Sanctions and Anti-Money Laundering Bill [HL]

Lord Lennie Excerpts

Wednesday 17th January 2018 Lords Chamber

[Baroness Bowles of Berkhamsted]

My Lords, I have added my name to the amendment of the noble Lord, Lord Naseby. We had a good mini-debate on this issue in Committee. His amendment is a neat solution to the problem that those of us involved in that mini-debate identified—that some sort of check has to be done at the Companies House stage. If money is not put behind that to enable personnel to do that, this proposal seems a neat solution. I would be interested to know whether the Government will take it up or provide something similar.

[Lord Lennie (Lab)]

My Lords, in Committee, the Minister—I think it was the noble Lord, Lord Bates—said that the OPBAS is being set up to deal with this stuff at some time in the future. I do not know when that will be and whether it is a consequence of our withdrawal from the European Union or is a separate matter. However, I would expect reassurance that that body will be up and running at least by the time that we leave the European Union, if and when we do so. Of the 250,000 companies to which the noble Lord, Lord Naseby, referred, thousands open and shut before anyone has had a chance even to notice them. Presumably, they do not always open and shut because they go bust but rather because they are concealing their activities. That needs to be addressed. I do not intend to prolong the proceedings other than to say that—I did not think I would ever say these words—I support the amendment of the noble Lord, Lord Naseby.

[Lord Ahmad of Wimbledon]

My Lords, I say to the noble Lord, Lord Lennie, that I often find myself in agreement with my noble friend. I very much appreciate the spirit behind this amendment, which would require anti-money laundering checks to be undertaken before any UK company can be incorporated by preventing the Registrar of Companies registering a company unless they are satisfied that such checks have been carried out. The amendment goes on to say that the registrar is entitled to accept the anti-money laundering registration number of the UK body that has submitted the application. The effect would be to require all incorporations to be made through a UK body that is regulated for anti-money laundering purposes.

In Committee, the Government made a number of points about the effect of requiring Companies House to operate in the same fashion as company formation agents. My noble friend Lord Naseby has clearly reflected on the points made, and the amendment responds to our concerns by allowing Companies House to accept the anti-money laundering registration number of the UK body making the application. However, this would still prevent people incorporating companies directly with Companies House and would therefore make company formation only possible via an agent that is also a registered money laundering supervisor. In doing so, it will end the current streamlined service offered by the Government under which companies can incorporate directly at Companies House and register with HMRC for certain taxes, such as corporation tax, as part of the same process.

The Government also recognise that there are sincere concerns here, which my noble friend outlined. We have listened to them, and I hope that I can set out some detail of what conclusions we have drawn thus far as a result of considering them. Before I do so, I will make one practical point. As my noble friend will be aware, the UK’s anti-money laundering regime will be evaluated by the Financial Action Task Force in March of this year. We expect the report to be made public in late 2018. This review will explicitly cover the effectiveness of how the UK prevents the misuse of legal persons such as companies for money laundering or terrorist financing. The Government have already provided extensive documentation to the FATF team conducting the review, which will be followed up by the team conducting an on-site visit within the UK. This will greatly inform the future of the UK’s anti-money laundering regime, including on the important point my noble friend made on how we can best prevent the misuse of legal entities. It will therefore be of great assistance in moving forward in this area and many others.

Following the FATF evaluation, which will report back later this year, the Government will actively consider areas where the AML/CTF framework can be improved. I can also confirm that the Government will look in particular at controls over who registers companies in the UK, what information they have to provide, and how assurance is provided over that information, which were concerns highlighted eloquently by my noble friend.

It is of course absolutely right that we should take steps, as was pointed out in Committee, to avoid corporate vehicles being used for money laundering. However, it is equally important that we balance tackling illicit finance with proportionate regulation for what I know all noble Lords acknowledge is the vast majority of legitimate businesses. The UK rightly prides itself on being one of the easier countries in the world to set up and run a business, and we are ranked in the top 10 countries for doing so. To register a company at Companies House is not in itself a suspicious act, which I know my noble friend acknowledges. It is a strength of our system that people can set up an off-the-shelf company or can incorporate online at little cost. This is particularly relevant to our smaller businesses sector and those starting businesses for the first time. I am sure that all noble Lords acknowledge that it is of great benefit to our economy and encourages a more entrepreneurial culture in the UK as a whole.

I am sure that my noble friend acknowledges that a newly formed company is not itself a money laundering risk; it must carry out some other transaction to achieve an illicit purpose. When a company undertakes an activity that may increase the risk of money laundering activities—for example, by opening a bank account—at that stage it becomes subject to quite stringent due diligence measures. Regulated firms, such as banks, solicitors and accountants, are also then required to conduct due diligence on existing customers on an ongoing, risk-sensitive basis.

I am sure that noble Lords will also acknowledge that the cornerstone of our anti-money laundering system is taking a risk-based approach. Indeed, anti-money laundering supervisory authorities are under a legal obligation to identify and assess the international and domestic risks of money laundering and terrorist financing to which its sector is subject. This ensures that the most intensive levels of supervision are applied to those entities which present the highest risks of money laundering.

I have outlined the steps we are taking and pointed out that we are awaiting the FATF evaluation, and I confirmed the important point that after the evaluation the Government will look at controls over who registers companies in the UK. I also say to my noble friend that I would very much look forward to working with him and appropriate Ministers from the BEIS department to see how we can perhaps reflect some of the key points he raised in any subsequent action the Government will take in the light of that report. With those reassurances, and acknowledging the important work he has done in this respect, I hope that my noble friend will be minded to withdraw his amendment.

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[Lord Pannick]

The noble Lord, Lord McNally, and the noble Baroness have made a powerful case that this House is signalling clearly to Ministers that it is simply not prepared to accept clauses of this nature. The great fear and regret is that Ministers are putting these clauses into each and every Bill as a matter of course without thinking about whether they are needed or if there is a way of adopting a more narrow and tailored approach.

Perhaps I may add to that by giving Ministers some legal advice. It is not simply this House that is not prepared to accept such clauses. We are arriving at the point where the courts are not prepared to accept them and are showing every sign that they will give them the narrowest possible interpretation because, as a matter of constitutional principle, they are objectionable. I draw to Ministers’ attention the judgment of the Supreme Court with the noble and learned Lord, Lord Neuberger of Abbotsbury, presiding. He gave the judgment last year in the Public Law Project case. The noble and learned Lord quoted with approval what had been said by Lord Donaldson, who was then the Master of the Rolls, in a case in 1989; this is not a new problem. I shall quote from paragraph 27 of the judgment:

“‘Whether subject to the negative or affirmative resolution procedure, [subordinate legislation] is subject to much briefer, if any, examination by Parliament and cannot be amended. The duty of the courts being to give effect to the will of Parliament, it is, in my judgment, legitimate to take account of the fact that a delegation to the Executive of power to modify primary legislation must be an exceptional course and that, if there is any doubt about the scope of the power conferred upon the Executive or upon whether it has been exercised, it should be resolved by a restrictive approach’”.


Ministers should be in no doubt whatever that the courts recognise that clauses such as this are constitutionally objectionable and that they will do everything they can to ensure that any exercise of such a power is subjected to the most rigorous scrutiny in the courts. If Ministers do not accept that and respect it, they will find that exercises of these powers will be struck down by the courts.

I agree entirely with the noble and learned Lord, Lord Judge, that this House is indicating its willingness to look closely at such clauses. Ministers should think very carefully indeed, in relation to further legislation, whether it really is appropriate and necessary to include them in the Bill.

[Lord Lennie]

My Lords, I support what the noble and learned Lord, Lord Judge, and the noble Lord, Lord Pannick, have said. I am not going to comment on whether Messrs Corbyn and McDonnell would be safe hands to put these powers in; noble Lords can make their own minds up about that. In the light of what the noble Lord, Lord Pannick, has said, any Minister should be very wary of using these powers. We support the amendment.

[Lord Berkeley of Knighton (CB)]

My Lords, perhaps someone who is not well versed in the law could make an observation. I support my noble and learned friend Lord Judge and would say simply that the strength and logic of what we have heard from many noble Lords in this debate is absolutely compelling. Furthermore, the supremacy of Parliament surely rests in taking notice of his remarks along with those of my noble friend Lord Pannick and the noble Viscount, Lord Hailsham. It is imperative that we move through legislation on a primary course rather than a secondary one.