist tendencies. New clause 6 presents a real danger in this regard. People have had to do constitutional somersaults in the House today. The Scottish National party, which has vigorously defended the rights and independence of the devolved Administration in Scotland, now suddenly has no difficulty supporting interference in the overseas territories.