Proceeds of Crime Bill

HL Deb 27 May 2002 vol 635 cc1051-112

3.14 p.m.

The Minister of State, Home Office (Lord Rooker)

My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.

Moved, That the House do now again resolve itself into Committee.—(Lord Rooker.)

On Question, Motion agreed to.

House in Committee accordingly.

[The CHAIRMAN OF COMMITTEES in the Chair.]

Clause 327 [Concealing etc]:

Lord Rooker

moved Amendment No. 255D: Page 191, line 22, at end insert "and (if the disclosure is made before he does the act mentioned in subsection (1)) he has the appropriate consent The noble Lord said: In moving Amendment No. 255D, perhaps I may explain the situation in relation to the letter dated 23rd May, which I sent to Members of the Committee last week, in regard to a group of amendments that the Government had tabled but which I indicated that I did not intend to move today because the Delegated Powers and Regulatory Reform Committee had not had an opportunity to look at them. I was wrong. The Delegated Powers and Regulatory Reform Committee has looked at key Amendment No. 265F. I discovered only this morning that the Delegated Powers and Regulatory Reform Committee had produced its 20th report giving its agreement to the proposal in respect of the procedure we intend to apply. That being the case, I intend to move Amendment No. 265F.

The group of amendments in which Amendment No. 265F is included, the seventh group on the list of amendments, is in that position on the list only because I had given notice that I did not intend to move those amendments on behalf of the Government. As I do now intend to move them, they should be grouped with the first group of amendments, which is where they were originally. My speaking note covers both groups of amendments and is fairly lengthy.

Another reason for seeking the approval of the Committee to proceed in this way is that we shall not come to Report stage for some weeks. It is very important that financial institutions outside the House are fully on board in regard to the procedure that the Government wish to use. There are some major changes.

As I said, we had already published the amendments but the Delegated Powers and Regulatory Reform Committee did not receive a memorandum from the Home Office, which is one of the reasons why we were not alerted to the fact that it had considered our amendments. The Home Office was not aware that the 20th report was available until someone checked the website of the Delegated Powers and Regulatory Reform Committee earlier today. That being the case, I hope that my lengthy exposition will be sufficient to satisfy the Committee. I shall go through each amendment in turn and underline the policy changes behind them.

The government amendments in this group—by which I mean the two groups joined together—deal with the giving of consent where a person reports a suspicion about a financial transaction either directly to a constable or a Customs officer, or, alternatively, to an officer nominated within his firm to receive such suspicious transaction reports. They also clarify more generally the role of the nominated officer in receiving all reports.

Taken together the amendments do three things. First, they deal with the precise role and functions of a nominated officer under Part 7 of the Bill. I may usefully explain here that businesses which fall within the regulated sector are required under the Money Laundering Regulations 1993, as amended, to identify or designate a person to whom employees may report any suspicion of money laundering. In practice, although there is no obligation on them to do so, several major companies and organisations outside the formal regulated sector also appoint "money laundering reporting officers", to whom employees can turn for assistance. This enables employees outside the regulated sector to avoid criminal liability under the existing principal money laundering offences by reporting to their nominated officer, rather than going directly to the law enforcement authorities.

We do not, however, consider that the Bill as presently drafted—which is based broadly on existing legislation—sufficiently clarifies the precise role and responsibilities of the nominated officer, both inside and outside the regulated sector. We consider that we should take the opportunity presented in the Bill to state explicitly what the role and responsibilities are in Part 7.

Secondly, in looking at the suspicious transaction regime, we have also decided to try to make reporting more efficient. In order to do this, we are seeking an order-making power which can be used to prescribe the form and manner in which reports must be made in some circumstances, and providing that certain reports must always be made to the National Criminal Intelligence Service. I shall refer to that point later in my remarks.

Thirdly, the group of amendments introduces time limits within which consent decisions must be made by law enforcement for the purpose of the authorised disclosure provisions in circumstances where an employee makes a suspicious transaction report before the transaction takes place. I should add that we have decided to revisit the issue of time limits, largely as a result of further consideration of the debates in Standing Committee in the other place. In particular, I draw the Committee's attention to cols. 1071 and 1072 of Hansard for 22nd January, when the issue of the time that it takes the National Criminal Intelligence Service to respond to reports it receives was raised for the first time.

I shall now refer to the amendments in some detail. As the groupings now stand—the first and second groups are now one—they contain amendments which are not government amendments, although the group contains predominantly government amendments.

Amendments Nos. 265B and 265D tabled by the noble Lords, Lord Goodhart and Lord Thomas of Gresford, are relevant to the government amendments as part of the package. They, too, seek to amend the authorised disclosure provisions by introducing a time limit after which an employee can safely proceed with a suspicious transaction if that person has sought consent but has not been notified of the decision. Amendment No. 265CA tabled by the noble Baroness, Lady Buscombe, the noble Lord, Lord Kingsland, and the noble Baroness, Lady Hanham, although drafted differently, appears to seek to achieve the same effect.

I should like to make it clear from the outset that, although I find the intentions behind the amendments commendable, I shall not be able to accept them, because the issue is dealt with more comprehensively in the government amendments in the group. Obviously, they have arisen from similar debates in another place; therefore, it is right that the Opposition and other parties flag up the position in this revising Chamber.

The group of amendments is lengthy, detailed and at times fairly complex. Therefore, perhaps I may take a little time to set out the Government's position. I shall outline the basic policy and the background to the amendments. I shall then take each amendment in turn and explain the purpose and significance of each. I hope that Members of the Committee will bear with me; it is important to place this on the record for those who are affected by our procedures and decisions here.

I shall, in due course, invite noble Lords who have tabled amendments to speak to them—indeed, it is for them to choose whether or not to do so. I am not precluding any speeches that they want to make by commenting on their amendments before they have had the chance to speak to them.

In respect of the policy outline and background, continued consideration of the practical workings of the Part 7 provisions has led us to conclude that a general tightening up of the nominated officer provisions would be very beneficial in ensuring that those concerned are clear about their obligations in this area, and in ensuring that it is clear where the responsibility for certain functions and offences actually lies.

The intended effect of the government amendments is to make sure that nominated officers pass on suspicious transaction reports to the law enforcement authorities. The intention is that nominated officers will act as a filter and will not pass on reports that genuinely cause no concern. However, we do not want nominated officers to be lazy or corrupt. A lazy or corrupt nominated officer may well commit some of the existing money laundering offences, but we thought it best to make specific provision for this situation in the Bill. Therefore, the amendments introduce three new clauses creating obligations on nominated officers.

The first new clause makes it an offence for a nominated officer in the regulated sector not to pass on to the National Criminal Intelligence Service information received by means of reports made under Clause 330, headed, Failure to disclose: regulated sector", which give them knowledge or suspicion, or reasonable grounds for knowledge or suspicion, that money laundering may be taking place. We think it right to include the objective mental element of reasonable grounds for suspicion in this offence. The employees passing the reports to the nominated officer under Clause 330 will be subject to the objective test. The nominated officer is supposed to be a highly trained person in a position of some responsibility, so it would not be right to subject that person to a lower test than the employees.

The second new clause makes it an offence for a nominated officer, regardless of whether or not he is in the regulated sector, to fail to pass on reports received under Clauses 333, dealing with protected disclosures, or Clause 334, dealing with authorised disclosures, which cause him to know or suspect that money laundering is taking place. This includes disclosures made in order to avoid committing a principal money laundering offence under Clauses 327 to 329 and voluntary disclosures. The mental element of this offence is knowledge or suspicion, in line with the mental element required to commit a principal money laundering offence.

We believe that it is right to make it an offence for a nominated officer not to pass on voluntary disclosures. Often, it will not be clear at the outset whether a disclosure is voluntary or mandatory. That is because a person commits a principal money laundering offence only if the property in question actually does constitute the benefit from crime. A person does not commit a principal offence when he suspects that property is criminal but it turns out to be legitimate. Also, where a firm has set up a nominated officer, it is right that the nominated officer should be required to act responsibly in relation to all disclosures made to him.

The third new clause relates to reports made to the nominated officer either inside or outside the regulated sector, before a suspicious transaction has taken place, in order to avoid committing a principal money laundering offence. The new clause prohibits the nominated officer from consenting to a transaction going ahead without the authorisation of the National Criminal Intelligence Service. This prohibition does not apply where the nominated officer is sure that the transaction is not suspicious. This is because the new clause refers to a "prohibited act": that means one of the principal money laundering offences—and, as I have stated, it is not possible to commit a principal money laundering offence if the property in question is legitimate. The new clause gives the prohibition teeth by creating a new criminal offence. This offence would be committed if a nominated officer, inside or outside the regulated sector, consented to a transaction taking place which he knew or suspected to be a money laundering transaction without first having sought authorisation from the National Criminal Intelligence Service.

During the lengthy and helpful debates on Part 7 in another place, there was a good deal of criticism of the National Criminal Intelligence Service and the time that it takes law enforcement to respond to suspicious transaction reports in cases where consent decisions are required. Arguments were put to us that practitioners are sometimes left in a difficult position. On the one hand, they are not able to proceed with the transaction for fear of committing a principal money laundering offence. On the other hand, they are not able to inform their customer why they cannot proceed with the transaction. That is a fundamental problem and a difficult situation that we must not place people in. Of course, they cannot tell the customer, because to do so would make them potentially liable to committing the tipping-off offence in Clause 331.

I emphasise, as was said in the other place, that this situation occurs in a relatively low number of cases—approximately 5 per cent—when a report is made in advance of the transaction taking place. In the other 95 per cent of cases, reports are made retrospectively—a transaction is proceeded with and a report is made as soon as practicable afterwards—so the consent issue does not arise.

Despite the lowish number of cases involved, we have concluded that it would be beneficial to those affected by Part 7 if we introduced time limits within which law enforcement must respond. That would provide them with greater certainty on how to handle various transactions.

In broad terms, we propose that if a suspicious transaction report is made before the transaction goes ahead, law enforcement will have seven working days from the day after the report is made in which to issue or withhold consent to proceed with the transaction. If the person who makes the report has not received a consent decision within the timescale, which would be described as the notice period, he or she can safely proceed with the transaction. If consent is withheld within the notice period, the law enforcement authorities will then have a further 31 calendar days from the day on which the consent is withheld in which to undertake further investigations with a view to obtaining a restraint order. This is referred to as the moratorium period. At the end of the moratorium period, the person who made the initial disclosure can safely proceed with the transaction. Of course, if the law enforcement authorities have obtained a restraint order during the moratorium period, the transaction will not be able to go ahead.

Where reports are made to the nominated officer, it is the nominated officer's responsibility to keep track of the time constraints and notify the employee when it is safe to proceed with the transaction. Noble Lords will see that the new clause on consent of nominated officers takes the time limits into account. A nominated officer will not commit an offence by consenting to a transaction going ahead if the relevant time limits have passed.

Some noble Lords may want to draw my attention to the fact that there is nothing to prevent the National Criminal Intelligence Service from consistently or automatically withholding consent on the final day of the notice period as a matter of course, whether or not it thought that it would be able to obtain a restraint order before the end of the moratorium period. Our answer is that, like any other public body, the National Criminal Intelligence Service must act reasonably and must comply with the European Convention on Human Rights. It would be acting unlawfully if it withheld consent without good reason. The idea of an unspoken policy within the agency of waiting until the last day before taking action to stop it would not be held as reasonable. It would not be reasonable behaviour for any public body, let alone in these circumstances. I do not say that we expect that to happen, but in any event consent could not be withheld for more than 37 days without a restraint order being obtained. This will be a major improvement on the present provision, in which no such time limit applies.

For the system to work well, we also need to ensure that suspicious transaction reports are made in a way that makes it easy to deal with them. We have dealt with that in two ways. First, we have tabled amendments that would ensure that all reports from the regulated sector or from nominated officers must be made directly to the National Criminal Intelligence Service rather than to any constable or customs officer. A lot of time is currently taken up with reports being passed from one law enforcement body to another in order to reach the right person. It is reasonable to expect those in the regulated sector and nominated officers to know about the National Criminal Intelligence Service and report directly to it.

We have also tabled an amendment introducing a power to prescribe the form and manner in which the reports must be made. We think that the prescribed forms would help to streamline the system. They would be beneficial for those making the reports and for those receiving them. Those making the reports would be clear as to what information it would be necessary to provide. That would assist law enforcement to process the reports more quickly in order to meet the proposed time limits. I had not appreciated that the Delegated Powers and Regulatory Reform Committee commented on that in its 20th report.

I hope that I have enunciated those issues as clearly as I can. I have stuck closely to the script, because the issue is crucial for people's well-being and for the financial services industry, which is a huge and complex industry that employs many thousands of people. People outside the House must be able to understand the reasons behind the amendments.

I shall now deal with the amendments in detail, starting with Amendments Nos. 265B and 265D. Amendment No. 265B is consequential on Amendment No. 265D, which would afford the protection of an authorised disclosure to employees in circumstances in which a disclosure requiring a consent decision was made two working days before they proceeded with the transaction. If they had not been notified of a consent decision within those two days, the authorised disclosure protections would apply.

Opposition Amendment No. 265CA, although drafted differently, has the same aim. It would afford protection to employees who carried out a transaction two days after making a disclosure if they were not acting contrary to any guidance received. The amendment implies that if no guidance has been received within two days, the authorised disclosure protections would apply. The amendments would achieve a similar effect to the proposed introduction of a seven working day notice period, which I have just outlined, but they would substantially reduce that period.

The decision to apply a seven working day notice period has been the result of considerable thought and consultation. It has been accepted by various government departments, by the National Criminal Intelligence Service and by other law enforcement authorities as an acceptable and practical time limit within which they could work effectively. While it would be commendable for consent decisions to be made in a shorter timescale, we must take into account factors that cannot be foreseen. For example, there may be instances in which inquiries need to be made of foreign jurisdictions before a consent decision can be made. That would almost certainly take longer than the two days proposed in the opposition amendments. However, in most cases—I would like to know why it could not be in all cases—it is more likely to be achieved within seven working days.

The issue is dealt with in greater detail by the government amendments, because we have the backup of parliamentary counsel to do a lot more detailed work on amendments than noble Lords or advisers outside this place can manage. For those reasons, it would not be wise of me to accept the amendments.

I shall run through the detail of the government amendments, because it is important. Amendments Nos. 255D, 256A and 256B are consequential amendments necessitated by the changes to the authorised disclosure provisions. They would make it clear, on the face of the three principal money-laundering offences at Clauses 327, 328 and 329, that an offence is not committed if an authorised disclosure is made before a suspicious transaction takes place and the person has the "appropriate consent". The definition of "appropriate consent" is dealt with in Amendment No. 262A, to which I shall turn shortly.

Amendments Nos. 260A and 260B are amendments to Clause 330 to take account of the refined disclosure provisions and the cases in which there is an order prescribing the form and manner in which a disclosure under Clause 330 is to be made. Accordingly, Amendment No. 260A takes out of Clause 330(4) the references to a constable, customs officer and nominated officer and instead refers to making "the required disclosure".

Amendment No. 260B inserts an additional subsection to Clause 330, which defines a "required disclosure" as being a disclosure to a nominated officer or to a person authorised by the director general of the National Criminal Intelligence Service which has been made in the form and manner (if any) prescribed under the new order-making power. This reflects the policy that disclosures in the regulated sector should be made directly to the National Criminal Intelligence Service rather than through a constable or customs officer. It gives those in the regulated sector the choice of either disclosing directly to the National Criminal Intelligence Service, which might be appropriate for sole practitioners, or disclosing to the nominated officer who will operate as a filter for disclosures to the National Criminal Intelligence Service.

Amendment No. 260K inserts a new clause, headed, Failure to disclose: nominated officers in the regulated sector". This new clause would make it clear that it is an offence for a nominated officer who receives a report under Clause 330 (the failure to disclose offence) to fail to pass on information about that report which causes him to know or suspect or gives reasonable grounds for knowledge or suspicion that it is related to money laundering, as soon as possible after the information comes to him. Subsection (5) specifies that the "required disclosure" which a nominated officer must make has to be made to the National Criminal Intelligence Service in the form and manner prescribed by the new order-making power.

Amendment No. 260L inserts another new clause, headed.

Failure to disclose: other nominated officers". This makes it clear that a nominated officer who receives a report under Clauses 333 or 334—in other words, a disclosure in relation to one of the principal money-laundering offences or a voluntary disclosure—commits an offence if the report makes him know or suspect that money laundering is taking place, and he does not disclose that information as soon as possible. The nominated officer is required to disclose to the National Criminal Intelligence Service. This new clause applies to nominated officers both in the regulated sector and outside the regulated sector.

Clause 332, which deals with penalties, would be updated by Amendment No. 261D to make it clear that the penalties for the two new offences which I have just outlined are the same as the penalty for Clause 330 (the failure to disclose offence).

For completeness, I should point out that the penalty for the offence in the new clause headed "Nominated officer: consent", where the nominated officer wrongly gives consent when he knows or suspects that an act is prohibited, is contained within that new clause at subsection (6).

Amendment No. 262A inserts another new clause which would define the parameters of "appropriate consent" for the purposes of the authorised disclosure provisions. This new clause includes the time limits which we consider it necessary to impose to ensure that consent decisions are made within seven working days. As I have said, this period is described as the "notice period". Where consent is withheld, the law enforcement authorities then have 31 calendar days in which to instigate restraint proceedings. This period is, as I said, described as the "moratorium period".

Amendment No. 262B inserts yet another new clause, "Nominated officer: consent". This new clause would make it an offence for a nominated officer to consent to a transaction going ahead if he knows or suspects that a transaction involves the laundering of criminal property and consents without authorisation from the National Criminal Intelligence Service. Subsections (3) and (4) of the new clause enable a nominated officer to give consent without authorisation if the time limit requirements at subsections (7) to (9) have not been fulfilled by law enforcement. A nominated officer does not commit an offence in giving consent to a transaction if he does not know or suspect that money laundering is taking place.

Amendments Nos. 265A, 265C and 265E are consequential on the rest of the proposed provisions relating to consent. Amendment No. 265A inserts a reference into Clause 334 to the new power to prescribe the form and manner in which disclosures must be made. At present, the consent of a nominated officer, a constable or customs officer is part of the general concept of an authorised disclosure. Amendments Nos. 265C and 265E remove those elements from Clause 334, as there will now be some instances—by virtue of Amendments Nos. 262A and 262B introducing time constraints on law enforcement—in which a person can do the prohibited act without consent. This also necessitated Amendments Nos. 255D, 256A and 256B, which I have already described.

Amendment No. 265F inserts yet another new clause—I wonder what the record is for the number of new clauses in one group of amendments—which is headed, Form and manner of disclosures". This provides the order-making power which enables the Secretary of State to prescribe the form and manner in which a disclosure must be made under Clause 330 (failure to disclose), new clause (Failure to disclose: nominated officers in the regulated sector), new clause (Failure to disclose: other nominated officers) or Clause 334 (Authorised disclosures). This will ensure that the time limits are not abused by institutions making reports in a manner that takes a long time to reach the authorities. Additionally, if information is provided in a specified format, this will aid the National Criminal Intelligence Service to process reports as quickly as possible.

I regret the amount of time that I have had to spend setting out these amendments, but each of the groups is rather large. As I said, I did not propose to move the second group, which is why it had been separated from the first group. However, as I am now aware of the report from the Delegated Powers and Regulatory Reform Committee, I believe even more strongly that it is crucial for financial institutions to know what is happening as we consider the Bill. Although I do not have a date, I understand that we shall not reach Report stage for some weeks, which is much longer than I had anticipated. I therefore believe that it would be quite wrong to leave those in the industry uncertain as to the Government's intentions.

In light of those lengthy explanations and my apology for writing in error last week to noble Lords, and having given the background as to why the amendments are necessary, I trust that noble Lords opposite are encouraged to support our amendments. We all seek the same goal. I accept that some people might consider that there is a substantial difference between two and seven days. However, from a practical point of view seven days is an appropriate period as regards the machinery of government and the agencies involved in the matter and we shall get them to stick to that period. Therefore, I trust that once noble Lords have made their points with regard to their amendments—which they are fully entitled to do—they will withdraw them for the reasons I have explained. I beg to move.

3.45 p.m.

Baroness Carnegy of Lour

Before the Committee goes to the substance of the noble Lord's amendments, I understood him to say at the beginning of his speech that he had intended not to move the amendments as he had not received until today the 20th report of the Delegated Powers and Regulatory Reform Committee. Am I right?

Lord Rooker

I do not know what the noble Baroness's question is, but that is not the way I put the matter. That is not correct. I am happy to explain the matter again. I make no complaint about anything. It was always our intention to move the first group of amendments, headed by Amendment No. 255D. However, the group of amendments headed by Amendment No. 260A had been decoupled from the first group only because I had given notice that I would not move them. As I explained in a letter to Members of the Committee on the Front Bench, the only reason I did that last week was because the Home Office thought that the Delegated Powers and Regulatory Reform Committee—which I respect—had not had a chance to consider the new order making power in Amendment No. 265F. Therefore, I decided that I would not move the relevant amendments but would do so on Report.

However, the Home Office did not know that the Delegated Powers and Regulatory Reform Committee had already considered Amendment No. 265F and had published its 20th report. On Thursday when I said that I would decouple the relevant amendments, I was not aware of that report. I found out about that only this morning. We had discussions on the matter last week but no one said, "By the way, paragraphs six and seven of the 20th report deal with the issue". I apologise that the Home Office was not aware of that. The fact that the Delegated Powers and Regulatory Reform Committee has reported gives me the opportunity to move the relevant amendments as we had originally intended for the convenience of those outside the Chamber. I do not complain about that. I take full responsibility for the fact that I found out about the report only today. However, it had obviously been printed as it was ordered to be printed on 15th May.

Baroness Carnegy of Lour

I thank the noble Lord for those comments. I am a member of that committee. The chairman of the committee is not present. I checked that we met on 15th May and that our decisions were available in print on the Internet the next day. It is rather strange that the Minister was not aware of that. However, he has explained the position and I apologise for holding up the Committee.

The Chairman of Committees (Lord Tordoff)

The Question is that Amendment No. 255D be agreed to?

Lord Kingsland

I apologise. There are other amendments in the group. I apologise for not being more alert.

The Chairman of Committees

I also apologise to the Committee but as no one rose to speak I sought to put the Question.

Lord Kingsland

Such was the impact of the Minister's speech that I required a certain degree of reflection before I rose.

The Opposition have one amendment in the group, Amendment No. 265CA. I think that I heard the Minister say, in the course of his opening remarks, that although he felt that he had moved towards us to some extent, he had not moved as far as the contents of our amendment. Is that correct?

Lord Rooker

Amendment No. 265CA is drafted slightly differently from the amendment of the Members of the Committee on the Liberal Democrat Benches. Amendment No. 265CA refers to a period of two working days. However, we do not accept that a period of two days is sufficient. Therefore, the government amendments which I propose refer to a period of seven working days. The principle of the matter is correct; that is, the enforcement authorities should be subject to a time limit. That is the big change in this regard; namely, subjecting the enforcement authorities to a time limit. If they do not reach a decision within that time limit, people will be able to proceed with the relevant transaction. However, from a practical point of view, a period of two working days is not sufficient to enable the necessary inquiries to be made. Therefore, the Government propose a seven day notice period.

Lord Kingsland

I think then that the proper approach for me to take is to wait until Hansard is published, to reflect carefully on what the Minister has said and to come back to your Lordships' House on Report if I feel that the timetable recommended by the Minister is insufficiently taut.

Lord Thomas of Gresford

I have taken a little more time to assimilate that which the noble Lord, Lord Rooker, said. My reaction to what he outlined was to say, "Phew"! However, having had a little time to reflect, I am pleased that the Government have taken into consideration the criticisms that have been made elsewhere and that the principle of time limits has been accepted. For my part, I do not see that there is such a difference between seven days and two days but, as the noble Lord, Lord Kingsland, said, it may be a matter that needs further consideration. There is a period of time available during which the financial institutions can make such representations as they think fit. I shall take a similar course to the noble Lord, Lord Kingsland, in due course.

On Question, amendment agreed to.

Lord Kingsland

moved Amendment No. 256: Page 191, line 27, at end insert "; or (d) the act he does is done without intention to commit an offence under subsection (1) The noble Lord said: I shall be telegraphic. Although the alleged offender may know or suspect that the property is criminal property, it is unclear whether he or she must knowingly conceal, disguise, convert, transfer or remove the property before being liable to conviction under this section. It is clear from Clause 335(3) that the alleged offender under Clause 327 must know or suspect that the property concerned constitutes, or represents, a benefit from criminal sconduct before he or she is convicted under Clause 327(1). However, no reference is made in this clause to the mental element which must be attributed to the actions of the offender before an offence will be constituted. This amendment therefore probes the mental element required and asks the Minister to clarify the position. I beg to move.

Lord Bassam of Brighton

As the noble Lord has already commented, Clause 335(3)(b), which defines criminal property, introduces a mental element of knowledge or suspicion into the three principal offences at Clauses 327, 328 and 329.

So, for example, as the Bill currently stands, an offence is not committed unless the person who carries out one of the activities in subsection (1) actually knows or suspects that the property represents a person's benefit from criminal conduct and he fails to make an authorised disclosure under Clause 334 without reasonable excuse.

The first point I would make in response to this amendment is that it would introduce an unhelpful element of uncertainty to the mental element required and the circumstances in which an offence would be committed. The prosecution would have to establish not only that I, for instance, knew or suspected that property was a person's benefit from criminal conduct but also that I intentionally carried out one of the acts in subsection (1).

However, it must be the case that if I know or suspect that property represents a person's benefit from crime, I cannot unintentionally go on to conceal, disguise or convert that property. It must be implicit in the knowledge and suspicion and the act itself that I intended to carry out the act without informing the competent authorities. Therefore, we think that the amendment is unnecessary and that it would do much to confuse matters.

We also take the view that the amendment would introduce plenty of scope in criminal proceedings for argumentation about the various mental elements that would be involved. That would almost certainly provide a welcome loophole by which those who assist in the criminal fraternity by laundering their ill-gotten gains would be able to escape the long arm of the law.

The aim of the Bill is to close such loopholes so that the opposite effect can be achieved. If the person shows that he or she did not know or suspect that the property represented a person's benefit from criminal conduct or that he had made proper disclosure to the authorities, that person will have absolutely nothing to worry about.

I hope that the noble Lord is persuaded of the case that the amendment would weaken the impact of law enforcement. I hope that he will reflect on that and withdraw the amendment.

4 p.m.

Lord Kingsland

I am grateful to the Minister for his reply but I am not absolutely sure that I understand it. Is he saying that the amendment is unnecessary and that in front of each of the offences that are set out in paragraphs (a) to (e) of Clause 327(1), the word "intentionally" can be inserted? In other words, is he saying that the offences possess the appropriate mens rea? If so, I am wholly satisfied.

Lord Bassam of Brighton

I think that I am saying that. I believe that the mens rea element is already there. The amendment is unnecessary and would weaken the position.

Lord Kingsland

In those circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 327, as amended, agreed to.

Clause 328 [Arrangements]:

Lord Rooker

moved A.mendment No. 256A: Page 191, line 37, at end insert "and (if the disclosure is made before he does the act mentioned in subsection (1)) he has the appropriate consent On Question, amendment agreed to.

Clause 328, as amended, agreed to.

Clause 329 [Acquisition, use and possession]:

Lord Rooker

moved Amendment No. 256B: Page 192, line 10, at end insert "and (if the disclosure is made before he does the act mentioned in subsection (1)) he has the appropriate consent On Question, amendment agreed to.

Lord Thomas of Gresford

moved Amendment No. 256C: Page 192, line 17, at end insert— () the facts which would constitute such an offence also constitute an offence under section 22 of the Theft Act 1968 (c. 60) (handling stolen goods). The noble Lord said: The amendment raises a point that was discussed at some length in Committee in another place. Subsection (1)(c) refers to a person committing an offence if he, has possession of criminal property". My concern is about the interrelationship of that offence with handling under the Theft Act. Is that offence separate and different from handling? Is a different intent required? What is the purpose of the provision? This is a probing amendment and I look forward to the Minister's reply. I beg to move.

Lord Bassam of Brighton

I am grateful to the noble Lord for his explanation. As he said, this issue was debated in committee in another place. As I understand him, his concern is that the offences in the clause and the offence in the Theft Act 1968 relating to handling stolen goods are similar in nature, in terms of the conduct required to commission them and through the maximum penalty of 14 years' imprisonment, which they both attract. However, both have different mental tests. In respect of the "handling stolen goods" offence, the test is one of knowing or believing and for the "Clause 329" offence of acquiring, possessing or using criminal property it involves knowing or suspecting.

I accept that there is a good deal of overlap between the theft and the handling stolen goods offence in the Theft Act 1968, and the offence of possessing or acquiring criminal property as set out in Clause 329. Under Section 22 of the Theft Act a person handles stolen goods if (otherwise than in the course of the stealing), knowing or believing them to be stolen goods, he dishonestly receives the goods or assists in their retention, removal, disposal or realisation by or for the benefit of another person or if he arranges to do so.

However, it should not be overlooked that as well as similarities there are also substantial differences between the activity required for the commission of the two offences. The principal difference is that under Clause 329 an offence is committed by mere possession, while under the "handling stolen goods" offence there needs to be action beyond simple possession—for example, assisting in the retention or removal of property for the benefit of another person.

It is still true, however, that a receiver of stolen goods could commit the "Clause 329" offence and the offence under Section 22 of the Theft Act. But that should not be viewed as a problem.

There are many examples in United Kingdom law where the conduct of offences overlaps. Whether a person is charged with one offence or another, or both, will, as the noble Lord is aware, depend on the circumstances. Where in the present analogy between handling stolen goods and Clause 329, a person is charged with one or other offence, or both, does not seem to us to matter a great deal because the maximum penalty that is attracted would be the same.

In addition, it is important that we leave some flexibility for the prosecutors to decide which offence it would be more appropriate to charge in the circumstances of each individual case. It may be that one charge is more likely to succeed than another. It has been put to us that the overlap between the possession offence and the "handling stolen goods" offence creates an undesirable conflict. We do not think that that is the case. It has also been said that a prosecution is much more likely under the clause than under Section 22 of the Theft Act, particularly since the prosecution would have to establish only a mental element of knowing or suspecting that the items were stolen goods rather than actual knowledge or belief, which would be a tougher test.

I re-emphasise that we consider that both offences are definitely needed. Having listened to the arguments, I hope that the noble Lord will feel able to withdraw the amendment, although I appreciate that the issue that he raised in this probing amendment is very important.

Lord Thomas of Gresford

As a result of that explanation, it appears that a person commits an offence if he has possession of criminal property, if he does not know that it is criminal property and if he does not know that he has possession of it, never mind about his belief. That appears to be a very stringent offence, which could trap an awful lot of people.

This is a probing amendment and I do not intend to take the amendment further at this stage. I shall reflect on the Minister's answer and may return to the matter later.

Lord Carlisle of Bucklow

Did I understand correctly that the distinction involves the question of knowledge? If so, that surely implies, as the noble Lord said, that there is no need to have knowledge that criminal property is involved in order to commit the offence of being in possession of it.

Lord Bassam of Brighton

I said that I believe that different mental tests apply. In respect of the offence of handling stolen goods, the test is one of knowing or believing. For the Clause 329 offence of acquiring, possessing or using criminal property, the test is one of knowing or suspecting. Therefore, there is a slight difference.

Lord Thomas of Gresford

I do not understand what "knowing or suspecting" means. It is certainly not on the face of the Bill and I do not know that it can be properly implied by the wording used in the Bill. However, I do not wish to prolong the matter. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 257 not moved]

Clause 329, as amended, agreed to.

Clause 330 [Failure to disclose: regulated sector]:

Lord Kingsland

moved Amendment No. 258: Page 192, line 32, leave out paragraph (b). The noble Lord said: At Second Reading, we raised concerns that, under the Bill, it will become possible for a person to be convicted of the criminal offence of failure to report, not only when he has knowledge or suspicion of money laundering but also when a court determines that he should have had knowledge or suspicion of money laundering because there were "reasonable grounds". The definition of "money laundering" is very wide and includes simple possession of criminal property.

We have previously suggested amendments which would prevent the introduction of such a negligence or objective test. We remain convinced that only persons who knew or suspected that money laundering was occurring should be prosecuted for the failure to report an offence. We cannot understand how convicting a person for inadvertence or oversight can be justified, especially as the offence will apply to workers at all levels of experience, including very junior staff. If such a test is introduced, it may, indeed, result in a fear culture among the whole regulated sector. That will be counter-productive. It will lead to defensive over-reporting with which the authorities are unable to cope.

The impact of such over-reporting may, in turn, lead to less co-operation between the regulated sector and the authorities as workers feel alienated because their exposure to criminal prosecution matches or even exceeds that of the criminals who commit the underlying illegal act. Money laundering methods are also becoming increasingly sophisticated, and it is unclear how "reasonable grounds" will be defined by the courts.

If the Government are intent on introducing the negligence test, then we have tabled further amendments which seek to ensure that the sentence is proportionate. In my submission, the punishment should differ, dependent on whether the accused person actually knew or suspected or whether the court determines, with the benefit of hindsight, that there were reasonable grounds for that person to have known or suspected.

A person should not lose his liberty as a result of committing an offence through inadvertence; and we do not believe that a person should lose his liberty because of a professional oversight. Therefore, if the Government insist on maintaining the offence, we consider that a financial penalty imposed by the magistrates' court would be appropriate, especially as inevitably it will he coupled with an "industry" stigma, perhaps for the rest of the individual's career. I beg to move.

4.15 p.m.

Lord Rooker

I begin by responding to the general point. I fully accept that to an outsider the penalties set out in the Bill may look tough, or perhaps, according to some people, too tough. However, against the background of several money laundering cases which have occurred in the City and which have not been reported to law enforcement agencies, we believe that very strong anti-money laundering measures, including the new negligence test, are more than justified. Frankly, it is of the utmost importance and in the interests of the City's financial reputation and standing, both here and overseas, that the United Kingdom is seen to be demanding the highest standards of diligence.

The test of "reasonable grounds" 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 regulatory activities is widened following the implementation of the second European money laundering directive. Creating a separate offence of negligence would, in my view, reduce the deterrent effect. An individual tempted to turn a blind eye to money laundering might well decide that the prospect of criminal gain outweighed the risk of being fined.

Therefore, there is good justification for a negligence test. Together with the fact that we make no apology for these being very strong anti-money laundering measures, we cannot see the justification for accepting the noble Lord's amendment.

Lord Kingsland

Being tempted to turn a blind eye is not, in my submission, negligence. In most circumstances, it would amount to intent. Here we are talking about negligence—someone's failure to he up to the job. Perhaps the noble Lord can think of an example, although I cannot easily think of one, in any other branch of our law where negligent conduct attracts the type of penalties that are proposed in the Bill.

I suggest to the noble Lord that a better approach would be to shift the burden of the draconian remedy that the noble Lord proposes in the Bill to the employer of the negligent actor. Exhibiting negligence is often the consequence of a failure o f an individual to be properly trained. Surely imposing the penalty on the employer or the institution would reduce to a wholly nugatory extent the number of occasions on which negligent acts of employees led to the consequences that the Minister outlined.

I repeat, if the Minister is worried about turning a blind eye, there are other remedies in the Bill which provide precisely what the noble Lord is looking for.

Lord Thomas of Gresford

I support the amendment. It seems to me that if a person has reasonable grounds for knowing or suspecting that another person is engaged in money laundering, it should be possible to prove that he suspects that another person is engaged in money laundering. It should be left to the common sense of juries and magistrates to determine what the truth is if, under this clause, a defendant comes forward and says, "Well, I didn't know. I didn't suspect", even though the facts are staring him in the face. To make him liable to a sentence of imprisonment in the Crown Court of up to five years for not understanding some objective ground—what is currently expressed as "negligence"—seems to me to be going too far and beyond the proper scope of these money laundering provisions.

Lord Rooker

Part of the process involves trying to change the culture. Shifting the responsibility to the employer may appear to be all right, but he would commit an offence if he did not train his employee. Under the money laundering regulations the employer already has responsibilities. We want to make employees more diligent. There are few convictions under the existing law. We want to stamp out the offences by strengthening the law in the way that we propose in this legislation. It is tough, but that is the purpose of the exercise.

Lord Donaldson of Lymington

I have listened to the Minister reiterating the need to be tough and the need to show the world that we are tough, but I am concerned that I have not heard a word from him about being fair. I agree with the noble Lord, Lord Kingsland, that it is surprising that someone should be liable to a sentence of up to five years—no doubt it would not be passed—for being careless. I venture to suggest that if the Government were to introduce an amendment to the motoring law relating to careless driving and if they were to attach a five-year imprisonment penalty, saying, "We have to be to ugh in order to cut down offences on the roads", there would be an outcry because that would be unfair. The same principle should apply in relation to this legislation.

Lord Rooker

I do not believe that that analogy stands up. In terms of financial crimes, money laundering appears to be a victimless crime and so it is passed by. I do not believe that there is anything unfair about this. Legislation already exists in respect of this matter. We are not re-inventing the wheel. We are updating the existing laws on money laundering. We want to ensure that those at the forefront of the sectors that are more vulnerable to money laundering report transactions that any reasonable person would regard as suspicious. The idea is to make life difficult for those who choose to use the UK's financial sector for laundering the gains from their criminal activities. That is our intention.

We want to be fair. I was about to say that we do not want to be fair to criminals, but it could be argued that they are entitled to fairness. For too long criminals have used our weak defences in terms of the legal framework to run rings round society. At the end of the day taxpayers are the losers. The offence is limited to the regulated sector because that sector has special responsibilities and it is at the forefront of money laundering.

Lord Kingsland

I hope that the Minister will reconsider this matter. In my submission, it sets a bad precedent in our law. I recognise that we are dealing with serious matters. If I thought that introducing this offence would transform the ability of the authorities to corner the rascals, I may have been better disposed towards it. Surely the answer to the problem of negligence is better training or higher quality staff. If someone does not know what he is doing, he probably will not know what he is doing in any circumstances and perhaps ought not to be employed in that sector.

How can one change matters by putting such a person in prison? The answer is that one cannot. The target should be the employer who should ensure that the right kind of individual is in that critical position so that the surveillance that the Government require from the regulated sector is in place and operating properly. In my submission, in regard to negligence, the Government should concentrate their entire fire on the institutions and not on the individuals.

Lord Rooker

The Government do not send people to prison; the courts do. The courts, not the Government or the prosecuting authority, should decide, on the facts of a case, whether someone had reasonable grounds for being suspicious of something untoward taking place.

Lord Kingsland

With respect, I believe that the Minister is being a trifle disingenuous. The courts interpret the law, but the law is laid down by Parliament, in this case a Parliament which has a Government with a large majority. I hope that the Government will not try to escape from the responsibilities that will flow from the passage of the Bill through your Lordships' House and another place.

Lord Rooker

Far from it. I did not intend my remarks to be taken in the way that the noble Lord has taken them. It will be up to the courts to work out whether, on the facts of any individual case, the person concerned should have had an iota of a suspicion that something is wrong. The court will decide on the facts whether a person, who has received proper training—the employer commits an offence if the training is not up to scratch—should have had an iota of a suspicion that something was a bit dodgy. I am not hiding behind parliamentary majorities but, at the end of the day, the court would make such a decision. That is the purpose of the negligence test. It is an advantage.

Lord Kingsland

In brief, my submission is that this clause is both unfair and futile. I hope that the Minister will reflect on it before Report stage. Meanwhile I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Kingsland

moved Amendment No. 259: Page 192, line 33, leave out "is engaged in" and insert "has carried out or intends to carry out one or more transactions for the purposes of The noble Lord said: Clause 329 makes it a money laundering offence simply to possess criminal property. We appreciate that it may be helpful for the authorities to prosecute persons in possession of criminal property, especially as, presumably, such a conviction could be helpful evidence in any subsequent confiscation proceedings. Therefore, we do not propose any amendment in this connection.

However, we feel that this offence should be aimed at failure to report activities which are more generally regarded as money laundering. It is inappropriate for a person to be found guilty of the failure to report an offence because they fail to report their knowledge or suspicion that someone is in possession of criminal property.

The existing failure to report offences introduced the concept of criminal liability for non-performance; but we feel that to extend this concept even further by making it an offence to report simple possession of criminal property is wrong. I beg to move.

Baroness Noakes

I rise to speak to Amendment No. 259A standing in my name and that of my noble friend Lord Freeman. It is grouped with Amendment No. 259 moved by my noble friend Lord Kingsland. I speak with the benefit of briefing from the Institute of Chartered Accountants in England and Wales of which I am a member, a former president and for two more weeks a council member. Clause 330 is important to the institute because its members will be included within the ambit of the Bill once the second money laundering directive is adopted, thus drawing the work of accountants within the ambit of the Bill.

As my noble friend Lord Kingsland has outlined, the money laundering offence can in future include simple possession of criminal property. My amendment which is slightly different from that of my noble friend is to remove, from the definition of a failure to disclose, those cases where a money laundering offence is committed but there has been no concealment transaction.

That might sound like a sweeping exemption from the failure to disclose, but it is directed primarily at avoiding the need for trivial disclosures under the Bill. I understand that the Home Office resisted a de minimis provision in the Bill. Amendment No. 259A attempts to provide a different way of getting at the substance of seeking trivial disclosures.

This issue is particularly important to accountants because their activities inevitably take them into detailed consideration of the minutiae of the transactions that their clients undertake. They may be drawing up sets of accounts or auditing them. Either way they will come across all kinds of circumstances which suggest that an offence may have been committed.

Perhaps I may give the Committee an example. In the retail sector shoplifting is a common offence and few retail businesses manage to avoid any pilferage at all. With the widened definition of "money laundering", we would see that shoplifting would be brought into play. An accountant or auditor, almost by definition in any retail business, will know or suspect that shoplifting has taken place and with today's modern point-of-sale equipment could probably even pinpoint the type of goods. There are thousands of retail businesses. Do the Government want accountants and auditors to report suspicions in every retail business where shoplifting has taken place?

Similar instances would arise on a much broader scale for virtually all businesses in this country—perhaps 3 million or so—where minor staff thefts take place; for example, theft of stationery, minor expense claim manipulation and telephone calls. Many minor offences may technically need to be reported under this Bill.

We assume that the Government do not want massive disclosures. I understand that Home Office officials have been attempting to convince the Institute of Chartered Accountants that accountants are unlikely to be prosecuted for failure to report trivial money-laundering offences. But however unlikely it is that prosecution will take place, the possibility would remain. That is unacceptable to a professional accountant who is governed by strict ethical requirements. The institute can fine or exclude from membership those accountants who bring the institute into disrepute, and that includes those who are convicted of a criminal offence. The Home Office is asking chartered and other professional accountants to choose between swamping NCIS with trivial suspicions or gambling with their professional careers. I hope that the Government will consider some way of alleviating that burden and preserving the integrity of professional accountants.

Lord Freeman

I support my noble friend Lady Noakes in her Amendment No. 259A, and also my noble friend Lord Kingsland, who was making a slightly different point on Amendment No. 259. I declare an interest as a former partner and as an employee of a large firm of chartered accountants.

I have said before, and it is worth repeating, that the accountancy profession welcomes the general thrust of these provisions. Accountants should be reporting more events of money laundering, and they will. But a degree of common sense is needed in the legislation we write and its application.

My noble friend Lady Noakes gave a clear example of an unreasonable event caught by the Bill as presently drafted. Perhaps I may give another example, which will be fresh in the minds of accountants, particularly articled clerks who in the past had responsibility for doing the most humble task in an audit—counting the petty cash. I can recall, as I am sure can other Members of the Committee involved in the profession, discovering a situation where a cashier had pinched some of the petty cash. The theft is reported to the employer and the employer says, "I know. I understand the background. I am not going to take any action. There is trouble at home. It is a trusted employee". The Bill requires that act to be reported to the police; no ifs and buts; no exemptions for de minimis events.

I hope that the Minister, either at this stage by giving an indication that the Government will think again about representations already made, or in the future, will at least be sensitive to the practical consequences of the legislation as drafted.

Lord Rooker

I respect the professional competencies of the two Members of the Committee who have spoken. But I say at the outset that we want to "up" the game from the accountancy profession. Basically they are not reporting enough.

That is not an open invitation to swamp the system with trivial complaints. Perhaps I may share with the Committee the suspicious transaction reports received by the National Criminal Intelligence Service by sector for the year 2001. Accountants provided only 0.35 per cent of the reports. More than 1 per cent were received from solicitors. Insurance companies provided 2.83 per cent. Accountants are very low; in fact, they provided only twice as many as credit unions. We received 0.16 per cent of the reports from credit unions, so accountants, at 0.35 per cent, do not score highly.

Baroness Noakes

I thank the noble Lord for giving way. Does he have any evidence that accountants should have disclosed more?

Lord Rooker

Not that I can share with the Committee. The point is that it is surprising. We received 0.1 per cent of transaction complaints from bookmakers. When we see the scale of the accountancy profession reports and find that it is providing only 0.35 per cent of the reports, we feel that it should be encouraged to make more.

It may be that accountants have been holding back, not wanting to swamp the system or believing that some of the events are trivial. We should like to examine a few of those they have not sent in. I do not possess a sackload of evidence of the ones they have not sent in. The fact is that the percentage is very low and we are clear that we should like them to produce more reports. I am sure that in a professional, sensible way, if the legislation reaches the statute book, they will consider that. I am sure that no professional body would send in complaints that it thought were trivial.

I accept the position. I do not know what discussions took place between my ministerial colleagues and the accountancy profession as the Bill progressed. I know that discussions took place a year ago when I first arrived at the Home Office. I do not know whether or not the position has been put to them. I am not complaining that they are not sending in reports; I am inviting them to send in more. We would like to hear more from the accountancy profession.

I have several pages of notes but feel it would be superfluous to go through them. The points made by the two Members of the Committee are legitimate. But the bold point we want to make is that we are not on a fishing expedition; we would simply like to hear more from the accountancy profession. That is partly the reason the Bill was drafted in this way, and partly the reason it would not be a good idea for me to accept the amendments.

Baroness Noakes

Can the noble Lord explain why a de minimis exemption would not therefore work? We are talking about when the second directive relating to money laundering is brought in and over 200,000 accountants in the UK come within it. The noble Lord might want to hear more from those accountants. But, having considerably widened the definition of the money laundering offence and having brought them within a draconian failure to disclose regime, accountants will respond by reporting everything. That is their only real alternative.

The noble Lord suggested that accountants would not want to disclose trivial amounts. No, they do not. But they do not wish to expose themselves to any possible future prosecution because that would be fatal to their professional reputation and ability to carry on in that profession. That is why it is so important that some way is found to remove small transactions from the scope of these provisions. Accountants welcome the provisions. They welcome playing a full part in their money laundering obligations, but they wish the provisions to recognise the practical realities of their working circumstances.

Lord Rooker

I have no note about a de minimus exemption. I suspect that this issue was raised in the other place. We are seeking to ensure that the legislation is drafted, particularly with regard to Clause 330, so that reports of knowledge or suspicion of all three principal money laundering offences are made. If Clause 330 is successfully to achieve its aims of combating money laundering within the regulated sector, it is also important that reports are made not just where a concealing offence has taken place under Clause 327, as sought by Amendment No. 259A, but where there is a suspicion or grounds for suspicion that either of the other two principal money laundering offences in Clauses 328 and 329 have or may be taking place.

The noble Baroness mentioned 200,000 accountants. That is a good many accountants. If they are all individuals and all in their little boxes and compartments servicing their individual clients, there is no way that they can see the big picture. Some of them might send in a complaint to the enforcement authorities. The accountant might think, "This looks dodgy. To protect myself I will send this in". If information has come in from other accountants to the authorities and they see a jigsaw starting to fit together, that is the whole purpose of the exercise. So the accountants will not necessarily see the big picture. They will not know whether their little part is part of a bigger problem which is taking place, or they will not see a pattern. That is for the enforcement authorities.

So I accept that at one level one can make a good case for saying, "Well, small numbers, small amounts of money" or "I thought they were up to no good, but it was only a few thousand pounds—chicken feed in the scale of things. It was a one-off". But if the other 199,000 accountants start to send other bits in and a pattern emerges, it is important that we know about it for the purpose of the Bill. Therefore, people cannot dispose of proceeds of crime by playing off one part of the system against another. Indeed, if the system is divided up into 200,000 accountants, I should have thought that it would be open season for the money launderers to exploit that fact.

4.45 p.m.

Baroness Noakes

I do not want to be accused of labouring the point, but accountants are involved in every business in this country—possibly three million or more. All those businesses will, under the definitions in the Bill, have some money laundering offences happening in and around them. They are not those that the noble Lord referred to—money launderers infiltrating their way around the economy, and where pictures can be built up. They are everyday, if theft can be ever be called everyday, minor offences.

I gave some examples; my noble friend Lord Freeman gave another. I can assure the noble Lord that shoplifting and minor staff theft happen all the time. Whether we like it or not, that is the case.

There is nothing in the Bill that would forgive an accountant for not swamping—I use that word again—NCIS with these reports. Accountants must have regard to their own reputations.

I ask the noble Lord whether NCIS is being geared up to handle large volumes of reporting, because that is the likely result if the Bill is passed in its current form.

Lord Rooker

I regret that I did not return to that point when I responded earlier. It would be inefficient and unprofessional of the Home Office, even for government, to ask this House and the other place to approve legislation without making the resources available to make it practical and workable. I think that that is a fair point.

The Home Office has made an extra £0.25 million available to the National Criminal Intelligence Service for the financial year 2000–01 specifically to fund additional staff in the economic crime branch which handles suspicious transaction reports. The extra funding was increased to £1.8 million last year and indeed it will continue this year.

The National Criminal Intelligence Service increased the staffing of the branch from 24 people in August 2000 to 66 in December 2001. A further increase of up to 20 staff is planned for the financial year 2002–03.

Obviously, the Home Office and the National Criminal Intelligence Service must keep the service's capacity to deal with transaction reports based on suspicion under review following the commencement of new offences under this legislation. So there is evidence that there are extra resources. They may look like chicken feed on the grand scale of things, but, on the other hand, as I said at Second Reading, we were planning to pull back only £60 million in the year 2004–05 from the proceeds of crime. That seems chicken feed anyway. But that will be double what we are doing at the present time. There seems to be a good deal more fertile ground out there.

It is a beginning. The resources are commensurate with what we reckon will be the workload, but we shall keep them under review.

Lord Kingsland

I am most grateful to the noble Lord for his response to my amendment. As he rightly said, the amendment of my noble friends Lord Freeman and Lady Noakes are very much in the same direction as my own. I am sure that all three of us will reflect on what the noble Lord has said. I should be surprised if we did not return to the matter on Report. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 259A to 260 not moved.]

Lord Rooker

moved Amendment No. 260A: Page 192, line 38, leave out from "not" to "comes" in line 40 and insert "make the required disclosure as soon as is practicable after the information or other matter On Question, amendment agreed to.

Lord Rooker

moved Amendment No. 260B: Page 192, line 40, at end insert— (4A) The required disclosure is a disclosure of the information or other matter—

1. (a) to a nominated officer or a person authorised for the purposes of this Part by the Director General of the National Criminal Intelligence Service;
2. (b) in the form and manner (if any) prescribed for the purposes of this subsection by order under section (Form and manner of disclosures)."

On Question, amendment agreed to.

Lord Kingsland

moved Amendment No. 260BA: Page 193, line 1, after "and" insert "believes that The noble Lord said: As currently drafted, the Bill would make it a money laundering offence when a solicitor was unable to make a report because he had formed the view that legal professional privilege applied but that view was later determined as incorrect.

Accordingly, we have proposed an amendment about solicitors' mistaken belief as to whether or not legal professional privilege applies in a particular set of circumstances.

The Police and Criminal Evidence Act defines legal privilege as covering communications between professional legal advisers and their clients, or any person representing the client, made in connection with the giving of legal advice to the client, or in contemplation of legal proceedings and for the purposes of such proceedings when the communications are in the possession of a person who is entitled to them.

However, items held with the intention of furthering a criminal purpose are not items subject to legal privilege. The criminal purposes exception can be confusing for lawyers. The case law is clear that the exception applies; legal professional privilege does not bite whenever the client intends to commit a crime. But the case law requires a solicitor to have concluded that there is a strong prima facie case that such items are being used for a criminal purpose.

I know that the Law Society is able to provide solicitors with broad guidance as to what could constitute legal privilege, and as to when it might, or might not, apply. But, as I understand it, the society is unable to provide detailed legal advice about specific documents, or information, and would normally suggest that solicitors who need advice in a difficult situation should themselves seek expert legal advice.

This can be straightforward; but it is sometimes not so. For example, when mortgage fraud was a common problem in the early 1990s, solicitors would often be visited by the police who would say that they were investigating the solicitor's client as a potential mortgage fraudster and ask to see the file. I am informed that, at the time, the Law Society's advice to solicitors was that the fact that a client was under investigation by the police is not, in itself, strong prima facie evidence. In those circumstances, the police should be asked to provide additional evidence to ensure that the solicitor can satisfy the test, and so override both confidentiality and privilege.

The police were able to produce sufficient evidence in some cases; but there would often be grey areas where the solicitor had to rely on his or her own professional judgment. If a solicitor exercises that judgment, and concludes that there is insufficient evidence to show a prima facie case but it is later established that the client was a fraudster, it seems wrong that the solicitor can be guilty of a criminal offence. I beg to move.

Lord Thomas of Gresford

The amendment now before the Committee is coupled with Amendment No. 260C, which is tabled in my name and that of my noble friend Lord Goodhart. The noble Lord, Lord Kingsland, referred to one circumstance in which there may not be privilege; namely, where information is passed for the purpose of committing a crime in the future. Another possibility is when a client discloses to his legal advisers that a third person has property in his hands and is engaged in money laundering. The Bill, as currently drafted, would require the solicitor to give that information to the authorities.

In those circumstances, it is possible that a solicitor would not realise that such a duty fell upon him. Our amendment is slightly different from the one moved by the noble Lord, Lord Kingsland. Our amendment seeks to make it a defence for the solicitor to establish that there are circumstances, which he reasonably believed to be privileged", in which the information was passed to him. That is the purpose of our amendment, which, although phrased slightly differently, very much follows the spirit of the amendment moved by the noble Lord, Lord Kingsland.

Lord Rooker

As presently drafted, Clause 330 assumes that a professional legal adviser, acting on information given to him by his client, would know whether or not that information came to him in privileged circumstances. Frankly, we believe that that is the correct position. Professional legal advisers can be expected to know the scope of professional privilege, and, if they have a problem, can seek advice from their own professional bodies.

I should remind the Committee that the existing offence of failure to disclose suspicion of drug money laundering, which is to be found in Section 52 of the Drug Trafficking Act 1994, contains the same definition of "legal privilege" that is included in Clause 330. To my knowledge, although I have no material to this effect, that definition has not given rise to any difficulties. We are not inventing the wheel here; the definition is already on the statute book.

Legal professional privilege is an established concept. As a non-lawyer, I accept that it is a complicated issue. However, it is clear that professional legal advisers ought to know whether legal privilege applies; indeed, if they do not, there are people whom they can consult. The criminal law is quite clear: where a criminal offence is silent as to its mental element, the courts must read in the appropriate mental element. Therefore, in circumstances where a legal adviser did not know that information was not legally privileged, the courts would read in a requirement that he could not be convicted unless he did know. We believe it is best to rely on that rule of interpretation, which is the current situation, rather than try to put anything on the face of the Bill.

If we started to rewrite this aspect of law at present, I suspect that we would be doing so in a wholly different way. However, as I said, the definition of "legal privilege" in Clause 330 is already to be found in existing legislation. There is no evidence available to us to show that it is not working satisfactorily.

Lord Kingsland

The Minister said that a similar definition appears in other legislation. Perhaps the noble Lord would like to take advantage of our more refined approach to the issue to try to improve the quality of legislation for the future. As the definition has provided no difficulty before, why should the Government have any difficulty in adopting this further protection for solicitors? I shall leave the Minister to reflect on that point. In turn, I shall reflect upon whether or not to return to the issue on Report. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 260C not moved.]

Baroness Noakes

moved Amendment No. 260D: Page 193, line 2, 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 (9A); The noble Baroness said: In moving this amendment, I shall speak also to Amendments Nos. 260H to 260J and 261 A to 261C, which are tabled in my name and that of my noble friend Lord Freeman. Subsection (5)(b) of Clause 330 contains the familiar exemption of legal professional privilege, which we have just discussed. Amendment No. 260D seeks to introduce a similar, but not identical, exemption for auditors, external accountants, and tax advisers.

The preamble to the second European directive on money laundering refers to "legal professional privilege", and says that, directly comparable services need to be treated in the same manner when covered by any of the professionals covered by the Directive". Article 1(5) says: Members States shall not be obliged to apply the obligations [in the Directive] to notaries, independent legal professionals, auditors, external accountants and tax advisers with regard to the information they receive from or obtain on one of their clients in the course of ascertaining the legal position for their client". My amendments fall squarely within the terms of the directive.

There is a good reason for extending the protections beyond the legal profession. In some areas, lawyers offer essentially the same services as those provided by external accountants and tax advisers. If the Bill provided a particular protection for lawyers but not for other professionals, that would give lawyers a competitive advantage—especially in the area of tax or general business advice. Doubtless that would draw no criticisms from those lawyers present in the Chamber—indeed, I am conscious that my noble friend Lord Freeman and I are both outnumbered by those lawyers today—but it is not in the spirit of breaking down the barriers to competition among the professions, which is a subject that recently received the attention of the Office of Fair Trading.

Amendments Nos. 260D, 260H and 260J introduce limited exemptions for auditors, external accountants and tax advisers where information comes to a person acting in the course of his profession for the purposes of ascertaining the legal position of the client. That is considerably narrower than the exemption afforded to lawyers under existing political privilege provision, but it should be sufficient to relieve accountants and others from the disadvantage that they would otherwise suffer. The amendments use the terms, auditor, external accountant or tax adviser", which are the terms found in the directive, without further definition. If the Government consider that the terms should be defined more clearly, it would not be difficult to devise an amendment to cover those bodies whose members provide the relevant services.

Amendments Nos. 261A, 261B and 261C appear to be intended to achieve a similar effect for accountants, auditors and tax advisers under Clause 331, which deals with tipping off. Auditors, in particular, need to be able to have full and frank discussions with their clients. Any provision that operates against the free flow of information to auditors will operate against the public interest. Without my amendments, directors and other company employees may be reticent about discussing matters openly. Audit is very much in the spotlight in the wake of Enron and other causes célèbres and it needs to be built up rather than, as in the Bill, made more difficult. I beg to move.

Lord Freeman

I support my noble friend Lady Noakes and this group of amendments. The Minister is reputed to be—and to my knowledge is—a reasonable man. The amendments are about fairness. During discussion of the previous group, the Minister sought to argue against the de minimis provisions on the grounds that the accountancy profession had not notified sufficient cases of possible laundering. This group of amendments cannot be disposed of with the same argument.

In this country, lawyers do not have a complete monopoly on advice on all aspects of the law. In this country, for many years accountants have advised on tax law. In the United States, the legal profession still has an effective monopoly on advice on tax law, but not in this country. It is therefore hard to understand how the Minister can disagree with my noble friend Lady Noakes, when in essence she is arguing that the EU second money laundering directive gives the Government power to extend the protection to accountants in the same way as to lawyers on the narrow, restricted legal issue of ascertaining the statutory tax position. The amendment commends itself on grounds of fairness alone.

Lord Rooker

As the noble Baroness, Lady Noakes, and the noble Lord, Lord Freeman, know, the amendments would extend the legal privilege exemptions in Part 7 of the Bill to cover auditors, external accountants and tax advisers whereas currently they cover only professional legal advisers. When the issue was discussed in another place on 24th January at cols. 1164 to 1168, the debate centred specifically on the position of tax advisers. This group of amendments goes much wider in seeking to extend legal privilege to other groups.

I should first point out that, as the noble Baroness and the noble Lord mentioned, the accountancy profession's concerns arise from the fact that the EU second money laundering directive, adopted in December, requires that lawyers, accountants and tax advisers should be made subject to the obligations set out in the directive. In essence, that means that they will have to be brought within the framework of the 1993 money laundering regulations and an obligation will have to be placed on them to report any fact of money laundering to the competent authorities.

A further relevant fact is an optional element in the second money laundering directive that allows member states to decide whether information exchanged between accountants or tax advisers and their clients should be made subject to professional privilege. Hitherto, the courts have not chosen to extend legal privilege to accountants and tax advisers. The main purpose of the legal privilege provision is to ensure that confidential information exchanged between a lawyer and his client in contemplation or furtherance of legal proceedings remains confidential between them. We have not previously felt that the same considerations apply to the accountancy profession.

In due course, the United Kingdom will need to give detailed consideration to the discretionary option in the directive concerning the accountancy profession as part of the implementation process. I am pleased to announce that the Treasury will be the lead department to take this forward in consultation with other Whitehall departments. It will certainly not be the Home Office. There will also need to be consultation with interested bodies. We have no timetable yet for the consultation process, but, as I am sure the Committee and outside bodies will know, implementation of the new directive must be completed by 15th June next year. Although the final decision is clearly subject to the consultation process, the Treasury has indicated that it is not at present convinced by the arguments for an extension of legal privilege.

My next point does not concern the thrust of the speeches made by the noble Baroness and the noble Lord, but it is fair for me to put it on the record. We understand that the accountancy profession is 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.

One consideration is the fact that accountants and tax advisers are in no way regulated in the same way as lawyers in this country, so it may prove difficult to determine exactly to whom the professional privilege exemptions may apply. I do not pose that as an insuperable hurdle, but it is a fact that the position is not the same. We have enough problems in the engineering profession with myriad institutions, but it is worth putting that point on the record.

As I am sure that both the noble Baroness and the noble Lord recognise, it would be a momentous and significant step to extend the scope of legal privilege in the way that they envisage. That privilege has been part of our system for a very long time. This is not the Bill to use to make such a change—not until the option in the directive has been properly considered and discussed.

By the way, one argument put to us is that if a person knows that confidential matters he has discussed with his tax adviser may be made available to the law enforcement authorities, he may be less likely to seek professional advice. That might have a substantial adverse impact on the accountancy profession. But honest people with honest businesses will not be deterred from seeking professional advice for those reasons, so we do not rely on that argument.

I should also put on record another point that is not unimportant. An assurance was given in the other place on 24th January at cols. 1142 to 1143 of Hansard, that I should like to repeat here. Although I shall not go into all of the detail, it deals with the industry's concern that the Revenue might be influenced in Hansard cases where the National Criminal Intelligence Service receives a report in advance of the Revenue. The Revenue will not deal with a case differently because it was notified via NCIS, rather than directly. That important point was made in the other place. I could repeat my point about how the transaction reports from accountants are quite small, but I shall not go over the details that I gave, comparing accountants to bookmakers. That was probably unfair of me; one would have thought that we would get a lot more from accountants than from bookmakers.

Legal privilege is an established concept. The noble Baroness and the noble Lords are asking for privilege to be extended to other professionals, rather than just legal professionals. Even if that were the right thing to do, this would not be the right Bill in which to do it. I have no doubt, however, that we will come back to this matter on Report.

Baroness Noakes

Can the Minister clarify something? We understand that it is the intention that the other professions will be brought within the scope of the Bill by an order made under Schedule 6. Accountants will come within the scope of the Bill. The Bill must have all the protections that are deemed appropriate for accountants. It is not a question of waiting for a later consultation process; it is in the fundamental structure of the Bill. Other regulated professionals will be brought within the scope of the Bill. Is it not correct to amend the Bill in such a way as to cover all the professions whose inclusion in the scope of the Bill is being contemplated?

Lord Rooker

Work may be needed, but it is not work of the kind that is suggested by the amendments. I shall get an answer for the noble Baroness. Either I shall write to her or I shall make sure that the matter is dealt with on Report. She has asked a fair question.

The answer that I can give may not please everyone in the Committee, especially as I am about to say the dreaded words "European Communities Act". The answer is, "No". Under the European Communities Act 1972, we have wide powers to alter the Bill later. I know that that will be like a red rag to a bull for some noble Lords. I have made my bed, and I shall have to lie on it now.

Baroness Noakes

I thank the Minister for that response. He might anticipate that I see more mileage in the subject. I hope that he will consider the examples more closely. The situations described are slightly different from those that were discussed in another place. There are issues relating to tax advisers, other accountants involved in helping people to understand the consequences of business transactions and—importantly—auditors. The flow of information to auditors is extremely important on public policy grounds. For now, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Deputy Chairman of Committees (Lord Murton of Lindisfarne)

If Amendment No. 260E is agreed to, I shall be unable to call Amendment No. 260F, owing to pre-emption.

Lord Thomas of Gresford

moved Amendment No. 260E: Page 193, leave out lines 3 to 9 and insert— (c) he was acting in the course of his duties as an employee and he did not know or suspect that the other person was engaged in money laundering. (6) Where a person would have committed an offence under this section but for subsection (5)(c), his employer shall be guilty of an offence under this section unless the employer had taken all reasonable steps to ensure that the employee was properly qualified by knowledge, experience and training to carry out the duties in question. The noble Lord said: The amendment deals with the situation that was foreshadowed in the remarks made by the noble Lord, Lord Kingsland. The Bill and the mechanisms in it for controlling money laundering ought to bite on employers, as much as on employees. The amendment would mean that an employee would have as a defence the fact that he was, acting in the course of his duties as an employee and he did not know or suspect that the other person was engaged in money laundering". There is also a provision that the employer shall be guilty of the offence if he has not taken, reasonable steps to ensure that the employee was properly qualified by knowledge, experience and training to carry out the duties in question". The policy of the Bill must be to put the employer at risk, rather than the employee. If we put in a Bill various provisions that make negligence a criminal offence, without adequate safeguards, it is even more important that the employer should be brought up short. I beg to move.

5.15 p.m.

Lord Bassam of Brighton

The amendment would delete those that were made by the Government to subsection (5) of Clause 330 in the other place on Report. Those provided a defence to the failure to disclose offence if an employer had not provided the defendant with such training as was specified by the Secretary of State by order.

The noble Lord's amendment would replace the Government's proposed solution with a different and much weaker position. The effect would be that an employee in the regulated sector, on which Clause 330 bites, would never, in any circumstances, commit a failure to disclose offence under the objective lest of reasonable grounds for knowledge or suspicion. If the employer had not provided adequate training, he would be deemed to be guilty of the failure to disclose offence under the objective test.

The amendment would also have the effect that, in circumstances in which the employer had provided the employee with adequate training and experience and the employee still did not know or suspect that money laundering was taking place—in circumstances in which he should have done—the employee would still not have committed a failure to disclose offence and neither would the employer.

As the noble Lord, Lord Thomas of Gresford, said, there was some discussion of the impact of such changes in our debates on some previous amendments. The amendment would remove the negligence element from Clause 330 and introduce a separate negligent failure to disclose offence. Strong measures against money laundering, including the new negligence test, are essential, given the background of several money-laundering cases in the City that were not reported to law enforcement agencies. In the interests of the City's financial reputation and standing, it is vitally important that the United Kingdom be seen to demand the highest standards of diligence.

Noble Lords should note that we already have sanctions under the Money Laundering Regulations 1993 and in the Financial Services Authority rules against employers who consistently fail to provide adequate training. The penalty under the Money Laundering Regulations is two years' imprisonment or an unlimited fine. Regulatory sanctions seem appropriate for a firm that fails to establish adequate systems to stop money laundering.

There is no distance between us on the point that employees should not be held liable when they have not been properly trained. On Report in another place, we introduced amendments to that effect, providing a defence to cover that situation. However, we are not of like mind as to where ultimate responsibility should lie in the event that blatant examples of money laundering are disregarded. The negligence element of the failure to disclose offence should be applied directly to individual employees. We must have provisions that will deter competent employees from exercising wilful blindness, particularly, as is often the case, when they are under pressure to maximise profits.

The "reasonable grounds" test for individuals is important. 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 hope that the noble Lord is persuaded by those points and will feel able to withdraw the amendment.

Lord Thomas of Gresford

I regret to say that. I am not persuaded by the argument put forward. Our debate has clearly outlined a serious and important point of principle; that is, the introduction of what the Government now freely admit is an objective or negligent test of whether an individual has committed an offence. That is a matter which obviously has a wider implication than this particular part of the Bill. Although I seek leave to withdraw the amendment, I have no doubt that we shall return to this matter of principle at the next stage.

Amendment, by leave, withdrawn.

[Amendments Nos. 260F to 260J not moved.]

Clause 330, as amended, agreed to.

Lord Rooker

moved Amendments Nos. 260K and 260L: After Clause 330, insert the following new clause— "FAILURE TO DISCLOSE: NOMINATED OFFICERS IN THE REGULATED SECTOR (1) A person nominated to receive disclosures under section 330 commits an offence if the conditions in subsections (2) to (4) are satisfied. (2) The first condition is that he—

1. (a) knows or suspects, or
2. (b) has reasonable grounds for knowing or suspecting, that another person is engaged in money laundering.

(3) The second condition is that the information or other matter—

1. (a) on which his knowledge or suspicion is based, or
2. (b) which gives reasonable grounds for such knowledge or suspicion,

came to him in consequence of a disclosure made under section 330. (4) The third condition is that he does not make the required disclosure as soon as is practicable after the information or other matter comes to him. (5) The required disclosure is a disclosure of the information or other matter—

1. (a) to a person authorised for the purposes of this Part by the Director General of the National Criminal Intelligence Service;
2. (b) in the form and manner (if any) prescribed for the purposes of this subsection by order under section (Form and manner of disclosures).

(6) But a person does not commit an offence under this section if he has a reasonable excuse for not disclosing the information or other matter. (7) In deciding whether a person committed an offence under this section the court must consider whether he followed any relevant guidance which was at the time concerned—

1. (a) issued by a supervisory authority or any other appropriate body,
2. (b) approved by the Treasury, and
3. (c) published in a manner it approved as appropriate in its opinion to bring the guidance to the attention of persons likely to be affected by it.

(8) Schedule 6 has effect for the purpose of determining what is a supervisory authority. (9) An appropriate body is a body which regulates or is representative of a trade, profession, business or employment. After Clause 330, insert the following new clause— "FAILURE TO DISCLOSE: OTHER NOMINATED OFFICERS (1) A person nominated to receive disclosures under section 333 or 334 commits an offence if the conditions in subsections (2) to (4) are satisfied. (2) The first condition is that he knows or suspects that another person is engaged in money laundering. (3) The second condition is that the information or other matter on which his knowledge or suspicion is based came to him in consequence of a disclosure made under section 333 or 334. (4) The third condition is that he does not make the required disclosure as soon as is practicable after the information or other matter comes to him. (5) The required disclosure is a disclosure of the information or other matter—

1. (a) to a person authorised for the purposes of this Part by the Director General of the National Criminal Intelligence Service;
2. (b) in the form and manner (if any) prescribed for the purposes of this subsection by order under section (Form and manner of disclosures).

(6) But a person does not commit an offence under this section if he has a reasonable excuse for not disclosing the information or other matter. On Question, amendments agreed to.

[Amendment No. 261 not moved.]

Schedule 6 agreed to.

Clause 331 [Tipping off]:

[Amendments Nos. 261A to 261C not moved.]

Clause 331 agreed to.

Clause 332 [Penalties]:

Lord Rooker

moved Amendment No. 261D: Page 194, line 21, after "330" insert ", (Failure to disclose: nominated officers in the regulated sector), (Failure to disclose: other nominated officers) On Question, amendment agreed to.

[Amendment No. 262 not moved.]

Clause 332, as amended, agreed to.

Lord Rooker

moved Amendments Nos. 262A and 262B: After Clause 332, insert the following new clause— "APPROPRIATE CONSENT (1) The appropriate consent is—

1. (a)the consent of a nominated officer to do a prohibited act if an authorised disclosure is made to the nominated officer;
2. (b) the consent of a constable to do a prohibited act if an authorised disclosure is made to a constable;
3. (c) the consent of a customs officer to do a prohibited act if an authorised disclosure is made to a customs officer.

(2) A person must be treated as having the appropriate consent if—

1. (a) he makes an authorised disclosure to a constable or a customs officer, and
2. (b) the condition in subsection (3) or the condition in subsection (4) is satisfied.

(3) The condition is that before the end of the notice period he does not receive notice from a constable or customs officer that consent to the doing of the act is refused. (4) The condition is that—

1. (a) before the end of the notice period he receives notice from a constable or customs officer that consent to the doing of the act is refused, and
2. (b) the moratorium period has expired.

(5) The notice period is the period of seven working days starting with the first working day after the person makes the disclosure. (6) The moratorium period is the period of 31 days starting with the day on which the person receives notice that consent to the doing of the act is refused. (7) A working day is a day other than a Saturday, a Sunday, Christmas Day, Good Friday or a day which is a bank holiday under the Banking and Financial Dealings Act 1971 (c. 80) in the part of the United Kingdom in which the person is when he makes the disclosure. (8) References to a prohibited act are to an act mentioned in section 327(1), 328(1) or 329(1) (as the case may be). (9) A nominated officer is a person nominated to receive disclosures under section 334. (10) Subsections (1) to (4) apply for the purposes of this Part. After Clause 332, insert the following new clause— "NOMINATED OFFICER: CONSENT (1) A nominated officer must not give the appropriate consent to the doing of a prohibited act unless the condition in subsection (2), the condition in subsection (3) or the condition in subsection (4) is satisfied. (2) The condition is that—

1. (a) he makes a disclosure that property is criminal property to a person authorised for the purposes of this Part by the Director General of the National Criminal Intelligence Service, and
2. (b) such a person gives consent to the doing of the act.

(3) The condition is that—

1. (a) he makes a disclosure that property is criminal property to a person authorised for the purposes of this Part by the Director General of the National Criminal Intelligence Service, and
2. (b) before the end of the notice period he does not receive notice from such a person that consent to the doing of the act is refused.

(4) The condition is that—

1. (a) he makes a disclosure that property is criminal property to a person authorised for the purposes of this Part by the Director General of the National Criminal Intelligence Service,
2. (b) before the end of the notice period he receives notice from such a person that consent to the doing of the act is refused, and
3. (c) the moratorium period has expired.

(5) A person who is a nominated officer commits an offence if—

1. (a) he gives consent to a prohibited act in -circumstances where none of the conditions in subsections (2), (3) and (4) is satisfied, and
2. (b) he knows or suspects that the act is a prohibited act.

(6) A person guilty of such an offence is liable—

1. (a) on summary conviction, to imprisonment for a term not exceeding six months or to a fine not exceeding the statutory maximum or to both, or
2. (b) on conviction on indictment, to imprisonment for a term not exceeding five years or to a fine or to both.

(7) The notice period is the period of seven working days starting with the first working day after the nominated officer makes the disclosure. (8) The moratorium period is the period of 31 days starting with the day on which the nominated officer is given notice that consent to the doing of the act is refused. (9) A working day is a day other than a Saturday, a Sunday, Christmas Day, Good Friday or a day which is a bank holiday under the Banking and Financial Dealings Act 1971 (c. 80) in the part of the United Kingdom in which the nominated officer is when he gives the appropriate consent. (10) References to a prohibited act are to an act mentioned in section 327(1), 328(1) or 329(1) (as the case may be). (11) A nominated officer is a person nominated to receive disclosures under section 334. On Question, amendments agreed to.

Clause 333 [Protected disclosures]:

[Amendments Nos. 263 and 264 not moved.]

Baroness Noakes

moved Amendment No. 264A: Page 194, line 36, at end insert ", or is a matter relating to that knowledge or suspicion The noble Baroness said: I rise to speak to Amendment No. 264A which stands in my name and that of my noble friend Lord Freeman. The issue it addresses is the protection of disclosures of information which are related to the knowledge or suspicion of money laundering but are not disclosures of the information on which the knowledge or suspicion is based.

I understand that NCIS routinely seeks information which may be useful to it but which is not strictly related to the information which caused the person to make a disclosure. For example—and I am afraid that I must again give examples of accountants—an accountant may have knowledge or suspicion that a property transaction was a money laundering transaction. When he goes to report that, NCIS asks for some other details—for instance, unrelated businesses and mobile telephone numbers—for its own purposes in order to try to build up a picture of the client.

That extra information is not that on which the accountant's knowledge or suspicion of money laundering is based. Therefore, if he provides it, Clause 333 as it stands will not protect him. Without an amendment to the clause, the accountant will be open to an action for breach of confidentiality.

I understand that the matter has been discussed between officials of the Home Office and officials from the Institute of Chartered Accountants. The view of the Home Office is that amendment is not necessary because the requirements of confidentiality are overridden by a commonlaw principle of disclosure being properly made in the public interest. If that is the case, it is difficult to see why Clause 333 is needed at all.

Leaving that on one side, the Institute of Chartered Accountants has real concerns that the public interest defence is not robust and on that basis the institute could not advise its members to breach client confidentiality obligations and make the additional disclosures which are not clearly covered by Clause 333. I hope that the Minister will agree that it is in the public interest that a wide approach to protected disclosures is contained in the Bill. I beg to move.

Lord Freeman

I support the amendment. The Minister is clearly in a cleft stick. On the one hand, his brief will probably state that the amendment is unnecessary and that he should resist it. On the other, he made an appeal earlier for professional people—he singled out accountants—to co-operate more with NCIS and provide more information. The amendment provides a mechanism to do so with proper protection.

The Minister may try to argue that the amendment is unnecessary, leaving open a small scintilla of doubt in the minds of professional people as to whether they will be sued in the courts as opposed to having statutory protection, but I do not believe that he will have an argument.

Lord Rooker

For the most excellent reasons of brevity, I propose to take away the amendment and give it further consideration in order to see whether we can find a satisfactory solution to the points raised.

Baroness Noakes

I am grateful to the Minister. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 265 not moved.]

Clause 333 agreed to.

Clause 334 [Authorised disclosures]:

Lord Rooker

moved Amendment. No. 265A: Page 195, line 6, after second "property' insert— (aa) it is made in the form and manner (if any) prescribed for the purposes of this subsection by order under section (Form and manner of disclosures). On Question, amendment agreed to.

[Amendment No. 265B not moved.]

Lord Rooker

moved Amendment No. 265C: Page 195, line 10, leave out from "act" to end of line 12. On Question, amendment agreed to.

[Amendments Nos. 265CA and 265D not moved.]

Lord Rooker

moved Amendment No. 265E: Page 195, leave out lines 28 and 29. On Question, amendment agreed to.

Clause 334, as amended, agreed to.

Lord Rooker

moved Amendment No. 265F: After Clause 334, insert the following new clause— "FORM AND MANNER OF DISCLOSURES The Secretary of State may by order prescribe the form and manner in which a disclosure under section 330, (Failure to disclose: nominated officers in the regulated sector), (Failure to disclose: other nominated officers) or 334 must be made. On Question, amendment agreed to.

Clause 335 [Interpretation]:

[Amendments Nos. 265G to 265J not moved.]

Clause 335 agreed to.

Clauses 336 to 340 agreed to.

Clause 341 [Requirements for making of production order]:

Lord Thomas of Gresford

moved Amendment No. 265JA: Page 200, line 3, 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;
2. (b) the circumstances under which the person in possession of the material holds it."

The noble Lord said: Amendments Nos. 265JA, 267A and 268AA introduce the concept that there are reasonable grounds for believing that the making of a production order is in the public interest. We believe that there should be a basis on which the application for the order is made and that the application is capable of being tested. I beg to move.

5.30 p.m.

Lord Rooker

I recognise that the amendments seek to insert a provision that exists in current legislation. They replicate Section 55(4)(c) of the Drug Trafficking Act 1994 which deals with production orders.

If the amendments were accepted, it would be made explicit on the face of the Bill that, in considering applications for a production order, a disclosure order and an account monitoring order, the judge would have to be satisfied that such orders are in the public interest. I understand that much discussion took place on this and, indeed, that a Division was called during the proceedings in Committee in the other place.

In resisting the amendment, the Government's position is that this is not a dilution of safeguards. As explained in the Explanatory Notes accompanying the Bill, the Human Rights Act 1998 requires a judge not to act in any way that is incompatible with convention rights. So, for example, an appropriate officer who applies for an order or warrant will have to satisfy a judge that any infringement of a person's right to privacy under Article 8 of the convention is proportionate to the benefit to be gained from making it.

We think that it would be unnecessary, therefore, to retain the present "public interest" test contained in the Criminal Justice Act 1998 (as amended), 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.

This omission of the "public interest" test raised some concerns in the other place. Certain doubts were raised that the Human Rights Act provided the same safeguard or, if it did, that it justified the removal of an express safeguard relating to the investigation power provisions. In response to that argument, it is worth making two points.

First, Section 6 of the Human Rights Act would require a court to comply with all the safeguards provided by the European Convention on Human Rights when deciding whether or not to make an order or a warrant. We are satisfied that the application of the Human Rights Act removes the need for the public interest test. Article 8(2) 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.

The equivalent customer information order and accounting monitoring order provisions in the Terrorism Act 2000 and the Anti-terrorism, Crime and Security Act 2001, do not contain the public interest test. In those cases, the judge would have to consider the application against his obligation to consider a person's rights under the European convention. We believe that this is a parallel to the position under the Bill. Similarly, no such test is expressly stated in the investigation provisions of the Financial Services and Markets Act 2000.

Having made those remarks, I invite the noble Lord to withdraw his amendment.

Lord Thomas of Gresford

The weakness in the argument put forward by the Minister—that we can rely on the European Convention on Human Rights to supply the public interest test—is this: these are applications that, in effect, are made ex parte for a production order. There is no one on the other side. Although it sets out a checklist for the judge to go through while he considers whether a production order would be appropriate, it is asking a little of him also to have regard to the European convention and to all the possible provisions that might apply in circumstances such as these—the right to property and so forth.

In those circumstances, the European convention does not match up to a provision asking the judge to think about the public interest. As the noble Lord has made clear, it appears in other legislation and there is no valid reason why it should not be included here.

Lord Rooker

I tend to agree with the noble Lord. I shall take the matter away and look at it again.

Lord Thomas of Gresford

I am much obliged to the noble Lord. On that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 341 agreed to.

Clauses 342 to 344 agreed to.

Clause 345 [Government departments]:

Lord Rooker

moved Amendment No. 265K: Page 201, line 21, leave out "Circuit judge" and insert "judge entitled to exercise the jurisdiction of the Crown Court The noble Lord said: This is a drafting amendment designed to bring Clause 345 into line with Clause 338. That being the case,. I do not think that I need to say any more about it. I beg to move.

On Question, amendment agreed to.

Clause 345, as amended, agreed to.

Clauses 346 to 351 agreed to.

Clause 352 [Disclosure orders]:

Lord Bassam of Brighton

moved Amendment No. 265L: Page 206, line 10, after "investigation" insert "which is being carried out by the Director The noble Lord said: I believe that I shall be able to deal with this amendment fairly swiftly. As we have already indicated, the disclosure order is available only to the director. We consider that the power should be available for use only for the purposes of his own functions. In any event, the power is likely to be needed only exceptionally in more complex cases. Over time, we would normally expect such cases to be handled by the director.

The amendment will also ensure that information obtained through the disclosure order power for the purpose of identifying proceeds cannot also be used for the purpose of criminal investigations by law enforcement officers into offences. We believe that it is important for this principle to be observed. It is for those reasons that we have brought forward this amendment. I beg to move.

On Question, amendment agreed to.

[Amendments Nos. 266 and 267 not moved.]

Clause 352, as amended, agreed to.

Clause 353 [Requirements for making of disclosure order]:

Lord Thomas of Gresford

had given notice of his intention to move Amendment No. 267A: Page 206, line 41, at end insert— () There must be reasonable grounds for believing that the making of a disclosure order is in the public interest having regard to—

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

The noble Lord said: On the basis of the assurance previously given by the noble Lord, I do not propose to move this amendment.

[Amendment No. 267A not moved.]

Clause 353 agreed to.

Clause 354 agreed to.

Clause 355 [Statements]:

Baroness Buscombe

moved Amendment No. 268: Page 207, line 31, after "the" insert "current The noble Baroness said: This is a small point, but it is important because it adds clarity to the legislation. The clause refers to a statement made by a person in response to a requirement imposed on him under a disclosure order. The amendment does not alter the effect of the clause, but makes the meaning more clear, in that on page 207, line 31, it is made clear that we are referring here to the "current" statement mentioned in subsection (1). I beg to move.

Lord Bassam of Brighton

We have looked at this proposal, but I am a little perplexed because I cannot quite see why it has any place here. It appears to have no practical effect.

Perhaps I may draw the attention of the Committee to subsection (2)(d) in Clause 355. The reference to the statement made in subsection (1) surely must be none other than the one made under that subsection. We do not see how the addition of the qualification proposed by the noble Baroness could refer to anything other than the current statement in subsection (2)(d).

Perhaps the noble Baroness will tell me something different, but unless I have it entirely wrong, I cannot see that the amendment would add anything to the provision.

Baroness Buscombe

I can only repeat what I said to the Minister. He may suggest that it must mean something, but lawyers have helpfully looked at this Bill, with us and on our behalf, and they say that it raises some question marks. If lawyers are questioning whether it means any old statement or the current statement, then the proposed amendment will add clarity. It is as simple as that.

Lord Bassam of Brighton

The best that we can do on this issue is to disagree today. But I shall at least take away the point that lawyers have looked at this issue. If lawyers have looked at it they have probably had an idea or two. We shall look to see whether there is something there that we have missed in the past.

Baroness Buscombe

I thank the Minister. On that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 355 agreed to.

Clauses 356 to 363 agreed to.

Clause 364 [Supplementary]:

Lord Rooker

moved Amendment No. 268A: Page 212, line 34, after "unless" insert "he is a senior appropriate officer or The noble Lord said: The effect of the amendment mirrors the amendments to Clause 68, which were approved on 22nd April, in respect of restraint order applications. It allows a senior appropriate officer who can authorise applications for the issue and variation of custody information orders to apply for such orders or variations himself without requiring a separate authorisation from another senior appropriate officer. I hope that the amendment meets with the Committee's approval. I beg to move.

On Question, amendment agreed to.

Clause 364, as amended, agreed to.

Clause 365 agreed to.

Clause 366 [Requirements for making of account monitoring order]:

Lord Thomas of Gresford

had given notice of his intention to move Amendment No. 268AA: Page 213, line 44, at end insert— () There must be reasonable grounds for believing that the making of an account monitoring order is in the public interest having regard to—

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

The noble Lord said: Again, on the basis of the assurance previously given, I do not move this amendment.

[Amendment No. 268AA not moved.]

Clause 366 agreed to.

Clauses 367 to 370 agreed to.

Clause 371 [Code of practice]:

Lord Bassam of Brighton

moved Amendment No. 268B: Page 215, line 5, leave out from "by" to "or in line 6 and insert "all of the following The noble Lord said: This group of amendments relates to the code which will provide guidance as to how investigation powers in respect of confiscations, civil recovery and money laundering investigations are to be conducted by the director of the assets recovery agency and financial investigators in England and Wales and Northern Ireland.

The execution of search and seizure warrants is an invasive power under the investigation scheme. We believe that the conduct of officers should therefore be subject to a code of practice. I do not suppose that the Committee will disagree with that. This brings such officers into line with financial investigators who are already covered by the code and the search provisions under recovery of cash, which are subject to a code of practice under Clause 294. With that simple explanation, I beg to move.

On Question, amendment agreed to.

5.45p.m.

Lord Bassam of Brighton

moved Amendments Nos. 268C to 268F: Page 215, line 6, at end insert—

1. "(a) the Director;
2. (b) members of the staff of the Agency;
3. (c) accredited financial investigators;
4. (d) constables;
5. (e) customs officers."

Page 215, line 15, leave out "The Director" and insert "A person specified in subsection (1)(a) to (e) Page 215, line 17, leave out subsection (6) Page 215, line 20, leave out "the Director or an appropriate officer" and insert "such a person On Question, amendments agreed to.

Clause 371, as amended, agreed to.

Clauses 372 to 384 agreed to.

Clause 385 [Disclosure orders]:

[Amendments Nos. 269 and 270 not moved.]

Clause 385 agreed to.

Clauses 386 to 407 agreed to.

Clause 408 [Property]:

Lord Thomas of Gresford

moved Amendment No. 270A: Page 233, line 33, at end insert— () interests in property The noble Lord said: This is a simple amendment to include "interests in property" as a part of the definition of "property" itself and to remove from subsection (3) the rules which refer to property held by a person if he holds an interest in it. We believe that the amendment is a simplification and a clarification. I beg to move.

Lord Rooker

These amendments are similar to those tabled by the noble Lord in relation to Parts 2 and 5 of the Bill which we discussed on 22nd April and 13th May. As the noble Lord explained, the effect of the amendments would be to narrow the definition of "property" as it appears in Part 8 in relation to investigations and the similar definition in Part 11 relating to co-operation.

The Committee will recall that when a similar amendment was tabled in respect of Part 2, my noble friend Lord Bassam of Brighton gave an assurance to the noble Lord that we would reconsider that amendment and provide him with a fuller answer on some of the issues that it raised. I believe that I have since written to the noble Lord—I certainly hope that I have; I have written a lot of letters about this Bill—to explain our position, but it may be helpful if I inform the Committee about some of the content of that letter as exactly the same considerations will apply in respect of assistance which we give to other countries under Part 11. Different considerations apply to Part 8 and I shall deal with those separately.

The main concern is the fact that a restraint order can extend beyond the defendant's interest in property to encompass the whole of the property in question. Where the defendant's interest is only a small proportion of the property as a whole, such as a leasehold interest in a block of flats, this seems inequitable. The noble Lord believes that only the defendant's, or the gift recipient's, interest in the property should be restrained, both in a domestic case and in respect of a request to freeze assets received from an overseas jurisdiction.

The provisions in the Bill replicate the provisions in the existing legislation which are a central component of a restraint scheme which has worked well for many years. Property is often held in complex arrangements and it will not always be easy to extricate the defendant's interest from the rest of the property. At the restraint stage it may not be clear how far the defendant's interest extends or, indeed, whether the whole arrangement is a sham. Where a third party is affected by a restraint order it is open to him to apply for a variation of that order under Clause 43(3) and we intend to make similar provision in respect of overseas requests in the relevant Order in Council made under Clause 438.

We believe that it is best to rely on such a safeguard and to allow the court to determine whether an interest in property can easily be extricated from the rest of the property. If we did not allow the property to be restrained in the first place we would risk losing valuable assets that should have been available for confiscation. The same considerations apply to requests to freeze overseas assets.

As to the noble Lord's amendments in respect of Part 8, we have looked again at the relationship between the definition of "property" and the purpose of the powers of investigation. We believe that it would be difficult to conclude that precisely the same considerations apply, particularly in respect of investigations, because the powers are not aimed at the property as such; rather they are aimed at obtaining material which will be helpful in ultimately bringing proceedings.

However, this is a very complex and technical area. The best I can do is to offer to write again to the noble Lord, setting out our views on this matter. With another two stages of the Bill remaining, it is, of course, open to him to return to the matter. I do not want to snuff out the debate about property because there are a lot of questions to be asked and they are deserving of answers.

Lord Thomas of Gresford

I am grateful to the Minister for that explanation. I know it is a matter that concerns my noble friend Lord Goodhart. I am sure that he will read the explanation in conjunction with the letter that has already been sent, and he may or may not take the matter further. For the moment, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 270B not moved]

Clause 408 agreed to.

Clauses 409 and 410 agreed to.

Clause 411 [Modifications of the 1986 Act]:

Baroness Buscombe

moved Amendment No. 271: Page 235, line 20, leave out "excluded from" and insert "included in The noble Baroness said: In moving this amendment, I shall speak also to Amendments Nos. 272 to 274; to the Question whether Clause 413 shall stand part of the Bill; to Amendments Nos. 275 to 278; to the Question whether Clause 416 shall stand part of the Bill; to Amendments Nos. 279 to 282; to the Question whether Clause 419 shall stand part of the Bill; to Amendments Nos. 283 to 285; to the Question whether Clause 421 shall stand part of the Bill; to Amendments Nos. 286 to 288; to the Question whether Clause 423 shall stand part of the Bill; to Amendments Nos. 289 and 290; to the Question whether Clause 426 shall stand part of the Bill; and to the Question whether Clause 427 shall stand part of the Bill. This rather large group of amendments relates to Part 9, dealing with insolvency.

One of the odd features of this Bill and previous Acts giving the prosecution wide powers of confiscation is that almost all of them provide that any property subject to the relevant order does not form part of a bankrupt's estate in the event of the defendant being adjudged bankrupt. The consequence is that the proceeds of the disposal of the property are paid into the Consolidated Fund and are not available to pay creditors. That seems to us to be very unfair, as many of those creditors will be completely innocent of any wrongdoing and the consequence for them could be disastrous.

An innocent tradesman without the investigatory powers of the police or the Seriou3 Fraud Office will give credit in the normal course of his business. He may be encouraged to do so because of the apparent wealth of the debtor. He will be lulled into a false sense of security and may lend more than he otherwise would because of that apparent wealth. In the event of bankruptcy, that apparent wealth should be available to satisfy the innocent trader, and should not be paid into the Consolidated Fund. The innocent trader is in no way to blame because he cannot possibly carry out the sort of inquiries necessary to ensure that there is no possibility of an order under the Bill which would deprive him of the possibility of being paid.

It may even turn out that the creditor is an involuntary creditor, in the sense that he may be a victim of some criminal activity of the bankrupt defendant. In such a case the injustice is only too apparent. The loss suffered by the victim may well have been caused by the very conduct that leads to an order under the Bill, and yet he will be deprived of any compensation because of such an order. It will be no comfort to him that, instead of his money being distributed to him and to other victims of the crime, this money will be paid into the Consolidated Fund.

We therefore propose that property subject to an order under the Bill should form part of a bankrupt's estate, but giving the applicant for such an order the right to prove in the bankruptcy but to be paid after all other creditors. The order of payment of creditors will be: first, preferential creditors such as the Inland Revenue in respect of the preferential element of the tax owing: secondly, ordinary creditors; then the applicant for the relevant order under the Bill, who will then pay the dividend he receives into the Consolidated Fund. Such an order of priority meets the justice of the case, but with no benefit to the criminal and bankrupt defendant. The amendment does not improve his position at all, but will improve the position of innocent creditors.

Under Section 339 of the Insolvency Act 1986, a trustee in bankruptcy can apply to the court where the bankrupt has at the relevant time entered into a transaction with a person at an undervalue. The court then has power to make such an order as it thinks fit for restoring the position to what it would have been if the bankrupt had not entered into that transaction. Under Section 423 of the same Act the trustee in bankruptcy, or the victim of the transaction, can apply for a similar order where a bankrupt enters into a transaction for the purpose of putting assets beyond the reach of a person who is making, or may at some time make, a claim against him or otherwise prejudicing the interests of such a person in relation to the claim that he is making or may make. These are valuable weapons in a trustee in bankruptcy's armoury for recovering assets for the benefit of creditors.

Clause 413 of the Bill prevents the court from making an order under either Section 339 or Section 423 of the Insolvency Act 1986 when proceedings for an offence have been started against the bankrupt and have not been concluded, an application has been made under certain clauses in the Bill against that person or in respect of that person which has not been concluded, or the relevant property is subject to a restraint order. If any of those conditions is satisfied, no order can be made under either Section 339 or Section 423 and the relevant assets cannot be recovered for the benefit of creditors of the bankrupt. If any of those conditions is satisfied, there is an automatic defence to any proceedings under Section 339 or Section 423, even if it should turn out that the criminal proceedings are dismissed or the application for a relevant order under the Bill is dismissed as well.

This provision is extraordinary. It assists the recipient of a tainted gift by giving him a defence that he would otherwise not have. It gives him a defence at the expense of the innocent creditors to whom I have referred. The provision is unacceptable. It serves no useful purpose and yet it will limit the rights of innocent creditors and perhaps even victims of the very offence in respect of which criminal proceedings have been started on recovering or attempting to recover the money they are owed. I beg to move.

Lord Thomas of Gresford

I support these proposals. We are returning to a topic that we dealt with at earlier stages, and I have yet to hear a satisfactory explanation from the Government as to why the innocent trader who has done work or lent money should be penalised and why the state should take all the money that can be recovered from the person who is the subject of various orders made under the Bill.

The argument is that it creates too many loopholes. There is the machinery in place, as the noble Baroness said, under the Insolvency Act to make proper inquiries into the provenance of the debt that the trader, for example, is seeking. Those inquiries can be satisfied in the ordinary way by the courts. It seems to me wrong in principle that the state should take all the money and leave bona fide creditors penniless. I support the amendment.

6 p.m.

Lord Rooker

Because of the latter point made by the noble Lord, Lord Thomas, of Gresford, I shall be somewhat longer in responding to this important group of amendments than the noble Baroness was in speaking to them. I hope that my reply will answer the noble Lord's point. I shall divide this large group into two sets of amendments and two sets of clause stand part debates. In that way, I hope that the flow of the argument will be clearly set out in Hansard for Members of the Committee to read and consider whether they wish to return to these matters.

I shall deal first with Amendments Nos. 271 to 278, because they are the driving force behind the group. They would affect Clauses 411, 414, 417, 420 and 422. This first set of amendments would have a number of fundamental effects. First, Part 9 establishes a scheme that sets out clearly when confiscation proceedings take precedence over insolvency proceedings, and vice versa, in cases where the same property is subject to both sets of proceedings. The amendments would abolish that scheme and in effect grant precedence to the insolvency legislation under all circumstances.

In particular, this set of amendments provides that where a restraint or receivership order has been made over property under the confiscation legislation, it can be trumped later by an insolvency order and all the property that has been subject to restraint or receivership action can be given to creditors under the insolvency legislation.

This first set of amendments would have further ancillary effects. It would require the prosecutor, the director and an accredited financial investigator to assert their interest in the property of an insolvent person or company in the same way as any other creditor. The amendments also provide that the prosecutor, the director and an accredited financial investigator would be paid only after any creditors had been satisfied. In other words, their claim to confiscate property would have to give way in all cases to the claims of creditors. As a footnote, should noble Lords think about coming back on the amendments, Amendment No. 285 is technically defective, because it draws on the language of personal bankruptcy, but relates to Clause 420, which deals with company winding-up.

The second set of amendments—Amendments Nos. 289 and 290—would make essentially consequential provision in relation to Clause 424, which deals with floating charges. They would change the provision in Clause 424 to give the charge holder precedence over the confiscation legislation in all circumstances.

The third limb of the group is the proposal that Clauses 413, 416, 419, 421 and 423 should not stand part of the Bill. These clauses address the fact that the confiscation legislation and the insolvency legislation both enable gifts and undervalue transactions to be recovered from third parties. The potential problem that Clause 413 and its siblings set out to resolve is what happens where the confiscation and insolvency legislation both enable a gift to be recovered from a third party at the same time. The approach adopted by the Bill is consistent with the approach taken by Part 9 in general. It is also consistent with the current legislation on this subject.

Briefly, the Bill establishes a system of precedence on gifts. The effect of Clause 413 is that if a restraint order is made under the confiscation legislation or proceedings are instituted before a bankruptcy order is made, then confiscation has first call on a tainted gift. On the other hand, where a bankruptcy order is made before either of these takes place, the insolvency legislation has first claim on the gift. We assume that the reason for proposing to delete the clauses is that the system of precedence in Part 9, of which they are an ancillary part, would be abolished by the amendments that I described earlier.

Finally, there is the proposal to delete Clauses 426 and 427. These deal with a number of issues relating to insolvency practitioners, particularly the situation where an insolvency practitioner interferes with property subject to a restraint order. We assume that the reason for proposing to delete these clauses is that under the amendments I have described above insolvency practitioners would be free to seize property that had previously been subject to restraint or receivership action under the confiscation legislation. It is worth adding in passing that Clauses 426 and 427 also cover insolvency practitioners who deal with property subject to an interim receiving order under Part 5, to which none of the other present amendments relate. It is not clear whether it was intended to remove that provision as well. I say that in case noble Lords wish to come back with their advisers and see how they can take the whole lot out.

We think all these changes are wrong in principle and would be detrimental to the practical operation of the Bill. On a practical point, the main reason for having a precedence system is to avoid two sets of legislation operating simultaneously against the same property. Without such a system, there could be two receivers in post in the same case—one confiscation and one insolvency—with competing interests. That is to be avoided, but it is what the amendments would achieve.

On the underlying principles, the current scheme strikes the right balance between the competing interests of confiscation and of creditors. I stress that they are competing interests. First, the legislation needs to address the risk of criminals attempting to manipulate their proceeds into the hands of creditors who were in reality their criminal associates. The amendments would open up the legislation to that possibility.

Of course, claims in insolvency proceedings are not accepted without verification or examination. However, we are worried that the larger and more sophisticated criminal gangs, of which the numbers are legion, are capable of producing persuasive evidence from front companies and other purported creditors. A precedence system makes sure that once a restraint or receivership order has been obtained, property is secured from that moment on for confiscation and so is immune to that risk.

Secondly, without a precedence system, criminals could run up large amounts of genuine debts so as to leave as little as possible available for confiscation and in this way disrupt the activities of the enforcement authorities. As your Lordships will be aware, the reality of operational life is that cases are not pursued unless the assets available for confiscation at the end of the day justify the outlay of time and effort in bringing a confiscation action.

Criminals know that just the same as anybody else does and they would be well able to exploit such resource pressures. The amendments would invite abuse in this respect. The director, the prosecutor and other authorities would not pursue cases if they had to operate against the real prospect of the assets disappearing to satisfy the defendant's debts.

Under these amendments, there is nothing to stop bankruptcy proceedings from being instituted after a restraint or receivership order has been obtained. Where that happened, any creditors subsequently laying claim to the property would have precedence over authorities seeking to confiscate it. As soon as the authorities obtained a restraint order, the defendant would be able to run up debts, which would take first call on the restrained property in the event of a subsequent insolvency. There would be little prospect of assets remaining for confiscation at the end of the day. That would have a deterrent effect on the willingness of the authorities to take on cases.

Experience teaches us that if claims are postponed behind the claims of creditors in general, as would be the case under the amendments, the postponed claims tend not to get paid. That underlines my point—we would not receive any of the proceeds of crime.

There are strong public interest grounds for rejecting the amendments. We know that organised, sophisticated and extremely well advised criminals would find a way of getting round the legislation if we accepted the amendments. I entirely accept that nobody is happy when any creditor, secured or unsecured, lends in good faith and loses money. I cannot make a fantastically robust defence of situations in which that happens except for what I have already said about the Bill and about organised criminals.

It would be wrong, however, to allow creditors to be paid out of property that represents the proceeds of crime, any more than they should be entitled to be paid with assets which the defendant does not own for some other reason, such as when a creditor lends on the strength of a person's ownership of a car that turns out to be stolen. Consequently, we believe that the Bill is soundly based. Nevertheless, I accept that a case can be made for the proposals if the issue is taken in isolation. However, that case has to be judged against my earlier remarks on the reasons for the policy. I therefore believe that the policy is defensible.

As we do not accept the main thrust of the amendments, it follows that we must also seek to reject the ancillary provisions. The system of precedence which Part 9 establishes needs to cover tainted gifts. This means that we are unable to accept the removal of Clauses 413, 416, 419, 421 and 423. The amendments to Clause 424 on floating charges are of a slightly different order, but the same principle applies. Nor could we countenance the removal of Clauses 426 and 427, as these flow from the central provision of Part 9 that insolvency practitioners should not interfere with property reserved for confiscation.

For those detailed reasons, I hope that noble Lords will reconsider their position and not press their amendments. I do not know whether I have done any better this time in satisfying the noble Lord, Lord Thomas of Gresford, but that is the best case I can make. Some people may feel that some of the provisions could operate unfairly, but I think that they will agree that it is in the wider public interest to obtain the proceeds of crime. I therefore believe that a case can be made for the Bill to remain as it is.

Lord Donaldson of Lymington

May I ask a question to which I am sure I should know the answer? I hope that there is a forgiveness for those who have not been able to wade through all of this enormous Bill. The question arises from my experience of administering Mareva injunctions. One has situations in which an applicant turns up and says, "The whole of the wealth of this individual has in fact been pinched from me". I even had one case in which the alleged villain had certainly taken some although it was not clear how much. However, that is beside the point. In such circumstances, it was—and, I am sure, still is—the approach of the courts to say, "Until we have decided to whom this property belongs, we must allow the alleged thief"—or whatever—"to use it for his ordinary living expenses, and in particular to pay lawyers to assist in establishing whether it is his property".

There seem to be strong analogies here. I can well understand it being said that, if a creditor gives credit, he takes the risk that he may not be paid either because the property does not belong to him or because it has been taken by the state. That I can understand. However, what happens meanwhile to the alleged villain? What does he live on? Is he able to take legal advice and pay for it? There may well be answers to these questions, and perhaps I should have discovered them. However, listening to the discussion, I was as I said forcibly reminded of the problems that arise in the nature of Mareva injunctions.

6.15 p.m.

Lord Rooker

I received advice on one of the points raised by the noble and learned Lord, Lord Donaldson of Lymington, in earlier discussions and earlier briefs on the Bill. He asked how a person can pay his lawyers if all his assets have been wiped out by means of confiscation. As was said earlier, however, the legal aid system is intended to deal with such cases. We can see the possibility, particularly in relation to the payment of lawyers' fees, of people running up enormous legal bills and running down the assets which we wanted to confiscate. We therefore believe that people in that position will have to turn to legal aid.

The restraint order contains exceptions for living expenses. Of course we expect that people should be able to maintain themselves while the process is continuing. Legal expenses, however, are not part of living expenses. To that extent, therefore, I am perhaps setting right an earlier comment. The restraint order does not address the issue of legal expenses, essentially because the legal aid system is available. Nevertheless, the order may allow for living expenses so that the person concerned is not destitute while undergoing a process that is horrendous for anyone, criminal or not. I accept that.

I hope that that answers the question. If it does not, I have no doubt that noble and learned Lord, Lord Donaldson, will come back to me.

Lord Donaldson of Lymington

The noble Lord has answered it in substance. I am not appearing here on behalf of the legal profession. As far as Mareva injunctions are concerned, however, we did not say to the person subject to an injunction, "All right, transfer all your funds to the nearest solicitor, and the best of British luck to you". We imposed limits, where it was thought necessary, on the amount that could be devoted to the welfare of the legal profession.

Baroness Buscombe

I support the comments of the noble and learned Lord, Lord Donaldson. We discussed the point earlier in Committee, and we on these Benches quite strongly made the point that there should be an allowance for reasonable legal expenses. This may be an issue to which we shall return on Report.

Lord Thomas of Gresford

What appears to be behind the Bill is not simply deterring crime or removing the proceeds of crime but getting money into the coffers of the state. The Government are proposing a form of taxation of crime. Why should the state, as opposed to bona fide creditors, have the money? That is the point. I do not think that an answer has yet come forward.

Lord Carlisle of Bucklow

Having taken no part in the Bill's passage since Second Reading, when I did speak, I have listened with interest to the Minister's comments today. On every matter, he seems to have taken the attitude that he will attempt where possible to meet any bona fide criticism. In this case, as I understand it, he accepts that innocent creditors will, as has just been said, often lose out to the state. Surely the Minister should at least be willing to look again and see if there is not some way in which that position can be met.

Baroness Buscombe

I thank the Minister for his reply. I particularly thank the noble Lord, Lord Thomas of Gresford, for his support for these amendments. I also thank my noble friend Lord Carlisle of Bucklow. This is an important point which we have covered in principle on earlier occasions. However, like the noble Lord, Lord Thomas of Gresford, I cannot understand where the Government are coming from in terms of priorities. Are we talking about supporting the criminal justice system or about funding the state? I am concerned about some statements by the Minister to the effect of, if these amendments are accepted, we shall not be able to obtain any of the proceeds of crime. It seems that in the Government's understandable effort to do all they can to ensure that these criminals are brought to book and do not benefit from crime, innocent individuals could, as I said, become quite involuntarily caught up in the process. Innocent individuals could be penalised, and surely that cannot be right.

I understand the difficulty: criminals will be tempted to find ways of manipulating the system. However, that will always be the case. Surely in principle that is not a good and acceptable reason for penalising innocent individuals such as traders or creditors. This is something that I should very much like the Government to think about again. If we do not see some support on the matter, we shall return to it on Report. However, for the moment I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 272 to 274 not moved.]

Clause 411 agreed to.

Clauses 412 and 413 agreed to.

Clause 414 [Modifications of the 1985 Act]:

[Amendments Nos. 275 to 278 not moved.]

Clause 414 agreed to.

Clauses 415 and 416 agreed to.

Clause 417 [Modifications of the 1989 Order]:

[Amendments Nos. 279 to 282 not moved.]

Clause 417 agreed to.

Clauses 418 and 419 agreed to.

Clause 420 [Winding up under the 1986 Act]:

[Amendments Nos. 283 to 285 not moved.]

Clause 420 agreed to.

Clause 421 agreed to.

Clause 422 [Winding up under the 1989 Order]:

[Amendments Nos. 286 to 288 not moved.]

Clause 422 agreed to.

Clause 423 agreed to.

Clause 424 [Floating charges]:

[Amendments Nos. 289 and 290 not moved.]

Clause 424 agreed to.

Clauses 425 to 431 agreed to.

Clause 432 [Disclosure of information by Director]:

[Amendments Nos. 291 and 292 not moved.]

Clause 432 agreed to.

Clauses 433 to 440 agreed to.

Clause 441 [Interpretation]:

[Amendments Nos. 292ZA and 292ZB not moved.]

Clause 441 agreed to.

Clause 442 agreed to.

Lord Bassam of Brighton

moved Amendment No. 292A: After Clause 442, insert the following new clause — "AGENCY STAFF: PSEUDONYMS (1) This section applies to a member of the staff of the Agency if—

1. (a) he is authorised (generally or specifically) by the Director to do anything for the purposes of this Act, and
2. (b) it is necessary or expedient for the purpose of doing the thing for the member of the staff of the Agency to identify himself by name.

(2) The Director may direct that such a member of the staff of the Agency may for that purpose identify himself by means of a pseudonym. (3) For the purposes of any proceedings or application under this Act a certificate signed by the Director which sufficiently identifies the member of the staff of the Agency by reference to the pseudonym is conclusive evidence that that member of the staff of the Agency is authorised to use the pseudonym. (4) In any proceedings or application under this Act a member of the staff of the Agency in respect of whom a direction under this section is in force must not be asked (and if asked not required to answer) any question which is likely to reveal his true identity. (5) Section 1(5) does not apply to anything done by the Director under this section. The noble Lord said: Amendment No. 292A would allow a member of staff of the agency to identify himself or herself by means of a pseudonym whenever it would otherwise be necessary or expedient to provide his name, including when exercising powers under Part 8 of the Bill. Amendment No. 292AA relates to Scotland and provides similar protection for persons carrying out civil recovery investigations on behalf of Scottish Ministers. I believe that these amendments speak for themselves. I beg to move.

Lord Brooke of Sutton Mandeville

The noble Lord may recall that his noble friend Lord Rooker gave an assurance in response to a new clause that I moved in the early stages of Committee on this subject. He said that the Government would bring forward their own amendment as regards Part 12 as they regarded the issue to be worth addressing. I expressed appreciation at the time for that. I have waited with great patience throughout the Committee stage to thank them when they did so.

Part 12, which is devoted to miscellaneous and general matters, seems entirely suited to the two new clauses; pseudonyms being miscellaneous and the director who authorises them being general. I regret that the one query that I have is inappropriate and I shall entirely understand if I am given a general response. However, I have a particular personal reason for raising the query which is borne of experience.

Are the pseudonyms which the director may authorise, either generally or specifically, to be permanent or temporary? In other words, will there be a different pseudonym for particular operations or will the person have a pseudonym with which he lives on a continuing basis? I have a personal reason for asking that question. Those of us who have had experience of being protected from terrorists are given passwords which we have to remember in order to establish our correct identity. If those passwords are used only occasionally, they are astonishingly difficult to remember. Therefore, I am interested to know whether the relevant password will be temporary or permanent. I shall quite understand if that constitutes a state secret which I should not be told.

Lord Bassam of Brighton

The noble Lord speaks from great experience on these matters. I am grateful to him for raising the question. He will probably have anticipated the response; that is, that the matter will be for the director to determine at the time. No doubt operational pressures will impact on his decision as regards whether it is appropriate to change pseudonyms from time to time. In my efforts to be brief I failed to congratulate the noble Lord on pursuing the point. I put on record our gratitude for the noble Lord's original intentions in bringing forward the relevant amendment. I am glad that we have satisfied his concerns.

On Question, amendment agreed to.

Lord Rooker

moved Amendment No. 292AA: After Clause 442, insert the following new clause— "PSEUDONYMS: SCOTLAND (1) This section applies to—

1. (a) any person named by the Scottish Ministers for the purpose of a civil recovery investigation under Part 8, or
2. (b) any person authorised by the Scottish Ministers for the purpose of such a civil recovery investigation to receive relevant information under section 385,

if it is necessary or expedient for the person to identify himself by name for that purpose. (2) The Scottish Ministers may direct that such a person may for that purpose identify himself by means of a pseudonym. (3) For the purposes of any proceedings or application under this Act, a certificate signed by the Scottish Ministers which sufficiently identifies the person by reference to the pseudonym is conclusive evidence that the person is authorised to use the pseudonym. (4) In any proceedings or application under this Act a person in respect of whom a direction under this section is m force must not be asked (and if asked is not required to answer) any question which is likely to reveal his true identity. On Question, amendment agreed to.

Clauses 443 to 448 agreed to.

Schedule 8 [Amendments]:

Lord Rooker

moved Amendment No. 292B: Page 281, line 29, leave out from "which" to end of line 31 and insert "is specified in—

1. (a) paragraph 1 of Schedule (Lifestyle offences) to the Proceeds of Crime Act 2002 (drug trafficking offences), or
2. (b) so far as it relates to that paragraph, paragraph 9 of that Schedule."

The noble Lord said: This large tranche of government amendments are to a certain extent purely technical and therefore I shall not go over the details. However, it is easy for Ministers to say that measures are technical or drafting and then sit down. However, in this case I should point out that there is a small policy element to them in that the definitions of a money laundering offence as employed in Parts 2 and 4 of the Bill no longer include the offence of acquiring, using or possessing criminal property.

In one or two cases, Schedule 8 makes certain powers available under other legislation in relation to a "money laundering offence". Therefore, we have had to consider whether we should continue to employ the old definition of a money laundering offence, including the acquisition offence, in these contexts, or the new one now found in the criminal lifestyle schedule.

Paragraph 17 of Schedule 8 amends the Criminal Justice Act 1988 to give customs the power to arrest bail absconders pursuant to certain criminal offences, including money laundering offences, while paragraph 18 amends the Extradition Act 1989 to make extradition available under the 1988 Vienna drug trafficking convention in relation to money laundering offences.

We have decided that in both cases the old definition of money laundering should apply. While the acquisition offence is too broad to be regarded as an offence which is always a criminal lifestyle offence, it remains a serious offence, carrying a maximum penalty of 14 years' imprisonment or an unlimited fine.

In the case of the Extradition Act amendment, it is also relevant that our implementation of the 1988 convention covers the acquisition offence. We would therefore expect to provide assistance in relation to that offence.

In both cases, similar consequential amendments are already found in the current confiscation legislation and the present amendments secure that they basically remain unchanged. I beg to move.

On Question, amendment agreed to.

6.30 p.m.

Lord Rooker

moved Amendments Nos. 292C to 292W: Page 284, line 26, leave out from "which" to end of line 28 and insert "is specified in paragraph 1 of Schedule (Lifestyle offences) to the Proceeds of Crime Act 2002 (drug trafficking offences). Page 287, leave out lines 32 and 33 and insert "is specified in—

1. (a) paragraph I of Schedule (Lifestyle offences) to the Proceeds of Crime Act 2002 (drug trafficking offences), or
2. (b) so far as it relates to that paragraph, paragraph 9 of that Schedule."

Page 287, line 36, leave out "89" and insert "409 Page 287, line 37, leave out "2" and insert "8 Page 287, line 39, leave out from "which" to end of line 41 and insert "is specified in—

1. (a) paragraph I of Schedule (Lifestyle offences: Northern Ireland) to the Proceeds of Crime Act 2002 (drug trafficking offences), or
2. (b) so far as it relates to that paragraph, paragraph 9 of that Schedule;"

Page 288, line 4, leave out from "which" to end of line 7 and insert "is specified in—

1. (a) paragraph 1 of Schedule (Lifestyle offences) to the Proceeds of Crime Act 2002 (drug trafficking offences), or
2. (b) so far as it relates to that paragraph, paragraph 9 of that Schedule."

Page 288, line 8, leave out "89" and insert "409 Page 288, line 10, leave out "2" and insert "8 Page 288, line 13, leave out from "which" to end of line 16 and insert "is specified in—

1. (a) paragraph 2 of Schedule (Lifestyle Offences: Scotland) to the Proceeds of Crime Act 2002, or
2. (b) so far as it relates to that paragraph, paragraph 9 of that Schedule."

Page 288, line 17, leave out "158" and insert "409 Page 288, line 19, leave out "3" and insert "8 Page 288, line 23, leave out from "which" to "and" in line 26 and insert "is specified in—

1. (a) paragraph 1 of Schedule (Lifestyle offences: Northern Ireland) to the Proceeds of Crime Act 2002 (drug trafficking offences), or
2. (b) so far as it relates to that paragraph, paragraph 9 of that Schedule."

Page 288, line 27, leave out "243" and insert "409 Page 288, line 29, leave out "4" and insert "8 Page 288, line 34, leave out from "which" to end of line 36 and insert "is specified in—

1. (a) paragraph 1 of Schedule (Lifestyle offences) to the Proceeds of Crime Act 2002 (drug trafficking offences), or
2. (b) so far as it relates to that paragraph, paragraph 9 of that Schedule."

Page 288, line 37, leave out "89" and insert "409 Page 288, line 39, leave out "2" and insert "8 Page 288, line 41, leave out from "which" to end of line 43 and insert "is specified in—

1. (a) paragraph 2 of Schedule (Lifestyle Offences: Scotland) to the Proceeds of Crime Act 2002, or
2. (b) so far as it relates to that paragraph, paragraph 9 of that Schedule."

Page 288, line 44, leave out "158" and insert "409 Page 288, line 46, leave out "3" and insert "8 Page 288, line 48, leave out from "which" to end of line 51) and insert "is specified in—

1. (a) paragraph 1 of Schedule (Lifestyle offences: Northern Ireland) to the Proceeds of Crime Act 2002 (drug trafficking offences), or
2. (b) so far as it relates to that paragraph, paragraph 9 of that Schedule:"

Page 289, line 1, leave out "243" and insert "409 Page 289, line 3, leave out "4" and insert "8 Page 289, line 32, leave out from "which" to end of line 34 and insert "is specified in paragraph 1 of Schedule (Lifestyle offences: Northern Ireland) to the Proceeds of Crime Act 2002 (drug trafficking offences), Page 294, line 15, leave out "157 or 242 of" and insert "or 242 of, or paragraph 2 or (so far as it relates to that paragraph) paragraph 9 of Schedule (Lifestyle Offences: Scotland) to Page 298, line 12, leave out from "offence)" to end of line 18 and insert "for the definition of "drug trafficking offence" there is substituted— "drug trafficking offence" means an offence which is specified in—

1. (a) paragraph 1 of Schedule (Lifestyle offences) to the Proceeds of Crime Act 2002 (drug trafficking offences), or
2. (b) so far as it relates to that paragraph, paragraph 9 of that Schedule."

On Question, amendments agreed to.

Schedule 8, as amended, agreed to.

Clause 449 agreed to.

Schedule 9 [Repeals and revocations]:

Lord Rooker

moved Amendment No. 292X: Page 304, line 22, at end insert— This Act Section (Registration) (2)(a) and (4). On Question, amendment agreed to.

Schedule 9, as amended, agreed to.

Clause 450 agreed to.

Clause 451 [Orders and regulations]:

Lord Rooker

moved Amendments Nos. 293 and 293A: Page 260, line 25, after "section" insert "75(4), Page 260, line 25, after "section" insert "229(4), On Question, amendments agreed to.

Baroness Buscombe

moved Amendment No. 294: Page 260, line 25, after "294(4)," insert "359(4), The noble Baroness said: In moving this amendment, I shall speak also to Amendments Nos. 295C, 297 and 298C. The amendment, to which the Minister kindly added his name, responds to the recommendation of the Delegated Powers and Regulatory Reform Committee that the order amending the definition of customer information, which can be requested from a financial institution, must be subject to the affirmative resolution procedure. I beg to move.

On Question, amendment agreed to.

Baroness Buscombe

moved Amendment No. 295: Page 260, line 25, after "432(9)" insert "438, 439, 444 The noble Baroness said: In moving this amendment, I shall speak also to Amendment No. 298. The amendments refer to Clauses 438, 439 and 444. I shall begin with the references to Clauses 438 and 439. They relate to external requests and orders, external investigations and the powers that Her Majesty may, by Order in Council, make. The amendments refer to clauses that in a sense involve a certain loss of sovereignty, in that, being external orders, they may have an effect on other jurisdictions. They say, in a sense, to foreign courts, "Your orders abroad in relation to criminal matters will operate in this country". We are concerned about that to the extent that we believe that if we are to have such orders, they should be subject to the affirmative resolution of both Houses. Such measures should not be agreed to by negative resolution when they involve a potential loss of sovereignty.

On Clause 444, we are somewhat surprised that the provisions do not apply to public servants of the Crown. We are again nervous in this regard. We want to see how they will apply—money laundering and prejudicial investigations are involved. We believe that the regulations should apply. I beg to move.

Lord Rooker

As the noble Baroness said, the amendments would in effect make the order-making powers in Clauses 438 and 439 subject to the affirmative resolution procedure. Those clauses enable the Secretary of State to make Orders in Council to enforce requests from "overseas authorities" for the investigation, restraint, civil recovery and confiscation of assets. The amendments would also make the power in Clause 444, to make specified Crown servants subject to the money laundering provisions of the Bill, subject to affirmative resolution.

Contrary to what I have said throughout our consideration of the Bill, amendments to that effect were tabled but not reached at Report in the other place. We consider that, given the explicit nature of the relevant provisions in Parts 2, 3, 4 and 8, and the technical nature of the adaptations required for the enforcement of external orders, the use of secondary legislation that is made under the negative resolution procedure is appropriate.

The powers in Clauses 438, 439 and 444 are based on similar powers in the existing confiscation legislation—for example Sections 39, 40 and 61 of the Drug Trafficking Act 1994. The negative resolution procedure applies to orders made under those sections, and the clauses draw upon the existing provisions.

We set out that reasoning in paragraphs 123 to 127 and 131 to 133 of the Home Office memorandum to the Delegated Powers and Regulatory Reform Committee of your Lordships' House, which carried out its usual thorough analysis of the powers contained in the Bill. In relation to Part 11, the committee said in paragraph 7 of its 16th report of this Session: Part 11 of the Bill is concerned with international cooperation. Clause … 438 [is concerned] with requests for assistance coming from outside the UK and [Clause] 439 with investigations for the purposes of the Bill which need to be conducted outside the UK. Each clause leaves the necessary substantive provision to be made by Order in Council … We consider that all this is appropriate". The committee went on to say in paragraph 8 of its report: With the exception of the commencement power (clause 450) all the other powers in the bill are subject to negative procedure (or, if made by Scottish Ministers, the Scottish equivalent). We consider that this is appropriate, except in three cases, which we discuss in more detail in the following paragraphs". The three cases were the committee's recommendation that three further powers should be made subject to the affirmative resolution procedure. Those powers were: the designation of criminal lifestyle offences, which we have already discussed and agreed; the power to amend the definition of customer information, which we have just discussed; and the power to amend the definition of the regulated sector, which we shall discuss next.

With my explanation and the approval of the Delegated Powers and Regulatory Reform Committee, I ask Members of the Committee to trust the Government and the noble Baroness to withdraw the amendment.

Baroness Buscombe

I thank the Minister for his response. He may not be surprised to hear that I shall not trust the Government. That said, I shall read with care in Hansard what he said and, on that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Thomas of Gresford

moved Amendment No. 295A: Page 260, line 25, at end insert— (ab) an order under paragraph 5 of Schedule 6 to amend Part 1 of that Schedule; The noble Lord said: This amendment is concerned with the method by which the Government intend to extend the money laundering disclosure rules to groups which are not currently in the regulated sector, such as solicitors and estate agents. That is an important matter. It is the view of these Benches that it should be done only after parliamentary debate. The Select Committee on Delegated Powers and Regulatory Reform made that recommendation, but it was rejected by the noble Lord, Lord Rooker, on the basis that parallel provisions in the Money Laundering Regulations 1993 can be carried out by order, subject to the negative resolution procedure, under the European Communities Act 1972.

We believe that there is a flaw in that reasoning. An order extending the regulated sector could not be brought in under that Act because the penalty exceeds two years. Therefore, it seems that the justification given for using the negative procedure here is not accurate. I invite the noble Lord to reconsider his position in relation to this matter.

Lord Rooker

Naturally, if what the noble Lord, Lord Thomas of Gresford, has just said is right, then we are wrong. It would be churlish of me to say that we shall not have another look at the matter, notwithstanding the letter that I wrote to the noble Lord, Lord Dahrendorf, on 30th April. We are coming to the conclusion of the Committee stage. Therefore, if I place my remarks on the record in Hansard, I hope that that will be helpful in seeing how we proceed at the next stage.

The amendment would mean that the order-making power in Part 3 of Schedule 6 would be subject to the affirmative, rather than negative, resolution procedure, which is what we are proposing. The order-making power enables the Treasury to amend the definitions of the regulated sector and supervisory authorities, to which the provisions in Part 7 of the Bill concerning money laundering apply.

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. That 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, arise mainly from the fact that it is intended that the power will be used to implement the necessary changes following implementation of the Second European Money Laundering Directive.

Implementation of that directive will bring the activities of accountants, auditors, tax advisers, lawyers—except in circumstances of legal privilege—real estate agents, casinos and dealers of high-value goods within the scope of Schedule 6 and the provisions of Part 7. Members of the Committee 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.

I want to make it clear from the outset that for this, and other, reasons, we are still not minded to accept the noble Lord's amendments or the recommendations of the Delegated Powers and Regulatory Reform Committee in this respect. As I said, I wrote to the noble Lord, Lord Dahrendorf, on 30th April. A copy of my letter has been placed in the Library.

As set out in paragraphs 84 and 85 of the Home Office's memorandum to the Delegated Powers and Regulatory Reform Committee, at present the Treasury can change the schedule of business in the regulated sector set out in the Money Laundering Regulations 1993 by order, subject to the negative resolution procedure, as stated, 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.

We do not believe that it would be sensible to have one definition of the regulated sector for the purpose of the Money Laundering Regulations but another definition for the requirement in the Proceeds of Crime 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.

The potential would arise for the definitions to get out of step while waiting for the affirmative order to be approved.

In addition, we do not consider it to be an appropriate use of valuable parliamentary time to require a debate every time a very minor change to the wording of the regulations to deal with technical issues proves necessary, as happened recently. In the light of that explanation, I hope that the noble Lord will withdraw his amendment, with the caveat to which I referred in my opening remarks regarding the point that the noble Lord raised because I do not have an answer to his question.

Lord Thomas of Gresford

Perhaps we can use the time over the next few weeks to find out who is right in relation to this issue. I am grateful to the noble Lord for undertaking so to do. However, I suggest to him that there is a difference between widening the regulated sector to include whole new groups of people upon whom the money laundering disclosure rules are to be imposed and the type of issues which he described under the existing order. No doubt we can return to this matter when the legal position is clear. For the moment, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Rooker

moved Amendments Nos. 295B to 296A: Page 260, line 32, after "section" insert "145(4), Page 260, line 32, after "295(4)," insert "392(4), Page 260, line 36, after "section" insert "75(4), Page 260, line 36, after "section" insert "229(4), On Question, amendments agreed to.

[Amendments Nos. 297 to 298A nor moved]

Lord Rooker

moved Amendments Nos. 298B and 298C: Page 260, line 39, after "section" insert "145(4), Page 260, line 39, after "295(4)," insert "392(4), On Question, amendments agreed to.

Clause 451, as amended, agreed to.

Remaining clauses agreed to.

House resumed: Bill reported with amendments.