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Lord Freeman: I support my noble friend Lady Noakes and this group of amendments. The Minister is reputed to be—and to my knowledge is—a reasonable man. The amendments are about fairness. During discussion of the previous group, the Minister sought to argue against the de minimis provisions on the grounds that the accountancy profession had not notified sufficient cases of possible laundering. This group of amendments cannot be disposed of with the same argument.
In this country, lawyers do not have a complete monopoly on advice on all aspects of the law. In this country, for many years accountants have advised on tax law. In the United States, the legal profession still has an effective monopoly on advice on tax law, but not in this country. It is therefore hard to understand how the Minister can disagree with my noble friend Lady Noakes, when in essence she is arguing that the EU second money laundering directive gives the Government power to extend the protection to accountants in the same way as to lawyers on the
narrow, restricted legal issue of ascertaining the statutory tax position. The amendment commends itself on grounds of fairness alone.
Lord Rooker: As the noble Baroness, Lady Noakes, and the noble Lord, Lord Freeman, know, the amendments would extend the legal privilege exemptions in Part 7 of the Bill to cover auditors, external accountants and tax advisers whereas currently they cover only professional legal advisers. When the issue was discussed in another place on 24th January at cols. 1164 to 1168, the debate centred specifically on the position of tax advisers. This group of amendments goes much wider in seeking to extend legal privilege to other groups.
I should first point out that, as the noble Baroness and the noble Lord mentioned, the accountancy profession's concerns arise from the fact that the EU second money laundering directive, adopted in December, requires that lawyers, accountants and tax advisers should be made subject to the obligations set out in the directive. In essence, that means that they will have to be brought within the framework of the 1993 money laundering regulations and an obligation will have to be placed on them to report any fact of money laundering to the competent authorities.
A further relevant fact is an optional element in the second money laundering directive that allows member states to decide whether information exchanged between accountants or tax advisers and their clients should be made subject to professional privilege. Hitherto, the courts have not chosen to extend legal privilege to accountants and tax advisers. The main purpose of the legal privilege provision is to ensure that confidential information exchanged between a lawyer and his client in contemplation or furtherance of legal proceedings remains confidential between them. We have not previously felt that the same considerations apply to the accountancy profession.
In due course, the United Kingdom will need to give detailed consideration to the discretionary option in the directive concerning the accountancy profession as part of the implementation process. I am pleased to announce that the Treasury will be the lead department to take this forward in consultation with other Whitehall departments. It will certainly not be the Home Office. There will also need to be consultation with interested bodies. We have no timetable yet for the consultation process, but, as I am sure the Committee and outside bodies will know, implementation of the new directive must be completed by 15th June next year. Although the final decision is clearly subject to the consultation process, the Treasury has indicated that it is not at present convinced by the arguments for an extension of legal privilege.
My next point does not concern the thrust of the speeches made by the noble Baroness and the noble Lord, but it is fair for me to put it on the record. We understand that the accountancy profession is concerned that lawyers who can claim legal privilege may be at a competitive advantage when offering tax
advice to clients who are unsure of their legal position. However, questions of competition and commercial advantage must in this instance be considered separately from the interests of those clients, for whose protection the common law concept of legal privilege has evolved.One consideration is the fact that accountants and tax advisers are in no way regulated in the same way as lawyers in this country, so it may prove difficult to determine exactly to whom the professional privilege exemptions may apply. I do not pose that as an insuperable hurdle, but it is a fact that the position is not the same. We have enough problems in the engineering profession with myriad institutions, but it is worth putting that point on the record.
As I am sure that both the noble Baroness and the noble Lord recognise, it would be a momentous and significant step to extend the scope of legal privilege in the way that they envisage. That privilege has been part of our system for a very long time. This is not the Bill to use to make such a change—not until the option in the directive has been properly considered and discussed.
By the way, one argument put to us is that if a person knows that confidential matters he has discussed with his tax adviser may be made available to the law enforcement authorities, he may be less likely to seek professional advice. That might have a substantial adverse impact on the accountancy profession. But honest people with honest businesses will not be deterred from seeking professional advice for those reasons, so we do not rely on that argument.
I should also put on record another point that is not unimportant. An assurance was given in the other place on 24th January at cols. 1142 to 1143 of Hansard, that I should like to repeat here. Although I shall not go into all of the detail, it deals with the industry's concern that the Revenue might be influenced in Hansard cases where the National Criminal Intelligence Service receives a report in advance of the Revenue. The Revenue will not deal with a case differently because it was notified via NCIS, rather than directly. That important point was made in the other place. I could repeat my point about how the transaction reports from accountants are quite small, but I shall not go over the details that I gave, comparing accountants to bookmakers. That was probably unfair of me; one would have thought that we would get a lot more from accountants than from bookmakers.
Legal privilege is an established concept. The noble Baroness and the noble Lords are asking for privilege to be extended to other professionals, rather than just legal professionals. Even if that were the right thing to do, this would not be the right Bill in which to do it. I have no doubt, however, that we will come back to this matter on Report.
Baroness Noakes: Can the Minister clarify something? We understand that it is the intention that the other professions will be brought within the scope
of the Bill by an order made under Schedule 6. Accountants will come within the scope of the Bill. The Bill must have all the protections that are deemed appropriate for accountants. It is not a question of waiting for a later consultation process; it is in the fundamental structure of the Bill. Other regulated professionals will be brought within the scope of the Bill. Is it not correct to amend the Bill in such a way as to cover all the professions whose inclusion in the scope of the Bill is being contemplated?
Lord Rooker: Work may be needed, but it is not work of the kind that is suggested by the amendments. I shall get an answer for the noble Baroness. Either I shall write to her or I shall make sure that the matter is dealt with on Report. She has asked a fair question.
The answer that I can give may not please everyone in the Committee, especially as I am about to say the dreaded words "European Communities Act". The answer is, "No". Under the European Communities Act 1972, we have wide powers to alter the Bill later. I know that that will be like a red rag to a bull for some noble Lords. I have made my bed, and I shall have to lie on it now.
Baroness Noakes: I thank the Minister for that response. He might anticipate that I see more mileage in the subject. I hope that he will consider the examples more closely. The situations described are slightly different from those that were discussed in another place. There are issues relating to tax advisers, other accountants involved in helping people to understand the consequences of business transactions and—importantly—auditors. The flow of information to auditors is extremely important on public policy grounds. For now, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
The Deputy Chairman of Committees (Lord Murton of Lindisfarne): If Amendment No. 260E is agreed to, I shall be unable to call Amendment No. 260F, owing to pre-emption.
Lord Thomas of Gresford moved Amendment No. 260E:
- Page 193, leave out lines 3 to 9 and insert—
The noble Lord said: The amendment deals with the situation that was foreshadowed in the remarks made by the noble Lord, Lord Kingsland. The Bill and the mechanisms in it for controlling money laundering ought to bite on employers, as much as on employees. The amendment would mean that an employee would have as a defence the fact that he was,
The policy of the Bill must be to put the employer at risk, rather than the employee. If we put in a Bill various provisions that make negligence a criminal offence, without adequate safeguards, it is even more important that the employer should be brought up short. I beg to move.
Lord Bassam of Brighton: The amendment would delete those that were made by the Government to subsection (5) of Clause 330 in the other place on Report. Those provided a defence to the failure to disclose offence if an employer had not provided the defendant with such training as was specified by the Secretary of State by order.
The noble Lord's amendment would replace the Government's proposed solution with a different and much weaker position. The effect would be that an employee in the regulated sector, on which Clause 330 bites, would never, in any circumstances, commit a failure to disclose offence under the objective test of reasonable grounds for knowledge or suspicion. If the employer had not provided adequate training, he would be deemed to be guilty of the failure to disclose offence under the objective test.
The amendment would also have the effect that, in circumstances in which the employer had provided the employee with adequate training and experience and the employee still did not know or suspect that money laundering was taking place—in circumstances in which he should have done—the employee would still not have committed a failure to disclose offence and neither would the employer.
As the noble Lord, Lord Thomas of Gresford, said, there was some discussion of the impact of such changes in our debates on some previous amendments. The amendment would remove the negligence element from Clause 330 and introduce a separate negligent failure to disclose offence. Strong measures against money laundering, including the new negligence test, are essential, given the background of several money-laundering cases in the City that were not reported to law enforcement agencies. In the interests of the City's financial reputation and standing, it is vitally important that the United Kingdom be seen to demand the highest standards of diligence.
Noble Lords should note that we already have sanctions under the Money Laundering Regulations 1993 and in the Financial Services Authority rules against employers who consistently fail to provide adequate training. The penalty under the Money Laundering Regulations is two years' imprisonment or an unlimited fine. Regulatory sanctions seem appropriate for a firm that fails to establish adequate systems to stop money laundering.
There is no distance between us on the point that employees should not be held liable when they have not been properly trained. On Report in another place, we introduced amendments to that effect, providing a defence to cover that situation. However, we are not of like mind as to where ultimate responsibility should lie in the event that blatant examples of money laundering are disregarded. The negligence element of the failure to disclose offence should be applied directly to individual employees. We must have provisions that will deter competent employees from exercising wilful blindness, particularly, as is often the case, when they are under pressure to maximise profits.
The "reasonable grounds" test for individuals is important. It will help to raise awareness of and compliance with anti-money laundering controls throughout the regulated sector. That will be especially important when the range of regulated activities is widened following the implementation of the second European Money Laundering Directive. We do not believe that the offence acts unfairly because we have built in sufficient safeguards to ensure that those who have a valid reason for failing to spot a suspicion are not improperly brought before the courts. I hope that the noble Lord is persuaded by those points and will feel able to withdraw the amendment.
"(c) he was acting in the course of his duties as an employee and he did not know or suspect that the other person was engaged in money laundering.
(6) Where a person would have committed an offence under this section but for subsection (5)(c), his employer shall be guilty of an offence under this section unless the employer had taken all reasonable steps to ensure that the employee was properly qualified by knowledge, experience and training to carry out the duties in question."
"acting in the course of his duties as an employee and he did not know or suspect that the other person was engaged in money laundering".
There is also a provision that the employer shall be guilty of the offence if he has not taken,
"reasonable steps to ensure that the employee was properly qualified by knowledge, experience and training to carry out the duties in question".
5.15 p.m.
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