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Money-laundering and the Financing of Terrorism: EUC Report

My Lords, I hope that we move to rather less contentious issues. The report on money-laundering and the financing of terrorism, which is the subject of this debate, was prepared following an inquiry earlier this year by the European Union Select Committee’s Sub-Committee F, of which I have the honour to be the chairman. Thirty persons and bodies sent the sub-committee written evidence and between March and May we received oral evidence from 28 witnesses. I should like to say how grateful we are to all the witnesses who gave evidence to us, both written and oral. In expressing appreciation, I must put on record our appreciation of our clerk, Michael Collon, who has been tireless in supporting the work of the committee. I also note the work of Anneliese Baldaccini; she has now left the committee but she gave great service to it over a number of years. The report was published on 22 July and we received the Government’s very full response on 6 October. I am very glad indeed to have secured a debate for the report only two months later. I hope that the Home Office has emerged from that dreadful period when we had to do business with Liam Fox, who was actually named by the Leader of the House for lack of attention in responding to the European Union Select Committee. In one case we waited for over a year, despite repeated reminders. We are now in much calmer and more helpful waters. We are debating this issue only two months after we received the Government’s response. The timings of these debates are very important. Perhaps I may mention another report of this committee on which the timing of a debate is even more critical. Three days ago, on Friday 4 December, we published a report recommending that the Government should opt into proposals for two new directives on asylum. That report is the first since the treaty of Lisbon entered into force less than a week ago and we are the first to rely on the undertakings given to the committee during the passage of the European Union (Amendment) Bill by the noble Baroness, Lady Ashton of Upholland, who was then Leader of the House. She said that the Government would find time to debate these reports. She undertook that the Government would not notify a decision to opt into arrangements within eight weeks of the publication of the proposal. In this case, those eight weeks expire on the day that this House rises for the Christmas Recess. I speak with the authority of the whole sub-committee and hope that the Government will honour that undertaking by making time for a debate before the Recess. I hope that the noble Lord can give us that undertaking because, if the Government fail to do so and leave the debate until after the Recess, that would be a very bad precedent to the new arrangements under the treaty of Lisbon. I return to the issue of money-laundering and this report. Money-laundering and the fight against it are a global activity. In the course of our inquiry, we therefore looked not only at the activities of the European Union but at those of other international bodies. Some of those, such as the Council of Europe, are well known, but the main international organisation fighting money-laundering is the Paris-based Financial Action Task Force—FATF. One of our recommendations was that the Government should report systematically to Parliament on the activities of FATF. I am glad to say that the Government accepted this recommendation and undertook that after each plenary session of FATF they would submit the chairman’s summary to Parliament. That is most welcome. On 21 October, the Exchequer Secretary to the Treasury wrote to me enclosing the chairman’s summary of the October meeting, telling me that she had placed a copy in the Library of the House. While I am most grateful for this, placing a document in the Library is not the best way of making the activities of FATF more widely known. Our recommendation was for a Written Statement. I suggest that the Minister might make a Written Statement to this House on future meetings, explaining that the full summary had been placed in the Library, with the Government’s reaction to the most important developments. A model to follow, relating, as it happens, to money-laundering, would be the Written Statement on 26 November by the Parliamentary Under-Secretary of State at the Home Office on the third annual report on the suspicious activity reporting regime, which is closely involved with money-laundering. The reporting of suspicious activities by the private sector to law enforcement bodies is the keystone of the fight against terrorism. It follows recommendations made by FATF, but those are only recommendations. They acquire the force of law throughout the EU by being incorporated in the third money-laundering directive. Effect is given to the directive in the United Kingdom by the Money Laundering Regulations 2007. It is under these regulations that banks, other financial institutions, lawyers, accountants, auditors, insurers, estate agents and many others are required to report to the Serious Organised Crime Agency any transaction or activity that seems to involve funds that are the proceeds of criminal activity. Knowledge to do that is unnecessary. The bankers explained to us that this is a suspicion-based regime—if you smell a rat, you must report it. In 2007-08 the banks alone smelt and reported 145,000 rats, of which 838 related specifically to terrorist financing. We did not question the utility of this; it is central to the fight against money-laundering. But given the immense burden of the regime on the private sector, we questioned whether the regime should apply where the underlying criminal offence is minor or even trivial. Some of our witnesses, especially the Law Society, agreed with us. We recommended that the Proceeds of Crime Act 2002 should be amended to exclude minor offences. The Government, in a response that I commend for its careful consideration of our recommendations and, to be fair, its full response to them, explained at length why an all-crimes approach should be retained. They pointed out that there may be little correlation between the sums laundered and the seriousness of an offence, that an activity may be suspicious irrespective of value and that something that the reporting institution may regard as trivial may look very different to SOCA when considered with other intelligence. I am disappointed that the Government cannot accept our recommendation. But, if not, it is all the more important that they should act on our other recommendations: to consult more fully with the private sector and to give greater feedback on the utility of all their work and its outcome. The Government accepted this and listed some of the many ways in which they currently provide feedback. This seems to concentrate mainly on the top reporters and on first-time reporters. More could be done with those, such as small and medium-sized firms of solicitors, for whom the reporting regime is a real burden to which they object strongly. They need to be persuaded that their contributions are of real value. Suspicious activity reports, or SARs, are entered by SOCA on to ELMER—I am sorry for all the acronyms—which is, in effect, a database of suspects. Given the number of reports, it is a very large database. As one might expect, access to it is available to police forces and others responsible for prosecuting serious crime. One might not have expected the information also to be available to trading standards authorities or, as the noble Lord, Lord West of Spithead, explained in a Written Answer to my noble friend Lord Marlesford, who is in his place, to Nottinghamshire County Council, which wanted to use the database to investigate housing benefit fraud. This seemed to us to be an unwarranted use of information collected for a different purpose. We pointed out to the Government that the FATF recommendations do not require this information to be made use of other than in connection with serious crimes; nor does the money-laundering directive, which gives these recommendations the force of law, require that. "True", say the Government, but they do not prohibit it, either. Since the Government maintain the all-crimes approach for SARs, it seems that they will continue to allow the data to be used even in connection with offences that could not by any stretch of the imagination be called serious. We read a great deal these days about the iniquities of the DNA of persons who have never been charged with a criminal offence being retained on the DNA database, but I wonder how many people know that the details of their banking transactions may be retained on a database not because they are connected with a crime that has been committed but because a bank employee—perhaps a lowly employee on the salary scale—has a hunch that a transaction may be related to a suspicious activity. No steps are taken to confirm whether the suspicion is well founded, details of the transaction are retained for at least 10 years and anyone who wants to peruse the transactions relating to him on the database is unlikely to succeed, since SOCA is exempt from the Freedom of Information Act. As I said, these entries can be accessed by a wide range of bodies for purposes wholly unconnected with serious crime. The committee does not believe that this situation can continue. We recommended that the Information Commissioner should review and report on the operation and use of the ELMER database. The Government tell us that SOCA has invited the Information Commissioner to discuss this. The deputy Information Commissioner wrote to me on 5 October to say that he had made an initial approach to SOCA to discuss how he might carry out that review. That was two months ago—time for the bankers to have reported a further 2,500 suspicious transactions. Has that meeting taken place? Has the review begun? What progress has been made? Where is all this leading? I mentioned earlier the Council of Europe, which includes all 27 member states of the European Union and many others as well. It is the forum within which two international instruments have been negotiated, both of which would be very useful if only they were fully in force. The first is a protocol to the Convention on Mutual Assistance in Criminal Matters, which the UK signed in 2001 but had yet to ratify at the date of our report. In their response, the Government told us that the UK should be in a position to ratify it towards the end of 2009. The end of 2009 is fast approaching, so I hope that the Minister will have good news for us on that front. It is absurd to sign something in 2001 and not to have ratified it after all this time. The second international instrument is the Warsaw convention. This is the first comprehensive international treaty covering both the prevention and control of money-laundering and the financing of terrorism. It addresses the fact that quick access to financial information is the key to successful anti-money-laundering systems. If in force it would extend to Council of Europe states provisions that otherwise will be available only within the EU. Yet the Government have yet to sign or to ratify it. They explain that it is their policy not to sign a convention without a reasonably firm intention of ratifying it—ignoring the fact that, as I said a moment ago, they signed the 2001 protocol which eight years later they still have not ratified. The problem with ratification of the Warsaw convention centres on a single provision. We were told in evidence that the Government intended to sign the convention very soon and to ratify it within 18 months. The Government say that their aim is to sign the convention in the very near future with ratification to follow. Has the Minister any news on that front? Can he tell us how soon is very soon and whether the very near future is still in the future? Is the 18 months that we were told in March would be the period to ratification now nine months? Our inquiry dealt with other fascinating issues, to which other members of the committee will no doubt wish to refer. Not the least of them was whether ransom money paid to pirates found its way into the hands of terrorists, which the committee thought more than likely. It does not take much imagination to guess that that might be so. Clearly, almost all laundered money goes to those involved in illegal activities, but the Government should do more to find out whether money paid in ransoms to pirates—I am thinking particularly of Somalia—finds its way to terrorist organisations that we know have established cells in Somalia. Although I have made some criticisms of the Government, our overall impression at the conclusion of the inquiry was that they are in the forefront of the fight against money-laundering and the financing of terrorism and in many respects are leading the way in showing what can and should be done to follow the cash and catch the criminal. For this we should all be grateful. I commend this report to the House. I beg to move.