Criminal Finances Bill (Fifth sitting)

Debate between Richard Arkless and Peter Dowd

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

[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.

Criminal Finances Bill (Sixth sitting)

Debate between Richard Arkless and Peter Dowd

Committee Debate: 6th sitting: House of Commons
Tuesday 22nd November 2016 Public Bill Committees

[Peter Dowd (Bootle) (Lab)]

This morning I was indicating that the Government also need to tackle the facilitators of corruption—by that, I mean those institutions that fail to conduct due diligence on their clients. The UK anti-corruption summit committed countries to pursuing and punishing those who facilitate corruption, and the new clause reaffirms Britain’s commitment to do so.

The failure to include such measures in the Bill will lead to many of our partners accusing us of hypocrisy and double standards; it will severely damage our prestige abroad, or will have the potential to damage our prestige abroad; and it will undermine our reputation. I find it perplexing, as do many others, that not a single bank has yet been criminally prosecuted for handling the proceeds of corruption, despite the fact that they may have been fined for doing so. This is not just about banks, but about some of the people in the banks—that is the important thing to take away. My constituency is similar to those of other Members, in that as well as having lots of local branches, Santander has 2,000 people based there. I am certainly not in the business of pointing the finger at everybody in the banking sector—it is important to make that point.

In March 2012, Coutts was fined £8.75 million by the Financial Conduct Authority for serious systemic failings that resulted in “an unacceptable risk” that Coutts had handled the proceeds of crime, yet despite that fine, in April 2016 Swiss authorities investigated whether money from the 1Malaysia Development Berhad scandal had ended up in Coutts’ bank accounts, which suggests that regulatory action alone is an insufficient deterrent against laundering corrupt proceeds. From that instance, it is clear that an extension of a failure to prevent money laundering offence would significantly enhance the scope for criminal sanctions.

We should not forget that the cost of fraud and money laundering greatly exceeds the cost of tax evasion. In 2016, Her Majesty’s Revenue and Customs estimated the tax gap to be £36 billion, of which tax evasion accounted for £5.2 billion. Some witnesses last week believed it to be higher. In May 2016 the annual fraud indicator put the cost of fraud to the UK economy at £193 billion. The cost to the public sector is £37.5 billion, with procurement fraud costing as much as £10.5 billion a year. We are talking about significant figures, which is why we need significant action. I am pleased that the Government are taking significant action but we want to push them further. The National Crime Agency estimates that billions of pounds of suspected proceeds of crime are laundered through the UK every year. That money, if accounted for, would be more than enough to help fund a whole range of services in the country.

The Crime and Courts Act 2013 specifies that certain economic crimes, which include fraud, money laundering and false accounting, as well as bribery and tax evasion, can be dealt with by way of a deferred prosecution agreement. The absence of an extension to a failure-to-prevent offence to the other economic crime offences listed in the Act results in a disparity in how different economic crimes, which all cause significant damage to the taxpayer, can be dealt with by prosecutors.

New clause 6 would also improve corporate governance. Companies are already subject to criminal law for all the additional offences listed in the amendment, although currently on the basis of the “directing mind” test. In addition, companies are required under FCA regulations to have effective systems and controls in place to prevent themselves being used to further financial crime, including money laundering.

At the end of the day, we are trying to get the message across to the Government. Mostly, in broad terms and in specific situations, the Government have got that message, but it is the duty of the Opposition to push the boundary a bit more where we feel that the Government have not acted as forcefully as they could, in the light of what I have just said about scale, and in the light of the comments we heard from our witnesses last week.

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

We broadly support new clause 6, tabled by the Opposition, which seeks to extend corporate financial crime beyond the provisions in the Bill as drafted—beyond tax evasion and bribery. We are generally supportive. It is worth mentioning the point made by the hon. Gentleman that the provisions in new clause 6(4) defining a criminal financial offence are at the moment corporate offences that require the directing mind to be present. To my mind, the new clause would merely remove the directing mind provision from those offences.

We broadly support the new clause, but I question subsection (2)(b), which states that a defence could be that

“it was not reasonable in all the circumstances to expect B to have any prevention procedures in place.”

Although the provision seeks to catch other offences, it strikes me that the bank or organisation would merely need to demonstrate that it was not reasonable to have prevention procedures in place. To my mind, that defeats the purpose of extending the offence so widely. Nevertheless, we broadly support the new clause, and I would like to hear from the Minister about the Government’s inclination, if not to accept new clause 6, then to recognise that, at some future point, corporate financial crime could be extended beyond the provisions agreed in the Bill.

Another way of framing new clause 6 would be to codify specifically the exact offences within the three Acts. That might have negated the need for subsection (2)(b), which strikes me as a direct negative that might defeat the purpose. I would be interested to hear what the Minister has to say about the thought process, but generally speaking we support extending corporate financial crime, and are provisionally minded to agree to and support the new clause.

Criminal Finances Bill (First sitting)

Debate between Richard Arkless and Peter Dowd

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

[Richard Arkless]

Q Professor Murphy, you have highlighted the difficulty with the Bill’s proposals on tax evasion in relation to corporate economic crime. Your solution would be a position of strict liability. Do you see any case to extend the provisions on corporate economic crime beyond tax evasion, leaving aside the problem of strict liability and enforcing it? Is there a case, for example, to extend the provisions to catch people who rig the LIBOR market, or perhaps mortgage brokers who fraudulently completed application forms that caused the mess we are in? Do you think there is a case for extending corporate economic crime beyond facilitating tax evasion?

[Peter Dowd]

Q On resources for agencies—enforcement or otherwise—in relation to prosecutions and chasing up, do you believe that the authorities have sufficient resource to do their job, or are they just misdirecting the resources that they already have?