Sanctions and Anti-Money Laundering Bill [HL]
My Lords, the issue which arises on this amendment captures precisely the same constitutional point on which your Lordships expressed your views on Monday. It is therefore disappointing that the Minister has not been able to acknowledge the view that vesting wide-ranging powers in a Minister to create criminal offences by regulation is constitutionally troublesome. Troublesome is a modest word; very troublesome is not much stronger; but understatement perhaps has something to do with my disappointment, because there is a further disappointment. During the course of the debate on Monday, the Minister made clear before the vote that he knew and, to use his words, “totally accepted” the concern of the House about the creation of criminal offences using secondary legislation.
There is a further reason for my disappointment. At least on the sanctions part of the Bill, the Minister was able to advance an arguable point—not a strongly arguable point, but an arguable point—that it was necessary to have the legislation in the form proposed because, after our departure from the EU, there would be a gap and sanctions would be needed which could not be provided for. In other words, there had to be an element of continuity. As I said, it was a colourable argument, but it was an argument.
No such argument is present in relation to this amendment. This is not a provision for continuity; it is not a provision for saving anything; it is a distinct part of a long Bill which is entirely creative and in no sense preservational. We have this very long Bill, and the legislation on money laundering which we are concerned with today is a very short part of it. There is no primary legislation in it at all; it is all regulation-making powers. It is backed up with an endless further supporting group of regulation-making powers in Schedule 2: on and on they go. I shall come to look at one or two of them in a moment.
Where criminal offences exist, and they do here, and if ever you were to be deterred from committing offences, there is also ample protection. The regulations which will support the regulations include: the power to have a supervisory body; directions for investigation; enabling those with the powers to do so to come into your home to search; liability to civil penalties; the fact that you can be caught if you are doing this abroad; and so on and so forth. There are ample powers, therefore, to provide the evidence which would be necessary to prove one of the many offences in the Terrorism Act, the Counter-Terrorism Act, the Terrorist Asset-Freezing etc. Act, the Proceeds of Crime Act—the litany is endless, and I shall not weary your Lordships with it.
Perhaps we may consider for a moment some of the offences which you can commit which exist and will exist whether we stay in Europe or come out of Europe—whatever we do until Parliament repeals them. There is the offence of entering into money laundering: precisely what this is about. There is the offence of concealing the proceeds of crime: precisely what this part of the Bill is about. There are endless offences currently in existence of which you will be guilty if the regulations come into force but which we do not need the regulations to base the prosecution on. The statute book is full of offences.
In none of our debates so far has a single possible gap been identified in the criminal law as requiring closure. I would have a recommendation to make if one had been identified—come back to Parliament—but there is none. As with the previous part of the Bill, we are invited to hand over power to a Minister which, save in the most exceptional circumstances, should remain within the power of Parliament to give or refuse on proper scrutiny.
Would the noble and learned Lord also agree that, if these powers were to be given, they should be exercised only in an emergency situation and that, heretofore, the Minister has not been able to identify any likely emergency not covered by existing legislation?
I agree—and I do not propose to add anything to that, with no discourtesy to the noble Viscount. That is the reality. These powers are not to be given, save in the most exceptional circumstances—and I would not define them, but I would invite some suggestion of what is exceptional here.
So here we have it. There is no self-evident necessity for this. The criminal law covers what is proposed to be covered in the regulations that are proposed to be allowed to be created. Without this amendment, which I am advancing, we would once again be allowing an alarming accretion of power to the Executive. We should not do it; we did not do it on Monday; let us not do it today. I beg to move.
My Lords, I simply add to the very powerful statement made by the noble and learned Lord that it is the generality of the power that is so objectionable—its unrestricted nature. If the Minister can bring forward an amendment at Third Reading that confines and restricts this power to some specific purpose, of course the House would consider it. At the moment, the Bill confers a completely unrestricted and unregulated power on Ministers, which is what is so objectionable.
My Lords, my name is also attached to this amendment. The case has been so clearly and emphatically made by the noble and learned Lord, Lord Judge, that I cannot see that there is anything that I have to say that could strengthen that argument. There are other arguments in favour of Amendment 71A, but they are frankly of second order. It is the constitutional issue, right at the heart of our constitution, that is the fundamental one that we have to consider today. I hope that the Minister takes that on board and responds accordingly.
I want to use this opportunity, because this amendment is part of a much larger group, to pay tribute to the Minister and the Bill team. On quite a number of the other amendments in this group—and my noble friend Lady Bowles may speak for a moment or two to them—the Minister and the Bill team have recognised that the issues in contention are those that concern all of us and there was a great deal of common ground. The Minister and the Bill team have listened—in fact, the Bill team have come many times and listened—and they have responded. I expect that by the end of the Minister’s comments on this grouping, we will feel that, with one exception, it is going to be possible to withdraw the amendments, because the response has been satisfactory and respectful on both sides. I attribute a lot of that to the real skill in the Bill team in understanding the core issues and finding ways in which to respond to them that meet the Government’s requirements, as well as the requirements of those scrutinising the issues. I thank noble Lords for this opportunity and hope very much that this House recognises the importance of Amendment 71A.
My Lords, I rise briefly to say that I found the observations of the noble and learned Lord extraordinarily persuasive. I have had a look at the regulations set out in Schedule 2 and, in particular, paragraphs 15 and 18 of that schedule, which make the point that the regulations create criminal offences and deal, too, with the defences that can be advanced as well as the evidentiary requirements. Furthermore, paragraph 18 makes the point that the regulations can impose custodial sentences of not in excess of two years. If we accept what the Government are asking us to accept, we would create powers that are very intrusive in criminal processes and also impose custodial sentences—and we are being asked to do so by regulations, which are not amendable. I regard that as the chief vice of this process, because the resolution procedure is simply not amendable.
If we were being asked to contemplate an emergency situation, I might find these exceptional powers acceptable, but I do not think—for the reasons advanced by the noble and learned Lord—that we are dealing with emergency situations, because no such situations, or the likelihood of the same, have been identified. There is a raft of existing legislation that covers the kind of issues that are likely to arise.
I am personally always against giving delegated powers to Ministers whenever I can avoid doing so. There is a fundamental rule in politics that I have observed over nearly 40 years in Parliament, which is that, if you give powers to Ministers or officials, on occasion they will be abused. That is a fundamental rule of politics. Consequently, you give powers to Ministers and officials only where you must and, when you do, you ensure that there are as many safeguards as possible. I find the observations of the noble and learned Lord wholly persuasive. If he seeks the view of this House, he will have my support.
My Lords, I do not have anything to add to give force to the argument that has been put so forcefully by my noble and learned friend and the noble Viscount. All I will do, if I may, is add an anecdotal note. In 1936, I believe, a former Attorney-General and former Lord Chief Justice, Lord Hewart, wrote a book called The New Despotism. He was worried about the very powers that we are talking about today being delegated in a dictatorial way to Ministers. If it was a new despotism then, what is it now?
My Lords, the scope for regulation under the provisions that are in issue is very wide. It is an area in which there is, as the noble and learned Lord, Lord Judge, said, a great deal of legislation already. I therefore hope that my noble friend the Minister will be able to indicate some form of restriction that might be acceptable in relation to this particular power. In the debate that we had on Monday, he pointed out that the power would be used only in restoring, in effect, what might be lost as a result of our leaving the European Union and that, in particular, there is power under the European Communities Act 1972 to do a good deal under statutory provision that is not by primary legislation. I thought that, if that were the case, it would be a justification for using this particular method. In this case, however, there does not appear to be justification for anything like that. I therefore invite my noble friend to indicate, as far as he can, what restriction he has in mind and whether that restriction could be embodied in the terms of the legislation.
My Lords, I had not intended to speak and—I apologise—I have not taken a close interest in this Bill, but I was moved and impressed by what the noble and learned Lord, Lord Judge, and my noble friend Lord Hailsham said. The mantra of taking back control means only one thing to me: it is Parliament taking back control. It is not Parliament conferring a blank cheque upon the Executive, from whichever party they are drawn. I am disturbed that this principle appears very much at risk.
In the previous Divisions on this Bill I voted for the Government. I did so because I have not taken a close and continuing interest in the Bill, as I indicated at the beginning, and because I have a real regard for my noble friend Lord Ahmad of Wimbledon, who I have come to know well. I respect him greatly and regard him as a Minister who has proper regard for Parliament and the constraints under which Ministers should operate. I feel for him on this issue but add my appeal to the brief but eloquent appeal of my noble and learned friend Lord Mackay of Clashfern.
Taking up the point made by the noble Lord, Lord Pannick, I very much hope that my noble friend the Minister will indicate that he truly appreciates the concerns of those who are apprehensive about an accretion of power to the Executive, and that he will, after discussing the matter further with the noble and learned Lord, Lord Judge, come back at Third Reading with something that is acceptable throughout your Lordships’ House.
We are in difficult waters. This is a precursor to a long and I am sure complicated, but I hope not acrimonious, debate on the withdrawal Bill, on which the other place is coming towards the end of its deliberations. However, it is no part of the functions of your Lordships’ House to connive at the accretion of power to the Executive. Certain things should depend upon primary legislation, not the fiat of a Minister. I hope that my greatly respected noble friend Lord Ahmad will give me a response that will not oblige me to refrain from supporting the Government.
My Lords, I recognise the great importance of Amendment 71A but wish to speak to some of the other amendments with which it is grouped. As has already been said by my noble friend Lady Kramer, we have had productive discussions and have identified common ground in relation to the concerns about paragraphs (a), (b) and (d) in Amendment 72. I understand that the Minister will make a statement about the House returning to these issues at Third Reading, with assurances and language that enable me to not press Amendment 72. I also understand that the Minister will clarify the effect of the term “without prejudice” at the beginning of Schedule 2, which relates to my Amendment 76A.
Amendment 74, standing in my name and those of my noble friend Lady Kramer and the noble Lord, Lord Collins of Highbury, would introduce a failure to prevent a money laundering facilitation offence. This was elaborated in Committee, so I need only remind noble Lords that the Law Commission has long recognised a need for a change in the law to enable large corporations to be brought to justice where the need to find a directing mind gets in the way of achieving justice. This type of offence has worked not only since it was introduced in the Bribery Act but has recently been legislated for with regard to tax evasion. Money laundering is in a similar category and this offence would enable offending British companies to be successfully prosecuted here instead of us witnessing the United States getting a better grip than us: that is not being a leader on anti-money laundering. It is also proper that such a new offence is brought in by primary legislation. I give notice that at the appropriate moment I will move Amendment 74 and, if need be, divide the House.
My Lords, my name is attached to Amendment 74, and of course to Amendment 71A. I will not repeat what the noble Baroness, Lady Bowles, said on Amendment 74, but this demand has been made for some considerable time. It is important that we act to ensure that all players involved in such criminal activity are brought to justice. That was reinforced by the Serious Fraud Office, too. On Amendment 71A, I concur wholeheartedly with the noble and learned Lord, Lord Judge, but the noble Lord, Lord Pannick, hit the nail on the head. On Monday this House spoke very clearly on this principle. It is of concern that the Minister, who has been in effective listening mode on a lot of the amendments, particularly in this group, has not reflected properly on Monday’s decision. How do we constrain these powers, as the noble Lord, Lord Pannick, said? If the Minister is not prepared to say how he will do that, I have no doubt that this House will speak with the same voice as it did on Monday.
My Lords, the opening line here says “I wish to thank noble Lords for putting forward this amendment”. I am not sure whether that best reflects the sentiments of the House. However, as I have said before, I deeply appreciate that this is a matter of great interest and concern to many in your Lordships’ House. In proceeding, I hope that in part I can reassure noble Lords that the powers in the Bill are taken with the utmost regard to your Lordships’ concerns. In the wider context, I also thank noble Lords for the practical, helpful and constructive engagement we have had. As a government Minister, I always approach legislation with the view that there will be times when we will disagree, but equally, we disagree with great respect to the House and to the incredible experience and wisdom in it. Where we are unable to agree, that does not mean that we have not listened. The Government’s position is a listening one, as the noble Lord, Lord Collins, said, and as we have demonstrably shown on both parts of the Bill. I also thank the noble Baronesses, Lady Kramer and Lady Bowles, for the constructive engagement we have had on the anti-money laundering aspects, and I am grateful for the key co-ordination role—I hope she will not hold this against me—that the noble Baroness, Lady Northover, played on this. I also very much appreciated the expertise that the noble Baroness, Lady Bowles, in particular, brought to this group.
Amendment 71A seeks to prevent regulations from making provisions that create new criminal offences. It is not unusual for requirements to be set in delegated legislation which can be enforced using criminal penalties, both in financial services legislation and other regimes such as health and safety. As I am sure all noble Lords are aware, in accordance with standard practice when implementing EU directives, criminal offences in this area have already been created in delegated legislation, in the Money Laundering Regulations 2017, made under the powers given by the European Communities Act 1972. This was also the case in their precursor, the Money Laundering Regulations 2007, which were brought into force—notwithstanding the contribution made by the noble Lord, Lord Collins—by the then Labour Government. The Bill therefore makes no changes to the current position in this sense and reflects the Government’s firm intention to continue imposing criminal penalties for breaches of anti-money laundering requirements.
These detailed provisions, setting standards and procedures for regulated businesses, should also be seen in the context of a separate penalty regime for the key substantive money laundering offences. Such offences are established under Part 7 of the Proceeds of Crime Act 2002, which provides for more punitive prison sentences of up to 14 years—for example, for those guilty of directly laundering the proceeds of crime.
The Government’s view is that removing their power to create criminal offences under secondary legislation would seriously weaken the enforceability of new regulations and therefore lower the effectiveness of the UK’s anti-money laundering regime.
Will my noble friend explain to the House why he is impliedly asserting that he cannot use primary legislation for this purpose?
As I have indicated, this is not a departure from what already exists. I have already quoted previous Acts and talked about the ways in which Governments of different political colours have used secondary legislation in the past for this purpose.
More generally, noble Lords may recall that it is not unusual for requirements, which can be enforced using criminal penalties, to be set in delegated legislation. In response to my noble friend, in the area of financial services, for example, the Regulated Activities Order under the Financial Services and Markets Act 2000 specifies which activities are or are not regulated. Carrying on such activities without permission from the regulator is a criminal offence.
I assure noble Lords that I am sympathetic to the arguments on the constitutional position, and I say to the noble and learned Lord, Lord Judge, that I have listened very carefully to his contributions—we have had positive engagement on various parts of the Bill. However, as I have indicated, it remains the Government’s position that it is neither unusual nor improper for Parliament to confer powers of this type on Ministers, as we have done previously and has been accepted. I shall turn to the appropriate safeguards relating to these powers in a moment.
I would like to set out why the ability to create criminal offences specifically for the UK’s anti-money laundering regime is necessary. When the Government consulted on whether to remove the specific criminal offence provisions in previous Money Laundering Regulations, the British Bankers’ Association stated that removing such provisions would be at odds with the objective of driving an effective anti-money laundering regime. Furthermore, the Crown Prosecution Service argued that provisions for creating criminal offences in the Money Laundering Regulations different from those in the Proceeds of Crime Act 2002 serve a separate and useful function in tackling money laundering. In some instances, prosecuting according to the Proceeds of Crime Act 2002 could jeopardise ongoing investigations. It said:
“In such cases, the ability to prosecute for a regulatory offence relating to defective”,
anti-money laundering or counter-terrorist financing,
“systems can be an important tool”.
Finally, in response to the same consultation, HMRC noted that abolishing criminal sanctions for breaches of regulations “carries significant risk” to its ability to tackle money laundering. In lieu of such sanctions, if the UK wishes to maintain a functioning anti-money laundering and counterterrorist financing regime post our departure from the European Union, it is vital that the Government continue to have the power to create criminal offences for those regimes.
As the noble Baroness, Lady Bowles, pointed out, there are other amendments in this group. Amendments 90 and 92 envisage the same effect as that of Amendment 71A. Amendment 90 aims to prevent future regulations containing provisions to create new criminal offences, while Amendment 92 deals with provisions relating to penalties for such offences. As I set out to noble Lords previously, removing the Government’s ability to create criminal offences would seriously weaken the enforceability of new regulations, thereby, we believe, lowering the effectiveness of the UK’s anti-money laundering regime.
Amendment 72 proposes to restrict the scope of anti-money laundering regulations in several ways. First, it aims to prevent the making of regulations that are detrimental to the UK’s anti-money laundering and counterterrorist financing regime. Secondly, it aims to ensure that future regulations prescribe measures which are duly proportionate. Thirdly, it seeks to ensure that regulations cannot create new criminal offences, and, fourthly, it makes provision restricting the ways in which powers in the Bill can be used to update the definition of “terrorist financing”.
I have stressed from the Dispatch Box many times that the Government are listening to concerns expressed by noble Lords about the aims of these regimes, the need for a proportionate approach and the best way to keep definitions up to date. I am pleased to be able to confirm to the House that, having engaged directly with noble Lords on this matter, we will be tabling new amendments for Third Reading which aim to address the concerns contained within limbs (a) and (b) of Amendment 72. I have set out my position on criminal offences in relation to limb (c), and so do not propose to repeat that. I can further confirm that the Government will seek in the other place to restrict the ability to add to the definition of “terrorist financing” in Clause 41. This was also something that we discussed very constructively. I assure noble Lords that it will be limited to cases where any relevant regulations under Clause 1 are for the purposes of compliance with UN or other international obligations or to further the prevention of terrorism, or both. I hope that this is sufficient reassurance to enable the noble and learned Lord not to press this amendment so that we can table amendments and engage constructively with those issues again at Third Reading.
Amendment 74 proposes to create a corporate criminal offence of failure to prevent money laundering. The effect of this amendment would be to provide that a company or partnership is guilty of a criminal offence in cases where the company’s employee, agent or other service provider commits one of the substantive money laundering offences contained in Part 7 of the Proceeds of Crime Act 2002. The relevant company would have a defence if it could prove that it had adequate procedures in place to prevent its employees and agents from committing such an offence.
I would like first to note that, as noble Lords may be aware, in 2017 the Ministry of Justice carried out a call for evidence on corporate criminal liability for economic crime, such as money laundering, fraud and false accounting, to establish whether further reform of the law was necessary. Noble Lords will accept that this is a complex and controversial area of the law, attracting views from across a broad spectrum. Responses were received from a wide variety of stakeholders and expressed diverse and often conflicting views, as well as raising several important issues that need careful consideration. As I have told the House when dealing previously with this Bill, the Government’s response is being finalised and will be published in due course. I hope we can agree that it would make no sense to muddy the waters by introducing a further failure to prevent offence before there has been a proper review of the evidence.
I emphasise and assure noble Lords that there is no gap in the regulatory regime for financial services that would be addressed by the introduction of a failure to prevent offence for money laundering, which was a concern expressed. The senior managers regime requires that relevant financial services firms, such as banks and building societies, allocate a senior management function for overseeing the firm’s efforts to counter financial crime, including money laundering, to a specific senior person.
The requirement to maintain this role is in addition to the requirement for a money laundering reporting officer, or MLRO, who is directly responsible for ensuring that measures to combat money laundering are effective. Noble Lords may wish to note that the MLRO has a personal responsibility for the oversight of the firm’s compliance with Financial Conduct Authority rules on anti-money laundering systems and controls.
The senior managers regime is robust in the additional requirements it places on senior managers responsible for overseeing firms’ defences against financial crime. Such senior managers are required to obtain pre-approval as fit and proper from the Financial Conduct Authority and the Prudential Regulation Authority. If there is a contravention of the money laundering reporting requirements by a firm, the Financial Conduct Authority can take action against the responsible senior manager, if they can prove that they did not take such steps as a person in their position could reasonably have been expected to take to avoid the contravention occurring. This enforcement action includes fines and disbarment from undertaking regulated activities.
The senior managers regime currently applies to banks, building societies, credit unions, Prudential Regulation Authority-designated investment firms and UK branches of foreign banks.
The Government have legislated for it to apply across all financial services firms, and this will be implemented in due course—the regulators have been consulting on the final design of this extension of the regime. The introduction of the senior managers regime has significantly enhanced the ability to hold individuals responsible for failures of the systems and controls of relevant firms. Its expansion across the financial services sector will do more in this regard.
I am extremely grateful to my noble friend. It is quite clear that the grouping of these amendments is not a convenient way of proceeding. I understand that my noble friend has given careful thought to the wide range of issues covered by the amendments, and I understand that he is saying that he will make further changes to the Bill at a later stage. What I am not clear about is whether any of these will cover the points made by the noble and learned Lord, Lord Judge, in his opening remarks. Perhaps my noble friend will clarify that.
My noble friend is right to raise the point and I admire all noble Lords who have followed the thread. The reason I have gone into detail, as my noble friend has articulated, is that the range of amendments in this group is quite extensive. Also, as I have said before, it reflects the importance of the discussions we have had.
On the specific issue of Amendment 71A, on this occasion I regret that we are unable to meet the views of the noble and learned Lord. However, I hope that I have indicated at least in part that this is not a departure from the existing system. Indeed, it is something which has been applied previously and continues to be so. I hope, therefore, that I have convinced noble Lords that the Government’s proposed changes—aside from the differences set out by the noble Baronesses, Lady Kramer and Lady Bowles, which we have talked about and I appreciate and acknowledge—will ensure that proper safeguards are put in place in the Bill regarding offences, rather than removing the ability to create them and leaving a vacuum that we believe would weaken the UK’s anti-money laundering regime.
I hope also that I have convinced at least some noble Lords—I am looking behind me as well as ahead; it does not say that in my speaking notes. I have gone into detail but I believe that it was necessary to do so since, as I have always said, this is an important Bill. With those reassurances, I hope that noble Lords who have tabled amendments in this group will be minded to withdraw them.
Just before my noble friend sits down, can he help me on one point? There is already authority to make regulations in respect of money laundering which have criminal sanctions. If so, why is another provision to the same effect necessary? Can he help us further by explaining why it is necessary to do this not only for money laundering but in other areas where authority in primary legislation already exists to lay statutory instruments?
What I have been saying in the examples I have quoted is that the use of the regulations is not something new.
Perhaps the Minister could confirm that at present, the primary legislation takes place in Europe through the various processes of the European Parliament and Council. It is from those that the current regulation flows. The issue here is that in the future, there will be no mechanism for primary legislation to sit behind the regulation; it will be the regulation disembodied.
The noble Baroness has correctly pointed out that all this is to do with what we do after we leave the European Union, which I have sought to make clear to my noble and learned friend. We will set up the mechanism and put in place the provisions to allow the Government to address the issue of criminal offences. The Government’s proposal would be to continue on the same basis as we do now—through the use of regulatory powers. As I indicated earlier, this is not different. I have also stressed that this would be subject to the affirmative procedure, which would allow for debates in both Houses. We covered that area extensively both at Second Reading and in Committee.
I thank all noble Lords who have taken part. I fear that the disappointment I expressed about the Minister’s reaction remains. Of course it is true that from time to time, following primary legislation, Parliament allows regulations to be created which would impose a criminal sanction. However, I underline that we are not dealing here with a regulation made on the basis of primary legislation which identifies a criminal offence: this is a regulation to create offences based on something that is only a regulation. In other words, the Minister will have complete power, subject to the affirmative resolution procedure, to decide what should fall within the ambit of the regulations, and then complete power—quite apart from all the millions of provisions in the schedule—to create criminal offences. That is simply wrong in principle.
Although I have listened very carefully, there has been no suggestion from the Minister that, in reality, there are any serious available offences that are not adequately covered, for deterrent and punishment purposes, by the endless stream of legislation to which I referred when I began my submission. What is more, none of the letters to which the Minister referred, from the CPS and so on, pointed out that here is a gaping hole which must be filled. This House took a decision on Monday; it would be astonishing if I did not give it a chance to consider again what the position should be. Therefore, I seek to divide the House.
My Lords, Amendment 73 is tabled in my name and those of the noble Lords, Lord Kirkhope and Lord Collins, and the noble Baroness, Lady Kramer. I welcome the cross-party support this amendment has attracted. I am grateful to Mrs Kimberly Durrant, the representative of Bermuda in the UK, and Mr Benito Wheatley, director of the British Virgin Islands London office, for the useful briefing they have provided.
The amendment aims to bring transparency to the financial operations in the six British Overseas Territories that have financial centres by creating public registers of beneficial ownership of the companies based in them. One of the six—Montserrat—has already agreed to do this. Noble Lords will be aware that, since 2013, the Government have been working with these territories to develop registers of beneficial ownership that are rapidly accessible to law enforcement agencies. Amendment 73 would require the Government to go further and to give all reasonable help and support to those territories so as to make their registers publicly accessible. If this is not done, the Government should ensure it is done by making Orders in Council.
There is one change in the amendment since Committee, in that it requires the registers to be made public not by January 2019 but by January 2020. In a very useful meeting with the Minister last week—I add my voice to those who have expressed their admiration for him—he made clear that January 2019 was quite impractical for implementation. He is of course right: 2020 is much more realistic and would give a reasonable length of time for the change the amendment proposes to be brought in. When this amendment was discussed in Committee, the Minister very helpfully indicated the progress that had been made. He reported that Bermuda, the British Virgin Islands and the Cayman Islands have central registers of beneficial ownership information, or similarly effective systems, now in place. This is much to be welcomed.
This is the fourth time we have discussed in your Lordships’ House the need for the overseas territories to produce public registers. Each time, the case for ending secrecy becomes stronger as more information emerges about how illicitly obtained money is protected from discovery by anonymity. It is clear that not all those who set up shell companies in offshore locations are doing so because they have something to hide, but for those who do have something to hide—drug barons, arms traders, tax evaders, government Ministers in resource-rich countries stealing money that should go to the good of the people—anonymous shell companies meet their needs very well. They assume they will not be discovered, exposed to the public gaze or prosecuted. They can pursue their criminal activities with impunity.
In the absence of the transparency this amendment calls for, we have had to depend on whistleblowers and hackers to take great personal risks in order to expose this criminality. Thanks to the work of these whistleblowers and hackers, a flow of information has emerged, from the offshore secrets database in 2013, through the Panama papers of 2016 to the Paradise papers last year. It should be noted that more than 100,000 of the accounts revealed in the Panama papers were registered in the British Virgin Islands.
This information has given law enforcement and tax collection agencies a chance to pursue a considerable amount of criminality. For instance, Europol reported at the end of 2016 that it had found in the Panama papers database nearly 3,500 probable matches to organised crime, tax fraud and other criminal activities. The report on the recent work of the Government’s Panama papers task force revealed that in October last year 66 investigations were under way into tax evasion, organised crime and money laundering—and all that is the tip of the iceberg.
In Committee, the Minister explained very helpfully to your Lordships’ House why the Government were resisting the transparency required by this amendment. He argued that, as the overseas territories have their own democratically elected Governments, it is rare for this Government to legislate for them without their consent. Where this has occurred it has related to our international human rights obligations—that is, on the abolition of the death penalty and the decriminalisation of homosexuality. He told the House:
“Financial services are the domestic responsibility of territory Governments”.
He said that to legislate without their consent to require publicly accessible registers of beneficial ownership,
“would create considerable ill-feeling”,—[Official Report, 6/12/17; col. 1117.]
and jeopardise current co-operation. He did not argue, and this is most welcome, that requiring the registers in the British Overseas Territories to be publicly accessible would put the territories at a competitive disadvantage compared with other jurisdictions that provide similar secret financial services.
The Minister quite properly sees that what this amendment asks would be difficult and would require much patient negotiation. He is right. I too see the difficulties, but I also see hospitals and schools unbuilt because the money for them has been siphoned off; women trafficked and drawn into prostitution because there is no other way to feed their family or get healthcare for sick parents; mothers dying in childbirth because there is no money for maternity services; and much more.
The British Overseas Territories are British, and Britain is a global leader in fighting corruption. At the G20 summit in 2013, David Cameron promised that the UK would create a central register of companies’ beneficial ownership information. The UK is now the only country in the G20 to have established such a register. He was a strong advocate of such registers in the British Overseas Territories and elsewhere. The 2016 summit hosted by the UK was a significant event that moved anti-corruption work higher up the global agenda. Furthermore, the UK is at the forefront of providing development aid and promoting human rights internationally.
The Minister has an undoubted commitment to human rights and the rule of law. It has become very clear during the proceedings of the Bill that the levels of fraud, tax evasion and corruption that are causing so much misery in the poorest parts of the world are an abuse of human rights and the rule of law. I therefore urge the Minister to reconsider his view that we can wait until public registers become the global standard and only then require the British Overseas Territories to move to greater transparency. I beg to move.
My Lords, as a co-signatory to the amendment I support the noble Baroness, Lady Stern. I shall speak for only a few moments because we have already heard from her a very good explanation of the amendment.
I speak from the point of view of my support for the initiative that was originally taken by this country at the G20 summit in 2013 by my then right honourable friend David Cameron, and pursued by him very vigorously in the further widely supported summit in 2016, to provide this country with a position as a leader in the area of financial propriety. In my view, that is something that needs to be continued, particularly because this country is entering into a very uncertain future.
Whatever one’s views are about our present negotiations with the EU, and indeed the other negotiations that it will be necessary for us to have with the rest of the world, one of the areas in which this country has an enviable reputation—the noble Baroness referred to this a few moments ago—is the way in which we deal with financial matters. We are not perfect; everyone knows that, and other amendments that we are considering tonight will perhaps suggest that. Nevertheless, we are a country that has shown an example of being open and transparent and having standards. We have extended those things to public life, quality of products, the environment, health and, particularly, our financial conduct. Because of the uncertain future, we need constantly to look at this on the basis of David Cameron’s gold standard, rather than simply following behind global standards.
The Government have made progress, and I pay tribute to my noble friend, who has listened carefully to the concerns of those of us who wish to move in this direction. I also acknowledge that great progress has been made by both the Crown dependencies and the overseas territories in moving towards openness and transparency. However, what I believe to be a reasonable compromise on an ultimate date for the conclusion of public registers open to access will in my view tie in extremely well with this country’s future negotiations and arrangements, and the need for this country to attract more support all over the world from a great number of new investors and others who wish to be part of what we control.
This is a modest measure in many ways, but I am convinced that it gives a clear, positive and attractive measure that the world can see, so that it can continue to have total faith in this country’s integrity.
My Lords, I declare my interests as set out in the register of the House, particularly those in respect of financial services.
I greatly respect the noble Baroness, Lady Stern, and the other noble Lords who have signed the amendment, but I wholly disagree with it. If we in this Chamber sought to legislate for Scotland in a matter of devolved competence without consulting or without the consent of the Scottish Parliament, all of us know what a hullabaloo would be raised immediately. We would be reading about it in every newspaper; the media would be full of it. Indeed, the media are fairly full of warnings from the Scottish Government. I know the same to be the case in Wales. I was with the EU Select Committee recently. We visited the Welsh Parliament and, in the course of the day, the same point was made to me by, I think, every political party.
As a Parliament, we developed the Sewel convention to cope with this very situation. That has been put in the memorandum of understanding, and the October 2013 version of it states that,
“the UK Government will proceed in accordance with the convention that the UK Parliament would not normally legislate with regard to devolved matters except with the agreement of the devolved legislature”.
Indeed, we put it into statute in, for instance, the Scotland Act 2016, which has of course now been litigated. I have here the Miller judgment. In his outstanding judgment, the noble and learned Lord, Lord Neuberger, rather elegantly reminds us in paragraph 144 that the Sewel convention was not invented recently but that its substance was in effect between, for instance, the UK and Southern Rhodesia in the 1960s. The Sewel convention represents something that this Parliament has had for a long time, and it stretches out to our overseas territories as well as to our devolved Administrations here.
In the final paragraph of five pages considering the convention, the noble and learned Lord says:
“In reaching this conclusion we do not underestimate the importance of constitutional conventions, some of which play a fundamental role in the operation of our constitution. The Sewel Convention has an important role in facilitating harmonious relationships between the UK parliament and the devolved legislatures”.
I repeat all that and make a meal of it because I have to say that the six countries named in the amendment are proud and sophisticated places. Money laundering is rightly a devolved matter for them. Bermuda, for instance, is especially highly developed. Its GDP per head is much bigger than that of the UK, and it was not mentioned once in the Panama papers. Therefore, were we to legislate without even consulting these parliaments, let alone asking their consent, it would be deeply wrong. Just as with Scotland and Wales, our overseas territories would feel angry, which is why the Sewel convention is and has been a good thing. Westminster has the power to intervene and should exercise it were things badly awry. However, I have to say that evidence of “awryness” is in fact the other way. I looked yet again at the Wikipedia article on the Panama papers; about halfway down a long and extensive article, there is rather a good league table of banks that have been involved in the affair. Four of the top 10 banks listed in the league table were based in Luxembourg; none of the top 10 banks was based in any of the countries listed in this amendment. Therefore, there appears to be a bit of work to do at home, in the EU.
A second and much larger piece of evidence comes very recently from the EU itself. On 5 December last year, the EU adopted Council conclusions concerning non-co-operative tax jurisdictions. On page five of the adopted 38 pages I have in my hand, the EU Council affirms that,
“these actions collectively taken by EU Member States are in line with the agenda promoted by the G20, the OECD and other international fora”.
None of the six countries named in this amendment is on the black list.
Annexe 2 of the adopted conclusions lists countries in various categories that have agreed to make changes by the end of this year. It is a large list of countries. In other words, provided that changes are made by those countries, in the EU Council’s view they will be fully compliant with the EU, G20 and OECD thinking in this area. Only two of the six countries in this amendment are even part of that list of co-operative countries. Anguilla, the British Virgin Islands, Montserrat and the Turks and Caicos are not. In that respect, they are doing rather better than Switzerland or Hong Kong, which are. Indeed, 23 countries are making changes to improve transparency. None of the six countries of this amendment is listed. Twenty-two countries are making changes to anti-BEPS measures. Those are sophisticated corporate tax dodges. None of the six countries in this amendment is listed. Twenty-six countries, including Switzerland and Hong Kong, are making changes to amend or abolish “harmful tax regimes”. None of the six countries of this amendment is listed. Six countries, including Bermuda and the Cayman Islands, have agreed to,
“address concerns relating to economic substance”.
Among those six are also Guernsey, Jersey and the Isle of Man, the only time the Crown dependencies appear in the annexe. But, of course, they do not appear in the amendment.
Thus, after all the work of Pierre Moscovici and his officials—and he is no great friend of our overseas territories—and work aligned with that of the G20 and OECD, we are presented with this amendment. Six of the 14 British Overseas Territories have been singled out. Four do not appear on the definitive list at all; two do, and have agreed to take a very small amount of corrective action—the same corrective action that the Crown dependencies are taking, yet their names do not appear. I cannot fathom how this list of names was arrived at. To me, it looks unjust. I leave it to others to comment on mechanical aspects of the amendment, which also look problematic to me—but time is pressing.
The Government and the overseas territories, and indeed the Crown dependencies, have discussed these issues around the table regularly and, over the years, there has been continual incremental progress on this very important issue. The success of this approach can be seen in the work of Mr Moscovici and his very thorough 38 pages, with not one on the blacklist, and only a very small amount of agreed work to be done by a small number. We should continue to take this road, and the amendment is constitutionally wrong and unjust in casting unwarranted aspersions on a number of our loyal overseas territories.
My Lords, I will not reiterate the many arguments made in Committee on the ineffectiveness of foisting public registers on the overseas territories for tax or law enforcement, but rather pay tribute to the noble Earl, Lord Kinnoull, and my noble friend Lord Naseby for making similar points to those that I would have made. Instead, I rise to make a different point.
I spoke in response to an identical amendment tabled by the noble Baroness, Lady Stern, to the Criminal Finances Bill on 3 April, memorably, as she said, one year after the Panama papers. That amendment was ultimately not moved but it has appeared by and large in the same form today. A similar amendment to the same Bill was moved in the other place regarding the Crown dependencies, which the Opposition Front Bench stated it was keener to legislate for than the overseas territories. The amendment was defeated by the substantial majority of 301 to 180. The interest of the UK, and the interest of fairness, is to achieve a level playing field between the members of the British family of territories. Clearly, it is also the intention of the Opposition Front Bench to legislate for the Crown dependencies, so that clear steer from the other place should be noted and the impact on the Crown dependencies considered. Still, much has changed even in those few months to make the call for public registers possibly less compelling.
Since then, both Crown dependencies that have been assessed by the OECD’s Global Forum—the world’s standard-setter for beneficial ownership, retention and international exchange—have been rated as among the few jurisdictions fully compliant with international standards. Indeed, they have a better rating than the UK. Moreover, since then, the overseas territories’ 2016 exchange of notes with the United Kingdom, under which they agreed to introduce government central registers of beneficial ownership, have come into effect. Those registers are accessible by UK tax and law enforcement on a same-day basis, giving the UK access to information that is unparalleled by any other jurisdiction in the world.
Even more so, partly in response to the debate in this House last year, the Criminal Finances Bill was amended to introduce mechanisms to review the effectiveness of the overseas territories’ and Crown dependencies’ registers and their exchange agreements with the United Kingdom. That amendment, now Section 9 of the Criminal Finances Act, requires the Government to prepare and lay before Parliament a report by July 2019 on the effectiveness of these new systems. This will allow your Lordships’ House to have the full evidence in front of it before taking any further steps. That was most wise. It buttresses the systems that have been adopted in the overseas territories, rather than undermining them; it meets international standards, rather than conflicting with them; and it gives the UK oversight of the overseas territories, rather than pushing them around. David Cameron was quite right and prescient in setting out tax evasion and counter-fraud legislation as a priority, and I pay tribute to him for that prescience—long before “McMafia” was aired.
To legislate now would be to pre-empt that report, which has already been legislated for and which would greatly inform your Lordships’ House on the strengths and weaknesses that might require improvement. Moreover, by legislating now—before evaluating the overseas territories’ systems, as the Government are now required to do—the United Kingdom may jeopardise the good will and unparalleled relationship that it has with those overseas territories and Crown dependencies. I therefore urge your Lordships to show caution in the approach adopted to avoid undermining the progress that has been made. Even in difficult times, with some of the overseas territories named in this amendment having been devastated by recent hurricanes, they have made progress to remain at the fore of international standards. Let us not pre-empt the evaluation that Parliament has already compelled the Government to conduct by approving this amendment.
My Lords, I very much agreed with the constitutional points made, particularly by the noble Earl, Lord Kinnoull. More widely, I suggest that this amendment would be counterproductive in its effect. It is interesting to note that law enforcement agencies do not support public registers, particularly in such territories, as they do not improve law enforcement capabilities.
As David Lewis, head of the world’s anti-money laundering standard-setter, the Financial Action Task Force, and formerly of the UK National Crime Agency, said:
“Incomplete, unverified, out of date information in a public register is not as useful as law enforcement agencies being able to access the right information at the point they need it”.
Moreover, the UK’s overseas dependencies have already shown themselves extremely efficient in responding to the requests of policing and other agencies. Interestingly, tax authorities do not support public registers either, as people report less candidly than when information is available only to public authorities. The OECD’s Keeping It Safe states that to,
“comply with their obligations under the law, taxpayers need to have confidence that the often sensitive financial information is not disclosed inappropriately”.
Australia’s chief tax collector opposes public registers. Interestingly, UK intelligence and law enforcement, a key foreign policy asset, is likely to be undermined. UK law enforcement has access to information in the overseas territories’ central platforms. This can be exchanged with other countries to secure reciprocity or other benefits to the UK. Public registers remove this leverage and facilitate identity theft. The Financial Times has reported that directors are twice as likely to be victims of identity theft due to the Companies House public register of directors.
It is pretty clear that international standards do not require public registers but do require verification. That is the key point: you can have effective verification when registers are not public. However, as the, I am afraid, rather disappointing results of what has happened in the UK show, you cannot have verification with an open system. For once, even the EU was correct: it withdrew its proposal for public registers in December 2016 on the grounds that they disproportionately infringe human rights. The EU’s Legal Service stated that introducing public registers was a disproportionate infringement of the right to privacy and the European Data Protection Supervisor stated that it would breach data protection principles.
I think everyone is in favour of the objective; the question is how you achieve it most effectively. I have been a commissioner on the Guernsey Financial Services Commission for a number of years and have had some involvement in what Guernsey has done. Interestingly, Guernsey scores higher than the UK for general regulatory effectiveness and compliance. However, the crucial thing is that the registers are accurate, have been verified and can be used swiftly by the proper authorities that need that information. I am afraid that making them public undoes a lot of the point of them.
My Lords, I had the privilege of speaking in Committee, when I declared my interests as a vice-chairman of the All-Party Parliamentary Group for the Cayman Islands, and the fact that I have family working in the Cayman Islands.
I reflected on what the noble Baroness, Lady Stern, said in Committee, particularly the examples she gave of developing countries being fleeced by the operations of the overseas territories—my words, not hers. I did a bit of research and asked the Cayman Islands for information on the type of operations conducted there. I give a case history that I think your Lordships will find interesting. Money does not stay in the Cayman Islands but flows through them to support growth in onshore jurisdictions, including in developing countries. An example of this is the World Bank’s International Finance Corporation, which invested more than $400 million through Cayman-based investment vehicles in 2015 alone. The money supported critical development projects in more than 24 developing countries. That is not just a one-off example; there are many others in what I call the leading overseas territories. I will not repeat what the noble Earl, Lord Kinnoull, said; I am grateful to him for the research that he has done.
I point out that the Cayman Islands had a new constitution in 2009, which was approved at Lancaster House and contained measures on the rule of law and human rights that meet the most stringent international and European standards. Included in their Bill of Rights is the right to privacy and strong laws on data protection.
It has already been made clear that most countries are not adopting public registers. Certainly, for the overseas territories in the Caribbean, the rival centres are the United States, Hong Kong and Singapore. They have all looked at public registers but not one has agreed to it. So if we force the overseas territories to have public registers, the effect will be that business will move away—there will be none of the sort of business that I have just cited, which is increasingly the nature of the business done in the overseas territories. Furthermore, the information Her Majesty’s Government get on money laundering or anything else they require would certainly be weakened greatly because the activities that people are interested in would not be available. My noble friend Lord Flight mentioned the situation in the EU, which takes the view that it would disproportionately infringe on human rights. I do not need to expand on that.
I will finish on a key constitutional point—perhaps, as someone who took the Maastricht treaty through, I had to learn something about constitutional law. I re-emphasise that the overseas territories are self-governing territories, and legislating for them is constitutionally questionable. It is true that Orders in Council have been used to impose legislation on the overseas territories, but only for constitutional or human rights issues. The need to consider the overseas territories’ interests was confirmed by the House of Lords in 2008. To use an Order in Council for financial regulation when the overseas territories have already adopted international standards while the UK has not would expose the UK to legal challenge as potentially irrational and therefore could be overturned on judicial review. It would also be provocative, as my noble friend has indicated, to Scotland and the other devolved Administrations in the United Kingdom. I for one will certainly, with a clear conscience, vote totally against this amendment.
My Lords, I see the beguiling simplicity of the noble Baroness’s amendment, and after the powerful speech she made in moving it and the graphic examples she gave, I find myself carried along on an emotional tide. But the House needs to be aware of some of the unintended consequences that may flow from this if we are inclined to accept it.
The amendment refers to the Companies House regulatory scheme as being the standard to which we should aspire. Companies House is a recipient of information; its interrogation is pretty limited. Noble Lords may be inclined to look in detail at the amendment and say, “Yes, but this is a higher standard because we are dealing with the section on persons with significant control”. As is shown in the register of your Lordships’ House, I am a person with significant control of a company, and I have never been asked anything at all about my entry. I hope—I intend—that it is accurate, but nobody at Companies House has ever approached me to say, “Is this correct?”; it is just accepted. There is therefore a danger that the seductive idea of a public register means that it is somehow better verified than the situation we now have. That is my first concern about the amendment.
The second relates to a point made by other noble Lords. If you raise the standards or increase exposure and transparency in one area, you merely drive business to another corner of the world. My noble friend Lord Naseby referred to Singapore and Hong Kong but there are other places a great deal less attractive to which business might be driven. As I understand it, each of the overseas territories has already established a proper register of beneficial owners of companies which can be interrogated at all times by our law enforcement agencies. My noble friend Lord Leigh of Hurley referred to the fact that the efficacy of that regime is to be tested in a review which will be put before Parliament in the next couple of years. Really, the question at issue is whether there should be public access to that register. Those are the words that make the difference, but in my view in the present situation that will have little practical effect. At present, our law enforcers can interrogate the register. If the public are also able to access it, the result might be that it will drive people to areas of the world where we cannot have even a vestigial chance of enforcing the proper levels of law.
Like my noble friend Lord Flight, I absolutely understand the purpose behind the noble Baroness’s amendment, but in my view the best should not be the enemy of the good.
My Lords, I am not wholly persuaded by the amendment of the noble Baroness, Lady Stern, although I am entirely persuaded by her argument that we have to address the grotesque abuses which, for example, came to light in the Panama papers and which involve, among other things, use of the secrecy of jurisdictions and the weakness of law enforcement.
We have to remind ourselves that the primary purpose of the work begun under the UK coalition Government in this area was that law enforcement and tax authorities should be able to gain access to reliable registers in real time. That objective is increasingly being satisfied in relation to the Crown dependencies, which are not the subject of this amendment, and in a number of the overseas territories. That is the primary objective. A strong case can be made for having public, open registers but it has to be recognised that that policy is not accepted in a great many substantial jurisdictions and that business will flow to some of those jurisdictions, including perfectly legitimate business that has nothing to do with the nefarious objectives described by the noble Baroness.
The only way to make a reality of open registers is through some form of international agreement, which would of course also change the constitutional position in relation to the overseas territories because the UK has responsibility for their external relations. However, from a practical point of view, the campaign for greater transparency seems to need to concentrate on securing some kind of international agreement which will drag all but the few most disreputable jurisdictions into agreement.
As it stands, the amendment risks undermining a process which seeks rather more to respect the constitutional development of our overseas territories. Unlike France and indeed even the Netherlands, the United Kingdom does not treat overseas territories as part of the home country—it does not treat them like local authorities in our country. Occasionally, overseas territories have asked to be treated in that way and have been vigorously denied that alternative. We seek to carry out constitutional and democratic development in overseas territories and to encourage a high degree of legislative autonomy that retains certain responsibilities, particularly for compliance with international agreements. I think that I prefer that model. If we can better achieve the objectives which the noble Baroness, Lady Stern, has rightly set out without reverting to a more colonial model of dealing with overseas territories, that will be a preferable route.
My Lords, my name is added to the amendment and I am delighted that it is. However, I did not think that when I got up to speak I would need to make a vigorous defence of public registers, yet I find that I must because the objections that we have heard from so many around this House have been to public registers per se.
My Lords, I do not want to take up too much time. The noble Baroness, Lady Stern, made an incredibly powerful speech in support of her amendment, to which I added my name. I want to say something in relation to setting international standards and trying to reach international agreement. Ultimately, that is the correct way. It is the solution. But there are many ways of achieving that. David Cameron realised that, actually, setting the standards and taking the lead is the way to reach international agreement—not sitting on our hands and saying, “Let’s see what others do first”. We need to take the lead and set the standards. When we talk about reputation, it is our family of nations that will suffer reputationally if we do not adopt this amendment tonight.
My Lords, I am grateful to all noble Lords who have taken the time to contribute to this important debate. The amendment would require the Secretary of State to provide all reasonable assistance to the Governments of certain of the British Overseas Territories with significant financial centres to enable each of those named overseas territories to establish a public register of company beneficial ownership. It further provides that, if by 1 January 2020 such overseas territories have not established such a register, the UK Secretary of State should take all reasonable steps to ensure that the Privy Council legislates to require the overseas territory to do so.
I am again grateful to the noble Baroness, Lady Stern. We have had a constructive discussion where we laid out the differences over our approach. I do not object to the fact that we are all seeking—that is clear from all contributions today—to ensure fairness and transparency but also to do the right thing to ensure progress in this regard. I appreciate that the deadline set in this revised amendment for preparation of an Order in Council has been put back by one year compared with the amendment tabled by the noble Baroness and others in Committee. I previously addressed many of these points in Committee. But I hope that the House will bear with me if I reiterate certain key points.
I first want to inform noble Lords of the commitments that the territories have made to advance transparency in the company and tax fields. We heard the noble Baroness, Lady Kramer, talk about taking leadership, having that relationship and allowing the British Government to work with the overseas territories and that this amendment is the way to achieve that. But we are already doing it. The overseas territories are part of my responsibilities as a Minister. They are totally engaged on this agenda. With respect, the noble Baroness laid out a series of assertions on how money laundering and certain activities occur. Is it right that these six territories alone are singled out? Where is the evidence base? That is important, but so is the action that is being taken. We need to focus on that.
For example, the overseas territories with financial centres are leading the world. They are among the early adopters of the OECD common reporting standard. I say to the noble Lord, Lord Collins, that the overseas territories, working with the British Government, are taking the lead. There is an agreement under which they automatically exchange offshore financial account information with taxpayers’ jurisdictions of residence. They started exchanging information with third jurisdictions in September last year. I join many noble Lords in the Chamber in commending our previous Prime Minister, David Cameron, and the steps that he took. But the process that we are now following is exactly the same process that was agreed during the coalition years with the Liberal Democrats. Since September 2016—in other words, a year before the common reporting standard came into effect, so I say to the noble Lord, Lord Collins, that this is another example of taking the lead—HMRC has been receiving data on accounts held in the overseas territories by UK taxpayers and has used this to further its compliance work.
The issue of public registers is relevant here. None of this means that we do not want to see the overseas territories take further action to move forward on the transparency agenda. We should, however, acknowledge the significant steps that they have already taken in this area and build incrementally on that progress, in partnership and with support.
As noble Lords will acknowledge, the UK is at the forefront of promoting corporate transparency. The UK is the only G20 country to have fully established a public register of company beneficial ownership and we continue to push for this to become—in the words of the noble Lord—a global standard. As I noted in Committee, however, the international standards set by the Financial Action Task Force do not require this, reflecting a lack of international consensus in this area. I am grateful to noble Lords who contributed on this. These standards state:
“Countries should ensure that there is adequate, accurate and timely information on the beneficial ownership and control of legal persons that can be obtained or accessed in a timely fashion by competent authorities”—
for example, tax authorities and law enforcement authorities. The OTs are moving ahead on this agenda. Nevertheless, should public registers become the global standard, we would of course expect the overseas territories and Crown dependencies to meet this standard. The territories themselves have indicated their willingness to adopt a public register in that event.
I will highlight something important to this debate: namely, the progress that the overseas territories have already made on the beneficial ownership agenda in a relatively short time. Since we concluded our arrangements with them in the run-up to the Anti-Corruption Summit of 2016, the territories, which have their own legislative bodies and elected representatives, have passed new primary legislation and delivered technological improvements to comply with the terms of the arrangements known as the Exchange of Notes. I am grateful to my noble friends Lord Leigh and Lord Flight for highlighting the positive progress that the OTs have made in this respect. My noble friend Lord Naseby also pointed to the positive steps taken by Cayman.
Under these arrangements, each of the overseas territories with a significant financial centre committed to hold beneficial ownership information in a central register or a similarly effective system and to provide UK law enforcement authorities with automatic access to such information within 24 hours of a request being made—or within one hour in urgent cases. These arrangements, which have been put in place since 2016, are already bringing benefits to UK law enforcement. They mark a significant increase in the ability of UK law enforcement authorities to investigate bribery and corruption, money laundering and tax evasion. I am sorry that I do not share the opinion of the noble Baroness, Lady Kramer, that somehow these law authorities are very limited in scope. They make an incredible contribution.
Perhaps I might ask the Minister a question. Does he not agree that one reason we have public registers in the UK is that law enforcement authorities here said that they could not successfully track down those crimes if they were not backed by public register arrangements? If we in the UK cannot be effective as law enforcers without public registers, how will we be effective as enforcers across the sea without public registers?
I have already said—and I repeat to the noble Baroness—that the OTs are already moving in this direction. I will put it very simply and in context. We have agreed legislation in both Chambers. We have passed it. We have had anti-corruption summits. We have asked OTs to step up to the mark. They are stepping up to the mark. They are taking the action required. Half way through the process, before we have even tested the very objectives that the noble Baroness has just outlined, we say to them, “Sorry, we’re changing the rules”. That to me is unacceptable.
My Lords, I am grateful to all those who have spoken—my co-signatories and those who supported the amendment, and those who did not. I say to them that I have never thought it was acceptable to say that one has to carry on doing dodgy business because, if we do not do it, someone else will. If one followed that line, nothing would ever get better. Since the amount of corrupt criminal money being hidden in various parts of the world grows every month, and the number of those who suffer from that is growing all the time, I would like to test the opinion of the House.
My Lords, in May 2016 at the international anti-corruption summit, the Government committed to create a new register showing the beneficial owners of overseas companies that own, or want to buy, property in the United Kingdom. This was to encourage transparency and was intended to play a significant role in combating corruption and money laundering. Many noble Lords feel a sense of dismay, as I do, that large parts of central London and other parts of the country are dark at night, with property wholly unoccupied or occupied for brief periods only. Who owns these properties? We simply do not know, there being no obligation to identify beneficial ownership of foreign companies which own property yet no restriction on foreign ownership.
We may not know, but we have strong suspicions. Transparency International says that £4 billion-worth of property in London is bought with suspicious wealth. Edward Lucas, a Times journalist with considerable knowledge of this subject, has written that,
“colossal sums of money, stolen from the Russian people”,
into the City of London and into the luxury end of the property market”.
All this at a time when young people struggle to get on to the property ladder and to live anywhere remotely near their place of work.
During the passage of the Criminal Finances Bill, I put down an amendment in similar terms to the one now before your Lordships’ House. That was in April 2017, and I could not follow through because of the wash-up. I was, however, given reassurance by my noble friend Lady Williams that the matter was in hand and would be taken forward,
“as soon as parliamentary time allows”.—[Official Report, 25/4/17; col. 1334.]
In July 2017, I asked an Oral Question about progress with the register. I was reassured this time by my noble friend Lord Young of Cookham—few are more reassuring than he is—that:
“Good progress is being made”,
and that the Government were,
“determined to honour the commitment to introduce such a register”.—[Official Report, 10/7/17; col. 1081.]
Then I put down an amendment to this Bill, as it was plainly in scope. When my noble friend Lord Hodgson of Astley Abbotts moved the amendment in my absence, he also was reassured, this time by my noble friend Lord Bates, who did not commit the Government to any timetable but did say that the Government would publish the response to calls for evidence,
“early in the New Year”. —[Official Report, 6/12/17; col. 1085.]
The responses have been in since March 2017.
I thank my noble friend Lord Hodgson for his support in this matter and the noble Baroness, Lady Bowles, and the noble Lord, Lord Collins, who have also put their names to this amendment. I also thank my noble friend Lord Freeman for his support and the noble Lord, Lord Rooker, who is sadly not in his place, but who left the House spellbound with his description of a kleptocracy tour around central London. I also pay tribute to the Minister, the noble Lord, Lord Ahmad, who has shown characteristic willingness to meet us, and to the Bill team and others across government who have endeavoured to explain how complex this all is.
However, the time has come not for reassuring words but for action. Something more substantial is needed. It is a supreme irony that this country’s adherence to the rule of law encourages criminals and fraudsters to invest here, when in their own countries there may be little or no respect for the rule of law. Are we to stand idly by and to act in effect like a handler of stolen goods? My amendment would allow the Government 12 months from the passing of the Act to set up the register. Given that the Bill has not yet even started in the Commons, there is some time to go before the clock starts ticking. I believe this House is very concerned about this issue. I beg to move.
My Lords, my name is on this amendment, and I rise with a sense of what I can only describe as weary resignation to speak in support of it once again. My feelings can probably best be summarised by that oft-quoted remark from a famous football manager—I forget which one—that, “I have a sense of déjà vu all over again”. We have been round this topic many times, both on this Bill and, as my noble friend said, during the proceedings of the Criminal Finances Bill in the spring of last year. My noble friend Lord Faulks has laid out the case with his well-known surgical precision, so I am forced to remember that other famous saying, this time about your Lordships’ House: “Everything that can be said on this topic has been said, but not everybody has yet said it”. Brevity is the order of the day, so I will just set out five quick facts.
First, given this country’s long-standing respect for property rights, stretching back now over 300 years, the UK is a particularly attractive place in which to invest in property assets. Secondly, this country has an extensive and well-resourced financial services sector, in which large transactions can be, if not hidden, at least made to not appear unduly large. Thirdly, a substantial number of investors from all corners of the globe have invested in property in both London and our other leading cities. Fourthly, a number of overseas investors have chosen to make their investments in UK property through a company, so enabling them to conceal their identity. Fifthly, recognising the potentially malign confluence of the above in 2016—two years ago, as my noble friend has mentioned—the Government committed to the creation of a register enabling the identification of the beneficial owners of those overseas companies that had investments in UK property. Those are five facts on which I believe there is general agreement, but still nothing has happened. In another phrase, there has been lots of jaw-jaw but so far no war-war. There have been extensive consultations and discussions of technical difficulties but no clearly timetabled way forward.
My Lords, I put my name to this amendment but I acknowledge that it is the noble Lords who have already spoken who have made the running on this recently, so I do not wish to be seen just to piggyback. I shall simply tell the House that the noble Lords have my support and that of these Benches.
My Lords, I agree with all the sentiments that have been expressed. This is about a very strong commitment given by David Cameron, and what we want to hear from the Minister is a clear timetable. The noble Lords, Lord Faulks and Lord Hodgson, are absolutely right. In the previous debate we talked about transparency and those who pay. On this issue, it is not just those in the poorest countries who are paying because of this hidden money; it is our own communities. I have said before in this Chamber that to look down the river and see a skyscraper that is 60% foreign-owned, with 40% of that ownership hidden through companies, is clearly scandalous. We do not have to look far. So we need action and a very clear timetable. I hope the Minister will give us that timetable tonight.
My Lords, this amendment seeks to set down in legislation the commitment made at the 2016 anti-corruption summit to establish a public register of company beneficial ownership information for foreign companies that already own or buy property in the UK or that bid on UK central government contracts.
As we have readily acknowledged in various debates during the passage of this Bill and others, the UK is a world leader in promoting corporate transparency. As I said in the previous debate, we are the only country in the G20 to have established a fully publicly accessible company beneficial ownership register. I assure noble Lords that the Government are committed to leading the world in improving this transparency.
First—and here, I refer to my noble friends Lord Faulks and Lord Hodgson but also to noble Lords across the House—I know this issue has been debated and discussed through various vehicles. I congratulate them on ensuring that the Government remain accountable and the issue remains in the public eye. Let me assure my noble friends and all noble Lords that the Government appreciate the work that all have done in this respect, particularly my noble friend. I assure him that we share his desire, the desire expressed by all noble Lords, to reduce the opportunity for money laundering through UK property as swiftly and effectively as possible. We all acknowledge that it is a serious issue, so let me address that question head-on.
First, what has happened? Following last year’s call for evidence, the Department for Business, Energy and Industrial Strategy sent more than 100 pages of drafting instructions to the Office of the Parliamentary Counsel, and work preparing the clauses for the Bill is under way. The drafting instructions prepared so far cover just the application of the land registration elements of the policy in England and Wales. Once the clauses for England and Wales are complete, an exercise will be undertaken to make specific provision for how they will apply in Scotland and Northern Ireland, both of which have different land registration systems and their own Land Registries. The approaches taken to land registration and overseas entities by the Land Registries have differed until now, so all three approaches will need to be brought together to deliver a streamlined policy, consistent across the UK. I anticipate that exercise taking some months and it will involve expertise from many different teams across the UK Government and the devolved Administrations.
The department has also commissioned a piece of research on potential impacts of the policy, including on investment decisions. That research is ongoing and will feed directly into an impact assessment, work on which is also under way. I am sure my noble friend will agree that this is a crucial moment for the UK’s future trading relationship with the rest of the world, and we must proceed with as good an understanding as possible of the potential impacts on legitimate inward investment.
Having brought noble Lords up to date with the Government’s work so far, let me turn to our next steps. Since our last debate on the matter in Committee, the Government have considered carefully the proposals in front of us and had detailed discussion with my noble friend in this regard. Noble Lords were quite right to point out that the anti-corruption strategy published last month stated that we would publish a draft Bill during the current Session of Parliament. Doing so will help to ensure that any potential weaknesses in the policy are spotted and addressed in what will be new and complex legislation.
Let me now provide some of the certainty requested by my noble friends Lord Faulks and Lord Hodgson. I can confirm that we will publish the draft Bill by the summer recess this year. I can also confirm that formal introduction of the Bill will be a priority for the second Session of this Parliament. We anticipate that being in summer 2019, and doing so will put us on track to implement the register itself, which will be operational by early 2021. I further recognise noble Lords’ concern for greater certainty of the Government’s intention. We will shortly formally confirm our intention to meet these deadlines—a point mentioned by the noble Lord, Lord Collins—through a Written Ministerial Statement. We will continue to look at both legislative and delivery timetables for opportunities to implement sooner if at all possible.
Let me say why publishing a Bill in draft is the right approach. As I have said before, the register will be first of its kind in the world and will affect people’s property rights. A robust enforcement mechanism will be essential. As set out in last year’s call for evidence, the Government believe that criminal sanctions may not be sufficient in isolation, but that additional enforcement through land registration law will also be needed if the register is to have teeth. A key proposal is that those who own property who do not comply with the register’s requirements will lose the ability to sell the property or create a long lease or legal charge over it. This will be reflected in a restriction on the register of title.
I am sure that my noble friend will recognise that these are significant steps and will constitute a robust enforcement mechanism. As such, the regime must be able to withstand legal challenge from those who have the means and motive to make such a challenge. That is a key reason why delivering the register through dedicated primary legislation, in accordance with the will of Parliament, is preferable to doing so through secondary regulations to the Bill we are debating today. It is also the key reason why this House should welcome the fullest possible scrutiny of the draft clauses and the mechanisms behind a regime which will be a world first.
But that is not the only reason. New functions must be delegated to Companies House and the land registries, and we must ensure they have the tools and time needed to deliver this successfully. A protection regime must be established, balancing legitimate concerns for personal safety with the need for transparency. All those issues were considered in last year’s call for evidence, but only once we can scrutinise the draft clauses can we really stress-test whether they are going to be effective. We anticipate there being in excess of 50 clauses in the Bill.
Let me say why early 2021 is the appropriate timescale. First, it is because a dedicated primary Bill is the right way of delivering such a policy, and that will take time, given other pressures on Parliament at present. The Government will therefore introduce legislation as soon as possible, but it is impossible for me to make commitments to do so in the very near term—and I have already indicated the specific timetable, which will also be qualified in the Written Ministerial Statement.
Secondly, it is appropriate because that must be followed by secondary regulations, in which we will set out the more technical details underpinning the regime, such as the essential changes needed to the land registration rules. New systems must also be built between Companies House and the three land registries. Their design will depend on the precise content of those regulations. While much preparatory work will be done while the legislation and secondary regulations are passed, there are some inevitable lead times, because the systems and processes can be finalised only after Parliament has approved the legislation.
Finally, an appropriate transition period will be needed to ensure that lenders and other stakeholders can adjust to the new requirements. We believe that the policy must be robust, but fair. Overseas entities that have bought property in the UK, in some cases many years ago, will not have had this in their contemplation at the time. In most cases, the property will have been bought for legitimate and innocent purposes and by those who expected the degree of privacy offered by ownership through a legal entity. We should give those entities, and their beneficial owners, time to understand the requirements and consider their options.
There is a parallel with the development of the register of people with significant control. That policy was announced in 2013, following several rounds of consultation and primary and secondary legislation, and a fully populated register was delivered by June 2017. It may have taken four years, but it still put the UK’s framework in a world-leading position. The new register will take a similar path, but there are numerous additional considerations.
I hope that the detail that I have outlined and the timetable that I have given provide the House and my noble friend in particular with the reassurance of the Government’s continued commitment to enact this policy. But to go slightly further, my intention is also to bring forward an amendment on Third Reading to require the Government to provide regular updates to Parliament on progress on the timetable that I have outlined.
I hope that my noble friend feels that we have had a productive engagement and that what I have offered today from the Dispatch Box are not just warm words but specifics. For those reasons, I hope that he is minded to withdraw his amendment.
My Lords, I am grateful to all those who have spoken—and, indeed, to many others who might have spoken but who exercised restraint on this matter. I am also very grateful to my noble friend the Minister for giving, for the first time, an actual timetable for this legislation. A number of queries have provoked soothing words and not much else. We now have a timetable, although it is not happening as fast as many of us would like—but he has explained in some detail the difficulties involved in setting up this register.
I would have been a little more impressed had this been the first time that this issue was raised. We are talking about an undertaking by the Government in 2016, so with respect I should have thought that much of this could have been done a great deal earlier. For example, why do we need to commission an inquiry into the danger of inward investment being put off from coming to this country when the whole idea is to stop inward investment of corrupt proceeds from Russia and the like? I found that one of the less impressive parts of the reassurance given by my noble friend.
My noble friend cites the difficulty of setting up the register and uses the fact that the previous register of persons of significant control took four years to set up. My response to that is that, presumably, a great deal of the work that was done in setting up that register would enable a great deal of piggy-backing to go on in setting up this register—something of a dry run, I should have thought. However, despite that minor carping on my part, I want this legislation to succeed and I want the obscenity of having our property market corrupted to be stopped—and I want it done effectively, as I am sure other noble Lords do.
My Lords, this amendment is about closing a major money laundering loophole. Noble Lords will be aware that, last year, 606,000 companies were formed in the UK. Of these, 250,000 were set up through Companies House, but the majority were set up by company formation agents. In the middle of last year, the fourth EU anti-money laundering directive came into force, requiring company formation agents to complete due diligence checks on anyone setting up a company.
However, for reasons that are not clear to me, the Government decided to exclude Companies House from doing such due diligence. For years, Companies House has set up companies and has had to accept documents sent to it in good faith. It is not required to and does not have any statutory powers to verify or validate the information contained in them. It can act only within the parameters of the Companies Act. It certainly has no investigatory powers under that legislation and, therefore, there are no significant checks being done on companies registered through Companies House. In reality, this means that, for just £12, someone can set up a company using entirely false details without having to go through any verification checks on beneficial ownership, and with only limited checks on registered directors. Therefore, individuals who have been involved in money laundering, have convictions or have been debarred as owners in other jurisdictions can gain access to UK companies though Companies House.
Why does this matter? It is because, unfortunately, there are some companies being set up whose principal purpose is one of committing crime or which subsequently lend themselves to being used for that purpose. In extreme cases, incorporation is used entirely as a front to enable fraud to flourish. This leaves British businesses, consumers and taxpayers open to abuse. The evidence is there from an organisation called Transparency International. A couple of months ago, in November, it found that there were hundreds of British shell companies implicated in nearly £80 billion-worth of money laundering. That in itself should set off alarm bells in my judgment. Additionally, this lack of checks harms Britain’s reputation as a leading place to do business and must be addressed in the run-up to Brexit. It is essential to close this loophole to combat fraud, prevent money laundering and boost our country’s reputation.
The solutions seems pretty simple. In Committee, the Government said that they were not prepared to impose a financial burden on Companies House. However, we have to have some detailed checks and by adding a simple automated check of due diligence during the filing process, the Government can close their own loophole at a fractional cost while ensuring that the UK remains a competitive, low-cost place in which to do business. I understand that Her Majesty’s Government have recognised this is a problem and have given due thought to it. I look forward to hearing from my noble friend exactly how they may seek to close this large loophole. I beg to move.
My Lords, I have added my name to the amendment of the noble Lord, Lord Naseby. We had a good mini-debate on this issue in Committee. His amendment is a neat solution to the problem that those of us involved in that mini-debate identified—that some sort of check has to be done at the Companies House stage. If money is not put behind that to enable personnel to do that, this proposal seems a neat solution. I would be interested to know whether the Government will take it up or provide something similar.
My Lords, in Committee, the Minister—I think it was the noble Lord, Lord Bates—said that the OPBAS is being set up to deal with this stuff at some time in the future. I do not know when that will be and whether it is a consequence of our withdrawal from the European Union or is a separate matter. However, I would expect reassurance that that body will be up and running at least by the time that we leave the European Union, if and when we do so. Of the 250,000 companies to which the noble Lord, Lord Naseby, referred, thousands open and shut before anyone has had a chance even to notice them. Presumably, they do not always open and shut because they go bust but rather because they are concealing their activities. That needs to be addressed. I do not intend to prolong the proceedings other than to say that—I did not think I would ever say these words—I support the amendment of the noble Lord, Lord Naseby.
My Lords, I say to the noble Lord, Lord Lennie, that I often find myself in agreement with my noble friend. I very much appreciate the spirit behind this amendment, which would require anti-money laundering checks to be undertaken before any UK company can be incorporated by preventing the Registrar of Companies registering a company unless they are satisfied that such checks have been carried out. The amendment goes on to say that the registrar is entitled to accept the anti-money laundering registration number of the UK body that has submitted the application. The effect would be to require all incorporations to be made through a UK body that is regulated for anti-money laundering purposes.
In Committee, the Government made a number of points about the effect of requiring Companies House to operate in the same fashion as company formation agents. My noble friend Lord Naseby has clearly reflected on the points made, and the amendment responds to our concerns by allowing Companies House to accept the anti-money laundering registration number of the UK body making the application. However, this would still prevent people incorporating companies directly with Companies House and would therefore make company formation only possible via an agent that is also a registered money laundering supervisor. In doing so, it will end the current streamlined service offered by the Government under which companies can incorporate directly at Companies House and register with HMRC for certain taxes, such as corporation tax, as part of the same process.
The Government also recognise that there are sincere concerns here, which my noble friend outlined. We have listened to them, and I hope that I can set out some detail of what conclusions we have drawn thus far as a result of considering them. Before I do so, I will make one practical point. As my noble friend will be aware, the UK’s anti-money laundering regime will be evaluated by the Financial Action Task Force in March of this year. We expect the report to be made public in late 2018. This review will explicitly cover the effectiveness of how the UK prevents the misuse of legal persons such as companies for money laundering or terrorist financing. The Government have already provided extensive documentation to the FATF team conducting the review, which will be followed up by the team conducting an on-site visit within the UK. This will greatly inform the future of the UK’s anti-money laundering regime, including on the important point my noble friend made on how we can best prevent the misuse of legal entities. It will therefore be of great assistance in moving forward in this area and many others.
Following the FATF evaluation, which will report back later this year, the Government will actively consider areas where the AML/CTF framework can be improved. I can also confirm that the Government will look in particular at controls over who registers companies in the UK, what information they have to provide, and how assurance is provided over that information, which were concerns highlighted eloquently by my noble friend.
It is of course absolutely right that we should take steps, as was pointed out in Committee, to avoid corporate vehicles being used for money laundering. However, it is equally important that we balance tackling illicit finance with proportionate regulation for what I know all noble Lords acknowledge is the vast majority of legitimate businesses. The UK rightly prides itself on being one of the easier countries in the world to set up and run a business, and we are ranked in the top 10 countries for doing so. To register a company at Companies House is not in itself a suspicious act, which I know my noble friend acknowledges. It is a strength of our system that people can set up an off-the-shelf company or can incorporate online at little cost. This is particularly relevant to our smaller businesses sector and those starting businesses for the first time. I am sure that all noble Lords acknowledge that it is of great benefit to our economy and encourages a more entrepreneurial culture in the UK as a whole.
I am sure that my noble friend acknowledges that a newly formed company is not itself a money laundering risk; it must carry out some other transaction to achieve an illicit purpose. When a company undertakes an activity that may increase the risk of money laundering activities—for example, by opening a bank account—at that stage it becomes subject to quite stringent due diligence measures. Regulated firms, such as banks, solicitors and accountants, are also then required to conduct due diligence on existing customers on an ongoing, risk-sensitive basis.
I am sure that noble Lords will also acknowledge that the cornerstone of our anti-money laundering system is taking a risk-based approach. Indeed, anti-money laundering supervisory authorities are under a legal obligation to identify and assess the international and domestic risks of money laundering and terrorist financing to which its sector is subject. This ensures that the most intensive levels of supervision are applied to those entities which present the highest risks of money laundering.
I have outlined the steps we are taking and pointed out that we are awaiting the FATF evaluation, and I confirmed the important point that after the evaluation the Government will look at controls over who registers companies in the UK. I also say to my noble friend that I would very much look forward to working with him and appropriate Ministers from the BEIS department to see how we can perhaps reflect some of the key points he raised in any subsequent action the Government will take in the light of that report. With those reassurances, and acknowledging the important work he has done in this respect, I hope that my noble friend will be minded to withdraw his amendment.
My Lords, I am particularly grateful to the Minister for the work that he has clearly done since Committee. Nevertheless, £80 billion is a huge amount of money and needs to be taken very seriously. I understand and appreciate the evaluation that is being undertaken, which is due to report in a couple of months. I urge the Minister to work with the trade association for the company formation agents. They must have a multitude of information that I have not managed to have the time or the resources to go into.
I also thank the noble Baroness for her support, particularly in Committee, when we spent a considerable amount of time on this matter. I deeply appreciate that, as well as the very generous contribution from the Opposition Front Bench. I also thank the Minister for the assurances that he has given today. I ask quite a lot of Oral Questions, but I will hold back in the hope that the evaluation agency reports and that we then move forward as swiftly as possible to close the £80 billion loophole that exists at the moment. With permission, I beg leave to withdraw the amendment.
My Lords, my concern with this clause is that it is a Henry VIII provision. A number of your Lordships have listened to me on the subject of Henry VIII clauses and I do not want to repeat myself but it remains a matter of puzzlement to me that Governments of all different hues and compositions rely on them. To rely on such a clause is not to rely on a badge of honour—Henry VIII was a monstrous tyrant. There are many things about him that I would like to say but anybody who thinks that Henry VIII is less than a badge of shame should just look at the story. Ignore the hypocrisy of sleeping with Anne Boleyn and not Catherine of Aragon because his brother had slept with Catherine, when he himself had earlier slept with Mary, Anne’s sister. How do you square that for honesty and integrity? Much more seriously, how do you claim to have clauses in the name of a man who gave his solemn oath as the anointed monarch to Robert Aske at the Pilgrimage of Grace that he would reform, and then sent his troops out under the Duke of Norfolk to exercise and wreak vengeance and havoc so as to deter anybody from ever rebelling against him again?
Noble Lords will not want to hear any more from me on Henry VIII, but he was a monster and these are monstrous clauses. Take this one—with Clause 44, there is no primary legislation at all. As I have said in the course of the debates on other aspects of the Bill, one cannot find anything in it to bite on. It just says, “Let’s give the Minister regulation-making powers for this, that and the other”. I am not suggesting this about our Minister tonight, but it is, “Come in and buy one: take anything you like—it’s regulations”. Can we bear that in mind, given that we are now to have a regulation which can be supplemental, incidental, consequential, transitional or saving, and which may amend, repeal or revoke enactments whenever passed or made—possibly even in the future?
This is all being done on the basis of an unknown law, because the Minister has not yet brought the regulations into existence. In advance of the law being made by regulation, we are giving the Minister power to amend the regulations and to do away with statute. This is in a world where, as we discussed earlier, we already have the Terrorism Act, the Counter-Terrorism and Security Act, the Terrorism Asset-Freezing etc Act and the Proceeds of Crime Act—goodness knows how many—all of which bear on this Act, and all of which will be susceptible to amendment repeal at the Minister’s behest.
The lesser will override the greater; the secondary will override the primary; and the Minister is, in effect, going to replace Parliament. I hope that when the Minister comes to deal with this part of the debate, he is able to reflect on the vote earlier this afternoon on allowing the Minister to create criminal offences by regulation. That vote, which I urged on the House, reflected a constitutional concern about too much power being vested in any Minister. Today, the vote against giving Ministers these extraordinary powers was clear and unequivocal. It is a sign that Ministers need to be cautious; that maybe times will come when Ministers will not be given Henry VIII powers just because they ask for them, and will have to reflect carefully before they allow such a clause to be included in any Bill. For the time being, I beg to move, and I invite the Minister to address the consequences of this afternoon’s vote.
My Lords, I support what the noble and learned Lord has said. My own view is that the power in the Bill gives far too great a power to Ministers. The fact that this specific power is subject to the affirmative resolution procedure is not a sufficient safeguard, not least because—a point I have made time and again—the procedure does not provide a power of amendment.
Let us consider for a moment what this power enables the Government to do. It could be used in amending, revoking or repealing existing legislation or to extend classes of offence to which the amended legislation applied. It could be used to increase penalties. It could be used to remove statutory defences. It could be used to amend the definition of criminal intent. Indeed, it could make absolute offences that presently require proof of a specific intent. Because it is an amending power, it could be used to give further powers to the investigating officials or to increase the penalties imposed by the courts.
One can get a very good guide as to what could be done from the clause of the Bill on enforcement, Clause 16, where one can find among other things that the regulations could impose a sentence of imprisonment of up to 10 years. That could be done by regulation—without the power to amend. There is a further objection if one actually considers, just for a moment, the purpose that can be used to justify the regulations. Clause 1(2) states:
“A purpose is within this subsection if the appropriate Minister making the regulations considers that carrying out that purpose would—
(a) further the prevention of terrorism, in the United Kingdom or elsewhere,
(b) be in the interests of national security,
(c) be in the interests of international peace and security, or
(d) further a foreign policy objective of the government of the United Kingdom”.
Paragraph (a) is all right, but paragraph (b) is becoming pretty broad and paragraph (c) is even broader, and paragraph (d) refers to an objective that might never previously have been discussed by Parliament or even disclosed to an admiring public. We are enabling a Minister, by fiat, to introduce regulations of that kind.
There are well-intentioned Ministers on the Front Bench such as the noble Lord, Lord Young. We have known each other for almost 60 years. I would no doubt be very content to let him have those powers. But then I ask myself whether I would want to give those powers to Mr McDonnell or Jeremy Corbyn. I suspect that nobody in your Lordships’ House tonight would wish to do that—certainly not the noble Lord, Lord Adonis, very sensible fellow that he is. I suspect that we would be paving the way to the elective dictatorship of which my father wrote and spoke.
If we are to do these things we do them by primary legislation, surely not by secondary legislation over which we have precious little control and when I know that the Whips will be very active with noble Lords who have never read the legislation. I do not know whether the noble and learned Lord will press his amendment, but, if he does, he will have my support.
My Lords, John Major once gave some wise advice to the Conservative Party after it had been in office for nearly 18 years. He said, “Always remember that one day we will have to take the Conservative Party into opposition”. I always think it is rather reckless of a Government to legislate with the assumption that they will always be in power and that the powers they are giving themselves will always be used in the benign way that they intend.
I am pleased to follow the noble Viscount, Lord Hailsham. When I first came into this House, his father used to sit in the same seat. One of his more unnerving habits was to keep up a running commentary on speakers in a not so sotto voice. But the noble Viscount is quite right: 40 years ago in the Dimbleby lecture, his father warned precisely against an elective dictatorship—a Government with a majority in the Commons who could force through various Acts that would not be suitable in a parliamentary democracy.
The noble and learned Lord, Lord Judge, has done a great service to Parliament by challenging the Henry VIII clauses that are coming like a great flotilla down the channel towards us in the legislation that the Government have in mind.
I make only one plea, and not just to the noble Lord, Lord Ahmad; I am pleased that the noble Lord, Lord Young, is on the Front Bench as well. He is somebody with the parliamentary experience to tell No. 10 that it must think of a different way of dealing with this kind of legislation. Up with this the House will not put—I think I put that in the Churchillian way. Anyway, it will not. The Government must think again and the noble and learned Lord, Lord Judge, and others have offered to help them.
My Lords, my name, too, is on the amendment. I support the noble and learned Lord, Lord Judge, and commend him on his clarity and leadership on this constitutional issue. This is another Henry VIII clause—something that was described very clearly by the noble and learned Lord.
As others have said, there have been two major votes this week on this constitutional issue in the Bill. The first was on Monday and it was won, and there was another today. Today the vote was much bigger and the majority much bigger, so I hope the Minister will flag up to his colleagues that current plans for Henry VIII powers in many pieces of legislation coming our way must be rethought. Surely it is clear that all sides of the House, in every party group and none, will respond as they have today. Much wisdom has been evinced today, both earlier in the proceedings and just now, and I must say that I am very proud of what the House of Lords achieved today.
The noble Lord, Lord McNally, and the noble Baroness have made a powerful case that this House is signalling clearly to Ministers that it is simply not prepared to accept clauses of this nature. The great fear and regret is that Ministers are putting these clauses into each and every Bill as a matter of course without thinking about whether they are needed or if there is a way of adopting a more narrow and tailored approach.
Perhaps I may add to that by giving Ministers some legal advice. It is not simply this House that is not prepared to accept such clauses. We are arriving at the point where the courts are not prepared to accept them and are showing every sign that they will give them the narrowest possible interpretation because, as a matter of constitutional principle, they are objectionable. I draw to Ministers’ attention the judgment of the Supreme Court with the noble and learned Lord, Lord Neuberger of Abbotsbury, presiding. He gave the judgment last year in the Public Law Project case. The noble and learned Lord quoted with approval what had been said by Lord Donaldson, who was then the Master of the Rolls, in a case in 1989; this is not a new problem. I shall quote from paragraph 27 of the judgment:
“‘Whether subject to the negative or affirmative resolution procedure, [subordinate legislation] is subject to much briefer, if any, examination by Parliament and cannot be amended. The duty of the courts being to give effect to the will of Parliament, it is, in my judgment, legitimate to take account of the fact that a delegation to the Executive of power to modify primary legislation must be an exceptional course and that, if there is any doubt about the scope of the power conferred upon the Executive or upon whether it has been exercised, it should be resolved by a restrictive approach’”.
Ministers should be in no doubt whatever that the courts recognise that clauses such as this are constitutionally objectionable and that they will do everything they can to ensure that any exercise of such a power is subjected to the most rigorous scrutiny in the courts. If Ministers do not accept that and respect it, they will find that exercises of these powers will be struck down by the courts.
I agree entirely with the noble and learned Lord, Lord Judge, that this House is indicating its willingness to look closely at such clauses. Ministers should think very carefully indeed, in relation to further legislation, whether it really is appropriate and necessary to include them in the Bill.
My Lords, I support what the noble and learned Lord, Lord Judge, and the noble Lord, Lord Pannick, have said. I am not going to comment on whether Messrs Corbyn and McDonnell would be safe hands to put these powers in; noble Lords can make their own minds up about that. In the light of what the noble Lord, Lord Pannick, has said, any Minister should be very wary of using these powers. We support the amendment.
My Lords, perhaps someone who is not well versed in the law could make an observation. I support my noble and learned friend Lord Judge and would say simply that the strength and logic of what we have heard from many noble Lords in this debate is absolutely compelling. Furthermore, the supremacy of Parliament surely rests in taking notice of his remarks along with those of my noble friend Lord Pannick and the noble Viscount, Lord Hailsham. It is imperative that we move through legislation on a primary course rather than a secondary one.
My Lords, I thank all noble Lords who have taken part in this debate. Let me say at the outset that between Committee and Report we have considered many matters raised by noble Lords. I listened very carefully to the points made by the noble and learned Lord, Lord Judge, and others, although I felt at one point, after hearing the contributions of my noble friend Lord Hailsham and the noble Lord, Lord McNally, that I should be handing over the Bill file to my noble friend Lord Young. I notice that he has escaped before I could avail myself of that opportunity.
When the Whips desert you, you are in real trouble.
I am sure, though, that the noble Lord will agree that I have a very formidable Whip to my left. I am delighted to be joined by my noble friend Lady Goldie, who I can assure noble Lords is very well equipped in the robust defence of the position and policy. However, I am sure noble Lords will understand that I cannot accept this amendment but I will offer some comments in this regard.
First, the power in the Bill is not unusual. It is worth noting, indeed, that the Delegated Powers and Regulatory Reform Committee, in its report on the Bill, made no comment on the inclusion of this delegated power. However, I recognise that the House has concerns, reiterated today, about the breadth of the regulation-making powers conferred by the Bill and I hope I can provide some reassurance that this particular consequential power is both appropriate and necessary. Importantly, the power can be used only to make savings provisions or other provisions that are consequential, supplemental, incidental or transitional to the sanctions or money laundering regulations. I assure noble Lords that it does not confer the power to make any changes to legislation that are independent of the sanctions and money laundering powers. It provides a tool to make changes to ensure that the statute book works but it does not give the Government the ability to change swathes of legislation without regard to that specific purpose.
Specific questions have been raised in this respect and, rather than detain the House, I shall offer those reassurances at this point. The noble and learned Lord, Lord Judge, and my noble friend Lord Hailsham both raised the issue of the substance. I believe the phrase, which is not the most legal of terms I have heard from the noble and learned Lord, was “nothing to bite on”. I will look up the constitutional books in that respect, but of course I understand the substance of his point. Let me assure the noble and learned Lord that the regulations in the Bill can be made only for the purpose set out in the Bill and impose sanctions of the type set out in the Bill. This clause permits only amendments consequential on the types of sanctions imposed for these particular purposes.
The noble and learned Lord also made a general point about Henry VIII powers. I assure him that they are there to serve a real purpose: to enable Ministers to make the necessary updates to the statute book that arise solely as a result of the sanctions and money laundering regimes.
My noble friend Lord Hailsham raised the list of uses of this power. I assure him that this can be used only to make amendments that arise as a consequence of the imposition of sanctions or rules against money laundering and not to make free-standing changes; for example, to change rules of evidence in an unrelated case. Finally, the noble Lord, Lord Pannick, rightly raised the issue of the courts and scrutiny, and how courts will police the use of these powers. I can say on behalf of the Government that we welcome and respect the scrutiny of the courts: they act, indeed, as a check on Ministers, as a useful safeguard which I hope will also reassure noble Lords. I hope that the assurances I have given have added clarity in the context of the powers in the Bill and shown that they are appropriately limited to what is deemed necessary. On the basis of this explanation I hope that the noble and learned Lord will feel able to withdraw his amendment.
My Lords, it is quite alarming to hear, because it is entirely true, that this is not an unusual power. It is lamentable that we have reached the stage where we are habituated to Henry VIII clauses in every piece of legislation. We never have a piece of legislation without a Henry VIII clause. That is not something of which we should be proud. It happens because we allow the legislation through—we pass it. We should think more carefully before we do so.
I am grateful to everyone who has taken part in the debate, and to the Minister. Perhaps I might say how much I have enjoyed working with him to try to improve the Bill. I have appreciated very much his courtesy and the co-operation of the Bill team. Given the situation we are now in, I beg leave to withdraw the amendment.
Report (2nd Day)
Relevant documents: 7th and 10th Reports from the Delegated Powers Committee, 8th Report from the Constitution Committee
Clause 41: Money laundering and terrorist financing etc
71A: Clause 41, page 28, line 38, at end insert—
“( ) Regulations under subsection (1) may not make provisions that create new criminal offences.”
These measures are in addition to the measures mandated by the money laundering regulations 2017, which already require regulated firms to have policies, controls and procedures to mitigate and manage risks of money laundering and terrorist financing. We have legislated to require that these policies, controls and procedures must be proportionate with regard to the size and nature of the firm’s business, and approved by the firm’s senior management. Failure to comply with these requirements can be sanctioned through either civil or criminal means. The Financial Conduct Authority and other supervisors are able to take action against firms if their measures to counter money laundering are deficient. Recent regulatory penalties related to firms’ anti-money laundering weaknesses include a £163 million fine for Deutsche Bank in January 2017 and a £72 million fine for Barclays Bank in November 2015. All those requirements are additional to the substantive money laundering offences in the Proceeds of Crime Act which apply to any individuals, and companies; such as entering into arrangements which facilitate the use of criminal property.
The Government have previously introduced two similar offences: failure to prevent bribery in 2010 and failure to prevent the facilitation of UK and foreign tax evasion in 2017. These are structured in a similar way to the proposed amendment. They were introduced, however, following clear evidence of gaps in the relevant legal frameworks which were limiting the bringing of effective and dissuasive enforcement proceedings. We have already established that these offences apply to legal entities regardless of whether they operate within the regulated sector.
The situation in relation to money laundering is very different. The international standards set by the Financial Action Task Force and the UK’s money laundering regulations apply to banks, financial institutions, certain professional services firms and other types of entity that act as gatekeepers to the financial system. As I said, such firms are already required to have policies and procedures in place to prevent their services being misused for money laundering. Subsection (6) of the amendment would, however, require all companies, regardless of where they were incorporated, to have procedures in place to prevent persons connected with them laundering money. That would not be proportionate. It would risk making non-regulated firms liable for the actions of their regulated professional advisers, when responsibility for anti-money laundering compliance should properly rest with the regulated sector. Given the robustness of the senior managers regime and the additional requirements placed on MLROs by existing legislation, I see no clear evidence showing that there are any regulatory gaps that a failure to prevent money laundering offence would address.
Amendment 76A has been tabled as there is some concern about the words,
“without prejudice to the generality of section 41”,
in paragraph 1 of Schedule 2. I hope that I can reassure noble Lords that the normal rules of statutory construction mean that these words do not enable any Minister using this power to circumvent the clear limitations expressed in paragraphs 1 to 17 of that schedule. Those limitations will continue to apply in respect of the matters set out in those paragraphs. The words simply make it clear that regulations under Clause 41 may, for the purposes mentioned there, make provision of a kind which is different from, but related to, the kinds of things mentioned in paragraphs 1 to 17.
For example, applying the general rules of statutory construction to Schedule 2, as amended by government Amendments 77 to 89, 91 and 93 to 97, those words could not be relied on by the Minister to make regulations under Clause 41 imposing requirements of the kind mentioned in paragraphs 3 and 4 on persons other than relevant persons—that is to say, persons carrying on business of a kind which entails risks relating to money laundering, terrorist financing or other threats to the integrity of the international financial system. Nor could such regulations be made authorising a supervisor other than the FCA or HMRC to impose civil monetary penalties. Those words do not, and are not intended to, allow provision to go beyond the limitations on the powers that I have explained.
I am also aware that concerns were raised by noble Lords about whether a gap in existing data protection law could arise from the anticipated replacement of the Data Protection Act 1998, which currently regulates the processing of personal data. The money laundering regulations 2017 contain an express provision that states:
“Any personal data obtained by relevant persons for the purposes of these Regulations may only be processed for the purposes of preventing money laundering or terrorist financing”.
These regulations cross-refer to the Data Protection Act 1998 in providing further detail on the circumstances in which personal data can be used, and the information that regulated firms must provide to customers before entering into a business relationship or occasional transaction with them.
The Data Protection Bill that is currently proceeding through Parliament will update the UK’s data protection regime, reflecting the requirements of the general data protection regulation, or GDPR, which will be directly applicable in the UK from May of this year. Any references to the current Data Protection Act in the money laundering regulations will be updated in line with the new Data Protection Act at the same time as the Act takes effect.
When the UK ceases to be a member of the EU, the GDPR will be further incorporated into the UK’s domestic legal regime by virtue of Clause 2 of the European Union (Withdrawal) Bill. The same provision will also preserve the money laundering regulations 2017 within the UK’s legal framework, ensuring that the Government’s objective of embedding data protection requirements within the UK’s anti-money laundering regime is met, and will continue to be met when the UK ceases to be a member of the European Union.
I reiterate that the Government have listened carefully to concerns raised by the Delegated Powers and Regulatory Reform Committee and by noble Lords in Committee. I hope that the House will be satisfied with the additional requirements to this end contained in Amendments 77 to 89, 91, and 93 to 97.
The DPRRC expressed concern at the scope of the powers taken through the Bill. As an example, the committee mentioned the power to require persons to put in place prescribed controls and procedures. I assure noble Lords that the Government intend to use this power in line with the duties on regulated firms and payment service providers in the MLRs. In practice this will limit the scope of this element of the power to businesses whose activities are particularly likely to be used for the purposes of money laundering, terrorist financing or other activities that threaten the integrity of the international financial system. This aligns with the FATF standards and long-standing policy in this area, so the Government have tabled an amendment confirming that businesses will be brought within the scope of anti-money laundering/counterterrorist financing regulation under paragraph 3 of Schedule 2 only where such risks exist. To address points made by the committee, further amendments have been tabled making it clear that only businesses of this type can be required to carry out customer due diligence measures under paragraph 4 of the schedule, supervised for the purposes of paragraph 7, or registered for the purposes of paragraph 9.
Concerns have been raised over provisions for the creation of offences. It is important that any requirements relating to anti-money laundering or counterterrorist financing are subject to appropriate penalties so as to provide a deterrent to persons who might otherwise breach such requirements. In light of concerns expressed by the DPRRC and noble Lords, the Government are therefore putting forward amendments providing that any future criminal offences established under Clause 41 can be established only if regulations provide that such offences have either a mental element necessary for their commission or a defence to it, or both. This will maintain the existing policy position under the money laundering regulations 2017 and preserve the deterrent effect established by criminalising breaches of anti-money laundering and counterterrorist financing regulations. Additional amendments are being put forward providing that only the Financial Conduct Authority and HMRC will be able to impose civil monetary penalties for future regulations made under Clause 41.
I am nearly there. In order to further ensure the proportionate application of such offences, the Government are also tabling an amendment providing that a person cannot be liable for a civil monetary penalty through regulations established under Clause 41 when they have already been convicted of a criminal offence in relation to the same act or omission established through such regulations.
Between the Committee and Report stages there have been extensive discussions and debates about various parts of this grouping.
17 January 2018
Division on Amendment 71A
Amendment 71A agreed.View Details
Amendment 72 not moved.
73: After Clause 41, insert the following new Clause—
“Public registers of beneficial ownership of companies in the British overseas territories
(1) For the purpose of preventing money-laundering, the appropriate Minister must provide all reasonable assistance to the governments of—(a) Anguilla;(b) Bermuda;(c) the British Virgin Islands;(d) the Cayman Islands;(e) Montserrat; and(f) the Turks and Caicos Islands,to enable each of those governments to establish a publicly accessible register of the beneficial ownership of companies registered in that government’s jurisdiction.(2) No later than 1 January 2020 the appropriate Minister must prepare an Order in Council, and take all reasonable steps to ensure its implementation, in respect of any British overseas territories listed in subsection (1) that have not by that date introduced a publicly accessible register of the beneficial ownership of companies within their jurisdiction, requiring them to adopt such a register.(3) In this section a “publicly accessible register of beneficial ownership of companies” means a register which, in the opinion of the appropriate Minister, provides information broadly equivalent to that available in accordance with the provisions of Part 21A of the Companies Act 2006 (information about people with significant control).”
I think many in this House would join me in saying that it is the disinfectant of transparency and light that is the best protection against the corruption that sits underneath and benefits from secrecy. This is a view held across many of these Benches, and it is one fed by experience. We have relied so much on whistleblowers—for the Paradise papers, the Panama papers and on other occasions—to expose significant criminality, but I am not going to repeat the examples that the noble Baroness, Lady Stern, presented.
Of course it is exceedingly helpful if countries have a central register and make it accessible to law enforcement, but I live in the real world. Law enforcement is relatively small and weak, and for it to be able to identify who to pursue and how to do so is exceedingly difficult. The benefit of a public register is that thousands of eyes are cast upon the information. I say this to the noble Lord, Lord Hodgson: if, by mischance, he has put incorrect information into Companies House, where the register is public, there will be many organisations and individuals in this country out to catch that error and make people aware of it, particularly if there is around it some significance of size or identity. Many eyes can be applied to public registers, and that is the point. It is a recognition that an environment in which information is withheld from the public, and where it is accessible to enforcement authorities only once they are on the trail and alerted, will be very weak.
We all understand how attractive the secret world is to those who make their money through nefarious purposes. I will not repeat the list given by the noble Baroness, Lady Stern, and the noble Lord, Lord Kirkhope, but these organisations can thrive only because there are portals through which they can take their money earned in the black and convert it to the white. If we are ever to clamp down on these activities which so disturb us, it is absolutely critical that we make sure that the money cannot be transferred into the white economy. That is why we have gone for a public register in the UK. However, having heard so many voices, I am now really concerned that that public register is under threat. If we add verification to the process, it is additional strengthening, and I am perfectly content with that—it is probably a good direction in which to go. However, we should be strengthening constantly the ability to identify where wrongdoing is being carried out in our financial services.
Both the noble Earl, Lord Kinnoull, and the noble Lord, Lord Leigh, talked about the importance of unfairness and injustice. Frankly, there is no greater injustice than the damages done by those who make their money in the black economy. Their victims—whether of sex trafficking, the arms trade, terrorism or kleptocratic politicians—are real victims in an incredible sense, and we know that there are more victims and more exploitation year on year.
Today, we are being asked to take a principle that we have established in the UK—the one that we have to abide by to minimise the opportunities for the exploitation of financial services in the UK—and extend it to our overseas territories, which are part of our British financial family whether we like it or not. I do not believe that this is ultra vires, because it touches on issues that are, frankly, utterly fundamental to the human rights of millions of people across the globe.
I hope very much that this House will today support this measure, which gives the Government the opportunity to work closely with the overseas territories. I accept part of what the noble Lord, Lord Naseby, said: that those who have something to hide will flee the various territories if they know that there is going to be a public register. That may well be damaging to their economies and we should step in to consider the issues that surround that. But long-term sustainability of our overseas territories and their economies requires that they work fully within the white economy, not the white, grey and black economies. That is crucial to their long-term prosperity and opportunities. I hope very much that this House will take the opportunity today to support this crucial measure.
In Committee I reported that Bermuda, the British Virgin Islands, the Cayman Islands and Gibraltar all have in place central registers of beneficial ownership information or similarly effective systems, and we are taking forward the population of those systems with beneficial ownership data. Further progress has been made on data population in the interim. For example, the BVI—a territory that, as noble Lords know, was recently devastated by hurricanes Irma and Maria—recently reported that because of the co-operation of the UK Government with the OTs, they expected to have 90% of their data uploaded by the end of last week. Progress has also been made in the other two territories which are working on establishing beneficial ownership systems, but I am sure that even the noble Baroness and other noble Lords who are pressing for this amendment will agree that they have legitimate reasons for being delayed as a result of those devastating hurricanes.
I mentioned in Committee that we are providing support, referred to by the noble Lord, Lord Collins, to the Government of Anguilla to establish its beneficial ownership system. I am pleased to report that work on drafting underpinning legislation is now under way. We also shortly expect to conclude a memorandum of understanding with Anguilla on terms for the provision of our support for the establishment of its electronic search platform. This will enable Anguilla to take forward procurement of that platform.
Another overseas territory, the Turks and Caicos Islands, recently reported that their central register is now in its testing phase. I confirmed in Committee that we have not sought a bilateral arrangement with Montserrat because it had already committed to including beneficial ownership information in its existing public companies register. I am therefore pleased to report that a Bill requiring the inclusion of beneficial ownership information in the existing register was introduced in Montserrat’s legislative Assembly in December. The target date for the addition of beneficial ownership information to Montserrat’s existing register is 1 April 2018.
I have gone into detail and I hope that when noble Lords reflect on this contribution, they will agree that the overseas territories have made significant efforts recently—in some cases in the most challenging of circumstances—to move forward and, yes, to be at the leading edge, working in partnership with the British Government. As I have said previously, the arrangements on beneficial ownership will put them ahead of many G20 countries as well as many individual states of the United States of America. This demonstrates real progress and shows what can be achieved by working co-operatively. I fear that if we pass this amendment, we will risk that relationship and progress with the overseas territories, and indeed they have already indicated their deep concern in this respect. I therefore say to noble Lords that rather than imposing new requirements on the territories without their consent, a point well made by several noble Lords, it is right that we should focus our efforts on what we are doing now: on collaboration for the consolidation of the arrangements and acknowledging the progress they are making.
We are committed to ensuring that these arrangements deliver in practice, are implemented effectively and meet our law enforcement objectives. The Prime Minister made it absolutely clear when she met and spoke directly with the leaders at Downing Street in November last year that the exchanges of notes must be fully implemented. The exchanges of notes provided for the operation of the arrangements to be reviewed six months after they came into force—that is to say, at the end of last year—and subsequently on an annual basis. We are finalising the terms of reference for the initial six-month review with the overseas territories and, indeed, the Crown dependencies, and we plan to conclude it by March. In addition to these formal review processes, there is ongoing monitoring of the practical application of exchanges of notes by the United Kingdom and each relevant overseas territory. Noble Lords will also recall that the Criminal Finances Act 2017 provides for a statutory review of the effectiveness of these bilateral arrangements. This report will cover the operation of the arrangements up to 31 December 2018. They must be prepared before 1 July 2019, upon which they will be published and laid before Parliament. These reviews will provide the public and Parliament with a clear understanding of how the relevant overseas territories are meeting their commitments. At that point we will be in the right position, as well as in a firm position, to consider what needs to be done.
We want to create a level playing field, but in this regard it is important to touch once again on the UK’s constitutional relationship with the OTs. As noble Lords know, the territories are separate jurisdictions with their own democratically elected Governments and representatives; they are not represented in this Parliament. We would therefore be legislating for them, if we were to move forward on this, without their consent. We have done that, as has been mentioned, only in exceptional circumstances, and rightly so. As I mentioned in Committee, an example of this was to decriminalise homosexuality in certain OTs. We were acting then to ensure that the relevant territories were compliant with their international human rights obligations, but they are already, with the actions they are taking and the progress that has been made, meeting international obligations. While tackling complex criminality and its consequences is, of course, an extremely serious matter, there is a clear constitutional difference in the fact that domestic financial services are an area devolved to the territories’ Governments.
As I said in Committee, legislating for these territories without their consent effectively disenfranchises their elected representatives and legislative bodies, and such a course of action risks harming our overall relationship with overseas territories. The progress we have made will be put back and their electorates and residents will be looking at this, particularly given the damaging precedent that it would set. It also risks leading to a flight of business from the OTs to other, less regulated jurisdictions, where our law enforcement authorities would not have the same level of access to beneficial ownership information as they do under existing arrangements between the UK and the OTs. This could have a serious impact on the economies of territories—some of which are seeking to rebuild once again after the hurricanes—that derive a substantial part of their income from financial services, and it could have adverse consequences for the UK taxpayer. I am sure that that is not the intention of the noble Baroness and other noble Lords in terms of desirable outcomes.
Imposing public registers of company beneficial ownership on the OTs against their wishes and not including their legislative bodies and elected representatives is something that the territories will not take lightly. It will set back progress we have already made and have a negative impact on the ability of UK law enforcement and tax authorities to access beneficial ownership information held across the territories. Parallels with the devolved Administrations and the Sewel convention were also raised in Committee. This was eloquently set out by the noble Earl, Lord Kinnoull, again today. I ask the noble Lord, Lord Collins, and the noble Baroness, Lady Kramer, whether, if instead of talking about Anguilla, Bermuda and Monserrat we were talking about Wales and Scotland, they would be so keen to disenfranchise their elected representatives. That is a question that they must answer.
In conclusion, a key feature of the Government’s approach has been to maintain a level playing field between all OTs with financial centres and Crown dependencies. As I have described, we have robust review processes in place regarding the implementation of these arrangements, both on an ongoing basis with the Crown dependencies and the OTs and through the Criminal Finances Act 2017. If these reviews demonstrate that full implementation of the exchange of notes is not taking place in any individual jurisdiction, then I agree that it would be right for us to consider this issue further, but let us recognise and acknowledge that the OTs are making progress.
The concerns highlighted by the noble Baroness, Lady Stern, whom I respect greatly, and the noble Baroness, Lady Kramer, are of course concerns that we all share, but let us recognise that progress is being made and that the OTs have taken progressive action, and let us give them a chance to report back accordingly. Therefore, while I respect the intent behind the noble Baroness’s amendment, it is not something that I or the Government can accept. On the arguments we have heard today, and perhaps from the exposition and the detailed review I have given of the genuine progress that I know she acknowledges the territories are making, I hope that she is minded to withdraw her amendment.
17 January 2018
Division on Amendment 73
Amendment 73 disagreed.View Details
Amendment 74 not moved.
75: After Clause 41, insert the following new Clause—
“Public register of beneficial ownership of UK property by companies and other legal entities registered outside the UK
(1) In addition to the provisions made under paragraph 6 of Schedule 2, for the purpose of preventing money laundering in the UK property market and public procurement, the Secretary of State must create a public register of beneficial ownership information for companies and other legal entities registered outside of the UK that own or buy UK property, or bid for UK government contracts.(2) The register must be implemented within 12 months of the day on which this Act is passed.”
Of course we all want the new legislation to be fit for purpose. Legislation that proved to be full of loopholes would be hugely damaging. On this, the Minister has my sympathy and support, but I seek his assurance tonight on two points. First, the 12-month grace period allowed for in the amendment would give the Government three years to fulfil the commitment that they gave in 2016. If not three years, how long do the Government need and why is this time necessary? No ifs, no buts, no maybes. Secondly, how can the House be reassured that there will be space in the parliamentary timetable, after these apparently interminable deliberations come to an end, to bring the necessary legislation into effect?
I conclude with a final sporting metaphor. We have put the governmental horse at this fence a good many times. Each time the horse has galloped gamely towards the fence but at the last moment has swerved away from it. If tonight the Minister once again swerves away and cannot give the reassurances that I seek, and if my noble friend Lord Faulks chooses to divide the House, I shall be happy to support him.
In those circumstances, and given the pressures on the legislative timetable, I appreciate that this will take time. I appreciate also the Bill team’s assurances, both to me directly and through the Minister, of the things that must be done to ensure that it is as successful as possible. Of course, we all know that no system of enforcing what are, in effect, criminal offences is 100% successful, and part of me says that the best should not be the enemy of the good. However, we are, I am told, a world leader—and rightly so—in this field and I look forward to this register setting an example for the rest of the world, as was indeed envisaged by former Prime Minister David Cameron as long ago as 2016. I am grateful for the commitment by my noble friend regularly to update the House on the progress of this legislation. I will keep the Government up to the mark on this, I assure him. I am also grateful for his indication that he will embody this with a further amendment at Third Reading.
Although I am disappointed by the lack of progress so far, I accept the Government’s commitment to take this matter further. I understand the complexities involved and it is in those circumstances that I am content to withdraw this amendment.
Amendment 75 withdrawn.
76: After Clause 41, insert the following new Clause—
“Registration of companies: anti-money laundering checks
(1) The Registrar of Companies must not register a company unless he or she is satisfied that appropriate anti-money laundering checks have taken place. (2) The Companies Act 2006 is amended as follows— (a) in section 9, after subsection (5), insert— “(5ZA) The application must provide satisfactory evidence that anti-money laundering checks have taken place.” (b) after section 13 insert— “13A” Satisfactory evidence of anti-money laundering checks (1) The Registrar is entitled to accept the anti-money laundering registration number of the United Kingdom body that has submitted the application as satisfactory evidence under section 9(5ZA), provided he or she believes that number to be valid. (2) The Secretary of State may by regulations made by statutory instrument specify any other evidence that the Registrar may accept under section 9(5ZA). (3) A statutory instrument containing regulations under this section is subject to annulment in pursuance of a resolution of either House of Parliament.””
Amendment 76 withdrawn.
Schedule 2: Money laundering and terrorist financing etc
Amendment 76A not moved.
Amendments 77 to 89
77: Schedule 2, page 45, line 11, after “persons” insert “carrying on business of a kind which entails risks relating to money laundering, terrorist financing or other threats to the integrity of the international financial system (“relevant persons”)”
78: Schedule 2, page 45, line 12, leave out from “manage” to end of line 14 and insert “those risks”
79: Schedule 2, page 45, line 15, leave out first “prescribed” and insert “relevant”
80: Schedule 2, page 45, line 30, leave out “prescribed bodies” and insert “the Financial Conduct Authority, the Commissioners for Her Majesty’s Revenue and Customs and such other bodies as may be prescribed”
81: Schedule 2, page 45, line 31, leave out “prescribed” and insert “relevant”
82: Schedule 2, page 45, line 36, after “as” insert “relevant persons or as”
83: Schedule 2, page 45, line 37, leave out “prescribed entities” and insert “relevant persons that are not individuals”
84: Schedule 2, page 46, line 8, leave out “prescribed” and insert “relevant”
85: Schedule 2, page 46, line 42, at beginning insert—
“(A1) Authorise the Financial Conduct Authority and the Commissioners for Her Majesty’s Revenue and Customs to impose civil monetary penalties in relation to the contravention of prescribed requirements.”
86: Schedule 2, page 46, line 42, after “penalties” insert “(other than monetary penalties)”
87: Schedule 2, page 46, line 44, leave out paragraph (a)
88: Schedule 2, page 47, line 6, leave out from first “to” to end of line 7 and insert—
“(a) impose civil monetary penalties, and(b) publish statements of censure,in relation to the contravention of prescribed requirements by supervisory authorities.”
89: Schedule 2, page 47, line 9, after “sub-paragraph” insert “(A1),”
Amendments 77 to 89 agreed.
Amendment 90 not moved.
91: Schedule 2, page 47, line 15, leave out “, including defences and evidentiary matters” and insert “(but see paragraphs 18 to 18B)”
Amendment 91 agreed.
Amendment 92 not moved.
Amendments 93 to 97
93: Schedule 2, page 47, line 23, leave out from “for” to “to” in line 24 and insert “an offence created by such regulations”
94: Schedule 2, page 47, line 27, at end insert—
“18A_ Regulations under section 41 may provide for the creation of a criminal offence only if the regulations also provide for either or both of the following in relation to the offence—(a) a mental element necessary for its commission;(b) a defence to it (for example, a defence grounded on a person’s knowledge or belief, or a defence that a person took all reasonable steps and exercised all due diligence).18B_ Regulations under section 41 which confer a power to impose a civil monetary penalty must provide that a person is not liable to such a penalty in respect of acts or omissions for which the person has been convicted of a criminal offence created by such regulations.”
95: Schedule 2, page 48, line 14, leave out “persons” and insert “bodies”
96: Schedule 2, page 48, line 22, at end insert—
““relevant person” means a person on whom requirements are imposed under paragraph 3;”
97: Schedule 2, page 48, line 24, leave out “a” and insert “the Financial Conduct Authority, the Commissioners for Her Majesty’s Revenue and Customs or any other”
Amendments 93 to 97 agreed.
Clause 44: Regulations: general
98: Clause 44, page 29, line 31, leave out paragraph (a)
I have some sympathy for the noble Lord, Lord Ahmad. I, too, have been on a sticky wicket and I, too, have felt that terrible tingling at the back of my spine when the noble and learned Lord, Lord Mackay, rises to his feet to “clarify” what you are trying to say. The only trouble is that he clarifies it in such a way that you know that you are doomed.
I also ask the Minister to read today’s Hansard. In his intervention, the noble Lord, Lord Cormack, hit the bull’s-eye when he said that this was not a party-political issue but one of concern to parliamentarians across the House. The Government must accept that Henry VIII clauses have no place in the legislation they are trying to pass. It is no use them saying, “Well, if we can’t do it this way, we won’t listen to the House and the legislation will be weak and it will be the House’s fault”. No, it will not. The House will not accept legislation with these dangers in it and, with all the wisdom it can provide, it is offering help to the Government to try to get an answer.
I do not know what the intentions of the noble and learned Lord, Lord Judge, are but, whatever the outcome of this debate, I hope that the Minister will not consider it a win. Earlier tonight an amendment was passed by a majority of 80—even though the Government won the next Division by 11 votes. That was an opinion from the House of Lords and a sensible Minister and a sensible Whip will find a chance not to divide the Hagain but to take this back, think again and tell No. 10 that it cannot get this kind of legislation through. That would be a great service that the Minister and the noble Lord, Lord Young, could do for the House tonight.
Amendment 98 withdrawn.
Schedule 3: Consequential amendments
Amendment 99 not moved.
Clause 50: Interpretation
Amendments 100 and 101 not moved.
102: Clause 50, page 35, line 4, at end insert—
“( ) Any reference in this Act to a person named “for the purposes of” a UN Security Council Resolution so far as it provides for the taking of particular measures includes any person who, by virtue of—(a) being named for any purposes by the Security Council or a subsidiary organ of the Security Council, and(b) the terms of the resolution,is a person in relation to whom the resolution provides for the measures to be taken.( ) Any reference in this Act to ships designated “for purposes of” a UN Security Council Resolution which provides for the taking of measures in relation to ships includes any ship which, by virtue of—(a) being designated for any purposes by the Security Council or a subsidiary organ of the Security Council, and(b) the terms of the resolution,is a ship in relation to which the resolution provides for the measures to be taken.”
Amendment 102 agreed.
Amendment 103 not moved.
Amendment 104 not moved.
House adjourned at 8.32 pm.