Criminal Finances Bill

Lord Kennedy of Southwark Excerpts

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

[Lord Kennedy of Southwark (Lab)]

My Lords, at the outset of my remarks I am pleased, like my noble friend Lord Rosser, to put on record that Her Majesty’s Official Opposition support the aims of this legislation. We will seek, as we always do, to probe, strengthen and improve the legislation that has come before us from the other place so that the Bill goes back there in better shape than when it arrived here.

Both serious organised crime and terrorism pose real and present dangers to the United Kingdom, and it is our job to ensure we pass laws that are fit for purpose and provide the law enforcement and other agencies with the tools they need to do their important job of keeping the United Kingdom, its citizens and all the people living here safe and protected from danger.

Noble Lords will have heard the figure of £24 billion, which is the estimate of what serious criminality costs the UK economy each year. I agree with what the noble Lord, Lord Faulks, said about the cost to the UK. It is a huge sum of money and with it go lives destroyed, communities ruined and real hurt to our economy. It is everything from the vulnerable person being ripped off on the phone by con artists—losing thousands of pounds, possibly every penny they have—to tax evasion, the evil trade in drugs, prostitution, slavery and firearms. It is our duty to do everything possible to disrupt the activities of criminals, to stop these activities and to bring the perpetrators to justice.

The things that criminals do to hide their ill-gotten gains include holding large cash sums and buying expensive cars, art, jewellery and expensive clothes in order to live a lifestyle that they have not earned through legal means, as the noble Lord, Lord Dear, said. An estimated $1.6 trillion is laundered throughout the world, and the National Crime Agency estimates that many billions of pounds of that money is laundered into or through the United Kingdom as a result of international corruption. Those are staggering figures, and they illustrate why action is needed.

The noble and learned Lord, Lord Brown of Eaton-under-Heywood, made an important point about the disparity between these criminal gains and the amounts recovered from those criminals, as did a number of other noble Lords during today’s debate. Action must be taken to make the UK the most hostile place in the world for those seeking to move, hide or use the proceeds of crime, and the criminals must get that message loud and clear.

I agree with what the noble Lord, Lord Flight, said about the importance of the various agencies, both public and private, working more closely together and sharing information, and the provisions there are very welcome.

That must also be the case for all the Crown dependencies, and this is one area where I think the Bill is deficient and improvements need to be made. My noble friend Lord Watson was right when he highlighted that the Government’s position on our overseas territories is weak: they have to do better than they are doing at present.

Transparency is one of the most effective ways of dealing with this type of corruption. The right reverend Prelate the Bishop of Oxford spoke about the scandal of the illicit flows of funds from the developing world and the need for firm action to be taken to deal with the issue of tax havens in British Crown dependencies and overseas territories. The lack of transparency is a real problem and prevents individuals from seeing who owns what. It enables criminals to hide behind a cloak of secrecy.

I agree with the noble Lord, Lord Hodgson of Astley Abbotts, that we have to get the issues right in respect of overseas territories. It would be appreciated if the Minister could explain to the House why the Government have not sought to introduce requirements to ensure that overseas territories and Crown dependencies which come under the jurisdiction of the United Kingdom publish publicly available registers of beneficial ownership. It is a requirement here in the UK, allowing us to see who owns which company, so why not in overseas territories and Crown dependencies?

The United Nations Conference on Trade and Development recently estimated that tax havens, including those in the United Kingdom’s overseas territories, are costing developing countries at least $100 billion per year. The noble Lord, Lord Thomas, referred to this. The Minister must be aware that the British Virgin Islands was by far the most widely used tax haven in the Panama papers, as referred to by my noble friend Lord Rosser. We have the ability to change that, and we should take the opportunity that the Bill provides to do so.

With the additional challenge of Brexit, it is important that we create an economy, a business centre, that is the best in the world in which to do business legally and is attractive to inward investment but protected from the risks of criminality. I do not agree with the noble Lord, Lord Hodgson of Astley Abbotts, if he is against proper regulation. It is not about box-ticking but about preventing criminality in a proportionate manner.

I have been reading Faulty Towers, a report from Transparency International UK which looks at the impact of overseas corruption on the London property market. It makes staggering reading. £4.2 billion of property has been bought in London with suspicious wealth, as the noble Baroness, Lady Kramer, referred to. In 14 landmark developments, almost 40% of future homes were bought by those from high-corruption jurisdictions. Again, I agree with the noble Lord, Lord Faulks, in this respect.

My noble friend Lord Rooker made important points about who owned what property in some of the most expensive parts of London. The shining of sunlight on bankers, estate agents and other middlemen must happen urgently. This situation leads to, among things, a distortion of housing supply, with ordinary law-abiding citizens unable to afford a home in the capital. The noble Lord, Lord Patten, speaking about the effects of criminal activity on the purchase of property in London, made similar points.

My noble friend Lord Anderson of Swansea made important points about properties bought in London with suspicious funds and asked who should ring the alarm bells—should it be the estate agents, lawyers, accountants and the bankers? I bought the home I live in 13 years ago. My wife and I could not afford to buy it at today’s prices, and we live in a very ordinary terraced house in Lewisham. That is a problem all over London, with people who work hard, pay their taxes and play by the rules unable to afford a home in the capital.

I agree with the noble Baroness, Lady Kramer, on the need for further protection for whistleblowers. I hope that the Minister will comment on that in her response.

There are many welcome measures in the Bill. Part 1 includes a number of measures, including the creation of unexplained wealth orders, which seek to tackle criminals who claim that they have no assets and are penniless but at the same time appear to control considerable funds. This measure will require an individual or organisation to explain the origin of assets that appear to be disproportionate to their known income. It is a welcome move, as is the extension of disclosure orders to money laundering, which will require someone who has relevant information to answer questions put to them as part of an investigation.

Chapter 2 of the Bill seeks to improve the procedures around money laundering and suspicious activity reports. Allowing the National Crime Agency further time to consider such reports, along with the power to request further information, is again a welcome move. The sharing of information to identify illegal activity is vital, and ensuring that companies can share information for the purposes of preventing and detecting serious crime, with clear legal certainty, will be another important tool in the box. The noble Lord, Lord James of Blackheath, gave a number of examples of shocking practices that have taken place in the past. Such behaviour has to be condemned and stamped out, with, where necessary, people brought to justice for behaving so irresponsibly, aiding criminality and putting lives at risk.

Tax evasion is a crime. I welcome provisions in the Bill that seek to disrupt this activity and in particular to deal with the issue of a company operating a business in the UK being able to escape criminal liability because a tax loss is suffered in another country rather than the UK. This will be of particular benefit to developing countries, which are at great risk of such activity.

Additionally, I welcome the introduction of new powers in respect of forfeiture and seizure of assets. I will want to probe in Committee whether we have got the list right and whether the process to amend it by the affirmative procedure is the correct way to proceed.

The Bill also seeks to extend the powers of various officials and agencies. We will again probe in Committee whether the new measures are both proportionate and fit for purpose.

The second part of the Bill extends powers provided for in Part 1 so that they can apply to investigations in relation to terrorist assets and terrorist financing. These measures are welcome. We must always be vigilant and ensure that we have in place measures to assist the appropriate authorities in carrying out investigations into terrorist offences. I am sure that the Minister will acknowledge the sometimes grey area between money laundering offences, criminality and terrorism offences, so having powers that work across the piece is important for those engaged in the work to keep us safe.

Part 3 introduces a welcome new corporate offence of failure to prevent tax evasion, but we will want to explore in Committee what further can be done. The noble Baroness, Lady Bowles of Berkhamsted, is right that people have the right to know who owns which companies and to be clear about the chain of responsibility. Economic crime must be policed with vigour. Good companies will have proper procedures in place and those that do not will be forced to take action. The Prime Minister has committed to getting tough on irresponsible behaviour in big businesses, and that is an aim I welcome very much.

Cracking down on corporate economic crime has the potential to deliver significant savings to taxpayers and ensures that the vast majority of businesses that act responsibly and play by the rules are not put at a competitive disadvantage. It would be useful if the Minister could comment on how she sees the present balance of the corporate liability regime and whether there is not a case for reform to make it easier to prosecute those companies that commit offences.

I again confirm that I welcome the Bill. We will seek constructively to probe and challenge the measures contained in it so that we send back to the other place an even better Bill that can tackle effectively and proportionately all the issues that Members around the House want dealt with, with people protected and kept safe, which is the first duty of government.

Criminal Finances Bill

Lord Kennedy of Southwark Excerpts

Committee: 1st sitting (Hansard): House of Lords
Tuesday 28th March 2017 Lords Chamber

As a PEP, I was keen to support Amendment 10, in the name of the noble Lord, Lord Sharkey. I also had a chap from the Royal Bank of Scotland come round to see me and ask me what my first salary was in 1982—bizarrely, I remember that it was £4,900—and he spent a lot of time going through records that I had long forgotten about. I am not convinced that there is the protection that the noble Lord, Lord Faulks, specified earlier. One particular concern is that the provision talks about income, not capital. In any event, I am not sure why it should not be absolutely clear-cut that the Government’s intention is not to attack PEPs in this House or in the other place.

[Lord Kennedy of Southwark (Lab)]

My Lords, the Bill was welcomed by all sides of the House at Second Reading. Unexplained wealth orders are a device to give law enforcement agencies powers to require a person suspected of involvement in or association with serious criminality to explain the origin or source of assets which appear disproportionate to their income.

Amendment 1, in the name of the noble Lord, Lord Hodgson of Astley Abbotts, seeks to insert the words, “beyond reasonable doubt” after the word “satisfied”, when requiring a person to comply with an order. This raises an important point, but I am not convinced that introducing this higher test is needed here. It would make it more difficult for law enforcement agencies to get permission to seek the source of the wealth which has led them to suspect that the person’s lawfully obtained income would be insufficient for the purposes of obtaining their assets. I agree with the remarks made about this amendment by the noble Lord, Lord Faulks, who said that the higher evidential test would not be welcome in this regard. I also agree with the comments made by the noble and learned Lords, Lord Brown of Eaton-under-Heywood and Lord Phillips. I also agree with the comments by the noble Lord, Lord Blair of Boughton, on the investigatory role—the test and procedure would be difficult there as well.

Amendments 2 and 7, in the name of the noble Lord, Lord Faulks, give a better definition in relation to a person’s connection to a property, and the Government should reflect carefully on this during the passage of the Bill and possibly bring an amendment forward on Report.

Amendment 5, also in the name of the noble Lord, Lord Faulks, would provide an additional power to require a person to answer questions under oath. Again, that seems a reasonable additional power to take, which could be used at the discretion of the court. I very much take the point that the noble Lord made about the William Hill defence in terms of how one acquires assets and wealth. We need to look at that important point.

On Amendments 8 and 9, I thought that the £100,000 value in respect of a property was about right, that the £50,000 figure proposed by the noble Baroness, Lady Williams of Trafford, was too low, and that the figure proposed by the noble Baroness, Lady Hamwee, was far too high. However, having sought advice from law enforcement agencies, I understand the motivation behind the amendment of the noble Baroness, Lady Williams of Trafford, and I am content that the figure she proposes may well be right.

There is a whole series of government amendments in this group which I am content with, as they seek to prevent a person subject to one of these orders seeking to circumvent it through complicated financial means and transactions.

This has been a very useful debate, with some well-informed contributions that posed a number of questions for the noble Baroness. I am sure that she will reflect on those as we may want to come back to some of those points on Report.

The noble Lord, Lord Leigh of Hurley, made important points about property and the problems associated with it. I think that we shall debate an amendment in the name of the noble Lord, Lord Faulks, in the next group which concerns property.

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

My Lords, I thank all noble Lords who have taken part in this excellent debate. We have had some very good contributions from noble Lords from around the Committee on the significant new powers of the unexplained wealth order. I will do my best to respond to all the points that were made. I apologise in advance if I take some time to do so.

As noble Lords will know, the measures in this Bill are largely focused on serious and organised crime, but it also provides important new powers to tackle terrorist financing. Last week’s horrific attack reminds us all of the very real nature of this threat. I would like to take a moment to pause and think about the families of those who have been killed and those who still lie injured in hospital. I again pay tribute to the men and women of the police and other law enforcement and intelligence agencies who are so committed to keeping us safe—to PC Keith Palmer, but also to his many colleagues who work in Parliament and across the country. We must ensure that they have the powers they need to investigate and disrupt terrorists and terrorist groups. The powers in Part 2 of the Bill, which we will come to later, will do just that.

I return to the amendments in this group on unexplained wealth orders—or UWOs. The UK is a world leader in the fight against global corruption and the UWO is a substantial new power that will assist UK law enforcement agencies to do so. I welcome the continued cross-party support for these measures. I remind noble Lords that a UWO is a court order that requires a person to provide information which shows that they obtained identified property legitimately. If the person provides information in response to a UWO, the enforcement authority can then decide whether to investigate further, take recovery action under POCA or, if they are satisfied, take no further action. If the person does not comply with a UWO, either by not responding or not responding fully to the terms of the order, the property identified in the order is presumed to be recoverable under any subsequent civil recovery proceedings.

There are a number of government amendments in this group and I turn to them first. These are, by and large, technical changes to the provisions to help them function most effectively, but I will highlight a few for the benefit of noble Lords. As regards trusts, we have tabled government Amendments 3, 4, 6, 12, 14, 15, 17, 19, 21, 30 to 32, 36, 38 to 40, 52, 53, 174 and 175. Perhaps the biggest addition to the provisions made by the government amendments are the measures to ensure that a UWO can be served in situations where property of interest is held in trust or involves corporate structures. This, I believe, picks up some of the concerns raised by my noble friend Lord Faulks. The amendments will also allow subsequent UWOs to be obtained on additional individuals such as trustees in complex cases where this is necessary. The amendments are not a silver bullet in cases where trusts and corporate entities are involved. However, they are a significant improvement and will close a potential gap.

UWO thresholds are addressed by government Amendments 8 and 33, which would reduce the threshold for a UWO to be obtained from £100,000 to £50,000. Noble Lords rightly questioned how we settled on the balance. It followed representations from authorities in Scotland—including from the SNP during Commons consideration of the Bill—and Northern Ireland. It reflects the fact that the higher threshold could disadvantage law enforcement agencies in certain parts of the country where financial returns may not be as high or may be spread more evenly across criminal groups, and where property, in particular, has a lower value.

The threshold, however, is still an important safeguard, together with the other qualifying criteria that must be met before a UWO can be made by the court. It remains our view that the orders should be used in the most complex cases, where obtaining evidence has proved difficult, and this will be reflected in the supporting guidance.

The noble Baroness, Lady Hamwee, tabled a related amendment to push the threshold up rather than down. She helped us to reflect on the balance that must be struck in circumscribing the new power. However, based on our consultation with law enforcement agencies, I suggest that her proposed threshold of £500,000 would be prohibitive. It would stop the agencies using this power in significant cases involving serious and organised crime, and noble Lords have been clear that they want to see the most effective use of UWOs. I hope that the noble Baroness will be satisfied that our approach strikes the appropriate balance.

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[Lord Hodgson of Astley Abbotts]

My Lords, I support this amendment and the sentiments that have been expressed. Like other noble Lords, I am not sure whether it will do anything other than send a signal that this is something we are very serious about. An important aspect of not allowing it to become too London-centric—the darkened squares that my noble friend referred to in his opening remarks—is the ripple effect. What happens in central London ripples out through the country. I think the Lloyds Bank review says that Oxford is now the most unaffordable town in the country in terms of local wages to local house prices. If we can stop the ripple, or at least inhibit the ripple, that will have an effect much wider than merely the darkened squares to which my noble friend referred. As my noble friend Lord Deben said, if we take this further out, there are implications for social cohesion, as some of our less well-off and less well-resourced fellow citizens are finding themselves squeezed out by gentrification in an increasingly wide range of towns and cities across the country.

[Lord Kennedy of Southwark]

My Lords, Amendment 11 is tabled in the names of the noble Lord, Lord Faulks, and my noble friend Lord Anderson of Swansea. My noble friend was taken ill yesterday, and I am sure we all wish him a speedy recovery. This amendment would add a new paragraph to subsection (4) which clearly specifies that where,

“the respondent has a financial interest in land or property ... which is registered in the name of an overseas company”,

which could be being used as part of a complicated financial arrangement to hide from the authorities their unexplained wealth, the court can make an unexplained wealth order. I support the aims of this amendment. It highlights another way that a person can seek to avoid having to explain their wealth. This amendment seeks to address that in a very clear way. My noble friend Lord Rooker raised some important points, and I am sure the Minister will respond to them in her remarks.

Like the noble Lord, Lord Deben, I have had a bank account for 38 years. I have only ever had one—I opened it when I was 16. I went into the bank at Camberwell Green and have kept it in pretty reasonable order for those 38 years. All the things you have to do—saying who you are and having to give your mother’s maiden name—are very irritating, but there are clearly issues with funds travelling backwards and forwards that must have gone through a bank somewhere. If they are ever to be brought to account for things, that is something we must address in these debates.

A lot has been said about the London housing market. Any suggestion that it could be a safe haven for corrupt money should be of concern to us all. What a terrible thing that we even have to contemplate that. It contributes to the housing crisis in London. I referred to the Transparency International report in my contribution at Second Reading. It did some work in 14 developments and found that 1,616 companies and individuals bought properties and that only 450 were registered to people who were living in the UK. Forty per cent of purchases in London, totalling £1.6 billion, were bought by investors from countries with a high risk of corruption. We do not want any suggestion of our capital city being seen as a safe haven for corrupt money, as that must concern us all. The noble Lord, Lord Faulks, made the point that whole parts of central London are in darkness. Ten per cent of Westminster is owned by faceless companies. Properties with an abnormally low use of electricity suggests that they are not lived in on a regular basis. Transparency International also found that 140 properties with a value of £4.2 billion have been bought by investors who represent a high money-laundering risk. My friend the Mayor of London, Sadiq Khan, has launched an inquiry into the impact of foreign investment flooding into London’s housing market. The noble Lord, Lord Faulks, referred to this.

The other problem is the trickle-down effect. It causes property prices to be abnormally raised and is putting whole sections of the capital out of the reach of ordinary law-abiding citizens. That must worry us all, and very regrettable it is. About a year ago, I was standing at this Dispatch Box discussing with the Minister the Housing and Planning Bill—the cost of rents, how we get people living in safe, warm, dry properties, how people can afford to buy property and whether starter homes are the right answer. The way money has come in has made it more difficult for families, which must be of regret to us all. That is something we need to address in this Bill. The noble Lord, Lord Faulks, made the point that there may well be very little legislative time in the next Session, so we should take the opportunity that this Bill gives us.

The noble Lord, Lord Deben, talked about housing. I am happy to accept that all parties have failed in the past. There is no question about that—we all need to do very much more about it. I live in Lewisham. The noble Lord was the Member of Parliament for Lewisham at one time; I am a councillor in his old constituency. It is a great area to live in, not the most expensive part of London, but I could not now afford to buy the house that I live in. I have lived there for 13 years and the rent the people in the house next to me pay is more than my mortgage. It is ridiculous. If corrupt money has led to that, it is a bad situation.

This amendment raises important issues, and the Minister should reflect on them very carefully. If we can find some way forward before the Bill becomes law, we should do that.

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[Lord Faulks]

My Lords, I am sure the whole House shares the concern that the noble Baroness has expressed about whistleblowing and its importance generally. However, I respectfully submit that this amendment is a pretty substantial response to that. It seeks to set up a whole department—the office of the whistleblower. I accept that this is something of a probing amendment and therefore bears the standard for what the noble Baroness may hope to come, but it is little short of a job-creation scheme. The proposed functions of the office of the whistleblower are extensive and it would have powers. Of course, if an office is created, those who are given that office will appoint others to work for them and powers will be exercised. If they are not exercised it would be suggested that they were not doing their job. Before we know where we are, we will have a substantial bureaucracy that runs the risk of having the same problems that exist in other areas of bureaucratic supervision of financial institutions.

The question of incentives is interesting. I accept that that they have had some success in the United States and, as we heard from the noble and learned Lord, in Mauritius too. But as to the question of “retaliatory action against whistleblowers”, a whistleblower has remedies in civil law in any event. When she comes to respond to the Minister, will the noble Baroness give us some idea what is meant by the provision with regard to “retaliatory action against whistleblowers”? The criminal law exists and civil remedies exist for employees and I wonder whether that is not inviting something rather too much. Of course, she rightly acknowledges that whistleblowers are not entirely based in the financial institutions; they exist in the NHS and have recently been considered by Sir Robert Francis and in all other government departments.

The real question is whether the establishment of this no doubt expensive bureaucracy will deter and whether it will result in the detection of what would otherwise not have been detected. While I applaud the general thrust of the amendment, I wonder whether it is something of an overreaction.

[Lord Kennedy of Southwark]

My Lords, the noble Baroness, Lady Kramer, raised the issue of whistleblowing in her contribution at Second Reading and now proposes this new clause today with the noble Baroness, Lady Hamwee. As we have heard, it would establish an office of the whistleblower. The purpose would be to offer much-needed protection to whistleblowers who expose criminality, corruption, fraud and other illegal activity. The price that whistleblowers often pay for alerting the authorities to illegal and criminal activity is to lose their jobs and have their careers ruined and destroyed.

The noble Baroness is right to highlight that we need to do more to offer protection and compensation to people who come forward and alert the authorities to the illegal activity. The noble and learned Lord, Lord Phillips, supported action and I agree. However, I agree with the noble Lord, Lord Faulks, that setting up an office may not be the right way to go about that. What is definitely needed is further protection in statute and regulation. It may not need an office to be established. I will be interested to hear the response from the noble Baroness, Lady Williams of Trafford, to this amendment. I entirely accept that it is a probing amendment and I think that we should take the opportunity that this Bill affords us to do something to address the issue of whistleblowers and the precarious position that they can find themselves in, which the noble Baroness, Lady Kramer, has highlighted to the House today. I accept that whistleblowing goes across a variety of sectors, but we are dealing with the financial services sector and this would be a good place to start.

[Baroness Williams of Trafford]

My Lords, I am grateful to the noble Baroness for allowing us to debate this important issue. Whistleblowers play a valuable role in society by bringing wrongdoing to light that could otherwise go unchallenged. Individuals should be able to report malpractice in the workplace without fear of reprisal; and employers should be prepared to work with staff to resolve concerns, particularly by means of effective internal procedures.

The Employment Rights Act 1996, as amended by the Public Interest Disclosure Act 1998 and subsequently, provides employment protection for workers in all sectors who have blown the whistle. It enables them to seek redress if they are dismissed or suffer detriment at the hands of the employer because they have made a “protected disclosure” about wrongdoing that they have witnessed at work. To qualify for the protections, a worker must generally make their disclosure either to their employer or the relevant “prescribed person”. “Prescribed persons”’ are typically regulatory bodies for the sector in which the whistleblower works or the type of wrongdoing involved.

I assure noble Lords that, over recent years, the Government have taken steps to support a cultural change in relation to whistleblowing in all sectors, including financial services. A number of statutory and non-statutory improvements have been made. This includes guidance for whistleblowers on how in practice to make disclosures while preserving their employment protections; and guidance for employers including a non-statutory code of practice which we will review this year. We have fulfilled the commitment to keep the prescribed persons list up to date with annual reviews, and we now have guidance in place for prescribed persons. The next update will require prescribed persons to report annually on the number of whistleblowing disclosures they have received and broadly the action that resulted.

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I hope that noble Lords and the noble Baroness are reassured that the Government are taking action to address barriers to people coming forward to whistleblow, and she will feel able to withdraw her amendment.

[Lord Kennedy of Southwark]

I agree with the Minister that the office is not the right way forward, but is she saying that everything is fine?

[Baroness Williams of Trafford]

I am saying that the Government looked at this in 2014, certainly in terms of the financial incentives, and there are various mechanisms in the different sectors for whistleblowers to come forward. The ultimate sanction for employers is unlimited compensation, depending on the type of wrongs that that employer engages in.

[Lord Kennedy of Southwark]

I am sorry to come back on this, but I take it that the Government do not think that anything further needs to be done on this at the moment.

[Baroness Williams of Trafford]

The Government are never complacent in any area of law they introduce; I would never say that everything is perfect.

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[Baroness Vere of Norbiton (Con)]

My Lords, we now come to two proposed changes that the Government are seeking to make to the seizure and forfeiture powers set out in Chapter 3 of Part 1 of the Bill. In the House of Commons we introduced amendments to allow law enforcement agencies to seize casino chips and gaming vouchers where they had the suspicion that they were either the proceeds of crime or would be used to commit further offences. The Government were also asked to consider whether similar provisions could be introduced to allow the seizure of betting slips. Government Amendments 80, 82, 83 and 138 to 140 make such provision. If law enforcement agencies suspect that the funds used to place a bet are the proceeds of crime, they will be able to seize the betting slip. These provisions will be subject to the same safeguards as for cash seizure and we will be working with bookmakers and their trade associations to ensure that they are used effectively.

At present, Clause 14 allows for the seizure and forfeiture of moveable stores of value but makes no allowance for deductions for legal expenses on the part of the person the item was seized from. Government Amendments 88, 90 to 101 and 142 to 155 will therefore allow for a deduction to meet legal expenses from recovered sums following the forfeiture of the item. Where appropriate, the court will determine whether legal expenses should be paid and will provide for that as part of the forfeiture order. These amendments make similar provisions in Schedule 3 in relation to items seized where there is a suspicion of terrorist financing. I beg to move.

[Lord Kennedy of Southwark]

I am happy to support these amendments, which are both sensible and proportionate. Ensuring that betting slips can be seized is a sensible move, as indeed is the whole series of amendments.

[Lord Stevens of Kirkwhelpington (CB)]

My Lords, I also support this group of amendments. I declare an interest as my son is the head of the financial recovery unit of the Metropolitan Police. This is one area of the Bill that had an immense weakness. To ensure that the provisions work properly as far as officers working on the front line are concerned, these amendments must be inserted into the legislation.

Criminal Finances Bill

Lord Kennedy of Southwark Excerpts

Committee: 1st sitting (Hansard - continued): House of Lords
Tuesday 28th March 2017 Lords Chamber

[Lord Stevens of Kirkwhelpington (CB)]

My Lords, I support Amendments 81, 82 and 83. I pay tribute to the Minister and her team, who have listened to the officers who are actually on the front line as well as to others. In general terms—and I know these are probing amendments—if there are direct links between money assets and anything that may be used as currency, can consideration be given to those links being widened? Pursuing that would be of great help to the agencies which are enforcing these laws. I stress my tribute to the Minister and her team for listening to those who have to enforce these laws.

[Lord Kennedy of Southwark (Lab)]

My Lords, the amendment proposed by the noble Baroness, Lady Hamwee, has merit and widens the Bill so that assets which can be used as currency can be included for the purposes of the forfeiture of cash. In some parts of the world, mobile phone credits are traded as cash and it would not be impossible to see situations where large quantities of these credits could be traded, hold the proceeds of crime and be used as currency. There will be other items that will be used in similar circumstances in the future.

However, I am not persuaded by Amendment 84 in the name of the noble Baroness, Lady Hamwee. I understand the arguments about what is included in this broad definition but believe that what is shown in the Bill as “listed assets” is better. However, I would want the regulations which may amend subsection (1) to use the affirmative procedure because it is important that we have a discussion about it at that time.

Amendments 85, 89, and 106 add the words “reasonable grounds for suspecting”. Those are proportionate clarifications which the Minister should adopt. I am not convinced that Amendment 87 is necessary. I see the point which the noble Baroness, Lady Hamwee, is seeking to address but hope that the Government will confirm that the words “safely stored” will cover this point and that valuable goods will be stored appropriately.

I am not persuaded of the merits of Amendment 102, although I do support Amendments 103 and 104 in the name of the noble Baroness. If the court is satisfied that the person has suffered a loss then they should be compensated for that loss and it is important that regulations made under this section are not used to restrict the payment of compensation. Amendment 105 is also a sensible addition, unless the Minister says very clearly today that a person’s reasonable living expenses include them providing for their dependants. Amendment 106, bringing in the term “reasonable grounds”, in respect of forfeiture is also a welcome provision.

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

I thank noble Lords for their contributions, and particularly the noble Lord, Lord Stevens, for his kind words. The noble Baroness, Lady Hamwee, has—as always—scrutinised the provisions in some detail and I am grateful to her for the points she raised. Her Amendments 81 and 84 seek to broaden the scope of the seizure and forfeiture powers at Clauses 13 and 14 so that they can essentially be used to seize any items deemed to be the proceeds of crime. However, these will create a number of issues. The test that the property “may be used as currency” is legally ambiguous and untested, and it could complicate the use of these powers. The effect of Amendment 81 would also be to include a wide range of property in the cash forfeiture procedure which is not easily severable, as would be required for these provisions.

The noble Baroness referred to bitcoin at the beginning of her speech. There are difficulties in defining what we would seize. While we would not include this in the Bill, we are continuing to work with law enforcement agencies to determine how we should approach this issue more generally, and specifically to determine whether there is a gap in law enforcement capability that requires legislative change.

In respect of the noble Baroness’s Amendment 84, I am sure she would agree that we must take a proportionate approach to ensure that there is clarity regarding what can and cannot be seized. The items listed in the Bill are there based on clear justification that they may be used to move or hide the proceeds of crime, and we drew on the advice of law enforcement practitioners in developing this list. Her amendments would move away from the principle of clarity, eroding the careful circumscription that the Bill provides for these provisions. We can add to the list when the need arises, subject to parliamentary approval. As we have demonstrated through our amendments during the Bill’s passage, we will do so where a clear case arises. This gives us and the police the flexibility and balance we need while ensuring that this is not a sweeping seizure power. I am very grateful to the noble Baroness for allowing me to emphasise how seriously the Government take these issues, particularly the need for stringent safeguards on the use of such powers. I trust that she will feel inclined not to press these amendments.

I turn to the other amendments tabled by the noble Baroness. Amendment 85 seeks to insert the principle of “reasonable grounds for suspicion” into the definition of a listed asset. However, this appears to insert this test in the wrong place in the Bill. We consider that the inclusion of the “reasonable grounds to suspect” test in the sections relating to the operation of the seizure powers is more appropriate, and this approach mirrors the existing provisions for the recovery of cash.

Amendment 86 seeks to require the Secretary of State to take the actions relating to the issuing of the code of practice for searches for listed items before it is issued. The provision in the Bill is consistent with existing wording in the Proceeds of Crime Act relating to codes of conduct. I assure the noble Baroness that all the relevant actions will be taken before a code is issued.

Amendment 87 seeks to require that items seized under these provisions should be stored in appropriate conditions. The agency seizing such property is liable for its storage, and would be liable for damage to such property if due care were not taken. Therefore, we believe that the agency responsible would take such action in any case.

Amendment 102 seeks to remove the provision allowing the release of the listed item if the victim was deprived of it through unlawful conduct. The provision is one of three principles that the court must consider when the victim applies to the court for the item to be returned. The removal of this provision would remove the requirement on the victim to show that they had lost the property through unlawful means. This is an important test that the court must satisfy itself on, and which already applies to the well-established system for the forfeiture of cash, and we believe that it should be retained.

Amendment 104 seeks to prevent the Secretary of State restricting the payment of compensation through regulation. The intention behind the power in the Bill is to ensure that the appropriate agency can be held responsible for any compensation that may be paid. It allows the Secretary of State to add to the list of those who are liable for paying compensation where appropriate. The provision already exists for cash forfeiture, and I see no reason not to replicate it here. It should be noted that the circumstances in which compensation would be payable are set out elsewhere in new Section 303W, and that the Secretary of State’s power does not extend to amending these provisions.

The noble Baroness asked why exceptional circumstances are required. This is modelled on the cash provisions. The seizure power applies to a limited number of assets. It is not anticipated that, in normal circumstances, seizure would result in loss being sustained. The items are not likely to change in value during the timeframe for seizure.

I turn to provisions relating to Clause 15. Amendment 105 seeks to extend the exclusions to an account-freezing order to include the living expenses of a person’s dependants. The provision for exclusions relates to the actions on the account and the owner’s ability to use the contents of the account to meet reasonable living expenses. I fully appreciate that there may be dependants of the account owner who would be adversely affected if no provision were made for the account to be used to meet their living expenses. That is why we have included this provision. The living expenses will be determined by a court and, if there are dependants, the court will take them into consideration.

Amendment 106 would include a provision that, where forfeiture is sought on the grounds that it will be used for unlawful conduct, the officer must have reasonable grounds for suspicion that this is the case. The existing provisions already require the officer to be satisfied that the property may be recoverable or may be used for unlawful conduct, and we do not want to lower that threshold.

I thank noble Lords for their patience. I hope that I have addressed the issues that the noble Baroness raised and that she will be happy to withdraw her amendment.

[Lord Kennedy of Southwark]

When I spoke about listed assets, on page 44 of the Bill, I said I preferred what was in the Bill to the amendment of the noble Baroness, Lady Hamwee. I mentioned regulations being made by the affirmative procedure. Of course, it does not say that here, so I am assuming that they are not—that they will be made by the negative procedure or in some other way. Perhaps the Minister could write to me on this.

[Baroness Williams of Trafford]

I am looking for a yes or a no, but I do not think that I will get it, so I will write to the noble Lord.

--- Later in debate ---

[Lord Kennedy of Southwark]

I thank the Minister very much, but it does not say that in the Bill—it just refers to the regulations—and I think it needs to say that.

Amendment 81 withdrawn.

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[Baroness Hamwee]

My Lords, we have had groupings which have covered half a dozen big issues; Amendment 107 would amend the definition of SFOs— serious fraud officers—in Schedule 1, where we are told that an SFO officer is,

“a member of staff of the Serious Fraud Office”.

My amendment would add to that,

“of such minimum level of seniority as may be designated by the Secretary of State”.

Realistically, of course, this aims to exclude a very junior member of staff who has perhaps simply administrative duties and so on—I seem to remember the noble and learned Lord, Lord Keen of Elie, saying, “It wouldn’t mean the janitor”. I want to make sure that it does not mean the janitor. The SFO officers are referred to for various purposes, and after all, staff include civilians. I hope that whoever is to reply to this from the Front Bench—it seems that it will be the noble Baroness, Lady Vere—will be able to reassure the Committee as to just what is meant in this context and why there is no obvious limit: or perhaps there is one somewhere else as regards what level of officer we are talking about. I beg to move.

[Lord Kennedy of Southwark]

The noble Baroness’s amendment is obviously a probing amendment, and I hope that we will get a response from the Government Front Bench that clarifies the situation.

[Baroness Vere of Norbiton (Con)]

My Lords, I am grateful to the noble Baroness, Lady Hamwee, for her scrutiny of these provisions. Her Amendment 107 seeks to require the Secretary of State to define the seniority of SFO staff so that not all have access to POCA powers. I appreciate her concern at the extension of the powers conferred by POCA but I hope I can reassure her by explaining our reasons for extending powers to SFO officers.

As the noble Baroness is undoubtedly aware, the SFO is responsible for investigating some of the most serious cases of fraud, bribery and corruption. To effectively combat complex crime, it is vital that SFO officers have access to the most effective legislative tools. Currently, only SFO officers who have accredited financial investigator status have access to POCA powers. This is at variance with other agencies such as the police, the NCA, HMRC and Immigration Enforcement, whose officers have direct access to these powers whether or not they are financial investigators.

It is logical and appropriate that these powers are made available to all SFO officers, both to ensure consistency of approach across agencies and to ensure that non-accredited SFO officers have access to POCA powers when investigating complex crimes, which may include investigating the proceeds of crime.

I hope I can further reassure the noble Baroness that all agencies adopt a process whereby applications made under POCA are considered and approved by an appropriate management chain before they are submitted to court. This ensures that all officers, of whatever grade or rank—even the janitor—are required to consider the necessity and proportionality of any application they make.

I am grateful to the noble Baroness for allowing me to explain the rationale for this position—particularly the need to make powers available to a wide range of officers involved in the investigation of complex, acquisitive crime. I trust that she will feel inclined not to press this amendment and, accordingly, I invite her to withdraw it.

Criminal Finances Bill

Lord Kennedy of Southwark Excerpts

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

[Lord Leigh of Hurley]

My Lords, I spent quite a lot of time reading the amendment and trying to understand it. I am grateful to the noble Baroness, Lady Hamwee, for explaining it to us. As I understand it, the clause does not require relevant bodies to put these procedures in place; it just mandates the Chancellor to produce some presumably helpful guidelines, which the amendment would then require those relevant bodies to adopt. I think that is the gist of it.

If the amendment is prompted by concerns raised about the guidance the Chancellor will have to offer as a result of the clause, I hope the Minister might consider returning to that issue at subsequent readings as no explanation is given in the clause as to what the guidance will be. It would be very helpful for corporations affected to understand how they can rely on the defence of “reasonable prevention procedures”, so that they can put in place an appropriate strategy to ensure compliance with their new obligations if those are put on them through this amendment, or possibly—as is perhaps my great concern—at a later stage in the Bill or by statutory instrument.

It must be sensible to allow corporations to build on their current policies and procedures already in place under other legislative requirements to show that they have a defence to this offence. If not, the compliance costs would be significant. Even where current policies are acceptable there will still be costs involved in training staff, certification and reporting processes. There is, therefore, clearly a need to ensure that the measures can be implemented in a way that mitigates additional costs as far as possible.

Guidance can help corporations to identify how they can demonstrate that they have followed satisfactory due diligence procedures and have a “reasonable care” defence in the event that one of their associates is discovered to have criminally facilitated tax evasion. However, it must be recognised that every business is different. The importance of the guidance will be enhanced if the legislation explicitly states that the courts should “have regard to” it. This would provide a valuable extra—although not absolute—safeguard for corporations that have relied on the guidance when implementing their procedures, although, of course, it cannot be a safe harbour.

In short, the amendment will be onerous to apply to every relevant body. I therefore speak against it.

[Lord Kennedy of Southwark (Lab)]

My Lords, I support Amendment 162, proposed by the noble Baroness, Lady Hamwee. It would strengthen Clause 44, which is in a part of the Bill concerned with corporate offences of failure to prevent tax evasion. Failure to pay the right levels of tax due as an individual or as a corporate body hurts everyone. Having robust procedures in place to combat these offences is important. Some corporate entities will employ lawyers and accountants to minimise their tax liability, but where that steps over the line into tax evasion we have to be prepared to take swift action.

The clause so far will place a requirement on the Chancellor of the Exchequer to publish and prepare guidance, using the word “must”, which is not something we often see in government Bills—I have always thought parliamentary draftspersons preferred “shall”—but since it uses the word “must”, noble Lords can draw from that that great importance is implied about this guidance on the procedures. The idea is to help relevant bodies. The Bill then moves on and says,

“can put in place to”,

which negates the emphasis in the earlier part of the clause.

The amendment from the noble Baroness would place the right emphasis, saying that relevant bodies “shall have regard to” this important advice prepared by the Treasury and published by the Chancellor. The Government clearly thought it was important that companies should be aware of this advice. I hope they will tell us why they think their wording is sufficient and that that of the noble Baroness is not necessary in this case.

[Baroness Vere of Norbiton (Con)]

My Lords, I am grateful to the noble Baroness, Lady Hamwee, for tabling this amendment, which allows us to discuss the Government’s guidance on the new corporate offences in Part 3 of the Bill. Part 3 creates two new offences for relevant bodies that fail to prevent the criminal facilitation of tax evasion. It also provides a defence for a body to show that it has put in place reasonable prevention procedures designed to prevent such criminal facilitation.

The Government produced guidance on the offences, and the related defence, in 2015 and conducted a full public consultation on it. Much of the guidance focuses on the operation of the defence and helps to inform businesses’ understanding of how to determine what prevention procedures are reasonable in their circumstances. The guidance has been discussed extensively with a wide range of businesses and organisations both within the UK and overseas. Following the consultation, the updated guidance was published last year.

In addition to the government guidance, officials have been working with a number of representative bodies to support them in producing their own sector-specific guidance, which can be endorsed by the Chancellor if it is clearly in keeping with the overarching government guidance. The Chancellor’s endorsement of external guidance will provide a hallmark of quality for individual businesses to identify good practice for their sector.

The government guidance makes it clear that it is just that: guidance. It does not set out a tick-box exercise of mandatory requirements for businesses but rather six principles to help each business decide what prevention procedures, if any, are reasonable for them in their individual circumstances.

The government guidance makes it clear that, for each business, there may be a number of appropriate approaches for them to take and that departure from suggested procedures will not mean that an organisation does not have reasonable prevention procedures. Likewise, different organisations may implement the same or similar procedures differently due to their individual circumstances. For example, what is reasonable for a large, multinational financial institution will be different from what is reasonable for a small, domestic retail business.

Conversely, while departing from the guidance will not mean that a relevant body does not have reasonable prevention procedures, nor does complying with the guidance necessarily guarantee that prevention procedures are reasonable. The guidance is not intended to be a safe harbour.

The new offences also provide a defence for a business where it was reasonable for it to have no procedures in place. A business can therefore avail itself of the defence without having followed the Government’s guidance if it was reasonable for it to have no procedures in place; for example, because the risks it faced were so remote that it would be unduly burdensome for it to put in place prevention procedures.

I hope that noble Lords will therefore agree that it is not necessary, and may impose undue burden, to force businesses to have regard to the government guidance. Those businesses which need to put in place prevention procedures and which seek to be compliant will likely already have regard to the government guidance. This has been demonstrated by the excellent engagement from many sectors on the development of the guidance. Accordingly, I invite the noble Baroness to withdraw her amendment.

--- Later in debate ---

Moved by

[Lord Kennedy of Southwark]

164: After Clause 47, insert the following new Clause—
“Exclusion of companies from public procurement
The Secretary of State must publish an annual report on the number of companies which have been excluded from tendering for public contracts under the Public Contracts Regulations 2015 or had an existing public contract terminated as a result of being charged with an offence under section 42 or 43 of this Act.”

[Lord Kennedy of Southwark]

My Lords, Amendment 164, proposed by myself and my noble friend Lord Rosser, seeks to add a new clause to Part 3 of the Bill requiring the Secretary of State to publish a report on the number of companies that have been excluded from tendering for public sector contracts, or had an existing contract terminated as a result of being charged with the offence of failing to prevent the facilitation of UK or foreign tax evasion offences. The more light that is shone into the whole area of corporate failure in respect of tax evasion, the better, as this in itself would force companies that are sloppy or that do not follow procedures to take more notice of the provisions, take greater care and be clear that the Government and the tax authorities do not take such matters lightly.

Amendment 165, again in my name and that of my noble friend Lord Rosser, would be, in effect, a supervision order imposed by a court on a company convicted of a serious offence in these matters. The court could appoint a third party, such as an expert or body, to supervise the probation period of companies that co-operate with law enforcement bodies to the extent that they are offered a deferred prosecution agreement. Companies convicted under the Corporate Manslaughter and Corporate Homicide Act 2007 may have an order imposed on them to remedy the management system that allowed the manslaughter to occur. However, there are currently no powers available to a court to impose such an order on companies convicted of non-manslaughter offences which have not co-operated sufficiently with law enforcement agencies for a DPA. The perverse result is that companies that co-operate with law enforcement bodies have greater external scrutiny of their corporate governance programmes than companies that do not co-operate with enforcement agencies. This lack of scrutiny represents a missed opportunity to improve corporate governance among convicted companies, but also a powerful disincentive for companies to co-operate with enforcement authorities.

Corporate probation orders are used in other jurisdictions. The US Sentencing Commission, for instance, has given the courts the power to introduce any probationary condition relating to the nature and circumstances of the entire case when sentencing companies convicted of criminal offences. Introduction of such a power in the UK would add another significant tool to the armoury of courts and prosecutors in dealing with financial crime and ensure that the discrepancy of treatment for companies that co-operate with law enforcement authorities and those that do not is evened out, creating a more level playing field for business.

Amendment 170, in the names of the noble Baronesses, Lady Bowles of Berkhamsted and Lady Kramer, and the right reverend Prelate the Bishop of Oxford, addresses the very real issue that senior executives rarely face any consequences when companies they run engage in criminal activity—a point made numerous times from all sides in Committee. The lack of senior executives being held to account properly is a serious matter of public concern. I look forward to the contribution of the noble Baroness, Lady Bowles, who will shortly be speaking to her amendment, and I beg to move.

[Baroness Bowles of Berkhamsted]

My Lords, I shall indeed speak to Amendment 170 and I thank the noble Lord for his comments on it. This concerns the procedure for disqualification of directors where there has been a criminal conviction of a company, or a deferred prosecution agreement. The amendment seeks to make it possible, following a criminal conviction of a company, for the court to consider whether any directors should be disqualified. This is not seeking to make a criminal conviction against directors—disqualification is a civil procedure—but to put company criminality procedures on a par with that which exists when there is a breach of competition law.

--- Later in debate ---

[Baroness Williams of Trafford]

The noble Baroness foxed me when she asked that question the first time and she is still foxing me. I shall write to her before Report because I really do not know the answer.

[Lord Kennedy of Southwark]

My Lords, I thank all noble Lords who have spoken in this short debate, and I am pleased that the Minister understands the spirit and intention behind our amendment. The comments of the noble and learned Baroness, Lady Butler-Sloss, and the noble and learned Lord, Lord Judge, are points well made. They have vast legal experience and if I bring the issue back at all on Report, I shall take on board their comments and wise legal advice and draft my amendment accordingly. I certainly thank all noble Lords for their contribution today, and beg leave to withdraw the amendment.

Amendment 164 withdrawn.

--- Later in debate ---

[Baroness Hamwee]

My Lords, if the Minister needs to answer my question after today, that will be fine. I well understand what the noble Baroness has said but some of the provisions to which this amendment will apply deal only with one area—mostly with Northern Ireland but one or two with Scotland. If there is a provision that regulations may apply to areas, how does that work when you have only got one area, as I understand it, being one of the four nations? They are not sub-divisible after that.

[Lord Kennedy of Southwark]

I am happy with the amendment. It is, unfortunately, necessary in this situation. I hope the parties can get round the table and get the Administration back and up and running again.

[Baroness Vere of Norbiton]

I thank the noble Baroness for her comments and, of course, I will write with further clarification.

Criminal Finances Bill

Lord Kennedy of Southwark Excerpts

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

[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.