– in the House of Commons at 6:24 pm on 20th February 2018.
I beg to move, That the Bill be now read a Second time.
I should begin by paying tribute to my noble Friend Lord Ahmad for piloting the Bill through the other place with such skill and finesse. The aim of the Bill is to grant Her Majesty’s Government full power over British sanctions policy after we leave the EU and, in a memorable phrase, to take back control.
This Government’s driving purpose is to strengthen Britain’s global role and widen the horizons of our foreign policy in order to advance the interests and promote the values of the British people, but if our diplomacy is to be effective, it cannot be solely declaratory: we must have the means to impose a price on those who would threaten to do us harm. In the last resort, that will sometimes mean the use of force—this Government will not resile from acting when necessary—but more often, we back our diplomacy through sanctions. Today, the UK enforces 36 sanctions regimes, targeted on countries such as North Korea, Syria and Russia and terrorist organisations including al-Qaeda and Daesh. In total, about 2,000 individuals and entities are listed for sanctions, varying from asset freezes and travel bans to trade restrictions and arms embargos. At this moment, assets worth £12.5 billion are frozen in the UK.
Our powers to impose those sanctions and measures against money laundering derive almost entirely from the European Communities Act 1972. I am delighted to say that Parliament will soon repeal that Act by means of the European Union (Withdrawal) Bill, which is now before the other place. When that Act comes into force, it will freeze Britain’s adherence to the existing sanctions regimes, but if we do nothing, we will lose the ability to impose new sanctions or remove current ones. That is why the Sanctions and Anti-Money Laundering Bill is necessary. It will give any British Government the power to impose, amend or lift an independent battery of UK sanctions, and update measures against money laundering and terrorist financing, thereby restoring our sovereignty over a vital tool of foreign policy.
The House will readily understand the freedom of action that all British Governments today and in the future will regain. If, for example, there is an international crisis and we judge that sanctions are the best response, we will no longer be compelled to wait for consensus among 28 members of the EU. The Bill will give us the freedom to decide on national sanctions as we see fit, bearing in mind that Britain possesses the fifth biggest economy in the world and the largest financial centre in Europe.
Hon. Members will know that sanctions are most effective when jointly enforced by many nations. Nothing in the Bill will stop us concerting our sanctions with any measures imposed by the EU, but if there is no agreement in the EU, as there often is not, Britain can act independently or alongside other allies. If the EU shares our position, we can act together. The outcome will be that Britain enjoys both freedom of manoeuvre and the option of working alongside our European friends. In the main, I hope that the latter will continue and that we can act in tandem, because the truth is that Britain and our European neighbours will always confront the same threats and defend the same values.
As my right hon. Friend the Prime Minister has said, Britain’s unconditional and immoveable commitment to the security and defence of Europe will not change one iota when we leave the EU, and this country has always played a leading role in devising EU sanctions—it is thanks to our national expertise in this field that the UK proposed more than half of all the individuals and entities currently listed for EU sanctions. The EU will have every reason to concert its sanctions policy with us in future, just as we will be happy in principle to work hand in glove with the EU. The Bill will place this British Government and our successors in the strongest possible position. We will be equipped with the power to impose sanctions independently, but without prejudice to our ability to co-ordinate with our European allies.
The Bill is also necessary for the UK to continue to play its full part in the struggle against money laundering and terrorist financing. Without the Bill, we should soon find ourselves in breach of international standards. I am proud to say that Britain was the first G20 country to introduce a public register of beneficial owners of companies, thanks to the Conservative-led Government. We are now going further by creating a public register of the beneficial owners of any non-UK entities that possess or buy property in this country, or that participate in UK Government procurement. No other state is compiling such a register, which will be the first of its kind in the world.
May I ask my right hon. Friend to confirm this: when he says property, is that all property or just real property?
I am grateful to my hon. Friend for that intervention—I was referring to real estate. As I am sure he knows, the proposal has the same intention as the tax on enveloped dwellings that was introduced by the former Chancellor of the Exchequer, which has proved, to the best of my knowledge, to be extremely lucrative for the Exchequer.
Given the Secretary of State’s commitment to the EU’s action on money laundering, is he saying that the Government will implement the fifth EU anti-money laundering directive, which requires that we all have public registers of beneficial ownership by the end of 2019?
As the right hon. Lady will be aware, the UK is already out in front of the rest of the world in insisting on public registry of beneficial ownership, irrespective of the implementation of the fifth EU anti-money laundering directive. As I will explain to the House, we already ask the overseas territories to do far more than other jurisdictions that offer financial services advantages.
I would be most grateful if the Secretary of State would give way again.
I am extremely grateful to the Secretary of State. The reason I asked the question is that the EU’s anti-money laundering directive would have an impact on the UK and Gibraltar. I am interested in whether the Foreign Secretary will implement the directive, given that implementation is required by 2019.
I do not know the exact stage of the directive at the moment. To the best of my knowledge, we are in the process of implementing it. It should creep in under the wire and will, I hope, have the beneficial effect that the right hon. Lady desires.
I will not, if the right hon. Gentleman will forgive me.
As sanctions have serious consequences for the individuals and entities that are singled out, they should be employed only in accordance with the rule of law, so it may be helpful to the House if I describe the scrupulous procedure laid out in the Bill.
Whenever the Government intend to impose a new sanctions regime, a statutory instrument will be laid before Parliament. When selecting targets, we will apply the legal threshold of “reasonable grounds to suspect”, which is the standard that we currently use for UN and EU sanctions. Both the British Supreme Court and the EU’s general court—the former court of first instance—have endorsed the use of that threshold in recent cases, and it is vital that the UK and our international partners continue to employ the equivalent threshold so that our sanctions policies and theirs can be co-ordinated.
The Bill contains safeguards allowing those listed for sanctions to challenge their designation and receive swift redress if it is warranted. Sanctions are not ends in themselves; they must not be maintained simply out of inertia or force of habit once the necessity for them dies away. The Bill will entitle any designated person to request an administrative reassessment by the Secretary of State, who will have a duty to consider any such request as soon as reasonably practicable. The Secretary of State can amend or revoke the designation in response to new information or a change in the situation. As a last resort, the designated person can apply to challenge the Government’s decision in the courts under the principles of judicial review, and the Bill provides for classified evidence to be shared with the court as appropriate.
Britain is obliged by international law to enforce any sanctions agreed by the UN Security Council. If a court in this country believes that such a designation is unlawful, the Secretary of State can use his or her best endeavours to remove a name from a UN sanctions list, bolstered by the fact that Britain has permanent membership of the Security Council. If a Secretary of State declines to seek a delisting at the UN, the relevant individual could challenge that decision before the courts. In addition, the Bill obliges the Government to conduct an annual review of every sanctions regime and place a report before Parliament. The Government are also required to review each individual designation under all regimes every three years.
The Bill allows the Government to grant licences to allow certain activities that would otherwise be prohibited—for instance, to permit any individuals subject to asset freezes to pay for essential needs such as food or medicine. The Bill will also give the Government the power and flexibility to issue general licences that could, for example, allow aid agencies to provide humanitarian supplies in a country subjected to sanctions.
Where assets have been frozen—for example, in the case of Libya and its support for the IRA—does the Secretary of State see any scope for a licence to allow that money to be used to help the victims of such outrageous crimes?
I completely concur with the objectives espoused by my hon. Friend. Many people would like to see some compensation flowing from a more prosperous Libya to the victims of IRA terrorism and, indeed, to other victims of terrorism. Given what we have done so far with Libya, it would be very difficult to unfreeze the assets; they are not our assets and it would be difficult for us to procure them. On the other hand, there is scope—working with the Libyan Government as Libya gets back on its feet, which is what we are currently working for —to set up a fund for the victims not just of IRA terrorism in this country, but of terror in Libya as well. That is the way forward: the UK and Libya working together to address that historic injustice. I am grateful to my hon. Friend for raising that subject, on which there are strong feelings both in this House and in the other place.
We must never lose the ability to keep pace with the criminals and terrorists who strain every nerve and sinew to confound and evade our efforts. The Bill provides the Government with the power to make, amend or repeal secondary legislation to combat money laundering and terrorist financing. Behind all this lies our primary goal: to restore the independent power of a global Britain to defend our interests and to exert our rightful influence on the world stage, acting in concert with our European friends whenever possible, sure in the knowledge that we are a force for good. I commend this Bill to the House.
This is one of many Bills that we need because of our impending departure from the European Union. We agree that sanctions are a crucial lever in our foreign policy armoury. Indeed, their use and usefulness is demonstrated by the fact that we have 36 sanctions regimes on countries ranging from Afghanistan to Zimbabwe, and covering terrorist organisations such as Daesh and al-Qaeda. We accept that the repeal of the European Communities Act 1972 in the EU (Withdrawal) Bill means that the Government must replace it with domestic powers. However, we have a number of questions, criticisms and challenges for the Government about the way in which they are doing that in the Bill.
Money laundering through the City of London is now estimated at £100 billion a year, and the two clauses in the Bill devoted to the matter are wholly inadequate to tackle this massive problem, which is illegal in itself and also hides and enables other crimes, perverts justice, distorts the economy and is seriously undermining our reputation. International standards to prevent it are set out by the Financial Action Task Force and translated—currently via the EU—to national level. We agree that legislation is needed so that we can continue to honour our international obligations.
Does my hon. Friend agree that if we tackled tax evasion and avoidance, we would not see such modest levels of overseas development? Countries around the world—in Africa and Asia—would be able to finance their own basic services. Those places do have the money, but companies are stealing it via evasion and avoidance.
My hon. Friend is absolutely right. Quite a lot of the money that is hidden is hidden by corrupt regimes, particularly in Africa.
A major criticism of the Bill as first drafted was of its Henry VIII clauses. Throughout, the Bill was giving Ministers the power to make regulations—in other words, to make law that cannot be amended by Parliament and is sometimes made without even any debate. In our consideration of the EU (Withdrawal) Bill, Members across the House complained that the level of the Henry VIII powers was so excessive that the Government agreed to a sifting Committee in order to limit the concentration of the power of the Executive. Arguably, with no sunset clause, this Bill is even worse in this respect. Speaking in the other place, the well-named and noble Lord Judge described it as a “bonanza of regulations” and the “Regulation Bulk Buy” Bill. Their lordships defeated the Government twice in votes on this. I hope that the Government will not now seek to undo those changes to the Bill. If so, we will oppose them.
It is surely obvious to everyone that sanctions regimes are effective only when they are co-ordinated internationally, as the Foreign Secretary acknowledged, and we need maximum support across the world and agreed implementation mechanisms to enforce them. However, he did not really answer some of the questions as to how that is going to be done post Brexit. Half our sanctions emanate from the EU. I am not saying that this is necessarily a matter for legislation, but surely the Government should have a plan for how we are going to be involved in EU decision making on sanctions regimes and the implementation of those regimes. Ukraine is a good example of where that is needed. What specific plans has the Foreign Secretary developed for a framework to provide for continued co-operation with the EU on foreign policy issues after we leave? What discussions have been held on that particular issue in the Brexit talks? What are the Government seeking to achieve in their negotiations with the EU on that matter? We were warned last week by the three spy chiefs that, without co-operation with our EU partners in intelligence sharing, policing and judicial matters, it would be difficult to enforce compliance on sanctions, which are vital for dealing with terrorism and proliferation.
Labour’s view is that the core principles of sanctions policy should be that sanctions are targeted to hit regimes rather than ordinary people; minimise the humanitarian impact on innocent civilians; and have clear objectives, including well-defined and realistic demands against which compliance can be judged, with a clear exit strategy. There should be effective arrangements for implementation and enforcement, especially in neighbouring countries, and sanctions should avoid unnecessary adverse impacts on UK economic and commercial interests. We will seek to amend the Bill to ensure that those principles are adhered to throughout.
One very big and obvious hole in the Bill is its failure to incorporate Magnitsky clauses, which the House has repeatedly supported and voted for. Sergei Magnitsky was a Russian lawyer who uncovered large-scale tax fraud in Russia. For his pains, he was imprisoned and tortured throughout a whole year, finally dying having been brutally beaten up while chained to a bed. We will be tabling a Magnitsky clause that would enable sanctions to be made in order to prevent or respond to gross human rights violations. Such provisions have been adopted in the United States and Canada, and they were also reflected in the Criminal Finances Act 2017. I cannot understand how or why the Foreign Secretary has missed this opportunity; perhaps he has been too busy designing bridges. Such a step is not just about Russia. We are now in the strange position that the United States has tougher sanctions than we do on Myanmar.
I hesitate to accuse the hon. Lady of failure to read the Bill, but clause 1(2) makes it absolutely clear that sanctions can be imposed to promote human rights. A fortiori, that obviously involves a Magnitsky clause to prevent the gross abuse of human rights. The measure that she seeks is in the Bill.
I am afraid that I do not think the Bill makes that clear. First, it does not include the phrase, “gross human rights abuses”, which the Foreign Secretary just used, and furthermore, it does not refer to public officials. This is a matter that we can debate upstairs in Committee, and I will be happy to do so with the Minister.
Another key area that the Government have failed to address properly is the position of refugees and victims of human trafficking. Last month, the House unanimously resolved:
“That…conflict resolution…and the protection of human rights should be at the heart of UK foreign policy and that effective action should be taken to alleviate the refugee crisis”.
There are now 66 million refugees—more than there have ever been and more than the population of the United Kingdom. The flow of desperate people across the Mediterranean and through Turkey is continuing. Yet the Bill gives no impression that Ministers have given any thought whatsoever to the plight of these people, who are seeking refuge from desperate and protracted conflicts around the world.
May I draw the hon. Lady’s attention again to clause 1(2)? Paragraph (e) mentions exactly what she is talking about—promoting
“the resolution of armed conflicts or the protection of civilians in conflict zones”.
Paragraphs (f), (g) and (h) refer exactly to the human rights abuses that my right hon. Friend the Foreign Secretary mentioned in response to her earlier comments.
That is absolutely true, but if the Minister reads a little further into the Bill and looks at clauses 6 and 7 on aircraft and shipping, he will see that there are some problems at that point. Again, we can come back to this in Committee.
The Bill states that prohibitions can be applied to UK nationals and companies based in the United Kingdom, but not against companies based or incorporated in the British overseas territories. Recent reports from UN monitors implicate territories such as the British Virgin Islands in the setting up of front companies that helped North Korea to evade the sanctions imposed on it. The problem of sanctions avoidance is very serious. Last week, I was told in answer to a written parliamentary question that the total cost of financial sanctions reported as having been breached last year was £170 million. This afternoon, I received a letter from the Treasury, which has looked at the numbers again and says that the number is £1.4 billion. We need to look at this in more detail in Committee.
I now turn to the anti-money laundering provisions—what one might call the McMafia section of the Bill. To set this in context, the Home Affairs Committee report of June 2016 found:
“Money laundering is undoubtedly a problem in the UK…It is disgraceful that at least a hundred billion pounds is being laundered through the UK every year. If the UK is to remain the centre of global finance, this must be addressed.”
It pointed out that
“money laundering takes many…forms…from complex financial vehicles and tax havens around the world through to property investments in London…and high value jewellery. It is astonishing that just 335 out of some 1.2 million property transactions…were deemed to be suspicious. This suggests to us that supervision of the property market is totally inadequate”.
At the moment, it is far too easy—
Is the hon. Lady aware of the geographical targeting orders piloted by the USA that we were told about in the Public Accounts Committee during our trip to Washington last week? Does she know that 30% of the properties investigated were found, in the end, to be owned by nefarious people?
That is very shocking. I did not know about it. I hope that the hon. Lady will dilate on the matter further during the debate.
It is obviously possible for people to buy a property, take in rent in perpetuity and have a clean income. In evidence to the Home Affairs Committee, the surveyor Henry Pryor said:
“we do have the equivalent of a welcome mat out for anybody to come if you want to launder your money.”
Money laundering enables the corrupt to live in comfort and security. It is also used to finance other serious and organised crime such as drug dealing, human trafficking, terrorism and even the illegal arms trade and WMD sanctions busting. The click of a computer mouse in London or the overseas territories can mean untold misery across the globe. The Government’s own impact assessment for the Bill says:
“As a global financial centre, the UK is particularly exposed to the threat of being exploited as a destination or transit point for illicit funds”.
Ministers know that this is a problem. Between 2013 and 2016, David Cameron’s Government issued increasingly strong statements and promises, culminating in the May 2016 global summit. There were three specific proposals: a transparent register of beneficial owners of all companies registered in the UK, similar registers in the British overseas territories and Crown dependencies, and a public register of foreign owners of UK property. However, the implementation has been halting, under-resourced, partial and confused. Currently we have at least 25 different regulatory bodies. It is true that we can now see on the Companies House register who the person is with significant control, but last year 400,000 companies failed to submit the information. Companies House has no due diligence procedure and employs only 20 people to supervise 4 million entries.
Does my hon. Friend share my concern that, when one of my constituents reported a fraudulent entry in the Companies House register, the response from Companies House was that it does not do the enforcement, but is just the registry? This fraud is a mockery of the whole registry system.
My hon. Friend has brought precisely the point to the House in highlighting that unfortunate episode.
Registers have been introduced in some of the British overseas territories, but they can be accessed by the authorities in London only when the authorities have a reason to be suspicious. The inadequacy of that approach was demonstrated by the publication of the Panama papers and the Paradise papers. According to the Guardian investigators, the law firm Mossack Fonseca, operating out of Panama, acted for 113,000 companies incorporated in the British Virgin Islands, which hosts 950,000 offshore companies. That is a country with a population of 30,000. This is public interest journalism at its best—fearless, determined and forensic. Had it not been for the excellent investigatory journalism, we would not have known that Britain’s high street banks processed $740 million from a vast money-laundering operation run by Russian criminals through anonymously owned firms, nor that Mukhtar Ablyazov, who fled Kazakhstan in 2009 after $10 billion went missing from the bank he chaired, had a Cayman Islands trust set up by law firm Appleby.
Significantly, HMRC has been able to use the information revealed in Panama and Paradise to open civil and criminal investigations into 66 people and pursue arrests for a £125 million fraud, tackle insider trading and place dozens of high net worth individuals under review. Imagine how much more effective it could be if transparency were the rule and not the exception.
My hon. Friend makes a good series of points about the nature of the British overseas territories and Crown dependencies. Given that the Bill considers the whole nature of our governance structures after Brexit, does she agree that we should look in a broader sense at the curious structure of British overseas territories and Crown dependencies? We should perhaps follow the example of France, which has incorporated its overseas territories into its metropolitan country and given them a democratic place in its legislature. We could consider the same thing.
My hon. Friend is right that the situation is complex—we have one legal regime for the overseas territories and another for the Crown dependencies—but I think that that would be beyond the scope of the Bill.
The all-party parliamentary group on responsible tax, led by my right hon. Friend Dame Margaret Hodge, has been pursuing this agenda energetically for several years now, and across the House, Members want effective action.
Another scandal is the use of London property by oligarchs, corrupt officials and gangsters from across the globe. I am talking about people like Karime Macías, the Mexican wife of the former Veracruz Governor Duarte. He has been imprisoned and charged with corruption, money laundering and involvement in organised crime. His years in office saw a spike in disappearances and murders, while she claims to be a fugitive in London.
When I was young, if you drove through Chelsea at night, it was full of light because people actually lived there. Now, swathes of London are pitch black, as properties are bought simply as money safes. Meanwhile, in the outer boroughs, which the Foreign Secretary never visits—
As the hon. Lady may recollect, I was never out of the outer boroughs when I was Mayor of London, and the former Mayor of London visited Havana more often than he visited Havering.
I wish the Foreign Secretary was as energetic in his pursuit of the corrupt in this Bill as he is concerned to defend his own record on travelling around the London underground.
In the outer-London boroughs, new buildings are bought off plan and some never even have the cellophane unwrapped. Global Witness has found that 86,000 properties in this country are owned by companies in secrecy jurisdictions. The Cayman Islands representatives told me, when they came to see me in preparation for the Bill, that they were responsible for 11% of the property investment in Britain, pushing up prices so that they are unaffordable, and young people’s home ownership in this country is now at an all-time low.
The new register promised by the Government in 2015 has been put back by six years. There must be a suspicion that this secrecy continues because some senior Tories use it. Just one example will suffice. Lord Sassoon was revealed by the Paradise papers to have been a beneficiary of a Bahamas trust fund that has sheltered a family fortune worth hundreds of millions of dollars, yet he was a Treasury Minister and the man charged with presiding over the Financial Action Task Force—the very body tasked with setting the standards to combat money laundering.
We are going to pursue all these issues over the coming weeks. I cannot do better than quote the global summit communiqué, which said:
“Corruption is at the heart of so many of the world’s problems. It erodes public trust in government, undermines the rule of law, and may give rise to political and economic grievances that…fuel violent extremism. Tackling corruption is vital for sustaining economic stability and growth, maintaining security of societies, protecting human rights, reducing poverty, protecting the environment for future generations and addressing serious and organised crime…We need to face this challenge openly and frankly”.
I draw the House’s attention to my entry in the Register of Members’ Financial Interests.
I want to start by making clear that I think this is a very good Bill. It is clearly the right approach to take in these circumstances and a good administrative measure. It delivers sensible and orderly governance and addresses quite rightly the post-Brexit situation and the new framework for implementing sanctions. My purpose in this debate is to suggest two ways in which the Bill can be improved further.
First, I draw the Foreign Secretary’s attention to an area of the Bill that the Minister for Europe and the Americas understands extremely well. Sanctions regimes inevitably affect the peace-building work that humanitarian agencies do in some fragile and difficult places, and in particular key NGOs operating in sanctioned countries. I pay tribute to the remarkable work that is being done by British NGOs in some very difficult parts of the world; I am thinking, for instance, of Syria and Yemen.
Clare Short, the distinguished former International Development Secretary—she set up DFID—and I gave evidence to the Select Committee on the difficulties that can arise for the agencies on occasion. They can fall foul of terrorism measures, which adversely affect their life-saving work. There are difficulties in working in lawless areas, which inevitably involves negotiating with some extremely bad people. Under the regime that the Foreign Secretary is ushering in, the Bill will bring much greater clarity for donors who deliver via NGOs and for banks worried that they may fall foul of the regulations. It will help to reduce bank de-risking—I have heard of NGOs not being able to maintain access to their bank accounts or to transfer funds because of the regulations—when banks fear that they may breach sanctions by providing banking services. I hope the Bill will reduce banks’ concerns, assist transport and logistics companies in their work, help NGOs to access formal banking channels, and reduce or eliminate possibilities for remittancing, which, as Members on both sides of the House will know, involves a far bigger transfer of funds to the poor world than international aid.
The Geneva convention states that humanitarian aid be provided to those most in need, without discrimination. The Bill has the capacity to empower leading UK and experienced international charities to carry out our international obligations under such conventions yet more effectively. Building on that, we want to see a general licensing system for financial transactions for the provision of goods and services, which are essential to the delivery of critical aid, for individuals and entities that may be located in areas covered by sanctions.
My first point is that, while accepting that the Government have international obligations in respect of sanctions regimes that inevitably have an impact on the Government’s ability to deliver those commitments in full and on all occasions, the Bill nevertheless has the power to improve this area greatly. I hope the Minister for Europe and the Americas—as I have said, he has a very strong understanding of these matters from his time as an International Development Minister—will say a word or two about that tonight.
My second point is about an area in which the Bill can be improved. This was mentioned by Helen Goodman, who led for the Opposition. It builds on the important comments made recently by David Cameron, the former Prime Minister about the Magnitsky rules and the Magnitsky amendment, and I hope that the Bill is susceptible to improvement in that respect.
In spite of our self-image as a country that lives by the rule of law, the reality is that officials from autocracies around the world who are guilty of appalling crimes come to London to live safely and comfortably without much interference from us. There is now a mechanism to prevent this, which is used by the United States and other countries, called the Magnitsky Act. It is named after the Russian whistleblower Sergei Magnitsky, the appalling treatment of whom was described by the hon. Lady. The Magnitsky Act freezes the assets and bans the visas of human rights violators from around the world. The State Department recently published its Magnitsky list, which includes the son of Russia’s general prosecutor, a general from Myanmar implicated in ethnic cleansing, the ex-dictator of Gambia, a shady international fraudster from Israel and a retired Pakistani colonel suspected of organ trafficking. Alarmingly, every single person on that list is able to travel to the United Kingdom.
Last year, Parliament took an important step to combat this impunity by passing the Magnitsky amendment to the Criminal Finances Bill, under which human rights violators can now have their assets frozen by the Government. Unfortunately, the law is narrowly defined and does not match the standard of other Magnitsky laws around the world. For example, it does not address the issue of visas, and it places a huge burden on the Government in going to court to obtain an order to freeze assets, rather than giving my right hon. Friend the Home Secretary the power to do so by decree.
The Magnitsky amendment to this Bill—I very much hope it will be considered in Committee or, if not, on Report—would bring our legislation into conformity with Magnitsky Acts around the world. Any amendment would define precisely the types of human rights violators to be sanctioned, and most importantly, it would follow an example set by the United States and other countries by placing a requirement on the Government to report annually to Parliament on how effectively the sanctions regime is being used. In my judgment, we should not allow the Government to declare victory over human rights violators with the passage of a law that never gets implemented. I believe that such an amendment may well attract support from all right hon. and hon. Members on both sides of the House. I submit that, if passed, it would bring this aspect of UK law up to international standards.
As the Prime Minister’s anti-corruption champion, I am listening very carefully to what my right hon. Friend is suggesting. He mentioned existing legal powers. Does he have any sense of how often they are being used at the moment, even though he believes they are relatively narrowly defined?
It is early days, but I think the existing powers are being used rather less than my hon. Friend and I would wish, and I have read out a list of people who are sanctioned by other countries, but not sanctioned by the UK. That was my second point.
My final point relates to the much discussed issue of open registers and the overseas territories. The House will recall the actions of the coalition Government and Britain’s leadership at the G8 in tackling tax evasion and tax havens. I thought the hon. Member for Bishop Auckland was a touch too curmudgeonly in acknowledging the extent to which the coalition Government made real progress on those matters. The UK has introduced publicly accessible registers of people with significant control, abolished bearer or anonymous shares and introduced unexplained wealth orders, while the anti-bribery law was finally introduced by the coalition Government. Britain has a proud record of world leadership on this under a Conservative-led Government.
This is the fourth occasion on which I, along with my right hon. and hon. Friends—under the able, cross-party leadership of Dame Margaret Hodge—have tried to coax the Government into visiting on the overseas territories the same level of openness and transparency as we have in this country. Let us be clear on the constitutional position, which the Government set out in 2012:
“As a matter of constitutional law the UK Parliament has unlimited power to legislate for the Territories.”
The overseas territories themselves recognise that they gain hugely from their relationship with the United Kingdom.
The overseas territories have been resistant to this argument for three reasons. The first—let us call it the Dutch Antilles argument—is that if they have open registers, all the hot money will head off to other less law-abiding jurisdictions. Leaving aside the issue of whether any decent person should wish to handle hot money obtained through corruption or worse, the fact is that the international consensus is to bear down on such havens, and their footprint is narrowing. Indeed, havens that embrace such transparency will secure a business advantage precisely because their legitimate business will no longer be tainted by fears of the reverse. There is an understanding of this point in at least some of the overseas territories, which, if I may put it this way, camp on the prayer of St Augustine: “O Lord, make me chaste, but not yet.”
The second argument, which we must address head-on, is that the overseas territories’ private registers are already available to lawmakers and regulators such as the Inland Revenue. The territories proudly say that they can turn around inquiries from HMRC within hours. This is commendable, but it completely misses the point. That fact is underlined by the recent release of information by journalists, which the hon. Member for Bishop Auckland mentioned. Registers must be open—to civil society, the media, journalists, non-governmental organisations—if all the relevant dots are to be joined up, as the release of the Paradise papers so clearly shows. With the best will in the world, the regulatory authorities are not in that business, and narrow questions from regulatory authorities simply do not suffice.
Finally, I come to the point made movingly by the Foreign Secretary that many, although not all, overseas territories suffered an existential calamity from the recent hurricanes. The whole House will share his concern. I am sure the whole House can assist by agreeing, in any amendment, a longer but definitive period of time in which this reform in the overseas territories should take place.
Around the world, the UK is looked to and respected for its leadership on international development. Helping the poorest in often far-flung places is written deep into this country’s DNA. It is who we are as a Parliament. The appalling but temporary crisis afflicting Oxfam will not change that. We have an obligation, not least to our own taxpayers, to champion transparency and openness, and to have zero tolerance towards corruption. The highly respected Africa Progress Panel has shown that in the Democratic Republic of the Congo more than £1.5 billion of stolen funds and taxes have disappeared. These are funds stolen from some of the poorest people on the planet, who by contrast live in one of the richest mineral and resource-endowed countries in the world. As the World Bank has made clear, the money stolen from the people of Africa through unpaid taxes or concealment dwarfs all the foreign direct investment and international development money that flows into Africa each year. Much of that money ends up salted away in the tax havens I have described. We owe it to the poor of Africa, as well as to our own taxpayers, to take the action we can to bring about an end to this scandal.
I urge the Government, on this fourth occasion, to look very seriously at the amendment that will undoubtedly be tabled by Dame Margaret Hodge on Report, if not before. Four times we have been around this track. There is significant support on both sides of the House for that amendment. I urge those on the Treasury Bench to look very seriously at whether they can accommodate the House of Commons on this point.
This is another Bill that has been caused by Brexit. EU co-operation has been crucial to sanctions and anti-money laundering, and we have moved quite far along the road together as friends, neighbours and colleagues. A lot of concerns about the Bill have been voiced in relation to the justification of proportionality, and whether it takes us in the right direction to give us the opportunity to correct the flaws in our own systems.
Sanctions, as other hon. Members has said, are effective when we have co-operation, particularly as an EU block. That reflects the limitations of sanctions from the UN Security Council, because there is not always agreement among its permanent members. We need to find our place. Our place is not in the EU, as it was, but it is not entirely as other states are in the world. We need to find out where we are. Tom Keatinge from Royal United Services Institute has said that we may have greater flexibility, but we will certainly have less influence. Ministers need to be reminded of that. I see that the Foreign Secretary has scuttled off without hearing me, which is kind of him. Without the active co-operation and engagement of Ministers with the EU, we will not be able to be the most effective at imposing sanctions. We should not pour our own collective efforts over the years down the stank just because we are leaving the EU. Unilateral sanctions bring with them a recognised risk that while we might want to do the right thing there may be repercussions. Being a part of EU collective action cushions us to an extent from that risk. We do not want to be marginalised in the world. We must take care to make sure that does not happen.
The hon. Lady makes a valid point, although I have a different opinion on Brexit. Does she not agree that our ability to implement sanctions and address money laundering are essential components of our exit from Europe and that it is vital we have the same protections in place in the international market? We must look at the possibility of even enhancing them and making them even stronger.
I agree that we perhaps can and should enhance what we do, but we must take care not to lose what we have so far. We must not lose that co-operation and sense of common purpose against evils in the world, which we have had as a part of the EU.
I support the points on human rights made by Helen Goodman. Ministers did not quite recognise the point that paragraphs (e), (f), (g) and (h) in clause 1(2) are in the Bill because they were put there by a Labour Lord. She may have made that point, but I did not want to let it pass without having recognised it. The Government should not be taking credit for things they did not do and did not put in the Bill. Those paragraphs should be in the Bill. Anything that can enhance the importance of human rights in the Bill should be there.
The NGO sanctions and counter-terrorism working group, chaired by Bond and the Charity Finance Group, has asked for protection in law for humanitarian and peace-building work, as that is, to a degree, currently inhibited by the EU regulatory framework on sanctions. As Mr Mitchell set out, aid operations in parts of the world that are extremely dangerous and under sanctions from the UN and the EU still have to have aid workers. They have to build up relationships on the ground. They may not be comfortable with them and they may be difficult, but aid would not happen without them.
Currently, there is not sufficient protection in the Bill. There is reference to general licences with a bit more focus on guidance. Clause 37(1) states that the Minister who makes the regulations must issue guidance, but clause 37(2) states only that guidance “may” include guidance about compliance enforcement and disregards. That is not concrete enough. The guidance should be more certain, so that people know the regime they are working under, know the risks involved in what they are about to do and know if there will be any comeback from the actions they take. I do not think that that is clear enough, and I would like to see improvements in this area of the Bill. More concrete assurances are required.
That concern is shared by the banks. The UK Finance briefing on the Bill says that there is a fear of misuse, but there has to be a way to get around that. It provides the example of banks avoiding any transactions whatever with Iran, due to the risk of being sanctioned by the US—its sanctions regime is far-reaching. That risk alone has a chilling effect on its transactions in that area, regardless of any actual certainty. Sanctions will have an impact on such countries for many years to come, even after sanctions have ended. Banks need to have the confidence that they can deal with a country consistently over a number of years without falling foul of sanctions that suddenly reappear. The people working in such countries need to interact with donors, banks and transport and logistics companies. They need comfort on that. They need to buy fuel. They need to buy mobile phones. They need to make payments to move about the country and to let aid flow. For example, it is not possible to move around Yemen because there are different forces imposing different visa regimes. Moving around the country may involve making payments that fall foul of sanctions.
Is the hon. Lady in effect agreeing with the Law Society of Scotland’s interpretation of the need in clause 1 for a list of all sanctions, including descriptions of any designated person and types of sanction imposed, and exemptions from such sanctions? Is that the thrust of the point she is making, because I agree with that?
I thank the hon. Gentleman for agreeing with me. It is very rare and very nice, and I thank him for it. Yes, there has to be a good deal more clarity. I welcome the Law Society’s view, because that is not clear in the Bill. If people are working in that environment, they need certainty. For aid to flow and for banking transactions to flow, there has to be clarity.
UK Finance seeks further detail in clause 18 on extra-territorial application. It wants to know exactly what a UK element constitutes and what its reporting obligations might be under that regime, because it is not entirely clear.
Scrutiny and transparency are somewhat lacking. There is a lot of scope in the Bill for Ministers to create significant new criminal offences through secondary legislation, some of which would carry a sentence of 10 years in prison under clause 17(6). It is constitutionally unacceptable for that type of thing to be created by Ministers, and it is not just me saying that. The House of Lords Constitution Committee wants beefed-up parliamentary scrutiny, and the House of Lords Delegated Powers and Regulatory Reform Committee states that the provisions
“confer exceptionally wide powers which are capable of being applied to a very wide range of persons, with a very wide discretion being given to Ministers to determine the persons against whom sanctions measures may be applied.”
We should be concerned about that and seek corrections later in the process.
The Secretary of State, who has left his place, may not make decisions in haste, but we have to be concerned about the future. This not a Bill for just now, but for many years to come, so the powers that we put in it are very important. The European Scrutiny Committee currently looks at EU sanctions that go through. We need to know what scrutiny process in this place will replace that, because it is important to ensure that things are being done properly and are above board.
At clause 21(4)(a) and (b) and clause 25(3)(a) and (b), a review process of three years from the laying of a sanction is mentioned. I would like clarity from the Government about why that is three years, because I understand that in the EU process it is only one. The Secretary of State said that a person who has been subject to a sanction has the ability to request from him that it is reviewed. Given that circumstances change and given the way of the world today, perhaps three years is a little too restrictive. We might want to push that down a bit further, or at least give scope for it to be varied, given the circumstances.
Clause 41—a Henry VIII clause, which has the power to authorise additional sanctions—is very like the other clause that I just mentioned, and again, the Lords Constitution Committee had concerns when it looked at it. The clause allows the amending of the definition of sanctions and puts a lot of powers into the hands of Ministers. What is the mechanism, the clause or the parliamentary check on that? Where is the means for Parliament and Committees of the House to have their say on the scrutiny of that? It is fundamentally important to have checks and balances in the system.
I am a member of the all-party parliamentary group on responsible tax, as is Dame Margaret Hodge, and I am pleased to see her amendment on beneficial ownership. I look forward to hearing her later on in the debate hopefully talking about that a wee bit more. There are a lot of issues about working with overseas territories and Crown dependencies. Much as I do not wish the House to legislate on Scottish matters, I do not want us to legislate for overseas territories or Crown dependencies without consent. That is very important. If we want to get buy-in and compliance, imposing things upon people may not necessarily be the best way to do it.
The hon. Lady has hit on a very important point. If changes are to be made in the Crown dependencies and overseas territories, it must be by persuasion, rather than imposition. Does she agree that so far, by using persuasion, significant changes have been made in transparency in those countries? That should perhaps be the thrust of future Government policy to ensure that these areas do not become places where money can be hidden and laundered.
We have to be very careful. To an extent, we push people and give them a carrot, and in a sense, we have a stick. We have to weigh up in all of this where exactly they are on that continuum and with compliance. Will Ministers tell us what conversations they have had with the likes of Guernsey and Jersey? Do they have confirmation of a permissive extent clause? I am very keen to see open registers. The right hon. Member for Sutton Coldfield laid out some points on that excellently. If the registers are there, they should be publicly available. We want to see transparency everywhere, but we also need to bear in mind that we have a long way to go on ensuring that everything that we do is absolutely correct and proper.
There are clearly issues and disputes among people about their interpretation of the proposals. Having read a submission from Jersey and Guernsey, I know that their account of affairs is quite different from other people’s. Perhaps we will have time in Committee to discuss this a wee bit more, take evidence and see in more detail exactly what needs to be done, how far people can be pushed, cajoled or brought along, or whether or not we need take this action and the extent to which it has a different force.
I am intrigued by the hon. Lady’s contribution. We all want to move forward on the basis of consent, but I slightly disagree with her about how fast the overseas territories are moving. It has been five years since David Cameron first encouraged them to develop public registers of interest. Will she give us some indication of when she thinks that the broader interest of having those public registers and the role that they could play in tackling financial crime would override her absolutely instinctive desire to seek consent in moving forward?
I agree. That is the point I was trying to make, fairly badly I suppose: how long do we leave it? Has it been five years with no sign of anything, or five years with some sign of something? We need more conversations to see exactly where things are, but I am keen to support the right hon. Lady’s amendment.
There is slightly more concern about overseas territories such as the British Virgin Islands and Bermuda. When we look at the extent of the Panama papers and the Paradise papers, we cannot fail to be deeply concerned by the extent of nefarious transactions, out-and-out theft and money laundering, particularly when it involves, as other Members have said, the siphoning—the guzzling —of funds from countries whose populations can least afford it. We should be deeply concerned about that, and there seems to be little indication that they will comply at all. Perhaps there is a different approach from the Crown dependencies and the overseas territories on how willing they are to comply with what has to be done to make things transparent and open.
Moving on to part 2 and clauses 43 and 44, on the progress towards beneficial owners of overseas entities. This is very encouraging, but again the thing with the Bill is that action is required. Action is required to check up on all these companies and registrations. Action is required on enforcement and prosecution, and enforcement action requires agencies, intelligence, people and boots on the ground to make sure that it is done. It is fine to have law, but if we do not have anybody to enforce it, there is absolutely no point at all.
Scottish limited partnerships are a particular example of where things are not being enforced. This was bequeathed to me by Roger Mullin, and I am very grateful. It is estimated by Richard Smith and David Leask, who have been working hard on this issue—hon. Members will have seen some David’s reports in The Herald—that an estimated 20,000 to 28,000 SLPs are of concern. The Herald recently reported that a former president of Peru has been accused of taking £4 million of bribes that have been funnelled through a shell firm based in Scotland. These things should be checked up on and enforcement action should have been taken, but SLPs have become a cover for all manner of murky and dubious behaviour.
As Transparency International and others have said, the missing link in all this is Companies House, because it does not have the duty to refuse a company’s registration; it has to register the company. It does not check up on whether it is legitimate, or whether the people who are registering it actually exist, and it is less compliant than the agents who use it, so there is no benefit to someone going through an agent if they can go through Companies House and avoid all the scrutiny. We have an opportunity in the Bill to close that loophole, because for me, Companies House is ignoring its money laundering duty.
There are wider concerns about shell companies. I invite the Minister to look at New Zealand, which was in a similar situation. However, its regulations have seen a near eradication of its 5,000 shell companies, which were registered to only about a dozen addresses in New Zealand. Part of the solution was a requirement for a New Zealand-based director, which made a huge difference almost overnight.
Another interesting example from the recent Labour Government in New Zealand is the idea that they could ban the overseas ownership of property. Given the huge inflationary pressure in the UK housing market, usually from the opaque overseas ownership of UK property, perhaps we ought to consider that measure in this country as well.
Yes, that would be a very useful addition. The Secretary of State did not answer the questions on the fifth money laundering directive: how it will be transposed; how it will be scrutinised; if there is a transitional phase; what that transition will look like; how we will prevent any loopholes; and how we will make sure that criminals do not exploit that transition.
Perhaps at this stage I can give the hon. Members for Glasgow Central (Alison Thewliss) and for Bishop Auckland (Helen Goodman) the answer they are seeking on the fifth money laundering directive. It will be published in the summer of 2018 and member states will have 18 months to implement it. That will be after we leave the EU, so whether we or Gibraltar are legally required to transpose will depend on the terms of the implementation period, which of course are under negotiation.
That sounds like a vague, “I don’t know” kind of answer.
Perhaps the hon. Lady would like to ask the Minister whether the powers he is taking in chapter 3—temporary powers in relation to EU sanctions lists—will not give him the power to enforce the fifth money laundering directive.
That is a very good question. I do not know whether the Minister wants to take this opportunity to answer it—perhaps not. He has heard the question, so I need not repeat it.
Finally, I want to refer to the Scottish Government, because aspects of the Bill reflect some of the powers that lie within Scotland. The Court of Session is referred to in clause 33(2) and clause 34(2). What consultation has there been with the legal profession in Scotland and with the Scottish Government on that? On clause 47 —“Regulations: general”—the power to change devolved legislation under the negative procedure is really not cool. It is not just me who objects to this; the Library briefing states that this will
“enable ministers to make supplemental, incidental, consequential, transitional or saving provisions repealing or otherwise amending existing legislation, including devolved legislation.”
Lord Judge referred to this clause as “monstrous”. Has the Scottish Government been consulted on this provision? What has the Minister got to say about this? This power grab, hidden on page 35 of the Bill, is something that I will seek to amend in Committee.
I support any moves to improve the scope of the Bill, and I look forward to hearing the rest of the debate.
The Bill constitutes one piece of a patchwork of laws that are currently going through Parliament to create a post-Brexit framework of legislation, but it is potentially much more than just an enabler for the UK to implement sanctions post Brexit. Thinking about the Bill, it became clear to me how many scenarios it will actually cover, from sanctions used as an alternative to military or technological warfare to sanctions used to express the protection of national sovereignty or to counter financial corruption or human rights abuses, and in each case at state or individual level.
In short, I think that this is a good piece of legislation that will address the mechanical issues that we need to implement. As the Foreign Secretary has said, it recognises that the majority of sanctions implemented by the UK are derived from UN Security Council resolutions or EU multilateral agreements. In practice, our EU and domestically derived powers to implement multilateral sanctions and any domestically generated ones will be limited by redundant or inadequate UK legislation. Therefore, mechanically, the Bill does the job.
I have seen the Lords’ amendments to the Bill. As is so often the case, the other place has done a thorough job of tightening up these inherently intrusive provisions to provide more focus and to take on board human rights considerations and reporting requirements. There was also a significant narrowing of the Henry VIII powers to create new sanctions, which is generally to be welcomed.
However, there is of course much more to consider than just whether we can practically implement sanctions. There are also the policy questions of what types of sanctions we want to issue; to what extent we wish to continue following the sanctions regimes of various national groupings, or whether we increasingly want to assert our own new policy post Brexit; and how our view ties in with our wider policy objectives on the trade and security fronts going into our Brexit negotiations.
In that context, I recognise and strongly support how the Prime Minister spoke out recently in Munich, and before that in her Mansion House speech and on her visit to Estonia, against Russia meddling in elections and planting false stories in the media to “weaponise information”, and also against its aggression towards eastern Europe, which is threatening the international order. However, I suggest that this admirable and strong rhetoric needs to be backed up with more specific proposals showing how and with whom we intend to use sanctions in the post-Brexit world. I was somewhat surprised that more space was not given to that policy issue in the Foreign Secretary’s speech this evening. Yes, of course trade policy will be vital post Brexit, but so will our ability to protect our trade interests and our wider democratic values.
More to the point, if we do not stand up, engage on this issue and lead in the way that many countries expect us to, our authority and influence could quickly disappear. The UK was a party to the Budapest memorandum, by which Ukraine renounced its nuclear weapons in return for what it thought would be peace with Russia. But when it came to Europe taking ownership following the betrayal by Russia and its occupation of Crimea and east Ukraine, it was France and Germany, rather than the UK, that led on sanctions.
Is that a portent of post-Brexit Europe, with reducing UK influence? If we do not lead, will we simply fade away to relative international insignificance, in the same way that a couple of months ago the UK lost its seat on the International Court of Justice for the first time since its foundation in 1946? I repeat that we need leadership on this issue as to where we want to place ourselves as an international player, if we are no longer the global superpower we once were.
The key emerging issue on our future trade with the EU is that of regulatory alignment—whether we have it at all and, if so, whether it should be implemented by our choice or by tying ourselves to future changes through membership of the European economic area, for instance. The debate over alignment also holds for sanctions, but with a key difference, I believe: barring the extreme positions on the far left and the UKIP-style non-interventionist right, most of us would agree that close co-operation with the EU and the US will remain vital, and perhaps even more so now that we are possibly to lose our seat at the EU table and lose the leading role that the Foreign Secretary referred to in his speech today. That seems to have been confirmed by the Prime Minister in Munich last Friday, when she said that the UK will be leaving the EU’s common foreign and security policy.
Finding a new policy is therefore vital. It is no coincidence that Russia is delighted with the idea of Brexit, not least because of the potential weakening effect on the western alliance. It must be a key objective that we minimise that effect. We can see the importance of blocs in how Russia and China have been attempting to undermine UN sanctions on North Korea. Without a concerted US and EU insistence, what chance would we, the UK, have had of stopping recent Russian and Chinese abuse by acting alone? The answer, I fear, is very little, despite having the fifth biggest economy in the world.
In that regard, the more experts in this area that one listens to, the more one comes away with the understanding that the most effective sanctions regimes are those put in place by multiple countries. UK unilateral sanctions placed on Russia following its murder of Alexander Litvinenko in 2006 may have been right in principle, but they were seen to have little impact in practice. On the other hand, the EU, as the largest trading bloc in the world, can pack a heavy punch when it implements sanctions, as the figures show it is increasingly being prepared to do.
Alignment is therefore in our interests, but we need to ask what form it should take. Should we align like the neutral Swiss or Norway, and not have a seat at the table or determine policy but just join in with the others? Personally, I would see that as a failure of our long-held responsibility to engage and help lead the free international community.
My view is that, for sanctions, we should negotiate a position with the EU whereby we keep a decision-making and voting seat at the table. Whether that is done via some form of membership of the EU’s Political and Security Committee or through a new body is what we should now be considering. In Munich last week Mr Barnier called for an “ambitious partnership” that is “broad... beneficial and balanced”. I think that we should take him up on that invitation.
From a UK business perspective, there could be severe dangers associated with unilateral action. It could result in British companies being much more easily impacted by counter-sanctions imposed by the targeted regime, and it could have the additional regulatory headache involved in multiple export licence systems.
Finally on sanctions, like my right hon. Friend Mr Mitchell and Helen Goodman, I turn to the financial crooks, drug and people-smuggling barons and human rights abusers who are laundering more than £100 billion through the UK every year. We do not want that money here, and hopefully the asset freezing provisions of the new Criminal Finances Act 2017, including its Magnitsky human rights abuse amendment, will help, although some action from the Government would now be welcome.
However, it is not just about the money. We do not want these people or their families here, enjoying the rule of law and standards that they so blatantly disregard in their own countries. I should like to see a new visa-based regime and a list system. As every Russian opponent of the Putin regime will tell us, it is exposure and publicity that such people fear the most. At a time when the United States has just issued a further list of people whom it is only considering adding to its public Magnitsky list, I would appreciate an explanation of why Ministers continue to keep the banned list private here in the United Kingdom.
On the subject of anti-money laundering, let me say that it would be very helpful if the Government produced their long-awaited anti-corruption strategy. Many anti-corruption themes need to be pulled together and acted on. Let me issue a plea for moderation, common sense and risk assessment to be given more consideration in that context. That plea comes from the thousands of people who are ever more frustrated to hear that £100 billion of black money is being laundered in the UK while they have been banned or delayed from opening simple bank accounts for some petty, spurious or jobsworth reason.
The Bill commands general support on both sides of the House, and, like Mr Djanogly, who made an excellent speech, I welcome it. As currently drafted, however, it fails to include one vital measure that would at a stroke transform Britain’s contribution to the fight against money laundering, tax avoidance and evasion, corruption and financial crime. That measure has been debated many times in both Houses, and is strongly supported by parliamentarians in all parties and by the all-party parliamentary group on responsible tax.
We simply want to ensure that British overseas territories, many of which constitute the leading tax havens in the world, have registers of beneficial ownership that are public and open for anyone to interrogate: businesses, individuals, the press or civil society. I for one have had enough of the endless rhetoric proclaiming that Britain is leading the global fight against corruption and money laundering. The reality has to start to match that rhetoric, because at present it does not. By failing to insist that our overseas territories have public registers of beneficial ownership, we are complicit in facilitating the very corruption that we claim to want to eradicate.
Our overseas territories play a central role in the scourge that is corruption, tax evasion and money laundering. Of the 200,000 companies exposed in the Panama papers, more than half were registered in the British Virgin Islands, a UK overseas territory. More than half the offices of the law firm Appleby that were exposed in the Paradise papers are located in UK-controlled tax havens, and 90% of the world’s top 200 global companies have a presence in a UK tax haven. A World Bank review of corruption cases over a 30-year period found that our tiny overseas territories came second only to the vast United States of America among jurisdictions that provide anonymous shell entities for those involved in international corruption.
We all know that the effect of this financial crime is immense, and that the impact on the poorest in the world is particularly pernicious. We in the UK lose money that we desperately need for our schools and hospitals, but developing countries are even more adversely affected. The United Nations Conference on Trade and Development has estimated that developing countries lose at least $100 billion a year as a result of tax havens, and the OECD has estimated that they are costing those countries up to three times as much as the total global aid budget. What happens in our tax havens really matters. Persistent collusion by the UK in enabling them to endure, because of the Government’s failure to clamp down on the secrecy that pervades our British tax havens, is inexcusable.
My right hon. Friend is making an extremely powerful speech. Does she agree that whatever is in the Bill, it will lack any credibility if we point the finger at secrecy in other countries but do nothing about the secrecy in the overseas territories and Crown dependencies?
I strongly concur. Interestingly enough, David Cameron recognised that in 2013 when he told the overseas territories to rip aside the “cloak of secrecy” by establishing public registers of beneficial ownership. He wrote to them in 2014 saying that public registers were
“vital to meeting the urgent challenges of illicit finance and tax evasion.”
In September 2015, he accused them of
“frankly…not moving anywhere near fast enough.”
He said that
“if we want to break the business model of stealing money and hiding it in places where it can’t be seen: transparency is the answer.”
When he launched the UK’s public register, he argued that
“it’s better for us all to have an open system which everyone has access to, because the more eyes that look at this information the more accurate it will be.”
I agree with all those sentiments and arguments. All that we are asking of the present Government is that they stand by the promises made by their colleagues, their right hon. and hon. Friends, in a Conservative-led Government nearly five years ago. I also agree with the current Prime Minister, who said:
“If you’re a tax-dodger, we’re coming after you. If you’re an accountant, a financial adviser or a middleman who helps people to avoid what they owe to society, we’re coming after you”.
However, our tax havens are “middlemen”. It is time that the Prime Minister and her Government turned their rhetoric into practical action, and put an end to the nefarious activities that take place in so many of our jurisdictions.
Many of our tax havens, and some of our Crown dependencies, were put on the EU watch list. They had to demonstrate that they were making improvements. I understand that one of the ways in which they could get on to the watch list was for the UK Government to underwrite that progress by indicating that they would support it, which would enable them to avoid being put on the blacklist. Is it not imperative for us to enforce the commitment that we made to the European Union in preventing them from being put on the blacklist by ensuring that they implement what they promised?
I entirely agree. Indeed, if we leave the EU without having implemented reforms that would have an impact on the overseas territories, the EU will blacklist them.
I know that there are many principled Conservative Members—including Mr Mitchell—who care passionately about transparency, and have championed the cause from both the Back Benches and the Front Bench for many years. I urge them all to make clear to their Front-Bench colleagues that they will support a cross-party amendment setting a clear and reasonable timeframe within which the overseas territories would be required to prepare and launch public registers of beneficial ownership. I hope that the Government will listen to the advice of leading Back Benchers on their own side. Those of us who are involved in campaigning for transparency are not seeking short-term political advantage. What we want is an important, sustainable change that will have a lasting impact on the process of stamping out financial skulduggery, and a considerable impact on not just on the United Kingdom’s public finances but those of the poorest nations in the world.
We can never build a global Britain on dirty money. We will not create a strong economy on the back of being the jurisdiction of choice for every kleptocrat and crook in the world. Our British overseas territories will not prosper over time on the basis of being safe havens for illicit wealth. Transparency is an essential tool in the battle against all financial crimes. Exchanging information behind closed doors, which the Government claim is sufficient, particularly disadvantages the very same countries that suffer the most from financial crime and money laundering, because they have the weakest regulatory agencies in operation.
Relying on regulatory bodies is also very much second best. Even our under-resourced bodies such as Companies House are at best reactive in their work on uncovering financial crimes; there is very little evidence that they are undertaking proactive investigations. Indeed, the constant flow of scandals is strong evidence that the system based on the private automatic exchange of information is not working.
Let us consider the case highlighted recently by Global Witness of the $75 million paid by Glencore to Dan Gertler, a controversial businessman accused of bribing senior officials in the Democratic Republic of the Congo to advance mining interests. The money was originally due to be paid to Congo’s state mining company, but following a secret agreement was paid into one of Dan Gertler’s companies registered in the Cayman Islands. Or let us consider the case revealed in the Paradise papers of Jean-Claude Bastos, who managed Angola’s sovereign wealth fund and was paid more than $41 million from the fund via a secretive British Virgin Islands company. The BVI company was itself owned by a series of secretive offshore companies, but the ultimate beneficial owner was Mr Bastos.
Today’s Guardian contains disturbing revelations that North Korea broke international sanctions aimed at inhibiting the development of weapons by using a network of companies based in our tax havens to acquire millions of dollars-worth of fertiliser, coal and other commodities—our tax havens, undermining our national security and that of other western nations. Secrecy enables wrongdoing.
Ironically, the British Government have accepted that argument, because we are ourselves publishing our national register of beneficial ownership. The standard that we accept for ourselves should be the standard we expect for our overseas territories. To pretend, as the Government do, that the overseas territories are making good progress is nonsense. It was 2013 when David Cameron first demanded public registers; nearly five years later, we are still waiting for a number of the jurisdictions, including Anguilla and the Turks and Caicos Islands, to set up a central register.
Let me take this opportunity to debunk some of the myths that were prayed in aid when this matter was debated in the House of Lords. Raising the spectre of identity theft and personal security risks is wide of the mark. Public registers can have tightly defined case-by-case exemption policies to protect individuals who are genuinely at risk. Ministers claim that no other countries are adopting public registers. Again, that is not true: the EU is currently implementing the fifth anti-money laundering directive requiring all EU members to implement public registers by 2019, including Gibraltar, and we should be implementing that.
Arguing, as Ministers do, that we should not act until others have acted is a wretched excuse. We have been bold in leading the movement to stamp out corruption; we should pursue that course and be proud of it. As the number of tax havens decreases and the noose tightens around the remaining tax havens, our action will make action elsewhere in the world inevitable.
I welcome today’s statement from the Secretary of State for Exiting the European Union that the UK wants to lead a global race to the top in rights and standards. There is no better way of leading that race to the top than by insisting that our overseas territories adopt public registers of beneficial ownership.
Public registers will not undermine legitimate businesses or individuals who want to continue to take advantage of low-tax regimes. They will expose those who seek to hide their money because they have received it corruptly, or who unlawfully evade tax, all too often at the expense of poor people and poor countries.
On public registers, is it not also the case that firms that are more transparent are often more successful than those that are not? We see that in the examples of Santander, SSE and many others.
My hon. Friend on the Front Bench is completely right.
Finally, while we were all horrified by the destruction wrought by the hurricanes last year, those disasters should never, ever be used as an excuse for allowing kleptocrats, villains and tax evaders to prosper. In a White Paper on the overseas territories published in 2012, the Government stated:
“As a matter of constitutional law the UK Parliament has unlimited power to legislate for the Territories.”
I am urging tonight that the Government use their powers to insist that our tax havens—our overseas territories—put in place public registers in a defined timescale. That is a reasonable demand. Stopping it would create a grim stain on Britain’s reputation as we move to establish credibility in a post-Brexit world.
I agree with what Dame Margaret Hodge said and with what my right hon. Friend Mr Mitchell said in welcoming the measures in this Bill. I would go further and welcome the steps that the Government are taking to tackle corruption. However, I also agree with the right hon. Lady and my right hon. Friend that we need to go further now on the issue of transparency in our overseas territories—an issue I spoke about almost exactly a year ago in this House. Specifically, it is necessary in the fight against corruption that a public register of beneficial ownership of companies is established.
Much has been made of the effect of criminal activity, the ability of those engaged in such activities to launder money and the impact of the lack of transparency in supporting crime and corruption. The right hon. Lady pointed out that the United Nations Conference on Trade and Development estimates the cost of tax havens to developing countries to be some $100 billion a year. These are costs that are falling on the poorest developing countries. It should also be pointed out that tax avoidance costs us, too. It costs taxpayers in developed countries. A 2014 United States Senate report pointed out that the US loses some $150 billion in tax revenues a year owing to offshore tax schemes.
The Panama Papers, and subsequently the Paradise Papers, revealed the extent of the problem. However, as President Obama said after publication of the Panama Papers, the problem is that most
“of this stuff is legal, not illegal.”
That goes to the heart of the issue. Companies are able to operate perfectly legally in environments where there is not sufficient transparency. The losses are legitimate in the sense that they are not unlawful but they are avoiding taxation; the activities may be legally possible, but they are illegitimate morally. They may also, however, involve criminal activity. All of those are reasons why transparency is so important.
That is why it was such a major step forward when David Cameron announced in 2013 that action would be taken and when, in April 2014, he wrote to the leaders of the overseas territories, following the action taken in global summits, and said that Britain wanted the overseas territories, in partnership with us, to publish public registers. As he argued, these were the gold standard in transparency and would support law enforcement. That was the Government’s position at the time, but does it remain their position? They have never said that they will insist that the overseas territories produce public registers, even though the then Prime Minister urged them to do so in the strongest possible terms. I will explain why that is a necessity.
It is not clear to me whether it remains the Government’s position to urge the overseas territories to introduce public registers as soon as possible. That does not seem to be their position any longer. I think they are now saying that the overseas territories should move towards the creation of public registers once that becomes the gold standard globally. If hon. Members and non-governmental organisations have noticed this change of emphasis, surely the overseas territories will have noticed it, too. What progress can we reasonably expect them to make if they have sensed that the pressure from the UK Government to introduce those registers has eased?
I agree with many of my right hon. Friend’s points about transparency. I also agree with some of the fine points made by Dame Margaret Hodge. My right hon. Friend mentioned a change of emphasis. I am a member of the Public Accounts Committee. I understand from speaking to some of the United States authorities that there has clearly been a change of emphasis. We are getting quite a clear picture from the United States that it is not intending to go all the way with public registers of beneficial ownership, and certainly not as far as we would like to go. Therefore, we need to be clear about where we want to show leadership, but, at the same time, we have a duty to our overseas territories to ensure that, if we limit their economies in some way, we think about other measures that can support them in the short run.
I agree with my hon. Friend that it is necessary for us to show leadership, and I will say more about the support that we will need to give to the overseas territories in that respect.
A number of arguments have been advanced as to why it is not a good idea to require the overseas territories to introduce public registers. The first is that others will take advantage, and that criminal activity will simply relocate if we say that it can no longer take place in the overseas territories without visibility.
That argument is completely without moral credibility. It is also an admission that such activity is taking place in those areas. To say that we should not act because there might be an economic effect as a result of a reduction in criminal activity would be to argue that the Government should never take action against crime. We have to look at what steps might be necessary to compensate for and mitigate those effects, and to support the overseas territories, to whom we have an obligation in many ways. Simply to say that we will not insist on these changes because their economies would be damaged by the ensuing reduction in criminal activity would be akin to arguing that there would be no point in the police arresting a major drugs dealer in the UK because another drugs dealer might sell drugs in his place.
That argument cannot be sustained. If we believe that a wrong is being done to developed and developing countries—as it is—by the absence of transparency enabling tax evasion and worse, it is our responsibility to tackle that wrong by any means we can. If we simply stand back and wait for change to happen, we cannot expect it to do so.
The second argument that is put forward is that the measures are unnecessary because allowing law enforcement agencies specific access to information on the beneficial ownership of companies is better. It might be the case that law enforcement agencies require a particular level of information, and they can get it through the introduction of central registers, which is a welcome initiative, but if people are seriously arguing that transparency is unnecessary for law enforcement, why did we introduce transparency in the UK? It is self-evident and intuitively obvious that transparency is an aid to law enforcement, because law enforcement agencies cannot be expected always to go after criminals. Criminal activity has to be exposed, and publication is a way of exposing and preventing it. It is telling that a lot of this activity has surfaced only because of leaks. We cannot rely on the law enforcement agencies alone, even with the assistance of central registers and the exchange of information, to deal with all these issues. Also, they cannot deal with tax evasion issues that might be lawful but morally illegitimate. If it was right for the UK to do this, it is right for others to do it, especially our overseas territories.
That leads me to the third argument, which is an important and difficult one. To what extent should the UK insist that the overseas territories do anything? Would we be behaving in a neo-colonialist manner if we did so? This argument has surfaced more recently in relation to the decision by the legislature in Bermuda to reverse a decision of the Supreme Court relating to same-sex marriage. The UK Government made the difficult decision that it was not proper for them to intervene and that this was a matter for the Bermudian authorities. However, we took action in previous years when we reversed the colonial laws that we had bequeathed to the overseas territories in relation to the criminalisation of homosexuality. The very fact of the relationship between ourselves and the overseas territories—and the very fact that we can change the law there by orders in the Privy Council—reveals a relationship that requires us to hold to certain standards.
I accept that there could be unusual circumstances in which the UK Parliament would seek to intervene, but when it comes to global law enforcement, the harm that is being done is so general that it surely justifies action. There is a danger that, if the Government are seen to be stepping back in relation to human rights issues and to corruption, far from winning praise for allowing the devolution of power and the expression of local democratic decision making in the overseas territories, we will actually be harming ourselves and our international reputation for not upholding our obligations to the highest standards. Therefore, on balance, the argument is made not only that we have the power to intervene but that we have a duty to do so if the harm that is being done is otherwise so great.
Let us be clear that the tide is now turning in the direction of increasing transparency. As we have heard from the official Opposition, the EU is adopting measures to ensure that that takes place, and it is significant that the developing countries—those that are most harmed by the absence of transparency—are often the most supportive of these measures. Countries such as Kenyan, Nigeria and Afghanistan are committed to introducing public registers of beneficial ownership. Are we really saying that our own overseas territories will not be required to do so when developing countries such as those are committed to taking that action?
The uncomfortable truth is that some of our overseas territories are the worst culprits when it comes to tax havens. Everyone knows that; the papers that have been published reveal it and the time has come to deal with it. I agree with the right hon. Member for Barking that the time has come to insist that our overseas territories deal with this issue because frankly we will not make progress unless we press them. That is why, if a sensible amendment is tabled to the Bill to set a reasonable timetable for the overseas territories to produce registers of beneficial ownership—an amendment that has cross-party support, that includes commitments to ensure redress for any economic harm and that is respectful of the great economic damage done by the terrible hurricanes to some of our overseas territories—I will support it. I hope that such an amendment will command support on both sides of the House. This is, after all, the policy set by a Conservative Prime Minister and this Conservative Government, and it is the right policy.
Tax havens harm the world’s poorest most of all. Tax havens harm developing countries, and they harm us. They harm us economically, but they also harm our reputation. We live in an age of accountability and transparency. We must continue to lead this argument and not be behind it, which is why I urge my right hon. and hon. Friends on the Front Bench to take very serious note of what is being said in the House this evening and to act.
It is a great pleasure to follow Nick Herbert, who made a powerful speech to which I hope his Front-Bench colleagues were listening. It is hugely encouraging to hear so many Conservative voices speak out in favour of more transparency than is already being implemented. I hope it is a sign that this House has a centre of gravity for encouraging further action, of which the Government need to take note.
This Bill is sadly necessary if we are to leave the European Union. The very existence of this Bill underlines the negative impact of Brexit. Our international influence is diminished by leaving the European Union. Of course, sanctions and action against financial crime and money laundering are much stronger when co-ordinated internationally, and the European Union has been a successful mechanism for doing just that.
The existing sanctions and anti-money laundering rules are important, because fighting corruption is an important part of protecting our democracy. When I was a Business Minister, I was charged with implementing parts of the accounting directive through secondary legislation and with championing extractive industries transparency through the extractive industries transparency initiative. One of the issues I was always keen to explain is the link between financial crime, which can often be seemingly victimless—we are talking about numbers on a spreadsheet or on pieces of paper—and its very real and significant impact on people’s lives. The extractive industries transparency initiative is about fighting the corruption that we know happens in some developing countries, where vast mineral wealth is siphoned off into the pockets of dictators rather than funding essential public services.
It is important that we recognise that our country is not immune to such practices. Given particularly that London is such a major financial centre, we perhaps have a greater responsibility than other countries to ensure that tough laws are properly enforced to crack down on corruption. Of course, UK tax havens are another area to which that responsibility extends. I totally agree with the points made about the effect on our international reputation when we do not make sure that happens.
On the sanctions part of the Bill, I welcome the UK’s appetite to align with the EU’s sanctions policy in future, although I note that we will not enjoy the influence we currently have on what that sanctions policy should be. It is crucial that we do not diverge from that policy, because we do not want to risk being seen as a haven for corrupt individuals and corrupt money.
As Mr Mitchell said, there are opportunities in the Bill to provide greater clarity for NGOs that are doing vital work in difficult countries where there may be regimes that are subject to sanctions but, none the less, where those NGOs need to purchase fuel, supplies and food in country. Clause 15 makes sure there are more powers in primary legislation to provide exemptions so that there is legal clarity that what those NGOs are doing is proper and in order, which is important. Some NGOs, and others in the sector, have suggested that there could be improvements in the detail, which can no doubt be discussed in Committee and on Report.
More generally on sanctions, despite the amendments made in the other place, the Bill still hands over too many powers to the Government, and those powers are too widely drawn. Clause 12 is a case in point, as it defines sanctions not in terms of named individuals; it gives Ministers the power to describe groups of people. The potential for unfairly catching individuals in such descriptions is large, and we still need to consider that point. I urge the Government not to look to overturn amendments made in the other place or to roll back the positive changes that have already been made to this Bill.
Various right hon. and hon. Members, including the hon. Members for Bishop Auckland (Helen Goodman) and for Huntingdon (Mr Djanogly) and the right hon. Member for Sutton Coldfield, have raised the idea of a Magnitsky amendment. It is important that the UK takes a leadership role on human rights issues, and sanctions responding to human rights violations are therefore important. That means a crackdown on money and on visas, and it should also include a public list of those who are banned or for whom a ban is potentially being considered. I will look with great interest at any amendments tabled on that basis, and my party and I are very much minded to lend support to such amendments.
On the anti-money laundering aspects of the Bill, one part of the UK economy where there is real cause for concern is our property market. My hon. Friend Layla Moran talked about her experiences when the Public Accounts Committee visited the United States last week. The United States is already ahead of us, with mechanisms to define areas where property transactions and property ownership can be further investigated. The statistics are shocking. As many as three in 10 properties that are investigated have suspicious ownership. The London property market is hugely vulnerable to such intervention. Properties are bought to try to clean dirty money.
Excellent research by Transparency International UK has identified £4.2 billion-worth of property in London that has been bought with suspicious wealth, most of it based in secretive jurisdictions. In praising Transparency International, I should declare a degree of interest. Transparency International has excellent research, and my husband happens to be its director of policy.
The anti-corruption summit in 2016 committed to introducing legislation so that overseas companies that own UK property would have to declare their beneficial owners. We were promised that legislation by April 2018—in two months’ time. That is clearly no longer happening. It has been delayed on more than one occasion, and now it looks like we will not receive even a draft Bill until the summer.
With the UK in a housing crisis, does the hon. Lady agree that the Bill could speed up the property register and help tackle that important issue?
I absolutely agree. There is no need for any further procrastination. Officials clearly ought to have been looking at this issue since the promise was made at the anti-corruption summit 2016, and it was expected that something would be ready in time for this year. Even if a draft Bill is being considered for the summer—I recognise that parliamentary time is sometimes a constraint on the Government—there would be real support for the bringing forward of some amendments to this Bill based on what may already be partially drafted legislation, because money laundering is important when it comes to property and understanding who owns it. This situation is just another worrying signal from this Administration about the priority they give to combating corruption, because promises made in 2016 are being downgraded and delayed.
Others have pointed out the missed opportunity in this Bill in respect of the overseas territories and Crown dependencies. Back in 2015 and the latter part of 2014, I was the Minister who brought forward changes to the Small Business, Enterprise and Employment Bill—now Act—to introduce a public register of beneficial ownership of UK companies, and I am proud to have done so. Persons of significant control are now registered at Companies House, and people can now log on and see exactly what is there. I agree that there is a need for additional resources for enforcement to will the means, but that was an important step forward, and I am proud to have been part of a Government who took a leadership role.
I pay tribute to my right hon. Friend Sir Vince Cable, who was Business Secretary at the time, and to the former Prime Minister, David Cameron, because he was absolutely committed to fighting corruption and to playing a global leadership role through the G7 summit and beyond. He repeatedly made it clear that overseas territories should also publish registers. In fact, between 2013 and 2016, the Government sent letters to the overseas territories on several occasions encouraging action, and it is deeply concerning that the appetite has significantly diminished under the current Administration. It is almost as if the Government are now relaxed about the murkiness of financial transactions of the like that we saw revealed in the Paradise and Panama papers and about our overseas territories being used in the UK’s name to hide complex structures under which corruption can flourish. Progress has ground to a halt. If the Government disagree and think that they are as committed to tackling corruption as ever, what have they been doing since 2016? Where are the letters and notes from meetings where they have been encouraging the overseas territories to publish their beneficial ownership registers? I stand ready to be corrected if the Minister can provide that information, because the House would very much like to see it.
Dame Margaret Hodge mentioned Gibraltar and the fifth anti-money laundering directive when the Foreign Secretary was still in his place. His answer was somewhat vague, suggesting that maybe we would be implementing it, because the UK is already going beyond what is required, but that was not entirely clear. We then heard a response that was slightly more depressing, if a little clearer, from the Minister for Europe and the Americas later in the debate, suggesting that we perhaps would not need to implement the directive because we may have left the EU by the final deadline for implementation. He knows as well as I that there is no reason to be a last-minute merchant about such things. There is nothing to stop us implementing the directive before the final deadline, so it is absolutely in the gift of the Government to do so. If they are choosing not to, that is a clear decision from this Government to allow Gibraltar not to conform to the provisions of a directive that we deem to be necessary for the UK as a whole.
Alison Thewliss raised Scottish limited partnerships, and I am glad that she did, because they have been abused in major money-laundering schemes. Indeed, they have potentially been implicated in the alleged bribery of European politicians. Such partnerships have been required to file beneficial ownership information since June, but many have failed to do so or, in some cases, have filed patently false information. Again, there is an issue about enforcement.
Many of these issues need to be explored further during the passage of this Bill, which is sadly necessary. The Bill overreaches in some areas by giving the Government too many powers, but in other areas it misses opportunities that we need to take in order to provide assurances that we are taking the necessary and swift action to fight corruption. The Bill is an all right start, but it clearly needs further improvement. We should maintain the positive changes already inserted by the House of Lords, and I look forward to exploring the detailed issues as the Bill progresses through the House.
It is a pleasure to follow Jo Swinson. I also give credit to her husband’s work at Transparency International. I think he came up with the phrase that, as we leave the European Union, we should be “a beacon, not a buccaneer”. That is the spirit in which I approach the Bill: we should look to set the highest standards for transparency and financial probity, not try to get some short-term advantage by short-changing on those important issues.
I want to focus on three matters. The first is sanctions, which I raised with the Secretary of State earlier. I accept that if we freeze other people’s assets, we should not try to take part of them. However, in rare situations when we freeze the assets of regimes that have caused or committed serious offences in our country that have done real harm to our citizens, it is perhaps right to say, “Those assets are there and there is no realistic prospect of getting compensation to the victims in any other way than by using them.” In those rare situations, rather than letting people continue suffering from the injuries that were done to them, should not we be able to use the assets to try to rectify the wrong, if only slightly? I cannot imagine many instances in which that would apply, but it would clearly apply to the victims of the previous Libyan regime, which supplied Semtex to the IRA. I hope that, when the Government consider licensing the use of assets that have been frozen, we would help those victims of events that took place at least 20 years ago, if we could find a way to do so. How much longer will they be around to benefit from compensation, even if we could agree it with a Libyan Government—if there ever were one that would do so?
I heartily support the arguments for the need for overseas territories to have public registers of beneficial ownership. I do not want to repeat the arguments, but I will add a couple. It is sometimes asked why the overseas territories should have to lead, and argued that they should be able to follow the rest of the world. It is claimed that if they act first, they will be at a disadvantage, lose revenue and business will be driven elsewhere, to even murkier regimes. The problem with that argument is that our overseas territories are such a large part of the market for the activity that we are discussing that, if they do not reform, nobody else will. We cannot follow the market—we are the market here. We have to take a lead. We have to say to our overseas territories, “You have to do this. We don’t want you to be accused of having dirty, corrupt, criminal money. We don’t want you to have it or be accused of having it. The only way that we and you can show that you have clean regimes is to have this transparency.”
I suspect one of the reasons why the overseas territories can attract such large amounts of business is their relationship with the UK, their protection by the UK, the rule of law that we help them have and their access to our financial market. There is a very real link between what they do and what happens here. We therefore have some obligation to act to ensure that they have the same standards as we have. We cannot just wash our hands and say that it is for them and that they are independent and can do what they like. They benefit greatly from their links to us and the time has come for us to say that we need them to move to the same standards as we have and that they cannot be allowed to weaken our reputation. Everywhere else in the world thinks that they are part of the UK. Developing nations say, “What you’ve done is great, but our assets have been stolen and are being hidden by your territories and we can’t get at them or find out exactly where they are.” Everyone thinks that they are part of us and it damages our reputation if they do not adopt the same high standards.
I agree with my right hon. Friend Nick Herbert who said that we cannot force that on overseas territories overnight. We have to give them a sensible and fair timeframe and we would much prefer them to choose to put the transparent register in place instead of our forcing them. I, too, would support an amendment that provided for a realistic and fair timetable, but we need the Government to tell the overseas territories that they want and expect them to do it and that, if they have not done it by the deadline, the Government will make them do it, so that we get that open, clear and transparent standard.
Let us be honest: the Government’s actions in the UK to increase transparency have been mostly extremely good. We have the open register of beneficial ownership for companies, although we need to sort out some of the Companies House details. A few weeks ago, the new power of unexplained wealth orders came into effect. But if devious people can hide from our regime by using our overseas territories, all those things will be for nothing. We need to extend these powers much more widely.
I am not usually keen on our transposing EU directives where we do not need to do so, but it would be a terrible situation if we were not to implement something consistent with the fifth EU anti-money laundering directive and were lagging behind. If we read what is in there, we see that it contains some things that we should do, such as having a cap where we do not have a register of who has a pre-paid card, so that someone cannot spend laundered money around the world using such a card. That is a perfectly sensible measure to take.
The directive also contains provision for the register of trusts in certain situations. It would be a strange situation if the country in Europe that probably has the most trusts was the only one that did not have any transparency. That would hardly aid our reputation for being a clean financial centre, which is what we should be keen to establish. I am not particularly fussed whether the Government implement the fifth directive before we go or whether we introduce similar, equivalent or, we hope, stronger measures of our own, but let us not fall behind on those sensible ideas that the EU has come up with. I am not aware that we opposed them in the EU. I believe that we agree with the direction of that directive, so let us get those things into force.
The third point I wish to cover is the property register. I have served on a few Bill Committees in my time and I have occasionally tabled amendments in my misspent youth; occasionally I have asked for reviews, as that has been the only way of getting things tabled. In general, the Government’s response is, “There is no point putting into a Bill a requirement for a review, as we review things in any case.” Yet in clause 44, on the property register, what we have managed to get is a requirement for three annual reviews of the progress the Government are making on their own policy. I accept that that was the result of a compromise in the House of Lords, but I, too, would love to see real progress made on this property register, as it is an important missing link in our transparency.
I followed that debate in the House of Lords, and I found Lord Ahmad’s argument convincing: if we are going to have this register, we want it to have real meaning and teeth, and if the reward for a delay is that we can have a mechanism in law that means that if someone does not disclose the beneficial ownership of that property correctly, we can prevent them from selling it in future, that is a price worth paying for a delay. That would be a real consequence: if someone does not register who really owns a property, they cannot sell it until they do. That would be a powerful message to send out to say that we do not want dirty money buying property in this country; that if we think someone has brought a property with dirty money, we will impose an unexplained wealth order and try to work out whether we should get that money back off them; and that if they just do not tell us who owns that property, they are not allowed to sell it until they do. That would be a real step forward, so I am reluctantly prepared to accept that we need to wait a couple of years to get those powers in a place that will be effective. I hope that as this Bill proceeds through this House we can have the same assurances that were given in the Lords that the Government are committed to that register and that we are not just left with three years of reviews, at the end of which we have made no progress on that situation. The Government have committed strongly to that register again, and I look forward to it.
If ever we needed a reminder of how important the measures in this Bill are, we need only look at a story again today of a large bookmaker being fined millions of pounds. One of the reasons for that was that it did not prevent money laundering through its shops for several years. I declare that I went to a charity darts tournament sponsored by that bookmaker, to get a donation for a charity in my constituency—that is on the register and I declare it. This just shows that money laundering is not just about large amounts of very clever things moving around the world, as the “McMafia” credits showed; it is everyday activity, and we need everyday businesses to be on their guard in preventing this from happening. So I support the fact that the Bill retains those important powers going forward.
It is a pleasure to follow Nigel Mills, who made a thoughtful contribution on some of the gaps in this Bill. Perhaps it is because I am, with him, the co-chair of the all-party group on anti-corruption, perhaps it is because I was our Front-Bench spokesperson on the Criminal Finances Bill or perhaps it is because I am in front of the TV too much at the weekend, but I get the sense that money laundering is everywhere of late.
As the hon. Gentleman has just mentioned, we heard this morning of the record £6.2 million fine slapped on William Hill for not being vigilant enough in the prevention of money laundering. We have seen how the proceeds of crime have been funnelled through its channels, and the Gambling Commission has said that it must do better—as if it did not have enough on its plate with responsible gambling.
It has just finished, but for a while Sunday night was “McMafia” night—it is now “Homeland” night again in our house—and as the plot unfolded, we saw how billions of pounds can be transferred internationally very quickly, at the click of a mouse on a laptop. It also showed corrupt politicians, violent police, counterfeit goods hawked around high streets and all sorts of other things. It was fiction, but there was some factual basis.
No one so far has spoken against the idea of having such a Bill. The principle is good. No one is saying that we should turn a blind eye to dirty money. My worry is that, as right hon. and hon. Members from all parties have said, the Bill could do better and go a lot further. It is a good start, but the Paradise papers and Panama papers shone a light on a murky world of international finance and taxation working for the benefit of those with access to vast wealth and an army of lawyers—for the few, not the many—when ordinary citizens just want a fair and transparent financial system. So two cheers for the Bill.
The glaring omission, which has been mentioned many times, is that the Government need to work a lot harder to persuade the UK’s overseas territories—and one day, I hope, the Crown dependencies, too—to adopt the same level of transparency as we have in the UK and introduce public registers of beneficial ownership.
It is not for nothing that London is frequently named as the world’s money laundering capital. In 2016, the Home Affairs Committee concluded that the London property market was the primary avenue for the laundering of £100 billion of illicit money a year. As a London MP, that is particularly galling to me, because my inbox and postbag are full of housing issues, which also come up a lot when people come to my surgeries. We have a housing crisis, with people who want to get a foothold on the ladder and people in substandard accommodation.
It is not enough to think that it is not our problem; otherwise, silence equals complicity in what are becoming industrial levels of tax avoidance and evasion. The Bill will allow us to set our own sanctions and anti-money laundering policy, but our leaving the EU will inevitably damage our ability to influence the policies of the bloc. Britain’s voice will be quieter on the world stage and its global footprint will diminish. We will shrink in our role fighting corruption globally.
Some progress has been made in the adoption of private registers, but not all overseas territories have even adopted one, and if they have, they have not been centrally located or fully populated. Four and a half years on from when the Government tried to persuade the overseas territories to adopt public registers, none has so far done so, and the Government seem to have given up on them. As has been said many times in this debate, only Montserrat has made the commitment.
The ghost of David Cameron seems to have been ever present in this debate. He invited the world to an anti-corruption summit in London in May 2016—how long ago it all seems—and talked about how the public register model should be a “gold standard”. He said that tax avoidance schemes
“are quite frankly morally wrong”.
Again, there is that disjuncture between what is legally possible and what is morally correct.
Fast forward to 2018 and the Foreign Office expects the UK tax havens to adopt the public register model only when it becomes a “global standard”. There is a definite shift there. It is hardly leadership; it is followership, backtracking or a dereliction of duty, if we are being blunt.
Absolutely; my hon. Friend is so correct, as ever.
We all know what happened to David Cameron next: his ill-judged referendum was his downfall. Ironically, the EU seems to be taking the lead as it prepares to implement the fifth anti-money laundering directive. Our chaotic approach to Brexit and the slippage—we do not know what will or will not apply—is why the Bill is necessary. Last December, the EU agreed that all its 28 member states should establish public registers of the beneficial ownership of companies. We can all get behind the reasons: they allow greater scrutiny of information and contribute to preserving trust and integrity in the financial system. More and more countries are committed to implementing, or have implemented, public registers—I am talking about sovereign countries and not necessarily our overseas territories. There were 35 countries with registers at the last count, and with all EU member states required to have them by 2019, I suggest that this is a golden opportunity to build a new global standard.
When that happens in 2019, the UK Government should seize the opportunity to ensure that our overseas territories follow suit as soon as possible. Regulatory alignment is a popular watchword these days, and we should apply it in this situation. The territories that rely on wealth being stashed away from taxpayers are astute. They do it because they can get away with it, and they use the arguments of competitiveness and security against a centralised register. Our Government continue to drag their feet after so much promise, which is shameful.
The Government’s anti-corruption strategy was hastily rushed out—some Conservative Members did not notice it—because of harrying by people such as my right hon. Friend Dame Margaret Hodge, who had several debates on it at the end of last year. We kept saying, “Where is that anti-corruption strategy?” and the strategy was hurriedly rushed out at the end of last year. There is full awareness of the importance of public registers, but the strategy states:
“Our ultimate aim is that public registers become the norm. If this were to happen”— suddenly it has become conditional—
“we would expect the Overseas Territories to follow suit. The government will continue to work with these Overseas Territories to strengthen their beneficial ownership arrangements”.
The Government also promise a statutory review by December 2018. Why not now? It seems we have had a year of nothing, with the smokescreen of a consultation thrown in. People have consultation fatigue and we know what the issue is.
How can the Government aim for something if they are taking no action? It is not good enough. Only when the UK mandates the overseas territories to create the registers will transparency flow, and only then will the big question be sorted, with all its constitutional, ethical and international dimensions—people have talked about foreign aid. It is right to hold the Government to account on the promises they have made, as the all-party parliamentary group will continue to do. I hope that the anti-corruption tsar, John Penrose, who has gone from his place—I would have liked a tsarina—will continue to hold the Government’s feet to the fire.
I should do a short plug for the APPG. We recently had an event where we had the cast and crew of “McMafia” in the building—my hon. Friend Anneliese Dodds was there. It is not just fiction, but is happening in the real world. They launched an app. If people enter their postcode, they can see how many secretive jurisdictions are near them. The programme showed Kensington and these smart central London properties, but it is happening in Ealing. I put in my own postcode. Ealing is the 14th most secret neighbourhood in the country.
We are lucky enough to live in one of the most desirable cities in the world, but it is desirable for the corrupt, too—those with dirty cash to stash and launder. The Government agreed to fix that at least two years ago, but no concrete progress has ultimately been made. There are loads of examples—I will not go into them all now because we could be here forever. There were stories of “from Russia with cash”, Magnitsky was mentioned in the debate, and there is the pop princess from Uzbekistan. My right hon. Friend the Member for Barking had a debate on the Azerbaijan laundromat case, and we have had Bywater Investments and North Korean shell games. The list goes on and on.
This country has a real choice ahead in defining what kind of country we want to be post Brexit. We can put an end to the millions of pounds of stolen money flowing through London’s luxury property market or we can continue turning a blind eye, kicking the can down the road, saying that we are doing a consultation, pushing these things into the long grass and making London an even more appealing playground for the corrupt.
Thankfully, the other place wants significant concessions on the Henry VIII powers that might have come to pass. We have heard mention of statutory instruments, but this House must be vigilant and ensure that the Government do not try to sneak in more secondary powers through the back door, giving Ministers carte blanche.
Leaving the EU will undoubtedly affect our ability to sanction regimes properly. We will be vulnerable to legal challenges because corporations will see us as an easy target outside the EU. They will have an easier task suing a smaller state. Despite the Bill’s title, only one and a half of its 59 pages are dedicated to anti-money laundering. The Bill is a disappointment and a missed opportunity from a Government who promised much but are short on delivering. It is not just me saying that; ask Christian Aid, Global Witness and Transparency International. My verdict is, “Could do better.”
I welcome the Bill, which will not only see us retain our ability to impose sanctions and some of the powers against crime that currently derive from our EU membership, but will pave the way for new methods of tackling terrorism financing and money laundering.
Concern has been expressed that once we are out of the EU, the UK will—out of economic desperation—somehow turn itself into the global laundry for money of dubious origin or market itself as the premier place to stow ill-gotten gains. Sound arguments for a simpler, more competitive UK tax and regulatory regime must never be undermined by the idea of a financial free-for-all, not least because, in an ever more transparent world, London’s reputation as the world’s top financial centre will increasingly depend on it setting and adhering to global standards on financial probity. Meanwhile, as criminals continually update their methods, we shall need our own law and law enforcers to be ever more adaptable and responsive. It is therefore a timely moment to create an independent UK sanctions and anti-money laundering regime that can respond adequately to the forensic, cutting-edge work being undertaken by the likes of the City of London police and the National Crime Agency.
Going forward, the UK might wish to harmonise its own sanctions regime with existing sanctions regimes in order to maximise the impact of those sanctions and reduce the opportunity for legal uncertainty for UK or UK-based firms operating under our new regime. In time, the UK could play a critical role in bridging the growing gap between the EU and US approaches to sanctions, and in pushing for ever greater clarity from both sides to try to mitigate the risk of non-compliance in the financial sector.
As we look ahead, we must be careful of the law of unintended consequences. We must not make operating in certain countries or particular types of business so risky that we either cut ourselves off from legitimate opportunities or push ever greater volumes of business into newer, less robustly regulated parts of the sector. In that regard, the Government might consider new measures to facilitate information sharing between banks and regulators on suspicious entities or individuals so that we can encourage a proportionate, risk-based approach to whether to take on such business.
I welcome the ability that the Bill gives us to update counter-terrorism financing legislation, as well as clause 44, which commits to a register of beneficial owners of overseas entities. Nobody wants to discourage investment into the UK, particularly if such investment can help to increase housing supply by getting large-scale developments off the ground. None the less, the current approach cannot go on.
For goodness knows how long, I have been writing a book about London in the 21st century, covering the flood of international money into London’s housing market, the use of overseas investment vehicles to pay for that property and the resentment stoked in Londoners when such investment vehicles have been used as mechanisms to shield the proceeds of crime or evade tax, with property left empty. I therefore appreciate the confirmation from my hon. Friend John Penrose that the Government believe that foreign owners of British homes and offices should now be treated in the same way as owners of British companies. As he says:
“More than £122bn of property in England and Wales is owned by offshore firms. If they’re clean and reputable…they’ll have nothing to fear. But if murky shell companies have bought British property with plundered or laundered cash, we don’t want them here.”
The register should underline the UK’s commitment to being a strong, reputable trading nation that welcomes clean investment. Those values must surely shape our nation’s future as we chart our new path outside the EU.
As I have been sitting here listening to the debate, I have had a growing sense of déjà vu with regard to a similar sedentary vigil just before the recess when we debated the Nuclear Safeguards Bill. That is an important piece of legislation that we need as we leave the EU and seek to quickly and safely reproduce the benefits of our EU membership. It is in the same vein that we consider sanctions and anti-money laundering provisions. We must have arrangements in place not only because sanctions and anti-money laundering provisions are important causes, but because we have international duties to fulfil. This must be done, as is widely accepted across the Chamber.
Nuclear safeguards are of course high-impact, but also relatively easy to define and understand. That makes things a bit easier. We have civil nuclear matter, we need it, we want to move it, and we do not want it to fall into the wrong hands. Our current arrangements work, and we want to continue to have the same level of protection and safeguards. We cannot say the same about this area of murky finance, with money moving across boundaries and individuals profiting from criminal activities and then seeking to legitimise that wealth elsewhere. This is an ever-changing world, so our arrangements must be able to keep up. As we have heard very powerfully from Members throughout the Chamber, our current arrangements leave a lot to be desired. It would therefore be remiss of us just to lift and shift current systems; we should seek to improve them, and I will suggest a couple of ways in which we might do so.
First, I want to address the issue of the EU’s fifth anti-money laundering directive. This has now been agreed in principle between the EU and member states, of which we are still one, but it is scheduled for a phased introduction from next year, presumably falling during a post-Brexit transitional period. We have not had a lot of clarity from those on the Treasury Bench about how we will approach this. I hope that we will not see a request for us to concede a boatload of secondary legislation to Ministers. There was considerable interest about that in the other place, and I think we can do better. Even Nigel Mills, who is not currently in his place, said that we ought perhaps to transpose the directive into our law. When we hear the hon. Gentleman talk about transposing EU directives, we really are in a special place.
So what could we do about our sanctions regime? Currently, we lag behind the US and Canada. We need a targeted, flexible approach that promotes human rights and protects innocents from paying the price for the crimes of their leaders. That is why we have heard many voices call for Magnitsky-style amendments to the Bill. I add my voice to that. Such provisions allow us to pick and choose public officials from around the world who have committed human rights abuses or violations, and seize their assets and ban their travel. Such sanctions work because they target the wrongdoer specifically. A broader sanction or embargo at a national level punishes all, and often those who can least afford it bear the burden. Instead, such provisions target the people we need to get to. They would give Ministers flexibility and promote our attempts to meet our human rights goals as a country. We could underpin that—I am very keen on this, and it has not been mentioned yet—with humanitarian impact assessments of any sanctions that the Government impose. When our Government seek to impose sanctions, it is reasonable that we ought to have a clear understanding of their impact on the wider community in the affected area.
With regard to the anti-money laundering provisions, I start with the obvious: it is time for a property register. The initial commitment was made by the Government in 2016; we are now told that it will be operational in 2021. That will not do. This Bill is a good opportunity for us to pick up the cudgels and get on with it. Bricks and mortar is an obvious place to start, where we can disrupt the supply chain and follow the money. That would also have benefits in affected communities through releasing properties for people who actually wish to live in them.
That would help us at home, but we need to take on the broader challenge across the world. We will have failed if we get to the end of the process with a gold-standard piece of legislation—as I very much hope we will—but find that those high standards can be easily circumvented through a British overseas territory or Crown dependency. I know that this is controversial and there are strong feelings on it, but while we have a relationship whereby this Parliament has responsibility for defence, security and foreign relations in those territories, we should continue to take a strong interest in money laundering, because it sits at the very root of all those things. When the British Virgin Islands is at the heart of the Panama papers and Oxfam rates Bermuda as the No. 1 worst corporate tax haven, we should want to act and use all the tools that we can. Notwithstanding the qualifiers heard from the Government Benches, it is not too much to ask that we should see a public register of beneficial ownership of companies in the overseas territories and Crown dependencies.
The final way we could improve is by looking at the role of the banking system in preventing money laundering. We know that banks are under pressure to serve the bottom line and that they can have their heads turned when they encounter potentially profitable customers. We also know that relative to estimated levels of money laundering, regulatory fines have been low. When penalties are low, rewards for looking the other way are high. When there is little personal reputational risk, these things can happen.
The current legal framework is inadequate, and we should seek to change it. Two years ago we had a consultation on creating a specific “failure to prevent economic crime” offence, which would have covered money laundering. That was downgraded to a call for evidence, which closed in March 2017. It has been nearly a year, and we have not seen the fruits of that. I know as well as anybody what 12 months can do in life—it has been a big 12 months for me—but it is time we got around to this.
In conclusion, how we approach the Bill will tell us a lot about Britain’s place in the world post Brexit. Do we still believe that we have an outward-looking leadership role? Do we still seek to set high standards for ourselves and others? Are we keeping up with the pace of the modern world and the changing nature of crime? I believe that we ought to want to do all those things, and that we can use this Bill to do so.
It is a pleasure to follow Alex Norris, who spoke so eloquently. I welcome the Bill, but like so many other Members who have spoken this evening, I think we should be doing more.
It is not in our interests to have lax standards. It is in our interests to have the highest standards, which I know the Foreign Secretary and others are trying to achieve. The Bill is not just about finance; it is about power. Our finance system—the western finance system—is a source of power. Russian and Chinese oligarchs, and especially the Russians, use our finance system. That gives us influence over them. This is not just about terrorists, dodgy individuals or drug dealers. This is about changing and influencing state behaviour. I very much hope that Ministers will see it in that guise. With new forms of conflict in the world that we inhabit, financial power is a hard bit of soft power. The power to make rich people poor by freezing their assets should not be underestimated because it is a significant source of our influence.
Other Members, such as my right hon. Friend Mr Mitchell, have spoken eloquently about the lack of Magnitsky elements in the Bill, which concerns me. There are no visa bans in the Finance Bill amendments, and there is no presumption of action. I remind Members that Magnitsky was a Russian lawyer who worked for Bill Browder. He was tortured for several months and murdered, and his dead body was put on trial. That is remarkable, even by Russian standards. It would be nice if the Government had more ambition when it came to the Magnitsky elements of either the Finance Bill or this Bill.
The idea that weak or lax standards help the UK to compete in international money markets and international economies is deeply misguided. We are in danger of wagging our fingers at people like the Russians while allowing their state officials, people close to their regime and those on sanctions lists a free light to live here and use the western system.
EN+ was floated recently in the City. It has been reported that US security officials were concerned about the float and raised issues about it, as it may have been used to pay off loans to VTB, a Russian state-owned bank that is subject to sanctions. If that is the case, I would love Ministers to explain to me why it is a wise move effectively to turn a blind eye while the Russians play the sanctions process that we have put on them.
I will touch briefly on the offshore problem. I congratulate Private Eye on the work it has done in recent years to highlight the effects and the extent of offshore vehicles in the UK. When even in a place such as the Isle of Wight we have property owned by companies based in the British Virgin Islands, the Cayman Islands, Jersey, Guernsey, Luxembourg or Gibraltar, the system is flawed. Lax standards are corrupting for our country and our financial system and it is short-sighted to see it otherwise; I am sure Ministers will agree. When houses in Belgravia and Hampstead are used as glorified Rolexes for the international kleptocracy, we are getting something wrong.
I very much hope that the Minister will pledge to continue to make aspects of the Bill tighter, consider what can be done about the missing Magnitsky elements and make a commitment to having the highest standards in the Bill, rather than following others.
As most hon. Members have stated in this debate, money laundering and corruption are huge issues worldwide. Although I welcome some of the measures in the Bill, I do not believe that it goes far enough.
The Minister for Europe and the Americas has already been made aware—it was mentioned in an intervention—that, as part of the recently agreed fifth EU anti-money laundering directive, all EU member states will be required to have public beneficial ownership registers by 2019. I am sure he will confirm that, whether or not the United Kingdom is part of the EU at the time of the directive’s implementation, the United Kingdom would not want any measures that are weaker than those in the directive.
This raises the question of what should happen in the overseas territories. The UK has made a start on a public beneficial ownership register, but more needs to be done in the overseas territories. As my right hon. Friend Dame Margaret Hodge pointed out, the problem is that many overseas territories are tax havens and as such they are home to many offshore companies willing to offer complete anonymity to their clientele, with very few questions asked.
We should note that, despite overseas territories having small populations, half of all global trade passes through them because they are tax havens, and the vast majority of the transactions are carried out by offshore companies. Let us, for example, take the British Virgin Islands. Despite having a population of only 28,000, it is home to an estimated 500,000 offshore companies, which is 40% of the total number of offshore companies in the world. Many of these offshore companies have complete anonymity and are shell companies working with nominees and powers of attorney to move around vast amounts of money. Most people faced with that information would conclude that there is something dodgy going on.
My right hon. Friend gave examples of corrupt and illegal practices that have occurred in overseas territories tax havens, all of which are because of the opaqueness of the systems that they operate. A fully functioning central, public beneficial ownership register in the overseas territories would be no cause of concern to companies carrying out legitimate business activity. As more and more countries agree to adopt a public beneficial public ownership register, it is inevitable that the overseas territories should follow.
We need to make sure that money offshore in these tax havens is not being used for illegal purposes. If there is an issue, it is that overseas territories have built their wealth on secrecy. If that is the case, the Government should support the overseas territories to make sure activity is based on a legitimate and transparent model of business. The Government should give support to the overseas territories as they transition from financial secrecy to openness.
There is no reason why corporate ownership transparency should cause any problems in the provision of legitimate financial services, especially considering that many other countries will be adopting the principles of transparency registers. The people who are losing out the most are those in developing countries. They are in the greatest need and the billions being diverted away from them could literally be costing lives.
I will conclude by saying that a fully operational public beneficial ownership register in the overseas territories will greatly help to curtail money laundering, corruption and criminal activity, but much more needs to be done than is presently in this Bill.
Issues relating to sanctions and anti-money laundering have been dealt with under EU law for many decades. It is absolutely right that we in Britain should treat these matters extremely seriously and make sure that the UK has in its toolbox all the tools that it needs to take action.
The UK has taken the lead in the past. Many of my colleagues in the House have reminded us of their experience when David Cameron chaired the G8 and tax transparency was put at the top of the global agenda. I remember being in the European Parliament at that time, working with the UK Conservative-led Government to increase tax transparency across Europe by introducing country-by-country reporting for banks.
The UK must continue to lead because the City of London is the world’s leading financial centre. The financial services sector is the leading contributor to British finances. It is vital to our future economic success and its success is based on its reputation for trust and transparency. Crime does not stand still, however, and those who want to continue to launder money will continue to try to evolve their behaviour, moving into new dark spaces, taking advantage of digital trade and finding new ways to exploit behaviour in a virtual world. No country has the tools to act alone and countries must continue to work together. Of course Britain will continue to implement anti-money laundering laws that were set in Brussels: we helped to form those laws. Action is being taken today. In today’s news, we have seen fines against William Hill, HSBC has announced a warning of a potential $1.5 billion fine for its Swiss operations and Latvia’s central bank chief has been suspended.
If we are to continue to take action against money laundering and fraud internationally as well as domestically, we must continue to have exchange of information. Data exchange is key for our security services, our tax authorities and our financial services sector. The vast majority of our financial services companies want to be able to stamp out fraud themselves. I am sure I am not the only Member to receive a phone call from their credit card company warning them that their credit card was being used fraudulently. I was in my kitchen in England while my credit card was being used in a hotel in Turkey. Our companies want to be able to access cross-border personal data because that helps them to fight crime.
Foreign Secretary, you have spoken about building bridges with Europe. You have spoken about building a physical bridge. You have spoken about building a hypothetical bridge. I challenge you to build a digital bridge: a 21st century data exchange bridge, based on the rules of data adequacy. That will ensure we keep the ability to fight crime together across the world.
I agree with many of the comments we have heard today from both sides of the House, which I would summarise as—a necessary start but not good enough, not far enough, not strong enough.
One area I am interested in is arms control, which the Bill misses an opportunity to address. The arms export control system we use in the UK goes hand in hand with the sanctions system we use to stop arms getting to certain regimes. The arms export regime we operate in this country is, of course, underpinned by EU consolidated criteria. There is no mention of consolidated criteria or of bringing the arms licensing regulations into a system such as the sanctions regulations. It is, I suggest, a great shame. The Bill does not touch on that area.
All of this is all very good, but enforcement is needed. Without enforcement, there is no point and the Bill is not worth the paper it is written on. Since 2011, there have been no prosecutions by Her Majesty’s Revenue and Customs of people who have broken the arms export regime or broken sanctions on arms sales. What is the point of introducing a Bill with a raft of sanctions against arms sales to certain regimes if we are not going to enforce them? It is not like in this time, there have not been significant and very credible reports that arms export controls have been breached and that arms have been sold to some of the most dangerous regimes in the world. We have just failed on enforcement because HMRC is under-resourced and these issues are under-prioritised in that department.
Turning to another area, I have a constituent who is a local business owner with a foreign national. She has reported many times her feeling that the company that she co-owns has been engaged in money laundering. She reported it to Action Fraud, Sussex police and HMRC, but for over a year, nothing was done. It took us hiring forensic accountants for HMRC suddenly to realise that hundreds of thousands of pounds might well have been laundered through the company. This was a director who wanted to blow the whistle, but HMRC and Action Fraud were just not interested. That is another example of how what is written in the Bill is all well and good, but the enforcement is just no good.
When Labour Members talk about wanting to give more money to our nurses, teachers and firefighters, we are often mocked by Government Members, who say that we want a magic money tree. It seems to me that a crop of magic money trees is growing with incredible health in some of our 14 British overseas territories. They are very clean because they are laundered daily, and they clearly like the climes—the balmy 32° that it is right now—in the British Virgin Islands. I note that many of the people in the Virgin Islands never really see these trees because they are lovely brass-plate trees.
Maybe it is not the climate that encourages magic money trees to locate in our overseas territories. Perhaps they thrive as part of a protection racket to shelter the very wealthiest in our society from paying their fair share. As we leave the European Union, it is vital that we have the mechanisms in place to replace the sanctions and money laundering provisions of the EU. I commend the Government for taking the first steps, but the Bill falls so short of creating a public, central and open register of beneficial ownership for our overseas territories.
More than 70% of corruption cases surveyed by the World Bank between 1980 and 2010 rely on anonymously owned companies helping to obscure what they are doing. It is the overseas territories that fly the flag of brand Britain and endanger that flag by not opening up—[Interruption.] I am sure that you will have a moment to reply later on, Mr Foreign Secretary. You do not need to chunter from your seat. These corrupt regimes are under the British flag. We have seen in the Paradise papers how companies such as Appleby—I call them crooked Appleby—advertise themselves as respectable offshore sector companies. However, they are now suing The Guardian for telling the truth that six of their 10 offices are located in overseas territories and are involved in money laundering, and what will the Bill do to help people? Not enough.
We might hear from Government Members that we cannot do much on these issues, but a raft of people from overseas territories have written to me, begging us to take action, saying that they see no benefits in the territories for people on the ground from this tax evasion. It does not benefit our overseas territories. It benefits a small, super-elite and if we do not take action on enforcement in our overseas territories, who will? The Bill must go further. If it does not, we must ensure that amendments are forced in Committee and on the Floor of the House because there is cross-party support for ensuring that brand Britain stays clean and that we kick out the dodgy dark money from our country and our overseas territories.
It is a real pleasure to respond to the debate on behalf of the Opposition. The Bill, as many colleagues have indicated, purportedly aims to provide the UK with an appropriate system to stop the corrupt and the criminal from benefiting from our British financial system. I will first consider the sanctions-related matters before looking at the money laundering matters, although they are of course intrinsically linked.
As with much of the Government’s Brexit-related legislation, many concerns have been expressed about the lack of parliamentary oversight of the Bill’s provisions. As my hon. Friend Helen Goodman set out, many positive changes were made when the Bill was discussed in the other place, and they must not now be rolled back in this place. Other matters of concern persist, as indicated by the hon. Members for Glasgow Central (Alison Thewliss) and for East Dunbartonshire (Jo Swinson), and echoed in the calls for clarity from Mr Djanogly.
We still lack clarity over the extent to which our sanctions regime will be aligned with that of the EU 27. The evidence is clear that sanctions are more effective when imposed collectively—the hon. Members for Glasgow Central and for Huntingdon made that point very well. I was disappointed by the Foreign Secretary’s comments in this regard, which I thought were contradictory; he simultaneously admitted that unilateralism might not be effective while vaulting the possibilities of a totally independent regime. There are no indications in the Bill of how we will concretely ensure the continued co-ordination that is so necessary in this area.
We heard in the debate some persuasive arguments about the need for stronger commitments in the Bill, not just fleeting mentions, on the necessity for sanctions to target those responsible for human rights violations, particularly those responsible for gross human rights violations, as in the so-called Magnitsky regimes. Mr Mitchell spelled out clearly the reasons for such an explicit approach. I hope that Government Members will have listened to those arguments.
Finally in relation to the sanctions-related provisions, the hon. Members for Glasgow Central and for East Dunbartonshire mentioned the need to ensure that measures are appropriately calibrated so that they target criminal individuals and terrorists, not legitimate aid agencies and financial service providers delivering legitimate services. It is essential that we have accurate and appropriately granular mechanisms in that regard.
Let me move on to money laundering. I was very pleased, as I am sure were many Members, about the informative and courteous style of debate that we have had on money laundering tonight. I am afraid that is in contrast to the comments on money laundering from the Government when introducing the Bill, which I thought were disturbingly brief. It is clear that the problem of money laundering is getting worse, not better. I will not go into all the arguments and evidence on that now, because that has been done very ably by other Opposition Members, not least my hon. Friend Dr Huq. At the centre of the UK’s problems with money laundering lies a lack of transparency and accountability, both of which are essential if we are to ensure that the criminal and the corrupt do not profit from our leaky financial system.
On the issue of public registers of beneficial ownership in our associated territories, may I say what a powerful tour de force we have had from the right hon. Members for Arundel and South Downs (Nick Herbert) and for Sutton Coldfield? I am sure that the right hon. Member for Arundel and South Downs, as a former Home Office Minister, has a huge insight into the damage being done by the lack of transparency in this area, aiding international criminals. The Government must listen to the uncomfortable truth that he has set out so ably tonight.
My right hon. Friend Dame Margaret Hodge set out how long this process has been running, as the Government requested beneficial ownership registers from the overseas territories five years ago. Many Members have indicated that we have had a slippage away from the Government’s initial commitments in this regard. The failure to clean up the act on behalf of some of our overseas territories is having a severe impact on their reputation. As someone who has had many meetings with representatives of those jurisdictions, and who supports them tremendously, let me say that it is not their foes but their friends who are arguing for more transparency, because we see the reputational damage that the lack of transparency is doing to them. As my right hon. Friend the Member for Barking said, the Government’s failure to act constitutes complicity. I agree with Nigel Mills that the UK must exercise leadership.
There has also been a lack of clarity from the Government over whether they are minded to follow EU-level developments, particularly the anti-money laundering directive known as AMLD 5. I agree with Vicky Ford about many things—we worked together previously in the European Parliament—but I am afraid I cannot agree with her assessment that we know for certain that the Government will continue to cohere with EU-level developments. Jo Swinson and my hon. Friend Bambos Charalambous explained very clearly why we do not have the clarity that we need.
I think it especially important to focus on the regulation of trusts. Under David Cameron, the Government argued against their inclusion in EU registers of beneficial ownership. The Foreign Secretary claimed that the UK was ahead of the rest of the EU with our register of beneficial ownership, but we have been a drag on the EU when it comes to more transparency on trusts.
At EU level, we have been. David Cameron argued against the inclusion of trusts in EU beneficial ownership registers, but we now have a chance to change. I can see that the Foreign Secretary is appalled by the idea that we might have acted as a drag in that regard, but I am sure that he will be converted to the cause of more transparency.
As the hon. Member for East Dunbartonshire rightly mentioned, it is deeply concerning that the timetable for the foreign-owned property register has slipped so substantially. I take on board what was said by the hon. Member for Amber Valley—we already have a register of sorts, in the guise of Private Eye’s tax haven property map—but that map was created, essentially, by mistake. It was created when the Land Registry released data, by mistake, which was then matched up with Companies House data. The Government should be delivering the register themselves. I appreciate that there should be additional disincentives, but that is not a reason not to act now.
Finally, let me say something about the issue of due diligence in relation to British company ownership. Yes, we do have a public register run by Companies House, but the responses to a series of parliamentary questions that I have tabled have shown that there is little or no oversight of the veracity of the data supplied to it. That is illustrated by the worrying case mentioned by my hon. Friend Lloyd Russell-Moyle, to whom I pay tribute for all his effort to help his constituent. There are not enough resources in Companies House, and there is a regulatory gap in respect of those registering companies with it directly. There are even problems for those who register through company formation providers, many of which have been shown not to be fulfilling their responsibilities. In that context, it may be necessary to launch a pincer movement requiring all such firms to have UK bank accounts: at least they would then be covered by anti-money laundering legislation through the bank account system.
The Financial Action Task Force is due to report next month on the UK’s approach to money laundering and ensuring the integrity of the international financial system. I am sure Members in all parts of the House agree that it would be a huge international embarrassment if the taskforce concluded that the UK Government had chosen not to adopt measures that would help to clean up our financial system. I am afraid I agree with my right hon. Friend the Member for Barking that there are grim stains on the UK’s reputation in this regard.
Let me issue one last plea. I have been very disturbed by the Government’s decision not to defend publicly the journalists who were singled out by Appleby. It picked on British companies, the BBC and The Guardian, which were taken to court after releasing details that were in the public interest. Sadly, the Treasury team—I see that some of its members are present—has not yet been willing to condemn that behaviour. I appeal to Ministers, including those in charge of foreign policy, to do so now, and to confirm that those disclosures were in the public interest.
As my right hon. Friend the Foreign Secretary said in his opening speech, this Bill is necessary to ensure that we can continue to use sanctions and anti-money laundering regulations to support our foreign policy and national security goals as we leave the European Union. We have had a lively and passionate Second Reading debate, but I sense that the setting up of a UK sanctions regime on our departure from the EU would appear to enjoy the broad support of this House.
It is often invidious in winding up a debate to pick out some speeches but not all, but forgive me, Mr Speaker, if I do that this evening, because I think the two strongest and most remarkable speeches were those of Dame Margaret Hodge and my right hon. Friend Mr Mitchell, with whom I worked very closely as his deputy in DFID. I appreciate the passion of the right hon. Lady; we will no doubt debate these matters at great length in Committee and on Report, and we will take on board the strength of the arguments we have heard tonight, and which, of course, we have heard before. Likewise, my right hon. Friend made an impassioned plea for humanitarian agencies to be fully considered, and I will come to that shortly. He also spoke of Magnitsky, as did many Members; I will go into more detail later, but for now I will say that this Bill has wide-ranging powers to sanction people for human rights abuse. On open registers, we share my right hon. Friend’s view on wanting to bear down on illicit money flows; as he said, the registers are open to instant access by regulatory authorities, but I quite understand his view that such action alone does not suffice.
I have a small point to make to my hon. Friend Mr Djanogly, who asked if we could publish the anti-corruption strategy; we did so in December of last year. Lloyd Russell-Moyle asked why nobody has been prosecuted for export control offences; in fact, there have been 23 not just prosecutions, but convictions, for export control offences in the 10 years from 2006 to 2016, and a number of these prosecutions relate to exports to countries covered by UN and EU sanctions regimes.
This being a Second Reading debate, I want to dwell on a few key principles contained in the legislation, as I have no doubt that we will discuss the closer detail further in Committee. The first such issue is that of delegated powers. They are rightly coming under scrutiny in this place today. However, it is important to recognise that Ministers implement sanctions and anti-money laundering regulations by using delegated powers now, through secondary legislation under the European Communities Act 1972, and this Bill will not change that approach. In fact, in the future Parliament will have greater oversight of sanctions than it currently does, with votes needed in both Houses when the UK acts outside the requirements of the UN, and given the need to respond quickly to global events, the Government believe that regulations remain the best mechanism for implementing and amending sanctions and anti-money laundering regimes.
There is, however, the question of creating criminal offences, as referred to by Alison Thewliss, and I am confident this will be addressed before Report. We have listened to these concerns and we are working on a solution that we hope will be accepted by those who expressed them in another place. Indeed, Lord Judge, whom we have been talking to, and his colleagues did not disagree that breaches of sanctions should be criminal offences, and we will introduce amendments to fix this and address their concerns in due course.
On procedure, we believe we have the right balance of affirmative and negative resolutions. Regulations that implement UN regimes will be made under the negative procedure; regulations that do not implement UN sanctions regimes will be made under the made-affirmative procedure.
The hon. Member for Glasgow Central talked about the ability to amend devolved legislation as being “monstrous”. I think she slightly misunderstands the process here. Sanctions are a matter of foreign policy.
On negative and affirmative resolutions, the Minister is choosing to draw a distinction based on the origin of the sanctions—whether they are from the UN or the EU—but would there not be a greater logic in drawing a distinction between individual sanctions on people, which obviously have to be done quickly, and the rules of the game for the regimes, where the House would be reasonable in seeking to be consulted before they are introduced?
The reason that we have made this distinction in terms of procedure is that we are obliged in law to implement UN sanctions. Once the sanctions have been agreed at the UN Security Council, the UK has an obligation to implement them under the UN charter. Not to do so would leave the UK in breach of international law—hence the distinction in the procedure that we are using.
Returning to what the hon. Member for Glasgow Central described as “monstrous”, I say again that sanctions are a matter of foreign policy and so are reserved to this Parliament.
No. We consulted the devolved Administrations—that answers a question that the hon. Lady asked—and they did not disagree with us. The ability to make changes to devolved legislation that can be used only to make changes required as a result of sanctions does not injure the devolution settlement. Their primary purpose is for a reserved matter.
Let me move on to the issue of Magnitsky. I recognise the concerns expressed about the importance of taking a stand against individuals responsible for committing gross abuses of human rights. We recognise and indeed share those concerns. I would like to make it clear that this Government are committed to promoting and strengthening universal human rights, and this Bill will permit us to do so. We already have a range of powers to take action against those who commit gross human rights abuses, most recently through the Proceeds of Crime Act 2002, as amended by the Criminal Finances Act 2017. The Home Secretary also has the power to exclude individuals whose presence we believe to be contrary to the public good, and we keep track of potentially dangerous individuals to prevent them from entering the UK. To complement this, we also have a range of domestic asset-freezing powers.
We are already committed to using sanctions in this area. This is demonstrated by the number of countries against whom we use human rights-related sanctions. They include the Democratic Republic of the Congo, Iran, Libya, Mali, South Sudan, Venezuela and Zimbabwe. The Bill will rightly continue this, allowing the UK to continue to implement existing sanctions regimes and to impose new sanctions in the future. I reiterate my point that paragraphs (f) and (h) of clause 1(2) will empower the Government to implement sanctions on human rights grounds. These are broad powers that will provide maximum flexibility and allow us to include all sorts of abuses, including but not only gross human rights abuses.
I should like to refer to the comments made by my right hon. Friend the Member for Sutton Coldfield about humanitarian access and freedoms. This is an important point. The Government recognise the concerns expressed in the House about the humanitarian impact of sanctions, and we understand the need for engagement with non-governmental organisations and other humanitarian actors. We fully support the work of NGOs operating in difficult areas, and we recognise that they are important partners in delivering the UK’s objectives in challenging environments. I want to reassure the House that the Government have been actively engaging with NGOs. As part of the consultation for the Bill, we held a roundtable to understand their concerns. Within the past couple of months, we have also met organisations involved in humanitarian, development and peace-building work.
The Bill provides a number of tools that will enable the Government to tailor each regime to help to meet the needs of NGOs. In particular, it will enable the Government to make exemptions for humanitarian reasons and to issue licences for legitimate activity. EU case law currently limits our ability to issue general licences, but the Bill will provide greater flexibility by allowing us to do so in circumstances where Ministers judge it appropriate. It will also help to prevent the exploitation of NGOs by those seeking to circumvent sanctions. We have committed to remain engaged with the humanitarian sector and to provide it with high-quality guidance on the implementation and enforcement of individual regimes. We will continue to work with NGOs and other stakeholders to develop the best possible system.
Beneficial ownership has been at the heart of tonight’s debate. We will no doubt discuss it in Committee and perhaps on Report. It is important to recognise that the UK is the only member of the G20 with a public register of company beneficial ownership. We welcome the fact that the EU is catching up with us, but, when it does, public registers of beneficial ownership will still not be a global standard. The non-EU members of the G20 will still not have them.
We hope to work with the Financial Action Task Force and other partners to establish registers of beneficial ownership as a global standard, the effect of which will be not to allow companies or people simply to shift from one regime to another and hide their assets somewhere else. In the meantime, we should remember that the overseas territories are well ahead of most jurisdictions, including many G20 partners, in developing private registers.
In the exchange of notes in 2016, the overseas territories with significant financial centres each committed to holding central or equivalent registers of company beneficial ownership and to making information held on those registers available to UK law enforcement and tax authorities. Those arrangements are almost complete, with some of the territories understandably slightly delayed by last year’s devastating hurricanes.
Moreover, the overseas territories are separate jurisdictions with their own democratically elected Governments. The UK respects the constitutional relationship with the overseas territories and Crown dependencies. It is entirely right to work consensually with them, rather than to impose legislation. The UK has only legislated directly without the overseas territories’ consent in the most exceptional of circumstances, such as on capital punishment.
We do not generally legislate for the overseas territories, and to do so would have the effect of overruling their own legislatures and could be interpreted as disenfranchising the citizens who voted for them. The overseas territories have taken great steps forward in this area, further indeed than many other jurisdictions, and I urge the House to appreciate the importance of not jeopardising what has been agreed with them.
Until we leave the European Union, the United Kingdom will continue to exercise all the rights and obligations of membership, including with respect to common foreign and security policy, sanctions and anti-money laundering. After we leave, this Government intend to continue working closely with our European neighbours to ensure our collective peace and security. Sanctions and anti-money laundering regulations will continue to be a powerful tool in that effort.
Through this Bill, the Government intend to ensure that these important foreign policy instruments continue to be fully available for the United Kingdom to use wherever it is deemed appropriate so to do. I commend the Bill to the House.
Question put and agreed to.
Bill accordingly read a Second time.