Sanctions and Anti-Money Laundering Bill [HL]

Lord Thomas of Gresford Excerpts

Committee: 1st sitting (Hansard): House of Lords
Tuesday 21st November 2017 Lords Chamber

[Lord Ahmad of Wimbledon]

The point I was making was about the implication in the current wording of “appropriate”. This is not an open invitation for a Minister to impose sanctions, and the appropriateness of imposing sanctions is qualified in the context in which they must be applied. That was why I referred to the specific section that I did.

I think I have made the point already that the concern would remain. Several noble Lords have referred to the Constitution Committee and the Delegated Powers Committee. We have received those reports as well, and I assure noble Lords that I am not dismissing them. We are reflecting very carefully on the representations made by both committees because it is important that we respond carefully and after detailed consideration of what is being put forward. As I said right at the start of my remarks, I will reflect very carefully and will very much bear in mind the voices and experience of those who have tabled these amendments. We certainly remain of the thinking that the current wording, with the balances and the qualifications in the context of the legislation as presented, means that this is not an open invitation for a Minister to apply a sanction. However, in the context of the two reports, I will of course look again at the basis on which perhaps we can look to qualify, and provide greater certainty in respect of, the language used.

Amendment 1A, tabled by the noble Baronesses, Lady Sheehan and Lady Northover, would require there to be a “compelling” reason why sanctions are appropriate for the purposes set out under subsection (2), which relates to non-UN sanctions. I agree with the sentiment behind this amendment and note that it reflects a specific recommendation of the Delegated Powers Committee. However, adding the requirement for a “compelling” reason might also give rise to some of the difficulties I have already highlighted in respect of the previous amendment.

As I said, we think that in matters of foreign affairs and security policy the Government should have discretion about when it is appropriate to act. This amendment would effectively remove some of that discretion. We also believe that it could restrict our ability to work with international partners to ensure that sanctions are effective. In some cases, sanctions may be more compelling for our international partners than for the UK, but it would undermine the effect of sanctions if we were not able to participate or agree to them being applied multilaterally. I am sure that all noble Lords will recognise that perspective. If the UK was unable to act, this could in turn undermine the UK’s relationships with our international partners.

Amendment 23 deals with a similar issue, but in relation to UN sanctions only. I think there is agreement on all sides of the Committee that it is appropriate that the UK can continue to comply with its international obligations, so I doubt there is much between us on this issue. We think “necessary” would in many cases be acceptable in that place in the Bill. However, we also think it is important that where the UN provides some flexibility about how to implement obligations, the Government should have the flexibility to decide how best to do so. The word “appropriate” provides that flexibility.

It should be noted that the power here is broadly consistent with the equivalent provision in Section 1 of the United Nations Act 1946, which enables Ministers to,

“make such provision as appears to”,

them,

“necessary or expedient for enabling”,

measures in UN Security Council resolutions “to be effectively applied”. It should also be noted that the word “appropriate” does not enable Ministers to do whatever they want. The noble and learned Lord, Lord Hope, referred to the Ahmed case, which I know he knows well. That demonstrated that the courts will take a robust approach to scrutinising the exercise of the Executive’s powers.

I have already alluded to the fact that we have received the reports of both the Constitution Committee and the Delegated Powers Committee. I put it on record that we will consider both committees’ recommendations very carefully. I have also listened carefully to the contributions during the course of this short debate, and I am sure we will explore the issues further as we scrutinise the Bill in Committee.

It says here, “I hope I have been able to convince noble Lords”, but, from looking around the Chamber, I think that would be a rather hopeful word to use at this juncture. Perhaps I have provided noble Lords with a degree of reassurance with some of the explanations that I have given about the context in which the sanctions would apply, but I respect and understand that there would be a need for continued parliamentary scrutiny and for ensuring, as I am sure all noble Lords appreciate, that the UK continues to comply with international law and maintains a leading role in international affairs after the UK’s exit from the EU.

As I said, we will continue to consider very carefully the recommendations of the two committees, and I am sure we will return to this issue in discussion with noble Lords. Again, there are important issues of discussion here. Both in the course of the Committee stage of the Bill and in the meetings that we are having beyond the Chamber, I am sure we will reach a means of moving forward constructively on this basis. The ultimate purpose and objectives of the sanctions regime are something that I know all noble Lords respect. Based on that, I hope the noble Lords will be minded at this juncture to withdraw the amendment.

[Lord Thomas of Gresford (LD)]

My Lords, I am pleased to hear the Minister confirm that this House has the power to vote down statutory instruments. Indeed, if the Government continued to pursue policy goals through secondary legislation, that procedure would become much more widely used than it has been in the past without the suggestion that the British constitution was being undermined.

The Minister has said that these powers have been taken in the pursuit of Foreign Office goals. A memorandum from the Foreign and Commonwealth Office, dated 19 October last, was sent to the Delegated Powers and Regulatory Reform Committee. Paragraph 52 says, under the heading “Justification for taking the powers”:

“The Government therefore considers it necessary and appropriate to provide framework powers that enable detailed sanctions regimes to be set out in secondary legislation”.


If the justification for taking the powers must be necessary and appropriate, why is the same test not to be applied to the exercise of those powers?

[Lord Ahmad of Wimbledon]

I thank the noble Lord for his late but important contribution. As I said to the noble Baroness, Lady Kramer, I was stating the position as is, regarding the context in which both Houses of Parliament can vote on statutory instruments. In the case of your Lordships’ House, it is clearly laid out in the Companion as well. Let us also put this into context: if a sanctions regime were being proposed and it were voted down in both Houses, the sanction itself would fall and would not apply. The context is not something that can be ignored. In the context of the second question, the noble Lord—

[Lord Ahmad of Wimbledon]

Perhaps I can read into what the noble Baroness seeks on this occasion. This is not an issue about both Houses or affirmative instruments. The position I have given is not the Government’s position; it is the position as it stands now. If she needs further elaboration, I respectfully refer her to the House of Lords Companion.

To return to the noble Lord’s final question, if I may, I will write on the specific issue that he raised for the purpose of clarity for all Members of your Lordships’ House.

[Lord Thomas of Gresford]

The noble Lord said that my intervention was late. This is Committee, and the advantage of Committee is that Members may reply to the Minister after he has made his contribution.

[Lord Ahmad of Wimbledon]

As ever, as I said, we live and learn. The noble Lord is of course right in this context: during Committee, any noble Lord can speak and intervene as appropriate.

--- Later in debate ---

[Lord Ahmad of Wimbledon]

I thank my noble friend for his intervention. He speaks from experience and, as someone who spent 20 years in the financial services sector, I am acutely aware of the challenges presented by the issue of designations. I will of course take his suggestion and reflect upon it. To address particularly the point raised by the noble and learned Lord, Lord Falconer, this would be the exception. It would not be the norm but would be to cover situations that do occur and have occurred. I have sought in my response to illustrate the circumstances in which that would occur and, based on that, I hope that at this time the noble and learned Lord will be minded to withdraw his amendment.

[Lord Thomas of Gresford]

Can the Minister explain what the point is of having sanctions if you do not know who they are against? I am looking again at the memorandum to which I referred earlier, which says in paragraph 44:

“Designated persons attract individual sanctions, including asset freezes. Designations are an effective way of coercing or constraining individuals who are directly involved or closely associated with the activity or behaviour targeted by the sanctions. The Government would intend to publish the names of designated persons on a list on its website, and would also notify those persons, where possible, in accordance with clause 1. There are currently around 2000 designated persons under existing sanctions regimes implemented by the UK”.


If that is the purpose of it—to coerce or constrain individuals when you do not know who they are—how can these sanctions be effective in any way?

[Lord Ahmad of Wimbledon]

I suggest to the noble Lord that if there is a person who is not named but is connected to a group on which that sanction is being observed, that would stop them carrying out particular actions. It would ensure that that sanction was effective.

--- Later in debate ---

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I shall speak to the whole of this group of amendments. I gave notice of my intention to oppose Clause 16 standing part of the Bill. From the debate we have had it is quite clear that there is a little bit of an earthquake going on throughout the whole of the Bill. In a sense, its epicentre, as has been rightly explained by the noble and learned Lord, Lord Judge, comes to a climax with the criminal sanctions. Deleting the criminal sanctions parts would not provide a solution because they build on all the other wrongs, if I may call them that, that exist in the other clauses—throughout the sanctions part debated today and the powers contained in Schedule 2, which we will debate. We may eliminate those criminal sanctions, but we would still have an awful lot of other powers that will still do an awful lot of wrong. The fact that the criminal sanctions are laid on top of them is what makes it so egregious.

I move on to the transposition of the fourth money laundering directive and the issue of precedents. It has been said that there are precedents for creating criminal offences by statutory instrument and that in the past as well as now constitutional committees and delegated powers committees of this House have objected. In the earlier debate, the noble and learned Lord, Lord Judge, explained that those criminal offences might be buried among many other regulations. I have a good example here; it is a pretty thick one. It is the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017—that is, the fourth money laundering directive. I think that there are 116 pages of dense type there, together with the schedules, and 109 other articles—sorry, we are not in Europe any more, or we will not be, or we may not be, or maybe we are. There are 109 other regulations contained within that. One of those is new—we have just dealt with it again recently—but in terms of the precedent, they derive from things that happened in the Proceeds of Crime Act. They reflect what has happened to the primary offence of money laundering, on to the secondary or derived offences where banks or other financial institutions have failed to have the right procedures in place. So there are kinds of precedents, even though I do not agree with the way that it has been done.

If we turn to what we have both in Clause 16 and Schedule 2, we see that there are no limitations at all. There are very open powers—they are even more open in Schedule 2 than in the sanctions part of the Bill. There may have been a failed attempt to create a framework for those criminal offences by referencing alongside them that the Minister will look to the matters of defences and evidence, but that has created other problems. As was again elaborated by the noble and learned Lord, Lord Judge, how can we tell that those will not be the right kinds of provisions? What do we know about the future?

The noble and learned Lord, Lord Falconer, said earlier that, ultimately, the only thing that matters is what is in the Act; it does not matter what the Minister’s intentions are, even if he says what they are—it is the words of the Act. We do use legislation for purposes that were not intended. In 2008, at the height of the financial crisis, the UK used anti-terrorism legislation to freeze £4 billion of assets of Landsbanki. It caused us a great loss of reputation in some circles, which is not to say I endorse what Landsbanki was up to. When the Anti-terrorism, Crime and Security Act 2001 was going through Parliament, I do not think anybody said, “We’re going to use this to freeze the assets of banks because they were a bit too laissez-faire in their financial regulation”. Something that was done for one purpose was used seven years later for another. Who is to say that there are not many other examples—I am sure if I dig I can find them—or that we may not get examples like that in the future? One cannot have new offences that are unpredictable as to how the rule of law, the defence and due process will operate. One has to have those safeguards, and this Bill does not do any of that.

I refer to what the Minister said in the debate on Clause 2 on whether one should wind up a company or disqualify directors. This was in the context of a company that would have been breaching sanctions and doing things such as arms trading. The Minister said that those amendments would not do because all the Bill aims to do is to replicate sanctions and the amendments went over and above that—the sanctions provisions that are already in existence, he meant—and we do not want to go further than other countries on sanctions and do what the UN and the EU are not doing. I can tell noble Lords that they do not do unlimited, undefined, potentially abolish-the-defence type of criminal sanctions. Actually, they do not have the powers to do that, but I doubt that they would do it anyway.

Another thing that the Minister said was that the sanctions need to be reversible. I fear that there is nothing very reversible about 10 years in prison. There is something seriously wrong here: it needs a lot more structure around it if they are even going to make the case that we can have sanctions, for instance, if they are going to follow, or punishment for sanctions, if they are new ones. The circumstances that give rise to requiring sanctions might be unpredictable, but the general nature of the sanctions that are imposed are not. You stop people trading or stop people having access to financial services: you can certainly put a framework around those. No effort whatever has been made, yet if you turn to something such as the fourth money laundering directive—and, indeed, the very regulations that have just been made to transpose it—all those safeguards are already there. There is absolutely no reason why they should not be replicated in the Bill.

[Lord Thomas of Gresford]

My Lords, I emphasise everything that has been said up to now about how unacceptable Clause 16 is. If someone is a designated person, sanctions are imposed upon him and he wilfully and deliberately breaks those sanctions, there is perhaps room for criminal offences which can be defined and can carry sentences of up to 10 years’ imprisonment. However, these regulations are concerned not with that so much as with trying to create a system of regulation of banks and providers of financial services to encourage them to report and to follow what is required in order to prevent money laundering or the busting of sanctions. These are banks and institutions which are not acting wilfully and deliberately and so are not criminal in that sense.

It might be proportionate in those cases—this is what has happened with other regulations—to have a small criminal sanction for a breach of the particular regulation which requires that you report on a client. That is one thing, but here there seems to be a confusion; the two types of criminality are put together. The serious criminality of breaching the sanctions is looked at in the same way as a failure to report what a client may be doing which could amount to a breach of sanctions. It is wrong that that should be subject to serious criminal sanctions of the nature described in the Bill.

What really offends me about it, however, is that the Minister has power to stipulate where the burden of proof should lie: for example, whether hearsay evidence could be introduced or whether a particular defence can or cannot be run—“It shall not be a defence to do” whatever it may say. That is the sort of thing you see in statutes from time to time. It is not Parliament deciding that; it is the Minister. He creates his criminal offence and then makes it almost impossible for a person to defend themselves.

It is one thing to face a charge where you know that the burden of proof is on the prosecution—and there are strict rules of evidence which apply across the board in criminal cases. It is something else if a Minister has power to create his own form of criminal law. That is really what this is all about. It is wholly unacceptable and must be defeated.