Criminal Finances Bill (Fifth sitting)

Richard Arkless Excerpts

Committee Debate: 5th sitting: House of Commons
Tuesday 22nd November 2016 Public Bill Committees

[Dr Huq]

We support the clause, its global reach and the idea of weeding out corporate bad apples, if that is not mixing too many metaphors—weeds and apples at the same time. The Minister is correct; we think the clause could go further. We have tabled amendments to the next clause.

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

We support the clause and, like the Opposition spokesperson, we commend its international reach. We look forward to discussions, perhaps this afternoon, on new clause 6, but instinctively, like Opposition Members, we are minded to take the clause further.

As time goes on, we ought to monitor the issue of designing processes that demonstrate that reasonable measures have been taken not to facilitate tax evasion. As a consumer finance lawyer, I have seen large multinational organisations roll out various folders of processes, procedures and protocols, but we were not always convinced that those had been followed to the letter. Some sort of monitoring mechanism would be most helpful.

We ask the Government to take note of the evidence we heard last week that these measures could disproportionately impact smaller organisations; larger organisations may be more suited to gathering this information in order to set out processes and procedures. We should keep an eye on those two things. We look forward to discussions on new clause 6 and support the clause.

[Mr Wallace]

To clarify, I think that statutory guidance is first published in draft. Given the hon. Gentleman’s experience, I would welcome his input on whether that guidance is appropriate. We did that with the Bribery Act; I remember when that came out. Statutory guidance is an important tool for small businesses, because big businesses have big compliance departments and can do all the work even without the statutory guidance, but for small or medium-sized businesses, the statutory guidance is a good starting point. It is really important both that we get it right, and that we get it written in plain English.

I reiterate the offence created by the clause: if someone in a Crown dependency or overseas territory—I know that hon. Members are interested in those—is advising UK citizens to evade UK tax, it does not matter that they have no nexus here; they are criminally at risk. As regards trying to change the behaviour of overseas territories or tax havens, this offence will allow us to prosecute people anywhere in the world who are encouraging people to evade UK tax. That is a major and significant step. If someone on a Caribbean island calls themselves a tax consultant and encourages British people to evade tax, we will come after them. That is a major change that goes beyond the shores of the United Kingdom. I hope that the action that we have taken to stop that will go some way to alleviating colleagues’ concerns about the behaviour of some tax havens around the world.

Question put and agreed to.

Clause 37, as amended, accordingly ordered to stand part of the Bill.

Clause 38

Failure to prevent facilitation of foreign tax evasion offences

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[Dr Huq]

These amendments in my name and those of my hon. Friends the Members for Swansea East, and for Bootle, seek to extend the offences of failure to prevent facilitation of foreign tax evasion, and all the other good work described in clause 37, for which the Scottish National party and ourselves praised the Minister, to companies incorporated in a UK overseas territory or Crown dependency. I stress how much we welcome the new offences on failing to prevent tax evasion, and the fact that they can apply anywhere in the world, as the Minister pointed out. However, we wish that they related to all economic crime, rather than just tax evasion, and that they covered companies doing business in overseas territories and Crown dependencies, and offences committed there.

This is quite a chunky Bill that is broad in scope, but this seems to be the gaping hole—the elephant in the room. Almost all those who gave evidence, and all the speeches on Second Reading, including those from respected Members on both sides of the House, such as the right hon. and learned Member for Harborough (Sir Edward Garnier), mentioned that this was a bit of an oversight. There is no mention of the issue at all in the Bill, and that is why we tabled these probing amendments to help the Committee better understand exactly how the new offences relate to the UK’s tax havens, as the Minister termed them; that is how they are perceived all around the world.

I raise the issue because we all know that the UK may well be facilitating tax evasion through its overseas territories. It is worth pointing out that the Foreign and Commonwealth Office appoints a Governor in each of these jurisdictions. The opaqueness and lack of transparency in these places makes it difficult to know the scale of the problem, but we know that developing countries are losing out massively. This legislation rightly seeks to hold directors of companies in the UK accountable for their business’s actions, but why does it not also apply to the UK’s overseas territories? The lack of accountability of directors there is dangerous.

Let us take the example of the British Virgin Islands, the jurisdiction that received the most mentions in the Panama papers, I believe, which is nothing to be proud of. Given its role in the Panama papers, is it not reasonable to talk about having more oversight of this UK-governed territory? It has more than 450,000 companies; nobody quite knows the exact number. That is at least 15 companies for every person—an unusually large number of companies. Every person would need to have 13 board meetings every day to get through all of them in a year.

It sounds like a bold suggestion, but we think that more action is needed. I have five questions for the Minister. When the UK receives information on the beneficial owners of companies registered in the British Virgin Islands, will it use it and look for potential tax evasion? Is there an active duty on the part of the Government? What action will they take if they find any tax evasion? How will owners of British Virgin Islands companies be held to account for their actions? What discussions has the Minister had with leaders of overseas territories and Crown dependencies about these excellent new offences? Are any of them minded to consider introducing something similar on a voluntary basis? We do not want to look like neo-imperialists, going into countries and making them do stuff, so what are they doing of their own volition? If offences are committed in UK-governed overseas territories, under what circumstances would prosecutions be possible under this new legislation?

The last question is the most important one, and the one that would help me to understand this: does the Minister concede that, as clause 40(1) refers to clause 38(2), his Bill effectively allows places such as the British Virgin Islands and the Cayman Islands to facilitate tax evasion on an industrial scale, provided that the companies have no business dealings in the UK? There has to be that link first; they have to have an office, or be somehow incorporated, in the UK. Sham businesses go to those territories only because they are implicitly backed by UK law. Historically, overseas territories and Crown dependencies have been able to market the attractiveness of their financial services by highlighting the fact that the UK rule of law underpins their systems; thus the situation is perpetuated. The fact that people can stash their dirty cash there is part of the unique selling point of these places. I am curious about how the provisions would apply to overseas territories and Crown dependencies if that UK link was not there.

[Richard Arkless]

We are interested in hearing what the Minister has to say on the clause before we make any submissions. We take the point about the link to a UK company, but we are also concerned about this House’s authority to legislate—or be seen to be legislating—over Crown dependencies.

[Mr Wallace]

I understand the importance that Members attach to the amendments, and what they are trying to do. They allow us to begin the debate on the response of the British overseas territories and Crown dependencies to tax evasion, and fraud and corruption more broadly. I am sure that that debate will continue as we consider other amendments later today.

The Opposition’s amendments 5, 6 and 7 are designed to give the foreign tax evasion offence a broad scope, and to ensure that corporate complicity in tax evasion is tackled effectively. On that objective, I share the intentions of the hon. Member for Ealing Central and Acton. Before addressing the amendments specifically, I want to clarify that the foreign tax evasion offence in clause 38 would, as drafted, apply to a relevant body that is incorporated under the law of the UK, or carrying out part of a business activity from the UK, and where a person acting in the capacity of an associated person of the relevant body criminally facilitates tax evasion from within the UK, regardless of where the relevant body is based. The offence would, therefore, require there to be some nexus with the UK for our authorities to exercise jurisdiction; that would include a bank that is based or doing business in the overseas territories and Crown dependencies also doing business in the UK.

However, the hon. Lady’s amendments would criminalise, under the UK law, a situation where there is no link to the UK. For example, if a Norwegian were to set up a business in a tax haven, and that business were to advise an American citizen on how to evade tax, and it had nothing to do with the UK at all—we had no loss of revenue and no business with either the Norwegian or the American—the hon. Lady would be asking us to criminalise that person, and effectively to become the world’s policeman on that issue. We would have no nexus whatsoever to go after that individual; neither they nor the company helping them to evade tax would be British. We would perhaps have some ability, in some instances, to help our neighbour’s tax authorities, as we share data under agreements reached over the last year or so. For example, if we find out that someone is helping the French to evade tax, our law enforcement agencies do share information.

The amendment seeks to force Crown dependencies and overseas territories to change their law. It seeks to use neo-imperialism, to use the hon. Lady’s term, to force our will on territories with those statuses. That is a major step to take. As I said earlier, we have come a long way—90% of the way—with the establishment next year of automatic sharing of data via beneficial registers of ownership. Yes, that is not public, and I know that we will come on to that later in the Bill, but we have come a considerable way, and we should remember that.

We should also remember that because of the City of London, there will not be many financial organisations that do not have a nexus in this country. I am not going to finger a particular country, but the bank of a fictitious country with tax haven status would not be much of a bank if it did not have an operation in the UK. If that bank was encouraging people to evade tax, even if they were not British citizens or were not evading UK tax, we could deal with it, because it would have a branch here. If those concerned were convicted, they would most likely lose their banking licence. A bank that cannot trade in one of the major financial institutions of the United Kingdom is effectively a dud. In a sense, we could take quite considerable action. The fundamental difference is that we think there has to be a link. The alternative is to impose our will directly on these Crown dependencies and overseas territories.

I would like to correct the hon. Lady on two things. They are not “our” territories; we do not own them. The Crown dependencies have never been ours. They have never been part of the British Empire—well, they have never been part of our colonies. We do not even own the overseas territories. We have a governing oversight, but they have Parliaments and elections of their own, and they make their own decisions.

I think the direction of travel—my officials have been directly in touch with the Crown dependencies and the overseas territories—has been right. We are going some considerable way from where we were three or four years ago. Those places have smelt the coffee, and the world is moving forward.

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I therefore urge the hon. Lady to withdraw her amendment and, no doubt, she can scrutinise the progress. I would also be the first to ask her to come and see, when this Bill becomes an Act, the first case—if we do get a case sooner rather than later—of a prosecution of individuals engaged in that. Without a nexus, we are going one step too far.

[Richard Arkless]

We agree with that summary from the Government. The Minister describing the amendment as “neo-imperialism” put the seal on my view of it. The Scottish National party is reluctant to legislate on areas where there is no locus and no nexus and we fully accept that that is the position of the Crown dependencies. We accept the Minister is keen to see that direction of travel continue. In that vein, we have held meetings with representatives of the Crown dependencies over the last few weeks and have been assured that their co-operation in providing information for the register of beneficial ownership is groundbreaking. It will be co-operative and give the authorities in the UK the armoury they need to tackle financial criminality.

I agree it is very likely, if not probable, that organisations facilitating tax evasion, whether in the Crown dependencies or overseas territories, will have a link to the UK and are more likely, more often than not, to have their head office in the UK. We may need to address that again once we leave the European Union, but we can discuss it.

[Dr Huq]

I listened carefully to what the Minister said and was slightly disappointed. I said precisely that I do not want to be neo-imperialist. I do not want to rush into these countries, which is why I asked what was happening already and whether there is any way those people can do things on their own. I did not say that we own those places; I simply said that the UK rule of law underpins their systems.

The Prime Minister said on the steps of Downing Street that she wants an economy that works for everyone. This looks like an anomaly from all the evidence we have had from all those groups, and from all the speeches on the Floor of the House on Second Reading. However, we are not going to push the measure to a vote. It was a probing amendment. I wanted to hear more about the anomaly where there is a direct UK connection. I do not think it is sufficient to turn a blind eye while this goes on.

The Minister mentioned what has happened in some of these places and I have information that will be more relevant when we consider new clause 21. Therefore, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: 51, in clause 38, page 96, line 37, after “England” insert “and Wales”.—(Mr Wallace.)

This amendment corrects an omission in clause 38(7)(b).

Question proposed, That the clause, as amended, stand part of the Bill.

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[Peter Dowd (Bootle) (Lab)]

It is a pleasure to serve under your stewardship, Mrs Main. The Minister referred to this as the Criminal Finances Bill and the clue is in the name. People who commit an offence and go to prison come out and go on probation. New clause 7 would create a similar thing—a sort of corporate probation order that would allow courts to require bodies found guilty of a UK or foreign tax evasion facilitation offence to take steps to improve their internal procedures and minimize the chance of a person working for that company committing the same offence in future. That would be an important step in encouraging large organisations to take responsibility for those they hire and the actions they undertake, and more importantly in ensuring that financial crime and misconduct is not repeated by others in the organisation.

Before making an application for a probation order, the prosecution would have to consult enforcement agencies. Once a corporate probation order had been issued, any organisation that failed to comply with it would be subject to a fine. Currently, the only remedies a court may impose upon a company convicted of an offence is a fine, disgorgement of profit and compensation. Corporate probation orders would be an additional tool that prosecutors could seek. Courts could impose conditions requiring companies to undertake remedial action to their management and compliance procedures to ensure that the offending is not repeated.

Under the Corporate Manslaughter and Corporate Homicide Act 2007, courts can impose remedial orders on companies to require them to remedy any management failure that led to an offence occurring. This provides a workable pre-existing model for such orders. Under the Crime and Courts Act 2013, if a company is offered a deferred prosecution agreement, or DPA, a prosecutor can require a company to implement a compliance programme or make changes to an existing compliance programme. There is no equivalent power in relation to convictions. DPAs are reserved for companies that self-report their misdemeanours and co-operate with enforcement authorities.

Although prosecutors could, theoretically at least, use financial reporting orders to require a company to provide financial information, under the Serious Organised Crime and Police Act 2005, it is not clear that that would include information on compliance procedures. Additionally, such orders are heavy-handed, require separate court proceedings and require a prosecutor to prove that the risk of reoffending is sufficiently high.

The effect of that discrepancy is a ridiculous imbalance: companies that self-report and co-operate may be subject to greater monitoring of their compliance programme than companies that do not and are convicted. The result is that the companies that most need monitoring of their compliance procedures—those whose procedures did not pick up the wrongdoing in the first place—get none, which is a huge deterrent to self-reporting, and puts a greater burden on enforcement agencies.

The Opposition believe that corporate probation orders are required to remedy that clear anachronism. Companies and defence lawyers have noted the more stringent compliance programme monitoring requirements under DPAs as one factor, among others, that puts companies off self-reporting wrongdoing to the Serious Fraud Office. The discrepancy between what happens under DPAs and what happens on conviction is creating a disincentive for companies to self-report.

At the end of the day, we need to encourage self-reporting in a framework in which companies feel that they are able to work with enforcement agencies to deal with rogue elements or individuals. The alternative would see the continuation of a culture of secrecy in which those at the top deliberately turn a blind eye to what those at the bottom do, and in which financial misconduct is not limited to an individual, but instilled and passed on to others in an organisation.

[Richard Arkless]

The Scottish National party is broadly in support of the new clauses. In particular, a corporate probation order would give an opportunity for an offending company to have its processes meticulously examined to ensure that they are fit for purpose going forward. We support new clause 8 on the potential disqualification of directors, which goes beyond the relevant body offences in the Bill. As a matter of principle, we think it will concentrate minds and ensure the protocols are fit for purpose if the directors at the top of the organisation feel the liability could be at their heels, as it were. I am interested to hear what the Minister has to say.

[Several hon. Members rose—]

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[Dr Huq]

I think we will press the new clause to a vote.

[Richard Arkless]

I would like to make a very small point about the Minister’s comments on new clause 3. He rightly suggests that if we were to ask any police officer or public servant whether they had enough resources, the answer would clearly always be no, but the new clause does not seem like a generic question about whether there is enough generally. The hon. Member for Bootle is asking whether adequate resources are available for specific functions to be exercised under the Proceeds of Crime Act 2002. That is a marked departure from asking any Department the generic question, “Have you got enough, guv?”, to which we would almost certainly know the answer. The new clause is about activities undertaken under the Act, and I do not think it is fair to categorise the suggestion as the Minister did.

[Mr Wallace]

Perhaps I can clarify some of the issues. Obviously the word “adequate” is subjective. We heard evidence in Committee from members of the law enforcement agencies, and they did use the word “enough”. My point is that we scrutinise the accounts in this place, and then compare that with agencies’ performance and outcomes. That is how we come to a decision—subjective, often—on whether there are adequate resources. It is not necessary to put that in primary legislation.

Perhaps I could clarify for the hon. Member for Ealing Central and Acton the issues around asset recovery and where those funds go. At the moment, if we recover assets from drug dealers, for example, the money is split, with 50% going to the Home Office, and 50% to the Crown Prosecution Service and all the other agencies—the National Crime Agency or the police—involved in that operation, so that they can invest it in their capabilities, and use it to increase their ability to fight crime. I can say today that further to our manifesto commitment, in future, instead of having that 50% of the cake, they will be able to keep 100% of the amount coming in above the baseline, which was set in 2015, if I am not mistaken. They have a very strong incentive to ensure that they are rewarded for their good work, and to make sure that we go after big sums as well as small. That is important.

On the point the hon. Lady raised about returning money that is stolen—we will come back to this—we sent back £27 million to Macau recently. Where we identify the ownership of stolen assets that we can return to a foreign country or wherever, we will, and we have already done that. My colleague the Minister for Immigration signed a memorandum of understanding with the Nigerian Government in August to make it even easier for us to return stolen property or assets to a country’s people. It is absolutely our intention to do that.

Across the money laundering piece, we can identify the owners of certain assets and take steps to return them. Other assets that accrue because of the high margins in the illicit trade of, say, drugs may be harder to return. In fact, the people who contributed to those sums may have committed a crime themselves, so there is a difference there. I recently saw in Mombasa some confiscated stuff that we will be returning, as soon as we can get through the paperwork. It is not our intention to divvy up the proceeds from the house in Knightsbridge and hand them all over to the National Crime Agency, and rob the third country from which the money was stolen.