Criminal Finances Bill

Lord Watson of Invergowrie Excerpts

2nd reading (Hansard): House of Lords
Thursday 9th March 2017 Lords Chamber

[Lord Watson of Invergowrie (Lab)]

My Lords, I start by apologising to the Minister for the discourtesy of missing the first minute of her speech. I was in the Library and the Bill started too quickly for me.

The Bill is certainly a step in the right direction to strengthen the capacity of the UK’s law enforcement agencies to address dirty money, whether it is connected to corruption, money laundering, tax evasion or terrorist financing. In particular, I am happy to support measures such as the unexplained wealth orders and the new corporate offence of failure to prevent tax evasion. The Bill highlights why the integrity of the UK’s financial system is so important. This goes to heart of the UK’s global reputation for its commitment to clean business and fair play, and of public confidence in business and corporate behaviour domestically.

I was pleased to hear the Minister echoing the Minister for Security, Ben Wallace, who remarked, at Second Reading in the other place, that the Government’s aim is,

“to combat money laundering, terrorist finance and corruption—here and overseas”.—[Official Report, Commons, 25/10/16; col. 195.]

That is most welcome but, rather like the Bill itself, the Ministers did not go far enough. The elephant in the room with this Bill is the overseas territories. The Government are not doing enough to persuade them to adopt public central registers of beneficial ownership. Why has the Government’s stance on this weakened during the passage of this legislation?

My noble friend Lord Rosser highlighted the pathetically weak wording in the letter sent by the Minister to noble Lords this week. For those who have it to hand, it was the third paragraph from the end. I will not repeat his critique, but the Government simply have to do better on the overseas territories. We all know that they will not voluntarily take meaningful action on transparency. Requiring transparency in the overseas territories would be one of the most effective things the Government could do to tackle corruption and money laundering.

Introducing provisions for public registers of beneficial ownership in the overseas territories would fulfil the Government’s stated aims and support the measures in the Bill. I was pleased to note the cross-party support on this on Report in the other place. It was led by the All-Party Group on Responsible Tax with the support of a large number of NGOs. The All-Party Group on Anti-Corruption—I declare an interest as its vice-chair—also supported and continues to support campaigning on this issue.

I acknowledge that there are some constitutional and jurisdictional sensitivities as far as the overseas territories are concerned, but that is not a reason to delay meaningful action in this area. Progress has already been made with some private registers, allowing information sharing between law enforcement agencies. That is welcome, but the wider, and crucially important, issue of the need for public registers cannot be overstated. I urge the Minister to commit to a deadline by which we can expect to see public registers of beneficial ownership in the overseas territories in place and operating. I also urge the Government to continue their dialogue with the territories and to support them in achieving this objective.

There is a strong, responsible business case for transparency on beneficial ownership at a public level. Companies carrying out due diligence need access to this information so they can be confident that they know who they are doing business with. This supports sound, clean, competitive business practice. A survey of companies in 2016, conducted by Ernst & Young, showed that 91% of respondents believe it is important to know the ultimate beneficial ownership of the entities with which they do business. The only surprise about that outcome was that 9% apparently believe it is not important—and we can only speculate as to who they might have been. Transparency on beneficial ownership is also really important for developing countries, where illicit financial flows, often channelled through anonymous companies, have a significant and damaging impact, leading to the loss of millions of pounds needed for schools, hospitals and other public services.

Other noble Lords have referred to this matter, but it is a powerful argument for registers of beneficial ownership being made public. Developing countries and their civil society organisations must have access to the information needed to combat the vast amounts of money siphoned off by corrupt politicians or officials and redirected to private foreign bank accounts. The UK needs to remain a leader on this issue, ideally in partnership with other members of the G20. Under David Cameron, the UK forged a leading role in tackling corruption and criminal financial activity. I am not usually one of his cheerleaders, but by hosting the anti-corruption summit last May he sent a clear message that his Government were serious about the issue—and not just on a global scale. He also believed that it was essential that the UK should shed its image as a major repository for dirty money.

I also want to focus on the importance of bringing the law on corporate liability for economic crime up to date with current business practices and structures. The noble Lord, Lord Faulks, mentioned his experience as a Minister in respect of overseas territories and Crown dependencies—but, regrettably, he had nothing to say on corporate liability. Noble Lords will be aware that the Ministry of Justice’s call for evidence is currently open on this issue. That is welcome, but it represents a rather timid approach by the Government, because one commitment of the anti-corruption summit was a full consultation on corporate liability. Perhaps the Minister will announce that the intention is to move on to that—and, I hope, ultimately to legislative reform.

We can no longer tolerate Victorian era law which means that large companies can insulate themselves from liability via evasive internal structures enabled by their size and complexity, while small companies have fewer places—or perhaps just fewer people—to hide and thus are more likely to be prosecuted. That does not accord with the Government’s stated commitment to a level playing field and fair competition. This must operate not just internationally but domestically as well.

This also goes towards protecting the UK’s reputation as a key financial centre. I will quote another Tory now. Sir Edward Garnier stated in the other place last month that the UK’s global reputation was connected to our financial services industry. He was right: companies in that sector, and their employees, need to know that there is a real risk of a criminal conviction if they step beyond the line of honesty and acceptable behaviour. I do not see this as an area in which regulatory oversight and fines should be the sole means by which we address corporate malfeasance. There should of course be a role for regulators, but there needs to be more. It is widely understood that companies can and do plan contingencies for fines into their budgets. That is no disincentive to criminal activity—or even to just looking the other way, which can amount to the same thing.

The key point is that companies must abide by, and act in accordance with, the values of the society of which they are part. Free market economics often exists in a universe parallel to the power imbalances and social norms of society that it helps to perpetuate. Most people want business to be open and fair, with genuinely deterrent sanctions for those who feel that the rules do not apply to them and that they can get away with it. A vibrant but openly honest financial services industry is vital to build and maintain public trust in UK business, both at home and abroad.

My closing point is that public registers of beneficial ownership in the overseas territories and reform of corporate liability for economic crime are very reasonable additions that would complement the valuable measures already set out in the Bill.

--- Later in debate ---

[Baroness Williams of Trafford]

My Lords, I thank all noble Lords who have taken part in this Second Reading. We have had a very constructive debate and consensus across the piece that there should be general support for the Bill. Clearly, we will take a few things further in Committee—I think I know what they are.

The noble Baroness, Lady Stern, said that I must be very happy to be introducing a Bill such as this. Yes, I am. It will further enhance our ability to bring to book those who seek to engage in corruption and tax evasion and benefit from all those other proceeds of crime.

I will turn first to the Crown dependencies and overseas territories, because it is what most noble Lords have mentioned today. The Government agree about the importance of combating grand corruption. International corruption threatens the progress of many developing nations, and this country must do everything in its power to leverage our international status, and that of our financial sector, to combat it.

There is clearly still much to do, but the Crown dependencies and overseas territories with a financial centre have made significant progress on the commitments that they made in the run-up to the London anti-corruption summit last year. That summit positioned the UK as a global leader in the fight against corruption, and the Government have not changed their position. As the noble Lord, Lord Rosser, and many other noble Lords pointed out, the UK has created its own public register. We are leading the way, and we hope that others will follow. Progress is being made, and I encourage noble Lords to recognise the considerable amount of work that is going on in this area. I take this opportunity to thank my noble friends Lord Flight and Lord Faulks for outlining the progress that is going on in the Crown dependencies as we speak.

The noble Lord, Lord Rosser, asked whether we can legislate for the overseas territories and Crown dependencies. We have the power to legislate for the overseas territories and Crown dependencies, but we do so almost always with consent. Where we do not, it is on moral and human rights issues, such as homosexuality and the death penalty. However, just because we can legislate for them does not mean that we should do so when we are working with them to implement existing agreements on a consensual basis. This has already delivered significant achievements, and it is right that we continue with this approach.

Obviously, our long-term ambition remains that publicly accessible registers of beneficial ownership will become the global standard. Should this happen, we would expect all jurisdictions to meet this standard, including the overseas territories and the Crown dependencies.

[Lord Watson of Invergowrie]

I welcome the fact that discussions are continuing with the overseas territories, but they seem to be left entirely open-ended. In my contribution, I asked for a deadline. I do not believe that the Minister will give me one now, but there has to be some point beyond which we say to the overseas territories, “We’ve tried discussing this with you, we’ve tried to carry you with us, but if you’re not coming, then we have to take positive action”.

[Baroness Williams of Trafford]

I hope I can be helpful to the noble Lord. Progress is being made, but at a point at which progress is not made, we may have to take a different view. As we see it now, the overseas territories have come an awfully long way from where they were even this time last year. My noble friends have given the House an update on how much progress the Crown dependencies are making. The point is that there is progress. Were progress not to be there, I might have given a different response to the noble Lord. I hope he is satisfied thus far with what I am saying.