Whistleblowing in relation to failure to prevent the facilitation of tax evasion

Criminal Finances Bill – in a Public Bill Committee at 2:15 pm on 22nd November 2016.

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‘The Chancellor of the Exchequer shall conduct a review of arrangements to facilitate whistleblowing in the banking and financial services sector, including the protection of anonymity, in relation to the disclosure of suspected corporate failure to prevent facilitation of tax evasion, and report to Parliament within six months of the passing of this Act.’—

This new clause would conduct a review into the facilitation and protection of whistleblowers with a focus on the protection of anonymity for those who suspect corporate failure to prevent the facilitation of tax evasion.

Brought up, and read the First time.

Photo of Roger Mullin Roger Mullin Shadow SNP Spokesperson (Treasury)

I beg to move, That the clause be read a Second time.

With this it will be convenient to discuss new clause 22—The culture of the banking industry and prevention of the facilitation of tax evasion—

‘(1) The Secretary of State must undertake a review into the extent to which the banking culture contributes to the failure to prevent the facilitation of tax evasion in the financial sector, and lay a copy of the review before the House of Commons within six months of this Act receiving Royal Assent.

(2) The review must set out what steps the UK Government intends to take to ensure that banking culture is not facilitating tax evasion

Photo of Roger Mullin Roger Mullin Shadow SNP Spokesperson (Treasury)

I rise to speak to new clauses 19 and 22, which are on today’s amendment paper for the Committee to scrutinise thanks to the complacent and worrying attitudes of both the FCA and the BBA at last week’s evidence session, when I specifically raised the issues of banking culture and whistleblowing.

During the previous exchanges, the Minister indicated the importance of culture, for which I am grateful. I have been concerned with culture for a long time. In one of my previous lives, I undertook more than 30 cultural studies of large, complex organisations. As many Members will be aware because I have related this fact more than once, large-scale international studies have shown that around 70% of major corporate failures are primarily as a result of a failure of culture—they are not about detailed regulation or detailed law, but about culture. In that regard, this issue must be taken very seriously indeed.

A very important part of culture for the related new clause on whistleblowing is to assess internal trust within organisations. Unless there is sufficient cultural trust, whistleblowers will not feel secure or safe. Despite advances in recent years in the protection of whistleblowers, I am sure that I am not alone in having had people come to me, an MP for barely over a year, saying that they wish to raise issues in organisations but fear the consequences.

I will highlight that by picking just one example—the case of Paul Moore, with whom some Members will be familiar—from the financial sector to show the importance of culture and whistleblowing. He is best known as the HBOS whistleblower, following his dismissal from Halifax Bank of Scotland in 2004. He was appointed to the role of head of group regulatory risk at the end of 2003. He was appointed to the role of head of group regulatory risk at the end of 2003 and had formal responsibilities for the bank’s policy and oversight of executive management’s compliance with Financial Services Authority regulation. During 2004, while conducting reviews of the bank’s sales culture, Moore and his team uncovered mis-selling and unethical practice. He reported those findings to the HBOS board as his job demanded, and was fired on 8 November 2004 by the HBOS group chief executive officer, James Crosby. Since then, Mr Moore has been shunned by the financial community for doing his job and doing it well.

Crosby, however, did not immediately suffer for his actions. He was part of an almost untouchable banking and establishment culture. Some time later, on 11 July 2006, Crosby was appointed by my predecessor as Member for Kirkcaldy and Cowdenbeath to lead the Government’s public-private forum on identity management. Also in 2006 and after sacking his risk manager, Crosby received a knighthood for services to the financial industry. In April 2008, Crosby was appointed by the then Chancellor, Alistair Darling, to head up a working group of mortgage industry experts to advise the Government on how to improve the functioning of the mortgage market. I could go on. Only after parliamentary inquiries into the collapse of HBOS, which included reviewing Mr Moore’s situation, did Crosby lose all his positions and half his pension, and relinquish his knighthood.

That it should take parliamentary inquiries to deal with something that was in the public domain—that a senior bank official had been sacked for doing his job—tells us something about what has been wrong and what many consider still is wrong with much of the remaining close-knit culture in the financial sector. Despite changes since that time, we remain unconvinced that enough has been done to explore the culture in the financial sector and properly safeguard whistleblowers, hence we have tabled new clauses 19 and 22. I am sure we will return to this issue many times as many of us try to secure a much more sensible regime, but in the meantime I will be pleased to listen to the Minister’s response.

Photo of Ben Wallace Ben Wallace Minister of State (Home Office) (Security) 2:30 pm, 22nd November 2016

I am grateful to the hon. Member for Kirkcaldy and Cowdenbeath for his contribution. New clause 19 would require a review of arrangements to facilitate whistleblowing in the banking and financial sectors. Whistleblowing can play an important part in bringing wrongdoing to light. The Government value the contribution of whistleblowers and believe they should be able to highlight wrongdoing without fear of retribution. To that end, the UK has put in place a strong framework of employment rights for workers who disclose malpractice in the public interest.

If a worker loses their job or suffers some other detriment —being overlooked for promotion, for example—as a result of blowing the whistle, they may bring a claim to the employment tribunal for unfair dismissal or detriment. To qualify as a protected disclosure under the Public Interest Disclosure Act 1998, the legislation that protects whistleblowers, the issue in question must fall into one of the categories listed in that Act. Those categories include both criminal offences and failure to comply with the law in other ways, so the issues in the Bill are certainly catered for, as is any new offence as soon as it comes into force.

To retain their employment protections, whistleblowers must generally make their disclosures either internally to the employer or to the relevant prescribed person named in statute. Two such prescribed persons are most likely to deal with issues covered by the Bill. HMRC is prescribed for matters about the administration of UK taxes, and the Financial Conduct Authority is prescribed for matters relating to the conduct of banks and all other funds and firms subject to the Financial Services and Markets Act 2000. MPs are now also prescribed persons, so Public Interest Disclosure Act remedies will also apply if a person suffers a detriment in employment as a result of disclosure to us.

Both HMRC and the FCA have published information for whistleblowers on how to disclose wrongdoing in their workplace. They both accept, and act on, anonymous disclosures. The Public Interest Disclosure Act 1998, under which disclosures are made and protected, was comprehensively reviewed as recently as 2014. There is a code of practice and guidance for its use. The Government are taking significant steps to ensure that effective arrangements are in place to facilitate whistleblowing in relation to tax evasion or other matters. I am not sure that, as yet, I see a case for further review at this stage.

On new clause 22, I agree with hon. Members that the culture of the financial services sector, as well as other sectors such as advisory, accounting and legal, play a key role in preventing financial crime. That is the very reason that the Government are legislating for the new corporate offences in part 3 of the Bill—to drive culture change among businesses in relation to preventing complicity and facilitation of tax evasion. A key measure of the success of the new offences will be how businesses respond and drive culture change.

We have engaged extensively with business over the last 18 months on the offences, both in the UK and overseas. We have seen examples of good practice in a number of sectors and organisations, which have responded swiftly to the new measures and are proactively seeking to drive culture change and operate to the highest standards. Some organisations have been slow to react, but HMRC officials have been working with them and their representative bodies to support business in putting in place compliance procedures.

Given that ongoing engagement, I do not believe it would be prudent to conduct a statutory review immediately following Royal Assent, although I share the same objectives as hon. Members. It is the Government’s view that we should focus our efforts on effectively implementing the new offences, and on using them to help trigger further cultural change, prior to diverting resources to a further review of the arrangements. I would be happy to discuss that further with hon. Members in case they have specific concerns that I should raise with other ministerial colleagues, which I am also happy to do. I hope I have provided adequate assurances for now or that we can agree to disagree. I hope the hon. Gentleman feels able to withdraw the new clauses.

Photo of Roger Mullin Roger Mullin Shadow SNP Spokesperson (Treasury)

I thank the Minister for his remarks, particularly his conclusion, when he indicated an open mind, as is only to be expected him. However, we remain concerned about culture. He mentioned the role of the FCA. After the comments made last week by the FCA representative, I would have thought that the FCA itself needs a bit of a culture review to see whether it is fit for purpose.

Photo of Ben Wallace Ben Wallace Minister of State (Home Office) (Security)

When the Bill was being rolled out, I specifically asked for a meeting with the FCA to demand that when it comes into force—hopefully it will do so—they will up their game. The overall intention of the Bill is not just the criminal prosecution of individuals, but to bring about cultural change. As a regulator, I would like steps to be taken. One of the things that I welcome in the English part of the Bill is that the perpetrators are faced with unlimited fines for some of the offences—there is no cap on fines. With large fines, we change not only employees’ habits, but shareholders’ behaviour, which is important.

Photo of Roger Mullin Roger Mullin Shadow SNP Spokesperson (Treasury)

I think the Minister for those remarks and I particularly welcome his remarks about his meeting with the FCA. He is to be commended for that, and we would fully support him. Given his remarks, we will not at this stage push either of the new clauses to a Division, but we will reserve our position and perhaps return to it on Report. I beg to ask leave to withdraw the new clause.

Clause, by leave, withdrawn.

New Clause 20