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Economic crime is a national security issue

Last night the Commons debated the Foreign Affairs Committee's reports on illicit finance - so I set out where the Government has made progress - but where there's much more to do. Much more.

My gratitude goes to the Chair of the Liaison Committee, Sir Bernard Jenkin, and the Chair of the Backbench Business Committee, my hon. Friend Ian Mearns, for tabling the debate. My gratitude for this timing is matched only by my sadness that members of the Foreign Affairs Committee are travelling in Africa at the moment, in pursuit of their inquiry into counter-terrorism, and so the House will have to put up with me. I am not speaking on behalf of the Committee, but I am at least sharing the Committee’s analysis of what the Government have got right and where they have further to go—in some cases, much further.

I associate myself with the support for the motion expressed so eloquently by the hon. Member for Harwich and North Essex. The motion is well drafted and deserves the support of the whole House. I want to complement his excellent speech by sharing some analysis of the report by the Foreign Affairs Committee at the centre of the motion.

The truth is that many Members of the House—I can see some of them in the Chamber—have been warning about the need to re-contain Russia since President Putin’s speech to the Munich Security Council back in 2012. Threats always evolve, and today they are evolving faster than ever. There are new spectres abroad, but the most dangerous of those spectres is Russia.

At the core of the debate is an argument about how we defend our freedom, by reinventing our security for new times. Because Russia is the principal of those spectres, it is right that we spend most of our time today discussing how we re-contain Russia. In truth, it is about not simply supporting Ukraine in its fight, but understanding the new theatres of violence where Russia is on the march. As I hope we will see in the defence Command Papernext week, they will require us, as a country, to re-enforce our defences in the Arctic and our alliances in central Asia, and, crucially, transform our presence in Africa, where the Wagner Group is still a threat in some 14 to 15 countries, where it has extracted at least a quarter of a billion pounds to cashflow the wars of President Putin.

That takes us to the core of the argument set out in the Foreign Affairs Committee report. The threats that we have to confront now are not simply places on a map, but domains; they are the political, cyber and, crucially, economic worlds. We have to recognise that the way we will be attacked will not simply be by states, but by states acting together with others.

Those proxy forces will be more dangerous, in many ways. Sometimes it will be organisations such as the Islamic Revolutionary Guard Corps, acting in concert with the Government of Iran, but at other times it will be private military companies, such as the Wagner Group. Increasingly, these nexus threats will couple with organised crime groups and together they will exploit our vulnerabilities in the economic crime space, to generate the millions needed to cashflow violence. That is why the Foreign Affairs Committee, under the leadership of the then Chair, Tom Tugendhat, who is now the Minister for Security, spent so much time over the past couple of years looking at the question of illicit finance.

Russia is at the centre of the debate because we have to learn the simple truth that we have to re-contain Russia. When we look at Russian history, we see one clear lesson: Russia is constantly in the business of invading its neighbours. We have to remember the throttling of Berlin in 1948 and the invasions of Hungary, Czechoslovakia, Afghanistan, Georgia, Moldova and Ukraine. We in this House have to learn the lesson that a mainstay—a cornerstone—of our security policy has to be a strategy for re-containing Russia. We cannot change the geography of Russia, but we can and must end Russia’s ceaseless choreography of war.

With Sweden’s admission to NATO, along with Finland, we have now rebuilt NATO’s eastern flank. That task will not be complete, as the Chair of the Liaison Committee said, until Ukraine, and I hope one day Georgia, join NATO. But we have to recognise that there is an awful lot more that we need to do to close down the domains of politics, cyber and economy.

The Foreign Affairs Committee report focuses on the economic world. Frankly, it is a shame that it took the invasion of Ukraine to prompt the Government to get serious about bringing forward the Economic Crime and Corporate Transparency Bill, which is currently in the other House. At least the Government have made progress. I hope that we can build on what I hope is an emerging consensus in the other place about some of the reforms that will be needed. Together, we have to ensure that we have shut down Londongrad for good. For many years, our country has not simply been a target, but a crime scene. We have been the place where hundreds of billions of roubles, stolen from the Russian people, have been laundered and, in many cases, recycled into Putin’s ceaseless war of violence.

In the Foreign Affairs Committee’s report, we set out four basic sets of reforms needed in the fields of prevention, intelligence, enforcement and prosecution. In the realm of prevention, it is obviously vital that we impose upon directors some much tougher obligations and finally ensure that Companies Housebecomes a regulator, not a library where accounts are filed to gather dust.

Not many of us will remember this, but when this House decided to create limited liability laws, back in 1851, the Prime Minister of the day, Viscount Palmerston, confronted quite a contentious debate and a divided House. At one point he had to threaten the House with sitting right the way through to the summer in order to get the legislation on the books. Limited liability partnerships are not found in nature; they are the creation of us as legislators and create significant privileges for those who want to come together and form a company. Viscount Palmerston said that it would allow Britain’s army of small savers to combine their small pots together to create great firms of the future

“for the advantage of the community as a whole.”

He told the Commons:

“There is nothing that would more tend to the general advantage of the public.”—[Official Report, 26 July 1855; Vol. 139, c. 1390.]

Yet today many are exploiting the licence to create companies, to create firms, that subvert the common good. We should stop them. That is why our Committee underlined the imperative of building a stronger Companies House and creating stronger obligations on directors, their proxies and their enablers. The Economic Crime and Corporate Transparency Bill does offer some progress, but it could be stronger. Crucially, we need to create a duty on the registrar to verify information, not simply provide a power that enables the registrar to do something. We need to toughen the obligations of corporate criminal liability. In fact, the report cited in the motion says that

“reform of outdated and ineffective corporate criminal liability laws which mean that it is difficult to hold large companies to account for economic crimes”— should be reformed.

On this front, the Government commissioned a report from the Law Commission some years ago. The options for change have been on the table since the summer of last year. I gently say to Ministers that it is time to move forward on those options.

It is not simply directors who need stronger obligations; enablers do, too. That is why our report advised the Government to study the lessons from, for example, the enablers Bill from the United States Congress and the Countering America’s Adversaries Through Sanctions Act. These contain protections that should be aligned with UK law. The Economic Crime and Corporate Transparency Bill makes it easier for the Law Society to impose penalties on bad lawyers, but far more important are Lord Agnew’s amendments to the Bill, which were passed in the other place. I hope the Minister can confirm that the Government will not resist those amendments when that Bill comes to us in the next week or two. These require nominees to declare who they are working for. That will help us to identify who the persons of significant control are. It introduces an offence for nominees who do not declare themselves. That is a recommendation of the Financial Action Task Force, and the investigations by both the BBC and The Times have underlined just why we need it. They found that Viktor Fedotov, a Russian-born oil executive accused of £143 million-worth of contracting fraud in Russia, owns two properties in the UK via offshore trust structures, administered by the wealth management firm JCC. But owing to the nominee loophole, Mr Fedotov is not named as the beneficial owner of the corporate trustees that hold property in his name. That is the kind of loophole that made Londongrad possible. We should close it and we should close it together.

The other place has also supplied amendments that close exemptions for trusts, which would stop trusts in the Register of Overseas Entities being used as an opaque vehicle for illicit finance. The other place has also introduced amendments creating sanctions for directors failing to prevent money laundering. It has also closed the loophole that allows small and medium-sized enterprises to escape these sorts of obligations. The amendments are sensible. They are supported by both sides of the House. I hope the Minister, when she winds up, will be able to confirm that the Government will not seek to oppose those amendments.

Secondly, our Committee reflected on the kind of intelligence that we will need to track down bad people who finance Putin’s regime. We thought it was therefore essential that the Government now fulfil their commitment to publish their review of the tier 1 golden visa scheme. That has been promised repeatedly and it is time that we saw it on the table here in the House. Crucially, our Committee was unanimous that better protection was needed for journalists under a revised and comprehensive anti-SLAPP set of laws, but also new protections with a whistleblowing Bill. We asked the Foreign, Commonwealth and Development Office to push for a whistleblowing Bill to offer protection for those who speak out or uncover economic crimes. As yet, we have had no plans from the Government to fulfil that recommendation.

The third area, which is possibly the most significant, is the enforcement gap. We know that this is a problem. Organisations such as the Atlantic Council have been so concerned that they have warned that the UK’s effort to tackle kleptocracy is

“in severe danger of being shown as a paper tiger”.

Obviously, the key is to increase funding for law enforcement. The Government have promised £400 million to fund a three-year programme, but economic crime costs this country £350 billion. In 2019, the head of the National Crime Agency said that the budget needed for the NCA was closer to £3 billion. The Royal United Services Institute says that annual investment of at least a quarter of a billion pounds is needed. We could raise that money if only we took on the argument of setting, say, a £100 fee for setting up new companies, which is, of course, the fee level recommended by the Treasury Committee. That is double what His Majesty’s Government are currently proposing. We need stronger proposals from Ministers to plug the gap where our credibility should be.

Finally, enforcement will mean little if we cannot prosecute the criminals once we find them. That is why we welcomed the sanctions that have been passed by His Majesty’s Government, but, like many people in this House—I suspect that Sir Iain Duncan Smith will pursue this point—we are also clear on our Committee that assets should be seized, not simply frozen. We know that it will take some international action at the United Nations to change the norms in international law around immunity for organisations such as central banks. It is also important that we move ahead with the prosecution of Russia for aggression, so that it cannot claim in some way that it is a victim under the terms of the European convention. But, again, what most of us in this House want to see is a Bill on that table that shows how we will seize assets, not simply freeze them.

Important measures have been brought forward in the other place, too. The Economic Crime and Corporate Transparency Bill would widely extend cost caps beyond simply unexplained wealth orders. Again, it is extremely important that Ministers accept rather than reject those measures. But, taken together, we have now taken, through the work of many people on both sides of the House, some serious measures that will shut down Londongrad, and that will learn the lessons from the way in which Putin was able to cash-flow his violence through exploiting his friends in the City of London and elsewhere. We must accept that, even when Ukraine is triumphant, the Russian threat will simply transform itself once again. That is why we must ensure that our economic system, which we have worked so hard to create, is disrupted and denied to those who wish us ill.


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