Economic Crime

Baroness Hodge of Barking Excerpts

Thursday 2nd December 2021 Commons Chamber

[Dame Margaret Hodge (Barking) (Lab)]

I beg to move,

That this House recognises the devastating impact economic crime has on individuals, businesses, families and society; considers it unacceptable that the cost of money laundering alone exceeds £100 billion a year according to the National Crime Agency; is concerned that in the wake of the Pandora Papers leak there is inadequate transparency, regulation and resources in place to effectively tackle this severe problem; and calls on the Government to bring forward legislative proposals to tackle economic crime as a matter of priority, integral to which are provisions to introduce a criminal offence for failure to prevent economic crime, reform Companies House and introduce a beneficial ownership register for the overseas owners of UK property.

I am grateful to the Backbench Business Committee for selecting the motion for debate. I am also grateful to all those who supported the application, and I particularly thank the hon. Member for Thirsk and Malton (Kevin Hollinrake) for working with me on it. The reason why we have secured such wide support for our debate is the growing recognition, concern and understanding of the enormous problems we are facing as a result of economic crime.

The Government produced an economic crime plan in 2019, but as the period it covers comes to an end next year, I think we should all reflect that that plan has not resulted in a successful crackdown on economic crime, but instead we have witnessed frightening and real growth in such crime. Far from bearing down on such wrongdoing, we have seen it mushroom across our economy, infecting our society, our security and our public sphere.

[Catherine West (Hornsey and Wood Green) (Lab)]

I put on record my tribute to my right hon. Friend for her work yesterday on the Finance (No. 2) Bill, dealing not just with the bigger subject, but with the detail of the Bill’s clauses. Does she agree with that, although it is our economy, in a globalised environment we should worry about economies abroad, including the Russian influence? I refer specifically to the recommendations of the Russia report, which deal with a number of financial instruments.

[Dame Margaret Hodge]

One of my growing concerns is that economic crime and the laundering of money into the country—particularly, one suspects, of a lot of Russian money that has probably been stolen from the Russian people—is having an influence right through society, and I will reflect on that later in my contribution.

[Jim Shannon (Strangford) (DUP)]

First, I congratulate the right hon. Lady. I just want to say that this money is not all from Russia; it is closer to home. I make this point because it is important to do so. I am sure that the right hon. Lady is aware that Northern Ireland has paramilitary groups that have become experts in money laundering. Does she not agree that information sharing UK-wide—it is no different here or in Scotland, Northern Ireland and Wales—is imperative if we are to stop those terrorist, criminal, evil thugs living the high life, which they do while the communities that they live in live in fear?

[Dame Margaret Hodge]

I completely concur with the sentiments expressed so powerfully by the hon. Member.

We are now, sadly, one of the jurisdictions of choice for money launderers, criminals and kleptocrats. We do not just tolerate, but—unwittingly, perhaps—facilitate economic crime. Our Moody’s credit rating has fallen a notch, specifically because of the

“weakening in the UK’s institutions and governance”.

Fraud, an important element in economic crime, now affects one in 15 adults, and it too often destroys the lives of innocent victims who are just normal, trusting citizens.

[Fleur Anderson (Putney) (Lab)]

I have a constituent who had a dormant company that was taken over by criminals and used to defraud others, but Companies House says that it cannot do anything about it. LinkedIn is colluding, with a whole lot of false company information, which helps to undermine the situation. Does my right hon. Friend agree that Companies House should be able to do more, and that it is damaging its own reputation?

[Dame Margaret Hodge]

One of the specific areas on which we make a recommendation in our motion before the House is the reform of Companies House. The situation of my hon. Friend’s constituent is just the sort of situation in which Companies House ought to be able at least to verify and possibly to pursue the wrongdoers.

Economic crime is often the facilitator of other crimes—from people trafficking to drug smuggling, and from terrorism to corruption. It does not just enable other crimes; it impacts on our national security. Dirty Russian money laundered into the UK is spreading like a spider’s web through our society. It is used to buy influence and to control our football clubs, our vital infrastructure and, more recently, our politicians and our politics. Today, we want not just to lay out the problem, but to put forward three pragmatic reforms that the Government could adopt—not tomorrow, but today. These are three oven-ready policies that together could have a significant impact in both preventing economic crime and punishing its wicked perpetrators.

We have become the destination of choice for a number of reasons. First, we have a very weak regulatory regime after decades of deregulation. Introducing reforms to our corporate liability regime would start to address the inadequacies in the regulations we have inherited. Even where we do have clear laws—this is my second point—our enforcement agencies are both inadequately resourced and risk averse in their policing of our system. Lack of money and fear of failure drive their decisions, and unlike America, we let criminals get away with it. Reform of Companies House would constitute the start of creating a tougher enforcement regime. Thirdly, we still allow a lack of transparency to flourish, giving wonderful cover to ne’er-do-wells and making it difficult to follow the money. If we cannot follow the money, dirty money triumphs.

[John Penrose (Weston-super-Mare) (Con)]

I congratulate the right hon. Lady and my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) on arranging this very important and very timely debate. I am only sorry that I cannot stay for the whole thing because I am due to speak elsewhere.

I want to pick up on the point the right hon. Lady was just making, and ask whether she would agree that it is not enough to improve the three things she is talking about to come up to some sort of international standard. Because of the existence of the City of London—a huge economic asset in Britain’s economy—we actually have to be better than almost anybody else, given not just the benefits but the risks that that creates.

[Dame Margaret Hodge]

I completely agree with the important contribution that our anti-corruption tsar has made in the House today. I think it is a really short-term view to believe that our British economy can flourish on the back of dirty money. We will flourish if we clean up the act in the City of London and it again becomes a trusted institution.

I just wonder how many Panama papers, Paradise papers, Pandora papers, FinCEN—Financial Crimes Enforcement Network—leaks, laundromat leaks, Falciani leaks and Luxembourg leaks we need for our Government to wake up, stop mouthing warm words, which they do a lot, and start acting with tough measures to bear down on this dangerous crime and this terrible trend.

A proposal to toughen up the regulatory framework was included in the 2015 Conservative party manifesto. The party pledged—I hope I am quoting accurately—to create a criminal offence where companies

“fail to put in place measures”

to prevent economic crime. The Government launched a consultation that lasted four years, and then parked the issue in the long grass by referring it to the Law Commission. I understand that the Law Commission is about to report, but we need and want corporate liability reform, and we want it now.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

It is a delight to work with the right hon. Lady on this particular issue. As part of the Law Commission consultation, there is talk that, instead of there being a criminal liability for failing to prevent economic crime within a corporation, it may be downgraded to a regulatory offence. Does she agree that that would not create the deterrent we need for these corporations, such as NatWest, which is facing a fine of £340 million for not properly monitoring money laundering in this country in a Bradford jewellery company? Does she agree that there must be a serious sanction, such as a criminal offence, where individuals could be locked up for not doing the right thing in these areas?

[Dame Margaret Hodge]

Again, I am pleased to see such unity across the Chamber today. I completely agree that if it is not made a criminal offence and there is no direct liability on the individuals concerned, it simply becomes a business cost and will not change the behaviour or conduct of those big corporations. I concur with the hon. Gentleman.

I was going to use the example, although I probably do not need to, of the Serious Fraud Office’s failure to successfully prosecute the Barclays bank case. As many observed at the time, that case showed that under our existing law the bank could not be held accountable for the actions of its employees, and the chief executive could not be held to account for the actions of the bank. Nobody could be held to account. These reforms would change that by introducing a vicarious liability condition and bringing in a “failure to prevent” clause. The Americans do it; they have much tougher laws that hit the corporations with criminal, civil and regulatory penalties, and they secure many more resources.

Our second ask is about starting the work to strengthen our enforcement by reforming Companies House. Creating a public register of beneficial ownership was an important move when David Cameron was our Prime Minister, and a huge step forward. In one year, the register was accessed more than 2 billion times, but the data, as we all know, is often inaccurate or incomplete. Global Witness did an analysis in 2018 that showed that 10,000 companies declare a foreign company—mostly linked to a secrecy jurisdiction—as the owner of the company, 335,000 companies had no beneficial owner and 9,000 companies were controlled by beneficial owners who each controlled more than 100 companies, so they were nominee beneficial owners.

It takes £12 to set up a company—it is ridiculous. That is why so many UK companies keep appearing in all the leaks we get of wrongdoing. Our lax enforcement leads to tragedies worldwide, and we need to do something about that. That is why these reforms could be funded by raising the fee. If we quadrupled the fee and charged 50 quid to start a company, we would raise a huge amount of money that we could put into reforming Companies House and ensuring that it had unique identifiers for the beneficial owners, and powers to investigate and interrogate.

My third proposal, which I will deal with very quickly, concerns the introduction of a property register. Buying a property through a shell company registered in the British Virgin Islands is the easiest way to launder money into the UK. There are very few good reasons for maintaining anonymity, but plenty of bad ones: not just money laundering, but avoiding stamp duty, inheritance tax and other taxes.

It is difficult to put a number on that, although many people have tried, but I will share one fact with the House. All London boroughs have had an increase in their electoral register over recent times; the only borough that has not is the Royal Borough of Kensington and Chelsea, the reason being that such a large number of properties there are bought through shell companies by foreign owners that there are fewer residents there today than there were 10 years ago.

[Catherine West]

Does my right hon. Friend agree that that distortion of the London housing market is to the detriment of all our constituents? I note there are other hon. Members present who represent London seats. Across the UK, but particularly in London, where we see such extreme homelessness and overcrowding of children, that really needs to be addressed.

[Dame Margaret Hodge]

Absolutely. That is another really important point; hiking up the prices at the top of the market obviously has an impact right through the housing market here in London. Some terrible instances have been uncovered in the various leaks. The Crown Estate, for example, sold 120 of its properties to companies registered in 14 different tax jurisdictions, demonstrating again the way in which the system is abused. Those are people such as Vladimir Chernukhin, who owns a residence in Regent’s Park through a company registered in the British Virgin Islands, or James Ibori, a Nigerian governor who was prosecuted here for fraud and money laundering, and who had property in Hampstead and Dorset. In the recent Pandora Papers, the Crown Estate bought a £67 million property from the Aliyev family, who are the well-documented abusers of their rule in Azerbaijan.

In 2015 we were promised a register of beneficial ownership for properties owned abroad. There was a consultation in 2016 and a draft Bill in 2018. It was mentioned in the Queen’s Speech in 2019, and again in the G7 meeting in Cornwall in 2021, but we still have not got a Bill, although it is my understanding that such a Bill has been written and is literally gathering dust on the shelf. The problem is enormous, and if we fail to act robustly it will overwhelm us. Economic crime is costing us our international reputation as a trusted and respected jurisdiction. If that trust goes, our ability to develop and grow our economy will be fatally curtailed.

[Stephen Timms (East Ham) (Lab)]

My right hon. Friend is talking about the amount of resource we commit to this, but has she seen the statistic that the National Economic Crime Centre put to the Work and Pensions Committee, which is that fraud now accounts for a third of crime in the UK, but for 1% of police resources?

[Dame Margaret Hodge]

Throughout this, when we talk to the enforcement agencies, they all minimise their expenditure on economic crime and have other priorities. That statistic is very frightening, and I am grateful to my right hon. Friend for bringing it to the attention of the House. I think it can be reflected in all four or five agencies that do a similar job.

We will never achieve sustainable prosperity on the back of dirty money. With the economic crime plan drawing to a close, this is the perfect opportunity for the Government to put the proposals in our motion before the House, so that we can debate and enact them, and embark on that long and difficult journey of ridding this country of the cancer that is growing in our economy and society. Across the House we will then all feel that we are not just debating, but that we are acting to expel economic crime from the Britain we all love and seek to serve.

--- Later in debate ---

[Lee Rowley]

I am grateful to my hon. Friend for highlighting that important point. Whistleblowing is a vital part of an ecosystem that works and has appropriate checks and balances. He correctly highlights the need to ensure that our frameworks are appropriate for that, and I know that Ministers responsible for that area of policy are listening to this debate and will take his points on board.

Let me take a moment or two to talk about context. Context is important because, even in a good-natured and constructive debate such as this, it is important to acknowledge some of the work that has been done, while also recognising that Members are keen for us to move further and quicker. In 2015, the Government legislated to ban bearer shares and create a public register of beneficial owners of UK companies, and that register has been a template for countries across the world. Indeed, a number of years on, we still get requests from other parts of the world about it. Since 2016 the Government have made significant changes to the way they tackle money laundering, particularly through new powers in the Criminal Finances Act 2017, which include unexplained wealth orders, new seizure and forfeiture powers for bank accounts, and new protections for the sharing of information.

[Dame Margaret Hodge]

We welcomed moves such as the introduction of unexplained wealth orders, but that is the point we are making: they came in with a great bang, we had one successful one, there was then a failure, and since then there has been almost silence and the power has not been used. There is also a fear of failure, which is related to the fear of having to carry the costs of that failure. The Government could legislate on that, as the Americans have done, so that people cannot claim those massive £2 million or £3 million costs if they succeed in the courts. There is also a lack of resources within the enforcement agencies properly to prepare for such cases. After the case that we lost, investigative journalists showed clearly that falsehoods were told in the courts that led to the failure of that provision. Unexplained wealth orders are a great idea, but they are not being used.

[Lee Rowley]

I am grateful to the right hon. Lady, who is an expert in this area. I hope we all agree that having such legislation in place is a step forward, and that the opportunity and ability to use it is a positive thing. As she has outlined, such measures have been used in some instances, but there have also been challenges. I hope that that use will continue to be made in appropriate areas, and I will certainly pass back her comments to the Ministers who are reviewing this issue.

In 2018, the UK’s anti-money laundering regime was reviewed by the Financial Action Task Force, and the UK received the best rating of any country assessed in that round of evaluations. None the less, there is an acceptance that more needs to be done, and as a number of Members have said, a number of months ago we published the economic crime plan. Progress was updated on top of that, with 52 actions to tackle economic crime, and the Government are on track to deliver 49 of those.



There have been achievements as well, including the commencement of reforms to the suspicious activity reporting regime, with £172 million frozen or removed from potential criminals in a recent reporting year, and the creation of the National Economic Crime Centre, which a number of Members referenced. Its work in the fusion cell in April 2020 highlighted potential criminality, potential challenges and potential investment fraudsters. We are also legislating in the current Finance Bill for the economic crime levy. I hope all hon. Members have seen the action to secure a unified position in the G7 on international anti-corruption efforts, including an agreement to implement and strengthen beneficial ownership registers.

--- Later in debate ---

[Dame Margaret Hodge]

Very briefly, I want to start by thanking saying a big “Thank you” to all who participated in today’s debate for the issues they raised.

I am particularly grateful to the hon. Member for Thirsk and Malton (Kevin Hollinrake). It is a joy to work with him. He raised important points on developing countries, which we did not come back to. It is true, however, that developing countries lose three times as much through tax avoidance and corruption as they gain from international aid, so if the Government want to cut the international aid budget, they could take action there that would be hugely beneficial.

All Members talked about the importance of transparency. We are all at one with my right hon. Friend the Member for East Ham (Stephen Timms) in wanting to include paid-for advertising in the online harms Bill. We are working across the House and I think there is huge agreement, certainly on the Back Benches, on that matter.

The contribution from the hon. Member for Barrow and Furness (Simon Fell) was excellent. He has some great ideas and I do hope he will join our all-party parliamentary group. We are always looking for new ideas that will help to strengthen the fight against tax avoidance, tax evasion and economic crime, so that would be terrific.

I am hugely grateful to the hon. Member for Glasgow Central (Alison Thewliss) for her constant support. She is dogged in pursuing the issues that are of importance to her. I am also very grateful to my right hon. Friend the Member for Wolverhampton South East (Mr McFadden), who gave such an eloquent speech.

I just want to say three things in response to the Minister. First, of course most businesses and individuals behave well, but if we do not work to rid ourselves of criminals, kleptocrats and money launderers who infect our economy, we do a disservice to those who want to work legitimately. That was a point made by the hon. Member for Weston-super-Mare (John Penrose), our anti-corruption tsar. The point is not, therefore, that this is the exception. If we do not deal with the exception, we break the rule. I hope the Minister will take that away. Secondly, while we welcome the Government’s general support, we will keep pushing. The proposed legislation is there and we want it on the statute book. Those are choices that the Government can make, and I hope they will make them. Thirdly, such things as paid-for fraudulent ads affect millions of people across the country in every constituency, and we have all had such cases. That is about individuals, but there is also the behaviour, for example, of the Aliyev family from Azerbaijan and the way they launder their money here and buy their privileges in our communities. That has to be stopped. That is not the sort of Britain that any of us wants to live in.

Weak regulation, poor enforcement and lack of transparency have an impact not just here in Britain, but elsewhere in the world. I will finish with this story. We all remember too well the terrible explosion in Lebanon, when ammonium nitrate killed a lot of people and destroyed that country. I was amazed to get a call a few weeks after it occurred from someone who told me that the company that owned the ammonium nitrate in the warehouse at the port in Lebanon was UK-registered. I gave a usual quote to demonstrate the lack of proper regulatory controls here. I was then inundated with phone calls in which I was told that not only was the company owned here, but it had a nominee beneficial owner based in Portugal or Spain—somewhere like that. The company said that it was dormant and had therefore not filled in HMRC returns. Further investigation by the Lebanese Bar Council and journalists in Lebanon demonstrated that, actually, the ammonium nitrate was not destined to be used as fertiliser in Mozambique; it had been brought by Russian Syrians to be given to Assad in Syria for barrel bombs to be used on the population in Syria. That is outrageous. We are facilitating that, and the tragedy it created is what makes it so important—so imperative—that the Government take action.

Question put and agreed to.

Resolved,

That this House recognises the devastating impact economic crime has on individuals, businesses, families and society; considers it unacceptable that the cost of money laundering alone exceeds £100 billion a year according to the National Crime Agency; is concerned that in the wake of the Pandora Papers leak there is inadequate transparency, regulation and resources in place to effectively tackle this severe problem; and calls on the Government to bring forward legislative proposals to tackle economic crime as a matter of priority, integral to which are provisions to introduce a criminal offence for failure to prevent economic crime, reform Companies House and introduce a beneficial ownership register for the overseas owners of UK property.