This amendment would increase the maximum civil penalty for breaking financial sanctions from half the value of the funds or resources involved to double the value.
The Opposition support the measures in the Bill that will toughen up the enforcement of financial sanctions. We appreciate that financial sanctions are an important diplomatic and strategic power, but we are concerned that the penalties proposed are too light and may not deter an individual from taking a calculated risk.
I am sure we all welcome the news that in recent weeks ISIS has been in retreat in parts and has lost the ancient city of Palmyra. I have no doubt that the financial sanctions that the UK and other countries have placed on 258 individuals and 75 entities that support ISIS have played their part, but, as the executive director of the Iraq Energy Institute told the Foreign Affairs Sub-Committee last month, ISIS’s spending patterns suggest that it must still be receiving substantial donations and outside financial assistance. That is an important reminder that those who break financial sanctions can be a serious threat to national security and to British interests. Those people must be stopped and punished.
The Bill introduces sensible and welcome measures on enforcing financial sanctions, which we support. For example, we support the changes in clause 89, which will allow the Secretary of State to increase the penalty for breaking EU financial sanctions to seven years’ imprisonment. That matches the maximum penalty for breaking an asset freeze under the Terrorist Asset-Freezing etc. Act 2010. Given the severity of the crime, that is a far more fitting penalty than the two years currently provided for.
Clauses 97 and 98 address the gap in time between the UN passing a financial sanction resolution and our Government adopting the EU regulations needed to implement it. The Bill will allow the Treasury to enforce United Nations financial sanction resolutions immediately by introducing temporary sanctions as an interim measure. This sort of interim measure seems entirely reasonable, given the importance of financial sanctions to national security. It was, indeed, recommended by Lord Rodger in the Supreme Court when reviewing the case of Mohammed Jabar Ahmed.
Although I support the general thrust of the measures on financial sanctions, there are a few areas in the Bill where I seek assurances from the Minister. In particular, I am concerned that the civil penalties introduced by clause 91 might be perceived as a mere slap on the wrist by those contemplating illegal business activity: that the civil penalties might be light enough that breaking sanctions might be considered to be a risk worth taking. Clause 91(3) states that the maximum civil penalty for breaking financial sanctions is either £1 million or
“50% of the estimated value of the funds or resources”,
if that is more than £1 million. I wonder whether this is insufficient.
I know that £1 million sounds a lot—it is for me—but imagine an individual selling a property in the London property market with a value well in excess of £1 million to a foreign buyer who is subject to financial sanctions. Members of the Committee may have seen last year’s Channel 4 documentary that showed a buyer posing as a Russian official who told the vendors of London properties that his funds were embezzled. Those dealing with him seemed completely and utterly unperturbed. We were not told by the journalists that they were subsequently contacted by any of the vendors to withdraw their interest in the sale, in reconsideration of the fact that the funds were embezzled.
Of the Mossack Fonseca companies tied up in the Panama papers leak, 2,800 appear on the UK Land Registry list of overseas property owners and have assets worth more than £7 billion. It is little wonder that Donald Toon of the National Crime Agency has said that
“the London property market has been skewed by laundered money.”
There is little doubt that London property is seen as a safe haven for both legitimate and illegitimate investors. So my contention is that the threat of being fined 50% of the value of the property might not be sufficient deterrent to stop an individual seller undertaking a sale. As I understand the Bill, the vendor would still be able to keep 50% of the proceeds of a sale even if they are caught. That, if they received it in cash, might be more valuable to them than alternative revenue streams they could have received from the property. I would be grateful if the Minister let me know whether my reading of the Bill is correct. If it is, I would be grateful if she explained why she thinks that that is reasonable. If we want to discourage people who are contemplating engaging with an illegal business, the civil penalties need to be stronger.
I accept that the Minister—getting all my arguments in at once—may stand up and say that these are only civil sanctions and that anyone engaging in illegal business activity will still be subject to criminal sanctions, which include custodial punishments. That may well be the case, but the civil standard of proof of “the balance of probabilities” is a lot easier to meet than the criminal standard of “beyond reasonable doubt”. That is particularly true with regards to financial crime, where the complexities of the financial system have seen calls for fraud cases to sit outside the jury system. That is not a call I agree with, as an individual, but it has been considered and debated in the recent past.
There is a danger that the new Office of Financial Sanctions Implementation, run by the Treasury, will rely on civil punishments rather than on the more difficult to achieve criminal punishments. If that is the case, the low level of civil penalties might actually only make the problem worse. Financial sanctions are an important diplomatic and strategic power. Individuals or companies breaking financial sanctions are a serious threat to the national interest and must be stopped.