Clause 324 - Failure to disclose: regulated sector

Proceeds of Crime Bill – in a Public Bill Committee at 9:15 am on 24 January 2002.

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Photo of Dominic Grieve Dominic Grieve Shadow Minister (Home Affairs) 9:15, 24 January 2002

I beg to move amendment No. 97, in page 187, line 33, at end insert—

'and he was directly involved in the activities by virtue of which the business is regulated.'.

The Committee will be aware that the line in the Bill that the amendment would affect says that the knowledge must have come to the person concerned

''in the course of a business in the regulated sector.''

At our previous sitting, we touched on the wording of schedule 6. I am mindful particularly of some comments made by the Minister during that debate, when his interpretation of the schedule was different from mine. I understood schedule 6 not to refer to, or in any way qualify, the nature of the staff working in the business who might be liable. I wait with interest to hear about his understanding of the schedule, because I am the first to accept that that has a bearing on whether the amendment is necessary.

Photo of Mark Lazarowicz Mark Lazarowicz Labour/Co-operative, Edinburgh North and Leith

Does the hon. Gentleman accept that the definition of the phrase ''directly involved'' itself could lead to a substantial debate? Does he intend to table further amendments to define that term further, and provide information to the court on how it should be applied?

Photo of Dominic Grieve Dominic Grieve Shadow Minister (Home Affairs)

The hon. Gentleman makes a good point. We tabled the amendment to stimulate discussion. It would exclude those working in a business in the regulated sector who are not

''directly involved in the activities by virtue of which the business is regulated.''

On Tuesday we referred to the fact that employees in a business in the regulated sector will include people who advise, place money and transfer money, but also

those who work in the canteen—unless that is subcontracted out—and cleaners. More specifically, employees will include those who, although they may be involved in the business itself or in its core activities that fall within the regulated sector, are only clerical staff, or carry out executive functions that do not, or would not usually, involve their having to focus on whether money laundering is taking place. It is that issue that I want the Committee to think about.

It is wrong that, within organisations, we should criminalise people whose standing and function would not normally involve their having to make the judgments that the clause is designed to penalise if they are not properly made. I want the Committee to explore the issue of who should, and who should not, be included under the provisions. As we said on Tuesday—the Under-Secretary knows my views on the matter—the offence under the clause is not one only of knowledge, but one of negligence. Following the votes on Tuesday, the clause has been preserved in that form, but it worries me that executives within an organisation could subsequently be told by the courts that they should have done something that it was not part of their job description to do. Irrespective of a person's function in a business, once he is working within the regulated sector he can be caught under the clause.

On Tuesday the Minister hinted that, under the wording of schedule 6, that was not the case. I inferred that he was suggesting that it was only to the extent to which the activities of the business were within the regulated sector that people would fall foul of clause 324. My understanding of what he said was that staff such as cleaners or canteen workers employed by a business within the regulated sector would not be caught under the provisions. That may be so, but I wait to be persuaded that that is what schedule 6 means.

Even if the Minister were right about schedule 6, several people could be caught under the clause. We should think about excluding people whose work—such as clerical work—makes it inappropriate for them to be criticised for performing executive functions that others have told them to do.

Photo of Mark Lazarowicz Mark Lazarowicz Labour/Co-operative, Edinburgh North and Leith

I find the hon. Gentleman's exposition of amendment No. 97 interesting, although I am not persuaded by it. In fact, it would protect individuals whom even he would not wish to protect. For example, if the head of personnel of an organisation were to hear over lunch at work that money had been stashed away in an account in Bermuda, he would presumably not be regarded as being directly involved in the activities by virtue of which the business was regulated. Under the amendment, such a person would escape prosecution. Surely that cannot be right.

Photo of Dominic Grieve Dominic Grieve Shadow Minister (Home Affairs)

The hon. Gentleman makes another good point. But let us look at the matter from a slightly different angle. Let us suppose that I overhear two people in a City restaurant talking about stashing away or laundering money, and they identify the bank for which they work. As I do not work within the regulated sector, I am under no obligation to make a report under the clause. I would consider myself to be

morally blameworthy if I did not—but as a matter of law, I would not fall within the clause.

A personnel manager would ordinarily have no part to play in financial management or the transfer of money in a large organisation. He would not come by the information that the hon. Gentleman mentions any differently from the way in which I would come across similar information sitting in a City restaurant. If the personnel manager has no executive or scrutiny function relating to money laundering in his organisation, it might be argued that he is morally blameworthy for not tipping off the authorities, but why should we criminalise him?

Through those two examples I have tried to point out that the personnel manager of such an organisation does not seem to be in such a favoured position that we should say to him, ''You have a different responsibility from that of someone outside the regulated sector who came by the same information.''

Photo of Steve McCabe Steve McCabe Labour, Birmingham, Hall Green

Does the hon. Gentleman draw no distinction between information overheard at a table in a restaurant and information gleaned by a personnel manager by virtue of the fact that he works in a company that performs illegal activities?

Photo of Dominic Grieve Dominic Grieve Shadow Minister (Home Affairs)

I think that the hon. Gentleman has misunderstood the purpose of the argument that I was having with the hon. Member for Edinburgh, North and Leith (Mr. Lazarowicz).

Photo of Steve McCabe Steve McCabe Labour, Birmingham, Hall Green

I did not misunderstand the argument.

Photo of Dominic Grieve Dominic Grieve Shadow Minister (Home Affairs)

My point was that although the hon. Member for Edinburgh, North and Leith made a fair point, and although it could be argued that the personnel manager may be in a different category, it could also be argued that he is in a similar category to someone sitting in a restaurant.

Where do we draw the line? Interestingly, a line is clearly being drawn; if I understand correctly, the Minister will soon tell the Committee where it has been drawn. I had not previously fully appreciated that. My understanding was that everyone in the regulated sector, from top to bottom, including businesses that traded with or were involved in the sector's regulated component, would be covered. I therefore assumed, and made the—perhaps erroneous—suggestion on Tuesday, that that applied to those as far down as the cleaner. The use of discretion may mean that a cleaner is never prosecuted, but granting discretion to the prosecuting authorities does not commend itself to me if, in fairness, we should be drawing the line elsewhere.

The best thing I can do is listen to what the Minister has to say. Subject to what he says, we may be able to pursue the debate further. I make it clear that this is a probing amendment—but that does not mean that I shall withdraw it; I may decide to press it to a Division. However, I could be convinced that there is a better way of approaching the subject than mine. The

amendment has drawbacks, but so does the clause as presently drafted, particularly now that the Committee has decided to keep the negligence offence in the clause.

Photo of Mr Nick Hawkins Mr Nick Hawkins Conservative, Surrey Heath

Although my hon. Friend has rightly said that he and I will be interested to hear from the Minister, I shall first raise some additional issues with which I would like the Minister to deal.

On Tuesday, when we debated matters relating to the clause under other amendments, the hon. Member for Glasgow, Pollok (Mr. Davidson), among others, poked some gentle fun in his usual skilful and humorous way at my hon. Friend the Member for Beaconsfield (Mr. Grieve) and me and described us as the cleaners' friends.

While we are dealing with the amendment and talking about where the line should be drawn, I should reinforce my hon. Friend's reading of schedule 6. I have re-read it carefully, and I do not see that any line is drawn in the Bill. I hope that the Minister will say that at a later sitting, in another place or on Report, he will propose some Government amendments to clarify the position. Having talked to his officials, the Minister may perchance have been persuaded by the arguments made by myself, my hon. Friend and others on the Committee earlier in the week.

Once in a while there is a happy coincidence in our work as parliamentarians—although it is rare that two things happen in the right order on the right day. For many years, Mr. Gale, you and I have been members of one of the most effective parliamentary cross-party groups—the all-party group on insurance and financial services, of which your fellow Chairmen, Mr. McWilliam and Mr. O'Brien, are also members. You will know that many all-party groups of Members who share a common interest or professional background meet only once in a blue moon, but the all-party group on insurance and financial services is one of the most active, and meets most weeks.

It just so happens that I received an urgent fax earlier this week from the administrative organiser of our all-party group saying that a delegation of American legislators were on a short visit to the United Kingdom and wished to discuss some urgent issues concerning the financial sector. They were able to meet some of our all-party group this morning for a working breakfast, and in the hour before the Committee started, my colleagues and I were briefed on matters directly germane not only to this legislation, but to this amendment.

Some Members of the Committee may be sceptical—the hon. Member for Glasgow, Pollok in particular has said that no harm would come to the City of London from the imposition of the extra regulatory burdens in the Bill. However, the chairman of the National Conference of Insurance Legislators in America, David Counts, from Texas, says:

''We cannot exist without Lloyds of London''.

The leading members of the conference, American legislators from Texas, New York, Minnesota and

Illinois, have come to Europe, and London in particular, to see how our regulatory climate may be changing in the aftermath of 11 September, and how that will affect their business.

It is germane to the amendment that so many multinational insurance companies, especially American ones, have operations in London. They are concerned about the way in which junior staff—of the type whom I said that the British Bankers Association were concerned about—may be affected, when they should not face the full penalties of criminal law. Anyone who trades in the London market would be worried by the introduction of a new law that brings the kind of criminal sanctions that would follow this legislation. It would hit vulnerable people who cannot possibly have the same level of expertise or training as those whom the Bill should hit.

It is important to put that concern on the record, because it was ventilated to me in strong terms less than an hour ago. The same view was expressed by the president of the National Conference of Insurance Legislators, Senator Larkin from New York, Representative Terry Parke, the immediate past president, from Illinois, vice-chairman Senator Oliver from Minnesota and by the executive directors. We also met a senior representative from Lloyds, Mr. Matcham, and an old friend of my hon. Friend the Member for Beaconsfield and myself, Marie-Louise Rossi, the chief executive of the International Underwriting Association of London.

Photo of Steve McCabe Steve McCabe Labour, Birmingham, Hall Green 9:30, 24 January 2002

Is it in order, Mr. Gale, for the hon. Gentleman to quote extensively from a list of names on a piece of paper to which no other member of the Committee has access?

Photo of Roger Gale Roger Gale Vice-Chair, Conservative Party

If it were not in order, Mr. McCabe, I would not have permitted it.

Photo of Mr Nick Hawkins Mr Nick Hawkins Conservative, Surrey Heath

If the hon. Gentleman would like a copy, I will happily circulate it to him or any other member of the Committee.

We must bear in mind the significant concerns of the people on whom the success of our economy so heavily depends, about precisely this kind of legislation. The amendment that my hon. Friends and I propose is designed to try to introduce common sense to the Bill so that it hits only the real target. We all want to hit the real money launderers, as do the Americans whose briefing the Committee heard this morning. However, we do not want to hit those at whom the Bill should not be aimed.

In a moment, the Minister will tell us whether he can point to any words in schedule 6 that draw the line that my hon. Friend the Member for Beaconsfield discussed. I do not see any. Will the Minister tell us that the Government will introduce a measure to ensure that the Bill is aimed at only those who should properly be targeted?

Photo of Ian Davidson Ian Davidson Labour/Co-operative, Glasgow Pollok

If the hon. Gentleman is leading us down the road of all members of the Committee confessing what they discussed over breakfast, I do not doubt that we will have fascinating conversations. However, I cannot understand how he was able to get up over an hour ago to have breakfast

when the Committee's starting time has been changed from five minutes to 9 to a quarter past 9 in order to accommodate him. If the Committee's times are to be changed every time somebody has a morning appointment, that will be bizarre.

Photo of Roger Gale Roger Gale Vice-Chair, Conservative Party

Order. There is a limit even to my legendary patience. We will not explore these culinary delights further.

Photo of Mr Nick Hawkins Mr Nick Hawkins Conservative, Surrey Heath

I will not be tempted by the hon. Gentleman, although he is good at tempting members of the Committee down all kinds of highways and byways.

My point is substantial and I hope that the Minister, if not some of his Back Benchers, will take it seriously. What proposals does he have to ensure that the Bill will hit only those at whom it should be aimed?

Photo of Bob Ainsworth Bob Ainsworth The Parliamentary Under-Secretary of State for the Home Department

I refer Opposition Members to the clause, and especially to subsection (3), which says:

''The second condition is that the information or other matter . . .

(b) which gives reasonable grounds for such knowledge or suspicion, came to him in the course of a business in the regulated sector.''

Schedule 6 contains the definition of the regulated sector. We changed the schedule by inserting its first line in response to representations that were made on exactly the point that Opposition Members have raised. The first line clarifies the list in part 1 of the schedule. It reads:

''A business is in the regulated sector to the extent that it engages in any of the following activities''.

Therefore, as I said during a previous debate, I can assure Opposition Members that we have consulted draftsmen to ensure that the provision does what is intended. A cleaner or personnel officer would not be affected. The people affected will be only those who are engaged in the duties listed in schedule 6. That was achieved by the change to the schedule following previous consultation.

Photo of Mr Nick Hawkins Mr Nick Hawkins Conservative, Surrey Heath

I entirely accept that it was helpful for the Government to consult on and introduce the first part of schedule 6. That addresses what businesses must do. I stress again to the Minister that not only my hon. Friend the Member for Beaconsfield and I, but the British Bankers Association and the Law Society of England and Wales, too, are saying, ''Never mind about the business; there is no line drawn on the level of employee.''

As the Bill stands, any person who works for a business in the regulated sector might be caught. Guidance that states that people will not be prosecuted is not enough.

Photo of Bob Ainsworth Bob Ainsworth The Parliamentary Under-Secretary of State for the Home Department

This has nothing to do with guidance. I would appreciate it if the hon. Gentleman did me the courtesy of listening to what I say, as he obviously did for his American friends over breakfast.

The offence is defined as information that

''came to him in the course of a business in the regulated sector.''

Schedule 6 defines a business as being in the regulated sector with regard to

''the extent that it engages in''

certain activities. Those activities do not include the activities of personnel officers. Therefore, personnel officers do not work in a part of a business that is within the regulated sector. We have checked that. I assure the Committee that people who are peripheral to those regulated activities—such as personnel officers, cleaners and cooks—are not covered.

Photo of Mr Paul Stinchcombe Mr Paul Stinchcombe Labour, Wellingborough

I am confused by the wording of the provision, as it misses out a verb that would help to clarify matters.

If my hon. Friend's answer is correct—and it makes a lot of sense—the preferred amendment might be simply to replace ''a business'' with ''his business'', so that the information would have to come to someone

''in the course of his business in the regulated sector'',

as that sector is defined in schedule 6.

Photo of Bob Ainsworth Bob Ainsworth The Parliamentary Under-Secretary of State for the Home Department

It has just been pointed out to me that it might be sexist to put that into the Bill, but my hon. Friend's recommendation appears to make perfect sense, and to do so in good English.

The specific point that has been raised was first raised long ago, so we have been able to discuss the matter with the draftsmen, and we are convinced that, with the addition that we have made, the wording fully addresses the problem. We have consulted extensively, and we assure the Committee that people such as cooks, cleaners and personnel officers who are not involved in the activities listed in schedule 6 are not covered by the offence.

Photo of Dominic Grieve Dominic Grieve Shadow Minister (Home Affairs)

I understand and appreciate the Minister's point, but I hope that he will forgive me for continuing to examine the matter.

When I first read schedule 6, I understood that it was seeking to differentiate between the nature of business activities, so that if a business occupied two buildings, but engaged in regulated sector matters in only one of them, the building in which it did not engage in such matters would not be covered, but that everyone who worked within the building that was engaged in regulated sector work would be covered, including—if they were directly employed—the cooks, cleaners and personnel managers.

The Minister has told me that I am wrong about that, but I echo the comments of the hon. Member for Wellingborough (Mr. Stinchcombe) by saying that the way in which the Minister has explained the provision does not accord with how I understood it when I read it. It is clear that we are in broad agreement, and I do not wish to cause the Minister grief for no reason, but I am worried about the way in which schedule 6 is worded.

Photo of Bob Ainsworth Bob Ainsworth The Parliamentary Under-Secretary of State for the Home Department

We do not want to make a differentiation according to grade. We have debated that matter. We do not want to rule out people who are employed in a capacity that is not covered in

schedule 6, but who are temporarily moved so that they are engaged in a function that is covered.

A definition according to grade would not be workable. A definition of the extent to which a business is engaged in the regulated sector is preferable. The Bill defines the kinds of activities that are in the regulated sector, and states that a business is in the regulated sector only to the extent that it engages in them. It also states that the offence can occur only in the regulated sector.

The point has been covered. We have discussed it at length with the draftsmen, and I have been assured that there is not a problem. As the hon. Gentleman said, he raised the point the other day. Therefore, we had another debate about it with him—and we made another check to make certain that the kinds of people about whom he is concerned are not covered. I am sure that they are not.

Photo of Mark Lazarowicz Mark Lazarowicz Labour/Co-operative, Edinburgh North and Leith 9:45, 24 January 2002

I have referred to the category of the head of personnel. That category should be covered by the legislation. I was satisfied that the provisions of subsection (2) would cover a cleaner or someone who worked for the canteen. Should not a senior officer, such as the head of personnel, even if he or she is not directly involved in the trading activities of the organisation, be obliged to disclose such information if he or she comes across it?

Photo of Bob Ainsworth Bob Ainsworth The Parliamentary Under-Secretary of State for the Home Department

All of us, including the head of personnel of a company within the regulated sector, are covered by the other offences of money laundering. However, in relation to this specific offence, it is people who have regulated duties involving dealing with other people's money who should be subject to the requirement to report. I do not know how a personnel officer falls into that category to a greater extent than any other member of the company. As the hon. Member for Beaconsfield said, if information is revealed to him during a discussion in a restaurant, he has a duty under other parts of the money laundering regulations on concealment, holding of property and so on. We want this specific offence to apply to those who work in the regulated sector and are involved in the activities described in schedule 6, and we do not see any reason to draw it more widely.

Photo of Stephen Hesford Stephen Hesford Labour, Wirral West

My hon. Friend the Minister has put on record in clear and helpful terms that the sort of people who are not expected to be prosecuted under this clause are cooks, cleaners, personnel staff and so on. Because of the change of regime in terms of prosecuting such offences, the courts will be able to look at what the Minister has said for guidance. Does the Minister accept that there cannot be clearer guidance than the words that he has put on the record?

Photo of Bob Ainsworth Bob Ainsworth The Parliamentary Under-Secretary of State for the Home Department

As I said, I cannot see the point of discussing the matter further when I am assured that those categories of people are not covered. That is on the record, and Hansard is quotable in a court of law, as people know. I have no intention to be anything other than clear on this point.

Photo of Mark Field Mark Field Conservative, Cities of London and Westminster

I had hoped to touch briefly on the point that the Minister made about the example given by the hon. Member for Edinburgh, North and Leith. I appreciated that the hon. Gentleman's point applied generally, rather than specifically to personnel officers, but it seems to me that personnel or human resources departments often have considerable knowledge at all levels. Individuals in those departments might therefore have a stronger duty to disclose than other junior employees within a particular firm.

We must not return to the debate that took place at great length on Tuesday, but I am concerned that the Government do not think that there should be a distinction between grades. I appreciate that it will be difficult to couch the provision in exact terms without the risk of exempting guilty folk. Conversely, if it is expressed in broad terms, we might run the risk of an inordinate number of claims. The point has been well made that it will be difficult to make a distinction within the business as a whole if, as the Minister said, a distinction should not be made between grades, or between levels and types of qualification.

Photo of Roger Gale Roger Gale Vice-Chair, Conservative Party

Order. I must remind the hon. Gentleman that an intervention is not a speech—[Interruption.] I am terribly sorry. I did not realise that the Minister had finished, and the hon. Gentleman was making a speech..

Photo of Mark Field Mark Field Conservative, Cities of London and Westminster

I have made speeches far shorter than this, Mr. O'Brien—[Interruption.] And amen say the rest of them. [Interruption.] Yes, perhaps I should stop now, while I am winning.

Representatives in the financial services industry take a plethora of examinations. It would be sensible for that fact to be recognised. I appreciate that the Minister will say that the real risk is that a small unscrupulous financial services organisation could drive a coach and horses through the Bill by ensuring that none of its employees took the registered representative examinations, and thus fell outside the duty of disclosure. However, a distinction needs to be made. I must not rehearse our argument of Tuesday that criminality will be established on the basis of objective grounds to suspect rather than negligence, but it that were genuinely to apply to junior employees, the real risk is that the clause would be lost on a day-to-day basis.

Photo of Mr Nick Hawkins Mr Nick Hawkins Conservative, Surrey Heath

Does my hon. Friend recall that at our previous sitting the Minister said, in response to other amendments tabled to the same clause, that the level of staff was to be looked in a specific way. He said:

''Of course, if somebody had been put into a job or position, and wound up having information thrown at them when they were a brand new learner on the job, the prosecution would have to consider that before targeting them rather than their employer for having put them in that position.''—[Official Report, Standing Committee B, 22 January 2992; c. 1114.]

Does not that reinforce the point made repeatedly by my hon. Friend and me, as well as the British Bankers Association, that it would be left to the prosecution to decide such matters? The staff whom my hon. Friend and I want to protect would be

vulnerable to prosecution, and the prosecution may make the wrong decisions.

Photo of Mark Field Mark Field Conservative, Cities of London and Westminster

I could not agree more. A more sensible overview needs to be taken. My hon. Friend the Member for Beaconsfield talked about relying on the courts to take the right action, and 95 per cent.—perhaps even 99 per cent.—of the time they will take the right action. If there has been a big problem in a small department, they will go for the senior members in that department, and the juniors who may have been involved peripherally will not have the full force of the law against them—at least, not under the provisions on failure to disclose.

Clearly those individuals, even at a junior level, will find that their careers are harmed irreparably, at least within the financial services industry, notwithstanding that a fully fledged prosecution may not have been taken against them. I hope that the Minister will give some thought to the matter, because whatever he says about schedule 6, it is clear that it would be possible to broaden the measure extensively. Can some guidance be formulated, either in Committee or on Report, which is not necessarily hard and fast, but will ensure that relatively junior or peripheral staff would not be caught under the clause?

Photo of Bob Ainsworth Bob Ainsworth The Parliamentary Under-Secretary of State for the Home Department

Following our extensive debate on amendment No. 487, which covered different matters, some of the concerns that were expressed then by my hon. Friends, and by outside organisations, are the same as those that have been expressed today, although today they have been amplified in respect of junior staff. We are fairly certain that such problems could be avoided. I can understand such worries, so let me explain what we have examined, which may allay some of the fears

I have said before that regulation 5 of the Money Laundering Regulations 1993 imposes a training requirement on the regulated sector. It is an offence for any company or institution to not provide relevant training on money laundering. However, there is a worry about junior staff, which has been raised both outside and inside the Committee. It is not right that a person who had not received relevant training could fall foul of a prosecution. That is the point that the hon. Member for Surrey Heath made: we should not rely entirely on the prosecution authority.

There may be a case for considering whether it would be beneficial to insert a training proviso as a defence for junior employees. If they could show that they did not know or suspect that money laundering was occurring, and that they had not received the training required under the Money Laundering Regulations 1993, they would have that specific defence for the alleged offence.

That might strengthen the existing reasonable excuse defence. A reasonable excuse would be for anyone to tell a court—the prosecution would take account of this—that they did not receive the training to which they were entitled, and that their employer was obliged to give under the Money Laundering Regulations 1993, so they could not be expected to have reasonable grounds for suspicion. However, we may strengthen that by inserting such a requirement in

the Bill. I assure Opposition Members and my hon. Friends that I will examine that, if their worries about junior staff in companies would be allayed by strengthening the ability of such staff to make that defence.

Photo of Mr Paul Stinchcombe Mr Paul Stinchcombe Labour, Wellingborough

I thank the Minister for that helpful contribution.

However, the Minister's arguments relied on the first line of schedule 6, which he tells us was specifically incorporated as an endeavour to deal with the problem. I do not understand that line. It does not define when a business is in the regulated sector. One wants a definition in a statute to contain qualification. This measure introduces quantification, but it does not give a threshold. I understand the reasons behind the measure, but it does not achieve what is intended.

Photo of Bob Ainsworth Bob Ainsworth The Parliamentary Under-Secretary of State for the Home Department

I have raised that question repeatedly, and have received repeated reassurances that the line does what is required of it: it rules out people who are doing a job that should not fall under the provision. Hon. Members may have serious doubts, despite what I said. I see no point in arguing with them when they say that I have flatly refused to examine the provision in any circumstances. I have made the Committee aware that we repeatedly raised the issue with the draftsman, and he told us that it does what we want it to—but I will examine the issue again if hon. Members' worries remain.

Photo of Mark Lazarowicz Mark Lazarowicz Labour/Co-operative, Edinburgh North and Leith 10:00, 24 January 2002

I found the Minister's statement helpful. My worry is about a senior officer in an organisation who was not otherwise covered by the regulations and who could be exempt from a duty to disclose in certain circumstances. That example should not be put aside, but, as the Minister said, there might be situations in which someone, such as a senior officer in an organisation who would not otherwise be covered by the term ''business activities'', as he defines it, might be regarded as morally blameworthy. We should consider ways of ensuring, as far as possible, that such individuals do not escape through changes that are introduced as a consequence of our discussion.

Photo of Bob Ainsworth Bob Ainsworth The Parliamentary Under-Secretary of State for the Home Department

We need to be very careful about that. While I am happy to consider those two areas—although I do not hold out much prospect in relation to the second, having been given assurances—I want to bring the Committee's attention back to the main point, which I have made repeatedly. The current regulations, which I accept apply only to drug money laundering—

Mr. Hawkins rose—

Photo of Bob Ainsworth Bob Ainsworth The Parliamentary Under-Secretary of State for the Home Department

The hon. Gentleman should allow me to finish one point at least.

A fair amount of laundering of drug money is taking place in this country. However, the current offence is not used to any extent. People are saying, ''Well, prove it.'' They are not even prepared to believe me on that. To quantify it, I am told that there has not been a single offence recorded in Scotland under the

current regulations on reporting of drug money, and if there has been more than one in England and Wales, we are not aware of that either. That is the extent to which that specific regulation—not the other money laundering regulations—has been used. I hope that that reinforces the importance of introducing further measures in the Bill.

Photo of Mr Nick Hawkins Mr Nick Hawkins Conservative, Surrey Heath

Let me try to reassure the Minister that we share his aims, especially with regard to the matter raised by the hon. Member for Edinburgh, North and Leith. If the matter could be recast so that somebody who was senior and who ought to be a target was brought into the net, my hon. Friend the Member for Beaconsfield and I might support such a toughening up of the Bill, which might reassure Labour Members who are always accusing the Opposition of watering it down.

The Minister, in his usual reasonable way, has assured Opposition Members, and Labour Members who share some of our concerns, that he will consider the matter again. I know that we shall vote on the matter in a moment, but while he is reconsidering, will he give another undertaking? Rather than just going back to the same draftsman, who has not drafted correctly, will he also talk to people on the anti-money laundering committee of the Law Society of England and Wales, and to people at the British Bankers Association? Will he work with them on a draft that takes out of the net those people whom we all want to take out of the net? Surely the experts at the sharp end can best advise him on how that can be done. They are not satisfied with the current wording, and neither are we.

Photo of Bob Ainsworth Bob Ainsworth The Parliamentary Under-Secretary of State for the Home Department

I have had numerous dealings over a period of time with parliamentary counsel, as, I am sure, has the hon. Gentleman. Regulations are drafted in a way that is supposed to enact the policy that we give to them. Some of the wordings that they use to do that may not be immediately apparent to all hon. Members. However, they are the experts.

I shall consider the matter again. I do not want to do anything that weakens the Bill. Despite the hon. Gentleman's assurances, I have not heard much from him that would do anything other than weaken our proposals. The removal of the negligence test, which is the main thrust of the amendment that we discussed previously, would take us back to a system that has been completely ineffective to date.

Photo of Dominic Grieve Dominic Grieve Shadow Minister (Home Affairs)

I have some sympathy with the Minister. First, I fully appreciate that he is hardly likely to dismiss the opinion that he has been given by his draftsman in relation to schedule 6. I listened carefully to what he said about that, and was pleased to hear the Government's intentions on the matter. That certainly went some way towards providing reassurance.

It was right to table the amendment, because the offence can be committed either with guilty knowledge or negligently. If guilty knowledge was the only test, the fact that the provision might apply to the cleaner would matter far less, because if the cleaner had guilty knowledge or had picked up information, and knew

full well that he was helping a money laundering operation, my concerns would not arise.

It is precisely because the Committee has decided to continue for the moment with the clause as drafted, and because the House has decided that the Bill should be passed with a negligence offence, that it is so important to try to exclude from the clause those whom we should not even contemplate criminalising for negligence. Trying to do that adequately while not opening the doors too wide—I am trying to accept the clause as it is, not as I should wish it to be—poses a problem. The Minister has met that problem by tabling an amendment to schedule 6 as a result of consultations.

I do not wish to repeat myself ad nauseam, but—and I say so tentatively, as I am mindful of the skill of parliamentary draftsmen—that is not how the clause reads to me. It seems to leave the matter opaque at best, as the hon. Member for Wellingborough so rightly analysed. The alternative approach would be to include a restriction in the clause, and that is what we have tried to do. I am also mindful of the comments made about the other ways in which the amendment could be drafted, but if schedule 6 raises concerns, the correct approach to take to restrict criminality is to table an amendment to the clause. The amendment would restrict criminality to those

''directly involved in the activities . . . regulated.''

That seems to make a lot of sense, although I have picked up on the point about whether one needs the word ''directly'' in there.

The amendment may not be perfect, but I shall press it to a Division, if only to create a benchmark, as I believe that the matter will have to be considered again, either—depending on what the Government do—on Report or in another place, where there will be many people who can decide with far more skill than I can whether schedule 6 does what the Minister says it does. I am grateful to him for his comments, but I want to vote on the amendment.

Question put, That the amendment be made:—

The Committee divided: Ayes 7, Noes 11.

Division number 29 Adults Abused in Childhood — Clause 324 - Failure to disclose: regulated sector

Aye: 7 MPs

No: 11 MPs

Aye: A-Z by last name

No: A-Z by last name

Question accordingly negatived.

Photo of Dominic Grieve Dominic Grieve Shadow Minister (Home Affairs)

I beg to move amendment No. 99, in page 187, line 35, after 'customs officer', insert 'Inland Revenue officer'.

Photo of Roger Gale Roger Gale Vice-Chair, Conservative Party

With this it will be convenient to take the following amendments: No. 500, in clause 327, page 189, line 26, after first 'officer', insert ', Inland Revenue officer'.

No. 504, in clause 328, page 189, line 37, after first 'officer', insert ', Inland Revenue officer'.

No. 505, in clause 328 page 190, line 3, after 'officer', insert ', Inland Revenue officer'.

Photo of Dominic Grieve Dominic Grieve Shadow Minister (Home Affairs)

The amendments are designed to deal with the problem of Hansard agreements. The Minister may tell me that I am wrong, but an unintended consequence of the clause is that it seems to make a Hansard agreement almost impossible.

I will explain the situation. There is a well-established practice in law, which I believe dates back to 1944, whereby if a person wants to make a clean breast to the Inland Revenue about his tax evasion, he can do so. He will be required to pay the tax, and almost certainly to pay a penalty that could be substantial, but he will avoid the risk of being criminalised and prosecuted. That is dependent on the individual making a clean breast to the Inland Revenue, and in doing so showing that he is not seeking to withhold certain information. Subject to such provisos, he may take such action in confidence, and that confidentiality will be maintained.

I think that I am right in saying that, subsequent to such an agreement having been reached, the information remains wholly confidential for virtually all purposes, although disclosure of the fact that a person has had to pay a penalty to the Inland Revenue under those circumstances may sometimes be necessary. However, that is only in restricted areas, such as if the person were to apply for judicial office or the like.

Hansard agreements are thus well established and there has been no suggestion that they should be removed. It has always been my understanding that they are a useful device for enabling the Government and the Inland Revenue to obtain money to which they are entitled. The agreements also enable people to clear up back tax issues for which they might otherwise be liable for prosecution. The clause makes no mention of the Inland Revenue as a body to which disclosure can be made. It refers to ''a nominated officer'', but I believe that that refers to someone within the person's own organisation.

The amendments would ensure that the Hansard agreements mechanism is maintained. Let us suppose that a person consults his tax adviser or accountant—which does happen—and says, ''I have been extremely stupid and greedy, and over a number of years I have failed to declare to the Inland Revenue income that I have received from my garage business. Can you help me out of my difficulties?'' The accountant would normally be able to help that person by explaining the principles of the Hansard agreement to him and contacting the Inland Revenue on his behalf.

Such action would be impossible under the clause, because at the time that a person consulted him, the accountant would have no means of knowing whether he was being wholly truthful. It is possible that not only had there been tax evasion, but that the money was the proceeds of crime. Those two factors, as the Minister and I have previously agreed, can sometimes be linked.

If the money is the proceeds of crime, people other than Inland Revenue officers will have an interest in it. However, the poor accountant or solicitor cannot disentangle the matter. What is the accountant or solicitor supposed to do? As the legislation stands, he cannot even ring the Inland Revenue, because if he did he would be guilty of the offence of tipping off. Even if he does ring the Revenue, he cannot help his client, because the Revenue is not a relevant officer under the clause. That is why the amendments cover the whole of part 7 and apply through each sequence—but I will not go into that in more detail, because I hope that the Committee has got that point, and I do not wish to take up too much of its time.

The purpose of the amendments is simply to turn the Inland Revenue officer into a relevant person to whom disclosure can be made, as that would get the accountant or solicitor off the hook.

Unless the Government wish to depart from the previous principle of Hansard agreements, I cannot see why they should find the amendments unacceptable. There is only one conceivable problem with them, which is if the Minister were to say, ''The Inland Revenue, with its duty of confidentiality, would not be in a position to carry out the sort of investigation that we want NCIS to be able to conduct.'' If he said that, the Government would have to make a decision about whether they wished Hansard agreements to survive, because the key quality of such an agreement is its confidentiality.

There is an alternative approach. During the course of its Hansard agreement inquiries, the Inland Revenue might conclude that the money was not legitimately acquired, and therefore that more serious matters had been taking place than mere tax evasion. To cover such circumstances, a device or principle could be added to the legislation to entitle the Inland Revenue to make a disclosure to NCIS about its suspicions that the money was the proceeds of crime.

If the Minister has concerns about the amendments, that would be the correct approach for him to take, because otherwise the accountant or the solicitor would be put in an impossible position.

Photo of Stephen Hesford Stephen Hesford Labour, Wirral West 10:15, 24 January 2002

I want to outline a potential problem. If a criminal was aware that there were Revenue functions with regard to the legislation, and if he was afraid of them, he could avoid them by going to his accountant for such an agreement, which the accountant would be under a duty to honour. The accountant would also be let off the hook, because he would have reported it down the line. That might be a route to take to avoid disclosure. It is unclear to me whether NCIS would ever get the information.

Photo of Dominic Grieve Dominic Grieve Shadow Minister (Home Affairs)

The hon. Gentleman makes a reasonable point, and I tried to address it when I raised the difficulty of the disclosure not going to NCIS.

If a client were to say to his accountant, ''This money is the result of tax evasion and, on top of that, I

do not want too much said about its origins,'' I would expect the accountant to act in a different way from that which I have described. I am assuming that the only information that is given to the accountant is that the money is the result of tax evasion. I also made the point that in those circumstances, reasonable people, even though they may not be given any further information, may well say, ''Dear, oh dear. I hope that this money is not the fruit of criminal activity.''

Photo of Stephen Hesford Stephen Hesford Labour, Wirral West

That is the point. Criminals are most unlikely to walk into the accountant's office and say, ''Actually, this is drug money.'' They are more likely to come up with a story—a garage business or something.

Photo of Dominic Grieve Dominic Grieve Shadow Minister (Home Affairs)

That may be so, but although I am not a tax lawyer or accountant, it would be surprising if the accountant contacted the Inland Revenue and said, ''I have a client who wishes to notify you under the Hansard agreement terms that he owes you £150,000 in unpaid tax. He is very sorry and would like to clear up the matter.'' Someone who knows more about it will correct me if I am wrong, but the Inland Revenue would not write back saying, ''Thank you very much, please send us the cheque.''

I suspect that some searching questions would be asked to establish whether a Hansard agreement would be appropriate and that there had been full disclosure of all the material facts surrounding the origin of the money. I would be staggered if the Inland Revenue would not check—and from talking to tax advisers, I understand that it does—the full facts of the matter, to be sure that someone was not trying to pull the wool over its eyes and laundering the money by paying the tax on it through a Hansard agreement. If that were found to be the case, I would expect the Inland Revenue to prosecute itself. Failing that, I have no objection to the full weight of the law and investigative powers falling on the individual concerned.

My concern is for the Hansard agreement. If the Bill goes through in its present form, the Hansard agreement will go down the plughole of history. An irony of that would be that the Government and the Inland Revenue would be substantial losers. All sorts of individuals who had wanted to regularise their tax affairs would no longer do so.

How will the Minister tackle such a problem? I have never heard it suggested that the Hansard agreement be jettisoned, and seeing that it is a tried and tested method, there would be a problem without it. Furthermore, as the Bill applies retrospectively, I foresee the raising of all sorts of human rights issues concerning the ability to keep Hansard agreements going until the legislation is enforced.

The issue is broad. The amendments were tabled as a result of representations to me from those in the tax world. The amendments are designed to meet the need for a disclosure to be made to the Inland Revenue—for there not to be tipping off—to place the person to whom that disclosure can be made in the regulated sector, and to ensure that there is protected disclosure.

I need to hear from the Minister how the Government view the problem and then we may need further debate.

Photo of Mr Nick Hawkins Mr Nick Hawkins Conservative, Surrey Heath

Like my hon. Friend the Member for Beaconsfield, I am not a tax lawyer specifically, but during my own practice at the Bar, tax matters came into the ambit of fraud cases with which I dealt, and I have certainly come across the concept of Hansard agreements. The Hansard agreement system has been in place some considerable time, and while I have not had extensive dealings with tax officials, one of my godfathers was a senior Inland Revenue employee for many years.

Photo of Mr Nick Hawkins Mr Nick Hawkins Conservative, Surrey Heath

Not a mafia one, but a purely Christian one.

I recall from various discussions, not only during my work at the Bar, but with a member of my family, that often the most important theme for the Revenue has been the way in which it can get people to volunteer information to it. Sometimes, that would be under pressure, in that if the information were not volunteered, prosecutions would follow. As my hon. Friend the Member for Beaconsfield and I examined the Bill, it struck us as odd that, given the parallel functions of Customs and Excise when dealing with VAT and the Inland Revenue when dealing with other taxation, the clause should provide a defence if there was instant disclosure as soon as practicable to a Customs officer who was dealing with VAT, but there was no mention of Inland Revenue officers dealing with taxation. That seems peculiar, especially in light of the fact that the Hansard agreement system seems to work so well.

Photo of Bob Ainsworth Bob Ainsworth The Parliamentary Under-Secretary of State for the Home Department

I take the point that one of the consequences of extending the possession offence under clause 323 that covers any criminal proceeds, whether or not they are one's own or another's, is that a tax adviser or an accountant will be duty bound to make a report. The hon. Member for Beaconsfield has taken soundings, and we have consulted fully on the matter. We have talked to the Revenue, the police and NCIS. Before we think about how we want the provision to work, it needs to be said that tax evasion is a serious, criminal offence. The hon. Gentleman did not suggest that it should be treated as anything other than that.

While the sums involved in tax evasion could, in some cases, be small, the offences with which we are concerned are serious. The main argument that has been advanced is that, when accountants and tax advisers are brought within the regulated sector, many clients who have a genuine desire to put their tax affairs straight through the Hansard process will be less inclined to seek the views of tax advisers, knowing that the matter will have to be reported to NCIS. They will be far more likely to seek advice from the solicitor next door who will not have to report the matter to NCIS, because of the legal privilege exemption. It is also argued that clients will no longer be so keen to regularise their tax affairs and that there will be a substantial loss of revenue as a result.

The facts do not bear that out. The Inland Revenue's analysis is that, against a background of a rough figure of £100 million of revenue recovered in total through the Hansard procedure, only about £15 million is recovered through Hansard disclosures, which are made spontaneously to the Revenue without there being any prior knowledge on the Revenue's part. The Hansard procedure is used, and the view of the tax authorities is that it is used more often than not when they are already on to the case, and in some circumstances they are more than happy to accept that they can regularise the position in that way. The sum is not huge and the Revenue advises that it would not expect to lose all of it anyway. It sees a counterbalancing effect of improving compliance through the more robust reporting regime. In short, the Revenue does not see an overall loss to it as a result of the clause. Indeed, it believes that there may be an increase.

It is important to point out that in the majority of cases a tax adviser will not know whether the criminal proceeds in the hands of his client were derived from tax evasion rather than another crime. The hon. Gentleman said that if the Revenue became aware that there was other criminality, obviously it would report that to NCIS, but the Revenue will not necessarily know whether other criminality is involved. NCIS, rather than the Revenue or the tax adviser, will be best able to decide whether the case is purely one of tax evasion, rather than other criminality.

Much has been said about the idea that NCIS will be swamped with minor reports of tax evasion. We accept that there will be an increase in the number of reports that will be made to NCIS, but we consulted NCIS, and it is satisfied that it can cope with the additional work load. It takes the view that it would be better to allow it to dismiss a report as relating only to minor tax evasion than to risk losing an important money laundering lead. The sums involved do not necessarily determine whether money laundering is involved.

Photo of Mr Nick Hawkins Mr Nick Hawkins Conservative, Surrey Heath 10:30, 24 January 2002

I do not know whether the Minister will come to this later, but he has not yet responded to my point that if there is provision for disclosure to Customs and Excise for VAT, surely there should be a parallel exemption for disclosure to the Revenue. Should that be examined?

Photo of Bob Ainsworth Bob Ainsworth The Parliamentary Under-Secretary of State for the Home Department

The hon. Gentleman can see that I am trying to answer several points on a range of issues, and I wish that he would wait until I am near completion before he asks whether I have answered a specific point. I find that he repeatedly wants me to answer his questions before those of other hon. Members, and if I do not, he gets a little agitated during my response.

When there is no evidence of wider criminality beyond tax evasion, NCIS will in any event pass cases back to the Inland Revenue to be dealt with, as happens at present. It is already public knowledge that the Revenue has a presence in NCIS. There is nothing new about a close liaison between the Revenue and NCIS on matters of this kind.

Concerns have been raised because reports must be made to NCIS as soon as practicable after the information gives rise to knowledge or suspicion. NCIS may pass on reports to the Revenue long before they would have been received under the Hansard procedure, which can take many months to sort out. However, I reassure the Committee and those who made representations that when that happens, the Revenue will not withhold the offer of a Hansard arrangement to settle the matter purely on the basis that it learned about the evasion from a report sent from NCIS, rather than being notified by the taxpayer or his adviser. That is important, because we have been asked for that assurance. The Revenue will not deal with cases differently because they were received via NCIS rather than directly.

Photo of Dominic Grieve Dominic Grieve Shadow Minister (Home Affairs)

I am glad to hear that, although the problem is a little more twisted than that. A person will no longer be able to get advice from their tax adviser about making a Hansard agreement. The adviser might say, ''I'm sorry, but there's no such thing as a Hansard agreement—goodbye,'' and then, without the client's knowledge, pick up the telephone and say to NCIS, ''My client was seeking a Hansard agreement. I sent him away, but I think that you should know about it.'' Legal professional privilege would prevent that.

The irony is that NCIS will have to get information through another channel; the voluntary declaration via the tax accountant will come to an end. Surely that would be the consequence of the measure. The accountant or adviser will not be able to tell the Revenue because of legal professional privilege.

Photo of Bob Ainsworth Bob Ainsworth The Parliamentary Under-Secretary of State for the Home Department

He will. The hon. Gentleman says that if the adviser tells the Revenue, he will be guilty of tipping off, but clause 325 states that the tipping-off offence applies where the disclosure may ''prejudice any investigation''. I do not see how telling the Revenue could ever be prejudicial to an investigation. Of course, the Hansard procedure supports my assurance.

Yes, there is a fear that the measure could discourage people from coming forward, knowing that a report will be made to NCIS—rightly so, if serious criminality is involved. We must assure people that we do not intend to alter the Hansard process, and that the intervention of NCIS in the information stream will not alter the way in which the case is dealt with when it eventually reaches the Revenue. The Revenue is not in a position to know whether criminality, other than tax evasion, is involved, nor is the accountant or tax adviser. NCIS knows that; it collects such information. However, if the tax evasion is purely minor, it will be passed on to the Revenue, which will deal with it. We are trying to ensure that that will not change.

Photo of Dominic Grieve Dominic Grieve Shadow Minister (Home Affairs)

I am interested in the Minister's comment that the offence of tipping off would not apply to information given to the Inland Revenue because it would not prejudice the investigation. I can see the force of the argument. In that case, the Bill should state explicitly that there is no prejudice in

tipping off the Revenue, because that is not the understanding that tax advisers have of the matter.

The future of Hansard agreements is much more complicated, notwithstanding the Minister's comments. Inevitably, widening the principle by which the Revenue deals with the issue so that NCIS immediately becomes engaged is likely to be a powerful deterrent to individuals from providing information to their accountants to settle their affairs. The Minister may be right in saying that that is a good thing if someone has something to hide, but I suspect that it will also affect people who have nothing to hide but who are frightened of the consequences of bringing a substantial criminal investigation by the National Criminal Intelligence Service down on their backs, when previously they had more confidence in the practices of the Inland Revenue. If that is a public policy decision I must accept it, but we are in danger of throwing the baby out with the bathwater. My impression, which the Minister confirmed, is that the Inland Revenue has been broadly satisfied with the way in which Hansard agreements work, and considers them a good principle and device. Otherwise it would have got rid of them a long time ago.

Photo of Bob Ainsworth Bob Ainsworth The Parliamentary Under-Secretary of State for the Home Department

The point about potential deterrence has been raised with us, which is why we consulted the Revenue. The hon. Gentleman heard its view. My main reason for intervening now is that although I got cross with the hon. Member for Surrey Heath, in the end I did not get to the points that he asked me about. Although he is not here now, he might want to know that although Customs and Excise has particular responsibilities for investigating crime generally, and money laundering in particular, the Inland Revenue has no such responsibilities, which is why the Revenue is treated differently from Customs and Excise.

Photo of Dominic Grieve Dominic Grieve Shadow Minister (Home Affairs)

I thank the Minister for that explanation.

I will ask the Committee's leave to withdraw the amendment, but with some reluctance. People should be able to come clean on their tax affairs in the way that Hansard agreements provided for, and in practice that will become less likely. An individual will not go to see his accountant and say, ''Look, this is what happened,'' because he will be advised that the Hansard agreement no longer works in the same way. Indeed, it will be even more difficult, as the accountant will have to tell the person to go away. Even in explaining the way in which the new system works, he would be alerting the client to the fact that he might have to tip off NCIS if the client wanted him to notify the Inland Revenue. The change will put the tax adviser in considerable difficulty, and I ask the Minister to examine that aspect. The tax adviser will have a problem, because he will want to go along with the laws that the Minister sets out.

I will sketch out the specific situation so that the Minister understands. The client comes along and says, ''I have a tax problem; I want to come clean.'' The tax adviser can tell him about the Hansard agreement, and say that he can notify the Inland Revenue on the client's behalf, but at the same time it is in his mind that he must also tell NCIS without

telling his client. That puts a professional adviser in considerable difficulties, as the confidentiality of the communication with the Revenue used to be a paramount consideration. In reality, if someone tells the tax adviser that they have a problem with the Revenue, the adviser will just have to say that he does not want to know about it. A legal professional adviser would have great difficulty in dealing with that issue.

I see a note being passed to the Minister, so he may be able to reassure me that I am wrong. However, an accountant would not be covered by legal professional privilege, so he would be in an even more difficult position. I cannot help thinking that a channel of information that has been of value to the Inland Revenue will simply dry up.

Photo of Bob Ainsworth Bob Ainsworth The Parliamentary Under-Secretary of State for the Home Department

I do not see some of the difficulties that the hon. Gentleman does. Obviously, advisers may want to make their clients aware of the general requirements under the law, and the idea has been raised with us that that could deter people from coming forward. In making their clients aware of their legal requirements, the advisers will make them aware that in certain circumstances they have a requirement to disclose. They will not then be in the difficult position of failing to point out to the individual that they must make a report in given circumstances. We want people to behave professionally and make reports where appropriate. People will decide whether to tell clients their obligations, and the manner in which they will do so, before having dealings with them.

Photo of Dominic Grieve Dominic Grieve Shadow Minister (Home Affairs)

I see the point of that. In one of our debates, some hon. Members said that several City institutions already issue a prospectus stating that confidentiality no longer applies in cases of suspected money laundering, and that if they received information about such cases, they would make a disclosure under the Drug Trafficking Offences Act 1986. Organisations do not tell the client that they are going to make such a disclosure, but they make it clear that the confidentiality that used to exist is limited by that factor. Accountants, solicitors and others will doubtless make it clear to clients that that rule will generally apply in dealing with their tax affairs.

That is likely to mean that individuals no longer go to accountants to seek advice on Hansard agreements because accountants, unlike solicitors, have no legal professional privilege. Accountants' advice on the matter would force an immediate reference to NCIS, which would surely dry up that channel of communication.

I have raised the matter now, and I will not press it to a vote, but I will discuss it further with those who encouraged me to table the amendments. If they are not satisfied with the Minister's answers, we may return to it on Report.

Photo of Bob Ainsworth Bob Ainsworth The Parliamentary Under-Secretary of State for the Home Department 10:45, 24 January 2002

To try to reassure the hon. Gentleman, I can tell him that the measure should not breach ordinary taxpayer confidentiality. There will be no requirement for NCIS to report to any body other than the Revenue, such as police authorities or enforcement authorities, unless an offence other than

tax evasion is involved. Information will be reported to and kept by NCIS, and reported back to the Revenue, where appropriate, to be dealt with under the Hansard procedures.

Photo of Dominic Grieve Dominic Grieve Shadow Minister (Home Affairs)

I appreciate that. I said at an earlier sitting, slightly tongue in cheek, that the Inland Revenue was like the Spanish inquisition, as in the Monty Python sketch where people come bursting in whenever its name is mentioned. Similarly, NCIS has all the attributes of Big Brother: it is watching us and picking up lots of information which it holds secretly and close to its heart, communicating it only to the Spanish Inquisition.

I appreciate that the Government are trying to curb criminality, but the measures may constitute practical impediments to the orderly administration of society and the collection of tax revenue. Have the Minister's officials had further representations from those who work with taxation to give the matter careful consideration? I will ask the industry for its views on the Minister's comments in Committee, and we may return to the matter on Report. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Dominic Grieve Dominic Grieve Shadow Minister (Home Affairs)

I beg to move amendment No. 488, in page 187, line 40, after 'and', insert 'believes'.

The line of the clause that the amendment would affect is about legal professional privilege. A person does not commit the offence of failing to disclose information if he has a reasonable excuse, or if he is a professional legal adviser and the information or other matter came to him in privileged circumstances. The amendment would provide that someone had to believe that the information, or whatever, had come to him in privileged circumstances, which would introduce the test of guilty knowledge rather than of negligence.

Put simply, legal professional privilege has always been a well established rule of our law, and it has repeatedly been justified on public policy grounds. In a recent case concerning obtaining tax advice, the Inland Revenue tried to obtain papers from the tax barrister who gave the advice, but the courts held that there were powerful public policy reasons for upholding legal professional privilege.

An interesting issue, which we shall consider later, is that there are no statutory efforts of which I am aware to define what constitutes legal professional privilege. However, to my surprise, in part 8—which I shall not debate now—I was able to identify at least one passage in which there is an attempt at defining legal professional privilege so that it does not cover, for instance, the identity and address of a lawyer's client.

As the term has not been statutorily defined, I would think it extraordinary if a legal adviser who received information and believed that he was covered by legal professional privilege were criminalised for making that mistake. The amendment is designed to deal with those circumstances. It would make the legal adviser aware that he was not covered by legal

professional privilege, so that he would not make such a mistake.

There may be occasions when a solicitor is not covered by legal professional privilege, particularly for a straightforward transaction that does not require the provision of legal advice, but there is a grey area in which the one fades into the other. I would be concerned about introducing a negligence test unless the Minister could persuade me that there are good and sufficient reasons to do so.

Photo of Bob Ainsworth Bob Ainsworth The Parliamentary Under-Secretary of State for the Home Department

I am advised, from more than one source, that legal professional privilege is defined in section 10 of the Police and Criminal Evidence Act 1984.

We do not believe that the amendment is necessary. The clause as presently drafted assumes that the professional legal adviser, acting on information given to him by his client, would know whether the information came to him in privileged circumstances. We do not think that it is a problem that the word ''believes'' is not explicitly stated, because in order to commit the offence of failure to disclose, the professional adviser must know or suspect, or have reasonable grounds to suspect, that money laundering is going on. If he knows or suspects that, he must have some idea that information may be being communicated with a view to furthering a criminal purpose—that is, money laundering. If the legal adviser does not know or suspect, or have reasonable grounds for knowing or suspecting, anything, he cannot be guilty of a failure to disclose in the first place.

There will be circumstances in which the adviser knows or suspects that there is money laundering and it is clear that legal privilege does apply. A client might be charged with a criminal offence and give information about money laundering to his legal adviser. The adviser would then know that money laundering was going on, but he could be confident that the information was given to him in order to prepare a defence rather than to pursue a criminal purpose.

Other circumstances might be less clear cut. In conveyancing or divorce proceedings, a legal adviser may come across information that leads him to suspect money laundering. However, he may not be sure whether the conveyancing or divorce settlement is part of the money laundering, or whether the information is given to him in order to pursue the criminal purpose of money laundering. In those circumstances, we think that the legal adviser should make a report. The legal adviser will be protected from any professional duties of confidence by clause 327, so there is no risk to him in making a report.

Therefore, where the legal adviser has any doubt as to whether information that comes to him is privileged, he should go ahead and disclose. We believe that the majority of legal advisers would act in good faith in that regard. The existing offence of failure to disclose suspicion of the laundering of drug money contains the same definition of legal privilege.

That has not—so I have been told—given rise to any difficulties.

Photo of Dominic Grieve Dominic Grieve Shadow Minister (Home Affairs)

I continue to be concerned about the matter, but I will consider it again, in the light of the Minister's comments about the statutory definition in the Police and Criminal Evidence Act. It might be more appropriate to consider my specific concern about the erosion of legal professional privilege at a later stage of our discussion of the Bill.

Photo of Alistair Carmichael Alistair Carmichael Shadow Spokesperson (Energy and Climate Change), Liberal Democrat Spokesperson (Energy and Climate Change)

Does the hon. Gentleman agree that the Minister's comments about legal advisers making a disclosure if in doubt reinforce the need for the amendment? If the legal adviser makes a disclosure when he is in doubt, and it turns out that the information should not have been disclosed, he will be in breach of his duty of client confidentiality.

Photo of Dominic Grieve Dominic Grieve Shadow Minister (Home Affairs)

Yes, that would be a serious breach of professional conduct. I have frequently expressed such concerns, as that problem arises throughout the Bill.

The hon. Gentleman may recall that an earlier part of the legislation did not contain a reference to legal professional privilege in connection with requiring people to answer questions. I think that it was the hon. Member for Redcar (Vera Baird) who said that it was extraordinary that there was no such reference, and the Minister responded by saying that it did not matter, because there could be no suggestion that the clause eroded legal professional privilege.

I found that odd at that time, and I find it even odder now I have been informed that there is a statutory definition of legal professional privilege in another piece of legislation. I wish to examine that definition, and the context in which it arises. It is worth bearing in mind that the Police and Criminal Evidence Act deals with certain restrictive facts and matters, rather than with the total ambit of legal professional privilege.

Photo of Alistair Carmichael Alistair Carmichael Shadow Spokesperson (Energy and Climate Change), Liberal Democrat Spokesperson (Energy and Climate Change)

It is also worth bearing in mind that that Act applies only to England and Wales. I am not aware that there is a statutory definition in Scottish law—other than in the Solicitors (Scotland) Act 1980, in which it will be defined in broad terms. Moreover, even that will not cover members of the Faculty of Advocates.

Photo of Dominic Grieve Dominic Grieve Shadow Minister (Home Affairs)

I was busy scrabbling through my Archbold to see if I could find that, but I could not do so in the available time. The hon. Gentleman has made an important point.

I have to decide whether to press the amendment to a Division—and I see that my hon. Friend the Member for Surrey Heath is encouraging me to do that—or to reflect on the matter further in the light of the Minister's comments. The only reason why I was minded to withdraw the amendment was because I could see that further opportunities might arise later in the Bill to look at the extent to which legal professional privilege was being tinkered with.

I agree with the hon. Gentleman that the Minister's specific line on ''If in doubt, declare what is going on to NCIS'' does not address the problem at all. The absolute duty of maintaining confidentiality means

that legal professional privilege exists for the benefit not of lawyers but of clients. It exists to allow people free access to lawyers to get legal advice, and may be waived if the client wishes. It does not protect lawyers, but those whom they provide with advice. The idea that a person who is in doubt may go off and spill the beans to NCIS is wide of the mark.

Photo of Mr Nick Hawkins Mr Nick Hawkins Conservative, Surrey Heath 11:00, 24 January 2002

My hon. Friend is right. I agree with the hon. Member for Orkney and Shetland (Mr. Carmichael) because some of the Minister's comments toward the end of his remarks caused me, too, to worry. Does my hon. Friend agree that we have been aware for many years—perhaps since before either of us entered the House—that it is the ambition of many of those in government to chip away at legal professional privilege? I am not talking only about the present Government, because the apparatus of the Home Office under successive parties has wanted to do that. I can remember debates in the 1992–97 Parliament in which there were frequent efforts to chip away at that privilege.

My hon. Friend is correct to say that the privilege is designed to protect clients. Although the hon. Member for Glasgow, Pollok said that that was ''a likely story'', it remains the case, and the Government's Back Benchers must be conscious of that.

Photo of Dominic Grieve Dominic Grieve Shadow Minister (Home Affairs)

I agree entirely with my hon. Friend. I mentioned that there were further issues under the investigatory powers in part 8 of the Bill that caused me serious worries.

Photo of Bob Ainsworth Bob Ainsworth The Parliamentary Under-Secretary of State for the Home Department

May I repeat my point and, I hope, satisfy the hon. Gentleman? The legal adviser will be protected from any professional duties of confidence by clause 327, which I am told overrides the duty of confidence to the client.

I can also tell the hon. Gentleman—I have said this before—that the same definition of legal privilege is in the current money laundering regulations. Currently, NCIS encourages people to seek advice from the ethics division of the Law Society if they are uncertain whether to disclose. The hon. Gentleman is worried about encroachment, but I am not sure that he has real grounds for that.

Mr. Grieve rose—

Mr. Carmichael rose—

Photo of Dominic Grieve Dominic Grieve Shadow Minister (Home Affairs)

I get the impression that the debate could continue fruitfully beyond my response to the Minister, and I hope that that will be possible. I see you shaking your head, Mr. Gale, so I shall give way to the hon. Member for Orkney and Shetland now.

Photo of Alistair Carmichael Alistair Carmichael Shadow Spokesperson (Energy and Climate Change), Liberal Democrat Spokesperson (Energy and Climate Change)

Again, does the hon. Gentleman share my concerns about what the Minister said? He said that solicitors are encouraged to report matters to the ethics division of The Law Society. That is perfectly proper, but it is different from what he said earlier about reporting things when in doubt.

Photo of Dominic Grieve Dominic Grieve Shadow Minister (Home Affairs)

I entirely agree with the hon. Gentleman. On occasions, I have sought the advice of my professional body about problems that arose in my professional practice. The Minister says that

notwithstanding the advice that the Bar Council gave me, I should be under an obligation to disregard that advice in a case of doubt. Curiously, the more our discussion continues, the more convinced I am that the amendment should be put to the vote. I am increasingly worried about the general drift on legal professional privilege.

Photo of Bob Ainsworth Bob Ainsworth The Parliamentary Under-Secretary of State for the Home Department

Is the hon. Gentleman trying to achieve a position whereby a lawyer who is conducting financial activities for his client should escape the requirements of the clause when no criminal proceedings are involved? That is how it appears.

Photo of Dominic Grieve Dominic Grieve Shadow Minister (Home Affairs)

No, the Minister is wrong. If a lawyer is conducting purely financial dealings for his client, without providing advice, and the lawyer says subsequently, ''I believed that I was covered by legal professional privilege,'' he would be laughed at, and rightly so. However, circumstances will arise in which an individual will legitimately be asked by a client to do two things at once. The question arises: which is the primary and which is the secondary function? Grey areas exist, and a solicitor would be sensible to ring up the Law Society of England and Wales, or the Law Society of Scotland, and obtain advice. The Minister is not saying, ''If in doubt, you can get the advice of your professional body, and the Government would not then criticise you.'' He is saying that a legal adviser can be prosecuted on the grounds that he was negligent if a view is taken subsequently, with the benefit of hindsight, that legal professional privilege was not attached to the advice or activities that he was carrying out. That troubles me.

On the whole, negligence should be a matter for professional bodies, and criminality should be a matter for the courts. I do not care for the mixing of the two, especially when lawyers may be placed in difficult situations.

Photo of Mr Nick Hawkins Mr Nick Hawkins Conservative, Surrey Heath

Like my hon. Friend, I am becoming more and more concerned. The more the Minister intervenes, the worse the position becomes. I apologise to my hon. Friend, as, having interrupted him, I am now going to raise a point of order.

On a point of order, Mr. Gale. Am I right in thinking that when a matter arises at the end of the Minister's response to the hon. Member who moved the amendment, and the mover of the amendment speaks again before there is time for other hon. Members—such as the hon. Member for Orkney and Shetland and I—to intervene, you could, if you felt it appropriate, and with the leave of the Committee, allow hon. Members who wished to take up that matter to do so after the mover of the amendment has finished speaking? Otherwise, the hon. Gentleman and I will be able to raise the further significant points that arose at the end of the Minister's response only as interventions on my hon. Friend the Member for Beaconsfield. I seek your leave, Mr. Gale, to make a further short contribution before the amendment is put to a vote.

Photo of Roger Gale Roger Gale Vice-Chair, Conservative Party

The convention is clear: once the hon. Member who moved the amendment has been called to reply, it is anticipated that no other hon. Member will be called. However, in the circumstances

that the hon. Gentleman has outlined, the Chair has the right to call other hon. Members, and in a moment I shall consider whether I am minded to do so.

Photo of Dominic Grieve Dominic Grieve Shadow Minister (Home Affairs)

In conclusion, I accept that section 52 of the Drug Trafficking Act 1994 defines, in a highly acceptable way—interestingly, the Bill does not do so—legal professional privilege, which applies if information is communicated

''(a) by, or by a representative of, a client of his in connection with the giving by the adviser of legal advice to the client;

(b) by, or by a representative of, a person seeking legal advice from the adviser; or

(c) by any person—

(i) in contemplation of, or in connection with, legal proceedings; and

(ii) for the purpose of those proceedings.

(9) No information or other matter shall be treated as coming to a professional legal adviser in privileged circumstances if it is communicated or given with a view to furthering any criminal purpose.''

The Minister must accept that the matter under discussion is much wider than the furthering of a criminal purpose. It is about suspicion, and declaring and providing information merely because something has floated past one's eyes unexpectedly. That is a much wider problem for lawyers than the definition in section 52 of the Drug Trafficking Act, because the circumstances are restricted in that Act. A legal adviser would have to waive the privilege when considering something that was

''communicated or given with a view to furthering any criminal purpose.''

I do not much disagree with the definition of legal professional privilege given in the 1994 Act, but we do not have one in the Bill—at least, not in this clause.

Photo of Vera Baird Vera Baird Labour, Redcar

I think that there is one in clause 324(8) in the same terms. I followed the words as the hon. Gentleman read them out.

Photo of Dominic Grieve Dominic Grieve Shadow Minister (Home Affairs)

I apologise to the hon. Lady. She is quite right. However, it still remains the case that the circumstances in which information is likely to come to light are wider in the Bill. I remain concerned about subsection (5)(b). Rather than continue the debate, we should put the matter to the vote, if only to express our concerns.

Photo of Alistair Carmichael Alistair Carmichael Shadow Spokesperson (Energy and Climate Change), Liberal Democrat Spokesperson (Energy and Climate Change)

I shall be brief, Mr. Gale, because I have already made my point about the Minister's approach, which I urge him to reconsider. I hope that that turns out to be one of those things that is said in Committee but not followed in practice. It is right that the serious concerns felt by me and others should be properly registered.

I have read subsection (8), to which the hon. Member for Redcar has drawn the Committee's attention. Applying my practical mind to that, I can foresee occasions on which solicitors, advocates and barristers might have substantial doubts about whether they are covered by professional legal privilege. Subsection (8) gives a wide and bald definition, which I am pretty certain would, if tested in the courts, give rise to a substantial body of case

law. It has long been recognised that the lawyer-client relationship is in the interests of public policy, and for that reason the amendment is worthy of support.

Photo of Bob Ainsworth Bob Ainsworth The Parliamentary Under-Secretary of State for the Home Department

The hon. Gentleman says that the definition would give rise to a substantial body of case law. I ask him to consider whether it would give rise to a substantial number of reports. He and other Opposition Members seem to be saying that there is nothing wrong with the current system. In 2001 NCIS received just 303 reports from 85,000 practising solicitors. Does the hon. Gentleman suggest that that number is acceptable, considering the number of financial transactions that are dealt with by solicitors? Would not he like there to be a substantial increase and improvement in the number of reports made?

Photo of Alistair Carmichael Alistair Carmichael Shadow Spokesperson (Energy and Climate Change), Liberal Democrat Spokesperson (Energy and Climate Change)

There could be any number of explanations for those figures. Perhaps people are not using solicitors for money laundering as much as was initially thought. There are many more significant players in the regulated financial services sector, particularly since the passing of the Financial Services and Markets Act 2000. Solicitors are now bit-part players in that market. I am not surprised by the small number of reports made by solicitors. It is accountancy, stockbroking and other banking sectors that are worthy of examination.

I am slightly concerned about the implication of some of what the Minister says. He seems to be saying that solicitors as a body are acting unprofessionally. I know that the Law Society of Scotland was rigorous in its audits of the firm that employed me. I can think of one particular occasion when I was pulled in to speak to the auditor and explain why I had not asked a new client for identification in accordance with the money laundering regulations. As it transpires, it was proper for me not to have asked for identification in those circumstances because the client was known to me previously, so I had complied with regulations. I suggest to the Minister that if a solicitor undertaking a small conveyancing transaction in a small legal firm in Macduff is subject to that level of scrutiny, there is not much in the professional money laundering regulations that can be criticised.

Photo of Mr Nick Hawkins Mr Nick Hawkins Conservative, Surrey Heath 11:15, 24 January 2002

I wish to reinforce the good points made by the hon. Member for Orkney and Shetland and my hon. Friend the Member for Beaconsfield. The hon. Gentleman is probably being too moderate, however, in his balanced and reasonable response to the Minister. I have become more shocked each time the Minister has spoken in the debate. The most shocking thing of all was his intervention in the speech of the hon. Member for Orkney and Shetland, when he said that the Government regarded the matter as a quota exercise. The Minister compared the number of firms of solicitors with the number of reports. I think that he was quoting the global total for England and Wales, but no doubt he will say whether those figures included Scotland.

Neither the Minister nor NCIS can know whether those reports were proper reports, or whether they were the only proper reports. I agree wholeheartedly

with the hon. Member for Orkney and Shetland that as such matters have become increasingly dominated by the City of London, lawyers have become more like bit-part players. That does not mean that the Faculty of Advocates, the Law Society of Scotland and the Law Society of England and Wales do not have huge worries about the extension of negligence to junior staff under the Bill—but I would be out of order if I repeated them, Mr. Gale.

As I suggested earlier, the Minister may be chipping away at legal professional privilege. I have been a Member of Parliament for nearly 10 years and, with others who are legally qualified, I have been involved in many debates to defend both the basis for, and the concept and the retention of, legal professional privilege against the anti-lawyer voices in all parties that have become increasingly strident and worrying. We do not want to make assumptions, as the Minister does, that the very fact that there are only a certain number of reports means that there should be more.

I accept that it would be a proper response to the Bill to say that there will need to be much more reporting by financial institutions and the City of London. Although we have expressed concern that because of the absence of de minimis provisions, there will be many more reports than would be necessary to hit the real criminals, it is proper that there will be a big increase, as there already has been under the current arrangements since 11 September.

How many reports there are, and how many there should be, is relevant to the clause. I have to hand the figures that the Minister and I discussed generally in a previous debate. The NCIS website shows that there was a dramatic increase from 14,500 reports in 1999 to just over 18,000 in 2000. Before 11 September, it was anticipated that under the current law there would be a jump from 18,000 to 33,000. However, after 11 September it was anticipated that the figure would increase further to 40,000.

The Minister and I agree that it is proper that there should be an increase in reports, but those reports from the financial sector reinforce in spades what the hon. Member for Orkney and Shetland said. Despite the huge increase in reporting—with which those in both the financial and the legal sector say that NCIS is not equipped to cope now, never mind what will happen as a result of the further reports—the legal proportion is tiny. That point was made by the hon. Member for Orkney and Shetland, as well by my hon. Friend the Member for Beaconsfield and myself.

I am deeply worried by certain comments that the Minister has made. I know that he is a reasonable man, and is not trying to take a personal stance entirely at odds with his briefing. However, I cannot stress too strongly how worried we would all be if his unguarded remarks, which will be recorded in Hansard, were to undermine the basis on which clients are protected.

I do not blame the hon. Gentleman, because he has never been involved in the legal profession, but he has not fully thought through the implications of some of the comments that he made ''on the hoof'' when he intervened during the speeches of my hon. Friend the

Member for Beaconsfield and the hon. Member for Orkney and Shetland. This is not a personal attack on the Minister, but he will probably find that—even if he cannot accept our proposal or something akin to it—he has to write one of his clarificatory letters saying that that was not really the Government's intention.

I am grateful to you, Mr. Gale, for exercising your discretion and allowing me to express the seriousness of my worries. I hope that in a moment we shall be able to reflect the extent of those worries by pressing the amendment to a Division. Perhaps something along the lines of my hon. Friend's amendment will be accepted as a Government amendment in another place or on Report.

Photo of Mark Field Mark Field Conservative, Cities of London and Westminster

At a later stage we shall have the opportunity to discuss professional privilege at length. I have sympathies with Labour Members, because as a former lawyer, I know that there is nothing so unedifying as watching certain lawyers trying to defend their own interests.

There are two matters that I want to raise. The first is that I am worried about the Minister's comments about the ethics division of either the Law Society or the Bar Council. I am not sure that that will be an entirely satisfactory route to take. There will be occasions when the time that it takes to obtain a definitive explanation may put lawyers in a difficult position. Indeed, it may happen that a junior and perhaps not very well qualified person in the ethics department gives an ad hoc judgment. However, we could argue that by going to the ethics division and having that on the record, a solicitor could avoid the potential problem—highlighted by my hon. Friend the Member for Beaconsfield—of falling foul of negligence and triggering a string of criminal charges.

Secondly, I wish to reiterate the point that has just been made, because I too am worried by the stance behind what the Minister when he played the numbers game. The success or otherwise of the provision will be dependent on the number of reports that come through—at least, that is how it will be judged—which is a great worry. The statistics revealed, I believe, that there were about 300 reports from however many tens of thousands of registered firms—but surely the rate of successful prosecutions would be a more sensible statistic. I appreciate the difficulty in assimilating figures for 2001 within a few weeks of the end of that year, but it is worrying if the perceived success of the legislation will boil down to a numbers game.

Photo of Bob Ainsworth Bob Ainsworth The Parliamentary Under-Secretary of State for the Home Department

I was trying to point out a potential problem. If Opposition Members believe that my comments were made merely on the hoof, I assure them that they were not. I do not know if the hon. Gentleman is aware of, or interested in, the opinion of Select Committees, but the Select Committee on International Development said that it was

''concerned at the under-reporting of suspicious transactions by certain professional groups, in particular lawyers''.

Those worries were expressed by a Select Committee, and are not an on-the-hoof response from me.

Photo of Mark Field Mark Field Conservative, Cities of London and Westminster

I was not suggesting that the Minister's response was made on the hoof. We live in a world of

league tables, and I accept that my party is as guilty as any in that respect. If we examine the matter in purely statistical terms, there is a grave danger of undermining a general and quantitative analysis of what occurs in new law, and the effectiveness of existing laws.

That was the point that I was trying to make, although I appreciate that it was not the only issue

that the Minister had in mind. It is worrying—this applies to the Government as a whole—that such measures are examined in terms of a statistical analysis rather than according to their general effectiveness.

It being twenty-five minutes past Eleven o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till this day at half-past Two o'clock.