Financial Crime: Legislation — Debate

– in the House of Lords at 11:39 am on 17 March 2011.

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Moved By Baroness Williams of Crosby

To call attention to the United Kingdom's record on legislation regarding bribery, tax avoidance, corruption and money laundering; and to move for papers.

Photo of Baroness Williams of Crosby Baroness Williams of Crosby Liberal Democrat

My Lords, it could well be argued that corruption is perhaps the major single threat to good governance and to democracy in the world today. If we look just at the two countries that my noble friend Lord Howell of Guildford has always been extremely concerned about, China and India, they each confront huge problems with corruption. In the case of China, extreme measures have been taken to try to deal with it including, in some cases, capital punishment. In India, to quote its report of last week, the Economist said on 12 March:

"Indians' anger over rising corruption has reached feverish levels".

It then refers to the $40 billion in revenues that seem to have been lost as a result of deals over telecommunications licences. These are huge issues for India and for China.

Here in this country, it is a long time since we passed serious legislation with regard to bribery and corruption; the last time we did was no later than 1916. One of the consequences is that in many ways our legislation is seriously out of date.

At Question Time we have just been discussing Bahrain. It is perhaps worth saying that one of the major factors in the uprisings throughout the Arab world has been resentment at the sense of widespread corruption and at the benefit that has gone to leaders, many of them not elected, in some cases saving substantial sums of money for themselves. It would be fair to say that we in this country can remember the argument about President Abacha of Nigeria, who salted away many billions of dollars that were then money-laundered through financial arrangements where in most cases the money was not recovered, in a country that desperately needed it.

Today in countries such as Egypt, Libya and Tunisia, huge sums of money appear to have passed out of the possession of their own populations and passed via money-laundering methods into private accounts of various kinds. The present UK Government have been assiduous in freezing some of those assets so that they can be recovered for the people of those countries; I give them due credit on that point. But there is much further to go. One has to say, quite honestly, that a number of our own banks have been profoundly involved in money-laundering activities, at least in the past, that have hidden money coming not only from dictatorial rulers but from the pervasive effects of organised crime.

When we look at corruption today, we have to say right away that the issue requires two parties to it: the people who raise the money-the people who make the bribes-and the people who launder that money at the end of the day. In that respect the Federation of Small Businesses, which has sent me a briefing note, says that it is important that the UK maintains its reputation as a sound and ethical centre in which to do business. I cannot echo that too strongly.

The domestic record of our own country has been always been regarded internationally as good. The United Kingdom has been thought to be a relatively incorrupt country. However, we would be less than blunt and honest if we did not admit that our domestic reputation had been substantially damaged by the parliamentary expenses scandal. People may say that it was exaggerated but the huge media coverage that it got, not just in this country but throughout the world, undoubtedly damaged the otherwise high reputation of the UK for domestic non-corruption. It is also the case that the issue of phone-hacking, although very separate, has done some damage to the sense that the UK is free of criminal activity in the way that it conducts its business and its public discussion.

Our international record, however, is bad and getting worse. Some of my colleagues will talk about the way in which Britain's standing on the index of corruption has dropped dramatically over the past few years. I will not pursue that now beyond saying that our international record has been damaged, particularly since the decision not to continue with the investigation by the Serious Fraud Office into BAE's relations with Saudi Arabia. The investigation was dismissed by the then Prime Minister on the grounds that it might assist terrorism and dry up sources of intelligence, but nevertheless it did a great deal of damage to the reputation of British business. The Serious Fraud Office is even now pursuing the fallout from that discussion in South Africa and elsewhere, with strong indications that corrupt practices on the part of a major British company were involved.

More recently still there has been a great deal of discussion and controversy over the role of the United Kingdom on the bribery convention. I shall again be very frank. I declare a past interest as for some years I was one of the OECD's advisers on employment policy, during which time I discovered a lot about its concerns. One of the major concerns of the so-called financial affairs task force, headed by a very distinguished Swiss professor, Monsieur Pieth, was to apply continual pressure on OECD members to sign bribery conventions. Its first major argument was with Japan, which finally signed a bribery convention after many years of delay. That left only one country that had not done so-the United Kingdom. For 13 years we were pressed to draw up anti-bribery legislation and all that time we somehow managed to escape doing so. The previous Labour Government, at the end of their period of office, brought forward bribery legislation, with the strong support of all parties in both Houses of Parliament. There can be no argument that this was seen to be a divisive matter.

The bribery convention came about after years of pressure, particularly on the part of the United States, which passed an extremely fierce piece of bribery legislation, the Foreign Corrupt Practices Act. In the 1980s, the reputation of the United States was poor. It was deeply involved in corrupt practices. In the 1990s, it became aware of that and passed powerful legislation. The United States then became a pioneer-a beacon, if you like-in the battle against international corruption, and pressed the other countries of the OECD in this regard, as I have already described. However, it did more than that. The United States Justice Department is extremely powerful, very determined and has brought one British company after another to book. Fines of up to £250 million have been levied on BAE alone, to take one example only. There are many other examples where the long arm of the Justice Department has reached out across borders to bring to justice any company that has a UK presence but operates internationally.

We are now a signatory to the bribery convention. Good legislation was brought forward by the noble Lord, Lord Bach, and others at the end of the Labour Government's period of office. However, that does not wholly excuse them from the very long delays and the desperate attempts to stop this matter being advanced. But now, with the coalition Government, we have a further problem. The terms of the bribery convention have been met and the legislation has been drafted, approved and passed in Parliament, but now we are told that there will be a delay in implementation. I cannot say too strongly how troubling that is from the point of view of those who do not wish the UK well and will use this as a reason for saying that once again we are trying to avoid the legislation that now applies to all the other OECD nation states.

I wish to say a word or two about this delay. Apparently, there has been strong pressure from business to produce guidelines that will deal with any ambiguities in the Act of Parliament. That may be said to be fair enough: business needs to know where it stands. On the other hand, it must be said that to try to escape the effects of the bribery convention is deeply damaging to British business as it suggests that our business and trade depend on special deals, often with very dodgy regimes indeed. We have to get away from using facilitation payments and all other forms of bribery in order to do our business. It will not serve us in the long term and, I repeat, it will do huge damage to developing countries with which we are closely associated and where our bribery equals their corruption.

I will say just a word or two about where we are. I wonder very much about the pressures brought to bear by a mysterious and little-known body called the MNCG-the Multinational Chairman's Group. This is a group of chairmen of British multinational companies, including some of the finest names in British business. That body appears to have been keen to try to soften the impact of the Bribery Act on business. I strongly urge the group to look again at that. These are great companies with great reputations and, in the end, it cannot be in their interests to be seen to be in any way supportive of bribery.

All that will turn on two things: timing and implementation. On timing, we may well have a month or two of grace, because the Government have indicated that they will again discuss guidance and then issue it, probably within two or three months. I might say gently to the House that there have now been no less than 11 consultative periods about bribery, and that would seem to be sufficient, even for an audience as articulate and discussant as Members of the two Houses of the British Parliament. Surely after 11 consultations we are close to what we need.

On implementation, I want to ask the Minister, my noble friend Lord Sassoon, if he can tell us more about who is responsible for implementation. The Serious Fraud Office has begun to be an effective arm of British government-much more effective than it used to be. Its director, Richard Alderman, has said in so many words, in a letter to the Secretary of State for Justice, Kenneth Clarke, that he has real concerns about further delays and that this will not stand the United Kingdom in good stead. He was supported by one of the most distinguished Members of this House, the noble and learned Lord, Lord Howe of Aberavon, who said that we could not argue for delay for very much longer. He said that in clear terms a few weeks ago.

Those are the questions. What will be the implementing body? Will it be the Home Office, the SFO or some combination of the two? How aware are they of the significance and importance of doing what they are doing at a decent and rapid pace? Finally, there is the issue of the precise date by which the Minister hopes we will have completed the process of consulting over guidance, to bring this long-required legislation to book and make it operate.

I conclude where I began. Corruption throughout much of the developing world cannot work for very long without the silent co-operation of money launderers, banks and many others. The system of so-called suspicious activities reports has been very effective in beginning to limit money-laundering-much of it the laundering of terrorist money, some of it drug money, all of it bad money. I plead with the Government to take this issue now to its conclusion, so that we can stand up and be counted among those who find corruption and bribery utterly unacceptable forms of behaviour in a free and modern business world.

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Conservative 11:53, 17 March 2011

My Lords, it gives me great pleasure to be the first to congratulate my noble friend on her extremely and expectedly impressive speech. She has given us the grand sweep, as I would have expected. I am afraid that I will take a slightly different tack. I will give a worm's-eye view. Before I adopt the position of the worm, I need to declare some interests, because I am a director of, and am involved with, companies that export goods and services around the world. I am anxious about some of the practical implications of the Bribery Act and the money-laundering regulations. However, I shall focus on the bribery ambiguities to which my noble friend referred a few minutes ago.

To cut to the chase, I urge my noble friend the Minister, who was for a number of years our distinguished representative on the Financial Action Task Force, to hold his nerve, continue with the period of consultation and extend it if necessary, because it is absolutely vital that we get the guidance right, particularly in respect of small and medium-sized businesses, which are not surrounded by armies of lawyers and advisers to provide them with comfort.

I do not want my noble friend to think that I am soft on bribery. It corrupts the recipient and also the giver. In my experience, firms that are slack about oversees payments are often slack about internal procedures such as management expenses, and sometimes confuse what is the company's-the shareholders'-money and what is the management's. But-and this is a very big but-the Bribery Act poses considerable challenges for UK-based small and medium-sized companies. The crux of the problem is Section 7, which creates the new offence of failure to prevent bribery and is linked to Section 8, which defines "associated person" very widely.

I will give the House an example. I am afraid that it is detailed, but it is the only way to explain the practicalities we face on the ground, where they do not seem as easy as they do in the calm and rarefied atmosphere of your Lordships' House. The company I have in mind is a mid-sized one. It has a good product and it sells well abroad. It is growing and is increasing its employment in the United Kingdom. In short, it is just the sort of company that politicians of all political parties wish to encourage. One of our export markets, which is not yet large but is growing, requires us to pay a transport tax. We pay that through our agent. I am afraid that it is not a tax in the conventional sense. It is a payment to customs officials and to transport union officials to ensure prompt and timely delivery of our goods. We know that our continental European competitors also pay it.

We are advised that when the Act comes into force, the transport tax will constitute a bribe. We do not know whether any comparable legislation will affect our continental competitors; we think probably not. My noble friend referred to the Foreign Corrupt Practices Act in the United States. We know that they will get round this because that Act has a specific carve-out for "facilitation payments", of which this transport tax would be one. Noble Lords may cite proportionality and ask what UK Government would pursue a minor payment of this nature. Quite so-but one Government might one day do it, and the prospect of 10 years in jail and an unlimited fine concentrates the mind.

However, our major concern lies in a quite different direction. In this market, our major competitor is local and does not pay the transport tax. He ships direct from his factory to the customer. We are advised that there is a considerable risk that this competitor, who will be aware of the transport tax, will make an official complaint to his Government that a UK company has been bribing individuals under the terms of the Bribery Act, and the UK Government will be asked to undertake a prosecution. Who knows what will happen then? My noble friend Lady Williams talked about ambiguities. There are many more like this. They are the sort of practical issues on which our legal advisers will need guidance before they in turn can advise us.

I will make one thing clear. If the guidance does not give us sufficient comfort, we shall withdraw from the market, and from others where we face similar challenges. We will leave them to our competitors. Exporting is hard enough work without risking the very grave penalties that this Act carries with it. Therefore, although we all, understandably and rightly, work ourselves into an indignant frame of mind on what I appreciate is a very important topic, please may we not forget my little company, and thousands like it, which are concerned with how to meet the requirements of the Bribery Act while dealing with the complex and varied demands of customers and social systems in highly competitive markets across the world.

Photo of Lord Eatwell Lord Eatwell Shadow Spokesperson (Treasury) 12:00, 17 March 2011

My Lords, "Dictum meum pactum"-"My word is my bond"-has been the motto of the London Stock Exchange since 1801. It embodies an important statement about the role of trust in the operation of markets-not just financial markets but the capitalist economy in general. Trust is a fundamental component of the operation of any successful capital economy. In the absence of trust-trust in the financial system; trust in the rule of law; trust in the ultimate fairness of economic and social organisation-the efficient operation of a market economy is seriously compromised.

The importance of today's debate does not rest on the specifics of legislation on bribery, tax avoidance, corruption and money-laundering. After all, all these activities have a very different legal status. Bribery is not yet illegal in the manner that Parliament intends, and the Minister must explain why the declared will of Parliament is being frustrated by the Government's persistent delay in introducing the Bribery Act. The noble Lord, Lord Hodgson, should recall that just the same sort of fears as those that he expressed preceded the introduction of anti-insider trading legislation.

Tax avoidance is not illegal-that would be evasion-but it is clearly undesirable, and I applaud the Government's request to Graham Aaronson to lead a study as to whether to establish a general anti-avoidance rule.

Corruption is in principle illegal but in practice not as illegal as it should be. For example, the Dodd-Frank Act that reforms US financial regulation also requires US-listed companies involved in extractive industries anywhere in the world to report all payments that they make to Governments project by project and country by country. Those that fail to do so will be excluded from US capital markets. Will the Minster tell us whether the Government would support a similar law here, and will the Government legislate to ensure that reporting failures identified in US legislation, whether at home or abroad, result in exclusion from the London financial markets as well?

Money-laundering is illegal, principally because its very definition relates to criminal or terrorist activities. What unites all these activities, legal and illegal, is that they destroy justice and fairness, and, by destroying trust, they weaken both our society and our economy. Particularly today, when the many are suffering from the greed and folly of the few, restoring trust should be at the very heart of the Government's legislative programme.

A persistent argument-we have just heard it again-against legislation in all these areas, with the possible exception of money-laundering, although perhaps not, is that an honest economic environment will be an uncompetitive one: contracts will be lost to the foreign firm willing and able to grease a sufficient number of palms. It would be a serious error to fall into the trap of the "Everyone's doing it, therefore so must we" argument. Condoning illegality, dishonesty or even just sharp practice is no foundation for building a strong economy or a vibrant international financial centre.

Indeed, one characteristic of the British economy which is an unambiguous success story is the recent history of financial innovation. However, Britain's success has a dark underbelly. The very innovation that has multiplied the volume and sophistication of financial transactions has also multiplied the opportunities for money-laundering and tax evasion. A significant proportion of all financial innovation is driven not by the demands of economic efficiency but by the desire to avoid taxes and/or the strictures of financial regulation. In such an environment, bribery and corruption follow not far behind.

As a world financial centre, the UK has a peculiar responsibility to maintain the highest standards of transparency and accountability, and to have the very strictest legislation covering financial transactions and taxation. The world of finance cannot operate without trust. Lose trust and London is finished.

If a general anti-avoidance rule is to be effective in limiting tax avoidance, then fundamental structural reforms are required to the tax system. Complexity and obscurity in taxation are the mother and father of tax avoidance; simplicity and clarity are the enemies of the cheats; and because even simplification will not eliminate avoidance, in the interests of fairness and trust there should be a minimum tax-a rate that no accounting artifice can reduce.

We must not be complacent. Ten years ago Transparency International's corruption index ranked Britain tenth among the countries of the world, with Finland and Denmark being the least corrupt. In 2010, Denmark was still ranked least corrupt-Finland had slipped to fourth-and our ranking had plummeted to twentieth. The abuse of economic power undermines the economy and destroys trust, and it destroys Britain's reputation as an international financial and trading centre. Practices that are unfair divide and weaken. That is why effective legislation to tackle bribery, tax avoidance, corruption and money-laundering is of far greater value than the monetary value of the offence. It is also why the Government's failure to implement the Bribery Act is doing so much damage to Britain's economy and reputation around the world.

Photo of Lord Goodhart Lord Goodhart Liberal Democrat 12:06, 17 March 2011

My Lords, we in the United Kingdom have been painfully slow in penalising businesses that bribe. The main legislation is out of date, with Acts passed in 1889, 1906 and 1916. After a slow process of reports and consultations, starting in 1998, the previous Government published a draft Bill in 2009, which they referred to pre-legislative scrutiny by a Joint Committee. I was a member of that committee, and we worked very hard at that.

In general the draft was good, but one part of it was seriously defective. Under the law as it existed then-and indeed as it will exist until the Bribery Act is brought into force-a company could be prosecuted only if a senior officer of the company who was its controlling mind was him or herself personally responsible for the bribery. This was somewhat strengthened in the original version of the draft Bill by the liability of a responsible officer of the company who personally is negligent and fails to prevent the bribery. However, it became apparent to the Joint Committee that that was also inadequate. What was needed, in our view, was that a company should be liable for bribery committed on its behalf unless it could prove that it had in place adequate procedures to prevent bribery. That was accepted by the Joint Committee and by Parliament and now appears as Sections 7 and 8 of the Act. However, we accepted that the Secretary of State should provide guidance about what procedure should be treated as adequate, and that appears in Section 9 of the Act.

The Bribery Act received Royal Assent on 8 April 2010, nearly a year ago. The House of Lords Library has produced a very useful note about the Bribery Act. It reports complaints about possible damage to British companies through being denied the ability to do dubious things which some competitors might be allowed to do. That is the attitude taken by my noble friend Lord Hodgson-that nothing must be done as long as competitors are allowed to do it. I do not agree that that is a serious argument. It is proposing that the United Kingdom should enforce only the lowest common denominator of restrictions on bribery. But that is no defence. We will never cut back on bribery unless we are prepared to put ourselves alongside the countries that lead on the prevention of bribery and not with countries that drag along behind.

As the noble Lord, Lord Eatwell, just said, we are steadily sliding down the anti-corruption list published by Transparency International, which I should say is an organisation of which I am a member. Up to four years ago, we were far better than we are now. On bribery, we are behind the United States, and also outside Germany and France-yes, France. We will remain there until the Government provide proper guidance with sufficient strength and then bring it into effect.

The Library note also shows comments criticising the delays in implementing the Act. I shall read the statement made here by Mark Peith, to whom my noble friend Lady Williams referred. He said, on behalf of the OECD, where he was head of the working group:

"It is very disappointing that despite public commitments, the UK will further delay this important Act to tackle bribery and corruption ... Establishing a level playing field for international business is as important now as ever and will help strengthen the global economic recovery. As a G20 country, the UK bears a special global responsibility and should lead by example".

It must give that example.

I remember one evening some five or six years ago when I was working at my desk upstairs in this building at about 6 pm on a Thursday evening, when most Members had gone home. The Annunciator came up unexpectedly with an announcement that the Attorney-General, then the noble and learned Lord, Lord Goldsmith, would shortly make a Statement. Out of curiosity, I went down to the Chamber to hear it. What I heard was that the director of the Serious Fraud Office had, plainly under pressure from the Prime Minister, decided to cancel the bribery investigation against BAE. I never want to hear anything like that again. I left the House on that evening with a feeling of shame.

Photo of Baroness Wheatcroft Baroness Wheatcroft Conservative 12:11, 17 March 2011

My Lords, I know that I risk upsetting the sensibilities of some noble Lords when I say that I am glad that the Bribery Act has not yet been implemented. This is not because I take a cavalier attitude towards corruption, but because it is only fair to British business that the Act should not yet be in force. I do not suspect that our companies are all involved in shady practices and that they should be allowed to continue in that vein for as long as they can get away with it. On the contrary, I have sufficient faith in British business to believe that it can win contracts without resorting to buying them in one way or another. My qualms about the implementation of the Act coincide with those voiced so admirably by my noble friend Lord Hodgson.

I have listened to what the noble Lord, Lord Goodhart, has to say, and I cannot agree with him completely. To be critical of the Bribery Act is not to condone the payment of massive bungs to corrupt dictators and their chums, nor even to go along with expensive gifts being lavished on minor officials in the hope of winning their good will. It is merely to say that business, like life, has nuances that need to be understood. Yet the business world has been very slow to raise its voice publicly to query any aspect of the Act. It knows, as I do, that to question any aspect of this legislation is to risk being branded as somebody who condones crookery, as if one is either in favour of the Act or in favour of bribery-and this, of course, is nonsense. We need to remember that we are in complicated territory here, where perceptions differ.

In 1997, as noble Lords will surely recall, Formula 1 racing in the shape of Bernie Ecclestone wrote a cheque for £1 million and subsequently found that plans to ban Formula 1 from tobacco advertising, so important to its finances, had been put on hold. Naturally, there was no connection between the two occurrences. The then Prime Minister was appalled that anyone should think there might be. He was, as noble Lords will remember, a pretty straight sort of guy. Others saw things differently. As I say, we are in complicated territory. I found it as dispiriting as the noble Lord, Lord Goodhart, when the SFO inquiry into BAE was dropped; I think that it was that pretty straight sort of guy who was involved there, too.

The Bribery Act as drafted would subject business to a more draconian regime than even that of the United States. What is more, it attempts to throw its net over companies that are not even headquartered in the UK but do business here. A company that is based in Russia, with some link to the UK and doing business in Kazakhstan, for instance, could find its activities there making its directors guilty of breaking UK law. That would be quite a challenge for UK prosecutors. It seems that the impossibility of stretching the arms of British law quite so far have now been recognised and that reassurances are being given that a mere listing on the London Stock Exchange does not bring a company within the ambit of the Act. Look at the motley collection of overseas companies that now make up a large proportion of the FTSE 100 and you will understand why this point had to be clarified.

The previous Government were absolutely justified in their efforts to prevent potentates being paid large sums in exchange for contracts, but this Act goes too far. Not only does it risk disadvantaging British business, but it puts those who are striving to win much needed work for British people in the appalling position of not knowing what will or will not be considered legitimate business practice. Until we have clear guidance on matters such as facilitation payments and hospitality, this Act should not be implemented. Surely any facilitation payments are outlawed under the Bribery Act, despite them being allowed, as we have heard, even under the US Foreign Corrupt Practices Act. In parts of the world, a small sum ensures that goods or documents move from A to B. Presiding Governments condone that situation; it is part of the prevailing culture. We might wish that situation to change, as the noble Baroness, Lady Williams, does, but for Britain to say no when the rest of the world says yes is commercial madness. One leading UK company doing business in Colombia decided that it had better stop paying the minor payments that it made. The result was that every one of its vans was impounded and its drivers imprisoned. We have to move carefully on this, just as we do on hospitality.

Another issue is the fact that government has to set the lead in conduct rather than just in legislation. It is imperative that UK Trade and Investment and its special representative should be models of complete probity as they attempt to drum up business for Britain. Their aims are admirable, but there is widespread disquiet about some of the relationships that have arisen. This will not stop. Surely it is time for change. Some noble Lords have expressed concern about the reputation of British business abroad in the absence of implementation of the Bribery Act, but I fear that questions over UKTI might do at least as much damage, if not more.

Photo of Lord Blair of Boughton Lord Blair of Boughton Crossbench

My Lords, I spent much of the autumn teaching senior police officers in India. We explained the Bribery Act to them. They told me-

Noble Lords:

Order. There is a speakers list.

Photo of Lord Blair of Boughton Lord Blair of Boughton Crossbench

I apologise to the House. I misunderstood.

Photo of Lord McFall of Alcluith Lord McFall of Alcluith Labour 12:18, 17 March 2011

I thank the noble Lord. First, I congratulate the noble Baroness, Lady Williams, on such a timely and important debate on tax avoidance and fraud. I will draw attention to the importance of the debate in the context of the outlook for public finances.

There is a consensus across the House on the need to address the deficit and to make cuts. We realise that this adjustment will be painful and that the people who bear the brunt of it will not be the ones who caused the crisis but ordinary working people. The Office for Budget Responsibility estimated that half a million jobs would be lost in the public sector as a result of the cuts, and PricewaterhouseCoopers estimated that another half a million jobs would be lost as a result of private sector cuts.

Today, youth unemployment is at its highest level since 1992. At the end of last year, unemployment for those under 25 rose above 20 per cent, compared with less than 8 per cent for the general population. Youth unemployment in Germany is just 8.6 per cent at the moment, and 7.3 per cent for the general population. On top of this, working people and the vulnerable in society will be hit by cuts in their benefits and their public services, with job losses in the police, the NHS and schools already being reported. The background to this is the issue of fairness. When Amartya Sen spoke to the Treasury Committee a few years ago, he said that the link between effort and reward is how people understand a process to be fair. The word "fairness" needs to crop up continuously in our debate.

There is a concern that tax evasion is a growing problem. The current tax gap is £52 billion, according to the latest data from the Association of Revenue and Customs. That is nearly 9 per cent of the UK's net tax revenue forecast for 2011-12. It also appears to be rising, with the latest estimate for 2008-09 showing a rise of £4 billion compared with the previous year. With that, the number of successful prosecutions by HMRC also declined by 41 per cent between 2007 and 2009. It is imperative that HMRC has the resources it needs to close that tax gap. I welcome the £917 million that the Government have pledged over the spending review period to tackle tax evasion, which aims to bring in an extra £7 billion of tax revenue. That is a recognition by the Government that investing in dedicated compliance staff at HMRC will save the taxpayer money by closing the tax gap.

The Public and Commercial Services Union, representing HMRC staff, estimates that an average member of staff dedicated to tax compliance yields £640,000 in tax revenue, net of staff costs. However, this extra funding could be more than cancelled out by cuts of £3 billion to HMRC's budget over the same period, which could mean a loss of 10,000 staff. This also comes after efficiency savings at HMRC equivalent to 25 per cent of its budget, which has seen staffing levels fall by more than 25,000, and 200 of its offices closed since 2004. If efficiency savings mean anything they must surely mean saving money and not, in the long run, costing money. I feel that currently there is a falseness about the process.

This is also about the engagement with staff. During my chairmanship of the Treasury Committee in the other place we found that there had been a high turnover of staff in the organisation and that there was low morale among many employees. At the end of my tenure the committee was concerned that the merger of the Inland Revenue and Customs and Excise had had a knock-on effect on performance, and we were deeply concerned about employee engagement at HMRC. The current Treasury Committee has undertaken an inquiry into the performance of HMRC. In its evidence, the Chartered Institute of Taxation raised concerns about whether HMRC will be able to deliver the Government's aim on tax compliance. The head of taxation at the Association of Chartered and Certified Accountants told the committee:

"Most people are compliant ... [and] try to pay the right amount of tax at the right time".

He went on to say that it is,

"probably the only thing that has been getting through the current problems ... It is the only reason why the Exchequer is still getting tax paid at the right time and roughly the right amounts".

There is therefore a lot to concern us about the present situation with HMRC.

I want also to talk about offshore financial centres, because we must focus on those in ensuring that we close the tax gap. Tax havens have not only been used to avoid taxation: during the run-up to the financial crisis they helped bring about the explosion in securitisation in the financial sector. Many of us became aware of that at the time of the run on Northern Rock, when we learnt that the bank had a very large financial vehicle in Jersey. From there, Northern Rock issued securities which made up for 50 per cent of its funding. The need to re-engage with offshore financial centres is important. As my noble friend said, this issue is set against a background of trust and confidence in the system. If we do not maintain the integrity of London as a financial centre, which we all want, we will all lose in the long run.

Photo of Lord Thomas of Gresford Lord Thomas of Gresford Liberal Democrat 12:24, 17 March 2011

My Lords, the issue that caused the most grief and anguish during the passage of the Bribery Act 2010, as it still does, was the scope of the statutory defence of adequate procedures contained in Section 7(2). Section 7(1) provides that a commercial organisation is guilty of an offence if a person associated with it bribes another person to gain an advantage in a commercial transaction. It was a deliberately wide net, bounded only by the need to demonstrate that the organisation is carrying on a business, whether it is an incorporated body or a partnership formed in this country, wherever in the world it carries on its business, or a foreign company or partnership carrying on business in the United Kingdom.

Attempts were made during the passage of the Bill to insert a requirement that the prosecution must prove that the organisation has, through its responsible managers, acted negligently. However, bribery, or the absence of any objection to bribery, is more often due to the slackness of the company, as the noble Lord, Lord Hodgson, pointed out, than to significant negligence that can be tied to specific directors or managers. Negligence by any individual director or manager is a heavy burden to prove beyond reasonable doubt, so there would be no convictions. Another amendment was proposed for the prosecution to prove that the organisation did not have in place adequate procedures to prevent bribery, but that was an impossible burden to place on the prosecution, as it would require it to delve into the files of the company in question.

The Government rightly rejected those suggestions and produced a strict liability offence subject only to the statutory defence contained in Section 7(2), the defence of adequate procedures. The burden is on the organisation to prove, on the balance of probabilities, that adequate procedures are in place. What are adequate procedures? I and others, both in the Joint Committee and in the Chamber, attempted to tie the previous Government down to a working definition of the concept of adequate procedures, but that proved impossible. The noble Lord, Lord Tunnicliffe, said in Hansard on 2 February last year that it was for the courts alone to determine in a specific case whether the procedures had been adequate, leaving the matter completely up in the air.

I suggested that a commercial organisation ought to be able to obtain specific advice from the Department for Business about the adequacy of its procedures to prevent bribery, or, if it proposed to trade in a new area or foreign jurisdiction, that it could get advice on facilitation, grease payments or entertainment. What is improper performance? Should the meaning be governed by the standards of the country with which the organisation is dealing or by the stringent standards of a British jury?

The Foreign Corrupt Practices Act in the United States provides that a rebuttable assumption will arise that a person acting in accordance with advice will not commit an offence. An advisory service in the Justice Department of the United States gives that advice. In Hong Kong, the Independent Commission Against Corruption, which has brought Hong Kong to number three in the Transparency International scale, stamped out corruption. As part of its organisation, it has the Hong Kong Ethics Development Centre, which offers a full range of consultancy services on corporate ethics. To date, it has advised more than 3,000 private companies and businesses. The ICAC, with which I have some connection, cannot believe how few charges of corruption have been brought in the United Kingdom as compared with its case load. It is satisfied that its advisory service works well.

Unfortunately, it was thought to be un-British to do that in this country when the Bill was going through Parliament. Clearly, the advice of a government department could not pre-empt the decision of prosecuting authorities to prosecute, nor could it be a complete defence, but it could provide an important piece of evidence in support of a defence of adequate procedures under Section 7(2).

The previous Government rejected that approach and preferred to rely on the guidance. We have already heard about the issuing of guidance. An industry then sprang into being. It reminds me of an evangelical Welsh preacher who spends two-thirds of his sermon convincing completely blameless people that they are sinners and will go to hell and then offers redemption in the last third. What has happened is that commercial lawyers are warning companies of dire consequences, saying that directors will go to prison. I am sure that that is why my noble friends Lord Hodgson and Lady Wheatcroft take the position that they do. Directors are being warned that they will go to hell if they are not prepared to pay for advice from commercial lawyers on current procedures. These lawyers are busy tailoring anti-bribery and corruption programmes appropriate for the size and risk profile of their clients. Therefore, instead of the state-the Government-giving advice to a firm, you have to go to very expensive lawyers and others to get that advice.

I have in front of me an anti-corruption and bribery conference brochure, which says:

"Attending this conference will allow you to answer the following questions ... How far will the SFO go in prosecuting offences?".

Who can know that?

"What is the meaning of 'adequate procedures'?"

I have already given what the Government say and we are waiting for the guidelines.

"Will the Act be reviewed by the Government"?

Who knows? You will have to pay £600 individually to get this useless advice. That is the industry that has grown up and which, I am quite sure, has caused all the problems, the difficulties and the fears for my noble friend Lord Hodgson, just as that Welsh preacher induced fear in his congregation. I do not believe that you need these programmes. The Act is perfectly straightforward. The concepts are perfectly clear and common sense is required. The intensive lobbying that has been going on to delay the issue of these guidance notes and the implementation of the Act is wholly to be deplored.

Photo of Lord Marks of Henley-on-Thames Lord Marks of Henley-on-Thames Liberal Democrat 12:31, 17 March 2011

My Lords, in no year since the turn of the century have there been more than 25 successful prosecutions for bribery in England and Wales. Indeed, in 2005 there was only one. Those numbers are ludicrously small. Anyone who believes that the numbers reflect a standard of probity in British business that leaves little to be desired is suffering from an excess of complacency or an excess of naivety that leaves them blind to the reality. Those prosecutions were brought under the old legislation, which was principally passed in 1906 and 1889. Those statutes were plainly not fit for purpose. It is a mark of the lack of seriousness with which we have treated bribery, particularly bribery in a commercial context, that it has taken so long to replace legislation which is more than a century old and which produced such a limited response to serious criminal activity.

The OECD anti-bribery convention, to which we are now signatories, marked a milestone in international co-operation in stamping out bribery in international business. However, the UK's response to its obligations under the convention has to date been mediocre at best. That should all have been set to change with the passage of the Bribery Act last year, yet this admirable legislation has not come into force and we are now entitled to be impatient. It was supposed to come into force last October. In September, a brief consultation on the proposed guidance was announced, which would last until November, with a view to commencement in April this year. The consultation paper had draft guidance annexed to it. In January, further delay was announced and further work on the guidance was said to be needed.

My right honourable friend the Secretary of State for Justice says that we are back on track. He rightly says that corruption is bad for business and that we must be at the forefront of stamping it out, not only in the developing world but in international trade generally. That must mean that he completely rejects the argument that British businesses cannot compete with others that may be corrupt unless they, too, offer bribes. It is that argument that represents precisely the evil that the anti-bribery convention was designed to stamp out.

It is a pity that on occasions in recent months the CBI and the Multinational Chairman's Group, to which my noble friend referred, have sounded close to rehearsing that argument in seeming to press for further delay and in their complaints about the implications of the Bill. That is the answer to the point powerfully and elegantly but, I suggest, wrongly advanced by my noble friends Lord Hodgson of Astley Abbotts and Lady Wheatcroft. It is no good saying that it is acceptable for small companies to pay small bribes, perhaps disguised as something else such as the transport tax that was referred to, and that it is only large bribes that the Act should outlaw. We have to rely on our markets wanting to buy British goods and services because they are competitive on price and quality.

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Conservative

I know that my noble friend has just six minutes, but it is a travesty of what my noble friend Lady Wheatcroft and I were saying to suggest that we were advocating small bribes. From the beginning, both of us have said that we are absolutely against bribery. It is the reality of the situation that we are asking the House to address.

Photo of Lord Marks of Henley-on-Thames Lord Marks of Henley-on-Thames Liberal Democrat

My Lords, that is what was said, but the description of the transport tax being moneys paid to officials in small amounts to enable goods to be imported into those markets amounts to small bribes. I do not accept that they are acceptable. It is to be conceded by those who take our position that there may be a cost to that strict position, as my noble friends Lord Hodgson and Lady Wheatcroft point out. However, if it is a cost, it is a short-term cost, with the prize of a long-term business environment that is clean. The enforcement of the anti-bribery convention internationally and the Bribery Act in this country is a prize worth gaining.

The delay has been damaging to the reputation of this country and its business. As my noble friend Lady Williams explained, there is great anger with the United Kingdom in the United States and in the OECD. In the United States, the very strong legislation in the Foreign Corrupt Practices Act, which is rigorously enforced by the SEC and other federal enforcement agencies, has brought about a complete change of approach. The United Kingdom's performance has been seen as hopeless and the delay in passing the Act has been seen as worse than that.

Meanwhile, we have regular reminders of the extent of the problem. Noble Lords have referred to the British Aerospace scandal and, in particular, to the previous Government's extraordinary decision to stop investigating the Al Yamamah contract for the sale of aircraft to Saudi Arabia. The emergence even now of further evidence, which was highlighted in the past few days by my right honourable friend Sir Menzies Campbell, of a $70 million payment in connection with the contract makes the point

We have recently had the MW Kellogg engineering case, with a £7 million settlement over a contract for a gas liquefaction plant in Nigeria after payment of more than £100 million in bribes by the parent company. We had the disgraceful Innospec case last year, where a British company had paid bribes of $17 million to secure sales in Indonesia of a highly toxic lead fuel additive that is banned in the UK and elsewhere, the bribes having been paid to prevent the chemical from also being banned in Indonesia.

The list goes on. The evil of corruption is a cancer in our international trading system. It must be removed. The anti-bribery convention and the Bribery Act are powerful instruments. In Richard Alderman we have an energetic and effective director of the SFO, but we need the Bribery Act to become law. The guidance is needed fast. It needs to show a commitment to thorough enforcement. It must not be said that it waters down the effect or the effectiveness of the Act. Only in that way can Britain's damaged reputation for probity in international business be restored.

Photo of Viscount Eccles Viscount Eccles Conservative 12:39, 17 March 2011

My Lords, I think I must have led a very sheltered life. I knocked around the developing world for some 20 years during which I was involved with both commercial companies and the Commonwealth Development Corporation. The corporation brought with it some really quite attractive money, risk capital as well as relatively low interest loan capital, and a lot of technology. It operated in 53 countries in the developing world and we had around 450 investments. I shall come later to the more commercial aspects. I suppose we had a reputation for being incorruptible or something really unlikely like that, if I listen to the dark messages that are coming from my noble friends to my right. I was never on any occasion offered a bribe, and never asked for one, although I spent a great deal of time with people who lived at a much higher standard than I did myself, another point I shall come back to.

I turn first to the certainties of the Bribery Act. I do not understand the degree of uncertainty in the legislation, but what I do understand is that no one working for a company in the UK would wish to go to prison, so people have a reasonable case for saying, "Please may we be as certain as possible as to what an infringement of this Act would be". I want to give two examples, but I have to admit that they are not from the immediate past. On two occasions I negotiated in countries where you were required by law to have a local agent. You could not operate in those countries unless you could show that you had an agency agreement, which was signed off by the government of the country.

In one case, the agreed fee was 2.5 per cent of any contract you got in that country. In the event, we won a contract which, from memory, was worth around £10 million. It was to supply a major piece of equipment for a steelworks. The chairman of the company was a cigar-smoking general. I remember that when, in the middle of the negotiations, he came to stay in our spare bedroom, he put his shoes outside the door because he expected that someone would clean them, and indeed I did clean them. When we eventually got the contract, I remember the agents, a commercial company rather than an individual in that country, saying, "You know, the general has a great ambition to own a villa in Florida". I said that I did not know, to which the response was, "We thought you might just like to know that". The agents did not say any more and I did not ask any more questions. Noble Lords will have worked out that 2.5 per cent of £10 million is £250,000, and this was quite a long time ago. I leave this account with noble Lords as an example and would ask whether it was an offence. Was that an associated person? I do not know. Was it an offence under Section 7, or whichever section it is, or not?

I recall another occasion in a Middle Eastern country when we were one of the last two bidders for a contract, the other bidder being a German company. Again, we were required under the law of the country concerned to have formal representation. It became absolutely clear that it did not matter which of us got the contract because the adjudicating committee was going to collect a proportion of whatever was coming from the two different local agents. You did not have to be a genius to understand that that was what was going to happen. Up to a point we outflanked them, because although my company did not get the contract, the German company then very kindly gave us a large sub-contract. Everyone came out a winner from a business point of view, but what about the Bribery Act? I do not know the answer and I hope that there is someone in this House who does. But certainty about what is or is not an offence is much more important than the high moral line which, to be frank, I do not have much regard for.

Perhaps I may turn to tax avoidance. I understand from the excellent Library note that now I must remember that it is not avoidance, it is mitigation. If I put shares into my charitable trust, thus saving myself some tax, I am no longer an avoider, I have become a mitigator.

Photo of Lord Haskel Lord Haskel Deputy Chairman of Committees, Deputy Speaker (Lords) 12:45, 17 March 2011

My Lords, the noble Viscount, Lord Eccles, is very fortunate indeed. Early on in my business career, I remember visiting an official overseas in a very protected market to obtain permission to sell some of our technology to a company there. In a bookcase behind his desk were the complete works of Shakespeare, the Oxford Shorter English Dictionary, and the works of Dickens. I thought I would compliment the official on his interest in and knowledge of English literature. He looked at me in rather a peculiar way and handed me a copy of Dombey and Son. I opened it, and in the centre was a cut-out that exactly fitted US dollar bills. I would say to the noble Baroness, Lady Wheatcroft, that there was absolutely nothing nuanced about that. I am not sure if it was my distaste for corruption, my concern for the law or my love of books, but I never did conclude that deal because I wanted to preserve our reputation, and there were lots more deals to be done.

In another country, corruption was explained to me by the fact that because the laws and institutions were weak, largesse should be shared with those with whom you have ties of dependence, and therefore it was not corrupt to pay off somebody's cousin. This is why we must not undermine our strong and independent institutions-institutions such as the police. I think that the proposed legislation to make the police accountable to political commissioners can lead to undermining their independence. They have that kind of arrangement in the United States, and their experience is not good. Instead, we should be strengthening our institutions: our free press, our freedom of information and of speech. Legal tricks such as super-injunctions and unaffordable libel actions weaken our defences against corruption, and this is where our laws need strengthening. I welcome the proposed although rather timid Defamation Bill, but I wonder why it does not go a lot further.

Where I do think we have institutionalised corruption is in the world of tax avoidance. There are armies of bankers, lawyers and accountants who ensure that even though the letter of the law is respected, increasingly immoral ways are found of perverting the spirit of the law to ensure that tax is avoided. This has been justified to me by quoting my noble friend Lord Mandelson. He has said that he does not mind people being filthy rich, but people forget the rest of his sentence. He does not mind people being filthy rich as long as they pay their taxes. To hide its true purpose, the tax avoidance industry adopts the language of real business, so technical innovation and reinventing your business model do not mean finding new products, services and markets, and new ways of supplying them. No, they mean registering your business in a tax haven and becoming a non dom to avoid tax while still enjoying the, admittedly decreasing, benefits and services which make this country the civilised place that it is.

Business leaders rely on the Government to regulate, to educate, to create a skilled workforce, to do research in science and to build the infrastructure, and they are quick to complain when there is not enough. Yet they use dubious means of avoiding the taxation necessary to pay for it all. As my noble friend Lord Eatwell put it, that is financial artifice. They make it very difficult to find out how much corporation tax is actually being paid by large firms because tax planning is a cat and mouse game played all over the world. For instance, we will never know about Cadbury because Kraft has moved its domicile to Switzerland. Most studies show that 28 per cent corporation tax is budgeted for, but is rarely the amount actually paid.

Caroline Lucas MP is today introducing in another place a Presentation Bill about disclosing the amount of corporation tax paid and the profits made. Will the Government support her?

The noble Baroness, Lady Williams, explained that the tax avoidance industry also ensures that we are a wonderful tax haven for those who are resident elsewhere, irrespective of how their wealth was earned. We now know that the Home Secretary plans to give immigration priority to those who want to participate in it. Is this wise?

All this poisons our politics. However much the Government talk about us all being in this together, as my noble friend Lord McFall said, there will be very little sense of shared pain until tax avoidance is tackled. Economic morality is an ethical issue, so I congratulate the noble Baroness on introducing this debate and on raising this ethical matter.

Photo of Lord Phillips of Sudbury Lord Phillips of Sudbury Liberal Democrat 12:50, 17 March 2011

My Lords, I should start with a sort of disclaimer. This is, I think, my 53rd year full-time in the law as a solicitor-although I am not doing very much these days. Like a previous speaker, I have to say that, in the whole of that time, no one has offered me a bribe-I feel a bit resentful of that-and only twice have I been asked to do something corrupt by a client. I suspect that there is no other jurisdiction in the wide world where someone of my longevity could say that, and I have spent a lot of that time in the commercial world.

However, let us not kid ourselves: standards of probity and integrity are falling with a rapidity that should give us all cause for pause and alarm. If you look at the statistics of crime, you see that the incidence of financial fraud is on the increase in all respects in all quarters of our society and none is exempt. There is no way of denying that corruption is highly infectious. It is a bit like spiritual dry rot. Once you have crossed the threshold of corruption, it is very difficult to go back and very easy to go forward.

Nor should we overlook or consign to the past, as Mr Diamond wants us to do, the astonishing events of the past two or three years in the City-in effect, the partial collapse of the banking system, which would have collapsed totally but for the putting-into-the-pool of trillions of pounds of funds from here, from America and elsewhere. At the root of that-again, let us not deceive ourselves-was an increased level of straightforward corruption: insider dealing, concert parties rigging the markets long enough to get in and out and make a killing, and so on.

I have practised more than 40 years in the City of London. Anyone who you know well who is deeply involved in the City will privately tell you that it is unfortunately true that corruption is on the increase everywhere. The more globalised the market becomes, and the greater the diversity of nationalities, with little common cultural cohesion, the more the corruption spreads. That is why this debate, for which I thank my noble friend Lady Williams, is of such importance.

I shall touch briefly on the role of legislation, because "the United Kingdom's record on legislation" is in the title of the debate. Legislation can be an impediment to integrity. Too much of it plays into the hands of the smart boys, the lawyers and the accountants. For people who are involved in the different aspects of the City, it reduces their sense of their own moral autonomy, their own ability to distinguish right from wrong and to do good rather than bad.

You have only to look at the statistics. We legislate between 200 per cent and 400 per cent more than any legislature in the democratic world. Forty per cent of our tax legislation is anti-avoidance. If you were to stuff all our tax legislation into a single volume, you would not be able to carry it. For example, the Charities Bill, a consolidation Bill, which has just had its First Reading in this House, is longer than the entirety of the legislation of 1905-charities, for God's sake. There is no substitute for individual moral integrity, and I have to say that the huge corporations are not great encouragers of that.

I have some proposals. I entirely agree with what the noble Lord, Lord Haskel, said in relation to the Bill just introduced in the other place by Caroline Lucas. If companies domiciled or paying tax here had to disclose year by year where else they were operating, what the turnover was, how many employees they had there and what tax they paid, it would be a huge disincentive to the ludicrous exploitation of tax havens. Let us look at Barclays. It has admitted to some 150 subsidiaries in tax havens-I think that the true figure is more than 300-and that is true of so many organisations. There is no morality or sense of fairness in corporate tax-paying in so many instances. So let us have that.

Let us have principles-based tax law, because we are disappearing out of sight with trying to block one loophole after another. I accept that there are difficulties about principles-based tax legislation in terms of certainty, but with the support for and confidence in our courts that people have, it would be a far preferable solution to the problem of tax.

Next, I suggest that any contractor with any state agency should not be allowed to bid for a contract unless they have a clean tax record over the previous five years. Lastly, we cannot hope to deal with corruption, bribery and all the rest of it unless we have the people to do the job. The Serious Fraud Office has only around 300 staff and I am told by someone in there that it is losing some of its best people right now. The Inland Revenue is scheduled to lose 40 per cent of its entire staff over the next three years. What sense can that make if we are trying to implement the laws we have? The failure to implement tax legislation in particular is devastating. On official estimates, we lost £42 billion of tax that should been paid last year for want of the people to enforce the law.

Photo of Lord Hannay of Chiswick Lord Hannay of Chiswick Chair, EU Sub-Committee F - Home Affairs 12:58, 17 March 2011

My Lords, the subject of today's debate is extremely topical, as was revealed by the rather unsatisfactory exchange in this House following an Oral Question I asked on 2 March about the regrettable and unjustifiable delay in the entry into force of the Bribery Act. I therefore congratulate the noble Baroness, Lady Williams of Crosby, on now providing an opportunity for us to go into these issues in greater depth. It is also an opportunity, I hope, for the Minister, when he replies to the debate, to update us on developments since that exchange and on the prospects for early progress on bringing the Bribery Act into effect. I shall focus my remarks, on the one hand, on that issue of bribery and corruption and, on the other, on money laundering, leaving the issue of tax avoidance to others who know more about it than I do.

There can surely be no doubt that bribery and corruption are rife the world over, but particularly so in countries with autocratic or weak systems of governance where the rule of law is either entirely absent or at least inadequate. Nor, I think, can it be doubted that bribery and corruption in developing countries levy a heavy toll on their economies, hampering their development and often meaning that foreign aid does not reach the intended recipients. Moreover, in the long run, it feeds instability and disorder, as we have seen recently in Tunisia, Egypt and Libya. This is not something that we cannot afford to tolerate, or dismiss with a weary and cynical shrug, as an inevitable part of the international scene and of doing business in developing countries.

The hard fact is that bribery, as the noble Baroness, Lady Williams, reminded us, requires more than one party and, far too often in the past, one of the parties has been based in a developed country. Hence the move in recent years for industrialised countries collectively to tighten up their laws on bribery and corruption and their implementation. That is welcome but, as others have said, Britain's record is not very good. We have been operating, and we are still operating, under legislation dating from the 19th century which all recognise as inadequate. Our prosecuting record has been poor too. Hence the urgent need for the new Bribery Act and for a new attitude towards bringing prosecutions.

The campaign against the Bribery Act, which has been mounted recently in the press, anonymously for the most part, is in my view a disgraceful one, wide of the mark, and against the best interests of British business. It cannot be in the interests of British business that it should be thought, for one moment, that our companies can export successfully only by using such dubious practices, nor that we should be out of line with, and subject to sharp criticism by, our developed-country peers, as we are in the OECD and elsewhere. Business is quite right to insist-here I join the noble Lord, Lord Hodgson-that there must be clear guidelines on the application of the Act, but in my view it should be pushing for those guidelines to emerge sooner, rather than later, not trying to delay them. I very much hope that the Minister will be able to say when that damaging hiatus will be brought to an end.

Until we put our own house in order, we cannot possibly hope to operate effectively in bearing down on bribery and corruption worldwide. Nothing damaged our efforts in that respect more than when the previous Government gave in to pressure and brought a premature end to the investigation of British Aerospace's contracts with Saudi Arabia. I hope that the Minister can assure the House that this Government will not give way to that sort of pressure. It would be useful to hear how the Government intend to pursue the issue of corruption in the context of our new development aid policy; that is, if and when we get our own house in order. The increases in foreign aid are welcome, but they must be accompanied by a drive against corruption in recipient countries.

It would also be good to hear about the Government's assessment of the effectiveness of the Extractive Industries Transparency Initiative. Is it contributing to the fight against corruption? What progress is being made in getting more countries and more British companies signed up to it? Is something more needed if the discovery of rich natural resources in developing countries is not to be, as it has been so often in the past, a curse rather than a blessing? Are we looking seriously at making the EITI mandatory, perhaps within an EU context?

Turning to money laundering, some time ago the home affairs sub-committee, which I have the honour to chair, of the EU Select Committee produced a report covering money laundering. We expressed considerable concern that the Financial Action Task Force, of which the Minister has enormous experience and which is the international body that deals with money laundering, was doing so little-nothing in fact-to get to grips with the money laundering aspects of Somali piracy, the increasing sums of money which were being paid to the pirates in ransom. We also expressed even greater concern that some of the money might be getting into the hands of terrorist organisations. The then Government's response on both points was, I thought, singularly limp. They said that they had "no evidence" that any of the ransom money was reaching terrorist organisations. Two weeks ago, the Times newspaper reported that some of the pirates had done a deal to share the proceeds of their crimes with al-Shabaab, which is undoubtedly a terrorist organisation. So what are the Government doing about that now? What are they doing to galvanise the FATF machinery in following up the serious possibility that those ransoms are now reaching terrorists? Is it really satisfactory that those who put together the ransom money, which is no offence under British law, do not have to file a suspicious activity report when they do so? Is that a satisfactory state of affairs?

Sometimes I feel that the Government-not just this one-are a bit behind the game or are playing catch-up on the burgeoning ingenuity of international criminals and are reluctant to challenge or to change existing practices and our law enforcement machinery so that we achieve an effective response to some of the most daunting criminal challenges of our time. I hope that the Minister can assure us that the sort of approach that I have spoken about is a thing of the past and that the Government will be much more proactive in the future.

Photo of Lord Newby Lord Newby Liberal Democrat 1:05, 17 March 2011

My Lords, I, too, thank my noble friend Lady Williams for initiating this debate. In my brief remarks today I would like to cover the three issues of bribery, the tax gap in the UK and the tax gap in the developed world.

As my noble friend said in her introductory remarks, our bribery is someone else's corruption. Although a number of noble Lords have talked about BAE in the context of Saudi Arabia, arguably even more damaging were the bribes paid, in connection with selling aircraft, to the ANC in South Africa to fund an election campaign. That has changed the political culture in South Africa to such an extent that bribery is now endemic and by all accounts getting worse. A British company was the catalyst for starting that process.

I share the view of my noble colleagues that the sooner the Bribery Act comes into force the better. I was heartened by press reports earlier this week that we might now get the guidance very quickly. It is not a completely straightforward issue, of course, although morally it appears to be. I have some sympathy with the noble Lord, Lord Hodgson of Astley Abbotts, on the issue of British exporting companies who will lose business as a result. There should be no doubt that there will be a tangible cost and a loss of business to British businesses if they abide by the Act. Although I would like to share the view of my noble friend Lord Marks, that this would just be a short-term cost, in some circumstances it will be a long-term cost. By putting the Bribery Act on the statute book we have accepted that there will be a cost, whether or not we recognised that at the time.

I have less sympathy with the concern mentioned by the noble Baroness, Lady Wheatcroft, in respect of mining companies and others listed in the UK but with no substantive operations here. Mining companies have been responsible for some of the worst abuses of corporate behaviour. It seems to me that, if they want the benefits of a London stock market listing, they should be prepared to take on the full responsibilities that that implies. I hope that the Minister can give me an assurance that there will not, in effect, be an opt-out for extractive industries with a listing here but with no operations here.

On the UK tax gap, the noble Lord, Lord McFall, pointed out that we are talking about an amount of as much as £50 billion, which covers all forms of taxation. Interestingly, the major components of that are VAT and the personal taxes-not corporate taxes, although there is a significant corporate tax loss as well. I am pleased that the Government are putting an additional £900 million into dealing with certain aspects of this, particularly tax evasion and offshore tax evasion and organised crime.

However, the cuts to HMRC, although justified in part because of the increased use of IT, have, in my view, hollowed out the organisation to such an extent that very often it cannot deal with the day-to-day tax affairs of taxpayers. That makes it easier for people, advertently or inadvertently, to pay less tax than they are due. Staffing needs to be looked at again. My suggestion, which I hope will go with the grain of the coalition thinking, is that we should incentivise the department by setting it a target for certain aspects of tax raising. If it exceeds the target, it should be allowed to keep a significant proportion of that excess to reinvest in staff-not in staff bonuses-so that there are more people the following year to devote to the task. There is no doubt that the cost of additional staff in the area of tax collection would be more than repaid.

Finally, on the international tax gap-which has barely been discussed today-the OECD recognises that poor countries are likely to lose more money through tax dodging than they receive in aid. Therefore, the more that they can collect tax themselves, the less dependent on aid they will be in the long term. Christian Aid and other development charities have described tax as the

"route out of aid dependency".

I think we need to spend more time looking at how we can support that route. Christian Aid's two specific proposals, which I support, are the extension of the multilateral and automatic exchange of tax information between jurisdictions and country-by-country reporting by companies, which has been mentioned by several noble Lords. On the latter, I believe that the Chancellor has said that he supports the extension of the Dodd-Frank provisions, which require the extractive industries to provide country-by-country reporting, and he has proposed that at EU and G20 level along with France and Germany. I would be grateful if the Minister will confirm that is the case and that the Government will keep the pressure on there.

The issues that we are debating today are typically seen by many of our colleagues as extremely technical, which some of them are, but of secondary importance, which they are certainly not. As today's debate has demonstrated, these issues lie at the heart of economic development and governance. We need to keep the pressure on, to drive up standards and drive down corruption and tax evasion.

Photo of Lord Palmer of Childs Hill Lord Palmer of Childs Hill Liberal Democrat 1:12, 17 March 2011

My Lords, the difference between tax evasion and tax avoidance was once said to be the thickness of a prison wall: evasion is illegal, whereas avoidance was and is legal, when one sticks to the letter if not the spirit of the law. In recent years the difference between evasion and avoidance has been less clear. In 2005, the UK's chief inspector of taxes said that he wanted to get rid of the distinction and talk about the level of compliance, not avoidance and evasion.

Let me say at the start of my comments that if one reduces one's tax bill to the lowest possible, which is within the spirit of the law, that is called tax mitigation, as mentioned by the noble Viscount, Lord Eccles, and is considered non-objectionable-even a duty to oneself so to do. It is when devices are created purely for avoiding tax that they become objectionable and can land the person in trouble.

A recent example of legal tax avoidance or mitigation which hit the newspapers was that of a captain of industry who was perceived to be the owner and operator of a large UK business-employing many employees, who, he said, pay tax-that pays VAT and corporation tax. However, the majority of the shares of that company are held in the name of the entrepreneur's wife, who lives in a tax haven and to whom the company dividends are legally paid.

It is my belief that the UK needs to look further into these legal methods of taxation avoidance, which I believe do not obey the spirit of the law-indeed, in the view of some, they do not obey the law itself. Things are gradually changing, as significant cases have seen tax saving schemes struck down if the scheme lacks "a business purpose". I am told that the term "money-laundering"-which we have mentioned here today-was coined to describe the activities of Al Capone, the Chicago mobster who used his laundry business to clean dirty money. Noble Lords may well remember that Mr Capone was imprisoned for tax evasion rather than for the other criminal activities.

Given that HMRC aims to stop tax evasion and discourage tax avoidance, I would like to spend a little time today talking about what is an effective agreement between the UK and Liechtenstein, whereby HMRC offers a genuine, if only partial, tax amnesty that is designed to stop evasion practice and-a point made by one noble Lord-bring in sizeable funds into UK tax coffers. In August 2009, HMRC announced the Liechtenstein disclosure facility, which is based on, and can operate because of, the tax information exchange agreement between the UK and Liechtenstein. The aim of the disclosure facility is to eliminate all UK tax evasion with a Liechtenstein connection. At the time, HMRC's Permanent Secretary for Tax said:

"Those who have been evading UK tax on assets held in Liechtenstein banks must now settle with us. There are no alternatives".

Financial intermediaries in Liechtenstein are now required to send a formal notification to any customers who have a UK tax exposure. The customer must provide evidence of UK tax compliance. Those who use that disclosure process benefit, in that only unpaid taxes from April 1999 are due-in other words, there is a real, if partial, amnesty. The fixed penalty is only 10 per cent of the tax due plus, of course, the tax itself. If innocent error can be shown, the settlement may be reduced to only six years of the tax with no penalty. The idea is to get people out of the cupboard and paying their taxes so that moneys they have been salting away are brought into the public sector.

As a practical way of raising taxation, both past and future, and of stopping the further hiding away of assets, the Liechtenstein disclosure facility must be applauded and encouraged, and spread to other jurisdictions and secretive tax havens mentioned by other noble Lords here today. It would be useful if the Minister could provide this House with details of the amounts raised by this scheme and indeed any similar schemes. Reducing tax avoidance and evasion is the best way for the UK to raise funds to carry out its duties and obligations in government areas such as social services and education-or whatever else noble Lords would think relevant-which I am grateful to the noble Lord, Lord McFall, for mentioning.

I have not dealt today with the loss of tax and income to the UK from non-doms, who by their very nature have assets abroad so behave differently from other UK citizens. Non-doms not only broadly pay no tax on foreign unremitted income but they use their funds deposited abroad to shop in Paris, Madrid and New York, and do not use those funds to shop and spend their money in the UK.

No one, including noble Lords, likes paying tax. When in the 18th century Benjamin Franklin said,

"nothing is certain but death and taxes", he was unaware of the era of tax avoidance and evasion. Regarding the comment made about tax conferences, I must tell you that many people in the industry-and I am a chartered accountant-believe that people go to these conferences to find out ways of avoiding, if not evading, taxes. Listening to the debate today, I was reminded of Sir Walter Scott, who said:

"Oh what a tangled web we weave,When first we practice to deceive!".

Photo of Lord Parekh Lord Parekh Labour 1:18, 17 March 2011

My Lords, I congratulate the noble Baroness, Lady Williams of Crosby, on and thank her for securing this debate and introducing it with such passion and eloquence. As she rightly pointed out, we generally tend to maintain fairly high standards in our internal affairs, both political and economic. However, when it comes to international transactions-whether foreign policy or economic-somehow our standards slip and we do not seem particularly worried. Our legislative record on dealing with bribery, tax avoidance and money-laundering is mixed. In some respects, it is better than other European countries but in others it is much worse. The number of convictions for bribery, for example, is lower in Great Britain than in many other European countries. That is not because our companies are well behaved; it is rather because the Government are unwilling or unable to prosecute them. The Bribery Act received Royal Assent in April 2010 and should have come into effect by the end of last year, but unfortunately it has not.

For money-laundering, we seem to provide more tax havens than most other countries and some of those funds find their way into the City of London. Our taxation system, which we have talked a great deal about, has many easily exploitable loopholes. I have never understood the distinction between the things called tax avoidance and tax evasion. Technically, of course, I do but morally and practically I do not. Supposing I were to do that in my own university by saying there, "No plagiarism or copying from other students", but that the rule was so defined that if they were to copy from the internet or something else that would not count as plagiarism. How can we have a situation where rules are designed and defined so that they virtually allow you to get away with murder? Then we sanction it in the name of tax avoidance being all right but tax evasion not. The time has come to make sure that this distinction is fairly tightly defined and narrowed as much as possible.

It is because of that distinction that a large number of corporations, multinationals and banks have been able to get away with paying so little by way of taxation. Last year, the tax gap-the gap between the tax that should have been paid and that which was paid-was £42 billion. In the year before, it was £38 billion. I am told that in 2010-11 it could be as high as £80 billion to £100 billion, which is staggering. It is made easier by companies generally being set up so that we do not know what their home base is and where they could be taxed. In this country, as in many others, we allow this to happen by introducing easy mobility between the gamekeepers and the poachers, with the result that there is a serious conflict of interest. Those who should be monitoring and enforcing the system are confronted with all kinds of temptations, some of which are not easy to avoid.

My next remarks will be about, first, tax avoidance, and then money-laundering. We in this House do not seem to appreciate tax avoidance. Perhaps we do, but for the public at large it has undermined the legitimacy of the political system. People simply cannot understand how we can have designed a system in which people earning billions and billions of pounds can get away without having to pay our tax, while a small man somewhere earning no more than £30,000 or £40,000 has to pay an enormous amount of tax. How could this kind of system continue? Therefore there is enormous anger at the systematic undermining of our democratic legitimacy.

Concerning money-laundering, I shall make one point that has often been ignored. Think of a tyrant, whether it is Mubarak, Gaddafi or whoever. He plunders his people and collects billions because he is fully confident that he will be able to enjoy the fruits of the money that he has collected. What gives him that confidence? It is that his money will be easily siphoned off somewhere such as here so that he can quietly enjoy it when he is thrown out of the country. In other words, in so far as we continue to devise a system which allows those characters access to the money, we are complicit in the crimes that they have committed. The blood of their victims is, to some extent, on our hands because we have allowed the system that gives those guys the confidence. Therefore they continue to plunder their own people. We really need to appreciate how morally implicated we are in some of the activities that go on abroad.

I end by making one or two general suggestions. In this country, we ought to be fighting for agreed global norms. We must also make sure that there is rigorous monitoring with an enforcement mechanism. There should be absolute transparency on how the Government and multinationals conduct their business. We should close tax havens. All this is widely known and is nothing new but I will also make two suggestions that have, perhaps, not been explored.

First, there must be a way of naming and shaming those who avoid taxes, even when that is done by exploiting existing loopholes. We name and shame in the cases of schools that have failed and of criminals. Why should it be difficult for us to say, "These are the companies, this is the tax they paid and this is how they arrived at it", to show how much gap there is between tax avoidance and tax evasion? Secondly, just as all legislation passing through this Parliament has a human rights compliance statement, there should be a declaration of compliance for every major government and multinational transaction: that no form of bribery or corrupt practice has taken place in the execution of that project. That kind of compliance declaration would go a long way in discouraging people from engaging in unacceptable practices and for us in shaming them afterwards, should they be caught.

Photo of Lord Dykes Lord Dykes Liberal Democrat 1:25, 17 March 2011

My Lords, I very much agree with the words of the noble Lord, Lord Parekh, particularly his regret and sadness that people are greedy and avoid paying taxes when they can easily afford them. I, too, take pleasure in thanking my noble friend Lady Williams for launching this debate, as others have done. These matters are being raised at a very important time in this Session of Parliament. I shall declare two separate interests, if I may: as being a retired member of the Stock Exchange, after many years, and that I live in France because I particularly wanted to pick up on a reference made earlier.

It happened a short while ago that one of our senior ministerial friends in the coalition Government-for obvious reasons, I will not say who-took one of my colleagues aside to say: "You don't have to worry, you know. You talk about all this trouble with bribery, corruption and tax avoidance in Britain but look at the situation in France". Because I live in France, I happen to have had the opportunity on quite a few occasions of having close contacts with the political, official and parliamentary classes of people in France and that is not true at all. France has increased enormously the regulations and legislation governing bribery, corruption and tax avoidance and evasion, tightening them to such an extent that people there now live in fear of being apprehended. That is not the situation in the United Kingdom where there is enormous complacency about this subject.

My noble friend Lord Sassoon is famous, quite rightly, for taking conscientious notes about the contributions made in these debates. Various excellent speeches have been made today, marred only slightly, if I may say so, by the hesitations of our three or four Tory colleagues saying that it was perhaps not such a terrible subject after all. However, I appreciate their request for absolute clarity and transparency on the regulations governing their tax and payment duties, overseas and in Britain. Now is the opportunity for my noble friend Lord Sassoon not just to answer politely and routinely on this occasion, but to reassure us fundamentally about some of these matters.

The amount of tax avoidance in this country is colossal. There is a very cosy, conspiratorial attitude in the City of London. I know it well; I am there frequently and have many friends in the City. For obvious reasons, I will not mention some names today but that attitude is quite wrong too. I am glad that my noble friend Lady Williams mentioned the Multinational Chairman's Group, which probably sidles into the back entrance of No. 10, as Rupert Murdoch apparently does, to discuss these matters in order to mitigate the obligations that other people quite naturally accept. What is the sin in people having to pay proper taxes, be they in corporate, commercial or ordinary human activity of all sorts, when other people do it routinely?

Does nobody here feel so sad personally for Sir Philip Green, with his self-created personal dividend coming out of his brilliant reorganisation of British Home Stores? That was because of his talents as a retailer, which I pay tribute to; and that BHS reorganisation was funded, I think, not just from his own resources but by private equity borrowings, as they usually are. A billion pounds of profit was, quite rightly, taken out as a dividend. However, instead of taking just that self-created dividend he absolutely insisted that, as his wife was a recipient of that dividend, he would not pay the £200 million extra of tax or whatever it was. Is that really not a very sad reflection on the greed in our modern society, which is a disgrace for businesspeople and for others? No wonder Labour Peers here such as the noble Lord, Lord McFall, reflect on the unfairness in our society created by that.

Although this is by definition probably a fairly unlimited figure I estimate, for example, as my City friends do, that over £150 billion of tax evasion occurs because of all the tax havens that the British Empire and others have created. It is also because of the authorities in London not tightening up, given all the agencies which they have at their disposal and the improvement in the SFO to which my noble friend referred. Yet that figure is almost the size of the deficit. Then there is the £15 billion of corporate taxes that are not paid properly by companies that simply disappear along with their directors. Those amounts of money are a reflection on the unfairness of society.

The newspapers, however-most of them, incidentally, apart from the FT, the Guardian and one or two others, owned by tycoons who live in tax havens abroad and do not pay UK direct taxes, while paying low corporation tax because of their international structures-give us long, learned, pompous leaders again and again about the disgrace of people defrauding their social security. They are right-that is a terrible thing to do-particularly the example yesterday of the Afghan family who are now about to be sentenced for claiming a huge amount of money. But that amount in total is probably £20 billion, maybe £25 billion-a tiny figure given the thousands of people involved-in comparison with the small number of elite members of our business society in Britain and abroad, a reflection of the British Empire, who abuse their position.

I conclude with a quote on Rupert Murdoch. We are all thinking about the forthcoming deal. I have even been told by someone, although I do not know whether it is true, that Jeremy Hunt was actually at the Christmas supper attended by the Prime Minister and Rebekah Brooks. A newspaper said, at the end of September last year:

"From Thatcher through Blair to Cameron, our democratically elected leaders have tugged their forelocks to an unelected foreign tax exile in gibbering fear of losing his papers' support, allowing Murdoch to regard a change of government as the mere shuffling of junior personnel".

Corruption is not just tax avoidance and bribery; it is that kind of behaviour as well.

Photo of Lord Mackay of Clashfern Lord Mackay of Clashfern Conservative 1:31, 17 March 2011

My Lords, I have sat through this debate and found it extremely interesting. I took part in the proceedings on the Bribery Act, and I would certainly like to see it brought into effect as soon as possible. It was passed with support from all parties in its present form.

I am an honorary fellow of the Chartered Institute of Taxation. I think that I am right in saying that this House struck a very strong blow against tax avoidance in a case called Ramsay some years ago when it said that artificial transactions were to be ignored when it came to assessing the tax of a company or an individual. I just wonder what has happened to that principle. Has it been submerged by the terrific complication in the tax statutes that has taken place over recent years?

Photo of Lord Davies of Oldham Lord Davies of Oldham Shadow Spokesperson (Transport), Shadow Spokesperson (Treasury), Shadow Spokesperson (Wales) 1:32, 17 March 2011

My Lords, this has been a fascinating debate and a challenging one for the Minister to respond to, not least because, although three distinct areas of legislation are referred to, all with a common theme, they each present their own enormous complexities.

The common theme was adumbrated immediately by the noble Baroness, Lady Williams, in her opening introduction to the debate in which she stressed in a very powerful way her concerns about fairness. That was buttressed by my noble friend Lord Eatwell indicating that our financial system also rested upon trust. The fact that the debate has a strong undercurrent of principle attached to it should come not as any surprise but as a realisation that such principles should underpin our legislation. In these areas they are efficacious in ensuring that we play our full part in the modern world, were our economy to recover and, in due course, flourish.

There were some discordant voices, such as the noble Lord, Lord Hodgson, and the noble Baroness, Lady Wheatcroft, with support to a certain extent from the noble Lord, Lord Newby, who is eager to look at the issues of businessmen on the ground. The noble Viscount, Lord Eccles, also gave us the benefit of his considerable experience in this area. While we recognise the problems that businessmen face, though, the issues that we face are clear. This is a debate about our legislation in these three areas and its effectiveness. As noble Lords have identified, we have not been coming out of international comparisons of effectiveness well. This is of colossal importance.

To take the first dimension of bribery that the noble Baroness, Lady Williams, identified, we all know the challenges that are presented by dealing with regimes that are different from our own. After all, it is not so long ago that the British Government also lived on bribery culture. We should not suggest that somehow we have had 700 years of glorious history free from bribery; very far from it. It was an underlying principle of government for several hundred years. In fact the best quote that I know about bribery is from Lord Burghley, founder of the Cecil family, with their significance in our political life. He said, "I may be bought"-that is, I never refuse a present-"but I do not sell myself"-in other words, my judgment is not impugned. That is scarcely a democratic sentiment but it is a step along the road towards cleaner and more proper government. We have prided ourselves on the Governments that we have, and we ought to; they are relatively corruption-free, with very small exceptions, with regard to either Administration and the work that our civil servants do. We all know that we have limited issues there.

The Bribery Act, as the noble and learned Lord, Lord Mackay, emphasised, was passed by both Houses without serious division. It was part of a general view that we need this legislation in order to restore our reputation, which has been declining with regard to this issue. We are all party to that Act but the issue, as the noble Lord, Lord Hannay, emphasised in his contribution, is one of implementation. When is it going to be implemented? That has underpinned a number of contributions in this debate. I say to the Minister that we recognise that consultation is necessary-everything can be improved by hearing voices accurately-but this has gone through the full parliamentary process. We have all had our chance to talk to everyone outside and make our contributions, and so have our colleagues in the other place. We expect the implementation of an Act passed by Parliament. We are anxious about the degree of delay that there seems to be, not least because, as a number of noble Lords have emphasised in this debate, we look a lot weaker in this area than the United States, Hong Kong and direct business competitors on the international stage. That will not do. We require high morality to underpin both the basis of our legislation and the way that business conducts itself because, as my noble friend Lord Eatwell emphasised, the City depends on reputation as well.

I thought that we were going to spend a great deal of the debate on the issue of bribery, as indeed we have, because it was the most recent of our laws in this area to be passed and the one that has still not effectively been implemented. However, I was glad that my noble friends Lord McFall, Lord Haskel and Lord Eatwell and the noble Lord, Lord Phillips, commented on the issue of tax avoidance. We all recognise that we would benefit from simpler legislation because it is easier to comply with. We all know the challenges with regard to tax legislation. When one is seeking to give incentives and to deter specific practices, legislation becomes increasingly complex and, therefore, a challenge. As we all know, there is massive investment in the industry concerned with giving advice to businesses on how to avoid-not evade-certain commitments.

We must be strong and tough in this area. The situation is scandalous and the nation sees it as such. It is not just scandalous that banks had to be bailed out by the taxpayer to the extent that they were, and that some practices were considered to be on the wrong side of sound morality, but when it is subsequently identified that a bank such as Barclays pays such a small fraction of its total profits in corporation tax, of course our people view that as an extraordinary situation. Those institutions do not even pay adequate taxation when they are making so much profit and the vast majority of people in the country are suffering privation. That is why we should look at implementation. This is not about the law but whether the Inland Revenue has the resources to pursue the objectives which we set for it in law. I cannot understand why-I cannot think of any business that would understand this-we underprovide for a body that brings in revenue. The Government go in for profit maximisation. Putting extra resources into the Inland Revenue will produce extra returns, yet the Government are engaged in wholesale cutting in that regard.

I will conclude briefly as my time is very limited. Recently, we introduced legislation on money laundering as we were becoming increasingly anxious about the extent to which money laundering might fund international terrorism. Therefore, the relevant laws are in place. However, as the noble Lord, Lord Hannay, and other noble Lords have emphasised, this is a matter of implementation. We should be ashamed of a situation in which it is clear that those whom we knew to be tyrants and who paid scarce regard to the needs of their people have been able to salt away vast sums. On the whole those tyrants exploited countries with limited economies and very many poor people while keeping resources available in London for their own use.

The Minister will, of course, say that the relevant legislation is in place. That is certainly true but this matter is about good, resourceful government and the ability to implement a measure that the House wishes to see implemented.

Photo of Lord Sassoon Lord Sassoon The Commercial Secretary to the Treasury 1:43, 17 March 2011

My Lords, we have had an excellent debate and I thank all noble Lords who have spoken. I particularly thank my noble friend Lady Williams of Crosby, who comes at this whole subject from a position of great authority.

The noble Lord, Lord Davies of Oldham, has pointed out the challenge that I face in attempting to respond to the huge number of points that have been made. This has been a more than normally physically challenging debate to sit through. It is one thing to watch a tennis match that is being played out in front of me, but it is even more challenging to watch one that at times has been played out intensively behind me. However, it has been a fascinating debate.

I start by reminding noble Lords that Britain is, and continues to be, a great trading nation. This Government are committed to encouraging British business to seize opportunities around the world. We all know that globalisation brings huge opportunities not just for businesses themselves but for all those who work in those businesses and for the consumers of goods. However, there are significant threats and risks in this globalised world. We have discussed some of the most insidious threats that jurisdictions around the world face. My noble friend Lady Williams talked about the most serious issues. I certainly agree that some of the most insidious threats are those posed by bribery, corruption and money-laundering. I shall take in turn bribery, tax avoidance, corruption, if I have time, and money-laundering, which were the main areas covered in the debate.

I make it absolutely clear that the Government are committed-lest anybody doubts it-to implementing the Bribery Act. We are determined to ensure that it is implemented in a way that tackles corruption while not imposing unnecessary cost and uncertainty on legitimate business and trade. Bribery should not be considered an acceptable way to win business. It distorts free markets and causes immense damage in developing and emerging economies. The Government believe that the Bribery Act will have positive benefits for UK business through an enhanced reputation for ethical standards, reduced costs incurred in doing business and a clearer business framework. The Act will contribute towards a level playing field internationally. The UK stands alongside our partners, whether in the OECD, the UN, the EU or the Council of Europe, in recognising that bribery needs to be met with robust criminal offences. Indeed, the Act modernises and clarifies the existing law, which has rightly been criticised as complex, fragmented and out of date. However, I hope that the main issue concerns not the Government's commitment to implementation but when the Act will be implemented and whether there has been unreasonable delay, as some have painted it.

I fully respect the views on both sides of the argument. On the one side, we had the pithy intervention of my noble and learned friend Lord Mackay of Clashfern and the contributions of my noble friends Lord Thomas of Gresford, Lord Marks of Henley-on-Thames, Lord Goodhart and Lady Williams. I very much appreciate their sentiments. However, I find it slightly harder to accept the criticism of the noble Lords, Lord Eatwell and Lord Davies of Oldham, on the timetable for implementation given, as we have been reminded, that it took until 2009 for the previous Government to introduce the relevant legislation.

On the other side of the discussion, we have heard powerful and relevant interventions from my noble friends Lord Hodgson of Astley Abbotts, Lady Wheatcroft and Lord Eccles-the noble Lord, Lord Hannay of Chiswick, also recognised this-regarding some of the difficulties for business in this area. We should not minimise those. There was a depressing lack of mutual appreciation by the two camps in this debate, with one notable exception. I am grateful to my noble friend Lord Newby for his contribution, to which I listened with interest. He recognised that two distinct interests are involved in implementation that need to be reconciled and that the implementation of the Act will indeed-certainly, in the short term-impose costs on business.

One of the questions asked by my noble friend Lady Williams concerned responsibility. Responsibility for implementation is with my right honourable friend the Justice Secretary, who is concerned to ensure that the Act is implemented in a way that tackles bribery effectively but avoids imposing costs or uncertainty on business and certainly does not make this another gold mine for lawyers advising on either implementing or picking up the consequences of the Act. It is the intention of my right honourable friend and the Government to publish guidance shortly. Implementation of the Act will follow publication after three months, in order to give businesses time to prepare themselves. On the other question about responsibility, I can confirm that enforcement of the legislation will be a matter for the Serious Fraud Office and the police.

Photo of Lord Phillips of Sudbury Lord Phillips of Sudbury Liberal Democrat

Is it fair or unfair of me to ask my noble friend what his answer is to the circumstance enunciated by the noble Lord, Lord Hodgson of Astley Abbotts, where a business is faced with either compliance with the Bribery Act or losing a valuable order?

Photo of Lord Sassoon Lord Sassoon The Commercial Secretary to the Treasury

My Lords, that is a perfectly fair question, but I am not going to stand at the Dispatch Box-no Minister would-and suggest that anyone should break the law. I hope that that is a clear answer to the question.

The point that I wanted to make about implementation was that I know that my right honourable friend the Justice Secretary has been speaking regularly to the secretary-general of the OECD, because there has rightly been reference to the OECD's important contribution to driving forward standards in this area. My right honourable friend has been speaking regularly, including this week and last month, to the secretary-general to keep the OECD informed and updated on our plans for implementation.

My noble friend Lord Phillips and the noble Lord, Lord Eatwell, mentioned the fall in the UK's ranking. The noble Lord, Lord Eatwell, leads with the chin, but it is interesting to note that that fall in the ranking happened under the previous Administration. I hope that implementation of the Bribery Act will contribute to the UK's ranking increasing again.

I acknowledge the point made by my noble friend Lord Hodgson about SMEs. In all that the Government are doing in the regulatory space, we need to be sensitive to the particular needs of SMEs. It is the intention to publish a quick-start guide, as it will be called, that focuses particularly on the needs of small businesses. UK Trade & Investment and overseas posts will be geared up to provide guidance and support on managing risks of corruption in particular export markets.

Lastly in this area, questions relating to extractive industries were raised by the noble Lord, Lord Hannay of Chiswick, and my noble friend Lord Newby. It is a topic that my right honourable friend the Chancellor has recently addressed. He drew particular attention to it at the February G20 Finance Ministers' meeting in Paris, where he raised the issue of new international rules; he believes that this was the first time that that has happened. My right honourable friend, along with my right honourable friend the Business Secretary, will be arguing for a European agreement that matches the new standards set in the US in this area. This is very much on our agenda.

Let me turn now to the issue of tax avoidance. For the avoidance of doubt-I am sure that the noble Lord, Lord Haskel, has no doubt, but he raised the question-let me say again clearly that the Government are fully committed to making sure that everyone contributes to reducing the deficit by paying their fair share of tax. Tax avoidance and evasion damage the ability of the tax system to deliver its objectives. They impose additional costs on all taxpayers and undermine the tax system.

The noble Lord, Lord McFall of Alcluith, and others raised a number of questions about HMRC resources. I was grateful to the noble Lord for drawing attention to the announcement last year that more than £900 million will be made available to HMRC over the spending review period to raise additional revenues by tackling non-compliance. This is expected to bring in around £7 billion in additional tax each year by 2014-15. However, I recognise that the noble Lord bracketed, as did other noble Lords, recognition of that approach by HMRC with concerns about its resources more generally. That point was mentioned in particular by my noble friends Lord Newby and Lord Phillips of Sudbury. It is the case that HMRC workforce levels are projected to reduce. That reflects continuing improvements in the underlying efficiency in the way in which HMRC conducts its business. I should point out that, since the 2005 merger between the Inland Revenue and Her Majesty's Customs and Excise, a reduction in headcount has had no negative impact on revenue flows. As with many other parts of the public sector, although there is a big challenge on management and implementation, HMRC has recently proved that it is able to rise to that challenge.

The noble Lords, Lord McFall and Lord Parekh, and others drew attention to the size of the tax gap, which is estimated to be around £42 billion, but I was pleased that there was recognition for some of the important steps that the Government are taking in this area, including the specific case to which my noble friend Lord Palmer of Childs Hill referred on the arrangements with Liechtenstein. That was the best answer to some of the concerns raised by my noble friend Lord Dykes. The steps that are being taken are very practical and raise considerable sums of money. In respect of Liechtenstein, the facility will run until the end of March 2015 and it is forecast that it will raise £940 million. These are considerably important initiatives to make sure that we tackle offshore financial centres and repatriate tax revenue to this country.

I recognise the questions around tax transparency. My noble friend Lord Goodhart touched on this area, but I will not repeat the names of all noble Lords who mentioned it. In the past year, we have seen unprecedented progress on tax information exchange. More than 500 tax information exchange agreements have been negotiated to the international standard. This means that there are fewer and fewer places for evaders to hide their money.

The noble Lord, Lord Haskel, raised the question of Caroline Lucas's Bill in another place. My understanding is that the Second Reading of that 10-minute rule Bill is scheduled for June. The Government will decide at that stage whether to support it. I understand its import.

In my final couple of minutes, I will deal with the remaining two issues that were raised. The noble Lord, Lord Hannay of Chiswick, raised the issue of corruption. At the risk of stating the obvious, I stress that the Government recognise that corruption is bad for development, bad for people in developing countries and bad for business in those countries. As we maintain our aid budget, looked after by DfID, there will be great focus on raising standards of governance. It is very much on the agenda of my right honourable friend the Secretary of State.

I turn lastly to money-laundering. I am grateful to my noble friend Lady Williams for recognising that the Government have been assiduous on asset freezing. I say to the noble Lord, Lord Hannay, that we should not rely too much on reports in the newspapers. As my noble friend Lord Howell of Guildford said in the House a couple of days ago, we are investigating and watching carefully to see what links there may be between pirates and terrorism in the region linked to Somalia. However, as he said, we have no firm evidence of particular patterns of transactions, although we recognise that there may be personal, entrepreneurial or other links between groups. The noble Lord is right to emphasise that we need to be on the case, as we are. The noble Lord, Lord Parekh, raised general concerns in this area. As we discussed in the House recently, particularly in the context of Libya but also of other countries, the Government have been and continue to be at the forefront of calling for and implementing asset freezes against corrupt regimes.

My time is up. I have attempted to answer as many points as possible. It has been a very stimulating debate in which important questions were asked. I end by thanking my noble friend Lady Williams of Crosby for stimulating such an interesting two and a half hours.

Photo of Baroness Williams of Crosby Baroness Williams of Crosby Liberal Democrat 2:03, 17 March 2011

My Lords, I thank all those who took part in the debate, which showed once again the extraordinary sweep of experience in this House. I agree with my noble friend Lord Sassoon that the debate has been searching and constructive. I thank him personally because what he said laid to rest many concerns and fears that noble Lords had about the implementation of the Bribery Act. That will be appreciated also in overseas circles, for which I am very grateful.

I end by saying that on the walls of my sitting-room I had a series of lithographs by William Hogarth called "The Election". I am picking up on what the noble Lord, Lord Davies of Oldham, said when he reminded us that corruption and bribery are hardly new actors on the stage. It was perhaps appropriate that the whole set of lithographs was stolen; that seemed to be the proper end. The series was a reminder of how strong corruption in the democratic system was in the 17th and 18th centuries. We came out of that primarily because of the extraordinarily powerful legislation laid down for public service towards the end of the 19th century by William Gladstone and other famous Prime Ministers. It is perhaps worth putting on record our gratitude to public servants, in the way that the noble Lord, Lord Davies of Oldham, expressed, for their consistent very high standards and moral quality.

I thank the noble Lord, Lord Parekh, for what he said about the need for us to be more aware of a moral dimension to what we do in the financial and economic world-and, indeed, more generally-and about the danger that we could be slowly undermined by failing to pay attention to it, failing to bring our legislation up to date and failing to take it sufficiently seriously. I thank him for what he contributed to the debate and I thank all noble Lords who took part.

Motion withdrawn.