Financial Services Bill

Baroness Hodge of Barking Excerpts

Report stage & 3rd reading & 3rd reading: House of Commons & Report stage: House of Commons
Wednesday 13th January 2021 Commons Chamber

I strongly urge the Economic Secretary to keep a watchful eye on the FCA’s progress. I look forward to hearing from him when he sums up, and to continuing our constructive dialogue on trying to ensure that these unnecessary regulatory hurdles come to an end for the betterment of investors generally. We must remove KIDs from investment trusts so that they can do no more harm.

[Dame Margaret Hodge (Barking) (Lab) [V]]

I will speak about new clause 4, which is in my name and those of others from across the House. I start by thanking Sue Hawley and Spotlight on Corruption for their support in our work.

Historically, Britain has prided itself on offering honesty and integrity, particularly in financial services, but, tragically, the Government’s actions and inactions have helped to breed an environment where fraud and corruption flourish. Today Britain is the jurisdiction of choice for too many villains and kleptocrats. The National Crime Agency estimates that £100 billion is laundered through Britain annually. The recent FinCEN leaks named 3,267 UK-incorporated shell companies and nearly £70 billion flowed from Russia into the UK’s overseas territories. The banks and those who run them often get away scot-free if they turn a blind eye to dirty money or engage in fraud.

New clause 4 would provide law enforcement agencies with a powerful tool in their fight against money laundering and fraud. A new criminal offence would hold individuals, corporations and their directors to account for either facilitating or failing to prevent economic crime. The argument is overwhelming; everyone agrees that the existing powers are weak and ineffectual. We need criminal as well as regulatory powers.

A new offence would provide both an effective deterrent and stronger consequences.

We are way behind our international competitors. We pursue small businesses and let the big banks and well-heeled bankers off the hook. The British public hate feeling that there is one law for the powerful institutions and their leaders and another for the rest of us. As we build Britain outside Europe, it is foolish and wrong to think that we can create a sustainable and strong finance sector on the back of dirty money and fraud. Losing our reputation for integrity will over time damage our prosperity, so we have to clean up our act, and clean it up now, not promise to do so some time in the future.

It is shameful to find that America is more effective at pursuing corporations and their directors than we are. Let us consider Standard Chartered, a British-headquartered bank. In 2019, it was fined for money laundering failures and breaching sanctions—£102 million in the UK, but £842 million in the USA. In both the LIBOR scandal and the subsequent rigging of foreign exchange rates, most of the outrageous behaviour took place here in the UK, but most of the fines were imposed in the US. In 2019, the US dished out £1.67 billion-worth of money laundering fines. We took less than £300 million. The Government may want to promote outsourcing, but does that really mean we want to outsource enforcement to the Americans?

That is why the director of the Serious Fraud Office has called for corporate liability reform. Last October, she said:

“So, what would be on my wish list for the SFO, if I had a magic wand?

Unsurprisingly, a ‘failure to prevent’ offence still tops it.”

I agree, and I agree with the Financial Times comment, after the Barclays fraud case failed, that,

“the bank could not be held accountable for the actions of the chief executive, but neither could the chief executive be accountable for the actions of Barclays.”

Is that really what the Government want? The right hon. and learned Member for Kenilworth and Southam (Jeremy Wright) described the LIBOR scandal as demonstrating,

“weaknesses in our current law”,

and noted the

“clear implications for the reputation of our justice system.”

The Minister is wrong: when the Government called for evidence on a new corporate liability offence, three quarters of respondents urged the Government to toughen up the regime with criminal sanctions, and most of those were private companies and law firms. Why are the Government reluctant to act? They promised action in their 2015 manifesto. They took forever to complete a consultation and now they are parking the proposal with the Law Commission. Why? The House should not need to divide on this issue. Most people strongly agree with our proposal. If Ministers kick the proposal into the long grass, they will anger the public, damage the long-term integrity and reputation of our financial services sector, and fail to build a better Britain. I urge support for our new clause.

[Nigel Mills (Amber Valley) (Con)]

It is a pleasure to follow the right hon. Lady. I want to speak in support of new clause 4, and I will start where she finished by reminding the House that this was a manifesto promise of the Conservative party back in 2015. We said that we would introduce criminal sanctions for failure to prevent economic crime. We got as far as introducing sanctions for bribery and tax evasion. What those two measures have shown is that these “failure to prevent” rules actually work: they do crackdown, they do change behaviours and they do stop businesses allowing their staff to carry out the activity or turning a blind eye to it. When the main counter-argument is that these regulations would be too expensive or too hard to implement, we have to understand that the world has carried on with those two powers in place; that is not a compelling argument for not extending them to the rest of the economic crimes as this clause would do. Most economic crime around bribery or tax evasion includes some money laundering as well, so all that we are really doing is tidying up the rules to make sure that they are consistent across the piece.

I think that it is probably fair to say that, since we made that manifesto promise, we have been a little busy on other matters, but now we are through most of those it is time to get back to delivering on that promise. I suspect that we will not convince most Members this evening to accept this new clause, but, hopefully, when we see the Law Commission review later in the year, we can then make some rapid progress on getting our law to the right place.

The Minister said at the start of this debate that the Bill was a part of our taking back control following Brexit, that we will try to make our regulations world-leading and that that was our aspiration. Surely as we embark on our vision of global Britain, we should make it very clear that our values are to be the cleanest financial services sector in the world—not the dirtiest, not a magnet for dirty money, and not one that tolerates any kind of bad behaviour. We need the powers in the new clause so that we can say clearly to the whole world that this behaviour is not tolerated here and that we will go after not only those who behave in that way, but those who allow it to happen: we will go after those businesses that seek to profit from allowing their staff to behave in such a way. That is the kind of vision that a global Britain should have—more beacon than buccaneer in this kind of situation.

Finally, if we are really after world-leading regulation in this area and setting an example, I personally would support more divergence. That is one reason why I supported Brexit, but I am not sure that the best place to start diverging is by not following the EU’s anti-money laundering rules. Last month, it introduced its sixth anti-money laundering directive, which included the requirement that member states take criminal sanctions for failure to prevent money laundering. We did not opt into that directive before the end of the transition period. I would have thought that, as a signal of goodwill when we want the EU to recognise our financial services regulation, it would be a good thing to adopt. It is the right thing to do. It is the right measure. It is one that, given the size of our financial services industry, we should be leading on, not following. Let us not make that our first divergence. Let us introduce these rules. Let us pass this new clause and have real powers in place which we need to tackle this awful economic crime.