Stephen Kinnock
Main Page: Stephen Kinnock (Labour - Aberafan Maesteg)Department Debates - View all Stephen Kinnock's debates with the Ministry of Justice
(8 years, 9 months ago)
Westminster HallWestminster Hall is an alternative Chamber for MPs to hold debates, named after the adjoining Westminster Hall.
Each debate is chaired by an MP from the Panel of Chairs, rather than the Speaker or Deputy Speaker. A Government Minister will give the final speech, and no votes may be called on the debate topic.
This information is provided by Parallel Parliament and does not comprise part of the offical record
It is a pleasure to serve under your chairmanship, Mr Stringer. I congratulate my hon. Friend the Member for Ealing North (Stephen Pound) on his inspiring and passionate speech. The image he gave towards the end of his speech of Al Pacino playing Arthur Scargill will live with me for the rest of the day.
Before I start, I must declare two interests: I am the Parliamentary Private Secretary to the shadow Secretary of State for Business, Innovation and Skills, my hon. Friend the Member for Wallasey (Ms Eagle), and in a previous life, I worked for the World Economic Forum, many of whose members were FTSE 500 companies. In fact, my experience should reassure the City and our friends in the financial services sector that I am not here to attack them; on the contrary, I come here today with their best interests at heart.
We all remember the events that led up to the collapse of Lehman Brothers and the tumultuous events of the ensuing months and years—events that changed the course of history and caused many of the troubles that the world faces today: the sovereign debt crisis, chaos in the eurozone and the freezing of public and private sector investment. A sluggish economy with an uncertain future means that many who have been worst hit want to see “the bankers”, as they are characterised, punished. People feel that the law is broken and that those who broke it have been let off scot-free.
Cool heads have prevailed and blanket retribution has not been applied, which is a good thing, but the Government now seem to have swung far too far in the other direction, towards total and complete inaction, with the odd knighthood stripped but little more to show than that.
The City and the financial services sector need to be held accountable, for their own good as much as for the public’s, and our common interest should now be to rebuild trust. Right now, trust levels are at rock bottom. According to the Edelman Trust Barometer, financial services is the least trusted industry worldwide. Almost 60% of the British public rates the banking industry’s performance as poor or very poor. That is not sustainable if we want the City to carry on thriving. In fact, if we break the figures down, we see that the City’s trust score is artificially inflated by higher levels of trust in retail banks, while of those polled only 18% trust investment bankers and only 12% trust fund managers.
In the light of such a fundamental breakdown in confidence, hon. Members can imagine how pleased I was to read the following paragraph in the Conservative party’s 2015 manifesto:
“We are also making it a crime if companies fail to put in place measures to stop economic crime, such as tax evasion, in their organisations and making sure that the penalties are large enough to punish and deter.”
To Labour Members, that was music to our ears, so the Government’s recent decision to backtrack on corporate liability was all the more disappointing and puzzling. I am concerned that, in backtracking on that vital manifesto pledge, Ministers will have opened themselves up to suggestions—totally unfounded, of course—that they are acting on the demands of a number of those who donate large sums of money to the Conservative party. I urge the Minister to dispel those nasty rumours.
The Conservatives’ courageous and correct manifesto commitment had teeth and was a wholly proportionate response to the fact that fraudulent activity increased by 22% in the first half of 2015 compared with the first half of 2014. That is not good for our financial security or for the future of an industry that fundamentally requires public trust and backing more than ever before. Despite promises to the contrary, there have been no criminal sanctions for reckless management, nor have we seen any sign of the much touted rule that bars managers of failed banks from running other companies.
I want the City to succeed, because it is vital to our economy, but I am concerned that the Government are too short-sighted to see what real, long-term, sustainable success means. Success means rebuilding trust and changing how the City is perceived. In closing, therefore, I would like to make a number of recommendations on smart regulation.
First, the Government must act on their own manifesto and enforce corporate liability. Criminal sanctions for bad management are almost universally supported by the public and are key to establishing a new corporate culture based on transparency. Secondly, the Government must act on the Treasury’s “UK national risk assessment of money laundering and terrorist financing” by cracking down on professional enablers in the legal and accountancy sector. Thirdly, they must get serious about investing in the tools and technology necessary to keep pace with these criminals.
Labour Members want only to see a thriving financial services sector. For the sector to thrive and prosper, it must regain the trust of the British people and reclaim its licence to operate. That is why the measures in the Conservative party manifesto were so welcome, and why it is vital that they are urgently incorporated into law. It is absolutely right to be pro-business, but it is wrong to be pro-business as usual.
My hon. Friend makes an important point that goes to the heart of the argument. My hon. Friend the Member for Aberavon argued cogently that, ultimately, we need a better way of establishing responsibility for the actions of a company and those who serve within it. It is not enough for those at the top to wash their hands of responsibility for the actions of the officers and employees who operate, act and work under the company’s name.
There needs to be much greater clarity about the legal framework. Many bodies, including the Law Commission, have called for that. What is even more key is that the Government seem to share that view. In a consultation undertaken in July 2015 on the introduction of a new corporate offence of failure to prevent tax evasion, the Government concluded:
“Under the existing law it can be extremely difficult to hold the corporations to account for the criminal actions of their agents”.
That observation has been made by the Government and Ministers on several occasions, as well as by my hon. Friends in their contributions today.
The Law Commission, the OECD working group and the director of the Serious Fraud Office point to section 7 of Labour’s Bribery Act as a potential solution. As my hon. Friend the Member for Ealing North set out in his speech, section 7 of the Bribery Act makes it an offence to fail to prevent bribery. It places the onus on companies to prove that they have put in place adequate procedures to prevent bribery and is widely seen as a far more effective way of holding companies and the individuals within them to account, which is why many want to see that model extended to other types of economic crime.
We have talked a lot about accountability and trust today, but another important word here is “risk”. We saw in the events leading up to 2008 and the collapse of Lehman Brothers a systemic failure to manage risk. It is in the interests of both Government and the private sector more broadly—the real economy and the financial services sector—to put systemic measures in place to manage risk in a way that ensures the appalling events in and following 2008 never happen again. Some regulation of the market is therefore, by definition, required as a risk management tool. Does my hon. Friend agree?
My hon. Friend makes an important point and anticipates my next point. First, I want to clarify exactly where the Government seem to be on this issue.
The Government’s recent announcement has caused much confusion among those who care about this issue, because it seems to be very much at odds with what they have been saying and the messages and signals they have been sending out. In his first speech as Attorney General over a year ago, the right hon. and learned Member for Kenilworth and Southam (Jeremy Wright) suggested that he was considering the section 7 proposal. We then discovered, in an answer to a written parliamentary question, that it had been dropped. We need clarity from the Minister today about exactly why that decision was made and what the Government will do to ensure that our concerns are addressed if they are not proceeding with that proposal.
The director of the Serious Fraud Office, David Green, has made clear his support for the expansion of section 7 of the Bribery Act. He has described how useful it would be to better facilitate the use of deferred prosecution agreements. My hon. Friend the Member for Neath (Christina Rees) set out eloquently how deferred prosecution agreements work and their potential importance in dealing with some of the issues that have been highlighted. It is no secret that the Serious Fraud Office director favours the use of DPAs, which are currently more widely used in the United States. To clarify, they provide for a corporation to avoid prosecution by entering into an agreement with a number of conditions attached, which may include paying a financial penalty, paying compensation or co-operating with future prosecutions of individuals. In doing so, they avoid prosecution. The aim is to hold key individuals to account, to secure significant financial penalties from companies that have committed wrongdoing and, ultimately, to prevent future wrongdoing by encouraging or mandating reforms within those companies.
Deferred prosecution agreements are not without their critics, but they have been widely used in the US for the past 20 years or so and brought in some $4.2 billion to the Department of Justice in 2014 alone. One key problem with importing the use of DPAs to the UK is that they are intended to be a carrot, while the stick is the prospect of prosecution for corporate economic offences.