AML supervision and beneficial ownership registers probed by peers

The House of Lords has spent two days debating the committee stage of the Criminal Finances Bill.

The Criminal Finances Bill includes new corporate offences of domestic and foreign failure to prevent tax evasion, as well as legislation on money laundering and related issues. A large number of government amendments were passed to the Bill (though none fundamentally altering its character) but no opposition or backbench amendments were passed (indeed none were pressed to the vote).

Committee stage day one - 28th March

A large number of government amendments were passed relating to unexplained wealth orders (UWOs). 20 of these related to trusts. The minister, Baroness Williams of Trafford, explained that these would “ensure that a UWO can be served in situations where property of interest is held in trust or involves corporate structures… The amendments will also allow subsequent UWOs to be obtained on additional individuals such as trustees in complex cases where this is necessary.” Two further government amendments would reduce the threshold for a UWO to be obtained from £100,000 to £50,000. Another two government amendments introduce a compensation scheme in relation to the interim freezing orders that ​can support a UWO. “Other powers to freeze property in POCA have connected compensation provisions. It is absolutely right that a person who has genuinely suffered a loss should have the ability to seek compensation where there has been serious default on the part of the enforcement agency,” said the minister.

Chapter 2 of Part 1 of the Bill focuses on money laundering and would reform the Suspicious Activities Report regime. A number of government amendments were passed to this chapter which the minister described as “technical and uncontroversial”. These remove ‘further information notices’ from parts of the legislation following the Government’s conclusion that such notices are not required in these situations as the NCA can already request information to be provided voluntarily under existing powers. Other government amendments aim to provide “the legal certainty that firms need if they are to make best use of these [information-sharing] provisions.”

Two opposition peers tabled amendments to require anti-money laundering (AML) supervisory authorities to publish certain information (Baroness Hamwee (Lib Dem)) and require the Secretary of State to lay before Parliament ‘an annual statement on the money laundering supervision regime and any plans the Government has to amend it’ (Lord Rosser (Lab)). The minister responded by updating peers on the ‘significant action’ that the Government are taking to improve the effectiveness of AML regulation by strengthening the obligations on all supervisors through the new Money Laundering Regulations 2017. A consultation on these regulations closed on 12 April. The minister reminded the House that the Government had set out earlier in March their proposals for a new office for professional body AML supervision. “We have also recognised the need for more co-ordination between regulators and supervisors of the regulated sector in relation to tackling money laundering,” she said. “The new office… will therefore work with professional bodies to help, and ensure, compliance with the regulations. The office will be hosted by the FCA and will liaise with other bodies across the regime to discuss and share best practice to help ensure consistent high standards across supervisors - especially where statutory and professional body anti-money laundering supervisors monitor the same sectors - and to strengthen collaboration between professional body anti-money laundering supervisors, statutory supervisors and law enforcement agencies.” The Government will consult on the draft regulations over the summer, and they will be finalised and laid before Parliament in the autumn. The Government expect the office to be fully operational by the start of 2018.

Amendment 71, tabled by Lib Dems Baroness Kramer and Baroness Hamwee, would have created an Office of the Whistleblower for financial institutions, which would cover tax evasion among other things. The minister praised the role of whistleblowers but felt that “the right body to investigate the concerns of a whistleblower is the body that regulates the issue about which concerns are being raised”. Relevant bodies in the financial services sector include the FCA, the Serious Fraud Office and the Financial Reporting Council. The amendment was withdrawn.

Chapter 3 of Part 1 of the Bill relates to civil recovery, including allowing the seizure of money stored in bank accounts and items of personal property. Opposition amendments sought to broaden the scope of the seizure and forfeiture powers so that they could be used to seize any items deemed to be the proceeds of crime. These were not pressed to a vote.

Committee stage day two – 3rd April

Discussion on day two focused on Part 3 of the Bill, which creates an offence of corporate failure to prevent tax evasion.

Amendment 161, tabled by the Liberal Democrats, proposed the Government could create new facilitation offences by regulation (beyond bribery and tax evasion, which are covered in existing and current legislation). Proposing the amendment Baroness Bowles encouraged peers to “look at the whole of the amendment, because there are significant constraints on the SI’s content. First… the new offences “must” have the same safeguards and procedures that the Bill introduces for tax avoidance. Importantly, this will include due diligence defence and provision of guidance concerning procedures for preventing the offence. Secondly, the new offences are not plucked from thin air… [T]hey have to be from the serious crimes listed in the Crime and Courts Act for which deferred prosecution agreements are possible. That list can be added to under that Act, but it will always be for serious crimes. Thirdly, to compensate for the flexibility… each SI should introduce only one offence. The idea here is that each receives individual consideration and scrutiny.”

Lord Leigh of Hurley, declaring his interest as a member of the CIOT, welcomed the new anti-evasion offence, and agreed that the damage caused by economic crime is very serious. However he noted that “this is an extremely complex legal area that could significantly impact on the UK’s financial sector… Therefore, I hope that the Government will bring forward a consultation on possible options for reform following the conclusion of the call for evidence, which I think has just ended or will close shortly. We should wait until that is completed before a decision is made on introducing new legislation.”  Lord Beith (Lib Dem) was wary about the use of a statutory instrument to create further facilitation crimes. Lord Judge (crossbencher) endorsed these concerns. The minister responded that the Government do not believe “that it would be appropriate to extend the failure to prevent offences via secondary legislation, which would not allow for the appropriate level of parliamentary scrutiny of proposals such as this”. The amendment was withdrawn.

Another Lib Dem amendment sought to probe what the legislation meant where it says that the Chancellor “must prepare and publish guidance about procedures that relevant bodies can put in place” to prevent facilitation of tax evasion offences. Baroness Vere of Norbiton, for the Government, asked the Lords to agree “that it is not necessary, and may impose undue burden, to force businesses to have regard to the government guidance. Those businesses which need to put in place prevention procedures and which seek to be compliant will likely already have regard to the government guidance.” Lord Leigh thought the amendment would be onerous to apply to every relevant body. The amendment was withdrawn. A further Lib Dem amendment, seeking to make it possible, following a criminal conviction of a company, for the court to consider whether any directors should be disqualified, was also withdrawn.

A Labour amendment sought to add a new clause which would have required the Secretary of State to publish a report on the number of companies that have been excluded from tendering for public sector contracts, or had an existing contract terminated as a result of being charged with the offence of failing to prevent the facilitation of UK or foreign tax evasion offences. Another Labour amendment sought to bring in a ‘corporate probation order’, in effect, a supervision order imposed by a court on a company convicted of a serious offence in these matters. Two legal peers – Baroness Butler-Sloss and Lord Judge – had doubts about this idea. The minister, Baroness Williams, said that the Government was supportive of the intentions of these amendments, but sought to persuade peers that the proposed amendments were not necessary.

Crossbencher Baroness Stern tabled amendment 167 on public registers of beneficial ownership of companies in the UK’s Overseas Territories. She explained: “It calls for the Government to go further than they currently propose to do in ensuring that all the overseas territories that have financial centres - Anguilla, Bermuda, the British Virgin Islands, the Cayman Islands, Montserrat and the Turks and Caicos - allow public access to registers of beneficial ownership.” Encouraged by proactive briefing by Christian Aid and other NGOs, the amendment was backed by peers from across the parties. As well as backing this call Labour proposed a separate amendment 169 to put a duty on the Secretary of State to provide all reasonable assistance to the Crown dependencies to create public registers of beneficial ownership of companies before the end of 2018. A non-affiliated peer, Lord Eatwell, was concerned that the Labour amendment, which called for information in Crown dependency registers to be “broadly equivalent” to the Companies House register, would result in a major deterioration in the quality of Jersey’s register. “The amendment calls for the replacement of information that is subject to detailed and regular supervisory scrutiny with information that is not verified at all,” he thought. Lord Leigh of Hurley (Conservative) said it was right to aspire to public registers of beneficial ownership for all jurisdictions, but “we will achieve more by working in partnership and collaboration than by forcing legislation - to the extent we can - on independent jurisdictions with their own elected legislatures.”

Responding for the Government, Baroness Williams of Trafford said significant progress had been made with both the overseas ​territories (OTs) and the Crown dependencies (CDs) on implementation by the deadline. For example the British Virgin Islands had already completed the technical construction and testing of its new cloud-based platform and was taking forward engagement with corporate service providers to ensure that data formatting is fully standardised. The Cayman Islands Government had recently passed legislation and Bermuda and Gibraltar were also making progress. The Secretary of State and the Premier or Chief Minister of each OT and CD would undertake a review of the arrangements six months after they come into force - that is, on 31 December 2017 - and further reviews would take place annually thereafter, she said. On the amendments she said that a key feature of the Government’s approach was “that it creates a level playing field between all of the overseas territories with financial centres and the Crown dependencies. By taking a different approach to the Crown dependencies and territories, these amendments risk disrupting this level playing field, creating weaknesses in certain jurisdictions that could be exploited and damaging the spirit of co-operation we have been able to create between them”. The minister noted that the UK was the only G20 country to have established a public register, which has been in operation for less than a year. “The Government have made it very clear that it is the Government’s long-term ambition that publicly accessible registers of beneficial ownership will in time become the global standard. Should this happen, we would expect the overseas territories and Crown dependencies to implement this standard.”

Report stage of the Bill will take place next week in the Lords and is likely to be compressed by the need to get business through before Parliament is prorogued for the general election.

Links to all debates on the Bill can be found here.

George Crozier
CIOT Head of External Relations

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