Clause 402 - Modifications of the 1986 Act

Proceeds of Crime Bill – in a Public Bill Committee at 6:30 pm on 29 January 2002.

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Photo of Bob Ainsworth Bob Ainsworth The Parliamentary Under-Secretary of State for the Home Department 6:30, 29 January 2002

I beg to move amendment No. 563, in page 229, line 10, leave out from 'which' to end of line 11 and insert—

'an order under section 50 or 52 is in force;'.

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

With this it will convenient to take Government amendments Nos. 564 to 592, 595, 596, 598, 599 and 601.

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

The amendments are highly technical, although the issue that they address is

relatively straightforward. As drafted, part 9 provides that if a restraint order is made or a receiver is appointed under the confiscation legislation before a bankruptcy order is made under the insolvency legislation, confiscation takes precedence and the property that is affected does not form part of the bankrupt's estate. However, we recently discovered that those arrangements are flawed because a bankrupt's estate is assessed at the time when the bankruptcy order is made. When property is excluded from the bankrupt's estate, there is no way of putting it into the estate if it ceases to be excluded after that date.

Under those circumstances, the restrained property would be returned to its owner. It would not form part of the bankrupt's estate because it did not do so when the bankruptcy order was made. The result would be that the creditors would lose out. The amendments will rectify that situation.

Photo of David Wilshire David Wilshire Conservative, Spelthorne

After I said that I appreciated that we have more time, it is a shame that we had to curtail our debate on a wide range of measures—I do not believe that anyone was wasting time—in order to move on to a new part. Although there are 32 amendments in the group, I suspect that we will have more time than we need on them. I flag that up, although I understand that I am probably out of order.

I worked my way through all 32 amendments, and I appreciate that some are repetitive and do the same thing to subsequent clauses. It seems like several years ago, but I suspect that it was only last November that I made the point that every amendment must be justified. That is not an argument for the Minister to stand up and work his way through 32 amendments, but I would be grateful if he would flesh out his comment that they are technical. What are the technicalities? As I said, I am not asking him to explain 32 times, but a bit more information than we have been given would be helpful.

Having made that general point, I wish to turn my attention to amendment No. 567, which is lurking in the group of 32. If I understand it correctly, it proposes that the bankruptcy proceedings would deal with what is left over after everything else has been dealt with. Essentially, the group of amendments define the property concerned, and amendment No. 567 proposes adding in what is left over after confiscation proceedings. It raises a serious point, which the Minister must address; I look forward to hearing his response. I am sure that the hon. Member for Glasgow, Pollok will be relieved to know—[Interruption.]

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

Order. I must remind members of the Committee that if they wish to engage in private conversations, they should do so outside the Room. I wish to hear what is said by the speaker who has the Floor.

Photo of David Wilshire David Wilshire Conservative, Spelthorne

Thank you, Mr. Gale.

As I was saying, the hon. Member for Glasgow, Pollok will be relieved to know that I am not arguing in favour of making bankruptcy a loophole. I readily accept that the principle of the legislation is absolutely right: we must ensure that bankruptcy cannot be used

as a way of diverting funds. It has been and can be done; it is an attractive loophole at present.

However, I am worried about taking the principle too far. Genuine bankruptcy proceedings against someone with a great amount of ill-gotten gain will not be a ruse to divert money. The person will lose the proceeds of crime as a result, and the effect will be what the Bill is trying to achieve. The money is taken away via the bankruptcy route, which is different from the proceeds of crime route, but the effect on the person would be the same and the objectives of the legislation would be achieved.

I am concerned about genuine bankruptcies. As I understand it, laundered money often finds its way into legitimate businesses, and innocent people trade with such businesses in good faith. A person who is running a legitimate business, albeit on the proceeds of crime, may genuinely go bankrupt. If we say that in such a situation the proceeds of crime procedures will take precedence over the bankruptcy procedures, the creditor who in good faith engaged in business with the legitimate business would be hit by the legislation. That concerns me.

As it stands, the legislation says that bankruptcy proceedings against someone who is running a legitimate business on laundered money must follow the proceeds of crime procedures. Amendment No. 567 clearly states that the courts can revert to bankruptcy proceedings with the money that is left over. My concerns are that there will be a delay—it could be a considerable delay—before the proceeds of crime procedures are completed and, when they are, there may not be much money left over. Often, the innocent are hurt most in bankruptcy proceedings.

Therefore, I have concerns about the bankruptcy proceedings, with regard to a legitimate business that is run with the proceeds of crime. Those proceedings might take two or three years: the business might have many creditors who are not involved in any illegal activity, and who can have had no knowledge of what was going on, because they were doing business with a perfectly legitimate organisation. They might be asked to wait for three or four years. Who knows how long such proceedings could take? During that period, they might go bankrupt, because, for instance, they are unable carry on their business. That cannot be right.

The proceedings might not take two or three years, but problems might arise even if it is a quick process. For instance, it would not be right if someone were to discover that they were owed £100,000 by a business that they thought was legitimate and, through no fault of their own, although the legitimate part of that business had £100,000 of assets that could have been paid to them, another procedure takes that money away from them, even though they are entirely innocent. Under normal circumstances, the creditor would have received that money and could continue in business, but if that money were taken away because of this legislation, an innocent person could go bankrupt.

I am sure that that is not the Minister's intention. I presume that his intention is to ensure that it is impossible for bankruptcy to be used as a loophole,

and I support that goal. However, it is possible for a bankruptcy that is not being used as a loophole to take place. Therefore, I ask the Minister to examine whether it would be possible to table an extra amendment—which could be added to the existing 32—that would draw a distinction between the person who is involved in crime and who tries to make money disappear via a concocted bankruptcy and an innocent creditor who is legitimately and unwittingly trading with someone who is involved in crime. Such a creditor should not be prosecuted, or caught up in the matter.

I am sure that the Minister does not want innocent people to be caught up in a damaging way in such a situation. I hope that the Minister can say to us that a distinction can be drawn between somebody who uses the bankruptcy route as a loophole and someone who goes bankrupt for genuine reasons. We must provide safeguards to protect the innocent.

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

Although I want to focus on other issues, I wish to express my agreement with everything that my hon. Friend has said. It is unnecessary for me to go over that ground again, as he has covered it so ably, and I look forward to hearing the Minister's response.

I am surprised that there are so many amendments to one part of the Bill. It is extraordinary that it should need to be so substantially rewritten. The legislation is complex. My hon. Friend the Member for Beaconsfield and I have occasionally remarked that it is too complex, and that it will be difficult to operate it at the sharp end. I hope that the Minister can explain why the Government needed to do so much rewriting. As there has already been a draft Bill, it must be an embarrassment to the Government that such an enormous amount of rewriting needs to be done. That is a general point.

I turn to a more detailed point with regard to Government amendment No. 593. I notice that it is in the name, not of all the Ministers—or the Ministers and the Whip—as some of them have been, but only of the Minister of State, Scotland Office. In these days of devolution, and with so many hon. Members representing Scottish constituencies in the United Kingdom Parliament, it is ironic that a Scottish Minister should reintroduce a reference to legislation that predates the Act of Union.

I am always delighted when reference is made to Acts of Parliament that were written in the days that are almost—although, happily, not completely—beyond recall. Legislation was simple in those days. It is a pleasure to see it being used again.

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

Order. To which amendment is the hon. Gentleman referring?

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

In that case, the hon. Gentleman is out of order. Amendment No. 593 belongs to another group of amendments.

Photo of Bob Ainsworth Bob Ainsworth The Parliamentary Under-Secretary of State for the Home Department 6:45, 29 January 2002

Forgive me, Mr. Gale, I was not trying to deflect from the importance of the provisions. It is just that we have so little time in which to discuss part 9. The Opposition have not tabled amendments to the other clauses, but there may have been clauses that they wanted light on as we moved through this part of the Bill. I flagged up that issue to the hon. Member for Beaconsfield to make him aware of the amendments and their broad intent. I shall first explain their purpose.

Part 9 deals with when the same property could be affected simultaneously by confiscation and insolvency proceedings. It makes it clear when confiscation proceedings take precedent and when insolvency proceedings take precedent. Among other things, it helps to avoid the uncertainties that may arise if two receivers—one confiscation and one insolvency—were simultaneously in post at the same time.

We have discovered that the arrangements are flawed. The hon. Gentleman said he was surprised that so many amendments were tabled. He will see that this part of the Bill is repetitive. Therefore, one change would lead inevitably to a multiplicity of amendments. We are dealing with circumstances in which property is excluded from a bankrupt's estate and there is no way of putting it into the bankrupt's estate if it ceases to be excluded at a later date.

For the benefit of the hon. Member for Spelthorne, I shall cite a couple of examples of the problem. If a restraint order were made in confiscation proceedings, the property concerned would not form part of the bankrupt's estate. A bankruptcy order might be made while the restraint order was still in force. The restraint order would then be discharged because the defendant had been acquitted or for some other reason. Under those circumstances, the restrained property would be returned to its owner. It would not form part of the bankrupt's estate, because it did not do so when the bankruptcy order was made. The result is that the creditors would have lost out. We would have bypassed them and handed the money back to the original owner, thus rendering the bankruptcy proceedings useless in respect of the property that was subject to the confiscation or restraint order.

Another example of the same problem is when a person is convicted and a confiscation order is made. A receiver is appointed before a bankruptcy order is made, so that confiscation has the first call on the property. A bankruptcy order is made. If the receiver has spare property left over after the confiscation order has been fully enforced, once again it is excluded from the bankrupt's estate and must be returned to the owner, not the creditors. I do not believe that Conservative Members would want that to happen. To prevent such action and rectify the flaw, three separate sets of amendments are needed to the Bill because of it repetitive nature. We have also taken the opportunity under the amendments to remove some unnecessary duplication from the clauses. I am sorry that there are so many of them, but that is inevitable because of the Bill's structure.

Photo of David Wilshire David Wilshire Conservative, Spelthorne

I fully support the Minister's points. I hope that I made it clear that I was not trying to water the measures down. I was concerned not about whether there was a technicality, but about the delay in getting the money into the bankrupt's estate and ensuring that it is there for genuine creditors.

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

The delay will not always be avoidable. Obviously, it will be unwelcome, but the moneys will be under restraint and the procedure must take its course. The important thing is that, if the restraint order fails, the creditors are treated appropriately and we have not circumvented the bankruptcy order. Any delay is regrettable, but I do not see how it could be avoided in all circumstances.

Photo of David Wilshire David Wilshire Conservative, Spelthorne

My argument is that the Minister should find a way to ensure that a delay does not occur. Whether the money goes to the creditor or the Crown, on the basis of the Bill the person who had the money as the proceeds of crime has lost it. Does the Minister agree that it does not matter in which direction the money goes? It matters only to the creditor, and a delay is unacceptable.

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

Which way the money goes seriously matters. If bankruptcy or insolvency proceedings start and the restraint is already in place and that restraint subsequently fails, it would be wholly inappropriate if the money were then passed back to the original owner and creditors were deprived of what was rightfully theirs. The hon. Gentleman says that we should find a way of ensuring that there cannot be any delay, but I am not sure to what extent we could speed up, without prejudicing justice, the operation of the restraint and confiscation procedures. One would want those to be as quick as reasonable, but they cannot be waved away.

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

I have a lot of sympathy with the situation in which the Minister finds himself. During my brief and less than glorious legal career, I had some experience of insolvency. One great difficulty facing the Government is that there will be an inevitable rush with the confiscation order, which could roughly coincide with insolvency being called and the receiver being brought in. Nothing would be more unjust than the sheer coincidence of one event happening before the other and a matter of two or three days making a profound difference to the position of creditors. At this stage and perhaps later, there will be a need to think through all implications and ensure that there are more amendments to make this right.

My hon. Friend the Member for Spelthorne made an important point. The interests of innocent third parties should first and foremost be looked after as much as possible. I appreciate the Minister's comments on time delays. Once the matters are in the hands of a receiver, it is extremely difficult for the court to jolly the pace along, as we are seeing with Railtrack at the moment. I hope that he will give some thought to that.

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

You must be tired after your earlier activities, Mr. Gale. I have never known anyone else get away with an intervention of that length.

The amendments are the only way in which we will be able to avoid creating a massive loophole. If we give precedence to insolvency proceedings over restraint, we will end up with sham insolvencies to prevent confiscation. I do not see how we can structure the Bill any differently and still prevent that loophole. We want the measures to operate as quickly as possible and we do not want unnecessary delays, but they will be inevitable on occasion. The amendments will ensure that, if the restraint order is not successful at the end of the day, the money will go to the appropriate place and not necessarily back to the original owner.

Amendment agreed to.

Amendments made: No. 564, in page 229, leave out lines 12 to 14.

No. 565, in page 229, line 18, leave out from 'which' to end of line 19 and insert—

'an order under section 201 or 203 is in force;'.

No. 566, in page 229, leave out lines 20 to 22.—[Mr. Bob Ainsworth.]

Clause 402, as amended, ordered to stand part of the Bill.