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Money-laundering and the Financing of Terrorism: EUC Report

My Lords, it was interesting and helpful to hear that apology. I start by saying that this was an interesting committee, and I pay tribute to those who were responsible for the production of the report—the excellent clerk to the committee, Mr Michael Collon, and the specialist adviser, who again advised us extremely helpfully, thoroughly and knowledgeably; but, above all, the chairman, who guided us beautifully through all the difficulties. If I may say so, having sat in the Chamber for the past three-quarters of an hour, he did so in a much gentler, less curmudgeonly and more objective way than perhaps he did when he was participating in the previous business before the House. I can only say that that restored my faith in this Chamber as a calming influence even on Members such as the noble Lord, Lord Jopling. I found this subject fascinating. It is one of those subjects where one thinks that one knows a lot about it and that it will be easy to grasp but, once you get into it, you realise that you do not know all that much about it and it is certainly not easy to grasp. Three questions arise in connection with money-laundering: first, what is it and is it a serious problem; secondly, is there sufficient machinery to deal with it; and, thirdly, is that machinery working and can it be improved? The first difficulty for me was in trying to determine what money-laundering actually was. The definition that the committee eventually accepted was that it is the process by which the source and ownership of criminally derived wealth and property is changed to confer on it a perception of legitimacy. In relation to money-laundering offences, the committee concluded that, under current international standards, the three categories of offences were: first, the conversion or transfer of property for the purpose of concealing or disguising its illicit origin; secondly, the concealment or disguise of the true nature, source, location, disposition, movement, or rights with respect to or ownership of criminally derived property; and, thirdly, the acquisition, possession or use of criminally derived property. It is patently difficult, if not impossible, to establish the full scope of money-laundering in the United Kingdom, although we have a Treasury estimate that serious crime involves every year perhaps £5 billion of assets in a possibly seizable form. On the other side of the balance sheet, one has to note with regret that the value of assets frozen or seized is very small. That inevitably raises, for me at least, the question of the efficiency and competence of the authorities responsible for dealing with those criminal offences and for confiscating the assets which have been criminally acquired. Speaking for myself, I found the evidence of international enforcement disappointingly diffuse. The Financial Action Task Force—FATF—is a somewhat loosely constructed organisation which can best be described as a partnership between Governments. When it was set up, the European Commission and a number of other states were invited to join it to enlarge its expertise. Membership has since widened and there are now 34 members. Although it is recognised as the international standard-setting body in the field of money-laundering, we had the difficulty that no one from FATF was prepared to give evidence to the committee. This was a matter that the committee regretted, as it meant that we were unable to hear contemporary evidence on the organisation and its current activities. I suppose that FATF progresses as best it can, given its somewhat disconnected structures, but it will be necessary for it to be more forthcoming in future about what it does and how it does it. Nor was I convinced that the co-operation between FATF and the international organisations which are concerned with this field is sufficient. The UK plays an active part in FATF, and the committee felt strongly that there should be a more systematic way of reporting to Parliament on FATF developments. I was pleased to read in the Government's response that they will submit the chairman's summary to Parliament following each plenary session. One hopes that that will help. In this connection, it seemed to me that the degree of international co-operation in combating money-laundering was somewhat over-complex, and I regret that was I not convinced that the UK was fully engaged with that international effort. There are various international instruments that deal with this, some of which have already been mentioned. If one looks at the totality of these instruments and where the UK is positioned in relation to them, one has to come to the conclusion that something is lacking. In 2001, the protocol to the Convention on Mutual Assistance in Criminal Matters was signed. It is not yet in force for five members of the EU nearly eight years after the signature. There is still no full cross-border co-operation, even in obtaining details of bank accounts. The Government have an obligation to press other member states to ratify this protocol. It is also thoroughly disappointing that there is no agreement yet between the EU and the United States. Negotiations have been going on now for many years. The EU and the US concluded an agreement on mutual legal assistance in 2003, which again contained important provisions on access to bank account information and banking data. The negotiations should by now have resulted in an agreement between the EU and the US. Progress has been extremely tardy and I hope that the Government will press for it to improve. So far as the Council of Europe is concerned, the UK has not yet ratified the second additional protocol to the 1959 European Convention on Mutual Legal Assistance in Criminal Matters. The protocol was signed on behalf of the UK on 8 November 2001, but we have still to ratify it. It is in force for some states but not for the UK. Again, this is something on which the Government must use their best endeavours to produce an early ratification. Furthermore, there is the delay in signing the Warsaw convention. As we state in our report, ""there is now no reason for any further delay. Still less do we see why a further 18 months should be needed before ratification"." Since the Warsaw convention is, as the noble Lord, Lord Jopling, pointed out, the first comprehensive international treaty covering both money-laundering and the financing of terrorism, surely it is in our interest that it should be signed as soon as possible. It has now been signed by the EU and could have been signed by the UK. The main conclusion to be drawn from this plethora of international conventions, instruments and agreements is that international co-operation is rightly regarded as essential in combating money-laundering. In that event, I think that the Government should show some urgency in this matter. The fact is that money-laundering can be dealt with only by intensive and detailed international co-operation. From the evidence we received, I certainly felt that this co-operation needs some fertilising. We have to look to the Government to take a more urgent stance in ensuring this international co-operation soon becomes a reality. The other matter that I want to mention is SARs. These suspicious activity reports emanate from FATF recommendations 13 to 16 and chapter 3 of the third directive. They impose the duty to report to the appropriate authorities any transaction or activity that seems to involve funds that are the proceeds of criminal activity. The number of SARs now runs into many thousands. The British Bankers' Association gave evidence that it submitted no fewer than 145,000 in 2007-08. The problem with SARs is that there is very little consultation with the private sector and precious little feedback. The burden on the private sector is considerable. Much of the activity reported inevitably achieves little, but some is extremely helpful to the law enforcement authorities. In that event, it seems to me that those making reports deserve to be informed, even in general terms, of the success of their reporting. There were a number of other controversial issues raised in our report, particularly piracy, which has just been touched on by the noble Baroness, Lady Garden, and hawala, a system for remitting money. I do not propose to deal with them in any detail but merely acknowledge that these two topics cause problems that were investigated at some length by the committee. This was a useful exercise in analysing some of the many problems related to money-laundering and the financing of terrorism. It pulled together a number of different strands, which were perhaps operating on their own, so to speak, when they needed a degree of co-ordination. I hope that due account of this report will be taken by the Government and that our main recommendations may yet be accepted.