Terrorist Asset-Freezing etc. Bill [Lords]

Mark Hoban Excerpts

Monday 15th November 2010 Commons Chamber

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

I beg to move, That the Bill be now read a Second time.

The Bill makes provision for imposing financial restrictions on, and in relation to, certain persons believed or suspected to be, or to have been, involved in terrorist activities. It amends schedule 7 to the Counter-Terrorism Act 2008, and is for connected purposes.

Hon. Members will be aware that the threat to the UK from terrorist attack continues to be judged as severe, meaning that an attack is highly likely. Just a few weeks ago, intelligence agencies uncovered another plot designed to cause death and destruction to innocent people. As my right hon. Friend the Home Secretary revealed, those involved in that air cargo bomb plot were well connected and part of an international network of extremists.

It would seem that the terrorist threat that we face is developing. We see the continued emergence of a more diverse and devolved terrorist threat that is joined more by ideology than by hierarchy, and that is technologically very capable. Small networks, or even individuals acting alone, are able to use technology to their advantage, giving them the ability to wreak havoc worse than their size might suggest. It is clear that those who wish to do us harm operate on an increasingly global scale and are devising ever more sophisticated methods of avoiding detection. This is why we must continue to ensure that the tools we employ to combat terrorism remain effective. We must have the ability to take preventive action to disrupt suspected terrorists.

[Keith Vaz (Leicester East) (Lab)]

I understand that 205 accounts have been frozen under the previous legislation. Does the Minister know whether there is any evidence of a link between any of those accounts and actual terrorist activity? I am not disputing in any way what the Government are doing, and I fully support the Bill, but I would like to know whether any connection has been made between those accounts and any kind of terrorist activity.

[Mr Hoban]

In regard to the Bill, and to the legislation that it will replace, assets are frozen where there is reasonable suspicion. The Bill will change that test in order to strengthen it.

Asset freezing is a tool that we can use to take preventive action to disrupt suspected terrorists, and it is used internationally to prevent and disrupt the financing of terrorism. The impact of our ability to freeze the funds of potential perpetrators should not be underestimated. By cutting off access to finance and preventing money from reaching terrorist networks, we can stop individual acts in their early stages.

Currently, around £140,000 is frozen in the UK under our domestic terrorist asset-freezing regime. That might not seem a large amount, but hon. Members will be aware that it takes only a relatively modest amount of money to carry out a deadly attack. By way of illustration, the dreadful attacks of 7 July 2005 cost less than £10,000 to carry out, and the air cargo bomb plot is also likely to have cost a comparatively small amount.

[Keith Vaz]

No one is disputing the importance of this legislation or the legislation that it replaces, or the decision of the Supreme Court that has meant that this measure has had to be rushed through in this way. The Minister has not really answered my question, however; he has just given me some information about reasonable suspicion. Was there any connection between any of the accounts that have been frozen, for whatever reason, and any terrorist activity?

[Mr Hoban]

May I just dispute the right hon. Gentleman’s point about the Bill being rushed through? It has not been rushed through. The process, of which he might be aware, is that, following the Supreme Court judgment earlier this year, emergency legislation was taken through this House and the other place to ensure that the terrorist asset-freezing regime remained in place until the end of this year. At that point, the previous Government initiated a consultation on the way in which that legislation should be replaced. That consultation started earlier this year, and has continued. My noble Friend Lord Sassoon introduced this Bill in the other place, and further safeguards have been included in it as a consequence of the consultation process. I do not believe that anyone could say that the process has been rushed. It has taken place in the methodical and thorough manner required to balance civil liberties concerns with the importance of national security. Although I am not in a position to disclose the links between the accounts frozen and any activity, those accounts and the evidence are kept under review, and orders are lifted where it is felt appropriate.

Asset freezing is not just a domestic tool used by the UK to combat terrorist financing. We have an international obligation to freeze the assets of terrorists, and it is important to consider it in some detail. In 2001, after the 9/11 attacks, the UN Security Council unanimously passed resolution 1373, requiring states to take a range of measures to combat international terrorism and the financial flows that underpin it. The overarching objective of the resolution was to

“combat by all means…threats to international peace and security caused by terrorist acts”.

It was clearly intended to be preventive, and it calls on states to

“work together urgently to prevent and suppress terrorist acts, including through increased cooperation and full implementation of the relevant international conventions relating to terrorism”.

Those are broad provisions, and intentionally so. They reflect the Security Council’s real and unanimous commitment to take all necessary measures to prevent terrorism.

Although resolution 1373 is quite detailed in its obligations, the Financial Action Task Force, the international standard-setting body for anti-money laundering and counter-terrorist finance, has helpfully provided further detailed guidance on the implementation of UN terrorist asset-freezing obligations. That guidance reflects the intention for the resolution to be preventive in its effect, which is an important consideration when we come to consider in more detail the appropriate legal test for freezing assets.

Particularly for the benefit of hon. Members who did not participate in our debates earlier this year, I should like to explain a little of the history behind the Bill and why we need to act now. Following the adoption of resolution 1373, the previous Government took the decision to implement UN terrorist asset-freezing obligations through secondary legislation, by Orders in Council made under the United Nations Act 1946. Following litigation brought by several applicants affected by one of those orders, which went all the way to the Supreme Court, that court ruled earlier this year that the previous Government had gone beyond the general powers conferred by section 1 of that Act in making Orders in Council to give effect to our UN terrorist asset-freezing obligations. The orders were not subject to parliamentary scrutiny, so Parliament did not have the opportunity to consider how the UK should best give effect to its obligations. The Supreme Court quashed the relevant order with immediate effect.

Many Members will remember that in response to the judgment, the previous Administration rushed through emergency legislation, with cross-party support, to maintain the asset-freezing regime and ensure that terrorist assets would not have to be unfrozen. No one in the House wanted to see the unfreezing of terrorist assets, and that was why my party and others were prepared to support the emergency legislation. At the same time, there was a strong feeling in the House that the terrorist asset-freezing regime needed to be scrutinised by Parliament in more detail at the earliest opportunity, and that there was scope to improve it by strengthening civil liberties safeguards. For that reason, Parliament inserted a sunset clause providing for the temporary legislation to expire on 31 December this year. That is why we are now legislating to ensure that the UK’s terrorist asset-freezing regime can be improved and put on a secure legislative footing in time for that deadline.

As the House will know, this Government are committed to striking the right balance between protecting public safety and protecting civil liberties. We believe that in a number of areas, it is possible to strike a better balance and strengthen civil liberties safeguards without undermining public safety. Terrorist asset freezing is one such area, and that is why the Bill is not intended simply to reintroduce the previous regime that the Supreme Court quashed. I shall explain that.

The Bill, as introduced in the other place, included several changes to strengthen the proportionality, fairness and transparency of the regime. Briefly, they included a narrowing of the prohibitions relating to third parties, so that a third party does not commit an offence if they did not know, or reasonably suspect, that they were breaching a prohibition; excluding payments of state benefits to spouses or partners of designated persons from the scope of prohibitions, even when those benefits are paid in respect of a designated person; and a new requirement that the operation of the regime be independently reviewed nine months after the Bill is passed and every 12 months thereafter.

To strengthen further the protection afforded to designated persons, the Government tabled significant safeguards before the Committee stage in the other place. Those additional safeguards reflect the civil liberties concerns that were raised in Parliament during the passage of the emergency legislation and in the public consultation conducted over the spring and summer.

First, we addressed the legal threshold that must be met before the Treasury can freeze a person’s assets. Under the current Order in Council, the Treasury may freeze a person’s assets on the basis that it reasonably suspects that they are involved in terrorism, provided that the Treasury considers that necessary to protect members of the public. Under the Bill, the Treasury can no longer rely on a threshold of reasonable suspicion if it wishes to make a designation lasting more than 30 days.

The Government consider that there is a good case for retaining a reasonable suspicion threshold for a temporary period of 30 days only. That will enable assets to be frozen when there is sufficient evidence to meet a suspicion threshold, but when, for example, investigations are ongoing, and there is therefore a reasonable prospect of subsequently meeting a higher evidential threshold. A good example of that is when assets are frozen alongside arrest while the police build the evidential case for bringing criminal charges, as happened with the freezing of assets in connection with the transatlantic plane bomb plot in 2006.

[Dr Julian Huppert (Cambridge) (LD)]

The Minister mentioned tying freezing to arrest, which I agree with, but can he give examples of when we might ever want the power to freeze assets without arresting somebody?

[Mr Hoban]

We might freeze assets in the UK that belong to terrorists who operate overseas in a more benign environment, when it would be difficult for us to secure the arrest of individuals given where they operate. There is therefore a strong argument for those powers. The hon. Gentleman will be as acutely aware as I am that his predecessor as the hon. Member for Cambridge led for the Liberals on the emergency legislation and raised a number of the civil liberties concerns that we are addressing in the Bill.

The Government do not believe that assets should remain frozen on the basis of a reasonable suspicion threshold for longer than 30 days. That is why the Bill makes it clear that to make a final designation—meaning one that lasts for up to 12 months—the Government can act only if we have a reasonable belief that a person is or has been involved in terrorism.

[Dr Huppert]

As I am sure the Minister understands, I am now trying to represent David Howarth—he is my constituent. What is the test of reasonable belief compared with, for example, the civil standard of the balance of probabilities? Is reasonable belief essentially the same, or is the Minister arguing for a lower standard?

[Mr Hoban]

The reasonable belief test is less than the balance of probabilities test, as I am sure the hon. Gentleman’s constituent is aware, but the Government believe that the measure strikes the right balance. The Bill is preventive, which explains why we have chosen a reasonable belief test rather than a balance of probabilities test.

The second major civil liberties safeguard that we have introduced involves strengthening judicial oversight of decisions to impose asset freezes. Under the current legislation, a court can review a decision to impose an asset freeze only under the judicial review procedure. The House of Lords Constitution Committee recognised that judicial review gives the courts a significant power of scrutiny, particularly when decisions have been made in a national security context. However, there were concerns that although the courts can use, and have used, judicial review as an effective power of scrutiny in control order cases, there is a lack of clarity about how the courts would operate judicial review in the context of asset freezing.

To address that and to provide clarity—we expect the courts to apply rigorous scrutiny to asset-freezing designation decisions—the Government have provided in the Bill that decisions to freeze assets will be subject to a full merits-based appeal procedure. By providing a full merits-based appeal, we can ensure that the same degree of scrutiny that is given, for example, in control order proceedings—effectively such proceedings are equivalent to a full merits-based review—is afforded to individuals subject to a designation. I wish to inform the House that I have put a schedule of the changes I have highlighted in this Bill in the Commons Vote Office, and I hope that will help hon. Members during today’s debate and in Committee.

I wish now to deal with the content of the Bill, beginning with the provisions under part 1. The effect of a designation under this legislation is threefold: to forbid dealing with a designated person’s funds and economic resources; to forbid making funds or economic resources available to such persons; and to forbid funds or economic resources being made available to a person when the designated person will consequently obtain a significant financial benefit.

Part 1 sets out the provisions allowing the Treasury to make a final designation, necessary to protect the public, where it reasonably believes that a person is or has been involved in

“the commission, preparation or instigation of acts of terrorism”

or

“conduct that facilitates the commission, preparation or instigation of acts of terrorism”.

It also sets out the provisions where the Treasury may make an interim designation, necessary to protect the public, where it reasonably suspects that a person is or has been involved in the commission, preparation, or instigation of acts of terrorism, or conduct that facilitates such acts. An interim designation expires at the end of 30 days, unless a final designation is made. Part 1 provides that the prohibitions are contravened only when someone knows, or has reason to suspect, that the person whose funds or economic resources they are dealing with, or to whom they are providing funds, economic resources or financial services, is a designated person.

The Bill also provides for licences, which permit exemptions to the freeze. I should like to point out that the Treasury’s policy is to issue an individual licence to designated persons straight away to enable them to carry on paying for their ordinary, everyday expenses. That minimises the immediate impact of an asset freeze on a designated person and their family. Any further licences, or amendments, can be applied for by the designated person, or by any person affected by the prohibitions, at any time. The Treasury has also issued a number of general licences, which allow certain transactions to occur without the need for a separate licence application to be made—for example, to ensure that a designated person can have access to legal aid without delay.

Part 1 also sets out the reporting obligations on the financial sector in relation to these provisions, and the Treasury’s general information-gathering powers to monitor compliance with, and detect evasion of, the regime.

[Dr Huppert]

Perhaps the Minister could help me. Nothing in the Bill makes it clear that the Treasury is required to make reasonable licences available. Is there an expectation of what the Treasury would allow?

[Mr Hoban]

Yes. As I have said, we have issued a number of licences, which I understand run alongside the regime that is in place. That is why I do not think the hon. Gentleman will find reference to a general licence on legal aid in the Bill. This runs in parallel to the legislative framework in place.

[Tom Brake (Carshalton and Wallington) (LD)]

The Minister will be aware that Lord Wallace of Tankerness said that

“the general presumption is that where a licence is requested to pay for legal costs, it will be granted.”—[Official Report, House of Lords, 6 October 2010; Vol. 721, c. 174.]

Does the Minister think there any circumstances in which a licence would not be granted to cover legal costs?

[Mr Hoban]

I do not want to get into giving hypothetical answers to hypothetical questions. If the hon. Gentleman has a particular concern and wishes to write to me about it, I shall be happy to respond appropriately.

Finally, part 1 sets out the obligations on the Treasury to appoint an independent reviewer and the penalties attached to breaches of the asset-freezing provisions. Part 2 makes minor amendments to the Treasury’s financial restrictions powers under schedule 7 to the Counter-Terrorism Act 2008. Those powers are an important part of the Government’s toolkit to deal with risks posed to the UK by money laundering, terrorist financing and the development or production of chemical, biological, radiological or nuclear weapons. They also enable the Government to take action where the Financial Action Task Force advises that counter-measures should be taken because a country poses a money-laundering or terrorist-financing risk. The risks that those powers address are of a serious nature and it is imperative that we have effective financial tools to tackle them. We have identified a small number of technical amendments to these powers.

First, we are introducing a prohibition on the intentional circumvention of any restriction issued under the powers in order to ensure that a restriction cannot simply be bypassed. That will prohibit anyone in the UK financial services sector who has to comply with the requirements of a restriction from intentionally rearranging their business to circumvent those requirements.

Secondly, we are introducing a provision to allow restrictions to be targeted against subsidiaries of companies based in the country of concern. Thirdly, we will clarify the point that, when the Government direct a UK financial or credit institution to implement a restriction, that restriction can apply across its branches, wherever located. Fourthly, we are making provision for the transfer from the Department of Enterprise, Trade and Investment in Northern Ireland to the Financial Services Authority the responsibility for ensuring the compliance of Northern Ireland credit unions with the requirements of a restriction.

This Bill, when passed, will create a secure legislative footing for an important and necessary counter-terrorism power. The Government recognise that such powers are not to be created lightly, and I am confident that the safeguards in the Bill strike the right balance between national security and the rights of the individual. This is the right course of action to protect our national security, to protect the freedom of our citizens and to prevent future attacks, and I commend this Bill to the House.