Clause 94 - Money laundering: defence where overseas conduct is legal under local law

Serious Organised Crime and Police Bill – in a Public Bill Committee at 4:00 pm on 13th January 2005.

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Photo of Dominic Grieve Dominic Grieve Shadow Attorney General 4:00 pm, 13th January 2005

I beg to move amendment No. 246, in clause 94, page 59, line 27, after 'territory', insert 'at the time it occurred'.

Photo of Mrs Marion Roe Mrs Marion Roe Conservative, Broxbourne

With this it will be convenient to take the following: amendment No. 247, in clause 94, page 59, line 40, after 'territory', insert 'at the time it occurred'.

No. 236, in clause 94, page 59, line 40, leave out from 'territory' to end of line 42.

No. 248, in clause 94, page 60, line 10, after 'territory', insert 'at the time it occurred'.  

No. 237, in clause 94, page 60, line 10, leave out from 'territory' to end of line 12.

No. 249, in clause 94, page 60, line 23, after 'territory', insert 'at the time it occurred'.

No. 238, in clause 94, page 60, line 23, leave out from 'territory' to end of line 25.

No. 239, in clause 94, page 60, line 34, leave out from 'territory' to end of line 36.

No. 250, clause 94, page 60, line 45, after 'territory', insert 'at the time it occurred'.

No. 240, in clause 94, page 60, line 45, leave out from 'territory' to end of line 2 in page 61.

Photo of Dominic Grieve Dominic Grieve Shadow Attorney General 4:15 pm, 13th January 2005

There are two issues. I have already satisfied myself that my amendment on one of them is a bad point, for which I apologise in advance, but at least I will get an answer from the Minister and her advisers rather than my own research on the matter.

I preface my remarks by saying that I am delighted that the Government have addressed what might have been a real howler in the Proceeds of Crime Act 2002. It was explained to me a little time ago when I attended a seminar on the subject conducted by a colleague at the chancery Bar, who sent me some very useful information on the subject. A potential consequence of the way in which the Act had been drafted was that if one carried out in a foreign country an act that was perfectly legal there but that was illegal in England and Wales and from which one made a profit, one would fall within the relevant definition and could be accused of laundering money.

For example, someone importing into Scotland and making a profit from bourbon whisky that had not been made in compliance with the various pieces of whisky legislation in Scotland, would, as I understand the Proceeds of Crime Act, fall into the category of being a money launderer and making a profit that could be seized. Clearly, that was not what Parliament intended.

I therefore welcome clause 94, which, as I understand it, is there to make it crystal clear that someone who carries out an activity that may be relevant criminal conduct in the United Kingdom but is not relevant conduct in the country in which it was carried out cannot fall into the category of money laundering. However, I was concerned that after the words

''is not unlawful under the criminal law of that country or territory'', the clause did not contain the words in my amendment,

''at the time it occurred''.

That is because the time at which the matter is being considered in the UK may well be different from the time at which the property was acquired in the foreign country or the profit made.

I am reassured by the fact that there appear to be dicta in the Pinochet case that one should consider the act at the time at which it occurred. Perhaps the   Minister will confirm that. I might therefore be worrying about nothing, but I did wonder whether, despite the Pinochet case, my amendment might not clarify what could otherwise lead to a misunderstanding. It must surely be right that if the conduct was lawful at the time at which it occurred, even if it has subsequently been made unlawful in the foreign country, it should not place the person in the category of criminal conduct in the UK. That is the point that I am trying to make in a series of amendments. I do not need to run through them as I have gone through the entire clause and amended it in one place after another. The lead amendment defines the remaining ones.

The second amendment probes the fact that it appears that provision will still be made under the clause for certain offences or activities prescribed by an order made by the Secretary of State to remain criminal conduct. Assets can therefore still be seized in the UK even if the conduct took place abroad at a time when it was not a criminal offence there. There may be good reasons for the subsection. One can think of some of them quite quickly. One example, I suppose, is slavery. There may be no countries in the world where slavery is legal, although, unfortunately, slavery certainly exists in a number of countries and appears to be semi-legal and approved of by the Government there. However, if we were discussing the laundering or acquisition of money derived from slavery, it even if it were lawful in the country where it took place, there would be good grounds for the Secretary of State to prescribe that the profits and assets derived from it should be seized in this country.

However, it would be useful to hear from the Minister whether she has a list and how she envisages such matters being dealt with. Clearly, we do not want to close one door only for the Home Secretary to publish an enormous list putting all the offences back in again, although I am sure that he would not do that. I would be very grateful if the Minister dealt with that point, too. That, in fact, ends my remarks on all the amendments, which relate to the two specific points that go through the entire clause.

Photo of David Heath David Heath Shadow Spokesperson (Home Affairs)

I simply want to add a sentence or two to the hon. Gentleman's comments. I was slightly reassured to find that the Secretary of State's order could specify certain offences, because some states and territories do not conform to recognised norms of jurisprudence and it is not unreasonable that we should have some regard to that in formulating our own laws. It would be helpful if the Minister gave some indication of the schedule of crimes that she envisages the Secretary of State setting out for the purposes of the clause.

Photo of Caroline Flint Caroline Flint Parliamentary Under-Secretary (Home Office)

At the outset, let me thank the taskforce that assists me in listening not only to the financial industry, but to accountants, lawyers, the Law Society and others. On this and other parts of the Bill, it has very much helped me and my officials in understanding the issues that have affected those groups as a result of the Proceeds of Crime Act. We try to ensure that we listen and we are trying to improve the position. The present provisions are one point at which we have tried to make improvements   following the extensive discussions that were held first time round.

Under our proposal, the Secretary of State will have powers to prescribe by order specific types of offence that, although not criminal offences in the country concerned, would constitute serious crimes if committed in this country. Our problem with the amendments tabled by the hon. Member for Beaconsfield is that they could open up major loopholes in our defences against not only money laundering, but activities in which all of us would consider it completely unacceptable for the UK to be used as a source of assistance—he gave the example of slavery.

Such cases, as well as being serious, can generate significant criminal profits. We therefore think it right that they be regarded as money laundering offences and that the regulated sector should continue to have an obligation to report them to the National Criminal Intelligence Service. For example, we would expect to include in the order the corruption offences listed in section 109(3) of the Anti-terrorism, Crime and Security Act 2001. Requirements to report money laundering in respect of such offences are also imposed by the United Nations convention against corruption. Furthermore, article 7 of the Organisation for Economic Co-operation and Development convention on combating bribery of foreign public officials in international business transactions provides that

''Each Party which has made bribery of its own public official a predicate offence for the purpose of the application of its money laundering legislation shall do so on the same terms for the bribery of a foreign public official, without regard to the place where the bribery occurred.''

There will be other serious offences, which might not be criminal offences in the country abroad but which also need to be excluded from the proposed defence and to be included in the order. They include, for example, paedophilia, drug cultivation and the trafficking of people. We shall consult law enforcement bodies and others on the offences that should be included in the order, and they will, as I said, be serious offences. If amendments Nos. 236 to 240 were made, there would be no obligation on the financial sector to report some of those serious offences. We do not want to have to give any of those people free rein to launder in this country the proceeds from those countries where their activities are not classified as criminal offences.

The main purpose of clause 94 is to filter out the need for the regulated sector to report activities such as, for example, the profit from bullfighting in Spain—whether one is for or against it—or companies engaging in what is apparently lawful business abroad. Switzerland, for example, does not have such a detailed system for regulating financial markets as the UK under the Financial Services and Markets Act 2000. As the regulated sector in the UK has impressed on us, we do not want to create a situation in which business transactions cannot happen within the UK and therefore affect jobs in our economy.  

With regard to amendments Nos. 246 to 250, the duty to disclose money laundering arises only if the conduct will amount to an offence if committed here. We are not concerned with acts that are not unlawful in this country. I hope that it is clear from the present tense in the clause that the test is to be applied with reference to the law of the country at the time when the disclosure falls to be made. In that respect the test is the same as that relating to the offences to be listed in the order by the Secretary of State. I hope that that answers the question about the date.

Photo of David Heath David Heath Shadow Spokesperson (Home Affairs)

May I test the Minister on one other relevant issue? In a country with federal jurisdictions, presumably the offence has to be an offence in the part of that country in which it took place. In federal jurisdictions—even in our own jurisdiction—there are widely different definitions of offences. Is there any ambiguity in the clause as drafted in respect of that situation?

Photo of Caroline Flint Caroline Flint Parliamentary Under-Secretary (Home Office)

I shall check to ensure that there is no misunderstanding and clarify it for the hon. Gentleman. I take his point about different jurisdictions and laws in different parts of a federal state. The United States of America, for example, has state law as well as federal law.

Photo of Dominic Grieve Dominic Grieve Shadow Attorney General

May I return to the time of disclosure? I understand the Minister's point, but it raises a question. It means that a person in this country would have to disclose a transaction that appeared to be unlawful at the date on which he makes the disclosure because it was unlawful in the country where it took place at that date, even though he may know very well that on the date that the transaction took place in that other country, it was lawful. There is a question mark about that because it is a rather convoluted state of affairs. I shall let the Minister respond and then I might address the Committee further on the point.

Photo of Caroline Flint Caroline Flint Parliamentary Under-Secretary (Home Office)

With the hon. Gentleman's agreement, I shall consider whether there should be some provision so that lawfulness is tested at the time when the conduct took place. I hope that that answers part of his question and that it is clear for everyone concerned that the reference to the law of the country at the time should be when the disclosure falls to be made. I will consider what the hon. Gentleman said and see whether there is a simpler way to clarify what we are trying to do.

Photo of Dominic Grieve Dominic Grieve Shadow Attorney General

I am grateful to the Minister, but laws change. To illustrate my point, mink fur farming in this country was lawful until a date when it became unlawful. Let us imagine that a person makes a legitimate profit from fur farming in a foreign country and one day the Government of that country pass an Act prohibiting it. At a later stage, an accountant in London who is examining a client's records notes that the client has made a whacking profit from fur farming, which is illegal at that date both in this country and in the foreign country where the fur farming took place. However, he knows that the profit was made at a time when fur farming in the foreign country was lawful. Must he make a disclosure in those circumstances?  

Photo of Caroline Flint Caroline Flint Parliamentary Under-Secretary (Home Office) 4:30 pm, 13th January 2005

Let me reassure the hon. Gentleman. Incidentally, there was a fur farm in my constituency. I am not in favour of fur farming, but I do not think that the example given by the hon. Gentleman would be on any order that we dealt with.

Photo of Dominic Grieve Dominic Grieve Shadow Attorney General

The example might be unfortunate, but the money laundering provisions of the Proceeds of Crime Act 2002 go far and wide. All unlawful activities of a huge variety of kinds are caught by it. It is about funny money—money that has been made in an unlawful fashion. There may be times when money can be lawfully made from something abroad, but then there comes an Act in that foreign country and the activity becomes unlawful. If the date of disclosure is key, we shall be asking accountants and others to make disclosures about activities that they know perfectly well from looking at the records before them were perfectly lawful when the money was being generated in the foreign country.

That seems slightly odd, although the Minister could argue that it is better that a disclosure be made in those circumstances and the authorities will then decide whether further action need be taken. I think that there is an issue in this respect, however, and I am grateful to the Minister for saying that she will go away and think about it a little further. It seemed to me that if we adopted my amendment, which was designed to highlight the issue, it would solve the problem or at least go quite a long way towards solving it. I do not see a huge downside to it, but I accept that if the current rules are ''unlawful at the date of disclosure'', my amendment would drive something of a coach and horses through that. I await with interest the Minister's comments.

The Minister has reassured me on the other point, and I look forward to seeing in due course the list that the Home Secretary produces. I simply make this point, which I think from her own comments the Minister already appreciates: even though we may dislike activities in some foreign countries, we create a strange situation if, except for a very restricted number of offences, which I describe as having an international characteristic, we impose penalties on individuals who carry out lawful activities in foreign countries. It is important that we do not end up with such people potentially having their assets investigated or seized and with accountants having to make disclosures in that respect. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Photo of Jonathan Djanogly Jonathan Djanogly Shadow Minister (Home Affairs)

Every business man and professional will have come into contact with the money laundering regulations. I certainly have as a solicitor, although I note that solicitors are responsible for only some 9 per cent. of reports to NCIS. The provisions therefore affect a large proportion of people conducting business. I call for balance and proportionality. I accept, of course, that money laundering regulations are important in the fight against international crime. I also appreciate that these provisions are aimed at   smoothing some of the rougher edges that have appeared out of the Proceeds of Crime Act 2002, but I do not feel that they go far enough. To that extent, I support the thrust of the amendments proposed by my hon. Friend the Member for Beaconsfield. This area needs to be kept under review. I was pleased to hear the Minister say that she has been consulting and listening to those affected. The Government need to continue to do so.

What is the problem that we have? I was talking recently to the managing—we will call it company X—who purchased another company. Company X considered that there was a breach of contract in its purchase agreement on the acquisition and brought a warranty claim against the sellers. The lawyers for company X insisted to the managing director that the sellers should be reported to NCIS for possible breaches of the Proceeds of Crime Act, even though no crime had been seen and there was no evidence that a crime had been committed.

The managing director of company X wanted to settle the matter—he was a business man and wanted to move on, but he was unable to do so because his own professionals were telling him that they had to report the case to the NCIS. That was a situation in which no crime was suggested, and it arose simply because the professionals acting for the company sensed a bad smell in what they found. The implications of not reporting the matter are so tough in this country that even though those professionals did not see any kind of offence, they did not want to take the risk. One might think, so what? The problem is that an innocent party suffered delay and loss of money and is now less likely to want to conduct business in this country.

We need to start to put this matter in proportion, because it is a significant issue for business in the UK. So far, 150,000 reports have been made under the legislation. In the same period, eight reports were made in Germany, and 50 in France. We need to appreciate that the legislation is disrupting business in the UK—for both business men and professionals—in a way in which it does not in other European countries. It is estimated that compliance costs related to the legislation have reached £100 million. We once again see examples of the UK gold-plating and heavily reinforcing regulations, some of which come out of Europe, at the expense of our compliant and honest business people.

Photo of Mr Tony McWalter Mr Tony McWalter Labour/Co-operative, Hemel Hempstead

Does the hon. Gentleman accept that British companies often get a significant amount of business from a reputation for probity and honesty, precisely because there is a regime in place that gives people confidence in the honesty of their operations?

Photo of Jonathan Djanogly Jonathan Djanogly Shadow Minister (Home Affairs)

Of that I have no doubt. I would not want the hon. Gentleman to think that I was talking about a total dismissal of the Proceeds of Crime Act—I am not. I am, however, saying that the Government need to review the position. There is a growing number of complaints that the way in which the legislation works is not cost-effective and is over-inhibitive of business. I should be grateful if the Minister would give her opinion on that important aspect.  

Photo of Caroline Flint Caroline Flint Parliamentary Under-Secretary (Home Office)

The provisions have come under consultation with the regulated sector. We are trying to find a way to show that we are listening to that sector's concerns, but we are working in a new area. It is clear from the amendments that the Conservatives feel the threshold is too low. That is one of the reasons why we have left a great deal of flexibility in the Bill for individual arrangements to be made between NCIS and the institutions to vary the amounts on a case-by-case basis. At this stage, we feel that to set a general threshold above £100 would be too high; we are concerned that that could allow for substantial evasion of the principal money laundering offences in sections 327 and 329 of the Proceeds of Crime Act.

As I have said, we believe that the current proposals in clause 95 are flexible. They allow the Secretary of State to vary the £100 threshold amount by order, if experience proves that that might be necessary. We keep such issues under constant review, through the taskforce, through representations from those who assist us in this work and through listening to those involved in law enforcement. [Interruption.]

I have just been told that I might be speaking to the wrong part of the Bill. We are debating clause 94 stand part, I apologise. I was doing so well. [Laughter.]

I am back. I was jumping ahead. As I said before, we are trying to create a sensible procedure that ensures that Britain sets an example and encourages other countries to do so too. We have shown, through this clause, that we have been listening to the concerns of industry. I hope that, despite everything that the hon. Member for Huntingdon says, we can agree clause 94. I apologise for the misunderstanding.

Question put and agreed to.

Clause 94 ordered to stand part of the Bill.