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Session 2005 - 06
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Standing Committee Debates

Draft Proceeds of Crime Act 2002 and Money Laundering Regulations 2003 (Amendment) Order 2005




 
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Second Standing Committee on Delegated Legislation

The Committee consisted of the following Members:

Chairman:

Mr. David Marshall

Benyon, Mr. Richard (Newbury) (Con)
†Browne, Mr. Jeremy (Taunton) (LD)
†Engel, Natascha (North-East Derbyshire) (Lab)
†Fabricant, Michael (Lichfield) (Con)
Featherstone, Lynne (Hornsey and Wood Green) (LD)
†Garnier, Mr. Edward (Harborough) (Con)
†Goggins, Paul (Parliamentary Under-Secretary of State for the Home Department)
†Griffith, Nia (Llanelli) (Lab)
†Gwynne, Andrew (Denton and Reddish) (Lab)
Hepburn, Mr. Stephen (Jarrow) (Lab)
†Heppell, Mr. John (Vice-Chamberlain of Her Majesty’s Household)
Herbert, Nick (Arundel and South Downs) (Con)
†Hillier, Meg (Hackney, South and Shoreditch) (Lab/Co-op)
†McDonagh, Siobhain (Mitcham and Morden) (Lab)
†Pound, Stephen (Ealing, North) (Lab)
Streeter, Mr. Gary (South-West Devon) (Con)
†Stuart, Ms Gisela (Birmingham, Edgbaston) (Lab)
Emily Commander, Committee Clerk

† attended the Committee


 
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Monday 19 December 2005

[Mr. David Marshall in the Chair]

Draft Proceeds of Crime Act 2002 and Money Laundering Regulations 2003 (Amendment) Order 2005

4.30 pm

The Parliamentary Under-Secretary of State for the Home Department (Paul Goggins): I beg to move,

    That the Committee has considered the draft Proceeds of Crime Act 2002 and Money Laundering Regulations 2003 (Amendment) Order 2005.

It is important to make it clear that acting against money launderers is a top priority for the Government, and I believe that there is a fair degree of consensus among all the parties on the subject. Money laundering is not just a financial crime; it is integral to the serious acquisitive crime that damages all of us and includes drug trafficking, human trafficking and excise fraud. The money laundering reporting system is therefore an important element in our defences against both lower level crime and serious and organised crime. That system, together with a number of other measures to combat money laundering, is enshrined in the Proceeds of Crime Act 2002, which created a single set of money laundering offences that apply across the United Kingdom and that cover the proceeds of all crimes.

Since the Act came into force in 2003, we have kept the provisions on money laundering under review. The Home Office and the Treasury have established a number of bodies through which the private and public sectors can work with the regulators to ensure the most effective results. Those bodies include the money laundering advisory committee. Earlier this year, under the Serious Organised Crime and Police Act 2005, we made some changes to the 2002 Act in response to issues raised in working groups. Those changes helped to reduce the burden on the regulated sector and improved the overall effectiveness of the system.

The order makes a further minor adjustment to the requirement to report knowledge of, or suspicion of, money laundering to the National Criminal Intelligence Service. The proposal is the outcome of an informal Home Office consultation on whether the duty on accountants, auditors and tax advisers to report money laundering under the 2002 Act needed to be changed to bring it fully into line with European Community law. That consultation followed representations by the Institute of Chartered Accountants in England and Wales, which was concerned that the current legislation discriminated unfairly against accountants, auditors and tax advisers and was contrary to the second European money laundering directive.


 
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Under the 2002 Act, persons working in the regulated sector commit an offence if they fail to report knowledge of, suspicion of, or reasonable grounds for knowledge or suspicion of, a person engaging in money laundering. The “regulated sector” is essentially banks, building societies and other financial institutions, but includes the legal and accountancy professions more generally. Section 330 of the 2002 Act makes it clear that the relevant “failure to disclose” offences are not committed if the person is a legal adviser and the information comes to him or her in privileged circumstances—in other words, when providing confidential legal advice. The order amends section 330 by extending that defence, which currently applies only to professional legal advisers, to include accountants, auditors and tax advisers who satisfy certain conditions.

The equal treatment of lawyers and accountants will apply only to the very limited extent that they are carrying out the same functions in relation to legal advice. In addition, that equal treatment will apply only to those accountants, auditors and tax advisers who are members of a professional body that requires, as a condition of membership, a test of competence and the maintenance of professional standards. It must also include sanctions for non-compliance with those standards. The exemption will not apply to those accountants or accountancy firms that are unaffiliated to a professional body of the type described in article 2(5).

There is an important exception to the reporting exemption: the client’s right to confidentiality does not apply if he is trying to use his relationship with the lawyer to further a criminal purpose. It that was the case, a report would need to be made to the National Criminal Intelligence Service in the usual way. That exception already applies to lawyers, and would apply equally to accountants under the order.

The legal and accountancy professions have expressed concerns about the position of staff who are not legal advisers, and of other relevant professional advisers, who become aware of privileged material that gives rise to suspicion that an individual is involved in money laundering. That is also addressed in the order, which provides a defence for a person who is employed by, or in partnership with, a professional legal adviser or other relevant professional adviser as defined in the order. Those are people who might be part of the team giving advice or support but who are not professionally qualified. Such a provision would protect a clerk or a secretary in the firm, as well as other specialist advisers, for example. The Money Laundering Regulations 2003 give effect to the second EC money laundering directive. In addition to amending section 330 of the 2002 Act, the order makes a similar amendment to the Money Laundering Regulations 2003.

The Government are fully committed to working with the financial services industry and the legal and accountancy professions to maintain strong defences against money laundering. The amendment to the 2002 Act, to which the order gives effect, will help to reduce the regulatory burden on accountants, auditors
 
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and tax advisers in certain circumstances without damaging the effectiveness of the money laundering reporting regime.

4.36 pm

Mr. Edward Garnier (Harborough) (Con): The Minister said that dealing with money laundering is a top priority for the Government. I imagine that there must be a drawerful of top priorities. Every Minister who comes before a statutory instrument Committee says that the matter before it is a top priority. I look forward to the day when the Under-Secretary for drawing pins says, “This statutory order requiring that   drawing pins should be red, blue and green is a top priority for the Government”. How many top priorities are there? How many top priorities can there be for a Government who are capable of rational thinking?

The order deals with a concern that was made known to the Government when the 2002 Act went through in the previous Parliament, some years ago. The Minister says that it represents a minor adjustment. In terms of parliamentary procedure and drafting that is perhaps true, but it is not the case for the accountancy, legal and tax advising professions. The situation was a major concern and I am delighted that the Government have found time to deal with it.

That having been said, the order is a welcome amendment to the 2002 Act, and the official Opposition support it.

4.37 pm

Mr. Jeremy Browne (Taunton) (LD): May I join the overall spirit of consensus in the run-up to Christmas? I have one note of regret, which is that I cast my vote for the Minister as Minister of the year in The House magazine competition, in what was admittedly a tough field. [Interruption.] His ability to prioritise Government business meant that he was clearly head and shoulders above the competition. I regret to say that other Members of Parliament failed to see the talent that is obvious to everybody in the Room.

I also regret that this gathering has been scheduled to coincide with the debate in the Chamber on restructuring police forces and that there will not be an
 
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opportunity to vote on that matter. Many other people would wish to take an interest in this Committee and perhaps cannot do so because they are detained elsewhere.

On the substantial point, the Liberal Democrat party, like others, is keen to ensure that crime does not pay and that the proceeds of crime, wherever possible, are taken away from the perpetrators. Will the Minister reassure me that the proposals will not compromise the proper level of privacy—or secrecy—that anyone should rightfully expect when dealing with a person in a professional position in such a way that will cause alarm to our constituents?

4.39 pm

Paul Goggins: I accept the comments that it is sometimes hackneyed to refer to top priorities. However, dealing with serious organised crime, money launderers, and those associated with human trafficking and drug trafficking probably does qualify as a top priority, so it is an appropriate expression to use in such circumstance.

I welcome the support of Opposition Members. When the 2002 Act went through Parliament, the   possibility of including accountants in the arrangements was left open and it was not determined at the time. I am grateful for the welcome that the hon. and learned Member for Harborough (Mr. Garnier) gave to our proposals. I am also grateful to the hon. Member for Taunton (Mr. Browne) for casting his vote in the way that he did, although much good it did him or me. His interest in the subject is well recorded. Indeed, we exchanged views on such matters in an Adjournment debate.

I assure the hon. Gentleman that his constituents will not be compromised by the provision, as the exception applies only in those narrow circumstances in which individuals seek professional legal advice from either a lawyer or someone in relation to their tax affairs. Other than that, the obligation on all of us, whether or not professionally qualified, is to report the matter to the National Criminal Intelligence Service.

Question put and agreed to.

Committee rose at nineteen minutes to Five o’clock.

                                                                                           
 
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