Proceeds of Crime Act 2002 and Money Laundering Regulations 2003 (Amendment) Order 2005

– in the House of Lords at 3:17 pm on 9th December 2005.

Alert me about debates like this

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip 3:17 pm, 9th December 2005

rose to move, That the draft order laid before the House on 22 November be approved [12th Report from the Joint Committee].

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Government Whip, Government Whip

My Lords, the Government have a comprehensive strategy in place to seize and confiscate the proceeds of crime and to combat money laundering. Over £185 million has been recovered over the last three years from drug dealers and other criminals who make people's lives a misery. Taking away criminals' profits sends out a clear message that crime does not pay. It prevents criminals funding further activity and removes negative role models from many of our communities.

Taking the profit out of crime by seizing and confiscating criminal assets means that it is crucial that we have comprehensive measures against money laundering in place. Money laundering is not just financial crime; it is the other side of serious acquisitive crime which damages us all—trafficking in human beings, drug trafficking and excise fraud are but three examples. The money laundering reporting system is an important element in the United Kingdom's defences against both lower level crime and serious and organised crime.

The reporting system and a number of other measures that are in place to combat money laundering are enshrined in the Proceeds of Crime Act 2002. The Act created a single set of money laundering offences, applicable throughout the United Kingdom, to the proceeds of all crimes. There are separate offences of failure to report money laundering.

The legislation fulfils our international obligations and helps protect the reputation of the United Kingdom financial system. Since the Act came into force in 2003, we have kept the provisions on money laundering under review. The Home Office and the Treasury have set up various bodies and groups where the private and public sectors and the regulators can work together to produce a better regime; I refer notably to the Money Laundering Advisory Committee.

Earlier this year, in response to issues raised in those working groups, we made some changes to the 2002 Act in the Serious Organised Crime and Police Act 2005. Those changes help to reduce the burden on the regulated sector in complying with the law on money laundering and to improve the effectiveness of the system. In particular, there are some exemptions over what has to be reported and reduced penalties over the failure to use the form in which reports must be filed. Some of the new provisions came into effect on 1 July and the rest will be introduced over the next few months.

The order makes a further minor adjustment to the requirement to report knowledge or suspicion of money laundering to the National Criminal Intelligence Service. It is the outcome of an informal consultation exercise that the Home Office conducted last year. The consultation was on whether the law on the duty of accountants, auditors and tax advisers to report money laundering under the Proceeds of Crime Act 2002 needed to be changed to bring it fully into line with European Community law. What prompted that exercise were representations that the Home Office had received from the Institute of Chartered Accountants in England and Wales that the current legislation discriminated unfairly against accountants, auditors and tax advisers. That, it claimed, was contrary to the second EC Money Laundering Directive.

Under the Proceeds of Crime Act, persons working in the regulated sector are criminally liable if they fail to report where they had knowledge, suspicion, or reasonable grounds for knowledge or suspicion, that another person was engaged in money laundering. The regulated sector is essentially banks, building societies and other financial institutions; it also includes the legal and accountancy professions. Section 330 of the Act makes it clear that the relevant "failure to disclose" offences are not committed if the person is a legal adviser and the information comes to him or her in privileged circumstances. Article 2 of the order amends Section 330 of the Act. The defence to the "failure to disclose" offence, which currently applies to professional legal advisers in certain circumstances, is extended to include accountants, auditors and tax advisers who satisfy certain conditions. The equal treatment between those professions that the order provides for will apply only to the very limited extent that they are carrying out effectively the same functions in relation to legal advice.

The limited exemption from the requirement to report money laundering will apply only to accountants, auditors and tax advisers who are members of a professional body that requires a test of competence as a condition of membership and the maintenance of professional standards, including sanctions for non-compliance with those standards. The exemption will not apply to accountants or accountancy firms unaffiliated to a professional body of the type described in Article 2(5) of the order.

There is a very important exception to the reporting exemption currently in the legislation as regards lawyers. The client's right to confidentiality does not apply where he is trying to use his relationship with the lawyer to further a criminal purpose. Where that happens, a report would need to be made to the National Criminal Intelligence Service in the usual way. That exception would also apply to accountants under the order.

The legal and accountancy professions have expressed concern about the position of staff in offices who are not legal advisers or other relevant professional advisers and who may become aware of privileged material giving rise to suspicion of another person's money laundering. We have addressed those issues in the order. The amendments to the 2002 Act made by the order provide a defence for a person who is employed by, or is in partnership with, a professional legal adviser or other relevant professional adviser, as defined in the order. Those are people who are part of the team giving advice or support but who are not themselves professionally qualified. That will therefore also protect, for example, a clerk or secretary in the firm as well as other specialist advisers.

The Money Laundering Regulations 2003 (SI 2003/3075) also give effect to the second EC Money Laundering Directive. In addition to amending Section 330 of the Proceeds of Crime Act, the order makes a similar amendment to the Money Laundering Regulations 2003.

The Government will do everything that they can to reduce the burden on businesses in the so-called regulated sector imposed by the legislation. We need to know more about the effectiveness of suspicious activity reports. The Serious Organised Crime Agency will take lead ownership of the suspicious activity reporting system. Sir Stephen Lander, the chairman-designate of the agency, is carrying out a review of the existing regime, reporting back to my right honourable friends the Home Secretary and the Chancellor of the Exchequer by March next year. The Government are fully committed to working with the financial services industry, the legal profession and the accountancy profession to maintain strong defences against money laundering. The amendment to the Proceeds of Crime Act, to which the order gives effect, will help to reduce the regulatory burden on accountants, auditors and tax advisers in certain circumstances, without damaging the effectiveness of the money laundering reporting regime. I hope that the order is approved. I beg to move.

Moved, That the draft order laid before the House on 22 November be approved [12th Report from the Joint Committee].—(Lord Bassam of Brighton.)

Photo of Viscount Bridgeman Viscount Bridgeman Spokespersons In the Lords, (Assisted By Shadow Law Officers), Spokespersons In the Lords, Northern Ireland, Deputy Chief Whip, Whips

My Lords, as a member of the Institute of Chartered Accountants of Scotland, I clearly have a personal interest in welcoming the order. More generally, this type of crime is attracting the very best brains around the world, and anything that can be done to combat the menace is to be welcomed. We support the order.

Photo of Lord Dholakia Lord Dholakia Deputy Leader, House of Lords, Spokesperson in the Lords, Home Affairs

My Lords, I endorse what has been said. We are satisfied that this order amending the Proceeds of Crime Act 2002 will not damage the effectiveness of the money laundering reporting regime. We are content.

On Question, Motion agreed to.