I rise to speak to new clause 14, amendment 8, and amendments 9 and 10, which are consequential on amendment 8, tabled in my name and those of my hon. and right hon. Friends. I will first discuss new clause 14 on combating abusive tax avoidance arrangements and then our amendment on the reverse burden of proof, or the presumption of responsibility, as I choose to call it, for senior managers in the banking sector.
Labour tabled new clause 14 in the wake of Panama papers leak, which the hon. Member for East Lothian (George Kerevan) just mentioned. The new clause sets out that combating abusive tax avoidance should be established as new regulatory principle for the FCA, and requires the FCA to
“undertake, in consultation with the Treasury, an annual review for presentation to the Treasury into abusive tax avoidance”.
The new clause makes it clear that the new principle should involve
“measures to ascertain and record beneficial ownership of trusts using facilities provided by banks with UK holding companies or entities regulated by the Bank of England or the FCA, control of shareholders and ownership of shares, and investment arrangements in an overseas territory outside the UK involving UK financial institutions.”
Members will be aware that Labour published its tax transparency enforcement programme following the Panama papers leak, and the release of the information that thousands of companies listed in the Mossack Fonseca papers have financial services provided by UK banks. Our programme makes it clear that Labour will
“work with banks to provide further information over beneficial ownership for all companies and trusts that they work for.”
The new clause seeks to establish a procedure to enact that.
Last week, the Government announced a deal on the global exchange of beneficial ownership. We of course welcome that as an initial step, but it is insufficient. The measures announced by the EU this week are also welcome, but they do not go nearly far enough, because they require only partial reporting. My hon. Friend the shadow Chancellor said last week:
“The turnover threshold is far too high, and Labour MEPs in Europe will be”
doing the right thing in
“pushing to get that figure reduced much lower to make it more difficult for large corporations to dodge paying their fair share of tax.”—[Official Report, 13 April 2016; Vol. 608, c. 369.]
Banks need to reveal the beneficial ownership of the companies and trusts with which they work. That means establishing a record of ownership of the companies and trusts supported by UK banks, whether or not the owners are resident in the UK. We must ensure that Crown dependencies and overseas territories enforce far stricter minimum standards of transparency for company and trust ownership, but when UK banks are involved, it is right that a record is maintained of the beneficial owners that they advise.
The tax expert Richard Murphy has written that Jersey, Guernsey and the Cayman Islands are
“cock-a-hoop at having rebuffed calls from David Cameron that they must have readily accessible registers of beneficial ownership even for the use of UK law enforcement agencies”.
The shadow Chancellor said in response to those calls that the
“agreement is a welcome step in the right direction but it fails to do anything to tackle the tax havens based in British Overseas Territories. Failure to take responsibility for these British Dependencies substantially undermines the effectiveness of this agreement.”
Similarly, we are aware that the Financial Conduct Authority wrote to banks urging them to declare their links to Mossack Fonseca by 15 April. The FCA’s call on UK financial institutions to review links with Mossack Fonseca is welcome, but the regulator should recognise the need for complete transparency to retain public confidence.
The FCA should seek full disclosure and act without delay. The slow, drip-drip responses of the Prime Minister’s office in recent weeks have served only to fuel public concern and have been very much a lesson in how to raise suspicion unintentionally. The FCA should publish details of which financial institutions it has written to and why; what information it has asked them to provide; and what action it will take, now that the 15 April deadline has passed. Importantly, it cannot allow banks and their subsidiaries to conduct an open-ended internal investigation, but must establish an early deadline for the disclosure of all information on their relations with Mossack Fonseca, so that the regulator can take all necessary action. Campaigners Global Witness responded by saying:
“These are welcome first steps…but the UK authorities are missing the wider point. Mossack Fonseca is no bad apple; it is just one small part of a much deeper problem.”
That is why it is necessary for us to have a clear direction of travel towards recording beneficial ownership of trust services by UK banks, as we are seeking to do with this new clause.
Given the widespread concerns about tax avoidance, the British public, who bailed out the country’s banking sector, deserve to know the facts about the role of UK banks in this unfolding story. With new clause 14,
Labour has made a positive and practical proposal to take steps to increase tax transparency and publicly available information on the beneficial owners of companies and trusts registered in tax havens.
Let me now deal with the remainder of the amendments. Labour’s position was set out clearly on Second Reading and in our amendments in Committee: removing the reverse burden of proof—the presumption of responsibility—is unreasonable, unwise and, I am sorry to say, risky. We continue to support the current legislation, which was agreed by the Chancellor and in both Houses as recently as in consideration on the Financial Services (Banking Reform) Act 2013. That is why we have re-tabled our amendments on keeping the presumption of responsibility. It should not be forgotten that this measure was a key recommendation of the Parliamentary Commission on Banking Standards, which said that it
“would make sure that those who should have prevented serious prudential and conduct failures would no longer be able to walk away simply because of the difficulty of proving individual culpability in the context of complex organisations.”
The presumption of responsibility, as currently set out in legislation, applies to senior managers. It means that to avoid being found guilty of misconduct when there has been a regulatory contravention in an area for which they are responsible, they will have to prove that they took reasonable steps to prevent that contravention. This Bill removes that onus on senior bankers. The onus is entirely reasonable, proportionate and, as bitter experience tells the British people, necessary. Misconduct and misdemeanours in financial services are not merely a tale from history. In 2015, for example, the FCA had to fine firms more than £900 million, and we have also seen the LIBOR scandal, foreign exchange fines and the mis-selling of payment protection insurance to the value of up to £33 billion. The presumption of responsibility is so reasonable and necessary that the policy was introduced with cross-party support; that should not be forgotten.
The 2013 Act applied the presumption of responsibility, through the senior managers and certification regime, to all “authorised persons”. This Bill extends that authorised persons regime to a wider range of businesses but has watered down the presumption of responsibility to a mere “duty of responsibility”. The vast majority of people working in the financial sector were not, and are not, affected by the existing legislation, and would remain unaffected should our amendment pass. That is why the legislation was passed by Government Members in the first place.
In December 2013, speaking of the stricter measures being introduced by the Government, including the reverse burden of proof, the then Economic Secretary to the Treasury, the right hon. Member for Bromsgrove (Sajid Javid), said:
“The introduction of this offence means that…in future those who bring down their bank by making thoroughly unreasonable decisions can be held accountable for their actions…Senior managers could be liable if they take a decision that leads to the failure of the bank…The maximum sentence for the new offence…reflects the seriousness that the Government, and society more broadly, place on ensuring that our financial institutions are managed in a way that does not recklessly endanger the economy or the public purse.”—[Official Report, 11 December 2013; Vol. 572, c. 252.]
On that, at least, I agree with the right hon. Gentleman. It is a shame that there has been a change in position.
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The Chair of the Treasury Committee said:
“Far from imperilling the UK’s global competitiveness, high standards will make the UK a more attractive place to locate.”—[Official Report, 8 July 2013; Vol. 566, c. 76.]
Other commentators and campaigners who have expressed their support include Martin Wolf of the Financial Times. We have re-tabled this amendment to state our clear opposition to this unwelcome, unnecessary and risky change.
The legislation was introduced by the Chancellor in 2013, and Members of the House should not forget that it was due to come into force in March this year. It has yet to be even tested, as the hon. Member for East Lothian said. Now is not the time to make this concession to top bankers. Both the announcement of the Chancellor’s “new settlement” with financial services—including as it does the departure of Martin Wheatley from the FCA and the scrapping of the FCA’s review of banking culture—and the recent discovery that UK banks, Crown dependencies and overseas territories are at the heart of the Panama papers tax haven scandal mean that the proposal in the Bill to remove the presumption of responsibility is the wrong proposal at the wrong time. We urge Members to support our amendment.
Let me turn to new clause 10, which was tabled by the hon. Member for South West Devon (Mr Streeter). We recognise the concern about fee-chargers in the debt management sector, who often charge clients exorbitant amounts to set up plans that can clearly add to clients’ problems, rather than helping to alleviate them. In the scenario proposed, instead of charging fees to customers, the commercial debt management companies would receive income though a statutory levy on creditors, and all creditors would be bound by a fee arrangement to which the majority agree. However, it is not clear how that helps consumers specifically. The rules could bind some commercial organisations to paying fees to other ones. There are serious competition issues here, and I am aware of the FCA’s concerns on that point.
There are questions to ask about how the creditors set the level of fees. The measures would not stop commercial debt management companies charging consumers in addition to the fee. In some circumstances, they could lead to commercial providers advising people on the basis of their creditors and not on their actual needs.
Although the new clause can be admirably presented as a way of killing off fee charging, it may well result in a lifeline being thrown to the sector. Critics may well ask why the Government should intervene to prop up this market, just at the point when the FCA is cleaning it up. Secondly, it introduces a statutory funding mechanism for one debt solution—debt management plans—when in fact there are many options available for people in debt, including bankruptcy, debt relief orders, debt management plans, administration orders, debt consolidation and individual voluntary arrangements. Only about one third of those people seeking debt advice are provided with a debt management plan; for others, it is simply not the right fit. Although we welcome the debate, we feel that it is necessary to consider how best we meet the needs of all people with debt problems, so we do not support the new clause.
Finally, let me turn to new clause 9 in the name of the hon. Member for Broxbourne (Mr Walker). I am aware that this is an issue of concern to Members in all parts
of the House. The global rules against money laundering require banks and regulated businesses to carry out enhanced due diligence on all politically exposed persons—individuals entrusted with a public function—but if the transposition of the EU directive into domestic legisslation is mishandled, a wide range of other people could be affected. It could adversely affect tens of thousands of people, including civil servants, city workers and even, as has been described, the families of armed forces officers serving our country abroad.
The EU’s fourth money laundering directive, passed last year, will need to be transposed into UK law within two years, as has been mentioned. We need to get this right to ensure that the safeguards proposed to prevent tax avoidance and money laundering and, in the light of the Panama papers, the provisions governing the register of beneficial ownership of companies and trusts do not get in the way of individuals using their bank accounts, securing mortgages or supporting charities. We believe that this is an important issue, and we are grateful to the hon. Member for Broxbourne for all his hard work explaining the potential risks to the House.