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Lord Goldsmith: My Lords, I thank the noble Lord for giving way to me. In that circumstance the claimant will have noticed that it is recoverable property. That is why Clause 312(1) would not work in that situation. That is why the existing clause is necessary.

Lord Goodhart: My Lords, the point about the notice is a bad one. I return to the case of someone injured by negligence. At the time of the injury, he has no idea that the respondent is involved in crime. By the time the judgment is satisfied he has found out quite a good deal more about the respondent. If that is the case, on the noble and learned Lord's interpretation of Clause 312(1), the conditions cannot be satisfied because by the time that the judgment is satisfied the plaintiff has notice that the property might be recoverable. Surely, it should make no difference whatever if an entirely innocent plaintiff, with a good cause of action in damages against a respondent is defeated simply because at some stage before the judgment is satisfied he comes across the otherwise irrelevant information that the respondent is a no-good type against whom a recovery order might be

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made. It is unjustified to say that that is a deciding factor in whether or not the plaintiff is entitled to keep the damages which he has been paid. This is a wholly unjustifiable objection.

I am unhappy with the Government's response. Nevertheless, I have the feeling that we are arguing in terms of some fairly narrow technicalities. I should be reluctant in the circumstances—although I remain convinced that my point is good—to press the matter to a division. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 334 [Failure to disclose: regulated sector]:

Lord Goodhart moved Amendment No. 12:


    Page 199, line 24, at end insert "or an employee of his"

The noble Lord said: My Lords, in moving Amendment No. 12, I shall speak also to Amendments Nos. 13, 14, 15 and 16. The amendments are based on the belief that the most effective way to ensure that the regulated sector observes high standards in relation to money-laundering is to make its employers liable to prosecution for misconduct or negligence of their employees, whether or not the directors of an employer company have been guilty of it.

If employers face a hefty fine for a breach of money-laundering by their staff, that ensures that their staff are not only properly trained but are selected as people who have the capacity to do the job, are properly monitored and are not grossly overworked.

Amendment No. 12 substantially strengthens the Bill. In addition, it eliminates the need to make employees personally liable for a negligent failure to spot a suspicious transaction. It is unfair to make a junior employee liable for failure to spot a suspicious transaction if he did not realise that it was suspicious.

There is a specific defence provided in the Bill for employees who have not had proper training, but it is not a defence if they fail to notice that a transaction is suspicious because they are exhausted by overwork or because they are simply not up to the job. That potential unfairness to employees who may find themselves with a criminal conviction for negligent conduct was a matter of great concern to members of all parties in Committee in another place. An offence of careless driving is a criminal offence of negligence, but does not normally attract the kind of stigma that would be attracted by a conviction for money laundering, which may be a crime of serious dishonesty.

The amendments would strengthen the Bill by giving employers a real incentive to ensure the maintenance of high standards in watching for money laundering and would remove a potential injustice to their staff. I beg to move.

Lord Kingsland: My Lords, I rise to support the amendments. As the noble and learned Lord, Lord Falconer, will recall, in Committee we tabled amendments of a slightly different nature to the clause. Our approach was to reduce the penalty for the negligence offence to one below the custodial threshold. That did not find favour with the noble and

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learned Lord. The noble Lord, Lord Goodhart, took the message and has come up with a different approach.

The Government's approach is both ethically wrong and operationally futile. It is ethically wrong for the reasons explained by the noble Lord. A criminal penalty of that nature should not be the consequence of negligent conduct in which an officer in an institution does not do what he ought to do, according to the required standard. Equally, the existence of the penalty will make no difference to the conduct of those who are, to use the modern expression that I do not much like myself, but which seems the most evocative, at the workstation.

I hope that the Minister will reflect on the matter. I do not say that our solution is necessarily the best; nor that that of the noble Lord, Lord Goodhart, is the best; but the Government should think again about the issue. So something needs to be done. The Government have got the balance wrong and they should take the opportunity, while the Bill is still alive, to come up with a better solution.

Lord Falconer of Thoroton: My Lords, we share a considerable number of goals with noble Lords on both Front Benches on the matter, but I earnestly ask both of them to consider what they are proposing under the amendment.

For example, let us suppose that a one-man solicitors firm has trained all of its staff and has systems in place, as required under the money laundering directive that is to be introduced. That one-man firm will be caught by the directive and by the clause. He has trained; he has the system; he is careful. As the result of the negligence of one of his employees, there is a breach of the provision. Under the amendment, the employee will get off but the solicitor, who is completely blameless in that respect and has done everything required of him, will end up being liable for a criminal offence that carries a maximum penalty of five years in prison.

Having put the ethical case, I cannot believe that noble Lords intended that, but that is the amendment's consequence once the second money laundering directive is introduced and solicitors are caught by it.

Lord Kingsland: My Lords, I am most grateful to the noble and learned Lord for giving way, and I shall be telegraphic. I agree with much of what he said, but the Government are equally at fault in their position. That is why I asked them to come up with a different approach. The Government have criticised both of our approaches, but they have not done anything to improve their draft.

Lord Falconer of Thoroton: My Lords, that draft involves blameworthy conduct in the sense of negligence before a crime is committed, whereas the draft proposed by the noble Lord, Lord Goodhart, which the noble Lord supports, involves conviction for an offence without any blameworthy conduct.

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We all agree that our goal is high standards for reporting coupled with appropriate penalties for wrong-doing. We cannot possibly support what would in effect be strict liability for professionals who were completely blameless. From what the noble Lord, Lord Kingsland, said, I detect that he does not support that conclusion either. We think that we have the best solution.

The Money Laundering Regulations 1993 require all businesses within the regulated sector to have systems in place to provide for the training of employees, the identification of customers and the keeping of records for five years. The penalty on conviction for failing to comply with the regulations is a period of imprisonment of up to two years or an unlimited fine. Most companies are diligent in that respect and comply fully with the regulations' requirements, but a company director can already be brought to book for failing to take the regulations seriously. That is important because of the high standards that we seek.

In effect, the amendments would mean that even if an employer has done everything in his power to ensure that his employees have been correctly trained to be alert to money laundering, where an employee fails to make a disclosure because he did not know or suspect that money laundering was going on, the employer would have to take full responsibility for the negligent behaviour of his employees. It does not end there. In the circumstances that I have described, by virtue of Clause 338, the employer could find himself subject to a period of imprisonment of up to five years.

For the reasons that I have given, that cannot be right. The employer will have done nothing wrong at all; on the contrary, he will have done all that he can to protect his company from money laundering activity and yet, through wilfulness or sheer laziness on the part of his employee, he may still face a longish term of imprisonment.

Separately from the ethical point, how would the amendment work in practice? Where the employee knew or suspected money laundering, the prosecutor would seem to have a choice whether to prosecute the employer or the employee. It is not right to have the option of prosecuting the employer in cases where the employee deliberately fails to report money laundering. In cases in which there was no knowledge or suspicion, the employee would have a defence to the offence, so the prosecutor could pursue only the employer.

However, in practice it may not be clear at the outset whether there was actual knowledge or suspicion or simply reasonable grounds for it. In order to secure a conviction, the prosecution would need to put both the employee and the employer in the dock and see whether the employee successfully made the defence. That could lead to the employer being prosecuted in the most inappropriate cases.

The simple fact is that, under the amendments, the prosecutor would be reluctant to bring a prosecution against a company except in the most blatant cases of

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a company's disregard of proper procedures. In most such cases, the company would be liable to prosecution under the money laundering regulations in any event. We should be no further forward in trying to bring about a higher degree of diligence within the regulated sector.

So we would end up with unfairness and would not produce the high standards that we seek. In those circumstances, I firmly ask the noble Lord to reconsider and to withdraw the amendment.


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