HL Deb 15 October 2001 vol 627 cc375-84

5.38 p.m.

Lord McIntosh of Haringey

My Lords, with the leave of the House, I shall now repeat a Statement being made by the Chancellor of the Exchequer in the House of Commons. The Statement is as follows:

"With permission, Mr Speaker, I wish to announce measures to cut off the supply of funds to terrorism.

"Those who finance terror are as guilty as those who commit it. So our response to the funding of terrorist acts must be every bit as clear, as unequivocal and as united as our response to the terrorist acts themselves.

"The action plan that I am placing in the House of Commons Library and making available in the Vote Office"—

I acid in parenthesis that they are also available in the Printed Paper Office and our Library—

"today arises from concerted work across governments, in particular from decisions of the G7 group of finance ministers and central bank governors on 6th October and will tighten the law, further empower the police, and strengthen co-ordination across the world.

"I can report to the House that, having already fully implemented UN Security Council Resolution 1267, on the Taliban, and UN Security Council Resolution 1333, on Osama bin Laden, the UK has now frozen 35 suspect bank accounts, immobilising more than £63 million of suspect terrorist funds.

"I can also report that by Order in Council following the latest UN resolution, Resolution 1373, we have frozen all UK bank accounts associated with the individuals and organisations named in the US Treasury suspect lists; the effort includes action this weekend by which bank accounts have been frozen and £180,000 belonging to those identified in Friday's updated lists have already been seized.

"Our UK domestic controls are already among the best in the world but, as part of the emergency anti-terrorism Bill that was announced this afternoon by the Home Secretary, the Government propose a new power to freeze funds when suspicious transactions are under investigation. They will be backed up by new reporting arrangements on financial institutions so that they must disclose not only known transactions that are destined for terrorism but also transactions about which there are grounds for suspicion.

"Clearly, a balance has to be struck between individuals' right to privacy and their security at a time of increased risk. However, we believe that there is a case for new powers for the police to monitor accounts that may be used to facilitate terrorism, for Customs to be allowed, where there are suspicions, to seize cash not only at our borders but also within the UK and for the Inland Revenue and Customs to share information and co-operate more effectively with the police. We do that because of the weight of evidence concerning the finances of Osama bin Laden and the Al'Qaeda organisation, which are complex but which are becoming clearer daily. It is not primarily his personal wealth that supports the Taliban and active terrorist operations, but the profits from the drugs trade and other businesses and from individual and company donors. That money is channelled through a range of financial centres across the globe and the evidence already points to centres in the Gulf, Pakistan, and central Asia and to money laundering through an established underground banking system.

"The cells that form part of the wider Al'Qaeda network are often self-financing, and possibly use business fronts and crime to sustain themselves. Unravelling that relies on first-rate co-ordination.

"Since 11th September, security services, the police, the special branch and Customs and Excise, co-ordinated by the National Criminal Intelligence Service, and our Armed Forces, have worked together to track down terrorist finance. I believe that the whole House will wish to express its gratitude to them. To enhance those efforts we now propose to establish and fund within NCIS a new multi-agency terrorist finance unit that is fully supported by additional special branch investigative resources.

"To further improve financial intelligence a new task force will also bring into the anti-terrorism effort the best academic, financial and commercial expertise and use the best skills of forensic accountancy to track assets. It will also investigate underground banking, which is often used for legitimate purposes, such as remitting earnings to far-away families and communities but which is also known to provide a very easy means by which criminals and terrorists can conceal the laundering of money and its movement around the world.

"Bureaux de change are another network by which money can be laundered and transferred. During the past 18 months, Customs and Excise has charged 89 people in connection with the laundering of £590 million. I believe that that is just a start. In the consultation document that we are publishing today we therefore propose the implementation from 12th November of a new regime of supervision to ensure compliance with money laundering regulations; we will also consult on a registration charge. To make easier the tracing and tracking of criminal and terrorist assets we are also consulting on a new requirement for the proper disclosure of the beneficial ownership of companies.

"Large financial centres all over the world have an important part to play in cutting off the supply of terrorist funding. I am able to tell the House that many of the measures that we are bringing forward are to be replicated throughout UK Crown dependencies and overseas territories. They are announcing their own plans to introduce appropriate equivalent measures.

"The G7 finance ministers and central bank governors met in Washington on 6th October and concluded that a special plenary of the international financial action task force would meet later this month to agree the imposition, enforcement and monitoring of a new international standard to combat terrorist finance. The UK is also pressing for the United Nations to establish a permanent monitoring unit, for the IMF to provide expert help to countries setting up economic crime units and for the early ratification of the EU second money laundering directive and of the UN convention on the suppression of the financing of terrorism.

"At those international meetings G7 ministers also had a chance to review the current state of the world economy. We expressed solidarity with the US Government and the whole of the USA after the tragic events of 11th September and agreed that the global economic challenge demanded a global response. Not only have interest rates been brought down worldwide but the central banks of America, the euro area, Japan and Britain have made clear their determination to take any necessary further action.

"Oil prices, which have previously risen in times of trouble, have fallen during the past month. We will continue to work with the oil-producing countries to ensure steadiness of supply and prices. Where markets have failed, as in airline insurance, governments across Europe and America have acted together, with a new short-term insurance guarantee.

"These remain uncertain and testing times. As governments and finance ministers work together, every one of us is conscious of the human consequences of economic uncertainty—there are particular concerns about employment. However, since 11th September, the world has acted together and decisively to maintain the conditions for stability and growth.

"The Government's assessment of the current state of the economy and our forecasts for next year will be published next month in the pre-Budget report for full discussion in this House.

"If fanaticism is the heart of modern terrorism, finance is its lifeblood. I believe that the whole House will agree on the need to move expeditiously to cut off the supply of terrorist finance. This House is once again demonstrating its unity and determination—it is standing firm, as one, to cut off all means of support to terrorism."

My Lords, that concludes the Statement.

5.46 p.m.

Lord Saatchi

My Lords, we are grateful to the Minister for giving us an opportunity to hear the Chancellor's Statement and for giving these Benches this opportunity to respond.

We remember the thousands of people who died in the attacks in September, but a month later people are still confused. In how many countries do the terrorists still have cells? How did they plan such a crime in total secrecy? Why even now do we lack intelligence about the whereabouts of a veritable army of men? However, there is one thing about the terrorists of which we can be sure—they must eat. And to eat, they must have money. As today's money is electronic, it should leave a money trail. However, as the Minister has just said, life seems to be more complicated than that.

We recall that in the second of our emergency debates the noble and learned Lord the Leader of the House rightly said that the present supervisory oversight system for transactions in the UK has many weaknesses. He referred to the £63 million, which was mentioned in the Statement, that had been frozen in UK bank accounts as a drop in the ocean. That description must also apply to the £180,000 that was mentioned in today's Statement. He wisely advised that our best course of action in defeating terrorism might well be to follow the money.

We also recall the words of the US Defense Secretary, who said that we were now engaged in a cold war. We remember that the previous cold war, against communism, ended when the economic system of communism collapsed. I hope that today's Statement will bring forward the day when, in Mr Rumsfeld's phrase, terrorism also collapses from within. That is why these Benches wholeheartedly welcome the Chancellor's Statement and support bipartisan legislation that will demonstrate to our friends and enemies, here and abroad, that Britain stands with the US in the campaign to dismantle the financial infrastructure of terrorism.

I dare to hope that the Chancellor's new procedures will become a model for the gaining and sharing of financial intelligence. It is certain that a new approach is required. Many experts in the financial services sector are asking questions such as: what is terrorist financing? For example, are terrorist organisations moving funds into the UK banking system through third-party correspondent accounts at major UK banks or are they relying more on cash transfers through underground money services businesses? How did those people get credit cards and bank accounts without raising suspicion? If the attacks could be executed without leaving an obvious financial trail, what might we be missing now? Finally, there is the chilling question of whether it is possible that terrorist financing is continuing undetected in the UK.

These are urgent questions. Our purpose on these Benches must be to help the Government to devise effective legislation and procedures to stop it, however it occurs. From what investigators have so far pieced together of the money trail, I find that there are still more questions than answers as to how the operation that culminated in the horror of 11th September was paid for. What we know suggests that we should place a much higher priority on non-traditional or "underground" banking systems that fall largely outside the scope of normal reporting and record-keeping requirements.

For example, the ancient money exchange system of "hawala" is virtually impossible to detect. Hawala is an Arabic word that means word of mouth. It is an international underground economic system by which people in different locations honour each other's financial obligations by making payments wherever needed. Such activities have no apparent victim and involve people who are legitimate businessmen in every other way. There is no movement of money between countries. It is hard to see how we can possibly detect such transactions or stop them.

I have two questions for the Minister. First, is he convinced that the proposals described in the Statement are adequate to address the particular features of terrorist financing which I describe? I am not sure. The new regime seems to be designed to detect the kind of money transfers associated with crimes that generate significant proceeds. It does not appear to be particularly well suited to catch an unconventional terrorist operation often financed by legitimate business activity.

Does the Minister agree that the fight against terrorism should not be regarded as a sub-issue of money laundering but as a battlefield of its own? My right honourable friend the Shadow Chancellor said in another place earlier this afternoon that money laundering involves making dirty money clean, but here we are dealing with a system which makes clean money dirty. Does the Minister agree that a recognition of the distinction between money laundering and terrorist financing should be at the heart of our approach, and that simply building on the same laws as may arise against money laundering may not prove to be the right course? For example, does the Minister agree that the proceeds of crime Bill seems to be particularly ill-named as a vehicle for the right kind of legislation against terrorist financing?

Secondly, this morning The Times newspaper reported that: The Home Office and the Treasury were unclear yesterday as to precisely how their responsibilities for the anti-terrorism measures were divided". Is the Minister sure that there will be what the Statement called "first-rate co-ordination", or does he take the point made in one of our emergency debates by the noble Baroness, Lady Williams—who I am pleased to see is in her place—that there are perhaps too many bodies involved in this process? I believe that the noble Baroness cited the Treasury, the Home Office, the Financial Services Authority and the DTI. Can the Minister tell the House how the new unit described in the Statement will interact with those four bodies? Who will be in charge?

In summary, we see three major goals for government policy. The first is to bolster the ability of the police to find and destroy the financing f terrorist organisations, whether in banks or in underground hawala systems. The second is to establish a government-industry partnership to stop terrorist funding. The third is to track any terrorist money kept in foreign bank accounts and to increase foreign co-operation with the new UK and US policies. We shall support the Government in their efforts in those areas.

The best way for our Parliament to commemorate the lives of the victims is to ensure that the gates to the financial services system are locked to terrorists. Now is the time to draw the line.

5.53 p.m.

Lord Taverne

My Lords, we shall have to look at the details of the proposals but, in general, we warmly welcome these measures. It seems to me of the greatest importance that there should be international co-operation and better co-ordination of services on the part of the Government in this country. These are practical measures and are likely to be an effective weapon against terrorism.

However, I have some questions for the Minister. First, what is the status of sanctions on non-co-operating countries? A number of countries have not co-operated on international measures in the past. In the Government's view, can the legislation deal with money laundering in the state funds of some developing countries and other countries; for example, in Nigeria, Indonesia and Russia?

Secondly, in the past there has been some coincidence between tax havens and money laundering. Do the Government see such a connection? If so, how will that affect their actions? Thirdly, I shall make a general observation. Towards the end of the Statement, the Chancellor refers to measures dealing with recession. I am sure that the Government agree that irrational and panic reactions are worsening recessions and thereby serving the aims of the terrorist. Do not the Government accept that some of the language used and statements made have increased public fears irrationally on both sides of the Atlantic? Should not there be, generally, more emphasis on operations against terrorism and rather less use of the language of war? Would not that be more effective in defeating the aims of the terrorists?

5.55 p.m.

Lord McIntosh of Haringey

My Lords, I am grateful to the noble Lords, Lord Saatchi and Lord Taverne, for the general welcome they gave to the Statement. More than that I am grateful to them for their constructive approach in suggesting further measures we might take, and, indeed, for a proper degree of criticism and realism about what is proposed.

I agree with the noble Lord, Lord Saatchi, that the key to all of this is the money trail. As he said, we must follow the money. He is right to say that support for bi-partisan legislation must depend on agreement on the way in which we propose to proceed. Perhaps I may say straightaway that the proposals put forward by the Chancellor do not rely principally or even largely upon legislation. Many of the measures announced by the Chancellor can be introduced either through Order in Council, as happened last weekend in response to United Nations Security Council Resolution 1373, or by administrative action, as the new units in the National Criminal Intelligence Service imply.

There is legislation, which is part of the spectrum of legislation referred to in the Statement given by the Home Secretary. The noble Lord, Lord Saatchi, is right to say that the "proceeds of crime" is not a natural way to describe terrorist financing. On the whole, those are legitimate movements of funds which may be used for illegitimate purposes rather than the other way round.

Other powers will be needed. Some will require only secondary legislation; for example, the introduction for the first time of proper controls over bureaux de change. Some will require primary legislation, for example, wider grounds for freezing funds: greater police powers to seize cash and monitor accounts; greater monitoring obligations on banks and money-holders generally, and reporting obligations to Government. We shall certainly consult on those matters with the financial institutions concerned.

Reference has not been made to what may be a controversial element of the proposals; namely, a greater co-operation between departments. I am aware that that is a matter which concerns noble Lords, and rightly so as civil liberty issues are involved. I can only say that Parliament will be adequately consulted and will have an opportunity to express its views on those matters.

It is true that the kind of underground financial organisation which was referred to by the noble Lord, Lord Saatchi as hawala, is the most difficult type to identify. That is particularly so as there is no flow of money involved, simply the flow of oral promissory notes. I believe that the answer to that will be not legislation but intelligence, which the Chancellor has put forward in the Statement. Subject to the comments of the noble Lord, Lord Saatchi, I believe that such proposals deserve the support that he is prepared to give.

The noble Lord, Lord Taverne, has quite rightly said that international co-ordination is the key. A large part of the Statement is about the G7 meeting on 6th October and the agreement to hold a wider group meeting before the end of this month. At that meeting consideration will be given to one of the issues properly raised by the noble Lord, namely; sanctions on non-co-operating countries. Such sanctions are possible. The noble Lord also raised the issue of tax havens. The Statement made it clear that, as far as we are concerned, our Crown Dependencies and Overseas Territories are working on similar steps to those described in the Statement. Finally, he urged that we should not give way to panic reactions, which increase public fears. I entirely agree.

Lord Dubs

My Lords, will my noble friend confirm that the measures applying to the Crown Dependencies and Overseas Territories will also apply to the Channel Islands and the Isle of Man?

Lord McIntosh of Haringey

My Lords, I had understood them to be included in the phrase, "Crown Dependencies and Overseas Territories".

Lord Neill of Bladen

My Lords, will the Minister confirm that when the detailed legislative measures are tabled, consideration will be given to some of the devices used by criminals operating on the international scene? They do not conveniently have bank accounts in the names of terrorists. Corporations are widely used. There are two well known methods of concealment: first, nominee shareholdings, which make it impossible, under many legislative systems now in force, to know who owns a company; and, secondly, the peril of bearer shares. I know of a particular case involving criminality in one part of the Commonwealth, in which money was held in a company in the form of bearer shares, for which there is no register, making it totally impossible to establish the ownership of the company. It is therefore important to introduce some transparency into the very dark areas of finance of which these master crooks are already well aware. I hope that consideration will be given to that matter.

Lord McIntosh of Haringey

My Lords, the noble Lord, Lord Neill, makes a very valid point. Reference is made in the Statement to the need, difficult to achieve, to identify and force financial institutions to identify the beneficial owners of shareholdings and funds. Unless we can do that, criminals and terrorists will continue to exercise ingenuity to conceal the true ownership of those funds. The funds that have been seized, particularly by the American Government, who have issued lists, are not held in accounts named, "Al'Qaeda Terrorist Account Number 1". Rather, they are held in the names of corporations and individuals. Therefore, effective intelligence and effective co-operation between the intelligence agencies is needed to ensure that those covers do not succeed. The controversial point is the obligation to reveal the beneficial ownership, and that affects bearer shares and a large number of devices that have for many years been supported by financial institutions in all countries of the world.

Lord Marlesford

My Lords, we all recognise that the sums involved in crime, particularly crime related to drugs, are enormous. However, it is apparent that the sums involved in terrorism are rather remarkably small. I have seen an estimate—I do not know how reliable it is—of the total operation and administration cash cost of the atrocities of 11th September of little more than 500,000 US dollars. Does the Minister recognise that from 1st January next year, when the euro is introduced—and the biggest euro note will be 500 euros—the total amount required for such an operation, assuming that that figure is anywhere near correct, can be transported in something little larger than a fairly big paperback book? It therefore seems to me that the more sensible approach, as was mentioned earlier, is to investigate very fully the finances of suspected terrorists, rather than merely spending enormous resources on examining finances in the hope of finding the terrorists who might be using them.

Lord McIntosh of Haringey

My Lords, I have seen an estimate that the total direct cost of the 11th September atrocities was more like 11,000 dollars because it represented 19 one-way airline tickets. It can be defined in a number of ways. It must cost a substantial amount of money to operate a network of terrorists in a large number of countries, with terrorists acting as sleepers in those countries, to train them in the first instance, to maintain communications with them and to supply them. But, of course, by definition it is an unknowable statistic. If we knew how much it cost, we would know where to find it and how to wipe it out. The noble Lord, Lord Marlesford, is quite right that the profit to be made from drug smuggling and drug production and distribution is much greater than that which results from certain kinds of terrorist attacks. However, that does not mean that we need not do as much to eliminate finance for terrorism as we try to do in respect of drugs.

Lord Eatwell

My Lords, I should like to ask some questions about the role of the Financial Action Task Force, the organisation established some years ago by the G7 to undertake measures against money laundering. First, what role will the Financial Action Task Force play in the development of anti-terrorism measures in this country? Secondly, are the Government seeking to encourage other members of the G7 to extend the powers, scope and resources of the Financial Action Task Force? Thirdly, what will be the relationship between the Financial Action Task Force and the new organisation to be established, to which the noble Lord referred?

Lord McIntosh of Haringey

My Lords, the Statement refers to new organisations to be established in this country, and that clearly is not the proper homologue of the Financial Action Task Force. I think the noble Lord, Lord Eatwell, is seeking some indication of the way in which the international conference, which will meet before the end of this month and to which the Statement refers, will operate and how it will relate to the task force. There is no answer to that question. It still has to be determined.

I should make it clear that we act at all times in accordance with, and sometimes even in advance of, the actions of the United Nations. For example, we were one of the first countries to ratify the United Nations Convention on Suppression of the Financing of Terrorism, passed in December 1999, ratified by us in February 2000, along with only Botswana and Uzbekistan. It is clear that much more needs to be done in the international sphere to ensure that international co-operation is pursued. That is why, as the Statement makes clear, we are pressing the United Nations to establish a monitoring and enforcement unit to make sure that we have the kind of co-operation that the noble Lord, Lord Eatwell, rightly desires.

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