Financial Crime: Legislation

Lord Parekh Excerpts

Thursday 17th March 2011 Lords Chamber

[Lord Parekh]

My Lords, I congratulate the noble Baroness, Lady Williams of Crosby, on and thank her for securing this debate and introducing it with such passion and eloquence. As she rightly pointed out, we generally tend to maintain fairly high standards in our internal affairs, both political and economic. However, when it comes to international transactions—whether foreign policy or economic—somehow our standards slip and we do not seem particularly worried. Our legislative record on dealing with bribery, tax avoidance and money-laundering is mixed. In some respects, it is better than other European countries but in others it is much worse. The number of convictions for bribery, for example, is lower in Great Britain than in many other European countries. That is not because our companies are well behaved; it is rather because the Government are unwilling or unable to prosecute them. The Bribery Act received Royal Assent in April 2010 and should have come into effect by the end of last year, but unfortunately it has not.

For money-laundering, we seem to provide more tax havens than most other countries and some of those funds find their way into the City of London. Our taxation system, which we have talked a great deal about, has many easily exploitable loopholes. I have never understood the distinction between the things called tax avoidance and tax evasion. Technically, of course, I do but morally and practically I do not. Supposing I were to do that in my own university by saying there, “No plagiarism or copying from other students”, but that the rule was so defined that if they were to copy from the internet or something else that would not count as plagiarism. How can we have a situation where rules are designed and defined so that they virtually allow you to get away with murder? Then we sanction it in the name of tax avoidance being all right but tax evasion not. The time has come to make sure that this distinction is fairly tightly defined and narrowed as much as possible.

It is because of that distinction that a large number of corporations, multinationals and banks have been able to get away with paying so little by way of taxation. Last year, the tax gap—the gap between the tax that should have been paid and that which was paid—was £42 billion. In the year before, it was £38 billion. I am told that in 2010-11 it could be as high as £80 billion to £100 billion, which is staggering. It is made easier by companies generally being set up so that we do not know what their home base is and where they could be taxed. In this country, as in many others, we allow this to happen by introducing easy mobility between the gamekeepers and the poachers, with the result that there is a serious conflict of interest. Those who should be monitoring and enforcing the system are confronted with all kinds of temptations, some of which are not easy to avoid.

My next remarks will be about, first, tax avoidance, and then money-laundering. We in this House do not seem to appreciate tax avoidance. Perhaps we do, but for the public at large it has undermined the legitimacy of the political system. People simply cannot understand how we can have designed a system in which people earning billions and billions of pounds can get away without having to pay our tax, while a small man somewhere earning no more than £30,000 or £40,000 has to pay an enormous amount of tax. How could this kind of system continue? Therefore there is enormous anger at the systematic undermining of our democratic legitimacy.

Concerning money-laundering, I shall make one point that has often been ignored. Think of a tyrant, whether it is Mubarak, Gaddafi or whoever. He plunders his people and collects billions because he is fully confident that he will be able to enjoy the fruits of the money that he has collected. What gives him that confidence? It is that his money will be easily siphoned off somewhere such as here so that he can quietly enjoy it when he is thrown out of the country. In other words, in so far as we continue to devise a system which allows those characters access to the money, we are complicit in the crimes that they have committed. The blood of their victims is, to some extent, on our hands because we have allowed the system that gives those guys the confidence. Therefore they continue to plunder their own people. We really need to appreciate how morally implicated we are in some of the activities that go on abroad.

I end by making one or two general suggestions. In this country, we ought to be fighting for agreed global norms. We must also make sure that there is rigorous monitoring with an enforcement mechanism. There should be absolute transparency on how the Government and multinationals conduct their business. We should close tax havens. All this is widely known and is nothing new but I will also make two suggestions that have, perhaps, not been explored.

First, there must be a way of naming and shaming those who avoid taxes, even when that is done by exploiting existing loopholes. We name and shame in the cases of schools that have failed and of criminals. Why should it be difficult for us to say, “These are the companies, this is the tax they paid and this is how they arrived at it”, to show how much gap there is between tax avoidance and tax evasion? Secondly, just as all legislation passing through this Parliament has a human rights compliance statement, there should be a declaration of compliance for every major government and multinational transaction: that no form of bribery or corrupt practice has taken place in the execution of that project. That kind of compliance declaration would go a long way in discouraging people from engaging in unacceptable practices and for us in shaming them afterwards, should they be caught.