Sanctions and Anti-Money Laundering Bill [Lords]

Baroness Hodge of Barking Excerpts

2nd reading: House of Commons
Tuesday 20th February 2018 Commons Chamber

[Boris Johnson]

I am grateful to my hon. Friend for that intervention—I was referring to real estate. As I am sure he knows, the proposal has the same intention as the tax on enveloped dwellings that was introduced by the former Chancellor of the Exchequer, which has proved, to the best of my knowledge, to be extremely lucrative for the Exchequer.

[Dame Margaret Hodge (Barking) (Lab)]

Given the Secretary of State’s commitment to the EU’s action on money laundering, is he saying that the Government will implement the fifth EU anti-money laundering directive, which requires that we all have public registers of beneficial ownership by the end of 2019?

[Boris Johnson]

As the right hon. Lady will be aware, the UK is already out in front of the rest of the world in insisting on public registry of beneficial ownership, irrespective of the implementation of the fifth EU anti-money laundering directive. As I will explain to the House, we already ask the overseas territories to do far more than other jurisdictions that offer financial services advantages.

[Dame Margaret Hodge]

I would be most grateful if the Secretary of State would give way again.

[Boris Johnson]

Oh, go on.

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[Dame Margaret Hodge]

I am extremely grateful to the Secretary of State. The reason I asked the question is that the EU’s anti-money laundering directive would have an impact on the UK and Gibraltar. I am interested in whether the Foreign Secretary will implement the directive, given that implementation is required by 2019.

[Boris Johnson]

I do not know the exact stage of the directive at the moment. To the best of my knowledge, we are in the process of implementing it. It should creep in under the wire and will, I hope, have the beneficial effect that the right hon. Lady desires.

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[Alison Thewliss]

We have to be very careful. To an extent, we push people and give them a carrot, and in a sense, we have a stick. We have to weigh up in all of this where exactly they are on that continuum and with compliance. Will Ministers tell us what conversations they have had with the likes of Guernsey and Jersey? Do they have confirmation of a permissive extent clause? I am very keen to see open registers. The right hon. Member for Sutton Coldfield laid out some points on that excellently. If the registers are there, they should be publicly available. We want to see transparency everywhere, but we also need to bear in mind that we have a long way to go on ensuring that everything that we do is absolutely correct and proper.

There are clearly issues and disputes among people about their interpretation of the proposals. Having read a submission from Jersey and Guernsey, I know that their account of affairs is quite different from other people’s. Perhaps we will have time in Committee to discuss this a wee bit more, take evidence and see in more detail exactly what needs to be done, how far people can be pushed, cajoled or brought along, or whether or not we need take this action and the extent to which it has a different force.

[Dame Margaret Hodge]

I am intrigued by the hon. Lady’s contribution. We all want to move forward on the basis of consent, but I slightly disagree with her about how fast the overseas territories are moving. It has been five years since David Cameron first encouraged them to develop public registers of interest. Will she give us some indication of when she thinks that the broader interest of having those public registers and the role that they could play in tackling financial crime would override her absolutely instinctive desire to seek consent in moving forward?

[Alison Thewliss]

I agree. That is the point I was trying to make, fairly badly I suppose: how long do we leave it? Has it been five years with no sign of anything, or five years with some sign of something? We need more conversations to see exactly where things are, but I am keen to support the right hon. Lady’s amendment.

There is slightly more concern about overseas territories such as the British Virgin Islands and Bermuda. When we look at the extent of the Panama papers and the Paradise papers, we cannot fail to be deeply concerned by the extent of nefarious transactions, out-and-out theft and money laundering, particularly when it involves, as other Members have said, the siphoning—the guzzling —of funds from countries whose populations can least afford it. We should be deeply concerned about that, and there seems to be little indication that they will comply at all. Perhaps there is a different approach from the Crown dependencies and the overseas territories on how willing they are to comply with what has to be done to make things transparent and open.

Moving on to part 2 and clauses 43 and 44, on the progress towards beneficial owners of overseas entities. This is very encouraging, but again the thing with the Bill is that action is required. Action is required to check up on all these companies and registrations. Action is required on enforcement and prosecution, and enforcement action requires agencies, intelligence, people and boots on the ground to make sure that it is done. It is fine to have law, but if we do not have anybody to enforce it, there is absolutely no point at all.

Scottish limited partnerships are a particular example of where things are not being enforced. This was bequeathed to me by Roger Mullin, and I am very grateful. It is estimated by Richard Smith and David Leask, who have been working hard on this issue—hon. Members will have seen some of David’s reports in The Herald—that an estimated 20,000 to 28,000 SLPs are of concern. The Herald recently reported that a former president of Peru has been accused of taking £4 million of bribes that have been funnelled through a shell firm based in Scotland. These things should be checked up on and enforcement action should have been taken, but SLPs have become a cover for all manner of murky and dubious behaviour.

As Transparency International and others have said, the missing link in all this is Companies House, because it does not have the duty to refuse a company’s registration; it has to register the company. It does not check up on whether it is legitimate, or whether the people who are registering it actually exist, and it is less compliant than the agents who use it, so there is no benefit to someone going through an agent if they can go through Companies House and avoid all the scrutiny. We have an opportunity in the Bill to close that loophole, because for me, Companies House is ignoring its money laundering duty.

There are wider concerns about shell companies. I invite the Minister to look at New Zealand, which was in a similar situation. However, its regulations have seen a near eradication of its 5,000 shell companies, which were registered to only about a dozen addresses in New Zealand. Part of the solution was a requirement for a New Zealand-based director, which made a huge difference almost overnight.

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[Dame Margaret Hodge (Barking) (Lab)]

The Bill commands general support on both sides of the House, and, like the hon. Member for Huntingdon (Mr Djanogly), who made an excellent speech, I welcome it. As currently drafted, however, it fails to include one vital measure that would at a stroke transform Britain’s contribution to the fight against money laundering, tax avoidance and evasion, corruption and financial crime. That measure has been debated many times in both Houses, and is strongly supported by parliamentarians in all parties and by the all-party parliamentary group on responsible tax.

We simply want to ensure that British overseas territories, many of which constitute the leading tax havens in the world, have registers of beneficial ownership that are public and open for anyone to interrogate: businesses, individuals, the press or civil society. I for one have had enough of the endless rhetoric proclaiming that Britain is leading the global fight against corruption and money laundering. The reality has to start to match that rhetoric, because at present it does not. By failing to insist that our overseas territories have public registers of beneficial ownership, we are complicit in facilitating the very corruption that we claim to want to eradicate.

Our overseas territories play a central role in the scourge that is corruption, tax evasion and money laundering. Of the 200,000 companies exposed in the Panama papers, more than half were registered in the British Virgin Islands, a UK overseas territory. More than half the offices of the law firm Appleby that were exposed in the Paradise papers are located in UK-controlled tax havens, and 90% of the world’s top 200 global companies have a presence in a UK tax haven. A World Bank review of corruption cases over a 30-year period found that our tiny overseas territories came second only to the vast United States of America among jurisdictions that provide anonymous shell entities for those involved in international corruption.

We all know that the effect of this financial crime is immense, and that the impact on the poorest in the world is particularly pernicious. We in the UK lose money that we desperately need for our schools and hospitals, but developing countries are even more adversely affected. The United Nations Conference on Trade and Development has estimated that developing countries lose at least $100 billion a year as a result of tax havens, and the OECD has estimated that they are costing those countries up to three times as much as the total global aid budget. What happens in our tax havens really matters. Persistent collusion by the UK in enabling them to endure, because of the Government’s failure to clamp down on the secrecy that pervades our British tax havens, is inexcusable.

[Jo Stevens (Cardiff Central) (Lab)]

My right hon. Friend is making an extremely powerful speech. Does she agree that whatever is in the Bill, it will lack any credibility if we point the finger at secrecy in other countries but do nothing about the secrecy in the overseas territories and Crown dependencies?

[Dame Margaret Hodge]

I strongly concur. Interestingly enough, David Cameron recognised that in 2013 when he told the overseas territories to rip aside the “cloak of secrecy” by establishing public registers of beneficial ownership. He wrote to them in 2014 saying that public registers were

“vital to meeting the urgent challenges of illicit finance and tax evasion.”

In September 2015, he accused them of

“frankly…not moving anywhere near fast enough.”

He said that

“if we want to break the business model of stealing money and hiding it in places where it can’t be seen: transparency is the answer.”

When he launched the UK’s public register, he argued that

“it’s better for us all to have an open system which everyone has access to, because the more eyes that look at this information the more accurate it will be.”

I agree with all those sentiments and arguments. All that we are asking of the present Government is that they stand by the promises made by their colleagues, their right hon. and hon. Friends, in a Conservative-led Government nearly five years ago. I also agree with the current Prime Minister, who said:

“If you’re a tax-dodger, we’re coming after you. If you’re an accountant, a financial adviser or a middleman who helps people to avoid what they owe to society, we’re coming after you”.

However, our tax havens are “middlemen”. It is time that the Prime Minister and her Government turned their rhetoric into practical action, and put an end to the nefarious activities that take place in so many of our jurisdictions.

[Lloyd Russell-Moyle]

Many of our tax havens, and some of our Crown dependencies, were put on the EU watch list. They had to demonstrate that they were making improvements. I understand that one of the ways in which they could get on to the watch list was for the UK Government to underwrite that progress by indicating that they would support it, which would enable them to avoid being put on the blacklist. Is it not imperative for us to enforce the commitment that we made to the European Union in preventing them from being put on the blacklist by ensuring that they implement what they promised?

[Dame Margaret Hodge]

I entirely agree. Indeed, if we leave the EU without having implemented reforms that would have an impact on the overseas territories, the EU will blacklist them.

I know that there are many principled Conservative Members—including the right hon. Member for Sutton Coldfield (Mr Mitchell)—who care passionately about transparency, and have championed the cause from both the Back Benches and the Front Bench for many years. I urge them all to make clear to their Front-Bench colleagues that they will support a cross-party amendment setting a clear and reasonable timeframe within which the overseas territories would be required to prepare and launch public registers of beneficial ownership. I hope that the Government will listen to the advice of leading Back Benchers on their own side. Those of us who are involved in campaigning for transparency are not seeking short-term political advantage. What we want is an important, sustainable change that will have a lasting impact on the process of stamping out financial skulduggery, and a considerable impact not just on the United Kingdom’s public finances but on those of the poorest nations in the world.

We can never build a global Britain on dirty money. We will not create a strong economy on the back of being the jurisdiction of choice for every kleptocrat and crook in the world. Our British overseas territories will not prosper over time on the basis of being safe havens for illicit wealth. Transparency is an essential tool in the battle against all financial crimes. Exchanging information behind closed doors, which the Government claim is sufficient, particularly disadvantages the very same countries that suffer the most from financial crime and money laundering, because they have the weakest regulatory agencies in operation.

Relying on regulatory bodies is also very much second best. Even our under-resourced bodies such as Companies House are at best reactive in their work on uncovering financial crimes; there is very little evidence that they are undertaking proactive investigations. Indeed, the constant flow of scandals is strong evidence that the system based on the private automatic exchange of information is not working.

Let us consider the case highlighted recently by Global Witness of the $75 million paid by Glencore to Dan Gertler, a controversial businessman accused of bribing senior officials in the Democratic Republic of the Congo to advance mining interests. The money was originally due to be paid to Congo’s state mining company, but following a secret agreement was paid into one of Dan Gertler’s companies registered in the Cayman Islands. Or let us consider the case revealed in the Paradise papers of Jean-Claude Bastos, who managed Angola’s sovereign wealth fund and was paid more than $41 million from the fund via a secretive British Virgin Islands company. The BVI company was itself owned by a series of secretive offshore companies, but the ultimate beneficial owner was Mr Bastos.

Today’s Guardian contains disturbing revelations that North Korea broke international sanctions aimed at inhibiting the development of weapons by using a network of companies based in our tax havens to acquire millions of dollars-worth of fertiliser, coal and other commodities—our tax havens, undermining our national security and that of other western nations. Secrecy enables wrongdoing.

Ironically, the British Government have accepted that argument, because we are ourselves publishing our national register of beneficial ownership. The standard that we accept for ourselves should be the standard we expect for our overseas territories. To pretend, as the Government do, that the overseas territories are making good progress is nonsense. It was 2013 when David Cameron first demanded public registers; nearly five years later, we are still waiting for a number of the jurisdictions, including Anguilla and the Turks and Caicos Islands, to set up a central register.

Let me take this opportunity to debunk some of the myths that were prayed in aid when this matter was debated in the House of Lords. Raising the spectre of identity theft and personal security risks is wide of the mark. Public registers can have tightly defined case-by-case exemption policies to protect individuals who are genuinely at risk. Ministers claim that no other countries are adopting public registers. Again, that is not true: the EU is currently implementing the fifth anti-money laundering directive requiring all EU members to implement public registers by 2019, including Gibraltar, and we should be implementing that.

Arguing, as Ministers do, that we should not act until others have acted is a wretched excuse. We have been bold in leading the movement to stamp out corruption; we should pursue that course and be proud of it. As the number of tax havens decreases and the noose tightens around the remaining tax havens, our action will make action elsewhere in the world inevitable.

I welcome today’s statement from the Secretary of State for Exiting the European Union that the UK wants to lead a global race to the top in rights and standards. There is no better way of leading that race to the top than by insisting that our overseas territories adopt public registers of beneficial ownership.

Public registers will not undermine legitimate businesses or individuals who want to continue to take advantage of low-tax regimes. They will expose those who seek to hide their money because they have received it corruptly, or who unlawfully evade tax, all too often at the expense of poor people and poor countries.

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

On public registers, is it not also the case that firms that are more transparent are often more successful than those that are not? We see that in the examples of Santander, SSE and many others.

[Dame Margaret Hodge]

My hon. Friend on the Front Bench is completely right.

Finally, while we were all horrified by the destruction wrought by the hurricanes last year, those disasters should never, ever be used as an excuse for allowing kleptocrats, villains and tax evaders to prosper. In a White Paper on the overseas territories published in 2012, the Government stated:

“As a matter of constitutional law the UK Parliament has unlimited power to legislate for the Territories.”

I am urging tonight that the Government use their powers to insist that our tax havens—our overseas territories—put in place public registers in a defined timescale. That is a reasonable demand. Stopping it would create a grim stain on Britain’s reputation as we move to establish credibility in a post-Brexit world.