Sanctions and Anti-Money Laundering Bill [HL] — House of Lords, 2018-01-17
Topic: Law and Crime
Tariq Ahmad (Conservative, Centre-right): As I have indicated, this is not a departure from what already exists. I have already quoted previous Acts and talked about the ways in which Governments of different political colours have used secondary legislation in the past for this purpose More generally, noble Lords may recall that it is not unusual for requirements, which can be enforced using criminal penalties, to be set in delegated legislation. In response to my noble friend, in the area of financial services, for example, the Regulated Activities Order under the Financial Services and Markets Act 2000 specifies which activities are or are not regulated. Carrying on such activities without permission from the regulator is a criminal offence I assure noble Lords that I am sympathetic to the arguments on the constitutional position, and I say to the noble and learned Lord, Lord Judge, that I have listened very carefully to his contributions—we have had positive engagement on various parts of the Bill. However, as I have indicated, it remains the Government’s position that it is neither unusual nor improper for Parliament to confer powers of this type on Ministers, as we have done previously and has been accepted. I shall turn to the appropriate safeguards relating to these powers in a moment I would like to set out why the ability to create criminal offences specifically for the UK’s anti-money laundering regime is necessary. When the Government consulted on whether to remove the specific criminal offence provisions in previous money laundering regulations, the British Bankers’ Association stated that removing such provisions would be at odds with the objective of driving an effective anti-money laundering regime. Furthermore, the Crown Prosecution Service argued that provisions for creating criminal offences in the money laundering regulations different from those in the Proceeds of Crime Act 2002 serve a separate and useful function in tackling money laundering. In some instances, prosecuting according to the Proceeds of Crime Act 2002 could jeopardise ongoing investigations. It said: "In such cases, the ability to prosecute for a regulatory offence relating to defective", anti-money laundering or counterterrorist financing, "systems can be an important tool" Finally, in response to the same consultation, HMRC noted that abolishing criminal sanctions for breaches of regulations "carries significant risk" to its ability to tackle money laundering. In lieu of such sanctions, if the UK wishes to maintain a functioning anti-money laundering and counterterrorist financing regime post our departure from the European Union, it is vital that the Government continue to have the power to create criminal offences for those regimes As the noble Baroness, Lady Bowles, pointed out, there are other amendments in this group. Amendments 90 and 92 envisage the same effect as that of Amendment 71A. Amendment 90 aims to prevent future regulations containing provisions to create new criminal offences, while Amendment 92 deals with provisions relating to penalties for such offences. As I set out to noble Lords previously, removing the Government’s ability to create criminal offences would seriously weaken the enforceability of new regulations, thereby, we believe, lowering the effectiveness of the UK’s anti-money laundering regime Amendment 72 proposes to restrict the scope of anti-money laundering regulations in several ways. First, it aims to prevent the making of regulations that are detrimental to the UK’s anti-money laundering and counterterrorist financing regime. Secondly, it aims to ensure that future regulations prescribe measures which are duly proportionate. Thirdly, it seeks to ensure that regulations cannot create new criminal offences, and, fourthly, it makes provision restricting the ways in which powers in the Bill can be used to update the definition of "terrorist financing" I have stressed from the Dispatch Box many times that the Government are listening to concerns expressed by noble Lords about the aims of these regimes, the need for a proportionate approach and the best way to keep definitions up to date. I am pleased to be able to confirm to the House that, having engaged directly with noble Lords on this matter, we will be tabling new amendments for Third Reading which aim to address the concerns contained within limbs (a) and (b) of Amendment 72. I have set out my position on criminal offences in relation to limb (c), and so do not propose to repeat that. I can further confirm that the Government will seek in the other place to restrict the ability to add to the definition of "terrorist financing" in Clause 41. This was also something that we discussed very constructively. I assure noble Lords that it will be limited to cases where any relevant regulations under Clause 1 are for the purposes of compliance with UN or other international obligations or to further the prevention of terrorism, or both. I hope that this is sufficient reassurance to enable the noble and learned Lord not to press this amendment so that we can table amendments and engage constructively with those issues again at Third Reading Amendment 74 proposes to create a corporate criminal offence of failure to prevent money laundering. The effect of this amendment would be to provide that a company or partnership is guilty of a criminal offence in cases where the company’s employee, agent or other service provider commits one of the substantive money laundering offences contained in Part 7 of the Proceeds of Crime Act 2002. The relevant company would have a defence if it could prove that it had adequate procedures in place to prevent its employees and agents from committing such an offence I would like first to note that, as noble Lords may be aware, in 2017 the Ministry of Justice carried out a call for evidence on corporate criminal liability for economic crime, such as money laundering, fraud and false accounting, to establish whether further reform of the law was necessary. Noble Lords will accept that this is a complex and controversial area of the law, attracting views from across a broad spectrum. Responses were received from a wide variety of stakeholders and expressed diverse and often conflicting views, as well as raising several important issues that need careful consideration. As I have told the House when dealing previously with this Bill, the Government’s response is being finalised and will be published in due course. I hope we can agree that it would make no sense to muddy the waters by introducing a further failure to prevent offence before there has been a proper review of the evidence I emphasise and assure noble Lords that there is no gap in the regulatory regime for financial services that would be addressed by the introduction of a failure to prevent offence for money laundering, which was a concern expressed. The senior managers regime requires that relevant financial services firms, such as banks and building societies, allocate a senior management function for overseeing the firm’s efforts to counter financial crime, including money laundering, to a specific senior person The requirement to maintain this role is in addition to the requirement for a money laundering reporting officer, or MLRO, who is directly responsible for ensuring that measures to combat money laundering are effective. Noble Lords may wish to note that the MLRO has a personal responsibility for the oversight of the firm’s compliance with Financial Conduct Authority rules on anti-money laundering systems and controls The senior managers regime is robust in the additional requirements it places on senior managers responsible for overseeing firms’ defences against financial crime. Such senior managers are required to obtain pre-approval as fit and proper from the Financial Conduct Authority and the Prudential Regulation Authority. If there is a contravention of the money laundering reporting requirements by a firm, the Financial Conduct Authority can take action against the responsible senior manager, if they can prove that they did not take such steps as a person in their position could reasonably have been expected to take to avoid the contravention occurring. This enforcement action includes fines and disbarment from undertaking regulated activities The senior managers regime currently applies to banks, building societies, credit unions, Prudential Regulation Authority-designated investment firms and UK branches of foreign banks The Government have legislated for it to apply across all financial services firms, and this will be implemented in due course—the regulators have been consulting on the final design of this extension of the regime. The introduction of the senior managers regime has significantly enhanced the ability to hold individuals responsible for failures of the systems and controls of relevant firms. Its expansion across the financial services sector will do more in this regard.