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Terrorist Asset freezing

Volume 505: debated on Friday 5 February 2010

The Government are today introducing in Parliament the Terrorist Asset-Freezing (Temporary Provisions) Bill. As set out in my written ministerial statement of 4 February 2009, Official Report, column 21WS, this Bill is being introduced as an urgent temporary measure to prevent assets being unfrozen and returned to terror suspects as a result of the Supreme Court’s decision to quash the Terrorism Order 2006 without a stay.

The Government are also publishing today a draft Terrorist Asset-Freezing Bill. This Bill, modelled closely on our existing powers under the Terrorism Order 2009, is intended to provide a durable legal basis for the UK to freeze the assets of suspected terrorists in fulfilment of our United Nations obligations.

The Government have had urgent discussions with the relevant banks following the Supreme Court’s decision not to grant a stay. The banks have confirmed that in the light of the Government’s decision to bring forward immediate legislation providing retrospective legal authority for them to continue existing freezes, no funds will be unfrozen as a result of the Supreme Court’s judgment.

Asset-freezing licensing policy

In order to assist consideration of the Bills, the remainder of this statement sets out the Government’s approach to licensing exemptions to asset freezes in order to meet human rights and humanitarian needs.

UN Security Council Resolution 1267 (1999) requires all member states to implement asset freezes against persons associated with al-Qaeda and the Taliban. Targets are to be agreed by a Committee of the UN Security Council and the list is maintained by the United Nations.

UN Security Council Resolution 1373 (2001) requires all member states to freeze the assets of persons who commit, attempt to commit or facilitate terrorist acts. There is no central UN list and targeting is left to individual states, in accordance with their domestic legislation.

The relevant UN Security Council Resolutions concerning asset freezing require that financial sanctions against designated terror suspects be broad-based in nature, not merely freezing existing assets but preventing designated persons accessing funds or economic resources from other persons. The purpose is to ensure that designated persons cannot use or access the means of terrorist finance, principally funds or things that can be used to generate funds.

In order to ensure that the overall effect of the asset-freezing regime is proportionate and fair, UN Security Council Resolution 1452 (2002) allows member states to put in place a licensing regime to authorise, where appropriate, access to frozen funds or other financial assets or economic resources to meet “basic expenses” (that is, basic humanitarian needs which include payments for foodstuffs, rent or mortgage, medicines and medical treatment, taxes, insurance premiums, public utility charges and legal fees and expenses) and “extraordinary” expenses. The overall objective of the licensing system is to strike an appropriate balance between minimising the risk of diversion of funds to terrorism and meeting the human rights and humanitarian needs of designated persons and other third parties.

Licence requests for persons listed by the UN under the 1267 regime need to be submitted to the relevant UN sanctions committee under differing procedures for basic and extraordinary expenses.

Licence requests for persons listed domestically under the UN 1373 regime are not submitted to the UN Sanctions Committee and are purely a matter for the relevant member state to determine.

The UKs implementation of its licensing obligations

The Government recognise the importance of having an effective licensing system to ensure the overall proportionality and fairness of the asset-freezing regime. Our licensing regime has been developed and improved in recent years, in the light of the experience of operating it, to ensure that it remains as effective as possible in achieving its objective of ensuring proportionality and fairness.

Key features of the licensing regime that help ensure proportionality and fairness are as follows:

Our policy to issue at the point of designation a legal expenses licence, a licence to the benefits departments to pay any state benefits due and a licence allowing the designated person to access his funds to meet living expenses. By granting these licences at the point of designation, our intention is to ensure that the designation results in the minimum of interruption to the everyday lives of designated persons and their families in terms of being able to meet their everyday living expenses and to obtain legal representation.

Our policy to ensure that state benefits due to the designated person and his household are paid in full unless there are strong national security reasons why this would not be appropriate. Currently, all designated persons and their households are receiving their full entitlement of benefits.

In order to allow for the immediate granting of licences for persons listed by the United Nations under the UN 1267 regime, the Government have informed the UN Sanctions Committee that it will not submit requests for basic expenses licences to the UN for consideration on an individual basis.

While for procedural reasons, the UN Sanctions Committee does distinguish between basic and extraordinary expenses requests, the Government do not seek to limit designated persons or their families to basic expenses only. Our policy—consistent with taking a proportionate approach—is that designated persons should have access to their income and other property insofar as this can be arranged without giving rise to risk of terrorist finance.

The Treasury takes an active approach to granting licences. There are currently around 50 individuals resident in the UK whose assets are frozen under either the Terrorism Orders or the al-Qaeda Orders. In 2009, the Treasury granted around 121 licences in respect of those persons.

Licence conditions

Licence conditions are a key feature of the licensing regime, as they apply safeguards to ensure that funds or economic resources can be made available to designated persons in a way that protects against terrorist finance risks. In this way, appropriate conditions facilitate the granting of licences that it might otherwise not be possible to grant.

The conditions we apply to licences reflect two broad objectives:

to ensure that designated persons do not have access to large amounts of cash, which can be more easily diverted to terrorist activity; and

to ensure that there is a reasonable audit trail to address terrorist finance risks and that the Treasury can monitor compliance with the terms of the licence and identify if any breaches have occurred that could give rise to national security concerns.

The exact licence conditions are set on a case-by-case basis depending on the circumstances of the designated person and the terrorist finance risks involved. In order that controls are set in a way that is proportionate and risk-based, the Treasury takes advice from the police and Security Service about the terrorist finance risks involved in each case and the appropriate licence conditions to address them. Consistent with the objective of proportionality, the Treasury’s intention is to impose only those controls that are necessary to protect against terrorist finance risks.

Household benefits policy

EC Regulation 881/2002 states that it is an offence to

“make funds available directly or indirectly for the benefit of the designated person”

without a licence from a competent authority.

The Treasury’s interpretation of this provision, as set out in a written statement to Parliament by the then Economic Secretary, my right hon. Friend the Member for Normanton (Ed Balls) in 15 July 2006, Official Report, column 18WS, is that it includes the provision of state benefits to the spouses or partners of designated persons where they are living together in the same household as the designated person. It is on this basis that the Treasury licenses the payment of state benefits to the households of designated persons. It is usually a condition of these licences that all the household benefits are paid to the unfrozen account of a designated person’s spouse or partner. While a spouse or partner may spend these benefits on the household’s needs, he or she is required to report to the Treasury on the expenditure of those funds.

The Treasury’s interpretation of the relevant provision of the EC Regulation is the subject of litigation. The Treasury’s position was upheld in the UK by the High Court and then the Court of Appeal. The House of Lords has referred the case to the European Court of Justice, but made it clear that it would prefer to interpret the provision more narrowly than the Treasury’s position. The ECJ Advocate-General issued an opinion on 14 January 2010 indicating that in his view, the provision should be interpreted narrowly and should not include the payment of state benefits to the households of designated persons. A final ECJ decision is expected within the next few months.

Until the ECJ decides on the case, the interpretation of the relevant provision of the EC Regulation is unclear. Given this, and the fact that the most recent legal judgment on this matter, that of the Court of Appeal, upheld the Treasury’s position, it would be premature at this stage to remove licensing provisions relating to the payments of benefits to the households of designated persons. When the ECJ clarifies the interpretation of EC Regulation 881/2002 on this matter, the Treasury will review its policy and make any changes that are needed to give effect to the Supreme Court’s judgment.

In the meantime, the Treasury will continue to license the payment of state benefits to the spouses or partners of designated persons. However, the Treasury is mindful of the need for all licence conditions to be proportionate and of the need to limit as far as is possible the impact that the asset-freezing regime has on spouses or other family members of designated persons.

I have therefore looked again at how we implement the licensing of household benefits, taking particular account of comments expressed in the Supreme Court judgment. I have decided to make the following changes to ensure that our approach remains fair and proportionate.

While the Treasury will continue to apply appropriate safeguards in licences, which will be issued on a case-by-case basis and contain provisions appropriate to the level of risk posed by the individual concerned, the Treasury will no longer require all household benefits to be paid to the spouse or partner of the designated person. Families will be able to choose whether it is the designated person or their spouse or partner who receives the family benefits in order to manage their finances in a way that suits their individual circumstances.

There will now no longer be a general requirement on spouses or partners of designated persons to report to the Treasury on the expenditure of their household benefits. This will reduce any adverse impact the regime has on them by ameliorating the effect of licensing their household benefits.

We will continue to require the designated person to report on expenditure of any benefits paid directly to him or of any licensed funds given to him.

I believe that this approach will ensure that we continue to have appropriate controls in place to prevent the diversion of funds to terrorism, while limiting as far as possible the impact of the asset-freezing regime on the families of designated persons.