§ Consideration of amendments on Report resumed.
§ Clause 18 [Offences in connection with laundering money from drug trafficking]:
§ Baroness Mallalieu moved Amendment No. 7:
§ Page 16, line 40, leave out ("suspects") and insert ("believes").
§ The noble Baroness said: My Lords, in moving Amendment No. 7 I shall speak also to Amendment No. 8. Some of the arguments I wish to advance will also be relevant to the subsequent amendments, Nos. 11 and 12, so I shall not repeat them when we reach those amendments in due course.
At Committee stage this matter was raised and it caused me a little concern. In the intervening period the noble Earl has been good enough to write to me, but I am bound to say that I am still troubled by the provision as it stands at present. As it is drafted, Clause 18 inserts in connection with offences to do with money laundering the following provision:
A person is guilty of an offence if … he knows, or suspects, that another person is engaged in drug money laundering … the information, or other matter, on which that knowledge or suspicion is based came to his attention in the course of his trade, profession, business or employment, and … he does not disclose the information or other matter to a constable as soon as is reasonably practicable after it comes to his attention".
§ It is the words "suspects" and "suspicion" that continue to trouble me because I am not sure that I know precisely what they mean. Other legislation, for example, Section 22 of the Theft Act, making it an offence to handle stolen goods, speaks of "knowing or 1484 believing". This amendment in effect seeks to follow the Theft Act in that way, not only because it is clearer but because it would seem that to import suspicion into the criminal law is to bring in a state of mind that, frankly, is too low for a criminal offence which in this case carries a penalty of up to five years' imprisonment. Juries are warned day in and day out in criminal cases that suspicion is not enough. One can quite see that "suspicion" is a difficult concept for a jury to grasp and it is difficult to define.
§ There are other reasons, of course, for not deciding to find somebody guilty merely because they have a suspicion upon which they fail to act. It is all too easy to prove a suspicion but it is very difficult indeed to refute it.
§ This line of reasoning in effect imparts an objective test, whatever the noble Earl may subsequently say, when in fact the test should be a subjective one. The likelihood is that the prosecution in a case involving a clause of this nature would simply say: "Well, on the facts he should have suspected and you can therefore conclude that he must have suspected". What the prosecution ought to be able to prove, and what it ought to be required to prove by this legislation, is that a person is guilty only if he knew or believed that what was happening was that the person whom he was assisting with his money was engaged in drug laundering.
§ I apologise for repeating this because it is a matter that I raised at Committee stage. The proposed offence will make things very difficult too, for example, for the conscientious bank employee. At what stage should he cease to feel that he must report payments which may appear to be unexplained at the outset? Should he take the cautious view? If this clause remains unamended, it would seem that virtually any sizeable sum—which may be even as low as £2,000 —should attract his suspicion. But, of course, it would fall far below him knowing or believing that the person who paid the money in had been involved in drug money laundering.
§ There is a danger that if the clause is left in this vague way, the relationship of trust between banks and their customers may well be undermined. Those working for banks would feel obliged under this legislation to report even quite small moneys, with the result that confidentiality and trust must in time be eroded.
§ I hope that the noble Earl, notwithstanding what he said on the last occasion and what he has written to me, may reflect on the matter further. It seems to me that the test that is applied under Section 22 of the Theft Act is one which works well and without difficulty. I am repeating myself, but I think it is important. This provision seems to set a state of mind which is too low for a criminal offence of this gravity. For that reason, I beg to move the amendment.
§ 5.15 p.m.
§ Lord Ackner
My Lords, I must confess to a mild degree of disappointment that the noble Lord, Lord Airedale, who indicated how he would improve the clause during Committee and had the initiative to put down an amendment to improve it, has withdrawn the 1485 amendment. I should have preferred to see what he proposed, namely "reasonable grounds to suspect". However, he probably withdrew it because the phrase clearly imports the objective test and it is therefore much easier to establish.
What is proposed here is clearly, without any doubt, a subjective test, and the judge who is obliged to sum up to the jury will explain and impress that upon the jury. I cannot agree with my noble friend Lady Mallalieu that as drafted this is anything other than a clear indication of a subjective situation.
The word "suspect" may be omitted from the Theft Act, but it is included in two Acts which are companion Acts to this Bill. Section 14 of the Criminal Justice (International Co-operation) Act 1990 has the side-note:Concealing or transferring proceeds of drug trafficking".That section specifically provides that:A person is guilty of an offence if [he] knowing or having reasonable grounds to suspect that any property is, or in whole or in part directly or indirectly represents, another person's proceeds of drug trafficking".Section 14(3) again deals with that situation.
Closer to the Bill is the Drug Trafficking Offences Act 1986. Section 24 has the side-note:Assisting another to retain the benefit of drug trafficking".It provides among other things that:if a person enters into or is otherwise concerned in an arrangement whereby … [another person's] proceeds of drug trafficking … are used to secure that funds are placed at [that person's] disposal, or … are used for [his] benefit to acquire property by way of investment, knowing or suspecting that [that person] is a person who carries on or has carried on drug trafficking … [he] is guilty of an offence".So there is no novelty in introducing the word "suspects" into this type of legislation. On the contrary, it would be very odd, in my respectful submission, if there suddenly popped up the lesser obligation "belief" in this Bill with the two analogous Acts involving the obligation only to establish suspicion. In my respectful submission, this is all part and parcel of a laudable approach to try to make the life of the drug trafficker more difficult than it has been hitherto.
§ Lord Wigoder
My Lords, with very great temerity I venture to suggest that the analogies given by the noble and learned Lord, Lord Ackner, are not appropriate in this case because they are not offences the essence of which is the concealment of information. They are totally different offences dealing with, for example, the retention of funds and other such matters. The essence of Clause 18 of the Bill we are now considering is the failure to disclose information. There is one very good analogy for that which is much closer than that of the noble and noble Lord, Lord Ackner, and it is contained in the Prevention of Terrorism (Temporary Provisions) Act 1989. Section 18(1) of that Act states:A person is guilty of an offence if he has information which he knows or believes might be of material assistance…fails without reasonable excuse to disclose that information'.I believe that that is a close parallel with Clause 18 in the present Bill under discussion where a person is said 1486 to be guilty of an offence if he "knows or suspects" a certain matter and then does not disclose the information about that.
It is very curious indeed that, although no one could regard drug trafficking as other than a serious offence, it is perhaps not as serious as offences of terrorism. One would have assumed in the public interest that the appropriate standard of proof had been inserted into the Act that dealt originally with the failure to disclose offences of terrorism.
The provision in Section 18 of the Prevention of Terrorism Act of knowing or believing is still subjective—I respectfully submit that the noble and learned Lord, Lord Ackner, is correct about that—but it is nevertheless a higher standard of proof than the use in Clause 18 of this Bill of the rather weak word "suspects", which I submit is capable of leading to misconstruction and in due course to miscarriages of justice. I therefore support the noble Baroness on this amendment.
§ Lord Airedale
My Lords, I am sorry that I have disappointed the noble and learned Lord, Lord Ackner, in not tabling again on Report the amendment that I tabled in Committee. I have to confess that the reason I have not tabled it again is that I was convinced by the argument adduced in the letter from the noble Earl which he has kindly sent me since the Committee stage and which has been helpful to me. However, I am sorry that the noble and learned Lord, Lord Ackner, was not impressed by the reference of the noble Baroness to the Theft Act. What I should like the Minister to tell us, if he can, when he replies is the following. How is it that an alleged receiver of stolen goods is not guilty if he merely suspects the goods to be stolen, but only if he knows or believes the goods to be stolen, and yet under this Bill in this clause an offence is committed by mere suspicion? That is a distinction which I find difficult to understand.
§ Lord Monson
My Lords, as a mere layman I warmly support this amendment which the noble Baroness, Lady Mallalieu, has argued so well. It seems to me essential to avoid the possibility of injustice. The word "belief" in the context of the clause in question implies a subjective assessment that the probability of someone else having been involved in the illegal activities in question is in the order of 50 per cent. or above; whereas the word "suspicion" could imply the subjective assessment that the probability of that other person having committed the crime is as low as 10 per cent. or even below. Therefore the person concerned—that is to say, the person who holds the suspicion—may accordingly be most reluctant to risk wasting police time and even more reluctant to risk smearing someone who is more likely than not to be innocent.
I imagine as a layman that it will be extraordinarily difficult for the prosecution to prove beyond all reasonable doubt that someone was suspicious, should that person deny the charge. Nevertheless there is a real risk that someone may unjustly be sent to prison for five years merely for not acting on a slight suspicion. I hope that Amendments Nos. 7 and 8 will 1487 be agreed to. I had imagined that Amendment No. 12 would be spoken to at a later stage but the noble Baroness has indicated that she intends to speak to all the amendments up to and including Amendment No. 12 now. Therefore this might be the moment to speak to that amendment too.
If there is a strong case for Amendments Nos. 8, 9 and 11, there must be an overwhelmingly strong case for Amendment No. 12 because here we are dealing with an offence which can lead to a sentence of not five but fully 14 years' imprisonment. Someone can be sentenced to 14 years in prison simply for failing to suspect an offence even when he or she is deemed to have reasonable grounds for not suspecting.
The Government seem to have forgotten that there are many people in this world who simply happen to be good natured and trusting and who are highly reluctant to believe ill of their fellow men. To the stern and censorious this may be counted as a character defect, but it is surely not a crime and still less a crime deserving 14 years' imprisonment. Therefore I hope that even if Amendments Nos. 8, 9 and 11 are not pressed to a Division—assuming the Government do not agree with them—perhaps Amendment No. 12 will be.
My Lords, the noble Lord, Lord Monson, said we must be good natured and trusting. We are dealing here with money which has been obtained by the processes of drug trafficking. That is a serious matter. I do not think we can afford to be too good natured and trusting over that.
The offence in Clause 18 of failing to disclose knowledge or suspicion that another person is engaged in drug money laundering is intended to ensure that reports relating to money laundering are made to the police so that they can be evaluated and investigated. It is the police who ought to do that. The police, the prosecutors and the Government would much prefer that suspicious transactions are reported than that people should be prosecuted for failing to report what to them seem to be just suspicious circumstances.
The main purpose of the mental test which is used in this clause is to ensure that suspicions as well as knowledge of money laundering are reported to the police so that the police can investigate the suspicious matters as well as what one might describe as things that are more likely to be known, with the result being that there will be a greater likelihood of money launderers and drug traffickers being brought to justice.
If we are to substitute "belief" for "suspicion", we would take quite a large step towards undermining this objective. It would remove the incentive for anyone to report what they thought was suspicious and it would therefore reduce the number of reports which were made. The test of belief is far nearer to that of actual knowledge and to apply the test of belief to this offence would risk damaging the whole of the reporting system. This could only benefit the money launderers and the drug traffickers and it would be detrimental to law enforcement. The concept of suspicion is not new in the context of money 1488 laundering legislation: it has been operating perfectly well under Section 24 of the Drug Trafficking Offences Act 1986 since its introduction in 1987.
The noble Baroness, Lady Mallalieu, said that it is much harder to prove "knowing" or "believing". Of course it is. That is why we consider that "suspicion" is the right word. One must remember that it is a defence for the defendant to show to the civil standard of proof—not the criminal standard—that he had a reasonable excuse for not reporting his suspicions. It is for the prosecution to prove to the criminal standard not that the defendant ought to have suspected but that he did suspect that the person was a drug money launderer. The prosecution also has to prove to the criminal standard that he did not disclose his suspicion to the police or to the supervisor.
There are a great many ways in which the defendant can defend himself. Many institutions have esta-blished internal reporting systems which are known as "reporting up the line". Staff do not have to make a choice between going to the police with what might be a completely unfounded suspicion or of doing nothing. They can report up the line. They have a defence under subsection (5) that they reported the matter to their supervisor. Bank employees, who are the most likely to be affected by the measure, will be encouraged by the inclusion of the defence of reporting up the line to make reports to their supervisors for further consideration rather than to make them direct to the police. We do not expect, therefore, any significant increase in the number of reports being made to the police as a result of the provision.
We believe that where a person—who may be a bank employee —considers that a transaction is suspicious the onus ought to be on him to report it to his supervisor or to the police so that they can take the necessary action. They are skilled in investigating such matters. It should not be up to the bank employee himself to wrestle in his own mind as to whether his suspicion is reasonable or unreasonable.
I know that this is a subject which is close to the noble Baroness's heart, but I hope that she will realise that we are trying here to eliminate the sources of profits from drug trafficking. That can only be done if the utmost care is taken in respect of all such transactions. If a person is suspicious of such a transaction, it is right that he should report that suspicion to his employer or supervisor.
§ 5.30 p.m.
§ Lord Wigoder
My Lords, before the noble Earl sits down, can he say why we should be harder on people who fail to disclose information about drug traffickers than we are on people who fail to disclose information about acts of terrorism?
My Lords, the two are not comparable. I am trying to explain to your Lordships that the world of drug dealing is a very rough world and there are rich proceeds. We are trying here to remove the proceeds of this particular crime, whereas 1489 terrorism is an act. In this case we are trying to remove the proceeds by which people benefit from what they have done.
§ Lord Airedale
My Lords, before the noble Earl finally sits down, can he say whether the police have been consulted about the proposal? Do the police really want their time taken up by people coming to them with suspicions which have no foundation?
My Lords, I visited the National Criminal Intelligence Service only this week. Its members are deeply concerned to obtain every possible item of information in order to reduce the possibilities for and proceeds of drug trafficking. I do not believe for one moment that there will be a flood of new reports to the police. What will happen is that bank employees who are anxious will go to their employers saying, "I think that there is something funny here". If the employer thinks that that is a matter which should be reported to the police he will do so and the police will welcome that.
§ Baroness Mallalieu
My Lords, I am grateful to noble Lords who have supported the amendment, particularly the noble Lords, Lord Wigoder, Lord Airedale and Lord Monson. I, too, shall have something to add when I come to the amendment which has been referred to.
I am afraid that all that has been said so far, and in particular what has been said by the noble Earl, has confirmed my concern about this aspect of the Bill. We are all in agreement that it is desirable that, where there are shady transactions, people should report them so that the police can carry out their investigations and, one hopes, apprehend drug traffickers. However, I am concerned at the noble Earl's suggestion that the amendment would in some way undermine an incentive to report. I can only pause there to say that it is a curious incentive to report which imposes an obligation of this nature on someone who has no more than a mere suspicion and provides that if he fails to make the necessary report he faces a sentence of imprisonment of this magnitude.
There is nothing in the amendment which is proposed which would in any way stop or discourage suspicious transactions being reported. Where one imports suspicion into legislation of this kind the danger is that one provides an element of hindsight, so that by the time the drug trafficker has been caught and by the time the person who failed to pass on the information comes to be tried as a result of this clause of the Bill it will be all too easy for people to point, with the knowledge of hindsight, and say, "Of course he was suspicious. Look at the circumstances".
Having heard the noble Earl's argument, I remain firmly of the view that suspicion is too low a standard in a clause of this nature, which is designed for a purpose which we are all agreed is desirable. In my submission, belief is a much more appropriate standard.
If the Bill had gone even part of the way towards meeting my objection—for example, if it had suggested that the bank employee had wilfully disregarded his suspicion because he did not want to 1490 know—that might have been more acceptable. But to leave the matter in this way, with mere suspicion being all that the Crown has to prove at the end of the day when the other facts are all known, is wholly unsatisfactory.
I do not propose to test the opinion of the House at this stage, but this is a matter which I hope to raise with the noble Earl between now and the final stage of the Bill. I hope that even at this stage a change of heart may result. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendment No. 8 not moved.]
§ Lord Airedale moved Amendment No. 9:
§ The noble Lord said: My Lords, this is merely a drafting matter. I do not think that it is necessary in subsection (2) to spell out in full the title of the 1986 Act. If the words "the Act of 1986" are satisfactory for subsection (3), I imagine that they are equally satisfactory for subsection (2). I beg to move.
My Lords, the noble Lord is always anxious to make legislation clear. We have tried to do exactly that by using the words which we have included in the Bill. The noble Lord wants to truncate those words and use only the words which he has set out in the amendment. The noble Lord's method of making the matter clear is to remove the clarifying words which indicate which Act is meant and to insert instead the words "Act of".
If the noble Lord were to ask the average man in the street —whom he likes to consult periodically—to read Clause 18(2) amended as he proposes and then asked him to which Act that referred, I fancy that the answer would be, "I do not know". Then the noble Lord would say, "If you look back two pages to subsection (1) you can find out". We thought that that would be rather complicated and it would be better if the words were repeated here in the same way as in Clause 18(1).
§ Lord Airedale
My Lords, I do not understand that argument at all. I shall read what the noble Lord said in Hansard tomorrow. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clause 24 [Confiscation orders]:
§ [Amendment No. 10 not moved.]
§ Clause 26 [Assisting another to retain the benefit of criminal conduct]:
§ [Amendment No. 11 not moved.]
§ Clause 28 [Concealing or transferring proceeds of criminal conduct]:
§ Baroness Mallalieu moved Amendment No. 12:
§ Page 31, line 13, leave out ("having reasonable grounds to suspect") and insert ("believing").
The noble Baroness said: My Lords, I have already spoken in part to this amendment, as has the noble Lord, Lord Monson. The provision troubles me particularly. Perhaps I may beg the indulgence of noble Lords by referring to Section 28. It deals with
concealing or transferring the proceeds of criminal conduct. Subsection (2) of the new section, if not amended, will read as follows:
A person is guilty of an offence if, knowing or having reasonable grounds to suspect that any property is, or in whole or in part directly or indirectly represents, another person's proceeds of criminal conduct, he—
§ As the noble Lord, Lord Monson, has already indicated, on conviction on indictment this carries a maximum term of imprisonment of 14 years.
Following the Committee stage, the noble Earl was good enough to write to me about this clause and the concerns which I had expressed about the words:
having reasonable grounds to suspect".
§ Noble Lords will appreciate that the amendment again makes the provision one of "knowing or believing" that the property was part or proceeds of another person's criminal conduct.
§ I anticipate that the noble Earl will say that this clause is modelled directly on Section 14 of the Criminal Justice (International Co-operation) Act 1990, that the test is an objective one and that that forerunner section has not caused any difficulties; it was accepted by Parliament when the 1990 Act was debated. He will probably go on to say that the objective test is lower than the subjective one, but in the case of this offence it was seen as justifiable because it is an element of the offence that the concealment or transfer of property is done with the intention of avoiding prosecution or the making of a confiscation order, and it cannot therefore be committed unintentionally or unknowingly.
§ I return to the provision as presently drafted. I wonder why on earth it is necessary for suspicion to be imported in that way if the Crown has to go on to prove that the person who knows, or has these reasonable grounds for suspicion, realises that it is being done for the purpose of assisting somebody to avoid prosecution for an offence under this Act. It seems to me to create a wholly unnecessary difficulty. It imports suspicion, which, as I have already indicated, is a nebulous and tenuous concept and one which may be difficult for a jury to grasp, being capable of a great many interpretations.
§ The clear words "knowing or believing", coupled as they are in that section with the need for the prosecution to prove that the person is guilty only if he realises that he is assisting somebody to avoid prosecution for an offence under this Act, would seem to me to make the matter quite clear and leave little room for doubt or difficulty. I wonder whether the noble Earl, particularly in relation to this section, which carries a very long penalty of imprisonment, would consider making the amendment that I seek. I beg to move.1492
§ 5.45 p.m.
§ Lord Monson
My Lords, in responding to Amendment No. 7, the noble Earl, Lord Ferrers, told us that under the clause in question the prosecution has to prove that somebody in fact suspected that an offence was being committed which they failed to report and that there was no question of the prosecution seeking merely to prove that he or she ought to have suspected it. The noble Earl was absolutely right so far as Amendments Nos. 7, 8 and 11 are concerned. But he is not right—he did not claim to be right—so far as Amendment No. 12 is concerned, because under subsection (4) (b) somebody can be sentenced, theoretically at any rate, to 14 years' imprisonment merely for being careless or excessively trusting.
Let us suppose that someone is alone in a house late at night. Someone he knows slightly rings the bell and comes in rather breathless and bedraggled, saying, "I am going away on a week's holiday", or "I've got to move my lodgings". He then says, "I've got a couple of hundred pounds here that I would like you to conceal in your bottom drawer for a week or so until I can get straightened out". The trusting man replies "Yes, fine", then the money turns out to be the proceeds of a burglary. Is that man to be sentenced to 14 years merely because he trusted his friend and has not reported to the police that he came in rather late and in a breathless state? It seems to me quite wrong, and I shall be interested to hear what the noble Earl has to say.
My Lords, the noble Baroness, Lady Mallalieu, in her very disarming way, told me what I was going to say and what I would be likely to go on to say. In some ways she almost made my speech for me. Nevertheless, I shall try to explain to her the reasons why we apply the mental test of "reasonable grounds to suspect" to the offence which is created by Clause 28. The noble Baroness correctly surmised that I would say that, except for the fact that it bears on the proceeds of criminal conduct rather than the proceeds of drug trafficking, the offence of concealing or transferring the proceeds which is created by Clause 28 is identical in all its elements to the offence under Section 14 of the Criminal Justice (International Co-operation) Act 1990. The mental test of "reasonable grounds to suspect" has been used in that offence without difficulty since it was first implement-ed. It would not make sense for two almost identical offences to contain different mental tests. It would also be confusing for the courts.
I shall try to explain, if I may, why the text of "reasonable grounds to suspect" was applied to the offence in Section 14, and hence to the offence in Clause 28 of the present Bill. The offence in Section 14, and also in Clause 28, depends upon the fact that the laundering of the proceeds was undertaken for the purpose of avoiding prosecution or the making or enforcing of a confiscation order. Therefore, the offences cannot be committed unwittingly, in the belief that the activities of concealing or transferring were done for perfectly legal reasons. Obviously, they could not. If that were the case, the offence would not 1493 have been committed. For this reason, it was considered perfectly acceptable to apply an objective mental test of suspicion—that is, that the defendant had reasonable grounds to suspect. "Belief" is a stronger opinion or conviction than just suspicion, and therefore it is harder for the prosecution to prove.
I suggest that we should not lose sight of what we are trying to achieve by this offence and the earlier 1990 Act offence which it reproduces. We are essentially creating an offence of concealing or disguising property which is the proceeds of criminal conduct where the express purpose is to assist the original criminal. The Government believe that this offence must be allowed to catch any person who deliberately acts in this way where he or she knows or ought to have suspected—that is, that he or she has reasonable grounds to suspect—that it is the proceeds of criminal conduct.
We must be careful not to make the prospect of bringing forward a successful prosecution so difficult that the offence becomes unworkable and launderers are able to salt away their profits.
The noble Baroness, Lady Mallalieu, referred to avoiding prosecution. That is a difficult issue upon which I should like to take advice and then to write to her.
§ Baroness Mallalieu
My Lords, I am grateful for the Minister's indication that we can at least discuss the matter between now and Third Reading. On hearing him advance his arguments for maintaining the clause in its present state, it appears that if the prosecution managed to prove that the person has acted in order to assist someone to avoid prosecution under this part of the Bill, it would follow directly that that person must know or believe that the property he is dealing with is the proceeds of criminal conduct. If that is right, to import into the definition the necessity for having reasonable grounds to suspect appears to me to be an unnecessary diversion which may cause difficulties.
I appreciate that the Minister looks at all the amendments from a point of view which is different from mine. I go back to the Bar and people say to me, "Has the House of Lords gone mad? How are we to deal with this legislation?". That is one of the reasons why I advanced those arguments. However, if as the Minister has indicated he will be good enough to look further at the matter between now and Third Reading I shall beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Lord Airedale moved Amendment No. 13:
§ Page 31, line 21, leave out ("his") and insert ("that person's).
§ The noble Lord said: My Lords, the object of the amendment is to resolve a possible ambiguity. The last word of line 15 on page 31 is the word "he". Line 21 contains the word "his". One might suppose that "his" is intended to refer back to "he" in line 15. But I do not believe that it does. I believe that "his" in line 21 refers back to "any person" in line 19. If that is right, my amendment resolves that ambiguity. I beg to move.
My Lords, this is a technical drafting amendment which needs a technical response. The 1494 noble Lord says that it is not clear to which person the "his" refers. The intention behind the clause is that the "his" refers to the person immediately previously mentioned in the clause; that is, the "any person" to whom the noble Lord referred in line 19 who is being assisted by the defendant to avoid prosecution or the making or enforcement of a confiscation order. Even if there is an ambiguity here, I do not believe that substituting "that person" for "his" will improve the situation. It would suffer from the same drawback. Indeed, it might even make things worse in that by introducing again the word "person" it could strengthen the argument that it refers to the first mentioned "person" in line 12 of the clause.
Clause 28 reproduces for the proceeds of crime the offence in Section 14 of concealing or transferring the proceeds of drug trafficking. The formulation about which the noble Lord, Lord Airedale, is concerned has caused no confusion that we are aware of so far in relation to Section 14. However, I shall consider what the noble Lord said. I like to think that he is misguided —I mean that in the most generous way—and that perhaps the noble Lord is not quite correct. I shall certainly ensure that his comments are looked at to make sure that the Bill is as clear as possible.
§ Lord Airedale
My Lords, I prefer to be not quite correct to being misguided. In view of what the Minister said I am happy to beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clause 33 [Meaning of "inside information"]:
§ Lord Mottistone moved Amendment No. 14:
§ Page 34, line 45 leave out ("prospects").
§ The noble Lord said: My Lords, it appears to me that the present wording of Clause 33(2) is far too wide. Subsection 1(a) already defines "inside information" as, inter alia, information referring to the issuer of securities, which is clear enough. It is also reasonable that inside information should include information relating to a company's business but not necessarily its business prospects. The reference to "prospects" makes the definition of "inside informa-tion" far too wide and would embrace almost anything; not only matters having a direct bearing on the business of the company but also those indirectly. It would embrace not only the activities of the company's competitors but also industry trends and even the state of the economy generally. Such a consequence of a meaning of "inside information" cannot be right or appropriate. I beg to move.
The Earl of Caithness
My Lords, there are two possible constructions of the effect of the amendment. The first is that it would narrow the scope of what is inside information because the word "prospects", which the amendment would delete, has the effect of including information which would not otherwise be caught. For example, it might be argued that deleting "prospects" would have the effect of restricting the inside information to information which is about a company's current business but not its future business.
But there is an alternative view; it is that the amendment would not achieve its intended effect 1495 because information about a company would include everything to do with a company including its business prospects.
In our opinion, the second view of the amendment is probably the better. So at best, the amendment would introduce ambiguity into the legislation; at worst, it would have the reverse effect to that which is intended by broadening what is caught as inside information.
Having said that, it may be helpful to explain why the Government included the reference to business prospects in the legislation. It is included because the Government believe that it is essential for our insider dealing legislation catch as inside information information which, while not relating directly to a company, would nonetheless be likely to have a significant effect on the price of its shares. An example of information in this category might be important regulatory decisions and information about a company's major customer or supplier. Information of that kind is caught by the existing insider dealing legislation and it would represent a very significant narrowing of our legislation if a provision to equivalent effect were not carried forward here.
We sought to do that by including the provision that information which may affect a company's business prospects can be inside information. The word "prospects" was used because it is also employed in related legislation. Thus, Section 146 of the Financial Services Act, which sets out the information which has to be included in listing particulars before securities may be admitted to trading on the Stock Exchange, requires publication of all information required to allow assessment of the assets and liabilities, financial position, profits and losses and prospects of the issuer of the securities.
Including information in listing particulars of course ensures that information is made public. It is therefore very closely linked to what information is and is not inside information. Assessing whether information relates to a company's business prospects is not therefore a new idea and the test that information should have to relate to a company's business prospects is an appropriate one.
§ Lord Mottistone
My Lords, I thank my noble friend for that full reply. I shall read it with great care and discuss it with those who advise me. It appears to me that the question is whether my noble friend's earlier remarks were as convincing as his later ones. I shall read carefully the whole exchange in order to be certain whether we need to proceed further at a later stage. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ 6 p.m.
§ Clause 34 ["Insiders" and "tippees"]:
§ Lord Windlesham moved Amendment No. 15:
Page 35, line 7, leave out ("a tippee") and insert ("the direct or indirect source of the information was an insider").
§ The noble Lord said: My Lords, Amendments Nos. 15 to 17 relate to a secondary category of person who may be guilty of the offence of insider dealing. We need to take care with the wording of this part of the 1496 Bill, bearing in mind that in the most serious cases the applicable penalties, following conviction on indict-ment, are up to seven years' imprisonment or a fine or both.
§ Clauses 34 and 35 make it clear that the liability to prosecution extends not only to a person who takes advantage of inside information by dealing in securities which are price affected, but it extends also to a person who obtains and acts upon information, the direct or indirect source of which is an insider.
§ The Bill describes that secondary category of person as a "tippee". That expression was strongly criticised and ridiculed on Second Reading and again in Committee. When my noble friend Lord Caithness replied to a number of amendments in Committee, he accepted the mood of the Committee and undertook to look again at the drafting of Clauses 34 and 35.
§ Amendments Nos. 15, 16 and 17 are very similar to those which were drafted by my noble friend Lord Renton and which I moved in Committee. Since that time the wording has been scrutinised and slightly rearranged by parliamentary counsel. The amend-ments before the House are the result of that scrutiny.
§ I emphasise that the substance of this part of the Bill is in no way changed by the amendments. It is only the terminology that is improved. The provision is restated in plain English and avoids the import of jargon onto the statute book. I beg to move.
§ Lord Renton
My Lords, in supporting this group of amendments, I thank my noble friend Lord Windlesham for moving amendments in Committee which I had tabled although I could not be present to move them. I also thank the Government and parliamentary counsel for the slight adjustments which have been made. I agree that they improve the drafting.
Your Lordships may think that perhaps there is nothing more for me to say, but I shall say more about this matter because for the first time in my long experience in Parliament the amendments raise a very interesting point on the use of modern colloquial jargon; let us call it slang for short. Even when it becomes a term of art within a small section of society, slang will not be understood by the rest of society for whom at large we are legislating. Therefore, as far as possible we should avoid slang.
Another disadvantage attaches to slang. It may be well understood in one part of society by one generation. However, even that part of society using it as a term of art in trade or business may find that in a later generation it is no longer used. We should legislate in the long term if possible.
The word "tippee" is ambiguous. It may be used in several different but limited circumstances. It is derived from the word "tip". A "tip" is a word in standard English but it is used to describe the projecting end of a pointed object; for example, on a pencil. In colloquial English it has several different meanings. For example, it can be used to describe a gratuity—a tip to a taxi-driver. It can be used as advice or suggestion; for example, a tip as regards making a bet on a horse race. Therefore, it is not only slang but it is ambiguous slang which needs to be avoided.
1497 This group of amendments shortens the Bill as well as improves its drafting. Therefore, I am grateful to my noble friend Lord Windlesham and others for pursuing the matter.
§ Lord Wigoder
My Lords, perhaps I may say how much I appreciate the gracious way in which the Government have conceded defeat on this important issue. This matter will give the greatest satisfaction to all those who were my fellow "perturbees".
The Earl of Caithness
My Lords, we come to the final demise of the elegant word "tippee". I have no doubt that my noble friends read the references in the books to which I referred previously. I found the arguments of my noble friend Lord Windlesham overwhelming and I commend the amendment to your Lordships.
§ On Question, amendment agreed to.
§ Lord Windlesham moved Amendment No. 16:
Page 35, line 13, leave out subsection (3).
§ On Question, amendment agreed to.
§ Clause 35 [Dealing in securities]:
§ Lord Windlesham moved Amendment No. 17:
Page 35, line 33, leave out ("tippee") and insert ("that the direct or indirect source of the information was an insider").
§ On Question, amendment agreed to.
§ Clause 37 [Defences]:
§ Lord Mottistone moved Amendment No. 18:
Page 36, line 20, leave out ("if") and insert ("although").
§ The noble Lord said: My Lords, in Committee I drew your Lordships' attention to Clause 37(3) in which there is rather strange use of the word "if". There is a double "if", if one reads on from the introductory sentence into subsection (3) (b).
§ I was grateful to my noble friend for saying that he rather agreed with me and that he would take it away and look at it again. I was surprised to receive suggestions as to an amendment which is now before the House. I hope that this may solve the problem of having too many "ifs" in this part of the Bill. I beg to move.
The Earl of Caithness
My Lords, I find my noble friend's argument totally convincing. I am happy to accept the amendment.
§ On Question, amendment agreed to.
Lord Mottistone moved Amendment No. 19:
Page 36, line 32 at end insert:
("(6A) Prior to the Secretary of State making any order under section 47(3) to bring any part of this Part into force, the Treasury shall publish guidance as to what conduct, in their opinion, does and does not constitute the offence of insider dealing for the purposes of sections 35 and 36 and of the defences under this section, and generally as to the interpretation and meaning of this Part.").
§ The noble Lord said: My Lords, in moving Amendment No. 19 I shall speak also to Amendment No. 20. It has been my view—and I expressed it in Committee—and that of the CBI which advises me that much greater clarity is needed in the legislation as regards certain of the key words, terms and phrases used in this part of the Bill.1498
§ Today I received a letter from a group calling itself the 100 Group, which is a group of finance directors of the largest UK-quoted companies. That group has expressed great anxiety about the lack of clarity to which I referred.
§ However the Minister views the amendments, I propose to send him a copy of the letter that I received today to assist him to see how very important this matter is. While the aims of this part of the Bill are well understood and supported in principle, the sanctions for breach impose criminal liability with a loss of career and reputation at stake for those found guilty and even for those accused but not found guilty. The amendments seek to deal with those problems.
§ In Committee, when we debated whether Clause 37 should stand part of the Bill, my noble friend turned down my suggestion that we should have examples in Schedule 2 of the Bill of the matters that concern people and on which the Bill is not clear. My noble friend told me that it was not suitable to include it in legislation. Since then my attention has been drawn to the Consumer Credit Act 1974 in Schedule 2 of which there are 10 pages of examples of exactly the kind I suggest may be usefully included in the Bill. Therefore I suggest to my noble friend that he may care to think again about the matter.
§ My noble friend also said when we were debating whether Clause 37 should stand part of the Bill, that the Government were considering issuing guidance. If we are not to have examples in the Bill, the guidance will be so important that the need to publish it should be written into the Bill. That is the substance of Amendment No. 19—to ensure that guidance covering the ground of the amendment be included in the Bill.
§ Having included that in the Bill, we also need to be certain that the Bill instructs the courts that the guidance should be relevant to a defence in the event of people being charged with insider dealing. That is the purpose of Amendment No. 20. In order to make that important matter —of grave concern to important City practitioners—clear, I hope that your Lordships will forgive me if I take time to spell out the specific points in the Bill which require to be addressed in the guidelines. I did something similar when we were debating Clause 37 stand part in Committee. My noble friend the Minister kindly wrote at length to me on the matters I raised. I am grateful for that letter but the points concerned were different from those that I seek to include in my argument today.
§ In particular, I propose that the guidance issued by the Treasury should address the following issues, many of which cover the same points as are raised by the 100 Group to which I referred. First, it needs to cover the meaning of the phrase, "specific or precise" in Clause 33(1) (b). Secondly, it needs to cover the meaning of the phrase, "has not been made public" in Clause 33(1) (c). For example, is information known only to two persons "made public"? Can those two persons be outside the UK? Indeed, can they be anywhere in the world? Can the information only be available outside the UK and still be public? What if the information is available only in a market researcher's or analyst's report costing a significant 1499 amount? Answers to all those questions should be made clear, preferably in the Bill or at least in the Treasury guidance, which is the substance of my amendment.
Thirdly, what is the meaning of the phrase "significant effect" in Clause 33(1) (d)? For example, in the option market on the Stock Exchange a significant effect can occur much more easily than in the cash market. Fourthly, relating back to Amendment No. 14, what is the meaning of the phrase,
may affect the company's business prospects",
§ in Clause 33(2) (a)? That should also be covered by the guidance notes.
Fifthly, what is the meaning of the phrase "relies on" in Clause 35(2) (b) and Clause 35(3), and the phrase "effected through" in Clause 35(3) (b)? Sixthly, there should be included the meaning of the phrase,
otherwise than in the course of",
§ in Clause 36(1) (a). I consider that it should be made clear that the information provided "in the course of" or in connection with employment and so forth should be excluded from potential liability if the individual lacked the intent to enable someone to deal to make a profit or to avoid a loss, or he had an obligation under his employment and so forth to disclose the information (for example, to a regulator) or it is part of his employment duties, for instance, meetings with analysts.
§ Seventhly, there should be included the meaning and effect of the exemption for dealers whose information is market information in paragraph 3 of Part II of Schedule 2. What is and what is not market information? Who is and who is not a dealer? What is reasonable and what is unreasonable for the purposes of sub-paragraph (b) of paragraph 3(1) and 3(3) of the schedule? According to the Treasury background paper sent to consultees when the Bill was published, that exemption is intended to cover situations such as bought deals, building up a stake in a company possibly before a takeover bid, acquisitions in the course of a takeover, adjusting the book in advance of the publication of a recommendation and hedging operations.
§ All those are fine examples of conduct which should not be caught by the insider dealing offences. I regret that I am unable to draw that interpretation, or any interpretation, from the present wording of paragraph 3. As previously argued, those examples should be specifically cited in the Bill or at least in the Treasury guidance. Likewise, it is not apparent as to why the example given by the Treasury in the same commentary of conduct not within the exemption—namely, front running—so falls. Again, I accept that such conduct should be outside the exemption and capable of amounting to insider dealing. However, where is that made clear in paragraph 3?
§ It all boils down to the meaning and interpretation of the word "reasonable" in paragraph 3(1) (b) and the provisions of sub-paragraph (3) of paragraph 3. I regret to say that the present wording of the Bill is not at all transparent or easy to follow.1500
§ I informed my noble friend the Minister of my proposals for points in the Bill to be explained in the Treasury guidance. Therefore I should be grateful if he can either give assurances that the examples will be so included or explain why individual examples will not be so treated. I beg to move.
§ Baroness Mallalieu
My Lords, I rise from these Benches to support the amendment of the noble Lord, Lord Mottistone. His list of items which will require some form of guidance before they can be readily understood by people involved in this field, indicate that, as it is presently drafted, this section of the Bill is fraught with uncertainty and is a potential bonanza for the lawyers. It is unfortunate. We know the history, or something of it, from what was said at Second Reading in that this part of the legislation was introduced with very considerable haste and perhaps without an adequate consultation process.
The result is that unfortunately the essential ingredients of the offence are not now contained in the Bill itself. While that is the most desirable course, if we have got past a stage where the offence itself can be clearly spelt out within the Bill itself, then the next best thing must at least be to have from the Treasury some proper guidance as to who or what activities are intended to be caught by these provisions. For that reason, I support this amendment.
§ Lord Harris of Greenwich
My Lords, as the noble Earl is aware, there has been a great deal of disquiet about the lack of consultation as regards this part of the Bill. I join with the noble Baroness in expressing my anxiety about that and for the need for some very clear guidance. I am not quite clear how the noble Earl is going to proceed and whether he is hoping either to reply today or in correspondence with the noble Lord, Lord Mottistone, before the next stage of the Bill. Perhaps the noble Earl can set that out. We must avoid at all costs a bonanza for lawyers. I know with what sincerity the noble Baroness would be filled with disquiet if that situation were to arise. As I said, I very much hope that the noble Earl can assist us in giving some indication of when he is prepared to respond to the series of questions which have been put to him.
The Earl of Caithness
My Lords, I hoped that I had made it clear during Committee stage that incorporat-ing guidance in the legislation was not without considerable difficulties and with good reason. Either the examples would have to fall clearly on one side or other of the boundary between what is and what is not prohibited—in which case they would not serve any useful purpose—or they would confuse the boundary between what is and what is not prohibited.
I have to say to my noble friend that the amendment he proposes goes further than that. It would allow the wording of the statute to be overridden expressly or even by implication, in the guidance. In effect it would provide the Executive with the power to legislate without any involvement by the legislature. Some people think that to be a good idea but the great majority of people would think that that was a bad one. I do not believe that that is what my 1501 noble friend intended or what the noble Baroness sought to support. That is the effect of my noble friend's amendment.
Perhaps I may move from the amendment to the detailed examples raised by my noble friend. I am grateful to him for giving me notice of the matters. The first point concerned where information is specific or precise. It is clear when information is precise: it has to be exact. Alone therefore it might well have had the effect that, for example, information that there was to be a huge dividend increase would not be capable of being inside information. It would have been necessary to know also the quantum of the increase. The word "specific" is intended to deal with that situation by ensuring that information about, for example, a huge dividend cut can be inside information while ensuring that mere rumour and untargeted information, is not.
The next points related to when information has been made public. In particular, my noble friend asked whether information can be regarded as having been made public if it is known to only two people. It is hard to imagine how it could be considered to be so. Two people hardly constitute the public in any conventional sense.
Turning to the points about where the information has been published, there is nothing in the legislation which suggests that publication has to take place in the United Kingdom. Given the way in which information can move around the world today it is very difficult to conceive of situations in which price-sensitive information is available abroad but which cannot be obtained in this country.
The next example related to information available only in a market researcher's or analyst's report which is available only at a considerable price. It is quite possible for information to have been made public through such reports. If information which had to be paid for was not published, then there would be very little published material around.
The questions then turned to what constitutes a significant effect on the price of securities. That will depend on the facts. It is generally recognised that what constitutes a significant change in the price of gilts will be different from what is a significant change in the price of company shares.
The approach taken in the Bill—that is specifying that information must be such that it will have a significant effect on the price of a security, but not trying to put any sort of arbitrary figure on what constitutes a significant effect—is one which has worked well in our existing insider dealing legislation. There is no reason to think that it should not continue to do so.
Turning to a company's business prospects, the worry here is to ensure that inside information includes information which does not relate directly to a company but which nonetheless is likely to have a significant effect on a company's share price. Examples might include the bankruptcy of a major customer or supplier and a regulatory decision which will have a major impact on the company.
1502 The next example that my noble friend gave concerned the involvement of a professional inter-mediary in a transaction. The effect of Clause 33(3) is that transactions are caught where a professional intermediary is acting as a principal —that is to say, the securities are acquired from him or disposed of to him or that he acts as an agent in the transaction. The transaction takes place through him.
Turning to the comments about the restrictions on the disclosure offence, the effect of Clause 37(3) is that there is no offence where someone discloses information that does not intend someone to make a profit or avoid a loss by dealing. The limitation built into Clause 36 itself provides that disclosure in the course of one's employment is not caught.
The final points related to the exemption for market information. First, what constitutes market informa-tion? Schedule 2 paragraph 3(2) contains an extremely detailed definition of market information. It is information about one or more of the following: the fact that securities of a particular kind have been or are to be acquired or disposed of; the number of securities being acquired or disposed of; the price of the securities; the persons involved in the acquisition or disposal. Secondly, who is a dealer? He is someone who deals. Dealing itself is defined in considerable detail in Clause 32.
Finally, my noble friend asked me what is reasonable and unreasonable behaviour when it comes to dealing in securities. It is correct that the schedule does not lay down exhaustively the circumstances in which it is reasonable for someone to deal.
At Committee stage my noble friend put forward an amendment which would have specified circum-stances in which he thought that behaviour was reasonable. However, I explained then that the effect of the amendment would be to open the doors to conduct—for example, front-running a large order —which it is generally accepted that this legislation should prohibit. That comes to the nub of the argument. It illustrates precisely the difficulty in providing exhaustive provisions in this area of the Bill.
This schedule provides a clear steer about what is to be taken into account when assessing a particular set of circumstances. In particular, that in considering the matter, account should be taken of the information the person possessed, the circumstances and capacity in which he obtained the information, and the capacity in which he deals. The examples referred to of bought deals, stake building and the like, are well-established and respectable City practices, and accordingly it is difficult to conceive that they would not be considered to be reasonable activities within the terms of the legislation.
In responding to the amendment, the Government have referred in detail to the examples raised in the debate. It has also been made clear why we cannot support the amendment for the two very good reasons that I set out at the beginning; namely, the difficulties involved and the unprecedented power it would give to the Treasury.
I say to the noble Lord, Lord Harris of Greenwich, and to my noble friend, that there are a number of 1503 discussions continuing at present. We understand some of the difficulties. My honourable friend is to meet the CBI in the very near future (although I understand that the date I gave to my noble friend in a letter has now been put back at the request of the CBI). I assure your Lordships that we are fully aware of the anxieties. We are trying to meet them, but in a way which is practical and logical and one which does not cause us more trouble than is anticipated.
§ Lord Mottistone
My Lords, first I should like to thank the noble Baroness, Lady Mallalieu, and the noble Lord, Lord Harris of Greenwich, for their support. I thank also my noble friend the Minister for replying so fully to my amendments. I am not surprised that the amendments are not perfect. It would be most unlikely that they would not let some terrible cat out of the bag if they were not amended by my noble friend the Minister.
Returning to the points at issue, although my noble friend kindly gave me his immediate explanations of the points that I raised, he did not say whether they would be the sort of things that would be included in the guidance. Before we deal finally with this matter, I wonder whether he could give us some idea of whether they might be included or whether the sort of things that will be included in the guidance will be different.
The Earl of Caithness
My Lords, with the leave of the House, perhaps I may reply to my noble friend on that point. It is too early for me to give him a definite response to his anxieties because, as I said earlier, the consultation is taking place at the moment. These points are being raised in the consultation. I shall be in a position to let my noble friend know more only at the end of that consultation.
§ Lord Mottistone
My Lords, I thank my noble friend. It is a pity that, because we shall have the Third Reading before Christmas, your Lordships will not have the benefit of the results of the discussions that will take place. Those discussions may in their turn lead to other ideas for clarifying the Bill. There are two points. First, there is a lot of detailed explanation of particular phrases such as those that I have been trying to cover and, secondly, when it comes to clarifying the provisions, part of the difficulty is the way in which this part of the Bill is drafted. There could well be a need for it to be considerably tidied up, but that will be out of the hands of your Lordships and will have to be dealt with in another place. I only hope that it will be dealt with adequately there. That is as far as we can go now, and I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendment No. 20 not moved.]
§ House adjourned at twenty-eight minutes before seven o'clock.