Session 2009-10
Publications on the internet
General Committee Debates
Delegated Legislation Committee Debates

Draft Al-Qaida and Taliban (Asset-Freezing) Regulations 2010



The Committee consisted of the following Members:

Chair: Mr. Edward O'Hara 

Buck, Ms Karen (Regent's Park and Kensington, North) (Lab) 

Cable, Dr. Vincent (Twickenham) (LD) 

Cawsey, Mr. Ian (Brigg and Goole) (Lab) 

Duddridge, James (Rochford and Southend, East) (Con) 

Hoban, Mr. Mark (Fareham) (Con) 

Horam, Mr. John (Orpington) (Con) 

Ladyman, Dr. Stephen (South Thanet) (Lab) 

Leigh, Mr. Edward (Gainsborough) (Con) 

McCarthy-Fry, Sarah (Exchequer Secretary to the Treasury)  

McGuire, Mrs. Anne (Stirling) (Lab) 

McNulty, Mr. Tony (Harrow, East) (Lab) 

Mudie, Mr. George (Leeds, East) (Lab) 

Pugh, Dr. John (Southport) (LD) 

Stanley, Sir John (Tonbridge and Malling) (Con) 

Tipping, Paddy (Sherwood) (Lab) 

Turner, Dr. Desmond (Brighton, Kemptown) (Lab) 

Chris Stanton, Committee Clerk

† attended the Committee

Column number: 3 

Fifth Delegated Legislation Committee 

Tuesday 30 March 2010  

[Mr. Edward O’Hara in the Chair] 

Draft Al-Qaida and Taliban (Asset-Freezing) Regulations 2010 

9.45 am 

The Exchequer Secretary to the Treasury (Sarah McCarthy-Fry):  I beg to move, 

That the Committee has considered the draft Al-Qaida and Taliban (Asset-Freezing) Regulations 2010. 

It is an enormous pleasure to serve under your chairmanship this morning, Mr. O’Hara. 

The draft regulations are designed to set criminal penalties for breaching the EC regulation giving effect to the United Nations asset-freezing regime against al-Qaeda and the Taliban within the European Union, and to give proper effect to that regulation in the UK. Members of the Committee will be aware that the United Nations Security Council has mandated two separate terrorist asset-freezing regimes with different applications and procedures. The first regime, chronologically, was established in 1999 by UN Security Council resolution 1267 and applied an asset freeze against the Taliban. It was subsequently broadened by successor resolutions to apply an asset freeze against Osama bin Laden and individuals associated with al-Qaeda or the Taliban. 

After the terrorist attacks on the US in September 2001, the UN mandated a separate terrorist asset-freezing regime in UNSCR 1373, whereby all states are required to identify and freeze the assets and resources of people who commit, attempt to commit, participate in or facilitate the commission of terrorist acts. There are two key differences between the two regimes. The first difference is in the nature of the targets. The UN 1267 regime applies only to Osama bin Laden and to those associated with al-Qaeda or the Taliban. The UN 1373 regime applies more generally to those involved in terrorism, regardless of whether they are linked to al-Qaeda or the Taliban. 

The second key difference between the two regimes is in their geographical scope and listing procedure. The UN 1267 regime is global in its application: the UN holds a central list of targets, and listing and delisting decisions are made by a committee of the UNSC; once individuals or entities are listed, their assets must be frozen by all states. By contrast, under UNSCR 1373, freezing decisions are taken nationally and apply nationally, although individual states are encouraged to share information about national freezes, so that where appropriate the assets of those involved in terrorism can be frozen across national boundaries. 

The draft regulations apply only to the UN al-Qaeda and Taliban regime—the 1267 regime. They do not apply to the UN terrorist asset-freezing regime under resolution 1373. The reason for this is the different position of the two UN asset-freezing regimes under

Column number: 4 
European law. The EU does not provide a legal basis fully to implement our obligations under UNSCR 1373 to freeze the assets of terrorists. That is because the EC regulation for UNSCR 1373 deals with asset freezes only for persons who are involved in acts outside the borders of the EU. It would not allow us to take preventive action to freeze the assets of “home-grown” terrorists, which UNSCR 1373 also requires. Consequently, following the Supreme Court’s decision that Orders in Council made under the United Nations Act 1946 cannot be used to give effect to UN terrorist asset-freezing obligations, the Government are addressing our implementation of UNSCR 1373 through primary legislation. 

The Terrorist Asset-Freezing (Temporary Provisions) Act 2010 was passed last month and we have published a draft Terrorist Asset-Freezing Bill to provide a durable legal basis for freezing the assets of terrorists. Committee members will recall, as we said when the temporary Bill was debated, that we are committed to ensuring that there is proper scrutiny of our draft legislation. We have published a public consultation document seeking the views of interested parties and the general public on our draft legislation and the Government’s approach to terrorist asset-freezing. I very much hope that interested parties and the public will engage with the consultation. 

The legal position of the UN al-Qaeda freezing regime is different. In 2002, the EU adopted regulation 881, which implemented the al-Qaeda regime throughout the EU. EC regulation 881 is directly applicable in national law, and therefore the assets of those listed under the UN al-Qaeda regime have remained frozen in the UK through the EC regulation, despite the Supreme Court’s decision to quash the Al-Qaida and Taliban (United Nations Measures) Order 2006. The quashing of that order, however, has removed the criminal penalties for breaching the EC regulation in the UK; it is therefore necessary to reinstate the enforcement provisions for EC regulation 881 in national law, as intended by the draft regulations before the Committee. 

When the draft regulations were debated in the other place, it was asked why the consultation and the draft Bill on the terrorist asset-freezing regime specifically exclude those covered by the al-Qaeda and Taliban asset-freezing regime. The answer is that EC regulation 881/2002 has direct effect in UK law and the UK is required properly to implement it. The regulations therefore establish penalties, licensing and enforcement mechanisms in relation to the EC regulation, so that a regime that is already in UK law can be properly enforced and implemented. 

Mr. Mark Hoban (Fareham) (Con):  Will the Minister elaborate on the differences between the two regimes and on how the regimes will be kept in lockstep as they develop? 

Sarah McCarthy-Fry:  I do not know whether the hon. Gentleman means the sanctions or the regimes, but the regimes are different because under the 1267 regime, the designation of the list is kept by, and the listing process goes through, the UN, whereas under the 1373 regime we maintain our own listing. The 1373 regime is maintained through our national law and EC law. 

Column number: 5 

Mr. Hoban:  Taking that one step further, are the restrictions, sanctions and penalties the same under both regimes? 

Sarah McCarthy-Fry:  Under the draft Bill the maximum sentence is seven years, but under these regulations it is two years because that is the maximum possible under the EC regulation. We are not creating a new sanctions regime in UK law, as our draft Bill seeks to do for the asset-freezing regime mandated by resolution 1373. The European Communities Act 1972 clearly provides for the creation of the mechanisms through regulations made under the Act, and that is what we are doing. 

Given the limited purpose of the regulations, we did not feel that a consultation was appropriate for the regime, but the Government take the view that, given the points raised by the Supreme Court and the obvious public and parliamentary interest, it is right that the regulations be subject to approval by Parliament under the affirmative procedure. We could have introduced them under the negative procedure, but I wanted the affirmative procedure so that we could debate them today. 

The question of including a sunset clause in the regulations was also raised in the other place. The timing of any amendment or revocation of the EC regulation is a matter for the EU, so it would not be right for these regulations to include a sunset provision. Although the regulations, which provide the enforcement mechanisms for the EC regulation, are limited in their scope, we would be happy to consider the provisions again in the light of the debate on the draft Terrorist Asset-Freezing Bill. 

Before I go into the detail of the regulations, I should like to draw Members’ attention to the central purpose of the al-Qaeda and Taliban sanctions regime and to some of the issues that it has raised about due process. The central purpose of that regime is to stop the flow of funds to al-Qaeda, the Taliban and those associated with them, and therefore to disrupt their operations. That is a necessary and vital task at a time when the threat from international terrorism remains severe and when British forces in Afghanistan are being injured and killed by the Taliban and their allies. I am sure that the whole Committee agrees with the legitimate purpose of the UN sanctions regime. 

The Government remain of the view that maintaining and implementing UN-wide asset freezes against al-Qaeda and the Taliban is important in helping to counter the threat that those bodies pose to international peace and security. We know that al-Qaeda and the Taliban source funds from all over the world. The response must be global and the best way to achieve that is by maintaining a central UN list of sanctions targets. 

Within the UK alone, about £140,000-worth of funds are frozen under the UN al-Qaeda and Taliban regime in addition to the £150,000 that is frozen under the terrorism orders. The Committee will be aware that the Supreme Court raised concerns about individuals on the UN list not being able to challenge their listing at the UN in a court. The Government are committed to continuing to improve the UN 1267 committee’s processes for listing and delisting and I am pleased to say that, as a result of the UK’s work with the Security Council partners, the UN has made great strides in recent years to improve its listing and delisting procedures. 

Column number: 6 

Reviews of all cases must now be conducted every three years and Security Council members are working towards reviewing all current cases on the list by June this year. Nineteen individuals and entities have already been removed from the UN’s list as a result of the reviews. In December, the Security Council agreed further improvements to listing and delisting procedures, including establishing an ombudsperson who will be able to work with Security Council members to support the review process. We believe that that is a significant step forward and are pressing for the position to become operational as soon as possible. 

Although designees can submit delisting requests for the sanctions committees’ considerations, the committees do not provide provisions for judicial oversight. It is important to note, however, that EC regulation 881 does not automatically give effect to the UN list, but establishes an EU list of targets. It means that, when someone is added to the UN 1267 list, their name must also be added to the EU’s list in order for the asset freeze to take effect under the EU regulation. The EU’s practice is to follow the UN list in adding or removing names and at present the EU’s list is up to date in reflecting the UN list. A person who is added to the EU list may challenge the decision to list him by the EU in the EU Courts. Members of the Committee will be aware that such challenges have, in fact, been brought—most notably in the Kadi case. Several further challenges are now before the EU Courts. 

Let me explain how the draft regulations are intended to work. EC regulation 881 implements UNSCR 1267 freezes in the EU by: requiring that all funds and economic resources belonging to persons listed under the regulations are frozen; prohibiting funds or economic resources from being made available to or for listed persons; prohibiting deliberate circumvention of the prohibitions and requiring persons to notify national competent authorities of a circumvention; requiring persons to provide information that facilitates compliance and to co-operate with national authorities; and requiring each member state to determine effective, proportionate and dissuasive sanctions for breaching the regulation. 

The draft regulations set the criminal penalties for breaches of the EC regulation. I reiterate that they do not give the UK a national power to identify and freeze the assets of those associated with al-Qaeda and the Taliban. We would have to refer such persons to the UN for listing to be agreed by the Security Council. To set criminal penalties for breaching the prohibitions in the EC regulation and to give proper effect to the regulation in the UK, the al-Qaeda regulations need to set out in detail to whom the sanctions apply, the nature of the prohibitions, licensing arrangements, criminal penalties, information-gathering powers and appeal mechanisms. That is because, although the EC regulation sets out the requirements of the asset-freezing regime, it does not do so with the precision and clarity that is needed for proper implementation under UK law, in particular regarding the creation of criminal offences. 

The regulations before the Committee therefore take the EU regulation as the starting point, but provide more detail with a view to creating a regime that is clear, effective and proportionate. They do no more than the minimum necessary to implement the EC regulation. All the provisions of the regulations are necessary to enable us to fulfil our EU obligations, which are to

Column number: 7 
implement the EC regulation effectively and to provide effective, proportionate and dissuasive penalties for breaching the provisions of the EC regulation. 

The regulations define a designated person as someone listed under annexe 1 to the EC regulation; define the scope of the prohibitions that apply as a result of the asset freeze; provide criminal penalties for breaches of the prohibitions; provide a mechanism for granting licences; and create an offence when a person knowingly or recklessly provides false information or documents to obtain a licence or acts outside the terms of that licence. The regulations also include provisions for the gathering and sharing of information, create an offence for failing to comply with Treasury requests for information, and amend the Counter-Terrorism Act 2008 so that someone affected by a Treasury decision made under the regulations may apply to the court to have the decision set aside. 

Dr. John Pugh (Southport) (LD):  As a matter of clarity, the Minister said that the normal method of restitution—of getting oneself off the list if one should not be on the list, or has reason to think that one should not be—is to go to the European Court. Are we talking here of a right being created for people to apply to British courts to rule themselves out from the EC regime? 

Sarah McCarthy-Fry:  The only way to get off the list is to apply to the European Court. That applies to someone affected by the licensing regime or by the way in which the designation is managed. Then there is the right under the regulations to appeal to the courts to have the terms of the licensing arrangements that we put in place set aside. That does not relate to whether such a person is on the list in the first place and therefore subject to the asset freeze. 

The scope of the prohibitions reflects our intention to make the regime proportionate and to try to limit the impact of the regime on innocent third parties. The prohibitions mirror those set out in our draft Terrorist Asset-Freezing Bill. The regulations set out that the prohibition on making funds available for the benefit of the designated person applies only when the designated person is able to obtain significant financial benefit. The prohibition on making economic resources available to a designated person applies only when a person knows or has reason to suspect that the resource will be used to generate funds, goods or services. 

I hope that I have explained to members of the Committee why it is important that the UK fully meets its obligations to enforce the UN al-Qaeda and Taliban asset-freezing regime. Many hon. Members may have concerns about the UN’s listing and delisting procedures. However, the UK has been at the forefront of action in the Security Council to improve the procedures and significant progress has been made. The European Union’s implementation of the UN 1267 regime provides designated persons with the opportunity to challenge their listing in the EU, and the right has been acted on and tested. 

I have also explained the content of the regulations. In the Government’s view, they represent an effective, fair and proportionate way of giving full effect to the EC regulation within the UK, and I commend them to the Committee. 

Column number: 8 

10.2 am 

Mr. Hoban:  It is a pleasure to serve under your chairmanship this morning, Mr. O’Hara. There is a sense of déjà vu, having debated the Terrorist Asset-Freezing (Temporary Provisions) Bill last month and having read Lord Myner’s speech on the regulations last week in the House of Lords. The Exchequer Secretary has stuck pretty close to her script throughout. The only notable difference between her speech and that of the noble Lord’s was a change in terminology: she used the word “ombudsperson”, whereas her noble Friend, who is perhaps more unreconstructed than she, referred to the “ombudsman”. 

The statutory instrument before us today flows from the Supreme Court’s quashing of the terrorist asset-freezing legislation earlier this year. One of the reasons for the quashing was that the Executive had sought to circumvent proper parliamentary scrutiny of that legislation and there was no firm legislative base for it to be made. We are therefore grateful that the Minister decided that it is right to use the affirmative procedure for the draft regulations and, through this debate, to ensure proper parliamentary scrutiny. It would have saved us all a great deal of time if the Government had adopted that approach from the outset. 

We want to have in place an asset-freezing regime with the appropriate penalties and on a proper legislative footing. That is why we co-operated with the emergency legislation passed last month and why we indicated to the Government that we will be content with putting a proper legislative framework in place before Dissolution. However, the Government chose to reject that offer and have gone down the route of consultation. 

What seems odd—it is entrenched by the draft regulations before us today—is that we will end up, at the end of this year, when the new Bill is in place, with two regimes running almost in parallel. One has its origin in the European Communities Act 1972—the basis on which the draft regulations are made—and the other will be based on the permanent primary legislation that the Government have agreed to introduce on to the statute book by the end of this year. That is why I asked about the differences between the two regimes. People seeking to comply with the regimes will face a challenge. There will be one set of rules for al-Qaeda and the Taliban and potentially another set for wholly different terrorist groups. We are in danger of missing an opportunity. Putting the regime on a proper legislative footing should have given us the opportunity to bring the two regimes together, so that they march in lockstep and people know exactly how the two regimes work. 

What we are putting in place—the Minister identified this in response to an intervention—is different penalties. Someone who breaches the statutory instrument in front of us today will be liable to up to two years in prison, whereas if they breach the other asset-freezing legislation, they may be imprisoned for up to seven years. I am not sure what sort of message that is meant to send out to people who aid and abet terrorists. It almost gives the impression that we take one lot of terrorists less seriously than another, although I am sure that that is not the Government’s intention. 

The Government should think carefully about the provisions of the regulations and whether, as a move towards a single legislative base, the two regimes should

Column number: 9 
be harmonised, including the terms of licensing, the exceptions and, importantly, the penalties for breach of the licences. Having a differential penalty regime sends out contradictory messages to people about the seriousness with which the Government engage in the issue. 

I have a more detailed question about the terms of the draft regulations. The Minister stated that they set out that the prohibition on making funds available to benefit a designated person applies only where the person is able to obtain a “significant financial benefit”. Will the Minister elaborate on what is meant by “significant”? A rather extreme example used in the previous debate was that someone who paid the bus fare for someone subject to the regulations would be at risk of prosecution if there were no de minimis threshold. The use of the word “significant” creates such a threshold without being specific as to what it is. I would be grateful if the Minister gave some guidance on how whether the benefit was “significant” will be determined in such cases. 

The Minister also said that the prohibition on making economic resources available to a designated person applies only when “a person knows or has reason to suspect that the resource will be used to generate funds, goods or services.” What would happen if someone was paying the rent on a flat used by a person subject to a freezing order and that flat was being used as a base for the latter to plot terrorist attacks? Would the person who is paying the rent, who may be a third party, be liable to prosecution if they suspected that the resident might be having other people, whom the person paying the rent did not know about, around the flat? What degree of proof is required to demonstrate that someone has reason to suspect that a resource is being used to generate funds, goods or services? 

We support the regulations and want them to be put on a proper legislative base. However, I am concerned that we will be headed towards two regimes on asset freezing if the Government do not change track, which will only serve to confuse either the people subject to them, or those who need to operate them in practice. 

10.9 am 

Dr. Pugh:  There is no disagreement between any of us about the objectives, importance or thrust of the legislation. There is and has been a dispute in the other place, however, about the process of legislation. Process is important, because any Government taking special measures should put them up for further scrutiny. The debate in the other place, which, like the hon. Member for Fareham, I have studied, was largely about the legislative history—not so much about the financial and economic aspects, but more a question of legal scrutiny. 

The statutory instrument makes EC regulation 881, which in turn implements UN resolution 1267, work in the UK. It is set alongside other similar UN resolutions, such as resolution 1373, and is coupled with the emergency legislation of the Terrorist Asset-Freezing (Temporary Provisions) Act 2010, draft legislation, and issues relating to the Ahmed case before the Supreme Court. Considering that complexity, the Government have made a dog’s dinner of the process. It is not elegant and looks clumsy, although it is arguably necessary. 

My major concern relates to the possibility of legal redress if somebody is wrongly captured by the legislation, which is being made in such great, albeit necessary,

Column number: 10 
haste. On the face of it, there seem to be sufficient, if slightly onerous, methods of redress—I do not mean redress for people who are suspects or whom we have reason to suspect, but third parties who may be captured by events and whose funds may be affected by the freezing of assets not their own. Indeed, the Minister mentioned innocent third parties. As I understand it, any sort of redress must take place via EU Courts, not British ones. The SI does nothing to change that. The only other means of redress that I identified in what the hon. Lady said was the UN review process, which can remove somebody from designation, but that is a lengthy, laborious and drawn-out process. 

I could be assured, following parliamentary scrutiny of the draft legislation and some consolidation, that there will be sufficient redress for an innocent party, but the provisions are a little vague at the moment and concerns and unease remain. How effective is such legislation, and how easy is it to circumvent? How much resource will it actually take from the Taliban and al-Qaeda? The answers, I guess, are for a ministerial statement, rather than for an SI’s impact assessment. I would, however, welcome some reassurance from the Minister on the position of people, such as the innocent third parties whom she mentioned, who may be caught in a process that has severe economic effects on them. Although such people may be entirely innocent, they may none the less want to sort the matter out in an effective way before a court. 

10.13 am 

Sarah McCarthy-Fry:  I am sure that we all recognise the threat to the UK from international terrorism and the reasons why asset-freezing regimes are in place. I welcome hon. Members’ support for the regulations, which enable us to fulfil our international obligations to implement the UN freezes and the EC regulation. 

The main point made by the hon. Member for Fareham was on the difficulties relating to the two regimes operating in parallel. The reason is that each regime has a different source: one requires us to have domestic laws to give effect to UN Security Council resolution 1373, while the other, which relates to al-Qaeda, is given effect by EU law, which is directly effective in the UK. The regimes are consistent in that we have drafted the regulations’ prohibitions to be consistent with the main draft Bill. The difference, as I pointed out to the hon. Gentleman, is the different penalties, which unfortunately reflect the terms of the European Communities Act 1972. However, if the penalties under the regulations are shown not to be effective or dissuasive, we could review the situation and go back to the EU. I believe that, if we were to enforce greater penalties, that would have to be done in conjunction with the EU, because of the legal basis of each of the regimes and because we are acting through the effect of an EC regulation. 

Mr. Hoban:  Surely the difference in penalties is a prima facie reason to go back to the EU? Clearly, the Government believe that, under the UN-based measures, seven years is a dissuasive penalty; if they believed that that was disproportionate, they would reduce that to two years, if they felt that was dissuasive. If the Government believe that seven years is dissuasive, proportionate and

Column number: 11 
effective for one regime, surely they should argue with the EU that two years is not sufficiently dissuasive and proportionate to the offence committed? 

Sarah McCarthy-Fry:  I take the hon. Gentleman’s point, but the intention of the regulations is to get the criminal penalties in place as quickly as possible. During the passage of the draft terrorism Bill, we can debate the matter further, looking to the future. To ensure that we have the prohibitions and sanctions in place to be able to properly implement the measure, we will stick with the European Communities Act 1972 for now, but that is a point that we can debate on the draft terrorism Bill. 

The hon. Gentleman asked about the question of significant financial benefit. As in all of these cases, that will be done on a case-by-case basis. We are trying to get the balance right. The prohibitions are not intended to prohibit a person’s everyday living. That is the balance that we have to get right and that is why the licensing regime has changed over the years. The other example he gave was of someone paying a designated person’s rent and the flat or property being used as a base for plotting terrorism. The required level of knowledge or suspicion uses the criminal standard—beyond reasonable doubt—but, again, it depends on the facts of the individual case. 

Column number: 12 

The hon. Member for Southport was concerned about those who may be wrongly captured under the regime. I re-emphasise that there is no recourse to the British courts for people’s designation, because they have not been designated under British regulations. Designation is made by the UN and takes effect in this country under the EU regulation. As the EU implements the UN designation by a separate mechanism, that person has recourse to the EU Courts. The place of the British court relates to licensing and prohibitions, which is where the point about innocent third parties comes in. If people feel that they have been unfairly picked up by the prohibitions, they can appeal to the British court on the prohibitions and licensing arrangements, but not on the designation of the listed person. 

We need a proper framework to implement the EC regulation effectively and provide penalties for non-compliance. I therefore commend the regulations to the Committee. 

Question put and agreed to.  

Resolved,  

That the Committee has considered the draft Al-Qaida and Taliban (Asset-Freezing) Regulations 2010. 

10.19 am 

Committee rose.  


©Parliamentary copyright
Prepared 11:41 on 31st March 2010