Criminal Finances Bill

Lord Leigh of Hurley Excerpts

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

[Lord Sharkey]

If it were absolutely clear that you cannot obtain an unexplained wealth order without satisfying that condition, I would be happy, but I am not entirely sure that it is, and I would welcome the Minister’s confirmation that the noble Lord is correct.

Amendments 22 to 25 will allow the Minister to point out—if other noble Lords do not do so beforehand—where I have entirely missed the point. They refer to page 7 and subsections (2), (3) and (4) of new Section 362H. These subsections allow rules of court to provide for the practice and procedure to be followed relating to unexplained wealth orders before the High Court in Northern Ireland. There are similar but not identical subsections later in the Bill dealing with the same matter in Scotland. However, the Bill seems to be silent on how these matters are to be dealt with in the English and Welsh courts. I am sure I have missed something obvious here and would be grateful for enlightenment from the Minister.

There is another apparent anomaly in the sections dealing with the variation or discharge of an unexplained wealth order. I notice that the provision in Scotland is significantly different from that in Northern Ireland. On page 18, line 43, to line 1 on page 19, the Bill allows applications for variation or discharge to be made by “Scottish Ministers” or by,

“any person affected by the order”.

That is not the case for Northern Ireland, where application can be made only by the enforcement authorities or the respondent. Why is there this difference between Scotland and Northern Ireland? My Amendment 24 makes the process in Northern Ireland the same as in Scotland but, again, what about England and Wales? I look to the Minister to put me right on all this.

[Lord Leigh of Hurley (Con)]

My Lords, I welcome the legislation on UWOs. I have a number of declarations of interest, and I own residential and commercial property in the UK. I do not think that I have any unexplained wealth, but I have some experience—admittedly, some 30 years ago—of working as a tax adviser. It was quite common in those days for the Inland Revenue, as it was then, to demand explanations of what it thought was unexplained wealth from various taxpayers. That was quite common practice, so the concept of the state seeking an explanation of wealth is not new in practice.

We have a situation where, certainly in central London, a shocking number of multimillion pound properties lie dormant and are owned by overseas parties. To the extent that this goes some way to change that situation, it must be very welcome. It would also be quite welcome if the Government were to take a more holistic approach, perhaps using this Bill to address that problem as well as considering other solutions, outwith this legislation, including penal rates for dormant properties owned by overseas people. None the less, the UWOs are likely to make a significant change in helping our law enforcement agencies to investigate money laundering in the London property market and, in particular, recovering proceeds of crime.

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[Baroness Kramer (LD)]

My Lords, I do not pretend for a moment to have the drafting skills of the noble and learned Lord, Lord Brown of Eaton-under-Heywood, but I associate myself with all the other comments that have been made on the amendment. Rather than repeat the issues that have been so well described, I want to pick up the point that the noble Lord, Lord Faulks, made—that this Bill is a real and rare opportunity to tackle this problem, which, as he will have heard, exercises Members on all sides of the Committee and is essentially a non-partisan series of concerns.

When I had the privilege of sitting where the Minister is sitting, I brought a Bill through this House which was fondly and informally known as the “Dump it in here” Bill. It is perfectly possible, even at this stage, for the Government to come forward with some well-drafted language that would achieve the goals that have been described by various noble Lords today and by others who have been concerned about this issue. The Government have been looking at it for a long time. Given the fact that it will be difficult to get new legislation through in the next couple of years, I urge the Government to look at drafting that language—they have the capacity to do it and would be in a position to do it—that would bring into the Bill the kinds of remedies that would require the public register of beneficial interest for property ownership that presently we do not have in the UK. I met representatives of the British Virgin Islands the other day. The British Virgin Islands actually has such a register and would be delighted to provide mechanisms and recommendations to the British Government if they felt they needed advice in this area.

[Lord Leigh of Hurley]

My Lords, I have touched on this subject already. As president of Westminster North Conservative Association, I have spent many long evenings tramping along the streets of Westminster North, knocking on doors of properties that are clearly unoccupied and turn out to have no registered voters so are probably owned by offshore companies. While I am not convinced that the amendment, placed where it is, achieves the effect that the noble Lord, Lord Faulks, wants, I echo the remarks of the noble Baroness, Lady Kramer, that this might be an opportunity to seek to make progress.

The point made by the noble Lord, Lord Deben, about not wanting to be xenophobic is well taken, not least because of the concerns that some people have that the actual beneficial owner of these overseas companies is in fact a person in the UK who might well allegedly be the tenant. The fact that it is an overseas company does not mean that it has an overseas owner. Noble Lords ask whether their children will be able to afford to live in the house that they live in. Invariably, the answer is no.

Criminal Finances Bill

Lord Leigh of Hurley Excerpts

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

[Lord Rosser (Lab)]

My Lords, I will speak to my Amendment 166, which is also in this group. It would require the Secretary of State to issue a public consultation on new criminal offences for corporate criminal liability and for economic crime within six months of the day on which the Bill becomes an Act, and for the Secretary of State then to bring forward legislative proposals in response to the consultation within 12 months of the day on which the Bill becomes an Act.

The Bill makes it a corporate offence to fail to prevent tax evasion and adopts a similar approach to prosecution of bribery offences. However, as the noble Baroness, Lady Bowles of Berkhamsted, said, gaps remain in the law as regards the practical possibility of prosecuting companies for important economic crimes such as fraud, false accounting and money laundering, let alone the severe harms caused to individuals, including those overseas.

As the noble Baroness, Lady Bowles of Berkhamsted, again indicated, the issue was raised at Second Reading, when the Government said that,

“it would be wrong to rush into legislation in this area”,

of corporate liability for economic crime, and that there was,

“a need to establish whether changes to the law are justified”.

The Government said that they launched a public call for evidence—the closing date for which has now passed—and that if the responses,

“justify changes to the law, a consultation on a firm proposal would follow”.

Accordingly, the Government declined to comment on a timetable for reform,

“should that be the way forward”.—[Official Report, 9/3/17; col. 1518.]

The Business & Human Rights Resource Centre recorded just over 300 allegations of human rights abuses made against 127 UK-linked companies between 2004 and 2014. Although there is clear evidence that some companies were potentially serial offenders, it seems that there have been no corporate criminal prosecutions. Nearly half the allegations were made against extractive companies.

If there is a consultation following the call for evidence—and that may well be a big if—will the Government also consult on the need, or otherwise, to change the law on corporate criminal liability on human rights violations as well as economic crime? When an individual injures or kills another person, a criminal prosecution is initiated, but when a company is involved in causing similar harm—not least overseas—the ability to prosecute companies successfully is much reduced to the point of it being almost a deterrent to proceeding at all.

Overall, the corporate criminal law needs to provide that companies can be held liable for committing offences and not just for omitting to prevent them. No UK financial institution has faced criminal charges as a result of the 2008 financial crisis, and there appear to have been some recent serious issues which have resulted in no prosecution against companies as opposed to an ability to resolve the matter through financial payment.

There is also the issue that it appears from a relatively recent case that, under corporate liability laws, it is not illegal for companies to mislead their auditors. As has been said, current laws seriously disadvantage small and medium-sized businesses compared with larger businesses. SMEs, where directors are more involved, are much more easily prosecuted under the existing corporate liability regime, since current UK corporate liability laws rely on a “directing mind” test that requires prosecutors to prove that senior board-level executives intended the misconduct to occur. The Crown Prosecution Service, for example, stated that because of corporate liability laws it could not mount a successful prosecution against the companies involved in the phone-hacking scandal.

When do the Government intend to commit themselves to address this issue of the deficiencies within the current corporate criminal liability laws? They could do so today by accepting one of the amendments in this group. They could do so today by accepting my amendment, with its timetable for a public consultation and then legislation. If that is more than the Government are prepared to do, they could today at least announce that there will definitely be a public consultation on a firm proposal on the issue, following the call for evidence, and say when that public consultation is likely to commence.

[Lord Leigh of Hurley (Con)]

My Lords, I declare my interests, principally as a member of the Chartered Institute of Taxation. I wish to speak particularly on Amendment 161. The noble Baroness, Lady Bowles of Berkhamsted, is right that the mood of the public has changed dramatically and significantly against those who practise tax evasion—and to some extent tax avoidance, which I think she mentioned, although we are focusing here on tax evasion—so having such a clause in the Bill is very welcome.

Turning my mind back to 20 or 30 years ago when I was a tax practitioner, in many respects it would have been remarkable to think that this clause might appear in a Bill. Indeed, many of your Lordships may have noticed in Sunday’s and today’s national papers a two-page advertisement by a large Swiss bank protesting that it does not in any way condone tax evasion. It is quite extraordinary to see that—and most welcome—and it has no doubt come about in part because of the pressure to change public opinion brought to bear by the Government and Members of this House.

However, in respect of Amendment 161, I agree that the damage caused by economic crime is very serious. I welcome the Government’s consultation on corporate criminal liability for economic crime, but this is an extremely complex legal area that could significantly impact on the UK’s financial sector, in which I work, and in particular on the UK’s SME financial sector, which has a lot on its plate at the moment. Therefore, I hope that the Government will bring forward a consultation on possible options for reform following the conclusion of the call for evidence, which I think has just ended or will close shortly. We should wait until that is completed before a decision is made on introducing new legislation.

[Lord Beith (LD)]

My Lords, my noble friend has explained with magnificent clarity the purpose and nature of her two amendments. However, in discussions that I have had with her, she has still not quite convinced me that the use of a statutory instrument to create further facilitation crimes is something that I ought to be enthusiastic about. I well understand the purpose that she is pursuing and the care with which Amendment 161 incorporates various safeguards both within its own text and by reference to other legislative provisions. My concerns are not raised by Amendment 163, which she offers as an option.

As your Lordships look further at this matter, I just hope that we can focus a little attention on the fact that, if anything is created as a crime by a statutory instrument, it is done by a process which, although affirmative in terms of the amendment, is not capable of amendment. Therefore, any defect in the way it is worded or presented can only result in either it going through in a faulty way or the Government accepting that they should withdraw the amendment and come back with a better one. I wish that they would do that more often and quite quickly, because it would resolve some of the problems that we have with statutory instrument procedure. However, I listened to that part of the debate with still unresolved anxiety about the use of a statutory instrument without further qualification.

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[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.

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I very much take the point that the noble Lord, Lord Rosser, is making with his Amendment 168 on the failure of the UK to establish a proper register of beneficial interests in UK property. That has to be tackled. It really is an appalling scandal and a great weakness, and I can understand why many of the overseas territories point to that when they argue their own case. I join very much with the noble Lord, Lord Eatwell, in pointing out the inadequacies of Companies House and the regime that we have there. We have to fix those, but we surely do not stop at that point in time. It is for that reason that I support Amendment 167.

[Lord Leigh of Hurley]

My Lords, it may come as a surprise to some, but having carefully researched the matter, I find I have no interests or conflicts to declare in respect of this matter—perhaps sadly.

The financial services sectors of the overseas territories and the Crown dependencies are crucial as global hubs. Our close connections with them contribute to the UK’s position as a global financial centre—which is of course close to all our hearts—and, now more than ever, it is important we maintain and strengthen our ties with key economic partners.

At the same time, as with all financial services, there must be appropriate transparency to prevent abuse by those who would seek to exploit them for criminal purposes, as the noble Baroness, Lady Kramer, has just so eloquently said. It is quite clear to me that the UK is leading the way in this, which is in no small part due to the foundation stones set down by the former Prime Minister, David Cameron, who ensured that the issue of transparency was prominent in the coalition Government, from the time he chaired the G8 summit in Lough Erne and it was at the top of the agenda of that meeting.

That led to the PSC clauses in the Small Business, Enterprise and Employment Bill, on which I spoke quite extensively. Those applied only in the UK, but I recall that the noble Lord, Lord Watson of Invergowrie, commented in Committee that the overseas territories and Crown dependencies were next. Accordingly, I welcome the subsequent commitments made by the overseas territories and Crown dependencies to establish central registers of beneficial ownership—clearly, those territories are listening very carefully to Labour Peers in Committee. Once these have been implemented in June 2017, UK law enforcement will gain access to previously inaccessible information on entities registered in those jurisdictions. That will enable it to investigate corruption and money laundering through BOSS—beneficial ownership secure search systems. These are significant benefits for UK law enforcement, and I am pleased to see the overseas territories and Crown dependencies make strides towards improved financial transparency and integrity. It is an approach that will reap dividends for our law enforcement agencies and their ability to investigate financial crime, while maintaining the positive relations that we enjoy with these territories.

It is right that we should aspire to public registers of beneficial ownership, not just for the overseas territories and Crown dependencies but for all jurisdictions. I welcome the continued government commitment for public registers to be the global standard, as an aspiration. But it is clear we will achieve more by working in partnership and collaboration than by forcing legislation—to the extent we can—on independent jurisdictions with their own elected legislatures. If we threaten that, I foresee that those territories might not continue to co-operate gladly with the UK on issues such as this. We may even take backward steps.

My heart skipped a beat when the noble Baroness, Lady Stern, said that 3 April was an auspicious day: had someone told her that it was my birthday? No, it was because of the Panama papers. Panama is very different. To make the comparison with Panama is a false parallel. Part of Panama’s very different business proposition is a far lower level of financial regulation. The Financial Action Task Force gave Panama the worst rating—non-compliant—for 14 of its 40 recommendations in its most recent evaluation of Panama, one of the worst records for any country in the world.

Law enforcement agencies do not support public registers, as they do not improve their capabilities. David Lewis, formerly of the NCA and now heading the global anti-money laundering standard-setter, the Financial Action Task Force, told the Commonwealth anti-corruption summit last year:

“Incomplete, unverified, out of date information in a public register is not as useful as law enforcement agencies being able to access the right information at the point they need it”.


Tax authorities also do not support public registers, as they encourage people to report less fully and accurately. The OECD stated that for taxpayers to abide by their obligations, they,

“need to have confidence that the often sensitive financial information is not disclosed inappropriately”.

Those multilateral organisations, and the efforts to raise standards globally, are undermined by unilaterally adopting different standards, such as public registers. That is why OECD Secretary-General Angel Gurría said:

“A proliferation of different standards is in nobody’s interests”.


Indeed, much of the United States’ aversion to implementing international standards, as explained by my noble friend Lord Naseby, is the belief that it will lead to pressure to make personal information public. I cannot imagine that that situation will improve much with President Trump in the White House.

The UK rightly wants to raise implemented standards globally, but it cannot do so by undermining multilateral efforts to create a level playing field. We should not impose legislation on independent jurisdictions when financial services are matters for their internal affairs and their citizens have no representation in this House or the other place. Instead, I ask the Government to increase their efforts to raise global standards and make public registers the norm. The overseas territories and Crown dependencies have said that, should that happen, they will comply.

Equally, I am not convinced that we should unduly disadvantage the overseas territories’ economies. Indeed, an amendment such as that of the noble Baroness, Lady Stern, which excludes Gibraltar and the Crown dependencies, may give them an unfair advantage when competing for new investment with the Caribbean overseas territories. There should be a level playing field, but that means the vast majority of major financial centres moving in that direction, with encouragement from international bodies such as the Financial Action Task Force.

However, I encourage the Government to keep this matter under review and Parliament updated. That way, we can return to this issue in due course and assess the effectiveness of the central registers. That is the right thing to do, rather than hypothetically committing to legislation in two years’ time.

[Lord Thomas of Gresford (LD)]

My Lords, the right reverend Prelate the Bishop of Peterborough reminded us that corruption in the modern world is a moral issue—and so it is; perhaps one of the greatest moral issues that we face. I was reminded by the speech of the noble Lord, Lord Naseby, that the great moral issue of the late 18th century and the beginning of the 19th century was slavery. It was the judgment of Lord Mansfield in the 1780s that put an end to slavery in this country.

The anti-slavery movement then began to campaign on the basis that if slavery is abolished in this country, how can it be that we permit it in our colonies, so that when a slave from the colonies comes to this country, the shackles fall away? It took until 1833 for William Wilberforce to lead a movement to pass the anti-slavery Act. Even then, it did not abolish slavery in the East India Company territories or in Ceylon.

However, at that time slavery continued in the United States; it took a civil war to put an end to slavery in the United States. The arguments advanced then were that if we abolished slavery in the colonies and the West Indies, it would undermine the economies of those territories. The same argument again was used: how will those colonies in the West Indies be able to compete with the United States in the production of sugar and cotton if slavery is abolished there?

The important point is that this country laid down the standard. We did not wait for global standards to be brought about; we took the lead. I urge the Government to take the lead, along the lines that have been advanced today by the noble Baroness, Lady Stern, who sees not only the importance of having registers in the overseas territories but that there should be something behind it—the possibility of an Order in Council to deal with that moral issue if they do not take up the cudgels in the way that they should.