[Relevant Documents: Oral evidence taken before the Treasury Committee on 25 January, 14 June, 8 July, 22 September and 29 November, on Economic crime, HC 145.]
That this House recognises the devastating impact economic crime has on individuals, businesses, families and society; considers it unacceptable that the cost of money laundering alone exceeds £100 billion a year according to the National Crime Agency; is concerned that in the wake of the Pandora Papers leak there is inadequate transparency, regulation and resources in place to effectively tackle this severe problem; and calls on the Government to bring forward legislative proposals to tackle economic crime as a matter of priority, integral to which are provisions to introduce a criminal offence for failure to prevent economic crime, reform Companies House and introduce a beneficial ownership register for the overseas owners of UK property.
I am grateful to the Backbench Business Committee for selecting the motion for debate. I am also grateful to all those who supported the application, and I particularly thank the hon. Member for Thirsk and Malton (Kevin Hollinrake) for working with me on it. The reason why we have secured such wide support for our debate is the growing recognition, concern and understanding of the enormous problems we are facing as a result of economic crime.
The Government produced an economic crime plan in 2019, but as the period it covers comes to an end next year, I think we should all reflect that that plan has not resulted in a successful crackdown on economic crime, but instead we have witnessed frightening and real growth in such crime. Far from bearing down on such wrongdoing, we have seen it mushroom across our economy, infecting our society, our security and our public sphere.
I put on record my tribute to my right hon. Friend for her work yesterday on the Finance (No. 2) Bill, dealing not just with the bigger subject, but with the detail of the Bill’s clauses. Does she agree that, although it is our economy, in a globalised environment we should worry about economies abroad, including the Russian influence? I refer specifically to the recommendations of the Russia report, which deal with a number of financial instruments.
One of my growing concerns is that economic crime and the laundering of money into the country—particularly, one suspects, of a lot of Russian money that has probably been stolen from the Russian people—is having an influence right through society, and I will reflect on that later in my contribution.
First, I congratulate the right hon. Lady. I just want to say that this money is not all from Russia; it is closer to home. I make this point because it is important to do so. I am sure that the right hon. Lady is aware that Northern Ireland has paramilitary groups that have become experts in money laundering. Does she not agree that information sharing UK-wide—it is no different here or in Scotland, Northern Ireland and Wales—is imperative if we are to stop those terrorist, criminal, evil thugs living the high life, which they do while the communities that they live in live in fear?
I completely concur with the sentiments expressed so powerfully by the hon. Member.
We are now, sadly, one of the jurisdictions of choice for money launderers, criminals and kleptocrats. We do not just tolerate, but—unwittingly, perhaps—facilitate economic crime. Our Moody’s credit rating has fallen a notch, specifically because of the
“weakening in the UK’s institutions and governance”.
Fraud, an important element in economic crime, now affects one in 15 adults, and it too often destroys the lives of innocent victims who are just normal, trusting citizens.
I have a constituent who had a dormant company that was taken over by criminals and used to defraud others, but Companies House says that it cannot do anything about it. LinkedIn is colluding, with a whole lot of false company information, which helps to undermine the situation. Does my right hon. Friend agree that Companies House should be able to do more, and that it is damaging its own reputation?
One of the specific areas on which we make a recommendation in our motion before the House is the reform of Companies House. The situation of my hon. Friend’s constituent is just the sort of situation in which Companies House ought to be able at least to verify and possibly to pursue the wrongdoers.
Economic crime is often the facilitator of other crimes—from people trafficking to drug smuggling, and from terrorism to corruption. It does not just enable other crimes; it impacts on our national security. Dirty Russian money laundered into the UK is spreading like a spider’s web through our society. It is used to buy influence and to control our football clubs, our vital infrastructure and, more recently, our politicians and our politics. Today, we want not just to lay out the problem, but to put forward three pragmatic reforms that the Government could adopt—not tomorrow, but today. These are three oven-ready policies that together could have a significant impact in both preventing economic crime and punishing its wicked perpetrators.
We have become the destination of choice for a number of reasons. First, we have a very weak regulatory regime after decades of deregulation. Introducing reforms to our corporate liability regime would start to address the inadequacies in the regulations we have inherited. Even where we do have clear laws—this is my second point—our enforcement agencies are both inadequately resourced and risk averse in their policing of our system. Lack of money and fear of failure drive their decisions, and unlike America, we let criminals get away with it. Reform of Companies House would constitute the start of creating a tougher enforcement regime. Thirdly, we still allow a lack of transparency to flourish, giving wonderful cover to ne’er-do-wells and making it difficult to follow the money. If we cannot follow the money, dirty money triumphs.
I congratulate the right hon. Lady and my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) on arranging this very important and very timely debate. I am only sorry that I cannot stay for the whole thing because I am due to speak elsewhere.
I want to pick up on the point the right hon. Lady was just making, and ask whether she would agree that it is not enough to improve the three things she is talking about to come up to some sort of international standard. Because of the existence of the City of London—a huge economic asset in Britain’s economy—we actually have to be better than almost anybody else, given not just the benefits but the risks that that creates.
I completely agree with the important contribution that our anti-corruption tsar has made in the House today. I think it is a really short-term view to believe that our British economy can flourish on the back of dirty money. We will flourish if we clean up the act in the City of London and it again becomes a trusted institution.
I just wonder how many Panama papers, Paradise papers, Pandora papers, FinCEN—Financial Crimes Enforcement Network—leaks, laundromat leaks, Falciani leaks and Luxembourg leaks we need for our Government to wake up, stop mouthing warm words, which they do a lot, and start acting with tough measures to bear down on this dangerous crime and this terrible trend.
A proposal to toughen up the regulatory framework was included in the 2015 Conservative party manifesto. The party pledged—I hope I am quoting accurately—to create a criminal offence where companies
“fail to put in place measures”
to prevent economic crime. The Government launched a consultation that lasted four years, and then parked the issue in the long grass by referring it to the Law Commission. I understand that the Law Commission is about to report, but we need and want corporate liability reform, and we want it now.
It is a delight to work with the right hon. Lady on this particular issue. As part of the Law Commission consultation, there is talk that, instead of there being a criminal liability for failing to prevent economic crime within a corporation, it may be downgraded to a regulatory offence. Does she agree that that would not create the deterrent we need for these corporations, such as NatWest, which is facing a fine of £340 million for not properly monitoring money laundering in this country in a Bradford jewellery company? Does she agree that there must be a serious sanction, such as a criminal offence, where individuals could be locked up for not doing the right thing in these areas?
Again, I am pleased to see such unity across the Chamber today. I completely agree that if it is not made a criminal offence and there is no direct liability on the individuals concerned, it simply becomes a business cost and will not change the behaviour or conduct of those big corporations. I concur with the hon. Gentleman.
I was going to use the example, although I probably do not need to, of the Serious Fraud Office’s failure to successfully prosecute the Barclays bank case. As many observed at the time, that case showed that under our existing law the bank could not be held accountable for the actions of its employees, and the chief executive could not be held to account for the actions of the bank. Nobody could be held to account. These reforms would change that by introducing a vicarious liability condition and bringing in a “failure to prevent” clause. The Americans do it; they have much tougher laws that hit the corporations with criminal, civil and regulatory penalties, and they secure many more resources.
Our second ask is about starting the work to strengthen our enforcement by reforming Companies House. Creating a public register of beneficial ownership was an important move when David Cameron was our Prime Minister, and a huge step forward. In one year, the register was accessed more than 2 billion times, but the data, as we all know, is often inaccurate or incomplete. Global Witness did an analysis in 2018 that showed that 10,000 companies declare a foreign company—mostly linked to a secrecy jurisdiction—as the owner of the company, 335,000 companies had no beneficial owner and 9,000 companies were controlled by beneficial owners who each controlled more than 100 companies, so they were nominee beneficial owners.
It takes £12 to set up a company—it is ridiculous. That is why so many UK companies keep appearing in all the leaks we get of wrongdoing. Our lax enforcement leads to tragedies worldwide, and we need to do something about that. That is why these reforms could be funded by raising the fee. If we quadrupled the fee and charged 50 quid to start a company, we would raise a huge amount of money that we could put into reforming Companies House and ensuring that it had unique identifiers for the beneficial owners, and powers to investigate and interrogate.
Does my right hon. Friend agree that that distortion of the London housing market is to the detriment of all our constituents? I note there are other hon. Members present who represent London seats. Across the UK, but particularly in London, where we see such extreme homelessness and overcrowding of children, that really needs to be addressed.
Absolutely. That is another really important point; hiking up the prices at the top of the market obviously has an impact right through the housing market here in London. Some terrible instances have been uncovered in the various leaks. The Crown Estate, for example, sold 120 of its properties to companies registered in 14 different tax jurisdictions, demonstrating again the way in which the system is abused. Those are people such as Vladimir Chernukhin, who owns a residence in Regent’s Park through a company registered in the British Virgin Islands, or James Ibori, a Nigerian governor who was prosecuted here for fraud and money laundering, and who had property in Hampstead and Dorset. In the recent Pandora Papers, the Crown Estate bought a £67 million property from the Aliyev family, who are the well-documented abusers of their rule in Azerbaijan.
In 2015 we were promised a register of beneficial ownership for properties owned abroad. There was a consultation in 2016 and a draft Bill in 2018. It was mentioned in the Queen’s Speech in 2019, and again in the G7 meeting in Cornwall in 2021, but we still have not got a Bill, although it is my understanding that such a Bill has been written and is literally gathering dust on the shelf. The problem is enormous, and if we fail to act robustly it will overwhelm us. Economic crime is costing us our international reputation as a trusted and respected jurisdiction. If that trust goes, our ability to develop and grow our economy will be fatally curtailed.
My right hon. Friend is talking about the amount of resource we commit to this, but has she seen the statistic that the National Economic Crime Centre put to the Work and Pensions Committee, which is that fraud now accounts for a third of crime in the UK, but for 1% of police resources?
Throughout this, when we talk to the enforcement agencies, they all minimise their expenditure on economic crime and have other priorities. That statistic is very frightening, and I am grateful to my right hon. Friend for bringing it to the attention of the House. I think it can be reflected in all four or five agencies that do a similar job.
We will never achieve sustainable prosperity on the back of dirty money. With the economic crime plan drawing to a close, this is the perfect opportunity for the Government to put the proposals in our motion before the House, so that we can debate and enact them, and embark on that long and difficult journey of ridding this country of the cancer that is growing in our economy and society. Across the House we will then all feel that we are not just debating, but that we are acting to expel economic crime from the Britain we all love and seek to serve.
It is a pleasure to speak in this important debate, and to follow the right hon. Member for Barking (Dame Margaret Hodge), who is such a champion in this area. I add my thanks to the Backbench Business Committee for granting this important and timely debate. This debate is urgent, particularly since, as the right hon. Lady said, the Government promised and intend to bring forward legislation in the form of an economic crime Bill. All we are asking for are things the Government have promised to do in the past, so we are pretty much on the same page. We must ensure that the Bill is brought forward quickly, because it is so important, and that it is brought forward in the same form. I am disappointed that there are not as many speakers as I might wish on the Government Benches, but it is wrong to think that this is not a political priority for many of my colleagues, and for Members across the House. It is good that 40 parliamentarians signed a recent letter on the issue to the Prime Minister, urging action in this area.
Perhaps some parliamentarians, and perhaps the public at large, do not feel that economic crime affects them. Perhaps in many people’s eyes it is a victimless crime, but nothing could be further from the truth. For evidence of that, we should look at the 27 victims—men, women and children—who drowned in the channel only a few days ago. They were victims of economic crime. Of course, the reasons people want to come to this country are manifold, including fear of persecution, or for a better life—whatever those reasons may be—but those journeys are enabled because they are facilitated by economic criminals, and people who benefit from economic crime. These are organised criminals.
If someone steals a little bit of money—£200 in cash, say—they can go down the pub and spend it or do something else with it. If someone benefits from a huge amount of money—these organised criminals are benefiting by millions of pounds from the business of people trafficking—how do they use that money? They cannot simply buy a house, which the right hon. Lady referred to, or a yacht; people cannot spend their ill-gotten gains in any way these days because there are checks and balances—some checks and balances. If a person goes to buy a house, somebody will say, “What’s the source of your moneys?” However, they do not check too far, and we cannot follow the money as far as we need to follow it.
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My third proposal, which I will deal with very quickly, concerns the introduction of a property register. Buying a property through a shell company registered in the British Virgin Islands is the easiest way to launder money into the UK. There are very few good reasons for maintaining anonymity, but plenty of bad ones: not just money laundering, but avoiding stamp duty, inheritance tax and other taxes.
It is difficult to put a number on that, although many people have tried, but I will share one fact with the House. All London boroughs have had an increase in their electoral register over recent times; the only borough that has not is the Royal Borough of Kensington and Chelsea, the reason being that such a large number of properties there are bought through shell companies by foreign owners that there are fewer residents there today than there were 10 years ago.
If we want evidence of the importance of this, we should listen to the people who really understand economic crime. Paul Stanfield, the head of organised crime at Interpol, said recently:
“It’s all about the money. If you want to tackle organized crime, you have to go after the money.”
The small boats crisis is probably the No. 1 domestic political priority in the UK. It is a humanitarian crisis and it is an economic crime. In fact, there are two levels of economic crime in this area. One is the fact that organised criminals are taking huge amounts of money—thousands, or tens of thousands of pounds—from desperate people to cross a continent. That is an economic crime in itself, but that money is then laundered, and much of it is laundered through this country.
For evidence of that, we should listen to the Prime Minister’s corruption tsar, my hon. Friend the Member for Weston-super-Mare (John Penrose), who said exactly this in an intervention a few moments ago. This country is used because of some of our lax regulations, as the right hon. Member for Barking mentioned, but also because of the concentration of advisers in this country, be they lawyers, accountants, consultants—these other people who facilitate the rabbit holes that this money goes down so that it can then be used for legitimate purposes. That is what happens with this money, but the starting point is these terrible crimes.
Of course, we are talking not just about huge international organised criminals, but about domestic organised criminals. Recently, a Yorkshire “businessman” called Manni Hussain had an unexplained wealth order made against him by the National Crime Agency for £10 million. He presented himself as a bona fide businessperson, but he has connections with some of the worst organised criminals in this country. Murderers, drug dealers—all these people are facilitating crime in this country, and we are leaving open loopholes that we could close and clean up our economy.
Of course, there are lots of vested interests in this whole argument. Some would say, “Oh my God, all this dirty money will stop coming into the UK. It’ll damage our economy.” In my view as a businessperson, nothing could be further from the truth. What businesspeople need is a clean economy. That is the foundation of our economy—a clean framework that investors have confidence in. The more our law upholds that framework, the more successful our economy will be. But even if that money was good for this country, we are not interested in it; it can go somewhere else. We must show leadership in this context on the world stage.
And this is about the world stage. If anyone wants to look at how these rabbit holes work and how pernicious this activity is for billions of people on our planet, they should read the wonderful book “Moneyland” by Oliver Bullough. It is a fantastic book. He starts off with a very interesting story about former Ukrainian President Viktor Yanukovych and talks about this huge house he has—one of many palaces that he built around Ukraine, all from the expropriation of moneys from the Ukrainian people. He diverted money that was supposed to be there for health services and many other public services into his own coffers, and he eventually ended up in exile in Russia. He is a very brave man, Oliver Bullough, and he explains how this all happens. He explains very clearly how it could not happen without the rabbit holes that are enabled in this very country. It is not just the UK, to be fair. Some are enabled by our overseas territories and Crown dependencies—the Government are bringing forward, after a lot of pressure from people such as the right hon. Member for Barking, open registers of shell companies in those jurisdictions—and by many other countries, too. The US is very guilty, with places such as Dakota allowing similarly lax regimes. We want other countries to do the same. Such opportunities are facilitating some of the worst crimes known to humanity: people trafficking; drug dealing; organised crime; terrorism, which the hon. Member for Strangford (Jim Shannon) mentioned; the expropriation of public money; and the impoverishment of nations.
A report from Oxfam in 2000 talked about how money was being stolen by kleptocrats in developing nations around the world to the tune of £50 billion a year. We have big debates in this House about our international aid budget and whether it is used wisely. Significant amounts of money—our taxpayers’ money—are put into developing nations. In that year, internationally £50 billion went into developing nations. Can we guess how much money was moved out of those very countries by kleptocrats, officials and politicians? It was £50 billion—so, in one door and out the other. We are facilitating that and we can close it down.
Whether it is £10 million for the smaller scale organised criminal or billions of pounds for international kleptocrats, we have the opportunity to close those things down. The money is no use to anybody unless they can spend it. To spend it, they need to be able to salt it away and legitimise it. That is what our shell companies do under the lax regime of Companies House, where £12 sets up a company with no checks and balances, no identity checks and no requirement to check who is the beneficial owner. Trusts are not included, so money can go into trusts. There is no oversight of trusts in the UK or UK property. The Government, rightly, say they will bring forward a register of overseas entities. The City of London—its knowledge, its power, our legal firms and our accountancy firms—facilitates this stuff to the tune of £100 billion a year in the UK. As the motion sets out, £100 billion a year is money laundered in the UK. That figure is directly from the National Crime Agency and that is not even the full extent of economic crime—it is that big.
Paul Stanfield says that we have to follow the money. The point, ironically, is that our system stops us from following the money. That is what we need to address. The key to all of this is transparency. Everything needs to be more transparent. That is the point about Companies House. Companies House should become not just a register but a regulator, with checks and balances to make sure that the people setting up companies are the beneficial owners of those companies. It is quite straightforward: as the right hon. Lady the Member for Barking said, a simple levy on top of the £12 would provide the resources to do that. We need a register of overseas entities, so we can see who is buying UK properties—again, the Government have committed to doing that.
I want to come on to transparency in other contexts. I draw the attention of the House to my entry in the Register of Members’ Financial Interests. I was involved in a business until March this year when it was sold. Last year, when things looked pretty tough, we took on quite a significant coronavirus business interruption loan. We never drew it down. We repaid it without touching it when we realised that the recession was not going to be as hard as we thought on our business, but it was a significant amount of money.
Whether we are talking about CBILS or the bounce back loan scheme, the Government decided that it would not make these loans subject to public scrutiny—loans which were providing Government support, effectively enabled by taxpayers’ money. If I, as a businessperson, had taken taxpayers’ money, I would have no problem with that being open to public scrutiny. It is good if it is subject to it—what is wrong with that level of transparency? The Government decided not to make that transparent, but we had to provide some level of transparency because of our association with the European Union.
Bloomberg got hold of this issue and scraped the data on 45,000 companies—hon. Members can read its report, which was in the paper last week—and there were some very startling cases. One included a £4.7 million loan that was drawn down by a company that existed only two days prior. There are lots of different concerns about those programmes. Some of that loan may be legitimate, although it seems unlikely that it was bona fide, because the company would have had to be a viable trading company before that time. However, if all this stuff is open to public scrutiny, it could be looked at by people such as us and those who have more time to do it, such as journalists, who do a fantastic job in this area by highlighting these issues—where would be without the investigative journalists who look at this kind of stuff? That would deter people in the first place from drawing down a loan in such circumstances and, because people would know that they would be pursued, it would reduce the level of fraud. This is a key issue for the Government in relation to the furlough scheme, the bounce back loan scheme and other areas. I cannot see how it would be detrimental to our economy to have more transparency in these areas. I am thinking particularly of Companies House reform and the register of British overseas entities.
My final point on the motion is about the offence of a failure to prevent economic crime. That is so important. This is an extension of the “failure to prevent” offence that exists, for example, for bribery—so if an organisation does not put checks and balances in place to make sure that its staff are not bribing other people or customers to try to get work, for example, it is breaking the law. That is a criminal offence, and it relates to tax evasion as well.
We want to extend that offence to cover economic crime. That means—I spoke about the NatWest example—that if a company does not put measures in place to prevent money laundering, so there are not checks and balance throughout an organisation to prevent that, it has corporate criminal liability. As I said, I would like to see that as individual criminal liability, because that would provide the biggest deterrent for senior executives and mean that they clamp down on the wrong kind of behaviour in their organisation. We can look at the construction sector for an example. This is a bit tangential, but the number of accidents and deaths on building sites dropped markedly only when directors suddenly had personal criminal liability over health and safety on their construction sites. Personal liability makes a big difference. Otherwise, this is seen as just a cost of doing business.
The “failure to prevent” offence does not just cover money laundering, and that is key. If we spoke to the banks about this, they would say, “We have that covered already under money-laundering rules”, but this is not just about money laundering. The corporate criminal offence is a tougher penalty and is available to the Serious Fraud Office rather than just the regulator, the Financial Conduct Authority, and it covers other crimes.
As many people know, in the all-party group on fair business banking we have dealt with the fall-out of the financial crisis in relation to RBS, the Global Restructuring Group, Lloyds, and HBOS Reading in particular. Let us look at the HBOS Reading scandal. For 10 years, Lloyds and HBOS denied any wrongdoing and that a fraud was happening in their organisations before it was proven in court in 2017, and four people went to jail for 47 years. It is the only case in the history of fraud ever proven against a bank in this country, and we know there has been more than that. Nevertheless, there was denial for 10 years.
Over that 10-year period, going back as early as 2007, victims were saying to Halifax Bank of Scotland and then to Lloyds bank, “There is fraud going on in your bank.” They were ignored; it was denial after denial. When an individual within Lloyds, its senior risk manager Sally Masterton, wrote a report on it and gave it to the bank, it sacked her. It shut her down for five years, saying that she was not a cogent witness and that she was acting for her own reasons rather than on a company instruction. That turned out not to be the case, and the bank had to retract the claim and compensate her in 2018. If we had the “failure to prevent” offence, that could not happen. People in those organisations would be accountable at a senior level, and that would clamp down on such behaviour. It would be a tremendous deterrent. It would also work with lawyers and accountants, because they too have responsibility to prevent economic crime. Instead of being facilitators, they would be required to stop this stuff happening.
We are currently having plenty of conversations in debates about how we can prevent scams such as push payment fraud, particularly on platforms including social media. The “Online Harms” White Paper refers to user-generated content rather than corporate-level scams. The Government are talking about expanding the Online Safety Bill to include those, but a requirement to prevent economic crime could work for Facebook, Google and the rest of them as well.
At present, platforms such as Google can simply take money from the highest bidder. They accept “pay per click” for companies to advertise investment opportunities, without checking whether they are bona fide companies. They do not check whether a company is Standard Chartered or someone posing as Standard Chartered; they simply take the money and let the company advertise on their sites, with no checks and balances and no requirement for them. If there were a “failure to prevent economic crime” provision, they would not be able to do that. They would have to put in place those checks and balances to ensure that the companies concerned were the companies that they were purporting to be, which, as we all know, is not beyond the wit of those platforms. This would tackle many different hugely important issues at the same time.
I have spoken for far too long, Madam Deputy Speaker, but all these matters are so important. The Government could introduce the necessary measures very quickly, and I urge them to do so. I believe that they will, and when we see that legislation, Members on both sides of the House will be championing them from the rooftops.