Criminal Finances Bill

Public Bill Committee, 22 November 2016.

Forfeiture of certain personal (or moveable) property

Ben Wallace (Conservative, Wyre and Preston North)

Good morning, Mrs Main. I am delighted to serve under your chairmanship. This group deals with the provisions in the Bill that allow for the seizure and forfeiture of terrorist property. I suggest that we covered some of this ground in our debates last week on clauses 12 and 13, which will do likewise for proceeds of crime, and I will seek to avoid repeating all the same points.

Clause 32 and schedule 3 cover the seizure and forfeiture of moveable personal items such as precious metals and gemstones where they are earmarked for terrorism, are the resources of a proscribed organisation or are intended for use in terrorism. Clause 33 and schedule 4 give law enforcement agencies new powers to freeze funds held in bank or building society accounts that are suspected to be terrorist money, and provide for such funds to be forfeited if law enforcement agencies or the courts are satisfied that that is the case. Hon. Members will know that the threat from terrorism is constantly evolving. In the same way that we should have a mechanism to deal with criminals who launder money to evade disruption, we should have the ability to seize items that represent terrorist property.

Although this is a powerful new measure, several safeguards are built into the Bill to ensure that the interference with individuals’ rights to enjoy private property is managed in a way that is proportionate and guards against innocent parties being disadvantaged. Seized property may initially be detained for only 48 hours before an application must be made to a magistrates court in England, Wales or Northern Ireland, or to the sheriff in Scotland, for further detention for up to two years. There is therefore judicial oversight of this provision. Individuals who are joint owners of property will be able to claim back the value of their share.

Denying access to funding is already a key part of our counter-terrorism strategy, but the current powers in the Terrorist Asset-Freezing etc. Act 2010 may not always be the most appropriate operational route for combating the financing of terrorism, as they are designed to freeze the entirety of someone’s economic assets, carry a relatively high threshold for use and do not include forfeiture powers. That is why we have tabled several amendments to this part of the Bill.

New clause 18 will ensure that UK law enforcement agencies have the ability to seek forfeiture of terrorist cash without requiring a court order. An administrative forfeiture power is already provided for in the Proceeds of Crime Act 2002, as amended by the Policing and Crime Act 2009. However, the terrorist cash provisions in the Anti-terrorism, Crime and Security Act 2001 were not amended at that time, and we seek to address that anomaly. The new clause will ensure that the best use is made of both the courts’ and the police’s time and resources by providing that there is no need for law enforcement bodies to involve the courts where forfeiture is uncontested.

However, these provisions are not without oversight. Where terrorist cash is seized, extended detention beyond an initial 48-hour period is already subject to oversight by a magistrates court, or the sheriff in Scotland. There is therefore early judicial involvement in the detention and forfeiture process. In addition, the administrative forfeiture of cash will be exercisable only by a senior officer who is a police officer of at least the rank of superintendent.

The other amendments in this group make several technical and consequential changes to complement those provisions. In particular, they address inconsistencies in the definition of “senior officer” in the Anti-terrorism, Crime and Security Act 2001 and the Terrorism Act 2000 to ensure that such a person is at least the rank of superintendent. The amendments will also ensure that a court can order that property be detained under the powers in ACSA for up to six months per application, with an overall cap of two years, which is consistent with the Proceeds of Crime Act, and that these administrative forfeiture powers can be applied for and implemented in Scotland. Taken together, these measures will strengthen law enforcement agencies’ ability to disrupt terrorist financing in a proportionate and effective way.

Rupa Huq (Labour, Ealing Central and Acton)

I apologise for being slightly late, Mrs Main. Her Majesty’s Opposition support the amendments.

Forfeiture of money held in bank and building society accounts

Extension of powers to accredited financial investigators

Ben Wallace (Conservative, Wyre and Preston North)

Across UK policing, more use is being made of skilled individuals who are not warranted police officers to support the full range of police work, allowing warranted officers to focus on the activities that need their specific training and experience. The financial aspects of terrorism investigations are unlike proceeds of crime investigations—this is not about identifying illicit wealth and taking the profit out of crime. For terrorism, financial investigation allows the police to disrupt terrorist activity by removing access to funds, and to make links in terrorist investigations.

As I set out last week, clause 34 provides for the creation of a new category of civilian financial investigator, to be known as a counter-terrorism financial investigator, which will exercise certain existing investigatory powers, including applying to a court for production orders, financial information orders or account monitoring orders, and to seize terrorist cash or moveable stores of value. The investigator will also be able to use new disclosure order powers being created under the Terrorism Act 2000 and the new bank account seizure and forfeiture powers in the Anti-terrorism, Crime and Security Act 2001.

The new provisions do not confer on counter-terrorism financial investigators any of the search powers available in the legislation for terrorist investigations, and the Government amendments we debated last week will ensure that the investigators will be subject to training and monitoring by the Metropolitan Police Service. The changes are entirely consistent with the changes currently being brought in through the Policing and Crime Bill, which will give chief officers a greater ability to designate civilians with the powers of constables.

Finally, clause 35 introduces offences of obstructing or assaulting the investigators. It is important that a civilian performing the functions of, and exercising the same powers as, a police officer is afforded the same legal protections from assault or wilful obstruction as their police counterparts. That is consistent with the approach taken in the Proceeds of Crime Act 2002 and elsewhere in the Bill. I hope the clauses stand part of the Bill.

Rupa Huq (Labour, Ealing Central and Acton)

We support the clauses but we also have tabled a forthcoming new clause that questions a couple of things. If we are looking at increasing workload, we like the idea of the extension of powers of the accredited financial investigators, but we would like to see some commensurate resources. On the other stuff, public servants should never be assaulted in the line of duty, so we wholeheartedly support that provision.

Offences in relation to accredited financial investigators

Meaning of relevant body and acting in the capacity of an associated person

Ben Wallace (Conservative, Wyre and Preston North)

Mrs Main, this is like an auction—the speed at which you are dealing with matters. The only person who can understand these things is the auctioneer.

Clause 36 defines essential terms that establish the scope of the new corporate offences of domestic and foreign failure to prevent tax evasion. It defines those entities that can be liable under the new offences, and those persons for whom a corporation can be liable if it fails to prevent them from facilitating tax evasion. The relevant bodies that can be liable under the new offences are defined as bodies incorporated and partnerships, not individual men or women, reflecting the responses to HMRC’s consultation on the provisions. The new offences can therefore be committed by companies, whether established to make a profit or for charitable purposes; partnerships; and similar entities established under foreign law. Indeed, the not-for-profit sector publically welcomed the offence applying to its sector, recognising that charities can be misused to facilitate tax evasion. Individuals involved in facilitating tax evasion will of course continue to face prosecution under existing tax evasion offences.

We will go on to debate the provisions in greater depth, but for now it is important to stress that part 3 of the Bill creates offences of corporate failure to prevent the criminal facilitation of tax evasion. They are not offences of corporate failure to prevent tax evasion itself and do not create a legal obligation for corporations to prevent their client’s tax evasion.

The clause also defines broadly the persons who could attract liability for a relevant body. Those include an employee, an agent and any other person who provides services for, or on behalf of, the relevant body. That mirrors the similar offence of corporate failure to prevent bribery in the Bribery Act 2010. That is important because we have seen in the past that corporations structure their affairs to try to insulate themselves from liability by deliberately contracting out the most risky services, typically to persons based in the most secretive jurisdictions. The definition of associated persons in the clause addresses that and closes that potential loophole.

However, it is important to appreciate that not every act of, say, an employee will give rise to criminal liability for the relevant body. For example, where an employee who has gone home from work and is acting in their private capacity criminally facilitates a tax evasion offence by their partner, that will not give rise to any liability for the employing relevant body because the criminal facilitating act was not done in the capacity of employee. I hope that that explanation provides a useful introduction to how the subsequent clauses will function.

Rupa Huq (Labour, Ealing Central and Acton)

We support the clause. The Minister mentioned the Bribery Act 2010, from which there has been an unusually small number of successful convictions. Does he have any thoughts as to whether there will be a beefed-up number from this legislation? That is largely what I wanted to ask about it. Many big companies have been blogging that it is a bad idea, which makes me think that it must be a good one.

Ben Wallace (Conservative, Wyre and Preston North)

In response to what has been said by the Opposition spokeswoman, it is important to note that the Bribery Act has two effects: prosecution, but also change of behaviour. If one goes out to many parts of the world where British companies are engaged in export or trying to win orders, it is clear that the message has gone out loud and clear not to bribe them and not to be involved in bribery. I was in Kenya a couple of weeks ago, and it is clear that British businesses there—people wishing to do business—do not even ask. That is a cultural change so, as I said, the effect is twofold. One thing that can be said about the Bribery Act is that it certainly went to the heart of things. There were no favours drawn: the first person convicted under the Bribery Act was an employee of the Ministry of Justice, and was convicted quite soon after the introduction of the legislation, so we all work under it, whether we are a civil servant or a business.

Failure to prevent facilitation of UK tax evasion offences

Ben Wallace (Conservative, Wyre and Preston North)

Clause 37 creates a new offence that will apply to relevant bodies who fail to prevent persons acting in the capacity of persons associated with it from criminally facilitating a UK tax evasion offence. It also provides a defence for the relevant body of proving that it had in place reasonable procedures designed to prevent persons associated with it from criminally facilitating tax evasion, or that it was not reasonable in the circumstances to expect them to have such procedures.

The offence will apply to any legal person, based anywhere in the world. It does not matter where in the world a relevant body is based. If people are criminally facilitating UK tax fraud, that body can commit the offence and be tried by the UK courts. The offence was first announced in March 2015 and has been subject to two public consultations, including one on draft clauses and guidance. A succession of high-profile data leaks has shown the lengths to which some people will go to hide their taxable income and gains from HMRC, and that there are professionals willing to help them to perpetrate that fraud. There has been unprecedented international action to increase tax transparency around the globe, but that must be coupled with action to tackle those professionals and corporations who are complicit in tax crime.

The existing criminal law already makes it an offence to evade tax. When an individual taxpayer evades their tax, they can be prosecuted. When a professional such as a banker or an accountant is complicit in the fraud, that individual can also be prosecuted. However, for the relevant criminal acts to be attributed to the corporation itself, the existing law on corporate criminal liability requires the most senior members of a corporation to be involved in and aware of those acts. At present, they can simply say, “I did not commit the crime” and blame the individual employee for the offence. That current approach to corporate criminal liability simply does not reflect the decentralised way in which decisions are made in large multinational organisations, and it can leave them beyond the reach of the criminal law.

The new offence will change that. By moving beyond seeking to attribute specific criminal acts to the relevant body, and by focusing instead on its failure to prevent those who act in its name from breaking the criminal law, we can better ensure that relevant bodies take reasonable steps to ensure that crimes are not committed when services are being provided on their behalf. The improved approach to criminal corporate liability has already been adopted with success in relation to the Bribery Act 2010. Businesses are already accustomed to the offence of corporate failure to prevent bribery and much of the new offence will be familiar. I know that hon. Members would like the approach that we are taking to go further still, to cover fraud more generally, money laundering and false accounting. That is an issue to which we will come later, in the debate on new clause 6, which has been tabled by the hon. Member for Ealing Central and Acton.

It is important to note that the offence we are considering is one of tax fraud—tax crime. It is not about tax non-compliance that falls short of being criminal, such as accidental non-payment of taxes. There has been much discussion about how the offence will operate in relation to tax avoidance. Tax avoidance, and even aggressive avoidance, is not a crime and falls outside the scope of this measure. The Bill is, after all, about criminal finances. However, it is right that we distinguish between actions that are within the letter if not the spirit of the law, and fraudulent acts dressed up and marketed as tax planning. We must robustly challenge those who mislabel their criminal behaviour as avoidance or planning; and the Act will address such behaviour.

The clause is not intended to criminalise conduct that is not currently against the criminal law. It is not primarily about what is a crime, but rather about who is held to account before the criminal courts. It seeks to ensure that when crimes are committed in the name of a relevant body, that relevant body can be placed in the dock, alongside the taxpayer evading their tax and the professional enabler criminally facilitating that offence.

I stress that reasonable prevention procedures are needed for the defence to be available. “Reasonable” does not mean excessively burdensome, unduly expensive, disproportionate or foolproof; nor does it demand the impossible. It means taking a risk-based and proportionate approach. Under clause 39, the Government will issue guidance to help business to assess its risks and put prevention procedures in place.

As is the case for the individual accountant, it will not matter where the relevant body is based. British businesses have welcomed the global reach of the new offence as it requires businesses providing services to UK taxpayers, regardless of where in the world those businesses are based, to operate to the same high standards as British businesses. I welcome the cross-party support, and support from the NGOs that I have met, that has been expressed for the measure.

Rupa Huq (Labour, Ealing Central and Acton)

We support the clause, its global reach and the idea of weeding out corporate bad apples, if that is not mixing too many metaphors—weeds and apples at the same time. The Minister is correct; we think the clause could go further. We have tabled amendments to the next clause.

Richard Arkless (Scottish National Party, Dumfries and Galloway)

We support the clause and, like the Opposition spokesperson, we commend its international reach. We look forward to discussions, perhaps this afternoon, on new clause 6, but instinctively, like Opposition Members, we are minded to take the clause further.

As time goes on, we ought to monitor the issue of designing processes that demonstrate that reasonable measures have been taken not to facilitate tax evasion. As a consumer finance lawyer, I have seen large multinational organisations roll out various folders of processes, procedures and protocols, but we were not always convinced that those had been followed to the letter. Some sort of monitoring mechanism would be most helpful.

We ask the Government to take note of the evidence we heard last week that these measures could disproportionately impact smaller organisations; larger organisations may be more suited to gathering this information in order to set out processes and procedures. We should keep an eye on those two things. We look forward to discussions on new clause 6 and support the clause.

Ben Wallace (Conservative, Wyre and Preston North)

To clarify, I think that statutory guidance is first published in draft. Given the hon. Gentleman’s experience, I would welcome his input on whether that guidance is appropriate. We did that with the Bribery Act; I remember when that came out. Statutory guidance is an important tool for small businesses, because big businesses have big compliance departments and can do all the work even without the statutory guidance, but for small or medium-sized businesses, the statutory guidance is a good starting point. It is really important both that we get it right, and that we get it written in plain English.

I reiterate the offence created by the clause: if someone in a Crown dependency or overseas territory—I know that hon. Members are interested in those—is advising UK citizens to evade UK tax, it does not matter that they have no nexus here; they are criminally at risk. As regards trying to change the behaviour of overseas territories or tax havens, this offence will allow us to prosecute people anywhere in the world who are encouraging people to evade UK tax. That is a major and significant step. If someone on a Caribbean island calls themselves a tax consultant and encourages British people to evade tax, we will come after them. That is a major change that goes beyond the shores of the United Kingdom. I hope that the action that we have taken to stop that will go some way to alleviating colleagues’ concerns about the behaviour of some tax havens around the world.

Failure to prevent facilitation of foreign tax evasion offences

Rupa Huq (Labour, Ealing Central and Acton)

I beg to move amendment 5, in clause 38, page 96, line 6, after “United Kingdom” insert—

“Crown dependency or British overseas territory”.

This amendment would extend the offence of failure to prevent facilitation of foreign tax evasion offences to companies incorporated in a British Overseas Territory or Crown Dependency.

Rupa Huq (Labour, Ealing Central and Acton)

These amendments in my name and those of my hon. Friends the Members for Swansea East, and for Bootle, seek to extend the offences of failure to prevent facilitation of foreign tax evasion, and all the other good work described in clause 37, for which the Scottish National party and ourselves praised the Minister, to companies incorporated in a UK overseas territory or Crown dependency. I stress how much we welcome the new offences on failing to prevent tax evasion, and the fact that they can apply anywhere in the world, as the Minister pointed out. However, we wish that they related to all economic crime, rather than just tax evasion, and that they covered companies doing business in overseas territories and Crown dependencies, and offences committed there.

This is quite a chunky Bill that is broad in scope, but this seems to be the gaping hole—the elephant in the room. Almost all those who gave evidence, and all the speeches on Second Reading, including those from respected Members on both sides of the House, such as the right hon. and learned Member for Harborough (Sir Edward Garnier), mentioned that this was a bit of an oversight. There is no mention of the issue at all in the Bill, and that is why we tabled these probing amendments to help the Committee better understand exactly how the new offences relate to the UK’s tax havens, as the Minister termed them; that is how they are perceived all around the world.

I raise the issue because we all know that the UK may well be facilitating tax evasion through its overseas territories. It is worth pointing out that the Foreign and Commonwealth Office appoints a Governor in each of these jurisdictions. The opaqueness and lack of transparency in these places makes it difficult to know the scale of the problem, but we know that developing countries are losing out massively. This legislation rightly seeks to hold directors of companies in the UK accountable for their business’s actions, but why does it not also apply to the UK’s overseas territories? The lack of accountability of directors there is dangerous.

Let us take the example of the British Virgin Islands, the jurisdiction that received the most mentions in the Panama papers, I believe, which is nothing to be proud of. Given its role in the Panama papers, is it not reasonable to talk about having more oversight of this UK-governed territory? It has more than 450,000 companies; nobody quite knows the exact number. That is at least 15 companies for every person—an unusually large number of companies. Every person would need to have 13 board meetings every day to get through all of them in a year.

It sounds like a bold suggestion, but we think that more action is needed. I have five questions for the Minister. When the UK receives information on the beneficial owners of companies registered in the British Virgin Islands, will it use it and look for potential tax evasion? Is there an active duty on the part of the Government? Secondly, what action will they take if they find any tax evasion? How will owners of British Virgin Islands companies be held to account for their actions? Question three: what discussions has the Minister had with leaders of overseas territories and Crown dependencies about these excellent new offences? Are any of them minded to consider introducing something similar on a voluntary basis? We do not want to look like neo-imperialists, going into countries and making them do stuff, so what are they doing of their own volition? Question four: if offences are committed in UK-governed overseas territories, under what circumstances would prosecutions be possible under this new legislation?

The last question is the most important one, and the one that would help me to understand this: does the Minister concede that, as clause 40(1) refers to clause 38(2), his Bill effectively allows places such as the British Virgin Islands and the Cayman Islands to facilitate tax evasion on an industrial scale, provided that the companies have no business dealings in the UK? There has to be that link first; they have to have an office, or be somehow incorporated, in the UK. Sham businesses go to those territories only because they are implicitly backed by UK law. Historically, overseas territories and Crown dependencies have been able to market the attractiveness of their financial services by highlighting the fact that the UK rule of law underpins their systems; thus the situation is perpetuated. The fact that people can stash their dirty cash there is part of the unique selling point of these places. I am curious about how the provisions would apply to overseas territories and Crown dependencies if that UK link was not there.

Richard Arkless (Scottish National Party, Dumfries and Galloway)

We are interested in hearing what the Minister has to say on the clause before we make any submissions. We take the point about the link to a UK company, but we are also concerned about this House’s authority to legislate—or be seen to be legislating—over Crown dependencies.

Ben Wallace (Conservative, Wyre and Preston North)

I understand the importance that Members attach to the amendments, and what they are trying to do. They allow us to begin the debate on the response of the British overseas territories and Crown dependencies to tax evasion, and fraud and corruption more broadly. I am sure that that debate will continue as we consider other amendments later today.

The Opposition’s amendments 5, 6 and 7 are designed to give the foreign tax evasion offence a broad scope, and to ensure that corporate complicity in tax evasion is tackled effectively. On that objective, I share the intentions of the hon. Lady the Member for Ealing Central and Acton. Before addressing the amendments specifically, I want to clarify that the foreign tax evasion offence in clause 38 would, as drafted, apply to a relevant body that is incorporated under the law of the UK, or carrying out part of a business activity from the UK, and where a person acting in the capacity of an associated person of the relevant body criminally facilitates tax evasion from within the UK, regardless of where the relevant body is based. The offence would, therefore, require there to be some nexus with the UK for our authorities to exercise jurisdiction; that would include a bank that is based or doing business in the overseas territories and Crown dependencies also doing business in the UK.

However, the hon. Lady’s amendments would criminalise, under the UK law, a situation where there is no link to the UK. For example, if a Norwegian were to set up a business in a tax haven, and that business were to advise an American citizen on how to evade tax, and it had nothing to do with the UK at all—we had no loss of revenue and no business with either the Norwegian or the American—the hon. Lady would be asking us to criminalise that person, and effectively to become the world’s policeman on that issue. We would have no nexus whatsoever to go after that individual; neither they nor the company helping them to evade tax would be British. We would perhaps have some ability, in some instances, to help our neighbour’s tax authorities, as we share data under agreements reached over the last year or so. For example, if we find out that someone is helping the French to evade tax, our law enforcement agencies do share information.

The amendment seeks to force Crown dependencies and overseas territories to change their law. It seeks to use neo-imperialism, to use the hon. Lady’s term, to force our will on territories with those statuses. That is a major step to take. As I said earlier, we have come a long way—90% of the way—with the establishment next year of automatic sharing of data via beneficial registers of ownership. Yes, that is not public, and I know that we will come on to that later in the Bill, but we have come a considerable way, and we should remember that.

We should also remember that because of the City of London, there will not be many financial organisations that do not have a nexus in this country. I am not going to finger a particular country, but take the bank of a fictitious country with tax haven status; it would not be much of a bank if it did not have an operation in the UK. If that bank was encouraging people to evade tax, even if they were not British citizens or were not evading UK tax, we could deal with it, because it would have a branch here. If those concerned were convicted, they would most likely lose their banking licence. A bank that cannot trade in one of the major financial institutions of the United Kingdom is effectively a dud. In a sense, we could take quite considerable action. The fundamental difference is that we think there has to be a link. The alternative is to impose our will directly on these Crown dependencies and overseas territories.

I would like to correct the hon. Lady on two things. They are not “our” territories; we do not own them. The Crown dependencies have never been ours. They have never been part of the British Empire—well, they have never been part of our colonies. We do not even own the overseas territories. We have a governing oversight, but they have Parliaments and elections of their own, and they make their own decisions.

I think the direction of travel—my officials have been directly in touch with the Crown dependencies and the overseas territories—has been right. We are going some considerable way from where we were three or four years ago. Those places have smelt the coffee, and the world is moving forward.

At the end of next year, our law enforcement agencies will have automatic access to many of the records we need. The register is not public, though I know that some Members would like it to be. It is, however, a considerable step that I can sit in my office and read about the behaviour of significant organised crime groups, major drugs smugglers or financiers of terrorism. People at Her Majesty’s Revenue and Customs will now be able to get those records automatically from those countries, and we can set about taking these people down and making sure that they are prosecuted. We have moved in the right direction with that.

While I understand the motives behind the amendments and agree that we want to go further and make things more transparent, what the hon. Lady proposes in these amendments is going one step too far, too fast. On the calls on the United Kingdom to be a world policeman in this area, we are already in the lead; we are the only G20 country—never mind some of these other countries—with a public register of beneficial ownership. Let us do some work on our friends across the channel.

I therefore urge the hon. Lady to withdraw her amendment and, no doubt, she can scrutinise the progress. I would also be the first to ask her to come and see, when this Bill becomes an Act, the first case—if we do get a case sooner rather than later—of a prosecution of individuals engaged in that. Without a nexus, we are going one step too far.

Richard Arkless (Scottish National Party, Dumfries and Galloway)

We agree with that summary from the Government. The Minister describing the amendment as “neo-imperialism” put the seal on my view of it. The Scottish National party is reluctant to legislate on areas where there is no locus and no nexus and we fully accept that that is the position of the Crown dependencies. We accept the Minister is keen to see that direction of travel continue. In that vein, we have held meetings with representatives of the Crown dependencies over the last few weeks and have been assured that their co-operation in providing information for the register of beneficial ownership is groundbreaking. It will be co-operative and give the authorities in the UK the armoury they need to tackle financial criminality.

I agree it is very likely, if not probable, that organisations facilitating tax evasion, whether in the Crown dependencies or overseas territories, will have a link to the UK and are more likely, more often than not, to have their head office in the UK. We may need to address that again once we leave the European Union, but we can discuss it.

Rupa Huq (Labour, Ealing Central and Acton)

I listened carefully to what the Minister said and was slightly disappointed. I said precisely that I do not want to be neo-imperialist. I do not want to rush into these countries, which is why I asked what was happening already and whether there is any way those people can do things on their own. I did not say that we own those places; I simply said that the UK rule of law underpins their systems.

The Prime Minister said on the steps of Downing Street that she wants an economy that works for everyone. This looks like an anomaly from all the evidence we have had from all those groups, and from all the speeches on the Floor of the House on Second Reading. However, we are not going to push the measure to a vote. It was a probing amendment. I wanted to hear more about the anomaly where there is a direct UK connection. I do not think it is sufficient to turn a blind eye while this goes on.

The Minister mentioned what has happened in some of these places and I have information that will be more relevant when we consider new clause 21. Therefore, I beg to ask leave to withdraw the amendment.

Ben Wallace (Conservative, Wyre and Preston North)

Perhaps I may clarify for the hon. Member for Ealing Central and Acton that I said she used the word “neo-imperialism”—I never implied that she wanted to be neo-imperialist, but some people could describe it as that if we were to impose our will on Parliaments in some of our overseas territories.

Clause 38 creates a new offence that will be committed by relevant bodies that fail to prevent persons associated with them from criminally facilitating evasion of taxes owed to a country other than the United Kingdom. We have seen that criminals seeking to provide services to further their clients’ tax evasion will try to operate between the gaps between the legal systems of different countries. The measure will ensure that the UK is not a safe harbour for professional facilitators or the businesses for which they work. The new overseas tax evasion offence can be committed by relevant bodies that are formed or incorporated in the UK, or which are carrying out a business activity in the UK, or where the criminal act of facilitation occurs within the UK.

There is a necessarily broad scope for the new offence. It holds corporations that carry out a business in the UK, or the representatives of which are acting in the UK, to operate to the same high standards as UK businesses. The message is clear. Tax evasion is a crime. It is wrong. It is no less wrong where the revenue loss is suffered by another country. If a body is part of UK plc, or sends people to the UK, it is not okay to allow people to criminally facilitate the evasion of taxes, wherever they are owed.

The offence requires a dual criminality. Essentially, that means that, for a relevant body to be liable, the criminal law of the country suffering the tax loss must recognise tax evasion and the facilitating of tax evasion as criminal offences in their jurisdiction, and the laws must be broadly equivalent to those in the UK.

The offence does not require relevant bodies to have a thorough understanding of the tax laws in each jurisdiction, but rather to ask itself the question, “If we were providing these services to a UK taxpayer client, would this be legal?” If the answer is yes, there is no question of criminal liability under the new overseas fraud offence.

The offence is not about the UK policing the world’s tax affairs. We envisage that a prosecution for the overseas tax evasion offence will take place only where there would otherwise be a failure of justice—for example, where the country suffering the tax loss was unwilling or unable to take action because of an inability to handle a complex international fraud trial, or was unable to investigate and prosecute because of corruption concerns. I will leave my explanation of the clause there and allow the hon. Member for Ealing Central and Acton to speak to her new clauses before I respond.

Peter Dowd (Labour, Bootle)

It is a pleasure to serve under your stewardship, Mrs Main. The Minister referred to this as the Criminal Finances Bill and the clue is in the name. People who commit an offence and go to prison come out and go on probation. New clause 7 would create a similar thing—a sort of corporate probation order that would allow courts to require bodies found guilty of a UK or foreign tax evasion facilitation offence to take steps to improve their internal procedures and minimize the chance of a person working for that company committing the same offence in future. That would be an important step in encouraging large organisations to take responsibility for those they hire and the actions they undertake, and more importantly in ensuring that financial crime and misconduct is not repeated by others in the organisation.

Before making an application for a probation order, the prosecution would have to consult enforcement agencies. Once a corporate probation order had been issued, any organisation that failed to comply with it would be subject to a fine. Currently, the only remedies a court may impose upon a company convicted of an offence is a fine, disgorgement of profit and compensation. Corporate probation orders would be an additional tool that prosecutors could seek. Courts could impose conditions requiring companies to undertake remedial action to their management and compliance procedures to ensure that the offending is not repeated.

Under the Corporate Manslaughter and Corporate Homicide Act 2007, courts can impose remedial orders on companies to require them to remedy any management failure that led to an offence occurring. This provides a workable pre-existing model for such orders. Under the Crime and Courts Act 2013, if a company is offered a deferred prosecution agreement, or DPA, a prosecutor can require a company to implement a compliance programme or make changes to an existing compliance programme. There is no equivalent power in relation to convictions. DPAs are reserved for companies that self-report their misdemeanours and co-operate with enforcement authorities.

Although prosecutors could, theoretically at least, use financial reporting orders to require a company to provide financial information, under the Serious Organised Crime and Police Act 2005, it is not clear that that would include information on compliance procedures. Additionally, such orders are heavy-handed, require separate court proceedings and require a prosecutor to prove that the risk of reoffending is sufficiently high.

The effect of that discrepancy is a ridiculous imbalance: companies that self-report and co-operate may be subject to greater monitoring of their compliance programme than companies that do not and are not convicted. The result is that the companies that most need monitoring of their compliance procedures—those whose procedures did not pick up the wrongdoing in the first place—get none, which is a huge deterrent to self-reporting, and puts a greater burden on enforcement agencies.

The Opposition believe that corporate probation orders are required to remedy that clear anachronism. Companies and defence lawyers have noted the more stringent compliance programme monitoring requirements under DPAs as one factor, among others, that puts companies off self-reporting wrongdoing to the Serious Fraud Office. The discrepancy between what happens under DPAs and what happens on conviction is creating a disincentive for companies to self-report.

At the end of the day, we need to encourage self-reporting in a framework in which companies feel that they are able to work with enforcement agencies to deal with rogue elements or individuals. The alternative would see the continuation of a culture of secrecy in which those at the top deliberately turn a blind eye to what those at the bottom do, and in which financial misconduct is not limited to an individual, but instilled and passed on to others in an organisation.

Richard Arkless (Scottish National Party, Dumfries and Galloway)

The Scottish National party is broadly in support of the new clauses. In particular, a corporate probation order would give an opportunity for an offending company to have its processes meticulously examined to ensure that they are fit for purpose going forward. We support new clause 8 on the potential disqualification of directors, which goes beyond the relevant body offences in the Bill. As a matter of principle, we think it will concentrate minds and ensure the protocols are fit for purpose if the directors at the top of the organisation feel the liability could be at their heels, as it were. I am interested to hear what the Minister has to say.

Peter Dowd (Labour, Bootle)

I apologise, Mrs Main. I was going to deal with new clause 8 and was pre-empted, I am afraid. New clause 8 relates to the facilitation of tax evasion offences and the disqualification of directors.

It will be pretty apparent to hon. Members that a central theme to proceedings so far, as promulgated by virtually everybody, is the notion of transparency in the actions of those in positions of stewardship, such as directors of companies. Opaqueness has its advantages, I have no doubt, but when it leads to illegality there must be action to deal with it. Given that, the new clause would require the Secretary of State

“to investigate the directors of a company found guilty of a UK or foreign tax evasion offence to establish whether the directors should be subject to a disqualification order for the failure to have proper procedures in place to prevent agents of that company facilitating tax evasion.”

Under the new offences covering the facilitation of tax evasion, a company could be criminally held to account if an employee commits such an offence. That is a huge step forward. However, there is a danger that senior executives, who are ultimately responsible for ensuring the company has in place the procedures to prevent its involvement in the facilitation of tax evasion, will escape any individual accountability under such an offence. The purpose of new clause 8 is to ensure that, where a company is convicted, the director of that company should be investigated with a view to disqualification, as happens currently when a company is held to have breached competition law, for example.

A perfectly legitimate question is whether new clause 8 is taking a hammer to crack a nut. That has been alluded to in past debates. I contend that it is not, because tax evasion has huge implications for the public purse, not just in lost revenue but in relation to public confidence in the tax system.

The day before the autumn statement, with warnings from the Chancellor that the economy must be watertight to manage the sharp challenges ahead of Brexit, surely any largesse—toleration of industrial-scale tax evasion—must stop. Ensuring that there is senior-level accountability when companies are convicted of tax evasion offences will instil confidence in the public that those in companies who are responsible for allowing tax evasion to happen there will face penalties. It will create greater incentives for senior-level executives to ensure that the companies operate on the right side of the law and drive out bad actors in the sector.

The Opposition acknowledge and recognise that it is unfair to tar all directors with the same brush when it comes to the perception of financial misconduct and criminality, and we would not want to do that. Since the financial crisis, those who run financial organisations have had huge reputational damage—some warranted, some not. The new clause would create a clear distinction between directors who do the right thing, complying with pre-existing regulation and working with enforcement agencies to tackle misconduct, and those who wilfully break the law or look the other way when it happens.

A disqualification order for those guilty of tax evasion offences is only right, so that they cannot continue to sit on the board of the company in question, or the board of any other company for that matter, to encourage further financial misconduct and send out the wrong message. The new clause is not about pointing the finger at those who commit themselves day in, day out, to their companies’ and the country’s health and wealth; it is about isolating and identifying individuals in those companies and ensuring that they are held accountable for their actions, thus preventing them from working in the financial industry again, and encouraging an environment of openness and transparency rather than a milieu that turns a blind eye.

Ben Wallace (Conservative, Wyre and Preston North)

I am grateful to the hon. Member for Bootle and pleased to say that the Government are supportive of what he is trying to achieve—that the new offences should be as effective as possible at changing corporate behaviour, and that law enforcement should have the tools it needs to police the new laws effectively. However, I hope to reassure him and his hon. Friends that those matters are already provided for.

As the hon. Gentleman said, new clause 7 would introduce a system of corporate probation orders, which would allow a court to require relevant bodies found guilty of the new corporate offences to make changes to their prevention procedures. Hon. Members should be aware that clause 43(2) adds those offences to the list of offences for which a serious crime prevention order can be imposed under the Serious Crime Act 2007. Serious crime prevention orders allow for a court passing sentence on a person or corporate body to impose prohibitions, restrictions or requirements to prevent, restrict or disrupt involvement in serious crime. Those orders are already available and can successfully disrupt tax fraud. Where such an order is made against a relevant body, its terms may require the body to allow a law enforcement agency to monitor how it provides services in the future.

Additionally, where the corporation in question is in the regulated sector, the regulator may, quite independently of a serious crime prevention order, undertake monitoring of the relevant body, relevant to failings in its systems and controls. For example, the Financial Conduct Authority could take steps to disqualify directors or put extra conditions on to the companies. It is the Government’s view that the hon. Gentleman’s objective can be achieved by applying the existing power to impose serious crime prevention orders on conviction of the new offences, or within the terms of the deferred prosecution agreement. Those orders can do anything that corporation probation would do.

New clause 8 would create a duty on the Secretary of State to investigate the directors of a company found guilty of a UK or foreign tax evasion offence, to see whether they should be disqualified. The existing law already allows the Secretary of State to apply to a court to have a director disqualified where he or she believes that that is in the public interest. A court can grant such an order when it is satisfied that the director’s conduct makes him unfit to be concerned in the management of the company. There is no evidence of which we are aware that the power is not being used in the appropriate cases. When not used, it is not used for appropriate reasons. When company directors are charged with offences, the sentencing court can consider disqualification.

Where the new offence is charged and the relevant body is not tried alongside a director, prosecutors will still be able to refer cases to the Secretary of State so that an application for disqualification can be considered. Indeed, there may be cases when sentencing judges recommend that this is done in their sentencing remarks. In short, rather than creating new law, we again consider it proper for the new offences to sit alongside, and work within, the existing legislative framework for disqualifying directors. If regulators have evidence that a director is unfit to be concerned in the management of the company, they can refer the case to the Secretary of State to make an application to have that director disqualified.

I hope that the hon. Members for Ealing Central and for Bootle, and others, agree that these points are therefore already accounted for, that they do not feel the need to move their new clauses, and that clause 38 can stand part of the Bill.

Guidance about preventing facilitation of tax evasion offences

Rupa Huq (Labour, Ealing Central and Acton)

We all need guidance in life. The measures sound imminently sensible and the Minister described them cogently. We support the clause.

Offences: extra-territorial application and jurisdiction

Ben Wallace (Conservative, Wyre and Preston North)

Clause 40 provides for the extraterritorial application of the corporate failure to prevent offences. The UK’s criminal courts will have jurisdiction to try the domestic tax offence in clause 37, regardless of where the conduct took place. The UK courts claim jurisdiction as a result of the UK suffering the tax loss. With respect to the foreign tax offence, our courts again claim jurisdiction on the basis that the relevant body has a nexus with the UK, such that it can be regarded as part of UK plc and thus is required to abide by the criminal law of this country. We have seen, and our partners in other jurisdictions have confirmed that they have also seen, that those deliberately facilitating tax evasion will typically offshore illicit services to try to avoid detection and to hide in the gaps between domestic legal systems.

Those facilitating offshore tax evasion often do not provide those services from within the geographic borders of the country whose tax loss they are facilitating. It is therefore vital that both the domestic and the overseas tax evasion facilitation offences capture activity that takes place outside the United Kingdom. Failure to apply the laws in such a way would lead to loopholes that could be easily exploited. By its very nature, the foreign tax evasion offence is likely to raise a complicated range of competing interests and issues, including those relating to international relations and diplomatic affairs.

Clause 41 puts appropriate safeguards in place by requiring that a decision to prosecute the offence is taken only by, or with the authority of, the director of these prosecuting bodies: the Director of Public Prosecutions, the director of the Serious Fraud Office or the Director of Public Prosecutions for Northern Ireland. A similar protection is in place for prosecutions for the corporate failure to prevent bribery under section 7 of the Bribery Act. I hope the clauses stand part of the Bill.

Rupa Huq (Labour, Ealing Central and Acton)

Her Majesty’s loyal Opposition support clause 40.

Offences by partnerships: supplementary

Ben Wallace (Conservative, Wyre and Preston North)

Clause 42 makes provision for rules of criminal procedure in relation to the prosecution of companies to apply to prosecutions of partnerships for the new offences in part 3. It mirrors section 15 of the Bribery Act 2010 and provides that proceedings for an offence under clauses 37 or 38 are to be brought in the name of the partnership and not that of an individual partner; and that any resulting fine is paid out of the assets of the partnership. The clause also applies existing rules of criminal procedure applicable where bodies corporate are prosecuted. They cover various matters including the transfer of cases from the magistrates court to the Crown court, the representation of the relevant body in court, the entering of pleas and the taking of action in the relevant body’s absence.

As I mentioned in debating an earlier group, clause 43 amends a number of pieces of existing legislation, adding the new offences created by part 3 to the lists of offences for which various powers are available, which will assist the effective investigation and prosecution of the offences. That includes allowing the CPS to require suspected persons to answer questions or provide information in relation to those offences; allowing for serious crime prevention orders to be imposed on relevant bodies; and providing for deferred prosecution agreements.

Clause 44 is simply an interpretation clause, defining terms within part 3. I hope the clauses stand part of the Bill.

Rupa Huq (Labour, Ealing Central and Acton)

We support the clauses.

Immigration officers

Forfeiture of cash

Forfeiture of terrorist cash

Forfeiture of terrorist cash without court order

Review of Scottish Limited Partnership

Roger Mullin (Scottish National Party, Kirkcaldy and Cowdenbeath)

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

It is a great pleasure to serve under your chairmanship, Mrs Main. Before I go into the substance of the new clause, I place on the record our thanks to the Minister for his willingness to discuss the issue with us both before and after Second Reading. Although I am a relatively new Member of Parliament, this is the fifth Bill Committee on which I have served in just over a year, and this is the most listening Minister I have come across. I would like to acknowledge that.

Ben Wallace (Conservative, Wyre and Preston North)

That’s my career over.

Roger Mullin (Scottish National Party, Kirkcaldy and Cowdenbeath)

Yes, this is the gentle dagger.

I rehearsed on Second Reading many of the specific instances of abuse using Scottish limited partnerships. I do not intend at this moment to repeat all that, but for the Minister’s benefit, I would like to add to what has already been said.

First, we have had further discussions with the Law Society of Scotland and others. They indicate a willingness to assist us in moving forward to address what the solutions may be to Scottish limited partnerships. I have also had discussions with an individual who was named in evidence to us, Mr Richard Smith, who has undertaken a lot of research into this matter. He, too, has indicated a willingness to assist.

Why do we consider that a review is needed? A lot of research has been undertaken, including by Mr David Leask, who gave evidence to the Committee just last week. However, in our view, before the Government move towards precisely how they will take action to secure SLPs from abuse in the future, it would do us a lot of good if we conducted a detailed review, sponsored by the Government, to ensure that all forms of abuse are properly understood. It would be good to do that before we move towards saying what the precise solutions will be. Therefore, it would be valuable if the Minister, when he comments on the new clause, indicates whether he thinks there is still scope for the Government to consider a detailed review such as that which we have discussed.

I shall conclude now and allow the Minister to respond. Our hope is that the response will be such that there will be no need for us to push the new clause to a vote.

Ben Wallace (Conservative, Wyre and Preston North)

I thank the hon. Gentleman for his kind words. As the son of a Fifer, I know that one always does well to listen to a Fifer—or one faces the consequences.

Peter Dowd (Labour, Bootle)

Too pithy.

Ben Wallace (Conservative, Wyre and Preston North)

I can repeat it for those who want to write it down. That was launched on 3 November. I think that it is a six-week consultation. As a starting point, I strongly urge the Scottish National party to make a submission.

Roger Mullin (Scottish National Party, Kirkcaldy and Cowdenbeath)

We are aware of that consultation with a snappy title, and it is our understanding that, appropriately, submissions have to be in by St Andrew’s day— 30 November. We intend to make a submission.

Ben Wallace (Conservative, Wyre and Preston North)

One issue raised in the paper is whether SLPs should be brought within the scope of the directive by including them on the UK’s public company beneficial ownership register, which would go some way to revealing the people behind some of those arrangements. The Government propose that SLPs should be on the register, although we must wait to see the responses to the consultation before we make a final decision. Hopefully my office will be in touch with hon. Members to arrange a meeting to discuss both that and some of the other issues they have raised.

New clause 1 proposes a statutory review of SLPs. The existing discussion paper already provides for interested parties to submit their views on identifying the beneficial owners of SLPs, which is a good first step. I reassure hon. Members that officials and Ministers in multiple Departments are looking closely at the wider issues related to SLPs, and I hope we will have more to say about that on Report. For now, I hope the hon. Gentleman feels suitably encouraged to withdraw his new clause.

Roger Mullin (Scottish National Party, Kirkcaldy and Cowdenbeath)

I thank the Minister for his encouraging response. I beg to ask leave to withdraw the motion.

National Crime Agency: Report on staff training

Rupa Huq (Labour, Ealing Central and Acton)

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

Rupa Huq (Labour, Ealing Central and Acton)

New clause 2 would ensure that the National Crime Agency makes an annual report to Parliament on the training it provides to enforcement agency staff who are defined under both this Bill and the Proceeds of Crime Act 2002 as having the power to exercise civil recovery proceedings. We selected the National Crime Agency to be subject to the proposed duty because it is the sole body responsible for the training of other enforcement agencies with such powers under POCA.

Our main reason for wanting to introduce a duty on the National Crime Agency to make an annual report is that new clause 2 is nothing new. All this stuff was in the two influential Select Committee reports—the report by the Select Committee on Home Affairs on the proceeds of crime, and the report by the Public Accounts Committee. The report by the Home Affairs Committee showed that there is a lack of understanding at enforcement level regarding confiscation orders. There is sometimes confusion about where the buck stops.

The Home Affairs Committee report makes it clear that that misunderstanding is manifested in a number of ways, and I will give two quick examples. Some enforcement staff are not aware of their power to exercise civil recovery procedures and/or actions to that end, and confiscation orders are regularly not factored in at the beginning of criminal investigations—that is on page 13 of the report. The Home Affairs Committee alleges that, as a result, criminals regularly have time to hide their assets and that that has contributed to the poor recovery rate of confiscation orders. We know there is a lot wrong with those orders and that a lot of money falls through the cracks. According to the Committee report, as of last year there was a total of £1.6 billion in outstanding debt from confiscation orders.

The Public Accounts Committee also recently reported that administering the orders costs £100 million, yet £175 million was recovered through the orders last year. I am not arguing that that is solely down to staff training or a lack of knowledge among the staff, but the Home Affairs Committee report makes it clear that a number of causal factors contribute to the poor rate of recovery. Those factors include, but are not limited to, the overworked ELMER IT system for suspicious activity reports. My right hon. Friend the Member for Leicester East eloquently mentioned that several times in the debate on the Floor of the House. The creaking IT system is overloaded and overworked as it is. I cannot account for where he is now, but I am sure that he will be there when needed. That is one factor. There is also a reluctance among barristers and judges to specialise in asset recovery law, as the Home Affairs Committee report also mentioned. Arguably, there is a lack of specialist confiscation courts.

Obviously, we are not arguing that the amendment would suddenly wave a magic wand to remedy those problems, but building in the audit mechanism through an annual report would allow us to identify weaknesses in the context of training provided by the National Crime Agency. One problem contributing to the poor recovery rate for confiscation orders, as I mentioned earlier, is that they are not factored into the very beginning of criminal procedures. The Minister talked about behaviours. If there were a regular report, we could identify similar behaviours and remedy the problem. In theory, we would increase the rate of recovery. To that end, Labour see the duty to report as being a cost-effective performance enhancer. There is nothing quite like the fear of having to make a statement that must be relayed on the Floor of the House orally or in writing or both, and it would focus the mind on the tasks at hand.

Regular reporting would allow Parliament to assess in real time the necessity of adjusting NCA training—that form of crime and the techniques underpinning it change in real time. Since the Proceeds of Crime Act 2000, 16 years ago, we have seen technology change how such evil crimes are effected—hopefully, they are ineffective. To that end, I draw Members’ attention to the debate on whether NCA training should be mainstreamed or extended to new enforcement agencies. Detective Superintendent Clark, head of the economic crime directorate at the City of London Police, has been positive about the idea of mainstreaming National Crime Agency training, so that some of it can be taken over. That is on page 9 of the Home Affairs Committee report.

That level of detail may be for another day, but the point I am trying to make is that regular reports to Government would allow the House to keep a closer eye on the quality and quantity of training provided. The reports could then be factored into more well-informed discussions at a later date about things such as mainstreaming training. Whether or not we are now living in an age of austerity, everyone in this House wants best value for money from our public services, particularly when budgets are tight. When it comes to underperforming services, we can all agree that making institutional or procedural change, rather than just throwing money around in an unfocused way, can help to drive up standards. I believe that regular, up-to-date, detailed reports would provide this and future Governments with the ability to make such changes.

The amendment is not intended to be political; it is technical. I know that the Minister is a reasonable man, and I think that he will agree that it is fair and reasoned. Everyone in the House appreciates the great work done by the NCA on our behalf, but it is only fair that we monitor and have an up-to-date understanding of the training that it provides.

Rupa Huq (Labour, Ealing Central and Acton)

Yes. New clause 5 is simple and does what it says on the tin. We want the Secretary of State to work with the enforcement agencies, using accredited financial investigators, to hammer out some form of agreement whereby if an accredited financial investigator chooses to leave his post within the first three years of qualifying as an AFI, they must repay the cost of training before doing so. There are some figures.

In evidence to the Home Affairs Committee, the Serious Fraud Office noted:

“Experienced accredited financial investigators with the skills to deal with complex financial crime are scarce within the public sector, and their skills are increasingly attractive to financial institutions in the private sector.”

Since its establishment in 2009, the SFO has employed 15 senior financial investigators. Of those, six have left the SFO and the resulting recruitment campaigns, according to that Home Affairs Committee report, had very “limited success”.

This could be done through, for example, the illicit wealth that they have confiscated or that they have been instrumental in confiscating. The Home Affairs Committee report had some quite startling statistics showing that AFIs are routinely subject to what it described as private-sector poaching. Another alarming feature of the Committee’s report was that AFIs are working for organisations where one could reasonable suspect that their skills may not be put to the most ethical use. I mentioned the other day that some of them have gone over to, for example, the gambling industry—something we do not want to encourage. It is wholly unfair for the state effectively to subsidise their training costs when they then scurry off to the private sector. It is a time of budgetary restraint and belt-tightening: we need to be getting value for money. It is only fair that those who benefit from the state’s generosity should repay it in kind.

Secondly, the Government are wholly aware of this issue. In fact, I believe there was meant to be a working party on recruitment and retention of key financial staff. Whatever happened to that? Sometimes these things get swept under the carpet or become a talking shop, so I would be curious to know what happened to that. It was a Whitehall working paper—we have not heard any concrete suggestions come out of the other end of that about how this problem is to be remedied. The Government’s plan on this is as mysterious and as tightly under wraps as the PM’s plan for Brexit, but let us not be political. I would like to ask the Minister whether he is opposed to this new clause—I would have thought he was a sensible man; it is quite sensible stuff. If he is opposed to it, can he please explain what he will do to stem the poaching of accredited financial investigators?

Ben Wallace (Conservative, Wyre and Preston North)

The Government recognise the importance of ensuring that investigation and prosecution agencies have sufficient expertise and resources to carry out their functions under the Proceeds of Crime Act 2002. Section 3 of the Act places a statutory duty on the National Crime Agency to provide a system for the accreditation of financial investigators who use the powers under POCA. This is done through the National Crime Agency’s Proceeds of Crime Centre. The accreditation system includes provision for monitoring performance and, importantly, accreditation can be removed from an investigator who fails to meet the accreditation standards.

The training can be lengthy and expensive. The Home Affairs Committee, during its recent inquiry into asset recovery, identified the risk of the private sector poaching trained resources with the promise of better pay and benefits. It was a good report. I read it in full as well as the Public Accounts Committee report.

The NCA already publishes statistics on the training activities undertaken by the Proceeds of Crime Centre in its annual report. Their last report showed the delivery of 95 training courses, support for 760 delegates through that training, and the completion of 1,400 registrations and re-accreditations. Those statistics are already published annually.

New clause 5 provides for the use of agreements to tie accredited financial investigators to their agencies, so that they would pay the cost of their training if they voluntarily left the employment of the agency that has funded their training. However, these agencies have tried such agreements and found them difficult and costly to enforce. In most cases, the benefits of such agreements are minimal.

Even if an effective and enforceable form of cost training agreement could be found—I do not want to dismiss the idea out of hand today—making it a requirement in primary legislation would not be appropriate. The operational agencies who use financial investigators should be given the freedom to manage their workforce according to their needs.

In line with the hon. Lady’s concerns, the criminal finance board, which I chair with my hon. Friend the Economic Secretary to the Treasury, commissioned a working group to examine the retention and training of financial investigators. It has not gone away or been swept under the carpet; I assure hon. Members that nothing is swept under the carpet in my Department. There is no conspiracy either—we do not do conspiracies in my Department; we are the conspiracy, according to some. That group is also considering what actions can be taken to incentivise investigators to stay and develop their career within the public sector.

The hon. Lady also referred to ELMER—the database of the suspicious activity reports IT regime. We have committed to replacing the SARs IT regime by October ’18, but in the meantime we have taken steps to upgrade and maintain it as part of the SARs reform package. We have not finished reforming the SARs programme, and before we roll out a new system we need to know what the new suspicious activity reports will look like, because if we are going to have a software database in order to cope with that effectively, we need to know what we are planning to cope with.

I am therefore alive to the issues and will be following the issues raised by the right hon. Member for Leicester East. I will visit to look at the system directly; I will have to bring my 1980s computer knowledge up to date to see whether I can remotely understand what I am looking at. I will certainly make sure that it is on because, like the hon. Member for Ealing Central and Acton, it is not my or the Government’s intention for the system to grind to a halt. It is very important.

It is also important that we register that we are keen to make sure that all those people who benefit from that system—not just the Government but the banks and the other people who use it—perhaps make a contribution towards the new system. That is important. It is for their benefit as well for the system to work successfully and efficiently.

I hope that demonstrates to the hon. Lady that I take both matters seriously. I think the training has already been dealt with, because it is published in the National Crime Agency’s annual report. I hope she is inclined to withdraw her motion on that basis.

Rupa Huq (Labour, Ealing Central and Acton)

I beg to ask leave to withdraw the motion.

Annual reporting: Adequacy of resources

Peter Dowd (Labour, Bootle)

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

This is not a technical clause. It goes to the heart of transparency of resources for the enforcement agencies concerned. It is crucial that they are adequately funded, given the nature of the task that they are dealing with. They are chasing billions of pounds of evaded tax in relation to crime, with a particular emphasis on concerns around terrorism, and it is therefore perfectly legitimate for Parliament to be directly reported to on the adequacy of resources. That is the starting pitch.

In the evidence session, I, along with other Members, in particular the hon. Member for Portsmouth South, as I recall, asked many questions of witnesses about the resources available to law enforcement agencies. To Detective Superintendent Harman, who heads the national terrorist financial investigation unit at the Met, the hon. Lady asked:

“Are you confident that the enforcement agencies will have sufficient resources to make full use of the new powers in the Bill?”––[Official Report, Criminal Finances Public Bill Committee, 15 November 2016; c. 9, Q8.]

“Yes” was the response from the police officer and the witness accompanying him. I have to say, it is a pleasure to have the police helping us with our inquiries, rather than the other way around.

Clearly, the adequacy of resources goes to the heart of the ability of enforcement agencies to stamp out and tackle abuse within the financial sectors, particularly that which is linked to crime and terrorism. It is self-evident that, if the resources are not there, or if they are not used forensically and wisely, the agencies concerned will certainly not fulfil the intention of the Bill. It is worth reminding hon. Members of the intention of the Bill, as set out in the explanatory notes—I alluded to this in the evidence sessions last week—namely,

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

It is fair to say the Government could not be any more plain on this matter. The measure is, after all, the Criminal Finances Bill, so the clue is in the title. Given that we all agree with the Government’s intention as set out in the overview of the Bill—in the section relating to its mission—it is incumbent upon us to establish whether the resources are available to effect that good and laudable intention, notwithstanding the view expressed by the superintendent and his colleagues that they felt that they had enough money.

One way of holding the Government to account is to ensure that those intentions are backed up with the wherewithal to carry them out through a parliamentary annual review, given the crucial nature of these issues. All those who were asked about the adequacy of the resources to do the job agreed that the intention of the Bill was sound, and I do not dispute that. However, aside from the enforcement agencies themselves, which felt that they had enough to do the job—I am not sure whether that was in hope rather than in expectation—it is fair to say that most of the other witnesses’ enthusiasm for that element of the equation was not quite as clear-cut, although I would stand corrected and am challengeable on that.

For illustration purposes, Members may recall that when I asked the witnesses representing the Centre for Financial Crime and Security Studies at the Royal United Services Institute, Corruption Watch, Global Witness and Transparency International a question about whether they felt that—in their experience—the resources were available to do the job, there was a bit of a tumbleweed moment, with sideways looks at one another. I read the clear body language—and you do not have to be an experienced psychologist to have spotted it—that in their experience they felt that there clearly were not enough resources, and that they felt that that would hinder the enforcement agencies in doing their job. In response to the question from my hon. Friend for Ealing Central and Acton about the adequacy of resources, the director of the Centre for Financial Crime and Security Studies Mr Keatinge said:

“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…I do not believe we have the resources that we need.” ––[Official Report, Criminal Finances Public Bill Committee, 15 November 2016; c. 69-70, Q150.]

I accept that that is a view, but it is a view that has been reached after asking expert witnesses. We at least have to listen to them and take on board some of the concerns that they had. Moreover, when I followed up with the representative from the Metropolitan Police Authority, the National Crime Agency and the National Police Chiefs Council earlier the response to the hon. Member for Portsmouth South, I felt that they had begun to row back a little on their own equivocal answer to the hon. Lady.

That is why it is paramount that the professionals, and those whose day to day job is to tackle financial crime adequately, are adequately equipped with the resources to do the job. That is why we have to challenge them, and it is our responsibility to challenge them. In a sense, it is Parliament’s responsibility to challenge the Government and the Executive, and one of the best ways of doing that is for the information to be reported directly, rather than articulated through some sort of pontifical process to Parliament. I can inform Members now—I do not think I have to, but I will—that the people the law enforcement agencies are trying to catch are ahead of the game in relation to the crimes that they are committing, and we need to ensure that the enforcement agencies have the resources to do the job.

A clear example of where annual reporting would be effective is in the oversight of the IT system for SARs, which I know the Minister has referred to as being revamped or changed. As far as I am aware, ELMER is designed to process up to 20,000 suspicious activity reports; it is currently processing up to 381,000 of them. Of those, only 15,000 are looked at in detail, as was noted in the Home Affairs Committee’s fifth report of the 2016-17 Session, “Proceeds of crime”. That raises the question of whether reporting that many SARs is simply over the top, and borne out of caution on the part of banks. If so, then that approach wastes a good deal of time for those doing the reporting, and for the receiving agencies, who have to search through the haystack. Alternatively, if the reporting numbers are, to all intents and purposes, a reasonable reflection of concern that has reached a mutually agreed threshold, that raises another question: why are so many reports being ignored, brushed aside or not acted on? The Minister has reassured us that they are not under his office carpet.

The next question, unsurprisingly, is whether there is a resource deficit that dare not speak its name, especially for witnesses from one of the enforcement agencies that kindly gave evidence to us last week. It is not unreasonable to suggest that, as a result of the Government’s funding levels, SARs are now seen by many private regulators and bodies as a box-ticking exercise that underperforms, at the very least. I recall some witnesses alluding to that. Although the Government have committed to replacing the system, annual reporting to Parliament would ensure that its replacement is effective. If that had been instituted earlier, no doubt it would have shown up the inadequacies of the system, but we are where we are.

It is up to the Minister to take us where we would all like to be. We need well resourced agencies that are able to deliver the tasks set out for them in the Bill. Ultimately, the new clause would allow Parliament to hold the Government to account, through annual reports from professionals and experts on the ground, on their funding of enforcement agencies, and on the impact of that funding on the ability to prevent and disrupt attempts to hide the proceeds of crime. Given the seriousness of the issue we face—the loss of billions of pounds to the Exchequer—that is not too big an ask of the Government.

Ben Wallace (Conservative, Wyre and Preston North)

In my response to the hon. Member for Ealing Central and Acton on new clauses 2 and 5, I explained what we are doing to assess the capacity and capability of investigator resource. The new tools in the Bill are a key part of strengthening our response to economic crime. The Government continue to invest in law enforcement agencies through the asset recovery incentivisation scheme, which returns recovered assets back to the frontline. A top-slice of £5 million has been set aside every year until the end of this Parliament to fund key national asset recovery capabilities, and I can announce today that we are going further. We made a manifesto commitment to return a greater percentage of recovered assets to policing, and we are implementing that commitment by investing in policing the whole Home Office share of amounts above a certain baseline collected by the multi-agency regional asset recovery teams. That will give the agencies greater financial resources, if performance continues to increase—100% of the Home Office share, rather than the 50% that they currently get. There we are: an announcement in a Bill Committee—a new way of venturing forward.

Let us be honest: I say to the hon. Member for Bootle that in Government, we never have enough resources across all our priorities, because different priorities are preyed on by events such as flooding in the west of England, or issues for the Home Office such as a surge in terrorism. I therefore question the use of the word “adequacy” in the new clause. We can scrutinise accounts or budgets, but asking a police officer whether he feels he has enough is like asking, “How long is a piece of string?” Of course we never have enough for crime fighting across the country. If I had millions of pounds, I could find things to spend that money on immediately, and so could every Member in this Committee Room.

I am concerned about whether it would be right and fair to publish a report to Parliament, as the new clause demands. The agencies that use their powers under the Proceeds of Crime Act already report on their resources and results through the departmental annual accounts, which are subject to scrutiny from the National Audit Office and the Public Accounts Committee. The use of criminal justice tools and powers is also subject to scrutiny by Her Majesty’s inspectorate of constabulary and, in the case of terrorism legislation, by the independent reviewer of terrorism legislation. The criminal finances board also closely monitors performance and resourcing issues. I hope that the hon. Members for Ealing Central and Acton, and for Bootle, can see that there is already significant scrutiny of resourcing. I invite the hon. Member for Ealing Central and Acton to withdraw the motion.

Rupa Huq (Labour, Ealing Central and Acton)

I was interested to hear a groundbreaking announcement in this Committee. I completely get the Minister’s point that we will never feel satiated, and that there will always be inadequacy, but my hon. Friend the Member for Bootle made a really powerful case. He mentioned SARs and the ELMER IT regime. Originally, 20,000 SARs were anticipated, but there are now 381,882—my hon. Friend said there were “up to” 381,000 of them, but there are even more, and the figure is rising.

I want to mention the NCA’s ability to cope with the greater workload. It takes an increasing length of time to get investigations into the courts. We have heard that it could take more than 200 days, with the new SARs regime. The NCA was created as a successor to several different organisations. The budget of those it replaced was £812 million, but the NCA’s new annual budget was £474 million. Those figures put the situation into context. The Government have cut that budget even further since the NCA’s creation; it received £411 million in 2015-16. I accept that there was a one-off £200 million cash injection last year, but the agency needs steady long-term funding to carry out its functions effectively. It is no good just sprinkling blockbuster sums now and then; it needs a consistent funding model.

My hon. Friend the Member for Bootle made some powerful points. For effective crime fighting, we should not have agencies that are overworked and under-resourced. The announcement that 100% of assets will go to the Home Office conflicts with an amendment that we have tabled.

Ben Wallace (Conservative, Wyre and Preston North)

Not the Home Office; it is going to the law-enforcement agencies.

Rupa Huq (Labour, Ealing Central and Acton)

Okay, so it is within the system. We have tabled new clause 20, which is about repatriating assets to the jurisdictions they came from. Some charities—Christian Aid and all those people—are saying that third-world health budgets get robbed when someone buys a house in Hampstead with such proceeds. Are we going to—

Rupa Huq (Labour, Ealing Central and Acton)

I think we will press the new clause to a vote.

Richard Arkless (Scottish National Party, Dumfries and Galloway)

I would like to make a very small point about the Minister’s comments on new clause 3. He rightly suggests that if we were to ask any police officer or public servant whether they had enough resources, the answer would clearly always be no, but the new clause does not seem like a generic question about whether there is enough generally. The hon. Member for Bootle is asking whether adequate resources are available for specific functions to be exercised under the Proceeds of Crime Act 2002. That is a marked departure from asking any Department the generic question, “Have you got enough, guv?”, to which we would almost certainly know the answer. The new clause is about activities undertaken under the Act, and I do not think it is fair to categorise the suggestion as the Minister did.

Ben Wallace (Conservative, Wyre and Preston North)

Perhaps I can clarify some of the issues. Obviously the word “adequate” is subjective. We heard evidence in Committee from members of the law enforcement agencies, and they did use the word “enough”. My point is that we scrutinise the accounts in this place, and then compare that with agencies’ performance and outcomes. That is how we come to a decision—subjective, often—on whether there are adequate resources. It is not necessary to put that in primary legislation.

Perhaps I could clarify for the hon. Member for Ealing Central and Acton the issues around asset recovery and where those funds go. At the moment, if we recover assets from drug dealers, for example, the money is split, with 50% going to the Home Office, and 50% to the Crown Prosecution Service and all the other agencies—the National Crime Agency or the police—involved in that operation, so that they can invest it in their capabilities, and use it to increase their ability to fight crime. I can say today that further to our manifesto commitment, in future, instead of having that 50% of the cake, they will be able to keep 100% of the amount coming in above the baseline, which was set in 2015, if I am not mistaken. They have a very strong incentive to ensure that they are rewarded for their good work, and to make sure that we go after big sums as well as small. That is important.

On the point the hon. Lady raised about returning money that is stolen—we will come back to this—we sent back £27 million to Macau recently. Where we identify the ownership of stolen assets that we can return to a foreign country or wherever, we will, and we have already done that. My colleague the Minister for Immigration signed a memorandum of understanding with the Nigerian Government in August to make it even easier for us to return stolen property or assets to a country’s people. It is absolutely our intention to do that.

Across the money laundering piece, we can identify the owners of certain assets and take steps to return them. Other assets that accrue because of the high margins in the illicit trade of, say, drugs may be harder to return. In fact, the people who contributed to those sums may have committed a crime themselves, so there is a difference there. I recently saw in Mombasa some confiscated stuff that we will be returning, as soon as we can get through the paperwork. It is not our intention to divvy up the proceeds from the house in Knightsbridge and hand them all over to the National Crime Agency, and rob the third country from which the money was stolen.

Rupa Huq (Labour, Ealing Central and Acton)

I wanted clarification on just one other thing. The Home Affairs Committee report wanted ELMER replaced by the end of December. Am I right in thinking that the Minister referred to October 2018?

Ben Wallace (Conservative, Wyre and Preston North)

2018.

Rupa Huq (Labour, Ealing Central and Acton)

So it will not be December.

Ben Wallace (Conservative, Wyre and Preston North)

No. As I said earlier, we have spent money updating and making sure that ELMER is maintained, but we are also in the process of drawing up a SAR reform policy. There are a number of reasons why there are so many referrals—380,000-odd—but the Bill will hopefully cut that number. We want quality, not quantity. At the moment, we are getting quantity, partly because in the suspicious activity regime, if a body makes the report, its defence is halfway there—that is the tick-box bit that is highlighted in the report. Also, many institutions currently report a fragment of the transactions, because they say that they are unable to report the complete transaction due to data-sharing barriers. That is why this Bill removes those barriers. Hopefully, instead of 15 pieces of a transaction being reported as 15 separate SARs, we will get one, because one institution will be able to report the transaction from beginning to end.

We are already taking steps to reduce demand on the system. The system is working; people should not think it has stopped working. The challenge is the analysis, and making sure that we act on the suspicious reports and are quick enough to discard the ones that are not, because we want quality, not quantity.

This time last year, we agreed a £200 million capital improvement budget for the National Crime Agency between 2016 and 2020. That is a huge sum of money for it to spend on a whole range of capital projects to bring them up-to-date. We all have lessons to learn—Labour Governments and Conservative Governments—from rushing into IT replacement projects that cost much more than anyone envisaged. It is therefore important we get the new SARs regime right before we replace the system. I assure hon. Members that that is at the forefront of my mind. We are not going to fall over—that is the main thing—and we will make sure that when we replace it, we do so with the right system, so that we are not all back in this Committee Room in a few years’ time saying, “The SARs regime is not working.” I hope that clarifies the point for the hon. Member for Ealing Central and Acton.

Peter Dowd (Labour, Bootle)

I started by talking about Parliament being able to have reports from the agencies concerned, given the seriousness of the issue facing us. The Minister, reasonably, told us that 100% of the proceeds will go to the appropriate agencies and be divvied up as appropriate. I completely accept that, in good faith, and repeat the point made earlier: that he is a reasonable man. I do not challenge the Minister’s reasonableness; my challenge is based on the fact that Parliament, given the nature of this issue, is perfectly entitled to receive reports from agencies—no doubt articulated through the Departments in some fashion—on their resources. A definition of “adequacy” is that something is proportionate, or sufficient for its purpose. That is a matter for Parliament to discuss. It will not necessarily be able to do anything other than discuss it, but the discussion may produce views and experiences for the Minister to consider.

As to the Minister’s point that this is not something to go into primary legislation, about this time last year I was on the Committee that for 17 sittings considered the Housing and Planning Bill. There were all sorts of things in that Bill far less important to the health and integrity of the nation. Indeed, in the past, local government Acts—primary legislation—have even included provisions on how many hours off a person in one local authority can have, compared with a person in another. Primary legislation can be used in a range of ways. It is for the Government of the day to say, “We have nothing to fear from the reports coming before Parliament, from openness and transparency, or from challenge.”

Ben Wallace (Conservative, Wyre and Preston North)

Anyone who is a victim of financial crime takes that crime incredibly seriously; the same goes for victims of violent crime. The National Crime Agency has a number of threats to deal with, including drugs, firearms, child sexual exploitation, financial crime and foreign national offenders. Our police forces deal with a range of threats. Are we to say, on the principle that the hon. Gentleman has set out, that primary legislation should require our law enforcement agencies to produce a report every year, under each heading across the whole range of crime, on whether they believe they have adequate funding to do their job? If so, I envisage that our law enforcement agencies will be full of people doing reports all year, arguing about whether resourcing is “adequate”, and submitting them to Parliament, rather than getting on and prosecuting the people we need prosecuted.

Peter Dowd (Labour, Bootle)

That is a fair point, but we know that, every day, Parliament debates issues that are far less important for the body politic, security and the safety of the country. The point that I am trying to make is that the issue is of great importance and significance. It is so different in degree as to be different in kind. My hon. Friends and I therefore say that Parliament should have this opportunity. This is not a technical proposal. I repeat that, given the nature of the threat to the country, and the importance that people place on the safety of the country, we would like the report to be made to Parliament.

Failure to prevent financial crime

Peter Dowd (Labour, Bootle)

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

The new clause would create a corporate offence of failing to prevent financial crime. It would compel the financial services industry to take greater steps to stamp out financial crime, and to tackle tax evasion and other economic crimes. At the heart of the new clause is the need for a level playing field, and to end the impunity that many large global organisations have enjoyed, whereby directors have plausible deniability if they are not involved in decisions taken at a lower level by employees.

The 2015 Conservative party manifesto stated:

“We are...making it a crime if companies fail to put in place measures to stop economic crime, such as tax evasion, in their organisations and making sure that the penalties are large enough to punish and deter.”

At the UK anti-corruption summit on 12 May this year, the Government announced that the Ministry of Justice would consult on an extension of

“the criminal offence of a corporate ‘failing to prevent’ beyond bribery and tax evasion to other economic crimes.”

They acknowledged that law enforcement struggles

“to prosecute corporations for money laundering, false accounting, and fraud under existing common laws.”

As far as I am aware, no consultation has been announced; it appears that the consultation is likely to have been downgraded to a call for evidence, bringing further delay and sending the wrong message.

The Opposition are always willing to assist the Government where it is sensible and in the interests of the country to do so. The new clause would enable the Government to fulfil their manifesto promise, which I know is dear to the hearts of every Government Member; I know that they recite the manifesto with catechistic fervour before, during and after meetings of the 1922 committee. The Minister will sleep easier knowing that he has delivered his part of the schedule ahead of time. I expect Government Members will want to fulfil the UK summit’s commitment before the parliamentary calendar becomes clogged up with Brexit-related measures. The Prime Minister has promised to deliver an economy in which everybody plays by the same rules.

UK corporate liability laws rely on a “directing mind” test, which requires prosecutors to prove that senior board level executives intended misconduct to occur. This moves the focus of attention away from the bigger fishes, and on to small and medium-sized enterprises, where directors are more involved and can therefore be more easily prosecuted—quite rightly, if appropriate. This was a concern of some of the witnesses. The system undermines corporate governance by creating perverse incentives to keep boards in the dark about decisions that may lead to misconduct. Several recent major scandals, including LIBOR and Euribor, have resulted in no prosecutions against companies owing to the current corporate liability regime.

Where individuals have been prosecuted under conspiracy to defraud, they have argued that their actions were condoned and encouraged by their employers. However, the Serious Fraud Office has not charged any of the employers concerned, which include Barclays, UBS and Deutsche Bank, and not a single UK financial institution faced criminal charges as a result of the 2008 financial crisis. A “failure to prevent” offence for fraud and conspiracy to defraud would have enabled such prosecutions. Similarly, in 2015 the SFO was forced to drop its case against Olympus after the Court of Appeal found that it was not illegal under current corporate liability laws for companies to mislead their auditors. This was also the case in 2015, when the CPS stated that because of corporate liability laws, it could not mount a successful prosecution against the companies in the phone hacking scandal, which included some of the largest tabloid newspapers in the UK. Although the new clause would not specifically address the phone hacking case, it highlights the urgent need for broader corporate liability reform.

The Government also need to tackle the facilitators of corruption.

Peter Dowd (Labour, Bootle)

This morning I was indicating that the Government also need to tackle the facilitators of corruption—by that, I mean those institutions that fail to conduct due diligence on their clients. The UK anti-corruption summit committed countries to pursuing and punishing those who facilitate corruption, and the new clause reaffirms Britain’s commitment to do so.

The failure to include such measures in the Bill will lead to many of our partners accusing us of hypocrisy and double standards; it will severely damage our prestige abroad, or will have the potential to damage our prestige abroad; and it will undermine our reputation. I find it perplexing, as do many others, that not a single bank has yet been criminally prosecuted for handling the proceeds of corruption, despite the fact that they may have been fined for doing so. This is not just about banks, but about some of the people in the banks—that is the important thing to take away. My constituency is similar to those of other Members, in that as well as having lots of local branches, Santander has 2,000 people based there. I am certainly not in the business of pointing the finger at everybody in the banking sector—it is important to make that point.

In March 2012, Coutts was fined £8.75 million by the Financial Conduct Authority for serious systemic failings that resulted in “an unacceptable risk” that Coutts had handled the proceeds of crime, yet despite that fine, in April 2016 Swiss authorities investigated whether money from the 1Malaysia Development Berhad scandal had ended up in Coutts’ bank accounts, which suggests that regulatory action alone is an insufficient deterrent against laundering corrupt proceeds. From that instance, it is clear that an extension of a failure to prevent money laundering offence would significantly enhance the scope for criminal sanctions.

We should not forget that the cost of fraud and money laundering greatly exceeds the cost of tax evasion. In 2016, HMRC estimated the tax gap to be £36 billion, of which tax evasion accounted for £5.2 billion. Some witnesses last week believed it to be higher. In May 2016 the annual fraud indicator put the cost of fraud to the UK economy at £193 billion. The cost to the public sector is £37.5 billion, with procurement fraud costing as much as £10.5 billion a year. We are talking about significant figures, which is why we need significant action. I am pleased that the Government are taking significant action but we want to push them further. The National Crime Agency estimates that billions of pounds of suspected proceeds of crime are laundered through the UK every year. That money, if accounted for, would be more than enough to help fund a whole range of services in the country.

The Crime and Courts Act 2013 specifies that certain economic crimes, which include fraud, money laundering and false accounting, as well as bribery and tax evasion, can be dealt with by way of a deferred prosecution agreement. The absence of an extension to a failure-to-prevent offence to the other economic crime offences listed in the Act results in a disparity in how different economic crimes, which all cause significant damage to the taxpayer, can be dealt with by prosecutors.

New clause 6 would also improve corporate governance. Companies are already subject to criminal law for all the additional offences listed in the amendment, although currently on the basis of the “directing mind” test. In addition, companies are required under FCA regulations to have effective systems and controls in place to prevent themselves being used to further financial crime, including money laundering.

At the end of the day, we are trying to get the message across to the Government. Mostly, in broad terms and in specific situations, the Government have got that message, but it is the duty of the Opposition to push the boundary a bit more where we feel that the Government have not acted as forcefully as they could, in the light of what I have just said about scale, and in the light of the comments we heard from our witnesses last week.

Richard Arkless (Scottish National Party, Dumfries and Galloway)

We broadly support new clause 6, tabled by the Opposition, which seeks to extend corporate financial crime beyond the provisions in the Bill as drafted—beyond tax evasion and bribery. We are generally supportive. It is worth mentioning the point made by the hon. Gentleman that the provisions in new clause 6(4) defining a criminal financial offence are at the moment corporate offences that require the directing mind to be present. To my mind, the new clause would merely remove the directing mind provision from those offences.

We broadly support the new clause, but I question subsection (2)(b), which states that a defence could be that

“it was not reasonable in all the circumstances to expect B to have any prevention procedures in place.”

Although the provision seeks to catch other offences, it strikes me that the bank or organisation would merely need to demonstrate that it was not reasonable to have prevention procedures in place. To my mind, that defeats the purpose of extending the offence so widely. Nevertheless, we broadly support the new clause, and I would like to hear from the Minister about the Government’s inclination, if not to accept new clause 6, then to recognise that, at some future point, corporate financial crime could be extended beyond the provisions agreed in the Bill.

Another way of framing new clause 6 would be to codify specifically the exact offences within the three Acts. That might have negated the need for subsection (2)(b), which strikes me as a direct negative that might defeat the purpose. I would be interested to hear what the Minister has to say about the thought process, but generally speaking we support extending corporate financial crime, and are provisionally minded to agree to and support the new clause.

Rupa Huq (Labour, Ealing Central and Acton)

It is a pleasure to serve under your chairmanship again, Mrs Main. My hon. Friend the Member for Bootle made an excellent speech. New clause 6 is supported by Amnesty International, CAFOD, Corruption Watch, Global Witness, ONE, Rights and Accountability in Development, Tax Justice Network, The Corner House, Traidcraft and Transparency International UK. Those are some heavyweight organisations. Before we adjourned, my hon. Friend asked what happened to the consultation promised at the anti-corruption summit. I would be interested to hear the answer.

Ben Wallace (Conservative, Wyre and Preston North)

New clause 6 highlights an issue raised on a number of occasions when we heard from interested parties about the Bill last week. I am pleased that the Opposition have tabled it, because it allows me to restate that the Government appreciate those concerns and agree that the damage caused by economic crime facilitated by those working for major companies is serious and affects individuals, businesses and the wider economy, and indeed the reputation of the United Kingdom as a place to do business.

As the hon. Member for Ealing Central and Acton is aware, the Labour Government took action in the Bribery Act 2010 in respect of bribery committed in pursuit of corporate business objectives. The Act is widely respected as both a sound enforcement tool and a measure incentivising bribery prevention as part of good corporate governance. We have already debated the new corporate offence of failure to prevent tax evasion created in the Bill. The provisions followed a process of extensive consultation, as did the Bribery Act 2010. I trust that hon. Members will agree that such an approach is necessary when considering the adequacy of the existing legal framework in matters involving complex legal and policy issues.

In respect of the current law governing corporate criminal liability for economic crime, the Government announced that a consultation would take place in May this year. I confirm that we will publish a call for evidence on the subject. In keeping with the considered and methodical approach adopted for the reforms on bribery and tax evasion, the call for evidence will form part of a two-part consultation process. It will openly request and examine evidence for and against the case for reform and seek views on a number of possible options. Should the responses that we receive justify changes to the law, the Government will then consult on firm proposals. The Government believe that it would be wrong to rush into legislation in this area for the reasons I have given. In the light of my assurances and the forthcoming publication of the call for evidence, I invite the hon. Gentleman to withdraw the new clause.

Peter Dowd (Labour, Bootle)

As I have said, the job of the Opposition is to push the issue as much as we can. As to what the hon. Member for Dumfries and Galloway said about subsection (2), the reality is that we are building into the new clause the capacity for someone to defend themselves, but not stating categorically, “Someone commits an offence if this happens.” There is room for manoeuvre, which is only right. However, in the light of what the Minister has said and the assurance he has given, I beg to ask leave to withdraw the motion.

Unexplained wealth orders: reporting requirements

Public register of beneficial ownership of UK property by companies registered outside the UK

Tristram Hunt (Labour, Stoke-on-Trent Central)

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

The purpose of new clause 14 is to require the Secretary of State to establish a publicly accessible register of the beneficial ownership of UK property by foreign companies within six months of the commencement of the Act. That is another helpful intervention to support the Minister in his work.

Ben Wallace (Conservative, Wyre and Preston North)

At the London corruption summit earlier this year, the Government announced that we plan to create a beneficial ownership register of overseas companies that own or wish to purchase property in the United Kingdom. The Government remain committed to delivering that policy and are developing the detail of how the register will work before we issue a call for evidence in the coming months. Our intention is to bring forward legislation to provide a statutory basis for the register in due course and as soon as possible.

The UK leads the world in corporate transparency. That is a position that the UK Government are rightly proud of: we are the first in the G20 to have started a public register of beneficial ownership. We should build on that position, and I am determined that we complete what we started at the summit.

The proposal is that the register will apply throughout the whole of the United Kingdom. That is important to ensure that control of companies owning land is transparent wherever in the UK the land is. However, Scotland and Northern Ireland have different land registration requirements from England and Wales, which makes the drafting of the legislation more complex. The Government therefore believe that it is important to spend time to get the policy and its implementation correct, and to consult on the policy before legislating.

Peter Dowd (Labour, Bootle)

Three!

Ben Wallace (Conservative, Wyre and Preston North)

It is getting higher—we will be getting into double figures for The Observer’s readership if we are not careful.

The best time to examine the register is when we have had a full consultation. We have worked closely with the Scottish Government and the Northern Ireland Executive to ensure that we get it right. As the Scottish National party has pointed out, things such as Scottish limited partnerships were set up often for landowners to avoid ownership obligations way back in 1907, if I am not mistaken. Therefore, legislating is easier said than done, and we want to ensure that we get it right so that there are no loopholes or areas in which people can hide in the shadows, which might happen if we rushed it. We want to ensure that public means public. I therefore urge the hon. Gentleman to withdraw his new clause.

Tristram Hunt (Labour, Stoke-on-Trent Central)

I thank the Minister for his response. I understand that such a register throws up legal complexities and matters to do with the interrelationship between the English property market and legal system and the Scottish and Welsh ones. That is why it should be a UK-wide process. I am willing to admit that six months might seem a little aggressive in terms of the full publication of the register. The Minister said “in due course” and “as soon as possible”. On Report, perhaps he will give us slightly greater clarity about the commitment with which the Government are approaching the register. I very much welcome his enthusiasm. On that basis, I beg to ask leave to withdraw the motion.

Failure to prevent facilitation of tax evasion offences: exclusion from public procurement

Tristram Hunt (Labour, Stoke-on-Trent Central)

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

The new clause builds on new clause 6, which we looked at earlier. Exclusion is the key means of incentivising good corporate governance. The threat of exclusion from public procurement is known to be one that companies fear more than fines. Making the new offences subject to exclusion would ensure that companies take preventing such offences seriously. The UK’s anti-corruption summit committed to excluding corrupt bidders from public procurement contracts, so it is important that companies that facilitate tax evasion are similarly excluded.

Under the Public Contract Regulations 2015, public authorities must exclude companies found to be in breach of their obligations related to the payment of taxes. Unless the Bill specifies whether the new offences under clauses 37 and 38 will constitute such a breach, the Crown Commercial Service, which is often narrow in its approach, is unlikely to consider that they do. The purpose of the new clause therefore is to urge Ministers to ensure that the Crown Commercial Service understands there to be a breach in that context.

Ben Wallace (Conservative, Wyre and Preston North)

I am grateful to the hon. Gentleman for tabling his new clause because it allows us to cover another important element of the tax evasion offence we debated earlier. I also thank him for meeting me to discuss those proposals.

New clause 15 would create mandatory exclusion from public contracts of a relevant body convicted of an offence under part 3 of the Bill. I fully agree that, where an organisation has been convicted under the new offences and grave professional misconduct has taken place, it should be possible to exclude that organisation from public contracts.

I am pleased to say that existing law already allows for that by virtue of the Public Contracts Regulations 2015, which allow for the exclusion of a body from a public contract

“where the contracting authority can demonstrate by appropriate means that the economic operator is guilty of grave professional misconduct, which renders its integrity questionable”.

That is quite a low threshold if you ask me; nevertheless, it allows us to do it. I know the hon. Gentleman will be interested in this part, because it is a European angle to his proposal. I am advised that it is not possible lawfully to include a new mandatory exclusion under regulation 57, as proposed by the amendment. Regulation 57 contains a list of offences based on the six categories set out in the EU public contracts directive. The categories outlined in the directive are exhaustive. Case law indicates that member states are not free to add new additional grounds for exclusion to those set out in the directive.

Peter Dowd (Labour, Bootle)

Not yet.

Ben Wallace (Conservative, Wyre and Preston North)

I hope the Committee is satisfied that, where there has been grave professional misconduct by an organisation convicted under the new offences, contracting authorities will have the discretion to exclude them from public contracts.

Tristram Hunt (Labour, Stoke-on-Trent Central)

I thank the Minister for his answer. As my hon. Friend the Member for Bootle quietly alluded, this might be something we will have to look at again amid the welter of opportunities—count them!—thrown up by Brexit. [Hon. Members: “Hear, hear!”]

As a result of European regulations, I am willing to accept the Minister’s point. On Report, will he say whether we could have included in the statistical bulletins on unexplained wealth orders and other elements of the Bill an account of any corporations excluded from public procurement as a result? Is there a statistical account of whether any companies have fallen foul of the measure? Could we gain some account of that?

Ben Wallace (Conservative, Wyre and Preston North)

I am grateful for the hon. Gentleman’s idea, which I think is a good one. I will certainly try to ensure it is released in any statistical bulletins. When the Bill is up and running, I would like to know as much as he would how many people are precluded from public procurement practices.

Tristram Hunt (Labour, Stoke-on-Trent Central)

I thank the Minister. On that basis, I beg to ask leave to withdraw the motion.

Failure to prevent facilitation of tax evasion offences: reporting

Tristram Hunt (Labour, Stoke-on-Trent Central)

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

The new clause would

“require the Secretary of State reports annually on the number of prosecutions brought and convictions made for failure to prevent the facilitation of UK and foreign tax evasion offences.”

That is connected to an earlier new clause about culture change within Government to ensure the right degree of ministerial push and importance given to the implementation of the Bill, and to ensure that attention is given at the top of the Home Office and in ministerial offices, which is something a report to Parliament encourages. The fear that I and some of my colleagues have is that, if that detail is hidden away in obscure departmental documents, it does not necessarily have the drive and political push it deserves. The new clause is therefore another attempt to support the Minister in his job, and to encourage proper transparency about this interesting and in many ways useful Bill.

Ben Wallace (Conservative, Wyre and Preston North)

I do not want to look ungrateful to the hon. Member who is, as he says, trying to help me enhance the Bill and do my job. I am incredibly grateful for all the suggestions from hon. Members over the last few weeks.

Nicholas Dakin (Labour, Scunthorpe)

Wonderful.

Ben Wallace (Conservative, Wyre and Preston North)

I am not that grateful.

New clause 16 would require the Secretary of State to report annually to Parliament on the number of prosecutions brought and the number of convictions made under the new corporate offences. Under the domestic tax evasion offence, HMRC will be the investigating authority and the decision on whether to prosecute will rest with the Crown Prosecution Service. In relation to the overseas offence, the Serious Fraud Office and the National Crime Agency will be the investigating authorities and the decision to prosecute will rest with the SFO or the CPS.

It is important to emphasise that, as with the corresponding offence under the Bribery Act 2010, the number of prosecutions alone will not be a true metric of the level of success of the measure. The new corporate offences are not only about responding to wrongdoing but about changing corporate culture and behaviour. True success will lie in changing corporate culture and preventing wrongdoing from occurring in the first place.

In any case, all of the prosecuting authorities already undertake extensive public reporting on investigations and prosecutions. For example, HMRC publishes quarterly performance updates and the CPS publishes an annual report. Neither of those documents are obscure—they are weighty but not obscure. I can confirm that information relating to the new offences will be included in those existing formats. Accordingly, I invite the hon. Member for Stoke-on-Trent Central to withdraw his new clause.

Tristram Hunt (Labour, Stoke-on-Trent Central)

I will not detain the Committee with an inquiry into the difference between “weighty” and “obscure”; these things can often be lost in the mists of time. As we did not quite generate the success that we needed to on new clause 11, I will not put the measure to a Division. However, I urge the Minister to ensure that, having created this interesting Bill and having delivered these interesting reforms, if the reforms are going to be put to proper effect and have the political momentum—a terrifying word—behind them, then a degree of political transparency and support connected to Parliament is important. On that basis, I beg to ask leave to withdraw the clause.

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

Roger Mullin (Scottish National Party, Kirkcaldy and Cowdenbeath)

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

Roger Mullin (Scottish National Party, Kirkcaldy and Cowdenbeath)

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.

Ben Wallace (Conservative, Wyre and Preston North)

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.

Roger Mullin (Scottish National Party, Kirkcaldy and Cowdenbeath)

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.

Ben Wallace (Conservative, Wyre and Preston North)

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.

Roger Mullin (Scottish National Party, Kirkcaldy and Cowdenbeath)

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.

Recovery orders: repatriation

Rupa Huq (Labour, Ealing Central and Acton)

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

The new clause would place a duty on the Secretary of State—and the enforcement agencies vested with the power to do so—to receive recovered property under the Proceeds of Crime Act 2002, and to repatriate recovered property where a court is satisfied that the property or the value of the property was begotten by illicit means. I hinted at the issue this morning. The clause builds on former Prime Minister David Cameron’s global forum for asset recovery, which came about after the anti-corruption summit of May 2016. We Opposition Members commend him for that. How he is missed. We have seen the forum begin to bear fruit, with the Government having signed a memorandum of understanding with Nigeria last September. There has clearly been limited progress on repatriation, but the Crown Prosecution Service’s most recent asset recovery strategy laments the low take-up of mutual legal assistance requests:

“Since London is a global centre for finance, there are a large number of criminal proceeds deposited in its financial institutions. Despite this, historically the CPS has not received a high volume of incoming MLA requests for the restraint and recovery of assets.”

Many of the people from the charitable sector who gave evidence worry that, at the end of the process, little will go back to those communities and third-world economies.

The Minister said on Second Reading, in relation to repatriating illicit wealth, that

“It is important to note that we are already doing this. In November 2015, the UK returned £28 million to Macau, which were the proceeds of corruption laundered in the UK. That is a concrete example of our giving back money to those countries that have been robbed by crooks who have used Britain to launder the money or to make the money in its jurisdiction. I want to see more of that and to see it go further.”—[Official Report, 25 October 2016; Vol. 616, c. 198.]

Through this new clause, we seek to help him with that process. He has made a clear commitment to seeing repatriation go further, and to ensuring that there is more of it. The CPS has also stated that mutual legal assistance is seriously underused, and that massive sums of illicit wealth are simply not subject to such requests and are therefore not being repatriated.

The new clause would not obstruct the Minister or the Government in their desire to see greater repatriation of illicit wealth. In fact, it would aid the Government in realising their aims. The new clause seeks to provide a different avenue from mutual legal assistance for repatriating illicit wealth, and it has a number of in-built safeguards to ensure that the UK repatriates such wealth to deserving countries, as well as safeguarding against the UK’s time being wasted.

Although the new clause is substantial in scope and takes up a number of pages in the amendment paper, we are not trying to cause an argument for argument’s sake. A precedent for repatriating wealth has been set, and the Committee has heard an example. The new clause would streamline the process, and I hope that the Government will take that in good faith; the new clause is technical, rather than political.

This is how we envisage the new clause working: where a court is satisfied that property is recoverable and issues a recovery order, and where it is also satisfied that the property was acquired with wealth illicitly obtained abroad, it may instruct a receiving enforcement agency to take steps towards repatriating that wealth upon the property being initially recovered. We term that a “repatriation order”—that is snappy.

Once such an order has been made, the Secretary of State would request co-operation and assistance in the repatriation process from a representative of the Government of the country of origin. The Secretary of State would then be free to enter into consultation with any other relevant third party. After that initial contact, an agreement would be reached with the aforementioned actors on how the value of the property would be used on repatriation.

The purpose of the measure is international development. In the new clause, proposed new section 266A(3)(a) of the Proceeds of Crime Act 2002 states that

“wherever possible the property repatriated will be used in a manner that will contribute to the implementation of Sustainable Development Goal 16”,

or the repatriated property will benefit the victims of the crime, or it will be used for its original purpose. The Government have some flexibility and room for discretion in the phrase “wherever possible”. Proposed subsection (4) contains a list of definitions.

There are two obvious questions: what are the conditions by which the property will be repatriated, and how will this large-scale, cross-jurisdictional activity be funded? To answer the first question, if a court is satisfied that on the balance of probabilities, the property or value of the property, if repatriated, would be put to a use that would violate the Human Rights Act 1998, the UK would have the right to retain the entirety of the property and its value, and no repatriation order would be issued.

Secondly, if a court was satisfied that on the balance of probabilities, a politically exposed person or group of PEPs would subject the property or value of the property to illicit financial activity, the UK would retain the property or its value, and no repatriation order would be issued. If the court was satisfied that on the balance of probabilities, the property or its value, if repatriated, would not be put to use for the purposes agreed by the Secretary of State and the country of origin, yet again, the UK would retain the entire value of the property, and the repatriation order would be rescinded.

Finally, proposed new subsections (6) and (7) stipulate that the UK will retain the total value of the property if the Secretary of State has taken all the necessary steps to aid the country of origin in working towards the provisions set down in proposed new subsection 3(a), but the other state has been unco-operative. That is meant to be the basis of the new clause. As for the timescales, they are in proposed new subsections (9) to (14).

Proposed new subsection 8 is a last-chance saloon for an unco-operative state that receives a repatriation order. Lots of conditions must be satisfied first. It simply affords the courts the chance to grant the Secretary of State the discretion to work towards an agreement by which a non-state actor may distribute the property or its value in the country of origin, provided that the distribution would not violate proposed new subsections 3(a) and (b).

On funding, the new clause would basically pay for itself. It is common practice for the UK to retain some of the value of any property that it repatriates to another country. I see no reason why that should change, and the new clause does not argue that it should. We acknowledge that there are states that are hugely corrupt—I think “fantastically corrupt” were David Cameron’s words —that routinely violate human rights agreements, and that engage in behaviour that would be deemed illegal here. In such instances, it is only fair that the UK retains the value and puts it to good use.

There is a third dimension to the new clause: it provides the UK with soft power to influence other states, to ensure that the UK does not stand idly by where there is corruption and systemic human rights violations. Nor can it be even remotely complicit by returning value to countries if it could be used for untoward purposes. I am open to questions from the Minister and tweaks to the clause, but I hope that he will agree that the principle is a good one.

Ben Wallace (Conservative, Wyre and Preston North)

First, I think that we all support what we are trying to do: returning money that we take off the bad guys to whomever it belongs to. If that is not possible—I used the example earlier of a criminal enterprise whose wealth was created by drug dealers, rather than by ripping off a state or somebody else’s assets—we return it to the prosecution authorities to ensure that they can continue.

Significantly, in the past, we have seen money paid back in cases of grand corruption. The UK is party to the UN convention against corruption, article 57 of which clearly requires embezzled funds to be paid back to the victim state, so we are already obliged under international law to do that. We must do that, and it is what we want to do. The £28 million returned to Macau that the hon. Lady and I both mentioned fell under the auspices of that convention. As we are subject to international law, there is no requirement to put such provisions in our domestic legislation. Nothing in our law prevents us from returning recovered assets.

Sharing and repatriating assets in asset recovery cases is a fast-developing issue in international law, and it is something that the UK fully supports. For example, there is a requirement, under the EU framework decision on the mutual recognition of confiscation orders, that at least 50% of assets recovered on behalf of another member be sent back to that state. The UK can return assets to any country, and where underpinning international agreements are required, we enthusiastically pursue them. For example, we recently concluded an asset-sharing agreement with Nigeria, under the formal title I referred to earlier.

This helpful debate on the Opposition’s new clause has allowed us to put these points on the record, but I trust that the Opposition will agree that there is no need for further primary legislation. Asset return happens anyway, with my full support and encouragement. Indeed, strict requirements in an Act could restrict our flexibility and make it harder to obtain effective asset-return agreements tailored to the peculiarities of individual cases. I am aware of a number of cases in which another country’s Government members have requested that we effectively co-return assets for certain projects, for fear of them disappearing into other parts of that Government that are corrupt. That type of flexibility is important to make sure that moneys returned do indeed get to the right place, rather than going back to the same place, and the same individual turning the assets of crime back into another townhouse in London.

That flexibility is really important, and while I cannot bind any successor Government, it would be odd if any Government chose to say, “No, thank you, we are going to keep everything, break our international law obligations, and upset a number of countries around the world by just pocketing this for ourselves.” It is not what we have done in the past, and it is not what we will do in the future. I urge the hon. Member for Ealing Central and Acton to look to our obligations under international law; I hope that that will satisfy her that we do not need more restrictive primary legislation on this issue.

Rupa Huq (Labour, Ealing Central and Acton)

I listened carefully to the Minister. The 14 subsections in new clause 20 have a set of in-built checks and balances, and I know that the development charities would be disappointed if the new clause was not in the Bill. I accept, as I said, that things are being done on this front—the Macau example is a very good one—but as I understand it, the Minister says that there is no need for the new clause because there are international agreements. He mentioned the EU framework; the first money laundering directive also came from the EU, and we are leaving the EU, so I think it is no bad thing to put our own defence in the Bill, if only for ourselves. We would like to put the new clause to a vote.

Public registers of beneficial ownership of companies registered in Crown dependencies and overseas territories

Rupa Huq (Labour, Ealing Central and Acton)

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

We discussed this subject this morning in connection with clause 38. The new clause would make it incumbent on the Secretary of State to do all that she can to ensure that there are public registers of beneficial ownership in the UK’s overseas territories and Crown dependencies for companies operating and registered in their jurisdictions.

Proposed new subsections (2) to (5) delineate the steps that the Secretary of State would take to ensure that such registers were adopted. Proposed new subsection (3) states that those territories that failed to do so by a specific time would be subject to an Order in Council. I know what was said this morning, but there is precedent for that; I could go through a whole list of examples, but I will not bore the Committee with that quite yet.

The Government have created a Bill with the express intention of stamping out financial crime and clearing up the UK and London’s image. We quite rightly no longer wish to be seen as a country that is a soft touch, or as a City where dirty money can be hidden. To me and others, it is therefore astounding that there is no mention at all of the UK’s overseas territories and Crown dependencies in the Bill.

Thanks to the Panama papers, we and the rest of the world know that the UK overseas territories and Crown dependencies facilitate corruption, money laundering and tax evasion on a global scale. I am sure that the Minister is sick to death of hearing about the issue—we heard about it so many times in the evidence, and pretty much in every speech on Second Reading, with both Government and Opposition Members mentioning it—but I am afraid to say that the public are also sick of hearing about the double standards that exist for the politicians and wealthy elite who do not pay their taxes.

Opinion polling and recent research has shown that more than eight in 10 people think that it is morally wrong for businesses to avoid paying tax, even if that is legal or looks like, prima facie, a victimless crime. Only 20% of people think that any political party has done enough, and 77% think that the Government should be doing more to ensure that companies stop tax-dodging; among leave voters, that figure rises to 83%. More than two thirds of people want the Government to insist on public registers of beneficial ownership in the overseas territories and Crown dependencies. Again, there are a whole alphabet soup of different organisations and charities involved. This is all according to ComRes polling done on the issue for Oxfam and Christian Aid.

The issue will continue to reappear until the Government start listening to the people, finally step in and, if needs be, compel overseas territories to toe the line. None of us wants overseas territories to have registers forced on them, so we would be delighted if they did something. Christian Aid suggested a timeline, a set of goals being put in place to make something happen, because nothing will happen overnight; those jurisdictions are used to propping up tax evasion, so they will not fall into line quickly. A set of dates and objectives, however, would be extremely helpful.

We have already heard today about how overseas territories and Crown dependencies are making progress, but it is not swift enough. They have had three years, but nothing has happened. Under the former Prime Minister, they were first asked to take action three years ago, but not one of them bothered to consult on that request. The ones that responded to it largely said a simple no to the supposed consultations. In April 2014, they were asked again to do so in a letter from the former Prime Minister, but only one, Montserrat, committed to adopting a public register. The worst offenders, however, the ones that facilitate the stealing of wealth from developing countries and so in effect harbour blood money —the British Virgin Islands and the Cayman Islands—ignored the Foreign and Commonwealth Office’s request to meet and discuss the issue. I tried to ask about that this morning, but did not get a proper answer.

At every step of the way, the overseas territories and Crown dependencies have sought to frustrate any real progress. I did not mention any particular ones by name in my speech on Second Reading, but I had a really snotty, or not very friendly, letter from the Isle of Man, basically saying, “How very dare you. You don’t understand any of this.”

The Library brief on beneficial ownership cites a Minister who said:

“We have made huge progress in ensuring that we have registers of beneficial ownership in the overseas territories…The progress that has been made in the overseas territories is the greatest under any Government in history, which perhaps is one reason Transparency International said that the summit had been a good day for anti-corruption.”—[Official Report, 15 June 2016; Vol. 611, c. 1745.]

However, the brief also states:

“Given that some of the Crown Dependencies and British Overseas Territories have already…said very firmly that they will not be creating public registers, it seems likely that any further negotiation towards such registers will not be easy.”

That is an impartial brief. Transparency International recognises that some people are setting their faces against this.

Ben Wallace (Conservative, Wyre and Preston North)

That’s me!

Rupa Huq (Labour, Ealing Central and Acton)

Yes. The Minister was quoted in the Jersey States Assembly in a question about the fact that

“the U.K. Government hopes the Crown Dependencies might have made their Registers of Beneficial Ownership of Companies public by the end of this year, or into next year.”

The Deputy asked whether the Chief Minister would

“advise what discussions he has had”

and what steps were being taken to put in place the good work that the Minister has mentioned. The following answer came back:

“The U.K. Government accepts, and has accepted in conversations with us, that our approach meets the policy aims that they are trying to meet and international bodies, standard setters and reviewers, have acknowledged that our approach is a leading approach and is superior to some other approaches taken.”

The answer is quite long, and I will bore people if I read it all out, but in essence it was, “We’re doing enough, and we’ve been told that it’s fine.” That is quite scandalous. A supplementary question was also asked. The Chief Minister of Jersey has said, “We’re doing what we’re doing, and it’s enough.” That does not go far enough. As long as such countries can get away with that, they will do that. There is a race to the bottom. They are all saying, “We don’t have to do it; no one else is doing it.”

As I am sure the Minister knows, Orders in Council have been made over the years in relation to different things. One was made in 1991 to abolish capital punishment for the crime of murder in the Caribbean territories of Anguilla, the British Virgin Islands, the Cayman Islands, Montserrat and the Turks and Caicos Islands. In 2009, the UK Government suspended the ministerial Government and the House of Assembly of the Turks and Caicos Islands. The Government basically went in to run the thing: direct rule from London was imposed, despite opposition and criticism. There is a longer list of examples. That has been done before. It seems from the Chief Minister’s answer that Jersey thinks it can get away with it. Could we perhaps set a date of, say, 2020 and say that if it has not published entirely public registers of beneficial ownership by then, we will presume that all money coming through is dirty, or something like that? That may concentrate minds.

I could go on and on about the new clause, but I was told to be brief this afternoon, so I will end there for now. I am curious to hear the Minister’s response.

Richard Arkless (Scottish National Party, Dumfries and Galloway)

The SNP generally supports that proposition—we would prefer that Crown dependencies and overseas territories held publicly available registers of beneficial ownership—but to further a point that I made earlier, as the Scottish National party, we are obviously reluctant to compel this place in primary legislation to legislate for jurisdictions where it perhaps does not have locus. Proposed new section 2AA(5) in new clause 5 highlights the constitutional quagmire that that would put this place in. It states that this place would

“take all reasonable steps to support the Crown Dependencies to consent”.

Are we going to try to persuade them to consent? I do not quite understand what that subsection is getting at. If we have jurisdiction, we have jurisdiction; if we do not have jurisdiction, we simply do not have jurisdiction.

In conversations that I have had with the Jersey authorities—I have forthcoming conversations with the Isle of Man authorities, which sent me a similar letter, although I perhaps would not describe it in such terms—they have been at pains to stress that this place does not have competency to make such legislative provisions. I am minded to agree, even though I think it would be a good idea if they did, under their own steam, make those public registers available. Our position is that we support the proposition in principle, but we do not see that this new clause is competent, given the jurisdictional capabilities of this place over the Crown dependencies.

Roger Mullin (Scottish National Party, Kirkcaldy and Cowdenbeath)

The SNP has been very supportive of everything today, but I have to say that for the past year and a half I have been having discussions with the Isle of Man authorities, including with the First Minister there, and I have found them genuinely willing to engage in discussions. I think that the language used about the Isle of Man was unfortunate.

Ben Wallace (Conservative, Wyre and Preston North)

As the hon. Lady rightly says, this subject has been raised significantly, both on Second Reading and elsewhere. New clause 21 would set a legislative timetable for the UK Government to ensure that overseas territories have a public register of beneficial ownership, and to work with Crown dependencies to achieve the same outcome. There is considerable interest in this specific issue and I am pleased that this amendment allows us to debate it. I understand where the Opposition are coming from and appreciate the desire for these jurisdictions to have publicly accessible registers of beneficial ownership information—David Cameron made this an ambition in 2015. I would be grateful if the hon. Lady clarified why she chooses to treat Crown dependencies differently from overseas territories when it comes to some of the measures; that would be helpful to all Members.

While the overseas territories and Crown dependencies are separate jurisdictions with their own democratically elected Governments, and are responsible for their own economic diversification and fiscal matters, we have been working with them on their role on company transparency. If public registers emerge as a new global standard, the UK Government would expect all relevant jurisdictions to meet that standard. However, it would be wrong to say that, in the absence of public registers, no efforts have been made to increase corporate transparency and tackle tax evasion and corruption. The Crown dependencies and those overseas territories with financial centres are already taking a number of important steps on beneficial ownership and tax transparency, which will put them well ahead of most jurisdictions. This includes some of our G20 partners and other major corporate and financial centres, including some states in the United States. These measures will prevent criminals from hiding behind anonymous shell companies and mark a significant increase in the ability of UK law enforcement authorities to investigate bribery and corruption, money laundering and tax evasion.

I asked officials whether there has ever been an example of our imposing legislation on the Crown dependencies. As far as we can find out, in recent history there has never been an example of our imposing legislation on Crown dependencies without their consent. That is important—we have not gone around imposing our will on Crown dependencies as we see fit. Where we have done so on overseas territories, it has been on very strong moral issues such as capital punishment. Both in Crown dependencies and overseas territories, people have moved quite significantly and, I have to say to the hon. Lady, far more significantly that in 13 years of a Labour Government. We cannot sit here and ignore the elephant in the room.

Under our Government. we now have a position where the debate in this room is about the word “public” and whether registers are going to be public. It is not about whether these islands and other places will have a central register of beneficial ownership. By next year, they will either have a direct central register or linked registers and that is 90% of the way. By the way, our law enforcement agencies will have automatic access to that information.

The best thing, in my view, would be to say, “Yes, we know what David Cameron’s intention was in 2015 when he made that statement; yes, the United Kingdom pretty much leads the world in making our register public for the whole of the United Kingdom”, but also to say, “Let us revisit this once we get the Bill through, once we see whether our law enforcement agencies can use that access to prosecute, deter, change culture and show the way forward.” If that is not happening, of course we can have these debates again, but we should recognise that a lot of those countries have moved without our imposing our will on them, and we are hopefully giving access to our National Crime Agency and HMRC—all the things that we struggled to get for very many years. Let us see where that journey takes us. Our intention is clear. We pretty much lead the world in this. I urge hon. Members to recognise that we are going a long way.

Richard Arkless (Scottish National Party, Dumfries and Galloway)

The Minister will forgive me if I am wrong, but he has only outlined the position and the progress made by the Crown dependencies in having registers and information sharing. Will he elaborate on the overseas territories or did I miss something?

Ben Wallace (Conservative, Wyre and Preston North)

I am grateful to the hon. Gentleman for pointing that out. I meant and/or the overseas territories. The full house will, hopefully by next year, have those registers in place with automatic sharing enabled for our law enforcement agencies, and vice versa—should someone choose to use our country to hide tax from those other countries, their law enforcement agencies will be able to have it.

What I notice about all this is that the world is changing. Transparency is in the ascendancy, secrecy is not. Whether these places are overseas territories or other countries that are nothing to do with the United Kingdom, it is not secrecy that makes them competitive or attractive, but the tax rates and surrounding regulations. That is generational change. Yes, there will be people who wish to hide their wealth for all the wrong reasons, but we are now in a position where our agencies and bodies of law and order will be able to access those areas. They will not have to rely on leaks or third-hand information.

I would not be surprised if, in five or 10 years, we are talking about entirely different countries around the world, maybe even countries that we might think would not be harder to access, but actually are. Those countries might have a more developed legal system and a more protective privacy system that makes it harder for our forces of law and order to get hold of data. I certainly think that these places have come 90% of the way, and we should see whether that works for us. We all have the intention and the United Kingdom is leading by example.

The new clause is a very strong measure. We should not impose our will on the overseas territories and Crown dependencies when they have come so far. Irrespective of the point raised by the hon. Member for Ealing Central and Acton about their attitude and about whether they were pushed or forced, they were not pushed there by a gunboat. It is important to recognise that we have got where we have through cajoling, working together and peer group pressure, which, after all, makes a real difference. Therefore, I urge the hon. Lady to withdraw the new clause.

Rupa Huq (Labour, Ealing Central and Acton)

It is not good enough to say that we just have to pat ourselves on the back and that everything is fine. I am a bit disappointed with the Minister for trotting out that thing about 13 years of Labour. What did Labour do? We passed the Proceeds of Crime Act 2002, which the Bill amends; the Serious Organised Crime and Police Act 2005; the Bribery Act 2010, section 7 of which we discussed so much this morning; and the Money Laundering Regulations 2007. We created the Serious Organised Crime Agency to ensure a single, intelligence-led response to organised crime.

Ben Wallace (Conservative, Wyre and Preston North)

Will the hon. Lady give way?

Rupa Huq (Labour, Ealing Central and Acton)

Let me finish this list. We also passed the Terrorism Act 2000, part 3 of which we have been amending here, as well as part 2 of the Anti-terrorism, Crime and Security Act 2001—legislation to deal with all these things that we have been talking about, such as terrorist funding. It is a bit low of the Minister to trot out that one about 13 years of Labour. We have been consensual and friendly all the way through this Committee, saying what good legislation this is, so that is a bit tawdry. [Interruption.]

Ben Wallace (Conservative, Wyre and Preston North)

We could say that that is a whole list of missed opportunities for Labour to impose its will on the Crown dependencies. The point is that this takes time. I do not expect Labour to rustle up a perfect, tax-transparent solution to the problem; I did not expect Labour to do it in 13 years, and it is unreasonable to say suddenly, “We are going to impose it in the Bill.” There has been a direction of travel all the way through the last decade and a half. This has been about building a slow but thorough process to make sure that we got to where we are. We will be back again on economic crime and reviews of regulators, and to build on some of these issues.

I am not making the party political point that Labour did not do anything for 13 years. My point is that these things are easier said than done. Labour had plenty of opportunities to do them, but did not, and I respect the reasons for that. Labour did not do these things, not because it could not be bothered, but because it felt it had to build a foundation of recovering assets from crimes. Once the foundation was built, Labour moved to elements of the Bribery Act 2010, and to all the other parts of the law, so that we have ended up where we are. We can go on to build on that. That was my point. I do not need to make cheap party political points; I need to make the point that these things are easier said than done, and we have all come a long way.

Rupa Huq (Labour, Ealing Central and Acton)

I respect the Minister and I know that he is a reasonable person, but six years into government, he is dragging up the record of a previous Government. I would like to pass on to him the Hansard of the States of Jersey legislature. In it, the question was asked:

“Can the Chief Minister confirm that this is not something that, from Jersey’s perspective, is immediately on the cards”

or is

“the Minister for Security in the UK”—

that is the Minister opposite me—

“under a misunderstanding of what direction the Crown Dependencies are going in?”

The answer from Senator Gorst, from the governing party in Jersey, was as follows:

“they have decided that the best approach for them is a public register. Of course, they are asking others around the world to consider following their approach. We take the approach which meets the international standard which is, as far as we are concerned, a leading approach.”

Judging from that, Jersey has no plans to have a public register until it becomes the international standard.

Minor and consequential amendments

Ben Wallace (Conservative, Wyre and Preston North)

The remaining clauses in part 4 are relatively technical and straightforward. I am tempted to sit down after saying that. They are also similar to other pieces of legislation, so I will not delay us much longer, beyond highlighting a few points.

Clause 46 allows the Secretary of State to make by regulation such provision as they consider necessary in consequence of this Bill. Clause 47 sets out the procedural requirement for making regulations in respect of the devolved Administrations, while clause 49 covers the Bill’s territorial extent. Most of the Bill extends to England, Wales, Scotland and Northern Ireland. As I stated on Second Reading, we expect the Scottish Government and the Northern Ireland Executive to seek legislative consent motions from their legislatures; I welcome that, and support them in doing so. I am grateful for our constructive and ongoing engagement with the devolved Administrations.

Minor and Consequential Amendments

Extent

Commencement

Rupa Huq (Labour, Ealing Central and Acton)

It has been a pleasure to serve under your chairmanship, Mrs Main, and that of Sir Alan Meale in the earlier sittings. I commend the Minister on the Bill. We can all sleep safely in our beds because of it. I am fortunate that my first Front-Bench service has been with such a nice Minister. I look forward to working constructively with the Government on Report—even if there were some tiny things. However, let us not raise those.

Richard Arkless (Scottish National Party, Dumfries and Galloway)

I add my thanks to you, Mrs Main, and congratulate you on your splendid chairing today. We got through the Bill at a rate of knots, and like other Members, I am delighted to be leaving before 3.30 pm, thanks to you. I do not wish to inflate the ego of the Minister any further, given the compliments that he has had from all sides. Suffice it to say that with the second name Wallace, I wonder what happened.

There is a great deal of cross-party consensus about the objectives of the Bill. It is about making sure that the bad guys, who elicit huge sums of money from criminal activity, have nowhere to hide. We are all focused on that goal, and we will all come together to make sure that that happens. If we can achieve that—subsequent, obviously, to lengthy conversations that we still have to have on a few points, and I am sure that the Minister will treat those conversations as he has done others throughout the Bill process—then I am sure that we can get to a position that will satisfy us, if not in this primary legislation on Report, then certainly within the contemplation of Government in future. That is certainly our objective. Unlike my more experienced colleague, my hon. Friend the Member for Kirkcaldy and Cowdenbeath, who has been an MP for the same amount of time as me, this is my first Bill Committee. It has not been the most contentious in the world, which I suppose I should be grateful for, but I look forward to the other stages on the Floor of the House, and I thank all Members.

Written evidence reported to the House