HL Deb 22 July 2002 vol 638 cc47-53

30 Clause 42, page 28, line 29, at end insert— () make provision for the payment of debts of the specified person incurred for full consideration before the restraint order was made,

The Commons disagreed to this amendment for the following reason— 30A Because it is not appropriate to create a preference for unsecured creditors, which would be open to abuse by criminals.

Lord Falconer of Thoroton

My Lords, I beg to move that the House do not insist on their Amendment No. 30 to which the Commons have disagreed for their reason numbered 30A. With these amendments, I shall speak also to your Lordships' Amendments Nos. 66 and 99, to which the Commons have disagreed for their reasons numbered 66A and 99A.

These amendments deal with an issue that has been debated very thoroughly both in this House and in the other place. The issue is the position of unsecured creditors under Parts 2 to 4 of the Bill. In this instance, the question is whether such creditors should have debts owed to them by a defendant paid from restrained assets.

The Government fully agree with the arguments which were put forward in the other place for rejecting the amendments. We consider that there are a number of serious objections to the amendments, both practical and principled.

To take the practical objections first, I must impress upon the House that we consulted the enforcement authorities about the effect of these amendments before we returned to the issue in the other place. They tell us that the amendments would seriously undermine the criminal confiscation parts of the Bill. On the basis of their day-to-day experience in operating the present confiscation laws, they believe the amendments would stimulate fraudulent claims, designed to engineer criminals' assets into the hands of their families and associates. We see no reason to disagree with the enforcement authorities' assessment of this issue. It is based on their practical experience of dealing with criminals and their assets.

In our view, the amendments would also undermine the Bill by encouraging criminals to run up bone fide debts in order to frustrate the confiscation process. This too would undermine the operation of the legislation. Worst of all, perhaps, the amendments would overload the enforcement authorities and the courts with onerous and unnecessary litigation to determine whether claims were genuine or not. That cannot be in the public interest.

My honourable friend in another place was asked towards the end of the most recent debate there whether he would confirm that the Government's only objections to the amendments were practical. He declined to do so. There are also objections of principle to them. Let me remind the House of them briefly. First, we know of no other disposal which places unsecured creditors in the specially favoured position which these amendments would.

Secondly, the making and enforcement of a confiscation order do not relieve criminals of the obligation to pay their debts. We see no reason why criminals should not be required to pay their debts as well as their confiscation orders.

Thirdly, it is implicit in the amendments that it is acceptable for criminals to pay their debts with assets which they have derived from crime. We reject that suggestion. The proceeds of crime belong to the victim, where one is identifiable, and to society, where one cannot be identified. Criminals have no right to pay their debts with assets that they were never entitled to in the first place.

We recognise that there are strongly held views on the other side and we have listened to them carefully. As so often, it is a question of where the balance of the argument lies. It is our considered conclusion that in this case it is firmly against the amendments passed by your Lordships' House. I commend the Motion to the House.

Moved, That the House do not insist on their Amendment No. 30 to which the Commons have disagreed for their reason numbered 30A.—(Lord Falconer of Thoroton.)

Lord Goodhart rose to move, as an amendment to the Motion, That this House do not insist on their Amendment No. 30 to which the Commons have disagreed for their reason numbered 30A, 30B leave out "not".

The noble Lord said: My Lords, the amendment invites the House to restore an amendment originally passed at Report stage in your Lordships' House. In the form in which it now appears, it is a little unfortunate. The amendment leaves out only the word "not". If it were passed, the provision would read: Because it is appropriate to create a preference for unsecured creditors, which would be open to abuse by criminals". That is obviously not the intention of the amendment. It would be necessary also to leave out the words: which would be open to abuse by criminals".

I shall speak also to Amendment Nos. 66B and 99B. The purpose of the amendments is to allow the court, on making a restraining order, to make provision for payment of debts incurred in good faith out of the restrained assets of the person against whom a restraint order was made. In your Lordships' House, the three original amendments were passed as a part of a larger group directed to the same issue—that is, the payment of debts due to unsecured creditors of the defendant in priority to the seizure of those assets by the Government. The remainder of the amendments in the group have just been rejected on privilege grounds for the reasons numbered 9A, 47A, 78A and 166A—and obviously this House can do nothing about that.

In principle the amendments we have put forward are matters of obvious and simple fairness. The Government do not have a proprietary claim to confiscated assets which is prior to or equal to that of creditors. The victims in these cases are unlikely to claim, particularly because a large part of the funds will arise out of drug dealing where, quite plainly, the purchaser of the drug has no claim for the money that he has paid over to buy the drugs. As for society, yes, in a sense it does have a claim—but that claim is quite remote and far less immediate than the claim of the unpaid creditor.

The situation is quite different from that of tax, where there is undoubtedly a liability consisting of a debt owed by the taxpayer to the Government. It is worth noting that, up until now, the Government have had priority as a preferential creditor of the taxpayer but, under the Enterprise Bill now passing through your Lordships' House, the Government are giving up that priority and they will have, henceforth, only an equal right to recover tax debts as other unsecured creditors.

In the debate in the other place when our amendments were being considered, Mr Bob Ainsworth, who was the responsible Minister, said: The amendments would undermine the confiscation scheme so completely as to render it inoperable"—[Official Report, Commons, 18/7/02; col. 508.] Those words deserve the McEnroe response—"You cannot be serious".

Under our amendment, to get paid a creditor would have to show that the debt was incurred for full value and without knowledge of any possible confiscation proceedings against the debtor. The courts have plenty of experience in deciding whether or not debts are bogus. They have to do so all the time in bankruptcy proceedings.

We are trying to protect the small creditor—the builder, the shopkeeper, the people who are unsecured creditors. The big creditors—the banks, the building societies—are all right. They are secured creditors, and secured creditors are repaid out of the proceeds of sale of confiscated assets. But the unsecured creditors, however innocent, end up being left out in the cold.

The Government have a fanciful idea that Mr Big would run up a lot of unsecured debts, possibly bogus, possibly real. Let me tell the Government what Mr Big would do. He would do a deal with a dodgy bank in a dodgy tax haven and he would give the hank security over all his chargeable assets in the United Kingdom. That security would be fully documented and, when the confiscation order was made, the bank would claim its money under the security—and that money would reappear in some overseas company under the control of Mr Big or his friends or family.

Why do not the Government follow the logic of their own argument and confiscate the security interests in the defendant's property as well as the unsecured rights? The big banks, I am afraid, carry more clout than Bob the Builder. The Government recognise the right of unsecured creditors to get paid out of property that is subject to a civil recovery order under Part 5 of the Bill. Why are a confiscation order and a civil recovery order so different?

The Government are being blindly stubborn. They have convinced themselves that claims by unsecured creditors would undermine the scheme of the Bill. They consulted the Enforcement Authority—as no doubt they would. But that authority is a profoundly interested party. Why did not the Government consult more widely than that?

There is no evidence that claims by unsecured creditors would undermine the scheme of the Bill and no reason whatever to believe that that is true. They might involve a certain amount of additional expense in court proceedings but one would hope that whether or not a claim by an unsecured creditor was genuine could fairly quickly be identified. Unsecured creditors would be unlikely to take the risk of being saddled with the expenses of the proceedings if they fought on without a good case.

As matters now stand, the Government will be punishing innocent creditors. In a sense, this is a minor point. It is not central to the Bill and the Government could have given way without damaging it. But the line taken by the Government is obviously unfair and unnecessary. Their defences, quite frankly, are utterly feeble. I beg to move.

Moved, as an amendment to the Motion, That this House do not insist on their Amendment No. 30 to which the Commons have disagreed for their reason numbered 30A, leave out "not"—(Lord Goodhart.)

Lord Peyton of Yeovil

My Lords, I hope that the noble and learned Lord will pay serious attention to the amendment moved by the noble Lord, Lord Goodhart. I have the impression that the Government do not care about unsecured creditors. If I were in a charitable mood—which I am not particularly—I would say that the most charitable excuse for the drafting of the Government's reason for not agreeing to our Amendment No. 30— Because it is not appropriate to create a preference for unsecured creditors, which would be open to abuse by criminals"— is that at that stage the Government were feeling tired and their intellectual resources could produce nothing better than this lame piece of verbiage.

The noble Lord, Lord Goodhart, is quite right not to be satisfied with the Government's reason. I should not like to anticipate what I intend to say when we come to the amendments where the Government have said with great frankness that the House of Commons have had no opportunity to debate them. Perhaps they should have said so in this case. At least that would have been a little more honest. I support the amendment of the noble Lord, Lord Goodhart, and I hope that the Minister will give it serious attention.

Viscount Bledisloe

My Lords, I have not taken part in the consideration of these matters before. I see the force of the argument advanced by the noble Lord, Lord Goodhart. This is not a question of creating a preference for unsecured creditors; the Government are giving themselves a preference over unsecured creditors by making a restraint order. Until now, they had no entitlement or right to these monies at all. As has been pointed out, they have no claim to the proceeds of crime save as created by the Bill. The victim has—the bank which has been robbed, and so on—but the state has no right at all. The Government are creating a preference for themselves.

Let us consider the position of the unsecured creditor—whom the noble Lord, Lord Goodhart, has, rather nauseatingly, identified as Bob the Builder—in a situation where, for many years, Mr Big has conducted very successful major criminal operations and the Government have until now failed to catch him. As a result he has been able to live in ample style and carry on as a man of great wealth and, because he was wealthy, Bob the Builder has been induced to extend credit to him. Had the police been more efficient, they would have caught him earlier and he would not have been able to "con" Bob the Builder. So it is the fault of the state that he has been able to get credit from Bob the Builder.

As to the reason that such a provision would be open to abuse, I agree with the noble Lord, Lord Goodhart, that that is rubbish. If Mr Big wants to put his money out of the way of the restraint order, he either puts it overseas, or he goes out and buys goods for cash and hands them to other people. He does no more by incurring credit than by spending the money. If he knows that the restraint order is coming, he spends the money—for example, in art galleries overseas—and leaves the assets there in the name of one of his friends. There are plenty of abuses that he could make. Incurring debts with Bob the Builder is not the obvious one.

Indeed, the debt may not be one that he has run up specially. He may genuinely have had a new gold or platinum plated bath installed and it may simply not yet have been paid for. There may be nothing improper about it. Therefore, I urge the Government to think again. I find the House of Commons reason pretty unconvincing in this case.

5.30 p.m.

Lord Kingsland

My Lords, the powerful speeches of my noble friend Lord Peyton and the noble Viscount, Lord Bledisloe, need no further embellishment from me. I support, entirely, both the amendment and the views expressed in support of it by the noble Lord, Lord Goodhart.

Lord Falconer of Thoroton

My Lords, this is a very serious point. Perhaps I may make four points in response. First, we consulted widely on the draft Bill before we produced the Bill. Noble Lords will know that for approximately 15 or 16 years there have been confiscation procedures in place which are quite similar, though not as widespread in terms of the crimes that they cover, as this Bill. We are unaware of any problem arising of the sort that the noble Lord, Lord Goodhart, and the noble Viscount, Lord Bledisloe, identify.

Secondly, while we pay great heed to what two distinguished insolvency lawyers such as the noble Lord, Lord Goodhart, and the noble Viscount, Lord Bledisloe, say, we must also pay regard to people who are engaged on a daily basis in the process of seeking to recover assets from criminals.

One pays regard to what the noble Lords say. But the enforcement authorities may say, "If you include this, it will have the effect of criminals running up debts with families and associates as a means of trying to avoid many of their assets being got rid of to the confiscation authority". If they also say to us that bona fide debts will be run up, because in that way the criminal will get the benefit of the money, that is something to which we have to pay regard.

Moreover, yes, of course it is true that the courts will be astute to identify those cases where there are not bona fide transactions but transactions which are designed in order to try to avoid the effect of confiscation. The first question is: will they spot every one of them? The second question is: should the courts be filled with cases in which those very issues are being debated? We think not. So it is a matter of practicality. After taking advice very carefully from those who know about these issues, we believe that the right course is not to agree to the unsecured creditors point.

As I indicated earlier, there is a point of principle here. The state should not be paying the debts of these criminals. The criminals should not be paying the debts out of money that they have stolen. They should be paying them with untainted money. That, as a matter of principle, is the right approach.

Lord Goodhart

My Lords, this is a matter about which I feel strongly. I have made my points and I shall not make them again. As regards taking the matter any further, we are in an impossible position. The really important amendments were those objected to by the Commons on grounds of privilege and they cannot be taken further. That being so, in practical terms it would be anomalous to propose that these amendments, which are not subject to the privilege rule, should be restored to the Bill. I beg leave to withdraw my amendment.

Amendment No. 30B, as an amendment to the Motion, by leave, withdrawn.

On Question, Motion agreed to.