Terrorist Asset-Freezing etc. Bill [HL]

My Lords, the Terrorist Asset-Freezing etc. Bill makes provision for imposing financial restrictions on, and in relation to, certain persons suspected of involvement in terrorist activities, for amending Schedule 7 to the Counter-Terrorism Act 2008 and for connected purposes. As we are all aware, this month marks the fifth anniversary of one of the worst terrorist attacks in the UK’s history, and the threat to the UK from international terrorism is still judged to be severe. Our police and security services work tirelessly to combat this threat and to reduce it. The Government must ensure that those organisations have the powers that they need to keep people safe, both here in the UK and abroad, while ensuring that we also protect civil liberties. Asset freezing is an internationally used and recognised tool that aims to prevent and disrupt the financing of terrorism. The United Nations requires that all states, "““Freeze without delay … assets or … resources of persons who commit, or attempt to commit, terrorist acts or participate in or facilitate the commission of terrorist acts””." Attacking the financial flows between those people is essential. Some of the most devastating attacks in the past decade, including those in London in 2005, cost less than £10,000 to carry out. Around £150,000 is currently frozen in the UK under this regime, so the magnitude of what could be done with such a relatively small sum is clear. By freezing money intended for terrorist purposes, we can help to prevent individual attacks and the devastating injury and loss of life that they may cause. Focusing on the movement of money can also help to detect when it is being used to sustain wider terrorist networks, a crucial element in many investigations, and helps us to maintain effective relationships with international counterterrorism partners. No other tool in the Government’s counterterrorist finance toolkit can fully meet our international obligations in this area. Against this background, the purpose of the Bill is to put the terrorist asset- freezing regime on a secure legislative footing. I shall explain why this is necessary. The previous Government relied on Orders in Council, made under Section 1 of the United Nations Act 1946, to give effect to the UK’s obligations under UN Security Council Resolution 1373. In February this year, the Supreme Court ruled that, in doing so, the Government had gone beyond the power conferred by Section 1 of the UN Act. Given the impact of asset freezing on fundamental rights, the court concluded that such a judgment on what is expedient should be expressly made by Parliament, not the Executive. The court quashed two of the Orders in Council and, in response, the previous Government put temporary legislation in place to validate those orders until 31 December of this year. I will now explain the scope of the Bill and its provisions. The Bill focuses on the domestic terrorist asset-freezing regime that the UK is required to have in place under United Nations Security Council Resolution 1373. This is the regime where decisions to freeze assets are taken at a national level, by HM Treasury in the case of the UK, and freezes apply only nationally. The Bill does not cover al-Qaeda and the Taliban. These groups are covered by a separate asset-freezing regime, under UN Security Council Resolution 1267, where decisions to freeze assets are made by the UN and freezes apply globally. That regime is already implemented across the EU by a directly applicable EU regulation. I should also make it clear that the asset-freezing powers in this Bill are not related to those in the Anti-terrorism, Crime and Security Act 2001, which were used to freeze the assets of Icelandic banks in 2008. That action and the legislation that permitted it should not be confused with the provisions that we are discussing today. The Bill also includes some amendments to Schedule 7 to the Counter-Terrorism Act 2008. The legislation that we are discussing today makes a number of valuable improvements to the current terrorist asset-freezing regime and I have deposited in the House Library a schedule setting out these changes. First, it makes the legal test for freezing assets clearer and more consistent with other counterterrorism legislation. The language clarifies but does not change the current legal test, under which past terrorist activity is relevant in determining whether someone is a person who is involved in terrorism. This is not an extension of HM Treasury’s power to designate. Secondly, it focuses the prohibitions more narrowly to minimise the impact on third parties. I will return to this. Thirdly, it makes it clear that state benefits paid to spouses or partners will no longer be caught by the asset-freezing regime. We believe that this is unnecessary to prevent terrorist-financing risks. The Bill is in line with a recent ruling by the European Court of Justice. Fourthly, it improves the transparency and accountability of the regime by requiring it to be independently reviewed nine months after this legislation is passed and every 12 months thereafter. The Bill also formalises the requirement for HM Treasury to report to Parliament on a quarterly basis on the operation of the regime. On Monday, I laid the most recent report before the House. As well as providing useful statistics, it makes it clear that HM Treasury has an active policy of reviewing designations. In the last quarter alone, nine reviews resulted in six delistings. However, welcome as I hope the changes to the regime will be, I recognise that they do not fully address some of the civil liberties concerns that have been raised about the asset-freezing regime, both in Parliament and in the public consultation that HM Treasury has conducted. Chief among these are the legal test for asset freezing, which stands at reasonable suspicion, and the role of the courts in making and reviewing asset-freezing decisions. Both the use of reasonable suspicion and the role of the courts in these contexts have parallels in other counterterrorism powers. Your Lordships will be aware that the Home Office’s urgent review of the most controversial and sensitive counterterrorism legislation and measures is ongoing and is likely to consider the appropriate safeguards for executive actions in this field. My ministerial colleagues and I are of the view that, unlike that of previous Administrations, this Government’s approach to counterterrorism measures should be co-ordinated and aligned wherever possible. It is too early to predict the results of the Home Office review but I hope that noble Lords will be reassured that, where the review’s conclusions are relevant to asset freezing, and should those conclusions alter the balance in favour of introducing additional safeguards, we will take them into account and bring forward any amendments that may be appropriate to the Bill. That said, I believe that the approach set out in the Bill is reasonable. I turn now to points raised by the Constitution Committee in its report on the Bill last week. The committee’s experience and knowledge in this area are extensive and the Government value its input. First, the committee raised a concern that the Bill is partial because it does not include al-Qaeda and the Taliban regime or the freezing powers under the Anti-terrorism, Crime and Security Act. I accept that the Bill does not consolidate the legislation in this area. However, there is a good reason for this. The priority that the Bill seeks to address is the need to put the UK’s domestic terrorist asset-freezing regime on a secure legislative footing by 31 December. As the Constitution Committee’s report rightly points out, this is a tight timetable, even with the present scope of the Bill. Secondly, the committee raised a concern about why the Bill retains the reasonable suspicion test when other pieces of legislation use reasonable belief. The reason why we have retained reasonable suspicion is that it allows for action to be taken early to meet an imminent national security threat. An example was the use of asset freezes alongside police arrests in 2006 to help to disrupt the transatlantic plane bomb plot. However, as I have said, we will consider this issue further. I agree that, where appropriate, it is desirable to maintain a consistent approach. That is why, rather than taking an independent view of the legal test for asset freezing, we are considering this matter alongside the wider review of counterterrorism powers that is being conducted by the Home Office. Thirdly, the committee expressed concern that the Home Office review be completed as soon as possible so that any amendments to the Bill can be brought forward in Committee. As the Home Secretary made clear, her review is urgent and will help to inform what additional safeguards, if any, might be needed on asset freezing. If we are making government amendments to this Bill, we are clear that they should be tabled at Committee stage to allow for full consideration. Fourthly, the committee raised a number of issues around the judicial process and procedural fairness. I agree with its conclusion that in practice the judicial review process gives the courts a significant scrutiny power and, of course, we welcome that scrutiny, which is fundamental to ensuring that the regime operates in a fair, proportionate and lawful way. The committee has criticised Clause 22 as insufficient in setting out the court’s powers in challenges to decisions. Clause 22 is based closely on Section 63 of the Counter-Terrorism Act 2008, which deals with challenges to financial directions made by the Treasury. We believe that there is merit in having similar provisions governing challenges to these types of decisions and in not introducing ambiguity by having differences between the two provisions. On procedures for the use of closed source material, the Treasury is committed to operating the regime in a way that is consistent with ECHR Article 6. I will discuss the content of the Bill in more detail, beginning with the provisions under Part 1. The effect of a designation under this legislation is to forbid dealing with a designated person’s funds and economic resources, to forbid making funds or economic resources available to such persons and to forbid funds or economic resources being made available to a person when the designated person will obtain a significant financial benefit. This is similar to the effect of a designation under the 2009 terrorism order, but with some significant differences. For example, third parties will breach the prohibitions only if they know, or have reason to suspect, that a designated person will use them in breach of the terms of their asset freeze. The Bill also provides for licences to permit access to funds and limit the effect of the sanctions, particularly on third parties. It also makes changes to the requirements imposed on the financial and related sectors, which are an essential front line in the fight against terrorist financing. We thank them for the efforts that they continue to make on our behalf, as they bear much of the burden of compliance with this legislation. I am keen to ensure that the burden is minimised, wherever it can be, without increasing any terrorist-financing risks. That is why this Bill will no longer require financial institutions automatically to search historical records for links to designated persons. HM Treasury will remain open to legal challenge to its asset-freezing decisions, including the procedures approved by Parliament in the Counter-Terrorism Act 2008. Part 2 makes minor amendments to HM Treasury’s financial restrictions powers under Schedule 7 to the Counter-Terrorism Act 2008. These powers are an important element of the Government’s toolkit to deal with risks posed to the UK by money-laundering, terrorist financing and the development or production of chemical, biological, radiological or nuclear weapons. They also enable the Government to take action where the Financial Action Task Force has advised that measures should be taken because a country poses a money-laundering or terrorist-financing risk. The risks that these powers address are of a serious nature. I consider it important that we have robust and effective financial tools to tackle them. In light of this, we have identified a small number of technical amendments to these powers. First, we are introducing a prohibition on knowing and intentional circumvention of any restriction issued under these powers. This is a necessary deterrent to ensure that a unilateral restriction cannot simply be bypassed. Secondly, we are introducing a provision to allow restrictions to be targeted against subsidiaries of companies based in the country of concern, to reflect the risk that such subsidiaries can pose. Thirdly, we will be clarifying that, when the Government direct a UK financial or credit institution to implement a restriction, they will have to apply it across all their branches, wherever those branches are located. Fourthly, we are making provision for the transfer of responsibility for ensuring the compliance of Northern Ireland credit unions with these restrictions from the Northern Ireland Department of Enterprise, Trade and Investment to the Financial Services Authority. I am certain that the asset-freezing proposals that I have put before the House will, when passed, create a secure legislative footing for an important and necessary counterterrorism power. The coalition is firmly of the view that such powers are not to be created lightly and we will keep the necessary safeguards under review as this Bill continues its passage. In this Second Reading debate, I particularly look forward to the maiden speeches of the noble Baroness, Lady Hughes of Stretford, and the noble Lord, Lord Davies of Stamford. I beg to move.