Examination of witnesses

Criminal Finances Bill – in a Public Bill Committee at 4:37 pm on 15th November 2016.

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Tom Keatinge, Dr Susan Hawley, Chido Dunn and Duncan Hames gave evidence.

We are now going to hear oral evidence from the Royal United Services Institute, Corruption Watch, Global Witness and Transparency International UK. I have got to warn you before we start that we have had votes and they have put everything back. We are also restricted on time because there are Members who have got other things to go to, as do two of the panel, so we are going to conclude by 5.30 pm at the very latest. Can you briefly introduce yourself and be very concise, because Members want to ask questions?

Duncan Hames:

Good afternoon. I am the director of policy at Transparency International in the UK.

Tom Keatinge:

I am director of the Centre for Financial Crime and Security Studies at RUSI.

Chido Dunn:

I am from Global Witness, and I work on governance and corruption issues.

Dr Hawley:

I am from Corruption Watch.

Photo of Rupa Huq Rupa Huq Shadow Minister (Home Office) (Crime and Prevention)

Q I have an easy question first of all. What difficulties in recovering assets from individuals suspected of involvement in criminal activities overseas have you encountered? Can we start with Susan Hawley?

Dr Hawley:

I think Chido and Tom might be better placed to start off with that one.

Chido Dunn:

Based on our investigation in Global Witness, the use of anonymous companies incorporated in places such as the overseas territories and Crown dependencies—[Interruption.]

Order. I am afraid we have some bad news for you. We are suspended for 15 minutes for a vote.

Sitting suspended for a Division in the House.

On resuming—

Q Order. I apologise to the witnesses. Members engaged in the vote will come back, but we have not got much time left and, to be fair to you, we should try to give you the time to make a statement about what you think of the Bill and where any problems may be. The time is yours and we have only until 5.30 pm. If there is time left for questions, we will use that, but if not we will receive in correspondence any more ideas you have left out or we may write to you with questions that may arise from today. Mr Hames, would you like to start?

Duncan Hames:

Thank you, Sir Alan. We at Transparency International warmly welcome this piece of legislation, which we believe could be the most significant in the fight against corruption since the Bribery Act 2010. We are particularly interested in part 1 of the Bill, which introduces the new investigatory order: the unexplained wealth order.

We think that is important for two particular reasons. First, if we want to prevent corruption, we need to restrict the opportunity that corrupt individuals have to enjoy the benefits of their illicit wealth. Secondly, it is often the case that where corruption occurs it is so endemic in that society that those corrupt individuals are untouchable by the law there and they have not received a criminal conviction for their actions. To answer the question posed before the Division, at the moment it is incredibly difficult to start along the road to recovering corrupt assets without a conviction in the country of origin. So we very much hope that the unexplained wealth order will be a tool available to UK law enforcement as a result of the legislation.

We have been asked, and we have heard you ask other witnesses, about what is missing from the Bill and about other matters. The Government have a raft of commitments in the anti-money laundering action plan, which is clearly relevant to a piece of legislation on criminal finances. The Government recognise the need to reform the supervision of anti-money laundering activity and it would be welcome if they were to bring forward measures to do that. We have made a number of recommendations, which I will be happy to provide to the Committee in writing. But, principally, the No. 1 change we would like to see is the word “Bill” replaced with “Act”.

Tom Keatinge:

Thank you for the opportunity, Sir Alan. As mentioned, I am from RUSI. Our research focuses on the partnership and information sharing efforts to tackle financial crime. We are particularly interested in the provision for information sharing in the private sector; what is or is not happening with regard to the SARs regime and reform thereof; and importantly, how this architecture will improve the UK’s ability to tackle financial crime. Like many others, we welcome the Bill, but it is important that we do not view it purely as a piece of legislation and that it is used and implemented by law enforcement. As Donald Toon said very honestly at the Financial Conduct Authority financial crime conference last week, we need to improve our understanding of financial crime in the UK. As I say, we need implementation and understanding.

We welcome the opportunity for private sector organisations to share information with one another. They often work in trenches and silos, and by being able to build a complete picture, they can support law enforcement in its attempts to prosecute criminals. We question the mechanism by which information can be shared. At the moment, as I understand it, it needs to be shared on the basis of suspicion; we think it should be shared on the basis of assisting to form suspicion. We also welcome the unexplained wealth orders. There are one or two other nuances about which I can perhaps write to the Committee in the interests of time.

The important point to remember is that we are on a journey. We would like to see urgent reform of the SARs regime, which the Home Affairs Committee highlighted in its inquiry earlier this year. We will be judged on our effectiveness by the Financial Action Task Force next year. Implementation of this legislation will be important to demonstrate that we are effective.

The last thing I would say is that we would like to see early and strong use of these new powers. It is no good having them if we do not see things like unexplained wealth orders used, because that will quickly add a deterrent factor. As Dame Margaret said, it is important that there is regular reporting to Parliament on the way in which the Act is being used.

Chido Dunn:

I am Chido Dunn from Global Witness. We are also very supportive of the Bill. We think the UK has shown real leadership in recent years in recognising its own role in facilitating corruption overseas and providing a safe haven for corrupt people and their assets. We have conducted more than two decades of investigations, and we see some common features arising. Usually, state money is stolen by a foreign official and funnelled into places like the UK via an anonymous company, which is almost always incorporated somewhere like the UK’s tax havens. There is almost always a UK facilitator involved—a bank, an accountant or a solicitor—who, while perhaps not violating their obligation under the anti-money laundering rules, has allowed that deal to happen.

That is why we welcome the Bill: it addresses a lot of those issues. We welcome in particular the extension of the suspicious activity report period and the unexplained wealth orders, as my colleagues have mentioned. There are some practical issues that will have to be fleshed out in later versions of the Bill, and we are happy to make submissions on those later, but I would echo the points that have already been raised in terms of the biggest gaps. Given the role of the British overseas territories and Crown dependencies in all the deals and behaviour we have seen so far, it is a striking absence that they are not addressed in the Bill and that some other commitment has not been made to address the problem of there being no public registers in those overseas territories and Crown dependencies. Also, given the role of facilitators so far, we welcome my colleagues’ calls for the “failure to prevent” offence to be extended to other financial crimes, like money laundering. It is a very useful and welcome move, but it could have a real impact if it was extended.

Dr Hawley:

Corruption Watch welcomes and applauds the Bill’s ambition and courage and the fantastic cross-party support for it. We think the Bill is a unique opportunity, and we are concerned that it may be the last legislative opportunity to put all financial crime on an equal footing, given the impact that Brexit will have on the legislative calendar.

The Home Secretary spoke last Friday about how the Government are committed to developing world-leading legislation to combat financial crime. We think an amendment to part 3 to include other financial offences could be a significant step towards achieving that, and we would like to see the Government give such an amendment serious attention.

One of the key issues is that business has not yet been consulted on extending part 3 to other financial crimes. I would like to quote a leading QC I was discussing this with yesterday, who said, “Well, you don’t consult burglars on burglary legislation.” The idea behind this legislation is to capture those bad actors who are not fulfilling their regulatory requirements under the Financial Conduct Authority handbook to have procedures in place to ensure that they are not used to further financial crime.

The second point that we would like to make is that this would be a very good first step, but it would only be a first step. There is urgent need for broader corporate liability reform. As I am sure some of you are aware, the current liability laws in the UK penalise small and medium-sized enterprises, which bear the brunt of prosecution; give effective impunity to large companies; and create a perverse incentive for bad corporate governance. On Second Reading, Sir Edward Garnier made an important point that we need broader corporate law reform to be on the agenda, whether that be vicarious liability or a change to the identification principle that governs substantive offences. We would like the Government to show some commitment to producing, as a priority, something on broader corporate liability reform.

Thirdly, we think that the Bill could be an important opportunity to consider something that was raised by the Select Committee on Home Affairs—the creation of specialised confiscation courts. The Serious Fraud Office has been calling for specialised economic courts for some time because it takes 18 months on average to get a court slot for some of its cases. Perhaps this would be a legislative opportunity to find some way of ring-fencing Southwark crown court for financial crimes, and to create a cadre of specialised judges who have the expertise and experience really to tackle financial crime across the board, including confiscation orders.

From our monitoring of how the Bribery Act is being implemented, we think that three key things have to happen to instil confidence that a failure-to-prevent model can work. These are all covered by various amendments that have been tabled by Members. One is to ensure that senior executives can be held to account for those failures. That is where we think an amendment to the Company Directors Disqualification Act 1986 would be important. Another is to ensure that companies that fail to prevent these offences are excluded in some form or manner from public procurement. We welcome and support the amendment to put the offence in part 3 into the Public Contracts Regulations 2015.

Finally, companies that are convicted and companies that are offered settlements need the equivalent level of scrutiny of their compliance procedures, so we welcome and support the amendment to introduce corporate probation orders. This is a unique opportunity for the Bill to set world-leading legislation on financial crime.

We have around about 12 minutes left, so would all Members and witnesses be concise in their questions and replies?

Photo of Rupa Huq Rupa Huq Shadow Minister (Home Office) (Crime and Prevention)

Q Are you confident that enforcement agencies will have sufficient resources to make full use of the new powers in the Bill? I am thinking of the creaking IT system, ELMER, which was designed to cope with 20,000 SARs a year, and the figure at the moment, before this legislation, is more than 300,000.

Tom Keatinge:

Resourcing is clearly a major issue. Cynically, one of the reasons for involving the private sector is to harness it to do some of the work. The point that I was trying to make in my remarks was that implementation will be critical. I do not believe we have the resources that we need. For the structure as it currently exists, the question is whether we are tackling financial crime the right way or whether we can make more efficient uses of the resources we have. Do we really need to have 381,000 SARs a year, and everything that that means for resourcing? We do not have them for the structure that we have now. Is the structure we have the right one? That is the question that we need to answer.

Duncan Hames:

I would not go as far as to say that we were confident, although I am sure that people make special pleading cases with every area of Government spending. Reform of the use of the consent SAR would help to give more time for law enforcement bodies to collect the information they need to know how best to respond to it. That is a welcome measure in the Bill.

Chido Dunn:

One argument made for public registers in places such as the overseas territories is that there can be more eyes than just law enforcement and Government actors. People such as journalists and civil society actors like us can help the process by identifying potential crimes and alerting the authorities to them.

Dr Hawley:

We would like to ensure that the National Crime Agency’s international corruption unit, which will bear the brunt of enforcing unexplained wealth orders, is adequately resourced. We have concerns that at the moment there is not enough transparency in the funding model of that unit. It is partly funded by the Department for International Development, which leaves a whole series of countries that are not DFID priority countries to be funded. We need transparency that the Home Office is putting up the matching funding to cover those countries, because UWOs are going to be global—they will not be just for DFID priority countries.

Photo of Antoinette Sandbach Antoinette Sandbach Conservative, Eddisbury

Q Mr Keatinge, may I pick up on the point about reporting to Parliament? It is very easy to get data in the public domain about the number of requests or prosecutions under a particular Act: you can use the Freedom of Information Act, or parliamentarians can table written questions to get those data in the public domain. Why do you feel that that requires a report? Dr Hawley, in relation to the cadre of specialised financial crime judges, why do you say that judges are not capable of adequately dealing with financial cases when effectively you have juries sitting on them? If you cannot explain them to the jury, you will certainly not be able to explain them to the judge.

Tom Keatinge:

Let me take your first question. The way in which we seek to tackle financial crime in the UK cuts across a number of different Departments. There are many cooks in this particular kitchen, for various reasons. As an outsider, my question is: who is ultimately accountable for ensuring that the Bill is used effectively when it is enacted? Should there be a commissioner? Ultimately, what I would like to see is someone who has to report to Parliament what has happened as a result of the new legislation. As for where that information comes from, I accept that it can be brought to light by Freedom of Information Act requests or other means, but I would like to see someone made accountable for explaining how the Act has been used.

Dr Hawley:

Judges play a key role in instructing the jury how to interpret some parts of the law. These are incredibly complex cases. In a way, we are reflecting what has been expressed to us by some in the law enforcement community who are trying to put these complex cases to judges who are not specialists and so do not have the level of knowledge about the crimes that they would like.

Photo of Antoinette Sandbach Antoinette Sandbach Conservative, Eddisbury

Q That could apply to any crime, whether it was murder or child pornography.

Dr Hawley:

The difference is that these are much longer trials than for those kind of crimes. Another key issue is that cases of economic crime are often at the back of the queue for court slots, essentially because defendants are often given bail, which in murder cases they would not be. That is why it takes so long for the Serious Fraud Office to get court slots.

Photo of Tristram Hunt Tristram Hunt Labour, Stoke-on-Trent Central

Q Could the Committee have some examples from Global Witness of case studies of that three-way process—the extraction of wealth, often from developing nations, the facilitation via London and the hiding of that wealth in overseas territories or Crown dependencies? It would be good to have some narrative examples. Secondly, one issue that has been put to the Committee and on which I will pursue a probing amendment is the fear among enforcement agencies that, if they use unexplained wealth orders or go after those who have allegedly hidden wealth and committed crimes, they will be liable for the costs involved. That has serious ramifications for the culture of risk within an organisation. I am interested in whether you think either that those costs should not be borne by the state or that they should be capped.

Chido Dunn:

I will speak briefly to the narrative examples point, but I am happy to provide more. One of the case studies we worked on, which was covered on the BBC last week in anticipation of the Bill, was a case that arose in Kyrgyzstan. The former President was overthrown in a coup and he and his family were accused of widespread corruption and violence. His son fled and arrived in the UK on a private jet and claimed asylum. At Global Witness, we identified him living—we have no proof of who owns the property—in a mansion in Surrey. It was purchased for £3.5 million six or seven years ago, so it is worth a lot more than that now. The home is owned offshore and no one can prove exactly who owns it or where the money came from.

At the time when the Bakiyevs were in power, Kyrgyzstan was ranked by Transparency International as one of the 20 most corrupt countries in the world. Since then, we have seen the Kyrgyz authorities trying to rebuild their courts and their systems and not receiving the assistance they would like from foreign powers. They are finding themselves coming up against a lot of legal hurdles around issues of mutual legal assistance, extraditions and things of that nature. That is just an illustration of the extent of plundering that can happen overseas, the fact that London in particular is seen as a safe haven by corrupt officials and their families, and some of the practical difficulties in trying to seize those assets or identify the people involved. In that case, we identified UK estate agents and lawyers involved in the deal.

That is one of the best case studies that shows how a Bill such as this could help. It would allow the police to have more time to conduct their investigations. It would lessen the burden on them in identifying who owns a property and whether the money came from legal sources. There are many, many other examples that we could give, but generally it is the same pattern of behaviour that we see time and time again.

Duncan Hames:

It is not initially clear from the Bill what the degree of exposure in relation to costs for law enforcement would be. It may be that the investigatory order of the UWO is less exposed to action to recover costs than other asset recovery actions and the interim freezing order, for example. Perhaps in the course of the Committee’s consideration, you will be able to get some clarity on that. We would like you to bear in mind that there will be a great backlog of established illicit wealth already in this country for law enforcement to address when awarded this power, should the Bill become law. We would not want them to be impeded from making full use of this law because of potentially intimidatingly large costs being incurred by those against whom they are using either the unexplained wealth order or the interim freezing order.

Photo of Peter Dowd Peter Dowd Shadow Financial Secretary (Treasury)

Q The Home Office set out the intentions of the Bill, which are about giving

“law enforcement agencies, and partners, the capabilities and powers to recover the proceeds of crime, tackle money laundering and corruption and counter terrorist financing.”

The Bill also aims to make the UK a more hostile place for those seeking to move and hide proceeds and so on. Do you think the Bill is a game-changer in terms of that aim?

Witnesses: Yes.

Tom Keatinge:

Yes, if it is implemented and if we have the resources to use the powers to make this a hostile environment.

Photo of Peter Dowd Peter Dowd Shadow Financial Secretary (Treasury)

Q The second thing is this: you mentioned the key element of resources, and you almost intimated earlier that you were not convinced about the capacity and resources of the enforcement agencies. Is that a fair assessment? What would you say to that? Do you think the capacity and the resources are available to the agencies to make the Bill a game-changer?

Tom Keatinge:

It remains to be seen. There are resourcing issues. In theory, some of the powers—the UWOs—could be used relatively swiftly. If we use them swiftly and roll out the deterrents quickly, we have the resources.

Duncan Hames:

You make the case for having strong accountability on whether the powers are being used. That may contribute to being able to understand the case in relation to your question after the powers are brought into law.

Order. I am afraid that that brings us to the end of the session. We are very grateful to the witnesses for coming here. We assure you that if you want to provide any further advice, the Committee would welcome receiving it. There are no further questions, so I invite the Whip to move the Adjournment.

Ordered, That further consideration be now adjourned. —(Andrew Griffiths.)

Adjourned till Thursday 17 November at half-past 11 o’clock.