Proceeds of Crime Bill

HL Deb 25 June 2002 vol 636 cc1290-348

8.29 p.m.

Consideration of amendments on Report resumed on Clause 243.

Lord Goldsmith

moved Amendment No. 90: Page 147, line 17, at beginning insert "unless the court dispenses with service". The noble and learned Lord said: My Lords, in moving Amendment No. 90, I shall speak also to Amendments Nos. 91, 93, 107 and 138. These are technical amendments to provisions in the Bill relating to jurisdiction. Amendments Nos. 90, 93 and 107 relate to the requirements that a claim form must be served on the respondent to proceedings and any holder of relevant associated property.

It has always been our intention that the provisions on the service of process in civil recovery litigation should be very much in line with the usual rules in civil litigation. As such, we had always had it in mind that the usual residual discretion for the court to dispense with service would apply. We became aware that there was a risk that the express provision we had made about service in the Bill could be read as absolute and as displacing that residual discretion. The amendments redress that position.

I should perhaps emphasise that the discretion to dispense with service exists to deal with exceptional circumstances only. Bearing in mind their paramount obligations to the interests of justice and the protection of human rights, the courts can be expected to be very hesitant in permitting civil recovery, or any other, proceedings to progress without service of process.

However, sometimes in the run of civil proceedings there are cases where a respondent, or potential respondent, is fully aware of the nature of the process but deliberately takes steps to evade service. In such circumstances, it is not appropriate for respondents to be able to hide behind a technicality. The residual discretion of the court is there to see that that does not happen. We do not wish to disable the court from dealing appropriately with any such circumstances if they arise in civil recovery proceedings.

Amendment No. 91 will bring the provision on initiating proceedings for a recovery order in England, Wales and Northern Ireland into line with that for Scotland. It makes clear that the obligation to serve the form applies wherever the person is domiciled, resident or present. We wish to ensure that the court in a civil recovery case is, so far as possible, unrestricted in the reach of its jurisdiction. We had intended that to be the implicit effect of the Bill as previously drafted. Ultimately, we did not think that we could be sure of that. Therefore, this amendment puts the matter beyond doubt.

Finally, Amendment No. 138 will restrict the scope of Clause 283(1) to Scotland. Subsections (2) and (3) are already so restricted. There is no difference in the effect that we intend to achieve in the various jurisdictions; it is simply a matter of how, technically, that is done. We have come to the conclusion that none of the provisions in Clause 283 is necessary for England and Wales or Northern Ireland. The Bill does not need to make that type of explicit provision because the same effect is achieved by a combination of the general provisions on property at Clause 311 and the general rules on the jurisdiction of our civil courts. I beg to move.

On Question, amendment agreed to.

Lord Goldsmith

moved Amendment No. 91: Page 147, line 18, at end insert— wherever domiciled, resident or present". On Question, amendment agreed to.

[Amendment No. 92 not moved.]

Clause 244 [Proceedings for recovery orders in Scotland]:

Lord Goldsmith

moved Amendment No. 93: Page 147, line 31, at beginning insert "unless the court dispenses with service". On Question, amendment agreed to.

Clause 245 ["Associated property]:

[Amendment No. 94 not moved.]

Schedule 6 [Powers of interim receiver or administrator]:

Lord Goldsmith

moved Amendment No. 95: Page 280, line 15, leave out sub-paragraphs (6) and (7). The noble and learned Lord said: My Lords, Amendment No. 96, which is grouped with Amendment No. 95, provides that an interim receiving or administration order which makes any provision in relation to obtaining information or entering premises must also make provision in respect of legal professional privilege. That overtakes the current provisions in paragraph 2, which provide for legal professional privilege in relation to powers to obtain information. Those are consequentially deleted by Amendment No. 95.

The noble Lord, Lord Kingsland, tabled an amendment in Committee which would have extended the protection of legal professional privilege to the powers of the interim receiver or administrator to enter and search premises. The Government indicated that it was our intention that those powers should respect legal professional privilege, and we said that we would consider whether the Bill should be amended to ensure that. These amendments are the result of that consideration.

The conclusion is that the current provisions in the Bill require some adjustment. In particular, the protection for legal privilege at paragraph 2(7) is not appropriate when the proceedings themselves are in the High Court.

The amendments would require that provision would have to be made in an interim receiving or administration order in respect of legal professional privilege. In adopting that approach, the Government have taken into account two factors. The first is the civil law precedents, including the standard way that the matter is dealt with in the context of search orders, formerly called Anton Piller orders. The other is recent House of Lords case law, which positions the protection of legal professional privilege squarely in the context of human rights obligations on the courts.

Consideration is now being given as to whether it would be appropriate to set out, perhaps by way of a practice direction, a standard form of civil recovery interim order, including suitable safeguards for legal professional privilege.

I hope that the noble Lord, Lord Kingsland, in particular, and other noble Lords will accept my explanation as to why we have decided to proceed in this way. I hope that the noble Lord will welcome the amendments as meeting the concerns that he expressed in Committee. I beg to move.

Lord Kingsland

My Lords, I thank the noble and learned Lord very much for reflecting so maturely on this matter. I am most grateful for the proposals that he has made.

On Question, amendment agreed to.

Lord Goldsmith

moved Amendment No. 96: Page 280, line 41, leave out "The order" and insert— () An order making any provision under paragraph 2 or 3 must make provision in respect of legal professional privilege (in Scotland, legal privilege within the meaning of Chapter 3 of Part 8). () An order making any provision under paragraph 3". On Question, amendment agreed to.

Clause 248 [Registration]:

Lord Goldsmith

moved Amendment No. 97: Page 149, line 43, leave out "a restraint" and insert "an interim receiving". The noble and learned Lord said: My Lords, the amendments in this group would bring certain provisions of the Bill relating to Scotland and Northern Ireland in line with those for England and Wales, and would make one drafting amendment. I need to weary your Lordships for just a few moments in order to explain and place on the record what the amendments seek to achieve.

Amendment No. 97 is a drafting amendment, correcting the reference to a restraint order. Amendment No. 98 would replicate for Northern Ireland the provisions of Clause 248 so as to allow that a person applying for an interim receiving order is treated as a person with an interest in the land concerned. The land registrar would then enter the interest in the register against that land so that the land could not be dealt with without the leave of the High Court.

The new clause that would be inserted by Amendment No. 101 is designed to enable the interim administrator or enforcement authority in Scotland—that is, of course, the Scottish Ministers—to apply to the Court of Session for an order to arrest or attach moveable property which is subject to an interim administration order but is in the hands of third parties. It is needed to ensure that the provisions of an order bind a third party.

The most likely example of that would be a person's bank account. The "warrant of arrestment" would enable the bank account or other assets to be frozen, thus preventing their being moved or dispersed before a final recovery order was made vesting the property in the hands of the trustee for civil recovery. Similar provision is already made in respect of confiscation orders in Scotland under Part 3 by Clause 124.

No similar provision is needed for England and Wales in Part 5. The position of property held by third parties is already provided for by normal civil procedures. An interim receiving order will be similar to a standard civil freezing order in that it may prohibit any person from dealing with property to which the order applies. The order will be able to provide for any person who has been notified of the order, including any third parties, to be in contempt if they knowingly assist in, or permit a breach of, the order.

Amendments Nos. 102 to 105 make a technical addition to Clause 264 to ensure that it fits in with the slightly different terminology used in Scots civil law. The key amendment is Amendment No. 104; the other amendments are consequential.

Subsections (3) and (4) of Clause 264 currently set out the circumstances in which a court may not make a recovery order. The defence in subsection (4) is that the respondent received the property in good faith and has taken steps on the strength of his ownership of the property as a result of which he would suffer detriment if it were recovered. This is a standard defence in civil law in England and Wales and Northern Ireland, referred to as the "bona fide change of position" defence. The language used in subsection (4) as currently drafted is the language that will be familiar to the courts in those jurisdictions.

A similar defence also exists in Scotland. However, the necessary elements of the defence that require to be established are slightly differently expressed. In particular, the term "notice" does not have the same technical meaning. Instead, it is necessary to establish that the person had no reasonable grounds for believing that the property was recoverable. So, for example, if any reasonable person might have had a suspicion that the property was the proceeds of crime, it could not be said that there were no reasonable grounds for believing that the property was recoverable and the defence would not succeed. Amendment No. 104, therefore, makes similar provision for Scotland but using language that will be familiar to the Scottish courts.

Amendments Nos. 108 and 141 are minor amendments designed to take account of the fact that the concept of joint tenancy is not a part of Scots law. Clause 268 sets out the categories of cases that come within the procedure in Clauses 269 and 270 for dealing with associated property and property held by joint tenants. As currently drafted, those allow the director, or in Scotland the Scottish Ministers, to reach agreement with the holder of associated property or with an excepted joint tenant, or for the court to decide how such property should be treated in the absence of an agreement.

However, the concept of joint tenancy is not relevant to Scots law. Amendment No. 108 provides simply that subsections (3) and (4) of Clause 268 do not extend to Scotland. Amendment No. 141 is a consequential amendment to Clause 295.

Amendment No. 132 would make reference in Clause 280 to the Northern Ireland equivalent of the Financial Markets and Insolvency Regulations so that a recovery order could not be made in respect of any property which is subject to a system charge in Northern Ireland.

Finally, Amendment No. 137 would insert a new clause, which is designed to clarify the relationship in Scots law between the vesting of recoverable property in the hands of the trustee for civil recovery and any other action that might be taken by a creditor against the property to enforce a court order that he has obtained against the respondent.

The new clause makes clear that any such action against property once it has been vested in the trustee for civil recovery is ineffectual. In other words, once recoverable property is vested in the trustee, any other enforcement action, or diligence, in relation to that property must fail. Similar provision is already made in Schedule 3 in relation to Scottish confiscation orders under Part 3. I beg to move.

On Question, amendment agreed to.

8.45 p.m.

Lord Falconer of Thoroton

moved Amendment No. 98: After Clause 248, insert the following new clause— "REGISTRATION: NORTHERN IRELAND (1) A person applying for an interim receiving order must be treated for the purposes of section 66 of the Land Registration Act (Northern Ireland) 1970 (c. 18 (N.I.)) (cautions) as a person interested in relation to any registered land to which—

1. (a) the application relates, or
2. (b) an interim receiving order made in pursuance of the application relates.

(2) Upon being served with a copy of an interim receiving order, the Registrar must, in respect of any registered land to which an interim receiving order or an application for an interim receiving order relates, make an entry inhibiting any dealing with the land without the consent of the High Court. (3) Subsections (2) and (4) of section 67 of the Land Registration Act (Northern Ireland) 1970 (c. 18 (N.I.)) (inhibitions) apply to an entry made under subsection (2) as they apply to an entry made on the application of any person interested in the registered land under subsection (1) of that section. (4) Where an interim receiving order has been protected by an entry registered under the Land Registration Act (Northern Ireland) 1970 (c. 18 (N.I.)) or the Registration of Deeds Acts, an order setting aside the interim receiving order may require that entry to be vacated. (5) In this section— Registrar" and "entry" have the same meanings as in the Land Registration Act (Northern Ireland) 1970 (c. 18 (N.I.)), and Registration of Deeds Acts" has the meaning given by section 46(2) of the Interpretation Act (Northern Ireland) 1954 (c. 33 (N.I.)). On Question, amendment agreed to.

Clause 251 [Restrictions on dealing etc. with property]:

Baroness Buscombe

moved Amendment No. 99: Page 150, line 43, at end insert "if and so long as the legal services for such person are funded as part of the Community Legal Service or such person has sufficient assets to meet all legal expenses in respect of such proceedings The noble Baroness said: My Lords, in moving Amendment. No. 99, I shall speak also to Amendment No. 100. Under Clause 246 of the Bill, an enforcement authority may apply to the court for an interim receiving order when it intends to take proceedings for a recovery order. An interim receiving order is an order for the detention, custody or preservation of property or the appointment of an interim receiver, and maintains the status quo until the enforcement authority is granted a recovery order. The purpose of an interim receiving order is to freeze the position so that as and when a recovery order is made there is some property to recover. An interim receiving order removes the risk of a defendant dissipating his assets and ensures that there is some property left to recover under the recovery order.

An interim receiving order is, as its name suggests, an interim measure and there is no need for the enforcement authority to prove conclusively that the property is recoverable property, but merely that there is a good arguable case that the property is recoverable property. It may turn out that the enforcement authority is wrong, but that is irrelevant as regards an interim receiving order: all the enforcement authority needs to show is a good arguable case and no more.

Clause 251(2) allows exclusions to be made when an interim receiving order is made. Subsection (3) gives two examples: there may be an exclusion to meet reasonable living expenses or to carry on any trade, business, profession or occupation. Those exclusions are necessary because an interim receiving order may well turn out not to be justified, and it is important to provide for reasonable living expenses and the necessary expense of carrying on a trade, business, profession or occupation. Indeed, there are similar provisions for Scotland in Clauses 255 and 260.

Unfortunately, Clauses 251(4) and 260(4) provide that an exclusion may not be made for the purpose of enabling any person to meet any legal expenses in respect of proceedings under Part 5. In Committee I proposed an amendment leaving out subsection (4) in order to meet the serious risk of injustice if a defendant could not otherwise meet his legal expenses.

The noble and learned Lord the Attorney-General dealt with my amendment by informing the Committee that costs should be met out of assets not subject to the receiving order or that funding would be made available to respondents in civil recovery proceedings. However, he pointed out that, in order to be granted public funding, they would need to satisfy the standard means test. The noble and learned Lord then concluded his argument by saying that there should not be a problem because legal costs would then be met out of assets which were not subject to a receiving order or through legal aid.

However, I believe that the noble and learned Lord the Attorney-General was being unrealistic. The standard means test is set at a low level. Funding for legal service is not available if an applicant's gross income exceeds £2,034 per month; his disposable income exceeds £695 per month or his capital exceeds £8,000. If any one of those limits is exceeded, funding for legal services is not available. If someone has a disposable income of £700 per month but no capital whatever, he or she is ineligible for funding under the Community Legal Service scheme. Indeed, only the very poor will qualify.

I am concerned about those with modest means but who are not very poor. They will not qualify for funding under the Community Legal Service scheme but will not have enough money to pay lawyers. They will not be able to defend the proceedings, and the enforcement authority will succeed merely because it has obtained an interim receiving order thereby preventing the defendant from using the property subject to the interim receiving order for the purpose of funding his legal expenses. That has to be unjust. The arguments put forward by the noble and learned Lord the Attorney-General in Committee do not deal with the defendant with modest means who cannot get funding under the Community Legal Service scheme, and who does not have other assets available to meet his legal expenses.

However, I have re-drafted my proposed amendment to meet the points made by the noble and learned Lord the Attorney-General. The current amendments provide that if a defendant is given funding under the Community Legal Service scheme, an exclusion cannot be made for the purpose of enabling him to meet his legal expenses. Similarly, if he has other assets which are sufficient to pay his legal expenses, again such an exclusion cannot be made. However, the absolute prohibition on an exclusion for the purpose of enabling defendants to pay their legal expenses should not apply where a defendant is not eligible under the Community Legal Service scheme or he does not have other sufficient assets. The amendments have those qualifications.

However, I should add that where a defendant is not eligible under the Community Legal Service scheme, nor does he have other sufficient assets, it does not necessarily follow that an exclusion must be made for the purpose of enabling the defendant to meet any legal expenses. In such a case the judge will decide whether or not there should be an exclusion. The effect of the amendment is simply to qualify the absolute prohibition on an exclusion for the payment of legal expenses. The court should have a discretion when a defendant is not otherwise able to pay his legal expenses. I beg to move.

Lord Goldsmith

My Lords, with respect to the noble Baroness, her amendment seeks to challenge the reasonableness of the means test in relation to public funding. Perhaps I may explain how the position will work. The starting point—and the amendment does not, or should not, challenge this starting point—is the important principle that assets are frozen under an interim order because they are the subject of dispute between the state and the holder of the assets; and because a judge has been satisfied on the test put forward in the Bill that those may well be assets to which the holder is not entitled but to which the state is entitled because they are the proceeds of unlawful conduct.

Therefore, the purpose of the order is to freeze the position while that dispute is resolved and to preserve the assets so that in the event of a recovery order being made property still remains for the enforcement authority to recover. If the holder of those assets were permitted to dissipate them on legal expenses, swhich potentially could be substantial—indeed, the amendment proposed by the noble Baroness has absolutely no limit on legal expenses—there is a risk that the property that ought to come to the state could be dissipated.

Under the arrangements that will be in place, in all cases where respondents cannot afford legal representation from their other assets they will be funded through the Community Legal Service scheme. I believe that I made it clear in Committee that, although under normal circumstances it is necessary to satisfy both a means and a merits test, the merits test will be relaxed to the extent necessary to ensure that everyone who needs it and who qualifies financially has access to legal funding.

Either the respondent will be in receipt of public funding, or, if not, it is because the scheme of our public funding accepts that such a person is in a position to pay legal expenses. Of course, if the case is lost, the director will be liable to pay the costs and the person will be reimbursed. There are also certain provisions for compensation.

Therefore, as it stands, the scheme already provides—indeed, because of the relaxation that I have referred to, generously provides—that legal expenses will be met if the person does not have sufficient assets. It is neither necessary nor appropriate to put in the exception from the exclusion proposed by the amendment of the noble Baroness.

It is important—I repeat—to maintain the principles that as long as these assets are frozen they are not dissipated. The state is prepared to ensure that the person is able to meet legal expenses by the relaxation of the merits test and by allowing public funding in those cases. Further than that, in my view, it is not necessary to go.

I suspect that the noble Baroness will not find that explanation wholly satisfactory because, to some extent, it is a repeat of what I have said before. Be that as it may, I invite her to withdraw the amendment.

Baroness Buscombe

My Lords, I thank the noble and learned Lord the Attorney-General for his response. He is entirely right: I am not satisfied with it. I accept that assets are frozen because they are the subject of a dispute. That is clearly taken as read. However, we are talking about individuals who are caught between a rock and a hard place in terms of their ability to obtain legal expenses under the Community Legal Service scheme. They are not so poor as to qualify under the Community Legal Service scheme. Therefore, they have to spend money on legal expenses which, I suggest, does not leave them with reasonable expenses.

I was interested to hear the noble and learned Lord the Attorney-General refer to the expenditure on legal expenses as dissipation, as if spending money on lawyers is a waste of money. It is an interesting point. I heard what the Minister said: it can be a waste of money. But clearly the noble and learned Lord the Attorney-General in his response to these amendments presents a regrettable view that it is generally the case that expenditure on legal expenses is dissipation.

I am not happy with the response. We have tried this issue on previous occasions. I appreciate that I shall get no further on the point. With regret, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 260 [Restrictions on dealing etc. with property]:

[Amendment No. 100 not moved.]

Lord Goldsmith moved Amendment No. 101: After Clause 263, insert the following new clause—

"ARRESTMENT OF PROPERTY AFFECTED BY INTERIM ADMINISTRATION ORDER

(1) On the application of the enforcement authority or the interim administrator the Court of Session may, in relation to moveable recoverable property to which an interim administration order applies (whether generally or such of it as is specified in the application), grant warrant for arrestment.

(2) An application by the enforcement authority under subsection (1) may be made at the same time as the application for the interim administration order or at any time thereafter.

(3) Such a warrant for arrestment may be granted only if the property would be arrestable if the person entitled to it were a debtor.

(4) A warrant under subsection (1) has effect as if granted on the dependence of an action for debt at the instance or the enforcement authority or, as the case may be, the interim administrator against the person and may be executed, recalled, loosed or restricted accordingly.

(5) The execution of an arrestment under this section in respect of property does not prejudice the exercise of an interim administrator's powers under or for the purposes of this Part in respect of that property.

(6) An arrestment executed under this section ceases to have effect when, or in so far as, the interim administration order ceases to apply in respect of the property in relation to which the warrant for arrestment was granted.

(7) If an arrestment ceases to have effect to any extent by virtue of subsection (6) the enforcement authority or, as the case may be, the interim administrator must apply to Court of Session for an order recalling or, as the case may be, restricting the arrestment."

On Question, amendment agreed to.

Clause 264 [Recovery orders]:

Lord Goldsmith moved Amendments Nos. 102 to 105:

Page 156, line 21, after "(4)" insert "or, as the case may be, (4A)"

Page 156, line 25, at beginning insert "In relation to a court in England and Wales or Northern Ireland"

Page 156, line 34, at end insert—

"(4A) In relation to a court in Scotland, the conditions referred to in subsection (3)(a) are that—

1. (a) the respondent obtained the recoverable property in good faith,
2. (b) he took steps after obtaining the property which he would not have taken if he had not obtained it or he took steps before obtaining the property which he would not have taken if he had not believed he was going to obtain it,
3. (c) when he took the steps, he had no reasonable grounds for believing that the property was recoverable,
4. (d) if a recovery order were made in respect of the property, it would, by reason of the steps, be detrimental to him."

Page 156, line 36, leave out "those conditions" and insert "the conditions in subsection (4) or (as the case may be) (4A)"

On Question, amendments agreed to.

Clause 265 [Functions of the trustee for civil recovery]:

Lord Goldsmith

moved Amendment No. 106: Page 157, line 19, at end insert— () References in this section to a recovery order include an order under section 274 and references to property vested in the trustee by a recovery order include property vested in him in pursuance of an order under section 274. The noble and learned Lord said: In moving Amendment No. 106, I shall speak also to Amendments Nos. 118 to 128, 133, 147, 209 and 210. These amendments slightly adjust the provisions relating to consent orders in Clause 274. Rat her than consent orders being in the form of recovery orders on terms agreed by the parties, the court will instead follow the usual procedure in civil litigation and simply stay—or in Scotland sist—the proceedings on such agreed terms. That will dispose of the proceedings.

The main aim of the consent order provision is to enable property to be recovered without the expense of unwanted and unnecessary litigation. Most civil proceedings are settled out of court, and it seems likely—if the experience in other jurisdictions is mirrored here—that respondents in civil recovery cases may often prefer to settle without a full court hearing.

The amendments will bring the provisions on consent orders more into line with the usual practice in civil procedure. In particular, under the Bill as currently drafted, it seemed inevitable that the court would always have to make a formal adjudication on the recoverability of the property concerned. That will not be appropriate or necessary in every case involving a consent order. A consent order is intended to be a substitute for an adjudication on the merits by the court, where it can be agreed by all parties. Of course the agreement will still be enforceable by the court.

The number of amendments required to make this change arises from the fact that many references to a recovery order needed to be adjusted to reflect the fact that a consent order will no longer technically he included in that expression. I beg to move.

On Question, amendment agreed to.

Clause 268 [Associated and joint property]:

Lord Goldsmith

moved Amendments Nos. 107 and 108: Page 158, line 12, at end insert "or the court has dispensed with service Page 158, line 20, at end insert— (5) Subsections (3) and (4) do not extend to Scotland. On Question, amendments agreed to.

Clause 271 [Payments in respect of rights under pension schemes]:

Lord Goldsmith

moved Amendment No. 109: Page 160, line 7, leave out "an amount" and insert "within a prescribed period the amount determined by the trustees or managers to be The noble and learned Lord said: My Lords., in moving Amendment No. 109, I shall speak also to Amendment Nos. 110 to 117, 215 and 216. These amendments make some detailed improvements to the clauses dealing with recovery orders affecting rights under a pension scheme. They arise out of further detailed consideration of the pension provisions in the Bill. The amendments do not reflect a change of policy, but we believe that they will ensure that the provisions work as intended.

Amendment No. 109 will provide for a recovery order involving rights in a pension scheme to require the scheme trustees to pay an amount determined by the trustees as being equal to the recoverable pension rights to the trustee for civil recovery. The clause as drafted refers to the trustees being required by the court to pay an amount equal to the value of the rights, which might have implied that it was for the court to specify the amount payable.

It became clear that the current wording would not be consistent with normal practice. If the court were to require an amount to be paid that was based on a calculation made some time prior to the court hearing, that amount might well bear no resemblance to the value of the pension rights on the day that they were actually recovered from the scheme.

The Government are basing the recovery provisions on legislation recently introduced to allow pensions to be shared on divorce. Under that legislation, the court decides the proportion of the pension to be shared. The pension scheme then values that proportion, taking account of the market values that pertain on the valuation day.

The amendment will provide much the same where a recovery is made of the proceeds of crime. The new formulation will require the court to identify the recoverable pension rights, but the scheme must then value those rights on a particular day within a prescribed period.

Amendments Nos. 112, 113 and 115 make some changes to Clause 272, which provides for the consequential adjustment of pension scheme liabilities. The current wording requires liabilities to be reduced by the amount paid. We considered that formulation further in the light of concerns expressed by the pensions industry. It became clear that a better formulation would be to require the scheme to reduce liabilities to the extent necessary because of the payment made under Clause 271, and in particular for the scheme to provide for liabilities arising out of the recoverable rights to cease.

Amendment No. 117 will simply combine in a single provision the regulation-making provisions currently contained separately in two other clauses. It is therefore not a change of substance. Amendments Nos. 111 and 114 are consequential amendments leaving out separate provisions. Amendments Nos. 110 and 116 delete provisions that are unnecessary.

Amendments Nos. 215 and 216 make some technical changes to the Pensions Schemes Act 1993 and its Northern Irish equivalent in respect of guaranteed minimum pensions and other safeguarded pension rights. Those changes simply ensure that if such rights are found to be partly or wholly recoverable, any liabilities arising are to be adjusted accordingly. Similar provision is made in the legislation to which I referred dealing with pensions being shared on divorce. I beg to move.

On Question, amendment agreed to.

Lord Goldsmith

moved Amendments Nos. 110 and 111: Page 160, line 12, leave out subsection (3). Page 160, line 35, leave out subsection (7). On Question, amendments agreed to.

Clause 272 [Consequential adjustment of liabilities under pension schemes]:

Lord Goldsmith

moved Amendments Nos. 112 to 116: Page 160, line 38, leave out from "must" to "that" in line 40 and insert "require the trustees or managers of the pension scheme to make such reduction in the liabilities of the scheme as they think necessary in consequence of the payment made in pursuance of Page 160, line 41, leave out subsection (2) and insert— () Accordingly, the order must require the trustees or managers to provide for the liabilities of the pension scheme in respect of the respondent's recoverable property to which section 271 applies to cease. Page 161, line 1, leave out subsection (3). Page 161, line 4, leave out subsection (4) and insert— (4) So far as the trustees or managers are required by the recovery order to provide for the liabilities of the pension scheme in respect of the respondent's recoverable property to which section 271 applies to cease, their powers include (in particular) power to reduce the amount of—

1. (a) any benefit or future benefit to which the respondent is or may be entitled under the scheme,
2. (b) any future benefit to which any other person may be entitled under the scheme in respect of that property."

Page 161, line 7, leave out subsection (5). On Question, amendments agreed to.

Clause 273 [Pension schemes: supplementary]:

Lord Goldsmith

moved Amendment No. 117: Page 161, line 13, leave out from beginning to "to" in line 14 and insert— (1) Regulations may make provision as to the exercise by trustees or managers of their powers under sections 271 and 272, including provision about the calculation and verification of the value at any time of rights or liabilities. () The power conferred by subsection (1) includes power to provide for any values On Question, amendment agreed to.

Clause 274 [Consent orders]:

Lord Goldsmith

moved Amendments Nos. 118 to 121: Page 162, line 4, after "make" insert "an order staying (in Scotland, sisting) any proceedings for Page 162, line 4, after "parties" insert "for the disposal of the proceedings Page 162, line 5, leave out from beginning to "to" in line 23 and insert "each person to whose property the proceedings, or the agreement, relates is a party both to the proceedings and the agreement. (2) An order under subsection (1) may, as well as staying (or sisting) the proceedings on terms—

1. (a) make provision for any property which may be recoverable property to cease to be recoverable,
2. (b) make any further provision which the court thinks appropriate.

() Section 278 applies Page 162, line 24, leave out "they apply" and insert "it applies On Question, amendments agreed to.

Clause 275 [Consent orders: pensions]:

Lord Goldsmith

moved Amendments Nos. 122 to 126: Page 162, line 29, leave out "A recovery" and insert "An Page 162, line 29, leave out "by virtue of" and insert "under Page 162, line 30, leave out from "not" to "but" in line 31 and insert "stay (in Scotland, sist) the proceedings on terms that the rights are vested in any other person Page 162, line 39, leave out from "into" to end of line 41 and insert "an agreement in respect of the proceedings on any terms on which an order made under section 274 may stay (in Scotland, sist) the proceedings Page 162, line 42, leave out from "of" to "section" in line 43 and insert "an order under On Question, amendments agreed to.

Clause 276 [Limit on recovery]:

Lord Goldsmith

moved Amendments Nos. 127 and 128: Page 163, line 17, leave out from "where" to "in" and insert "such an order, or an order under section 274, has previously been made Page 163, line 26, at end insert "or order under section 274 On Question, amendments agreed to.

Clause 278 [Applying realised proceeds]:

[Amendment No. 129 not moved.]

Clause 280 [Other exemptions]:

Lord Goldsmith

moved Amendment No. 130: Page 165, line 39, leave out from "person" to "an" in line 40 and insert "in circumstances of a prescribed description; and the circumstances may relate to the person himself or to the property or to any other matter. In this subsection, prescribed means prescribed by The noble and learned Lord said: My Lords, the amendment would make some adjustments to the order-making provisions in Clause 280. Those currently allow orders to be made preventing proceedings for a recovery order being taken against certain categories of person and certain types of property. On reflection, it became clear that the order-making powers were not quite right.

Amendment No. 130 will make clear that, in relation to persons, the power can be exercised by reference to any sort of description of the person and by reference to specified circumstances. That will include a description in terms of the status of persons as holders of certain property.

As far as property is concerned, we have come to the view that Clause 280 does not work satisfactorily in technical terms. Although it makes sense to say that proceedings may not be brought against certain persons, it does not make sense to say that proceedings may not be brought in relation to certain exempt property, when the exempt status of the property may not be apparent at the outset. Proceedings may be necessary precisely to establish whether or not the property is properly exempt. In cases where the proceedings have already started, a prohibition on bringing them plainly would not work.

The solution proposed is to convert the power in subsection (2) into a power to specify that certain property is not to be "recoverable". That revised power is contained in Amendment No. 145, which will insert a new clause in Chapter 4 of Part 5, which deals generally with the definition of "recoverable property". Amendment No. 145 makes clear that the power could be used to exempt classes of property identified by any appropriate description.

Clause 280(2) and (3) are therefore no longer needed, and are deleted by Amendment No. 131. Your Lordships will want to note that the new version of the power would remain subject to the affirmative resolution procedure by virtue of Amendments Nos. 228 and 230. Your Lordships will know that the Government have submitted a supplementary memorandum to the Delegated Powers and Regulatory Reform Committee about these revised order-making provisions, and it has not expressed any objection. I beg to move.

On Question, amendment agreed to.

Lord Goldsmith

moved Amendments Nos. 131 and 132: Page 166, line 1, leave out subsections (2) and (3). Page 166, line 24, at end insert "or the Financial Markets and Insolvency Regulations (Northern Ireland) 1996 (S.R. 1996/252) On Question, amendments agreed to.

Clause 281 [Compensation]:

Lord Goldsmith

moved Amendment No. 133: Page 166, line 39, leave out from "makes" to "section" and insert "an order under On Question, amendment agreed to.

Baroness Buscombe

moved Amendment No. 134: Page 166, line 40, leave out subsections (3) and (4) and insert— (3) The application for compensation must be made before the expiration of the period of three months beginning with the date on which the application for a recovery order is finally disposed of. (4) The reference in subsection (3) to the date on which an application for a recovery order is finally disposed of shall be construed as a reference to the earliest date by which the proceedings on the application for a recovery order (including any proceedings on or in consequence of an appeal) have been determined and any time for appealing or further appealing has expired, except that if the application is withdrawn or an appeal is abandoned the reference shall be construed as a reference to the date of the withdrawal or abandonment. The noble Baroness said: My Lords, Clause 281 gives a person whose property is subject to an interim receiving order or an interim administration order a right to apply for compensation if it turns out that the property is not recoverable property or associated property. However, the application for compensation must be made within a short period. An applicant has only three months from the decision of the court to make that application.

In Committee, I was concerned that subsection (3) as drafted was not clear as to when the three-month time period began to run in the event of an appeal of the original decision. If one reads subsection (3) in its present form, it appears perfectly reasonable to argue that an applicant has three months from the decision at first instance and one simply ignores any appeal. That would be unfair and, indeed, unreasonable because it may turn out that an appeal by the enforcement authority is successful, with the consequence that costs of the application for compensation would have been completely wasted. If, on the other hand, the three-month period were to run from the date on which any appeal was finally disposed of, there would be no confusion.

The Attorney-General agreed with the thrust of the comments and accepted that time should not run out while an appeal was taking place. The time should run from the time at which the appeal is determined. He kindly proposed to consider my amendment and whether it would be sensible to put the issue beyond doubt, notwithstanding the existing wording.

I hope that the noble and learned Lord will forgive me if I propose that my amendment is correct. It adopts the wording of Section 64 of the Landlord and Tenant Act 1954. That Act has not only stood the test of time but has given rise to a body of case law that has clarified the wording in the section. My amendment adopts the relevant words from the section almost word for word. To that extent, my amendment removes any doubt about when a defendant must make an application for compensation.

We were pleased to note that the Government had tabled Amendment No. 135 and, in so doing, had put forward a different solution. At first sight, that solution seemed fine, but it does not deal with a case in which an application for leave to appeal is made but is subsequently withdrawn or abandoned. Our amendment does not refer to applications for leave to appeal; it refers only to appeal. The Government's amendment is more narrowly defined. It is too narrowly defined and too careful to define the position precisely. It fails to include a situation in which an application is withdrawn or abandoned.

I must also respectfully point out that, following the reform of civil procedure rules, it is no longer right to refer to "leave to appeal", as Amendment No. 135 does. These days we refer to "permission to appeal", although we all know what "leave to appeal" means and have done for over a century. Apparently, the words "leave to appeal" are not user-friendly. I beg to move.

Lord Goldsmith

My Lords, I had hoped that the noble Baroness might have accepted with more enthusiasm the amendment that was tabled to meet the point she raised in Committee. The intention behind Amendment No. 135, to which I speak along with Amendment No. 134, is the same as that behind the amendment proposed by the noble Baroness. However, there is a difference between the two amendments.

The intention in the Bill is that there should be a three-month period from the date of the decision during which an application for compensation is to be made. The noble Baroness asked what would happen if there were an appeal. I accept—our amendment accepts—that, in those circumstances, the intention is that the time should take account of the appeal. How is that to be achieved? The Government's view is that Amendment No. 135 adequately and aptly deals with that situation.

There is a difference between our amendment and what is proposed in the amendment proposed by the noble Baroness which stipulates an extension that is longer—inappropriately longer—than that in the Government's amendment. The noble Baroness's amendment extends the time further because it makes the final point not the decision, but the decision plus the time for appealing. If someone does not appeal, there is no reason why it should be extended in that way. If they do appeal, the rest of the provisions will kick in, and the period will be extended until the proceedings are finally determined. I beg to differ with the noble Baroness who says that her amendment is better. In my respectful view, it is not, and it does not meet the objective that we both had in mind.

The noble Baroness raised two technical points about the Government's amendment. She said that it was no longer right to use the expression "leave to appeal" rather than "permission to appeal". I am happy to examine that question. If the noble Baroness is right and a small change is necessary, that should not prevent your Lordships accepting the Government's amendment. A small textual change to bring the Bill up to date can, if necessary, be made at Third Reading.

I doubt that it is necessary to deal with the other issue that the noble Baroness raised, although I am happy to consider it. Our amendment says: the date on which the application is refused or (if the application is granted) on which any proceedings on appeal are finally concluded". If somebody withdraws an application, that situation must be comprehended in the reference to the refusal of an application. That is what would happen to the application. It is a small point. If the noble Baroness is right, it can be corrected at Third Reading, if necessary, to put the matter beyond doubt.

The critical point is that the Government's amendment is right in taking the starting point as the decision, or, if there is an appeal, the moment that it is finally concluded without adding on the extra period of time for appeal. On the basis that I will look at the two points the noble Baroness made and return to them at Third Reading if necessary, I invite her to accept the Government's amendment, which meets her objective, and not to press Amendment No. 134.

Baroness Buscombe

My Lords, I thank the noble and learned Lord for his response. Forgive me if I failed to sound enthusiastic. I am encouraged that the noble and learned Lord clearly listened to our concerns in Committee and responded with Amendment No. 135. I am grateful to him for agreeing to look at the two points I raised in relation to applications for permission to appeal that are subsequently withdrawn or abandoned. On a minor technicality, I agree with the language used in the noble and learned Lord's amendment. Given that he has agreed to look at those points I accept with great pleasure his amendment. On that basis I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

9.15 p.m.

Lord Goldsmith

moved Amendment No. 135: Page 166, line 42, leave out "with the decision" and insert—

1. "(a) in relation to a decision of the High Court in England and Wales, with the date of the decision or, if any application is made for leave to appeal, with the date on which the application is refused or (if the application is granted) on which any proceedings on appeal are finally concluded,
2. (b) in relation to a decision of the Court of Session or of the High Court in Northern Ireland, with the date of the decision or, if there is an appeal against the decision, with the date on which any proceedings on appeal are finally concluded."

On Question, amendment agreed to.

Lord Goodhart

moved Amendment No. 136: After Clause 281, insert the following new clause— "COMPENSATION OF CREDITORS (1) Any person who was a creditor of the respondent at the time when a recovery order was made may, within one year of the date of the order, make an application to the court for compensation. (2) The court may require the enforcement authority to pay compensation to the applicant if it is satisfied that—

1. (a) as a result of the making of the order the respondent is wholly or in part unable to repay the debt;
2. (b) the debt was incurred for full consideration; and
3. (c) at the time the debt was incurred the applicant had no reason to believe that a recovery order could be made against the respondent."

On Question, amendment agreed to.

Lord Goldsmith

moved Amendment No. 137: After Clause 282, insert the following new clause— "EFFECT ON DILIGENCE OF RECOVERY ORDER: SCOTLAND (1) An arrestment or poinding of any recoverable property executed on or after the appointment of the trustee for civil recovery is ineffectual in a question with the trustee. (2) Any recoverable property so arrested or poinded, or (if the property has been sold) the proceeds of sale, must be handed over to the trustee for civil recovery. (3) A poinding of the ground in respect of recoverable property on or after such an appointment is ineffectual in a question with the trustee for civil recovery except for the interest mentioned in subsection (4). (4) That interest is—

1. (a) interest on the debt of a secured creditor for the current half yearly term, and
2. (b) arrears of interest on that debt for one year immediately before the commencement of that term.

(5) On and after such appointment no other person may raise or insist in an adjudication against recoverable property or be confirmed as an executor-creditor on that property. (6) An inhibition on recoverable property shall cease to have effect in relation to any heritable property comprised in the recoverable property on such appointment. (7) The provisions of this section apply in relation to—

1. (a) an action of maills and duties, and
2. (b) an action for sequestration of rent,

as they apply in relation to an arrestment or poinding On Question, amendment agreed to.

Clause 283 [Scope of powers]:

Lord Goldsmith

moved Amendment No. 138: Page 167, line 23, after "made" insert "by the Court of Session On Question, amendment agreed to.

Clause 293 [Interest]:

Lord Goldsmith

moved Amendment No. 139: Page 175, line 2, leave out "to be held in" and insert "at the first opportunity to be paid into The noble and learned Lord said: My Lords, Amendments Nos. 139, 140 and 143 make minor adjustments to the provisions that require that cash detained for more than 48 hours following an order of the court should be held in an interest-bearing account. At the moment Clause 293(1) simply says that if cash is detained under Section 292 for more than 48 hours, it is to be held in" an interest-bearing account. Clause 293(3) makes it clear that that provision does not apply if the cash is required as evidence.

The Government believe that the existing formulation left some uncomfortable room for doubt as to the nature of the obligation to pay cash into an interest-bearing account, as opposed to the duty to hold it there. The intention has always been that cash not required as evidence should be paid into an interest-bearing account as soon as practicable. In other words, account needs to be taken of instances when there may have to be some delay in paying cash into an account because of bank opening hours.

We want to leave no room for argument that cash should be released, or compensation paid, in circumstances where bank holidays make it impossible in practice to place the cash on interest-bearing deposit within or immediately after the 48-hour period. The amendments would put that intention beyond doubt.

Amendments Nos. 139 and 140 clarify that the cash is to be placed in the interest-bearing account at the first opportunity, and held there. The amendment to Clause 299 makes a related amendment to the provision for compensation in subsection (2). That subsection currently provides that the court or sheriff may order compensation to be paid if cash is not held in an interest-bearing account after the initial detention for 48 hours. The amendment simply makes it clear that the court should consider compensation only from the point at which it was practicable to pay the cash into an account.

Amendments Nos. 217 and 218 and 224 to 226 are minor technical amendments to Schedule 11, which deals with amendments to other legislation, and Schedule 12, which sets out the repeal arrangements. They ensure that relevant sections of those schedules work properly for Scotland and Northern Ireland. They include the repeal of the cash recovery scheme in the Drug Trafficking Act 1994, which is to be replaced by the one in this Bill. I beg to move.

On Question, amendment agreed to.

Lord Goldsmith

moved Amendment No. 140: Page 175, line 3, after "account" insert "and held there On Question, amendment agreed to.

Clause 295 [Forfeiture]:

Lord Goldsmith

moved Amendment No. 141: Page 175, line 35, leave out "or sheriff On Question, amendment agreed to.

Clause 297 [Application of forfeited cash]:

[Amendment No. 142 not moved.]

Clause 299 [Compensation]:

Lord Goldsmith

moved Amendment No. 143: Page 177, line 14, after "period" insert "beginning with the first opportunity to place the cash in an interest-bearing account On Question, amendment agreed to.

Clause 305 [General exceptions]:

Lord Goodhart

moved Amendment No. 144: Page 179, line 28, leave out "based on the defendants' unlawful conduct" and insert "made in good faith The noble Lord said: My Lords, Clause 303 is an extreme example of the Government's overriding of the rights of third parties. In general, if A obtains a judgment against B and B satisfies that judgment, repayment can be ordered only if the judgment is set aside on the ground of fraud. Of course in this case, collusion to frustrate bankruptcy or a civil recovery order would be fraud.

Clause 305(3), as it now stands, assumes that money which was originally in the hands of the defendant can be traced into the hands of a satisfied judgment creditor if the payment has been made out of a recoverable property, even if there is no fraud or collusion between the creditor and the debtor. The only exception to that is if the claim is based on the unlawful conduct of the defendant.

Under Clause 241(1), "unlawful conduct" for the purposes of Part 5 of the Bill means "criminal conduct". Let us assume that damages were awarded and paid in an action against a defendant for personal injuries and that that defendant was subsequently made subject to a recovery order. If the injury was caused by the careless driving of the respondent, it seems—I am not sure whether this is the Government's intention—that the damages recovered by the plaintiff are protected under Clause 305(3)(b) because the claimant's claim is based on the defendant's unlawful conduct. The conduct of the defendant not only caused injury to the plaintiff but was no doubt the offence of driving without due care and was therefore criminal as well as being tortious.

It may be that the government actuary intends paragraph (b) of subsection (3) to refer to the specific unlawful conduct on which the claim to a recovery order is based. If so, that has not been made clear and that would make the situation even worse. But in any event all kinds of personal injury can be caused by negligence which is not a criminal offence. In such cases, if the damages are paid out of the recoverable property, they can be clawed back by the trustee for civil recovery. Indeed, it seems that the trustee has a positive duty to do so.

The fact that there is intended to be a claw-back of damages from an innocent victim of a negligent injury by the defendant seems to me to be absolutely astonishing. It is even worse than the subject we have already debated; that of frustrating creditors' claims for their debts. It seems to me to be plainly incompatible with the right to property under Protocol 1 to the European Convention on Human Rights.

The issue was debated in Committee and the noble and learned Lord the Attorney-General will no doubt remember that among other things he referred to an order for the transfer of property in matrimonial proceedings as being the kind of transfer of property—the kind of judgment—to which the clause was intended to apply. I accept that there is some justification for that, but it is a special case. If Clause 303 was limited to recoveries or clawbacks of that kind, then I would not object to it. But plainly it goes much wider than that.

The noble and learned Lord then suggested that a plaintiff with a bona fide claim would be protected under subsection (1) as being a, person who obtains [the money] … in good faith, for value and without notice that it was recoverable property". I do not believe that that view was correct. The plaintiff in a personal injury case who is awarded damages has not given value; he is simply being compensated for his injury. It is true that, if the case is settled out of court, the plaintiff may have given value because he would have given up his claim for damages in exchange for payment of the money agreed under the settlement. But that argument certainly would not apply where damages were awarded by the court. On any footing, therefore, we have an anomalous situation in which a plaintiff will be protected if he settles out of court, will apparently be protected if his injury is also a criminal offence such as careless driving, but will not be protected in other cases where he has obtained damages for negligence.

I simply cannot believe that the Government really intend to claw back moneys recovered by innocent plaintiffs under a judgment for damages. If that is their real intention, then I believe it to be monstrous. But that will be the effect of Clause 305 as it stands. Our amendment would exclude from clawback any case where judgment is obtained in good faith, which is the right, proper and fair way to proceed. I beg to move.

Lord Goldsmith

My Lords, as the noble Lord has indicated, we discussed in Committee the effect of Clause 305(3)(b). It is and remains the Government's view that the general purpose of the exceptions in Clause 305 is to ensure that the schemes are proportionate and fair.

I shall come back to subsection (1), referred to by the noble Lord. First, however, I turn to subsection (3). This subsection relates to property, including money, that has been awarded by a court in previous civil proceedings. As the Bill stands, the noble Lord recognises that the exception applies only to civil proceedings based on the unlawful conduct of the defendant. In response to the question put by the noble Lord, it is not intended to restrict that to unlawful conduct which is the same as that alleged in the Part 5 proceedings. From what the noble Lord has said, I am sure that he will welcome the fact that it is not restricted in that way. I can give him at least that degree of comfort.

Of course, unlawful conduct is as defined in Clause 241. Thus we are referring here to criminal conduct and not conduct which is tortious alone. The example I gave to explain why this provision is needed was exactly that referred to by the noble Lord. It would be possible for recoverable property to be transferred from one spouse to another as a result of divorce proceedings. Those assets would then be put beyond the reach of the director, even though—and this is the predicate of the case—those assets would be recoverable property; that is, property which the holder should never have had.

As I understand it, the noble Lord accepts that that is a justifiable case, but his proposed amendment, which is to substitute the words "made in good faith", would not comprehend that exception. I believe that the noble Lord will accept that on his amendment the justifiable case, as he acknowledges it to be, would result in this property being put beyond the reach of the director. Because he describes it as "justifiable" I assume he accepts that that is not a desirable result.

I said previously that Clause 305(1)—the exception for people who obtain in good faith, for value and without notice, something which is recoverable property—would cover many of the cases that the noble Lord had in mind. That is an important exception because essentially if one satisfies those requirements then it is only going to be in cases where a successful litigant is on notice that the property in question is recoverable that a problem arises. I suggest that it is going to be extremely rarely that a litigant would be on notice that the property is recoverable.

The noble Lord gave the example of someone who sues for careless driving. In almost all cases the money coming is not going to be recoverable property because it is insurance companies who meet such claims. Only exceptionally are they met by individual litigants, let alone individual litigants out of the proceeds of crime. The mere fact that the event might be tortious conduct does not cover the question as to whether it is also unlawful conduct.

I have considered this matter again. I do not see that there is any necessary limitation on the word "disposal" which we looked at in Committee under Clause 305(1). I continue to believe that that will be an important safeguard for many litigants.

One returns to what the noble Lord proposes. As I understand the way in which his amendment would work, it would not rule out the case which he accepts is justifiable. I suggest that it is not going to work. It is possible that there may be evidence in court that a claim is not being brought in good faith, but that is very rarely an issue which a court has to look at. Such a case only arises in very few instances indeed. Normally, a case is brought, the court looks at its merits, and that is all. As my noble and learned friend the Minister said in another debate, it is inevitably the case that where one has action taking place between two parties, the director or anyone else is not privy to the transaction, the circumstances, and is not in a position to raise the question as to whether the matter has been brought in good faith or not. I suggest that it would not be a workable limitation.

As I made clear about anti-avoidance, there is a difference of principle between us on this issue. The intention is that the benefit of the exception in Clause 305(3)(b) should be extended only to those whose basis for a successful claim is in the same general category as that for civil recovery proceedings. We do not intend to extend it to wholly unconnected proceedings. The Government's view is that that is not required and is not logical or appropriate having regard to the principles behind the Bill.

I know that the noble Lord will not be enthusiastic about that reply, but following the debate in Committee and having looked again at the issues raised in the noble Lord's amendment, which we do not believe would work, I press the noble Lord to withdraw it.

Lord Goodhart

My Lords, I find the noble and learned Lord's response disappointing. In particular, he did not seem to appreciate that there is a significant difference between an order made in a matrimonial case and a claim for damages.

I am inclined to accept the principle that a criminal should not be able to confer a benefit on his family, whether it is done by way of a gift or by way of an order in matrimonial proceedings. An order in matrimonial proceedings is based on what is understood to be the value of the defendant's assets. If the defendant's assets are criminal property, there are reasonable grounds for saying that the matter should be reconsidered because the assets on the original review were wrongly calculated. I had hoped that the Government would have taken this matter away and come back with a much more limited clause that would have enabled money to be clawed back where it had been transferred under a matrimonial settlement, or a similar kind of arrangement.

We are left in a highly anomalous situation: in some circumstances damages that have been paid cannot be clawed back while in other circumstances they can, with no logical justification for the distinction between the two. They cannot be clawed back in cases where the damages have resulted from an act which is not only tortious but criminal; they cannot be clawed back where they fall within subsection (1).

My concern with subsection (1) is not so much whether the property has been disposed of—I can see that there are arguments either way on that—but much more whether it has been disposed of for value, which involves the assumption that there is some consideration moving from the defendant. In an action for damages for tort, that seems to me not to be the case.

Lord Goldsmith

My Lords, I am grateful to the noble Lord for giving way. I ask him, in a genuine spirit of inquiry into his thinking in relation to this issue, to reflect on whether the concept that the cause of action is merged in a judgment, and therefore disappears in place of the judgment, may be a part of the answer to the question that he poses. He may not want to respond to that at this stage, but I invite him to reflect on it.

Lord Goodhart

My Lords, that is the highly technical doctrine which I tried to persuade the Appellate Committee of your Lordships' House to scrap last October. Unfortunately I failed. It is something that is so technical that it is unlikely. It is a possible argument but it is not one that is certain to succeed. If "for value" means that the cause of action has merged in the judgment, then it may well apply also to a matrimonial order because there is equally a cause of action there which becomes merged in the judgment. The noble and learned Lord is shaking his head. It is a little too late to pursue that particular argument, interesting though it is.

It seems that we are ending up with a situation which is not only anomalous and illogical but highly unfair to the plaintiff who has succeeded in recovering judgment. Even if successful, he may find that his costs are not fully recompensed and that he may have to pay his own money in order to get a judgment, which he then loses. That is seriously unfair.

Obviously, I do not wish to divide the House at this late hour. We shall take this matter away and consider whether or not to bring it back for a final attempt. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Goldsmith

moved Amendment No. 145: After Clause 305, insert the following new clause— "OTHER EXEMPTIONS (1) An order may provide that property is not recoverable or (as the case may be) associated property if—

1. (a) it is prescribed property, or
2. (b) it is disposed of in pursuance of a prescribed enactment or an enactment of a prescribed description.

(2) An order may provide that if property is disposed of in pursuance of a prescribed enactment or an enactment of a prescribed description, it is to be treated for the purposes of section 276 as if it had been disposed of in pursuance of a recovery order. (3) An order under this section may be made so as to apply to property, or a disposal of property, only in prescribed circumstances; and the circumstances may relate to the property or disposal itself or to a person who holds or has held the property or to any other matter. (4) In this section, an order means an order made by the Secretary of State after consultation with the Scottish Ministers, and prescribed means prescribed by the order. On Question, amendment agreed to.

Lord Goldsmith

moved Amendment No. 146: After Clause 308, insert the following new clause— "RESTRICTION ON PERFORMANCE OF DIRECTOR'S FUNCTIONS BY POLICE (1) In spite of section 1(5), nothing which the Director is authorised or required to do for the purposes of this Part may be done by—

1. (a) a member of a police force,
2. (b) a member of the Police Service of Northern Ireland,
3. (c) a person appointed as a police member of the National Criminal Intelligence Service under section 9(1)(b) of the Police Act 1997 (c. 50),
4. (d) a person appointed as a police member of the National Crime Squad under section 55(1)(b) of that Act.

(2) In this section—

1. (a) "member of a police force" has the same meaning as in the Police Act 1996 (c. 16) and includes a person who would be a member of a police force but for section 97(3) of that Act (police officers engaged on service outside their force),
2. (b) "member of the Police Service of Northern Ireland" includes a person who would be a member of the Police Service of Northern Ireland but for section 27(3) of the Police (Northern Ireland) Act 1998 (c. 32) (members of that service engaged on other police service)."

On Question, amendment agreed to.

Clause 311 [General interpretation]:

Lord Goldsmith

moved Amendment No. 147: Page 184, line 5, leave out from "264" to end of line 6. On Question, amendment agreed to.

Clause 325 [Failure to disclose: regulated sector]:

Lord Goodhart

moved Amendment No. 148: Page 192, line 43, after "he- insert "or an employee of his The noble Lord said: My Lords, in moving this amendment, I shall speak also to Amendments Nos. 150 to 152 and to Amendment No. 154. These were all originally tabled in the names of my noble friend Lord Thomas of Gresford and myself, but the noble Baroness, Lady Buscombe, and the noble Lord, Lord Kingsland, have added their names to the amendments.

The amendment raises an important issue which we debated in Committee. It was also debated at great length in Committee in another place. On that occasion it caused concern not only to the opposition parties but to government Back-Benchers, some of whom were distinguished lawyers.

As the Bill now stands, an employee or any person who fails to make a disclosure of circumstances which give reasonable grounds for suspicion of money laundering commits a criminal offence even if he or she did not suspect that anything was wrong. The criminal penalty for negligence or stupidity is a severe one—it is punishable by up to five years' imprisonment. The only defence available to an employee who has not realised what he should have realised is that he has not been provided with training.

We believe that it is wrong that an employee should be faced with being charged with a serious criminal offence on the basis of negligence or stupidity. We accept that if the Bill were changed so as to require actual knowledge or suspicion, and that was the only change that was made, the Bill would indeed be seriously weakened, because it would become much more difficult to obtain convictions.

By means of the amendments, we propose to strengthen the Bill by imposing strict liability on the employer. We believe that that is a more effective way of ensuring that disclosures are made when they should be made than making an employee liable to negligence. If an employer is liable for the employee's negligence, that will ensure not only that the employee is given proper training, but that the employer will be anxious to employ only people with the necessary ability to do the job; the employer will ensure proper internal monitoring processes to see that employees carry out their job properly; and the employer will impose pressure on employees to disclose or to refer the matter to more senior staff in any case of doubt.

The prospect of a large fine will make the company or firm take effective steps to ensure that its employees comply with the law. That is on the same basis as health and safety laws. Employers must not only provide hard hats for builders, but make sure that they wear them. People who are not employees—for example, a partner in a firm—would remain liable for the negligent failure to disclose. That seems reasonable. By the time somebody becomes a self-employed partner in a business, he ought to have the knowledge and skills that would enable him to see what it is reasonable to see.

The amendments would remove the injustice of prosecuting employees for negligence or stupidity and would strengthen the Bill by giving employers an incentive to ensure that their staff are properly trained and properly monitored and make the proper disclosures. I beg to move.

9.45 p.m.

Lord Falconer of Thoroton

My Lords—

Lord Kingsland

My Lords, I shall be most telegraphic. In Committee, we were also extremely concerned about negligent acts leading to imprisonment. Our approach was different from that of the noble Lord, Lord Goodhart. We tabled an amendment to reduce the penalty for the offence to a non-custodial one. However, having reflected in the intervening weeks, we have decided to line up behind the noble Lord. We support the noble Lord's amendment for the reasons that he has given.

Lord Falconer of Thoroton

My Lords, I apologise for trying to cut the noble Lord off in his prime. I am grateful to the noble Lord, Lord Goodhart, for explaining the reasons behind the amendments. It is evident that we are not of like mind on where responsibilities should ultimately lie in the event that blatant examples of money laundering are disregarded. As the noble Lord said, and as the noble Lord, Lord Kingsland, implicitly acknowledged, they are not seeking to relieve the negligent employee from the criminal consequences of what the Bill proposes. They are trying to create a landscape in which the employer is more vigorous in ensuring that the employee is not negligent.

I agree that employers should be subject to a greater responsibility than employees. That is why we have introduced the training defence and clarified the obligations of nominated officers. However, I do not agree that employees in the regulated sector should not be subject to the offence of negligent failure to disclose. We must recognise the importance of their role in the financial sector's defences against money laundering. I think that both noble Lords accept that.

We consider that the negligence element of the failure to disclose offence should be applied directly to individual employees, as do both noble Lords. We must have provisions in place that serve to deter competent employees from exercising wilful blindness, particularly, as is often the case, when they are under pressure to maximise profits.

In practice, we cannot see that responsible employees will be placed under any special threat by this offence. All employees will be able to seek advice from and report any suspicions to their nominated officer. This would immediately provide them with a defence to the commission of the offence. Secondly, the clause envisages that all employees will be issued with guidance about money laundering in order to ensure that they are aware of situations in which money laundering can occur. Any such guidance must be considered by the court if a prosecution is undertaken. There is also the additional protection that if they have not been given training, as specified by the Secretary of State, they will not be penalised for failing to make a report. There are already considerable protections.

The test of "reasonable grounds" on individuals is important, because it will help to raise awareness of and compliance with anti-money laundering controls throughout the regulated sector. That will be especially important when the range of regulated activities is widened following the implementation of the second European money laundering directive. We do not believe that the offence acts unfairly because we have built in sufficient safeguards to ensure that those who have a valid reason for failing to spot a suspicion are not improperly brought before the courts.

I have already mentioned that one of the amendments in this group would remove the defence for employees who have not received the specified training. I think that removal of this defence would be an unwise and unfair step. Throughout the debate on the Bill we have listened carefully to the representations of key interest groups from the sectors that will be affected by its provisions, and have acted on those representations where we felt it would be appropriate to do so. This is one such instance of our support for the representations that we have received. It is only fair that an employee who has not received the appropriate training on money laundering should not be penalised. In those circumstances, it is quite clearly the employer who is at fault and should be penalised accordingly.

Finally, I should like to re-emphasise that the Government believe that strong anti-money laundering measures, including the new negligence test, are fully justified against the background of several money laundering cases that have taken place in the City but were not reported to law enforcement. In the City's financial reputation and standing both here and overseas, it is of utmost importance that the United Kingdom should be seen to demand the highest standards of diligence. I trust that the noble Lords do not want to weaken this country's defences against money laundering. In the light of what I have said, I hope that noble Lords will feel reassured, and that the noble Lord, Lord Goodhart, will withdraw his amendment with the full support of the noble Lord, Lord Kingsland.

Lord Goodhart

My Lords, we believe that our amendments, far from weakening the campaign against money laundering, would strengthen it. We believe that nothing will be achieved by prosecuting employees, particularly junior employees, for committing a criminal act that they had no idea they were committing. We believe that we shall be far more effective in stopping money laundering if employers are aware that, if their employees do not do their job properly, employers themselves will face the risk of prosecution. We believe that it is not just a matter of training, but that the employer's responsibility extends to ensuring that they employ people who can do the job and to monitoring to ensure that those people work properly, to minimise the chances of anything slipping through the net of their system.

We therefore believe that our group of amendments both removes a potential injustice to employees and would be more effective than the Government's present proposals at actually stopping money laundering. It is with regret that I find that the Government are not accepting these proposals. Although I shall ask leave to withdraw the amendment, I think it very likely that we shall come back with the proposal for a final hearing. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Noakes

moved Amendment No. 149: Page 193, line 1, at end insert "and has carried out at least one transaction intended to conceal criminal property The noble Baroness said: My Lords, I should first declare that I am speaking with the benefit of briefing from the Institute of Chartered Accountants in England and Wales, of which I am a member. The Institute of Chartered Accountants is more than happy for its members to play a full part in the fight against money laundering, but it has some practical issues about how the Bill will work in practice.

Amendment No. 149 is fundamentally designed to eliminate the need to report trivial money laundering offences. It is not an exclusion solely for accountants. However, once accountants are covered by Clause 325 when the second money laundering directive is implemented, the possibilities of reporting trivial offences will multiply many times. As I explained in Committee, there is a very large number of accountants in the UK—well over 200,000—and their work exposes them to a mass of small transactions that will be treated as money laundering offences under this Bill.

Accountants are involved in the smallest details of businesses and therefore have an unenviable exposure to the existence of minor offences. In Committee I gave examples of the kind of minor offences that we are talking about, such as shoplifting and minor staff defalcations. Like it or not, those offences are common throughout the business world. They will be treated as money laundering offences under the Bill. Accountants, far more than any other professionals, will become involved in issues of disclosure.

There are around 3 million businesses in the country. Do the Government really want minor money laundering offences to be reported on that scale? In Committee, the noble Lord, Lord Rooker, seemed to suggest that he wanted lots of reporting so that the people in NCIS could pick up patterns of money laundering. If NCIS thinks that it can pick up patterns of money laundering from reports of shoplifting or of staff theft, possibly from petty cash, I think that we must have doubts about whether NCIS could properly handle the kind of reports that would arise under the money laundering provisions.

The simple solution would be a de minimis exclusion. However, I understand that the Government have set their face against that which is why this amendment comes from a different direction. It removes from the ambit of the disclosure provisions money laundering which is not accompanied by a subsequent attempt at concealment of criminal property.

I should emphasise that chartered accountants take their responsibilities under the current law seriously and will be prepared to do so under future law. However, the problem lies in the scale of reporting that will be required. It seems that it will become a daily part of accountants' lives to send a long list of trivial offences to NCIS.

The Home Office has in effect tried to put the onus on accountants to decide what is trivial and not worth reporting by saying that accountants are unlikely to be prosecuted for failure to report trivial money laundering offences. However, that causes difficulties for chartered accountants. If they turn out to have judged incorrectly and are prosecuted successfully, the ethical requirements of the Institute of Chartered Accountants will come into play and it is quite likely that they would be excluded from membership and thereby lose their ability to earn a living as qualified accountants for the failure to disclose a potentially trivial amount. But if they play safe and report everything that comes to their attention, NCIS could be overwhelmed with volume. The noble Lord, Lord Rooker, gave figures for the extra resources to be allocated to NCIS which sounded very thin in the context of the disclosures that I have discussed.

As I said, chartered accountants wish to play a full part in the fight against money laundering. I hope that the Minister will be able to accept the amendment. If not, will he say something about how the measure will work in practice, including the resourcing of NCIS? I beg to move.

Lord Falconer of Thoroton

My Lords, the effect of the amendment would be to exclude from the failure to disclose offence those cases where money laundering is committed but where there has been no concealment transaction. So it would exclude a case where an accountant had reason to believe that there was a large amount of money gained from drug dealing in the bank account of his client. That is plainly not what the noble Baroness or the Institute of Chartered Accountants intends.

As I understand it, the noble Baroness's aim is simply to deal with the trivial transaction, as she put it. But, unfortunately, her amendment is drafted so as to cover major transactions as well. Therefore, it plainly does not work as an amendment. The noble Baroness kindly acknowledged that this is another attempt to try to reduce the burden on accountants who will come within the regulated sector. The noble Baroness is perhaps not thinking about the bigger picture but about accountants only. I am afraid that we remain unpersuaded that we should make the change that the noble Baroness seeks if for no other reason than that it would exclude that huge area which I know that she would want to catch.

We cannot consider this amendment simply in the context of what effect it might have on certain sections of the financial sector. In 1999, the Financial Action Task Force—which is based in Paris under the umbrella of the OECD and which is the leading authority on money laundering—reported an estimate provided by the International Monetary Fund that money laundering accounts for between 2 and 5 per cent of the world's GDP. The good reputation of the UK as an international financial centre means that, once accepted into UK financial institutions, funds are generally perceived to be clean. For that reason, the United Kingdom, and the City of London in particular, are attractive targets for launderers.

We make no excuse, therefore, for taking strong measures to discourage criminals from using the UK financial services sector, thereby protecting our reputation for clean dealing and reducing the risk of market distortion and instability in our financial markets.

Despite our efforts to date—there has been a succession of legislation on money laundering in recent years—significant sums of money have continued and no doubt are continuing to be laundered through the London markets. That is why we consider that the police and Customs should be strongly encouraged to investigate money laundering offences wherever appropriate and prosecutors should recognise the clear public interest of bringing forward money laundering prosecutions.

Close scrutiny of our legislation has demonstrated that there are in fact very few successful prosecutions each year for money laundering. Provisional figures for 2000, for example, show that, in England and Wales, there were only 16 convictions arising from 73 prosecutions for drug money laundering and for other crimes there were only 23 convictions out of 45 prosecutions. In Scotland to date, no prosecutions have come to court for alleged money laundering offences; hence there have been no convictions. When one considers that London is one of the major financial markets in the world, the number of prosecutions was very much on the low side.

It is against this background that I have examined the noble Baroness's Amendment No. 149. I reiterate that we have overhauled all the offences that now appear as Clauses 322, 323 and 324 and we consider that their overall effect will be to make it much more difficult for those who are engaged in money laundering to escape the consequences of their actions. We have taken a deliberate decision in respect of Clause 324 that there should be no distinction between the possession of one's own proceeds or another's proceeds and that, in keeping with international obligations, that offence should be classified as a money-laundering offence under Part 7. As a consequence of that deliberate extension, the reporting offence at Clause 325 includes knowledge or suspicion, or reasonable grounds to know or suspect, that another person possesses criminal proceeds, whether those proceeds are his own or another person's proceeds.

I agree with the noble Baroness that the effect of the changes that we have made to Clause 324, together with the reporting obligation in Clause 325, will increase the number of reports that are made to the National Criminal Intelligence Service. Furthermore, I also accept that the number will increase still further once auditors, accountants and tax advisers are brought within the regulated sector for the purpose of Clause 325.

The key question, looking at the whole picture, is whether the right policy is that under which a person within the regulated sector who knows or suspects, or has reasonable grounds to suspect, that another person has possession of criminal property that has been obtained either through his own or another's criminal conduct should have to report that fact to the National Criminal Intelligence Service irrespective of what sum is involved or whether some sort of concealment has been involved. We have considered that point very closely indeed in our discussions with the National Criminal Intelligence Service and the Treasury, and the overwhelming advice has been that it is far preferable for the National Criminal Intelligence Service to be in possession of all such disclosures irrespective of the sum involved because only NCIS is best placed to evaluate whether or not there is underlying money laundering activity. Experience has often shown that it is not the size of the sum involved in a suspicious transaction report that is important. We understand that in 2001, 10 per cent of all suspicious transaction reports made to NCIS were in respect of transactions of £500 or less. What may seem like an insignificant issue not worth reporting to, or by, an accountant could, for NCIS, be the missing item that would enable it to link various other pieces of information and consequently to pursue a worthwhile investigation.

There are more than 200,000 accountants in the UK, and they are involved in every business in the country. However, I remind your Lordships that those accountants currently make only 0.35 per cent of all reports received by NCIS. That is a very low figure for such a large number of professionals. If, as we would hope, the provisions in the Bill have the effect of making the accountancy profession more aware of its obligations in the field of money laundering, I believe that that will provide welcome reassurance that the profession takes its responsibilities seriously.

The noble Baroness's amendment would, for example, require the accountancy profession to decide whether or not the person on whose affairs advice was being given had, first, carried out more than one transaction in respect of property under scrutiny; and, secondly, if he had, whether it was done with the intention of concealing his property. I simply do not see how that would work. It seems to me an easy defence for the accountant simply to say that, although he suspected that money laundering was taking place, nothing gave him grounds to suspect that a specific transaction had been carried out with the intention of concealing criminal property. It would be very difficult for the prosecution to establish that there were reasonable grounds for suspecting an intent to conceal property in order to secure a successful prosecution against a person who had not reported in circumstances that others might consider to be very suspicious. Further down the line, we would be saying, once again, that the money laundering legislation contained too many loopholes.

We should also consider the central point of what would happen if a person had every reason to believe that his client's bank account contained money which resulted from drug trafficking, human trafficking or money laundering itself. There would be no obligation to report under the noble Baroness's amendment. With the greatest respect to the Institute of Chartered Accountants for England and Wales, the amendment does not seem to have been remotely thought out.

So much for the principle. I now turn to the practical question raised by the noble Baroness of whether the National Criminal Intelligence Service could cope with the increase in reports. During the debate in Committee—I refer noble Lords to the Official Report of 27th May, col. 1075—my noble friend Lord Rooker spoke of the fact that extra resources have been made available to NCIS. He also said that resourcing will be kept under review as the Bill comes into force to ensure that NCIS has the means to cope with the increased level of reports that it will receive. I shall briefly remind your Lordships of where things stand.

In the financial year 2000–01, the Home Office made an extra £250,000 available to the National Criminal Intelligence Service to fund additional staff for the Economic Crime Branch, which handles suspicious transaction reports. That additional funding was increased to £1.8 million last year and will continue this year. NCIS increased the staffing of the branch from 24 in August 2000 to 66 in December 2001, and a further increase of up to 20 staff is planned for the financial year 2002–03.

Once again, I can confirm to noble Lords that, following commencement of the new money laundering offences in the Bill, the Home Office and the National Criminal Intelligence Service will keep under review the service's capacity to deal with suspicious transaction reports with a view to ensuring that an effective service is maintained.

Finally, I ask your Lordships to reflect on this. Experience has shown that the more impediments we build into the principal offences, including Clause 325, the less likely it is that we shall be able successfully to prosecute offenders. We need to ensure that reports of knowledge or suspicion of all three principal money laundering offences are made.

If Clause 325 is to be successful in achieving its aims of combating money laundering within the regulated sector, it is important that reports are made not only where a concealing offence has taken place under Clause 322, as sought by the amendment, but also where there is a suspicion, or grounds for suspicion, that either of the other two principal money laundering offences have taken place or, indeed, may be taking place. We have taken steps to ensure that the National Criminal Intelligence Service is geared up to cope with the anticipated increase in reporting, and we shall keep the position under review. I hope that the noble Baroness will feel able to withdraw her amendment.

Baroness Noakes

My Lords, I thank the Minister for that reply. I accept that the amendment does not meet the point regarding suspicion about a major transaction. As I explained, the amendment, though defective, was directed at avoiding the reporting of trivial transactions, and that remains its thrust.

The Minister referred to low reporting under the existing money laundering rules. I asked the noble Lord, Lord Rooker, in Committee whether there was evidence of non-reporting of accountants which caused concern and he could not give any. The existing law makes it relatively unlikely that accountants would be involved in money laundering transactions because they are not typically involved in handling cash. Indeed, they would most likely be avoided by money launderers because of the existing ethical rules to disclose unlawful acts regardless of any specific statutory requirements.

I do not believe there is evidence that accountants do not want to play their part in money laundering; all the evidence is that they do. The noble and learned Lord referred several times to the City. Accountants are not just in the City; they are in every high street in the land. That is primarily where accountants are and where the thrust of my remarks was directed.

The Institute of Chartered Accountants will want to consider the Minister's remarks regarding the conditions under which a successful prosecution could take place. The institute will need carefully to consider what guidance it gives to its members. I know that it will want to avoid seeking to overwhelm NCIS with trivial reporting. However, equally, it must have regard for the ability of its members to continue successfully to operate as chartered accountants within the limits of the law. I shall withdraw the amendment. However, I shall read carefully in Hansard what the Minister has said, as will the Institute of Chartered Accountants. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 150 to 152 not moved.]

Baroness Noakes

moved Amendment No. 153: Page 193, line 16, at end insert— (ba) he is an auditor, external accountant or tax adviser and the information comes to him in the circumstances set out in subsection 10A); The noble Baroness said: My Lords, in moving Amendment No. 153, I shall speak also to the other amendments in this group. Under Clause 325(5)(b) there is a familiar exemption for legal professional privilege. Amendment No. 153 introduces a similar but certainly not identical exemption for auditors, external accountants and tax advisers.

The second European directive on money laundering clearly contemplates that exemption should be available for auditors, external accountants and tax advisers with regard to the information they obtain from a client in the course of ascertaining the legal position for the client. The amendments are designed to ensure that when that directive is implemented, accountants, auditors and tax advisers will he fairly treated.

For the avoidance of doubt, the intention of the amendment is not to extend legal professional privilege to chartered accountants. It is designed to introduce a limited exemption where information comes to an auditor, external accountant or tax adviser in the course of his profession for the purposes of ascertaining the legal position of the client.

Amendments Nos. 157, 159 and 160 give a similar protection in the context of the tipping-off provisions, allowing, obviously, for advice to be given following the ascertainment of the client's position. These sets of amendments are considerably narrower than legal professional privilege but seek to relieve accountants from the disadvantage which they would otherwise suffer. I suggest to the Government that there are public policy reasons for this limited set of exemptions.

The first public policy reason is fair competition. That is because in some areas—general business advice and tax advice—lawyers operate in essentially the same territory as external accountants and tax advisers. Therefore, if the Bill gives a competitive advantage to lawyers, that would operate unfairly. I do not expect many lawyers here today to have any sympathy for that, but I expect the Government to take seriously the unfair impact on competition that the Bill could have.

My second public policy reason relates to the position of the audit and auditors. Here the issue is slightly different. The audit process depends crucially on information flowing freely to auditors so that they can reach the required judgments under company law. If company directors thought that auditors might be under an obligation to go to NCIS every time they discussed a transaction that might be considered to be on the borderline of money laundering, there is a real concern that the flow of information would dry up.

Auditing is hard enough—I speak from bitter personal experience—without the law setting up any barrier to a company's directors and senior staff providing the information and explanations that auditors need in order to do their job.

So on those public policy grounds of promoting fair competition and of enhancing the audit process, which is important in assuring credibility of financial information to the business community, I beg to move the amendment.

10.15 p.m.

Baroness Buscombe

My Lords, I rise to support my noble friend Lady Noakes on this group of amendments which we believe to be entirely sensible and reasonable.

Lord Falconer of Thoroton

My Lords, the noble Baroness, Lady Noakes, proposes a limited but fairly significant extension of legal professional privilege to accountants, tax advisors and auditors when acting in comparable situations to lawyers. She also suggests that legal professional privilege should be extended to the situation where accountants are acting in their capacity as auditors.

Your Lordships will know that in Committee my noble friend Lord Rooker acknowledged that further work may be needed on this issue. I have listened carefully to the points made by the noble Baroness and can well understand her concerns. However, we need to bear in mind that, hitherto, the courts have not chosen to extend legal privilege to accountants and tax advisers. They have been pressed on many occasions to do so.

Those points aside, we have made clear on previous occasions that we intend that full consultation should take place later this year on the United Kingdom's implementation of the new money laundering directive.

The possibility of some extension of professional privilege to accountants has not been ruled out. But we think that it would be wrong to do that in isolation. If any changes are to be made, those should be in the context of our detailed consideration and wider consultation on the implementation of the directive, which will commence shortly. It will be important not least to obtain the views of the judiciary and the legal profession on such a proposal. It is important, therefore, that we do not try to pre-empt the outcome of the proposed consultation exercise. That would obviously consider the point that the noble Baroness made about auditors.

I make one final point. We understand that the accountancy profession is also concerned that lawyers who can claim legal privilege may be at a competitive advantage when offering tax advice to clients who are unsure of their legal position. However, questions of competition and commercial advantage must in this instance be considered separately from the interests of those clients for whose protection the common law concept of legal privilege has evolved.

Legal professional privilege is most certainly not there for the protection of the professional person; it is there for the protection of the client. Therefore, to advance arguments about competition in relation to accountants is not particularly powerful. I am not at all persuaded that honest people and businesses will be deterred from seeking professional advice because of the provisions in the Bill. Again, that can be dealt with in the light of the consultation exercise. In the light of what I have said, I hope that the noble Baroness will feel able to withdraw her amendment.

Baroness Noakes

My Lords, I thank the noble and learned Lord for his response. I should emphasise that I was not seeking through the amendment to extend legal professional privilege. Legal professional privilege is a concept that runs wide. The amendment would provide a specific exemption from these provisions. I had hoped that it would have been considered in that light and not as a major attempt to take legal professional privilege beyond the class to which it belongs—that is, lawyers. It was in those terms that I sought to advance it. In that sense, I am unashamed about raising competition issues, which are properly to be taken into account in designing the working of a whole system.

I take on board what the noble and learned Lord said about consultation later this year prior to implementation of the second money laundering directive, in the hope that that consultation process will be full, open and involve all parties—before, doubtless, a long piece of subordinate legislation is rushed late at night through your Lordships' House. For the time being, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 154 to 156 not moved.]

Clause 328 [Tipping off]:

[Amendment No. 157 not moved.]

Lord Goodhart

moved Amendment No. 158: Page 195, line 29, at end insert— (d) he has been instructed to carry out a transaction which he is unable to carry out because the appropriate consent has not been given and he has been requested by or on behalf of the person giving the instruction to explain why the transaction has not been carried out The noble Lord said: My Lords, I should begin by saying that I am afraid that there is a typographical error in the amendment as it appears on the Marshalled List. In the first line of proposed new paragraph (d), the words, "able to carry out" should of course read, "unable to carry out".

Clause 328 states: A person commits an offence if … he knows or suspects that a disclosure which, under the Bill, is either a protected or unauthorised disclosure, has been made, and he then proceeds to tip off someone else in a way that is likely to prejudice any investigation that may be conducted following the original disclosure. Clause 328(2) sets out certain circumstances in which an offence is not committed. We propose by the amendment to add as a fourth exception that, he has been instructed to carry out a transaction which he is unable to carry out because the appropriate consent has not been given and he has been requested by or on behalf of the person giving the instruction to explain why the transaction has not been carried out". The Bill will leave professionals in the regulated sector in an impossible position. That has caused the Law Society serious concern. If people are in the regulated sector, they will be not merely authorised but required to report suspicions about their clients' affairs to the nominated officer. Such a disclosure made in discharge of that obligation would, as I understand it, be an authorised disclosure under the Bill.

Professionals may be instructed to, let us say, make a payment on the following day from their clients' fund that they hold in their current account. They will be unable to do so because they will not have received the consent that would authorise them to proceed. A client may discover that the payment has not been made and ask why his instruction has not been followed. Surely, it cannot be intended that the professional involved should make up some kind of bogus excuse. All that the professional can do is either tell the truth, which, it would appear, would be an offence under Clause 328, or say, "I am afraid that I cannot tell you why the payment has not been made." Of course, if the professional says that, any client who is, in truth, a money launderer will know at once why that answer has been given.

The best course is to allow the professional to say, "I'm sorry. I had to disclose it, and there is a legal ban on carrying out the transaction unless and until consent is received." That would put the professionals in a more reasonable position and would not lead to an increase in money laundering. I beg to move.

Baroness Buscombe

My Lords, I support the amendment.

Lord Falconer of Thoroton

My Lords, the amendment is neither desirable nor necessary. In all cases in which consent decisions are sought, it is open to the person who made the disclosure or the nominated officer to liaise closely with the National Criminal Intelligence Service to consider how to avoid committing a tipping-off offence and agree a form of words that might be used to respond to any queries about the delay in carrying out a transaction. Your Lordships will be interested to note that that is already standard practice and will continue to be so once the new legislation is in force.

The amendment would mean that, if the United Kingdom, for example, were being used as a conduit for large sums of suspect money and if the financial institution in question came under fire to explain why a client's instructions to transfer the money to some other country had not been carried out, the financial institution could pass information to the client without committing the offence. The noble Lord, Lord Goodhart, will be better able than I to say what the legal position of the financial institution would be vis- à-vis its client. There should be some way of allowing law enforcement agencies to take action to restrain the funds and prevent their dissipation. The time limits are designed to give law enforcement precisely that opportunity.

The rationale for the suspicious transaction reporting regime is to assist the law enforcement authorities to combat money laundering. I am far from persuaded that the noble Lord's amendment would help; in fact, the reverse would be the case. The amended provision would invariably be used as a pretext for giving information whenever a client exerted the slightest pressure. I remain of the view that there should be close dialogue between law enforcement agencies and financial institutions so that we can maximise our efforts against those who seek to use the financial system to launder their ill gotten gains.

I hope that in the light of what I have said the noble Lord will feel able to withdraw the amendment.

Lord Goodhart

My Lords, can the Minister explain what form of words could be used that, on the one hand, would not involve telling an untruth and, on the other, would not alert a money launderer to the fact that the authorities were looking at him?

Lord Falconer of Thoroton

My Lords, it happens in practice at the moment, although I do not know what the standard advice is. It would not be right for me to speculate on that, given the consequences to which the noble Lord referred. However, it is not beyond the wit of man to think of something that achieves both the aims to which the noble Lord referred.

Lord Goodhart

My Lords, the Minister's answer will not be entirely satisfactory to the Law Society or other professional groups. We will consider what the Minister said. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 159 and 160 not moved.]

10.30 p.m.

Clause 332 [Protected disclosures]:

Baroness Noakes

moved Amendment No. 161: Page 198, line 7, at end insert ", or is a matter relating to that knowledge or suspicion The noble Baroness said: My Lords, the amendment seeks to protect disclosure of information related to knowledge or suspicion of money laundering but not disclosure of the actual information on which the knowledge or suspicion is based. In Committee the noble Lord, Lord Rooker, said that he would look again at the matter. I see that the noble and learned Lord, Lord Falconer, has tabled Amendment No. 162 in this group, which I believe is directed at the same point. If he can tell the House that his amendment achieves the result I sought I shall be delighted to withdraw the amendment, but until then I beg to move.

Lord Falconer of Thoroton

My Lords, I fully support the intention behind the Opposition amendment. The noble Baroness is correct: our amendment in the same group seeks to deal with the same point. We believe that it deals with the issue more comprehensively in the context of the extended provisions introduced to Part 7 in Committee. In the light of that assurance, I hope that the noble Baroness will withdraw her amendment.

Baroness Noakes

My Lords, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 334 [Form and manner of disclosures]:

Lord Falconer of Thoroton

moved Amendment No. 162: Page 199, line 3, at end insert— (2) An order under this section may also provide that the form may include a request to the discloser to provide additional information specified in the form. (3) The additional information must be information which is necessary to enable the person to whom the disclosure is made to decide whether to start a money laundering investigation. (4) A disclosure made in pursuance or a request under subsection (2) is not to be taken to breach any restriction on the disclosure of information (however imposed). (5) The discloser is the person making a disclosure mentioned in subsection (1). (6) Money laundering investigation must be construed in accordance with section 336(4). (7) Subsection (2) does not apply to a disclosure made to a nominated officer. On Question, amendment agreed to.

Clause 335 [Interpretation]:

[Amendments Nos. 163 and 164 not moved.]

Clause 341 [Requirements for making of production order]:

Lord Thomas of Gresford

moved Amendment No. 165: Page 203, line 25, at end insert— () There must be reasonable grounds for believing that the making of a production order is in the public interest having regard to—

1. (a) the benefit likely to accrue to the investigation if the material is obtained; and
2. (b) the circumstances under which the person in possession of the material holds it."

The noble Lord said: My Lords, when I spoke to this amendment in Committee the noble Lord, Lord Rooker, said at the end of the debate that he agreed with me and that he would look again at the matter. Within days he was reshuffled. I am not sure whether there was any connection between his agreement with me and his reshuffling. I hope that the noble and learned Lord, Lord Falconer, will permit me to rehearse my arguments once more.

When applying for a production order, the application is made through a judge. Certain information has to be given under Clause 340 (2) and (3). It is inevitable in the machinery that the judge hears the application ex parte. Under Clause 341 he has in effect a tick list of requirements on which he must satisfy himself before he can make the order. Nothing in Clause 341 requires him to carry out a balancing exercise between the public interest and the convention rights of the individual concerned, or any of the other circumstances set out in my amendment.

Amendment No. 165 has not been cobbled up just for the Bill; it appears in earlier legislation dealing with similar circumstances. Its purpose is for the judge, in making the order on an application, to consider where the public interest lies. The answer given to that suggestion in Committee was that the judge has to take into account the individual's convention rights in any event.

However, there is nothing in the clause to remind him of that fact and in any event the question is different. Under the convention, the question would be: is this application a disproportionate interference in the right to respect for privacy, family life, home and correspondence, or perhaps to his property rights? That is a different matter from the broad circumstances which we have set out in the amendment. It is our view that in this and the like provisions which are set out in Amendments Nos. 166 and 167 there is a need to remind the judge of the public interest and the balancing exercise that he must carry out.

As regards Amendment No. 167, to which I am also speaking, the numbering is wrong. The account monitoring order is dealt with in Clause 366. The page numbers in the amendment refer to Clause 360, which deals with customer information orders. I am obviously speaking to the principle that applies to both the orders made in that regard. I beg to move.

Lord Falconer of Thoroton

My Lords, the point was raised in the Commons, where there was a Division on it, and it was raised in Committee in this House. My noble friend Lord Rooker agreed to reconsider the matter and one imagines that even as we speak he is still doing so. I am sure that it had nothing whatever to do with his move.

As explained in the Explanatory Notes accompanying the Bill, the Human Rights Act 1998 requires a judge not to act in a way that is incompatible with the convention rights. After reconsidering the matter, we think it unnecessary to retain the present "public interest" test contained in the Criminal Justice Act 1998, the Drug Trafficking Act 1994 and the Proceeds of Crime (Northern Ireland) Order 1996 as one of the requirements for making a production order, or to include it as a requirement for an application for a disclosure order and an account monitoring order.

Certain doubts have been raised that the Human Rights Act provided the same safeguard or, if it did, that this justified the removal of an express safeguard to which the noble Lord, Lord Thomas, referred. However, Section 6 of the Human Rights Act would require a court to comply with all the safeguards which are provided by the convention when deciding whether or not to make an order or warrant.

We are satisfied therefore that the application of the Human Rights Act removes the need for the public interest test. Article 8(2) of the convention provides that there shall be no interference by a public authority in respect of the right to private and family life, home and correspondence, except where necessary for the prevention of disorder or crime. Although the public interest test is not worded in these precise terms, we cannot think of any situation where the public interest test would prevent an order or warrant being made but Article 8 would not.

Furthermore, the equivalent customer information order and account monitoring order provisions in recent legislation—the Terrorism Act 2000 as amended by the Anti-terrorism, Crime and Security Act 2001—does not contain the public interest test. In those cases the judge would also have to consider the application against his obligation to consider a person's rights under the convention. This is a parallel to the position under the Bill. Therefore, one should be straightforward and clear. In the light of that, we do not believe that the incorporation of the public interest test is sensible or necessary to provide the kind of protection the noble Lord seeks.

I hope that in the light of my comments the noble Lord will feel able to withdraw his amendment.

Lord Thomas of Gresford

My Lords, where I draw a distinction between the ordinary hearings before a judge, in which both parties are represented, and this situation is in the fact that the judge is acting on his own. He has before him an application and he must make a decision on that application. No one is arguing the provisions of the Human Rights Act before him.

The situation will be rather different where the judge should have in mind not only the other requirements explicitly set out in the clause, but also the public interest test as defined in earlier legislation. I urge the noble and learned Lord to join with his noble friend, in whatever limbo he may be at the moment, further to consider the matter before we return to it on Third Reading. In the meantime, however, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 353 [uirements for making of disclosure order

[Amendment No. 166 not moved.]

Clause 359 [Meaning of customer information]:

[Amendment No. 167 not moved.]

Lord Falconer of Thoroton

moved Amendment No. 168: After Clause 370, insert the following new clause— "Evidence overseas (1) This section applies if the Director is carrying out a confiscation investigation. (2) A judge on the application of the Director or a person subject to the investigation may issue a letter of request if he thinks that there is evidence in a country or territory outside the United Kingdom—

1. (a) that such a person has benefited from his criminal conduct, or
2. (b) of the extent or whereabouts of that person's benefit from his criminal conduct.

(3) The Director may issue a letter of request if he thinks that there is evidence in a country or territory outside the United Kingdom—

1. (a) that a person subject to the investigation has benefited from his criminal conduct, or
2. (b) of the extent or whereabouts of that person's benefit from his criminal conduct.

(4) A letter of request is a letter requesting assistance in obtaining outside the United Kingdom such evidence as is specified in the letter for use in the investigation. (5) The person issuing a letter of request must send it to the Secretary of State. (6) If the Secretary of State believes it is appropriate to do so he may forward a letter received under subsection (5)—

1. (a) to a court or tribunal which is specified in the letter and which exercises jurisdiction in the place where the evidence is to be obtained, or
2. (b) to an authority recognised by the government of the country or territory concerned as the appropriate authority for receiving letters of request.

(7) But in a case of urgency the person issuing the letter of request may send it directly to the court or tribunal mentioned in subsection (6)(a). (8) Evidence obtained in pursuance of a letter of request must not be used—

1. (a) by any person other than the Director or a person subject to the investigation;
2. (b) for any purpose other than that for which it is obtained.

(9) Subsection (8) does not apply if the authority mentioned in subsection (6)(b) consents to the use. (10) Evidence includes documents and other articles. The noble and learned Lord said: My Lords, the effect of this amendment is that the ARA will be able to request evidence from overseas relating to confiscation investigations which the director is conducting. The person under investigation will also be able to request such evidence for use in his defence. As the Bill stands, the director would have to rely on the prosecuting authorities to make requests on his behalf. That would seriously impair his operational efficiency. We expect there to be many cases where the defendant has assets abroad and the director needs to be able to make inquiries to ascertain the full extent of those assets.

This new clause makes provision enabling the director himself to request evidence from overseas. It closely follows the established and successful model of Section 3 of the Criminal Justice (International Co-operation) Act 1990. The new clause limits the director's power to request evidence to evidence for use in confiscation investigations and proceedings relating to the making of a confiscation order. It would be outside his powers to request evidence relating to wider issues.

There are other international instruments which are available to the director for requesting evidence for his civil recovery investigations such as the Hague convention of March 1970. It is anticipated that he will make use of these for his civil recovery investigations.

It has come to our attention very late that an amendment will be required to this new clause at Third Reading. That is because applications under this clause will be made to a judge and not to a court. We will therefore require a specific rule-making provision within the Bill to make rules of court for such applications. We shall table such an amendment at Third Reading. I beg to move.

On Question, amendment agreed to.

Clause 377 [Further provisions]:

Lord Falconer of Thoroton

moved Amendment No. 169: Page 221, line 31, leave out from "any" to end of line 33 and insert "restriction on the disclosure of information (however imposed) The noble and learned Lord said: My Lords, this is a drafting amendment designed to bring the wording of Clause 377(2) into line with the corresponding provision for England and Wales—Clause 343(4)—and indeed with the wording of the other equivalent Scottish provisions on disclosure orders—Clause 389(2)—and customer information orders—Clause 396. I beg to move.

On Question, amendment agreed to.

Clause 379 [Government departments]:

Lord Falconer of Thoroton

moved Amendment No. 170: Page 222, line 17, leave out subsection (3). The noble and learned Lord said: My Lords, Clause 379(3) presently requires that in Scotland a production order in respect of material in the possession or control of an authorised government department must be served as if the proceedings were civil proceedings against that department. This means that service can be effected only by recorded delivery post or by a sheriff officer.

In practice, what is done at present is for a law enforcement officer to leave an order at the office of a nominated person. By deleting subsection (3), the amendment will enable the present practice to continue.

We do not need to make similar provision for England, Wales and Northern Ireland where Section 18 of the Crown Proceedings Act requires notice to be served on the Treasury Solicitor. Section 18 does not, however, apply to Scotland. I beg to move.

On Question, amendment agreed to.

Lord Falconer of Thoroton

moved Amendment No. 171: Page 222, line 26, leave out "(4)" and insert "(5) The noble and learned Lord said: My Lords, this is purely a drafting amendment designed to correct an erroneous cross-reference. I beg to move.

On Question, amendment agreed to.

Clause 406 [Interpretation]:

Lord Falconer of Thoroton

moved Amendment No. 172: Page 236, line 11, leave out "Part" and insert "Chapter The noble and learned Lord said: My Lords, this is a purely technical amendment to make it clear that the definitions in Clause 406 relate only to Chapter 3 of Part 8—Investigations Scotland—rather than the whole of Part 8 as currently drafted. I beg to move.

On Question, amendment agreed to.

10.45 p.m.

Clause 408 [Property]:

Lord Falconer of Thoroton

moved Amendment No. 173: Page 237, line 20, leave out paragraph (a). The noble and learned Lord said: My Lords, this amendment would amend Clause 408(3). That subsection sets out certain definitional rules that apply in relation to references to property for the purposes of Part 8. We have been reflecting on the question of the Part 8 definitions following the debate in Committee on 27th May.

Clause 408(3)(a) is relevant only to investigations for the purposes of civil recovery, as all the references to holding property in Part 8 are in the context of provisions relating to civil recovery investigations. Moreover, each reference to holding property in Part 8 occurs in the context of holding recoverable or associated property. There is no power to investigate for civil recovery purposes unless there is an issue as to whether property is recoverable or associated.

Recoverable property and associated property are in turn defined at Clause 408(2) by direct reference to their meanings in Part 5. That part makes clear, through the definitions of recoverable property in Clauses 301 to 306, associated property in Clause 245 and in the general definitions of property in Clauses 311(4) to (7) on which they in turn rely, that references to property in these contexts already include references to interests in property. We have therefore concluded that Clause 408(3)(a) is not needed for the effective application of Part 8 to civil recovery investigations. I beg to move.

On Question, amendment agreed to.

Clause 411 [Modifications of the 1986 Act]:

Baroness Buscombe

moved Amendment No. 174: Page 239, line 6, leave out subsections (2) to (4) and insert— (2) If an order has been made under section 41, 50. 52, 120, 128(3), 190, 198 or 200 and is in force at the date on which the petition in which the person is adjudged bankrupt is presented, the prosecutor, the Director or the accredited financial investigator who applied for any such order shall be entitled to prove in the bankruptcy of the person adjudged bankrupt for—

1. (a) the amount such person is required to pay for any confiscation order, and
2. (b) the costs of obtaining the order under section 41, 50, 52, 120, 128(3), 190, 198 or 200 and any such confiscation order.

(3) Any dividend payable under subsection (2)(a) shall be paid after all other creditors have been paid the full amount of their debts and such interest to which they are entitled. (4) The costs referred to in subsection (2)(b) shall be treated as a preferential debt for the purposes of section 328 and the 1986 Act. The noble Baroness said: My Lords, in moving this amendment, I shall speak also to Amendments Nos. 181, 182, 189, 190, 192 and 193, 201, 202, 204, 205, 207, 208, 212, 213 and 214. I proposed very similar amendments to this part of the Bill at the Committee stage. A number of criticisms were made of the drafting with which I believe we have now dealt.

However, the noble Lord, Lord Rooker, made a number of points of principle, which we believe are without substance. I therefore propose to deal with each of these points and show why they are without substance. The first point which the noble Lord made was that the legislation needs to address the risk of criminals attempting to manipulate their proceeds into the hands of creditors who are, in reality, their associates. The noble Lord said that the amendments would open up the legislation to that possibility.

We believe that what the noble Lord was saying was that criminals will incur debts payable to their associates who will be able to prove for their debts in an insolvency. This argument pre-supposes that associates will lend money to the criminal or otherwise create a liability owed by the criminal to the associates.

If those steps or those liabilities are not genuine, the associates will not be able to recover anything in the insolvency of the criminal. Under the Insolvency Act 1986 and the Insolvency Rules of the same year, there is a procedure whereby creditors prove for their debts in the insolvency of the bankrupt. This procedure involves the creditor submitting a proof of debt which is either accepted or rejected by the trustee in bankruptcy or, in the case of the company, the liquidator. His decision is subject to challenge in the courts by the bankrupt or any other creditor.

Lord Falconer of Thoroton

My Lords, can the noble Baroness indicate the effect that her successful amendment has had on this amendment?

Baroness Buscombe

My Lords, I am talking about the priority in terms of insolvency. As regards the success, I am grateful that the noble and learned Lord has raised it. I believe that the success of the earlier amendment impinges on these amendments and I hope that the Government will accept them in the light of that success.

I believe that it is important that we state why we believe that the noble Lord, Lord Rooker, was incorrect at Committee stage. We shall also consider why these amendments should now stand at Report stage, particularly in the light of the amendment agreed earlier today.

This procedure involves the creditor submitting a proof of debt which is either rejected or accepted by the trustee in bankruptcy or, in the case of a company, the liquidator. His decision is subject to challenge in the courts by the bankrupt or any other creditor, which will include the prosecutor, the director or the accredited financial investigator. They will be able to challenge the evidence relied upon by these associates and show that these debts are not genuine. In those circumstances, these associates will not recover anything in the insolvency of the criminal. There is no issue about priorities because these particular creditors, whose debts or liabilities are not genuine, will not get anything.

If, on the other hand, those debts or liabilities are genuine, these associates will have lent money or created a liability knowing that they will recover only a dividend or nothing at all, with no conceivable benefit to the criminal. The associates will have lost money, the criminal will be no better off, and the whole point of the exercise by these criminals of attempting to manipulate their proceeds into the hands of creditors who are their associates will achieve nothing. It is an entirely pointless exercise from their point of view.

The conclusion that the amendments would open up the legislation to that possibility is, we respectfully suggest, absurd or, if not, to be encouraged: the associates would lose money.

The second point made by the noble Lord, Lord Rooker, was that criminals could run up large amounts of genuine debts so as to leave as little as possible for confiscation. He went on to say that the director, the prosecutor and the other authorities would not pursue cases if they had to operate against the real prospect of the assets disappearing to satisfy the criminal's debts. This argument presupposes the existence of genuine debts.

We still believe that genuine creditors should be paid before the Consolidated Fund. The fact that these innocent creditors are paid before the Consolidated Fund is not something that troubles us. Looking at it from the point of view of the creditors, they are entirely blameless. If a criminal makes a decision to run up large amounts of genuine debt, it would be quite wrong that the innocent creditors should suffer for the conduct of the criminal. We made a similar point on earlier amendments.

Lord Falconer of Thoroton

My Lords, the way that the noble Baroness is putting this would indicate that it is fairly redundant. She can go on, but she must think about the relationship between these amendments and the ones with which she succeeded.

Baroness Buscombe

My Lords, I entirely accept what the noble and learned Lord is saying, but I wish to clarify why we believe that the noble Lord, Lord Rooker, was incorrect in Committee in relation to these amendments, which are entirely associated with Part 9 and insolvency. That said, principles similar to the ones set down in earlier amendments apply. I do not believe that the success of our earlier amendments makes these amendments redundant; or perhaps the Minister is about to say that he will accept these amendments.

Lord Falconer of Thoroton

My Lords, the amendments moved earlier by the noble Baroness, as I understand it, mean that a creditor can apply to the court for compensation under the new clause if there is insufficient money to pay him in any bankruptcy caused by the making of a confiscation order. Why is the noble Baroness continuing to move these amendments?

Baroness Buscombe

My Lords, I accept what the noble and learned Lord is saying, but believe that this is important. I am sorry if he feels that I am wasting the time of the House but I should like to set out the case properly. It is important for those who are involved on a day-to-day basis in the issue of insolvency. I feel strongly that I should be allowed to respond to the points made in Committee.

To be fair to the noble Lord, Lord Rooker, he went on to say that this would disrupt the activities of the enforcement authorities because cases would not be pursued unless the assets available for confiscation ultimately justified the outlay of time and effort in bringing a confiscation action. I can see that, but we are not happy that innocent creditors should suffer as a result.

We therefore do not feel that it is appropriate for the enforcement authorities to look upon this new procedure as a profit-making enterprise which will prejudice innocent creditors. The object of the exercise is to ensure that crime does not pay, and that should be the aim of the enforcement authorities rather than making a profit for the Consolidated Fund. Genuine debts must be paid first. Those were the two main points made by the noble Lord in Committee.

I have further notes on this point. However, in the circumstances, it is perhaps unnecessary to delay the House further. I feel strongly that the amendments stand by themselves and I wait to see whether the Minister will respond favourably to them. I beg to move.

Lord Falconer of Thoroton

My Lords, I cannot see how the amendments do stand by themselves. I assume that the noble Baroness is proposing them on the basis that if something happened to the amendment on which she has proceeded, she would like the others to be considered. I shall therefore deal briefly with the point to which she has referred.

We recognise that the Opposition have made some attempt to accommodate in these amendments one particular concern which my noble friend Lord Rooker registered in Committee. He raised the point that the enforcement authorities would be unlikely to pursue confiscation if, at the end of the day, their efforts could be trumped by the creditors—a point that the noble Baroness made in relation to the first tranche of amendments, where she was successful, and makes again today.

The first group of amendments gives the authorities a preferential claim over property tied up in bankruptcy or insolvency proceedings in so far as their costs are concerned. Thus, although a confiscation might be lost because moneys were passed to creditors, the authorities would at least be able to recover any costs they had incurred in bringing restraint or receivership proceedings against the property. The noble Baroness dealt with that point, which was raised by the noble Lord, Lord Rooker.

Unfortunately, as she said, the noble Lord, Lord Rooker, expressed a number of other practical and principled objections to these amendments which have not been satisfactorily resolved.

Let us assume for a moment that creditors always took precedence as is proposed and that the long-standing system of priorities was abolished. As soon as criminals became aware that action against them was likely, they might be tempted to run up debts with a view to leaving nothing available for confiscation. As I understand it, that is the intention behind the amendment.

This is a real danger. From the criminals' point of view, anything that prevents the authorities from confiscating their assets is a victory. From the criminals' point of view, it is better to borrow, live the high life and lose their assets to creditors than it is to surrender them to the authorities. We see no reason why they should be given the opportunity to frustrate the recovery of their assets in this way—as is proposed by the amendment and as indeed would be the effect of the noble Baroness's amendments which succeeded earlier.

Even if the authorities were able to recover their costs, as has now been conceded, we remain of the view that these amendments would deter them from pursuing confiscations. We made that point previously. Nor are we persuaded that account has been taken of our concern that criminals would find it easier to manipulate their proceeds into the hands of creditors who were in reality their criminal associates.

The present system, which essentially brings the drawbridge up on the assets as soon as the authorities obtain a restraint order, is largely immune to abuse of this kind. We believe that the amendments would invite it—just as the amendments which succeeded invite it. We remain convinced that the bigger and more sophisticated criminal gangs in particular are capable of producing persuasive evidence from front companies and other purported creditors.

In practical terms, therefore, these amendments would in our view risk seriously undermining the operation of the legislation—as we have said in relation to those amendments moved by the noble Baroness that were successful. Nor do we agree as a matter of policy that creditors should be afforded any priority in terms of these assets.

Creditors have no right to be paid out of the proceeds of crime. The proceeds of crime belong to victims, where they can be identified, and to society where they cannot. If a criminal steals a car, it would be ludicrous for the car to be given to the criminal's debtors to satisfy his debts, whether in the event of his bankruptcy or under any other circumstances.

If the victim of the theft is known, the car should go back to the victim. If the particular victim of the theft is not known, then society as a whole, in the victim's stead, should have the assets. The fact that a victim is unknown does not justify keeping the proceeds of crime in circulation by giving them away to the defendant's creditors, as the noble Baroness would have it. Once again, I urge her to reconsider—

11 p.m.

Lord Goodhart

My Lords, would the noble and learned Lord apply that order to someone who had made money from drug dealing? Is he suggesting that those who had bought the drugs would have a right to get their money back?

Lord Falconer of Thoroton

No, my Lords, quite the reverse. I am saying that it is quite wrong that, having made lots of money from drug dealing, the drug dealer should be given the opportunity to spend all that money by incurring debts with unsecured creditors, who would come first under the noble Baroness's amendment. The criminal would get the benefit of the drug dealing, which we are seeking to prevent, and, because of the noble Baroness's amendment, the state can do nothing about it.

Lord Goodhart

My Lords, the criminal has already had the benefit of the drug dealing, because he has got his property, or whatever, and has drunk the champagne that he has bought with his ill-gotten gains. It is not he who suffers.

Lord Falconer of Thoroton

My Lords, there could be a number of debts. Money that was lent would be an unsecured debt that would have to be paid first.

Baroness Buscombe

My Lords, I thank the Minister for his response and beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 412 [Restriction of powers]:

Lord Falconer of Thoroton

moved Amendment No. 175: Page 239, line 31, leave out "134" and insert "136 The noble and learned Lord said: My Lords, Amendments Nos. 175, 183, 191, 194, 203 and 206 are technical amendments designed to bring the Scottish provisions on insolvency into line with their equivalents for England and Wales and Northern Ireland. Clause 415 restricts the powers of the court under the Bill where an award of sequestration has been made. The powers that are restricted are specified at Clause 415(2). Subsection (2)(b) refers to the powers conferred on the court by Clauses 120 to 134. The English equivalent of Clause 415, which is Clause 412, refers to Clauses 41 to 67. The Scottish equivalent of Clauses 63 and 65 are Clauses 135 and 136, which are not presently covered in Clause 415. Amendment No. 183 adds them to Clause 415. The remaining amendments in the group make similar additions to Clauses 412, 418, 420, 422 and 424. I beg to move.

On Question, amendment agreed to.

Clause 413 [Tainted gifts]:

Lord Falconer of Thoroton

moved Amendment No. 176: Page 240, leave out lines 30 to 33. The noble and learned Lord said: My Lords, the amendments in this group are substantially technical. The group does not currently cover Northern Ireland. We intend to table the remaining amendments in the group at Third Reading.

As your Lordships are aware, Part 9 establishes a system of priorities between confiscation and insolvency proceedings. The factor that determines whether confiscation takes precedence is whether a restraint or receivership order has been obtained at a specified time.

Clauses 413, 416, 419, 421 and 423 deal with the narrower situation in which the same property may fall to be treated as a tainted gift under the confiscation legislation and as a voidable transaction under the insolvency legislation. These clauses apply a slightly different test as to whether confiscation has precedence. They refer to the application for a restraint order and the institution of proceedings rather than to an application for a restraint or receivership order, as elsewhere in Part 9. We cannot see any reason for the discrepancy. The amendments accordingly apply the same test to the gift provisions as is applied elsewhere in Part 9; namely, whether an application has been made for a restraint or receivership order.

I should add an explanation on two of the amendments made for Scotland. Clause 416(2) refers to a decree granted under the Bankruptcy Act 1621, the Bankruptcy (Scotland) Act 1985 or otherwise. The purpose of the reference to "or otherwise" is to cover decrees granted at common law in Scotland. However, as currently drafted, Clause 416(3) refers only to decrees granted under the 1985 Act. Amendment No. 186 is designed to include the three decrees mentioned in Clause 416(2).

The same point arises with Amendment No. 194. As your Lordships will see, this is a tidying up exercise. I beg to move.

On Question, amendment agreed to.

Lord Falconer of Thoroton

moved Amendments Nos. 177 to 180: Page 240, line 35, at end insert ", or (ca) there is in force in respect of such property an order under section 50, 52, 128(3), 198 or 200. Page 240, line 36, leave out from "after" to "must" in line 37 and insert "an order mentioned in subsection (2)(c) or (ca) is discharged Page 240, line 40, leave out subsection (4). Page 240, line 46, leave out subsections (6) and (7). On Question, amendments agreed to.

[Amendment No. 181 not moved.]

Clause 414 [Modifications of the 1985 Act]:

[Amendment No. 182 not moved.]

Clause 415 [Restriction of powers]:

Lord Falconer of Thoroton

moved Amendment No. 183: Page 242, line 10, leave out "134" and insert "136 On Question, amendment agreed to.

Clause 416 [Tainted gifts]:

Lord Falconer of Thoroton

moved Amendments Nos. 184 to 188: Page 243, leave out lines 4 to 7. Page 243, line 9, at end insert "or (ca) there is in force in respect of such property an order under section 50, 52, 128(3), 198 or 200. Page 243, line 10, leave out from "under" to "must" in line 11 and insert "the Bankruptcy Act 1621 (c. 18) or section 34 or 36 of the 1985 Act, or otherwise, after an order mentioned in subsection (2)(c) or (ca) is discharged Page 243, line 14, leave out subsection (4). Page 243, line 20, leave out subsections (6) and (7). On Question, amendments agreed to.

[Amendment No. 189 not moved.]

Clause 417 [Modifications of the 1989 Order]:

[Amendment No. 190 not moved.]

Clause 418 [Restriction of powers]:

Lord Falconer of Thoroton

moved Amendment No. 191: Page 244, line 22, leave out "134" and insert "136 On Question, amendment agreed to.

Clause 419 [Tainted gifts

[Amendment No. 192 not moved.]

Clause 420 [Winding up under the 1986 Act]:

[Amendment No. 193 not moved.]

Lord Falconer of Thoroton

moved Amendment No. 194: Page 246, line 43, leave out "134" and insert "136 On Question, amendment agreed to.

Clause 421 [Tainted gifts]:

Lord Falconer of Thoroton

moved Amendments Nos. 195 to 200: Page 247, leave out lines 42 to 45. Page 248, line 2, at end insert ", or (ca) there is in force in respect of such property an order under section 50, 52, 128(3), 198 or 200. Page 248, line 4, after "Act" insert ", or otherwise, Page 248, line 4, leave out from "after" to "must" in line 5 and insert "an order mentioned in subsection (3)(c) or (ca) is discharged Page 248, line 8, leave out subsection (5). Page 248, line 14, leave out subsection (7). On Question, amendments agreed to.

[Amendment No. 201 not moved.]

Clause 422 [Winding up under the 1989 Order]:

[Amendment No. 202 not moved.]

Lord Falconer of Thoroton

moved Amendment No. 203: Page 249, line 8, leave out "134" and insert "136 On Question, amendment agreed to.

Clause 423 [Tainted gifts]:

[Amendment No. 204 not moved.]

Clause 424 [Floating charges]:

[Amendment No. 205 not moved.]

Lord Falconer of Thoroton

moved Amendment No. 206: Page 251, line 4, leave out "134" and insert "136 On Question, amendment agreed to.

Clause 426 [Insolvency practitioners]:

[Amendments Nos. 207 and 208 not moved.]

Schedule 10 [Tax]:

Lord Falconer of Thoroton

moved Amendments Nos. 209 and 210: Page 285, line 19, after "order" insert "or in pursuance of an order under section 274 Page 285, line 26, after "provides" insert "or (as the case may be) the terms on which the order under section 274 is made provide On Question, amendments agreed to.

[Amendment No. 211 not moved.]

Schedule 11 [Amendments]:

[Amendments Nos. 212 to 214 not moved.]

Lord Falconer of Thoroton

moved Amendments Nos. 215 to 218: Page 302, line 31, at end insert— "Pension Schemes Act 1993 (c. 48) (1) The Pension Schemes Act 1993 is amended as follows. (2) In section 10 (protected rights and money purchase benefits), after subsection (5) insert— (6) Where, in the case of a scheme which makes such provision as is mentioned in subsection (2) or (3), any liability of the scheme in respect of a member's protected rights ceases by virtue of a civil recovery order, his protected rights are extinguished or reduced accordingly. (3) In section 14 (earner's guaranteed minimum), after subsection (2) insert— (2A) Where any liability of a scheme in respect of an earner's guaranteed minimum pension ceases by virtue of a civil recovery order, his guaranteed minimum in relation to the scheme is extinguished or reduced accordingly. (4) In section 47 (further provisions relating to guaranteed minimum pensions), in subsection (6), after "but for" insert "section 14(2A) and". (5) In section 68B (safeguarded rights), at the end insert "including provision for such rights to be extinguished or reduced in consequence of a civil recovery order made in respect of such rights". (6) In section 181(1) (general interpretation), after the definition of "Category A retirement pension" insert— "civil recovery order" means an order under section 264 of the Proceeds of Crime Act 2002 or an order under section 274 imposing the requirement mentioned in section 275(3) Page 302, line 31, at end insert— "Pension Schemes (Northern Ireland) Act 1993 (c. 49) (1) The Pension Schemes (Northern Ireland) Act 1993 is amended as follows. (2) In section 6 (protected rights and money purchase benefits), after subsection (5) insert— (6) Where, in the case of a scheme which makes such provision as is mentioned in subsection (2) or (3), any liability of the scheme in respect of a member's protected rights ceases by virtue of a civil recovery order, his protected rights are extinguished or reduced accordingly. (3) In section 10 (earner's guaranteed minimum), after subsection (2) insert— (2A) Where any liability of a scheme in respect of an earner's guaranteed minimum pension ceases by virtue of a civil recovery order, his guaranteed minimum in relation to the scheme is extinguished or reduced accordingly. (4) In section 43 (further provisions relating to guaranteed minimum pensions), in subsection (6), after "but for" insert "section 10(2A) and". (5) In section 64B (safeguarded rights), at the end insert "including provision for such rights to be extinguished or reduced in consequence of a civil recovery order made in respect of such rights". (6) In section 176(1) (general interpretation), after the definition of "Category A retirement pension" insert— "civil recovery order" means an order under section 264 of the Proceeds of Crime Act 2002 or an order under section 274 imposing the requirement mentioned in section 275(3). Page 303, line 12, at end insert— () in section 68(2) (extent - Scotland), paragraphs (a) to (c) and in paragraph (g) the words "1, 41, 62" and "64", () in section 68(3) (extent - Northern Ireland), paragraph (a) and in paragraph (d) the word "64". Page 304, line 14, at end insert— () In section 68(2)(d), for "59(10)" substitute "59(11)". On Question, amendments agreed to.

Lord Falconer of Thoroton

moved Amendments Nos. 219 and 220: Page 305, line 34, leave out "which by virtue of" and insert "specified in Page 305, line 36, leave out from "2002" to end of line 37. The noble and learned Lord said: My Lords, these are purely drafting amendments designed to bring the terminology used in paragraph 27 of Schedule 11 in line with that used elsewhere in Schedule 11. I beg to move.

On Question, amendments agreed to.

Lord Falconer of Thoroton

moved Amendments Nos. 221 and 222: Page 305, line 40, at end insert— "Police Act 1996 (c. 16) 27A (1) Section 97 of the Police Act 1996 (police officers engaged on service outside their force) is amended as follows. (2) In subsection (1) after paragraph (cc) insert— (cd) temporary service with the Assets Recovery Agency on which a person is engaged with the consent of the appropriate authority;". (3) In subsection (6)(a) after "(cc)" insert "(cd)". (4) In subsection (8) after "(cc)" insert "(cd)". Page 308, line 32, at end insert— "Police (Northern Ireland) Act 1998 (c. 32) 30A (1) Section 27 of the Police (Northern Ireland) Act 1998 (members of the Police Service engaged on other police service) is amended as follows. (2) In subsection (1) after paragraph (c) insert— (ca) temporary service with the Assets Recovery Agency on which a member of the Police Service of Northern Ireland is engaged with the consent of the Chief Constable;". (3) In subsection (5)(b) after "(c)" insert "(ca)". (4) In subsection (7) for "or (c)" there is substituted "(c) or (ca)". On Question, amendments agreed to.

Lord Falconer of Thoroton

moved Amendment No. 223: Page 309, line 41, at end insert— "Financial Services and Markets Act 2000 (c. 8) 33A In Schedule I to the Financial Services and Markets Act 2000 (provisions relating to the Financial Services Authority) after paragraph 19 insert— 19A For the purposes of this Act anything done by an accredited financial investigator within the meaning of the Proceeds of Crime Act 2002 who is—

1. (a) a member of the staff of the Authority, or
2. (b) a person appointed by the Authority under section 97, 167 or 168 to conduct an investigation,

must be treated as done in the exercise or discharge of a function of the Authority. The noble and learned Lord said: My Lords, this amendment addresses the system of accrediting civilian investigators who may have access to the investigation and restraint powers under the Bill. We are referring specifically here to investigators employed or appointed by the Financial Services Authority.

The amendment provides that if investigators of the FSA are carrying out investigations using the powers in Parts 2 or 8 of the Bill as "accredited financial investigators", they will be deemed for the purposes of their parent legislation to be exercising functions under that legislation. A clear implication for an accredited financial investigator employed by the FSA is that he would need to have funds raised in order to cover the costs of the relevant investigation. However, paragraph 17(1 )(a) of Schedule 1 to the 2000 Act allows the FSA to charge fees only to meet expenditure incurred for purposes of or incidental to carrying out its functions conferred by or under the Financial Services and Markets Act 2000.

Without this amendment there would be doubt as to whether the FSA and the investigators it appoints could therefore incur expenditure to perform functions under Parts 2 or 8 of the Bill. Therefore, the FSA would not be able to charge fees for any investigations that a staff member or other appointed investigator carried out in their role as a financial investigator unless those functions were deemed to be conferred under the Financial Services and Markets Act 2000.

This issue of fee income is the major concern, but there may be more general problems should the powers not be regarded as functions under the Financial Services and Markets Act 2000. For example, there may also be problems in relation to gateways and information provisions, the FSA's statutory immunity from prosecution and accountability provisions such as the jurisdiction of the statutory Complaints Commissioner appointed under the Financial Services and Markets Act. These provisions refer to any of "the Authority's functions" conferred by or under the FSMA. We need to ensure that acts carried out by FSA accredited financial investigators fall within these provisions.

This appears to be a peculiarity to the FSA due to its unusual position of being a body funded by the industry it regulates. I should also add that this amendment does not mean that FSA investigators will automatically be accredited to have access to functions under the Bill. They will still have to satisfy the director of the assets recovery agency that they meet the standards required for accreditation. I beg to move.

On Question, amendment agreed to.

Schedule 12 [Repeals and revocations]:

Lord Falconer of Thoroton

moved Amendments Nos. 224 to 227: Page 313, line 27, column 2, at end insert— In section 68(2), paragraphs (a) to (c) and in paragraph (g) the words "1, 41, 62" and "64". In section 68(3), paragraph (a) and in paragraph (d) the word "64". Page 313, line 35, column 2, leave out "paragraphs 4(2) and 69" and insert— paragraph 4(2). In Schedule 4, paragraphs 69 and 94. Page 315, line 15, column 2, at end insert "and 18 Page 315, line 42, at end insert— Land Registration Act 2002 In Schedule 11, paragraphs 22 (c. 9) and 32. On Question, amendments agreed to.

Clause 453 [Orders and regulations]:

Lord Falconer of Thoroton

moved Amendment No. 228: Page 265, line 9, after "289(4)," insert "(Other exemptions) On Question, amendment agreed to.

Lord Goodhart

moved Amendment No. 229: Page 265, line 10, at end insert— (ab) an order under paragraph 5 of Schedule 9 to amend Part I of that Schedule; The noble Lord said: My Lords, Amendment No. 229, and its associated Amendment No. 232, are almost the last group of amendments on the groupings list, but they are not by any means the least.

Paragraph 1 of Schedule 9 identifies businesses which are in the regulated sector for the purposes of the legislation on money laundering. At present, paragraph 1 makes only financial services businesses subject to the rules that apply to the regulated sector. But paragraph 5 gives the Treasury power to amend Schedule 1. That, of course, is what is known as a Henry VIII power. We all know that the Government intend—as they have indeed declared—to extend the regulated sector to cover businesses such as lawyers, accountants and estate agents. Indeed, the Government will be required to do so by the second European directive on money laundering. We welcome that extension of the regulated sector and we certainly support it. But, at the same time, it imposes serious burdens on a wide swathe of professional firms and businesses. We believe that that is something which should not happen without being properly debated in Parliament. We believe therefore that the procedure should be affirmative, not negative.

That was the view of the Delegated Powers and Regulatory Reform Committee of which I am a member. The Government, somewhat unusually, rejected that provision of our report. When the issue was debated in Committee, the noble Lord, Lord Rooker, said that it would be a waste of time to debate minor changes to paragraph 1. I have to say that I doubt that it would be because, of course, the normal practice in your Lordships' House is that uncontroversial orders go through in a couple of minutes. Then it was said that in any event the order could be put through by the negative procedure under Section 2 of the European Communities Act 1972. That in fact is not true as that could be done only if the maximum sentence for non-disclosure was limited to two years. In fact, it is five years. Section 2 of the 1972 Act allows statutory instruments to be put through only if they impose penalties for offences limited to two years' imprisonment. In any event, the European Communities Act gives the Government the option to use either the affirmative or negative procedure. It would surely therefore be appropriate in this case to use the affirmative procedure.

Any order which amends primary legislation in order to impose serious new burdens on thousands of law firms, accountancy firms and other professional businesses, should be debated, however justified those new burdens may be. I beg to move.

11.15 p.m.

Baroness Buscombe

My Lords, we support the amendment.

Lord Falconer of Thoroton

My Lords, it is late but in view of what was said on in Committee, we should recognise that this is an important issue. I shall discuss it for slightly longer than one would expect at this time of night.

It is anticipated that the order-making power will be used to keep the scope of the legislation in line with future extensions of the regulations, which may bring in other sectors that are not presently regulated. I note that the noble Lord's main concerns, which are similar to those of the Delegated Powers and Regulatory Reform Committee, are mainly due to the fact that the intention is that the power will be used to implement the necessary changes following on from the implementation of the 2nd European Money Laundering Directive. Implementation of the directive will bring the activities of accountants, auditors, tax advisors, lawyers (except in circumstances of legal privilege), real estate agents, casinos and dealers of high-value goods within the scope of Schedule 9 and the provisions of Part 7.

The noble Lord will of course be aware that the regulations (and hence the criminal law) will be amended simply in order to fulfil our international obligations as set out in the directive, which has of course been considered and cleared by scrutiny committees in the Commons and the Lords.

I make it clear from the outset that, for that and other reasons, we are still not minded to accept the noble Lord's amendment or the recommendations of the Delegated Powers and Regulatory Reform Committee in this respect. My noble friend Lord Rooker wrote to the noble Lord, Lord Dahrendorf, setting out our position on this issue on 30th April. A copy of his letter has been placed in the Library of the House.

As set out in paragraphs 84 and 85 of the Home Office's memorandum to the Delegated Powers and Regulatory Reform Committee, the Treasury can currently change the definition of business in the regulated sector, which is set out in the Money Laundering Regulations 1993 by order subject to the negative resolution procedure under the European Communities Act 1972. That covers issues such as the requirement to establish systems for suspicious transaction reports, keeping records, undertaking training and appointing designated money laundering reporting officers.

The point has been made in Committee by the noble Lord, Lord Thomas of Gresford, and, today, by the noble Lord, Lord Goodhart, that the European Communities Act cannot he used to create offences where the penalties are more than two years and that we should therefore not argue that the Schedule 9 power should have the same procedure as the money laundering regulations that are made under the European Communities Act and which contain penalties of only two years. However, we disagree with that line of argument. We are not trying to say that the provisions in the Bill are the same as the Money Laundering Regulations. Nor are we creating offences by way of secondary legislation—we would be making changes to what constitutes the regulated sector for the purpose of the Act and changes to the list of supervisory authorities. The important point to bear in mind is that we need to ensure that the two definitions of the regulated sector are kept the same for practical purposes.

We do not think that it would be sensible to have one definition of the regulated sector for the purpose of the Money Laundering Regulations and another definition for the requirement in the Bill to make suspicious transaction reports when there were "reasonable grounds to suspect" involvement in money laundering. That is the outcome that we risk if we make one order subject to affirmative resolution because there would be the potential for the definitions to get out of step while waiting for the affirmative order to be approved.

Minor, technical changes to the Money Laundering Regulations have been required relatively frequently and will in future be replicated by amendments to Schedule 9. We do not consider it to be an appropriate use of valuable parliamentary time to require a debate every time such technical changes to the wording of the regulations prove necessary.

In the light of my explanation, I hope that the noble Lord will feel able to withdraw his amendment and not press it at a later stage.

Lord Goodhart

My Lords, I am somewhat disappointed. Some of the arguments of the noble and learned Lord are incorrect. For example, he said that it does not matter that there is a five-year penalty under the new money laundering legislation, that the provisions do not introduce a new offence and that they simply include additional people under the scope of the old offence. On the use of the powers of the European Communities Act, that is a distinction without a difference. What matters here is that the regulations are being used to extend what is possibly an existing offence to a new group of people. It seems to me that that cannot be done where the maximum penalty for the offence is more than two years.

So far as concerns the issue of the two definitions getting out of step, that argument was raised in Committee. However, frankly, it is not an argument that I find of much assistance here. If the Government felt that it was that important to keep the two definitions in step, surely they could do so under the procedure for introducing an affirmative resolution which takes effect immediately but is discontinued unless it is approved by a resolution of both Houses within a 40-day period. Therefore, I do not view that as a serious argument.

I am concerned at the Government's attitude. I know that the provision is made in pursuit of our international obligations, but not all of it is subject to the necessity to accept those obligations. For example, I do not believe that the directive lays down a requirement as to the period of sentence. In those circumstances, I regret that the Government have not seen fit to accept the amendment. It would certainly have no effect on the substance of the Bill but would provide an appropriate opportunity to debate what will be a very important order. It will have more effect on more businesses than do many forms of primary legislation.

We shall consider what the noble and learned Lord has said but may well return to the matter. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Falconer of Thoroton

moved Amendment No. 230: Page 265, line 21, after "289(4)," insert "(Other exemptions)". On Question, amendment agreed to.

Lord Falconer of Thoroton

moved Amendment No. 231: Page 265, line 21, after "289(4)," insert "359(4).". The noble and learned Lord said: My Lords, this amendment makes the order-making power to amend the definition of "customer information" subject to the affirmative resolution procedure, as recommended by the Delegated Powers and Regulatory Reform Committee of this House in its 16th report. I beg to move.

On Question, amendment agreed to.

[Amendment No. 232 not moved]