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5.30 pm
I urge the right hon. Member for Leicester, East to do as he indicated, not only because it is the proper thing for Parliament to do, but also because it is necessary from our constituency points of view. He has a larger Asian community in his constituency than I have in mine—although mine is growing—but we both represent communities that would be affronted to think that innocent people, British citizens born in this country, could be lifted and put away for 42 days without charge. He knows how socially divisive that could be, and I am beginning to understand, as a constituency MP, the sensitivities felt by some of those in our communities who used to be called immigrants but are no longer immigrants. They are British-born citizens who deserve every respect and ought to see the law working for them rather than against them. I look forward to working with the right hon. Gentleman both locally in Leicestershire and here in Parliament to ensure that the Government follow the advice of the entire Parliament rather than a small group of No. 10 policy advisers who may have another agenda.
Mr. Coaker: I shall be brief, Mr. Deputy Speaker. I thank Members for their contributions to the debate and discussion of this small group of amendments. In disagreeing with Lords amendment No. 3, I reiterate that there is nothing in the Bill that would allow the Secretary of State to extend the maximum period of pre-charge detention beyond 28 days. I make that point again for the reassurance of Members.
Keith Vaz: I am sorry to interrupt my hon. Friend at the start of his remarks. If the Select Committee undertook an investigation into the draft Bill, I think it would be a good idea, although it is up to the members of the Committee. Incidentally, I omitted to mention the presence in the Chamber of the hon. Member for Carshalton and Wallington (Tom Brake), another of its distinguished members. I realise that management of the business of the House is not up to my hon. Friend the Minister or the Home Secretary, but will he use his good offices to make sure that as soon as the report is available, assuming it is produced quickly, time will be made available to discuss it on the Floor of the House? I realise that is not a matter for my hon. Friend, but it is in everyone’s interest.
Mr. Coaker: Obviously I look forward to attending the Committee, if either the Home Secretary or I are invited. One would hope that the report of the Home Affairs Committee would be discussed expeditiously.
With those words, Mr. Deputy Speaker, I hope we can agree to withdraw amendment No. 3.
Mr. Deputy Speaker (Sir Alan Haselhurst): Order. I think the Minister wishes to disagree with Lords amendment No. 3.
Mr. Coaker: I think you know what I meant, Mr. Deputy Speaker. You are right and I am wrong.
Mr. Deputy Speaker: I was getting there.
Lords amendment No. 15 disagreed to.
Government motion to transfer clause 33 agreed to.
Amendments (a) and (b) in lieu of Lords amendment No. 15 agreed to.
The Economic Secretary to the Treasury (Ian Pearson): I beg to move, That this House agrees with the Lords in the said amendment.
Mr. Deputy Speaker: With this it will be convenient to discuss Lords amendments Nos. 113 and 127.
Ian Pearson: We change gear, in terms of the subject matter. The amendments were introduced in the other place to provide the Treasury with essential powers to protect the UK economy from potential threats of money laundering, terrorists financing and proliferation activity. I should like to record my thanks for the constructive approach taken by the Conservative and Liberal Democrat parties in the other place: their engagement helped not only to refine the provisions but, critically, to progress them.
I acknowledge that the amendments were introduced at a late stage in proceedings on the Bill. The pressing need for them became apparent only quite late in the day, as events unfolded in the Financial Action Task Force. As I shall explain, those events had the unfortunate effect of making it clear that our current powers were no longer completely effective for discharging our international responsibilities.
The UK has been at the fore of international action to tackle the problems posed by jurisdictions of concern in relation to money laundering, terrorist financing and the proliferation of chemical, biological, radiological or nuclear weapons. We are determined to maintain that leading role. On 16 October 2008, the FATF issued a statement for which we and others had pressed hard, calling on members to take increased preventive action to protect their financial systems from the risks posed by terrorist financing deficiencies in Iran and money laundering deficiencies in Uzbekistan. We anticipate that there may be further calls for increased action at the FATF’s next meeting in February 2009.
Damian Green: Given what the Economic Secretary has just said, is it possible that, after February, the Government will need to find a further legislative vehicle to put in place more emergency provisions, as has happened on this occasion?
Ian Pearson: I will go on to deal with that subject and if anything remains unclear at the end of my speech, I will be more than happy to take another intervention from the hon. Gentleman. However, let me say now that we think that the provisions here are suitable for the purposes for which we require them.
The intention of the FATF’s statement is crystal clear. For example, on Iran, it said:
“The FATF calls on its members, and urges all jurisdictions, to strengthen preventive measures to protect their financial sectors from this risk.”
However, the UK’s powers in the Money Laundering Regulations 2007 require a formal invocation of counter-measures by the FATF and, unfortunately, the statement did not use that specific term, owing to the concerns of certain members—a reluctance that the UK has run up against in other international forums attempting to take action on these important matters. The October statement therefore exposed potential difficulties with the UK’s legislation: if the FATF does not formally call for counter-measures, we are unable to employ the powers in the money laundering regulations, no matter the scale of the risks.
As the Financial Services Secretary to the Treasury explained in the other place, the Government do not have the option of simply adapting the money laundering regulations to alter the powers trigger to reflect the reality at the FATF. That is partly a reflection of the fact that the current money laundering regulations implement the EU’s third money laundering directive, whose primary focus is member countries’ internal money laundering controls and so contains only some powers to implement the FATF counter-measures; it therefore does not provide the basis for us to take the full set of steps outlined by the taskforce. However, in my view, it is in any event more appropriate for the provision of new powers to be set out in primary legislation, rather than in regulations made under a statutory instrument.
It might be useful if I provide a brief recap of the content of the provisions that we are discussing. The amendments provide for the Treasury to apply a range of financial restrictions, but only in very specific circumstances. It may do so either in accordance with a recommendation of the FATF relating to the need to protect against the risks posed by money laundering and terrorist financing in a jurisdiction of concern, or it may do so on its own initiative because money laundering, terrorist financing or proliferation activity poses a significant risk to the UK’s national interests.
Specifically, the amendments would allow the Treasury to direct financial and credit institutions to impose: stricter requirements for customer due diligence, such as requirements to identify clients, beneficial owners and the nature of business relationships; stricter requirements for ongoing monitoring of transactions; a requirement systematically to report all transactions with designated entities; and a requirement to limit or stop business with designated entities.
The range of measures proposed are essentially those that can be recommended by the FATF. They allow for a graduated approach in the monitoring and, where necessary, limitation of business with relevant entities. The measures are applied proportionately, using a risk-based approach. I note for the avoidance of confusion that they are not asset-freezing powers.
The new powers have some application in connection with proliferation financing. As some hon. Members may be aware, however, the FATF counter-measures apply only to risks from money laundering and terrorist financing. Proliferation financing is an area of growing international concern. The UN, the EU, the FATF and the G7 have all expressed concern about financial systems being abused by proliferators. Indeed, under the UK presidency last year, the FATF included a responsibility to address proliferation financing in its remit and published a report on proliferation financing in June this year. The UN and the EU have provided new powers at international level to help to tackle the issue in relation to Iran, but they are not appropriate for dealing with serious proliferation risks. They do not, for instance, enable the UK to act to direct the ceasing of transactions. We have therefore moved to address that important and related area of concern in the provisions before us.
The Government have been careful to ensure that appropriate safeguards relating to the exercise of those powers were included in the provisions. It is worth while briefly noting some of them for the record. First, directions applied beyond the level of individual firms have to be made via an order. In the case of a direction to limit or cease business, the order is under the affirmative procedure. In any event, all directions cease to have effect one year after being made. They can, of course, be renewed if necessary after that, or indeed revoked before the year has elapsed. Secondly, in the event of a direction to limit business, a licensing regime has been provided to enable the Treasury to minimise the impact on third parties. Thirdly, the provisions require the Treasury to report annually on the use of the powers. I understand that there was a good debate on the subject in the other place, and the Government committed to making a full report. Let me reiterate that commitment in this Chamber.
When the Bill passed through the other place, further useful requirements were placed on the Treasury in its use of the powers, following cross-party engagement. There is now an explicit duty on the Treasury to ensure that any directions issued are proportionate to the threat that they are combating and do not impose unnecessary burdens on business. There is also now an explicit duty on the Treasury to assist supervisors and others in developing guidance, so that we can ensure that any directions issued can be implemented effectively. Of course, the Treasury would have exercised its powers in that fashion in any event, just as we do under our current regime, but we are happy to have such requirements stated in the legislation.
The provisions also set out supervisory and enforcement structures for the new powers. The Government’s intention is that the structures replicate those that were established in the Money Laundering Regulations 2007, which form the basis of our current anti-money laundering and counter-terrorist financing regime. We have therefore made in the amendments provision to extend the powers of the supervisory bodies that are responsible for financial and credit institutions, namely the Financial Services Authority, Her Majesty’s Revenue and Customs, the Office of Fair Trading and the Department of Enterprise, Trade and Investment in Northern Ireland. That extension will enable them to supervise compliance with any directions, as part of their wider role. Again, the enforcement provisions were well debated in the other place, and useful amendments and clarifications were made.
5.45 pm
To conclude, in recent years, international pressure for action to counter terrorist financing, proliferation activity and money laundering has been increasing. The United Kingdom has led international attempts to tackle those threats and to protect the international financial system, but we are now restricted by the combination of factors that I have mentioned. In contrast, several of our international partners, such as the United States, France and Germany, already have, or also seek, similar powers. The UK Government seek such powers to enable the UK to take appropriate measures to protect itself from internationally recognised threats. The provisions under discussion would enable us to take the necessary preventive but proportionate action to protect UK national interests and prevent potential abuse of the UK economy. We do not believe that further powers will be needed in February, but we do believe that the provisions before us represent a full suite of counter-measures. I commend the Lords amendments to the House.
Damian Green: First, I should apologise to the House, because, while the Government provide variety on their Front Bench for the Treasury aspects of the Bill, sadly, on the Opposition Front Bench, the House is still stuck with me.
Secondly, the Minister will agree—indeed, he indicated as much in his opening remarks—that this is a fairly extraordinary process. The provisions are extremely important to the Bill and to the wider battle against terrorism, but, although I quite understand the pressures, not only were the provisions not introduced in this House, but they were introduced at a late stage of the Bill’s passage in the other place. Indeed, their lordships were given little more than 24 hours to look at the measures before they were debated. I hear what the Minister says about the fact that the Financial Action Task Force laid down guidelines that the Government then had to follow, but I hope that he will agree that, for complex financial regulations in particular, this is not the way in which a Government should proceed.
Like the Minister, I carefully studied the debate in the other place, and I agree that it was extremely good—robust, detailed and purposeful. Nevertheless, I suspect that the level of scrutiny that this important provision deserves will not be obtained, because of the way in which both Houses have had to discuss it. My noble Friend Baroness Neville-Jones made the point about “rushed legislation” and, perhaps even more importantly, about powers being used inappropriately. That is a serious long-term danger. If we discover that the provisions either do not do their intended job or cause problems for those whom they cover, it will be legitimate for people who are badly affected to ask, “Why wasn’t Parliament doing its job?” The answer will be that, perhaps, Parliament was not given enough time to do its job.
Recently, we saw the effect of the spill-over into the financial sector of legislation that people regarded as anti-terrorist with the Landsbanki case in Iceland. The Icelandic Government and people were offended enough by the actions of the British Government; their appearing to have fallen under the provisions of anti-terrorist legislation added insult to their injury. We would not want to repeat that type of diplomatic problem.
Having said all that, I completely agree with the proposition underlying the measures in this element of the Bill. There are gaps in our ability to tackle the financing of terrorism—money laundering, and particularly the new phenomenon of proliferation financing, which the Minister identified. Some of the crimes involved are new, so we do not have the appropriate tools to deal with them. The need to deal with them, however, is self-evidently a policy objective that we Conservatives entirely share with the Government.
As my noble Friends in another place made clear, we support the broad thrust of the amendments. Indeed, I am sure that I share with the Minister a slight sinking feeling at the Treasury’s discovery that it does not have the powers to allow the UK to apply all the measures that the FATF has now decided are necessary. That could be an embarrassment to us. In these difficult times, we all want to protect the reputation of London as a financial centre, and we will need appropriate powers to stop terrorist financing, to preserve London’s reputation in the years ahead. At the moment, we cannot require a business to be aware of all the risks, to take the extra diligence or to supply systematic reporting when transacting with jurisdictions of concern. Clearly, we need to be able to impose such requirements. I hope that the provisions will enable us to do so.
The essential thrust of the provisions will meet no opposition from the Conservative party. However, the Minister will accept that they represent a significant extension to Treasury powers. As a consequence, even given the limited time scale, widespread consultation would have been extremely advisable, for the purposes of diplomacy and getting a more practical outcome. From what I have seen, the lack of such a consultation has been a fairly significant failure on the part of the Government. I was struck by the briefing provided by the British Bankers Association, which is absolutely central to the process of making the regulations effective. Its representatives say that late last month they were invited “at very short notice” to meet Treasury officials to discuss the amendments in this group. They go on to say:
“There was therefore no prior formal consultation of industry and it is difficult if not impossible to say how they”—
“will impact on the banking and financial services industry. No consideration has been given on how the proposed new powers will work in practice, nor indeed whether they will work properly in conjunction with other relevant legislation.”
In the context of the support that I offer the measures, I should say that that verdict is pretty damning from a trade body most affected by a new and important piece of legislation. Its representatives say that, as far as they can see, no consideration has been given to how the proposed new powers will work in practice, and that is surely unacceptable. In his concluding remarks, I hope that the Minister will address the issue of consultation and what has been happening. This briefing arrived yesterday afternoon, so it is clearly contemporaneous. The big banks that operate out of London feel that they are being ignored and steamrollered by these provisions.
The BBA also makes the valid point—again, I hope that the Minister can comment on it—that the proposed regulations represent the Government overturning their own policy to require that a cost-benefit and an impact analysis be carried out before introducing new legislation.
That has not been done. The BBA says that it is particularly concerned about schedule 7 and clause 64 and makes a number of specific recommendations, not all of which I necessarily endorse but to which I will turn in a moment.
The House, and particularly the Minister, should consider the BBA’s observations on the possible impact on its industry. First, it says:
“It is not possible to assess the likely impact on industry with any accuracy or clarity given the absence of information from HMT about how they might use the new powers. This is both in regard to frequency of use and scope (especially in terms of individual transactions).”
The Minister started to address some of those issues during his speech, but a much more detailed explanation will be needed to make it possible for the industry to respond intelligently. The BBA thinks that
“the likely impact must be seen as potentially very wide”,
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