Steve Barclay presents the Treat Me Local petition to Parliament 2

Please see below the full text of the dedicated debate I held in Parliament on Tuesday on the UK’s policy on tackling corruption.

Stephen Barclay (North East Cambridgeshire) (Con): Tonight’s debate on the Government’s approach to tackling corruption is timely for a number of reasons. It builds on the progress and leadership given by the Prime Minister at the G8 and G20. It comes as we anticipate the long-awaited Government report into corruption, which has been delayed for a year but is due out, we understand, later this month. It comes as London is hosting a conference of 14 overseas territories discussing their approach to corruption, and it comes just a day after changes applying to extraction companies on disclosing payments came into legal force.

The debate is not just timely; it is relevant to London specifically. London is home to more than 250 foreign banks, the most of any financial centre. It is the largest currency trading centre in the world, processing 18% of cross-border transactions. In 2013, the then regulator, the Financial Services Authority, estimated that the level of money being laundered through London and the UK was between £23 billion and £57 billion. Indeed, the Home Secretary used the £23 billion figure when she gave a speech to the Royal United Services Institute, which suggests that the Government accept the scale of the challenge. To put those figures into global context, the African Union estimates the cost of corruption in Africa to be $148 billion and the World Bank estimates that up to $1 trillion is paid in bribes. We know this is a serious issue, and that is why it is timely that Parliament should address it.

I want to highlight three broad themes. The first theme is resourcing: how to get investigating corruption right; how we give life to the Government’s plan and some of the challenges they face on the transfer of key personnel to the National Crime Agency. Secondly, how do we improve the policy in terms of industry, so that we move from a quantity approach, particularly on suspicious activity reports, to one based more on quality and targeted at the more serious multi-million pound cases rather than low-value transactions? Thirdly, I want to highlight a number of loopholes in the legislative framework, given that there will be the Second Reading of the Serious Crime Bill in the next week or two.

On resourcing, will the Minister clarify whether colleagues in the Department for International Development have asked for reassurance on key financial investigators moving to the NCA, particularly from the proceeds of crime unit and the City of London anti-corruption units? Is it the case that, to date, only two of the 35 key investigators have agreed to move across? Such expertise takes time to grow. If we are to have a new plan, there is clearly a risk if the experts are not there to implement it. I understand that, in a letter to the Home Secretary on 20 November, the Bond group of non-governmental organisations also highlighted this issue. Given that police officers do not TUPE across and terms and conditions are less favourable, is the Minister confident that the staff will move across? I understand that in the two years that the NCA has had the intelligence unit, not been a single investigation has resulted from that intelligence. We need to tackle the concerns about resourcing.

Will the Minister update the House on the challenges of buying in resource, if that is seen as a short-term fix? The case of Malawi and “cashgate” is a good example. DFID paid for a British firm, Baker Tilly, to provide expert consultancy advice. The scandal is known as “cashgate”, but we have not recovered any cash. Has there been any enforcement? We gave £106 million—a significant amount—in aid to Malawi last year. How much has been spent on the investigation? Is it true that these consultants had no powers to require banks to disclose financial transactions or request intelligence from foreign Governments? If so, what are the constraints on using external consultants in respect of such investigations in the future?

For policy reasons, the Government have decided not to pay for law enforcement out of money recovered from corruption investigations, but given we have fewer than 100 investigators—in the Serious Fraud Office, the proceeds of crime unit and the City of London unit—would that not make sense? It would allow us to conduct more investigations, which would be in the interests of the countries being defrauded.

Will the Serious Crime Bill deal with the evidential test? It appears to be set too high and so acts as a cost disincentive to the bringing of cases, which is compounded by the time scales. Where there is a financial institution with a complex, multi-jurisdictional case, perhaps spanning many years, law enforcement agencies have just 38 days to build a case to the satisfaction of the courts to block a payment. That is clearly insufficient. We could learn lessons from Guernsey and its approach in the Indonesian logging case. We need a mechanism of unexplained wealth orders to allow law enforcement agencies to stop the clock and allow time to investigate. Does the Minister accept that 38 days is wholly inadequate when it comes to building a complex legal case on payments?

On the relationship with industry, the suspicious activity report procedure is based on regulatory compliance, rather than investigation. The industry pays out millions of pounds for document checks on one’s granny in respect of low-value transactions, while serious cases receive little scrutiny. Of the 316,527 serious activity reports filed by banks last year, just 110 were looked at by the proceeds of crime unit. The banks do not want to exit profitable clients and see them go to other firms, so we have this defensive filing of suspicious activity reports, 95% of which are not acted on by law enforcement agencies—they just sit on file for intelligence. It is not cost-effective.
Last Thursday, on the BBC’s “Question Time”, the Chief Whip—the Whip might want to sharpen her pencil—said that Facebook had been aware of intelligence relating to a terrorist attack but had not passed it on. Do the Government know whether the 300,000 or so suspicious activity reports filed by banks include any transfers of funds to people complicit in those attacks? We do not have the mechanism for filtering them effectively. Is that an issue of concern to the Government, particularly in the light of the discussion about Facebook?

We need to shift away from this catch-all defensive policy to one based on targeting high-value corruption cases, and we need to work more in partnership with financial institutions, and combine that with a greater fear factor in respect of money laundering. Does the Minister share my concern that the current consultation relating to the Financial Conduct Authority seems to be repeating past errors? We had a Financial Services Authority report in 2011 that showed problems relating to the money laundering of banks, and two weeks ago we had an FCA report showing again that small banks were failing on money laundering. If we go back to the 1990s, 23 banks were complicit in money laundering, yet no action was taken.

It might surprise the House to know that over the last decade, only two fines appear to have been imposed against individuals for money laundering, the highest of which was for £17,500. How confident is the FCA that, particularly given the number of foreign banks in the UK, we have the right approach to money laundering even today?

Jim Shannon (Strangford) (DUP): I appreciate the opportunity to intervene. The hon. Gentleman refers to money laundering. In Northern Ireland, over some 30 years of a terrorist campaign, it was clear that paramilitaries were involved in it. A wealth of experience was built up by police officers both from the Royal Ulster Constabulary and from the present Police Service of Northern Ireland. If the hon. Gentleman wants to enable more prosecutions for money laundering, does he think it might be a good idea for the Government and the Department to take on some of those officers who have now retired and take advantage of their expertise to bring more prosecutions for money laundering?

Stephen Barclay: The hon. Gentleman makes an interesting point about how we learn from other jurisdictions in other territories. Italy is another example, with its experience of dealing with the mafia. The hon. Gentleman speaks from experience of the challenges within Northern Ireland where there is a great deal of expertise, from which we can learn.

On the fear factor for individuals, the Parliamentary Commission on Banking Standards put forward very good proposals, allowing a reversal of the burden of proof, but it is still the case that money laundering reporting officers are often not seen enough within the organisation and, not being at executive level, they often do not control the budget. That risks repeating past mistakes. Let us look at HSBC and the problems it got into in Mexico. To what extent does the Minister believe that the current regime would ensure that at a group level executives would be liable individually for fines if similar mistakes were made today?

The High Court recently heard with the Nigerian OPL 245 case, which was dealt with by Lady Justice Gloster. It reveals a current impediment that applies to the judiciary, which I would like to draw to the Minister’s attention. In her ruling, Lady Justice Gloster said:

“I find as a fact that, from its incorporation and at all material times, Chief Etete had a sufficient beneficial interest in Malabu”.

She refers to the well-known case of Malabu, a $1 billion oil fraud. One can only look at that judgment, which says that if Etete had the beneficial ownership, he must have had it from the point of origin when he was the Oil Minister of Nigeria. That is where the companies in beneficial ownership sat, having been set up in six days by a lawyer convicted in the French courts of money laundering. Yet Lady Justice Gloster could essentially adjudicate only over the spoils of that corruption. She had no power to do otherwise, because neither of the parties to the case claimed that the funds were corrupt.

To what extent would the new plan put forward by the Government allow the judiciary greater powers where, in its judgment, a case that is being disputed is corrupt? That applies particularly in the arbitration courts, given the lack of transparency often seen in those proceedings.

Of course, non-governmental organisations could act as a friend of the courts in theory, but cost pressures invariably make that very difficult, while the likes of the Proceeds of Crime Act 2002 cannot be used to intervene unless there is a victim. If in this case the Nigerian Government are not of the view that they have been defrauded, very little can be done. We need to look at the way our courts operate in that regard.

Property is another area. It has been suggested that 45% of London properties valued at over £2 million are currently owned by offshore companies. The Prime Minister has taken some positive measures relating to the register of beneficial ownership, but the Minister must realise that that is null and void when it comes to those properties owned by offshore companies.

It is a well-known fact that beneficial ownership is very opaque, especially in the case of shell companies. Estate agents currently have no duties in relation to buyers, and even their duties in relation to the sellers who are their clients usually extend only to the offshore companies with which they are acting, or their lawyers. Would the Minister consider a requirement for beneficial ownership of property worth over £2 million to be disclosed to the Land Registry? She might even want to consider the imposition of a fine on offshore property-owning companies that did not wish to comply with the disclosure requirement—along the lines of those that were introduced as a result of recent banking regulatory changes—with the proceeds going to good causes. That simple measure could be applied over the next 12 months, and could bring a huge amount of transparency to the top end of the property market, where we know that money is being laundered.

Let me now ask some questions about legislation. First, will the Minister update the House on the position of the British overseas territories and Crown dependencies, given the lack of transparency surrounding their plans? Consultations in the British Virgin Islands closed 300 days ago but nothing has been reported, and the same applies to the Cayman Islands. Secondly, it is feared that industry guidance might fetter the effectiveness of new United Kingdom law relating to the transparency of payments to Governments for the extraction industry. A QC’s opinion recently raised concern in that regard. Will the Home Office be making any representations to the Department for Business, Innovation and Skills on the subject?

Thirdly, will the Government make it a condition that the countries to which we give aid comply with the United Nations convention against corruption? In particular, will they provide global leadership in requiring the publication of asset declarations on politically exposed persons? The UN has pressed for that, and I do not understand why we are giving aid to countries without expecting them to comply with the convention. Fourthly, will the United Kingdom introduce administrative orders, such as those introduced by Switzerland and Canada, so that we can rapidly freeze assets in post-revolutionary circumstances?

Let me end by referring to the troubling case of Sergei Magnitsky, about which concern has been raised with the Government by Members in all parts of the House, and on which there appears to have been a woeful lack of progress so far. The Minister will be well aware that the 25-year-old Russian lawyer was tortured to death in a Russian jail. I know that detailed forensic information has been given to the UK Government about British nationals who were complicit in the money laundering linked to his death, and that information has been provided by Hermitage Capital Management, but the UK authorities appear to have taken no action, despite a Back-Bench debate initiated by my hon. Friend the Member for Esher and Walton (Mr Raab), and supported by the hon. Member for Rhondda (Chris Bryant) and many others.

Other Governments have given leadership, notably the United States Congress, but there has been a serious lack of action from the UK Government in relation to the proceeds of the tax fraud that was linked to Magnitsky’s torture and death. What reassurance can the Minister give that there will be a change of gear, and that amendments will be tabled to the Serious Crime Bill to give effect to it?

The Parliamentary Under-Secretary of State for the Home Department (Karen Bradley): I congratulate my hon. Friend the Member for North East Cambridgeshire (Stephen Barclay) on securing the debate. I must be honest: I will endeavour to respond to the many points that he has raised, but, given the time that is available, I suspect that I shall not be able to address them all. Let me reassure him, however, that my officials and I have heard everything that he has said, and I have already asked for a meeting with him to be arranged. I know that he has great expertise and experience in this regard, and I think it would be helpful to sit down with him and explore his comments and their practical implications. The figures he quoted in his speech show just how important it is that the Government tackle this issue, and I was interested to hear his points about the resourcing, having a targeted approach and dealing with loopholes. That offers a good structure to consider this matter by.

This Government recognise that corruption harms society, undermines economic development and threatens democracy. The impact of corruption is disproportionate to the level and the frequency at which it occurs in the United Kingdom, and often has serious ramifications in terms of public confidence across the public and private sectors. I want to make it clear that the Government are totally and absolutely committed to tackling corruption in all its forms. As my hon. Friend highlighted, this Government are doing more than any before to tackle the blight of corruption both here in the UK and around the world. In our serious and organised crime strategy, which we published last year, we set out what the Government are doing to improve our anti-corruption systems and to stop organised criminals using corruption as a tool of their trade, and in our open government partnership national action plan we acknowledged that, although the UK already has good structures and legislation in place, there was more to do to improve our standing at home and better manage our reputation for dealing with corruption and bribery offences overseas.

As part of that work, we committed to publishing a robust cross-Government anti-corruption plan that will bring greater co-ordination and coherence to the work that is already ongoing and the work we plan to take, from preventing corruption in the first instance to taking effective enforcement action when it arises, as well as increasing the protection of the public and private sectors. I am pleased to tell the House that we will publish that plan very shortly.

My hon. Friend is also aware that the Prime Minister recently appointed my right hon. Friend Minister for Business and Enterprise as the Government’s anti-corruption champion, and he and I have been working together across Government to ensure that the commitments set out in our anti-corruption plan are fully implemented and make a real difference to some of the points that my hon. Friend raised tonight.

It is also important to recognise, however, that we have not simply waited to publish a plan before starting work on these important issues. We already have some of the most comprehensive anti-bribery legislation in the world, and were recently recognised as one of only four active enforcers globally by Transparency International, one of the leading non-governmental organisations working in this area. Where we have found gaps in the legislation, such as in relation to police corruption, we have brought forward new measures to address them. My hon. Friend referred to the Serious Crime Bill, which has been through the other place and which will shortly receive its Second Reading here—at some point. In working through that Bill, we will be able to debate again many of the points raised and we will be able to look at how we can tighten our legislative framework as much as possible.

My hon. Friend talked about transparency, which is also a key tool in the fight against corruption, and this Government have put transparency at the heart of our approach to reducing the opportunity for corruption. As my hon. Friend will know, measures are being taken through this House to establish a publicly accessible central register of company beneficial ownership. This will ensure that law enforcement and tax authorities have access to the information that will help them to tackle corruption, tax evasion and the laundering of the proceeds of crime. In my own professional experience before I came to this place as a tax accountant, beneficial ownership was one of those phrases I used on a frequent basis and was a great fan of. It is important to reiterate that the UK made beneficial ownership a cornerstone of our G8 presidency in 2013, so that we can tackle tax evasion and fraud and promote greater transparency of company beneficial ownership.

Despite comprehensive international rules to prevent money laundering being in place, we recognise that some financial institutions failed to comply effectively with the requirements placed upon them, and we are determined to be a global leader in this space by taking forward legislation to ensure UK companies know who ultimately owns and controls them and that this information is made publicly available. I think we can all agree that greater transparency about who owns and controls our companies should make it more difficult to conceal an individual’s involvement in a company, and should act as a deterrent to crime. The points that my hon. Friend has made about ownership of property and other assets are vital if we are to stand as a world leader in tackling corruption.

Stephen Barclay: The measures that the Government have taken on beneficial ownership are hugely positive, but does the Minister accept that if almost half of all property in London worth more than £2 million is owned offshore, the measures will not provide transparency on beneficial ownership? Does she agree that property is a particular opportunity for the Government to extend their reach?

Karen Bradley: My hon. Friend has highlighted a powerful fact, which brings home the challenge that we face. I would appreciate it if we could cover that point when we meet outside this place.

The Government have taken steps to strengthen the law enforcement response to corruption. Last year, as I have said, we established the National Crime Agency to manage the overall law enforcement response to serious and organised crime, including bribery, corruption and associated offences such as money laundering. We have introduced measures to create a new offence of police corruption, and the Home Secretary has asked Major General Chip Chapman to chair a review of the police disciplinary system.

The Government have also provided dedicated funding for UK law enforcement units to investigate illicit financial flows to the UK, which are linked to corrupt foreign officials from developing countries. My hon. Friend talked about funding from the Department for International Development for the various units, and he is right to highlight the importance of ensuring that we have a dedicated force working in that area that does not duplicate effort. In such a way, we can ensure that we get the most effective response from law enforcement specialists, who really know what they are doing and are first-class professionals in their field. That approach is recognised internationally as highly successful and innovative. To date, those units have restrained or confiscated more than £120 million of stolen funds, and further investigations and confiscations are under way. Our enforcement response must be the best that it can be, so we are reviewing the overall co-ordination and effectiveness of the UK’s enforcement response to cases of bribery and corruption. That work is ongoing, and Ministers will consider the findings in due course.

My hon. Friend raised points regarding Malawi, and I would appreciate it if we could discuss that point further. If he can provide detailed information about individuals who might be involved, or any other information, it would really assist us in our work. [Interruption.] He is making comments from a sedentary position, but I am sure that if we discussed the matter, it would assist us all.
I am conscious of the time, so I will quickly cover the suspicious activity reporting regime, which is a significant part of our work. Suspicious activity reports are a crucial source of information for law enforcement agencies, and they provide a mechanism for financial institutions and others in the regulated sector to obtain a statutory defence from a money-laundering prosecution when they report their suspicions and are granted consent to proceed with a transaction by the NCA. As someone who has worked in risk management at one of the major accounting firms, I remember the joys of having to deal with such things, so I understand the criticism that my hon. Friend’s has highlighted. The economic crime command in the National Crime Agency is working with banks. The Home Secretary and I attended a business breakfast hosted at the Bank of England to kick off the work that we are doing with the financial institutions to find appropriate and acceptable ways to help them to deal with the bureaucracy of SARs. My hon. Friend made an important point about the profile of the issue, and all financial institutions need to raise the profile of the issue internally and see it as a key part of their own mechanisms for dealing with corruption and bribery.

My hon. Friend mentioned the proceeds of corruption, and there is much that I could say on the matter. Given the time, I will simply say that he made an important point about dealing with pre-regime changes and changes in regimes in other countries. When I attended, on behalf of the Government, the AFAR III—Arab Forum on Financial Recovery—conference about Arab countries in transition, it brought home to me the importance of making sure that we have the information that we need to enable us not only to restrain those assets but to seize them, and to return them to the countries that need the money.

I hope that my hon. Friend will acknowledge the work that the Government have done to tackle this important issue, and the improvements that we have recently initiated. I note the issues that he has raised, and I hope that our forthcoming measures will go some way towards addressing them. I look forward to debating the matter further with him.

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