Corporate Structures and Financial Crime

Tony Baldry Excerpts

Thursday 4th July 2013 Commons Chamber

[John Mann (Bassetlaw) (Lab)]

I beg to move,

That this House has considered the use of corporate structures in the UK and money laundering, tax evasion and other financial crime.

It gives me pleasure to introduce the debate and to thank the many Members from all parties who proposed it to the Backbench Business Committee, which we also thank for granting us the time for it. Perhaps in anticipation of it, earlier this week the Financial Conduct Authority made by far its strongest ever comment, including those of its predecessor organisation the Financial Services Authority, about the banks and so on. As a relevant introduction to the debate, let me quote Tracey McDermott, head of enforcement at the FSA, who this week said that banks’ trade finance businesses

“remained particularly vulnerable to abuse by criminals and terrorists, and that in some cases the shipments being funded by lenders were just ‘fresh air’.”

Martin Wheatley, the new chief executive of the FCA, warned that organised criminal gangs “filtered, cleaned and rebottled” £10 billion in the UK every year using banks and other financial services.

[Sir Tony Baldry (Banbury) (Con)]

Will the hon. Gentleman give way?

[John Mann]

I will finish my introduction first, because banks are just one aspect of the problem and I want to focus on all aspects in my brief comments.

The problem is that we have opaque structures that mean that people can avoid tax and participate in illegal activities such as smuggling and money laundering. The amount of unregistered money involved is estimated by some analysts worldwide as being in excess of £20 trillion. A third of that is estimated to be directly linked with the European Union, and a third with UK Crown dependencies.

I will illustrate how the problem works. An individual sets up a firm in a country that keeps the names of directors a secret, then links that firm with another firm in a respectable place such as the United Kingdom, where the details of who owns a company do not have to be registered if it is owned by another company. They then set up nominees to be directors of the opaque firm, register with the corporate registry in the initial country, open a bank account for the original firm and funnel money through the firm in the legitimate area to the original firm in the opaque country.

There are many examples of that, and all areas of our national life, such as football, now seem to be covered by such structures. Whether it is illegal or legal, it is a major problem for transparency. We as legislators should be particularly concerned about any illegal aspects, and the banks have been at the forefront of those, as we have seen with the problems of money laundering. HSBC funded Iran with transactions involving £19.4 billion through shell companies over seven years, through the Channel Islands and the Cayman Islands. That broke sanctions but was incredibly hard to trace, because it happened through opaque shell companies

In the case of crime, in one year alone the same company funnelled £7 billion through the Mexican Zetas drug cartel, the biggest and most violent criminal agency anywhere in the world. Again, it did so through shell operations. Various mafias have also been involved.

The BBC’s “Panorama” exposed rather efficiently a woman called Lana Zamba, a Russian-born Cypriot yoga teacher, who was the director of a firm called Nomirex and 23 other UK-based firms. Records showed that those firms were inactive between 2007 and 2009, but “Panorama” demonstrated that £350 million had passed through them in that time.

--- Later in debate ---

[Sir Tony Baldry (Banbury) (Con)]

This is probably the first time in my parliamentary career that I find myself almost entirely in agreement with the hon. Member for Bassetlaw (John Mann). I think it is right to say—I am sure my hon. Friend the Minister will confirm this—that so too does the Prime Minister. He has stated that he thinks beneficial ownership information should be in the public domain. The head of tax at the CBI has also stated that he thinks that information should be public, saying that it is a “no brainer”. The International Banking Federation has said that this needs to be done, and it supports public registries as a way of making anti-money laundering and “know your customer” requirements both less expensive and more effective.

I wanted to intervene on the hon. Member for Bassetlaw to make a point about money laundering, which now punishes lots of innocent people. One of the biggest supporters of international development in countries like Somaliland or Somalia, are remittances, but they need systems to make them work. Barclays bank, which has facilitated remittances, is now suspending that facility. It is not that it thinks the people receiving the money in Hargeisa or Mogadishu are abusing it; it is concerned that it can no longer properly police who pays the money in because of money laundering. Therefore, large numbers of people living in grinding poverty around the world will now be denied access to an important part of their development funding because of the actions of those who have been engaged in criminal money laundering for a long time.

Anyone who becomes a company director—the Register of Members’ Financial Interests shows that I am a director of a number of companies—must register at Companies House. That includes registering all the other companies of which they are a director and their home address. All sorts of public information is involved, which can be found not only by shareholders but by the general public, the media and non-governmental organisations. The information is totally accessible. There is absolutely no valid reason why that should not apply to corporate structures across the world. It is absolutely right that we should be at the forefront of that.

I also agree with my hon. Friend the Member for Wells (Tessa Munt) about the overseas territories. Some 20 years ago, I was a junior Minister in the Foreign Office under Douglas Hurd—now Lord Hurd—as Secretary of State. We undertook a review of the contingent liabilities for the dependent territories, as they then were. There are considerable contingent liabilities, as we saw with the Falkland Islands and elsewhere. Those territories look to us to offer them protection, but as my hon. Friend pointed out in an intervention, there is a quid pro quo. The quid pro quo should be that if they wish to remain overseas territories and benefit from the Crown, the Union flag and all that protection, we should be able to expect their banking systems and company registries to comply with accepted international norms of transparency and accountability.

I am conscious that a number of people want to take part in this debate. What has been put forward this afternoon is substantially a no-brainer. When my hon. Friend the Exchequer Secretary replies to the debate, I hope he will make it clear that what has been put forward has the full support of the Government, as I am sure it does. As the hon. Member for Bassetlaw made clear, the challenge for us will be ensuring that other G8 countries support us. However, there is absolutely no reason why we should not take a global lead on this—and be proud to take a lead—while the UK has the presidency of the G8.