Corporate Structures and Financial Crime

Debate between Tessa Munt and Lord Mann

Thursday 4th July 2013 Commons Chamber

[John Mann]

My right hon. Friend makes a valid and relevant point about criminal sanctions. The banks’ uniqueness is that they are the channel for funds. Because things are recorded in this technological age, it is straightforward for banks to investigate themselves and see what is going on, so the plea of ignorance by those at the top is inexcusable.

What my right hon. Friend and I are saying, and what I interpret the Financial Services Authority to be saying, is that responsibility must be taken at the top. Pleading ignorance is simply not good enough. We are talking not about small, missed operations but about huge major operations that funnel vast amounts of money. It is easy for banks to identify and track such operations, yet they choose not to do so. There seems to be a particular problem of huge reputational risk to the City of London because banks based in the UK have been those most often caught out. However, I have produced a document that demonstrates that this is not simply a UK problem. In recent years, every one of the top 50 banks in the world has had this problem and experienced prosecutions or ongoing investigations into prosecutions.

[Tessa Munt (Wells) (LD)]

I thank the hon. Gentleman for securing a debate on this subject. Does he agree that a board member should be made explicitly responsibly for each bank’s compliance? Anti-money laundering and due diligence provisions should be used effectively by the authorities to apply existing rules and ensure that people even go to jail if they have committed such crimes.

[John Mann]

The hon. Lady makes a valuable point about the importance of compliance and how that must take place at senior level. Everyone at senior level in a bank must take responsibility and be held accountable for the structures within it.

This is not simply a banking problem. Money laundering and some aspects of criminality are the biggest problems in terms of the volume of money involved, but there is also an issue of percentages and actuality of individual companies. Banks are not setting up opaque structures to create criminality; they are turning a blind eye while their structures facilitate criminality. Others are using weaknesses in corporate structure to create criminality.

Of the half a million companies that struck themselves off the UK corporate register in 2010, 40% had never filled in accounts with Companies House, and 33% had paid no corporation tax that year. If large numbers of companies are not submitting accounts and returns to Companies House, we have a fundamental problem. Our problem in dealing with this issue is demonstrated, rather ironically, if we look at the two Front Benches. The hon. Members present are excellently and diligently representing their parties, but one notes that they come from different Departments. That is part of the problem when it comes to Companies House, and I hope the Minister will clarify—we hope on behalf of the Government —who is responsible for Companies House and who should be holding it to account in Parliament.

Companies House is underfunded, under-resourced and perhaps under-specialised, and such opaqueness in our country has grown dramatically, allowing the creation of opaque corporate entities. That encourages criminality and discourages transparency for the general public, decision makers in Parliament and others.

On the impact of such actions, valid estimates indicate that Africa is losing twice as much in tax it cannot collect because of opaque corporate structures as it gets in development aid. In other words, if we cracked this problem, the amount of development aid required from the west to Africa would diminish dramatically because the tax base itself would be generating income, which is, of course, a key component of a vibrant democracy.

[John Mann]

Let me come on to that. In Davos in 2010, the Prime Minister said that he wished to “shine a light” on corporate ownership. In the Lough Erne declaration, the calls were for more transparency, more international co-operation and stopping firms shifting profits to avoid tax.

What needs to be done by Government in these areas? On transparency, it is essential that the Government follow up their G8 commitment and create a UK register of beneficial owners, making things transparent and traceable and deterring people from using this country for illegal purposes. All major countries—not least those in the G8 and the EU—need to collaborate. I note that Italy is already suggesting that it will not collaborate, and we need to tackle those countries that are suggesting that they will not co-operate even with the modest proposals emanating from the G8.

We need effective enforcement with, as we have heard, clear sanctions for law breaking; we need criminal sanctions; we need the collecting of fines. On the corporate structure, I suggest that raising the cost of setting up a company from the current £15 and hypoth—[Interruption]—and using that money explicitly and exclusively to ensure better regulation and policing. Hon. Members know which word I mean but I will not try to spit it out; we might be here for the rest of the afternoon. Hypothecating is the word. [Hon. Members: “Hear, hear.”]

Firms that have not filed up-to-date tax returns need much greater sanction for not doing so. The fact that so many choose not to do so and get away with it is a fundamental and major weakness. This is where this House needs to put its beady eye on what is going on at Companies House. Is it properly resourced? Are its powers great enough? Is it doing the job properly? I would suggest that out of those, at least two must be at issue; perhaps all three. We must get on top of this in the near future.

The question of tax liabilities and of how much liability and responsibility are needed for directors in relation to the law needs to be reconsidered. As a specific micro-proposal that I think could have a huge impact, it should be illegal for anyone to set up a bank account outside this country without informing HMRC and Companies House first. In other words, if people are using British corporate structure, we should stop letting them set up overseas operation without anybody knowing what is going on.

We need legislation relating to the Crown dependencies. I have made this point on many occasions and I will make it again briefly now. It is unacceptable that our taxpayers provide defence and legal structures for those countries when they have an opaqueness that, whatever tax system and regime they end up having, does not allow anyone to know what is going on. The football industry in this country provides a good example. In vast numbers of football clubs nobody, including the spectators and those who are owed money when the clubs go bust, has a clue who owns what bit and where and how. These major institutions are an example of how deep the problem has become and how we have failed to deal with it. We need to look to our regulations, such as those being introduced on banking, and think about how they can be applied to UK dependencies. Leaving them as they are is simply unacceptable, and it is becoming increasingly counter-productive for this country.

[Tessa Munt]

I thank the hon. Gentleman for giving way again. I wanted to draw it to his attention that the power has been used several times by the UK already to make the dependencies comply with other parts of regulation, so we could just require them to do what they should do. I would give as examples the banning of the death penalty, the rules on acceptance of homosexuality, and, on a slightly minor level, an acceptance that they should ban pirate radio.

Election Petitions

Debate between Tessa Munt and Lord Mann

Monday 18th July 2011 Commons Chamber

[John Mann (Bassetlaw) (Lab)]

I rise to introduce this Adjournment debate on an issue that should be, and I think will be, of interest to all Members of the House—perhaps unexpectedly and by surprise in future years if the law is not changed. I declare not an interest, but a long-standing personal friendship with one of the individuals to whom I shall refer—Mr Phil Woolas, the former Member for Oldham East and Saddleworth, who is nowadays something of an expert on election petitions and their impact.

There has been a long history of election petitions over the past 400 years, but since 1604 there has not been much change in this respect in Parliament and therefore in this country. There has been a fundamental weakness in how the law has been consolidated in 1983 and since then. As is well recognised, the Electoral Commission has been privy to cross-party discussions—one could even call them negotiations—on such matters. In a helpful advice note, the commission said of the legal basis for challenging the result of an election:

“There was broad support for a review of the current legal basis for challenging the results of an election. The general”—

cross-party—

“consensus was that the process was antiquated, not user-friendly and that reform of the process was needed.”

Similarly, on the rather minor issue of the correction of procedural errors, it states:

“If the Returning Officer concludes that the wrong person was declared ‘duly’ elected because of a procedural mistake, he or she currently has no powers to correct the error beyond advising the affected candidate to lodge an election petition.”

That is clearly nonsense and an anomaly that needs to be rectified in law.

Petitions on minor but important issues that do not affect the result do not occur. In essence, those issues disappear. One cannot challenge a precise wrong within the process without a full election petition. We should have a system that allows candidates or third parties to point to errors that do not affect the outcome without involving the principle or requiring the potential expense of attempting to remove an elected Member. Any candidate or third party with a rational interest should have the power to point to something that has been done that is anomalous, wrong or mistaken, such as errors that are made in the process by a local authority or a returning officer. The inability to do so in the current system, other than by an exchange of correspondence, is a weakness that undermines our system of democracy.

We now get on to the much bigger issue of costs and surety. Given the nature of political argument and the often heated debates within election campaigns, it needs to be difficult for losing candidates to put in petitions that could be deemed frivolous. If it is too easy to put in an election petition and every candidate puts one in, perhaps because they have lost by a few votes and are looking for an excuse to overturn the result, it clearly does not suit Parliament and democracy. That must be balanced against the potential risks of costs should one put in a petition. It should not be only those with significant wealth, and who might be able to meet adverse costs, who should feel confident about putting in an election petition if there is a wrong that requires righting. There is an imbalance within the process that needs to be rebalanced. We must allow genuine petitions to go forward without encouraging reckless or frivolous petitions that are not genuine, and the ability to take forward a petition must not rely on finance.

The problem of costs was compounded recently by a case involving local election petitions in Slough. This is not a party political point, so I will not even mention the parties involved. The key issue is the principle. One of the major parties ended up with a councillor in prison. The other party, which brought the case, sought to have its costs awarded when it won the case. However, the party whose councillor was in prison dropped the candidate. It was up to the party that won in court potentially to bankrupt the individual. Clearly there needs to be a better system than that. I put it to the Minister that what is needed is a provision to allow election courts a wider remit in awarding costs and in deciding who should meet them. In particular, if a party defends the case, or aids and abets the defence, there should be the possibility of costs in part or whole being awarded against that party rather than necessarily against the individual. I do not think the continuation of the Slough example will serve any of the political parties in this country in future.

A case that, perhaps remarkably, has not been discussed in the House before is that of Mr Phil Woolas, who was a Member of the House and was elected at the last general election. I think it is reasonably fair to say that he was a widely respected Member on both sides of the House. Of course, he is no longer a Member, and indeed he cannot stand in any election for three years. I am not questioning the judgment that was made; I am questioning the process and its weaknesses and inflexibility. I think it will be helpful if I quote part of the conclusion of the judgment made by the two judges who sat on the election court. They stated:

“In our judgment to say that a person has sought the electoral support of persons who advocate extreme violence, in particular to his personal opponent, clearly attacks his personal character or conduct.

It suggests that he is willing to condone threats of violence in pursuit of personal advantage.

Having considered the evidence which was adduced in court we are sure that these statements were untrue. We are also sure that the respondent had no reasonable grounds for believing them to be true and did not believe them to be true.”

One of the anomalies in the current law is the question of what is “personal character and conduct”. The previous time there was an electoral petition on the matter was the North Louth case in 1911. However, unless the law is changed, there is a danger in the era of the modern media that because one such case has been taken, many such cases could be taken. From looking at the publicity and propaganda that there have been, I think it is factually accurate to say that there have been worse in recent elections from all three main parties than in the case of Mr Woolas, and the candidates in question have won. Indeed, there is a significant question of how we determine the facts of a case. Others have raised that matter, and it was part of the appeal that was attempted. However, before I come to it, there is a point that has never been raised that I will raise for the first time.

I am aware that the leaflets that caused offence were not written by Mr Woolas. He never made great play of the fact that he did not write them, but I put it to the House that less honourable politicians may well have used that as a basis of defence, although not necessarily successfully. They might have said that somebody else wrote the publicity. The question is where the sanctions should be applied. Should they be solely applied to the candidate?

[Tessa Munt (Wells) (LD)]

Will the hon. Gentleman give way?

[John Mann]

No.

Clearly the candidate needs to take responsibility for their publicity, but the reason that question rings so true to me is that in 1997, I was sent by the Labour party to oversee the last five days of the campaign in Oldham East and Saddleworth of Mr Phil Woolas. I wrote the leaflets in the last five days, and Mr Woolas, as a good candidate, was not consulted on them at any stage.

In the parlance of the Labour party agents—it is no different among the other major parties—candidates have been known for decades as “LNs”—legal necessities. My leaflets were beyond reproach, but if they had not been, who would have been responsible? Would it have been the writer of the leaflets, the legal agent appointed by the candidate, or the candidate? It seems to me that some flexibility of sanctions is needed in the law, to take that question into account. The matter could be further complicated, of course, if leaflets were put out jointly with local election candidates, potentially involving two agents and different candidates.

It seems to me that there is a fundamental weakness in the law. In essence, the question available to the election court, as demonstrated in the case of Mr Woolas, is yes or no, guilty or not guilty. If guilty, the sanction must be the ultimate one of striking out. No other option was available in Mr Woolas’s case. There was no option of looking to see whether the leaflets influenced the campaign. Therefore, a leaflet that is written but never distributed—a copy could be obtained—could be used to overturn an election result.

There is a second principle: there is no right of appeal—the press coverage at the time of Mr Woolas’s case perhaps confused that. The Fiona Jones case in 1999 was a criminal prosecution. Because of that, she successfully appealed and was reinstated as a Member of Parliament. In the civil case against Mr Woolas, no appeal was possible, as was recognised when he attempted a judicial review, and therefore it was not possible to look at the statements of fact as determined by the election court judges. Natural justice in any other place dictates that there should be an appeal. A murderer of the worst kind has a right of appeal, and yet a parliamentarian who has lost his seat because of an election court ruling—as others could—does not. That anomaly needs to be changed. It was changed in relation to criminal cases because of the Fiona Jones case, but it was left out of the 1983 consolidation Act.

It is essential that the Government move quickly to change that before lots of similar cases are brought to attempt to change results. I put it to the House that in the internet era, there is a greater possibility of more cases being brought, because there are more outlets for things being stated as part of a campaign. The candidate— rightly and honourably—must accept ownership of those things, but he might not have direct control of them during the campaign. I put it to the Minister that we are all at risk.

My final point to the Minister is a separate one that relates to my election. I estimate that a wealthy benefactor in the other place, Lord Ashcroft, put in £250,000 to try to win my seat in the election, and he did so quite legally. Many photographs of the then Leader of the Opposition, the now Prime Minister, were sent by direct mail. One household received 29 direct mails, and mine received six. It was a waste of money—it may have increased my vote—but there is an unfairness in the system. If I had £250,000 to spend, I think I could increase my majority.

That also needs to be looked at. A review of fairness, honesty and integrity in elections is imperative—a review that does not excuse certain behaviour or give candidates of any party anywhere to run; and that allows honourable, fair and just campaigns and outcomes; but that leaves fair, just and reasonable remedies for those who wish to challenge them. The internet, e-mail, texting and Twitter age dictates that the Government must introduce legislation to change the foundation of electoral law in the UK, which is described by Roger Morris and David Monks, in “Running Elections 2003”, as

“Victorian in construction and tone”.

We need to modernise, and for all our sakes, we need to do so quickly.

Members’ Salaries

Debate between Tessa Munt and Lord Mann

Monday 21st March 2011 Commons Chamber

[John Mann (Bassetlaw) (Lab)]

Here we are again. On 3 July 2008, the Speaker did not select my amendment. Last year, the same thing happened. Today, again, the Speaker has not selected my amendment. Democracy has not been the better for it. My amendment in 2008 would have prevented the practice of flipping homes. My amendment tonight would have reaffirmed the principle that we should not determine our own pay.

I will not vote for or against my pay tonight, and I urge others to do the same—not to abstain, but to refuse to vote. The motion removes the principle of our not determining our pay. It is not simply a decision on the SSRB proposals; it revokes the decision on independence without anything more than a vague promise that, at some stage, the Government will get around to tabling amendments to have IPSA set pay. The Government have had plenty of time in recent weeks to table such an amendment, and they have chosen not to do so.

[Tessa Munt (Wells) (LD)]

If everything is to go to IPSA, so be it, but I am in the position, as a new Member, of not knowing what will happen to my staff pay 11 days hence, from 1 April. That is a disgraceful situation in which to be. None of us can work out what will happen to our staff. I have to renew contracts in 11 days, and I do not know what to do.

[John Mann]

That shows the muddle that the Government and Parliament have got into. Instead of resolving those problems, whether one or other of us likes it or not, in a way that is crystal clear, within which we can work and that the public can see, we go round in circles. Here we go again.

Having been through the pain, which is not yet over, of the expenses scandal, and eventually decided that we should not determine our own pay, and having all allegedly agreed the principle, we are suddenly back where we started—deciding our own pay. The issue tonight is not the amount of the pay—that is a small part of the matter. Of course, it will always be important to Members and even more important to the general public. However, to breach the principle so unnecessarily and cack-handedly lays us open to ridicule. The House should get its act together on pay and expenses and say that we will not break the principle of not setting our pay, conditions or expenses, because that is precisely the problem that got us into the scandal in the first place. We must learn the lesson of putting it outside, keeping it there and not interfering with it. Whether it is comfortable or uncomfortable, whatever the level, whether we like it or the general public do not like, it should be determined independently, not by us.

I appeal to Members to refuse to vote either way on the pay, thereby not breaching the principle that it should be determined independently or agreeing that it should be brought back in-house because if we do that, we will rue the day, and pay and expenses will come back again and again to bite us. We should put that behind us.