Proceeds of Crime Bill

HL Deb 25 March 2002 vol 633 cc12-30

3.8 p.m.

Lord Rooker

My Lords, I beg to move that this Bill be now read a second time. This is a highly complex and technical Bill. It comes to us from the other place where it received thorough and detailed scrutiny over several months. It runs to 304 pages and contains 454 clauses and nine schedules, many a repetition of the same issue so that Scotland and Northern Ireland are dealt with in the same way as England and Wales.

The huge profits made from crime are often flaunted and give force to the old saying, "Crime pays". This causes deep offence to hard-working and law-abiding members of the community and it makes harmful role models for our young people. Above all, the proceeds of crime provide the working capital for future criminal enterprise. Recovering the money must therefore be an inherent part of our crime reduction strategy.

The June 2000 report from the Government's Performance and Innovation Unit leaves no doubt that far too many defendants pass through the criminal justice system with little or no effort being made to deprive them of the benefit they derived from their crimes. Police and Customs experts believe that following the money trail provides an effective route to identifying major criminals and disrupting criminal organisations as well as relieving crooks of the proceeds of their crimes.

I am not asking for approval of this important legislation—voluminous though it is—in isolation. It must be supported by other action, the first of which is on resources. Very little priority has been given to financial investigation and the recovery of criminal assets. The Government have therefore made money available in the current settlement period to fund 86 additional financial investigator posts for the police service in England and Wales.

Next, we need action on expertise. This is extremely complex work demanding the right skills—people properly trained in financial investigation and prosecutors and judges equipped to deal with difficult cases. Moreover, we need action on international cooperation. Criminals use national boundaries to protect both themselves and their money. Improvements made by the Bill will apply to the recovery of money generated by crime overseas as well as by domestic crime. We can also make better practical use of powers and procedures, both now and in the future. The Government have set themselves a target of doubling receipts from the proceeds of crime. In real money, the target is £60 million in three years' time. The Government and the law enforcement and prosecution agencies have drawn up a strategy, which has been published, for achieving that goal.

As we are asking the House to approve a large tranche of new legislation in this Bill, I should briefly describe some of the problems with current legislation. We have identified some weaknesses. The first is that the separate treatment of drug trafficking from other criminal activity makes current legislation ineffective in dealing with today's versatile criminal entrepreneurs. When dealing with such criminal groups, it is often impossible in practice to distinguish between the proceeds from drug trafficking and their other activities.

Furthermore, modern technology makes it possible to transfer money from one bank account to another, or from one country to another, at the touch of a button. We must have powers to track such transactions. Currently, even if investigators locate the assets, they have no power to freeze them until the defendant is about to be charged. By then, the defendant will often have realised that he—sometimes she—is under investigation and will have placed the assets beyond reach. The complexity of the confiscation system deters the courts and practitioners. In fact, the system produces only about 1,100 confiscation orders annually, compared with 65,000 defendants found guilty of offences in Crown Courts. Furthermore, the enforcement process is ineffective. Only 40 to 50 per cent of the value of confiscation orders granted is actually recovered.

Another problem is that many major criminal figures have become untouchable by prosecution and confiscation. They organise or finance the criminal activity of others and then profit from the results. Subsequently, they are subject to our current processes, but, as I said, are almost untouchable. In many such cases, law enforcement has compelling evidence that assets were derived by unlawful activity. That evidence is often supplemented by evidence that property has been concealed, or by the absence of any rational explanation for the legitimacy of a person's assets. The Bill addresses that key issue.

The Bill comes to your Lordships' House from the other place in fairly good shape. It was substantially debated for more than 115 hours, including 96 in Committee and more than 10 on Report. Some 28 distinct aspects of the Bill have been amended and there are a number of issues on which, in response to points raised in another place, we shall be bringing forward further amendments for your Lordships' consideration. I shall comment on some of those later. The Government are grateful to the Joint Committee on Human Rights and to the Delegated Powers and Regulatory Reform Committee of your Lordships' House for their reports. I shall comment later on some of their findings.

First, however, I should like to outline what the Bill will do. Part 1 establishes an assets recovery agency which will be dedicated to recovering the proceeds of crime. The agency will share the confiscation functions of the law enforcement and prosecution authorities. It will also have sole authority to operate the civil recovery procedures in England and Wales and Northern Ireland under Part 5 of the Bill, and will exercise taxation functions throughout the United Kingdom under Part 6. I shall deal with that point separately. The agency will also train and accredit financial investigators, who will then be able to apply their skills in their own organisations. The agency director will be accountable to the Home Secretary although he will act independently on all the cases he handles. We envisage that the agency will be staffed by a multidisciplinary team of between 100 and 150 people including investigators, lawyers and accountants.

Part 2 sets out a consolidated scheme for restraining and confiscating the proceeds of crime in criminal proceedings following a conviction for any acquisitive offence. Parts 3 and 4 contain similar procedures for Scotland and Northern Ireland. As I said, there is a good deal of repetition of the issues in the Bill, for reasons which will be clearly understandable.

The power to restrain the assets of a suspect will be made available at an earlier stage, from the start of a criminal investigation instead of at the point a charge, and applications will be heard by the Crown Court instead of the High Court as at present. Normally, a confiscation order will reflect the convicted defendant's benefit from his particular crime. However, when the defendant has a criminal lifestyle, the confiscation order will reflect his benefit from his general criminal conduct—that is, all criminal conduct committed by him.

A defendant has a criminal lifestyle in cases in which he is convicted of drug trafficking, money laundering or other specified offences. We have placed in the Library a list of the types of criminal conduct that we believe should normally be indicative of a criminal lifestyle. In response to debate in the other place, we shall be bringing forward in Committee a new schedule listing criminal lifestyle offences. We shall also consider amending the power to add further offences by use of the affirmative resolution procedure, as recommended by your Lordships' Delegated Powers and Regulatory Reform Committee.

The Bill identifies two other criteria for a criminal lifestyle: when a single offence is committed over a period of at least six months, for example a conspiracy; or when an offender is convicted of three or four offences from which he has benefited. I should say a few words about the assumptions. When a defendant has a criminal lifestyle, the court must assume that assets held since conviction regardless of when they were acquired, and property transferred to the defendant or expenditure incurred by him during the six years before criminal proceedings, represented the proceeds of crime. The Joint Committee's report appeared to accept the public policy arguments for applying the assumptions in drug trafficking cases.

The Joint Committee has, however, questioned applying the assumptions in other cases, arguing that the criminal lifestyle criteria are too widely drawn.

We have carefully examined this issue, but we currently do not consider that the Joint Committee has given sufficient weight to the substantial safeguards that the Bill provides, or to the recent judgment of this House in the Rezvi and Benjafield cases. As I said, this is not new in principle. Similar challenges against the use of the existing assumptions procedure in drug trafficking cases were rejected by the Privy Council in McIntosh, in February 2001, and by the European Court of Human Rights in Phillips, in July 2001. In the Bill the court must not apply the assumptions if the defendant shows them to be incorrect, or if doing so would give rise to a serious risk of injustice. The courts have regarded these safeguards as sufficient to ensure compliance with human rights.

I should also deal with the provisions on the family home, which is treated differently as between England, Wales and Scotland. The Joint Committee on Human Rights argued that the provisions in Part 3 which place certain limits on the realisation of a family home in Scotland should apply in the rest of the United Kingdom. Parts 2 and 4, which apply to England and Wales and Northern Ireland respectively, require a family home to be confiscated when that is necessary to satisfy a confiscation order in the same way as any other property liable to confiscation. Part 3, which applies to Scotland, empowers the court to refuse realisation of a family home when the authorities are unable to prove that it was acquired with the proceeds of crime. This reflects other provisions in Scottish law that restrict access to the family home in certain types of proceedings. The two provisions are different, but the Government are satisfied that they are both consistent with our obligations under the European Convention on Human Rights.

Part 5, on civil recovery, empowers the director of the agency to sue people in the High Court for the recovery of property derived from unlawful activity. This is a civil action to which civil rules and procedures will apply. In Scotland, Scottish Ministers will be responsible for civil recovery and proceedings will take place in the Court of Session.

It is important to take on board the fact that the prosecution of criminals must always take priority—that is a key element—and it will continue to do so. However, it is not acceptable that ownership of the proceeds of crime should remain immune from any form of legal challenge where criminal proceedings are not available. The director will have access to the investigation powers in Part 8 of the Bill, prior to the start of litigation. If the court is satisfied that he has a good, arguable case, he will be able to seek an interim receiving order that freezes the property, pending the outcome of the case, and places it under the control of a court-appointed receiver. Civil recovery will not seek to establish guilt or innocence but will focus on whether particular property is, or represents the proceeds of, unlawful conduct.

The scheme contains substantial safeguards, as everyone will expect. The burden of proof will be on the director. There will be a financial threshold below which proceedings will not be initiated and we expect to set that at not less than £10,000. Civil legal aid will be available and where the director loses, the court will be able to order him to compensate respondents for any financial loss they have incurred.

There is a substantial and detailed protection for people who show that they have purchased property in good faith for full value and without notice of its tainted origins and for other innocent interests. In the light of all those safeguards the Government are confident that the civil recovery provisions are compatible with the European Convention on Human Rights.

Lord Carlisle of Bucklow

My Lords, the Minister has said that there is to be a limit of £10,000. Is that merely to relate to the part of the Bill that deals with recovery or will it also relate to confiscation under the Crown Courts?

Lord Rooker

My Lords, I shall take advice on that. Effectively, it will operate de minimis, so that we do not go after trivial amounts. The sum of £10,000 is not trivial but in the scale of rampant organised criminal activity, for which there are substantial benefits, £10,000 is chicken feed and therefore can be regarded as trivial. It will operate de minimis, and it may cover both aspects raised by the noble Lord. If I am incorrect, my noble and learned friend the Attorney-General will correct me when he replies to the debate.

We have looked carefully at the Joint Committee's suggestion that civil recovery will amount to a criminal penalty under the ECHR. However, we continue to believe that a better view is that civil recovery is a civil remedy.

In reply to the question raised by the noble Lord, Lord Carlisle of Bucklow, there is no limit to criminal confiscation. In effect, the £10,000 would not apply to criminal confiscation. There is no limit for criminal confiscation.

Lord Goodhart

My Lords, I am grateful to the Minister for giving way. The Explanatory Notes in reference to Clause 305, on the minimum amount, state: The current level in respect of the forfeiture of … cash … is £10,000 or more and the Government intends that the same level should be imposed in respect of this scheme".

Lord Rooker

My Lords, that does not relate to the criminal confiscation aspect to which I referred earlier. I shall take further advice and I shall return to the matter later if necessary. I do not believe that that note applies to the relevant part of the Bill.

Part 5, on cash forfeiture, provides for the extension of current powers to forfeit cash in magistrates' court proceedings. At present, cash forfeiture is only available in relation to drug trafficking and terrorism, and, where drug-related cash is concerned, only for cash discovered at external borders. Police and Customs report that they regularly discover cash in-country which they know or suspect to have been derived from or to be intended for use in criminal activity, but where no intervention is possible under current powers. The Bill will empower police and Customs to seize cash discovered anywhere in the United Kingdom. They would then be able to seek its recovery in civil proceedings.

To ensure that the powers can be exercised effectively, the law enforcement authorities will need to be able to search for suspect cash where they believe an individual is carrying it, or that it is on premises where they are lawfully present. Part 5, therefore, establishes a new search power for that purpose, with appropriate and substantial checks and safeguards.

Part 6 deals with taxation of the proceeds of crime. It gives the director taxation powers. Experience overseas has shown that taxation is a powerful tool for recovering criminal assets. The agency will be better placed than the Inland Revenue to deal with cases of this kind because it will have as its focus the reduction of crime and will use the taxation system to this end, whereas the Inland Revenue has as its focus the effective and efficient collection of tax.

The director will, with one exception, apply all normal Inland Revenue rules and practices. The exception is that, unlike the Inland Revenue, the director will be able to raise an income tax assessment even where he cannot identify the source from which the income has derived. The director will be required to treat tax information with the same confidentiality as the Inland Revenue, and the same avenues of appeal and complaint will be available. Part 6 will have no impact whatever on ordinary taxpayers, who will continue to be dealt with by the Inland Revenue. Tax evasion cases will not fall within the purview of the director. They will remain under the present system.

Part 7 deals with money laundering. The Bill updates and unifies the existing money laundering offences. There are three substantive offences: first, concealing, disguising, converting or transferring criminal property; secondly, assisting another to launder criminal property; and, thirdly, possessing, using or acquiring criminal property.

The distinction in current legislation between laundering drug proceeds and laundering other criminal proceeds has been removed. Furthermore, we have removed the distinction between the laundering of one's own proceeds and the laundering of another's proceeds. Those artificial distinctions have contributed to the small number of prosecutions. There were only 129 in 2000, and, as I said earlier, there was a low rate of just 50 convictions out of those 129 cases, or 39 per cent.

It will be an offence for a person working in the regulated sector, who knows or suspects that another person is engaged in money laundering, to fail to report that knowledge or suspicion to law enforcement. The offence will also be committed if the defendant had reasonable grounds to know or to suspect that money laundering was taking place. But the court will be required to take account of whether a defendant complied with industry guidelines, provided that the Treasury has endorsed them.

We think it reasonable to expect people working in regulated areas to work to certain standards of competence and vigilance. But we accept the argument made in another place that staff at any level who have not been properly trained by their employer should have a defence against the negligence offence, and that now appears on the face of the Bill. In addition, we shall consider further the Delegated Powers and Regulatory Reform Committee's points on tile power to amend the definition of the regulated sector and will return to the issue in Committee.

In Part 8 the Bill provides powers, subject to court approval, for tracing and investigating suspected criminal assets. Those powers will include a new customer information order, requiring banks to inform the investigator if they hold an account for a person under investigation; and an account monitoring order requiring banks to inform the investigator of movements of such an account over a period. Civilian staff working for the police service and government departments and agencies will a so have access to investigation powers, provided they have been trained and accredited by the agency as financial investigators.

Part 8 also gives the director (in Scotland, the Lord Advocate or the Scottish Ministers) a new power—a disclosure order—to require persons to answer questions and to provide information. That is based on the similar power already available to the director of the Serious Fraud Office. Information given under compulsion will not be admissible in criminal proceedings against that person, but it will be admissible against that person in confiscation or civil recovery proceedings.

Part 9 governs the relationship between confiscation and insolvency proceedings. Part 10 regulates the disclosure of information to and by the director, the Lord Advocate and the Scottish Ministers. All disclosures made under Part 10 will he subject to the Data Protection Act and the Regulation of Investigatory Powers Act. Part 11 will enable Orders in Council to be made to enable overseas requests for the freezing and recovery of criminal assets to be executed and for the exercise of the powers in Part 8 of the Bill on behalf of overseas jurisdictions.

Before concluding, perhaps I may turn to the point raised by the noble Lord, Lord Carlisle. Our intention is that the order which sets the threshold for the cash forfeiture and criminal recovery proceedings will be £10,000. No limit is intended for the criminal confiscation under Parts 2, 3 or 4. That is the distinction. I am sorry if my original answer was not clear.

In conclusion, the Bill is innovative. It is not a surprise to anyone; it has been around for a considerable period of time—even before, I think, the last election. It strengthens the law substantially. We make no bones about that. But we believe that it is fair and proportionate to the issues we have to address. We have taken account of experience both here and abroad and of the many consultations last year and have made many changes in the light of consideration by the other place, which spent a substantial amount of time debating the issues. We believe that the Bill will be practical and workable, and the extensive debate has reinforced that view.

I commend the Bill to your Lordships' House. With my noble and learned friend the Attorney-General, I shall be responsible for the Bill in Committee. My noble and learned friend will wind up the debate. I regret that due to other circumstances, I shall be unable to be present when the debate resumes following the Statement. I shall ensure that I have read everything before we begin the Committee stage.

Moved, That the Bill be now read a second time.—(Lord Rooker.)

3.32 p.m.

Baroness Buscombe

My Lords, it gives me great pleasure to open this Second Reading debate on behalf of Her Majesty's Opposition. The Proceeds of Crime Bill introduces new powers and enhances existing and anti-terrorism measures to crack down on terrorist finance and organised crime. It is an important Bill and deserves careful consideration by your Lordships.

We are broadly in favour of the Bill. Indeed, we take exception to the statement by the Prime Minister, during Prime Minister's Question Time on 13th March 2002, while referring to the Bill, that, many of its provisions are being opposed by the Conservative party in Parliament".—[Official Report, Commons, 13/03/02; col. 881.] This was an entirely inaccurate statement from a Government who felt discomfort, even angst, in the face of on the whole very constructive criticism from all sides, including the government side, during the passage of the Bill in another place. If we cannot pass comment and probe, what on earth are we here for?

Indeed, for me the most telling comment came in another place from the honourable Member for Glasgow, Pollock, at col. 589 of the Official Report, Commons, when he referred to your Lordships as, the old boys along the corridor". While "a boy", I suspect that the Minister would take equal exception to that although perhaps we should be glad to hear signals clearly indicating that Members of another place are so conscious of the influence of this House.

I am pleased to say that Her Majesty's Opposition made many helpful suggestions and comments during the 39 sittings in Committee and on Report resulting in significant improvements to the Bill. That said, we have work to do in your Lordships' House and I hope that my contribution today will signal a will and a wish to assist the Government in producing a workable and effective piece of legislation.

In general terms, the Bill seeks to consolidate and build upon the confiscation regime which was introduced by the former Conservative government in the form of various Acts of Parliament passed in the mid-1980s. It was the proceeds of drug trafficking which initially concerned the legislators but other types of offence came to be covered by other statutes. Civil recovery of assets not dependent upon any criminal conviction became a reality in the 1990s.

In many respects, the Bill is a work of consolidation not only of criminal procedures but also of civil recovery procedures set up by the Conservative government. While this is not the time for a detailed exposition of our proposed amendments, I want to flag up some of the themes which will govern our approach. I begin by asking three questions. First, does the Bill as drafted provide a practical framework for those seeking to use its procedures? We suggest that some of its provisions do not yet reflect—we hope that they will—a full appreciation of the realities of practice. Secondly, by means of the Bill, is the Government's true aim the deterrence of crime and punishment of criminals or merely the raising of revenue? We suggest that those two aims do not necessarily go hand in hand. Thirdly, bearing in mind the potential impact of the provisions of the Bill on those innocently caught up in the proceedings—for example, dependants of drug dealers—are their legitimate interests and rights adequately catered for in every respect?

I turn to Part 1. It concerns the setting up of the assets recovery agency which is to be responsible for the administration of the new confiscation and recovery regime. Importantly, under Clause 3 the new body will be responsible for the accreditation and training of financial investigators. It is hoped that the wealth of knowledge and experience accrued by those who have until now been responsible for financial investigations will not be lost. For example, in drugs offences financial investigations are carried out by police officers with practical experience in the detection of drugs crimes. A similar point is made with regard to existing databases in the control of the Financial Services Authority and the Serious Fraud Office.

The recovery of assets must not become merely an exercise in arithmetic. It should be targeted effectively at those persons who have either made significant gains from crime or those whose financial diminution or humiliation would destroy or damage a known criminal network. Such knowledge can come only from officers who have worked in the field, we suggest, and must continue to play a part in the judgments of financial investigators. In short, we very much hope that the establishment of a new authority with newly accredited investigators will not represent year zero in terms of financial information about criminal activity.

Part 2 sets out the criminal confiscation regime for England and Wales. We have abiding concerns about the drafting of Clause 6. This clause relates to the making of confiscation orders by the Crown Court wherein the court must proceed to a determination of assets if the prosecution simply asks the court to proceed or if the court believes that it is appropriate so to do. Reassurances by the Government in another place that the court's discretion is somehow preserved are not enough in our view. Under Clause 6(3)(a) the prosecution is the gatekeeper of this procedure not the court. We shall seek to reverse that role. This is particularly important when bearing in mind that at the end of the day the assets recovery agency will need only the lesser burden of proof—on the balance of probabilities—to win rather than the higher standard of evidence required in a criminal court.

Further, there are many cases where defendants with no background of drug dealing admit to supplying to friends on a small-scale basis with the aim of feeding their habit. Counsel for the prosecution and the judge will no doubt sensibly take the view that the commencement of confiscation proceedings under the Bill would be a costly and futile exercise. Contrary to the general rule—for example, the court's power to stop a case for insufficient evidence—the court will have no discretion to avert the commencement of proceedings. All that is needed is an over-zealous investigating officer and a time-consuming exercise is then embarked upon with the judge being powerless to stop it.

The new procedure does not just cover drug dealing. The point made by my honourable friend the shadow Home Secretary during the Second Reading debate in another place that the process of confiscation may be started although a person may have committed only three exceptionally minor offences for gain over the previous six years remains unanswered. In our view, it is unanswerable.

It is timely to ask this question. Is the subjugation of the court's discretion compatible with the European Convention on Human Rights? We believe that it is not. As the proceedings would be criminal proceedings within the meaning of Article 6 of the convention, can a court whose discretion can be potentially fettered in the way I have described be properly regarded as "independent" within the meaning of Article 6(1)? We have doubts. The same point is made in respect of Clauses 94 and 161, relating to Scotland and Northern Ireland respectively.

Moving on, the court has a duty to decide whether the defendant has a criminal lifestyle. The condition of a criminal lifestyle will apply only if one of several tests is met. including one specified by the Secretary of State in regulations under Clause 75. It is our belief that those regulations should be subject to affirmative resolution procedures. I was pleased to hear today that the Minister agrees with that point and will introduce the change at Committee stage.

A further concern centres on the definition of "defendant's benefit" from the proceeds of crime, referred to in Clause 9. The calculation of the benefit figure is vitally important because it determines the amount of money to be confiscated from the realisable assets of defendants. Although we accept that Clause 9(3) appears in one respect to exclude the prospect of double recovery by excluding from benefit any amount ordered to be paid under previous confiscation orders made under the old regime, the Bill does not address the danger of double recovery in, for example, a drugs case in which the defendant's benefit is taken to include the purchase price of the drugs already confiscated.

We accept that under the present regime the figure of benefit calculated and presented to the, courts pursuant to, for example, Section 11 of the Drug Trafficking Act 1994, will include the estimated purchase price of the drugs seized. However, we suggest that the Bill represents an opportunity to ensure that the system is fair and reflects common sense. A right-thinking observer would be justified in thinking that the term "benefit" may more appropriately be applied to the acquisition of goods, property and services by those who have made crime their business, rather than to the trade itself.

There may be some attraction in the argument that the inclusion of the purchase price of the goods seized, whether drugs or some other form of contraband, will serve to increase the potential amounts to he confiscated. However, the primary purpose of the Bill must be to ensure the effective punishment of offenders. We make no apology for conceding that, to be effective, the punishment needs to be lair and realistic. Alternatively, it may be reasonable for the prosecutor to include the estimated cost of the drugs or contraband as part of the estimated benefit where the goods or drugs themselves have not been seized by the authorities. Precisely the same points are made in other clauses about Scotland and Northern Ireland.

Parts 3 and 4 set out the criminal confiscation regime for Scotland and Northern Ireland respectively. I should say now that my honourable friend's efforts to ensure consistency of approach in all parts of the United Kingdom did not go unrewarded in another place. Unfortunately, however, consistency did not always go in the right direction, as in the case of the courts' discretion enjoyed in Scotland when deciding whether or not to proceed with a case at the behest of the prosecutor.

Further, in one key respect, there remains an inconsistency of approach regarding disposal of family income. Clause 101 provides welcome safeguards over the homes of families of those in Scotland who have profited from crime, to the extent that those who are innocent of any crime do not suffer unduly as a result of these provisions. We strongly believe that those safeguards should be extended to families in England. Wales and Northern Ireland, and new clauses will be tabled to that effect.

Part 5 of the Bill will give the director of the assets recovery agency power to bring civil proceedings to recover property that is, or is represented to be, obtained through unlawful conduct. The basis of such proceedings is "unlawful conduct", defined in Clause 249 as, Conduct occurring in any part of the United Kingdom is unlawful under the criminal law of that part". Conduct that occurs in a country outside the United Kingdom and is unlawful under the criminal law of that country and would be unlawful under the criminal law of the United Kingdom is also unlawful conduct.

If the conduct is not criminal, there can be no proceedings in the civil courts to recover property that is or represents property obtained through unlawful conduct. Proceedings for the recovery of such property plainly relate to a criminal offence, albeit in the civil courts.

Article 7 of the European Convention on Human Rights provides: No one shall be held guilty of any criminal offence on account of any act or omission which did not constitute a criminal offence under national or international law at the time when it was committed, nor shall a heavier penalty be imposed than the one that was applicable at the time the criminal offence was committed. This article shall not prejudice the trial and punishment of any person for any act or omission which, at the time when it was committed, was criminal according to the general principles of law recognised by civilised nations. In my opinion—I look forward to the Attorney-General's opinion when he responds to this debate—this clause will result in a heavier penalty being imposed in respect of a criminal offence. We respectfully suggest that if the criminal offence was committed prior to the Bill coming into force, there would be a breach of Article 7. That view is supported by the Joint Committee on Human Rights, which stated in paragraph 26 of its 11th report: In accordance with its views on the classification of civil recovery proceedings, the Government consider that they are not proceedings for a criminal offence or a penalty, and so do not engage the right to be free of retrospective penalties under ECHR Article 7. For reasons which we have already developed, we disagree. The Government accepts that, if it is wrong on the classification issue, the civil recovery provisions would violate ECHR Article 7 because of their retrospective operation. We draw this matter to the attention of each House. This Bill seeks to impose a heavier penalty for an offence committed before it comes into force than that which was applicable when the relevant offence was committed. It is the penalty that is relevant rather than the procedure, which merely happens to be in the civil courts. Surely, therefore, that is a breach of Article 7. Since we do not want to obstruct the key objectives of the Bill, that is a real concern. We want to see those who have committed criminal offences deprived of their ill-gotten gains.

I draw your Lordships' attention to a recent newspaper article accusing me and other Peers of obstructing the fight against drug-related crime. In relation to this Bill and in all other respects, my response is that no one is more committed than I am to fighting drug-related crime. As a responsible Opposition, we are asking Ministers whether this route requires unlawful conduct of another kind; namely, a contravention of the European Convention on Human Rights. If that is so, I hope that your Lordships will agree that we must work to overcome that obstacle.

We have additional concerns about Part 5 regarding rights of compensation, particularly the costs incurred by innocent third parties as a result of interim receiving orders and interim administration orders.

Part 7 of the Bill deals with money laundering. We greatly support the objective of tightening up and consolidating existing legislation by creating five money-laundering offences: concealing, disguising or converting criminal property; entering into an arrangement suspected to facilitate the acquisition, retention, use or control of criminal property; acquiring, using or possessing criminal property; failing to disclose suspicions that another person is engaged in money laundering; and making a disclosure likely to prejudice any investigation that might be conducted following the disclosure of suspicions—known as "tipping off".

We have concerns in Part 7 with regard to both retrospectivity and the reversal of the onus or proof, the latter appearing to become a feature of our law, which is regrettable.

We shall table amendments designed to tighten up the loose drafting of Clause 330 and remove from its ambit those who act in good faith and take a genuinely different view of someone else's conduct from that taken by the state or a court.

It must be remembered that we are dealing in the regulated sector with professional people who, in all fairness, may know a good deal more about the often extremely complex subject than a police officer or even the fraud squad. To say that someone is a criminal because they have reasonable grounds for suspecting that someone else is, is to go too far. It is right to add that for an innocent professional man or woman arrest and all its consequences, possibly including loss of employment, can be as damaging as a conviction. We should be mindful of that, no matter how much some honourable Members from the Government Benches in another place may wish to see all accountants and lawyers suffer.

It is also pertinent to draw your Lordships' attention to a comment made by the British Bankers' Association which, while welcoming the Government's intention to consolidate and simplify the money-laundering offences, has reservations. It has some difficulty in accepting the statement that, persons who are employed in the regulated sector should be expected to exercise a higher level of due diligence in handling transactions than those employed in other businesses … In particular, we firmly believe that criminal sanctions for negligence should not be extended to junior staff". We accept that the Government have now included a defence to the offence of failing to report knowledge or suspicion of money-laundering that a person had not been provided with relevant training. However, we remain curious to know how the proposed order will define and spell out the "relevant training".

I entirely understand where the Government are coming from; co-operation by banks will be fundamental to the success of many investigations into money laundering. However we want to use the Committee stage of this Bill to understand its true scope, not least because we have been approached by a number of organisations, including the Law Society, the Institute of Chartered Accountants and the Chartered Institute of Taxation, all of which continue to have a number of concerns relating to the disclosure of information.

Again we do not object in principle to Part 8, which relates to investigations. However, we shall bring forth amendments to give clarity and, in some instances, endeavour to assist effective implementation of the Bill. For example, with regard to Clause 338, we feel that the definition of "judges" is very broad. Indeed, Crown Court judges are given very little, if any, training in fraud, money laundering and bank procedures. I am told of a recent case where a circuit judge, hearing fraud trials at a specialist trial centre at Southwark. London, had never heard of coded interbank communications by Key Tested Telex; had never seen a copy of the Banker's Almanac, and thought a hank would confirm the genuineness of a 100 million dollar instrument over an open telephone line to a third party not named on the instrument.

Part 9 deals with the interaction between insolvency law and the criminal confiscation legislation. The Bill excludes property subject to, inter alia, a restraint order from a bankrupt's estate. The effect is that if a restraint order is made, the property which is subject to that order is not available to be distributed among the bankrupt's creditors. Property in respect of which a receiver or an administrator has been appointed under this Bill is excluded from the bankrupt's estate as well. The effect is that any property subject to a restraint order or where a receiver or administrator has been appointed goes first to satisfy any confiscation order rather than being distributed to creditors. Indeed, similar provisions apply in relation to Scotland and Northern Ireland.

We believe that those provisions will be unfair to creditors. Those creditors are likely to be entirely innocent of any offence or wrongdoing and may even be a victim of the very crime committed by the bankrupt in respect of which a restraint order has been made. Under existing law, creditors share in a bankrupt's estate equally subject, of course, to the rights of preferential creditors such as the Inland Revenue, which always has the first bite of the cake. Equality is fair and just in those circumstances. Even the victim of a crime shares equally with other creditors. The provisions in this Bill give priority to the assets recovery agency or the prosecutor and give him the first bite of the cake, and the first bite may be the only bite. The agency may well have the whole cake, leaving nothing over for the innocent creditors.

It may even turn out that the victim of the very offence giving rise to the confiscation order fails to obtain compensation out of the bankrupt solely because of the confiscation order. Let me give an example. A serial fraudster may well defraud many people in the course of his unlawful business. Some of those whom he defrauds may lose all their savings. They may, however, realise that they are being defrauded and sue the fraudster for damages. They may even obtain a freezing order restraining the fraudster from disposing of any of his property. In the normal course those victims will obtain judgment. They will be able to bankrupt the fraudster and will be paid a dividend in the bankruptcy. They may not recover all they have lost because they will have to share the bankrupt's estate among all those who have been defrauded and other creditors. But at least they may get some of their money back.

However, if the agency applies for a restraint order, the property subject to that order is excluded from the bankrupt's estate. Property subject to the restraint order could comprise almost all the assets and money owed by the fraudster. All that will be excluded from his estate if he is adjudged bankrupt and will not be available to the victims of the fraud, nor will it be available to the fraudster's other creditors. That surely cannot have been intended by the Government.

We shall also bring forward amendments to those clauses regarding tainted gifts wherein innocent creditors, and even the victims of crime, will it seems lose out because tainted gifts will be dealt with under this Bill when it becomes law, rather than insolvency law. Those creditors will be unable to claim assets given away.

There is a good deal to consider in this Bill and I hope that I have succeeded in highlighting most of our concerns. We are looking forward to the Government bringing forward further changes during consideration of the Bill in Committee. In conclusion. I can do no better than repeat the words of Justice, the independent, all-party law reform and human rights organisation. In its briefing for today's debate it said: Measures such as those in the Proceeds of Crime Bill should be regarded as exceptional and can be justified only in relation to serious crimes and to the extent that they represent a proportionate response". Time will tell if the measures contained in the Bill have overstepped the mark. It is our duty to try and limit that possibility while empowering all those active in the fight against organised crime.

3.57 p.m.

Lord Goodhart

My Lords, as the noble Baroness just referred to Justice, I should perhaps start by declaring an interest as one of the vice-chairmen of the council of that organisation.

Liberal Democrats welcome the principle of recovering the proceeds of crime from those who obtained those proceeds. In deciding what are the proceeds of crime, we accept that the civil standard of proof may be appropriate rather than the criminal standard. We welcome the principle of civil recovery orders under Part 5, and the provision for restraint orders and interim receiving orders to reduce the possibility of assets disappearing as soon as the criminal becomes aware that he is being chased.

The attacks reported in a Scottish newspaper this morning on the noble Baroness, Lady Buscombe, and on my noble friend Lord Thomas of Gresford, as being people who want to block this Bill, are completely misleading and totally unjustified. But that does not release us from our duty to scrutinise the Bill, and I have to say that the powers in the Bill are draconian. Those powers must be exercised with restraint; they must be proportionate; they must not be exercised so as to create injustice. That is a difficult tightrope to walk.

We need to know what is the philosophy behind the Bill. Are confiscation and recovery orders a kind of punishment? Alternatively, are they akin to civil judgments for damages? That is a significant question, particularly when we are considering whether, for the purposes of the Human Rights Act, recovery orders under Part 5 form part of civil or criminal proceedings. It is clear that the way in which they are described in the Bill is not conclusive of the answer to that question. To me, they certainly look more like criminal than civil proceedings; they are plainly intended to have a deterrent effect. Nor are they, in any ordinary sense, compensation for any loss suffered by the state.

I suppose it could be argued that citizens have a duty to the state to lead law abiding lives and must account to the state for any profits made from a breach of that duty. That would be an interesting argument, but it would be inconsistent with the law of the United Kingdom as recognised not very long ago, for example, in the George Blake case. If that is not the argument and the Government are not saying that somehow there is a civil duty to account for the proceeds of crime, what is the basis for saying that Part 5 involves civil rather than criminal proceedings?

I shall now move on to the Bill itself. I am afraid that it convinces me that there is something wrong with the way in which we are now drafting Bills. It is elephantine. The confiscation of the proceeds of crime is an important subject, but does it really need 454 clauses and nine schedules spread over 304 pages? For example, the 88 clauses in Part 2, which relate to England and Wales, and the 87 clauses in Part 4, which relate to Northern Ireland, are nearly identical. I wonder whether they could be properly merged.

The layout is confusing; for example, Clause 6 imposes a basic duty to make a confiscation order. That duty is dependent on the concepts of the defendant having a criminal lifestyle and having benefited from criminal conduct. We then have to go all the way to Clauses 75 and 76 to find out the nature of those concepts. For civil recovery, Clauses 248 and 250 make it clear that the basis of jurisdiction is the recovery of property obtained through unlawful conduct. The clauses then proceed to define "unlawful conduct" and what is meant by, property obtained through unlawful conduct". But Clause 251 switches to the somewhat different concept of "recoverable property". It is not until we reach a group of clauses, starting at Clause 306, that the relationship between property obtained through unlawful conduct and recoverable property is explained.

The Bill will be seriously confusing to anybody who has the essential job of trying to interpret it. I do not like to criticise parliamentary draftsmanship because I know how difficult it is for parliamentary counsel to produce a really good result. But something has gone wrong in this Bill.

I shall now turn to the substance of the Bill and the concept of criminal lifestyle. Clause 75 lays down certain criteria. If those criteria are satisfied, the court then must conclude that the defendant has a criminal lifestyle, which gives rise to a series of problems. Let us examine the criteria. Under Clause 75(3)(b), for example, a person convicted of three minor shoplifting offences, over a period of six years will be treated as having a criminal lifestyle. If the prosecution seeks a confiscation order on the third occasion, the court must proceed with considering the order, and must assume that all the property belonging to the defendant is the proceeds of criminal conduct. Of course, the prosecution has a discretion as to whether or not to seek a confiscation order, but, if it decides to do so, the court is bound to go ahead. We believe that the court should have a power to refuse to hold that the defendant has a criminal lifestyle when it is satisfied that such a holding would be unreasonable in all the circumstances.

There is another, and perhaps even more serious, problem with the criteria. Clause 75(2)(c), as it stands, provides that conviction of any offence specified in regulations made by the Home Secretary establishes criminal lifestyle and triggers the confiscation proceedings. I greatly welcome the Government's undertaking to specify what I call "lifestyle offences" in a schedule to the Bill, and to make a power to add further offences exercisable only by the affirmative resolution procedure. That will properly deal with the issue.

Let us assume that a criminal lifestyle has been established. The court then has to go ahead and see what property has been derived from the defendant's criminal conduct. Under Clause 11 the court has to make a series of assumptions, which broadly lead to the conclusion that all the defendant's property is acquired as a result of criminal conduct and is, therefore, liable to confiscation. Those assumptions can he rebutted only if they are shown to be incorrect, or if there would be a serious risk of injustice if such assumptions were made.

I accept that a defendant who has a nice house, expensive cars and a lot of money should not be able to sit back and say, "You say that I have made all this from criminal conduct; prove it." Such defendants should have to explain the source of their property, how they came to acquire it, and where they got the money to buy their house and cars. If a defendant gives a credible explanation, the burden should be on the prosecution to prove that that explanation was not true; in other words, the burden of proof should be an evidential burden, rather than a persuasive burden. The Government accepted in a number of cases, especially under the Terrorism Act 2000, that that was an appropriate course of action when the burden of disproving was initially placed on a defendant. We believe that the same should happen in this Bill.

There are other problems with Part 2, but I shall not go into too much detail. First, why is a defendant required to claim legal aid for resisting a confiscation order, instead of paying for it out of frozen assets? Secondly, if a confiscation order is made, why does it take priority over the rights of bona fide creditors of the defendant? Thirdly, and I agree entirely with the noble Baroness, Lady Buscombe, on this, why does not the law of the rest of the United Kingdom contain the same restrictions on the sale of the family house as Clause 101 does in the case of Scotland? What is sauce for the Scottish goose should be sauce for the English, Welsh and Northern Irish gander.

Part 5 on civil recovery is controversial because it imposes a penalty where there is no criminal conviction. We accept that it should be possible to make a civil recovery order in the absence of a criminal conviction, but we share the doubts of the Joint Committee on Human Rights, and Justice as to whether, in reality, this is not a criminal remedy rather than a civil remedy; and whether, therefore, defendants should be entitled to the protection given to criminal cases under the European Court of Human Rights. As I said, the designation in the Bill of these proceedings as "civil proceedings" cannot be conclusive.

We need to examine closely the interaction between, on the one hand, proceedings under Parts 2, 3 and 4, and on the other hand those in Part 5. For example, if a defendant is prosecuted but acquitted of a criminal offence, can the enforcement authority still go for a recovery order, based on the same conduct, relying on the lower standard of proof in civil proceedings? If so, is that not double jeopardy? If the enforcement authority goes first for a recovery order—for example, because it is thought at some stage that a prosecution would be unlikely to succeed, or the defendant is abroad and unexpectedly returns—can the person concerned be prosecuted later for the criminal conduct that justified the recovery order, or would that also be a case of double jeopardy?

If the civil proceedings are in fact criminal under the European Convention on Human Rights, it would also seem that any attempt to claim recovery of the benefit obtained from unlawful conduct that occurred prior to the enactment of the Bill will fall foul of the rule against retrospective criminal penalties under Article 7. That point was raised by the noble Baroness.

We are also concerned at the separate system of taking summary proceedings for forfeiture of cash in magistrates' courts. I accept the need for a summary procedure for seizing cash as the first step in obtaining forfeiture, because seizure often has to be done quickly. But forfeiture is a different matter. Forfeiture of property on the basis of criminal conduct, but without a conviction, is a serious matter. It is inappropriate for that to be left to a magistrates' court. I recognise that at present there is power to seize and forfeit cash, which can be exercised by a magistrates' court. But of course there is no corresponding forfeiture proceeding in the form of a recovery order in the ordinary civil courts.

Now that there will he such a procedure, we believe that forfeiture of cash should be dealt with by the same court that has power to order forfeiture of other assets; namely, the High Court. That is particularly so because the minimum level for forfeiture of cash will be quite substantial. We are told that it will be £10,000, so we are not talking about peanuts. These are substantial sums of money. We cannot see the justification for having a different process for forfeiture of cash from that for forfeiture of other assets.

I have no problems with Part 6. Part 7 deals with money laundering. I have some problems with Schedule 6, which is concerned with the regulated sector having to provide the authorities with information if it suspects money laundering is going on.

Under Part 1 of Schedule 6, the definition of the regulated sector limits it to financial services. But Part 3 gives the Treasury power to amend Part I by way of resolution in the statutory instrument under the negative procedure. The European Union has adopted a directive that extends the reporting obligations to sectors such as solicitors and estate agents. We entirely support that move; indeed, it is absolutely right that there should be such an extension. However, this is an important step, and we believe that it should be achieved by the affirmative procedure. I am sorry that the Minister did not go as far as saying that the Government would do that. He simply said that this was a matter for further consideration in Committee. I know that the Law Society has a number of concerns relating to matters such as delays in getting clearances from the authorities. We shall want to probe that matter in Committee.

Part 8 gives extensive powers to obtain information. So far, there do not appear to be any serious problems, but that will need further detailed study.

Part 9 deals with insolvency. I entirely agree with the noble Baroness that, in the case of a defendant's bankruptcy, bona fide creditors should have priority of claim to the assets recovery agency. Of course there are some debts that may be bogus or manufactured in order to reduce the estate, but those can be spotted in a proper insolvency procedure. In fact, we would suggest that the director should have power to appoint a nominee as trustee in bankruptcy or in liquidation just for that purpose, in order to scrutinise the debts on the basis that the nominee has a basic knowledge of how criminals would operate in an attempt to create artificial debts.

Finally, we support the confiscation of the proceeds of crime. But the Bill will give the Government very extensive powers. We need safeguards to prevent the abuse of those powers, and we are not at present satisfied that enough safeguards exist.