Criminal Finances Bill

Lord Judge Excerpts

Committee: 2nd sitting (Hansard): House of Lords
Monday 3rd April 2017 Lords Chamber

[Lord Judge (CB)]

My Lords, I had intended to speak at a little length but the noble Lord, Lord Beith, has said everything that I wished to say about the dangers of creating criminal offences by secondary legislation.

[The Minister of State, Home Office (Baroness Williams of Trafford) (Con)]

My Lords, I am very pleased to be able to return today to our debate in Committee, beginning with the very important issue of corporate criminal liability. Through this Bill the Government are building on the efforts of the last Labour Government, when they created the Bribery Act, by creating new corporate offences of failure to prevent the facilitation of tax evasion. These are significant proposals and I look forward to debating them further shortly. The amendments in this group relate to corporate criminal liability for other types of economic crime—that is, other than bribery and the facilitation of tax evasion. This issue has, of course, arisen a number of times in both Houses during the passage of the Bill, and these amendments have allowed us to have an insightful and constructive debate.

As noble Lords have said, the damage caused by economic crime perpetrated on behalf of or in the name of companies—to individuals, businesses, the wider economy and the reputation of the United Kingdom as a place to do business—is a very serious matter. As this House will be aware, the Bribery Act is widely respected as both a sound enforcement tool and a measure that incentivises bribery prevention as part of good corporate governance. As I have said, this Bill makes similar provision in regard to the facilitation of tax evasion. That provision has followed a process of full and lengthy public consultation, as did the implementation of the Bribery Act. As my noble friend Lord Leigh alluded to, these are very complex legal and policy issues with the potential for significant impact on companies operating in the UK.

I hope noble Lords will agree that this level of detailed consideration of both the existing legal framework and any proposals to extend it was crucial. That is why the Government announced, at the time of last year’s London Anti-Corruption Summit, that we would consult on the creation of new forms of criminal liability. The Government’s public call for evidence on corporate criminal liability for economic crime was published on 13 January. It openly requested evidence for and against the case for reform, and sought views on a number of possible options, such as the Bribery Act’s “failure to prevent” model, as an alternative to the current common law rules. The consultation closed only last week, on Friday 31 March. The Ministry of Justice is now assessing the responses received, but, as noble Lords will appreciate, it is too early to confirm the outcome. Should the responses received justify changes to the law, the Government would then consult on a firm proposal, as the noble Lord, Lord Rosser, articulated. I hope that reassures him that we are continuing to explore this issue as his amendment proposes. I trust noble Lords will agree that it would be wrong to rush into legislation, or to commit to doing so in the future, prior to giving the matter the appropriate consideration, as my noble friend Lord Hodgson said.

Amendment 161 provides for the novel approach that we could add additional offences to the legislation by regulations. I commend the noble Baroness on her ingenuity—I was promised she would show it—but, as I have said, these are complex issues with potentially significant implications for companies across the country. The Government do not, therefore, believe that it would be appropriate to extend the failure to prevent offences via secondary legislation, which would not allow for the appropriate level of parliamentary scrutiny of proposals such as this.

The noble Baroness, Lady Kramer, asked about the timing of the failure to prevent measures and why the Government do not act now. She said we cannot afford to delay and made a point about the upcoming Brexit legislation. I remind noble Lords that the Bribery Act offence has been on the statute book for a number of years, allowing us to assess its effectiveness. We are now legislating on tax evasion and already looking closely and openly at the question of extending it to wider economic crimes. The Government are not delaying, we are acting—and we are doing so in a sensible and considered way.

The noble Baroness, Lady Bowles of Berkhamsted, asked about the standard of proof for the failure to prevent economic crime. Her Amendment 163 allows for the defence of reasonable procedures to be satisfied by the civil standard—that is, the balance of probabilities. I can confirm, as she wanted, that it mirrors the approach in the Government’s proposed offence of corporate failure to prevent the facilitation of tax evasion.

The noble Lord, Lord Rosser, asked whether HMG will legislate to create corporate liability for failure to prevent serious harm or human rights abuse. I wrote to the noble Lord about this—it is obviously seared in his brain or, probably, was passed straight to his outbox. All businesses are expected to comply with the legislation that comes under the jurisdiction of the UK, including that which relates to human rights. While the Government have no ability to regulate UK businesses operating in overseas jurisdictions, we encourage them to honour the principles of internationally recognised human rights wherever they operate. More broadly, in 2013, we were the first country in the world to produce a national action plan in response to the United Nations guiding principles on business and human rights.

Large UK-domiciled businesses must also comply with laws that require them to report certain human rights issues, including the Companies Act and our world-leading Modern Slavery Act, which requires them to produce annual statements on what they have done to ensure that such issues do not occur in their business and supply chains.

I hope I have fully answered noble Lords’ questions and that the noble Baroness, Lady Bowles, will feel free to withdraw the amendment.

--- Later in debate ---

[Baroness Butler-Sloss (CB)]

My Lords, I have some doubts about Amendment 165. I find a corporate probation order to be rather unusual and although I am not an expert on crime, it seems to me that there would be considerable difficulties with it. Also, if one looks at subsection (5) of the proposed new clause in Amendment 165, the liability is,

“on conviction on indictment, to a fine”,

but it does not say how much. There would be a fine,

“on summary conviction in England and Wales”,

but there are limits to fines in the magistrates’ court. Whatever that figure is, it is not included. This seems an inadequately drafted amendment.

[Lord Judge]

My Lords, I add my voice to that. I support the general idea behind Amendment 165 but it proposes rather a bureaucratic new clause. Why cannot the court simply have power to make orders in accordance with its subsections (2)(a) and (2)(b), where it thinks it appropriate? Why do we need subsections (3) and (4) at all, as company B has already been convicted? It is a matter for the court to decide what sentence should be imposed; it does not need permission or an application by the prosecution. If I may say so, it seems that this would make a complex process to deal with something very straightforward. The court needs to be vested with the powers which are understood to be included on the basis of this amendment. Its compliance procedure would require an external body and, if we are doing that, can we perhaps add that there should be a report to the court about whether the appointed verifier is satisfied that verification has taken place?

As to Amendment 170, I am just a little troubled about subsection (2ZB) in its proposed new clause. It says:

“The court must not make any order under this section unless it is satisfied that the person bears responsibility”.


Fine—I understand that—but this is a penal decision. Are we saying that the court must be satisfied to a criminal standard or to a civil standard?

[Baroness Kramer]

My Lords, perhaps I may add one phrase only to this debate. I want to speak to Amendment 170 and suggest to the Government that this is frankly a no-brainer. We cannot afford to have inappropriate directors continuing to run companies, particularly when their inappropriate or inadequate behaviour has been exposed in the kind of circumstances discussed under Amendment 170. It is really important that the courts have a full range of tools. We no longer live in a world where the old-school tie and friendships determine who the appropriate directors of companies are. They have to be held to professional and appropriate standards. This proposed new clause would enable that to happen and I frankly cannot see why it should present any difficulties to the Government.

Criminal Finances Bill

Lord Judge Excerpts

3rd reading (Hansard): House of Lords & Report stage (Hansard): House of Lords
Tuesday 25th April 2017 Lords Chamber

[Lord Mackay of Clashfern (Con)]

My Lords, I support these amendments. I first came across unexplained wealth orders in Inland Revenue fraud proceedings where people had been accused of not paying their income tax. One of the methods of revealing that is by demonstrating that they suddenly have more wealth than their Revenue account suggests. Therefore, there is a question about whether the assets came from taxable income. That was the presumption at that time. That was before the terrific expansion of other forms of unexplained wealth that could arise. The explanation that someone had done something unlawful would not be a particularly good answer to a tax inquiry but perhaps that was not thought of. Certainly, that was a very useful tool in the armoury of the Inland Revenue in days past and is still so today. It is a very valuable method of dealing with this trouble. I find it very hard, however, to understand what is meant by purported compliance. As has just been said, it seems to me that you either comply or you do not. I must say that the explanation given in the draft practice system does not enlighten me any further. It suggests, indeed, that purported compliance covers certain aspects of non-compliance. It is a difficult definition to put in. I would have thought the measure would be better without it.

I raise questions with regard to the register. It is required to be done within six months of the passing of the Act. However, the commencement provisions of the Act allow the Act to come into force in accordance with regulations or orders made by the Secretary of State. I assume that the passing of the Act in this amendment is intended to refer to its getting Royal Assent. Strictly speaking, however, the Act comes into force only in accordance with orders made by the Secretary of State under the commencement provisions except in relation to certain aspects of that.

[Lord Judge (CB)]

I wish to add a few words of my own on purported compliance. I am not quite sure what we are supposed to cover. Obviously, there will be the individual who is potentially made subject to this order who will try his or her best to produce the necessary information. That may not be good enough, in which case the court will allow an adjournment so that a genuine attempt to produce the information can be made. That will then be compliance. On the other hand, some people will obfuscate and deliberately make life difficult to avoid the true facts coming to light. They will say, “That is purported compliance”, but it will not be—it will be a failure. Therefore, the words “purported compliance” simply do not apply and will not help.

[Lord Kennedy of Southwark (Lab)]

My Lords, the noble Lord, Lord Faulks, has raised some very serious issues, expressing the concerns of a number of noble Lords, and he made some of those points at earlier stages. The Government have clearly not satisfied him or many others in the House, and we share their concerns. The noble Baroness, Lady Hamwee, made similar remarks.

The point about “purports to comply” was particularly well made by the noble Lord and others, including the noble and learned Lords, Lord Mackay of Clashfern and Lord Judge. I hope that, in responding, the noble Baroness, Lady Williams of Trafford, will be able to satisfy the noble Lords who have spoken, as well as the rest of the House, that we have got this issue right. We are all very keen to get this legislation on to the statute book as quickly as possible. We certainly support its general aims—it is a good Bill—but the worst thing to do would be to put something on to the statute book that is not very well drafted and would cause more problems or be an aid to people who do not want to comply properly with the orders. This is a very important point and, although we want the Bill to pass quickly, the noble Baroness needs to satisfy the House that we have this measure right.

--- Later in debate ---

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I have added my name to Amendment 24, which is about the UK register of overseas property. Before I speak to it, as the noble Baroness was kind enough to refer to my remarks in Committee about drifting away to murkier regimes, I took it from the way that she quoted it that she did not approve of that. I was relieved that my noble friend Lord Blencathra quoted it with approval, which shows that you cannot please all the people all the time. However, I do not want my noble friend, or indeed the noble Baroness or the House, to think that that remark was made in isolation.

I said that the status quo was unsustainable and that at least three issues should be tackled as part of the new regime: first, there should be a register; secondly, our law enforcement agencies should have full-hearted access to it in a way that is prompt, helpful and consistent with a working relationship; and, thirdly, the Government should be satisfied with the probity and effectiveness of the register regime in the overseas territories and Crown dependencies. It seems to me that government Amendment 8 meets those tests, which is why I support it. Rather than talking about drifting away to murkier regimes, I should be saying that we must not let the best become the enemy of the good.

With that, I turn to Amendment 24. It is important not to see the issues raised by my noble friend Lord Faulks as a problem for only central London and the inner suburbs. There is a knock-on effect from what is going on in central London with continuing overseas investment in London properties. That makes the urgency to which my noble friend referred a moment ago all the more pressing. First, there is a ripple effect on properties in the south-east of the United Kingdom: as the settled population sell their properties closer to the middle of London, they have further money to buy properties elsewhere in the region. A very interesting article in the Financial Times on Monday 3 April pointed out that house prices have increased by 102% since 2002, compared to a 38% increase in earnings; that Londoners now need to pay 12.9 times their earnings, up from 6.9 times in 2002, to buy a London house; and that if you wish to buy a house in Kensington and Chelsea, the heartland of the area that my noble friend has in his gunsights, you now need 31 times the median salary to afford it. There is a real sense that we need to get a grip and some clarity on what is going on.

There is a second impact because, as London has become more expensive, foreign investors have begun to look at other cities. The Times of Friday 7 April pointed out that Number One Cambridge Street in Manchester, a development of 282 flats over 29 storeys, has investment purchasers from Azerbaijan, China, Japan and Zimbabwe—18 nationalities. Only two of the 282 flats are owned by Britons. The developer wrote:

“The generously proportioned apartments … appeal to owner-occupiers, investors and renters. In other words, the scheme is appealing several sectors of the market, including those looking to make the step towards getting on to the housing ladder and more established owner-occupiers”.


I must say that I think first-time buyers in Manchester might wonder whether 99.2% overseas investors and 0.8% local ownership is a fair reflection. Here I offer my noble friend Lady Stern some comfort: one investor based in the British Virgin Islands has purchased 125 flats. A company called OFY paid £25.7 million for those properties.

Although the amendment is no silver bullet, it sets out an important direction of travel, which is why I support it.

[Lord Judge]

My Lords, there have been many speeches and I, too, was unable to speak at an earlier stage, so I shall be brief. Amendment 8 is good, but Amendment 14 is better. The reason it is better is simply this: it adds greater certainty to the idea that we and the British Overseas Territories are doing our level best to destroy this scourge of corruption which infests so many countries and does so much damage throughout the whole world. It may be that we are at the start of this process—I think the Bill is the very beginning of a process—but we have to start somewhere, and this is where we should start.

[Baroness Kramer (LD)]

My Lords, I have the privilege of being a name added to the amendment moved by the noble Baroness, Lady Stern. I will use this opportunity to congratulate her not only on raising the issue but on pursuing it with so much energy. We can see from some of the results that the argument has moved; the profile of this issue has been very significantly raised and I think that government will struggle to ignore it going forward. We have had a small concession from the Government. I agree very much with the noble Earl, Lord Sandwich, that it would have been encouraging to have a stronger response, because this is indeed the encapsulation of existing government policy and existing notes of exchange into statute. It is better to have it in statute than not to have it in statute. There is a little bit of movement forward, but it is extremely small.

What has disappointed me in a lot of the debate today is the range of views expressed opposing transparency. I am very appreciative of those who have spoken out who recognise the importance of transparency. The Panama papers have been an extraordinary illustration of what transparency can do, and does, to engage regulators and enforcement agencies to pursue what is not just naughtiness—it runs far deeper than that. It is real misbehaviour that distorts economies, including our own. Amendment 24, from the noble Lords, Lord Faulks and Lord Hodgson, in many ways illustrates the distortions that have happened in property markets in the UK, with huge consequences for many of our young people and many of those on lower incomes. There is a very big knock-on beyond just the initial misuse of bank accounts and investments.

I made a much longer speech on the issue in Committee, which I shall not repeat, but we have to face the reality that many of the problems that we face across the globe, including civil war in Syria, hunger in Africa, the absence of democracy in countries such as Russia and the impact of withdrawn democracy in places such as Turkey, depend on the capacity of those who are politicians or Governments who abuse their people and who are corrupt—vast criminal networks that exploit in every way—to take advantage by moving illicitly obtained money into the legal financial sector. When we look at anywhere around the world that functions in any way as a haven or portal for that transition from the illicit world to the legal world, we are facing a situation where we have to try to close down the ability of those funds to move. The impact of that would be huge in so many ways across the globe, including for us.

I very much support—and I am sad that not everyone did—the work that the previous Prime Minister, David Cameron, did in this area, and the stand that he took, saying that, first, we have to make the kinds of changes that give us central registers. I am very glad that this Government continue to move to make sure that that extends right across all our overseas territories and Crown dependencies. Many of them are ahead of us, as has been said—but this will now be a universal description of the UK, with its overseas territories and Crown dependencies. But I am sad that the principle of public registers is now being so thoroughly challenged. We all know that if we wait for a global standard we will wait generations. Secrecy provides the kind of cover used extensively by all those whom we would wish to stop. They are the people who will be very pleased today that Amendment 14 is not going to be put to a vote and potentially carried. They will be absolutely delighted, because that is the cover that enables them to continue to make the transfer between the illicit world and the legal world.

This is a path down which I am sure that the noble Baroness, Lady Stern, who has been so vigorous on this issue, is going to continue. There will be many others around this House—we have heard from the noble and learned Lord, Lord Judge, and the noble Earl, Lord Sandwich—who will continue, and I hope that the noble Lord, Lord Rosser, will be in that group as well. We must achieve that transparency. If we do not take leadership, there is no way that we can turn around to the United States or any other location and insist that they carry out those same measures, when we say that we are not willing to do it ourselves or to use our relationship with the overseas territories and Crown dependencies to achieve that goal.

I wish that the Minister could tell us more about a timetable to achieve greater transparency. That would give us a great deal of comfort, but there does not seem to be one with much force or energy behind it, which I find exceedingly sad. But this is a day when we recognise the pressures and needs delivered by wash-up, so I very much accept the need to support government Amendment 8, and recognise with regret that we are very unlikely to have an opportunity to push on Amendment 14.