Criminal Finances Bill (First sitting)

Nic Dakin Excerpts

Committee Debate: 1st sitting: House of Commons
Tuesday 15th November 2016 Public Bill Committees

[Antoinette Sandbach]

Q Are you therefore satisfied that the current procedures in the Bill tackle the major challenges you face in your aspect of the investigations?

Mick Beattie: It definitely improves some of the operational difficulties we have highlighted. We have been privy to the formation of the Bill, we have been invited, we have been allowed to comment and we have contributed to the drafting of the Bill. You always want more. There is more we would have liked around information sharing. But there are definitely advantages to the Bill that will help criminal investigations.

[Nic Dakin (Scunthorpe) (Lab)]

Q Thank you for your evidence. You seem to be saying there is more that perhaps could be done, Mr Beattie. What additional things should we take the opportunity to look at in the Bill, to make sure you have the powers you need to do your job?

Mick Beattie: A lot of what we would have liked, we have got. Information sharing between the private and public sectors is done through the NCA UK Financial Intelligence Unit, which is under a lot of pressure. It is a unit that services the whole of UK law enforcement. The Bill allows communication between the banking sector and the UKFIU, which would then release that information to policing. If we had a particular interest, we may have to go back through the UKFIU back into that institution. We would have liked a little bit more direct access, but it is not a problem. It is something we can overcome.

In the early stages, I can understand the reticence from the banking sector. This is a new area of business for them, piloted through the joint money laundering taskforce very successfully. I can understand the small-steps mindset in relation to that—get some understanding, some evidence and some culture. So we are very supportive of what we have got in the Bill.

Donald Toon: From our perspective, the Bill takes us forward on a range of difficult issues, but it does that in a balanced and thought-through way. From law enforcement’s perspective it is always easy to want more power, but that has got to be balanced against the fact that, for example, the financial services sector has to continue to do business.

We are satisfied that this makes the changes and we have been able to set out a clear, operational, evidenced case for the change. Do we think this will stop and it will be the panacea for the future? No, because we are involved in an arms race here. There are people on the other side—whether professionals involved in providing money laundering services or serious criminals—who will always be looking for another opportunity. That is why the Proceeds of Crime Act 2002 has had to be amended so many times since it was first introduced.

Do we think this will stop further amendment? No. Does it actually address the issues we can evidence now? Yes.

Detective Superintendent Harman: I echo that. The answer for us now lies not in more legislation. The Home Office consulted very closely with us. We are seeing the legislation in here that we asked for. The answer now for us is about co-operation with the financial sector, about sharing information. Just like we asked the public for information to help us to fight terrorism, now we are asking the regulated sector, and I think the Bill will help with that.

[Richard Arkless (Dumfries and Galloway) (SNP)]

Q For the most part, my questions have been dealt with by colleagues previously asking about additional powers, but I will come back to one point. There is a huge array of regulatory bodies that cover money laundering in the UK. Do you think that consolidating these would make life easier for you in the pursuit of money laundering activity?

Donald Toon: The Treasury has been doing work on this space now. From our perspective, all those regulated bodies are covered by anti-money laundering regulations and are required to submit SARs. We need to see clear, consistent standards across all parts of the regulated sector. I do not care whether that is achieved through one supervisory body or a number, provided they are all operating to the same set of standards and the same commitment to ensure that SARs are produced—and produced to the necessary quality—and they are prepared to take action against those parts of the regulated sector that they supervise when they do not live up to those standards.

Mick Beattie: I support that. The police get nearly 400,000 suspicious activity reports a year. There are definitely gold nuggets in there, but some of those reports are of such a poor standard, or they are defensive reporting or a means for the bank—really, their own regulators could have a role around the quality of the SARs submitted.

Detective Superintendent Harman: I do not have anything to add to what Mr Toon said.

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[Mike Wood (Dudley South) (Con)]

Q This question is directed in particular to Mr Thompson. Could you tell us more about the challenges faced by the Serious Fraud Office in investigating a suspected criminal financial activity, and how the specific measures in the Bill will help you to do that more effectively? In particular, I would like to know more about how unexplained wealth orders might be expected to help in pursuing foreign officials suspected of grand corruption.

Mark Thompson: Members of the SFO and I have been involved in consulting with the Home Office as this process has developed. Unexplained wealth orders provide an avenue for us to start civil recovery investigations effectively in a way that we cannot do at a moment. Where information is held abroad, or is in jurisdictions where co-operation is unlikely, this tool provides us with a way of kicking the process off and taking action against property in the UK that we suspect to be derived from crime. As things currently stand, the thresholds for pursuing civil recovery are, in many cases, high enough to make this difficult. That is how I would see our using the legislation in the first instance.

[Nic Dakin]

Q The new corporate offence relates only to tax evasion, which makes sense. But is there a case for extending it to dissuade companies from facilitating quite aggressive tax avoidance?

Simon York: At the moment this is a criminal offence, and tax avoidance is not a crime, which is why that would be difficult. We are currently consulting on additional legislation that would penalise the enablers of tax avoidance, so we are seeking legislation in that area too.

[Victoria Atkins]

Q Thank you, and it is a pleasure to serve under your chairmanship, Sir Alan. I want to pick up on the point about avoidance and evasion. Mr York, you said that these powers are directed at tax evasion, which is a crime. To give us an idea of the complexity of veering into the world of tax avoidance and tax efficiency, is it not right that a person simply investing in a pension can be described as being tax efficient because that prevents them from paying as much tax as they would otherwise pay?

Simon York: Certainly it can be tax efficient. We tend to use the phrase “tax planning”, so a pension or an ISA or something like that would fall into that category. Tax avoidance is typically where people are using schemes—which are often quite contrived and artificial—to do something that Parliament never intended. They are not lying to us, or being fraudulent, or misrepresenting something, but it is all artificial. We will criminally investigate the kind of situation in which people step over that line—which sometimes they do—and when they are part of something that might appear to be an avoidance scheme that actually becomes fraudulent, or where they are deliberately going out to defraud and disguise it as an avoidance scheme. We have had some significant wins over the past 12 months on big complex frauds disguised as avoidance. When it crosses that line, we will come right down on that. But if it is avoidance in the theoretical, pure sense, we will tackle that through civil litigation and take those cases to court.

On the subject of tax avoidance, the Government have done lots of work on tax avoidance over the last five or six years, and 40 loopholes have been closed down. In particular, we have brought in the accelerated payments legislation which completely changes the economics of tax avoidance, and makes people pay upfront while we wait for tribunal results. There are some really striking figures. The flow of new schemes is now down 99%. In 2006, there were 600 new schemes a year; last year there were seven. A couple of years ago, there were 2,300 new users of avoidance schemes; last year there were 410. We are really taking the bottom out of the individual market of avoidance schemes. The proposed legislation is to tackle another intractable problem, which is evasion, which is a criminal offence.

--- Later in debate ---

[Antoinette Sandbach]

Q If I can go back to the smaller business point, I do not know if you were here when I asked Simon York about the other end of the scale. Some tax evasion is not for the purposes of evading tax—the purpose is to evade other liabilities that follow on from declaring taxable income. That can be supported by small accountancy firms that may not apply regulations as rigorously as they should do. Do you think this offence will have a deterrent effect on the smaller and mid-range companies?

Professor Murphy: I think it will. The reason why is that it is a strict liability offence: the existence of evidence of tax evasion is sufficient to prove liability without motive being questioned. That could be important in certain cases. I can think of a very recent example—it has been in the press—where somebody has not paid tax quite deliberately, it seems, out of a company for which they were responsible. It would make it easier to prosecute in those cases. It will have a deterrent effect. I do not have a problem with strict liability offences for that reason. I know many in my profession do.

[Nic Dakin]

Q You both spoke earlier in giving evidence about the great opportunity to bring about behavioural change or improve compliance. Are there measures we ought to be looking at in this legislation that you would like to see us take the opportunity to put in?

Alex Cobham: I would say it is the reporting of it. If the Bill is seen as having made it on to the books without driving any serious change either in the way that HMRC operates and the extent to which it looks at enablers or in the ultimate prosecutions and revenue recovery, or if there is a perception of that even without that being the case, that is a missed opportunity in terms of how much impact it has. There needs to be a requirement for consistent reporting of the numbers of prosecutions, and of the transition between prosecution of evasion cases and, for each of them, whether there is a related prosecution of the enabler or not. If the second number is a very small fraction of the first number consistently, there needs to be space to come back and review, but at least having that will drive attention.

Professor Murphy: I would make the non-provision of accounts and a corporation tax return a strict liability offence for tax evasion under the terms of the Bill. I would also require a provision that is very similar to one we are demanding internationally, which is that banks simply report each year to HMRC which companies they provide services to.

We will next year be in the absurd position that HMRC will get more information on a company owned by a British person in the Cayman Islands than they will on a company owned by a British person in Stockport, because there is automatic information exchange from the Cayman Islands and there is not within the UK. If banks were required to provide information to HMRC on which companies they provide services to and the simple value of sums deposited in a bank account each year, we would know which companies were trading and therefore which were due to file accounts and which were due to submit a corporation tax return. Failure to submit would be a strict liability offence. Nothing would scare the accountancy profession or small company directors more than that. Make them personally liable for the tax not paid at the same time and you have solved the problem of tax evasion virtually overnight. It is simple.

[The Chair]

We have only five minutes left, so I will ask the three Members who want to speak to ask their questions first, and then you can reply. You will get a copy of the minutes, which will include any questions that you did not have time to answer.