Corruption

Lord Watson of Invergowrie Excerpts

Thursday 18th June 2015 Grand Committee

[Lord Watson of Invergowrie (Lab)]

My Lords, I declare an interest as a member of the All-Party Parliamentary Group on Anti-Corruption. We have two debts today that I would like to refer to. One is to Transparency International UK for compiling the report that is the basis of today’s debate, and the second is to my noble friend Lord Rooker for enabling it to have this airing.

I begin with a quotation:

“Corruption is the cancer at the heart of so many of the problems we face around the world today. … Our efforts to address global poverty are too often undermined by corrupt governments preventing people getting the revenues and benefits of growth that are rightfully theirs. Corruption undermines the wider global economy too. Cutting corruption by just 10% could benefit the global economy by $380 billion every year—substantially more than was estimated for the Doha Trade Round”.

Those words were taken from a blog that appeared in the name of David Cameron in the Huffington Post on 6 June. The Prime Minister, whose record of speaking out on this issue I have praised before and whose determination to make meaningful progress in tackling corruption I do not doubt, followed up by highlighting corruption in his speech to the G7 summit in Germany, calling for world leaders to take corruption more seriously, particularly in the wake of the FIFA scandal.

Corruption is a major contributor to global poverty. The opaque way in which companies are structured is more often than not at the heart of how illicit flows of capital are facilitated, either through tax evasion, money laundering or outright corruption. The cost to developing countries of this behaviour is quite staggering. It has been estimated that they may lose as much as $150 billion annually in tax revenue, a figure greater than the entire global aid budget. A World Bank review of 200 big corruption cases from 1980 to 2010 found that more than 70% relied on anonymous shell entities. Company service providers registered in the UK and its Crown dependencies and overseas territories were, to our shame, second on the list in providing these shell entities. The European Commission estimates a cost to EU member states of around €120 billion each year—that figure has some resonance this week because, as talks continue in Brussels to resolve the Greek debt crisis, it is pretty close to what the Greek Government are seeking in debt write-off in return for an agreement on whether their country remains within the euro.

In the UK, the Financial Services Authority estimated two years ago that more than £50 billion was being laundered within and through the UK every year. This figure, allied to the statistics contained in the TI report, illustrates that the Prime Minister needs to focus some of his attention on tackling corruption closer to home. As we have already heard, there is growing evidence that the UK property market has become a safe haven for corrupt money stolen from around the world, facilitated by laws that allow UK property to be owned by the secret offshore companies to which I referred. The Government need to act quickly to interrupt these flows of money and bring to an end the UK’s growing—and surely unwanted—status as the destination of choice for global corruption.

As mentioned by my noble friend Lord Rooker, some relatively simple measures could be taken, such as the Land Registry requiring transparency over who owns companies that own so much UK property. Estate agents’ anti-money laundering responsibility could be extended to include due diligence checks, ensuring that the purchasing company has declared its beneficial owners and that appropriate checks have been carried out on those individuals. I have no doubt that there would be resource issues should such measures be implemented and that estate agents would be keen to hear what the Government had to say about that, but I believe that the Government should be willing to underwrite any additional costs and see them as an investment for greater long-term gain in terms of the country’s reputation.

Another recommendation also mentioned by my noble friend Lord Rooker that I believe ought to be considered concerns the introduction of unexplained wealth orders. I find it difficult to understand why there is no power in UK law to require owners of unexplained wealth involved in a suspicious transaction to prove that the source is legitimate. Such legislation would require the owner of unexplained wealth to prove its legitimacy when a questionable transaction was identified. Failure either to respond to such an order or to provide an adequate response, together with the initial grounds for suspicion, could then be used to facilitate a civil recovery process against the asset. If the Minister does not believe that this would assist in the Prime Minister’s clear aim of challenging corruption, I would be interested to hear why. The scale of the problem of corruption and the breadth of the deficiencies in the current anti-money laundering system demand serious consideration of alternatives.

Finally, the Government must demand that the overseas territories and Crown dependencies adopt public registers of the true owners of companies registered in their jurisdictions. This needs to be done as a matter of urgency. I was dismayed to read the response of the Minister earlier this week to a Question from the noble Lord, Lord Avebury, on this subject, in which he stated:

“The UK Government continues to engage actively with the OTs to encourage them to make improvements to their AML and CTF regimes in line with the international standards … However, the OTs are separate jurisdictions with their own democratically elected governments and changes to their regimes will ultimately be a decision for the locally elected government of each Territory”.

That is not an adequate response. It is simply not in the economic interests of the overseas territories to comply with the demands made on them. I understand that but it does not mean that they can be allowed simply to carry on as they have done for many years. Noble Lords may have noticed that three of the overseas territories were named in the US Department of Justice FIFA indictment recently: the British Virgin Islands, the Cayman Islands and Turks and Caicos—all tax havens.

Many of the offshore jurisdictions are theoretically under the influence of the UK Government but no British Overseas Territory has yet accepted the Prime Minister’s call at the G8, two years ago, for public transparency about who owns companies and trusts. Indeed, many have yet to show a genuine attempt to resolve money-laundering risks presented by anonymous owners hiding behind companies registered in their territories. The Labour Party had a commitment in our election manifesto to compel the overseas territories and Crown dependencies to address wider money-laundering risks associated with anonymous companies in the UK. With determination, there are ways in which it can be brought about. I invite the Government to investigate that.

Commitments to take a stronger line on this were certainly given by the Government during debates earlier this year on what became the Small Business, Enterprise and Employment Act. That legislation requires a public register of the true owners of UK-registered companies and I very much look forward to the register becoming live. It was a welcome and significant step forward for corporate transparency but, as the Transparency International report shows, the UK property market remains vulnerable to the investment of corrupt capital due to the secrecy around the owners of offshore companies.

The Prime Minister has stated that he intends to put corruption at the heart of his agenda at the United Nations in September and at the G20 in Turkey, culminating in a major anti-corruption summit in London next year. The Government have just announced that Sir Eric Pickles will be their new Anti-Corruption Champion. It seems he will have a larger portfolio than his predecessor, especially with that anti-corruption summit in mind. I imagine that he will want to consider the recommendations of the Transparency International UK report in detail. I hope the Minister will confirm that he intends to meet Sir Eric as a matter of priority to consider the report and how he can contribute to the discussions on these crucial matters. The Prime Minister has raised consciousness of the issues surrounding corruption. The Government now need to follow through to bring about meaningful change.

--- Later in debate ---

[Lord Ashton of Hyde (Con)]

My Lords, I am delighted to answer this Question for Short Debate and I too thank the noble Lord, Lord Rooker, for securing it. I acknowledge the remarks made by him and other noble Lords about the Prime Minister’s efforts in this area of corruption, both in the UK and worldwide.

Corruption, of course, is more than just about property and I would like to make some remarks about the Government’s view on corruption generally. This Government recognise that corruption harms societies, undermines economic development and threatens democracy. As the Prime Minister made clear to the G7 last week, corruption is the cancer at the heart of so many problems we face around the world today, and again the noble Lords, Lord Rooker and Lord Watson, mentioned these remarks. The UK has robust anti-corruption structures and legislation in place and we know that the problem of corruption is relatively less serious in the UK than in most other countries, although the noble and learned Lord, Lord Davidson, did warn about becoming complacent in this regard. The impact of corruption in this country is disproportionate to the level and frequency at which it occurs, and often has serious ramifications in terms of public confidence across the public and private sectors.

Before I address the more specific issues raised in this report, I want to make it clear that the Government are absolutely committed to tackling corruption in all its forms. Our commitments in the Serious and Organised Crime Strategy to tackle criminal finances and improve our anti-corruption systems demonstrate our determination to make the UK a more hostile environment for those trying to launder their illicit money. As I am sure noble Lords are aware, this Government are doing more than ever before to tackle the blight of corruption here in the UK and around the world, the effects of which were elegantly highlighted by the noble Baroness, Lady Stern. In December last year, we published a cross-government UK Anti-Corruption Plan. It set out for the first time all the UK’s activity against corruption: from preventing corruption in the first instance to taking effective enforcement action when it does occur, as well as increasing the protection of the public and private sectors. As has been mentioned, the Prime Minister recently appointed Sir Eric Pickles as the UK’s Anti-Corruption Champion to lead and co-ordinate all anti-corruption efforts. He will be working across government to ensure that the commitments set out in our anti-corruption plan are fully implemented—an answer, I think, to the noble and learned Lord, Lord Davidson—and to make a real difference on some of the points raised today.

We already have some of the most comprehensive anti-bribery legislation in the world, and were recently judged by the OECD to be one of only four countries globally which actively prevent bribery of foreign public officials. Where we have found gaps in the legislation, such as in relation to police corruption and participation in the activities of an organised crime group, we have brought forward new measures to address them.

As a centre of world trade and investment, we have a particular responsibility and incentive to ensure that our financial systems are not a safe haven for the criminal and the corrupt. In the UK’s 2013 G8 action plan we committed to conducting the UK’s first national assessment of money laundering and terrorist financing risk. This national risk assessment—mentioned by the noble and learned Lord, Lord Davidson—will be the first systematic assessment of threats and vulnerabilities in the UK. It will provide an evidence base to help the Government assess the effectiveness and proportionality of the current requirements, and we intend to make the findings available soon. We have already committed to producing an Anti-Money Laundering Action Plan to address the threats and vulnerabilities identified in the national risk assessment. We will carefully consider the evidence in Transparency International’s recent reports as we formulate that action plan.

Turning to the specific issue of money laundering through the purchasing of property, we are also committed to ensuring that we maintain a proportionate and robust anti-money laundering regime. All estate agents must be registered under the Money Laundering Regulations 2007, and HMRC carries out compliance checks to ensure that estate agents are applying customer due diligence processes. HMRC is also working to educate the sector more and bolster businesses’ understanding of their obligations under the Money Laundering Regulations. All banks, lawyers and estate agents are required by law to report suspicious activity to the National Crime Agency. We do have some concerns that the suspicious activity reports—SARs—regime does not work as well as it should, and think that information sharing between the private sector and law enforcement agencies could be improved. That is why the Government are reviewing the SARs regime in order to increase its effectiveness.

In the Serious Crime Act 2015, we have created a new offence of participating in the activities of an organised crime group, which came into force on 3 May 2015. This new offence targets those who help organised criminals with their criminal enterprises, and would include professional enablers such as estate agents, on whom organised criminals rely. From 2016 all UK companies will have to register their beneficial owners at Companies House. Where a property is owned by a UK company, information on that company’s beneficial ownership will be immediately accessible, online and for free, once submitted in the register of people with significant control.

The Government are continuing proactively to lobby other jurisdictions, notably in the context of the G7 and G20 and through the Financial Action Task Force, to take equally ambitious action on transparency of company beneficial ownership. This applies also to the overseas territories and Crown dependencies. I will answer specific questions about those in more detail later. Following UK leadership in the G8 and G20, leaders committed in 2013 to implement fully the international standards for beneficial ownership transparency and to submit action plans to this effect. The standard requires that information is available in a timely fashion for competent authorities. Central or public registries are one means of achieving this standard. The Government continue to encourage international partners to meet their commitments so that where UK property is owned by a non-UK company, information on that company’s beneficial owners could also be quickly and easily obtained.

The noble Lord, Lord Rooker, asked specifically about overseas territories and Crown dependencies. The point was made that we could do more to make overseas territories and Crown dependencies have beneficial ownership records. We are working closely with the overseas territories and Crown dependencies. We believe that they have made significant progress on tax transparency. They have publicly committed to the transparency of company ownership. We believe that more has been achieved in the past year than over the past 10 years.

[Lord Watson of Invergowrie]

Perhaps the Minister can elaborate a little. He said that the overseas territories have committed to transparency on ownership of companies. I was not aware of that. I wonder if he could let me know—if not now, in writing—because if it is true, that would be welcome news and I am certainly not aware of it.

[Lord Ashton of Hyde]

I will let the noble Lord know in writing. I am relying on my brief on this—I am sure it is true, in that case. But I certainly will write to the noble Lord.

Bermuda already has a private central registry. Gibraltar will implement a central registry under the EU’s fourth money-laundering directive. The Prime Minister has made it clear that he would like a publicly accessible central register of company beneficial ownership to be the new international standard. We would therefore like the overseas territories to match our policy. However, we respect the fact that the overseas territories and Crown dependencies are separate jurisdictions with their own elected governments who are responsible for fiscal matters. We want to continue to work in partnership with overseas territories and Crown dependencies on this important issue.

The noble Lords, Lord Rooker and Lord Watson, also mentioned unexplained wealth orders. We are always interested in proposals for new powers that will help law enforcement agencies and prosecutors to tackle money laundering, and will carefully consider Transparency International’s proposals on unexplained wealth orders as part of the national risk assessment.

On the Government’s response to recommendation 3 in Transparency International’s report for a supervisors’ forum, supervisors already attend forums where cross-cutting issues are discussed. The next meeting of the supervisors’ forum is on 5 November. If customer due diligence cannot be completed as far as recommendation 2 is concerned, including identifying the beneficial owner, then the estate agent cannot do business with the prospective client.

The noble Lord, Lord Graham of Edmonton, made some interesting points, mainly about housing policy rather than corruption per se. Buying and selling is legal and is registered with the Land Registry but, of course, if the behaviour breaks the law either corruptly or through intimidation then the full force of the law will be applied and the Government support that. Sir Eric Pickles will bear down heavily on any corrupt activity.