Criminal Finances Bill clears Commons

Amendments and new clauses tabled for report stage were placed in three groups:

Group 1 - Civil recovery in cases of gross human rights abuses or violations

MPs debated amendments prompted by the case of Sergei Magnitsky. Magnitsky was, the minister explained, a lawyer who tried to blow the whistle on large-scale tax fraud in Russia, and he believed that he would be protected by the law. Unfortunately, he died in state custody in 2009 after suffering both mistreatment and assault, and being denied medical attention.

The Government rejected a cross-party new clause (new clause 1) which it said would go too far but tabled its own ‘compromise’ new clause 7 and two accompanying amendments, which, the minister said, “would widen the definition of “unlawful conduct” in part 5 of the Proceeds of Crime Act 2002 to include torture or “the cruel, inhuman or degrading treatment” of those exposing corruption, or obtaining, exercising, defending or promoting human rights, including in cases where that conduct was not an offence in the jurisdiction in which it took place. That would allow any assets held in the UK that were deemed to be the proceeds of such activity to be recovered under the provisions in part 5.

Group 2 - Unexplained wealth orders, enforcement powers, civil recovery, etc

71 government amendments were passed in this group as well as a new clause and a motion to move a line of the Bill. The new clause (new clause 8) and consequential amendments removed the restriction on HMRC’s criminal powers being used for former revenue functions. “This ring fence arose following the merger of Her Majesty’s Customs and Excise and the Inland Revenue in 2005,” explained the minister for justice, Ben Wallace. “In the intervening period, legislative changes have brought most major taxes within the scope of HMRC’s criminal justice powers, but there remain some anomalies. For example, investigators cannot use certain powers to fight stamp duty tax fraud. Fraud is a crime, regardless of which function of HMRC it is committed against, and the amendments will ensure that the necessary powers are available in all such cases. They do not provide HMRC with any new criminal justice powers.”

16 of the amendments related to the power in clause 9 to allow an extension of the moratorium period in which law enforcement agencies can investigate a ​suspicious activity report before a transaction is allowed to proceed. The minister explained that the amendments would “allow an automatic extension to the moratorium period while a court hearing is awaited to make a decision on an application; they will help to ensure that a company does not provide any information to the customer whose transaction is subject to a suspicious activity report, other than the fact that an SAR has been made; they will allow immigration officers to apply for an extension; and they will allow for an explicit right of appeal in Northern Ireland.”

The majority of the remaining amendments clarify the operation of the seizure and forfeiture powers that the Bill adds to the statute book. For example they will allow the director general of the National Crime Agency to designate the level of senior officer that can authorise the use of certain powers. They will ensure that any interest accrued on forfeited funds while in the agency’s account is returned to the owner of the funds if that person successfully appeals against the forfeiture. Additionally the minister assured the House that the provisions would not be introduced in Northern Ireland until the relevant consents had been obtained, which would mean waiting until after the forthcoming Assembly Elections.

Labour’s response
Speaking to this group of amendments Labour’s Carolyn Harris, a shadow Home Office minister, made broader points, saying that, “amid the Government’s cuts to public services, the Bill could be very difficult to enforce. Although I understand the giving of new powers to HMRC, are the Government not concerned about how HMRC will carry out its new duties?” She attacked ​the government for cutting HMRC’s budget and shutting most of their offices. She also warned about the implied threat to the EU that the Government could change the UK’s economic model into one of a tax haven: “With the potential for a race to the bottom and the destruction of workers’ rights and the slashing of corporation tax, it could be argued that a Brexiteer Government would foster an environment where tax evasion was implicitly encouraged.”

Harris also argued that the Bill “must do more to tackle the deeply entrenched and extraordinarily costly phenomenon of tax avoidance. “Repeated investigations of companies that sail close to the wind but know that they have bought the lawyers and accountants to make their tax abuse legal is both very frustrating and extremely costly. As the UK general anti-abuse rules show, there are ways to minimise the risk of corporate abuse of the tax system, and these should be absorbed into the Bill,” she said.

Harris criticised the UK’s supervision and enforcement of anti-money laundering regulations, comparing the UK’s 22 regulators unfavourably with the single agency responsible in Spain, Canada and Australia. “Worse still, according to Transparency International UK, 15 of these 22 supervisors also lobby on behalf of the interests of their sector, creating clear conflicts of interest and a system inefficient to its core,” added Harris. (Transparency’s 2015 report judged all the main tax and accountancy supervisors, including CIOT and ATT, to fit into this category.) “Unless the Government accept all these concerns and indeed all the changes suggested in the Opposition amendments, the Bill is likely to fail on the intention to clean up money laundering and tax evasion,” Harris claimed.

Group 3 - Facilitation offences, tax offences, money laundering and beneficial ownership

16 new clauses were debated in this group. None had been tabled by the Government and none was passed.

Five of these new clauses sought to extend corporate criminal liability. Conservative backbencher Sir Edward Garnier, a former Solicitor General, explained that they proposed “using the failure to prevent regime, in which, when a company fails to prevent someone or another body associated with it from ​committing a specified offence, it thereby becomes liable for the criminal offence itself.” He noted that this was already in place for bribery and was being put in place in this Bill for tax offences. He was proposing this as a better alternative to the ‘vicarious liability’ principle. His colleague Nigel Mills spoke up in support. Sir Edward ultimately did not press the new clause to the vote citing meetings he had had with the minister and a Ministry of Justice call for evidence on this area.

New clause 6 and 17 related to public registers of beneficial ownerships for the UK’s overseas territories and Crown dependencies (CDOTs). Conservative MP and chartered accountant Nigel Mills explained: “I think that we all welcome the fact that the territories have moved a fair way in agreeing to have registers and reliable information on the beneficial owners of companies operating there... However, that does not go far enough, and we recognise that by saying in new clause 6 that we want a transparent register.” His fellow Conservative, Mark Field, intervened to ask point out ‘the distinction between privacy and secrecy’. “No one wants an entirely secret element, but most people who indulge in banking, whether in an overseas territory or anywhere else, expect a certain amount of privacy. There is no question but that we would expect law enforcement, the police and the tax authorities to have access to these registers,” said Field. The minister said that, where there was a suspicion of tax evasion, as there was with an example Mills had given, it could be investigated if the bank in question had a British nexus. “It is an offence under the Bill to encourage tax evasion, even in another country,” the minister reminded the House.

A number of other MPs also weighed in on new clause 6. Caroline Flint (Labour, Public Accounts Committee member) backed it strongly, accusing ministers of ‘a somewhat disappointing climb-down’ on public registers for overseas territories. Andrew Mitchell (Conservative, former international development secretary) offered tentative support, praising it as an ‘important probing amendment’. Robert Neill (Conservative) sympathised with the aim of new clause 6 but did not think it ‘appropriate or proportionate’. Declaring an interest as the secretary of the all-party group on Gibraltar, he said Gibraltar should not be ‘lumped in’ with other jurisdictions because of (a) its constitution which provides for entire home rule in matters relating to its economy and domestic legislation, and (b) its being part of the EU and being subject to EU standards in the same way as the UK. He also defended Gibraltar’s right not to risk putting itself at a ‘competitive disadvantage’ by adopting a public register. Neill also defended the standards applied by Jersey and other Crown dependencies. Sir Henry Bellingham (Conservative, formerly Foreign Officer Minister responsible for the overseas territories) agreed with Neill that new clause 6 should be rejected. While accepting that ‘public registers across the world makes a lot of sense’ Sir Henry was concerned that “if new clause 6 is passed and territories like the BVI lose their business model, there would be a massive exodus by legal services, accountancy firms, banks and so on. They would have to then rely on tourism, and it could well be that they move back to being dependencies.” Nick Herbert (another Conservative) backed new clause 6, however, describing it as “entirely reasonable, providing a period of time for the overseas territories to comply with the transparency requirement.” Richard Arkless offered SNP support for the new clause. Shadow Home Office minister Rupa Huq gave it Labour frontbench backing, describing the CDOTs as ‘our “tax havens”’. Huq said it appeared that “not only the Government but the SNP… have accepted, or been cowed into believing, that the Crown dependencies are somehow untouchable.” She said she would press Labour’s new clause 17 to a division. Responding on these clauses the minister’s reply was, in short: “We have not abandoned our ambition [for public registers]. We have [just] decided that the way to do it is not to impose our will on overseas territories.” New clause 17 was defeated 301-188 in a division. New clause 6 was not pressed to a vote at this stage but Flint indicated she expected the Lords to pick it up when the Bill gets there.

New clause 10 was proposed by SNP spokesman Roger Mullin and related to his campaign on the opacity of Scottish limited partnerships. He praised the government for listening on SLPs but criticised them for seeking to create “a new form of limited partnership — private fund limited partnerships — not on the Floor of the House, but through a device that is supposed to be used only for non-controversial matters of legislative reform.” He noted with alarm that there are “four areas with which even SLPs have to comply that these new private fund limited partnerships will not. For example, the jurisdiction in which the general partners are registered no longer needs to be divulged.” Responding, the minister said that the committee was reviewing the proposal and whatever it produces would be responded to.

The SNP proposed two other new clauses – one on protection for whistleblowers and one on an inquiry into ‘The Culture of the Banking Industry and Failure to Prevent the Facilitation of Tax Evasion’ (new clause 19). The latter would have required the Secretary of State to “undertake a review into the extent to which banking culture contributed to the failure to prevent the facilitation of tax evasion in the banking sector… [including] how allegations of tax evasion are reported and acted on.” The review would have had to consult with HMRC, interested charities and others, and to set out what steps the UK Government intends to take to ensure that banking culture is not facilitating tax evasion. It was defeated 300-241 in a division.

New clause 13, proposed by the Labour frontbench, would have required the Secretary of State to produce sentencing guidelines for failure to prevent tax evasion offences that would stipulate a maximum financial penalty no greater than the tax evaded. The minister rejected this, saying that “it is the role of Sentencing Council, under the presidency of the Lord Chief Justice, to produce sentencing guidelines. The council has already published a definitive guide of fraud, bribery, and money laundering offences, including a section on corporate offenders. Therefore, while I agree that there is merit in a sentencing guideline for the new corporate offences, it would not be for the Government to produce it. This could undermine the independence of the judiciary.” The new clause was not pressed to a vote.

Third reading debate

The House briefly debated the Bill as a whole. The minister summed up: “This Government have done more than any other to tackle money laundering and terrorist financing, but the scale of the threat is clear and we must do more. This Bill sends the clear message that we will not stand for money laundering or the funding of terrorism through the UK, and I commend it to the House.”

For Labour shadow home secretary Diane Abbott offered broad support for the thrust of the legislation, and welcomed the minister’s listening approach. Perhaps conflating avoidance and evasion, she said that “Tax avoidance and money laundering are the opposite of victimless crimes”. She added: “I was in Ghana last year looking at tax avoidance and evasion, and I was struck by the fact that a woman selling drinks by the side of the road could pay proportionally more tax than some of the biggest drinks manufacturers in the world. These are distorted systems of taxation, and if this legislation can bear down on that type of tax avoidance, it is to be welcomed.” Abbott added that “The Opposition are calling for a wide-ranging review of the UK tax gap, including an assessment of the loss of income tax due to tax evasion.” She urged ministers to ensure “that the legislation amounts to more than just good intentions and that it is actively used to bear down on tax evasion, money laundering and corruption.” (NB. While taking on the facilitation of evasion the Bill does not relate to tax avoidance.)

The report stage and third reading debates can be read here. The Bill is scheduled for second reading debate in the Lords on March 9th.

By George Crozier, CIOT Head of External Relations.