Criminal Finances Bill

Lord Rosser Excerpts

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

Fraud and money laundering cost billions, fund terror and misery and make us a low-justice country for big business—and could even be used against us in seeking trade agreements. There is urgency. I beg to move.

[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.

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

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

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

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

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

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

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

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

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

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

[Lord Rosser]

My Lords, I suspect I am on a mission that is not going to succeed, but it is unfortunate that a number of key decisions are likely not to be taken by the Government until this Bill becomes an Act. The Minister said that the closing date of the public call for evidence in relation to corporate criminal liability has just gone, but do the Government expect to give any indication before Report as to whether or not they will be moving to consultation on a firm proposal or, alternatively, are they likely to indicate before Third Reading whether they will be moving to consultation on a further proposal?

[Baroness Williams of Trafford]

Perhaps I may look into that and let the noble Lord know because I am reluctant to make sweeping promises at the Dispatch Box without knowing exactly what the timescales will be. I will let him know, certainly before Report, what the expected timescales are.

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[Lord Kirkhope of Harrogate (Con)]

My Lords, I rise as a signatory to Amendment 167, which I fully support.

As the noble Baroness, Lady Stern, highlighted, the recent “global laundromat” revelations make the need for our amendment rather pressing. As she said, it is exactly a year since the Panama papers were published and we have yet another leak. Must we wait for the next one before we follow through on the commitment made by our former Prime Minister David Cameron?

In general, of course, I add my support to the overall measures in the Bill. I know that they will go a long way to addressing corruption. I think that almost all Members of Parliament and Peers who have spoken have supported its measures, which should give the Government comfort. I also agree that the Government deserve enormous praise for the work they have done both here in the UK and internationally to tackle corruption, tax evasion and avoidance. Since David Cameron put the issue at the centre of his 2013 G8 summit, the Government have shown global leadership on an issue that blights so many countries. I very much support the progress made on this agenda, particularly at the anti-corruption summit in May last year, and the work taken forward by the OECD to tackle corporate tax avoidance. It is also worth noting that the former Prime Minister committed himself to seek to persuade the overseas territories to introduce transparency. That is the element I want to take forward today.

We all welcome the progress that has been made by the overseas territories. I am pleased that they have now agreed on the importance of having registers of beneficial ownership and I look forward to them being in place very soon. However, we must also recognise that the UK’s Crown dependencies have made real progress on this in recent years. My understanding is that they will all have central registers of beneficial ownership. While these will not be publicly accessible yet, central registers are much easier to interrogate, and crucially they will be much easier to make public in due course. This contrasts with some of the overseas territories that have not yet put in place central registers. The British Virgin Islands and Cayman Islands are, as I understand it, instead implementing—or wishing to implement—a complex system of linked registers. Is my noble friend the Minister content with this? Exactly how would linked registers work in such places? If, for instance, the UK Government made a request, would the Government in the jurisdiction concerned then make a separate request to whoever administers that bit of the register? Is the Minister satisfied that these linked registers will give the UK Government the ability to request information quickly, and does she have any concerns about how they will work, and whether they will make making requests for information easier or harder for the UK Government?

Also, to what extent and with what vigour are the UK Government making representations to the overseas territories about introducing central registers, so that they will be easier to make public when public registers become the new global standard? Naturally, such registers are a good first step for law enforcement agencies to be able to access information quickly. But the Government have already accepted that in order to properly tackle corruption, this information must be open to public scrutiny. Journalists, NGOs and the public must be able to examine the information, not just for us in the UK but also for those developing countries which suffer most from corruption and need access to the information the most. People in developing countries cannot currently benefit from the huge plethora of information-sharing agreements that we have around the world.

I admit that I am a bit confused by the Government’s recent comments on this issue. I was of the impression that it was our strong desire to see public registers of beneficial ownership. I need hardly remind noble Lords again of David Cameron calling them the “gold standard” at last year’s very welcome anti-corruption summit in London. Yet, I noted the Minister’s comments in the other place that we do not expect our overseas territories to have public registers until and unless they become a global standard. My concern is that if we wait for this to happen, it could be an excuse for no progress to be made for many years. Can the Minister assure me that this will not be the case and say how we can guarantee faster movement? I understand that in some cases, there has even been a failure to respond positively to UK inquiries on the subject.

We should remember that the historic relationship with the overseas territories has benefits for all of us. It is fair to ask those jurisdictions that while their economy and defence depend on the stability and integrity of the UK, they should also be expected to follow the same rules of business and investment that we follow here. This is not about destroying a country’s economic business model or anything like that. That is why this amendment has given an extra two years to make registers public. It is about working with them and making sure that they are following the rules in taking clean money and not gaining from illicit finance. The UK’s global reputation is also very much at stake.

I know that there are concerns in this House about interfering in the affairs of overseas territories, but I remind noble Lords that we have done this before, as the noble Baroness, Lady Stern, said, on issues of equivalent moral importance. I confess that if the Government now think that we should not insist on these registers being made public, why on earth did they suggest it in the first place, and why did Ministers expend so much energy over such a period of time on it? Surely we should not give up at this point. David Cameron was right. We should keep trying as hard as we can and should give all the assistance we possibly can to the overseas territory Governments to achieve this.

Finally, can the Minister give an assurance that all overseas territories will at least have central registers of beneficial ownership by that June deadline? If not, when will all of them have them? The complex arrangements for linked registers seem overly problematic and will make publishing registers more difficult in future. What specific progress has been made in persuading the overseas territories to adopt those public registers? Simply saying that they will adopt them if other countries do it is not enough, and neither is not mentioning transparency while the private registers are being put in place.

As we look towards the UK’s role in a post-Brexit world, we must continue to lead in this important area of anti-corruption and transparency.

[Lord Rosser]

My Lords, my name is attached to Amendment 167, and I will also bring my Amendments 168 and 169 into play, not least because, unless I have misunderstood the situation, my noble friend Lord Eatwell will certainly wish to speak about one of my amendments in this group, if not all three of them.

I fully support Amendment 167 and will touch on some of the arguments in support of it when referring to Amendments 168 and 169. Amendment 169 would provide a duty on the Secretary of State to hold a consultation on the establishment of a publicly accessible register of the beneficial ownership of UK property by companies registered outside the United Kingdom within six months of the commencement of Section 1 of this legislation. It would also require the Secretary of State to bring forward legislative proposals to set up such a register within 12 months of the commencement of the section.

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I am sorry that I have taken so long. I hope that I have given as fulsome an explanation as noble Lords expected.

[Lord Rosser]

Perhaps I may ask the Minister to clarify a couple of points. First, in the light of what she has said and what has been said in this debate about competitive disadvantage, are the Government arguing that accepting Amendment 167 would place the overseas territories at a competitive disadvantage and that that is a key reason for the Government opposing the amendment? Secondly, in view of what the Government have said about wanting to work with the overseas territories in particular, is the reality that if either the overseas territories or the Crown dependencies do not agree to public registers of beneficial ownership, then that will not happen in relation to the overseas territories and Crown dependencies?

[Baroness Williams of Trafford]

Can the noble Lord repeat his last point?

[Lord Rosser]

Certainly. My question relates to what the Government have said about working with the overseas territories. Does that mean that if either the overseas territories or the Crown dependencies decline to agree to public registers of beneficial ownership, then that will not happen in relation to the overseas territories and Crown dependencies? Is that the Government’s position?

[Baroness Williams of Trafford]

My Lords, they are all committed to working towards the same end. It would be perverse if, having signed up to this arrangement, they then decided that they were not going to work with the Government. If they suddenly stalled on working with the Government, the Government would encourage them to do so in strong terms.

[Lord Rosser]

I did not realise they had signed up to public registers. Since the Government say they want to work with the overseas territories in particular, I am simply asking what would happen if either the overseas territories or Crown dependencies declined to agree to have public registers of beneficial ownership. Is the Government’s position that it would therefore not happen as far as the overseas territories and Crown dependencies are concerned?

[Baroness Williams of Trafford]

My Lords, the Government are fully committed to working with the Crown dependencies and overseas territories to achieve the ultimate end of public registers. I have now forgotten what the noble Lord asked me on Amendment 167.

[Lord Rosser]

I was simply saying that, in the light of what has been said in this debate by a number of noble Lords about the overseas territories being placed at a competitive disadvantage if the amendment was accepted, are the Government arguing that to accept Amendment 167 would place the overseas territories at a competitive disadvantage and that that is a key reason for them opposing the amendment? Or is the reason for the Government’s opposition to the amendment a dislike of what they would describe as imposing something on the overseas territories rather than working with them?

[Baroness Williams of Trafford]

The noble Lord’s latter suggestion is correct: we do not want to impose on the overseas territories but want to work consensually with them to achieve the aims that we seek. The overseas territories may face competitive disadvantage in the short term, but in the long term, the transparent and open way in which the territories intend to work, and we with them, will be to their advantage.