House of Commons Hansard Debates for 14 Apr 1993

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Orders of the Day

Criminal Justice Bill [Lords]

Order for Second Reading read.

5.16 pm

The Secretary of State for the Home Department (Mr. Kenneth Clarke) : I beg to move, That the Bill be now read a Second time I hope that this Criminal Justice Bill may arouse a little less controversy than the measure on which the House has just dividmmand widespread support.

The Bill focuses on a relatively modern phenomenon : financial or so-called white collar crime. Financial crime and fraud are as criminal and as big a menace to society as theft, robbery and burglary. They need to be dealt with as effectively and as severely as other crime. But the increasing sophistication of modern financial markets and modern fraudsters means that the law has to be strengthened and kept up to date in a sophisticated way to eliminate loopholes and remove technical defences. For that reason, the Bill is technical and, I am afraid, complex. It includes measures on insider dealing, on banking and on money laundering. The Bill will substantially increase the powers available to our enforcement authorities to bring fraudsters and insider dealers to justice. A vital section of the Bill, to which I attach the utmost importance, is the part that tackles the profits of drug trafficking. We need to strengthen our law yet further against money laundering by and on behalf of drug traffickers. The substantial success of our enforcement agencies against the drug trade must be backed by laws which prevent the people detected and convicted from ever enjoying the profits of their trade. We shall be proposing that ultimately the Bill will deal with terrorist finances. Those are extremely serious crimes and I hope that all hon. Members will agree that we need to tackle them with vigour and determination.

The Bill is not a measure that will open up issues of political division or principle within the House. I believe that its aims will attract near- universal approval. I might almost hope--perhaps optimistically--for a little praise for the Government for their prompt action. Recent experiences of Criminal Justices Bills will remind the House, however, that in this sphere it is important to get the detail right.

Mr. Donald Anderson (Swansea, East) : I should like to ask about the intriguing matter that the Bill will deal with terrorism in due course. Will that mean the confiscation of assets and will it be an amendment to the prevention of terrorism Act? Why was such an amendment not introduced in the House of Lords and why was such provision not in the Bill when it commenced its passage?

Mr. Bob Cryer (Bradford, South) : That is a good point.

Mr. Clarke : I agree that it is a good point. However, an amendment to an aspect of the law different from that in the first draft of the Bill is required. The time has come to improve the Bill and to extend its provisions to cover confiscation for terrorist offences. From what the hon.

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Member for Swansea, East (Mr. Anderson) has said, I gather that he will welcome those amendments when they are presented.

Mr. Graham Riddick (Colne Valley) : Will the Home Secretary be able to use the Bill to rectify two of the mistakes in the Criminal Justice Act 1991--unit fines and the inability of courts to take previous offences into account? Will my right hon. and learned Friend assure the House that there are no little details in the Bill which will make it more difficult to convict criminals? That was the effective result of the previous measure.

Mr. Clarke : The matters to which my hon. Friend refers are outside the scope of the Bill. I entirely share his concern about the way in which the provisions of the 1991 Act are working in practice. At the moment we are anxiously looking at the way in which the unit fines system works. I share the view of the Magistrates Association that in principle unit fines are right. However, we know that in practice they are producing some odd results, perhaps partly because of the way in which the rules to implement the Act have been drawn up and partly because some magistrates courts are not familiar with their powers.

My hon. Friend the Minister of State who will reply to the debate is personally taking charge of the current review of unit fines. He and I hope that we may be able to get the system to work as closely as possible to the way in which it was intended without the need for more primary legislation. However, we shall introduce primary legislation if that is necessary. I share some of my hon. Friend's concerns about other provisions of the 1991 Act which may not be working out as they were originally intended.

The 1991 Act followed a long process of consultation with the magistrates and the judiciary and others, but now the magistracy and the judiciary are expressing discontent in a way that certainly strikes a chord with me. We shall look at the matter again. If primary legislation is required we shall have to present another Bill. All hon. Members will accept that such matters must be tackled with care because we do not want rushed provisions that will go wrong. As soon as parliamentary time allows, I shall introduce such primary legislation as is called for.

My hon. Friend the Member for Colne Valley (Mr. Riddick) underlines my point that the House should scrutinise the Bill with special care to make sure that we get the law right and strengthen it against money laundering, financial fraud and other offences with which the Bill is designed to deal.

Mr. Robert Maclennan (Caithness and Sutherland) : I should like to put some questions to the Minister before he moves to the more technical parts of the Bill. He says that we should not move too quickly in such difficult areas. Why did the Government move so quickly and consult so inadequately about the drafting of the Bill? For example, the stock exchange was provided with draft clauses at the end of July and was expected to supply answers by the end of August, which is a curious month for consultation in the stock exchange. There was no consultation at all with the CBI. That does not seem to be the right way to embark upon producing the measures that the Government hope to see.

Mr. Clarke : There has been enormous consultation on the part of the Bill that deals with insider trading and that

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consultation will continue. I shall deal with that when I come to the relevant part of the Bill. That matter is being handled by my hon. Friend the Economic Secretary to the Treasury who is in his place. He and his Department have been consulted and have submitted draft clauses.

We shall continue to consult, and if we are satisfied that further amendment is required to make the position clear and satisfactory to the legitimate interests of the stock exchange and others, we shall consult on further draft clauses. This part of the Bill is being taken forward with considerable care. It is essential that we do not do anything that will damage the ordinary, legitimate activity of the City, which is so vital to the country's economy. As I have said, we shall consult for as long and as widely as is necessary in the same way as we have consulted carefully so far.

Mr. Barry Jones (Alyn and Deeside) : The Home Secretary spoke about drugs and in that context part II of the Bill is important. I should like to mention the effective work of the north Wales police in drugs-related crimes at the port of Holyhead and perhaps even on the English border. If the Minister wishes to crack this problem he must ensure that there are more police. I would like an assurance that he will look carefully, seriously and urgently at the request by the north Wales police for 54 policemen on their establishment. Will he please do that?

Mr. Clarke : That is an extremely ingenious request. I agree that the police and the Customs and Excise have been successful in the seizure of drugs and the prosecution of those who are responsible for trafficking. That is not a function of having more and more policemen but of ever- improving intelligence and effectiveness in deploying the specialist squads that are required. As the hon. Gentleman knows, there are more suitable occasions for discussing police manpower and deployment. We have an excellent record on increasing police manpower. It expanded enormously over the 1980s and it is obvious that continued improvements in the way that manpower is deployed is more important than bids each year from police forces.

I propose in the police reforms that the north Wales police and every other force will not have to come to the Home Secretary each year to ask him to decide how many police should be deployed in each county force. I propose much more discretion for chief constables and a strengthened police authority. They will decide how best to deploy the resources that are within the ability of the economy to afford. However, those are matters for another day.

Mr. David Ashby (Liecestershire, North-West) : My right hon. and learned Friend spoke about a review of the unit fines system. People, magistrates and judges are incensed by the fact that a middle income man exceeding the speed limit on a motorway at 2 o'clock in the morning will suffer a more severe financial penalty than most drug traffickers. People are not asking for a review of unit fines. They want them abolished and previous powers restored.

Mr. Clarke : I do not agree with my hon. Friend. I have said that I do not like the way in which the unit fines system works. That is why my hon. Friend the Minister of State is again urgently addressing the matter. In principle, courts have always related fines to the ability of the offender to pay. That must continue so that a

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comparatively prosperous offender who can afford it will pay a large sum for a speeding offence and a not very well- off thief will pay no more because he may not have the means. However, for a thief and certainly for a drug offender, fines may not be the appropriate penalty : custodial sentences of some kind may be called for. We are addressing the anomalies that appear to be occurring in practice so that we retain the sensible provision that a financial penalty, when appropriate, should reflect the ability of the offender to pay without some of the absurdities that have occurred. Some of those absurdities were self- inflicted by people without means who did not fill out the form and were fined the maximum amount. Some magistrates do not take any action against people who have not filled in the form but impose the maximum fine. I hope that such hiccups can be eliminated in practice. Meanwhile, we need to look again at the rules.

Mr. Phil Gallie (Ayr) : The Minister was asked about recruiting more police but that is pointless unless they are backed by the actions of sheriffs and judges in Scotland, for example. The public perceive inconsistencies in sentencing but nobody seems to review the performance of sheriffs and judges and, no doubt, magistrates in England. Perhaps my right hon. and learned Friend will bear that in mind.

Mr. Clarke : My right hon. and noble Friend the Lord Chancellor is responsible for the judiciary. No Minister ever comments on the sentence in any individual case.

We give the powers to the courts, and we expect the courts to make full and proper use of those powers. I should stress that it is not part of the Government's policy to inhibit the courts in the proper exercise of their powers. If the Criminal Justice Act 1991 is impeding in some way what the judiciary feel is their public duty, we will rapidly address that and remedy it as soon as we can. In the end, it is a matter for the judiciary to impose the right sentence based on the facts of a particular case. Parliament is here to indicate the range of penalties we think are suitable and give them the powers that they need. I hope that, in Scotland and south of the border, the powers are used.

Mr. Barry Jones : Will the right hon. and learned Gentleman give way?

Mr. Clarke : I must get on. I cannot allow a second question about the police in north Wales. I have been generous enough already, and I would now like to turn to the detail of the Bill.

The House must return--although it may not be willing to do so--to the legal detail. The objects are worthy ; the text requires some explanation. I hope to guide the debate by setting out some of the detail as clearly as possible.

Part I of the Bill fills some gaps in our courts' jurisdiction to try offences of fraud and dishonesty with a significant foreign element. It enacts, with some modifications, the recommendations of the Law Commission's 1989 report on the subject. Part I applies only to England and Wales ; Scotland and Northern Ireland have their own legal systems, and this part will not apply there. Part I is a largely technical adjustment of existing legal rules, and remains rather daunting reading. It may help if I try to set out briefly the existing legal position and how part I will change it.

The courts in England and Wales exercise a "territorial" jurisdiction, which means, with very few

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exceptions, that they are only able to try people for crimes committed in England and Wales. Part I retains this important principle, but is designed to change the rules by which the courts decide whether or not an offence has been committed in these two countries. That is not as straightforward a matter as it might at first appear. As the Law Commission explained in its report : "The planning, preparation and execution of the many operations which are involved in a complicated swindle frequently takes place in several different countries. Under the present law none of the participants can be prosecuted here unless the last event which makes up the underlying crime occurs in England or Wales. Moreover, in cases in which those concerned are detected before they have completed their purpose, it is unlikely that they will be prosecuted in the country where they plan to reap the benefit, and because the underlying crime was not complete here they cannot be tried in England and Wales. In the result, they will in all probability not be convicted anywhere".

I will try to give a more day-to-day example. Let us imagine that a criminal in London places an advertisement in The Times inviting people to invest in a non-existent factory in Japan by paying money into a Tokyo bank account. A victim responds to the advertisement, and instructs his bank to transfer money to Tokyo. When the criminal retrieves his money, he has no need at all to flee to South America--unless he wishes to escape from our winter weather, or has some other purpose--because as things stand he has committed no offence under English law and cannot be prosecuted here. That is because the last element of the crime--obtaining of the proceeds in Tokyo--did not occur here. So, if the victim can be induced to part with his money outside this country, then our courts will not have jurisdiction.

This gap in jurisdiction was largely theoretical in the past but it has become more and more real with the advent of new technology, which has made the transfer of money around the globe an easy and everyday--or, rather, every-minute--activity. We want the law to keep up with the fraudsters, if not ahead of them. So this Bill will provide that, in a case such as I have outlined--where a fraud has a significant connection with this country--our courts will have jurisdiction, whether or not the final element of the crime occurred here.

The substantive fraud and dishonesty offences to which this change will apply are listed in clause 1, and are called group A offences. Experience tells us these are the sort of offences committed by the international criminals at whom this measure is aimed. If the list needs amending in future to catch up with developments in the criminal world, The Secretary of State is given the power by clause 1 to add offences to the list or to delete them, subject to Parliament's approval.

Part I will also catch those who fully intend to defraud others but, through no merit of their own, fail to do so. In the case I gave earlier, the criminal would still be guilty of an offence here even if the police had spotted his advertisement and arrested him before anyone had lost their money.

Clauses 5 and 6 fill another gap in our law by giving our courts jurisdiction over incitements, conspiracies and attempts in this country which are aimed at the commission of the equivalent of a group A offence abroad ; there needs to be an equivalent offence in the country

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concerned. So, for example, people who plot in this country to defraud victims in Japan will in future be guilty of an offence here and be triable by our courts.

Mr. Ashby : The example my right hon. and learned Friend gives is one of obtaining property by deception in the United Kingdom. There are many cases of this sort and it is the Attorney-General's reference No. 2 of, I believe, 1986 that part 1 is intended to cover. What worries me is whether my right hon. and learned Friend can assure the House that potential defendants will not be put in double jeopardy by being tried abroad--because most of the crime will be tried abroad--and, if they are aquitted abroad, retried over here, or vice versa. It would be a gross injustice if people were to be put in double jeopardy and be tried several times around Europe for offences committed inter-state. Will my right hon. and learned Friend give an assurance that that will not happen?

Mr. Clarke : With great respect to my hon. Friend, I am not sure that it is as clear as he believes it is that the example I give is of an offence in this country. I would incline to the view that it is not. Although I accept that there are conflicting authorities, they are probably sufficiently in conflict for no one to be prosecuted. I think there is little chance of double jeopardy in that particular case unless a person was foolish enough to go to Japan, because it is not necessary to go there to get the proceeds.

We are making it clear that someone in this country who commits a crime the last element of which takes effect in Tokyo is committing an offence here so long as a relevant part of the offence was committed in England. I think that is a valuable clarification of the law.

I quite accept, however, that my hon. Friend has a good point about double jeopardy. We do not want international crime to be dealt with in such a way that people keep being tried in different countries for the same offence. I will be happy to address that point again, or others will in Committee.

We need safeguards, but I think we can assume that in practice prosecuting authorities around the world will not normally keep prosecuting the same person for the same offence as he foolishly moves around the world going from jurisdiction to jurisdiction to collect the full total of his just deserts. I will give more thought to that point and, if necessary, address it in Committee. Parts II and III of the Bill deal with money laundering and the confiscation of the proceeds of crime. I am glad to say that these parts received most attention in the debates in another place. I think this is the most important part of the Bill as far as the general public is concerned. We can and must have many serious discussions about the causes of crime ; debates about the changing nature of society and the restoration of values are important but rarely come to definite or immediately practical conclusions. The most straightforward specific cause of crime-- which is most tangibly within the reach of government, the authorities and the public to tackle--is the abuse of drugs and the illegal traffic in drugs. Police, Customs, the courts and the public must be helped to maintain a relentless fight against drug trafficking ; but the trade is immensely, fabulously lucrative, and the best policing efforts will be in vain if the profits are not attacked and retrieved by the courts of every country affected.

One of the main purposes of my visit to Latin America last year was to discuss with Governments menaced by

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hugely wealthy drug organisations how we might strengthen international action against that ill-gotten wealth. Britain is in the forefront of countries that have ratified the Vienna convention, legislated against money laundering and got under way with the seizure and confiscation of criminal gains, but we must go further. I am determined that Britain should have one of the most effective--and just-- sets of legal provisions in the world to take the fight to where it damages drug trafficking most--the removal of the vast profits which inspire and finance the individual traffic.

Part II will amend and strengthen the confiscation procedures in the Drug Trafficking Offences Act 1986.

Sir John Wheeler (Westminster, North) : Will my right hon. and learned Friend confirm that these measures and all the other measures that this House has enacted in recent years are effective only if the basis of the intelligence information which the police and Customs authorities receive in the United Kingdom is well organised? Will my right hon. and learned Friend refer to the increasing success of our drug liaison officers overseas and to the way that they channel back intelligence which is used by the regional crime squads, Customs and the police? Is it not that--not necessarily the number of police and Customs officers--which makes their work effective? Does my right hon. and learned Friend agree that it is the effectiveness of the information that is received and how it is made use of that will make the measure that we propose to enact today successful?

Mr. Clarke : I agree entirely with my hon. Friend. His question relates to the detection of drug trafficking in particular but also to intelligence about where the assets are going. Intelligence is the key to any success with drug trafficking or terrorism. Our drug liaison officers around the world are extremely courageous and invaluable people, and they have had enormous success. Our activities in that area are as good as those of any other country. They probably rival those of the United States Drug Enforcement Agency, although that agency enjoys vast resources, compared with ours. The organisation and effectiveness of the individuals who specialise in this work matters far more than just pouring in huge numbers of people to do routine work. Organisation and effectiveness are how one makes progress. That is why we have made substantial progress in recent years.

Mr. Tam Dalyell (Linlithgow) : Personally I welcome very much the fact that the British Home Secretary went to South America to discuss this problem on the spot and to see for himself, but what has come out of his visit and what is the strategy for persuading the hard-pressed Governments of countries such as Colombia and Peru to do something, however willing they may be, about an acute terrorist problem for them?

Mr. Clarke : If I may confine myself to Colombia, we provide considerable material assistance to the Government of Colombia, who are fighting courageously against very powerful drugs cartels which threaten their ability to govern their country. The Government of Colombia are on the right side in this struggle and they are making good progress. We are contributing very much to the training of their most effective police units, which operate in the jungles and search for the coca itself and the laboratories. We are also giving valuable assistance in

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developing their criminal justice system. They are therefore setting up a much more effective system for prosecuting and bringing to justice those whom they arrest. Since I went to Colombia, we have given further material support to the Colombian Government for that purpose.

I discussed also with the Colombian Government how we could take further forward bilateral agreements with them on the confiscation of the assets of drug traffickers. The trade is often organised by a combination of Colombian and British criminals, working in international organisations. I hope that we shall make progress on that front, too. We are actively working with the Colombian Government. It is important that we, from our end, as well as the other European countries and the United States, work with the Colombians against something which is just as much a threat to Colombia as it is to ourselves and which needs to be tackled at international level.

Part II will make its contribution to the Bill by strengthening yet further the procedures that were introduced in the 1986 Act. Hon. Members will recall that when it was introduced the 1986 Act was described by some people as draconian, but its measures were necessary and justified. The 1986 Act was intended to remove the profit motive by allowing the confiscation of all the trafficker's proceeds from drug trafficking, following conviction. The Act was also intended to ensure that the profits from drug trafficking could not be recycled to fund yet more trafficking. That Act needs to be strengthened.

This part of the Bill--clauses 7 to 15--is largely based on the report of the Home Office working group on confiscation, which was published in May 1991 for consultation. That group was established in response to the report of the Home Affairs Select Committee on drug trafficking and related serious crime, published in November 1989. The Home Office working group found that the 1986 Act had worked reasonably well, but it identified a number of important practical difficulties in its operation.

I do not propose to go through each clause in detail. Instead, I shall draw the attention of the House to those provisions which I consider to be the most important.

Clause 7 will end the uncertainty that has arisen in the courts over the standard of proof applicable in confiscation hearings. It makes it clear that the standard applicable is the civil standard--and its probability. This was, I believe, the intention when the 1986 Act was passed, but it was not made clear on the face of the legislation. Clause 7 also relieves the court from following the confiscation procedures in the 1986 Act each time that it convicts a drug trafficker.

Confiscation will take place only when notice is served on the court by the prosecutor, or at the court's discretion. This will filter out those cases in which there is obviously little or no benefit, or no realisable property. This does not mean that we are softening our approach to drug traffickers. The minor cases that do not attract a confiscation hearing under the new arrangements will continue to be dealt with severely by means of fines and forfeiture orders, as well as by imprisonment.

Clauses 12 and 14 will allow the court to confiscate proceeds in circumstances where that is not possible at present. Clause 12 will allow the prosecutor to return to the court within six years of a conviction for drug trafficking to seek a revaluation of the offender's benefit from drug trafficking, where further benefit has

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subsequently come to light. Clause 14 will enable a confiscation order to be made, even if a convicted trafficker dies or absconds. Confiscation will also be possible where a defendant absconds before conviction. We have included safeguards, such as rights of audience for third parties at confiscation hearings and compensation where an absconder returns and is actually acquitted.

Part II also contains the primary legislation necessary to implement a European Community directive on money laundering, following the proposals set out in a Treasury consultation paper last May. The United Kingdom was closely involved in the drafting of this directive. Since it draws heavily upon the 1988 United Nations convention on drug trafficking and money laundering, which the United Kingdom ratified in June 1991, very little legislation is necessary. Three new or extended criminal offences are created in the money laundering area : first, failure to report knowledge or suspicion of money laundering gained in the course of employment ; secondly, acquiring, possessing or using the proceeds of drug trafficking for less than adequate consideration, in the knowledge that they are such proceeds ; and, thirdly, prejudicing an investigation into money laundering by tipping off a third party.

Part III deals with the confiscation of the proceeds of crime in general. The effect is that a number of the changes made to the Drug Trafficking Offences Act in part II, which I have just described, are read across to other organised crime in part III, by amending the general confiscation provisions in part VI of the Criminal Justice Act 1988.

This is an extremely significant change. We are extending the existing and most of the new drugs money laundering offences to crime in general. Until now, it has not been an offence to launder the proceeds of any crime other than drug trafficking and, in certain restricted circumstances, terrorism. That allowed a suspected money launderer to say that the money he was dealing with came from pornography or serious fraud rather than from drug trafficking and enabled the suspect to avoid being convicted of money laundering. I am sure that hon. Members will agree that that was absurd and indefensible. I am pleased to say that the banking and financial communities have given their full support to these new measures, which extend the money laundering provisions to most organised crime. Ministers are extremely grateful for their help.

I am also glad to be able to announce to the House that the Government intend to introduce in this House amendments to the Bill in Committee to reproduce, in the terrorism legislation, many of the changes being made in part II of the Bill to the confiscation and money laundering provisions contained in the Drug Trafficking Offences Act 1986. Part III does not, as at present drafted, apply to the proceeds of terrorist offences because they are not covered by part VI of the Criminal Justice Act 1988. However, the Government regard tackling terrorist funds as an equally high priority. The United Kingdom was the first country to introduce legislative measures against terrorist finances. These measures have given the police an additional and

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invaluable tool, whirorist organisations. Such organisations and those who handle money on their behalf have become increasingly sophisticated in the way in which they raise and launder money. Disrupting the fund-raising efforts of terrorists and confiscating their resources and the proceeds of activities should be as important a new tool against terrorism as it should be against drug trafficking and other serious organised crime. I am sure that the House will agree that it is only right that the measures that are taken against terrorists' finances should, as far as is possible, match those taken against drug proceeds. Personally, I hold both forms of crime in the same profound contempt.

Mr. Tony Blair (Sedgefield) : As I understand it, once someone has been convicted of drug trafficking, the proceeds, whether or not they are related to that specific offence, can be confiscated. Will the same apply to terrorism and other offences?

Mr. Clarke : Some confiscation powers are already available under the prevention of terrorism legislation. In Committee, we shall table amendments to cover the new provisions on laundering, but first we must decide which of the provisions on drug trafficking should be read across to terrorists' finances. That will enable us to consider the total amount that has been raised and how far the assumptions which are an important part of the drug trafficking provisions should apply. We shall table amendments that, as far as is sensible, reflect the drug trafficking money laundering provisions.

Mr. Donald Anderson : Are the provisions on confiscation and on money laundering, which I believe stem partly from an EC directive, in place in other EC countries, because what the Home Secretary is saying makes the degree of co-operation at EC level under the third pillar of Maastricht even more important? It would be helpful to know at some stage whether these provisions and those on terrorism operate in other EC countries.

Mr. Clarke : All EC countries are making the changes to their domestic law necessary to apply the directive. The United Kingdom was at the forefront of countries pressing for a directive, because measures against drug trafficking and terrorism are not effective unless they apply throughout the European Community. Without notice, I am not sure how many countries have completed the legislative steps. I believe that the United Kingdom is ahead of others, but we are all slightly beyond the date by which we are meant to have implemented the directive. My hon. Friend the Minister of State may be able to give a more specific reply, but I am sure that there is no hesitation within the Community and that all 12 countries will fall in line with the highly desirable directive.

Part IV is, strictly speaking, the Treasury part of the Bill, which is why my hon. Friend the Economic Secretary is on the Bench. It amends and restates the law on insider dealing and in so doing implements the EC directive on the subject. Hon. Members will, I hope, agree that insider dealing is crime. Securities markets play a vital role in financing companies, on which our prosperity ultimately depends. Markets also hold a large proportion of people's savings invested directly or on their behalf by institutions.

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If those markets are to operate smoothly, they must inspire the confidence of investors, and an essential element of confidence is fairness. Insider dealing, if unchecked, destroys that confidence, which is why the Government made insider dealing illegal in 1980. We believe in the benefits of having an EC directive on insider dealing, and Britain again played a leading role in negotiating the directive. With effective legislation in place across the Community, investors will be able to invest more confidently across Europe and to take advantage of the opportunities provided by the single market. The directive's detailed provisions will greatly assist in the pursuit of insiders who seek to cover their tracks by dealing across borders.

Mr. Ashby : My right hon. and learned Friend rightly says insider dealing is effectively theft on a grand scale from a number of poor investors. Is part IV covered by part I, and if not why not?

Mr. Clarke : Off the cuff, subject to correction by my hon. Friend the Minister of State in his reply, it must be. Part I will cover a range of international crime and if insider trading is being conducted across borders, the same rules as set out in part I will apply. If my off-the-cuff response is incorrect I shall ensure that a correction--

Mr. Donald Anderson : It is not a category A offence.

Mr. Clarke : The hon. Gentleman points out that it is not a category A offence. He has had an opportunity to look it up, but he may be wrong. A more considered reply will be given later. The Economic Secretary is also taking the opportunity to look at this part of the legislation, for which he is directly responsible. Nevertheless, the desirability of moving on insider trading is accepted by all of us and the Bill extends our legislation on insider trading to areas of conduct covered by the directive that are not currently illegal but are generally accepted as being wrong. I want to make quite clear to the House the Government's determination to ensure that legitimate business practices will not be jeopardised. I know that some fears have been expressed in the City and elsewhere, but nothing in the Bill will prevent the sort of contact between companies and investors that properly takes place today. The Bill will not require changes to the legitimate practices of investment analysis or mean modifying underwriting arrangements.

Indeed, much of the new legislation is similar to existing law. It will continue to be an offence for an insider who possesses inside information or someone who has obtained inside information from an insider--in deference to views expressed in another place I will, as far as possible, avoid describing that someone as a "tippee", which is a particularly poisonous addition to the English language--to take advantage of the information by dealing in securities to make a profit or avoid a loss. It will continue to be an offence for an insider or tippee to encourage someone else to undertake such dealing and for them to disclose inside information.

The definition of inside information is little changed from our present legislation. It includes information that relates to particular securities or to a particular issuer or issuers of securities, but not to securities generally or issuers of securities generally. The information must also be specific or precise, not have been made public, and be such that, if made public, it would have a significant effect

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on the price of securities. But unlike existing legislation, which applies only to companies securities, the new legislation will apply to all listed securities. It will apply to gilts and local authority stock and all securities traded on exchanges throughout the Community rather than just those that operate in this country.

Under the Bill, any individual with direct access to inside information will be an insider ; they will no longer have to be connected with a company, as the present law requires. The Government believe that this change, which reflects the directive, is desirable because it is possible for someone to have direct access to price-sensitive information without being connected with a company. The range of circumstances in which insider trading is prohibited will be widened. The Bill's prohibitions apply to all transactions which involve a professional intermediary, whether on or off market. The move from the trading floor to screen-based trading has made the market much more difficult to define than when legislation was passed in 1980. The new legislation seeks to treat the market in terms of those transactions that are likely to contribute to the price formation process for a security. As a result, the new legislation will apply to dealings in Eurobonds, which are generally listed within the Community but traded off market.

There are two further ancillary offences in addition to dealing--disclosing inside information to someone else and encouraging someone else to deal.

However, I should make it clear that innocent activity will not be penalised. Conduct will not amount to a criminal offence unless a person knows that the information he possesses is inside information and that he has the information as an insider or directly or indirectly from an insider. For example, someone who deals while in possession of information that he believes to be in the public domain will not fall within the ambit of the legislation even if his or her belief turns out to be misplaced. There will be no offence where someone did not intend to use inside information to make a profit or to avoid a loss because he would not be "taking advantage" of the information. There are various exemptions and limitations to ensure that the legislation does not impact on

As for penalties, the Government made it clear in 1980 in their response to the Select Committee on Trade and Industry's report on company investigations that we proposed to retain the criminal law as the primary means for punishing insider dealers. Accordingly, the Bill carries forward the penalties that apply under our existing law, which are up to seven years' imprisonment with a fine.

The Bill's insider dealing provisions are the result of considerable discussion between the Treasury, practitioners in the City and representatives of industry in general. The hon. Member for Caithness and Sutherland (Mr. Maclennan) complained, but there has been consultation on the broad principles of the legislation and on an initial draft of the clauses in the summer, and consultation has continued since the Bill was introduced in another place. As I have already said, the Government are aware that there is still a wish for greater certainty about the effect of the legislation. We have listened to the representations made and will continue to do so, and we shall make further amendments where we are convinced of the case for so doing.

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Mr. Donald Anderson : Why has the existing legislation on insider dealing been so ineffective? During the past five years, there have been 30 prosecutions but only 13 convictions.

Mr. Clarke : I do not think that those figures are wholly accurate. They are in the right ball park but they are not spot on. There have been convictions. The total number of convictions is not the only measure by which to judge the effectiveness of such a provision. I am sure that the provision has a considerable deterrent effect on what would otherwise be trading of below acceptable standards in securities, which is treated as a serious criminal offence in this country.

We have played a part in introducing the fresh directive, which is giving rise to the need to strengthen and extend the law. It is extremely important for London's reputation as a financial centre that our standards are as high as any others. We must make it clear that those who make improper use of insider information will be treated as criminals, brought before the courts and prosecuted. If the hon. Member for Swansea, East (Mr. Anderson) believes that the existing legislation is not sufficiently effective, I am sure that he will welcome the Bill, which seeks to make the law more effective and extend its scope.

Mr. Maclennan : What the Home Secretary says about the deterrent effect of the legislation may be true ; it is hard to prove. However, he will be aware that there is widespread and genuine concern, expressed most notably by Lord Alexander of Weedon on Second Reading in another place, that many cases of alleged insider dealing, which have been brought to the attention of the Department of Trade and Industry by the stock exchange, among other authorities, have not led to effective prosecution. There are serious questions about enforcement in cases where there is significant evidence. In preparing this legislation, has the Home Secretary considered whether there is a need for parallel self-regulatory measures for the City or other institutions in order to provide a civil remedy to back up the effectiveness of the criminal remedy?

Mr. Clarke : Concern has been expressed in both directions. Some people in the City are worried about the ordinary, legitimate practices of investment analysts and others being threatened. We can reassure those who have such fears and will continue to do so during the consultation process. Others are worried that we do not always enforce the law as strictly as we might, enforcement being in the hands of the Director of Public Prosecutions or, more often in practice, the Secretary of State for Trade and Industry. However, cases are brought.

Sadly, it is the case that we must first get the drafting right so that the law can be enforced effectively. That is why we shall continue to consult Lord Alexander and anyone else who wishes to give his views. Secondly, there must be some self-regulatory provisions. There is a role for the stock exchange and the City generally to ensure that the criminal law is paralleled by proper self-regulation by those responsible for the markets. People such as Lord Alexander and other leading lights in the City will be anxious to ensure that self-regulatory activity also exists.

Finally, part V of the Bill contains various minor measures. I do not need to trouble the House with them except to mention clause 43. It extends the jurisdiction of United Kingdom courts where a fraudster takes part in or

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organises here fraud against the European Community budget in other Community countries. It will ensure that the United Kingdom is and is seen to be taking positive action against Community fraud, and will help to allay the legitimate fears expressed in both Houses. The Bill deals with a number of serious mischiefs which I hope that all hon. Members will condemn. It makes a number of changes that will not harm legitimate business or threaten the law-abiding, but it will greatly improve our ability to investigate and prosecute a wide range of financial crimes. I know from earlier interventions that hon. Members are concerned about various criminal justice issues. They may be disappointed about the scope of the Bill which started life in another place last October. They may feel that it does not go wide enough to tackle all their concerns, but there will be other opportunities--I hope before too long, if I have my way--for us to consider many of them.

Although there are some pressing problems outside the scope of the Bill, that would in no way detract from its importance. We are dealing with very serious crime. The Bill will significantly strengthen the ability of the enforcement authorities and the courts to deal effectively with white collar crime and will do so in ways that I hope all hon. Members will be able to support. I commend the Bill to the House.

6.6 pm

Mr. Tony Blair (Sedgefield) : As the Home Secretary said, the Bill spans a disparate set of issues, but they have in common a concern for the growing internationalisation of crime. The impact of modern communications, travel, computer technology and cross-frontier trading has given renewed scope to organised criminal activity. It is essential that the law keeps pace and that old common law rules--or, indeed, old statute--which are right for one era do not continue unamended or unchanged when plainly wrong or inadequate for another. There is no disagreement about the general purpose of the Bill, although there is some disquiet about the drafting of some parts and the content of specific provisions. They may be archetypal matters for the Committee stage and for those who will have the pleasure of participating in that stage, but they are also important matters to be raised on Second Reading. I begin with the issue of drugs and drug trafficking, which I believe will be of paramount concern to hon. Members and the public.

There is no doubt that drugs are a dangerous menace to our society. There is increasing evidence of a rise in the number of drug addicts, of a link between drugs and crime, the prevalence of drug trafficking and, perhaps most alarming of all, the number of young people even of school age who are being drawn into early experimentation with and use of drugs.

I do not think that anyone, whether working with drug abusers or in drug enforcement, believes that the problem is diminishing. It is not. It is growing, and the greatest danger of all is complacency in the face of the threat that drug abuse poses to our country. The figures for the latest year for which they are available show, for example, that the number of addicts notified to the Home Office rose by some 17 per cent. and that that followed a 20 per cent. increase the previous year. The number of new addicts has risen by a similar number. Although the numbers of seizures of course reflect success by our drug enforcement

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agencies, in 10 years they have risen more than threefold, and seizures of heroin have increased by more than 200 per cent. Even making allowances for changes in procedures and greater success by the drug agencies, those figures should cause concern.

The number of persons found guilty of drug offences has risen almost threefold in 10 years. Again, the most worrying feature is the rise in the number of young drug offenders. The number of offenders under the age of 17 has risen tenfold in as many years, and the number of those between 17 and 21 has risen fourfold over a decade. Offenders under 21 represent 40 per cent. of offenders but 80 per cent. of the latest yearly increase in offending.

Anybody who knows the King's Cross area in London, as do hon. Members who pass through it on their way to their constituencies, will know of the appalling drug problems that have recently been highlighted by the Independent on Sunday and other newspapers. There have been about seven deaths from drug-related causes in the space of nine days. The police in those areas and in many other parts of our inner cities do their best in extremely difficult circumstances. My hon. Friends the Members for Holborn and St. Pancras (Mr. Dobson), and for Islington, South and Finsbury (Mr. Smith) have campaigned long and hard on the problems of King's Cross, and have raised the issue specifically with the Home Secretary. I hope that he will respond positively.

The drugs problem is increasing, yet Government policy in other areas, not only in the Home Office sphere, is withdrawing some of the most vital support needed in the fight against drug abuse. For example, until the end of last month, the Department for Education had 100 drug advisory posts, but it has now ceased to fund them and says that it is up to local authorities to do so. The plain fact is that in present circumstances local authorities will not have the resources to fill the gap. That means that those posts, which perform a great role in educating our young people about the dangers of drugs, will no longer exist. It cannot be sensible to pass legislation that, rightly, bears down on those trafficking in drugs, yet at the same time to allow other Government Departments to make decisions in other areas that run entirely counter to the fight against drugs. Exactly the same could be said about cuts in the youth service. Three quarters of those involved in that service expect to make cuts this year, and the urban programme faces similar problems. There are cuts in residential provision for drug addicts and abusers. A pamphlet recently published by the trade unions representing people working in Customs and Excise estimated that, as a result of changes in funding, about 400 Customs officers engaged in the war against drugs would be lost. I do not know whether that estimate is correct ; I hope that the Minister who replies will deal with the question. Again, it would be bizarre if we attempted to deal with people who had been caught committing drugs offences and had been convicted if in other areas we were taking steps that undermined the fight that we should all support.

Although the number of drug trafficking offenders has declined in proportion to the number of drug offences overall, there is no doubt that drug trafficking into the United Kingdom is increasing. The value of drugs seized by the Customs and Excise has multiplied by a factor of about 20 over the past few years. The United States estimates that drug seizures account for about 10 per cent.

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