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Statement by the President of the Policy & Resources Committee

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Wednesday 16 May 2018

In regards to constitutional issues arising from amendments to the UK's Sanctions and Anti-Money Laundering Bill.

Mr Bailiff, I rise to report on events in Westminster of constitutional importance to this Bailiwick.

In this statement:

For the benefit of the national and international media in the public gallery, or listening in ahead of another matter on our agenda later - and given that they may have little knowledge in this area - it is worth briefly restating our constitutional history as a dependency of the Crown. We have never been a colony of the United Kingdom. We have never been invaded by the United Kingdom. With some historical licence, we could claim quite the reverse! We were, of course, part of the Duchy of Normandy, whose Duke, William the Conqueror, invaded England in 1066 - 952 years ago - when he became King of England. 138 years later, in 1204, we pledged to remain loyal to King John of England, when he lost his continental Normandy territory to King Philippe Auguste of France. After the ducal title was surrendered, the King of England effectively ruled the Islands as though he were the Duke of Normandy, observing our laws and customs and liberties. These were later confirmed by charters of successive sovereigns which secured for islanders their own judiciaries, freedom from process of English courts and other important privileges. These are principles of which the Islands are justly proud- and which have always been respected.

And so - some 500 years before the creation of the United Kingdom with the Act of Union - we had already begun more than 8 centuries of loyalty, to the Crown. That relationship, and those rights, have led to the creation of separate legislative and executive institutions in the Bailiwick of Guernsey (which of course includes the islands of Alderney and Sark). Although Guernsey is not an independent state in international law, it has competence over its domestic affairs. It is economically self-sufficient. We pay no taxes to the United Kingdom and we receive no contribution from the revenues of the United Kingdom.

It is a long standing constitutional principle that Westminster does notlegislate for us without our consent on purely domestic matters.

This history is important, because it sets us firmly apart from the position of the Overseas Territories; and in the context of that centuries-old constitutional relationship, the lifespan of any current Westminster parliament or any parliamentary career is minimal - and the Sanctions and Anti-Money Laundering Bill is no more than an historical nano-second.

The UK's Sanctions and Anti-Money Laundering Bill

The purpose of the Bill is to enable sanctions to be imposed and to prevent money laundering and terrorist financing in the UK, including after Brexit.

Having started in the House of Lords, the Bill reached the Third Reading stage in the House of Commons on Tuesday 1st May.

The Bill had been subject to a number of amendments in its progress through both Houses of Parliament. On more than one occasion, whilst the Bill was in the Lords and in Committee, proposed amendments included references to the Overseas Territories, or the Channel Islands and the Isle of Man - and to their respective registers of beneficial ownership of companies. The amendments, each moved by the Labour Party, had previously acknowledged the differences between the Overseas Territories and the Crown Dependencies. Those amendments had in the past been rejected or withdrawn on constitutional grounds. Similar amendments had been moved during the passage of the Criminal Finances Bill in 2016. All had been unsuccessful. The most recent amendment, that went furthest, was due for consideration during the Third Reading debate at the beginning of the month. It is the handling of that specific amendment which is the focus of this statement.

Guernsey's strong and determined stance against financial crime

Guernsey takes very seriously its responsibilities to stand with the rest of the world to comply with international obligations and the rule of law, to prevent terrorism and to promote international peace and security.  This includes all necessary steps to impose internationally agreed sanctions and to prevent terrorism financing and money laundering.

Sir, we have nothing to be embarrassed about in relation to our role in the international financial system or our regulatory standards. Quite the reverse. Our standards and record is exemplary and we can hold our head high in any international forum on the topic. There is much that other jurisdictions could learn from us. We have no intention of being passive or defensive. On the contrary, we will be pro-active and proud when it is appropriate to be so. By way of example, the House of Commons Treasury Select Sub-Committee has recently begun an inquiry into tax avoidance and evasion. The Policy & Resources Committee intends to volunteer evidence to that inquiry.

Guernsey already has its own robust systems and legislation to tackle tax evasion, money laundering and other financial crime, which meet the highest international standards - including a leading position on the retention and sharing of beneficial ownership information. Our policy position is to maintain a register of beneficial ownership that is transparent - but that respects privacy - and this position has the support of the UK Government. We will move to a public register of beneficial ownership if that becomes an international standard. It must be a standard agreed by all jurisdictions; there must be a level playing field.

Guernsey's register of beneficial ownership of companies is effective at combatting crime

The States of Guernsey shares the same goal as the UK in seeking outcome-based, rather than rules-based regulation. We ensure (and historically always have ensured) that full and accurate information is shared promptly with authorities that have a legitimate need to know. The information held on Guernsey's beneficial ownership register is - unlike the UK's - up to date and accurate and populated with verified, rather than self-declared, data. Our central register was established in the summer of 2017, but was a step that built on our own long-standing good practice in ensuring that beneficial ownership information is established, verified and shared with law enforcement authorities. Our effectiveness in this area has been repeatedly confirmed in independent evaluations by international bodies such as the IMF, the OECD and Moneyval. In 2016, Guernsey signed an exchange of notes with the UK on sharing information with law enforcement agencies to improve the exchange of beneficial ownership information to meet the UK's law enforcement required standards, so that they can effectively investigate and fight financial crime.

In a UK Written Ministerial Statement [reference for the online version:HCWS661], released on 1st May, the Home Office recognised the effectiveness of Guernsey's beneficial ownership register - and the effectiveness of the arrangements to share this information with the UK's law enforcement agencies. This was the result of the first review of the functioning of the exchange of notes on beneficial ownership - and will be followed by annual reviews.

This reinforced that Guernsey has nothing to be ashamed of in maintaining this policy position. Public registers are not the agreed policy of the G20 countries; we are not the only well-respected jurisdiction to have this policy position. Whatever our detractors say, we are not a 'secrecy jurisdiction' - but we do recognise the legitimate right to personal privacy. Guernsey is a well-regulated, co-operative jurisdiction playing an important role in international capital markets. Our legitimate current policy stance on the register of beneficial ownership meets the agreed international standards and maintains an effective balance between transparency and privacy.

The amendments proposed about public registers of beneficial ownership

The amendments to the Bill sought to undermine our established policy position and sought to impose UK policy on the Crown Dependencies. It was this potential imposition of policy and legislation and failure to respect the island's constitutional position that led to the rejecting of the previous amendments at several stages during the passage of the Bill. However, during the final stages of the Bill's passage in the Commons in early May, two amendments to the Bill were particularly in the spotlight - each of which sought to introduce a new clause to the Bill which would, ultimately, seek to impose a decision of the UK parliament on the separate jurisdictions of the Overseas Territories (an amendment called 'NC6') or the Crown Dependencies (in an amendment called 'NC14') by use of a UK Order in Council. Those amendments sought to compel the introduction of public registers of beneficial ownership of companies, even if that was contrary to any policy decision of the democratically-elected governments of those jurisdictions. NC6, relating to the Overseas Territories, tabled by Dame Margaret Hodge had cross-party support with over 50 signatories by the time it was debated. NC14, the Crown Dependencies one, proposed by Labour shadow cabinet members, only had 4 signatories.

Whilst it is difficult to conceive how the amendment NC14 could have had any domestic effect in Guernsey, even if it had been passed by the UK Parliament, it would have created a serious breach of constitutional convention.

The threat to Guernsey's constitutional relationship with the Crown and UK Parliament

Many UK MPs we talked to during our lobbying understood the constitutional and legal differences between the Crown Dependencies and the Overseas Territories. However, I am concerned that a number of MPs seemed prepared to dispense with established constitutional conventions, by seeking to impose UK policy on us, which could disenfranchise islanders and upset the constitutional relationship.

Many of those MPs were clear about their position on NC6 but reserved their position on NC14. Each of the Crown Dependencies, along with the UK Government, were concerned that NC14 might have got carried along with NC6, leading to, at best, a serious breach of constitutional convention.

In order to minimise the risk of the Crown Dependencies being caught in the rising support of the Overseas Territories' amendment, Guernsey joined with Jersey and the Isle of Man, to make sure that our constitutional positions were sufficiently understood across Westminster, including immediately before the Third Reading debate of the Bill. We met with representatives of the Overseas Territories to coordinate our activities. Our long-term, regular and active engagement with politicians, officials and special advisers in London proved invaluable. So too was the support from those at the Ministry of Justice, in particular the Lord Chancellor and Lord Keen, who are responsible for managing the relationship with the Crown Dependencies and who have an excellent grasp of the constitutional issues involved.

Following intense, robust and closely co-ordinated work over a number of days preceding the debate, the amendment which would have had most direct impact on us, NC14, was withdrawn. I made a public statement immediately following the House of Commons' debate to say that I welcomed the news that it had quite rightly chosen to respect our constitutional relationship with the Crown.

HM Government flagged up its serious concerns on constitutional grounds during the debate. The Government resisted the Crown Dependencies' amendment (NC14) but decided not to resist the Overseas Territories' amendment (NC6). That particular amendment (NC6) was accepted during the Third Reading debate. Unsurprisingly, many of those territories are concerned at that outcome.

The result regarding NC14 - although the right one - was by no means assured. It was achieved by hard work deploying carefully designed and deliberate strategies and working seamlessly with the Isle of Man and Jersey, at both an official and a political level.

The Bill is yet to return to the Lords and so, whilst the Lords have previously demonstrated a deep understanding of the constitutional issues which this amendment raised, there is still a risk the issue will re-emerge again. We are taking steps, again working with the other Crown Dependencies, to mitigate this risk.

The future - resilience, vigilance and robust defence of Guernsey's autonomy

Sir, as I said at the outset, we are dependencies of the Crown, and as such are distinct from the Overseas Territories, which could be thought of as dependencies of the UK. As Crown Dependencies, we enjoy a unique relationship with the United Kingdom and the rest of the British Commonwealth through the Crown, in the person of the Sovereign. We never have - and never have had - any direct representation in the UK Parliament - nor do we seek it. By a long established convention the UK does not legislate for us without our consent on purely domestic matters. The Overseas Territories each have different constitutions, effectively handed down to them from the UK. These are written and define their relationship with the UK government.

Our constitutional arrangements provide some resilience to any attempts to undermine the autonomy that we enjoy. However, we must remain vigilant and consider steps to bolster our constitutional defences, so that red lines are not crossed, whether deliberately or inadvertently. Having seen similar amendments tabled and withdrawn or lost in the Criminal Finances Bill and the recent Bill, we can reasonably expect such issues to arise when similar Bills are laid before the UK Parliament in future.

The fact that some Members of the UK Parliament proposed an amendment seeking to impose domestic policy on us is also of concern. It may be a surprise in some quarters that my concern at this time is not focussed on whether any beneficial ownership register is public or not - which is a separate policy issue - but more that UK parliamentarians gave serious consideration to riding roughshod over centuries of constitutional convention, our ancient rights and our democratic process.

It is vitally important to Guernsey that our position is recognised and that the functioning, conventions and customs of our centuries-old constitutional relationship with the Crown are not undermined by the UK's attempt to direct our domestic policy. Such a move would damage the constructive political and operational relationship between Guernsey and the UK, in particular that which has developed during the past two years since the Brexit referendum.

We will work with interested parties at Westminster to discuss and consider whether and how these concerns and policy objectives might be addressed, within the constitutional framework between Guernsey and the Crown. I have written to and have offered meetings with a number of MPs from across the political spectrum as a follow-up to the debate on the Bill.

But we will do more than just talk. The Policy & Resources Committee want to ensure that we in Guernsey have the strongest package of measures which maintain the current constitutional relationship and protect our autonomy should the UK's parliament, or a future government, create a similar constitutional challenge. These measures will include focussing on how to progress the recommendations of the Constitutional Investigation Committee considered by the States of Deliberation in January 2016.

One of the Resolutions from the Constitutional Investigation Committee was to investigate referring certain matters to the States for approval and consent before registration. This might include UK Acts of Parliament which have direct effect or are to be extended to Guernsey by Order in Council. It would potentially provide an additional safeguard developed from one that already exists in statute in Jersey. I intend to discuss that approach with counterparts in the States of Alderney and Chief Pleas of Sark to seek a Bailiwick-wide consensus.

Another recommendation was to modify the process of Royal sanction for most Guernsey Projets so that they could be ratified on behalf of Her Majesty by the Lieutenant-Governor. A similar practice already exists in the Isle of Man.

As well as prioritising the recommendations of the Constitutional Investigation Committee, we will be looking at other measures to ensure that we have greater constitutional resilience. In particular, the Policy & Resources Committee believes it is of strategic importance that we have the legislative and procedural architecture in place to be able to test the will of the people of the Bailiwick - should it ever be necessary. In the event of any breach of constitutional convention by the UK, it is conceivable that the people of the Bailiwick may wish to express a view on the future constitutional relationship.

Sir, I have already written to the Ministry of Justice to advise that we intend to progress this work as a priority. The Policy & Resources Committee will reprioritise within resources that have already been allocated and bring the requisite policy letters to this Assembly as soon as we are able, working together with the Law Officers.

In the meantime, the Assembly can be assured that the Policy & Resources Committee will remain alert to any future potential threats to Guernsey's autonomy. We will continue to engage with UK parliamentarians at every opportunity to ensure they have better understanding of our constitutional relationship. We are determined robustly to defend and promote our constitutional position, wherever and whenever necessary.

Deputy Gavin St Pier
President, Policy & Resources Committee

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