Economic Crime and Corporate Transparency Bill
Thursday 13th October 2022
(2 years, 1 month ago)
Commons ChamberRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Watch Debate Read Debate Ministerial Extracts
The Secretary of State for the Home Department (Suella Braverman)
I beg to move, That the Bill be now read a Second time.
Following Putin’s unconscionable invasion of Ukraine we acted immediately, cracking down on dirty money in the UK by passing the Economic Crime (Transparency and Enforcement) Act 2022. I am very grateful for the way that the whole House got behind that effort and I hope we can come together on this Bill, too. I am very grateful to the shadow Front Bench for its constructive engagement on the Bill and to party colleagues for their considerable input. I hope we can send a united message that dirty money, fraudsters and gangsters are not welcome in the UK.
Andy Slaughter (Hammersmith) (Lab)
I just wonder why it took a war in Europe for action to take place on this matter, why for years and years and years the right hon. and learned Lady’s Government and their predecessors did nothing about it, and whether it had anything to do with the millions going into Tory party coffers from Russian oligarchs?
Suella Braverman
I am not sure what point the hon. Gentleman is making. Important strides are being taken forward in the Bill and we should all be getting behind the swift action the Government took in response to the invasion of Ukraine. I am very grateful that we were able to pass that legislation and take powers in the Act earlier this year, which included taking the groundbreaking action of sanctioning hundreds if not thousands of Russian individuals and entities, freezing assets and really excluding the influence of Russian finance in the UK. I am proud of that effort and I hope that he is too.
Suella Braverman
If I can just make some progress, I will come back to the hon. Gentleman.
Having acted immediately in response to Putin, we promised to go further. The Economic Crime and Corporate Transparency Bill will bear down even further on kleptocrats, criminals and terrorists, strengthening the UK’s reputation as a place where legitimate business can thrive but economic crime cannot. Economic crime is a serious problem. It threatens our prosperity, national security and global influence. The UK has one of the world’s largest and most open economies, and it is an extremely attractive place to do business. That is a good thing, but it also exposes us to economic crime, such as money laundering, corruption, the financing of organised crime and terrorism, and a growing range of state threats.
Stephen Doughty
I thank the Home Secretary for giving way. One issue I have raised with Foreign, Commonwealth and Development Office Ministers directly relates to the use of cryptocurrency and different mechanisms for those trying to evade sanctions or commit other crimes. There is a particular issue around mixers and tumblers—that is what they are called. The US Treasury took very, very severe action on this in August this year. My understanding is that we are yet to take that action. Will she look urgently at these issues with her colleagues in the Treasury and the FCDO to ensure that we bear down very strongly on those who are using crypto to avoid detection by our criminal investigation agencies?
Suella Braverman
The hon. Gentleman raises a really important and valid point. The Bill will go some way to dealing with cryptocurrency, but he is right that cryptoassets are increasingly being used for malign and terrorist purposes. We intend to crack down on that and will be bringing forward a Government amendment that will mirror the changes in Part 4 of this Bill in counter-terrorism legislation, but we are very happy to review that further.
The Government have already undertaken unprecedented action to stop kleptocrats and criminals.
Jim Shannon (Strangford) (DUP)
Just last year, as everyone in the House will remember very well, the Police Service of Northern Ireland seized £215 million from a money laundering scheme that started in eastern Europe, came right across into the United Kingdom and ended up in Northern Ireland. The Home Secretary said clearly that money laundering will be addressed directly. In Northern Ireland we seem to have a problem in relation to that. Will she enter into discussions with the Finance and Justice Ministers back home in Northern Ireland to ensure that they can work together to beat money laundering everywhere?
Suella Braverman
I thank the hon. Gentleman for raising that point. I am very happy to build further and closer engagement with Northern Ireland on this particular issue. In the case of anti-money laundering and other investigations, and prosecutions in relation to standalone money laundering cases or where money laundering is the principal offence, the agencies have recovered considerable amounts. £1.3 billion has been recovered in those cases since 2015-16 using the Proceeds of Crime Act 2002 powers. That is good progress, but of course there is further to go and, as I said, I am very keen to engage more closely.
Catherine West (Hornsey and Wood Green) (Lab)
On the agencies, does the Home Secretary accept that it has taken an awfully long for the Government to get around to reforming Companies House, which is very open to abuse and which the Royal United Services Institute has been mentioning for years now as a danger to our national security?
Suella Braverman
I am very pleased that we are taking this action now. I take on board the point that this has been a long-standing matter that Members and Administrations have been talking about for some time. There has been progress over several years. We have the National Economic Crime Centre and new legislation, so there are greater powers, but I am focused on ensuring that the reforms in the Bill are implemented as quickly as possible. On reforms to Companies House, we seek to ensure that the level of change is balanced to avoid causing any confusion for legitimate customers and to ensure effective implementation. So yes, speed is essential, but not at the expense of undue disruption.
Some of the action we have already undertaken includes being the first G20 country to establish, in 2016, a public register of domestic company beneficial ownership; the publication of the economic crime plan in 2019 and the progress made against it; and establishing, as I said to the hon. Lady, the National Economic Crime Centre and the combating kleptocracy cell in the National Crime Agency. The Bill is just one component of a wider Government approach to tackling economic crime, including fraud. It sits alongside the National Security Bill and the Online Safety Bill, and the forthcoming second economic crime plan and fraud strategy.
Layla Moran (Oxford West and Abingdon) (LD)
One of the areas this place will struggle to scrutinise is golden visas. It has now been four years since that review was commissioned. We understand it is ready, yet we have not seen it to be able to scrutinise it and hold the Government to account on it. Will the right hon. and learned Lady be the Home Secretary who finally releases that review?
Suella Braverman
When it comes to golden visas, I was very proud of the action the Government took in relation to Russian individuals following the invasion, where we stopped the sale of golden visas to particular individuals—
Suella Braverman
The issuance—excuse me—of golden visas to particular individuals from Russia. I agree that there is further work we can do and I am very keen to look at it.
Chris Bryant
I think the Home Secretary said the sale of tier 1 visas, as if the Government or the Conservative party were somehow selling these things. Is it not absolutely shocking that 10 of the people the Government sanctioned this year were people to whom the Conservative Government had given tier 1 visas? We were inviting crooks and Putin’s cronies to come into this country, make their lives here and carry on their criminal activities here.
Suella Braverman
I think the hon. Gentleman will find that this has actually been a long-standing issue for Administrations of both colours, and we have been vulnerable for some time. However, I am incredibly proud of and make no apology for the robust, tough and unapologetic action that this country took in response to the invasion of Ukraine by Russia. That includes, along with the EU and the US, sanctioning thousands of Russian individuals and entities; taking aggressive, prohibitive action to stop them taking part in the UK financial system; freezing the assets of all Russian banks; barring Russian firms from borrowing money; and, importantly, ensuring that we take a strong stance to affect and disable, to a degree, the Russian economy. That is how we will win this war, not by cheap political points.
Chris Bryant
Look, some of us have been battling on this for a very long time. Some of us said in 2014 that if we did not sanction Putin properly then, he would not only take the Crimea, but try to take the whole of Ukraine. Some of us fear that the Government’s refusal to act in this area is part of what has emboldened Putin. The biggest problem is that, in many cases, the UK’s sanction regime has been much weaker than that of other countries. The Home Secretary is wrong: we have not sanctioned all the Russian banks. There are still others to be sanctioned. We have sanctioned 20% of the people who have been sanctioned by the United States of America. For most of the people we have sanctioned, we are relying on EU legislation—we are just copying it. Honestly, I think she needs to do her work a bit more carefully.
Suella Braverman
No, I disagree. I will not repeat the points that I have made, but I am very proud of our record. The action was tough, unprecedented and far-reaching, and I am very glad that other countries followed suit soon after.
The Bill includes essential reforms of Companies House and measures to prevent the abuse of limited partnerships. It creates additional powers to seize cryptoassets more quickly and easily. The Bill will enable more effective and targeted information sharing to tackle money laundering and economic crime.
Kevin Hollinrake (Thirsk and Malton) (Con)
Late last year, NatWest was fined £265 million for facilitating money laundering through its UK branches. Sacks of cash, literally, were being taken into NatWest branches. Despite the £265 million fine, no person at NatWest has personally been held to account. Does my right hon. and learned Friend not agree that these fines are simply a cost of doing business, because this is profitable business? The only way in which we will clamp down on this is to hold individual executives at the top of organisations to account and, if necessary, put these people in jail.
Suella Braverman
I agree with my hon. Friend, who has a huge amount of expertise and has achieved a huge amount in Parliament to crack down on fraud and economic crime. I will come to the Bill’s anti-money laundering measures, so I will have to detain him a bit longer until I get there. I agree, however: we have to make sure that we can build on the regime, powers and law enforcement frameworks that are in place. We can go further.
Dame Margaret Hodge (Barking) (Lab)
If the Home Secretary does agree with what was said by the hon. Member for Thirsk and Malton (Kevin Hollinrake), with whom I have worked closely on these matters, why is she not reforming corporate criminal liability in the Bill to bring into effect the very change that he has promoted?
Suella Braverman
I accept what the right hon. Lady says, but the Government have already taken steps to establish the case for change on corporate criminal liability. In 2020, we commissioned the Law Commission to undertake a detailed review of how the legislative system could be improved to appropriately capture and punish criminal offences committed by corporations, with a particular focus on economic crime. The Law Commission published that paper on 10 June 2022. The Government are carefully assessing the options that were presented and are committed to working quickly to reform criminal corporate liability.
Jim Shannon
I thank the Secretary of State for generously giving way again. I understand that 929 companies registered with Companies House were identified as taking part in 89 economic crime incidents, which amounted to £137 billion of potential economic damage. I know that the Secretary of State, like me and others in the House, is keen to ensure that we get the change we want, but will that mean that that can no longer happen in relation to Companies House?
Suella Braverman
We want to ensure that there are more restrictions on who can register with Companies House so that we prevent the abuse of the regime. As I said, we have one of the most open, liberal and business-friendly economies, but we are exposed to some degree. The reforms in the Bill very much address the issue that the hon. Member raises.
Furthermore, the Bill introduces a regulatory objective into the Legal Services Act 2007; removes the statutory cap on the Solicitors Regulation Authority’s fining power for disciplinary matters relating to economic crime offences; extends pre-investigation powers to all Serious Fraud Office cases; and streamlines the process for updating the UK’s high-risk third country list. The Bill will also ensure that we have more effective and targeted information sharing to tackle money laundering and economic crime. It provides new intelligence-gathering powers for law enforcement and removes regulatory burdens on businesses. Altogether, the Bill is a formidable tool in the fight against illicit finance.
The Government have consulted widely on the Bill and won broad support from business and professional groups, law enforcement agencies and civil society. We are, of course, working closely with the devolved Administrations on this legislation, as the Bill contains several provisions that engage devolved powers in Wales, Scotland and Northern Ireland.
I will now set out the Bill’s measures in more detail, turning first to Companies House reform. Companies House is one of the foundations of the UK’s business environment. It operates the UK’s open and flexible corporate registration framework. The UK’s business community enjoys a simple system for creating and maintaining companies and other legal entities. Information on those entities is made available for the benefit of investors, lenders, regulators and the public. The companies register was accessed 12 billion times last year. Inevitably, that makes it a target. In recent years, the Companies House framework has been manipulated, particularly with the use of anonymous or fraudulent shell companies and partnerships. That gives criminals a veneer of legitimacy to help them to commit crimes, ranging from grand corruption and money laundering to fraud and identity theft.
We will reform the role of Companies House and improve the transparency of UK companies. The Bill will ensure that we can bear down on the use of thousands of UK companies and other corporate structures as vehicles for economic crime, including fraud, international money laundering, illicit Russian finance, corruption, terrorist financing and illegal arms movements. These are the most significant reforms to the UK’s framework for registering companies in 170 years. We will introduce identity verification for new and existing directors.
Kevin Hollinrake
It is very good news that we are moving from a register to a regulator. On the capacity of Companies House to do that, there are around 5 million companies in the UK, with probably two directors on average, and 500,000 companies are registered every year. Does Companies House today honestly have the capacity to properly verify the ID of all those directors?
Suella Braverman
Resourcing the agencies and organisations, such as Companies House, to better fight the threat of fraud and economic crime will be part of the equation. I am pleased to be in constant discussion with the various agencies, although, obviously, Companies House is the responsibility of other Departments. However, we have to ensure that it has the tools, operationally and from a resource point of view, to be able to carry out its legal duties.
Yvette Cooper (Normanton, Pontefract and Castleford) (Lab)
The Home Secretary is being generous in giving way. The point about institutions being able to carry out enforcement is immensely important. As well as Companies House, there is also an issue for the National Crime Agency. She may be aware that her predecessor asked the National Crime Agency to draw up plans for 20% staffing cuts. Has the Home Secretary now ruled that out?
Suella Braverman
Last year’s spending review settlement set out that the economic crime levy would provide funding totalling approximately £400 million over the spending review period. Law enforcement activity on economic crime is conducted by a number of agencies, including the National Crime Agency, as the right hon. Lady says. I want to ensure that those agencies have the proper resources, personnel and tools to be at the forefront of fighting crime effectively.
Suella Braverman
I will make some progress. As hon. Members have said, I have been very generous, but I am struggling to get through my speech. I know that everybody wants to speak, so I will take no more interventions for now.
We will introduce identity verification for new and existing directors, beneficial owners and those who file information with Companies House. That will improve the accuracy of Companies House data and will ensure that we know who is really acting for and benefiting from companies.
Suella Braverman
I am sorry, but I will not.
The powers of the registrar of companies will be broadened, making the registrar a more active gatekeeper for company creation and a custodian of more reliable data. The registrar will receive new powers to check, remove or decline information that is submitted to or already on the company register. The Bill will improve the financial information on the register so that it is more reliable, complete and accurate, and enables better business decisions. Companies House will be given more effective investigation and enforcement powers, including by enabling it proactively to share information with law enforcement bodies about higher-risk corporate bodies, or where there is evidence of anomalous filings or other suspicious behaviour. To protect individuals from fraud and other harm, we will also enhance the protection of personal information and addresses provided to Companies House.
We will introduce broader reforms to clamp down on the misuse of corporate entities. These reforms will support enterprise by enabling Companies House to deliver a better service for more than 4 million UK companies. They will help us to maintain our swift and low-cost routes for company creation. They will also improve the collection of data to inform business transactions and lending decisions across our economy.
Catherine West
The Witanhurst property, a 500-room mansion in Highgate, is the second largest property in the UK after Buckingham Palace. Its ownership is contested, so it has not been seized. Will the Bill cover such difficult and anomalous situations? Local residents feel that people should be brought to account. Considering the links with the regime in Russia, there is no way that that house was bought in an honest way.
Suella Braverman
Without knowing the details of that case, what is clear is that the reforms to Companies House will ensure not only that more investigation and enforcement powers are afforded to it, but that there will be new powers for checking, removing and declining information submitted to the company register if there are grounds for concern.
Chris Bryant
The Home Secretary is being generous in giving way; I am very grateful. I warmly welcome all these changes to Companies House, for which some of us have been arguing for a very long time. My anxiety is that Companies House will have a major change of role: as several agencies have said recently to the Foreign Affairs Committee, it will go from being a registrar to being effectively a policeman. To do so, it will need enormous additional capacity. Can she tell us how much additional money it will have to fulfil that role?
Suella Braverman
The transformation of Companies House has been under consideration for some time, and the Treasury Committee has done quite a lot of inquiring into the issue. We published a White Paper on corporate transparency and register reform earlier this year, which provided considerable detail on how these reforms will operate. It is a complex area of law. Resources will be needed for these extra powers.
Suella Braverman
The transformation is already under way, with £20 million invested in 2021-22 and a further £63 million announced up to 2024-25 at the most recent spending review. We have been thinking about this, and the money has been announced in spending reviews. It has been thought about.
Suella Braverman
I am going to continue.
The Bill will tackle the misuse of limited partnerships, including Scottish limited partnerships, and will modernise the law governing them. We will tighten registration requirements and will additionally require limited partnerships to demonstrate a firmer connection to the UK. Transparency requirements will be increased. The registrar will be able to de-register limited partnerships if they are dissolved or no longer carrying on business, or if a court orders that it is in the public interest.
Nor does the Bill overlook cryptoassets. It will give additional powers to law enforcement bodies so that they can more quickly and easily seize, freeze and recover cryptoassets that are the proceeds of crime or are connected with illicit activity. That will ensure that cryptoassets cannot be a conduit for money laundering, fraud, ransomware attacks or terrorist financing. Most notably, it will mitigate the risk posed by those who cannot be prosecuted but who nevertheless use their funds for criminal purposes. I am sorry to say that cryptoassets are increasingly being used to fund terrorism; we will crack down on that by introducing an amendment to counter-terrorism legislation that reflects those changes.
I turn to anti-money laundering. We will enable better sharing of information about suspected money laundering, fraud and other economic crimes between certain regulated businesses, allowing them to take a more proactive approach to preventing economic crime. As a result, businesses will be better able to detect crime taking place across multiple businesses and to prevent criminals from exploiting information gaps between them. We will also reduce the reporting burdens on businesses, enabling the private sector and law enforcement to focus their existing resources on tackling high-value and priority activity.
Threats evolve and are changing, so the Bill includes a measure to streamline and allow faster updates to the UK’s high-risk third country list. The list will be updated and published on gov.uk for everyone to see, reflecting updates from the Financial Action Task Force, the international standard setter, when it identifies countries with weak anti-money laundering, counter-terrorist financing and counter-proliferation financing controls. By removing the need to lay a statutory instrument before Parliament every time the list needs to be updated, we will reduce delays in updating the list and free up parliamentary time.
The Bill will add a regulatory objective to the Legal Services Act 2007:
“promoting the prevention and detection of economic crime.”
It affirms that it is the legal duty of legal regulators and professionals to uphold the economic crime regime. That will reduce the risk of lengthy and expensive challenges from regulated members over enforcement action. It will improve the ability of the Legal Services Board, as the oversight regulator, to manage the performance of frontline regulators in meeting that objective.
The Bill will remove the statutory cap on the Solicitors Regulation Authority’s financial penalty powers for disciplinary matters relating to economic crime. That will align the SRA with other regulators that have such flexibility. Fewer cases will be referred to the Solicitors Disciplinary Tribunal, resulting in faster enforcement. There will be a credible deterrent and a more coherent response to breaches of economic crime rules.
The Bill will enable the Serious Fraud Office to use its powers under section 2 of the Criminal Justice Act 1987 at the pre-investigation stage in any SFO case, including a fraud case—an ability that is currently limited to cases of international bribery and corruption. This measure will mean that the SFO can more quickly gather the information that it needs to allow its director to decide whether to take on a case.
Cracking down on economic crime is a major plank of the Government’s beating crime plan.
Andy Slaughter
I am grateful to the Home Secretary for giving way; I know that she is about to finish her speech. There are 22 professional bodies overseeing compliance with anti-money laundering rules. Is the Home Secretary going to do anything about the resulting confusion, and the inadequacy of some of those bodies? May I also ask whether she intends to introduce—as her colleague the Secretary of State for Wales hinted earlier this week—a new offence of failure to prevent offences from being committed? I do not know whether she welcomes her colleague commenting on her brief, but as the Welsh Secretary has raised the question, perhaps she could respond to it.
Suella Braverman
The hon. Gentleman raises two issues concerning the regulators. We need to ensure that they strike the right balance in terms of their investigatory or prosecutorial powers, but also do not overstretch themselves to become a burden on legitimate and bona fide enterprise. This is a balance that legislation constantly seeks to strike. As for the offence of failure to prevent offences, it is something that we consider all the time, and I am always open to considering such possibilities.
Far from being victimless, these crimes bring misery, fund other crimes and undermine our country’s reputation, and Putin’s illegal invasion of Ukraine raises the stakes even higher. The United Kingdom must ensure that we are doing nothing to aid Putin, and doing everything we can to support the courageous Ukrainian people.
I urge the whole House to get behind the Bill so that we can make sure that the UK is a great place for legitimate business and a no-go area for crooks, and I commend it to the House.
Madam Deputy Speaker (Dame Rosie Winterton)
I call the shadow Home Secretary, Yvette Cooper.
Yvette Cooper (Normanton, Pontefract and Castleford) (Lab)
Let me first join in the tributes paid earlier by Members on both sides of the House to Sir David Amess. His parliamentary office was just above mine, and I know that we all remember him very fondly.
I rise to support the Bill’s Second Reading, and also to welcome the Home Secretary to her first full debate in the Chamber in her new post. It has been—what?—about five weeks since she was appointed, and I must say that she has been busy.
We have seen a series of major public disagreements between the Home Secretary and the Prime Minister: on restoring a net migration target, and then not; on leaving the European convention on human rights, and then not; on reclassifying drugs, and then not; on seasonal agricultural workers, still unresolved; on the claim that the Prime Minister did not see small boats as a priority and did not want her to talk about Rwanda; on some kind of row with the Business Secretary about florists, which nobody could follow; and on the Indian trade deal, which is something the Prime Minister had been working on for years, and which the Home Secretary seems to have single-handedly scuppered with a passing remark during an interview with The Spectator. Furthermore, according to the latest story this morning, the Home Secretary is not actually involved in immigration policy decisions at all, although they are at the heart of her Department.
We have to wonder whether there is anything that the new Home Secretary and the new Prime Minister agree on—although, to be fair to the Home Secretary, it is not clear that the Prime Minister agrees with herself from one day to the next. There have been so many U-turns that the Cabinet is spinning in circles. I have seen 11 Home Secretaries come and go, but I have never seen anything like the chaos and confusion that we are seeing now. There are disagreements from time to time, of course, but the scale of this is actually dangerous, because the Home Office is too important.
On issues of national security, crime and migration, we need the sense that there is some stability: that the people at the top are capable of self-discipline, that there is collective Cabinet responsibility, and that, at least on home affairs, they are making statements in the interests of the country, rather than behaving as if they were still in the process of a leadership campaign—although I guess that is exactly what is going on. If they are not capable of getting their act together and being a Government who are focused on those matters, they should get out of the way, and give way to someone else who can.
Yvette Cooper
If the Home Secretary wants to respond to any of those points, I shall welcome her doing so.
Suella Braverman
I am not sure whether it has dawned on the right hon. Lady that we are here to talk about the Economic Crime and Corporate Transparency Bill, which is an important measure to tackle fraud and support victims of this heinous crime. I am not sure whether she is really focusing on that. I thank her for the party political broadcast, but let us get on with the job in hand.
Yvette Cooper
There are plenty of aspects of the Bill that we can discuss, but I note that the Home Secretary chose not to deny any of the chaotic things that she has been saying in the papers. This is not stuff that we have made up; these are things that the new Home Secretary has been saying, which undermine her ability, and indeed the country’s ability, to deal with issues relating to national security, economic crime, fraud and migration—all the serious challenges that the country faces.
This Bill, which is long overdue, should constitute an area in which the whole country can come together and in which, across the House, there is broad agreement in the national interest. I welcome the Bill, but I am concerned that it does not go far enough. The Home Secretary will have heard the points made by Members in all parts of the House: extremely detailed work has been done by many Members with great expertise in respect of areas in which the Government need to go further. I hope that the Government will listen and will be able to go further, because the whole House will agree that action on economic crime in the UK is urgently needed.
This is a rough estimate, but the National Crime Agency says that £100 billion of dirty money flows through the UK every year, and that fraud is causing £190 billion-worth of damage. Economic crime is growing. According to the latest PwC global survey, 64% of businesses have experienced fraud, corruption or other economic or financial crime within the past two years, up from 50% just four years ago. Last year, 4.5 million frauds were perpetrated against people across the country, a 25% increase in the last few years. This is hugely damaging to families and communities, to our economy and businesses, to our international reputation, and also to our security.
The organised crime that is facilitated by weak financial systems has a deeply pernicious impact on our communities and our children, drawing young people into crime, gangs and exploitation, and fuelling the most appalling violence on our streets. It undermines our economy. It undermines legitimate businesses and financial organisations, and the thousands of people who work in them, who are standing up for high standards, are also undermined by this kind of crime and exploitation.
As I have said, economic crime is deeply damaging to our international reputation. London’s reputation as the money-laundering capital of the world is a source of national shame. Ours is a country that has long prided itself on the rule of law and on strong economic institutions, which is what traditionally made it a good place in which to invest, but that is being undermined by economic crime. United States allies have expressed frustration at the UK’s failure to tackle fully the problem of the flow of illicit Russian funds through what they have called Londongrad, and exposure to corrupt oligarchs and networks of kleptocracy means that that undermines our national security too.
Catherine West
My right hon. Friend is making an excellent speech. Does she agree that it is also necessary for the courts in London to accept that there are limits to how many cases can be held involving libellous action against good authors such as Catherine Belton, who wrote “Putin’s People” with the aim of educating the general population? Are not these false claims which keep coming up in court a complete waste of the courts’ time?
Yvette Cooper
My hon. Friend has made an important point which I hope can be explored further in Committee. There is clearly a problem when those with the deepest pockets, who effectively have endless wealth that they can draw upon, can use and abuse the court system in order to silence people. That issue needs to be addressed further.
We know that this problem has a wide impact on the state of our economy and our national security. We supported the last economic crime Bill and we support this one, although there are deep concerns about how long this process has taken, and also about the gaps. We welcome, in particular, the overhaul of Companies House, which Labour has supported and has pressed the Government to get on with, and which I know has been championed by Members on both sides of the House. It is right to give Companies House powers to check and challenge basic information. When we try to explain this to people, most of them are shocked to learn that it did not already have powers to check the identities of people trying to set up shell companies.
We welcome the measures on cryptoassets. The new technology is outpacing action against economic crime and organised crime. The power to freeze and seize criminal assets cannot just be an analogue one in a digital age. We welcome the measures to encourage information sharing to help spot fraud and money laundering, and we welcome the measures that the Home Secretary has referred to about the ability for the SRA to increase fines.
There are sensible measures in the Bill, but the delays in getting this far have caused a problem, and so do the gaps in the Bill. We are still playing catch-up rather than looking forward, and it should not have taken a war for us to get this far. Transparency International warned about serious problems back in 2015. For years, the National Crime Agency has called internally on the Home Office, the Department for Business, Energy and Industrial Strategy and the Treasury to do much more. We were promised action in 2016, in 2018 and in 2019, but as of August, fewer than half the recommendations in the Government’s 2019 economic crime plan had been enacted. The shadow Attorney General called for action on serious corporate fraud nine years ago. As shadow Home Secretary, I called 10 years ago for stronger laws and action on economic crime and fraud.
We are very clear about the importance of the matter. The Labour party believes in stronger action to defend our national interest, our economy and our national security from the organised criminals, fraudsters, corrupt oligarchs and kleptocrats. We know that that depends on having robust powers and procedures in place to defend our economy and our financial and economic institutions from fraud and abuse.
Chris Bryant
In fact, we tabled some of the measures in the Bill as amendments in 2018, and all that lot voted against them. One of my anxieties is about what happens with oligarchs’ assets that are frozen by the UK. There is a legitimate question about whether it is right for the state to seize assets that belong to private individuals. On the whole, that is not a good thing—that is what authoritarian regimes do—but we need some clarity on how we proceed in a time of war, which is effectively where we are at the moment. I note that Abramovich’s Chelsea was sold, and the money is still sitting in his bank account because the Foreign Office still has not put in place a means of transferring it to Ukraine. This is months in, and it is absolutely bonkers.
Yvette Cooper
My hon. Friend makes an important point, and I pay tribute to the work he has done over very many years, long before other people were talking about these issues and highlighting the risks. I also pay tribute to the work of the all-party parliamentary group on anti-corruption and responsible tax, co-chaired by my right hon. Friend the Member for Barking (Dame Margaret Hodge) and the hon. Member for Thirsk and Malton (Kevin Hollinrake). We really need to get the detail right and go further.
I agree with the principle that my hon. Friend the Member for Rhondda (Chris Bryant) has raised. Safeguards must be in place, but in an extreme time of war, when oligarchs have supported and enabled Putin’s regime and his illegal war for so long, there is a strong case for using their assets to support Ukraine. I do hope that the Government will look further at that. Canada and other countries have changed their laws in the most serious of circumstances, and we are keen to talk to the Government about taking forward something similar.
We want to explore with the Government going further on other measures, such as provisions to enable Companies House to publish and verify up-to-date information on shareholders, and provisions on third-party enablers of organised crime and kleptocracy. The Home Secretary will know that there have long been concerns about those who help organised criminals and kleptocrats hide their money, and who cover up for crime. The regime for preventing that and for effectively regulating high-risk sectors is still too weak. She will be aware that the Office for Professional Body Anti-Money Laundering Supervision has said that 81% of professional supervisors on money laundering do not have an effective risk-based approach. I hope that we can look further at that in Committee and work with the Government on stronger measures.
We have already raised with the Home Secretary concerns about enforcement, and I will keep pushing her on the question of funding for the National Crime Agency. We know that it was asked to draw up proposals for 20% staffing cuts. I think that is irresponsible at a time when we face economic crime; when the NCA’s work can benefit the Exchequer and the economy by taking strong action, including on criminal asset seizures; and when the NCA needs to deal with wider issues around organised crime, people smuggling and trafficking. I will keep pressing the Home Secretary, because she did not rule out the 20% staffing cuts, and we want to know that they have been abandoned.
There have been wider questions about training for law enforcement in things such as cryptocurrencies.
Chris Bryant
One issue that is quite difficult for UK agencies concerns moneys that come from British companies straight into sanctioned accounts in the United States. British paper manufacturer Mondi, for instance, is selling off its arm in Russia, but it has just sold it to one of Putin’s closest allies. In other words, millions of British pounds have gone into Russian pockets and will end up funding the war in Ukraine. How do we make sure that we have the resources to track down these problems and bring these people to book?
Yvette Cooper
My hon. Friend is right. Our law enforcement needs a level of agility to keep up with the scale and pace at which organised criminals and corrupt oligarchs work and the resources that they have at their disposal.
Hon. Members have raised concerns about the huge gap in the Bill when it comes to tackling fraud, particularly serious corporate fraud—many Members have raised concerns about the proposed legislation in that regard—but fraud more widely, too. It has become the single most common crime that we face, not just the most common economic crime. There were 4.5 million fraud offences—40% of total crimes—last year, and, shockingly, only 0.01% of them were charged. Charges for fraud have dropped. In 2015, 9,000 fraud charges were brought, but last year there were fewer than 5,000. That is a 47% drop in fraudsters being taken to court. Serious Fraud Office prosecutions plummeted by 60%, and SFO convictions were down from 10 in 2016 to just three last year. That is not justice, and it is not keeping people safe. It is as though the Government have shrugged their shoulders and said that criminals and fraudsters can have free rein. We must have proper enforcement in place and take action on serious crimes.
Kate Green
My right hon. Friend is making a powerful speech. I want to return to the question of resources for Companies House, and its new enforcement powers. Rightly, it will put most of its effort into dealing with serious organised crime and matters of national security. Does she share my concern that without adequate resourcing, the day-to-day frauds that affect so many of our constituents simply will not receive the attention they deserve?
Yvette Cooper
My hon. Friend makes an important point, because enforcement in these areas saves money—for the economy overall, and often also for public sector organisations. We need a proper enforcement plan from the Government.
John Penrose (Weston-super-Mare) (Con)
Does the shadow Home Secretary agree that strengthening our enforcement and plugging the enforcement gap is not just about resourcing for public bodies; it is also about having a much more effective whistleblowing regime? That can turbocharge what public bodies can do. It dramatically improves their ability to spot financial crimes —particularly fraud—and to intervene effectively and prosecute.
Yvette Cooper
The hon. Member makes a very important point. There are issues around both whistleblowing and safeguards for whistleblowers, and around information sharing. Information sharing is rightly included in the Bill, but many hon. Members will be aware that RUSI has pointed out that if we are looking to the future, as well as some of the issues around whistleblowing, there ought to be the potential to use artificial intelligence, for example, to spot patterns of fraud and corruption. As the hon. Member says, we need ways to detect potential fraud; we need routes—be it through whistle- blowing, information sharing or spotting things that happen—through which to identify it and then for speedy enforcement action to be taken.
Let me press the Home Secretary on the need to tackle corporate criminal liability. The shadow Attorney General, my right hon. Friend the Member for Islington South and Finsbury (Emily Thornberry), originally called for action on that nine years ago, and the Treasury Committee and the Law Commission have both called for action. Corporate fraudsters should not be able to get away with sequestering millions because the law just is not strong enough. I urge the Home Secretary to look at this urgently. It will have crossed her desk while she was Attorney General, and we need rapid action.
Labour will support the Bill on Second Reading, but we have to be honest that it does not yet go far enough. We should not stand for dirty money, fraudsters, organised criminals, and the deep and serious crimes that they facilitate. We must stand up for our national security; for our economy; for good businesses and professional services that are being undermined; for our law enforcement bodies, which need support and backing to deliver; and, most of all, for those who become the victims—those who are exploited here and across the world. Britain should be leading the way. The Bill is welcome, but it is not yet good enough. We hope that, with concerted cross- party action, we can all get our act together and make it better.
Damian Hinds (East Hampshire) (Con)
I support this important Bill, which seeks to tackle this most international of criminal problems. The scale of global financial crime is mind-boggling, accounting for up to 5% of gross world product and, depending on which estimate we look at—we cannot say absolutely for certain—worth between $2 trillion and $5 trillion. On an optimistic view, the confiscation rate runs at around 1%.
Economic crime is sometimes thought of as being in a separate category from other crime but, no, it is part of those other crimes. There is a particularly close link between fraud and cyber-crime. Money laundering, fraud and cyber-crime collectively—distance crime—make up the majority of crime by volume in this country. More broadly, virtually all crime with a financial motivation touches on money laundering at some level. There is a mix of organised crime groups pulling off huge cyber-crimes, down to individually small but cumulatively very large-volume frauds. Some groups have undergone a sort of vertical integration, controlling every part of the chain; others specialise in one particular part of the chain, such as ransomware as a service. There is a merging of criminal actors with a nexus to states. Then, of course, there are the kleptocrats who got filthy rich on plunder from their fellow citizens.
There is a huge amount that needs to be done in this area. Much of it needs to be done globally, but countries such as ours need to be in the lead. The world has made quite some progress in this area, and in key aspects we have been a leader, but we have also had our lacunae. High on that list is transparency about who is really behind and ultimately benefits from corporate structures and economic assets.
For some time, we have had a substantial and, in many ways, effective architecture to tackle money laundering, but there is an important question whether the suspicious activity reports regime is sufficiently efficient, and whether it is focused enough to make the most difference while minimising dead-weight. There is also the question whether we are fully harnessing the power and capabilities of banks, particularly if we compare our legislation with section 314(b) of the American Patriot Act. Should there be more direct intelligence sharing between banks, and if so, how do we manage the competition policy aspects of that? Finally, however much we improve and innovate, the criminals are doing the same, with ever more sophisticated technology, and they are increasingly bypassing the systems that we have been used to in the past by using cryptocurrency and cryptoassets.
The most important thing about the Bill is that it moves to plug the transparency gap, with reforms to Companies House and limited partnerships as its backbone. It modernises seizure by bringing cryptoassets into scope of the civil forfeiture powers, and it moves from a compliance-driven anti-money laundering system to one that is more proactive and intelligence-led, with rationalised SARs and DAML—defence against money laundering—requirements.
I welcome all the aspects of the Bill, but especially the information-sharing provisions, and in particular their broad scope to include all types of economic crime, including, importantly, volume fraud. I ask the Home Secretary and the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Watford (Dean Russell), to really test whether these powers go as far as they productively can. I press not just the Home Office and BEIS Ministers we have here today, but the Treasury, regulators and the private sector, to come together to ensure that we link up the different parts of our financial services sector and the wider professional services sector to best effect.
Information and intelligence sharing could be so much more powerful if we reformed the way that payments are made so that in certain circumstances, where suspicious activity is detected, it is possible to slow down or pause payments and use the system not just to track down money laundering payments or fraudulent payments after the fact, but to stop them happening before the fact. That could be a genuine game changer. As I say, I strongly encourage the two excellent Ministers present today to communicate with the Treasury and others about that.
I support the Bill and I wish Ministers well with it. It is of course part of a wider set of reforms that includes the sanctions regime, the creation of the National Economic Crime Centre, the kleptocracy cell, the overall economic crime plan, and, importantly, our international work with like-minded partners, the Financial Action Task Force, and the Crown dependencies and overseas territories. The reform of visas, which came up, is part of this too, and of course we recently passed the Economic Crime (Transparency and Enforcement) Act 2022. There will be more to come, I am sure, including on corporate criminal liability.
Kevin Hollinrake
I am very supportive of that, as my right hon. Friend knows, but I rise to make another point. He mentioned that putting some friction in the payments system might reduce instances of economic crime. At the moment, banks are refunding a much higher proportion of authorised push payment fraud, but all the onus is on the sending bank. Nothing is reimbursed by the receiving bank, yet it is the receiving bank where the dodgy account is held. Does he agree that we should look at that and create an incentive for the companies that host those bank accounts to tackle it more effectively?
Damian Hinds
I do think we need to look at this more closely, although it is even more complex than my hon. Friend suggests, because we get this ping-on system as well, where a body can be both a receiving bank and a sending bank, and so be a sort of transmission mechanism. We certainly need to look at this more broadly. Madam Deputy Speaker might get cross with me if I try to unpack it too much now, because it is a broader subject. However, as my hon. Friend rightly mentioned, we also have to address the questions of who is liable and how much of the liability now sits within the banking sector, full stop, as opposed to other parts of the consumer interface—different channels through which people come—that might reasonably be expected to share some of that burden too and be properly incentivised.
I am going to close my remarks by saying that these reforms are important and they are not in tension with the success of our financial services sector—quite the reverse. These reforms are about enhancing the reputation of both British financial services and, more broadly, the UK and our reliance on and respect for the rule of law. They are about protecting and growing our business; and doing the right thing, ceding no space to the criminals and the kleptocrats. In the unlikely event that we divide this afternoon, I will be proud to vote “Aye” for this Bill.
Alison Thewliss (Glasgow Central) (SNP)
I am glad to follow the right hon. Member for East Hampshire (Damian Hinds), whom I believe was the Minister who said he was not happy with the progress that had been made on tackling economic crime thus far. None of us in this place are happy about the situation on economic crime.
SNP Members of course welcome this Bill, which is overdue. Many of its aspects could have been picked up in legislation years ago. Members of the anti-corruption coalition across the House have been clear in calling for more action from the UK Government on this, and all this delay has cost us very dearly; openDemocracy believes that economic crime across these islands costs us £290 billion a year—just think of the services we could all be enjoying if that money were not being plundered by those people engaging in economic crime. As with all things around dirty money, we have to ask: who benefits from this? Who benefits from action not having been taken for all these years? There is much to be done, and the panoply of agencies involved must be properly co-ordinated and resourced to tackle it.
This is a big Bill and there is a lot more that could be said. My not saying something in particular now does not discount my saying something about it later, when the Bill goes into Committee. I thank everybody who has sent briefings ahead of this Bill, because that has been incredibly useful.
The UK Government must go after not only those committing economic crimes, but those enabling it. Robust supervision and proper deterrents need to be in place for those responsible for economic crime. Directors and enablers of economic crime need to face proportionate sanctions, and effective anti-money laundering supervision needs to be carried out consistently across sectors. Legislation on economic crime needs to be futureproofed, as a failure to ensure that means that legislators are always playing catch-up with criminals. We see that particularly in the field of crypto.
As Companies House reform is a significant part of this Bill, I will start with a few red flags from the UK Government that I would like to deal with straight up. Having lots of companies on the Companies House register is not the win that Ministers often seem to think it is, mainly because a good chunk of the register is absolute guff. It is like a kid in the playground with an impressive looking pile of football stickers for swapsies; but instead of getting an easy trade for the Kevin van Veen of your dreams, you find that the kid has a pile of doublers, triplers, old stickers from previous seasons, stickers from rugby and cricket, a few with Stormtroopers on and some they have drawn themselves. Sorting out that pile of stickers is pretty easy, but sorting out the millions of companies on the Companies House register is a much tougher task. Even the Department for Business, Energy and Industrial Strategy impact assessment, which I would draw everybody’s attention to, hints at the difficulty in unpicking the duplicates from the system. It is riddled with error, never mind the impact of those using it for nefarious purposes.
Having looked myself up on the register, it appears that I am on it three times; three different Alison Thewlisses exist out there in the world—just imagine that! The register believes I am three separate people, rather than the same person having been a director at different points in my life. The Home Secretary, who, disappointingly, has disappeared out of this place before hearing from the third party in this House, is on the register in her own name and in her maiden name, with no link to suggests that we are talking about the same person. The BEIS Secretary is on it as the director of 11 companies with his surname hyphenated and a further three companies with it unhyphenated. I am unclear what the process is by which Companies House will set about tidying up this basic type of messiness within its register. It should not just be put on individuals to fix this; there needs to be some mechanism by which it is all corrected.
The new objectives being given to Companies House are welcome—they are a step up from its being a passive recipient of duff information—but it is unclear how exactly they will work. The querying power must be a wider, separate piece of work to pick through in detail the existing register and figure out what is actually valid, rather than relying on helpful citizens such as Oliver Bullough, Graham Barrow, Richard Smith and David Leask to report in their concerns, as they often do.
Peter Grant (Glenrothes) (SNP)
There is, of course, only one Alison Thewliss. She mentioned Graham Barrow as one of a number of exceptional individuals who do a lot to expose the kind of things going on at Companies House that it should really be doing. I do not know whether she has followed his Twitter account recently. On 10 October, he tweeted that Companies House had just accepted the registration of a business called “Legat Business Limited”, which has a single director, called “Andrei Perezhogin”. His nationality is “Russian”, his place of residence is “Russia”, and he describes his occupation as “Men”. He claims to have set up this company with £100 million of capital. Does she share my alarm that it appears that a Russian living in Russia can invest £100 million in a British company and—this is without the powers in this Bill—nobody at Companies House thinks anything of it?
Alison Thewliss
I absolutely agree and share my hon. Friend’s concerns. Graham Barrow does great work on Twitter and in other places to highlight such scenarios. Whether or not that person exists, whether or not that company is valid, and whether that money is even being invested anywhere, never mind in this company—this exposes the nature of the garbage in the Companies House register. The Under-Secretary of State for Business, Energy and Industrial Strategy, the hon. Member for Watford (Dean Russell) should consider what he intends to do about that situation, because the register also contains abusive names and people being registered when they do not know they have been registered. How do such people go about correcting the register where companies have been registered in this way without their knowledge or consent? Home addresses are being used although the person who lives there has no knowledge that their address has been used until a whole wheen of paperwork from Companies House arrives at their door. These things are being regularly exposed; they should not come as news or as any surprise to Companies House or to Ministers in this place. In the interim between this Bill making progress through the House and its eventually coming into force, what will happen to stop these “companies”? They are among the thousands of companies registered every week at Companies House.
The power to query company names where people might be setting them up to impersonate another company or for criminal purposes stands in contrast with the continued objective to allow companies to turn around their registration in 24 hours. There is a substantial industry in creating fake but similar names, and then using those companies to rip off the public. Without a vast increase in staffing in Companies House to assess and sense-check all these applications coming in, it seems that many will continue to slip through the net, even after these reforms. I suggest to the Minister that perhaps it would be better to build in a slightly longer application period to allow proper verification to take place. It is unclear—I seek confirmation from the Minister—whether the verification that is being referred to will be though the existing UK Government verify scheme used for passports, driving licences and tax returns, or whether a separate verification scheme will used. Using the existing schemes seems to work reasonably well for passports, driving licences and tax returns, and I am not aware of any particular issues being flagged for those—if there are, I shall stand corrected.
The BEIS impact assessment dismisses the opportunity to verify the link between directors or persons of significant control and their companies. Again, this should be changed. Furthermore, we have a golden opportunity here to clamp down on opaque ownership structures and I cannot understand why the Government would not want to do so. The Bill must bring in provisions that prevent all companies from being controlled by opaque offshore entities, which do not need to disclose information on their owners or structures because of where they are based.
I still seek to understand from the Ministers why Companies House cannot be an anti-money laundering supervisor in its own right; this is a huge gap within the system. The Office for Professional Body Anti-Money Laundering Supervision has had mixed results in holding the AML supervisors under its wing to account; professional bodies have not done all they can to interrogate their members. That would perhaps fall into the area of a failure to prevent offence. Culpable directors, senior managers and other enablers of economic crime, including professional enablers, need to face sanctions, and rules on AML supervision need to be applied consistently. That is not currently happening.
The non-governmental organisation Spotlight on Corruption noted that there are 22 industry bodies that currently oversee AML compliance in the legal and accountancy sectors. In 2021, OPBAS found that just 15% of supervisors were effective in using predicable and proportionate supervisory action; 85% were not. It also found that just 19% had implemented an effective risk-based approach to supervision. This disjointed approach to tackling money laundering is just not working: it is allowing too many to sail through the net.
In the UK, an estimated £88 billion of dirty money is cleaned by criminals every year, compared with the lesser, but still significant, amounts of €54.5 billion in France and €51.53 billion in Germany. To tackle the issue, it is vital that support is offered to smaller firms, which are often targeted by those who wish to engage in money laundering, criminality and other illicit activities, to enable such companies to spot red flags in respect of potential clients.
It is beyond me why the UK Government allow the verification process for company registration to be carried out by company formation agents when they are the very bodies that have to a large extent created the problem that the Government are trying to solve. As the Home Office report “National risk assessment of money laundering and terrorist financing 2020” pointed out:
“Company formation and related professional services are…a key enabler or gatekeeper of TBML”—
trade-based money laundering. We should be reducing their power, not endorsing it.
Under the Bill, all third-party agents who set up a company on behalf of someone else will be required only to declare that the information they are providing on behalf of that person has been verified. I return to my verification question: what is the system for that? Without giving Companies House the ability to carry out independent checks to ascertain whether the “verified” third-party information is correct, it is just going to become a box-ticking exercise. The verification requirement in itself has no teeth and is unlikely to lead to any material change in how third-party agents carry out that key verification process.
Before I leave Companies House, I should say that I am deeply disappointed that the UK Government seem to show no willingness to increase the ridiculously low company registration fee: £10 or £12 is nothing in the scheme of things. In Germany the equivalent fee is €400, and in the Netherlands it is around €52; I am sure the Minister would regard neither country as anti-business. Having a low fee is not the benefit that Ministers seem to think it is. I am open-minded as to what the figure ought to be, but in its economic crime report the Treasury Committee agreed that £100 would be perfectly reasonable and give Companies House more resources to deal with the huge challenges it faces.
Improving relations between Companies House and the various law enforcement agencies is welcome. The Treasury Committee report on economic crime called the landscape “bewildering” and noted that both co-ordination and economic crime itself should be higher priorities for the Government. The scale of the issue is outlined in the BEIS impact assessment, with law enforcement referrals to Companies House rising from 1,400 per annum in 2015 to 9,300 in 2021. Given that we have heard how little economic crime is actually prosecuted, this feels like the tip of a very large iceberg.
With talk of future austerity and cuts, it is important that the UK Government invest in the enforcement agencies to investigate and prosecute economic crime. It is a specialist area and it requires well-paid specialist staff to tackle this scourge. The Scottish crime campus at Gartcosh is a great example of both efficiency and inter-agency working, but it can do this only if properly funded. A further round of Westminster austerity puts it all at risk.
I feel like I have been raising Scottish limited partnerships forever, and I have no hesitation about doing so again. Because SLPs hold legal personality and can possess property, they have become a very popular mechanism. The BEIS analysis was quite stark: between 2010 and 2016 they had a growth rate—one that the Government would love—of 459%. That alone should have set off alarm bells from Companies House to the Government Front Bench, but nothing terribly much happened for a long time. BEIS figures also state that as of 31 March 2021, SLPs made up 64% of all limited partnerships on the Companies House register. If we compare that with the fact that companies registered in Scotland make up just 5% of companies in the UK, we can see that something is badly out of whack.
SLP registrations have plateaued since the rules were tightened, but they have not gone away. They have also continued to be implicated in money laundering, arms running and sanctions busting, including in respect of the Russian aggression against Ukraine. They are set up with partners in secrecy jurisdictions, with companies named as persons of significant control, which is against the rules. Linking to an actual person with an actual address would be progress, as would limiting the number of times that an address or person could be a company director. To date, enforcement and fines for breaching the rules that the Government themselves set up have been few and far between. There is little point in having rules that are just not enforced.
As I have pointed out before in this place, there are also knock-on effects to our neighbours in Ireland. As there has been a slight tightening of the rules here, registrations of Irish limited partnerships have soared. What conversations has the Minister had with his counterparts in the Republic to ensure that we are not just shifting criminal activity from here to there? All possible co-operation must be undertaken to avoid criminals shifting their business over the sea.
I wish to ask about the links with other legislation that is currently going through this place. The Financial Services and Markets Bill has a significant section on the regulation of cryptocurrencies, which have become incredibly popular with organised crime incredibly quickly, as a means of shifting money as well as of scamming naive members of the public. It is unclear how the legislation before us interacts with that Bill and the halo effect that might be created by the regulation of certain cryptoassets but not others.
When the Treasury Committee took evidence on the Online Safety Bill—which has disappeared but will hopefully come back at some stage—we were concerned about crimes being carried out via the internet and social media platforms. Currently, the banks of those who are scammed have to pay up, but the social media companies themselves are not held accountable. For example, scams conducted over Instagram or Facebook Marketplace, scam messages sent over WhatsApp and unregulated financial advice given via platforms like TikTok are not currently covered. They should be given an awful lot more attention.
I was glad to hear from the Home Secretary that there have been some conversations with the Scottish Government about the implications of this legislation in Scotland, because Scots law is, of course, a devolved area. Registers of Scotland administers the register of persons holding a controlled interest in land, which was launched on 1 April and shows who controls the decisions of owners or tenants of land and property in Scotland. I would like a bit more information from the Government about the conversations they have had with Registers of Scotland and the interaction with the register of oversees entities. Scotland did not hang around waiting for the UK Government to make legislation on this issue; we got on with the job.
I look forward to tabling amendments to try to improve this Bill, and I really hope that for once the Government will listen and be constructive on some of the issues we raise. We would not be in the situation we are in today had they done so during the debates on the Sanctions and Anti-Money Laundering Bill or umpty other bits of legislation over the years. We are all clear in this place that robust supervision and proper deterrents need to be in place for those responsible for economic crime.
We on the SNP Benches are looking forward to independence and setting up our own robust systems to register companies and to prevent economic crime. Nobody would choose the UK system as it stands, and it remains to be seen whether it can be adequately repaired.
Mary Robinson (Cheadle) (Con)
It is a pleasure to be called to speak on Second Reading of this important Bill.
To maintain the UK’s role and reputation as an international banking and business hub, we must have a transparent system with robust defences against money laundering and fraud, backed up by legislation. As we have heard, the Bill introduces vital reforms to Companies House and to limited partnerships. It also brings forward measures to ensure that law enforcement is equipped to handle the modern challenge of cryptoassets. We have to keep pace with the inevitable changes that result from the development and recognition of cryptocurrency as it moves from niche technology to the mainstream. It is a policy area that poses a unique challenge to law enforcement, with constantly evolving technology creating intangible assets that are largely unregulated and increasingly used to hide and move the proceeds of crime and enable malign states.
The value of losses from crypto-related scams reported to Action Fraud more than doubled over the previous year to £190 million in 2021. All fraud costs the UK economy £190 billion annually, with money laundering constituting an additional £100 billion.
This is money from hard-working individuals and businesses taken by criminals and used to perpetrate wars and terrorism, and technology is only making that easier for them. The Bill’s stated objective, which I welcome, is as follows:
“Strengthen the UK’s broader response to economic crime, in particular by giving law enforcement new powers to seize cryptoassets and enabling businesses in the financial sector to share information more effectively to prevent and detect economic crime.”
Increased powers will bolster the National Crime Agency and Serious Fraud Office, as well as the regulatory bodies, and are welcome. However, the Bill misses an opportunity to refer to and support the important role of whistleblowers in the fight against financial crime. The impact assessment produced by the Department for Business, Energy and Industrial Strategy references PricewaterhouseCoopers’ global economic crime and fraud survey 2022, which found that the UK has a higher than average proportion of serious fraud carried out by an external perpetrator at 57% versus 39% globally. It notes that fighting external perpetrators is distinct from handling internal fraud, with external forces being “immune” to traditional fraud detection and prevention tools—including workplace frameworks and whistleblowing procedures.
The Government are in the process of reviewing whistleblowing guidance, which is welcome. However, the reality is that existing legislation applies only to employees— not to contractors, trustees, volunteers or many others who might hold vital information. It is estimated that just over 40% of fraud is detected through whistleblowing tips, and only half of those disclosures come from employees.
By their very nature, money laundering and economic crime are more often than not linked to serious organised crime gangs and hostile states. Without adequate protections, the stakes for an informed insider blowing the whistle are simply too high. With cryptoassets existing outside the realm of a centralised or governed system, it is unlikely that anyone with information about financial crime involving them will be employees, and therefore they will not be covered by the provisions of the Public Interest Disclosure Act 1998, which is the one that oversees the protections of whistleblowers.
If protections are not to be afforded in this Bill, I hope the Government will support the aims of the all-party group on whistleblowing, which I chair, to create an office of the whistleblower to provide overarching protection for the very people we need to speak out and uncover the criminal activities that this Bill aims to curtail.
I welcome this important Bill, and I know that it will receive support. There are changes that could be considered, particularly with regards to whistleblowing, so I look forward to seeing the Bill go through to Committee.
Dame Margaret Hodge (Barking) (Lab)
It is a pleasure to follow the hon. Member for Cheadle (Mary Robinson), who has been a passionate and strong advocate on behalf of whistleblowers and the very important part they play in fighting economic crime, money laundering and fraud.
Many of us have waited with eager anticipation for the Bill that the Government promised would enable us to rid Britain of the influence of oligarchs and kleptocrats and of the cancer of money laundering, fraud and other economic crime. That is particularly true of the large and ever growing group of Back Benchers who are working together across the House on these issues. Although we all welcome the fact that the Bill is now before us, many of us deeply regret that, yet again, the Government have failed to demonstrate the strategic vision, determination and ambition that are plainly needed if we are to translate our shared aim into reality on the ground and convert our warm words on economic crime into real action. The Bill contains good and important changes, but it does not allow us to make the big leap forward that we need to systematically drive this pernicious and pervasive illegal activity out of our economy and our society.
Let me remind Members why tackling economic crime really matters. Bluntly, the cost to the UK economy is immense. People have talked about the figure of £290 billion a year, but a recent study by the University of Portsmouth gives us a figure just short of £350 billion. The mind boggles. That is somewhere between a quarter and a third of total public spending every year. It is the enormity of the sums that gives the UK the shameful and dubious distinction of being the jurisdiction of choice for oligarchs, kleptocrats and criminals around the world—people who choose us to hide and launder their ill-gotten gains.
Governments of both the main political parties have long championed the UK's financial services, and the success of our financial services has contributed significantly to economic growth over recent decades. We boast of our professionals, our institutions, a trusted legal jurisdiction, the English language, an attractive property market and the lure of London as a place in which to live and work—all things that help to create a vibrant financial services sector. At the same time, though, our weak regulations, our woefully inadequate enforcement capability, our relationship with the UK tax havens in the Crown dependencies and overseas territories, our lack of transparency and our deficient accountability protocols have meant that it has become all too easy to wash the dirty money along with the clean here in Britain.
The human impact of this is beyond awful. We have all seen the horrific, heartbreaking images of Putin’s vicious assault on Ukraine and the effect that it is having on innocent Ukrainians. However, we must face up to the understanding that the dirty cash is laundered and cleaned by Putin and his kleptocratic friends both in and through the UK. Ukraine is now paying the price for corruption and economic crime. We are helping to enable Putin’s assault. Our corporate structures, our lawyers, bankers, company service providers and accountants, and our links with places such as the British Virgin Islands all facilitate the accumulation of stolen wealth and power that helps to fuel the criminal onslaught on an independent nation and its people.
We have allowed that to happen. It is an utterly appalling truth that, since Putin came to power more than 20 years ago, there has not been one single prosecution for economic crime launched against any individual Russian oligarch—not one. Similarly, the explosion of fraud in Britain has led to endless instances of misery and harm, which other Members have cited. The authorities, as my right hon. Friend the shadow Home Secretary said, reported 5.1 million incidents of fraud in the year to September 2021, and we know that much fraud remains unreported. The published figure means that at least one in 11 adults were the victim of fraud in that year. People such as Len, who, at the age of 96 and with a proud record of service in the Army and a successful career as a chartered surveyor, was getting 600 scam communications a month. Although he did not keep track of his total losses, he knew that in one 10-day period he had spent and lost £600. It is the lack of enforcement action that contributed to Len’s misery and that has allowed fraud to spiral into the most common crime in Britain today.
The Government are absolutely right to bring forward legislation. In fact, I would argue that if we do not eradicate money laundering, fraud and other economic crime we will cause lasting damage to our financial services sector, because we will lose our reputation as a trusted jurisdiction, and the plentiful supply of clean money across the world will go to other more reputable countries. We will lose business, not attract it. Britain can never enjoy sustained economic growth on the back of dirty money.
I welcome the good and important changes the Bill will bring about when it is passed into law. The reform of Companies House, which other hon. Members have talked about, is warmly welcomed and hugely important. None of us wants more regulation, but we do need much smarter regulation, and that is what these provisions aim to achieve. We need to tackle and stop scandals such as the Danske Bank scandal, where an Estonian branch of the Danish bank allowed $8.3 billion of suspect payments to move through the bank using British registered companies. Many of those companies were limited liability companies, and we now know that 90% of the more than 800 limited liability companies involved in the scandal were set up by one rogue company service provider and registered at the same address in Birmingham. We need to stop the practices that meant that in the FinCEN files leaks 3,267 UK shell companies were named—more than in any other country. We need to tackle the reasons that led to Transparency International’s finding in a 2017 investigation that 766 UK shell companies were involved in corruption and money laundering cases worth up to £80 billion, with half of those 766 companies registered at just eight different addresses.
Kevin Hollinrake
The right hon. Lady is making a fantastic speech, and it is always a pleasure to listen to her and to work so closely with her from our respective positions on the Back Benches. She refers to Danske Bank; the total amount of money laundering through that Estonian branch was €200 billion, much of it Russian money from kleptocrats moving the money out of Russia. The bank has not been fined yet. It will probably get a fine of £2 billion or £3 billion, but the likelihood is that not a single individual will be held to account. That is absolutely wrong. Fines are seen as a cost of doing business. I know she agrees that we need to extend the failure to prevent an offence to include economic crime and things such as false accounting, and we must have individual directorial responsibility.
Dame Margaret Hodge
Hear, hear! I completely concur with the hon. Gentleman, and it is a real pleasure to work with him on all these matters. He is completely right. The interesting thing about Danske Bank is that, were there to be any prosecutions, they would not happen in the UK. They might happen in other jurisdictions, particularly America, but they will never happen in the UK because of the weakness of our enforcement agencies.
The provisions in the Bill are essential to help tackle some of the wrongs in the examples I have given, but I hope the Minister will assure the House when he winds up the debate that he will seriously consider amendments that we intend to table to strengthen the reform of Companies House and prevent potential loopholes. I also welcome the proposals to allow organisations such as banks to share information where that could help to prevent or detect wrongdoing, and the proposals to treat cryptoassets just like cash or any other assets for the purposes of seizure and enforcement.
However, the Bill too often tinkers with the challenges at the margin instead of boldly adopting a more holistic and systemic approach to bearing down on dirty money. For example, instead of proper and much-needed reform of the supervision of the professional enablers who are responsible for implementing anti-money laundering regulations, we get new cost caps for the Solicitors Regulatory Authority and new powers for the Legal Services Board—piecemeal reform, not systemic reform.
Instead of reforming the present outdated criminal offences in relation to the responsibilities of companies and their directors to prevent economic crime, which the hon. Member for Thirsk and Malton (Kevin Hollinrake) referred to, so that we can really hold those who enable, facilitate or collude with economic crime to account, we get new pre-investigation powers for the Serious Fraud Office—important, but piecemeal reform. Instead of a systemic reform of the broken suspicious activity reports regime, we tinker at the edges by reforming part of the regime, the defence against money laundering SARs—again necessary, but yet another example of the piecemeal approach being taken.
Not only does the Bill tinker at the edges; it also fails to address key matters that are all vital to a comprehensive approach to preventing, detecting and punishing money launderers and fraudsters. Where are the proposals to seize, as well as freeze, the assets taken from sanctioned individuals and states? We want the money that Putin and his kleptocratic cronies stole from Russia to be used to fund the reconstruction of Ukraine. We need similar powers to those that already exist in other European countries such as Italy and in nations across the world such as Canada.
Where are the proposals for a sustainable funding regime for the enforcement agencies, so that they can use the powers they have? For instance, as the hon. Member for Glasgow Central (Alison Thewliss) stated, the cost of registering a new company with Companies House is a mere £12. It would still be a bargain at £50 or £100, with the extra income ringfenced to fund Companies House properly.
Where are the proposals to do away with the requirement that our enforcement agencies pick up the tab for the legal costs incurred by individuals who succeed in resisting a prosecution for economic crime? The US enforcement agencies, which are far more successful in securing convictions, do not have to pay the costs of the person prosecuted if they lose a case. We should follow that example. Our system acts as a brake on our enforcement agencies. They fear the financial costs of losing, so they fail to prosecute aggressively, and because of that fraudsters, criminals and money launderers get away with awful actions.
Where are the proposals, which the hon. Member for Cheadle called for in her contribution, to protect the brave whistleblowers on whom we are so dependent? Where are the proposals to ensure accountability to Parliament and the public, so that we can see whether our reforms deliver? Where are the proposals to tackle the abuse of our defamation laws by oligarchs who want to silence those of us wanting to hold them to account? Where are the proposals to close the loopholes on transparency for trusts and the ownership of land, which continue to act as secret ways to launder money into or through the UK? Where are the reforms to the SARs regime, to the supervision of AML supervision or to corporate criminal liability laws?
In the wake of the 7/7 attack in Britain, we treated the reform of counter-terrorism as a mission requiring strong and comprehensive action, and we are now rightly proud of our capabilities in that area. The war in Ukraine should be our 7/7 moment in the battle to eradicate dirty money. It has helped us to understand the horrors that allowing illicit finance to infect our financial services sector, our economy and our society can bring, both at home and abroad.
This Bill is a once-in-a-generation opportunity to put things right. We cannot and must not waste it. I look forward to working with my colleagues across the House and with Ministers in Government to achieve our shared and crucial objective: to show that we are a country that consistently demonstrates zero tolerance for all illicit finance and is determined to grow a strong, trusted financial services sector in a jurisdiction that boasts the smartest regulation, first-class enforcement of the rules, maximum transparency and strong accountability. There lies the way to economic growth.
Kevin Hollinrake (Thirsk and Malton) (Con)
It is a pleasure to speak in this debate and a particular pleasure to speak after the right hon. Member for Barking (Dame Margaret Hodge). She has done incredible work in this area for many years, for which we should pay tribute to her, and I hope she will continue for many years to do the same. I know that she has talked once or twice about hanging up her political boots—if the accommodation Whip is listening, I would very much like to inherit her office if she ever does—but nevertheless I hope she continues in Parliament for many years to come.
On a more serious note, all hon. Members deal with tragic cases and I want to refer to a couple of mine. Leah Heyes was a 15-year-old girl whose life ended in a carpark in Northallerton in 2019. Andrew Bellerby took his own life aged 35 in 2015. The connection between those two tragic cases is, of course, drugs. Lia suffered an adverse reaction to her first experiment with ecstasy, and Andrew’s life had been devastated by drug dependency. We also try to help families in those tragic cases, who are trying to pick up the pieces and make the best of what has happened to them, by putting in place measures to stop such things happening again. Too often we look at ways to try to deal with suicide cases more effectively or clamping down on people who deal drugs, but that is treating the symptoms, not the causes.
The causes are linked to economic crime. Many people will have watched the television series “Narcos”. The big cartels make a huge amount of money distributing the drugs that result in those tragic cases. They make so much that they bury hundreds of millions of pounds, because it is difficult to legitimise the money. They are not supposed to be able to pay that dodgy money into a bank or buy a yacht or a house with it, because questions should be asked about where the money has come from. Without the ability to launder the money, it is pointless perpetrating those horrendous crimes and being the linchpins behind those tragic cases.
The reality, however, is that many of our large financial institutions facilitate the laundering of that money. In 2012, HSBC, which we regard as a trusted organisation, was fined £1.9 billion for laundering money for the Sinaloa cartel, which was run by El Chapo. It is incredible that that would happen, but the obvious reason it does is money. The banks can make huge amounts of money themselves. My friend the right hon. Member for Barking mentioned the Danske Bank case. Normally a regional branch of a bank would have a profit margin of about 20% on turnover. The Estonian branch of Danske Bank that dealt with the £200 billion of Russian kleptocrat money had a profit margin of 460%, and that huge amount of money was the incentive. It is inconceivable that the people at the top of HSBC and Danske Bank did not know what was going on. It is impossible to make such extraordinary profits without those at senior levels knowing what is going on. But time and again we simply fine the bank and do not hold the individuals to account.
Drugs are not the only issue. Some of them are problems that we are trying to solve, such as the small boats crisis. Traffickers are making huge amounts of money and they need to be able to move that money around. Paul Stanfield, the head of economic crime at Interpol, says that it is all about the money and
“If you want to tackle organised crime, you have to go after the money”.
But the reality is that the UK makes all this easier. Because of some of our lax regulations on shell companies, which allow money to be hidden behind the veils of different companies in different jurisdictions, and because of the expertise in London and our overseas territories, the UK is the destination of choice for money laundering. The money may go to different places but it is laundered through London.
That is why many of the measures in the Bill are welcome, including those on transparency and Companies House. This is a big job. It is not only new companies whose directors must be verified, but existing ones. That is millions of companies. The Minister has been excellent in engaging on these issues, as was the previous Security Minister, but I would like to understand how that will be achieved. We may be putting £63 million into Companies House, but verifying the identities of people who have significant control over organisations will be a big job.
The resources going to Companies House need to be beefed up, and it makes sense to increase the very low fee of £12 for setting up a company in the UK to £50 or £100. I have set up quite a lot of companies in my time, and a fee of £50 or £100 would not have deterred me. That could increase resources to make sure that the enforcement happens. Too often, we look at innovation and legislation but we do not look closely enough at implementation. Without that, it is pointless having this debate. Implementation is key, and resources are key to that.
We are bound to focus on measures that are not in the Bill—that is what Back Benchers do. I have said many times that the No. 1 measure we need is an extension of the failure to prevent provisions on bribery and tax evasion, which have been so effective. People say that we talk a lot and never get anything done, but the bribery provisions have been massive in holding corrupt companies to account. The Serious Fraud Office has deferred prosecution agreements for Rolls-Royce for Airbus, with almost £1 billion in fines going to the Treasury. The SFO also prosecuted the GPT Special Project Management Ltd case. The SFO does not get many successful convictions but GPT Special Project Management Ltd pleaded guilty in Southwark Crown court in 2020, and paid £28 million in financial forfeitures as a result, on the back of the Bribery Act 2010.
I pay tribute to my hon. Friend the Member for Cheadle (Mary Robinson) for her work on whistleblowers. It is an area that the Bill does not cover at the moment, but I hope that the Minister will introduce more provisions. My constituent Ian Foxley blew the whistle in 2011, resulting in a conviction 10 years later. He was well paid, operating in the middle east for GPT, but he has had 11 years without any remuneration. He was earning probably £200,000 a year, so he is millions of pounds down. We do not protect or compensate whistleblowers, and that is wrong. Those people do the right thing and come forward but—not to put too fine a point on it —we hang them out to dry.
Peter Grant (Glenrothes) (SNP)
Does the hon. Gentleman agree that there is a grave injustice when those who have done the right thing have a lifetime loss of earnings of millions of pounds, but when crooked accountants are called up before and disciplined by the Financial Reporting Council, their loss of earnings from being suspended for a short time, which could run into millions of pounds, is taken into account? The sentence is often more lenient if it will have a significant financial impact on an accountant who has given false information to the FRC. It appears that the crooks are better treated than the people who try to bring them to justice.
Kevin Hollinrake
The hon. Gentleman makes a very interesting point. We need to clamp down on enablers of all kinds, and we need to get tougher in lots of ways to crack down on this in the way that we would all like to see. I know that provisions on whistleblowers will not be part of this Bill—although there may be amendments in Committee to that effect—but we want those brought forward as quickly as possible.
The failure to prevent is so important. It has to include the ability to hold an individual director to account, which would start to reduce the incidence of money laundering and the facilitation of all kinds of offences, including the huge profits made from drug dealing. An illustration of this is what happened with health and safety legislation back in 1974, when directors were made individually responsible and could go to jail if they did not prevent or seek to prevent serious injuries on their building sites. It became a health and safety offence that could be pinned on the individual. After that happened, deaths and serious injuries dropped by 90%. Of all the measures we have talked about today, this would have the biggest effect in terms of cutting down on economic crime, because lots of our financial organisations are complicit when it suits their interests to be so.
There are many other things we should do. We should extend what we did with unexplained wealth orders in terms of cost protection to other elements of the Proceeds of Crime Act 2002 such as property freezing orders and recovery orders. Bill Browder, who is very outspoken in these cases, has come up with an interesting idea. If an individual is sanctioned, anyone who has dealt with that individual—whether it be an accountant, a solicitor or anyone else—should have to hand over their records in connection with that individual to the authorities, so that we can track down the money more effectively. I cannot see a good argument against that.
We have talked about freezing and seizing assets. That is difficult to do, because we have to prove that there was a crime, and we believe in property rights and the rule of law in the UK, so taking these assets off individual oligarchs is tough. One thing that seems like an open goal is the fact that we hold about £30 billion in Russian foreign currency reserves. It is clear that Russia is guilty of international crimes in its invasion of Ukraine. We could legislate to ensure that that money is not just frozen, as it is currently, but confiscated, seized and used to pay reparations to Ukraine.
There are many other things we could do, which I will talk about further during the later stages of the Bill. I may well table one or two amendments, which I know Ministers will continue to engage with and, I hope, will look kindly on, because all these measures will clamp down on economic crime, which is good for the UK and good for business. It is not bad for the economy—it is good for the economy—and it will drive out these heinous crimes all around the world, not just in the UK. We will then be able to point proudly at our record on tackling economic crime, and I hope the Minister will take credit for that as this legislation passes through the House.
Valerie Vaz (Walsall South) (Lab)
It is a pleasure to follow the hon. Member for Thirsk and Malton (Kevin Hollinrake), and I will pay tribute to him later. It is hard to be here on a Thursday without thinking of the late David Amess and remembering how he always used to come into business questions with a smile on his face. It has been a year, but it does not feel like a year; it has gone so quickly. We remember both David and Jo Cox. It is a very sad time.
I welcome the Minister to his position. I know that he has a lot of work to do. He is a talented author, and I bet he wishes he was reading his books, rather than the Bill. This is a wide-ranging Bill, and the main reforms are to Companies House. I am quite surprised that two Departments are covering this. It is a huge Bill, with six parts, 162 clauses and eight schedules. It is impossible to go through the whole Bill, but I have looked at certain sections of it, and it makes big reforms. I hope that this will all be teased out in Committee, and I want to highlight a few areas. I welcome what my right hon. Friend the Member for Normanton, Pontefract and Castleford (Yvette Cooper) said: we welcome the Bill, but with reservations.
Reading the words “Companies House” took me back to when I started working as an articled clerk. I had to go down to Companies House, which was on Old Street then, and look through the microfiches of all the companies; that was the work we did at that time. Having qualified as a lawyer and worked in the Treasury Solicitor’s Department, I saw civil servants when they had the tools and the resources to go after companies, and they did that in the public interest—they understood those words, which they picked up over the years by osmosis and the way that departments worked, and they used to wind up companies in the public interest. The hon. Member for Thirsk and Malton mentioned going after directors and having that strict liability. There is the Company Directors Disqualification Act 1986, but I do not think it is used often, and certainly not to wind up companies in the public interest. I hope the Department will look at that, but that requires resources, and by the time I had left the Treasury Solicitor’s Department, it had been outsourced to other companies.
I am not sure that there is a reference to this in the Bill, but it is possible to buy companies off the shelf and then transfer them to new ownership. What drew me to this issue, as well as my previous experience, is that a couple of constituents contacted me to say that their home address was being used as the registered address of a company, which they were getting mail for, and they could do nothing about it. They got in touch with Companies House. At the time, the Minister wrote a letter to say that there would be a new Bill and reforms, but these people were having to correct the information themselves and provide evidence that they lived at that address—they were the victims, but they had to rectify the register. I hope the Minister will confirm that these new powers will cover that situation, so that the onus will not fall on the victims to rectify the register, and that the registrar will deal with this under the ID verification scheme. There are some concerns about that new scheme. The regulations are still to be made, and it is not clear on the face of the Bill what the process will be and what will count as acceptable evidence; there is concern that it will just be biometrics.
The second case I want to come to is one that I have had three emails and lots of information about, and it is that of a constituent who I will refer to as Mr B—not because that is an expletive deleted or what I feel about him, but because that is his initial. He was going round setting up companies to defraud elderly people, and he was using false addresses. Even now, there are 16 companies registered to Mr B, of which five are active, and they are renewable energy companies. He is not only doing it here; apparently, he has a database of companies around the world—he has victims in India, the USA and Canada. My constituent went to the police and was told to go to Action Fraud, which told her to go to the National Fraud Intelligence Bureau, and nothing has been done. Will the Minister meet me to discuss that case? Can he confirm whether the new verification scheme will stop that?
The dynamic duo, my right hon. Friend the Member for Barking (Dame Margaret Hodge) and the hon. Member for Thirsk and Malton—what would we do without them?—both mentioned that funding is an issue. We may give Companies House powers, but it must have the tools to finish the job. It is more than just snagging. It only costs £12 to set up a company. In France it is £50, and in Germany it is £100. The APPGs chaired by this dynamic duo who are keeping us safe have both suggested a cost of £50, but as the hon. Member for Glasgow Central (Alison Thewliss) said, the Treasury Committee has suggested that it should be in the region of £100. At today’s rate, someone could set up eight companies—why would they want to?—for £100. If it would help with the costs of verification, the Government should look at the higher figure of £100, because the Treasury Committee has taken evidence on that. We know that over half a million companies are created each year. Transparency International UK found that, as the hon. Member for Strangford (Jim Shannon) mentioned, between 2000 and 2019 nearly £137 billion was lost in money laundering and corruption.
That leads me to my next concern, which is the method of identity verification. There seem to be two routes mentioned in the Bill—Companies House or an authorised corporate service provider. Again, there is nothing in the Bill about how this will be set up. I know there will be secondary legislation, but I think the House would like to see some of the processes and what exactly that will entail because I have a few questions. What are the transactional costs of using an authorised provider as compared with Companies House? Are we just outsourcing this process and will such providers be accountable to the registrar at Companies House? How many authorised corporate service providers will there be, because this Bill is quite rightly about corporate transparency?
This brings me to the register of overseas entities, which is operational, and as of 11 October 1,605 have registered. I logged on to the register, and the House of Commons Library helpfully took me through the process. I searched through the register and, lo and behold, companies with opaque beneficial owners can still register. I will mention just one: Merakino Ltd, which is registered in Jersey. When I clicked on the beneficial tab, it came up with East Fiduciary AG, with the registered office in Switzerland, and the only person named is the agent in the UK supervised by His Majesty’s Revenue and Customs. A company expert has said that about 20% of registrations on that register have a beneficial owner that is a legal entity, not a human being, which shows, sadly, that the register is not working. I hope the Minister will look at this, and say whether he considers that a register in which for 20% of the entries the entity is a company is working.
I, too, agree with other colleagues who have said that this is a missed opportunity, because I feel that the Government have failed to close a huge gap that in effect amounts to economic crime against the British people. I know there will be mumbles about this not being the right vehicle and so on, but I think closure of the non-dom status is a vital area in fraud and in ensuring that money owed to the British people stays here. Those who choose to live, use our services and vote here do not pay their taxes on overseas income, and as my hon. Friend the shadow Chancellor has pointed out, this would raise £3.2 billion a year.
Sadly, in conclusion, I have several questions for the Minister. Will he consider raising the registration fee, as suggested by the Treasury Committee and the APPGs, in line with other countries? Will he look at that, and at an open and robust process for identity verification? Will he look again at closing the loopholes in the overseas register? Will our constituents be safeguarded from the use of their own home addresses? Will Mr B, using fake companies to defraud constituents, be exposed, caught and penalised? Looking through clause 96, one of my concerns is that the registrar can apply civil penalties, but using a civil burden of proof—the burden of proof is “beyond reasonable doubt”, but the penalties are civil ones—so does the Minister, the Department or the Government know how many people will be caught by this, because it is quite a high bar? Our constituents are working hard and they pay their taxes, mostly through pay-as-you-earn, and it is right that we close loopholes and protect them against fraud so that we can continue with the entrepreneurial spirit this country is very good at.
John Penrose (Weston-super-Mare) (Con)
I guess the simplest way to greet this Bill is with a massive cheer of hooray. Many of us in this place today have been waiting and waiting for a very long time, and it is really good to see it arriving on the Floor of the House at last, and to see it being welcomed from both sides. There is cross-party agreement on the fact that it is due and, frankly, past due to plug some of those gaps, and it is great news that it is here.
Many of us have been pushing for a very long time to get such things as beneficial ownership transparency, so that if we want to find out who owns a particular company, we do not have to go through multiple layers of shells and other bits and pieces, and finally end up in a secrecy jurisdiction. We are, at least in theory, able to find somebody in charge or exercising effective control over that company who has a pulse, and that is the ultimate guarantee that we are getting somewhere.
We have already heard that many further steps will be required to make that actually bite properly, but in principle is it not great that we are here and is it not great that this stuff is happening? I am delighted to be able to welcome it along with everybody else here today. However, you can probably tell, Madam Deputy Speaker, that I am working up to a but at the end of that sentence. In fact, I am working up to two buts, if I may.
The first but is the point raised by my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) about the failure to prevent mechanism or indeed any other effective mechanism ensuring that for a corporate—I am using “corporate” in the broadest sense to mean not just companies, but all corporate vehicles, including things such as trusts—there is some sort of proper personal liability for the people running it if they allow things such as money laundering to happen. Failure to prevent is probably the most obvious way to do it, and it was blessed and agreed to for fraud, as an extension of where we are now, by the Law Commission in its recently published report. However, there is a whole range of other crime and economic crime that it does not cover, and the Law Commission said that there may be other mechanisms than failure to prevent.
It does not really matter what that the mechanism is, except that it has to be better than what we have at the moment, and we absolutely have to push forward on what is one of the biggest remaining holes in the coverage of our protections. My hon. Friend is quite right that until we do this—until we plug this particular gap—we will still end up with a huge opportunity for thieves, kleptocrats and organised criminals of all kinds to do what they do. I am afraid that they are incredibly entrepreneurial people, and they are very creative and stay ahead of whatever mechanisms we come up with. It is only by doing something like that that that we will close the gap properly and get an all-encompassing roadblock to what they do.
It is therefore absolutely essential that, whether it is with failure to prevent or some other mechanism, we do not accept that the status quo is adequate in this area, and we must, all of us from all parts of the House, send a resounding message to Ministers and to law enforcement that this must not be allowed to persist. I may be being a little bit over-optimistic, but I think we heard from the Home Secretary earlier that the Government plan to come back to, look at and take forward—I think that was the phrase she used—the report from the Law Commission. I hope she will hear from all of us here that that is good news, but that we would like to take it forward briskly, promptly and with maximum energy, if we can.
The second but is the point about enforcement. It is all very well to have brilliant legal structures, brilliant laws passed and regulations in place saying, “Thou shalt do this” and “Thou shalt not do that”, but it is no flipping use at all if there is no one there to actually police it and enforce it. While there are an awful lot of people working extremely hard in all sorts of organisations —the National Crime Agency and others—to try to do this enforcement, we all know that there is an enforcement gap in this country compared with, for example, America, which is an awful lot better at it than we are, in this particular area at least.
Therefore, we are going to have to raise our game here. I wish there was a Home Office Minister sitting on the Bench alongside the excellent BEIS Minister at this moment, because the Home Office is the Department that will be under funding pressure to raise its game in order to make sure there are enough resources for these enforcement organisations to do their job, and to do it better, more effectively and more efficiently than they are at the moment. Until they do that, we are always going to be a weak link internationally. I do not think we should kid ourselves about where we are at the moment, because we are a bit of a weak link at the moment.
That brings me on to the other half of my point about enforcement, which is that the points made about whistleblowing by the APPG chair, my hon. Friend the Member for Cheadle (Mary Robinson), really matter. As I said to the shadow Home Secretary earlier, we can turbocharge and maximise the effectiveness of our existing enforcement organisations if we get our whistleblowing regime upgraded and improved very dramatically from where it is now, because whistleblowers are force multipliers for the police. They make the police’s life easier, bring them good, warm leads, blow open cases and provide the evidence that is needed to create effective prosecutions. Without them, the job is a great deal more expensive and less effective; with them, the police can do their job much faster and better. The kleptocrats, the oligarchs and the various different crime lords are a great deal more scared of the UK with a decent whistleblowing regime than they are without one.
That causes a problem because Ministers will say, “Ah yes, but there isn’t enough space in this Bill to provide upgrades to the whistleblowing regime.” Many of us asked that question before we got here today and we all had the same answer, which is, “Yes, it is very important, but not here, not now, and not just yet.” Frankly, that is not good enough or adequate.
I appreciate that the constraint on space is real and I am not trying to pretend it is not, but there are other things that Ministers could do that do not require this Bill and that could be done through, for example, little bits of secondary legislation. If Ministers can commit to make those changes—ideally in the Minister’s summing up this afternoon or certainly in Committee—the pressure for primary legislation and, dare I say it, for endless rounds of proposed amendments, which people may be minded to table later in the Bill’s progress, either here or in the other place, will be greatly reduced. So it is in everybody’s interest for Ministers to say, “Yup, we are going to do that.” If the Minister is able to stand up later this afternoon and say, “Yes, we will do these four things during this parliamentary Session”, that will relieve an awful lot of pressure in this area, because we will all know that proper progress will be made.
The things that would reduce the pressure and the need for primary legislation in the Bill are very simple. First, we could extend the Public Interest Disclosure (Prescribed Persons) Order 2014 to include all the professional regulators. At the moment, that order includes some of them, but if all the professional regulators were included that would massively improve the protection available. It would mean that when somebody says, “I have seen something that is wrong that needs to be dealt with, and I am going to blow the whistle and provide the information,” they would not be the ones who end up as victims, unemployable or completely monstered, either by their former employer or the profession in which they work. Extending the prescribed persons order would mean that those professional regulators have a duty to look after them. At the moment there are big gaps in the list, but it would be relatively straightforward and would not require primary legislation to plug those gaps. Why on earth are we not doing that? Why can we not do that now? It would only take secondary legislation, so let us get on and do it.
Secondly, we could expand the definition of “a worker” under the existing regulations. At the moment, employees who blow the whistle are better protected than trainees, non-executive directors or suppliers. Those sorts of people are very well placed to see wrongdoing, may know what is going on and may have good audit trail evidence to provide, but woe betide them if they blow the whistle, because they ain’t protected as they should be and as they would be if they were an ordinary employee. That seems to me and an awful lot of people to be jolly silly and a massive gap, and it would be easy to fix.
Kevin Hollinrake
My hon. Friend is making a fantastic speech. On that point, I talked about my constituent, Ian Foxley, who was a contractor working overseas. Those sorts of people are not covered by the existing legislation. Had they been, he would have been able to seek redress through the company he worked for. As it is, he cannot.
John Penrose
That is absolutely right and a very good example. Again, it is relatively simple to fix. It would not require primary legislation, it would reduce the pressure on the Bill and the pressure from all of us here trying to shoehorn extra things into the Bill. In the interest of giving the Minister an easy time, which we all want to do, if he could make these commitments for some time in this parliamentary Session, that all goes away. We would end up with something an awful lot better and quicker.
Thirdly, there are a series of money laundering regulations that can be upgraded and improved. Again, that will not need primary legislation and, again, that will help dramatically.
Finally, we must improve the process for raising concerns. Lots of other countries have online systems, with websites that work easily and are centralised. People know that if they raise concerns through the centralised system, they are automatically engaged with the necessary protections and have the right degree of protection, so they are much more comfortable that they will not end up on the receiving end of victimisation from the people they are trying to blow the whistle about.
Those are the four items. They are easy for the Minister to say—nice and simple. Not only that, I am sure he will have the support of his Home Office counterparts, because they will be the ones whose budgets will be under pressure to improve and upgrade the resources available to the investigative organisations, such as the NCA. Such organisations will otherwise have to be paid more money in order to carry out investigations; they will still need a bit, but they will be able to use it much more effectively if we can make those four changes. I hope that is helpful. I look forward to the Minister’s comments. I will have my pen poised to tick these points off. I am hopeful that he will be able to be helpful.
Layla Moran (Oxford West and Abingdon) (LD)
It is a pleasure to follow the hon. Member for Weston-super-Mare (John Penrose), who has championed these matters for an incredibly long time, along with so many other hon. Members. It is always an honour to take part in such debates because it feels as if it is Parliament pushing Government to go faster, further and deeper.
I do not suspect that economic crime Bill 2 will be any different from economic crime Bill 1. We all welcome the fact that we are here, finally, but we all have a “but”, which is that we wish to do more. Certainly, the speeches so far indicate that the spirit with which we approached economic crime Bill 1 lives proudly within us. We achieved quite a lot in that and I hope that economic crime Bill 2 will be equally as fruitful.
In some ways, I hope it will be the last economic crime Bill, because I hope we can get it done properly this time. In economic crime Bill 1 we kept being told, “Well, don’t worry about that. We are going to put it to one side. It’s a bit complicated. We need to go away and look it, and then we will come back and sort it in economic crime Bill 2.” When we picked up our copies of economic crime Bill 2 and saw that it was nice and hefty, I thought, “This is good.” Then I looked at it and, I am afraid to say, I was quite disappointed. There was a lot that was mentioned, both from the Dispatch Box and in private with Ministers, that we thought we were going to tackle this time, and it simply is not there.
That frustration leads us all to want to push the Government to go further. There is also the deep frustration that it has taken a war to get to this point. I see bombing in Kyiv, Crimea and elsewhere, and I have a Ukrainian guest living with me who feels these things very deeply. Every time I see that, in the back of my mind I think, how much of the money that has gone into Putin’s coffers to help pay for what is being done to her and her family came through our economic system? How shameful that there is that direct link. We know that link is there because that is what caused us to act as quickly as we did with economic crime Bill 1. I know there is that feeling of frustration in all parts of the House and that we want to tackle the issues as comprehensively and finally as we can, this time.
In common with other hon. Members, I welcome the measures in the Bill, in particular the reform of Companies House and Scottish limited partnerships, which are significant steps forward. We have not even had a framework to deal properly with many parts of economic crime. However, even if we have a legal framework for something, we still have to be realistic. We have a legal framework for burglary, muggings and all sorts, but there still needs to be adequate resourcing for the enforcement agency. In that case, the enforcement agency is the police but with economic crime there are 22 different agencies that are meant to do that, in particular the National Crime Agency. The funding for those agencies is falling, not increasing. If we are serious about tackling economic crime, there needs to be a commitment of money to the agencies that are the force behind those warm words from the Government. When the Home Secretary was questioned on that earlier, she gave very woolly answers.
As the Bill progresses through the House in the next few weeks, I am hoping to hear the Government say that they know how much money they need to do the job they have to do. The reasons for doing it are entirely in our self-interest. There is not just the geopolitical reason that I described—the shame that money flowing through our systems is in any way funding nefarious purposes—but the fact that HMRC has something to gain. If we can get our hands on some of that money and find ways to divert it, we can find ways to spend it better, away from the criminals. That is surely in the taxpayer’s interest.
As was mentioned by the right hon. Member for Barking (Dame Margaret Hodge), if we want to be seen as a good place to do business, we cannot allow ourselves to be a country that accepts this money. It taints all businesses—the good ones with the bad—that are deciding to trade in our financial markets. It is in our gift to make this country the best and safest place in the world to do business. It is in our own self-interest to tackle corruption. It is not just about the war; there are more far-reaching consequences.
I want to draw the Minister’s attention to a few areas now so that he has plenty of time to work on them before we get to Committee and the Bill goes through its next few stages before eventually reaching the other place. First, and most importantly, we need to start with the provisions of the first economic crime Act and look again the register of beneficial ownership. While it has now come into force, if I was an enabler wanting to make a mint from my oligarchs, it would be really easy for me to tell them how I would get around the new legislation. All I would have to do is transfer the entity into one of my relatives’ names, or, instead of having four people registered as beneficial owners, I would just need a fifth, and all of a sudden the problem would disappear. Those are two simple examples of how people can get around that register. Everyone recognises that economic crime Act 1 happened quickly, but given the time that we have had to properly scrutinise and think about these matters, I ask the Minister to consider amendments that would improve it. There is a small part of the Bill where the Government have started to do that for the register, so such amendments would be in scope. I therefore urge him to consider further amendments to that end.
My second question, which I posed to the Home Secretary, is about golden visas. We have heard absolutely nothing about them. It is not enough to say, “We’ve put a freeze on them and we’re not giving out any more.” The fact is, we did give them out. She clearly misspoke when she said that we sold them—that was rightly picked up on—but it is quite an interesting way of looking at it. Actually, many of the people who “bought” them will have seen it that way. There would have been an exchange. At the time, the idea was, “If you invest in this country, you get something back,” and in this case it was citizenship. Other countries do that, too. However, we know that golden visas were being used as a way essentially to whitewash people who should never have been given the right to reside here, let alone passports or anything else, and unless we understand fully the extent to which they were used, how and by whom, this place cannot hold the Government to account for what they are trying to achieve with the Bill.
We are in a perverse situation. We understand that the Minister has access to that review—it has been done, it is finished, and it is sitting there on Ministers’ desks—but Parliament has not seen it. That is unacceptable. At the Dispatch Box, the Minister should not say that he will look at it, as the Home Secretary did. I do not want her to look at it—I want to look at it. I want all hon. Members to be able to look at it. The Government should publish it so that we can see it. On economic crime, the slogan for all of us must now be “Better out than in”.
The third thing that I want to raise, as several hon. Members have, is the Law Commission’s look at the “failure to prevent” offence. While I was sat down I searched for that, because the pace has been so glacial that wanted to remind myself of the phases that it has already gone through. If I remember rightly, it was back in 2016, before I entered this place, that David Cameron mentioned it as part of his anti-corruption plan—in fact, I think he first mooted it in an article in The Guardian —and nothing happened. After having done a consultation announced in 2016, the Law Commission reported back in June. So we have been talking about the failure to prevent for five or six years.
The point made first by the hon. Member for Thirsk and Malton (Kevin Hollinrake) and then by the hon. Member for Weston-super-Mare (John Penrose) was that if we put the onus on the entities to prevent economic crime in the first place, that would be hugely powerful and speak to all of our concerns about the lack of resource for the National Crime Agency and the other agencies that are meant to enforce this area. That is really neat. Actually, it would be even better, because by putting the onus on the entities themselves, it would not have to cost the Government that much.
Peter Grant
What does it say about the Government’s priorities if they have taken six years and not brought in failure to prevent legislation for economic crime but have managed to bring in failure to prevent legislation that fines companies tens of thousands of pounds if they unintentionally give a job to somebody who under immigration law is not entitled to be here? Is there a question of priorities that needs to be looked at?
Layla Moran
I agree with the hon. Member. It needs to be done for the cost to the economy alone, but also for the personal cost to families and individuals, which we have heard about. Economic crime sounds like something that is not personal and does not affect actual people, but that is not true. Every time that we turn a blind eye, look the other way or say “It is too difficult,” we are doing our constituents a disservice.
The final thing that we need to grapple with, which we have spoken about over and over again, is the enablers. Firms of accountants and lawyers are used to help those with the deepest pockets to circumvent the very heart of what we are trying to achieve in this place. We need only listen to what Catherine Belton said to the Foreign Affairs Committee about how she has been hounded. It is not just her; there are others as well. In fact, I know that parliamentarians across the House have faced lengthy letters from lawyers whenever we have tried to raise things. We are protected by privilege, but it should never be the case that someone is afraid to speak out on what is right because they are concerned that they will be hounded by lawyers being paid by oligarchs with the very nefarious money we are trying to prevent from getting into their hands in the first place.
There is very little in the Bill that tackles the enablers. I appreciate that that may need an economic crime Bill 3, but I have heard nothing about it at all so far. I remind the Minister, if he has not looked through Hansard to see what Ministers before him have said, that previous Ministers promised we would look at the issue in some depth in economic crime Bill 2. I am sorry to say that I see very little in this Bill that goes any way to tackling the concerns raised in the speeches on the first economic crime Bill.
To conclude, I am glad we are here and talking about this, as there is so much to say. There is huge good will in all parts of this place and the other place to tackle this matter once and for all. I urge the Government not to shy away from the difficult decisions. Parliament will support them if that is what they want to do. There is a will and there is a way. Now please, Government, get on with it.
Andy Slaughter (Hammersmith) (Lab)
To listen to the Home Secretary opening the debate, one would think the Government had a good record on tackling economic crime. As my right hon. Friend the Member for Barking (Dame Margaret Hodge) said, there has been not one prosecution of a Russian in the time that the Government have been in power. On the contrary, they have been welcomed into the heart of the establishment, buying their way into it. Only now, after the terrible events in Ukraine took place earlier this year, have we seen a response. The initial response, the first economic crime Bill, was clearly inadequate. We were promised that a second Bill would fill in the gaps and be more comprehensive. It is so far, frankly, a disappointment, for many of the reasons that we have heard.
Yes, the measures in the Bill are welcome, and I do not think anyone has said that they are not, but as has been asked—I do not want to repeat what has been said by people who have greater expertise on this matter than I do—where is the ability to carry this through and where is the funding for Companies House to actually police, rather than simply register? We heard from the shadow Home Secretary, my right hon. Friend the Member for Normanton, Pontefract and Castleford (Yvette Cooper), that the National Crime Agency is still—unless the Government correct this in today’s debate—facing cuts at a time when we know it has very limited resources.
The Bill has many, many omissions. We have heard about the lack of corporate liability and the lack of provisions on whistleblowers, but we can add to that. As the hon. Member for Oxford West and Abingdon (Layla Moran) said, we still have nothing on failure to prevent. I asked the Home Secretary about that earlier. Her colleague the Secretary of State for Wales, the right hon. and learned Member for South Swindon (Sir Robert Buckland), said in a speech earlier this week, if it was correctly reported by the Law Society Gazette:
“What isn’t in the Bill is as interesting as what is. I hope not to prejudice the Government’s position, but amendments”—
to create an offence of—
“failure to prevent economic crime…could be quite a dramatic move by Parliament.”
I think the right hon. and learned Gentleman has a history of supporting that. I asked the Home Secretary about that and she said, “Well, we’re always looking at that.” Surely the Government must know by now whether they are going to include those provisions in the Bill. Perhaps the Minister, in winding up, can enlighten us further.
Where is the anti-SLAPP—strategic lawsuits against public participation—legislation? I did not agree with the former Justice Secretary on much, but he did push forward that agenda. There was a response from the Government earlier this year and we were looking for legislation in the Queen’s Speech. It could have been included in the Bill, and it could still, but where is it? And where is the better organisation of supervisory bodies? The Government are not short of good advice on what to put in the Bill, but let me quote Spotlight on Corruption:
“Anti-money laundering supervision for professionals in the legal and accountancy sector is currently not fit for purpose, with 22 different professional bodies overseeing their compliance with anti-money laundering rules. Last year the Office for Professional Body Anti-Money Laundering Supervision”—
another body—
“found that only 15% of these supervisors were effective ‘in using predictable and proportionate supervisory action’ and that only 19% ‘had implemented an effective risk-based approach’ to supervision.”
That is not really going to intimidate those who wish to commit economic crime if the Government cannot get their tackle in order in that respect.
There are, therefore, many omissions, but in the short time I am going to speak for I want to concentrate on the lack of resources. The shadow Home Secretary, my right hon. Friend the Member for Normanton, Pontefract and Castleford, mentioned that she and my boss the shadow Attorney General, my right hon. Friend the Member for Islington South and Finsbury (Emily Thornberry), have been banging on about this for 10 years. Many of the measures that are still not in the Bill have been called for over that period, yet we are still waiting. We will see what happens in Committee. I do not hold out much hope on that, because it is relatively rare for the Government to introduce many major provisions in Committee, but I hope to be proved wrong.
Let us look at two areas in relation to enforcement: money and staffing. To give an example of another case, in July 2020 the NCA faced a claim for £1.5 million in costs following an adverse ruling in an unexplained wealth order. That was a quarter of its international corruption unit’s annual budget for fighting corruption, whereas the Government had estimated, when they introduced UWOs, that law enforcement would face costs of up to £1.5 million over a 10-year period.
It is right that there is now a different format for cost orders for UWOs, which gives some cost protection. That is universal in the United States and it would be very useful in this respect. A trend in how the Government are legislating is the increased use of fixed recoverable costs. There are other areas of cost protection, but not unfortunately, in the area of Leveson, on which the Government seem to have a blind spot. However, this is a prime category in which we need some protection for the enforcement agencies. Although this does now apply to UWOs, it does not apply in any other economic crime cases.
That affects the behaviour of enforcement agencies in a number of ways. First, they tend to go after the small fry rather than the bigger fish, because they are worried that the bigger fish will be able to instruct lawyers who will run rings around them and bankrupt them, in the sense that they will use up their whole budget in the way I described. It makes them pusillanimous in their attitude and there is a vicious downward spiral, because when they lose cases—I think, for example, of the SFO in the Serco, Unaoil and ENRC cases—they can be at risk, effectively, for large pots of their budget. It is therefore understandable that they then have to go cap in hand to HMRC or the Government and ask for the money to be used to subsidise their overspends for that year. That is really no way to behave and it is not surprising that the inequality of arms means that the enforcement agencies have low morale and perhaps do not have the motivation to go after crooks in the way that we would like them to.
Another way to deal with the issue would be to fund the agencies better. As I think Spotlight on Corruption said, although enforcement agencies recover limited amounts—because of their limited remit and limited ability, and I do not believe that the enforcement agencies recover as much money as they could—most of that goes to the Treasury. If it went to them instead, their budgets would perhaps be double what they are now. That would be a virtuous circle, because they could then be rather bolder in the prosecutions they take—as the Department of Justice is in America—and achieve better results.
Whether we are talking about cost protection or better funding through the proceeds of crime that the enforcement agencies release, there has to be a way of making them more effective. If that does not happen, frankly, everything else that the Government are trying to do will be a waste of time.
Let me say a bit about staffing. There are a lot of very hard-working staff in the Serious Fraud Office and the National Crime Agency who are doing their best, but there is also a revolving door from the public to the private sector, because remuneration is so much higher in the private solicitor service and elsewhere. Essentially, therefore, the state is funding the training and development of individuals who will work for the SFO or the NCA, only for their expertise to be taken to law firms who specialise in defending against white collar crime prosecution. That is a serious problem and a conflict of interest, and it is seemingly overlooked by the Government, particularly given the rather limited use of the Advisory Committee on Business Appointments guidelines by the SFO, in particular.
That is not the SFO’s only problem with staffing. Over the past five years, the number of financial investigators, case progression officers, lawyers and case controllers has grown by just 11 officials, despite the massive increase in economic crime. When I asked the head of the SFO, I was told not only that the SFO is proud of the revolving door because it shows that its staff are attractive to other employers, but that it does not keep any records about the destinations of former staff.
In 10 minutes of research on LinkedIn, I managed to find out that since 2010 the former director Sir David Green, two former general counsel, four former heads or co-heads of the bribery and corruption division, two former heads of the fraud division, the former heads of the assurance division and the international assistance division, and at least 20 more junior staff, have moved on and are now working for legal firms that, on the whole, represent the people who are being prosecuted. The only one who was vetted by the Advisory Committee on Business Appointments was Sir David Green; the net effect was that a delay of six months rather than three months was imposed before he could take up his post, and that there were other restrictions on his use of knowledge gained at the SFO. It is a joke.
We are expecting agencies to do a job with one hand—and in some cases both hands—tied behind their back. I recommend that everybody read Oliver Bullough’s excellent book “Butler to the World”, which shows that this has been going on rather longer than we may think; it is not a recent event. In summing up a case that I referred to earlier, which the NCA completely lost on all levels—it lost even the ability to appeal—he writes:
“Reading the final judgment is like reading the report of a match between Manchester City and Hereford FC: the embattled non-league side did its best, but its players were swept aside by superior skills, fitness, knowledge and resources.”
I want our enforcement agencies to have premier league status, rather than being where they are at the moment—no offence to Hereford, who I am sure are an excellent team. I mean no offence either to the people who are doing the best they can to deliver, but how can they deliver unless the Government give them the tools to do the job? I want to believe that the Government are sincere about tackling the issue and have seen the light, even belatedly, but the Bill simply does not deliver the goods.
Peter Grant (Glenrothes) (SNP)
Being a Scot, and in deference to the sensitivities of supporters of Celtic, Rangers and the Scottish women’s football team, I will maybe not talk about football, if that is okay by everybody else. Hopefully we will still have somebody left in Europe after tonight.
I welcome this long overdue Bill, but let us not kid on that it was made necessary by the illegal war crimes that have been committed in Ukraine over the past year, or even by the illegal war crimes that started in 2014. This Bill was needed 20 years ago, if not earlier. I welcome it because it gives us the opportunity to turn Companies House into what most people probably thought it was: an effective regulator playing its part in the fight against fraud, rather than an innocent bystander that watches while companies on its register scam our constituents out of billions of pounds every year and enable some of the most evil regimes and criminal gangs on the planet. Companies House has become a spectator because this Government and generations of previous Governments could not be bothered to give it the powers to be anything else.
My criticism of the Bill, like that of most other hon. Members who have spoken today, is that in too many areas it does not go anywhere near far enough. As has been mentioned, it is completely silent about one of the biggest obstacles to tackling corporate fraud: the fact that literally any company can easily dodge the existing requirements, and the requirements in the Bill, just by making sure that its ultimate owner is not a human being but a brass nameplate on the door of a building, probably in some dodgy Crown dependency. And while we are talking about Crown dependencies, why is it that we still allow Crown dependencies and British overseas territories to be such willing enablers of the evil perpetrated by Putin and so many others? That has to stop.
A few hon. Members have reminded us that, as well as enabling large-scale acts of barbarity around the world, economic crime hits our constituents very hard. I do not apologise for bringing up Blackmore Bond again; I will keep bringing it up until Phillip Nunn and Patrick McCreesh have been properly brought to book. They were able to move on from the £1 million they had made on the fringes of the London Capital & Finance fraud to set up their very own £46 million scam called Blackmore Bond.
At about that time, Nunn and McCreesh were directors of 35 companies registered at Companies House. Last time I checked, those 35 companies had collected 59 formal notices of disciplinary action—59 formal notices of compulsory wind-up—because they were acting illegally. They were failing to comply even with the woefully weak requirements currently imposed by Companies House. There was no way of flagging up the fact that the same directors were in charge of all those defaulting companies. There was no way of totting up their offences, like bookings for a footballer or speeding points for a motorist. Indeed, it was as if the motorist were able to get off by arguing that his licence could not be taken away because each time he was caught speeding he was in a different car.
We need to tighten that up. We need to be able to identify those who are directors of several companies that are all in default. There must be an accumulation of culpability; there must be speedy action, which means not just closing down the companies—that is often exactly what the directors want to happen, and it was certainly what Nunn and McCreesh wanted to happen—but taking effective sanctions against the directors.
A year or two before Blackmore Bond finally collapsed, it said in the accounts that it submitted to Companies House that it was relying on incoming money from future investors to pay back what it had previously claimed was guaranteed money to previous investors. In other words, the directors sent a document to Companies House, which put it on the website, saying, “We are a Ponzi scheme.” No one at Companies House noticed, because it was no one’s job to notice.
The auditors who signed off the accounts of one part of the group, which was a plc, were required to express a view on whether the company could be truly regarded as a going concern, but they were under no obligation to run up a red flag and say, “Not only can we not be sure that it is a going concern, but this company is designed to collapse, and it is going to collapse very soon.” Because they were under no obligation to tell anyone, client confidentiality meant that they were under an obligation to tell no one.
I commend to Members who have not seen it the BBC’s “Panorama” programme on Blackmore Bond—and not just because I am in it for about 10 seconds; the rest of it is very interesting as well. From that programme, I learned that Phillip Nunn—poor diddums—had been declared bankrupt. What a shame! I checked the Companies House records this morning, and found that he was still a registered director of two companies. I thought it was an offence for a bankrupt person to be a director of a company. Why has no one picked up on that? Perhaps we can at least find something for him to be charged with while the Serious Fraud Office and others are carrying out their checks.
However, you do not need to set up a company to get rich. Mr Nunn’s latest scheme is to set himself up on social media as some kind of lifestyle self-help guru. To be fair, helping himself is something that he seems to be quite good at. No one could fail to see what this is about. He is going online in order to reach a much wider audience. He comes across as very plausible and very personable, but he is grooming innocent victims, not just in the UK but all over the world, until he is ready to say to them, very confidentially, “Do not tell anyone else, but I have just found about a brilliant investment scheme: you are guaranteed to get money back.” It will be Blackmore Bond and LCF all over again, and at present there seems to be nothing anyone can do to stop it. They know it is going to happen, but they have to wait until it is too late and then try to console the victims.
Let me draw attention to one feature of many corporate scams and frauds. Instead of setting up one company, people set up a whole sequence of small companies. They run a company for about 18 months to two years, and just at the point when they have to publish a set of accounts, they close it down, shift what is left of the assets to a different company and start all over again. It is possible to run a business for 20 years without ever having to tell Companies House, or anyone else, anything about the money going into and out of the accounts. That should raise the reddest of red flags. If the same one or two directors are seen to be setting up a sequence of fairly small companies that never seem to do anything and are then wound up, Companies House should be looking at that, as should the fraud squad, because 90% of the time fraud will be the answer.
Between 2019 and 2022, a gentleman called Richard Philip Wells set up 24 such companies. Members who are interested in motor racing may recognise the name, because Richard Wells owns a motor racing team; he is not a poor man. Most of those 24 companies have never filed a set of accounts, and most have lasted for less than two years before being wound up. The few that have filed accounts have filed them on the basis of being dormant: it is basically, “Nothing to report, Sir.” But just how dormant were those companies?
On 15 November 2020 two of his companies, SHP Litigation Ltd and SHP Security Trustee Ltd, were set up on the same day. Companies House knows that two weeks later, on 30 November 2020, SHP Litigation granted a charge—effectively, a mortgage—to SHP Security Trustee. The charge document was signed on behalf of one company by its only director, Richard Wells, and a wee bit further down the page Richard Wells signed on behalf of the other company to confirm that he agreed with the conditions of the money that he was lending to himself.
A few months later, the same Richard Wells certified on the accounts of both companies that they had not traded, that they had been dormant and that they had carried out no activities during the previous 12 months. One of the statements that he submitted to Companies House has to be a lie. We cannot possibly have money being lent back and forth between two companies and then say that the companies did nothing—unless a company that did not have money lent money it did not have, secured against the assets of another company that had no assets at all. There is clearly something very sinister going on in that network of companies. On 5 July 2022, he shut down both companies, because by that time they had achieved their purpose.
It is noticeable that a lot of Richard Wells’ more recent companies had SHP in their names. One of them, SHP Capital Holdings Ltd, he set up on 29 November 2019. He used that company to buy a funeral plan company called Safe Hands Plans Ltd, which we have all now heard of. Why would somebody buy a funeral plan company that would never be able to comply with the Financial Conduct Authority’s requirements for the running of a funeral plan company after July 2022? Why spend money buying a company when he knew it would be illegal to operate less than two years later? The reason was that he was not interested in the company; he was only interested in an associated company where its money lived.
That money was not the company’s, but the customers’. The previous directors had lied to the customers that the money was held securely in an independent trust, but it was held in an associated company, with the same shareholders and the same directors. One of Mr Wells’ first acts was to sack the fund manager and move the fund management to a different, newly set up company that was run by his best mate. Fast forward a couple of years, and the whole façade crumbles. Safe Hands Plans goes into administration, thousands of people discover that their funeral plan money has disappeared and nobody knows where it has gone. I know where it has gone, Madam Deputy Speaker, and so does the Serious Fraud Office. I hope that it can quickly establish that sufficiently to bring charges.
There is no legitimate, lawful business reason for Wells, Nunn, McCreesh or dozens of others to set up so many tiny companies for a relatively small-scale operation. Companies House records show all the hallmarks of the kind of company set-up that is a red flag for money laundering, but nobody at Companies House spotted it. Nobody looked more closely to see whether there was a legitimate reason for it or whether it was a scam in preparation, because nobody in this place had ever made it the job of anybody at Companies House to prevent fraud, rather than to try to chase down the money afterwards.
I ask the Minister to confirm, in summing up, where in the Bill Companies House is given the responsibility, the legal powers and the resources to identify and investigate suspicious patterns of company formation and dissolution. If it is not in the Bill just now, will the Government undertake to bring forward an amendment in Committee to enable that?
I also ask the Government to consider some other amendments. HMRC has the power to look through the labyrinth of a company’s structure and tax the company based on what it does, rather than how it structures itself. Why do we not give the same powers to bodies such as Companies House? Why do we not extend the circumstances in which directors can be held personally and speedily liable in civil and criminal courts for their misconduct? Why do we not just outright ban the registration of any company whose ultimate owner is not a person with a pulse? The Minister may be able to explain why it is sometimes necessary to allow a computer bot to own a company that trades in the United Kingdom. I cannot think of an answer, but I hope he can enlighten me on that.
Why do we not base the reporting and audit requirements on the total size of the undertaking, rather than ignoring the fact that if we chop a big company into 30 bits, they all become so wee that they do not have to publish accounts and nobody is allowed to see what is going on? When the Financial Reporting Council publishes a sanction against a company’s auditors because of some flaw in the company’s accounts, why not also require that company to lodge the same document at Companies House so it appears on the front page of the record, rather than as a footnote on page 26 of the accounts in a couple of years’ time?
The Bill will make things better, but it will not make them anywhere near better enough. There is very little in the Bill that I am opposed to, but there is a lot that I am disappointed not to see in it. I became interested in this subject, as I suspect many Members did, after having people break down in my surgery because they had been cleaned out by people like Wells, Nunn, McCreesh and so many others. It became obvious to me quite quickly what changes needed to be made to legislation, first to stop these chancers scamming our constituents, and secondly to make sure that those who do it in the future and those who have done it in the past are brought speedily to a court of law, dealt with and locked up.
If I were the sort of person who broke into someone’s house and stole £1 million, no police force in these islands would rest until I was safely behind bars. If I set up a company and stole £20 million, the chances of me getting away scot-free would be very high indeed. The Bill makes it a wee bit more likely that I would get caught, but if I were criminally minded, it would still be a gamble worth taking. Until we make the law tight enough that economic crime never pays, our constituents will continue to pay the price of our failure.
Kate Green (Stretford and Urmston) (Lab)
It is a pleasure to speak in this debate, which has faced in two extreme directions at once. On the one hand, Members have rightly talked about the potential of the Bill to address issues of serious organised crime and national security. On the other hand, we have heard again and again of constituents’ experiences of crimes that are low level in the scheme of things but are significant abuses, frauds and criminal behaviour, facilitated by the weakness of our company law. Like others, I will concentrate on provisions in part 1 of the Bill, and my interest stems from experience in my constituency of conduct by unscrupulous directors and owners who misuse registration and dissolution processes to avoid their obligations to their creditors and others.
I am pleased that the Under-Secretary of State for Business, Energy and Industrial Strategy, the hon. Member for Watford (Dean Russell), has sat through the debate, and I am grateful to his colleague Lord Callanan and his officials for meeting me earlier this year to discuss my concerns. However, as we have heard repeatedly this afternoon, the Bill, while welcome as far as it goes, is a disappointment in terms of its reach and effect. Unless Companies House actually enforces the law and has the resources to do so, the Bill will simply fail to deter directors determined on misconduct from fraudulent and wrongful behaviour.
I turn first to provisions in relation to verification of identity and people with significant control. Clause 76 gives the registrar power to reject documents for inconsistencies, and clause 80 gives her the power to request additional information if inconsistencies are identified. As the Bill progresses, I hope we will get more clarity from Ministers on how inconsistencies in PSC statements will be identified by the registrar and how decisions will be taken regarding criminal proceedings. What processes will be followed? What information will be considered by the registrar? What resources will be available to enable her to carry out her task?
By way of exemplifying my concerns, of a group of eight companies controlled by Mr Jason Alexander and operating in my constituency, only two appear to comply with PSC registration requirements. BEIS and Companies House have been aware of this situation since at least 2019, yet he continues to operate the companies with impunity. How can the new provisions in the Bill have credibility when there has been such a history of lax enforcement?
A particular issue arises where companies are owned and controlled via a network of trusts, for which there is of course no public register, and these trusts are used to obscure the identity of the true owners. In a letter to me in May, Lord Callanan told me that if a trust has any ownership or control over a company, the company must “consider” whether that trust would have met any of the control conditions if it were an individual. He confirmed that if it does meet such conditions, the trustees of the trust may be persons with significant control. A request for companies merely to “consider” the position does not seem to be a very stringent requirement, and the Bill does nothing to prevent shares from being held in trusts in order to obscure ownership and control.
I hope there will be an opportunity in Committee to ensure that the registrar follows up on non-registrable relevant legal entities and to require that those who control trusts are identified. In addition, I cannot see how the Bill will stop phoenixing. Again, I hope there will be opportunities in Committee to consider how the Bill can be strengthened to make it easier for the victims of phoenixing to seek redress.
I turn now to the strike-off, dissolution and restoration of companies. The Government are well aware of concerns about compulsory strike-off. In their response to their consultation in 2018, they stated that
“where a company is insolvent, dissolution should not be used as an alternative to insolvency proceedings.”
But compulsory strike-off continues to be used in that manner; 94% of strike-offs are due to a failure to file required information, and R3, the insolvency practitioners’ group, says that it is that estimated 50% of those companies are insolvent. The compulsory strike-off process, in which the registrar contacts a company and if she hears nothing, can strike it off, suits directors who can use the simple device of ignoring the registrar’s requests in order to take advantage of compulsory strike-off to avoid their obligations to creditors and others, and to avoid late-filing penalties—this is income forgone to the taxpayer. Even so, the process of strike-off is dilatory. Aura Business Centres Limited, another of Mr Alexander’s companies, was finally dissolved by compulsory strike-off early this year, having never once filed accounts in the five-plus years since it was incorporated, and despite Companies House and the Insolvency Service being alerted to this in August 2019.
All that stands in stark contrast to the more onerous expectations placed on those who wish to object to strike-off. When a constituent of mine sought to object to compulsory strike-off in a recent case, she was told:
“We are unable to register your objection without documentary evidence to support your complaint.
Please provide evidence such as invoices, court documents, general correspondence or emails between you and the company, to show that you are actively pursuing them for an outstanding debt.
All evidence should be recent and dated within the last 6 months and must show the full company name, including the word ‘Limited’, or equivalent.”
So a much more demanding burden is placed on an individual who has suffered wrong and seeks redress than the do-nothing approach that can be taken by a company that wishes to use strike-off as a means to avoid its obligations.
R3 has suggested tightening up the compulsory strike-off process by automatically placing a company that fails to comply with its obligations into liquidation, with the process overseen by the Government’s official receiver. That would allow for earlier investigation into the conduct of directors and for the earlier recovery of misappropriated company assets for the benefit of all the company’s creditors. Directors could be made liable for the costs of liquidation, which would be an additional deterrent to misconduct.
Finally, concerns also exist about the process of restoring companies to the register. Currently, that can require a costly court order, creating a clear asymmetry between those who wish to avoid their obligations and those such as creditors, or insolvency practitioners, who need to put things right. R3 has proposed a system of administrative restoration in all cases, which could be triggered by a company director or a creditor once suitable requirements have been met, such as producing evidence of an unpaid debt or a commitment to petition for the winding-up of the restored company.
The fee for doing so could be similar to the cost of dissolving a company. I really hope that the Minister will now carefully consider the provisions on compulsory strike-off and administrative restoration that are missing from the Bill.
I conclude where I began. The Bill is fine as far as it goes, but its modest provisions will not act as a deterrent to misconduct if the registrar lacks the will, powers and resources to enforce them. I welcome the intentions behind the Bill but hope that, as it continues its parliamentary passage, we will be able to make improvements to it to give them full effect.
Margaret Ferrier (Rutherglen and Hamilton West) (Ind)
I shall be brief. I welcome the Minister to his place and I welcome the Bill. I am glad to see Ministers deliver on the commitment to use the building blocks laid by fast-tracked legislation earlier this year. While the war in Ukraine continues, we have to utilise what we can to hit the Russian state where it hurts financially.
Although Russian aggression may have been the catalyst for economic crime prevention measures, the benefits of a better-regulated system are far more wide-reaching. According to the Cabinet Office, fraud accounts for 40% of all crime committed in the UK. Tackling that is crucial, and a monumental task. However, as we have heard, the legislation is not the powerhouse it needs to be. There are some very big limitations and gaps to be plugged. For the Bill to be effective there cannot be any gaps or loopholes. We must close them before the Bill finishes its passage, and get it right the first time.
I have concern about the resourcing and funding that will be available to public bodies such as Companies House to undertake their new responsibilities. The Government have been clear that they are keen to cut back departmental spending and reduce civil service numbers. How do those priorities align with pouring what will be very necessary resource into the organisations responsible for operationalising the Bill’s measures?
Companies House will have to make a significant pivot to its new regulatory role, and that will require investment if it is to be effective in the long term. Some of the funding could, and should, be raised through increasing the registration costs for new companies. The Government have taken the power to do so through secondary legislation but have not yet committed to using that power. As we have heard, increases would not need to be astronomically high: industry has suggested an increase from £12 to £50 and the Treasury Committee has suggested £100. Those costs would still mean that the UK is one of the cheapest places in the world to set up a company.
What steps will the Government take to ensure the registrar’s proactive querying power is effective in targeting a significant number of the companies that have submitted fraudulent information to the register? Are Ministers also looking at further reform to the strike-off process? That will inevitably require further resourcing but is a crucial gap in the Bill that needs some more attention. If companies continue to be struck from the register automatically, there are no checks to assess whether any fraud has occurred. That means that the directors of automatically struck-off companies can go on to commit further frauds—indeed, many do just that. Will the Minister commit to putting such companies through an insolvency process to ensure that returns to creditors can be made?
The Bill will deliver significant changes for limited partnerships, which are at high risk of being “shell companies” that are used for fraudulent activity and crime. In its current form, the Bill does not adequately prevent limited partnerships, limited liability partnerships or Scottish limited partnerships from having corporate partners and members in secretive offshore jurisdictions. While such companies are controlled by offshore entities, we will continue to struggle to identify their real owners and verify that the information held by Companies House is accurate. Because limited partnerships operate differently and do not require directors, they could allow sanctioned individuals to continue to launder money through the UK. The Government must introduce measures to tackle that issue.
The last issue I wish to look at is communication and information sharing. I will give Ministers some leniency here—it is not easy to create an effective information-sharing gateway while protecting sensitive data—but information sharing will be key to the success of a new regime.
Regulated sector entities should be able to share information more easily—the new measures will be used reactively and miss the potential for proactivity in spotting fraudulent activity earlier. Regulated organisations need more clarity about the intent of the legislation and how it can be operationalised to its fullest potential.
The finance sector, for example, sees benefits in sharing information between firms on the same basis that they currently share information with the National Crime Agency. Although the legislative framework may exist for that, civil liability is a very real risk, particularly where firms are dealing with sophisticated, experienced and monied criminal individuals. We have already seen the risks of aggressive litigation in this area through the legal challenges mounted against the National Crime Agency when pursuing unexplained wealth orders.
I hope that Ministers will be looking closely at where the gaps are here. This is a piece of legislation that must be done right and must be watertight if it is to be effective. Rather than bringing forward multiple Bills over the next few years as issues are identified and further gaps need filling, I hope the Government will use the Bill as a legislative vehicle to reform the system and prevent these instances of money laundering and economic crime as soon as possible.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
It is indeed a pleasure to speak on Second Reading of this important Bill. But before I begin my remarks, let me just mention that, in the Public Gallery today, there are two young dancers from Ukraine, Yeva and Zakhar, who, yesterday, came second in the International Ballroom Dancing Championships. I am sure that we all want to pass on our congratulations to them.
I welcome the Minister to his new role. I very much look forward to working with him in the same spirit as I did with his predecessors. Today, he will have heard Members across the House express their concerns about the time that it has taken to introduce this legislation. Urgency is required not just to bring forward a Bill, but to bring forward the Bill that we need to close the gap between what we are doing now and what needs to happen to tackle the scale of economic crime that exists.
As we heard today, action on economic crime was first promised in 2016 and then again in 2018 and 2019. Even in March, the Government blocked Labour’s amendments, which would have introduced reforms to Companies House and left Russian oligarchs with nowhere to hide. It matters that we have had these delays, because, in six years, we have seen a significant increase in economic crime, much of which could have been prevented had the Government acted earlier.
I thank all the Members who have contributed today from all parts of the House, many of whom have been ahead of the Government in calling for action. I also thank the Minister and his team for our meeting earlier this week. It is also good to have heard about the work going on with the devolved Administrations, because we do indeed need to hear voices from across the nations.
Let me pay tribute to some of the contributions that we have heard today. The right hon. Member for East Hampshire (Damian Hinds) made the important connection between fraud and cyber-crime. He also mentioned the local nature of crime and its links with economic crime nationally. This is not just a debate about a grand scale matter. There is a very deep connection with the lives that we lead in our everyday economies. There is also a need for global action, and it is up to the UK to take the opportunity to lead that action.
The hon. Member for Glasgow Central (Alison Thewliss), with whom it is always an honour to debate from the Front Bench, made some very powerful comments including around false registration, the methods of verification and the need for resources. I commend her work on tackling the issue of Scottish limited partnerships. I also commend the hon. Member for Cheadle (Mary Robinson) on her work on the APPG for whistleblowing; I hope that as we go through Committee we will see more action taken in this Bill to tackle the challenges faced by whistleblowers, who do us a service.
My right hon. Friend the Member for Barking (Dame Margaret Hodge) spoke eloquently, as always, but what stood out for me was her articulation of the scale of the challenge and the fact that there is still just not enough determination or ambition. She was absolutely right to say that warm words need to give way to action—I will come back to some of her other comments.
I will also come back to the speech by the hon. Member for Thirsk and Malton (Kevin Hollinrake), but his comments about legislation with implementation stuck with me. He is right, because we cannot afford to sit on our laurels after passing this Bill, saying we are proud of it, if it does not achieve the change that is necessary and vital. I will also come back to his campaigning on the failure to prevent; his arguments have been heard across the House.
My right hon. Friend the Member for Walsall South (Valerie Vaz) articulated the problem of homes being used fraudulently for the registration of companies when people are not living there, and the lack of redress—an issue also raised by other hon. Members across the House. I want to highlight what that means for the vulnerability of elderly people: we know they are more likely to be victims of scams, but the ability to identify them, often on the electoral register, as people who might be living alone is another source of vulnerability for them and may lead to their being targeted and becoming victims of economic crime.
The hon. Member for Weston-super-Mare (John Penrose), who I also come across in many debates on this and other related topics, is right that the Bill was due, and past due—I think those were his words. I am sure that we will come back in Committee to the arguments he has made about the urgency of proper beneficial ownership transparency and many other points he has raised. I look forward to working with him on those matters.
The hon. Member for Oxford West and Abingdon (Layla Moran), who is not in her place, was right to say that we should get this done in economic crime Bill 2, because we do not want to be back for economic crime Bill 3. This is our chance. She made the point that it is worth taking a little longer to get this Bill through both Houses of Parliament to make sure that it is fit for purpose, and I support that.
My hon. Friend the Member for Hammersmith (Andy Slaughter), speaking from his own deep experience on issues of policing and enforcement, made the point extremely well about the need to ensure that we have the resources, motivation and morale for both policing and enforcement. We cannot have a revolving door. We must have the resources within our public sector to tackle these issues effectively. The hon. Members for Glenrothes (Peter Grant) and for Rutherglen and Hamilton West (Margaret Ferrier) and my hon. Friend the Member for Stretford and Urmston (Kate Green) also made similar and very effective comments in the debate.
I would like to give one final set of thanks, because it is right to pay particular tribute to my right hon. Friend the Member for Barking and the hon. Member for Thirsk and Malton for their leadership in the work of the APPGs on anti-corruption and responsible tax and on fair business banking. Their work serves this House and our nation extremely well on these difficult and complex issues.
I also recognise and thank for their steadfast advocacy the civil society groups that work tirelessly for action on economic crime, including Transparency International, Spotlight on Corruption, the Royal United Services Institute, Open Ownership and the Fair Tax Foundation. That is not an exhaustive list, and many others are worthy of our thanks for bringing insight and clarity to a complex area, which demands that we act in the interests of our national and international security and prosperity.
This Bill is an historic opportunity to put a stop to the UK’s shameful role as a hub of illicit finance and a facilitator of economic crime. This debate is testament to the support of the House for the Government’s going further in tackling money laundering and the illicit use of cryptocurrencies to enable crime.
I am sure the Minister has heard the arguments put forward today, and the motivations for doing so are so clear. Dirty money is a national security threat. It is the lifeblood of corruption, crime and war. Organised crime gangs profiteer from drug smuggling, people trafficking, arms dealing, fraud and environmental destruction. Parliament’s Intelligence and Security Committee has criticised Russian influence in the UK and frankly, as long as Putin and his friends have a safe haven in London, we do a disservice to the brave people of Ukraine, who are fighting with their lives to defend their country and our shared values of democracy and freedom.
Dirty money also causes massive financial damage. In 2020, the National Crime Agency found that money laundering causes at least £100 billion of economic damage to the UK. We have heard other estimates today. Spotlight on Corruption estimates that fraud, now the most commonly experienced crime in the UK, costs us £190 billion annually, hitting businesses and tax receipts and damaging public services. As my right hon. Friend the Member for Barking said, we will never secure sustained growth on the back of dirty money. Every one of us is a victim of economic crime.
Dirty money is damaging the UK’s reputation. The prevalence of economic crime jeopardises our status as a business destination of choice. The United States has designated us as “high risk” for money laundering, alongside Cyprus. That is embarrassing, frankly. Britain must not lose its status as a trusted jurisdiction. The warning signs are there and we need to act urgently.
Finally, dirty money undermines the rule of law and democratic institutions. It corrupts political and legal systems. Oligarchs are clogging up Britain’s already overburdened legal system with vexatious lawsuits to muzzle legitimate critics and whistleblowers. My hon. Friend the Member for Hornsey and Wood Green (Catherine West) made that point extremely well. Democracy, free speech and the rule of law are under threat.
We welcome the Bill. Our argument is not about what is in it, but what is not in it. There are aspects of the Bill that we will want to strengthen and to work with the Government on doing so. Let me lay out some of the areas on which we want to see further action, some of which have also been touched on today. Money launderers use complex financial structures such as shell companies and offshore tax havens to provide the secrecy that allows them to move, hide and spend their money. We must lift the cloak of anonymity that protects criminals and the corrupt.
We are pleased that the Bill begins to tackle the abuse of limited partnerships, including Scottish limited partnerships, by strengthening transparency requirements and enabling them to be deregistered. New research by Transparency International has revealed that more than one in ten limited liability partnerships ever incorporated—over 21,000—have characteristics identical to those used in serious financial crimes, such as bribery, embezzlement of public funds and sanctions evasion. We will review the detail of changes in Committee. Given the mass use of LLPs and other UK legal structures in large-scale money laundering, those networks are ideal platforms for a variety of clients looking to move dirty money.
On Companies House, the Bill is a huge step forward in improving the integrity of our register. That is important as we move from Companies House being a register to being more of a regulator. For far too long, fraudsters have obscured their identities behind shell companies, relying on a lack of verification of the information they submit. It is right that the Bill will make failure to comply with new ID regulations a criminal offence. The identity verification introduced by the Bill can finally begin to close that door, but it needs to be strong and we need further details about how the new powers will be used to close down those fraudulent companies already registered with Companies House.
Experts such as Graham Barrow suggest that there have been a huge number of bogus incorporations over the past decade alone, which will take significant effort and time to retrospectively verify. The Government have yet to clarify the period in which registered companies will be required to meet their new commitments, which, similarly to the Economic Crime (Transparency and Enforcement) Act 2022, will create a window in which those who have engaged in fraudulent activities can dissolve their entities or transfer interests. We do not want to see that happen. Has the Minister considered whether such verification should also be required to strike off and dissolve a company? That would help to prevent entities from dissolving and restructuring to avoid scrutiny under the new regime.
I urge the Minister to consider a mechanism by which parties affected by fraudulent entries—we have heard examples today—can apply to Companies House to have an entity or director struck off. They should not have to wait for Companies House to use its querying power, given the time that it takes. Public accountability is vital, so what plans does the Minister have for reports to Parliament on Companies House activity, which will bring public confidence?
Trust and company service providers are defined as being “of the highest risk” for money laundering by the National Crime Agency. A recent Treasury review found that HMRC, which is responsible for supervising TCSPs, continues to suffer from
“a lack of appropriate AML policies, control and procedures”.
The AML supervisory regime, including of TCSPs, is under review, but the further consultation promised by the Treasury in June is yet to be published. Until this broken supervision is fixed, how can we rely on such third-party agents to effectively act as the gatekeepers of our financial system? Under the Bill as introduced, they can be authorised to carry out ID verification as an alternative to Companies House. Crooks and kleptocrats already rely on these enabling professionals to build and maintain whole systems of shell companies. New measures in the Bill requiring third-party agents who form companies on behalf of someone else to register with Companies House and be registered in the UK with an anti-money laundering supervisor are long overdue. However, unscrupulous TCSPs will simply add ID verification and, potentially, falsification to their menu of law-busting schemes. That must not become a loophole in the legislation.
Could the Minister outline how the legislation will have sufficient teeth to prevent rogue actors from setting up shell companies for money laundering? The detail of verification checks is yet to be defined, but as drafted, third-party agents will simply be able to state that they have verified information on behalf of clients. Will the registrar have sufficient powers to review the documentation of “know your customer” checks if there are concerns?
There are concerns from stakeholders, such as Transparency International, that the Bill does not commit to verifying shareholder data, which could reduce the level of trust in the accuracy of that data. Concerns have also been raised about information sharing. While the measures in the Bill are a step forward, information-sharing measures appear to be reactive, rather than to proactively spot problem areas. This is a complex issue, and I am sure that there will be detailed discussion of it in Committee.
Extending current asset recovery provisions into the realm of cryptoassets is a welcome step forward, with cryptoassets increasingly used to launder the profits of crime and to support terrorism. On seizing and recovering cryptoassets, we will want to work with the Government to ensure that powers in the Bill extend to introducing sanctions on crypto-marketplaces that enable criminal activity. However, we are concerned, as the UK Anti-Corruption Coalition is, that to be effective, any new provisions regarding crypto money laundering and asset seizure need to be executed by a fully trained workforce. What is the Government’s economic crime people and skills strategy, and how is it changing in the light of the new threats we face?
Finally, I want to come back to a point raised by my right hon. Friend the Member for Normanton, Pontefract and Castleford (Yvette Cooper) and others. We very much believe that there is a missed opportunity in this Bill, which is extending corporate criminal liability for economic crimes. The powers that exist under the Bribery Act 2010 and in relation to tax evasion could and should be extended to other economic crimes. The Secretary of State for Wales said this week that he considers a new failure to prevent offence for fraud “likely”. The Home Secretary said that the Government are looking at this, so why do they not just get on with it, and bring forward proposals or work with us on amendments to the legislation? I certainly believe, on the basis of the debate today, that there is support for such a move across the House, and we will continue to push for it.
There is much to welcome in this Bill, with long overdue powers for Companies House and law enforcement agencies, but those powers will make a real difference only if the Government provide the resources to use them—legislation with implementation, as the hon. Member for Thirsk and Malton said. We know that the Government committed £63 million in the 2021 spending review to Companies House, which was allocated for the transformation effort that, rightly, must take place. That is £63 million as against the billions that I have described economic crime as costing the UK each year.
The Government have included a new power to set Companies House incorporation fees. We know that the £12 cost of registration is the sixth lowest in the world, so what are the plans to resource those efforts? Does the Minister plan to increase the costs of incorporation to help pay for the effective operation of the new regime as part of the sustainable resourcing model, or to seek an increase in the economic crime levy, and what is the alternative? It would be helpful to understand that as the Bill goes on its passage through the House.
With the Bill’s complexity, it would not be possible to touch on all the issues involved, but I am grateful to have had the opportunity to wind up for the Opposition. We have the power in this country to lead change, and for the sake of our citizens, our children and the international community we must do so now.
Madam Deputy Speaker (Dame Eleanor Laing)
I call, to make his debut at the Dispatch Box, Minister Dean Russell.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Dean Russell)
Thank you, Madam Deputy Speaker. May I begin by sending my condolences to the family and friends of Sir Davis Amess, who is deeply missed in this place? In fact, the very last speech I gave on the Back Benches was in the Sir Davis Amess summer Adjournment debate. During the time I knew him, he was a dear friend, and I know he is deeply missed.
It is a pleasure to follow the hon. Member for Feltham and Heston (Seema Malhotra). She has been incredibly kind in her engagement over the past week, and having our meeting was incredibly helpful in understanding her views on the Bill. I want to thank colleagues—on both sides of the House, in fact—who have spoken in this important debate for their well considered and eloquent contributions on such an important issue, and for the broad support for the objectives of the Bill, for which I am grateful. I should mention that the agreement is about the fact that they like the Bill and think it is the right thing, but some Members spent the debate more on the stuff that is not in it, which is always useful. I used to think when sitting on the Back Benches listening to Opposition Members—this not a criticism—that the argument was often to go faster and further, which is a great pitch for a personal trainer, so there are careers for them in the future. However, in this particular instance I understand where those arguments are coming from, and I will attempt to address them.
I aim to respond to as many points made by hon. and right hon. Members as I can given the time available, but I first want to remind the House what this Bill will achieve, and what signal it sends across the UK and around the world. As set out by my right hon. Friend the Home Secretary, the Economic Crime and Corporate Transparency Bill will bear down on the kleptocrats, criminals and terrorists who abuse our open economy, and it will strengthen the UK’s reputation as a place where legitimate business can thrive while driving dirty money out of the UK.
This historic Bill contains a significant and coherent package of measures to help us crack down on economic crime and abuse of the UK’s corporate structures. As the House has noted today, that includes the most significant reform to the UK’s company registration framework in 170 years. There have been many Governments during that time, so it is good that this is happening now, and the importance and impact of these changes should not be underestimated.
This Bill will help tackle economic crime, including fraud and money laundering, by delivering greater protections for consumers and businesses. It will support our national security, by making it harder for kleptocrats, criminals and terrorists to abuse our open economy. It will support enterprise, by enabling Companies House to deliver a better service for over 4 million UK companies, supporting business transactions and lending decisions across our economy.
I am sure that everyone in the Chamber will agree that we must maintain the UK’s status as one of the world’s largest and most open economies, and that London must continue to be one of the world’s most attractive destinations for overseas investors—but crucially, investors of the right kind.
I thank the right hon. Member for Barking (Dame Margaret Hodge) and my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) for spearheading cross-party collaboration on these important issues through the all-party parliamentary groups that they chair, and for their learned contributions to today’s debate. I have listened to them talk about these issues in the Chamber many times before. Their wisdom is deep and is heard loudly. I look forward to working with them as the Bill progresses.
Before turning to the issues that hon. Members have raised, let me first share my sadness at the tragic deaths referred to by my hon. Friend the Member for Thirsk and Malton. They are tragic examples of why it is so important to crack down on organised crime groups and their business models. At its heart, this Bill is about real people, including children and families. We have to put these regulations in place to protect them because our citizens have to come first.
I will now respond as best I can to the comments and questions raised during the debate. I will start with verification by Companies House and by agents. I welcome the broad interest from across the House in the Companies House reforms, including on identity verification. I can confirm that the identity verification requirements will apply to all new and existing company directors, people with significant control and those delivering documents to the registrar.
The hon. Member for Glasgow Central (Alison Thewliss) and the right hon. Member for Walsall South (Valerie Vaz) asked about identity verification checks undertaken by authorised corporate service providers. I can confirm that these checks will achieve the same level of assurance of the stated identity as those undertaken through the direct verification route and in line with the cross-Government identity proofing framework. Agents will need to confirm they are supervised by a body that is subject to the UK’s anti-money laundering regime and register with Companies House before they are allowed to form companies or registerable partnerships, or to file on their behalf.
Under anti-money laundering regulations, all agents are required to retain records and the registrar can request further information on identity verification checks if necessary. The agent will be committing an offence if they fail to carry out ID checks, and new powers will enable the registrar to suspend and deauthorise an authorised corporate service provider.
I can also reassure the right hon. Member for Walsall South that the measures in the Bill will help the registrar remove fraudulent information, including the addresses of innocent people, without burdening those people with so much process. We heard concerns from across the House about the challenges of the registration of false businesses and the problem of not being able to do anything about that; the Bill will solve these issues. She asked about the process for identity verification. We set that out in the White Paper earlier this year and operational design work continues. I also note her concerns about the newly implemented register of overseas entities. It is early days for that register but I will look into the quality of the filings being made.
Alison Thewliss
I thank the Minister for his explanation. To be clear, is the verification scheme through the existing UK Government Verify, which is used for passports and driving licences, or will a separate new scheme be built?
Dean Russell
I thank the hon. Member for her question. I will gladly respond to her in writing so that she has the full details.
I turn to Companies House fees and funding. A number of hon. Members from across the House, including the hon. Members for Stretford and Urmston (Kate Green) and for Rhondda (Chris Bryant)—he is not in his place, and if he were I am sure that he would be intervening right now—asked if Companies House will be properly resourced for its new role. Investment in new capabilities at Companies House is currently under way. Companies House was allocated £63 million across the spending review period to implement its transformation programme. That will include improvement of systems to detect suspicious activity. The Government are reviewing funding arrangements in the context of the reforms and are committed to ensuring that Companies House is fully resourced to perform its new role and functions.
The hon. Member for Glasgow Central asked whether the Bill will raise Companies House fees. The Bill gives the Government more flexibility to do so, broadening the range of functions that can be funded through Companies House fees. In particular, it enables us to use fees to cover the cost of investigative and enforcement activities. However, to maintain flexibility, we will not be setting the level of fees through the Bill. That will continue to be set via regulations and subject to future parliamentary scrutiny and approval. We must get the balance right, because we do not want to put off entrepreneurs, solopreneurs and businesspeople who want to set up a new business. The threshold must therefore be thrashed out in the right way, but that will come.
Alison Thewliss
I understand the Minister’s point, but it seems incongruous that while Government Departments make people pay through the nose in the visa system, for example, where they pay way over and above production costs, Companies House is charging very little.
Dean Russell
I thank the hon. Member for her comments. The flexibility will be there, and that is something to be looked at. We are not setting the fee right now; that is the fair thing to do.
The hon. Member for Rhondda and the right hon. Member for Barking asked about the Government’s response on asset freezing and seizing. The Government wholeheartedly support the people of Ukraine—it was wonderful to hear about those in the Gallery today—as do hon. Members across the House. We understand the wish to take ill-gotten funds and use them to support Ukraine in rebuilding its country. The UK, along with other countries, is examining further options to seize assets from sanctioned oligarchs and grappling with an array of complex issues. The aim of His Majesty’s Government is to support the recovery and reconstruction of Ukraine.
This is a novel and exploratory area with extremely complex legal and operational considerations, and we are not aware that any other country has yet identified a definitive solution, despite commonality of policy intent, but I am keen to continue conversations and hear more from learned friends. The Government are continuing to work at pace to explore all options and will continue to engage with international partners, civil society and others on this topic.
I pay tribute to my right hon. Friend the Member for East Hampshire (Damian Hinds), who has worked hard on this issue over such a long period, for his involvement in the debate and for everything that he did to progress the reforms during his time as Security Minister. That is well recognised and much appreciated. I know that my right hon. Friend the current Security Minister would like to add his thanks to mine.
My right hon. Friend the Member for East Hampshire stressed that reforms to how payments are made are important to help identify and stop suspicious payments. I value his insights significantly. Many banks already delay and refuse payments when they suspect fraud. The Government, financial regulators and industry are working together to ensure that banks can intervene where necessary. The Government and the Financial Conduct Authority are engaging with the payments industry to understand what might support banks to take a more consistent risk-based approach to payments and prevent payment fraud. We will keep under review whether legislation is required to support a risk-based approach by banks.
I turn to whistleblowing, which came up many times and colleagues have asked me about in the past few weeks. I am grateful to my hon. Friends the Members for Weston-super-Mare (John Penrose) and for Cheadle (Mary Robinson) for their comments and concerns about the framework protecting whistleblowers, and for their ongoing constructive dialogue on this important issue. They are well known for their views on this point and do incredible work to lobby Government and others on it. An effective whistleblowing framework is an important aspect of the UK’s ability to tackle corruption and all forms of economic crime and illicit finance. In recent weeks, I have noted with interest views on the whistleblowing framework and the proposals for reforms put forward by Members of this House and whistleblowing interest groups. I look forward to continuing those conversations.
The Government remain committed to reviewing the whistleblowing framework and it is only right that we take the time to do a proper review before considering legislative change. My officials are working on the proposals for the scope and timing of such a review. That work is complex, however, and will proceed over a longer timeframe than the Bill. Therefore, the Bill does not include measures on whistleblowing. However, we remain committed to discussion with all interested parties and parliamentarians as we progress that work, and we greatly appreciate the ongoing engagement on this important topic.
John Penrose
Is the Minister able—I am afraid his answer largely parallels a letter he already wrote to me, which was notably devoid of dates—to give the House any indication of when he will be able to come forward with either a fully developed plan with timetable attached, or alternatively just for the four much smaller elements that I mentioned in my speech, which would go an awfully long way to reducing the need for immediate action while he has a longer think about some of the broader, more complicated issues? Without those four immediate issues, we are letting the best be the enemy of the good.
Dean Russell
I thank my hon. Friend for his comments. I appreciate that he would love me to give a date. I cannot do that right now, but I promise that I will continue with the engagement and discussion. I have spoken to officials many times about this issue over the past two weeks, and I would like to continue to meet and have conversations on that front. The key point is that there is a willingness and a framework already being discussed. It is about how and when, as he says.
Why are the Government not legislating for corporate criminal liability? That was a topic that came up throughout the debate. My hon. Friend the Member for Thirsk and Malton, the right hon. Member for Barking and my hon. Friend the Member for Weston-super-Mare raised concerns about the prosecution of corporate bodies for economic crime. I thank them for their work in this area.
As several Members referenced, the Government have taken steps to establish the case for change. We commissioned the Law Commission in 2020 to undertake a detailed review of how the legislative system could be improved to appropriately capture and punish criminal offences committed by corporations, with a particular focus on economic crime. The Law Commission, as was mentioned in the House earlier, published that paper on 10 June 2022, just a few months ago, with the two strongest options being reform of the identification doctrine and the creation of a new criminal offence of corporate criminal liability for fraud, also known as failure to prevent fraud. The Government are carefully assessing the options presented and are committed to working quickly to reform criminal corporate liability.
I will move on to a final few points. First, I will reference comments by the hon. Member for Glasgow Central—she mentioned a lot of things in her speech, so I want to ensure I cover them as best I can—and by the hon. Member for Oxford West and Abingdon (Layla Moran). On the reforms and whether they apply to limited partnerships, including Scottish limited partnerships, I reiterate that the reforms to limited partnerships will apply to all forms of limited partnership, including Scottish limited partnerships. The Bill will tighten registration requirements and require limited partnerships to demonstrate a firmer connection to the UK. They will increase requirements and enable the registrar to deregister from the register limited partnerships which are dissolved and are no longer carrying on business.
On SLAPP—strategic litigation against public participation—the Government are committed to protecting free speech. We often have debates in this place on the importance of free speech and the rule of law, which are cornerstones of our democracy. SLAPPs are an abuse of the legal system, involving the use of legal threats and litigation to silence journalists, campaigners and public bodies who investigate wrongdoing in the public interest. That is utterly wrong and should not happen.
The invasion of Ukraine heightened concerns about oligarchs abusing those laws and seeking to shut down reporting on their corruption or economic crime. The Government published a call for evidence on SLAPPs earlier this year to build a robust basis for reform. The Ministry of Justice ran a series of roundtable events with key stakeholders, including campaigning journalists, claimant and defendant lawyers, media groups and civil society organisations.
The Government’s response to the call for evidence was published on 20 July 2022, and we are currently exploring opportunities to legislate to introduce a new early dismissal mechanism in SLAPPs cases, as well as a targeted cost protection regime through secondary legislation.
I will conclude by addressing a couple of other key points that were raised—I know there were many. I note that the big folder I have here contains the original points I was going to make, so hon. Members will be glad to hear that we will finish this debate before the Committee proceedings start.
Madam Deputy Speaker (Dame Eleanor Laing)
The Minister does actually have one hour and one minute left to speak. That is easy for me to say, as Mr Deputy Speaker is about to take the Chair.
Dean Russell
In that case, shall I start my new speech, Madam Deputy Speaker? I will not, because I am conscious that hon. Members have been incredibly gracious in their speeches and even more gracious in listening to mine. I will do my best to finish these last few points, so that the Adjournment debate can begin. [Interruption.] I can assure hon. Members that they will get weekends—I do not need to legislate for that.
Several Members, including the hon. Member for Hammersmith (Andy Slaughter), raised concerns about how the supervisory regime for professional enablers works and whether it is sufficiently robust. The UK’s anti-money laundering and counter-terrorist financing supervisory schemes are comprehensive in their regulation and supervision of firms most at risk from money laundering and terrorist financing. In December 2018 the global standard setter for those organisations, the Financial Action Task Force—there are lots of acronyms, so for anyone watching who is not as understanding of the details, I will use the words involved, rather than FATF, AML and all the rest—recognised that the UK’s regime is one of the strongest of more than 100 countries assessed by the Financial Action Task Force and its regional bodies to date.
In 2018 the Government established the Office for Professional Body Anti-Money Laundering Supervision to provide a greater degree of oversight and promote co-operation between the 22 professional body supervisors. That office has driven significant improvements in the supervision by professional body supervisors, and in 2019 only 9% of PBSs fully applied a risk-based approach. That rose to 86% by 2020. It has also developed platforms, such as the intelligence sharing expert working groups, to facilitate greater information and intelligence sharing. There is still work to be done to ensure consistency of approach and to improve information and intelligence sharing, as identified in the recent post-implementation review of the OPBAS regulations and the recent OPBAS report.
Seema Malhotra
I recognise that the Minister has made a huge set of comments on the issues that were raised, but I want to pick him up on one point relating to the Financial Action Task Force. He is right that we may be ahead in some areas, but the FATF and the IMF have highlighted that more needs to be done, including by the Financial Conduct Authority, to expand supervision. I hope that he can pick up some of that and make sure that we do not think that we have gone far enough—there is a lot further to go for confidence in the regime.
Dean Russell
I note the hon. Member’s comments. I will look into that further and follow up with more detail if required.
I thank all those across the House who have spoken. If I did not mention them, I apologise; and if I did, I hope that I covered their responses as best I can. I want to collaborate and listen, and I think that it is important that we as parliamentarians work together as best we can. It has been great to see the best of the House today. When we debate based on knowledge, experience and the ability to work together, we get the best legislation and the best outcomes, so I thank all hon. Members for that.
I look forward, based on the support that has been pledged, to working with all the hon. Members on the Committee. We have had an excellent and informative debate and I look forward to further discussion in Committee. I commend the Bill to the House.
Question put and agreed to.
Bill accordingly read a Second time.
Mr Deputy Speaker (Mr Nigel Evans)
Congratulations on your first outing, Minister.
Economic Crime and Corporate Transparency Bill (Programme)
Motion made, and Question put forthwith (Standing Order No. 83A(7)),
That the following provisions shall apply to the Economic Crime and Corporate Transparency Bill:
Committal
(1) The Bill shall be committed to a Public Bill Committee.
Proceedings in Public Bill Committee
(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Tuesday 29 November 2022.
(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.
Consideration and Third Reading
(4) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.
(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.
(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.
Other proceedings
(7) Any other proceedings on the Bill may be programmed.—(Jacob Young.)
Question agreed to.
Economic Crime and Corporate Transparency Bill (Money)
King’s recommendation signified.
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act resulting from the Economic Crime and Corporate Transparency Bill, it is expedient to authorise the payment out of money provided by Parliament of any increase attributable to the Act in the sums payable under any other Act out of money so provided.—(Jacob Young.)
Question agreed to.
Economic Crime and Corporate Transparency Bill (Ways and Means)
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act resulting from the Economic Crime and Corporate Transparency Bill, it is expedient to authorise:
(1) the charging of fees under the Companies Act 2006 at a level that takes into account a broader range of functions; and
(2) the payment of sums into the Consolidated Fund.—(Jacob Young.)
Question agreed to.
Economic Crime and Corporate Transparency Bill (First sitting)
Tuesday 25th October 2022
(2 years ago)
Public Bill CommitteesRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 25 October 2022 - (25 Oct 2022)
The Chair
Good morning, everyone. We are sitting in public and our proceedings are being broadcast. I have a couple of preliminary announcements. Hansard colleagues will be grateful if Members could email their speaking notes to hansardnotes@parliament.uk and I remind everyone—including myself—to turn mobile phones to silent. Date Time Witness Tuesday 25 October Until no later than 10.10 am UK Finance; British Private Equity & Venture Capital Association Tuesday 25 October Until no later than 10.30 am Lloyds Bank Tuesday 25 October Until no later than 11.05 am The National Police Chiefs Council; Arianna Trozze Tuesday 25 October Until no later than 11.25 am Jonathan Hall KC, Independent Reviewer of Terrorism Legislation Tuesday 25 October Until no later than 2.30 pm Companies House; National Economic Crime Centre (National Crime Agency) Tuesday 25 October Until no later than 3.00 pm City of London Police; Serious Fraud Office; The National Police Chiefs Council Tuesday 25 October Until no later than 3.45 pm Spotlight on Corruption; Global Coalition to Fight Financial Crime; UK Anti-Corruption Coalition Tuesday 25 October Until no later than 4.15 pm Oliver Bullough; Bill Browder Tuesday 25 October Until no later than 4.45 pm Professor John Heathershaw, University of Exeter; Chatham House Thursday 27 October Until no later than 12.00 noon Centre for Financial Crime and Security Studies at RUSI; Transparency International Thursday 27 October Until no later than 12.30 pm OpenCorporates; Elspeth Berry, Nottingham Law School Thursday 27 October Until no later than 1.00 pm Graham Barrow Thursday 27 October Until no later than 2.20 pm Institute of Chartered Accountants in England and Wales Thursday 27 October Until no later than 2.50 pm The Chartered Governance Institute UK & Ireland; City of London Law Society Thursday 27 October Until no later than 3.10 pm Catherine Belton Thursday 27 October Until no later than 3.30 pm Professor Jason Sharman, University of Cambridge
We will first consider the programme motion on the amendment paper, and then a motion to enable the reporting of written evidence for publication and the motion to allow us to deliberate in private—which will take only a minute or so—before the oral evidence session. I hope to take those motions formally.
Ordered,
That—
1. the Committee shall (in addition to its first meeting at 9.25 am on Tuesday 25 October) meet—
(a) at 2.00 pm on Tuesday 25 October;
(b) at 11.30 am and 2.00 pm on Thursday 27 October;
(c) at 9.25 am and 2.00 pm on Tuesday 1 November;
(d) at 11.30 am and 2.00 pm on Thursday 3 November;
(e) at 9.25 am and 2.00 pm on Tuesday 8 November;
(f) at 9.25 am and 2.00 pm on Tuesday 15 November;
(g) at 11.30 am and 2.00 pm on Thursday 17 November;
(h) at 9.25 am and 2.00 pm on Tuesday 22 November;
(i) at 11.30 am and 2.00 pm on Thursday 24 November;
2. the Committee shall hear oral evidence in accordance with the following Table:
TABLE
3. proceedings on consideration of the Bill in Committee shall be taken in the following order: Clauses 1 to 48; Schedule 1; Clauses 49 and 50; Schedule 2; Clauses 51 to 90; Schedule 3; Clauses 91 to 100; Schedule 4; Clauses 101 to 134; Schedule 5; Clauses 135 to 141; Schedule 6; Clause 142; Schedule 7; Clauses 143 to 153; Schedule 8; Clauses 154 to 162; new Clauses; new Schedules; remaining proceedings on the Bill;
4. the proceedings shall (so far as not previously concluded) be brought to a conclusion at 5.00 pm on Tuesday 29 November.—(Jackie Doyle-Price.)
The Chair
The Committee will proceed to line-by-line consideration of the Bill on Tuesday 1 November at 9.25 am.
Resolved,
That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Jackie Doyle-Price.)
The Chair
Copies of written evidence that the Committee receives will be made available in the Committee Room and will be circulated to Members by email.
Resolved,
That, at this and any subsequent meeting at which oral evidence is to be heard, the Committee shall sit in private until the witnesses are admitted.—(Jackie Doyle-Price.)
The Chair
We are now sitting in public. Good morning to our first witnesses. I am going to crack on straightaway, because the timetabling is tight this morning, but you are very welcome. Thank you for coming. I remind everyone we are now being broadcast. Do any Members need to make a declaration of interest? No. Witnesses, will you briefly introduce yourselves, please?
Nick Van Benschoten: My name is Nick Van Benschoten. I work at UK Finance, which is the voice of the UK’s banking and finance industry. I work in our economic crime policy unit.
Gurpreet Manku: I am Gurpreet Manku. I am the BVCA deputy director-general and director of policy. The BVCA is the representative body for private equity and venture capital in the UK. We look after the smallest venture capital firms investing in start-ups all the way through to growth capital and private equity firms offering across the UK and worldwide.
The Chair
Thank you. You are welcome. Given the time constraints, I will ask Members for short, snappy questions, so short, snappy answers will be very much appreciated. I start with the Opposition spokesman.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
Q
First, thank you for giving evidence. Nick, I am conscious of your perspective for the whole of the financial services sector and I want to ask a question specifically about data and information sharing: is enough happening in the Bill to deal with what has been described to me as the chilling factor of sharing information? What might come back in the consequences of promoting sharing?
Ms Manku, you gave evidence in which you described the “unintended consequences” of requiring limited partnerships to have a registered office. I am not sure that we would necessarily agree with that, so I am interested in your argument.
Nick Van Benschoten: We welcome the provisions in the Bill for private sector information sharing. We are very glad to see that they apply across the AML regulated sector—not just banking, but payments, crypto, e-money and so on—which allows us to follow the money and the data as criminals move across sectors to obscure their tracks. That is very welcome.
We also welcome the protection from breach of confidence. That can be in common law and, typically, in terms and conditions. It is important to be able to encourage people to do the right thing without the fear that they might be subject to litigation. However, we note that the Bill falls short in the way in which we can share information with the National Crime Agency, which is a disapplication of all civil litigation. We would like to explore whether we could go further in the Bill, but those provisions are very welcome.
I will not say too much. An expert colleagues from one of our member banks is speaking to you later, but I stress the fact that we want to encourage the use of information sharing as much as possible. It is not just where customers are exited, but where a restriction is placed on them, such as additional monitoring or thresholds—there are a lot of ways in which the banks put each other on notice. We want to encourage that use as much as possible in true cases of economic crime.
Gurpreet Manku: We welcome the provisions in the Bill to ensure that limited partnerships are not abused by criminals—I want to make that clear. On the point about having a registered office, we agree that there needs to be a service address in the UK for the delivery of documents and for the registrar to contact the organisation, but our concern is actually in reference to the legal meaning of “registered office” in the Companies Act 2006 when it comes to standard companies. We know that the term means something else in that context, so it is actually quite a knotty legal point rather than an objection to the principle of having a link to the UK.
It is just about ensuring that any existing arrangements that have been set up for legal and regulatory purposes for international funds structures remain intact. We will need to work through the process of what this means in practice. We were speaking to BEIS officials as soon as yesterday to talk through what it means in practice. This is more of an implementation point, and we have suggested edits that will come through to officials.
Seema Malhotra
Quite a lot of people want to ask questions, so I will make further remarks later.
Dame Margaret Hodge (Barking) (Lab)
Q
“We do not think these proposed changes support the Bill’s central aim of reducing the use of limited partnerships for money-laundering, since criminal users of limited partnerships will simply ignore them.”
That suggests to me that we are not going far enough. We are aiming to catch the people who are guilty of economic crime. Attached to that, somehow I cannot see any investor wanting anything other than to know that they are putting their money into a kosher investment. Even if you are just a pension fund putting your money into a scheme, it does not seem a bad idea to check that the person behind it is legitimate and not a drug or people smuggler.
Gurpreet Manku: Absolutely. We agree with you that it is not in our interests to have our limited partnership fund structure abused by criminals for all those reasons. We believe that the introduction of annual confirmation statements, the requirement to have authorised corporate service providers register limited partnerships and the power for HMRC to obtain accounts will deter criminals and prevent them from using the vehicle—we hope that they have stopped using it now given that these reforms are finally going through Parliament.
On how those points link to the evidence you quoted specifically, which was actually about some niche requirements on passive investors in a limited partner- ship fund, a worry there is that those investors might be deterred from using the UK limited partnership structure because they feel that their liabilities are being increased, that they are being asked to do the job of management and that criminal sanctions are attached to that. That part of our evidence applied not to the Bill as a whole but to those specific areas.
Alison Thewliss (Glasgow Central) (SNP)
Q
Nick Van Benschoten: We think that the Bill’s provisions for Companies House reform definitely point in the right direction. The question for us is, “Are they going far enough and will they be implemented fast enough?” Companies House abuse is, as I am sure you are all aware, a significant problem that we in the regulated sector have been trying to compensate for, but we cannot. We need Companies House to act as a proactive gatekeeper.
On the verification measures, one of the key points is that they fall short of minimum industry standards. Verification of identity is necessary but not sufficient. A key thing we have noted is that the Bill does not provide for order-making powers to allow Companies House to verify the status of directors or beneficial owners, and for that sort of requirement on company information agents and so on. That seems an odd gap. We understand that it may be a matter of phasing or resourcing, which can be dealt with in the implementation, but not if we do not have the order-making powers in the bill.
I have spent 12 years arguing for Companies House reform in my various roles. I do not have another 12 years in me, to be frank. We need to make sure that the Bill gives the powers so that the debate can be had during implementation and, if necessary, a phased or risk-based approach. What I mean is that there is a real risk of nominee directors and abuse thereof. Companies House needs to be able to verify that and therefore bring other things within its realm of power, querying and amending the register.
The how is maybe another question for more detail, but a risk-based, reasonable approach is also minimum industry standards. We have not yet seen it, but I note that the international body FATF—the Financial Action Task Force—agreed last Friday that it was going to consult on best practice guidance on implementing new standards for company registers. These are the same reforms that the Government pushed for as part of their G7 presidency. It has been part of the change: the US is setting up a register; Switzerland is moving. The UK cannot fall behind these new standards, so it is important that the Committee takes cognisance of that.
Trust or company service providers is one of those cases where we know that there is an issue; the banking sector and other industry partners in the joint money laundering intelligence taskforce and another four along with the National Crime Agency did a study of the risks of abuse in the UK trust or company service provider sector. We found shortfalls. There was a remediation exercise agreed. I understand that the remediation exercise is still ongoing. It is one of those sectors where there are concerns. We are doing other work that I am not at liberty to discuss, but it is about that sector.
That means that Companies House needs to be careful and cautious. There need to be strict legal undertakings with proper penalties, not just that they have met the standard of verification but that they have done everything they should be doing as a regulated sector. There needs to be access to the evidence of these checks, and that evidence needs to be something that, on a risk basis if necessary, can be queried—not just the information in the register but the actual checks undergoing. There needs to be the ability for Companies House to take sample checks and do also risk-based reviews. That may be something we can come to later on in terms of the querying power. I am sorry for a long answer, but it is an important point.
Alison Thewliss
Q
Nick Van Benschoten: I do not have a view on that. I know that the Treasury will be consulting on reforming the AML supervisory regime. That is something we have been pushing for for quite a while. I know that Jersey, for example, has a very different model where it has most of the regulator sector under one bailiwick, and that includes company formation. That may be something that the Committee looks at in future, but it is not the UK model at the moment.
Our priority would be, rather than look at the cost-benefit narrative and machinery of government change, the co-ordination point. There need to be powers not just to request information but to get information from other supervisors. There needs to be the ability to pass information around the ecosystem, including the National Crime Agency and regulated sector people sharing intelligence. There are some provisions in the Bill at the moment where we think they could go further on that matter, but the key thing is that Companies House needs to be a data hub. On whether it has the responsibility or others, we have not taken a view on that yet, I am afraid.
Alison Thewliss
Q
Nick Van Benschoten: I do not think they are unprecedentedly low. From a very quick survey, we found that Benin and Turkmenistan also have a low figure. I am not sure that is the company the UK wants to keep. There is a question about international competitiveness. It is important to note that in other EU countries with major financial centres it is in the £50 to £100 range. That does not seem an unreasonable amount for us.
Perhaps more importantly, we think Companies House needs to get resourced properly. You have to will the means, not just the ends. It is very important that Companies House fees are set at a reasonable level that would not deter an entrepreneur but would disrupt some of the bulk abuse we have seen, in which criminals set up hundreds and hundreds of shell companies. That is definitely a typology that we have seen.
Once there is enough money coming through main registration, there is then the question of whether Companies House will be granted any investment money out of the economic crime levy that is coming in next year. It is important that the levy is spent on things that actually improve the system, and that we do not just cross-subsidise, and that some of the opportunities also have a benefit for the economy—maybe for streamlining the onboarding of small companies, or for facilitating other access to regulated services.
Obviously, there is the question of what the Government will spend the levy on. We welcome the money that they have spent so far. There is an interesting proposal—by, I think, one of the Committee members’ all-party parliamentary groups—that the Government should match-fund the economic crime levy. Obviously, we in the regulator sector would love that. It is something for the Government to consider.
The Minister of State, Department for Business, Energy and Industrial Strategy (Jackie Doyle-Price)
Q
Gurpreet Manku: To clarify, I think this is a really important Bill. We have been saying for a very long time that the provisions need to be implemented quickly. The issues that we have raised are really on points of detail. Raising an international private equity or venture capital fund is quite a complex process. We hope that the swift introduction of the provisions will deter criminals from using the vehicles that we are talking about. When the requirement was introduced for Scottish limited partnerships to go on the people with significant control register, it led to a dramatic drop-off in the use of such partnerships for nefarious purposes. We were not aware that English limited partnerships were being used in that way instead, and we were surprised that they were, because English limited partnerships do not have a legal personality, and so cannot hold assets and should not be able to set up a bank account; certainly, they cannot in this country. We were therefore surprised by the scale of abuse there.
The Government are sending a really strong signal by introducing these provisions, particularly the requirement to have an authorised corporate service provider submit documention and the measures around annual confirmation statements. That should deter criminals. Our version of the limited partnership fund structure has been emulated across the world, so there is a lot of competition, in the sense that international fund groups could set up a vehicle in the UK, the EU or the US. Our wish is for them to be here, because that drives other economic activity.
We have a huge domestic venture capital and growth capital funds industry that invests in small businesses around the country. Two thirds of our investment is outside London; 90% of investment goes to small and medium-sized enterprises. Our managers are small firms; they need a domestic vehicle that works and is trusted by international investors, including those from the US who invest heavily in our members. These vehicles are used by private equity and venture capital funds. They are also used by infrastructure, pension schemes and fund-to-fund investors. Notably, they are also used by the British Business Bank through its equity programmes. It is the largest venture capital and growth equity investor in the UK. It has a really important role in catalysing innovation and crowding in additional institutional investors. I am passionate about the need for a robust UK vehicle, and it has been really disappointing to see the abuse first in Scotland and then in England in recent years.
English limited partnerships and Scottish limited partnerships are popular because they are here. The UK law courts attract institutional investors, as does the fact that we have a large professional services community here. Because we have funds here, we also have the administration here, which means that we have good-quality jobs around the country; some of our members have hubs in Belfast and Southampton. I am passionate about ensuring that this vehicle works, and the rules that are being introduced will deter criminals; they will improve the robustness of the vehicle.
Our points are really points of detail, just to ensure that the limited liability status of investors is protected and that we can implement these reforms in a swift and easy manner.
Jackie Doyle-Price
Q
Gurpreet Manku: I think it will make a very good statement, and it will attract international investment. There is a huge level of interest in the UK because we have had some brilliant growth stories in our businesses, particularly in deep tech in life sciences and biotech, especially coming out of the pandemic. There is a lot of interest in investments, and the Bill will send a signal that these investors should be using UK fund vehicles and not those based outside the country.
Liam Byrne (Birmingham, Hodge Hill) (Lab)
Q
Nick Van Benschoten: That is the case, and perhaps more, in a way, than you might expect. We are not saying that Companies House should be regulated for anti-money laundering, but it does not have the provisions to verify the status of directors or beneficial owners. That is the gap to the standards. I should stress that the industry standards allow reasonable measures in how you verify status, because it is a challenge, but those reasonable measures are a matter of how, not whether.
Liam Byrne
Q
The second thing I think you said is that the verification regime proposed in the Bill runs a risk of failing to establish those in actual economic control of a company. Is that true?
Nick Van Benschoten: There is always the risk, yes, but some of the shortfalls in the Bill can be addressed, and we think they should be, so that we can address the issues that you mention. In specific terms, some of the abuses are going to be abuses that the UK has suffered in the past; others will be abuses that we have seen happening overseas. The key thing is that the Government need to take a risk-based approach to measuring those. At the moment, the Bill does not allow Companies House to pick up some of those measures, including if we identify them in the future and want to remedy the regime.
Liam Byrne
Q
Nick Van Benschoten: I think they could be improved, yes.
Stephen Kinnock (Aberavon) (Lab)
Q
Nick Van Benschoten: Are you addressing the question to me?
Stephen Kinnock
To both of you, if you do not mind. It would be good to hear from both of you on both questions.
Nick Van Benschoten: My view is that, in terms of resourcing, there is a lot of new technology. Companies House is quite lucky that it can leapfrog using best practice. We have had a number of meetings with it. I think you may be hearing evidence from Graham Barrow later; we had a roundtable with Graham Barrow, Companies House and some other providers to try to explore this issue. Companies House is quite lucky in that it does not need to be a manual exercise: the goal is to get very much a minority manual review by humans, with the majority being technology and machine learning and so on.
That said, we also did a webinar with a number of data providers, including well-known companies that are looking at the size of the challenge and the opportunities. There is a big difference between quick wins and longer-term investment. Companies House already has a risk engine; it has data analytics already. It is just that its enforcement people, working as hard as they can, have their hands tied behind their back. I think there will be a lot of policy development, and work to implement not just the technology but the way that it interacts with the regime that it wants to set up. It is a challenge, because the short term is a burning platform.
Known patterns of abuse are identified every day. Also, a number of companies may be about to walk off with a lot of stolen public money through bounce back loan scheme fraud, and that is an area where Companies House may or may not have powers. Whatever powers the Bill gives need to be operated at speed. Sorry, that was a roundabout way to get to your question. There are short-term things it can do now, and there is a long-term thing; but it must make sure that it is dealing with the urgent as well as the transformative. We understand that the transformative exercise will take a long time, but there is also need for it to apply more tactical focus around the risks, especially in the short term. What was your second question? Sorry, I forgot it in my enthusiasm.
Stephen Kinnock
On data sharing.
Nick Van Benschoten: Each country has its own threats and problems. Singapore’s COSMIC database addresses particular exposures and problems that it has with trade-based money laundering. The UK is in a different place in that market, but we have our own problems. In terms of data-sharing, one of the key things we would like is for Companies House to enable permissioned access to the regulated sector. We have a lot of problems that are not so much in high-end corporate, but in the retail customer base. We have money mules for fraud, we have a lot of spoof companies enabling purchase and investment scams. Trying to work out where exactly the needle is in the haystack is difficult when we do not all have access to the same data.
Companies House seems to be facing a binary choice: either it is public, or it is only for the public sector. There does not seem to be a middle ground that works on a need-to-know basis, where you have an obligation to apply money laundering checks and to have careful, need-to-know handling procedures and anti-tipping off and so on, and where that information is available for the purposes of safeguarding your customer and maintaining the integrity of the market. From a UK perspective, that is definitely something that we would support. We also think it might allow us to develop something equivalent for our own risks, as the Singaporeans and other countries have done.
Gurpreet Manku: We have focused on the limited partnerships provisions in the Bill, but in principle we would support Companies House being appropriately resourced to implement all these changes effectively. I have no objections to data-sharing with relevant authorities. Our investment community operates across the globe, so we are used to this type of activity in other jurisdictions.
Alison Thewliss
Q
Gurpreet Manku: We have not looked into that. I do know that Ireland has set up a new funds limited partnership, so that could be part of the reason for their growth—but that was very recent, so I do not know why that has happened. Again, it is quite worrying if people are just moving around, exploiting different structures.
Dame Margaret Hodge
Q
The Chair
May I ask for a brief answer?
Gurpreet Manku: We are commenting on different parts of the Bill. On the limited partnerships part, we think that a number of the new provisions being introduced will deal with the issues you have outlined. To reiterate, we are really unhappy and shocked to see the amount of abuse of this fund structure, because it has been in place for decades and is used for legitimate purposes on our side.
When you read the paper cold, you are right—it does look quite negative; we probably should have reinforced our support for the provisions that will work. Sometimes we have a tendency to go into the detail and start thinking about how things will be implemented in practice. We want to ensure that we use the tools and implement the most effective measures in the Bill. If there are other points that, on balance, would not necessarily help with the overall aim of the Bill, perhaps we should look at whether they need to be implemented.
The Chair
Q
Nick Van Benschoten: I would just say that we support the application of the Companies House powers to all the entities registered at Companies House. Companies House needs risk-based querying powers and to be able to follow the data and the money. My earlier comments also apply to the point about limited partnerships and verification by trust company service providers; we need a much more cautious approach to the reliability of that service.
Seema Malhotra
Q
Nick Van Benschoten: From a financial sector point of view, it is important to look at this as an ecosystem; that is definitely how the criminals look at it. They look for weak points. Sometimes the problems are upstream of the financial sector, but it crystallises in our sector because that is when people realise that the money has gone out of their accounts.
We are very supportive of the fraud provisions in the Online Safety Bill—we think they are critical. We also think it critical that everyone be incentivised to play their part. That includes potential issues around the scope of the economic crime levy, which applied only to the AML regulated sector. The Bill levels up powers for the cryptoasset seizures and freezing orders. That is welcome; it simplifies things. We work with crypto sector associations. They are now trying to realise that they are part of a regulated sector, and they want to be part of the gatekeeper community.
On what the Bill does, it is important, as I mentioned, that there be information sharing across sectors. That is key, because then we can see whether we all have a different piece of the puzzle to put together. A systems approach is definitely needed; that is maybe the context for our point that Companies House should really be an enabling hub. That includes giving access to information that may not be on the public register.
Seema Malhotra
Q
Nick Van Benschoten: That is a very good point, yes. There are also the information processing provisions on the identification, prevention and detection of economic crime in the Data Protection and Digital Information Bill, as well as the Online Safety Bill. Obviously, consultation is ongoing about a statutory APP or authorised push payments code. There may also be other vehicles in one of those bits of legislation, or this one, for other measures that we are currently discussing with the Government. I think the Minister made reference to our difficulty with having to process payments within a set period—there is a hard regulatory obligation, even when we have identified economic crime risks. We are still exploring whether that needs guidance or legislation. All these things need to come together if we are to design the right ecosystem. That then raises the question of who is leading the system. We are working on that with the Government.
The Chair
We have less than one minute. Ms Manku, do you want to make a few final comments?
Gurpreet Manku: We are glad that these provisions are being implemented. We have been working on them since 2018, and stand ready to work with officials to ensure that they are implemented effectively to meet the Bill’s overall goals.
The Chair
That was good timing. I thank the witnesses for coming to see us and for their answers.
Examination of Witness
Nigel Kirby gave evidence.
The Chair
Thank you for joining us, Mr Kirby. We have until 10.35 am. Would you briefly introduce yourself, please?
Nigel Kirby: Good morning to the Chair and the Committee. I am currently the head of the group financial intelligence unit at Lloyds Banking Group. Across the industry, I am a representative on UK Finance’s information and intelligence committee and, for full transparency, as part of that I was deputy director of the economic crime command of the National Crime Agency.
Seema Malhotra
Q
Nigel Kirby: Perhaps I can give a couple of the examples that we used when we were speaking with the Home Office for the formation of the Bill. In one case that involved money laundering, Lloyds identified seven customers that were receiving cash payments into their accounts. We linked those seven customers because they used the same fraudulent documentation—a gas bill—to set up their accounts. They had all been linked using fraudulent IDs. They were sending money to one individual in another bank.
At the moment, we act on such cases by meeting our statutory obligations—we exited those customers—but from the criminal’s perspective, the second bank is not aware of the fact that they are receiving those funds, because we do not have the capability to share that information with them. Secondly, it is highly likely that those seven customers moved on to other banks and continued that activity because, again, at the moment we have no capability to share the information about our economic crime concerns in that space.
That is a fairly simple example, but to build on it, the same kinds of techniques were used to launder criminal funds in another case involving three companies that were banking with us. We recognised that they were receiving cash money from the same post office source. They were also receiving money from other companies in banks. That money all got consolidated and was sent out to, if you like, a fifth bank. I do not know what happened to it after that—we cannot see.
Seema Malhotra
Q
Nigel Kirby: It was, at that particular point, a UK domestic bank, yes. We have this sort of complexity of companies that are linked using different identities and are moving money around, layering it in the system, and sending it to other parts of the system. We are currently limited in what we are able to do.
On those three companies that we at Lloyds could see were receiving money from five other banks, at the time we could not inform those banks of our concerns or explore with them whether that money was legitimate—it is not all illegitimate; it could, of course be legitimate funding. Furthermore, when that money was consolidated and sent to another bank, we were unable to inform that bank.
Whatever the predicate crime—there are all sorts of predicate crimes—the layering is not that complex but it uses the banking system, across the banking system, to obfuscate and layer the funds, and then the criminals move on. The big challenge at the moment is that we can report those entities and companies, but they will just go and open up in another high street bank, and when they have exhausted the five major high street banks, they will go to the challenger banks, and when they have exhausted those, they will go to the fintechs. We are not aware of that in the way that other industries such as the motor industry might well be.
Seema Malhotra
Q
Nigel Kirby: To take the first question first—about whether the Bill goes far enough—I commend and compliment the Home Office. It worked with us on the Bill. This piece of legislation was, fortunately, done by the Home Office but using our case examples. The Home Office explored whether the Bill would work with the scenarios we gave them. That helped the information provisions to be pretty much in the right place. There is one key omission from our perspective; I can come back to that, if helpful. There is also one key dependency in another Bill—
Seema Malhotra
Q
Nigel Kirby: The omission was referred to by Nick Van Benschoten: the civil liability protection. In the UK, we have real trust and confidence built up in voluntary information sharing with the National Crime Agency under section 7 of the Crime and Courts Act 2013. That has been the basis of our voluntary sharing, and we have built confidence in it over seven years.
The legislation has two limbs to civil liability protection—I will have to read my notes to make sure I do not make a mistake. The first limb is
“an obligation of confidence owed by the person making the disclosure”—
that limb is also included in this Bill. The second limb that we rely on is
“any other restriction on the disclosure of information (however imposed)”—
that limb is not included in the Bill.
Our position is that the Bill should align with the existing legislation that we are comfortable with. We would have more comfort in sharing and be more incentivised to share if we had the same protections as we have when we share with the National Crime Agency. The further observation is that there is not just one precedent; another piece of legislation, the Criminal Finances Act 2017—under section 11, I think—had sharing provisions with the purpose, in effect, of bringing better disclosures to the NCA. It had exactly the same two civil liability limbs, written in the same way. We believe that the second limb would be hugely helpful in doing things.
You might want to come back, but the other dependency that is key for us is that the Bill is drafted as an interlink with the GDPR, as you well know. That is wise, and one of the protections—that it has that link with the GDPR—but because the Bill has that interlink, the provisions in the GDPR are really important. I am aware that there is a draft Bill that has not yet been laid before Parliament and, again, we—my colleagues in UK Finance—have worked on that Bill. Absolutely key for us in the draft Bill is a legitimate interest for sharing, because that Bill sets out legitimate interests.
At the moment, the GDPR cites only fraud as a legitimate interest, and no other crimes. To be able to make the measure in this Bill work, we need the revised GDPR to have the “prevention, investigation” and “detection” of crime—what the GDPR says at the moment—to be for all crime as a key part, so we can make the interlink. Otherwise, we are restricted only to fraud, but do not include wider economic crime.
Alison Thewliss
Q
Nigel Kirby: Your question is specifically about fraud and what we can do in that space. I suggest that tackling fraud is a shared responsibility. When you look at a typical fraud, you have the payment platform, as you mention; you have a sending bank and a receiving bank, and you have the victim. To tackle it, we need to look at the whole ecosystem, as Nick said, and have an approach that works. I am not convinced that there are things that one can put into the Bill for that—it is the wider point of the whole ecosystem coming together for any fraud strategy moving forward, how we tackle that and how we incentivise the right behaviours for tackling fraud in future.
Alison Thewliss
Q
Nigel Kirby: When looking at enacting new legislation, I would go back to the purpose. Putting my NCA hat on, rather than from a Lloyds perspective, I was involved in two pieces of quite significant legislative change: the introduction of asset forfeiture orders in the Global Finance Act, and the change in the sanctions penalty from two years to seven years. That was done very much on an operational need basis. As an organisation, we were able to put out the operational perspective of the gap—the fact that we could not use certain powers because, in the sanctions case, of the length of the sentence. There was a big gap in the ability to seize assets from a civil regime.
In whatever we look at, it is important that we understand that gap from an operational perspective. It is clear and compelling that by having new legislation, that gap gets filled. The other point is that there is the resource and the ability to use the legislation when it comes forward.
Alison Thewliss
Q
Nigel Kirby: I would leave those to UK Finance; it is not my area of expertise. Our nominated office in Lloyds feeds into UK Finance so we get the whole industry.
Jackie Doyle-Price
Q
Nigel Kirby: I can link this to your question on safeguards. Coming from a law enforcement background, I believe that safeguards for members of the public are really important in this space, and I am used to following those. GDPR does not stop us from doing some things. It provides a set of safeguards for what we do.
When you look at what the Bill does on safeguards—I am trying to answer both questions—it makes it very clear that we share this information when certain conditions apply, such as exit or restriction, or we need the relevant actions, which would be the prevention and detection investigations for economic crime. Those safeguards are built into the Economic Crime and Corporate Transparency Bill.
In GDPR you already have safeguards in place. The first safeguard is: do we have a legitimate interest to share? That is precisely my point, Minister, about our needing to have legitimate interests to share—prevent all crime, not just fraud. Then you have a necessity limb to this. Is what we want to share targeted? Is it proportionate? Is there a less intrusive way? From a law enforcement perspective, we look at whether our actions are proportionate and collateral intrusion. There is a balancing act sitting there as a third limb, on ensuring that the legitimate interest of the public is not unduly overridden. I actually support the fact that there are safeguards in GDPR; I think that is the right thing to have. I support the fact that we need to meet those to be able to share information, but in doing so in that particular space, we need to be able to have sufficient breadth to be able to share across all economic crime and not just fraud.
Jackie Doyle-Price
Q
Nigel Kirby: I think it would be very helpful to have, on the obligations, clear guidance from somewhere like the Information Commissioner’s Office—it has got good guidance, to be fair—as we move through this. Should the Bill be enacted and become legislation, guidance across the industry and from the relevant Government sectors or law enforcement sectors on how we do this and come together in the same way as we came together through the Bill, would be important and give clarity, because, as I am sure you are aware, Minister, there are different interpretations of things, different views and different risk appetites. That is normal in business. The views, legal interpretations and risk appetites will always be different, but where there is guidance to help us through this, with a positive intent from Parliament, that is always really helpful.
Dame Margaret Hodge
Q
I want to take you back—I could not quite hear what you said to Alison—to the SARs regime, if I may. It may not be your area of expertise, but it is a very important instrument for informing the enforcement agencies of where there may be a problem. The system is clearly broken—hundreds of thousands of SARs are landing on the desks of enforcement agencies. And we had the idea that they could be put into categories—risk categorised. I wonder whether you are able to comment on that at all, because if currently there is just a tick box—you send off your SARs and you have done it—too often the banks then carry on doing business with a suspicious person. Is there room in the Bill for doing something more on that regime, to ensure that the enforcement agencies are more effective in rooting out economic crime?
Nigel Kirby: I think the SARs regime and the Proceeds of Crime Act 2002 itself actually need—well, not necessarily to be turned upside down, but to be looked at as a whole. I think an individual focus just on some aspect of SARs probably would not change the system in any particular—
Dame Margaret Hodge
Q
Nigel Kirby: Just to be very clear, I am here from Lloyds Banking Group; I will answer this question from my former role at the NCA—from that perspective. SARs do have huge value in what they do; the idea that they just go to a box and are not used is not entirely correct. One of the things the UK has done with SARs, which is world leading and others are quite jealous of, is that they are accessible to a wide range of investigators. It is not about following each one up. There is a database. A wide range of financial investigators can see them and they are held there for six years, as legislation allows. So there is a huge use there.
Also, Dame Margaret, we need to think about this. There is the SARs regime and there is the SARs reform work that is being led; investment is going to be put forward there. I would suggest that we need to see what differences the SARs reform makes first.
Dame Margaret Hodge
Q
Nigel Kirby: Reflecting back and particularly focusing on this area, as I am sure you do, we need to build and are building on the public-private relationships we have had. One Member mentioned Singapore and Holland, but actually, from the perspective of a private-public partnership, how we operate together and particularly the joint money laundering intelligence taskforce, we are seen as world-leading in that space. There is something there about building on that as we move forward and bringing in other sectors, which I know the NCA does. In this particular space, the enablers, as they are sometimes referred to—the telcos, the ISPs, the social media companies—being brought into that public-private partnership and building on what we have is important.
The Bill brings forward private-private relationships, and I think that is important. Hitherto, the information-sharing provisions have all relied on the NCA gateways. There is a throttle there, in terms of capacity. Widening that out so that private-private can share and be the frontline, in many ways, to help to prevent and detect is an important way forward.
Broadening out, there are a couple of elements in the legislation that we need to look at. For us, one is about friction in the system. We have a very quick payment system in the UK; when you pay, you press the button and off it goes. That is something we have got used to as a public and as a banking industry. It is unhelpful when you are looking to put legitimate targeted friction into a system to temporarily stop what I will call economic crime, because it is not just fraud, although it includes that.
Dame Margaret Hodge
Q
Nigel Kirby: Respectfully, I think that is a different question.
You asked me to put my other hat on, Dame Margaret. Looking at the scale of fraud—you know, you have got it here; you are familiar with it—and the number of victims and the cost to the UK, it is time for the UK and those with the power to do so to either think about fraud as a strategic policing requirement or, going even further, ask whether it is now a national security threat. I do not just mean with that label—that is really important. You can put a label on these things, but if it could be classed as a national security threat and have the available resources brought together from our national agencies and national policing, that might have a greater impact for the public.
Stephen Kinnock
Q
I have two questions. First, I am trying to understand why you have this sense of optimism, because it looks like a pretty dire situation to me. Our enforcement agencies have been starved of the resources and capabilities they need. Secondly, you have had a long career in the NCA and in enforcement; I am sure you are still in touch with some of your former colleagues. If you had to define the resources they need, what extra would they need to be able to turn this situation around? It would be great to hear from you on that.
Nigel Kirby: For clarity, I used “world-leading” specifically in reference to private-public partnerships and what we are doing for voluntary information sharing. Look at the joint money laundering intelligence taskforce and the facts in that space: it has supported 950 investigations that have led directly to 280 arrests, with £86 million secured. There are some hard figures around here that are different. When I was in law enforcement, we had law enforcement from other countries coming to ask how we did it, including Singapore and Holland. I am in the private sector now, and we have private sector colleagues coming to ask us how do we do that part. That is just a part of the ecosystem that is important—
Stephen Kinnock
Point taken.
Nigel Kirby: If I misled you or you took it that way, that was not intended.
On your question about if I were still there, I am sure that Graeme Biggar, the DG of NCA, will have plans for what that could look like. When I was there, we certainly put forward evidence-based propositions such as, “If there were x amount of funding, these are the extra capabilities we could bring and this is the impact we believe it could have.” I am afraid my contacts are not close enough now to know the detail of that.
Stephen Kinnock
Q
Nigel Kirby: I fully agree that we need enforcement to be properly resourced with the right capabilities to be able to deliver what it is asked to do.
Liam Byrne
Q
Nigel Kirby: Well, it does not stop that in the UK because our financial system launderers are in there, but what we can do is to prevent them from continuing to abuse the financial system. Take the example I gave with the five other banks—four were sending money—that were involved with Lloyds. The Bill will allow us to have a conversation with the four banks that were sending money into our companies, and to say “In relation to our responsibility for understanding due diligence, money laundering and so on, can we share information on those four companies so we can better understand those flows from those companies?” That is important, because some of them may have been legitimate and some may have been illegitimate, but that will help us to define the good from the bad in that particular space. It will also act as an alert trigger for those other four banks to have a look if they have not done so already.
An intelligence-led approach would say, “Lloyds has a concern about these four companies” and it could look further into the matter and do an investigation into its own relationship with its customer. The other element on all that money that came through to us—it was in the millions—that went out to a fifth bank, which I will call bank F, is that we could alert that bank about our money laundering concerns, provided we had exited those three companies, which we did. If that bank had not already picked it up with its transaction monitoring, it would have an intelligence-led trigger to be able to do its own investigations, and to stop that and report it to the authorities.
The final and important part of this is the indirect part—we call it the utility. The ability to better share this information for others is important because. If all those companies were exited out of the financial system by the five banks involved, it is highly likely that they would go on and open up accounts with other banks. This Bill gives us the opportunity to be alerted to that and to take the appropriate action and due diligence that we need.
Liam Byrne
Q
Nigel Kirby: It is an important point in terms of focusing on risk. We are having a conversation at the moment in industry with law enforcement and a regulator about how we can define where the high priorities are and how we can focus our resources on them, while meeting regulatory requirements and the law enforcement perspective. It would be helpful—we refer to it as dial up, down down—in terms of resource to be able to move to a space where our voluntary discretionary resource could be targeted in exactly the way you suggest, because there is a lot of voluntary discretionary resource in this space.
Liam Byrne
Q
Nigel Kirby: Not in the sense of prioritising what the highest threats are and where we should be. That is to the best of my knowledge. Just for clarity, I am not familiar with every aspect of the Bill.
Seema Malhotra
Q
Nigel Kirby: I think, with respect, that “automatic strike-off procedures” are your words, not mine. I used the fact of us taking an approach and considering whether to exit—that might be a similar thing—a customer. We take this really seriously. We look to understand whether we have economic crime concerns about those consumers. There is a range of things that we can do in that space. The ultimate one is about exit. We would exit that relationship, which is contractual, so we are able to do that. But there are other things that we do, and one is actually to speak to the customer and understand that transaction. We see some unusual transactions, but we have a conversation.
Seema Malhotra
It is more about Companies House automatic strike-off—but they might be your customers.
The Chair
Order. I am terribly sorry; we do have to leave it there. I must cut it off on the dot. Mr Kirby, thank you very much for joining us.
Examination of Witnesses
Andy Gould and Arianna Trozze gave evidence.
The Chair
We will kick off. You are very welcome, witnesses. Thank you for joining us. Would you be so kind as to briefly introduce yourselves and your positions?
Arianna Trozze: Hello everyone. My name is Arianna Trozze, and I am a PhD researcher at University College London. I look at detecting and prosecuting financial crime involving cryptoassets, and for the past year I have also been advising the Home Office on a part-time basis on technical aspects involving cryptoassets in relation to this Bill.
Andy Gould: Morning. My name is Andrew Gould. I am a detective chief superintendent with the City of London police. My job is to run the cyber-crime programme for the National Police Chiefs’ Council, which is focused on building capacity and capability across policing.
Stephen Kinnock
Q
Andy Gould: Sure. Fraud is not really my area of responsibility—I am focused very much on computer misuse act offending—but yes. I know there has been significant additional resource put into the ROCUs for fraud in the last couple of years. Is there enough capacity to meet the demand? Probably not. What policing probably needs to do is take a slightly different approach. Rather than trying to investigate those volume crime offences, it should focus more on those organised crime groups or individuals that are doing the most harm. That is the kind of pivot that policing is trying to make, in terms of being more proactive. I know Commander Adams is giving evidence this afternoon, and he will be able to tell you more about that.
Stephen Kinnock
Q
Andy Gould: Yes, I do. I think we have got the capability, but what we lack is capacity. The capability we have got today does not necessarily mean we will be able to maintain that capability tomorrow. We have invested, through the national cyber-security strategy and the programme through Government. We have got about an extra £100 million that has been invested over the last four years or so, building capability across policing. Some of that money we have effectively taken into crypto, so that cyber money is being used to cross-subsidise wider policing. We have created what we describe as cryptocurrency tactical advisers across the whole of policing. There are now officers in every force and every regional organised crime unit who are trained and equipped to do that. We have nationally procured the investigative tools to enable them to progress the investigations, and we have a national storage platform to store that once we have seized it.
We are in a position where we have actually seized hundreds of millions of pounds worth of cryptocurrency assets within the last year or so. The challenge we have is that it is getting harder and harder to do. The assets themselves are becoming more diverse and more technically complex, so our officers are in a bit of an arms race trying to keep up.
On the tools that we use, you might have one supplier that is brilliant on Bitcoin but not so good on another asset class, so we need more than one investigative tool to be able to investigate effectively. That is very expensive. One of the providers is currently quoting $60,000 to $80,000 per licence. That is unachievable, or unsustainable, for policing. We need to procure nationally for everybody, so we have an 80% discount on our current investigative tool, taking that approach.
The big worry for me at the moment is not just the technology changes and whether we will be able to maintain that level of resourcing and expand the capacity across policing; we have created a real staff retention problem. Because crypto is an emerging market, some of the best expertise and understanding of crypto in the UK sits within policing. We have been investigating cryptocurrency since 2015 or 2016. One of my sergeants has just been offered 200 grand to go to the private sector. We cannot compete with that. That is probably the biggest risk that we face within this area at the moment.
Stephen Kinnock
Q
Arianna Trozze: I would echo Andy’s point about the difficulty of tracing certain cryptoassets and investigating certain chains and things like that, and how this is evolving rapidly in competition with the existing providers and the blockchain services themselves. It gets more and more difficult to investigate as time goes on. You need more and more capacity building and investigative tools. At the same time, the crypto companies and the blockchain companies are seeking to develop their technologies in ways that will evade that detection, so it is a constant race between the two sides to be able to effectively investigate and prosecute these crimes.
Alison Thewliss
Q
Arianna Trozze: One of the key ways that legislation can future-proof itself in the face of this rapidly developing technology is via the definitions. I think that the definition of cryptoasset in the Economic Crime and Corporate Transparency Bill is sufficient to do that. Probably most importantly, the inclusion of cryptographically secured contractual rights means that the definition will cover smart contracts, which is really the technology that underpins all the major advances in the space of, for example, decentralised finance and non-fungible tokens that have taken place, and that we expect to continue to develop in the coming years. Furthermore, the ability to amend those definitions via secondary legislation is clearly a positive, because in the event that something slips through the cracks and develops in a way that we cannot anticipate, it will make it more efficient to change them.
Alison Thewliss
Q
Arianna Trozze: Because they are very clear that they include cryptoassets, it really makes the rules clear for everyone in the industry. Consumers then know as well what rights they have. My view is that it obviously cannot do everything, but the fact that there are provisions for victim compensation goes a long way to also protecting consumers. Obviously, it does not prevent the crimes from occurring, but it helps them to recover the losses.
Alison Thewliss
Q
Arianna Trozze: I cannot really speak to that. I am very sorry about that.
Andy Gould: I cannot either—sorry. I have not looked at that.
Jackie Doyle-Price
Q
Andy Gould: Probably the most obvious area would be around ransomware, which is if you are an organisation and you get hacked and attacked and then lose access to all your files or systems, and then get a demand from a cyber-criminal saying, “Okay, if you want to get access back, you have to pay”—basically, an extortion demand. That extortion demand will virtually always be in cryptocurrency, because there is a view that that is harder to trace.
Depending on the kind of cryptocurrency, the traceability varies. Effectively, a lot of the technology that sits behind cryptocurrencies is based within what is described as the blockchain. Arianna is much better at explaining this than me, but the blockchain is effectively a public ledger, if we are talking about Bitcoin or something like that. We can see all the transactions. It is like your bank account or NatWest or any other bank doing its transactions in the public space—everybody can look at them. It is effectively decentralised and very public, so there are real benefits in that. The anonymity comes from not knowing who is sending what or who is who, in terms of the bank accounts—the wallet equivalent.
That provides opportunities to follow the money, but, although you might be able to see where the money goes, you will not necessarily know who has sent it or who has received it. There are other investigations you would need to do that. And there are tools—mixing services or exchanges—that will jumble it all up and then send it elsewhere, and you will not be able to see what has come in compared with what is going out. That is why criminals like to use it—because, as they see it, it covers their tracks effectively.
Arianna Trozze: One way to make it a bit clearer is to situate cryptocurrency money laundering in the traditional phases of money laundering. When we talk about money laundering, we tend to talk about three specific phases—placement, layering and integration. In the crypto space, placement may look like someone depositing their Government-issue currency into a cryptocurrency exchange, and exchanging it for cryptoassets, or potentially using what is called a fiat on-ramp to buy cryptoassets using their fiat currency. They may also use something like an over-the-counter broker, which may allow them to buy cryptoassets using cash.
Then, the layering process follows, which is kind of what Andy was talking about, in terms of trying to obfuscate the origin and trail of funds. There are a lot of different tactics that the criminals can use to do that. As Andy mentioned, they may use mixing services, to try to break the chain. They may create thousands of different cryptocurrency wallets and accounts and transfer the funds among them in order to make it more difficult to trace. They may exchange them for various different types of cryptoassets, including privacy coins, which we, again, have a lot of trouble chasing, although there have been advancements in that regard. Finally, they may move to completely different blockchains, using what are called blockchain bridges, and that further makes it more difficult to trace—as Andy mentioned before, different providers have different capabilities and different expertise in terms of which chains they specialise in and which assets they are able to trace. That is something else that they may do to hide that trail of funds.
Finally, we have the integration process, which is criminals using those now-cleaned funds for mainstream economic activity. We know that sometimes they may seek to keep those funds in cryptoassets in an attempt to further their gains, speculatively investing in the market; or they may, again, use one of these exchanges or what is called a fiat off-ramp to transfer their cryptoassets back into pounds or any other currency.
Jackie Doyle-Price
Q
Arianna Trozze: Yes, and as it is such a quickly developing technology, there are constantly new ways coming out for criminals to use the technology for various purposes. Again, it is a rush for law enforcement and investigative companies to try to keep up with this.
Andy Gould: To give you a sense of the scale of the challenge, there are thousands of different forms of cryptoassets or cryptocoins in existence. We have to learn to use all the ones that the criminals are using. We can only do it with the private sector. There is no way we can invest in or have the skills in-house to be able to develop all of those tools for all of those different asset classes, so we work really closely with all the big private sector companies to build that capability. It is why we do big open national procurements—because that is the only way it is affordable.
Liam Byrne
Q
Andy Gould: It is really hard to say, because it is so hard to identify or report at scale. However, I would say yes. If you talked to all of the big cyber-incident companies and the threat intelligence companies about what we are seeing, in terms of reporting, then yes, everybody would say that it is rising. Certainly, the crime survey for England and Wales does.
Liam Byrne
Q
Andy Gould: It is both. There is a real mixture. You can have your sophisticated organised crime groups, with some of those having a bit of a crossover with hostile state actors, which makes that more complex to manage. You therefore have a lot of overseas threat at the higher end, but during the pandemic we also saw a shift of mainstream, traditional—if that is the right way of describing them—UK-based criminals moving into cyber-crime, because a lot of the tools are readily available on the internet and are quite easy to use.
Liam Byrne
Q
Andy Gould: Yes, that is right.
Liam Byrne
Q
Andy Gould: Yes, definitely.
Liam Byrne
Q
Andy Gould: I think that a lot more has been invested. I think—
Liam Byrne
That was not the question. Are we investing enough?
Andy Gould: Well, as a police officer, I will always say that you are never investing enough.
Dame Margaret Hodge
Q
Andy Gould: No, there is definitely an element of truth in that. If you have a public blockchain, you can see where it is moving, and that is very open—Bitcoin is the most obvious open public blockchain and the most popular crypto. However, that does not mean that you necessarily know who it is that starts and finishes. That is the issue, and with a lot of the different criminal services available, it is becoming harder and harder to manage. It is becoming more tricky. So, the answer to your question is probably yes and no.
Dame Margaret Hodge
Q
Andy Gould: The Financial Conduct Authority has taken on regulatory powers in this space. I am not an expert in that area, but that is looking pretty promising. A lot of UK-based entities that were offering those services are no longer able to do so, so there has definitely been a clean-up of the market in that space, which is positive.
The challenge is that international regulation, and a lot of the recent work we have seen in that space, has driven a lot of overseas exchanges and providers, which might have been operating in a bit of a grey space, shall we say, to suddenly look to become more legitimate and comply because they want to come into the mainstream financial system. I would use the analogy that the tide is going out on a lot of the more criminal providers. They are effectively being left as “clearly not engaging, clearly criminal”, and a lot of those that may be operating in the grey space in international jurisdictions are becoming more and more legitimate as they clean up their acts.
Dame Margaret Hodge
Q
Andy Gould: Absolutely, yes.
Seema Malhotra
Q
Andy Gould: The average member of the public using cryptocurrency will probably be using an account through one of the legitimate exchanges. They will go through the whole “know your customer” process that they would go through for a bank. Regulation pretty much covers that; I think we are in a good place with it. It is the criminal exchanges and criminal service providers that regulation would not affect. You would not be able to build an infrastructure that stops them being able to create their own wallets, as you could for those accounts with what are effectively crypto banks.
Arianna Trozze: There has been research that some of the KYC processes, especially in some of the higher-risk exchanges, are quite easy to fool with fake documents and other such things. There are companies serving UK customers that are still not registered with the FCA and do not meet its KYC or AML requirements, despite its best efforts. For example, none of the Bitcoin ATMs operating in the UK is registered with the FCA, even though they are supposed to be, and they tend to have quite lax KYC requirements. They may require you to put in a phone number. Some of them have more requirements, but whether it is a rigorous process remains in question.
Seema Malhotra
Q
Arianna Trozze: In my view, the only thing would be more enforcement efforts against non-compliant companies. I do not know how practical that is, or what kinds of resources there are to address the problem, but to me the only way forward is to make sure that those companies and operators know that it is not acceptable to be working and serving UK customers without a licence.
Seema Malhotra
Q
Andy Gould: I think the FCA has prosecution powers and enforcement and regulatory options, but I could not say what it is doing about that.
Seema Malhotra
Q
Andy Gould: I do not know. They only came in earlier this year, so I would be surprised if the FCA has got to the stage where it is able to exercise them in terms of investigation.
Jane Hunt (Loughborough) (Con)
Q
Andy Gould: Yes, definitely. That is a huge benefit of the Bill; it is one of the provisions that we have been asking for. Imagine a scenario where you execute a search warrant on criminal premises: you go in and you can see stolen property, but at the moment, if they are not there, they are not under arrest and there is no existing investigation. You then have no power to take that crypto under the Proceeds of Crime Act 2002. So yes, that is a big step forward for us.
Stephen Kinnock
Q
Andy Gould: No.
Stephen Kinnock
Q
Arianna Trozze: I need to think for a moment.
Andy Gould: We are generally very happy with the provisions of the Bill. One area that we might want to look at is storage of the assets. Imagine you have £100 million- worth of cryptocurrency. That is really expensive to store, and there is always a security risk around where it is stored. If we were able to turn that into cash straight away at the point we get the restraint from the magistrates court, and that that was a standard power, a lot of that cost and security concern would be taken away. That would be one area where we could improve.
There is an existing power under POCA, where you can go to the Crown court and make that application, but that can be contested by the defendant. There is a cost associated with that. If we had a standard power to do that, I think we would be a bit happier, but we are generally very happy with the provisions in the Bill.
Arianna Trozze: I would echo that I generally think the Bill goes far enough—as far as is technologically possible at this time. I do not think there is anything that I personally would amend at this time.
Stephen Kinnock
Q
Arianna Trozze: I see both sides of that argument. Obviously, if assets are transferred into cash and then the original assets significantly gain value, and if the person with the assets were then found not to be a person of crime, the Government would be on the hook for the change in value of those assets. There are two sides to the argument but, as Andy mentioned, the storage is quite risky and very expensive. I ultimately agree, but I see both sides of the argument.
Alison Thewliss
Q
Andy Gould: It is quite commercially sensitive, but it could be a large sum—we are talking hundreds of thousands of pounds.
The Chair
Okay, we have come to the end of this session. Thank you very much for joining us.
Examination of Witness
Jonathan Hall KC gave evidence.
The Chair
Q
Jonathan Hall: I am the independent reviewer of terrorism legislation. I also have a bit of a background in crypto from my practice as a barrister, which is why I was interested in this whole area. I was asked by the Government to feed into some of the clauses as they went through, and I am here to talk about the crypto aspect.
Seema Malhotra
Q
Jonathan Hall: I do not know about the resources of the NCA, but in terms of whether the powers go far enough, I think there are some areas where they perhaps go too far, or at least where I think, from a fundamental rights and individual rights perspective, some attention may need to be drawn. There is the simple question whether you should be able to seize cryptoassets on the basis of the fact that they might be used by terrorists. Of course you should. Then you have the complicated question of how you bring about a seizure regime where assets are not physical. It is one thing if you seize a jewel or some cash, but it is another thing if you are effectively seizing information. What you have here is a very lengthy set of provisions to allow you to do that.
Generally speaking, I think it works, but there are one or two areas I want to draw to your attention. The first, which I think is acceptable but worth thinking about, is that the power is a power to seize not just cryptoassets but crypto-related items. In practice, you are not seizing a thing; you are seizing a code and that can be written down on a bit of paper or on a computer. What these provisions do, unlike all the other seizure powers that say you can seize the jewel, the cash or the contents of a bank account, is that they allow the police to seize any item, which could be a computer, or a piece of paper. So, it is quite a wide seizure power. I think it is kept effectively within bounds, but it is something that is worth drawing attention to, which is different from other aspects of seizure in this field.
The next point is that you have to be able to convert crypto and there are several reasons for that; one is because the prices may go massively up or down. Individuals whose assets are the subject of seizures may never be prosecuted—and this is a civil remedy—and, in fact, no final application for forfeiture may ever be brought. That is particularly true in the context of terrorism, because often what counter-terrorism police will want to do is disrupt the transfer, but they will not necessarily want to go on and apply to forfeit. The figures from last year show that there is a disparity between the number of accounts that are frozen and the amount of money that is finally the subject of forfeiture.
The Government did listen to my views on this issue. It is important that the Bill has provisions such that both the police can apply to convert the cryptocurrency into, say, pounds sterling, and that it is also open to the individual from whom it is seized, who might say, “Look, I bought this crypto. It’s gone massively up in value. You’re never going to apply to forfeit this. I don’t want to lose out on the rise of value.” There is provision in the Bill for the individual to go to court and say, “I’m a person from whom the crypto has been seized. Please can you convert it?” That will be decided by the court, but it is good that that provision is in the Bill; I think it works.
Is this too boring and long? I mean, there is a third bit, which I think is the most difficult bit. It is the power of a magistrates court to require a UK-connected wallet provider to freeze the cryptoassets and, even more significantly, to require that the UK-connected crypto wallet provider should actually pay the money over to the court. It is slightly in the weeds, but what the Government have done—and I understand it—is to try to be quite novel. They are really trying to push the law here, because they realise that many of crypto wallet providers will not be based in the UK, but this comes with a consequence regarding how the Bill is currently worded. I will just give you the bit that I think may need a bit of attention; it is clause 10Z7B—
Dame Margaret Hodge
Q
Jonathan Hall: Yes, I will. It is clause 10Z7B(7).
The Chair
Q
Jonathan Hall: I am not sure I have got the same document; I have got the Public Bill Committee document for 30 September and it is on page 10.
The Chair
Q
Jonathan Hall: I will just flag it up to you. It defines a UK-connected cryptoasset service provider. It includes a provider
“ which…is acting in the course of business carried on by it in the United Kingdom.”
Well, that is completely fair enough; if they are carrying on business in the United Kingdom, they should be subject to court orders. However, it then has this provision:
“has terms and conditions with the persons to whom it provides services which provide for a legal dispute to be litigated in the courts of a part of the United Kingdom”.
I will just put the flag up and then allow the Committee to move on. That is quite a wide extension of UK jurisdiction over companies that may be based abroad and potentially over victims who may have claims overseas.
Jackie Doyle-Price
Q
Jonathan Hall: Let us imagine that counter-terrorism police have intelligence that there is an Islamic State cell that has been fundraising in Birmingham, and they are going to try to transfer the funds that they have managed to raise to an active cell based in Syria. Their plan is to do that by using Bitcoin. Let us imagine counter-terrorism police had intelligence that that was about to happen. They could raid the premises where the UK-based cell was operating. They could seize a bit of paper on which the crucial key is written down, which would allow the transfer of the funds to take place to Syria. They could then use that key to grab the cryptoassets—let us say it is £1 million-worth of assets that are about to be converted, or have been converted, into cryptocurrency—and transfer the cryptocurrency to a police-controlled wallet or to another provider who they trust.
That money, which would otherwise have gone out to Syria to buy guns and so on, will then be seized by the police. If the police have evidence to do so, they could in six or 12 months’ or up to three years’ time, go to a magistrates court and say, “We can prove that this cryptocurrency was going to be used for the purposes of terrorism” or “It was the resources of a proscribed organisation, Islamic State. Can you now please order that the money be seized and transferred to the Treasury?” Does that help?
Jackie Doyle-Price
Yes, not only is that a brilliant explanation that brings this to life, but it is a great plot for a film.
Jonathan Hall: It is real life. There was a man called Hisham Chaudhary who was convicted last year of doing more or less that.
Jackie Doyle-Price
Q
Jonathan Hall: We can never be confident it is completely future-proof, but it is necessary and definitely a very strong step in the right direction. As I say, I have one reservation about overseas companies where I think it may go a bit too far. It may just be a question of deleting one part of the provision I read out to you. In general, it is a good step.
The Chair
I think the number of the page you are looking for is in the amendment document on page 47 and it is new schedule 1. I think that is what you were referring to, Mr Hall. I am going to move on anyway.
Alison Thewliss
Q
Jonathan Hall: In the counter-terrorism world, there is an open question about quite how much this blockchain technology will be used by terrorists. There is quite a lot of excitement about the possibility of its use, but the jury is slightly out about how much it is, in fact, being used. I cannot speculate why that would be. Counter-terrorism is a well-resourced part of police business, so I would expect that there would be specialists who would be willing to stay because they are quite highly motivated; outside counter-terrorism, I do not know. I was very struck by the point about the £200,000 transfer fee.
Dame Margaret Hodge
Q
Jonathan Hall: Do you mean the Russia-Ukraine aspect?
Dame Margaret Hodge
Ukraine gives one a sort of focus on the worst aspects of dirty money, but are we really being as comprehensive as you were when you did the counter-terrorism stuff there?
Jonathan Hall: The one thing that I think would make all the difference would be to resource Companies House. I follow Graham Barrow on Twitter—I think he is giving evidence—and occasionally I look at the overseas entities register, and, as he has pointed out, there are these anonymous chip shops in Barnsley, which have about 57 British Virgin Islands companies attached to them. It seems that that is the low-hanging fruit: having a well-resourced Companies House that can tackle the entries, verify them and prosecute them.
Dame Margaret Hodge
Q
Jonathan Hall: The funny thing is that there is a principle in law that, if someone is giving advice to someone in order to commit a crime, legal professional privilege does not apply. It is quite hard to find examples of cases in which that doctrine has been applied, so I do not know whether it is about law enforcement having the confidence, when they have a lawyer who is deeply engaged in advising someone to break the law, to say, “We don’t care that you are saying this is privilege because we are going to run the case and say it is for a criminal purpose”. Beyond that, I do not know. I am a lawyer and I completely support maintaining access to justice—of course I do. But you are also completely right that lawyers and trust companies are at the heart of this issue, and I am afraid there are professional enablers.
Stephen Kinnock
Q
Jonathan Hall: I have not got an answer beyond the one I gave before, I am afraid. I am sorry; I have not thought of a positive thing. I would just remove that subsection (b) from the definition of UK-connected cryptoasset service provider.
Stephen Kinnock
Q
Jonathan Hall: It is quite a bit step to convert it to fiat currency, or pounds, because you are then interfering with the bet that person has placed on the value of the currency going up. I do not know what the figure is in terms of storage. I am interested, too, in the question of potential police liability. I am thinking about the Sanctions and Anti-Money Laundering Act 2018. As you know, before the Government brought in the suite of changes that allowed urgent sanctions, they were very careful to narrow down the potential liability that the Government might have in relation to sanctions, if they were challenged. I have not given it attention, but maybe it is worth having a look at whether there are equivalent protections for the police. The seizures can be very high in this field—they can measure many millions—so the potential liability of the police could be quite high. We would not want the police to be too disincentivised by the risk that they would be on the hook for damages, if everything goes wrong.
In terms of the balance, it may be that ultimately one or other party—the person from whom the assets are seized, or the police—is going to suffer some sort of loss. The key thing is to make sure that people have access to the courts. The courts will have to generate their own sort of expertise and case law over when you should convert a currency. I can imagine that someone will come to the magistrates court saying, “My assets have been frozen. Now is the time for converting them from Bitcoin into Ethereum”, and the court says, “What? How do I determine that?” There will need to be a body of expertise. This is a minor point, but it is something that I support: one of the intentions is to allow quite a wide range of law enforcement personnel to be responsible for the court proceedings, precisely so that you can develop a cadre of people who have got that sort of expertise.
Alison Thewliss
Q
Jonathan Hall: I do not want to say. The key thing is that I am not a Scottish lawyer, and I am not going to try and opine on whether there is a legitimate use of them. The key thing is basic enforcement. You made the point that there are zombie companies. Well, someone in Companies House needs to follow these things up. I am sure they will, but the resourcing of Companies House is where I would put my money.
Liam Byrne
Q
Jonathan Hall: It is a serious problem. I would say that the reason we have not faced the wave of mass casualty terrorist attacks in the UK, in contrast to America, is the lack of readily available firearms. That is the key thing. It is why the growth of the extreme right wing and all these ideologies that inspire mass killings, the obsession with Columbine and so on, have not resulted in mass shootings. From a national security perspective, the real concern is the alignment—if it happens—between terrorist organisations and those in organised crime, who do have the capacity to source firearms. That is a really important point.
Economic Crime and Corporate Transparency Bill (Second sitting)
Tuesday 25th October 2022
(2 years ago)
Public Bill CommitteesRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 25 October 2022 - (25 Oct 2022)
The Chair
Our first witnesses, the fifth panel, are Martin Swain from Companies House and Adrian Searle from the National Economic Crime Centre.
The Minister for Security (Tom Tugendhat)
May I just declare an interest, very briefly?
The Chair
Absolutely. We will all listen with bated breath to the Minister’s declaration of interest.
Tom Tugendhat
I simply refer to my wider declaration in the Register of Members’ Financial Interests.
The Chair
Thank you. Mr Swain, would you introduce yourself briefly for the record?
Martin Swain: Good afternoon. I am Martin Swain. I am one of the executive directors of Companies House, with responsibility for—
The Chair
You will have to speak up, because the acoustics in this room are very poor.
Martin Swain: Apologies. At Companies House, I have responsibility for policy, strategy and communications, and legal services.
The Chair
Thank you. Mr Searle?
Adrian Searle: Good afternoon. I am Adrian Searle. I am director of the National Economic Crime Centre. I am here with two hats on: as the director of the NECC, as it is called, and as a director within the National Crime Agency—so I can make comments about both the NECC and the NCA. If it helpful, I can explain a little bit about what the NECC is.
The Chair
No, I do not think so; we do not have time for that. I call Seema Malhotra to ask the first question.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
Q
My second question is to both of you. Do you believe the Bill should go further and reform the strike-off procedure for companies? There is a recognised issue where companies are building up debts, not filing a return and then being struck off as one of the routes through which money laundering may be taking place, with limited room for manoeuvre after that. Would there be any benefits to reforming that process? Is there any consideration, for example, of companies being placed in a compulsory liquidation procedure? I would be interested in your thoughts on that.
Martin Swain: As you say, we have £63 million through the spending review for transformation. We are two thirds of the way through our transformation programme at the moment. It is fair to say that we have been clear with the Department and Treasury that we are taking on significant new functions and responsibilities. Some of that will require more people and people with different skills from those that we have now. Companies House is a register of information, so a lot of our people do processing work. We will need to move those people off that. We will need to employ skills that we do not currently have, so we are actively talking to the Department and the Treasury about our funding model.
To your point on fees, yes, we could increase fees to pay for additional resources. I know there is some challenge around the fee being too low. Again, we have taken provision in the Bill to charge fees for different things that we currently cannot charge fees for. For example, we cannot currently recover costs for investigation and enforcement activity, as it is centrally funded. We are taking powers to do things differently. I do not think I am at a stage to be able to say we have a definitive figure that we have agreed with the Department or Treasury that would give us our funding model for the future.
The Chair
Mr Searle?
Adrian Searle: I think the question that was probably targeted towards me is not about the resources in Companies House, but the second, follow-up question relating to striking companies—
Seema Malhotra
It was about how to tackle economic crime and whether the reform of the strike-off process is important to that.
Adrian Searle: The strike-off process is not something I have a detailed understanding of. I suspect Martin might be better placed to answer that question.
Martin Swain: Again, it is something we are very aware of. Companies take advantage of the strike-off route to discharge themselves of debts and so on, and for other purposes. My sense is probably that the Bill as drafted gives us what we need. It is about how we take forward the policy in that area regarding where companies are moved to strike off. For example, we get lots of representation with regard to lots of companies being registered at one address—a registered office being used and abused. The route for that would be to default them to our address at Companies House, for not having a registered office address that is valid. The next step on that would be strike-off, but clearly if we do that we may be having an adverse impact on the system and giving companies a route to use it for criminal activity or to fold without paying their debts. We are very aware of the issue.
The Minister for Industry (Jackie Doyle-Price)
Q
Adrian Searle: I think we have. There is, as you say, a real challenge to get the balance right between a prosperity and a security agenda. As we know, the Companies House reform elements of the Bill are a long time coming, so there has been lots of analysis and consideration of how you get the balance right. What I know from a law enforcement investigative perspective is that the changes being introduced under the Bill will certainly make the job of law enforcement far more straightforward in terms of our ability to investigate criminals and corrupt elites who are exploiting the complexity of the corporate structures to hide their assets, launder their wealth, and so on. I am confident that it gives Companies House and, by extension, the investigative agencies the powers we need. The indications that I have from exchanges with Martin and others in the industry are that the changes do not go so far that they inhibit transparent business practices in a way that undermines our economy. It feels to me that the balance is right.
Martin Swain: It is a very good point. It is a challenge for us as an organisation, because we have very clear direction from our Ministers that we should not create a burden for business, or make it difficult for companies to incorporate or for people to invest in the UK. The concept of balance is always there for us. We will bring in things such as ID verification, but we need to make that really efficient, and make it easy for people to understand the process, so that we do not create a burden for the vast majority of companies on our register that are legitimate businesses. That is quite a tension sometimes, because there is a significant spotlight on Companies House to become more than the passive register that we are at the moment, and to become—I hear this term—an “active gatekeeper” of the register. There is a potential that we move too far into that territory and make it harder for the vast majority of companies to deal with us.
I mentioned our transformation programme. There are two elements to our transformation. One is the legislative reform and all that is involved with that. The second part is digitising our services. That is what we have been focusing on in the last few years: making our systems really quick and easy to use, and to drive data, rather than receiving information on paper. You cannot work effectively with law enforcement from paper transactions; you have to have data.
Jackie Doyle-Price
Q
Martin Swain: It is a huge culture change for us, not least in becoming more of a proactive agency. I hear it said that Companies House will be key to the economic crime ecosystem; what I say to people is that we will also be part of the business growth ecosystem. It is important that we have that dual role.
Adrian Searle: I think there is real value for businesses in being able to trust the other businesses they are dealing with. There is a strong argument that the transparency agenda supports the business agenda.
Alison Thewliss (Glasgow Central) (SNP)
Q
Martin Swain: At the moment we are in the design phase for verification. I should say first of all that we will not do the ID verification ourselves; we will outsource that.
Alison Thewliss
Q
Martin Swain: At the moment we are looking at two options. We are working closely with Government Digital Service and others on the potential for the Government solution. We have been clear with them about our requirements with them. We are separately looking at market options, whereby we would go to the private sector and outsource via that route, where a number of providers can do identity checks.
Alison Thewliss
Q
Martin Swain: It goes back to some of the things that I said about ease of doing business. There are two key parts of our specification: whether we can make it really efficient, and fast and easy for people to do, and whether it is at an equivalent standard to the industry standard. We are very clear that we are operating along the same lines as others in the system.
Alison Thewliss
Q
Martin Swain: I heard that, and I am surprised that they are saying that. I will have a conversation with them about where that has come from.
Alison Thewliss
Q
Martin Swain: People with significant control will be subject to verification—beneficial owners, but not shareholders who have less than 25%.
Alison Thewliss
Q
Martin Swain: It was a decision by the Department and Ministers, post consultation. They consulted on the whole area of shareholders, and the information that they hold, and verification. The decision was that they would not be subject to verification.
James Daly (Bury North) (Con)
Q
Martin Swain: One of the main measures is ID verification. That is one of the biggest gaps in our register at the moment. We do not verify people who are setting up and running companies. The fact that we will know them and have verified them is key. We are taking considerable powers in the Bill to do things that we cannot do at the moment. We cannot query information that is filed with us. We cannot analyse and proactively share information. At the moment, we are very reactive. I use the word “passive”, and “reactive” is another word that I would use. We react to colleagues such as Adrian coming to us saying that they want information on certain things. In the future, we will be able to do our own intelligence work and will proactively be able to work with law enforcement.
James Daly
Q
Adrian Searle: For sure. It is a really fundamental change. I already have folk from my intelligence and investigative teams in the National Crime Agency working with colleagues in the Companies House teams to help them to set the road map for how they will transform.
Dame Margaret Hodge (Barking) (Lab)
Q
The Chair
We now resume the evidence session. Mr Swain is going to answer the question that was put to him by Dame Margaret Hodge.
Martin Swain: The question was about the balance of burden against tackling economic crime. I think you asked about the need for smarter regulation. I totally agree. Part of the challenge is how we use our powers in future. I would say that the way in which we use our powers will be around the integrity of the register; we will focus our activity on where we can have the most impact to improve the integrity of the register. In doing so, we do not want to create a burden for legitimate businesses.
The benefit of focusing on the integrity of the register is that we create value. As Adrian said, we already contribute a significant amount of money to the UK economy. If we can improve the integrity of the register so that people are making better decisions based on the data, and people are not being defrauded because of the way in which we are improving the integrity of the register, to me that is what smarter registration should be about.
Dame Margaret Hodge
Q
Martin Swain: We will not be replacing the AML supervision, which rests with the AML supervisors. The Bill introduces a number of measures around ACSPs which we currently do not do. For an ACSP to file with us, they will need to register with us.
Dame Margaret Hodge
Q
Martin Swain: With us. This is separate to their AML supervision. In order to file with us, they will need to register. We will verify the identities of the people who run the agency—the agents—and we will require them to confirm who they are supervised for for AML purposes. We will cross-check that with the AML supervisors. There are also some new offences in the Bill, so people will be required to maintain their records of their supervision with us. If they are suspended from their AML supervisor and do not tell us, that will be an offence. They will also have to maintain records of verification, which we will have the power to check. None of that exists at the moment. An agent can file with us without any of those things happening.
Dame Margaret Hodge
Q
Martin Swain: Yes.
Dame Margaret Hodge
But it does nothing.
Martin Swain: I am not going to answer from HMRC’s perspective. If we are talking about smarter regulation, the benefit is that we will have a power and an ability to go back to HMRC and raise flags where we see activity from agents that is not consistent with what we want.
Dame Margaret Hodge
That is very helpful, thank you. I have a quick question for Adrian.
Adrian Searle: Can I come in on that earlier question? The requirement that the company service provider has a UK footprint is a significant shift. Prior to this Bill, overseas-based service providers could provide that third-party service to registered companies. That is a fundamental challenge. When there is a UK footprint, whether it is the supervisory bodies or, potentially, the investigative agencies, we have got a starting point that we can go after, which you cannot do when there is an overseas base.
Dame Margaret Hodge
Q
Adrian, with your wider remit, there has been a huge decrease in the number of cases that have been taken by the SFO and indeed by all the agencies. One reason is the fear of costs landing on those agencies—for example, the NCA—if they lose the case. Can you give us a view? Do you think we should have a cost cap, in the way we have with unexplained wealth orders? Do you think we should have the American system whereby no costs at all are given to the litigant or the person accused of wrongdoing at the end? What is your view of that?
Adrian Searle: We are certainly very keen to continue to look at that. The cost capping in the UWO regime is attractive. I understand that other colleagues and Government, in particular the Ministry of Justice, have had conversations. They are having concerns raised that that undermines the core principle of loser pays. There are different views on this issue.
Dame Margaret Hodge
Q
Adrian Searle: We find cost capping an attractive proposition, but we also understand that it is challenging. In addition, we are speaking to colleagues in the Home Office and the Treasury about the establishment of a regime that will help us to manage the risk associated with potential big financial costs if we were to lose a case. There is a governance system that they are proposing to put in place that will help us to manage those risks. It is still early days, and conversations are ongoing, but at least colleagues in Government recognise the challenge that we face. There is no doubt a chilling effect on the agency from the risk associated with financial costs.
Dame Margaret Hodge
Q
Adrian Searle: I assume that is a reference to the ARIS system—the asset recovery incentivisation scheme. As it currently stands, we get 50%.
Dame Margaret Hodge
Q
Adrian Searle: It is certainly true for the NCA and policing. I would need to check whether that runs across the whole system. I can come back to you on that.
Liam Byrne (Birmingham, Hodge Hill) (Lab)
Q
Martin Swain: Not yet, to my knowledge. We have had the confirmation of part of our £63 million, but we are in conversations with the Department around future budgets.
Liam Byrne
Q
Martin Swain: It would be very difficult for me to describe what a gold standard would be at this point. We have put in a significant proposal to the Department as part of our spending review preparations.
Liam Byrne
Q
Martin Swain: I cannot give you a figure on the budget, but in terms of numbers of people, it was in excess of an extra 100 people.
Liam Byrne
Q
Martin Swain: That was our assessment at the time. It obviously depends how quickly we can digitise services because, as I said earlier in the session, the quicker we can digitise things, the more we can move people off manual processing into other work. I think it also depends on what the final shape of the legislation is when it gets through. We saw that with the Economic Crime (Transparency and Enforcement) Act 2022, where there were things, as the legislation went through, that changed and we had to adapt and do things differently. It would be wrong of me to estimate it at this point, before the legislation has passed.
Liam Byrne
Q
Martin Swain: I would probably say we do not need to. We have this package of reform, and it is fair to say we have worked really closely with the Department and people like the Treasury on what the package of reform needs to look like. We have been heavily involved, and we have been able to influence some of the thinking around what the reform needs to look like. However, I think nobody would disagree with the need to reform Companies House. Certainly, we would not; we welcome these reforms with open arms. As an agency, it is probably fair to say that we are hugely excited by the prospect of being able to do things that we have not been able to do in the past.
Liam Byrne
Q
Martin Swain: I have not said they failed to agree it. We have not got to that point of agreement yet.
Stephen Kinnock (Aberavon) (Lab)
Q
Martin Swain: I do not think we would have the capacity to do ID verification internally, certainly not within the timescale that we are looking at bringing it in. I go back to my point—and I will pick up the point with UK Finance—that we will be operating ID verification to standards that are appropriate across sectors that use ID verification. With any aspect of these reforms, there is potential for gaps in the system. What we are trying to do is design out gaps in the system. However, I think we know from the current companies framework that there are gaps in the system, and even where you plug those gaps, others will appear.
The Chair
Thank you very much indeed to both of you for your evidence. It has been very helpful. We now move on to the next panel.
Examination of Witnesses
Commander Nik Adams, Simon Welch and Michelle Crotty gave evidence.
The Chair
Good afternoon. We now have Commander Nik Adams from the City of London police, Simon Welch representing the National Police Chiefs’ Council, and Michelle Crotty from the Serious Fraud Office. May I ask each of you to introduce yourselves briefly, please?
Commander Adams: Good afternoon. I am Nik Adams, commander in the City of London police and the current lead on economic and cyber-crime.
Simon Welch: Good afternoon. I am Simon Welch, the national co-ordinator for the National Police Chiefs’ Council on the economic crime portfolio.
Michelle Crotty: I am Michelle Crotty, chief capability officer at the Serious Fraud Office.
Stephen Kinnock
Q
Commander Adams: Shall I start, as the City of London senior rep? I have the advantage and the disadvantage of having been in this job only since April, so I can give you a view of where I think things have got to. I obviously was not part of the network when that report was written. I think it reflected an approach to economic crime that has been very much built bottom up historically, which led to the assessment that policing was fairly fragmented, with different levels of investment and different prioritisation across forces.
As long as economic crime and fraud, in particular, are not part of the strategic policing requirement, it is difficult to really get police forces to galvanise that response. We have seen, however, some fantastic work by the Association of Police and Crime Commissioners to get fraud and economic crime into police and crime plans. We have seen through the support that the City of London police has provided, as the co-ordinating force, a great deal of consistency starting to layer on in local forces. In this year alone, we have visited 29 out of all 43 forces to look at their delivery of the economic crime response and of shared good practice across the country. That bottom-up has given us those improved levels of consistency.
Through the spending review and the police uplift programme, we are seeing significant investment at both a regional and a national level to help us to build some of those capabilities. By the end of this year, we will have proactive economic crime teams built around a consistent model in every single regional organised crime unit. With the anticipated investment from the economic crime levy, we will see the growth of regional economic crime teams—proactive financial investigation at a regional level—and, with our support, the continued network of those teams across the country, which will give us a growing and more consistent approach as we go forward.
Stephen Kinnock
Q
Dame Margaret Hodge
I will read out the two figures. The number of crimes under investigation has halved in the past three years, and convictions for fraud offences, according to national crime statistics, have decreased by 67% since 2011. What you are talking about is theoretical; it is not what is happening. At the same time, fraud is going up and up.
Stephen Kinnock
Will you say a word about why that is? The system seems not to be working, so what do we need to do to fix it?
Commander Adams: I will start and then bring in Simon, who is an expert on money laundering. The first thing to say is that fraud is getting increasingly complex. About 70% of all fraud emanates from overseas and, as Adrian touched on, it is very difficult for us to obtain prosecutions and convictions across jurisdictions. That is a real challenge for us, as are the growth in technology, the way in which fraudsters are now exploiting people and the changes in tactics.
Fraudsters are moving away from unauthorised payment fraud, where people’s details are stolen and used fraudulently—banks are now preventing somewhere in the region of 65p in every pound of that type of activity—and we are now seeing much more sophisticated frauds, where people are socially engineered, or manipulated, into physically approving transactions. That of course is much harder for technological solutions to prevent, when the target is a human being.
Of course, all that complexity requires a much more complex and sophisticated policing response. As I described, the growth that is coming down the line—in particular the proactive growth—will not start landing until the end of this year and then, of course, we are several years before we have fully experienced and really competent and effective investigators working on those crimes. All those things will layer on over a period. We anticipate that the technological advances will continue, both in support of us and in challenging us in how we can investigate and progress these crimes. Simon, do you want to comment specifically on money laundering?
Simon Welch: On money laundering, the amount of offences—detected offences—is going down. Criminals are getting a lot more savvy about our tactics and things like that, so we find that they are not having assets in their own names so much—vehicles, houses, things like that—and our opportunities for confiscation are probably going down a bit. However, what you can see from the seizure figures is that the cash value is up, but the volume is down. We are targeting and getting good results from the cases, but it is a smaller number of cases. In reality, POCA is now quite old, and people are used to us going after the money, so they take far more steps to protect that money from us being able to confiscate it.
Jackie Doyle-Price
Q
Michelle Crotty: At the moment, we have those pre-investigation powers for overseas bribery and corruption. They allow us to investigate earlier, in particular to identify banking evidence earlier, and to see whether there is a case to pursue. By extending that to fraud and domestic-based issues, we are enabled to do that in those cases. At the moment, we have to take on a case formally and to commit resource in order to exercise the powers. To some extent, we can negotiate on occasion with companies to get that material, but if we have the power of compulsion, it would make it quicker and easier to get the material and so identify whether there is a case there.
Jackie Doyle-Price
Q
Michelle Crotty: Yes.
Jackie Doyle-Price
And to address some of the questions we heard earlier—if you can act more quickly and establish whether a crime has been committed, that is clearly more efficient.
Michelle Crotty: It is more efficient and means that, if we follow the money and there is a reasonable explanation, we can screen a case out more quickly, rather than committing more resource and taking longer to reach that decision.
Alison Thewliss
Q
“Company formation and related professional services are therefore a key enabler or gatekeeper of”
trade-based money laundering. Is there enough in the Bill to remove that risk?
Simon Welch: It is difficult to say. We have heard about the verification processes going on. With the authorised corporate service providers, if we strengthen all that and make things more difficult, we target harm. At the moment, you can register a company from abroad, and there is little opportunity for us to follow that up, especially in a jurisdiction that it is difficult to get information from. The idea of having ACSPs in this country, where we can see them and start the inquiry from the UK, would be very desirable. I am not sure whether the Bill goes that far; I have not read that bit too much.
The Chair
Sorry, you are going to have to speak up. We all wish to hear the answer.
Simon Welch: Sorry—I appreciate that. Authorised corporate service providers, if they are based in this country so that we have a starting point for our inquiry, would be something that we would welcome. That would make it easier for us to start an inquiry. At the moment, if it is coming from a jurisdiction that is not particularly co-operative with us, it might be difficult for us to get that information, so, clearly, we would want to see that.
Alison Thewliss
Q
Michelle Crotty: No. Anything that will help us to identify suspects is welcome, as my colleague has said.
Alison Thewliss
Q
Simon Welch: If they can still get the companies and they can still make them work, they are going to make them work. It is if we make it prohibitively difficult for them to do that—if we make it difficult for them to create their verifications, because they will have to work harder to get the verification sorted out to make sure they have got the IDs sorted out. We have talked about the fee of £12.50 for registering a company. There are lots of arguments about that—frictionless trade and things like that—but we have the lowest price for registering a company pretty much anywhere in the world.
Alison Thewliss
Yes—by some margin.
Simon Welch: So is there a view for increasing that and using it for Companies House to invest in verification? That is something that could be looked at.
Alison Thewliss
Q
Simon Welch: I do not know. If you were to ask a businessman what they were prepared to start a company for—how many companies they are looking to start? At the end of the day, if you were just building a couple of companies and you knew you were going to get a really good service, you might be quite happy to pay £100 or whatever. I do not know what is a reasonable price.
Commander Adams: One of the challenges for us in our investigations is how desirable shell companies are to criminals who want to create a legacy pattern that an organisation has been running for many more years than it actually has. Of course, if you are then into a large-scale boiler room-type fraud, whether you are paying £12, £100 or £1,000, it is simply a drop in the ocean compared with the amount of money you are going to make at the end of that. Making it harder for people to inappropriately and unlawfully use shell companies in the way they are at the moment is what will help us ultimately.
Alison Thewliss
Q
Commander Adams: If I am right, the Bill allows for retrospective work to take place. However, as you have alluded to, there are simply millions of entities on there. As you heard from colleagues earlier, the resourcing of those retrospective checks, given all the work that has to be done—there are something like 1,500 companies registered every day in the UK; it is phenomenal—is going to be a real challenge. We would want to see resourcing to do those retrospective checks, to remove those companies from the register as quickly as possible.
James Daly
Q
Commander Adams: Again, you heard from colleagues earlier about this. The big thing for us is making sure that checks are undertaken to ensure that individuals who are setting up companies or have a significant stake in them are verified, to give us, as Adrian said, those investigative lines of inquiry into individuals. For us, that is the biggest game changer in what we are currently seeing, but of course it will require the right level of scrutiny and adequate robustness in those checks, and the capacity to do them at speed.
James Daly
Ms Crotty?
Michelle Crotty: The same—anything that allows us to identify the people behind it and then to use that to follow up with lines of inquiry. Capacity is certainly something that we would be concerned about, but the work that the NCA and the NECC are doing with Companies House should help with that, in terms of training Companies House staff.
Simon Welch: It would also be nice to be able to data wash some of the registrations through law enforcement indices before they were actually registered. That is obviously another quantum leap from where we are now. I think we are looking at sharing that data, but that is another thing for Companies House to work out, in liaison probably with the NECC. I think that would be preferable for us. Then we could prevent these companies from opening up in the first place, and stop them being used as vehicles for criminality.
Dame Margaret Hodge
Q
Michelle Crotty: We are very strongly on the record as saying that that is an offence that we would like to see. We have seen good results with it in relation to bribery and corruption since its introduction in 2010. Nine of our 12 deferred prosecution agreements have involved a failure to prevent bribery offence. We think that it not only punishes but helps to reform corporate behaviour. What we have seen with the Bribery Act 2010 is that companies have very much focused on putting adequate procedures in place because that is the defence that it provides them. The prosecution is one part of it, but actually the preventive work in terms of adequate procedures is as important, if not more important.
The other thing that we would say in terms of the impact on business is that for a failure to prevent economic crime offence many of the adequate procedures would already be in place in terms of anti-money laundering and other areas. Clearly that is something that the Committee, and guidance, would need to work through, but the impact on business may not be as heavy as some might fear.
Dame Margaret Hodge
Q
Commander Adams: Yes. Ultimately, as Michelle said, I do not think that the imposition on business would be that significant. There are lots of areas where we see unintended consequences of thresholds upon which, or below which, things are not reported to law enforcement. That sort of legislation would give us the ability to ensure that there are policies and processes in place in institutions to provide the sorts of checks and balances that identify patterns that might fall outside some of the clearly defined breaches of legislation. That, for me, would be the galvanising benefit of that power, in a not dissimilar way to financial institutions reimbursing victims, which helps to galvanise effort and investment into preventing crime, to avoid spending money out the other end. All those sorts of measures are really helpful. Particularly through Adrian’s role as director of the NECC, I think he would say that the things that help to galvanise the partnership and the whole-system response to fraud is where we will ultimately see our biggest successes.
Dame Margaret Hodge
Q
Michelle Crotty: The SFO would like to see those. We understand the concerns that other parts of the system have in terms of how you ringfence a cost regime just for economic crime. In terms of what the SFO can recover in any one year, we can retain £900,000 of legal costs if we win. Clearly, it is the other way if we lose, and there are ongoing discussions with the Treasury. I gave evidence to another Committee last week that, where we do not have a fund available to us for that that sits within our budget, we have to go and negotiate one with the Treasury if we lose. We would certainly welcome some protections, but we understand the challenges around fitting them into the broader scheme.
Seema Malhotra
Q
Simon Welch: Obviously, we are putting more resource into this area. If we are to go after them proactively, we are building up our intelligence around this. Historically, fraud has not been given the same emphasis as other types of criminality, so I think we lack in some areas. If we start to build that up, to get more intelligence that is actionable for us to work on, and to go after some of these people proactively as opposed to reactively, we will be getting ahead of the game, and then we will be able to arrest these people and prevent other people from becoming victims. It is important to invest in this area. It is a difficult time for us, because recruitment and retention of staff are challenging. We are looking to build, and are getting investment streams coming into us. We are looking to develop that all across the piece. We are looking at the intelligence and at the proactive capability and the investigative capability to take this on.
Seema Malhotra
Q
Simon Welch: Resources are a big part of it, but there is experience as well. If we bring in new people, they are unlikely to be the most experienced investigators. Unfortunately, in recent times, we have lost a lot of our middle-ranking, experienced investigators, so we are having to bring people through quite quickly. There is quite a quick turnover now, especially in things like crypto investigations, because those skills are very desirable in the private sector. It is really difficult for us to hang on to those people, so we are going through a bit of a treadmill trying to recruit and hang on to them. Mr Adams is looking at things like structures and strategies within the force to try to hold on to people and to look at different ways of retaining those skills and experience to make us that much better at investigating these things.
Seema Malhotra
Q
Michelle Crotty: It is fail to prevent for us, and it is capacity, capability and retention. As my colleague said, we can train people up with fantastic training, but the real challenge is that they are then very valuable recruits—not just to the private sector, but within the law enforcement community and in how we operate jointly to ensure that we build a pathway for people within law enforcement, as well as out into the private sector.
Commander Adams: The final thing to add to all of that is technology. The licences for the tools that we are able to use at the moment, particularly some of the tools for tracking crypto assets, are expensive. When you start to build up those layers of individual costs that Simon described on the tools and technology, to be really effective we have to bring those together with highly skilled and highly competent individuals. All that is a challenge for us at the moment, in the recruitment environment that we face.
Liam Byrne
Q
Commander Adams: I am not sure that my impression is the thing to take as gospel here. We see from the crime survey, our annual reporting and the growth in trends around victimisation that fraud is growing year on year. We predict that there could be anywhere from 25% to 65% growth in fraud over the next four to five years. If we were to go around the room and ask for a show of hands on who has received a smishing or phishing message, versus those who have been burgled in the past 12 months, I think we would be staggered at the volume.
Liam Byrne
Q
Commander Adams: It is a really complex landscape. We have a great deal of investment from the private sector in some of our specialist capabilities. We need more investment at the frontline of policing in undertaking economic crime investigations at that most basic level. That does not mean more people; it means investment in training to ensure that all frontline officers can deliver that.
Liam Byrne
Q
Simon Welch: As Mr Adams says, we could always do with more people—if you ask, we will always say we want more staff—but the reality is that it is difficult to bring them in at the moment because we are not offering wages that are competitive with some of the other agencies or the private sector. We are struggling to build that up. If we can build that up and maintain some trajectory so we can hang on to some of the staff to get them to an experienced level, we will start to see more impact on performance there, but we need to work on that really hard.
Commander Adams: I touched at the beginning on the investment and the proactivity around both financial investigation and fraud investigation. We have to see some of that investment land, get people into the posts, do the work that City of London police is doing as the national lead force to co-ordinate that activity across the country, and see what effect that has. That will then inform the business case and the arguments that we make for more or different resource in the future.
Liam Byrne
Q
Commander Adams: That might be one for Simon.
Simon Welch: Yes. You can identify a person of significant control, but sometimes it can be difficult if you are looking at the people who ultimately have control of some of those companies, because you have people stood up saying they are that person, but there are people sitting behind that person. It depends how good your intelligence is whether you can work these things out. Very often, if you investigate these people, you will be able to see that they have control of the company. If you do not investigate them, you will not be able to tell. You need to be on them with the right intelligence to work it, and then you might have an opportunity to show that they were running that company.
Liam Byrne
Q
Simon Welch: As an ex-policeman, I will always say yes to that, but obviously there are implications, because you need the resources down there to do it. Obviously, we will always go for the gold standard wherever possible, because if you are doing that, you are stopping people getting in at the first level, but there are obviously implications of the cost of that. But yes, of course we want the highest standards of verification.
Liam Byrne
Q
Michelle Crotty: It is certainly an issue for us. We would be interested in the proposal. If the evidence is overseas, even if the offence is based here, I think we would want to think through the mechanics of the prosecution. There would be some detail to work through, but in principle, I think we would welcome looking at that kind of offence.
The Chair
If there are no more questions, I thank the witnesses for their attendance and their contributions.
Examination of Witnesses
Dr Susan Hawley, John Cusack and Thom Townsend gave evidence.
The Chair
We now have evidence from Dr Susan Hawley from Spotlight on Corruption, John Cusack—via Zoom—from the Global Coalition to Fight Financial Crime, and Thom Townsend, representing the UK Anti-Corruption Coalition. Can I ask Dr Hawley and Thom Townsend to introduce themselves first?
Dr Hawley: Hello. I am Dr Susan Hawley, executive director of Spotlight on Corruption. We are a UK anti-corruption charity that monitors how the UK enforces its anti-corruption laws and keeps its international anti-corruption commitments.
Thom Townsend: Good afternoon, everyone. My name is Thom Townsend. I am the executive director of Open Ownership and the incoming chair of the UK Anti-Corruption Coalition. Open Ownership supports more than 40 Governments around the world to implement exactly these types of reforms.
John Cusack: Hello everyone. My name is John Cusack. I am the chair of the Global Coalition to Fight Financial Crime, which is an NGO. It is a 20-member organisation, both public and private, with large members such as Interpol and Europol, as well as Open Ownership—Thom’s organisation—and RUSI, which you may well know in the UK too.
Seema Malhotra
Q
Secondly, does the Bill provide enough mechanisms to help with transparency around the new responsibilities of Companies House, and should there be reporting—to Parliament, or certainly publicly available—on new powers? What would you want to see in order to have confidence that measures are having impact?
The Chair
Who wants to go first?
Thom Townsend: I think that there are significant areas of improvement for the piece of legislation that we see before us. Primarily, from our perspective, we focus on reform of company registrars around the world, so my focus is very much on how Companies House can better operate. The key area we would identify is around the verification mechanism, as you would expect, and that splits out into two points.
One is around how we verify someone’s identity versus how we identify and verify the statement of control and ownership that they are giving about their involvement with the company. That second part—their status—is not covered here. We are not putting in place mechanisms to understand whether the disclosure of beneficial ownership is accurate, and that is a significant problem. A colleague talked previously about having a gold standard, but we are far off that. We see company registrars in countries around the world taking meaningful steps to attempt to use their data and powers to begin to understand whether those statements are true. That needs to be significantly beefed up in this legislation.
On the second part—the ID of individuals—there are grave misgivings about that being outsourced to the trust or company supervisor profession. There are other ways of identifying people: in an ideal world, Companies House should be doing that. That is a big change for this piece of legislation, but frankly, that is where most of the world is going.
Seema Malhotra
Q
Thom Townsend: It is worth saying that countries that are doing very well on this typically have a national identity card system that is the foundation of their ID process. There are other ways of doing it. I think about Estonia, France, Germany—the list could go on, but it is based around their national ID card system. Clearly, we do not have that. The Government have done significant work on their own identity verification programme, which has had mixed results. We know we can do this. It does not necessarily need to be outsourced to that profession, which of course is supervised, but we collectively have severe misgivings about it.
On the second point around the accountability mechanism, we would like to see a very strong mechanism for Companies House to be coming to Parliament on a regular basis to talk about how this is looking and how it is performing. It is a much broader conversation about the kinds of indicators we would like to see reported on. That is a much longer conversation, but I will pass over to colleagues at this point.
John Cusack: I share Thom’s views, principally, on this. I spent 30 years working in banking as an MLRO—that is the previous history to my current role—and I spent many, many occasions trying to establish beneficial ownership. It is not easy, but it is the key to understanding risk and understanding who owns and controls a bank account, real estate or a company. That is absolutely key. I would like to see an obligation on the companies register that is essentially equivalent to that which a bank has in relation to knowing its customer, to the extent that that is possible. That is where we need to get to. Thom was explaining that some of the better countries are trying to get to that kind of standard.
Secondly, I believe that the registrar of companies needs to have a much stronger obligation than is currently set out in the proposed legislation—it needs, again, to be slightly similar to my old obligations as an MLRO. There needs to be an obligation to operate an AML programme that is worthy of the name, and to have strong and meaningful controls in order to be able to demonstrate that Companies House and the companies register are doing a similar job to what other people do in the private sector.
Dr Hawley: I would like to strongly back that up. It is essential that the “know your customer” rules that the private sector has to use are used by Companies House as well. There is no point having a registry that SMEs cannot rely on because it is not as accurate as it needs to be. That has been a problem now that the big companies simply do not use the corporate register because it is so inaccurate. There is a long way to go on that.
We also have real concerns, as Thom mentioned, about the authorised corporate service provider provision in the Bill. In essence, it relies on another part of the system—the anti-money laundering supervision system—and the danger is that we are just playing whack-a-mole. We are just pushing the problem down the road. We know that HMRC, in its supervision of TCSPs, has had lots of very serious questions about whether it is up to the job, and it just recently revised its average fine level down from £250,000 to £8,000. There are real questions about whether that is a serious deterrent. In its recent report, it found that nearly 50% of its cases that went up to the governance panel had to be returned to the case officer for serious work to be done again. Either the Bill needs to address the AML supervision regime—I can tell you some of our suggestions, because it would not be that difficult to come up with a transition—or there are real questions over whether that clause should be in it at all.
A final point, which was picked up earlier by colleagues from law enforcement, is about how this will be funded. The registry will be meaningful only if there are proper resources. It can be completely cost-neutral to the Treasury. We are heading into a difficult fiscal time, so it needs to be cost-neutral. As the gentleman from the National Police Chiefs’ Council said earlier, we have almost the lowest registry fee. We are the 6th lowest, in company with Rwanda, Timor-Leste, Ukraine and South Africa. Most other countries charge an average of £150 to £300, compared with £12. That could go an enormous way to getting the right IT infrastructure. We know a lot of this will have to be done with technology and AI. Making sure that the fees for Companies House are set at a realistic level to make this properly verified is essential.
Jackie Doyle-Price
Q
Dr Hawley: Absolutely. The key thing is what John alluded to—clause 88. What is the requirement in the Bill for how far the registrar has to go? If it is the minimum amount, the fees will be minimal. If we are going for the gold standard, the fees will need to be higher to reflect the greater verification work.
Thom Townsend: Just a quick thought: what strikes me, reading the Bill, is that it is not quite clear what Government want Companies House to be, when you delve into the detail. Is it around minimising criminal activity, as in the fourth objective? Is it about preventing, which comes up in clause 88? That needs to be resolved to give a very clear idea in primary legislation of what we want Companies House to be. It should be the first line of defence in the UK economy from the perspective of integrity and preventing crime.
Jackie Doyle-Price
Q
Thom Townsend: Absolutely. My point was just that countries that do have been able to go further and faster as a result of having the underlying infrastructure. But no, absolutely, you can do that. We have brought down the cost of identifying people in this country very rapidly, with KYC for new banking, and taking a video of yourself. We have a lot of technology and lots of ways to achieve that end. It does not have to be done through the trust and corporate service provider industry—it simply does not.
Jackie Doyle-Price
That is helpful.
John Cusack: I will just add to Thom’s point about clause 88. The language concerns me greatly. This will be dependent on the registrar’s diligence and, essentially, on the financing that the registrar has in order to carry out their activities. The language—that the
“registrar must carry out such analysis of information within the registrar’s possession as the registrar considers appropriate”—
is extremely timid. If there is no money for it, the registrar will not be doing anything. That is really problematic. We would not apply that in any other circumstance; we would want to set out the obligation—the expectation—and to fund that appropriately, not the other way around.
Alison Thewliss
Q
Dr Hawley: We focused more on what is not in the Bill. I do not know whether John or Thom want to address that.
Thom Townsend: I would hand over to John on this one.
John Cusack: The Bill is positive. It is one of the contributions that will definitely help, and it is trying to fix a long-standing problem. At the end of the day, however, if we want to deal with financial crime, economic crime, we need convictions—investigations, prosecutions and convictions—and asset recoveries. That comes from resourcing the public sector, as well as demanding high expectations from the private sector. I am worried that in the UK the financing of law enforcement, and of the FIU in particular, is insufficient to assure the objectives that we all want, which are to mitigate, manage and reduce harms from economic crime. This is a long-standing weakness in the UK, as it is in many other countries, and that would definitely help, but let us not kid ourselves that it will make a material difference to the economic crime situation in the UK.
Alison Thewliss
Q
John Cusack: Yes, of course. I would support that. However, I would also say, with respect, that the idea is to do prevention with the changes. When we put a lock on the door of an aeroplane, the fact that no one has stormed the cockpit is not how we judge whether a lock on the door is appropriate. We are tightening things up and preventing financial crime, but yes, absolutely, we need to see more enforcement. You would hope that these measures will mean that people will no longer necessarily look to UK companies and Scottish limited partnerships as the vehicle of choice for abuse, and they will look elsewhere.
Alison Thewliss
Q
Thom Townsend: When this legislation passes, there will be a lot of remedial work to sort out what is there—there is no doubt about that. Everything that you have just described is true, and it is probably a lot worse even than we are aware of. As you just mentioned, we are clearly starting from such a low bar that any legislation will have some kind of deterrent effect, but it is important to think not just about ensuring that we hit the gold standard with a piece of primary legislation. It is also the resourcing, but ultimately nothing that we can do will create a 100% perfect system.
Essentially, we are trying to remove as much noise as possible from the system to give law enforcement the best possible chance of focusing its resource where it can make the most difference. It is important not to think about this in zero-sum terms of: is it possible to commit crime or not? It is really just about making an environment where it is somewhat more manageable to detect, and then enforce. As it stands it, is the wild west on that register. If you wanted to do enforcement, we would be here until the end of time.
Alison Thewliss
Q
John Cusack: Not necessarily, because what I am most interested in is getting the Bill out in its current form with a financed and adequate registrar with obligations, and resolving that underlying issue. One of the reasons people use UK companies is not so that they can open UK bank accounts, because then you go through the gamut of UK obligations in the regulating sector, even though that happens occasionally when buying real estate and other things. Actually, people buy and acquire UK companies and Scottish limited partnerships so that they can open accounts abroad, because the UK is seen as a first-class jurisdiction. That means that when they open those accounts abroad, not many questions are asked, or not as many as would be if they were acquiring a Nigerian company, for example, which would ring all sorts of alarm bells. The interesting thing about the companies registry is that the abuse by foreigners does not necessarily translate into a UK economic crime issue per se, even though it is something that we also all want to address.
Dame Margaret Hodge
Q
John Cusack: For my high-risk customers, I always had it at 10% in my financial institutions, and 25% for non-high-risk customers, because I really wanted to ensure that I had almost everybody who could possibly be interested in the company or a relationship. I stuck at 10%, but you can always argue it lower or a bit higher.
Thom Townsend: Yes—whether it should be 5% or not, it needs to be lower. There is an argument to be made between 10% and 5%. My sense is that we have a 25% global standard on this because it is a sort of round number.
Dr Hawley: It is really interesting to look at what Jersey and Guernsey are doing on financial crime. They have a 10% threshold, and they are introducing a lot of other very interesting economic crime measures that go far further than we have in the UK, including a failure to prevent money laundering offence. They also have a measure to forfeit accounts based on a suspicious activity report, so they are really looking at very radical measures in Jersey and Guernsey that will make the UK look quite behind.
Dame Margaret Hodge
Q
Dr Hawley: I would say that that is the easiest. It is a great question and I will jump in, because I have my three. It would be really fantastic if Parliament signalled that its intention is not to pass a Bill that will just stay on paper; it needs to be properly resourced and make a real difference in terms of economic crime. There are three different cost-neutral ways of doing that, some of which you mentioned in earlier discussions. One is cost protection across civil recovery for law enforcement. The US-style system really works. If we want US-style enforcement, we need US-style rules.
Another way is to increase Companies House fees to match the scale of verification that we need. The other way is to invest far more. In the US, 100% of forfeiture goes into a central fund, and local police get up to 80%. We heard earlier that the NCA gets 50%; some police forces only get 18%. We also desperately need to find ways to match the money that law enforcement brings in. Law enforcement brought in £3.9 billion over the last six years. If that had been reinvested in law enforcement, we would have top capability in this country.
There are two other things. I have mentioned AML supervision already. If we could make the Office for Professional Body Anti-Money Laundering Supervision a body that genuinely raises the consistency of supervision across the board while the Treasury works out the bigger picture on supervision, it would make a really big difference. OPBAS could name and shame supervisors who were not performing, and that needs to apply not just to the legal and accounting sectors, but to HMRC and the FCA.
Finally, there is corporate liability reform, which you also referred to earlier. We have been waiting for it. It was in 2015 that there was the first Conservative party manifesto commitment to have a failure to prevent economic crime offence. The Law Commission has now spoken; we have been waiting a long time for it. Ideally, you would have a failure to prevent fraud offence, a failure to prevent false accounting offence and a failure to prevent money laundering offence, but you also need to bring in a change in the identification doctrine for the schedule 8 offences to make this work.
Thom Townsend: Unsurprisingly, verification—the first thing would be to think very hard about whether it is the trusts and service providers sector that we want to do that, to think much more broadly about what other mechanisms are available to us, and to cast the net widely around the world; there is a lot happening.
Secondly, the statements of beneficial ownership and significant control should be verified too. That is a far harder task, because the world has not figured out entirely how to do that. There are some really good examples; places such as Austria are doing good work, but it is largely about using data from across Government to make sure that you can red flag those statements.
Thirdly, we probably also need something in the Bill about having a more permissive data-sharing environment, to make sure that Companies House is getting what it wants. If you look at how the Bill is currently drafted, we have data that is “in the registrar’s possession” or “available to the registrar”. It is very unclear what that means, and it needs to be much broader than that.
A supplementary fourth point is to think long and hard about how we are using an identity, once verified, persistently in a lifelong way. Australia, New Zealand and India issue unique identifiers to directors—and, in Australia’s case, to beneficial owners—for life, which makes the investigation process much more straightforward. There is a lot of good practice out there. We need to look very hard at that and think about how we incorporate it into what the UK is doing.
John Cusack: As far as the Bill goes, I have mentioned one point already, which is the item in relation to beefing up the obligation on the registrar. The second piece is on the information-sharing provision in the Bill—I think it is clause 148. It is a limited information sharing item that essentially requires a SAR to be filed before private information sharing can take place. There is also the exit, pretty much, of the customer, which is potentially problematic. We are going to find that one potential bad actor leaving one bank cannot then open an account somewhere else, but we will also find that innocent people will be involved in that. I would rather have something broader, which allows the detection of unidentified financial crime, whereas, in this particular case, we are going to get identified suspicion being shared, which will potentially lead to some very serious unintended consequences, even though I am very supportive of the provision.
The last thing that I would say outside the Bill is that, ultimately, it is about asset confiscations and asset seizures. The UK is doing okay, but it is not doing anywhere near as well as it should be, and it is certainly underperforming compared with a number of important countries. I will give you one example. Italy not only seizes the amounts that Susan was talking about, but over four or five years it seizes almost £10 billion a year in asset confiscations, because it treats the Italian mafia as a matter of national security and targets its resources accordingly. I would like to see not a change in the law, but the rightsizing of the resources across the piece, whereby they are directed toward the tip of the spear, so that law enforcement FIUs in the UK and asset recovery can be prioritised and targets set, and we get close to the Italians, rather than being where we are today.
Liam Byrne
Q
Dr Hawley: I alluded to one point earlier, which is that if this is not a registry that companies and people can rely on, it will have been a waste of time and money. I alluded earlier to SMEs particularly not having the resources and having to rely on Companies House in a way that large companies would not; they would do their own intelligence. It will be bad for business and the business community, and it will be bad for the UK’s competitiveness. If you look at our competitiveness rating under the World Economic Forum measures, we are pretty good on quite a lot of things—in the top 10 —but for tackling serious and organised crime we are 70 out of 141. That is a competitiveness rating, so it will dent our competitiveness. Actually going for gold standard practice will be good for the economy, and will make us more competitive.
Liam Byrne
Q
Thom Townsend: Objective 4 does really need to say “prevent”. It is an objective related to the registrar’s functioning. The registrar should be responsible for taking really active and clear measures to prevent criminal activity under its bailiwick.
Liam Byrne
Q
Thom Townsend: That seems like a ridiculously low bar.
Liam Byrne
Q
Thom Townsend: Sorry, what do you mean?
Liam Byrne
We have registries of beneficial ownership for assets and property. We have to try to make it possible for law enforcement to connect companies, individuals and assets. Do you think we have the framework for connecting those three dots effectively?
Thom Townsend: As it stands, no. Some form of this legislation will go a lot further. We need to look at how we are uniquely identifying people. In that case, there is an argument for bringing that ID process in-house so you have clarity around it. You can assign that identifier, which then gets used across the panoply of datasets that law enforcement have in their possession to do that interconnectivity. We run the risk a little bit, as the legislation is currently framed, of creating another island that is a bit better connected but probably will not sit at the heart of the process and be that effective first line of defence that the UK economy should have.
Seema Malhotra
Q
Dr Hawley: Ensuring that companies cannot just liquidate has been incredibly important to law enforcement in the past. I am very sorry, but we might have to get back to you on that because I have not looked specifically at that clause.
Seema Malhotra
Q
Thom Townsend: I think there is a balance between speed and effectiveness. Companies House is fantastic at what it does now—it provides a really good service to register a business quickly, and it is really easy to use—but it has never had to do the kinds of things that we are now proposing it does. It will be a long journey to get from where it is today to the sort of high-functioning all-singing, all-dancing machine that we are proposing.
There is a balance between achieving the objectives of the Bill, and the wider goals of dealing with corruption and countering kleptocracy in the UK. We will probably have to look at some sort of transitional arrangement but, ultimately, we should have a much more aspirational and ambitious vision for what we want Companies House to be in five to 10 years’ time, put the resourcing in place, and ensure oversight and accountability to drive that forward and make it happen.
The Chair
Would anybody else like to answer that question? No? In that case, I thank all three members of the panel for their help in giving evidence.
Examination of Witnesses
Oliver Bullough and Bill Browder gave evidence.
The Chair
We come now to the next panel, for which we have until 4.30 pm. This panel comprises two people, both journalists, authors and experts—if I may put it like that—on the Russian Federation. I extend a very warm welcome to Bill Browder, who is in the room, and to Oliver Bullough, who is appearing via Zoom. Bill, would you like to introduce yourself?
Bill Browder: Good afternoon. Just to correct that, I am not a journalist; I am an activist and author. I am the head of the Global Magnitsky Justice Campaign. Basically, my life for the last 13 years has been the result of the murder of my lawyer in Russia, Sergei Magnitsky. My campaign has taken two tracks. One is to get the Magnitsky Act, which imposes asset freezes and visa bans on human rights violators and kleptocrats, passed in different countries, including the UK—35 countries have the Magnitsky Act.
The second part of my activity has been to trace the $230 million that Sergei Magnitsky discovered, exposed and was killed over. We found that that money was going to 24 different countries, and we filed 16 different criminal complaints. From those criminal complaints, I have had the opportunity to see at first hand who does it well and who does it badly, and let me tell you: this country does it badly.
This country has never opened a criminal investigation into the money laundering connected to the murder of Sergei Magnitsky, even though many other countries have done, and have frozen and seized assets. I hope that we will have the opportunity to talk about why that is the case, because I think I can make some proposals for the legislation that might cause this country not to be at the bottom of the league table.
The Chair
We will come to the questions in a minute. Oliver Bullough, would you introduce yourself, please?
Oliver Bullough: It is great to be here. I am sorry that I am not there in person. It is half-term and I have the children in the other room, with instructions to be quiet. It is an honour to appear alongside Bill, who I have known for a long time and whose work I have been following since even before he was an activist outside Russia—when he was still fighting corruption inside Russia.
I am a Russia enthusiast—a Russophile. I worked in Russia as a journalist for a long time. I inevitably came across corruption, because it is difficult to spend any time in Russia without coming across corruption, but the more that I investigated corruption and the more time I spent looking into it, the more I realised that it cannot be understood as simply a Russian phenomenon. The money does not stay in Russia; it moves out of Russia and too often it ends up in the UK, where it buys real estate, football clubs and many other things. I have been spending, I suppose, most of the last decade attempting to map how money moves from kleptocratic countries via tax havens and ends up in cities such as London, in order to work out how corruption really works and cut through some of the simplifications that are often used.
Seema Malhotra
Q
Bill Browder: Thank you. This is the crux of the whole issue. By the way, it was not just Magnitsky money that was not investigated. We have this problem; since Vladimir Putin has come to power, he and 1,000 people around him have stolen $1 trillion from the Russian people. This has been the largest destination of Russian money laundering. In 22 years since he has come to power, not a single money laundering prosecution has come out of Russia—not one—and we are talking about $1 trillion.
What is going on here? What I have learned is that the law enforcement agencies effectively refuse to open criminal cases unless they are 100% sure that they can win without any tough fight on the other side. Why are they so risk averse in opening cases? It comes down to simple risk-reward for them. Their budgets are very thin, as law enforcement does not have a lot of money, and when they go to court here on any type of civil case—it is not true in a murder case, but it is true in a civil case—if they lose at any point, not just at the end of the case, but at any point procedurally during the case, the loser has to pay the winner’s court fees, and there is no budget for that. Therefore, the UK law enforcement agencies will not take that risk.
I have seen it done differently. We presented the United States Department of Justice with the same information. They do not have that problem; they can open a case, conduct an investigation and build their case as they are doing their investigation, and if they lose, nobody loses their job, nobody is bankrupted, and no departments have to go back and beg for more money from the Government. Whatever money they have spent on their lawyers is the money they have spent.
What has to happen here—this is plain as day—is that you have to get rid of this adverse costs issue in a civil case brought by the Government. You could easily write an amendment to the law as it is written, because it is not here right now, to say that if the Crown Prosecution Service brings a money laundering case or an economic crime case, there are no adverse costs. If you make that point, it will change the whole dynamic—the whole risk-reward—for these people.
Dame Margaret Hodge
Q
Bill Browder: The same thing.
Dame Margaret Hodge
Q
Bill Browder: I was not even aware that in a criminal case, a murder case, nobody pays adverse costs. I am not sure if you bring a criminal case in these other—
Dame Margaret Hodge
I think in a murder case they would, actually.
Bill Browder: Would they?
Dame Margaret Hodge
I think so, yes. I am no lawyer—God, I am looking around the table for a lawyer.
The Chair
When I practised as a lawyer, if somebody was acquitted they would be able to ask for their costs to be paid out of what are called central funds, so the taxpayer would be paying for them, not the prosecuting authority.
Bill Browder: However you want to define it, what I would say is I have seen how it works in other countries and they do not have this issue. Therefore, there is no disincentive to bringing a case. It is just remarkable. In every single aspect of the Magnitsky case, we brought it to law enforcement. We brought it to the National Crime Agency; they refused. We brought the company formation agents that were involved in forming the companies during the stuff connected to the Magnitsky case to HMRC. They never shut down a single company formation agency, even though they regulate them.
Nobody brings any cases at all. There are three possible reasons. It could be the reason I have just stated, which is the most charitable one: that there are economic disincentives. I could also say “incompetence”, but I don’t want to say that, or I could say “corruption”, but I am going to stick with the fact that the economic incentives are not there for them. Whatever the reason is, this country should be ashamed of itself. It is an absolute shame, and nothing will change from this law unless there is actual law enforcement. What can we put in place so that the laws are enforced? At least get rid of the economic disincentives.
I will add one more thing, which is that in countries like the United States, if the Department of Justice wins a forfeiture case, they get the money and then they can fund future investigations from that money. When you are talking about a budget of the prosecution service being several billion pounds, you win one big case and you could fund the entire prosecution service.
The Chair
Q
Oliver Bullough: I agree with Bill that the UK has a shameful record when it comes to its failure to investigate and prosecute financial crime. I would add, however, a fourth explanation to Bill’s list of potential reasons why that is not happening. For many years or perhaps many decades, there has been a belief in Britain that making things as simple as possible is good for business—the idea that it is simple and cheap to set up a business and better to have less regulation than more regulation is invariably good for Britain’s business climate.
Alison Thewliss mentioned Scottish limited partnerships earlier. We saw this phenomenon when Scottish limited partnerships were discussed in the House back in 2017 after the exposing of the Moldovan laundromat. There were suggestions by her colleague then—the SNP’s Treasury spokesman, Roger Mullin—about trying to tighten up the rules around SLPs, but they were torpedoed by the Treasury because of concerns that that would lead to investment funds having to spend extra money on meeting regulations.
I believe the estimates for each fund would be between £14,800 and £27,600 per investment fund. That is the cost supposedly to the UK economy. If you compare that to the cost of fraud to the UK economy, which is estimated by the University of Portsmouth at approximately £130 billion, you see how absurd it is to be worried about saving £14,800: we are faced with a problem that is costing us more than £100 billion.
The cost of fraud, which is rampant—40% of known crimes—is a huge tax on businesses and individuals in the UK. It is made possible by the fact that we have been failing for so long to do anything about economic crime. If you look at that quantity of fraud, as estimated by the academics in Portsmouth—there are higher estimates—it is equivalent to about a fifth of the total tax take. It is like adding another VAT to the UK economy, or twice as much again as all taxes levied on corporations. That is the cost of economic crime on the British economy.
There has been a philosophical failure to realise that making things easy is not always good. At some point, you are making things so easy for criminals that you are essentially making things difficult for honest people. In this case, by adding regulation we will be deterring criminals and therefore making things easier for honest people. That is something that, for far too long, people in public life in the UK have failed to realise.
I am here talking only about the effect on the UK. On top of the cost of fraud to the UK, hundreds of billions of pounds are laundered through the City of London every year; that is the National Crime Agency’s estimate. It clearly a guess—a round number—and it could be more; it could be less. That is money being stolen by criminals, drug traffickers and kleptocrats, and laundered through the UK. They are keeping this money. Essentially, it is being taken away from good people and kept by bad people. If we could stop this happening—instead, confiscate the money and keep it for ourselves or return it to the people it is taken from—it would be what is called in rugby a 14-point swing. We would be taking it away from one team and simultaneously giving it to the other one.
I agree that the three suggestions that Bill made for why the UK has been so bad at fighting economic crime are all possibilities, but my favourite fourth one is that we have been simply philosophically failing to understand why economic crime is a problem. This Bill is a real opportunity to do something about that. I was listening to some of the earlier panels; I would like to second what was said by almost everyone, which is that a new law is very good, but a new law is definitely not enough on its own. We need far more resources for Companies House, the National Crime Agency, the Met, the City police, the Serious Fraud Office and all the police agencies to be able to use this Bill.
As I understand it, the funding per officer at the National Crime Agency is estimated at one third of their counterparts at the FBI. Leaving aside the fact that there are far fewer of them, just per officer they are funded at a third of the level of the FBI. If we want them to be able to do the same job that the Bill is talking about, and that American prosecutors and investigators are able to do, we need to fund them adequately. We should at least be funding them as well as their colleagues at the FBI if we want them to be able to do as good a job.
Jackie Doyle-Price
Q
Bill Browder: People are very simple: they operate on the basis of rewards and punishments. There are big rewards for people in the City of London to launder money. Banks make money off transactions and accounts and so on. Company formation agencies make money off selling directors and forming companies. Lawyers make money setting up these structures. There is no consequence if they are involved in in dirty business—none. Nobody faces any consequence.
What we have just seen at Companies House is remarkable: thousands of companies being registered for no commercial purpose other than to launder money. These companies then set up foreign bank accounts. We know who the directors are. Some of the directors are UK citizens. The company formation agencies are UK company formation agencies. We report it to the police, and nothing happens. If nothing is going to happen, then you are not going to change the culture.
America has the Foreign Corrupt Practices Act. Most American corporate executives do not want to be prosecuted and therefore do not make bribes abroad. Austria does not, and so they do. We are in a situation where there is no consequence for doing any of this type of stuff. It does not matter what is written in this law; it does not matter what was written in the previous law. There was a great law passed called the unexplained wealth order. It is a beautiful law, which solved a huge problem, which is not having to get evidence from the bad guys in the kleptocrat countries, and just using the evidence that we have here. We have used it in four or five cases, and most of the cases have actually been on behalf of dictators going after their enemies. We have a total failure of law enforcement. It probably should be studied as a separate issue: why is law enforcement not doing its job? Why is it failing?
You can write as many great laws as you want—there is some good stuff in this law, and good stuff in the previous laws—but if no one is going to enforce it, then you are never going to change the risk-reward and people are going to carry on doing stuff. All this will continue, and I will sit here 10 years from now making the same allegations about how this is a centre of money laundering.
Oliver Bullough: I would like to agree with everything Bill just said. People are more or less rational: they act according to their incentives. We can try and change the culture in the City of London as much as we like but, essentially, if there is no prospect of being arrested, prosecuted and jailed, or at the very least given a large fine, for committing these kinds of crimes, then someone will always be available to commit them because the reward will be sufficiently large and there will be no downside.
I gave a talk to a school a couple of years ago. One of the kids had been sitting silently throughout, and he put his hand up and asked me at the end, “Yeah, Mister, if you know all this about money laundering, why don’t you just go and do it?” I still do not really know the answer to that question, because there is no real reason not to do it. It is a gimme of a crime. You are 99.9% likely to get away with it.
What is particularly frustrating is that when we have prosecuted fraud and put resources into prosecuting fraud, it not only pays for itself, but is a huge profit centre. We saw that from Lord Agnew, who ran a small anti-fraud office from the Cabinet Office during the covid pandemic. He had a small anti-fraud budget that returned tenfold the amount of money that was paid. It is a complete no-brainer to go after this money and these crimes. We would be benefiting the country in every way.
I agree with Bill; it is very frustrating to hear talk about changing culture, when what we really need to do is to change people’s incentives. The way to do that is to enforce the laws that we have.
Tom Tugendhat
Q
We will be listening for further ideas in the future, but do you agree that the Bill at least sets out the first steps to where we really do need to be going to make sure that the crimes begin to be prosecuted? Just to answer your question, Oliver, the reason you do not launder money is that you are and remain a person of integrity; sadly, you are not very rich for it, but there you go. That is the price.
Bill Browder: I have never had any trouble with the laws as they are written here. We probably do not even need this. It is a great law—congratulations; I applaud you on putting it together. It is 252 pages of mind-numbing stuff—
Tom Tugendhat
Of detail, Bill!
Bill Browder: It is great. There is no problem with the actual legislation. This is a rule-of-law country, and the laws have been written, and continue to be written, very well. There is just a huge disconnect between that and the enforcement.
I would add one little detail, if you want to get into the nitty-gritty. We have seen that UK companies are used abroad to set up accounts—this was mentioned by Dr Susan Hawley and perhaps one other—because it looks legit to have a British company with a Cypriot or Latvian bank account. Somehow, when you get a transfer from a British company with a European bank, everything then—that is how these people get away with it.
I would therefore add one small provision to this law, which is easily done. When people are setting up their companies, they should have to disclose, on an annual basis, where they have foreign bank accounts. If you were to do that, then every anti-corruption investigator could go around and start looking at that. I do not think that it is a huge additional disclosure requirement. People have to disclose their income, expenses and so on, so why not disclose where they have bank accounts?
The Chair
Q
Oliver Bullough: I think it was Samuel Johnson who said, about a dog walking on its hind legs, that
“It is not done well; but you are surprised to find it done at all.”
I am happy that the Bill exists; I was happy that there was another one earlier in the year. I would prefer it, however, if Parliament sat back and, instead of passing two fairly minor economic crime Bills in one year, put them together into one with all the other things that desperately need doing, take a long time over it and, when passed, really ensure that the law, as passed, is enforced.
Bill mentioned unexplained wealth orders. Those were a fantastic idea—perhaps hugely overhyped when they were brought in, but a great idea—and a real potential silver bullet for tackling top-end economic crime by both organised criminals and kleptocrats. Sadly, after the failure of the case against the daughter of the former President of Kazakhstan, they have not really been used at all. That is because the National Crime Agency does not have the money it needs to do the job, and that is because politicians have not sufficiently prioritised fighting economic crime. That is where the money comes from.
Yes, by all means, it is good to have another Bill, but I would far prefer to see the existing laws properly enforced by properly-resourced law enforcement agencies with continuous political support than have another Bill. I say that as someone who has been banging on about the problems with Companies House for absolutely ages.
Dame Margaret Hodge
Q
I want to deal with another issue, since you are both Russia experts. There is a mood across the House to tackle the issue of seizing Russian assets as well as freezing them. I know that you have both been working in that space, so could you comment on that? How do you think it could be done, do you think it is a good idea and how much is at stake, to the extent that any of us know the figures?
Bill Browder: Shall I go first, or do you want to, Oliver, since I have been hogging the first response?
Oliver Bullough: No, Bill, you can go ahead.
Bill Browder: We are on our third Prime Minister in seven weeks; there is an economic crisis going on; the purse strings are tight. There will be pressure here not to send as much money to Ukraine because we are worried about our money at home. There is also pressure in the United States. Some 30 Democrats wrote a letter to Biden saying, “Let’s just settle this thing and give the Russians what they want”—or something along those lines—“and not spend this money.” There is also pressure from the Republicans on the other side, saying, “No blank cheque for Ukraine”.
We also cannot let Ukraine go, under any circumstances, because, if we do, Vladimir Putin will be knocking at the door of Estonia or Poland. Therefore, how do we pay for it? Ukraine needs the money and the military equipment. Well, let us let the Russians pay for it. It is a simple thing: the Russians have started this war, created all this conflict, caused all this destruction and killed all these people, and we have $350 billion of their central bank reserves frozen, as a first step.
Why are we not using that money to support the Ukrainians? There are people who say, “That’s never been done before, and therefore we shouldn’t do it.” I would argue that it is pretty straightforward. In Parliaments around the world, what do you do? You make laws. If it has not been done before, make a law so it can be done. It is not a legal issue; it is purely a political issue. Should we dig into our own pockets, or should we let the Russians pay for their own war? We should start by letting the Russians pay for their own war.
I am having the same conversations elsewhere. I was just in Canada, speaking to the Canadian Parliament, last week, and I have been speaking to the US Congress. It is a no-brainer. It is a more complicated issue when you start going to the oligarchs, because you have to prove that somehow they are connected to the Government. But when it comes to the Government themselves, $350 billion is being held right now by the UK, the EU, Canada, the United States, Australia and Japan. That is an easy way to solve this financial problem and help the Ukrainians win this war.
Oliver Bullough: I would like to add to that. One of the reasons why it is complicated to take money away from oligarchs is that, once the money is here, it benefits from the rule of law that we have and so on. It is always harder to take egg out of a cake once it has been baked. It would have been a far better idea not to allow the money to come here in the first place. The lesson I would like to see learned from the current Ukraine crisis is that it is far more cost-effective and efficient not to allow kleptocrats to launder their money through the UK in the first place. If we do not support kleptocratic networks, those networks will not survive. They will not be able to come to such strength and vitality that they threaten their neighbouring countries.
Yes, it is important to confiscate Russian money to return it to Ukraine. Yes, it is important not just to freeze but to seize oligarchic property. But it is also important to put in place the powers, and particularly the law enforcement structures, that we need to prevent more kleptocrats from coming here. Next year, it might not be a threat coming from Russia; it might be a threat coming from China or somewhere else. We would find ourselves in exactly the same situation: trying to work out what to do with money that we had frozen when, if we had not allowed it here in the first place, we would not even have to have this discussion.
Dame Margaret Hodge
Q
Let me put to you another issue. If we strengthened accountability, those working in the Executive agencies might work a little harder at putting into effect the laws that we parliamentarians pass. Bim Afolami has an idea of establishing a Select Committee of the House that would look at the regulators—the enforcement agencies—and could ask for individual cases to be heard by the Committee in private, to see whether there are systemic issues at play, which could lead to public reporting on those issues.
That is one idea. There are others around. Do you think the lack of accountability, particularly for the enforcement agencies, could be a contributing factor to the fact that we just do not do enough—that we do not use our existing structures enough—even without the money and even with the cost issue?
Bill Browder: I think so. This is not the first time I have had this conversation with Members of Parliament. I have been in front of many Committees—the Home Affairs Committee, the Foreign Affairs Committee, this Committee and others—to talk about this lack of enforcement, and I have talked with many Members of Parliament. There is no disagreement with me. Every political party supports the idea of not having London be the money laundering capital of the world. I think everybody agrees. Many good Members of Parliament have put pressure on different Governments, put questions to them and had conversations, and I have seen many Government Ministers agree. Then, all of a sudden, we get to this total disconnect: law enforcement cannot be instructed by Parliament or the Government to open or pursue a criminal case or explain why it has not done so. It is living in its own world.
The only thing the Government can do is replace the people in executive positions in law enforcement; that is the only sanction. There has to be a better way. There are arguments about not wanting to politicise law enforcement and I totally sympathise with those, but at the same time if it is completely failing it needs root-and-branch reform—whether parliamentary oversight, Government oversight or some other mechanism. It is just failing and it has continued to fail in a way that is totally unacceptable. I would hate to be sitting here a decade from now having the same conversation.
Alison Thewliss
Q
Oliver Bullough: It is probably fine. Hopefully, if things are actually enforced and Companies House is given the money it needs to do the job and it is ambitious about that, this may work. Personally, I would like the threshold for a person with significant control to be reduced significantly: perhaps to 10% or 5%. Perhaps there should not be a threshold at all, but if you control you need to declare it.
The Bill is potentially an improvement. I still do not think it is the kind of root-and-branch re-evaluation of Companies House that we need. An amazing variety of corporate structures are available in this country. I do not think anyone has stopped to say, “Do we really need limited liability partnerships and limited partnerships? Why do we have both?” Does anyone stop to think about why they exist at all? Limited partnerships were created as a bit of a strange afterthought back in 1906 anyway. Why do they even exist?
I would like to see discussions like that, personally, but as it stands I think that bit of the Bill is probably okay—certainly if it is enforced properly. If there were an Oliver Bullough-ocracy, there would be all sorts of different changes to how companies could be used. I would not allow people to use foreign companies to own UK property at all; you would have to own it via British companies if you wished to use a company. But that is not going to happen so it is silly to talk about it.
On Margaret Hodge’s point, in the Oliver Bullough-ocracy I would definitely like to have something similar to the Senate’s Permanent Subcommittee on Investigations, with the power to investigate whatever it likes and do really forceful, well resourced investigations into Government agencies or anything at all. That would really help to cut through some of the failures to understand why the failures are happening and to really bring accountability to these bodies, which have been able to hide behind the lack of oversight for a long time.
Alison Thewliss
Q
Oliver Bullough: I heard the Companies House official talking earlier; I did not join at the beginning so I did not catch his name. He was saying that there would be difficulties with resourcing the verification of all that, particularly when it comes to the issue I wrote about recently in my newsletter, about what I call “offshore shell people”—people essentially acting as a kind of shell company. It is noticeable that while the number of offshore companies owning property in the UK has flatlined over the last decade, the number of people with overseas addresses has increased by 250%. Clearly, scams can always be used and things are always coming in. Making sure that Companies House can have the resources to do all that is a tough ask.
This is perhaps stretching way beyond what is in the Bill, but I am not sure that it would not be a good idea to have what the British Virgin Islands has, which is that an ordinary person cannot just file things with Companies House; they have to go via a lawyer or another registered professional. I am not sure that that would not be a bad idea, because then you would not have this issue at all of people being able to log on.
Just to show how absurd it is, I was at a conference the other day and a participant from Canada could not believe me when I said how easy it is to file things at Companies House, so we logged on together and she created a company then and there. She is a tax consultant; there was no “tax consultant” option on the dropdown menu, so she called herself a taxidermist. That is how absurd the system is. There is a lot of scope for improvement before we need to worry about fine-tuning the details.
Alison Thewliss
Q
Bill Browder: One of the things we have seen is that the same individuals—these money launderers—will find a drunk Latvian person, get their passport and then register them in hundreds and hundreds of companies. If those companies get shut down, then they can register them as the directors of other companies; they then become directors of those companies.
Why is it okay to have a person be a director of 400 companies? That does not make any sense to me. Why should there not be some limitation—maybe 10? Ten companies is a lot of companies—but 400 companies, or a thousand companies? That limitation would be an easy thing to put in here, and that would make it harder for the criminals, because there are not that many people who are ready to give up their passports to do money laundering. The number of people who are involved in this is quite small when you actually look at it, because most people do not want their names being used for these terrible schemes.
Alison Thewliss
Q
Bill Browder: In theory, yes. This whole post-box idea just lends itself to anonymity and so on. Why do people not just register their companies at their own home or their own business address if there is a legit company? What is this business with 2,000 companies in one strange industrial park in Glasgow?
Alison Thewliss
Q
Oliver Bullough: I did an investigation a while ago and there was a woman who was a director of four companies, I think, despite the fact that she had been dead for five years. Clearly, someone had been using her signature to sign off on the companies, and that is clearly a misuse of information. Clearly, that is falsifying company information and is already a criminal offence. Despite the fact that I had written about it, nothing was done; no action was taken. As I say, there are a lot of easy wins here before we need to worry about the details.
Alison Thewliss
Q
Bill Browder: Well, Scotland is so dwarfed by London that you do not have to worry about your reputation, because the reputation is so bad here that no one will even be paying attention.
Seema Malhotra
Q
Bill Browder: I have written a whole book about this. The bad guys in Russia are a big part of the problem, but you cannot export this type of corruption and money laundering unless you have somebody doing the importing. And who is involved in the importing? It is the western enablers—the lawyers.
I have had shocking experiences with western law firms that are benefiting from this. If there were some kind of duty whereby they had to actually look into the source of their funding or the legitimacy of the business, I think that would be an extremely powerful thing, if it was actually enforced. There is a whole other long discussion of law that one could have about the role of western enablers, and particularly the lawyers.
The Chair
I am afraid that under the rules that we operate on, I have no discretion to allow this very interesting sitting to continue, so we have to finish. I thank both our witnesses for a really fascinating sitting. Their great insight and knowledge on this subject has been of immense value. Thank you very much indeed.
Dame Margaret Hodge
On a point of order, Sir Christopher. May I ask whether our proceedings are covered by parliamentary privilege?
The Chair
The answer to that is yes, they are, but it should not be abused.
Examination of Witnesses
Professor John Heathershaw and Thomas Mayne gave evidence.
The Chair
We now come to the ninth panel. We have Professor John Heathershaw from the University of Exeter appearing via Zoom and Thomas Mayne from Chatham House. Good afternoon. I am going to ask Professor Heathershaw, first, to introduce himself briefly.
Professor Heathershaw: My name is John Heathershaw. I am professor of international relations at the University of Exeter. I work on aspects of money laundering related to post-Soviet political elites.
Thomas Mayne: I am Thomas Mayne. I am a research fellow at the University of Oxford and a former visiting fellow at Chatham House. I am one of the authors of “The UK’s kleptocracy problem”, a report we released at Chatham House in December.
First, by way of very quick introductory remarks, on the day we launched the report, the then Foreign Secretary, Liz Truss—how time flies—was also speaking. That was a nice coincidence. She was asked about our report and her response was that the UK has the strongest money laundering regulations and laws in the world. As we have heard today, we could debate whether that is true or not; there is some evidence to suggest that it is. However, as we have heard a lot today, without enforcement, laws are useless.
Secondly, I am an expert in kleptocracy and anti-corruption measures. Kleptocracy and money laundering are two slightly different things, and I hope we will get into some of the differences today.
Seema Malhotra
Q
Secondly, would you expect kleptocrats, in the light of this regulation, just to move their assets to unregulated sectors? Are we going to have the protections we would want for Britain, or are we in danger of seeing some of the behaviour simply displaced?
Thomas Mayne: First, on supervision, I do not think there is enough in the Bill. The findings of OPBAS—that the risk-based approach we have put in place really is not working—are quite shocking. What is the solution to that? I know that Dr Hawley was here earlier; Spotlight on Corruption has just released a report on the supervision of the legal sector. There is a debate in that on whether there should just be a single sector supervisor, which is something we should look at.
Generally, I think supervision is lacking and it is very uneven. Across sectors, we are seeing very different layers of enforcement actions. For example, I think the Council for Licensed Conveyancers—obviously, it deals with real estate, which, as we know, poses some of the highest risks for money laundering—produced zero enforcement actions in a three-year period. There are varying levels of not only supervision but enforcement activity. That is definitely something that we should look at that is not really in the Bill. John, do you want to say anything on that question, before we move on to the second one?
Professor Heathershaw: I think the accountability question pertains to parliamentary supervision of those regulatory agencies. As I understand it, there is nothing in the Bill to enhance that. There would be scope for a specific cross-departmental parliamentary Committee in this area, I think. As we know, money laundering crosses different Departments, so greater accountability for poor performance by the supervisors could be tackled through that kind of oversight.
Thomas Mayne: Was the second question whether we are worried about capital flight from the UK?
Seema Malhotra
Q
Thomas Mayne: That is certainly a risk. We are way ahead of the game, in some respects, in terms of which businesses we regulate. I know that there is an ongoing discussion about whether PR agencies should have regulation. I am not an expert on crypto, but I think we should look at bringing it into the existing regime where, if there is a suspicion of money laundering, you have to report it by law.
Professor Heathershaw: To add to that, it is not simply a matter of liquidating assets to move them into other denominations or unregulated sectors. The nature of money laundering is that it is a social and political phenomenon as well. It is about achieving a place to stay where you can protect your assets through the rule of law, and maybe gain some social influence, get your kids into school, and use your residency to garner a wider profile and clean up your reputation. That means that the property and bank accounts are hugely important; they will not just be liquidated overnight.
When we are talking about the kind of money laundering that Tom and I look at by political elites and those from kleptocracies, they are seeking to gain a whole set of goods that you cannot simply get through putting all your assets into crypto, or into a more loosely regulated jurisdiction such as Dubai. There are certain things that the UK, and London in particular, offer that will not simply fall out of the way in a beggar thy neighbour, “Well, we’ll just move ourselves into a sector or jurisdiction that is loosely regulated,” way. I do not think that that should cause us to worry about losing market share, or the problem shifting into another sector, because the problem will always remain in the legal and regulated sectors that are our principal concerns. They will always be there, too.
Thomas Mayne: I have one thing to add on real estate. We now have the registration of overseas entities as part of the previous Act. It will be fascinating to see what happens in January, when the deadline comes in, with the existing properties that we know are owned by oligarchs or kleptocrats, and what kind of information they put on record. It is not a magic bullet. One problem with the ownership of property is that we will not, and should not, have a searchable database where we put in somebody’s name and see whether they own a property in the UK. It does not work like that, so there may be other properties that are perhaps owned by proxies. Those proxies will have their name on record as the so-called beneficial owner, but they will not be discoverable because we do not know about them, and we do not know that proxies are being used. What will be interesting is, as I say, what information will be revealed about the properties that we do know by January.
Jackie Doyle-Price
Q
Thomas Mayne: Transparency is incredibly important. We know that, and we know that what has happened to Companies House in the past 15 years is ludicrous. We have heard examples of that today. We are one of the first countries in the world to have a beneficial ownership register, and I think that the Bill will take us to the next stage in verifying the information that is put on to Companies House, but, as Dr Hawley said earlier, will we still be able to rely on that information? There is also a risk that it just becomes another layer of what we might call zombie transparency. We have all this data, but so what? If it does not lead to enforcement actions or to people who are breaking the rules and submitting false information being penalised—sanctioned, fined, jailed—it will be all for naught. It needs to be accompanied by robust enforcement action. We have heard that from many speakers today.
Jackie Doyle-Price
Q
Thomas Mayne: Absolutely. If we take the PSC register, which has been in for a few years now, we can point to that and say, “This person has to be the controller of that company. Why is this person living in a shed in Siberia when £100 million is going through their company?” Before the PSC register, we could not say that. Now we have verification procedures coming in, we should be able to say that somebody at least—Companies House or whoever—has checked that this person is real and is the person they say they are, in terms of the information submitted to Companies House. We should definitely have this, but it is only the first step.
Professor Heathershaw: To emphasise that point, we know that even where there is transparency—even where we know the money is going—there is an enforcement gap. For example, Tom and I obviously work together, and we have provided your Committee with two of our most recent reports: one on unexplained wealth and one looking comparatively at the Dariga Nazarbayeva and Zamira Hajiyeva cases, in which we demonstrate that the reason why one failed and the other succeeded was simply the incumbency status of the two. The one who remains in power, has a good relationship with the law enforcement authorities back home and has privileged access—one might argue, an unfair advantage there—is able to defend themselves against that measure.
Unfortunately, the UWO reforms that came through earlier this year in the Economic Crime (Transparency and Enforcement) Act 2022 do not fit that part of the problem. It is also part of a bigger problem. When we look at our dataset of £2 billion-worth of properties in the London and the south-east—included at the end of the Chatham House report, the blue one that you should also have—we find that the 73 cases of incumbents, the people who remain in good favour in the kleptocratic states from which they come, get to retain their properties, but 13 out of the 15 cases of exiles, of those who have fallen out of favour, lose their properties. That is not explained by exiles being more corrupt and incumbents less corrupt, so there are problems there around enforcement.
That means, effectively, that however much transparency we have, the measures that are being adopted are not really introducing rule of law at all, because what determines the outcome for people—whether they get to keep their property—depends on whether they are in political favour back in the kleptocratic state. That is a real indictment of the way in which the UK system has hitherto functioned. It shows the limits of what transparency can achieve. As Tom mentioned, with this Bill the UK will be a gold standard of transparency across the world, but it will still lack in terms of accountability and enforcement. That is the real challenge.
Jackie Doyle-Price
Q
Thomas Mayne: Yes.
Professor Heathershaw: Yes, I would agree with that statement entirely.
Alison Thewliss
Q
Thomas Mayne: I think so. Where do you cut it off? It certainly should if there have been large-scale, egregious actions. Oliver mentioned somebody registering companies in the name of a dead person, and I found an example of that in an investigation years ago. People should be penalised for really fraudulent misuse and prevented from registering companies again in the future.
Alison Thewliss
Q
Thomas Mayne: On the point about directors, there certainly should be; it is crazy that you have these people with 1,000 companies. I am not sure on your point about addresses. If you are an investigative journalist or a freelancer and you do not want to register a company with your home address, for example, or if you are the PSC and you have your name on the company, is that enough? Perhaps there needs to be some provision about having an office where you have to physically be and sign your name. I am not sure about the proxy address, but certainly, on your point about proxy directors, limiting the number would be a good idea.
Alison Thewliss
Q
Thomas Mayne: I think so. Obviously it is difficult with PSCs, because I can say I am the PSC of a company and there could be an agreement written in a safe in Liechtenstein somewhere that says it is actually a Kazakh politician or whoever it may be. Certainly, there are probably egregious examples where it is clear that the person is not the PSC. You can do some research on them. There have been some examples today where there is clear evidence that the person is not who they say they are. Yes, there need to be fines, and the fact that there has been only one so far again goes to the point on lack of enforcement over fraudulent information submitted to Companies House.
Alison Thewliss
Q
Thomas Mayne: Possibly; maybe that would overburden it. There are already talks, with the verification coming in, about ramping it up.
Alison Thewliss
Q
Thomas Mayne: It is an option.
Liam Byrne
Q
The Chair
Before you answer that question, is this question directed to that action in relation to measures in the Bill? I hope it is, because otherwise it will not be in scope.
Liam Byrne
Yes, it is a gap in the Bill.
Thomas Mayne: Absolutely, and many thanks for bringing up the case. As you mentioned, none of the authors had any say in the matter and we did not think it was justified, as the evidence we put in the report is entirely accurate. This is a perfect opportunity for some kind of anti-SLAPP legislation to be put in the Bill. Dame Margaret spoke at a recent debate with David Davis; some other examples were given there. If we do not put it into this Bill, will it just be mothballed and we miss our chance? Meanwhile, more journalists are being threatened, and a lot of information is not being put into the public domain because of the threat of a SLAPP. The Bill is related to transparency, as you say, so is there an opportunity to put that sort of measure in the Bill?
Professor Heathershaw: Obviously, I would agree with that. Our report has been subject to these issues. We have also seen many threatening letters over the years. I think it is fair to say that we are some of the leading researchers in the UK on this specific area, at some of the UK’s leading universities. Professionally, it is shocking for me to find that we could be subject to such aggressive letters. The risks were so great, simply because the costs could not be limited.
I think there is a need to introduce a merits test early on to dismiss litigation. I think there is also a need to cap the costs for defendants, because at the moment you have to get very expensive libel insurance to protect yourself, which can be very difficult. Even then, there are huge costs involved.
The question about whether there should be specific legislation from the Ministry of Justice is interesting. At present, that has not been tabled to Parliament and so the opportunity that presents itself—to amend Bills, to provide certain measures, to introduce costs—would definitely be within scope. When you see these cases, many of the people from outside a Government service who have given evidence today—I am sure Oliver Bullough or Bill Browder would speak to this themselves—have been subject to those actions for things they have written that are entirely accurate and in the public interest. In that sense, such a measure is within scope.
It is also within scope because money laundering of this type is always accompanied by reputation laundering, which means seeking to clean the public record of questions about your sources of wealth and misdeeds of the past. It is very much within scope and it would be great for the Bill to consider things like a merits test and a cost cap for defendants in defamation counter-claims.
Dame Margaret Hodge
Q
Thomas Mayne: I mentioned earlier the PR industry. I think there is a debate going on, following the Russian invasion, about whether there should be transparency over who you represent. Should it be put on record and in what sense? There are membership organisations in the PR world, but you do not have to sign up to them, so there is an internal discussion going on about whether that should become mandatory. Do you somehow put PR under the scope of money laundering regulations? Maybe that is going too far, but some kind of oversight and transparency of such PR agencies, who sometimes represent the kleptocrats and use their wealth to threaten journalists, should certainly be considered.
Professor Heathershaw: It is my understanding that there was a consultation on a foreign influence registration scheme under an earlier, different Home Office Bill. That is where you may have something equivalent to what the US has in the Foreign Agents Registration Act. If you are looking specifically at kleptocrats linked to foreign regimes, or who are themselves part of foreign regimes, PR agencies are working on their behalf to clean their reputations, potentially in a wider public realm with public institutions, and, of course, to specifically target Government officials to potentially donate to political parties—a non-British citizen can do that while retaining overseas citizenship.
Those things would be in scope of a foreign influence registration scheme. Again, that crosses over into the territory of the Bill. It has previously been proposed as part of another Bill, but I think it is very much needed for the PR industry.
Dame Margaret Hodge
Q
Thomas Mayne: That is an excellent question; I am not quite sure how to answer it. As researchers—quite akin to journalism—we all play a game of self-censorship in what we say. Even when you have information about donations from people from overseas—kleptocrats or oligarchs—that is certainly in the public interest, there is always a tendency to draw back and not put it in the public domain. If there were some other forum that allowed that information to be put there without the legal threat, that would be fantastic. At the moment, we rely on you as MPs to bring to certain issues up under parliamentary privilege, because the way the libel laws are set up in the UK is stymieing that kind of debate, which needs to be able to continue.
Dame Margaret Hodge
Q
Professor Heathershaw: On the Chatham House paper, two of our authors are Americans, and they have a first amendment right. They think the situation that has arisen with respect to Chatham House is extraordinary and absurd. You could have a first amendment right in some kind of British Bill of Rights, which has been mooted in the past. In terms of academic and journalistic freedom, you could have a specific statement setting out that anything within professional competence that is evidence-based and without malice is counted as free speech.
I think there is obviously a need to revise the Defamation Act 2013 to say that, unless you can determine that a statement has been made with malice, and if it is within professional competence and accurate, it should not even be considered admissible as a potential case of libel or defamation. As researchers, our work goes through ethics committees—
The Chair
Order. I am afraid I have to stop you there. I have no discretion to allow you to continue because under the rules set for the Committee, the sitting has to end now. I thank both our witnesses very much for coming along and helping us with our inquiries.
Ordered,
That further consideration be now adjourned.—(Nigel Huddleston.)
Economic Crime and Corporate Transparency Bill (Third sitting)
Thursday 27th October 2022
(2 years ago)
Public Bill CommitteesRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 27 October 2022 - (27 Oct 2022)
The Chair
Good morning, everybody. We will go into private session to discuss lines of questioning. With the agreement of the Committee, we will delay the end of each panel of witnesses by five minutes, because we have been held up.
The Chair
I thank Members and those giving evidence for their flexibility in moving rooms, and I inform Members and those giving evidence that we will be in this room all day today. Could the witnesses please introduce themselves for the record?
Helena Wood: Hello, my name is Helena Wood. I am a senior research fellow at the Royal United Services Institute, where I lead the economic crime programme.
Duncan Hames: Hello, I am Duncan Hames. I am the director of policy at Transparency International UK.
The Minister for Security (Tom Tugendhat)
Forgive me, Ms Wood; my hearing is not very good. Can you speak straight into a microphone?
Helena Wood: Yes.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
Q
Helena Wood: To place it in context, one of Britain’s great financial crime exports of recent years has been our joint money laundering information taskforce, which is one of the first public-private partnerships. That model has been replicated across the globe, with public-private partnerships now seen as a norm by the FATF, the international standard setter on tackling money laundering and terrorist financing. In one respect, we really have been a global leader in that regard. However, as with many British exports, we are now exporting that abroad and it is being copied and replicated at a speed and scale beyond what the UK is doing. Increasingly, we are seeing people moving from peer-to-peer information sharing towards a more collaborative data analytics model. I point to the models being set up in Holland and in Singapore as particularly groundbreaking in that regard.
Coming back to the provisions in the Bill, do they get us from where we are now on peer-to-peer information sharing, which is one thing, towards this world of collaborative data analytics, which we need to get to to really home in on financial crime? No, they do not. Although the provisions in the Bill will go some way towards increasing private-to-private information sharing and, in particular, the risk appetite in the banking sector, they really do not keep pace with the global standard.
What we would like in the next economic crime plan, which we hope to see this side of Christmas, is something that is much more ambitious. In many ways, I would say that while it is welcome, the Bill is a slight missed opportunity with regard to information sharing, given that it really does not push forward to this big data analytics model that others are moving towards.
Seema Malhotra
Q
Helena Wood: Absolutely. We have sat around for three years discussing information sharing in various working groups under the first economic crime plan, and it is a disappointment that all we have come up with is these one or two clauses of a Bill that merely take us towards quite analogue sharing between individual institutions. They do not take us as far as we should go.
I am not saying that at this stage, where that opportunity has been missed, we should push for something within the context of this Bill. These are really complex issues that require and deserve much further public consultation, particularly given the link with data privacy and individual rights of confidentiality, but we must see it in the next economic crime plan if we are not to get left behind. We invented public-private partnership, but we are really not driving that forward in the global context any more: we are being left behind. While this is a welcome step, and it is welcomed by the banking sector, it does not get us to where we need to be in 2025 and beyond.
Seema Malhotra
Q
Helena Wood: Absolutely. On the information-sharing gateways that we have in place currently, I particularly point to section 7 of the Crime and Courts Act, which, although being used for JMLIT purposes—this public-private partnership—they were not designed for that purpose. There was an opportunity within the context of the Bill to push for something that really is fit for purpose and gives the regulated sector the confidence to share under a collaborative data analytics model.
We have seen others—I particularly point to the Dutch, who at the moment have some legislation going through, which really gives a lot more confidence to the regulated sector to share. The Transaction Monitoring Netherlands platform allows some of their biggest banks to share transaction monitoring data at scale to point to where the biggest risks are emerging. Would this legislation allow us to set up a similar shared utility? No. It would not give them the confidence. Although it takes us a step forward and should be welcomed, it is not taking us where we need to be. We need something much more ambitious that keeps pace with global best practices when we look at the next economic crime plan, which I believe the Home Office will be launching imminently.
Seema Malhotra
Q
Helena Wood: I will start and then pass to Duncan. I would always say there is only so much that legislation can do. In many ways, as the Financial Action Task Force pointed to in the 2018 evaluation of the UK, we do have some of the best laws in place in the country. Although this law is absolutely essential in catching up with the threat, particularly around Companies House reform, we really do not have a problem with law; we have a problem of implementation in this country. We had an economic crime plan tracker, which is online and which you can scrutinise. It looked at all the 52 actions under the economic crime plan, and the most progress was made in areas of regulation and law—the bits that are quite easy and cheap to implement.
There was less progress in the areas of implementation, particularly around the enforcement of the existing laws in place. The big things that I would like to see prioritised outside the context of this particular Bill are things like policing reform, investment in the National Economic Crime Centre—I know you took evidence from them on Tuesday—and a real implementation of what we have got. That is not to say that this Bill is not necessary. It absolutely is, particularly around the huge gaps in Companies House capability and fundamental changes to its role, but none of this will come to anything if we do not invest in the enforcement response. I will pass over to Duncan, if I may.
Duncan Hames: We certainly welcome the Bill, and we welcomed the Government’s announcement that they intended to legislate for these reforms three and a half years ago. It is great that these are now before you, as Members of the House. The opportunity to address these issues dos not come along as often as it might feel that it has this year since Putin’s further invasion of Ukraine, so it is really important that we get reform of companies right this time rather than wait for things to be done later.
On what we would like addressed in the Bill, first, it is incredibly important that we do not allow a situation to develop where UK companies become the respectable front of otherwise secretive networks of corporates that provide the layering required to launder illicit funds. The use of corporate partners in offshore jurisdictions to control UK limited liability partnerships, for example, is a particular weakness that I can elaborate on.
Secondly, with these very welcome reforms, shareholder information will become the poor relation on the company register. That is a particular concern in instances where companies claim not to have a person of significant control, and shareholder information becomes our next best attempt to understand who is really behind those businesses.
The Chair
May I say to the hon. Member that she has had quite a few questions and we are limited on time, so this will be her final question?
Seema Malhotra
Q
Duncan Hames: A lot of information was collected on shareholders when this register was developed six years ago, and in many cases companies have been able to say, “There have been no changes.” That means there is a risk that information on shareholders has become quite dated, and finding what information there is involves tracking down PDF format documents that were uploaded a long time ago. There is an opportunity, whether in legislation or in practice at Companies House, to make sure that shareholder information does not become much less usable for investigation and due diligence.
On the third thing you asked me about, we think it is very important that Companies House has the powers and uses them to check the information, where it thinks necessary, that has been used to verify information by trust and company service providers, and not simply take that on trust where it has concerns or suspicions.
Alison Thewliss (Glasgow Central) (SNP)
Q
Duncan Hames: Limited liability partnerships have been a company entity available for the last 20 years or so, and 200,000 have been formed. We noticed that they kept appearing in revelations about major money laundering scandals. In the Danske Bank scandal, for example, the investigations found that UK limited liability partnerships were the vehicle of choice for the non-resident clients of its Estonian branch basically to hide their identity from those conducting compliance checks.
There are 1,600 LLPs that have appeared in these various scandals, but there are thousands upon thousands of UK limited liability partnerships that share the same offshore corporate partners. A pair of corporate partners registered in Belize are the controlling corporate partners of over 2,000 UK limited liability partnerships.
What is bizarre is that MPs have thankfully legislated to end secretive ownership of UK property, but we do not have the same requirements for overseas entities that control UK limited partnerships. As a result, we still have a veneer of UK respectability presented over what is essentially a secretive corporate network.
Alison Thewliss
Q
Helena Wood: There are some fundamental flaws. Although this is a significant step forward from where we are, as we all recognise, there are some flaws in the model that has been designed. When the consultation was put out three and a half years ago, we advised against outsourcing ID verification checks to the trust and company service provider sector.
Our evidence for saying that was that there was an assumption in the model being developed that these sectors were largely compliant with money laundering regulations, but we know from the various scandals that Duncan has pointed to and the great investigative work by Duncan and others that that is not the case. I have referred publicly to some of that sector as a bunch of cowboys, and I would gladly go on the record to say that today. That comes from poor levels of compliance, which is the result of poor Anti-Money Laundering Council provision in the sector.
If we are to go ahead with this model where we outsource those checks to a sector that hitherto has not been known for its compliance with the standards, we need to do something outside the context of this Bill to really hammer that home. I particularly point to HMRC as the supervisor of the standalone TCSP sector. We really need to hammer down on compliance in that sector to raise standards overall so that HMRC can properly take on the role, although I restate that we initially advised against it taking on that role, given the current state of compliance in the sector.
Eddie Hughes (Walsall North) (Con)
Q
When Seema was asking about data sharing, Helena, you were saying that the Government are not going far enough. It is odd for me to ask you to second-guess the Government, but why do you think we are not going far enough? Sometimes it feels to me that people are in a hurry for legislation to do everything that needs to be done to improve a situation, whereas that, sometimes, is almost counterintuitive because it is better to do it incrementally. Let us do some stuff, get it right, come back, revise, learn and move forward again. What are your thoughts with regard to their pace of movement?
Helena Wood: The pace of movement on information sharing? I think there is an inherent tension at the heart of all global anti-financial-crime standards, which is often with how we square the circle of data privacy. They are two often quite diametrically opposing concepts. We need to find a way to not rush into this. Your point is well made. If we are going to push people into sharing more individual personal data, we need to do so in a way that utilises the best technology to preserve the privacy of innocent individuals. We need to bring in the data privacy community to make sure that whatever we craft meets the needs of that community also.
We should not—I agree—push forward so quickly with something that is inherently complex. I absolutely do not think that we should be pushing for amendments within the context of this particular Bill; we need to be looking at the issue more broadly. We need to look at how the Data Protection and Digital Information Bill, which is currently stalled—I do not know what its future is—will also facilitate greater sharing for financial crime purposes while protecting individual privacy.
The simple fact is that this is a very complex and emotive issue that deserves due consideration and full public consultation. However, we have had three years. This was a key tenet of the economic crime plan that came to an end in July. There were multiple meetings to look at how we could do this and what we came up with were these two clauses, which, for me, are a missed opportunity, given that others have managed in the same timeframe to move forward with much further-reaching legislation, such as that currently being debated in Singapore and the Netherlands. I think we could go further than we need to, otherwise we get left behind.
The Chair
I am very sorry, but we are going to have to move on to other Members. I will come back if there is time at the end for further questions.
Dame Margaret Hodge (Barking) (Lab)
Q
I am going to ask about another issue, just to get it on the table. People engaged in the debate over dirty money are very anxious that we should move from just freezing the assets, particularly of the Russian Government and Russian oligarchs, to seizing the money so that we can use it—particularly for the reconstruction of Ukraine, when that war comes to an end. Can I have your views on that, starting with you, Duncan?
One final thing: a big thank you to both of you for the work your organisations do in exposing a lot of the problems and for the very positive attitude you have taken to establish solutions. Thank you to both of you, individually and to your organisations.
Tom Tugendhat
Hear, hear!
Duncan Hames: Thank you. I think it is important that we should continue to respect the rule of law and have a judicial basis for asset recovery. Too often, it is tempting to have a more administrative approach, and with that comes risks. It is very important that, as well as having the clarity of purpose to designate a whole substantial raft of individuals and entities for Russia sanctions, we have the determination to make those sanctions work.
We published some research just last month that found hundreds of millions of pounds’ worth of UK real estate that we were fairly sure was owned and controlled by individual entities that have been named under Russia sanctions. However, if you check on the Land Registry, there are not any of the typical markers to say that you cannot sell or transfer or trade this property. That is partly because of some of the very clever and complicated arrangements for their ownership, including using trusts.
In the work you are doing on the Bill, there is an opportunity to ensure that really important measures for global security, such as our Russian sanctions, actually work, bite and make it impossible for those who have moved large amounts of wealth out of Russia to continue to control it in the interests of their political sponsors.
Helena Wood: I could not agree more that we need to start moving from freeze to seize, but I echo Duncan’s sentiments that we must do so in a way that protects the very things we are trying to protect and do: the rule of law, due process and democracy. We should not push towards measures that effectively put in place a ministerial decree for confiscating individual assets and run roughshod over A1P1 principles.
That said, there is further we could go in UK legislation. Even with the advent of the much vaunted unexplained wealth order, our law enforcement agencies remain on the back foot. There is more we can do within the confines of European rights compliance-tested laws of reverse burden mechanisms to put law enforcement on the front foot.
Fundamentally, though, it is not going to be an easy fight to link those assets back to the criminality from which they once derived, given the difficulties of gaining evidence across borders. However, there are models we could replicate that have been tested for ECHR compliance, such as in Italy and Switzerland—I could name others. If the Committee will forgive me for trailing some forthcoming RUSI work, a paper is coming in November or December this year that sets out some recommendations of where part 5 of the Proceeds of Crime Act 2002 could replicate some of the principles of other regimes and push forward to at least put law enforcement on the front foot.
The other issue I would point to, which has already been partly legislated for, is cost protection for our law enforcement agencies. We have legislated for cost capping in cases involving UWOs, but they are not the right tool to use in all cases; I particularly point to the oligarchs, who do not fit under the definition of PEPs in UWO legislation. There is an argument for the Bill to potentially push for full cost capping of part 5 cases to increase the risk appetite of our law enforcement agencies to take those cases on in the first place.
James Daly (Bury North) (Con)
Q
“direct sharing between two businesses in the AML regulated sector”
and
“indirect sharing through a third-party intermediary for businesses in the financial sector”.
That is what the Bill does. Putting it bluntly, what is wrong with that? What is the criticism of those aims and the things it allows businesses to do?
Helena Wood: Civil liability for confidentiality is one barrier. It is an important one, and removing it will hugely increase appetite, but it is not the only barrier. The boundaries within our data protection legislation are not explicitly clear; they are open to interpretation. We need more guidance, potentially from the Information Commissioner, to make clear what those boundaries are. We potentially need further clarification in the data protection legislation that is currently going through—
James Daly
Q
Helena Wood: They absolutely are, and I would not—
James Daly
Can we very quickly come to you, Mr Hames?
Duncan Hames: Helena is the expert on this particular subject.
Helena Wood: This is a welcome step forward. Others are going much further. The legislation that has been put forward in Singapore and Holland basically removes any barrier to information sharing by making it mandatory to share private-to-private in the context of the shared utilities that are being set up in those jurisdictions. Whether we should go down mandatory sharing is, as I have said, something that requires much further and longer public consultation. But we do need to look at that.
Liam Byrne (Birmingham, Hodge Hill) (Lab)
Q
Duncan Hames: It is a serious matter, and this Bill doesn’t. Although, as you say, we published that report very recently.
Liam Byrne
Q
Duncan Hames: Doesn’t. What I said earlier was that if you use an offshore entity to hold UK property, as a result of legislation MPs passed this year you now have to register on the register of overseas entities who the beneficial owner of that entity really is. We find out who really owns bits of Britain. But you can control a UK limited liability partnership through offshore entities, and we do not find that out. There is no way of checking the information.
We are presenting a respectable veneer behind an otherwise opaque offshore corporate network. If we could require the same level of declaration around the corporate partners of those limited liability partnerships, then we would lift some of that veil of secrecy. Then maybe we would not have a situation where rogue bankers in Baltic states were getting their clients to use UK limited liability partnerships to get around the compliance checks in their own organisations.
Liam Byrne
Q
Duncan Hames: Not yet. I hope you will be able to address that.
Tom Tugendhat
Q
Duncan Hames: Yes, happily. We are quite a small organisation, but this is about the power of putting information in the public domain. The report that we were describing earlier is a form of network analysis; that is the sort of thing you can do if open data is published, rather than information in PDFs, which are essentially photographs of old documents.
Whether it is organisations like ours, or investigative reporters such as the Organized Crime and Corruption Reporting Project, civil society has shown its potential to help uncover those crimes if there is information in the public domain. If we want a spirit of partnership, and if Government want the private sector to be its first line of defence, then it is really important that everyone is equipped with the tools that they need and that the company register is providing accurate information, which has been checked, that they can rely on.
Tom Tugendhat
Q
Do you agree that those reforms begin that process and that fightback? Do they make a difference by scrubbing, as it were, the inside of the whitened sepulchre to ensure that we are exposing it to sunlight, so that organisations such as yours, the media, and many others around the world, will be able to identify where that money is going and from where it has come? This is also about jurisdictions overseas who are losing money through our system, not just about us who have to control it.
Duncan Hames: Yes, I agree. The Bill is beginning that. The challenge that we have is that it is six years ago that we last made reforms to Companies House, and I do not know when you are next going to get a chance to make further progress.
Tom Tugendhat
I have only just come into post.
Duncan Hames: It is hard, as we are often told, for legislative time to be found. So please make the most of the opportunity and take it as far as you can. It was only this summer that the US Treasury issued a money laundering alert about evasion of Russia sanctions. In that, they identified UK limited liability partnerships as part of the typology of the financial logistics for evading sanctions.
Tom Tugendhat
Q
Duncan Hames: But this is the jurisdiction that Members of our Parliament are responsible for.
Tom Tugendhat
Q
Helena Wood: May I come in on that particular point around Companies House reform? The point has been made by others giving evidence here this week and I will make it again until it sticks. Companies House reforms mean nothing if we do not resource Companies House properly. Using that secondary legislation to raise formation fees to £50, at least, is absolutely essential—
Tom Tugendhat
That is absolutely true, which is why the partnership that we have to put in place alongside agencies, NGOs and journalism, to make sure the application programming interfaces are open is so important.
The Chair
Order. I am afraid that brings us to the end of the time allotted for the Committee to ask questions.
I very much thank our witnesses, Helena Wood and Duncan Hames, for their time, and I thank Members for their questions. We now move on to the next session.
Examination of Witnesses
Chris Taggart and Elspeth Berry gave evidence.
The Chair
We now hear from Chris Taggart from OpenCorporates and Elspeth Berry from Nottingham Law School. You are both very welcome; thank you very much for joining us this morning. Could you please introduce themselves for the record? We have until 12.35 pm.
Chris Taggart: My name is Chris Taggart and I co-founded OpenCorporates, the largest open database of companies in the world. Essentially, we take official company information, from Companies House and the equivalent of Companies House in about 140 jurisdictions, and we put it all in one place and make it freely available for everyone to use. About five million users a month use the data—everyone from journalists to law enforcement, regulators, banks, ordinary companies and so on. We are also a social enterprise: it is a company, but with public benefit at its heart.
Elspeth Berry: My name is Elspeth Berry. I am an Associate Professor of Law at Nottingham Law School. My teaching and research includes limited partnerships—well, all partnerships, including limited partnerships and limited liability partnerships, or LLPs—and my research in recent years has focused on limited partnerships and LLPs.
Seema Malhotra
Q
I want to ask you a bit more about the lack of transparency when it comes to shareholders. How much do you see that as an issue? Can you suggest any specific measures to increase shareholder transparency?
Chris Taggart: I will maybe talk about the information sharing after. First, shareholding data is not even data. It is just a name; it is just some letters put together. We have opened the gates by allowing it to be just a transient historical record—you know, somebody owns shares in a company. They make a report. They put down a name; we assume that they put down their own name, but of course they can put down any name. But the shares are transferred the next day—maybe into a trust, maybe to somebody else—and there is no record.
At the moment, I think we have that with shareholding, particularly given the international context of cross-jurisdictional context networks and so on. Shareholding actually matters. If someone who runs a chip shop in south Wales or is a mechanic in Estonia, or wherever, owns the shares, they own the shares. That matters. We are not recognising this.
I absolutely welcome the Bill and think it is a huge improvement on where we are, but I think the shareholding is a particularly strong example of how there is essentially still the same problem, which is that Companies House is a historical record of information submitted by people, and the bad actors will always lie. We need to change things, so that it is much more difficult and risky for the bad actors to lie. I think that is the fundamental criticism of the Bill, which, by the way, I think is entirely welcome. It is an incredibly thoughtful and well-drafted Bill, but it is fundamentally coming from a different era. The Bill is a better horse and cart, and the criminals are driving around in fast cars.
Elspeth Berry: On the shareholder transparency point, I noticed that the identity verification is not being applied to shareholders and I think it could be, possibly subject to some de minimis requirements. If they come in as PSCs, which is possible, that also brings us to the problems with the PSC legislation, because the thresholds are, depending on which view you take, either woeful in terms of not catching enough people or should just not be there at all.
The third thing is that, for reasons I do not fully understand, I see that the central register of members is going. Some things now have to be central and some things cannot be central, and shareholders will not be central. I would also point out that the unique identifiers are not being applied to shareholders, although, in any event, they are apparently they not going to be made public. I am not a journalist, but I rely on the work of some fantastic investigative journalists and organisations to dig through that stuff and find out, “Well, that shareholder is appearing here as a partner, there as a director and there as another shareholder,” but that cannot be done.
Alison Thewliss
Q
Elspeth Berry: The idea is that the John Smiths, the J. Smiths and the Mr Smiths can be linked. Where it is a common name—or an overseas name, where a person like me who was looking at this would not know it was a common name and might assume, “Well, that must be the same person,” when actually it is not, because it is such a common name—it is important to find links. I can see that it is important for Companies House as one of their red flags, and they are going to be able to operate this system, but only partly, because it will not apply to shareholders or partners. But outsiders—people who do fantastic work that Companies House can’t, doesn’t or won’t—are going to find it difficult, or at least as difficult as it is now, to do the work of trawling though everything.
Alison Thewliss
Q
Chris Taggart: Perhaps not as much as you would think. Companies House currently has a thing called the personal ID, which is sort of inferred. It is not that somebody has confirmed they are this person, that they are the same as that person and that it has been identity-verified. By looking at the home address and other information that has been supplied and that they have, Companies House create a personal ID. We actually pull in information from the API and from various dumps. In some of those dumps, that information exists, but not in the normal stuff. So that information is there.
I would just back up what Elspeth said: not only is it essential, but I see no benefit otherwise. If you are a business trying to understand whether you want to do business with another company—this is not just about crime; this is about creating a great business environment—you can go to a director page on OpenCorporates and see other people with the same name. Okay, that is useful, but do you really want to be trawling through that and making a judgment call? It is almost like sending investigators off to try to understand whether they are the same. If this person has three other companies that all went bust owing money, you do not want to do business with them. I see no public benefit at all to keeping this identifier private and a secret.
Elspeth Berry: In terms of historic information, I think that has changed over time and gone in a bad direction. As I understand it, Companies House is now restoring some of the historic information, and it is important that that is available.
I would also raise the issue that there are provisions here for limited partnerships to be deregistered or dissolved. I think the provisions themselves do not do what it was hoped they would do. We also need to know how those are going to appear on the register, because that has been a problem with—shall I say—shady limited partnerships appearing and disappearing.
Alison Thewliss
Q
Elspeth Berry: In terms of the historic record? I would think 20 years; I understand that has been done for a lot of company information. If we are now going to have a registry power to dissolve and/or deregister, it is a little problematic. All of that needs to be clear. We know that there has been a pattern of limited partnerships appearing and disappearing, perhaps ceasing to trade and perhaps coming back. We know that that is a pattern, which we want to see, and if 20 years has been the standard at various times for companies, why not for everybody?
James Daly
Q
Chris Taggart: That is a good question. Certainly, we have been dealing with Companies House on quite a close level since we were founded 10 years ago. I have huge respect for them; they do really good work incredibly efficiently and so on. The challenge is that they are good people, but the people we are trying to stop are not good people, and they think in a different way.
What Companies House think they are doing is creating companies—when people think of companies, they think of a factory, a shop, a company providing services or manufacturing things, and so on—but what they actually do is create legal entities; they create things that have a distinct legal personality and limited liability. The criminals know that, they are using it and they are using networks of these things. More than that, we are talking about a situation where you start to think about things from a traditional company point of view—what we all used to think of as companies—but, actually, the legal reality is one of legal entities, so you need to start thinking about this in an entirely digital way, an entirely data way and an entirely legal way.
I will give you an example. Where a company has got assets—it has got things—there is a downside to it being struck off. If you are overseas and you create a UK company, and the company is struck off, as long as the money has come in and out before that, that is fine—you have done the job for the company. We need to have a change of mindset, and that change of culture will be as important as the powers that Companies House actually have.
James Daly
Q
Elspeth Berry: There will always be a problem, but that does not mean we should not tackle it and it does not mean that we cannot tackle it, and I appreciate that the Bill is attempting to tackle it. All of the things it is trying to do are good, but almost all of them could be significantly improved. We have to deter the wrongdoers. We have to stop looking as though this is a good jurisdiction to do this in. For example, there have been arguments about the fees. It is generally accepted that they should go up, and if your business plan cannot cope with £100 or £500, what kind of businesses are being set up here?
If we are not checking the identity of shareholders and applying PSC legislation to partners, there are still so many loopholes. It is not that there is something there that would be a sanction if they ever caught you—we know this from police and crime; if people think there is only a vanishingly small chance of anyone ever noticing, it is worth taking the risk. I suppose that brings us back to the point about the registrar’s powers, which are great, but they are not duties in most cases. How will we know if she has done it, or what she can reasonably do to minimise the risks of various things—to check information?
One of the things we need is a clear database of things that are red flags—things that Transparency International and lots of journalists have identified that the registrar should be looking for, some of which the legislation still allows, such as things like overseas registries and multiple formations, and the use of company service providers. The problems with those were talked about during the earlier session, and the Bill is not going to entirely resolve those, if at all. If we can tighten down on a lot of those, we will reduce—never eliminate, but reduce—the amount of wrongdoing that is here because of problems we have either created or left in our laws.
Dame Margaret Hodge
Q
I wanted to ask about shareholders and then about the disappearance of limited companies if they dissolve. I agree that shareholder information is really important—Usmanov brought that home to me. When we sanctioned Usmanov, he just gave everything to one of his daughters or something—anyway, it disappeared into other people’s hands. Can you explain a little what we need to do on shareholder information? At the moment, there is a 25% shareholding barrier. Should that be reduced to 5% or 10%? That is my question.
Then, on limited partnerships disappearing, that was brought home to me very much as a result of the terrible incident in Lebanon—the explosion in Lebanon. It was found that a British-owned company was behind that, with a beneficial owner in Cyprus who happened to be a corporate service provider. It then turned out that it was a nasty situation where the actual owners were some Syrians, and the fertiliser was not going anywhere near Mozambique—which was where it was meant for—but was being used for barrel bombs to kill Syrian citizens. The moment that happened, they tried to dissolve the company and get it to disappear, and obviously in that area of wrongdoing, we need to hang on to any knowledge that we have.
This is for both of you: what amendments do you think are necessary to enable us to stop people dissolving companies and to force information out, so that where there has been that terrible terrorist wrongdoing, we can pursue the wrongdoers? That said, I take the view that a lot of what we are trying to do is prevent these things from happening in future.
Elspeth Berry: On the PSC point, a reduced percentage would be a vast improvement, but I think a zero percentage could be considered. You can have a lot of influence in all sorts of ways while not necessarily hitting those targets, because you are connected with somebody else in a way that we do not catch through the legislation. But I certainly think that a reduction would be a big improvement to try and catch more people who are de facto PSCs, but not in law.
On the limited partnerships point, there are a lot of things we could do. The Bill makes a start in doing those, but given that a lot of this started with the limited partnerships consultations, I am slightly concerned that they got put aside because it was a case of, “Here comes all the corporate stuff,” and that is where all the money and excitement is. There is this small area of limited partnerships where there is a strong lobby for those people dealing with limited partnerships for particular purposes—quite legitimately—who do not necessarily want this to be made too difficult, but we get things like the restrictions on corporate partners not being applied to LPs. I had to read the provisions several times. I dread explaining them to my students, because of the difficulty in trying to get at who owns limited partnerships and who is in control of what is going on in them.
That level of “corporate partner on corporate partner on corporate partner” exists, and we know it is a problem. It is going to continue, depending on what we do with LLPs, and it is a big problem that they are just not in the Bill at all. It is like, “Oh, well, we’ll just apply the legislation to them later,” but which bit of the legislation? The corporate bit? The partnership bit? LLPs have a history of having the bits they want—the nice bits of corporate law and the nice bits of partnership law. Things can get missed because we think, “We have done the big task with the Bill.” PSCs can be applied to partnerships; they haven’t been here, and there is an assertion that it is not possible legally, but as a lawyer I would say that that is not correct.
You even have a provision here saying that people who have been disqualified under the company directors disqualification legislation can still act as limited partners. Limited partners have a limited role by definition if they are behaving properly—of course, they may not be—but even if they are behaving properly, a limited role is not no role for someone who has actually been disqualified from acting as a company director.
Chris Taggart: To pick up on an earlier question, the best information sharing is going to be information sharing in public. A lot of the great work that was done on people after the invasion of Ukraine was done using public domain information. There is a risk to lying in public. The fact that criminals will lie is also an opportunity to catch them out, because it is quite hard to lie consistently.
We get people all the time saying, “We don’t want our information to be on OpenCorporates”—even though it has come directly from Companies House and other places—“I don’t want people to know that my last two companies went bust,” “I used to have a company running a brothel in Germany, and I don’t want my new employees to know that” or, “I don’t want people to know that I am running a company on the side or working for someone else.” There is a cross-over here with data usage. When something is in the public domain, it needs to be functionally public. “Functionally public” means that you can use it and reuse it, and have it as data so that you can combine it with other datasets.
The shareholding data is so important, not just in and of itself, but because it allows you to ask, “Wait a minute. How is that happening with that?” Having it as data allows you to do that programmatically so that you can see trends.
Dame Margaret Hodge
Q
Chris Taggart: Yes. With shareholders, we ultimately need to get to a statement of fact—an authoritative record—so that what Companies House says is actually what the courts agree are the shareholders, and people cannot say, “We will move the shares, and then we will tell Companies House,” or, “We forgot to tell Companies House.” That will take work and time. We can extend the verification provisions for directors and PSCs to shareholders, at least over a de minimis amount, but ultimately we need to make Companies House the authoritative record of shareholding, so you are only a shareholder if you are on Companies House.
Elspeth Berry: On your question about dissolution, for limited partnerships it is a different issue because they are not an entity and you can still go after the partners, but of course that is why corporate partners are such a problem. Entities were a problem in Scotland some years ago. I am sure your Scottish colleagues can tell you more than I can about how that was dealt with after a fairly horrific criminal incident involving a lot of deaths. It was not possible to prosecute the partnership after it had dissolved. That is a problem with legal entity status, which is a whole big issue.
Seema Malhotra
Q
Chris Taggart: On the latter question first, I have been a director for some 20 years. The first time, someone sat me down and said, “This is what’s involved in being a director.” You think, “Wow, that’s kind of scary.” You have a fiduciary duty and you have to understand the company. If you are a director of 200 companies, I fail to see how you can perform that fiduciary duty, or those companies are, in some ways, just legal entities for some conduits for something. They are not actually in business; they are just conduits. I struggle when someone is a director of 200 companies: either those are just legal entities for some purpose other than as a normal company or they are not doing their job. It seems to me obvious that there is a challenge there. Whether that is a limit or whether that is actually holding directors much more personally liable for the wrongdoing of the companies, I do not know, but I think that there is something. There seems to be a contradiction there, fundamentally.
Elspeth Berry: I agree. I would have supported a cap on the number of directorships for exactly those reasons, in that I do not think a director can fulfil their duties if they have a lot of companies. However, if you are not going to have that, that certainly has to be a red flag for Companies House. It has to be a thing they will investigate and that they have the resources to investigate, which comes back to the problems that we identified earlier.
On the addresses, if you have a company service provider giving their address, it is quite possible you will have multiples and that might be okay if that is their business, they are doing it properly, they are AML regulated and all the rest of it. The problem is that we have seen in recent years that they are not. Again, that ought to be a red flag. In the limited partnership proposals, where you are trying to establish some real connection, economic or otherwise, with a particular jurisdiction within the UK or, at least, with the UK, that is one of the problems. One of the options on the list—they are all problematic—I personally thought that the principal place of business might be quite a good one, showing an actual connection, but I have been corrected in my beliefs by my journalist colleagues who say that almost all the wrongdoers were able to tick that box. I think it is a problem if you are saying that as long as somebody will pick up the mail here, that is okay. Again, that needs to be a red flag.
Tom Tugendhat
Q
Chris Taggart: There are two issues. I watched some of the previous witnesses and the things that came across were issues to do with identification and resourcing and I back up both of those things. On identification, allowing the corporate service providers to essentially say they have done something seems both a huge vector for misuse and also unnecessary. The technology allows us to look like we are using one company when we are signing up online and so on, but it is all authenticated with another company. They could be using Companies House back ends or banks’ back ends—we could have that authority and those standardised processes—and still you would appear to be transacting with a corporate service provider.
Having corporate service providers doing the identity verification seems like we have walked away from doing it properly. Once you allow corporate service providers to play a significant role, particularly on identity, I think we have a bit of a problem. Assuming that loophole is closed, this is really good, but it is still state of the art two, three or four years ago, and I think we need to start using digital identities. We need to make sure that, with somebody’s identity, they are not saying one thing on this hand and not saying another thing on that hand. Again, the unique identifiers—
Tom Tugendhat
Q
Chris Taggart: Absolutely, but I think there are technical ways of doing that. It does not have to be one ID that everyone can see—
The Chair
Order. I am very sorry. That brings us to the end of the time allotted for the Committee to ask questions. I am very grateful to our witnesses for giving evidence.
Examination of Witness
Graham Barrow gave evidence.
The Chair
We will now hear from Graham Barrow, a journalist and author appearing via Zoom. We have until five past 1 pm. Could you introduce yourself, Graham?
Graham Barrow: Thank you. I suspect I am probably unique among all the different people giving evidence because I am effectively a private citizen. I am not actually a journalist. I write, but not in a professional capacity. I am just somebody who became obsessed by what was happening at Companies House and have spent much of the last five years rooting away in the darker corners of it, to establish exactly how bad things are there.
Seema Malhotra
Q
Graham Barrow: Thank you. Let me pick up on both of those questions. I think the reason why I have been successful is because I have a mandate to go wherever I want to and do whatever I want to. I also ought to congratulate Companies House because a lot of what I now know is through the release of its advanced search function, which has transformed our ability to understand networks of suspicious companies.
I really want to emphasise this idea of the network. No criminal ever set up one company. It is just not how it works. They work in networks of companies. At £12 a go, it is probably the cheapest way of organising a criminal network. Of necessity, they leave company DNA behind them. I guess I have a capacity for identifying that DNA and extracting it from the background noise at Companies House.
Your question about offshore entities is really interesting. I came into this five years ago very much thinking about what you have just been talking about—limited partnerships and limited liability partnerships. They feature prominently in a lot of the reporting. I think part of the reason for that is that they are, by and large, a very small subsection of the entirety of what is incorporated in Companies House. Therefore, the focus has been on some of that DNA that is exhibited by LLPs and LPs.
Before now, we have had very few tools that could establish the role of limited companies. To give that some context, since 1 January 2000, about 10 million companies have been incorporated at Companies House, of which about 5 million are still active. The loss rate is very high; it is consistently 50%. Nine and a half million of those companies are limited companies. That is an exceptionally difficult body of data to trawl through to establish suspicious activity.
I think one of the reasons why perhaps some of the stories I now re-tell on social media are novel is simply because we have never been able to extract those signals from the Companies House data before. For whatever reason, I appear to have a brain wired in a particular way that allows me to do that, and I have a very good relationship with Companies House. We share information quite regularly.
Alison Thewliss
Q
Graham Barrow: Where do I start? The scale is enormous. Even today, I have been looking—I have a company that tracks new company registrations. I can tell you that 20 or 30 companies have been set up in Leeds and in Birmingham today that have used real peoples’ names and addresses, some of them for the fifth, sixth or seventh time. One gentleman is 92 years old and has just had his name used for a second time. It is an absolute scandal what is going on. I would say that at least 1,000 people every week have their names used as directors on companies without their knowledge or permission. You are talking about potentially 50,000 people a year. It is on an unimaginable and wholly unreported scale.
Alison Thewliss
Q
Graham Barrow: No, and there are a whole range of reasons why, one of which is that you would need to identify the problem in the first place in order to understand that it is an offence. How do you deal with thousands of weekly company registrations that are clearly breaching the false declaration rules? It would overwhelm you. I think one of the conversations we probably need to have is that you are not going to address the problem instantly.
One of the things that will happen when this legislation is enacted—and I am massively supportive of it—is that company registrations will fall off a cliff to begin with. At this point, I do not think people realise just how many registrations currently would just not go ahead because it is not worth meeting, or they will not meet, those requirements. Will it have an economic impact? Absolutely not, because none of them were ever set up to do anything commercially relevant in the first place. I would not worry about it, but I do worry that the reaction to potentially a 30% or 40% drop in company registrations may force people to start rethinking the tenets of this, but they should not. I do not think you will see any economic consequences.
Alison Thewliss
Q
Graham Barrow: I think there have been a couple of opportunities missed. You have been talking about PSCs, but what I have not heard yet is the fact that there is no minimum age to be a PSC. That is an issue, because you can be a shareholder and PSC at the age of zero. I do not know how you going enforce the identification verification for somebody who has absolutely no documentation. I do not see that addressed in the Bill. That is my first point. Secondly, I see nothing in the Bill to address statements of capital. I think that is problematic. At the moment the record is held by a gentleman from Equatorial Guinea who registered a company with £670 trillion of capital. That is a pretty neat trick, because that is 10 times the global GDP.
The other one that worries me, and this is something that I would like to talk about, is burner companies. That is a phrase that I have come up with; it means companies that start out with no long-term use whatsoever. There are elements within the Bill that allow grace days for conforming with requirements. If you are a burner company, it is fantastic because you have no intention of conforming. All you need, effectively, is to get that registration document to do whatever it is you want to do with it—and there are a range of things that you might what to do with it—and then you have no further use for it. Allowing grace days for conformance is potentially problematic. Those are my top three. I am not going go down the route of allowing CSPs—that has been done to death. It is obvious that it is a difficulty because you have no history of assertive regulation outside of the FCA and banks. We are aware that has not worked desperately well by the level of fines that are being administered. I think there is a bit of a hit-and-hope model, which in the end is unlikely to translate into any sort of useful outcome.
The Chair
I have asked for the volume to be increased, because I know that some Members are struggling to hear.
Graham Barrow: I will move my microphone closer.
The Chair
Yes, if you could speak directly into your microphone, we would be very grateful.
Dame Margaret Hodge
Q
Graham Barrow: Absolutely. What I am looking at is probably not even 5% of what I could look at in terms of suspicious activity and red flags. I have not the hours in the day; bear in mind that I do not get paid for any of this, so it is a labour of love, or whatever. There is a sensible answer, which is that we are now in a world where data is manipulated really easily and in bulk. Therefore, something that my company has done is to design algorithms that looks at clusters of red flags. If all we look at, Dame Margaret, is red flags, we are going to be overwhelmed. We have to accept that we cannot address every issue straightaway, which means that we need to look at clusters of red flags, which, taken together, can indicate significant organised crime or corruption that is being utilised through the formation of companies.
This year I have seen one organised crime group create about 1,500 companies, using data that they have stolen from two major global organisations. These are HR files, so the data is replete with all the personal information of those employees, who have then found themselves directors of companies that have been registered to empty shops, which have then been used to access banking, particularly overdrafts or other banking credit. There are about 1,500 companies, and the average overdraft might be £5,000 to £8,000; you do not need too many of them to be successful to understand that millions of pounds are being extorted or fraudulently obtained from banks through this ease of use.
Something else that is really important is the ID&V piece. If you have stolen ID&V data from, for example, a company’s HR files, the implementation of proof of life at the same time—that is, you do not just have the documents, but can prove it is you by having some form of selfie or other real-time interaction—is vital, because these people do not just set up companies; they open banking with them. Banks can be criticised, but they do an awful lot more due diligence than Companies House. If these people are opening bank accounts, the ID&V they currently have is clearly high quality. We must bear that in mind.
Gavin Newlands (Paisley and Renfrewshire North) (SNP)
Q
Graham Barrow: Probably not. We have done some analysis of phoenix companies. For example, I think that something like 30,000 companies on Companies House have changed their name for fewer than seven days and then changed it back to its original name. That is a variety of phoenixing by which you disappear from your company name for a few days and then come back again. As you will probably know, Gavin, every year on Companies House there are thousands of proper phoenix companies—those that have dissolved and reopened, either geographically close or at the same address with virtually the same name. It is a real issue, and it is part of the whole broader issue of company name observations. There was a piece on “You and Yours” on Radio 4 a few weeks ago about a lady who had Asda Ltd registered to her terraced house in Huddersfield. She received 7 kg of post and all sorts of other things, and bailiffs turned up at her door.
The Bill does include the ability for Companies House to reject similar names, but if you have 3,000 companies a day—and that extends to companies across the world that may have similarities—I do not see how you are going to enforce that reasonably. There is just too much volume and too many potential comparative data points to compare them to. That is a huge issue, and one that inserting a little bit of friction between application and registration would help to address. At the moment, the focus is entirely on speed of getting on to the register. Putting in a bit of friction to do some proper checking would be a good idea.
Gavin Newlands
Q
Graham Barrow: Being clear that a company will not be allowed on to the register until those full checks have been made would be one. I would also be a lot stricter about the ability for people to register a company that has significant similarities to a previously registered and dissolved company. That may need a bit of crafting, in terms of the words, but I do not think that is beyond the wit and wisdom of people.
Companies House refused to dissolve or eject Asda Ltd because it was not close enough to Asda Stores Ltd, which is the actual name of the well-known supermarket. That seemed to be a bit of a nonsense. I am not saying that Companies House did not apply the law correctly; it suggests the law is not very good in terms of the intellectual capital.
There is a guy in Cheam who has legitimately registered Renault Ltd, Volkswagen Ltd, Adidas Ltd and Asda Ltd—which he re-registered after Asda Ltd in Huddersfield got struck off. That is simply nonsense. Intellectual capital is clearly being compromised by those registrations, yet we do not currently have the powers to deal with it. I know there is wording in the Bill on this. Obviously, the proof of the pudding is in the application of that, but I would like to see it tightened.
James Daly
Q
Graham Barrow: I guess the Bill is trying to assist by not allowing that to happen in the first place. That is the premise, is it not—that you should not be able to get somebody without their clear permission?
James Daly
Q
Graham Barrow: That is a difficult one to answer, because very often the address that appears on the public register is not their own address. However, it is potentially likely that a residential address appears on the non-public aspect of the register, because that is often the conduit for getting access to banking, as they will do electronic identification checks against somebody’s residential address rather than other elements.
At the moment, there is one piece that is rightly hidden from public view, which is the director’s residential address. That is almost certainly used by criminals where they have access to it, because that opens up access to banking. If we are not successful in stopping fraudulent use of directors’ names and addresses, the Bill needs to be looked at carefully in its ability to give redress to that, without, of course, allowing people with rather ulterior motives trying to remove legitimate directors because they have some sort of vendetta.
We should always remind ourselves that, in our attempts to correct all of the bad stuff, we must not make it possible for people to use those corrections to then make life harder for the people who are doing the job legitimately. That is an ongoing discussion, I think.
Tom Tugendhat
Q
Graham Barrow: That is kind. You must understand that I am a private citizen, so I do not have access to huge swathes of information that I would love to be able to get hold of to give a much rounder view of that. Companies House, of course, does, so there are some interesting things that it will have, such as email addresses, IP addresses and credit card details.
There are some important provisos there. Do not allow people to pay for their enrolment through a pre-paid credit card. That would be a bad thing. Do not allow people to apply through a virtual private network—a VPN. That would be a bad thing. Do not allow people to apply through something like Proton Mail or an encrypted mail account. That would be a bad thing. What we need is transparency in all those things so that we can aggregate that data with, for example, data from His Majesty’s Revenue and Customs, voter roll data and other data, to get a much more rounded picture of people who are applying for company directorships.
Now, that only works here in the UK. It is worth bearing in mind that about 150,000 company incorporations every year emanate from outside the UK. That adds further difficulty. There were 50,000 applications from China last year, so that is clearly a problem. Incidentally, those numbers soared after China banned cryptocurrency at the end of September last year. There was an extremely easy to observe uptick in UK corporate registrations from Chinese individuals.
The Bill will start to address such a range of issues. I think it will be the first of many if we are really going to make our corporate environment safe and secure, and start tackling economic crime and the abuse.
Tom Tugendhat
Q
Graham Barrow: No. I am saying that for the purpose of registering a company in the UK, you should not be afforded that benefit.
Tom Tugendhat
I understand the distinction. I just wanted to make the point. As you can understand, it would raise other difficulties.
Graham Barrow: Absolutely.
Tom Tugendhat
Q
Graham Barrow: They are good friends.
Tom Tugendhat
They are brilliant. These people are quite literally on the frontline of our democracy, defending our freedom by defending our corporate integrities. Their work is extraordinary important. I would be grateful if you would say a little bit more about shell companies.
Graham Barrow: I count all those people as friends. Oliver and I exchange daily emails. We work very closely together. The last time we met was on a bus.
Tom Tugendhat
I should put on the record that he is a friend of mine as well.
Dame Margaret Hodge
Of lots of us around the table.
Graham Barrow: Shell companies are containers. Effectively, it is a container for assets. They are used in a whole variety of ways. They are used, clearly, as conduits for corrupt and criminal funds to be moved around the world. They are also used just as a container to access banking and do as I have just described—a one-off hit to get a bank account open and get an overdraft.
I have seen physical evidence of a company being incorporated to an address of somebody in Cardiff who knows nothing about it; on the same day, they open a bank account with one of our high street banks, and on the same day, they remove the automatic £8,000 overdraft that came with that bank account. Then they disappear, and of course it turns out that they were untraceable because none of the details they provided were real. That is a shell company, because that is not doing any normal commercial activity.
The Committee mentioned addresses earlier. I am sure some members of the Committee will know that there are addresses in central London that are home to 100,000 companies. That is clearly a matter of concern, particularly with the proportion of those companies that are registered from some of the more remote parts of the world—places you would struggle to find on a map—that concentrate at those addresses.
We need to be quite clear about the legitimate use of corporate service provider addresses. Some of our banks now provide that as a service. That is fine. There is one firm that offers this thing called a non-resident package, which should immediately make your ears prick up. Somebody from outside the country can register a business and be given the business bank account for a fixed fee. That bothers me hugely, because it makes me ask why.
The thing about shell companies is that they are not always easy to identify at the point of incorporation. We are getting very good at it, but it is still not an exact science. It is about lifetime analysis of a company’s behaviour, as well as some of the red flags that are raised at the point of incorporation.
Tom Tugendhat
Q
Graham Barrow: It probably does not assist me an awful lot, because I do not have access to a lot of the other data that particularly members of JMLIT, and other law enforcement and Government organisations, have access to. As a private citizen, I will not have access to that much more information. That is probably a good thing, because I am already drowning in information. For a man who is going to be 70 next birthday, it is not exactly the retirement that I had planned. In a way, I think the best thing I can do is help to inform and educate others so that as the Bill starts to generate that information, some of which I will not be privy to, I can at least help people to understand better how to analyse and aggregate that information to extract signals.
Ultimately, there will be too much information to do everything with, so it is about how we organise ourselves, particularly at the point of incorporation, so that instead of waiting for a problem and going back to see how it happened, we identify that problem in the process of being set up, and start proactively managing the people who are part of organised crime or corruption and are using or abusing Companies House to do that. We have never done that before, to the best of my knowledge, but we are now in a situation where we can start doing it.
Dame Margaret Hodge
Q
Graham Barrow: Dame Margaret, you ask me a tricky question because I worked at Deutsche Bank, and some of what I know is privileged and I cannot talk about it. In fact, my work in Deutsche Bank is what has led me to be sitting here, because it was while I was there working on the Russian mirror trades that I realised that two completely different firms had filed exactly the same set of accounts—identical accounts—signed by the same person. My rather naive reaction then was, “How on earth did this happen?” I know better now. That person’s name is in the public domain: it is Ali Moulaye. He is a dentist who currently lives in Belgium and has been written about frequently. I kind of discovered him, in a way. He has signed more than 10,000 sets of accounts on Companies House on behalf of at least 2,500 limited liability partnerships, a significant proportion of which have, sadly, been named as being involved in various laundromats.
One issue was that all those accounts were filed on paper and were then scanned in as an image, not as a machine-readable document. That is a really big disadvantage, because it prevents people such as me, or those with access to clever technology, from reading those documents into artificial intelligence engines and performing deeper analysis on them. It is a very difficult problem. It would be a wonderful thing—although I suspect quite labour intensive—to retrospectively digitise all those old PDFs, because there is a huge wealth of intelligence still residing in them that we truly do not understand. That is also very much true of limited partnerships, which still can only file on paper. The only way to incorporate a limited partnership is on a paper application. That makes reading the data on those registration forms extremely difficult, which is why lots of it has remained hidden for so long.
The Chair
If there are no further questions from Members, I thank the witness; Graham, thank you very much for your time.
Economic Crime and Corporate Transparency Bill (Fourth sitting)
Thursday 27th October 2022
(2 years ago)
Public Bill CommitteesRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 27 October 2022 - (27 Oct 2022)
The Chair
We will now hear oral evidence from Angela Foyle and Mike Miller from the Institute of Chartered Accountants in England and Wales. We have until 2.20 pm. Could the witnesses please introduce themselves for the record?
Angela Foyle: I am Angela Foyle. I am the head of risk management and economic crime at BDO Global, but I chair the economic crime sub-committee of the Institute of Chartered Accountants in England and Wales.
Mike Miller: My name is Mike Miller. I am the economic crime manager working within the Institute for Chartered Accountants in England and Wales.
Liam Byrne (Birmingham, Hodge Hill) (Lab)
Q
Angela Foyle: Publicly, it is stated that London is one of the key capitals of money, but that is partly because it is the largest financial centre in the world, so you will inevitably have dirty money flowing through. There is that view. It is something that the US, in particular, has made comment on at times. On the other hand, when talking to Europeans, we are also recognised as being at the forefront of introducing legislation in relation to money laundering regulations and enforcing them, to some extent, compared with other jurisdictions. It is a bit of a mixed bag, depending on who you are talking to and in what context.
Liam Byrne
Q
Angela Foyle: I think what I meant by that is that it is inevitable that you will have some illicit finance where there are significant movements of finance. I am not saying it is good—I think it is wrong. I think we should stop it to the greatest extent that we can, but where do you hide a tree? It would be in a wood. So, where are you going to hide dirty money? It is going to be somewhere where an awful lot of money is flowing through.
It is not that I think it is a positive thing at all; I think it is very negative. I actually spend most of my working life trying to see how we can prevent accountants and others—I have forgotten the word I mean—unknowingly getting involved with it. It is a problem for London that we have to be acutely conscious of, and therefore we have a greater responsibility, in many ways.
Liam Byrne
Thank you—that is well put. Mike, what is your view on that?
Mike Miller: I agree with Angela. London is such a large financial centre and there is such a volume of money moving through it that there inevitably will be, as Angela said, some money that is not well sourced and not well processed. That being said, we work very hard, particularly at ICAEW, to try to clamp down on it. Illicit finance and illicit transfer of funds affect the profession particularly badly. They put people in a very difficult position, both reputationally and legally. You will find the vast majority of chartered accountants and other professionals do not want to engage in unprofessional and malicious practice when it comes to that finance. We work very proactively with Committees, Parliament and across Government to make our representations about how this can be more effectively countered.
Liam Byrne
Q
Angela Foyle: It is interesting, because we would probably put it the other way around. The standard—sorry, I beg your pardon, I was thinking about the earlier Bill. Yes, this Bill has two forms of verification, by either Companies House or authorised corporate service providers. It does not appear to have the wording that would be in the money laundering regulations, which requires there to be reasonable verification measures using a risk-based approach. I think those kinds of words always assist, so that you actually have to assess and understand the risk surrounding the people you are trying to verify first, and therefore, if necessary, enhance your level of verification.
Liam Byrne
Q
Angela Foyle: Around verification, yes. There is a spectrum, however. Requiring that someone has to verify, that is, prove, that that is true goes beyond what is possible for an accountant. I can look at documents. I can take careful measures to ensure that those documents are, or appear to be, valid, but I cannot actually ever say with 100% certainty that x is x; I can simply say that I have done the following work and, based on that, these are reasonable measures on the risk basis. I certainly think that is an area that could be, at the very least, clarified as to the standards expected to ensure that they are consistent.
Liam Byrne
Q
Angela Foyle: It is based on the Financial Action Task Force standards on beneficial ownership, which looks to people who own 25% or more, in some cases, or more than 25% in others. It is one of those challenging issues because, in relation to things such as proxies, often it is not the about the levels that a person owns, it is the fact that x purports to be the person who holds it, when actually they actually do so on behalf on y, which can be very difficult to track through.
Many people look below 25% in any event just to make sure. Particularly with sanctions, they will have a look there. But 25% is a global norm and changing it might cause other challenges. This is the question: are you satisfied that you understand who the people that you are dealing with are, and who is behind them, at all times? It is not necessarily a question of whether it should be 20%, 5% or 25%. It is a hard one for me to answer because I work with 25%, but I will generally have a good look around to see what else there is.
Alison Thewliss (Glasgow Central) (SNP)
Q
Mike Miller: Indirect information provision essentially relates to a third-party database which would allow the easier sharing of information between financial firms. The ones that are already mentioned include banks, crypto exchanges and various different entities that could be privy to malicious financial movements, essentially. The accountancy sector has not been included in that, so for the purposes of a lot of the work that we are doing about the open sharing of information with law enforcement, between bodies, between other firms, it would be helpful for the streamlined moving of information. It would certainly help accountancy firms to identify more quickly, and thus reduce the likelihood of, any bad transactions taking place. An accountancy firm could avoid getting embroiled in things it does not wish to get embroiled in if it had pre-emptive access to any intelligence—that may have been discovered by a bank, for example, looking in more detail at specific financial transactions than accountancy firms tend to—that indicated that it should not be doing business with particular entities.
Alison Thewliss
Q
Mike Miller: I do not have the up-to-date figure with me today, but I can come back to the Committee with that in writing. Generally, in OPBAS, we are obviously very supportive on the need to have professional bodies for oversight of regulation for anti-money laundering. There is obviously a Treasury consultation going on into the potential restructuring of OPBAS. We have been working closely with it to ensure that our members are represented, but also so that it will be the most effective oversight that it can be.
ICAEW is the largest supervisory body in that space. We are very proactive in taking a risk-based approach. We cover a lot of firms, and it is necessary that a lot of those inspections are carried out based on where we assume there is a higher level of risk of illicit financial transactions. Whether that should be changed is obviously something that we will come back to in the consultation.
We have been speaking regularly to Treasury and other groups. They are collecting intelligence to try to determine, I think, some concrete proposals before they put it out to consultation, but we are very supportive of OPBAS. We continue to work closely with it and have a strong supervisory body in place for the PBSs.
James Daly (Bury North) (Con)
Q
Angela Foyle: I am not so sure the first one will affect us, at £1,000. The second one may facilitate certain activities for our insolvency practitioners, particularly where they are appointed in circumstances where they know that there has been some form of fraud—be that tax fraud or what is often called “fresh air invoicing” or invoice discounting fraud, where there is a set amount of money that is known to be tainted—because, currently, all of the assets of the insolvent entity can often be tainted, and defence against money laundering applications have to be made for each and every transaction done. By having that, they will be able to ringfence certain amounts that they know to be tainted—they would obviously do investigations to ensure that they have got that amount correct—and then deal more quickly with creditors and others with the remainder of the funds. In that sense, we certainly welcome that amendment. It is one that we raised with the Home Office, alongside the banks and, I believe, the Prison Service may have wanted it as well.
James Daly
Q
Angela Foyle: There are a number of areas in which it will affect us. We are very much in favour of the changes to Companies House, I must say, and of giving additional powers to it. We are incredibly supportive of that.
One example that we can give relates particularly to the misuse of registered offices. All the firms have found instances of people effectively putting their address as offices of accounting firms, presumably to give them credibility. In some cases, that is linked to using names similar to either regulated or existing lawful businesses. Again, that is clearly intended to facilitate fraud. Currently, it can take months to get people off that address, but with the additional powers, we are hoping that that can be done much quicker.
Similarly, with other misuses, such as the inability to contact businesses, there is also the identification of directors to ensure that you are dealing with the people that you think you are. Even if those perhaps could be strengthened in some ways, I think there is a lot that is positive in the Bill. It is a staging post, but it is a really important one.
Mike Miller: I agree with Angela, particularly on the point about Companies House. We are definitely behind the reasons for and the principles of the Bill; we are very supportive of all that it seeks to do. We have been saying for quite a while that some of these measures are overdue, particularly those on Companies House, as Angela mentioned. We have proposed some tweaks for a few areas, particularly around verification, as we have touched on before. There is going to be a two-tier verification in the sense that Companies House will be responsible in some way or another for the verification of those that are registered in the UK. For overseas entities, that is a bit more of a challenge, because they require legal verification and we currently think that the legislation is such that it does not really allow a reputable business to take on the level of risk of a new client unless they have a particularly established relationship.
We have made some recommendations to our members that they need to exercise extreme caution taking on new clients solely for the purpose of verification. That is so the system works; it is not so that they avoid it. It is so that it does not, first, stop people being able to do business in the UK when they rightly should be able to, and secondly, so that if the larger, more reputable firms do not offer that service, then it becomes something that is picked up by those that we may not necessarily want to offer that service.
We have also recommended a couple of areas where we think it could be strengthened, particularly around notifying Companies House of a change of auditors, so there is a two-pronged approach. That is so that companies themselves, for example Angela’s firm, knows that they have been assigned as an auditor, to make sure that is correct and they audit the company, and for Companies House to make sure that a company is audited as it should be. We think that would reduce the likelihood of discrepancies coming in, going forward. However, overall, we are generally supportive.
Dame Margaret Hodge (Barking) (Lab)
Q
Angela Foyle: I do not know the proportion, but there are about a hundred and something thousand members.
Mike Miller: Yes, about 110,000 members. I am not sure of the proportion.
Dame Margaret Hodge
Q
Angela Foyle: Not by the ICAEW, but there are other institutes out there.
Dame Margaret Hodge
Q
Angela Foyle: We are the bigger one, but they may be by someone else. There are also people who are not regulated by any professional body who can call themselves accountants as well.
Dame Margaret Hodge
Q
There are two things I wanted to ask. One is about the current system of regulation. You as professionals play a role in the system. What changes would you make to ensure the current regulation encompasses all those who call themselves financial advisers or accountants? Secondly, how good are you at your policing role? You obviously have a lobbying role and looking at both your CVs, you are on the lobbying side to make sure regulation fits what your profession wants. I am much more concerned about the policing role. Can you tell me how many people in the last year have been suspended, or whatever it is you do to them, if they have been found guilty of engaging in, facilitating or colluding with economic crime or money laundering or anything like that?
Angela Foyle: I do not think we have the numbers for the people this year.
Mike Miller: We do not have the numbers up to date for this year.
Dame Margaret Hodge
Q
The Chair
I am going to have to curb this and move on very briefly to Tom because we have to finish.
The Minister for Security (Tom Tugendhat)
Q
Angela Foyle: Neither of us is part of the Law Society so we cannot speak for them, but clearly, that was something that was thought to be necessary as a deterrent. Although I expect most of them are likely to be regulated by the Solicitors Regulation Authority for money laundering, rather than the Law Society. However, it must have been a gap that was thought to be necessary to fill. I really do not know, otherwise; I am speculating.
The Chair
Thank you very much. That brings us to the end of the time allotted for the Committee to ask questions. I thank our witnesses on behalf of the Committee for their evidence.
James Daly
On a point of order, Ms Bardell. As a result of Mr Tugendhat’s question, I had better declare an interest: I am a practising solicitor.
Dame Margaret Hodge
Can I ask something wicked? Can the witnesses provide written answers to my questions?
The Chair
They can indeed.
Mike Miller: I am very happy to.
Angela Foyle: Could we possibly have your question in writing, just to remind us?
The Chair
We will arrange for the questions to be delivered to you in a written format and additionally distributed.
Examination of Witness
Peter Swabey gave evidence.
The Chair
We will now hear oral evidence from Peter Swabey of the Chartered Governance Institute UK & Ireland. I hope I have pronounced your name correctly.
Peter Swabey: It is pronounced “sway-bee”, but that is fine. I am used to all sorts of things.
The Chair
Q
Peter Swabey: I am Peter Swabey, and I am the policy and research director at the Chartered Governance Institute UK & Ireland. The institute is the professional body for people who work in governance, which includes company secretaries and governance professionals in all sectors.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
Q
Peter Swabey: The institute and its members look at governance. Effectively, they are the people who are responsible for filing documents at Companies House and for advising boards on good governance. In that sense, they are perhaps less directly involved in economic crime than some of the other bodies you are hearing from.
From our perspective, the Bill is a really good effort. While I was sitting at the back, somebody said that it was regarded as a starter for 10. I think the Bill is a really good start on a lot of things that a lot of people have been thinking that Companies House should have been doing all this time—indeed, many people thought Companies House was doing it all this time, but it has not had the powers to do so. From that perspective, giving Companies House some of those powers is a really big step forward. There are a few things that I would perhaps have done differently, but that is in the realm of detail.
Seema Malhotra
Q
Peter Swabey: The big gap, from my perspective, is around the role of the company secretary or governance professional in the Bill. We were just hearing a bit about the arrangements for who is allowed to deliver documents for the authorised corporate services professionals. In most companies, it would be the company secretary who takes responsibility and ownership for doing that. That is something that we would like to see more specifically included in the Bill. The Government’s intention may be to include that in the regulations that the Secretary of State has the power to make. That is fine—that is regulations—but I would much rather see it in the Bill and, ultimately, the Act.
Seema Malhotra
Q
Peter Swabey: For me, it should reference the role of the company secretary. I have a slightly wider issue than that. The Companies Act 2006 got rid of the requirement for a company secretary in all companies. That was deregulatory—that was fine—but we now rely much more on the reporting that companies do and the filings that companies make, so I believe there should be a requirement for a company secretary, not just in public companies, as there is now, but in larger private companies that also have to meet some of these requirements.
Alison Thewliss
Q
Peter Swabey: Yes, I think there are. We have regular engagement with Companies House and that is one of the things that it is seeking to tackle already, but will also seek to tackle through the powers and resources that it will hopefully get as a result of the Bill. It would great if everything that has to be filed at Companies House can be filed electronically. There are still a number of things that cannot be. Again, that may be changed as a result of the changes that Companies House are making to their system but, as we stand at the moment, there are things that cannot be filed electronically.
In terms of use, there is a question that companies sometimes get feedback on from shareholders, which is on the availability of information, particularly about retail shareholders, and particularly for those companies that have large registers of members. Individuals on this Committee, or me, or whoever—their name and address might be at Companies House in respect of a holding of 100 shares in a company. If it is a big public company with millions and millions of shares, that is probably not that helpful. There are people who buy copies of the register for commercial purposes. It would be quite useful to tighten that up.
Alison Thewliss
Q
Peter Swabey: Yes, I think it is. It is an issue in a couple of ways. We just heard about the challenges in correcting deficient information. There are a number of plcs that have reported that their registered office address has been used for companies of whom they have never heard. If you are a plc with a large number of subsidiary companies, that could quite easily be overlooked by people. As somebody said in the last session, that is then used to give credibility to the potentially fraudulent company that is being set up. Being able to fix that more quickly is certainly an advantage.
James Daly
Q
Peter Swabey: I think it makes it a little more difficult for some people. I am a company secretary, so I would argue that you simply have to plan it all a bit better, and perhaps think about some of that a little more in advance. It will mean that some corporate transactions that you can currently deal with very quickly by simply having a meeting in a room and agreeing that so-and-so and so-and-so are the new directors will now have to go through a process. We are all hoping that, as promised, Companies House will manage the verification process for new directors expeditiously so that that will not hold things up unduly, but it is an additional factor to bear in mind.
James Daly
Q
Peter Swabey: You have to name the directors. You have to give some sort of evidence that the directors are real people who you know, so some piece of personal information about them. That might be their eye colour or their national insurance number. Nobody actually checks that, by the way. You just have to fill the box in. You have to have a registered address for the company and a few other details, but it is a relatively simple process.
James Daly
Q
Peter Swabey: I think it is fair to say that at the moment it is nothing like as secure as any of us would like it to be, and the Bill is a big step forward in tightening that up. I would still like to see it go further in some ways.
Dame Margaret Hodge
Q
Peter Swabey: It is really important to make sure that the hoops through which those authorised company service providers go before they become authorised are significant, to make sure that we can have confidence in that.
Dame Margaret Hodge
Q
Peter Swabey: That would entail detailed verification of who people were, of who the ownership was and how that was structured and, effectively, Companies House having a bar to doing that. Where I would take issue slightly with the premise of your question is when you talked about SMEs not needing or not having space for a company secretary; most of them have an accountant and all sorts of other things. It does not have to be a full-time role; someone can be doing it part time, but what is important is that someone who knows what they are doing is looking after those issues.
Dame Margaret Hodge
Q
Peter Swabey: No, it is not something that our members—
Dame Margaret Hodge
Q
Peter Swabey: I cannot help you much with that, because we are not a supervisory body in that sense.
Dame Margaret Hodge
Q
Peter Swabey: We give advice on what is good governance for organisations, not on the supervisory role.
Liam Byrne
Q
Peter Swabey: You have the directors’ duties under section 171 of the Companies Act and so on. Those are there, but it is difficult to identify exactly how those directors’ duties can be pursued against any defaulting director. For me, that is one of the challenges. Were you to introduce something extra on that, that would be a solution, but again you would need to look at how that could actually be enforced.
Tom Tugendhat
Q
Peter Swabey: The Bill deals with some very specific issues, which are not necessarily those. I think that the Bill would need to be broadened significantly were it going to get into things like sustainability, corporate social responsibility and so on.
Tom Tugendhat
Q
Peter Swabey: No, I think that is very important for governance. What I was saying was that you were then talking about some of the other issues, such as corporate social responsibility, which are probably outwith the scope of the Bill as it stands.
Tom Tugendhat
Q
Peter Swabey: Absolutely, yes.
Tom Tugendhat
Q
Peter Swabey: Yes, you are right. I had not thought of that aspect of it—I was thinking in terms of the reporting that companies do—but yes, in terms of tracking down defaulting companies, I think it will help you.
Tom Tugendhat
Q
Peter Swabey: Yes, absolutely. Removing the ability for companies to go bust one day and reappear the next with a very similar name and very similar directors, but without all those tedious debts that they used to have, is one of the really important issues.
Tom Tugendhat
Exactly—phoenixing.
Peter Swabey: I think that is really important.
Tom Tugendhat
Q
I also wondered if you could talk a little bit about whether you think it is going to help with economic crime. Clearly, although I am not a BEIS Minister, one of my responsibilities is fraud. The presence and disappearance of corporate entities is, I am afraid, something that has caused more than its fair share of fraud. How do you think the Bill might be able to help with that?
Peter Swabey: I think the Bill will help with that by making it possible to have greater confidence in the directors who are responsible for those companies actually being real people. We were talking a little while ago about the ease with which you can set up a company, and the limited verification of directors that goes on. We have a verification process in the Bill that will help to ensure that those people are actually the people you believe them to be, and that there is an address where you can get hold of them and, particularly, where the forces of law enforcement can get hold of them should they need to. That is a real strength.
Tom Tugendhat
I am very grateful, not only for your evidence today, but for the work you do and the oversight you bring. It does make a huge difference, and I am very grateful indeed for it. Thank you.
The Chair
Thank you very much. If there are no further questions from Members, we will thank the witness for his evidence and move on to the next panel. Peter, thank you very much for your time; we greatly appreciate it.
I am going to suspend the sitting, because we have a little bit of time before the next evidence session, and the witness is not in the waiting room yet because she is giving evidence via Zoom.
The Chair
I restart the sitting with our sixth panel . We will now hear oral evidence from Catherine Belton, journalist and author. Catherine is appearing via Zoom. We have until 3.10 pm. Catherine, could you please introduce yourself for the record?
Catherine Belton: Hi, I am Catherine Belton, author of “Putin’s People”. I am a reporter with The Washington Post.
Seema Malhotra
Q
Catherine Belton: There is a very simple answer to this, though I should basically preface all my answers by saying that I am not an expert on the Bill like some of my colleagues, such as Oliver Bullough. I have not studied it deeply, but what I can speak to is the urgency of these reforms, because of the threat posed to our national security. There is also a dire need to push through the anti-SLAPP legislation.
All these deep-pocketed oligarchs are essentially taking advantage of our system and are able to outspend not just journalists but financial watchdogs acting in the public interest. They are outspent and intimidated out of pursuing any real investigation into financial misconduct. They know from the outset that they may lose.
You only have to look at the example of the Serious Fraud Office and its battle against ENRC, which was once listed on the London stock exchange, then delisted and owned by a trio of Kazakh fraudsters essentially. The amount they spent annually on legal cases in the UK was £89 million, which is over the annual budget of the Serious Fraud Office. Though the Bill is of dire importance, without greater spending and funding for our public watchdogs—the National Crime Agency, Serious Fraud Office and other entities—we are going to be stymied from the get-go.
Alison Thewliss
Q
Catherine Belton: The UK, like many other countries, has welcomed capital from places such as Russia with open arms for the past 20 years. It is certainly a place that Russian oligarchs have flocked to, not only because they want to be part of the UK establishment but because they have clearly taken advantage of our lax legislation and regulation compared with the US, for instance. If you are listing a company in the US you face the Sarbanes-Oxley regulations, and you have committed a crime if you are found to have lied on your financial disclosures. Here, there seem to be so many loopholes; people can get away with everything.
We only have to look at our Companies House institution to see that there is very little scrutiny of filings that people are making. We have all heard the obvious examples of people not disclosing anything. I think you are a great expert in the use of limited liability partnerships by Russian money launderers. UK LLPs have seen tens of billions of dollars’ worth of illicit Russian cash move through them over the last decade or so.
Most of those money laundering schemes have been overseen by the Federal Security Service of the Russian Federation. It has a money laundering department called Department K, which has overseen all those schemes and has had an involvement in each and every one of them. I am told by security officials in Moldova—where one scheme used LLPs to move tens of billions of dollars of cash into the UK—that essentially the schemes are used not just by Russians seeking to move money to evade customs and tax, but by the Russian Federal Security Service itself, because it sees the greater flows of cash as cover for it to move its strategic cash into our jurisdiction.
I must again point to the need for SLAPP legislation and ask whether that could, or should, be attached to the economic crime Bill as it stands. If we do not enable journalists and financial watchdogs to look at those entities without fear of getting crushed by enormous lawsuits that will cost more than anyone’s budget allows, then we are going to be open to this type of abuse of our system forever. It was only July when Dominic Raab, the Justice Secretary, finally and wonderfully—it seemed like a miracle at the time—forwarded that anti-SLAPP legislation. It was going to allow for an early dismissal mechanism for cases that were clearly an abuse of the law, and aimed at intimidating journalists and financial watchdogs out of reporting matters of public interest—whether financial misconduct or something else. There has been a great deal of turmoil in Government since then, but we are seeing that SLAPP cases have very much not gone away.
The esteemed Chatham House think-tank recently had to remove the mere mention of a Tory donor, who had previously been convicted of money laundering, from a report on the abuses of the UK system by kleptocrats. The past of our Tory donors is something that we should know about, yet Chatham House had to erase its mention of that donor from its report. Staff looked into how much it was going to cost to defend, even though it was clearly public interest reporting. There was not really much to dispute about it, but they found it was going to cost them £500,000 before the case even got to trial, which means there is something so deeply wrong with our system, and we cannot even begin to combat any of these issues without having these anti-SLAPP measures in place. That is not just for journalists but for the Serious Fraud Office and for other public interest watchdogs.
Alison Thewliss
Q
Catherine Belton: Yes, for sure. Obviously, the companies pursuing these abusive cases should face having to carry the full cost of the case. I have a colleague at the Foreign Policy Centre, Susan Coughtrie, and she and Charlie Holt of English PEN have been working on a new Bill for this SLAPP reform, and I very much recommend that you speak to them as well. That Bill would provide even tougher requirements for cases to really show a likelihood of success.
What the Ministry of Justice proposed was like a three-step set of criteria for judges deciding whether a SLAPP case is a SLAPP case, and whether it should be dismissed before the costs racked up too highly. One of those criteria was whether the case being pursued had a realistic chance of success and it is very clear that this type of criterion needs to be toughened up. I certainly recommend that you speak to Susan Coughtrie at the Foreign Policy Centre about ways in which to do that.
However, I guess that my question to you would be: “Do you think there is a significant possibility that the anti-SLAPP Bill could be attached to the Economic Crime Bill? Is that something that will this speed up?” It is so vitally needed—more than ever. I mean, it is completely—
Alison Thewliss
I think my colleagues and I are interested in hearing this.
The Chair
It is a very important question, but unfortunately we have to stick to Members asking witnesses questions. However, I am sure that you can put those questions to our esteemed Members in other forums.
I will move on to James Daly now, because there are a couple of other Members who are keen to ask questions.
James Daly
Q
However, I just wanted to ask about money laundering. To make a very straightforward point, you obviously need a bank. If you have got a fake financial institution, or a legal entity set up for criminal purposes, you need a means of transferring money, either out of that body or into it. Could you talk about any thoughts or experience that you have, including regarding anything that you have investigated, that touches on that point and on what we can perhaps do to address it?
Catherine Belton: I think it goes back to this issue of LLPs and how these limited liability partnerships have really become, over the last two decades, the vehicle of choice for Russian money laundering schemes in particular—at least the ones that I have studied.
There was the “Moldovan laundromat”, which used LLPs based in the UK, including in Scotland, to move $14 billion out of Russia in illicit cash in the space of four years. That was part of a much bigger process through Danske Bank; I think the total volume of illicit Russian cash coming through Danske Bank was in the realm of $200 billion in just over a decade. That is obviously enormous amounts of cash.
However, it just goes down to the weakness of LLPs and the system that we have created, in which you can have companies established that do not even need to have any real business in the UK; they do not pay taxes here and therefore they did not have to file any accounts. They were not really having to file any beneficial ownership, either. That really means that there has been a huge gap in our legislation. Obviously, the Companies House reform will hopefully provide for more disclosure of beneficial ownership, but there are still so many ways for people to get around it, because Companies House really does not have proper funding to check whether beneficial ownership is being reported properly.
Obviously, the banking system is now under much greater pressure to investigate the source of funds, but while the banking system has become a much more complicated place for people to move illicit money through, the same demands are not placed on hedge funds or private equity funds. There are much less stringent requirements on those types of entities to disclose who their clients are and where the money is coming from. We only have to look at who the major backers of Brexit were. Hedge funds and private equity funds were major donors during the Brexit referendum, and we really had no clue where they were getting the money from.
The Chair
Catherine, we really want to hear from you and make sure that all our other members get to ask questions. We have two other members after James who want to ask questions, so please keep your responses as brief as possible, with all the information that is possible to get across.
James Daly
Q
Catherine Belton: Yes, that is exactly right.
Liam Byrne
Q
Catherine Belton: I think this has become a key way in which the Putin regime is able to extend its soft power and influence and undermine our democracies. That is very clear, because you can have vast flows of pretty much untraceable money, especially in the case of LLPs. Once it goes through a UK LLP, no one has any clue where any of that cash has gone. Vladimir Putin believes that the weakness of the west lies in our incessant drive for profits and the belief that the more Russian cash there is in the UK, the more Russia will have to follow our corporate governance standards.
Unfortunately, there has been a great lack of corporate governance standards, which has allowed our system to be corrupted. It has really laid bare how powerless some of our oversight bodies and enforcement agencies are. You only have to look at the National Crime Agency’s investigation into the source of the donation that Arron Banks gave to the Brexit campaign to see just how feeble our institutions are, at a time when we really need to be empowering them. When the NCA had to look for the source of the £8 million, it could not go any further than the Isle of Man company co-owned by Arron Banks. We do not know where the money came from.
Liam Byrne
Q
Catherine Belton: Yes, I am, of course. Obviously, that has an agenda, especially when the UK Parliament’s own Intelligence and Security Committee has pointed out the very close links between Russian business, the Russian state and Russian intelligence. Basically, Russian businesses very often have to act as arms of the Kremlin or follow Kremlin orders. Russian businessmen have to follow Kremlin orders in order to hold on to their wealth. It is not just money that is coming into our system and making everyone rich; it is money with an agenda, and that agenda can be to undermine our democracy.
Liam Byrne
Q
Catherine Belton: I think it will be half-baked if it does not include that amendment. Obviously, it is great to have better laws, but when financial watchdogs, public oversight bodies and journalists are still unable to cast a light on some of the financial transactions of the super-rich, from fear of these crushing lawsuits, it means that you have a system that is only half working. Law enforcement relies, and has relied in the past, to a great degree on journalistic investigations, including for instance by the OCCRP; its reporting has led to some very important cases.
Dame Margaret Hodge
Q
Catherine Belton: I wrote a book called “Putin’s People”, which was about Putin’s rise to power, the continued role of the KGB and how Russia was using oligarchs—Russian businessmen—to further Russian influence in the world. I was writing precisely about how many of the oligarchs, such as Roman Abramovich, were essentially forced to act as arms of the Kremlin, because otherwise their wealth could be jeopardised. Putin’s hold on power was such that anybody who did not obey his orders could face jail or the seizure of their companies.
Abramovich was very upset when I suggested in the book, quoting three former associates, that he had acquired Chelsea football club on Putin’s orders, in order to acquire soft power and influence in the UK. That, I believe, was public interest reporting. The allegation had been put to his spokesperson, and the response was in the book. He announced that he was suing me personally and HarperCollins—a statement that was swiftly followed by lawsuits from three other Russian billionaires, and then one from the Kremlin oil company Rosneft. The cases were very difficult to grapple with, because there were so many of them all at the same time.
Dame Margaret Hodge
Q
Catherine Belton: Five cases. It cost my publisher £1.5 million to deal with the cases, and they got only to the preliminary hearing stage before they were either settled or withdrawn. Rosneft’s case had to be withdrawn completely because there was no basis for any of its claims. The judge found that one of Abramovich’s claims was completely exaggerated, which allowed us to make minor amendments and avoid the enormous cost of having to continue to fight. Even though we believed that we had a very strong public interest case, our lawyers told us that it would have cost, at a minimum, £2.5 million to continue to defend the great deal of reporting that had gone into my book. It would have taken over a year. Abramovich had twice filed the exact same claim simultaneously in Australia as well, even though he had no business there, and therefore no reputation to protect.
Nineteen media rights organisations said that the cases against “Putin’s People” and my publisher, HarperCollins, bore all the hallmarks of a SLAPP case—that is, they were designed to intimidate the publisher, and they were abuse of process, particularly in the case of Abramovich.
Yes, the judge found that one of his claims was exaggerated, which, according to the Ministry of Justice’s proposal for the anti-SLAPP law, is one of the criteria under which SLAPP cases should be thrown out of court at an early stage. It introduced three criteria. One was that meanings were being inflated or exaggerated by a claimant; that was clearly the case for most of the oligarchs pursuing me. In Rosneft’s case, the judge found that what I had written about Rosneft, the Kremlin oil company, was not defamatory at all, yet my publisher had to spend hundreds of thousands of pounds just to get to the stage of a preliminary hearing, to get it thrown out of court. The proceedings demonstrated how many other UK media organisations had been censoring themselves because they did not want to deal with those enormously costly lawsuits—
The Chair
Catherine, I am really sorry, but I have two more people waiting to ask questions and there is only five minutes. I am so sorry to curtail you.
Seema Malhotra
Q
Catherine Belton: In July, the MOJ forwarded anti-SLAPP legislation. Unfortunately, because of the chaos of the last couple of months, that has not really gone anywhere. That legislation could be attached, as is, to the Economic Crime and Corporate Transparency Bill. The Bill as drafted slightly toughens the criteria for claimants; they have to prove that there is a significant likelihood that they have a real claim. You should speak to the FPC to weigh whether it is worth pursuing their draft laws as a better model, or whether it is enough to use the one already drafted by the MOJ. They had extensive consultations on that, but now it looks like all the momentum has gone. It is astonishing to me that this is not being pursued as a priority, given the situation we are in. It is absolutely vital that we shine light on individuals who may be operating on behalf of Putin to undermine western support for Ukraine, and to undermine our resolve this winter as we face enormous cost of living hikes. It is really important.
Tom Tugendhat
Q
Catherine Belton: You say that this is my 20th or 30th time giving evidence, but unfortunately, it is not. I have only spoken on SLAPPs before. I will leave the realm of Companies House reforms to people who are more expert on it than me.
The Chair
If there are no further questions from Members, thank you very much, Catherine, for taking the time to speak to us.
Examination of Witness
Professor Jason Sharman gave evidence.
The Chair
Last but not least, we will hear oral evidence from Professor Jason Sharman, professor of politics at the University of Cambridge. We have until 3.30 pm. Professor Sharman, could you introduce yourself and give us your background for the record?
Professor Jason Sharman: My name is Jason Sharman and I am a professor of international relations at Cambridge University. I study international money laundering and corruption, often by impersonating would-be corrupt officials, money launderers and terrorist financiers.
Seema Malhotra
Q
Professor Jason Sharman: I would not want to make the perfect the enemy of the good. The legislation is a positive step, but I watched the earlier testimony, and I agree with people who say that the proof of the pudding is in the enforcement. I study politics and international relations; I am less interested in the rules on the books and more interested in what difference they make, if any. If you are a criminal—a money launderer—you do not have to be very original. You do not have to try new things. Things that worked 10, 20 or 30 years ago still work today, so there is no need to change too much.
Seema Malhotra
Q
Professor Jason Sharman: The UK has a combination of a good reputation and lax enforcement. From the point of view of a launderer, that is a bonus: you get double. You get the appearance of probity—other people have mentioned the use of UK companies to open foreign bank accounts—with not much scrutiny and even less enforcement. Transparency is all good and well, but more information by itself does not lead to stronger action against money launderers or corrupt officials.
Alison Thewliss
Q
Professor Jason Sharman: There is certainly more that could be done. Some of it has been mentioned by other people; more money is the obvious one, but that may be necessary but not sufficient. In some ways, the career structure and career incentives for people who work in these agencies needs reviewing: if they start an investigation and it goes well, they get a small bonus to their career. If they start an investigation and it goes badly, they get a very big, indelible black mark, so in terms of career progression, it is safer for them not to investigate things.
One of the main sources of support has not been fully used: there are a lot of people outside the formal enforcement agencies who are very keen to help in this cause, including journalists and those in non-governmental organisations, as well as in the for-profit sector. That potential has not been tapped, so there are certainly things that the Government and the state could and should do, particularly in terms of regulatory agencies; but the area where I think it is possible to make most progress is probably beyond that.
Alison Thewliss
Q
Professor Jason Sharman: It depends what you mean by “secrecy jurisdiction”. A person who has studied this for a long time said this: “People are not surprised when I tell them that the most important tax haven in the world is an island. People are surprised when they hear that the name of that island is Manhattan. People are not surprised to hear that the second largest tax haven is a city on an island. The city is London, and the island is Great Britain.”
We recently formed a shell company with co-authors Michael Findley and Dan Nielson in the United States. It took 137 seconds to incorporate that company. Here, it would probably take you a little longer—it might take you as long as 10 minutes—but you do not really have to show ID in any case, so the barriers are pretty low. If you do not want to use anything as fancy as a limited liability partnership, you can just use a plain old company, and that works pretty well for holding a bank account overseas.
Alison Thewliss
Q
Professor Jason Sharman: I think so. For me, it is telling that in jurisdictions for which incorporations are their lifeblood, such as the British Virgin Islands, it is much slower to incorporate. It takes close to two weeks to incorporate in the British Virgin Islands, and it takes about $1,000. The British Virgin Islands get half of their Government revenue from incorporation fees. They have a real interest in making sure their company registry works well. No one likes red tape and filling out forms, but the idea that you might have to spend a couple of hours instead of 15 minutes, or £50 instead of £12 is, to me, not unreasonable.
James Daly
Q
Professor Jason Sharman: I feel sorry for British Companies House, because it has been given a lot of work without the resources to carry it out. The mismatch between what is expected of an institution and the resources it has to achieve those ends is greater. Company registries are passive, archival organisations.
James Daly
Q
Professor Jason Sharman: No. The UK is typical.
James Daly
Q
Professor Jason Sharman: Yes and no. Generally, yes, but if you want to own property, you never have to touch the banking system. If you want to own a yacht, you can set up the shell company and earn, just like that. You can break sanctions and own property with a shell company, even without a bank account.
James Daly
Q
Professor Jason Sharman: Again, banks have had these requirements to establish the beneficial owners for a while. I think this is good, but it is the enforcement that is key there.
Dame Margaret Hodge
Q
Professor Jason Sharman: I probably differ from many of the other people who have spoken in that I am not a fan of failure to prevent. I think that the goal of these laws is to make life hard for bad people without making life hard for good people at the same time. To the extent that you have really onerous regulation or weaken the presumption of innocence, that is something of an own goal or collateral damage. Before you put people in jail, you should be pretty serious about it. There should be a mental intention there—a mens rea.
I am not really comfortable with the strict liability. There is strict liability in anti-bribery, which means I have to do pointless anti-bribery training every year for the University of Cambridge. It does not do me any good and it does not stop corruption, but it is one of the things that Cambridge feels it has to do because of the strict liability. Again, it is a cost to society that is not included in legislation or in regulatory impact assessments.
Dame Margaret Hodge
Q
“These host states now have a duty to block, trace, freeze, and seize these illicit funds and hand them back to the countries from which they were stolen.”
I do not know who you were referring to there, but, in our case, with the illicit Russian assets frozen in the UK, how do you suggest we seize those funds and how can we repurpose them?
Professor Jason Sharman: It depends. With the Russian assets that are criminal assets, eventually you need to go to a court of law to do that—
Dame Margaret Hodge
Q
Professor Jason Sharman: Indeed. That is hopefully something that the Bill will do something to correct. It may be different if you are talking about sanctions and the money that is currently frozen. It would depend. If we are talking about criminal money, there is an anti-money laundering process of confiscation—civil and criminal.
Dame Margaret Hodge
Q
Professor Jason Sharman: Sanctions. I think you cannot. There is proper process. As I understand it, unless there is a formal state of war that obtains between two states, on what basis are you going to take away—
Dame Margaret Hodge
Q
Professor Jason Sharman: No, you quoted me correctly, but that is money that was stolen in one place and moved to another place, and you have to prove that it was stolen. That is different from saying, “You are a Russian oligarch and we are going to freeze your funds.” It is very different.
Dame Margaret Hodge
Q
Professor Jason Sharman: I would not shed a tear if Russian oligarchs lost their assets.
Dame Margaret Hodge
Q
Professor Jason Sharman: Okay, for the Russian state. In that case, I think that would be wonderful. I know Browder mentioned earlier central bank assets. But, again, there is a precedent here. To what extent would foreign Governments put money overseas? There is a lot of concentration on Russia as a corrupt regime, which I think it is, but it has plenty of company, many of which have assets in the UK.
Dame Margaret Hodge
Q
Professor Jason Sharman: I think not, and I think that the British Government, at least when it comes to sanctioning oligarch assets, which I realise are different from state assets, are in a bind. I think they will have to return those assets to the oligarchs and that they may have to pay damages to the oligarchs. That would be a terrible injustice, but I really worry about what the end game for sanctions is.
Liam Byrne
Q
Professor Jason Sharman: This is probably a typical social science answer, but there are quite a few reasons that make it difficult, because no one corrective, in and of itself, is going to fix the situation. There have been solutions, such as the persons of significant control registry, the unexplained wealth orders and so on, where it has been like, “This is the thing that will unlock the problem”. But instead it is a combination. First off, it is appropriately difficult to take away people’s property. Secondly, the bureaucratic incentives do not favour it. You have this very risk-averse culture within law enforcement agencies. Thirdly, as I said, there is a failure to harness the incredible investigative resources that lie outside the state, in the not-for-profit sector but also in the for-profit sector.
The Chair
Before the right hon. Member for Birmingham, Hodge Hill asks his next question, I remind him that our line of questioning has to relate to the legislation in front of us. With his extensive parliamentary experience, I know that he will be able to do that.
Liam Byrne
Q
Professor Jason Sharman: I think that, as Catherine Belton said earlier, certainly volumes of money into politics have something to do with it, but even if you could come up with a perfect solution to that problem, it may not actually make too much difference in terms of interdicting money laundering and corruption funds into this country. That is not to say it is not worth while doing, but there is this constant phase of saying, “If only we do x, we’ll really be able to fix the problem.” I think it is something where modest progress, incremental progress, is what we should expect, and we have to do lots of different things right in order to achieve that progress.
Liam Byrne
Q
Professor Jason Sharman: Yes.
Tom Tugendhat
Q
Professor Jason Sharman: Yes and yes. I think this is a modest positive step, but, given the track record of legislation, I would say that it has to be implemented. That is where the problem has been heretofore, and I can possibly anticipate that it may be the problem here, too. If you say, “You have to identify yourself as the owner of a company,” and you have entries in Companies House saying, “My name is XXX XXX,” and that does not get challenged, then more information is not necessarily better if that information is junk.
Tom Tugendhat
Q
Professor Jason Sharman: I mentioned briefly that some of my research, together with Mike Findley and Dan Nielson, has been to impersonate would-be money launderers and look to set up companies in various jurisdictions. It is much harder to set up companies, and the standards are much more rigorous, in the Cayman Islands, the British Virgin Islands and the Crown dependencies than in the UK. Of the UK jurisdictions, the UK is the easiest place to set one up, so I think the UK could learn a lot from its overseas territories and Crown dependencies. I noticed with interest that a couple of the other witnesses here said the same.
Tom Tugendhat
Q
Professor Jason Sharman: No, I do not think Companies House will be able to do it. Its main function is passive and archival; it is a library mainly. I think it is just not in its DNA to be otherwise. I think most of the solution for this is in the private sector. I am talking about properly regulated, supervised and audited corporate service providers. I co-authored a report 10 years ago with the World Bank called “The Puppet Masters”, and that was overwhelmingly the conclusion that we came to.
Tom Tugendhat
Q
Professor Jason Sharman: I completely agree. I think, even more, that HMRC, as the regulator for corporate service providers, those enablers, has been completely missing in action. If there were one bit of the public sector that I would change, repurpose or fund, it would be to get HMRC to take its duty to regulate and penalise corporate service providers seriously. It has just been completely missing in action so far.
The Chair
If there are no further questions from Members, I want to thank the witness for his evidence. Professor Sharman, thank you very much for taking the time to come and speak to us.
Ordered, That further consideration be now adjourned. —(Nigel Huddleston.)
Economic Crime and Corporate Transparency Bill (Fifth sitting)
Tuesday 1st November 2022
(2 years ago)
Public Bill CommitteesRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 1 November 2022 - (1 Nov 2022)
The Committee divided: - Ayes: 7 / Noes: 8 - Question accordingly negatived.
The Chair
I have a few preliminary reminders. Please switch electronic devices to silent. I am afraid no food or drink is permitted, other than water. Hansard colleagues will be grateful if Members could email their speaking notes to hansardnotes@parliament.uk; alternatively, pass them to the Hansard colleague in the room.
We now begin line-by-line consideration of the Bill. The selection list for today’s sittings is available in the room. It shows how the selected amendments have been grouped together for debate. Amendments grouped together are generally on the same or a similar issue. Please note that decisions on amendments do not take place in the order in which they are debated, but in the order in which they appear on the amendment paper. The selection and groupings list shows the order of debates. Decisions on each amendment are taken when we come to the clause to which the amendment relates. Decisions on new clauses will be taken once we have completed consideration of the existing clauses. Members wishing to press a grouped amendment or a new clause to a Division should indicate when speaking to it that they wish to do so. As Dame Margaret Hodge is not here, I call Seema Malhotra to move amendment 77.
Clause 1
The registrar’s objectives
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
I beg to move amendment 77, in clause 1, page 2, line 10, at end insert—
‘Objective 5
Objective 5 is to act proactively by—
(a) making full use of the information, intelligence and powers available to the registrar in order to identify issues of concern, and
(b) sharing information about any issues of concern with relevant public bodies and law enforcement agencies.
(2) In this section, an “issue of concern” includes—
(a) inaccurate information,
(b) information that might create a false or misleading impression to members of the public,
(c) an unlawful activity.’
I will come back with further mention of the clause later. The amendment was tabled by my right hon. Friend the Member for Barking—[Interruption.] Who has just arrived—
Seema Malhotra
My right hon. Friend will want to speak to her own amendment, but I will lay out a few comments. She is right that we need Companies House to become a more active agent in our efforts to combat economic crime as a result of the Bill—I am sure the Minister will agree that we do not want an economic crime Bill No. 3 in the House, and nor do we have the time for delay in sharpening our response and defences against economic crime.
In evidence given to the Committee, Thom Townsend from Open Ownership stated that the clause—or the important objectives laid out in it—
“seems like a ridiculously low bar.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 63, Q136.]
He is absolutely right. I am sure that all Members listening to that evidence agreed. My right hon. Friend will speak to her own amendment, but we very much support it, because this House needs to send a clear message about our expectation of a proactive role for the registrar—not just a reactive role.
Why is it so important to do so now? As Companies House now begins its transformation to reform its systems, processes and capabilities, part of that will be about its culture, and in line with what this House will expect, the proceedings of this House and this Committee will be important in sending that message. It is our job to ensure that the objectives and powers are very clearly laid out in legislation, so that there is no confusion over our expectations.
The fifth objective in the amendment would raise the “ridiculously low bar” of the first four objectives, as stated by Thom Townsend, from minimising risk to proactively identifying suspected uses of the register for criminal purposes and acting accordingly. As the Secretary of State herself stated on Second Reading:
“We want to ensure that there are more restrictions on who can register with Companies House so that we prevent the abuse of the regime.”—[Official Report, 13 October 2022; Vol. 720, c. 285.]
But I am sure that my right hon. Friend the Member for Barking will want to speak to her own notes on this. Thank you, Mr Robertson, for giving me the opportunity to do so.
Dame Margaret Hodge (Barking) (Lab)
Sincere apologies for being late, Mr Robertson. I want to start by welcoming the Under-Secretary of State for Business, Energy and Industrial Strategy, the hon. Member for Thirsk and Malton, to his role. I have worked very closely with him over the past few years, and it is great to see somebody who understands the issues sitting in his seat. I hope that we can have very positive engagement with him while considering the Bill.
Like the hon. Gentleman, I welcome the reforms. The amendments that we have tabled, including this amendment, are all designed to improve the quality of the legislation that we pass. I hope that they will be taken in that spirit. Having been a Minister in my time, I am very aware of the fact that when amendments are tabled by hon. Members, whether they are on the Opposition or the Government Benches, there tends to be a mood of “reject” from the officials advising the Minister. I simply say to him that many of the amendments that we are putting forward, like this one, are really there to improve the Bill. They are not about trying to raise contentious issues. Perhaps as we proceed, we will come across more contentious issues, but this amendment is not contentious; it is simply to secure an improvement. It is not party political, and I think it reflects common sense. I hope that the Minister will feel able to accept this particular amendment.
Why have we tabled the amendment? I draw the Minister’s attention to the Government’s own factsheet on the Bill, which states that broadening the powers of the registrar of Companies House is designed—that is my word—so that the registrar can become a “more active” gatekeeper over company creation and a custodian of more reliable data. Companies House itself has six strategic goals, one of which is to combat economic crime through active use of analysis and intelligence. We have there a commitment from Government and from the organisation itself that it should take a proactive role in using the information that it has.
Our amendment would embed in legislation the Government’s intent and the organisation’s goals. It would ensure that that intent and the goals were on the statute book and therefore implemented in the future. Too often, as the Minister knows, we have organisations and bodies that have powers but simply do not use them. We can think of His Majesty’s Revenue and Customs and its oversight of company service providers as just one example of where there is a power but, without emphasis on that duty in legislation, it tends to get ignored. The aim of our amendment is just to ensure that what is a power becomes a strong duty.
Why does that matter? Companies House holds a massive amount of data: information about 4.5 million companies, with more than 800,000 new companies incorporated each year and more than 10 million documents filed annually. That data is full of red flags that should be proactively investigated to ensure that we really bear down on economic crime. We want to pursue the wrongdoers, and if we get that stronger investigation and it is known that Companies House does use its proactive powers, that is a good preventive measure because it is much less likely that the ne’er-do-goods will indulge in bad practice.
Let us look at the sort of stuff that has come out so far. There are endless examples: five beneficial owners control over 6,000 companies—a massive red flag. They are clearly not the real beneficial owners. Four thousand beneficial owners are under two years’ old, including one who is not born yet. The company Atlas Integrate Services LLP was registered in September this year. The person of significant control in that company is just two months’ old. In her two months of life, she has not just found time to start a business but apparently has got married, as she is listed as “Mrs” in the register.
We know from all the leaks how Companies House and our UK corporate structures are used and abused by bad people. I take just one example from the FinCEN files: 3,267 of the LLPs and the LPs were holders of bank accounts that involved suspicious transactions—British corporate structures. Of those 3,267 British corporations, 1,656—over half—were created by just four agencies. Nine agencies created more than 100 UK entities. One agency created 646 limited liability partnerships and limited partnerships. Those are examples of strong red flags that suggest malpractice.
It is not just the perpetrators who benefit but the victims who suffer, as the Minister knows. The only successful prosecution in this space is that of Kevin Brewer—the Minister will probably remember the case. This was a man in his 60s who deliberately set about showing the flaws in the system in Companies House. He set up a company called John Vincent Cable Services Ltd, when Vince Cable ran the Department that the Minister is now in. He did that in 2013. He then wrote to Vince Cable to tell him what he had done.
In 2016, he used the names of James Cleverly and Baroness Neville-Rolfe to set up another company. Again, he wrote to them. All he was doing with drawing attention to what was wrong with the system, but he was prosecuted. The Government proclaimed that prosecution as a great victory of how Companies House is vigilant over the quality of the data. Nothing could be more wrong. I think the Minister will agree that, in effect, he was a whistleblower. He was treated abominably by the authorities. That throws into stark relief the lack of action taken against others responsible for setting up bogus companies.
I urge the Minister to accept the amendment. It is common sense. It simply ensures that there is a strong duty on Companies House to use that wealth of data to investigate, proactively raise red flags and talk to the enforcement agencies. I hope that he sees the amendment as something that adds to the value of the Bill.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
It is a pleasure to serve with you in the Chair, Mr Robertson, and to speak after the right hon. Member for Barking. As she knows, and I hope all Committee members know, I am—like her—incredibly ambitious for the Bill. Hopefully, the dialogue we have in this room over the next few weeks will serve a great purpose to ensure that this legislation is fit for purpose.
I entirely agree with the thrust of the amendment. Of course we want a proactive gatekeeper of the information. The right hon. Member for Barking highlights many examples, as does the shadow Minister, the hon. Member for Feltham and Heston, who talked about the culture of the organisation. She is absolutely right that the culture needs to be focused on making sure that the information held by Companies House is accurate, but we need a balance. We must avoid an impossibly bureaucratic and expensive system. The right hon. Member for Barking highlights some of the problems of dealing with a register of this size. There are between 4 million and 5 million companies and about 7 million or 8 million directors in the UK. To independently verify all those records, one by one, is clearly a huge challenge.
On changing the culture of the organisation, the Bill has its four objectives: accuracy, completeness of records, reducing risk and reducing the chances of unlawful activity. I would also point to the text in bold type in clause 1—the objective
“to promote integrity of registers”.
That does exactly what the right hon. Lady intends with her amendment. To me, promoting the integrity of the registers speaks to the proactivity that we want to see. We definitely want to see Companies House sharing information with law enforcement agencies proactively, for example.
The right hon. Lady spoke about a number of obvious cases that would raise red flags, and that happens because Companies House is not operating as she wants it to. One of the key bases of the Bill is to change the role of Companies House from registry to gatekeeper, and to promote integrity properly and proactively by identifying information on a risk-based approach.
Liam Byrne (Birmingham, Hodge Hill) (Lab)
I join my colleagues in welcoming the Minister to his post, in what is a very welcome appointment, and I apologise to you, Mr Robertson, for being slightly late this morning.
Surely the Minister must see that there is a world of difference between action to promote the virtue of something and action to prevent the badness of something. I have been a Minister too. I have created Government agencies. I have tried to enshrine objectives in agencies, from which a business plan is then written. It is incredibly important to say what we mean and mean what we say when we are specifying the objectives of an agency such as Companies House. I urge him to think again about the amendment. It is not simply a matter of word play. It is about doing what is needed to be done.
Kevin Hollinrake
I am grateful for the right hon. Gentleman’s work in this area. We should not get into semantics. The key point, as he says, is making sure that we have a plan that sits behind the objectives, and Companies House is currently working on how it will perform its duties under the objectives. That is key. We can legislate all we want in here, but legislation is less important than implementation. The implementation of the rules is key. We must ensure that the plan is robust and that it identifies the red flags on a risk-based approach and shares that information with the relevant law enforcement agencies that have their duties to undertake. “Promoting integrity” does what the right hon. Member for Barking wants.
Dame Margaret Hodge
I am grateful to the Minister—I know he is struggling. Why not put this objective in? If Companies House is going to do this work anyway, what is the objection? Why not let it stand there? It will ensure the work over time. Our lives are always short as Ministers. The Minister is not going to be there all the time. Other people are going to take over from him. We want Companies House to be proactive throughout the time that the legislation lasts. Why not put this objective in?
The only reason I can think of for why the Minister is getting objections from his civil servants—I assume the objections are coming from them—is that Companies House will not carry out this proactive role, because it will prioritise its other role of verifying information, and we will lose the advantage of the wealth of data with integrity that we could use to eliminate the wrongdoers.
Kevin Hollinrake
I take the right hon. Lady’s point, but I do not agree. Clearly, we will seek to improve many things as the Bill goes through its various stages. However, if we look at the objectives themselves, objective 1 is to
“ensure that any person who is required to deliver a document to the registrar does so.”
That is, to me, a proactive condition and objective. We probably have arguments about the drafting, but the nature of what we seek to achieve is the same. I would therefore politely ask that the amendment is withdrawn.
Seema Malhotra
On this occasion, having heard what the Minister has said, I think that this is an ongoing debate. We will want to have some further discussion and perhaps come back to the issue on Report. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Alison Thewliss (Glasgow Central) (SNP)
I beg to move amendment 71, in clause 1, page 2, line 10, at end insert—
“(4) The Secretary of State must ensure that the registrar has sufficient resources to fulfil the objectives set by subsection (3).”
This amendment would require Companies House to be properly resourced in line with its new responsibilities.
Much like with the previous amendment, it seemed sensible to bring things to the attention of the Government right at the very start of the Bill, because matters can get diluted over time. If we put this issue front and centre of the Bill, and say that the Secretary of State must ensure that the registrar has sufficient resources to fulfil the objectives set by subsection (3), that puts an obligation on the Government, and on future Governments, to follow through on the recommendations regarding the very worthy legislation in the Bill.
We heard a lot of evidence about earlier legislation. I served in Committee on some of it, such as in the evidence sessions for the Joint Committee on the Draft Registration of Overseas Entities Bill, and in Committee for the Sanctions and Anti-Money Laundering Act 2018. Over the years, there has been much legislation, but, as Bill Browder said in his evidence, without any enforcement of that legislation, and without the resources to ensure it is followed through, the Government can write as much law as they like but it does not actually matter.
We want to see resources put front and centre of the Bill, right up there at the start, and to hold future Governments to the important principle of funding this work. If the registrar is not funded to carry out the work it is being given to do, it just will not do that work. That has been the evidence of Companies House over many years. If it is not funded as well as empowered to do the work, it seems very unlikely that it will complete the tasks that the Government and all of us in this room expect of it. I therefore think the amendment is important and urge the Minister to accept it.
Seema Malhotra
The amendment tabled by our SNP colleagues would amend clause 1 to require the Secretary of State to ensure that Companies House is adequately resourced to achieve its objectives. I raised the matter on Second Reading, and I am sure we will come back to it.
On Second Reading, the Minister himself talked about legislation with implementation, and I am sure that he will have some sympathy for the sentiments of the amendment. As Jonathan Hall said in his evidence:
“The one thing that I think would make all the difference would be to resource Companies House.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 34, Q70.]
We support the principle of the amendment, but we are looking to address the same issue in our new clause 26, which we will discuss later. It is right to put the issue on the radar today and have it on there as we proceed through Committee. I look forward to coming back to further discussions on how we ensure that Companies House is adequately resourced.
Liam Byrne
This is an important debate, and I think that the Minister’s reply will be, in a sense, a useful “Second Reading” debate on how he will deal with the problem of resourcing. I know that he, as a new Minister, will have spent the weekend reading all of the evidence that we gathered last week. It was very much like an autopsy on the state of economic crime in our country—grisly and appalling. He will have been not shocked, because he is familiar with the facts, but reminded starkly that he is a Minister at a watershed in the debate. It is clear that the time to act is now.
The world is divided, and there is a great kleptosphere from Kaliningrad to Kamchatka, so it is important that we set out our stall as a place not just of free trade, but of fair trade, as well as, crucially, clean trade. That is where economic advantages will flow from in the years to come. It is therefore a matter of enormous national shame that we have become such a hotbed of money laundering. It is appalling that about 40% of the corporate structures used for Danske Bank money laundering were here in the UK, and appalling that we have become such a country.
Hundreds of billions of pounds-worth of money stolen from the Russian people has been laundered through UK corporate structures, yet last week we heard from Bill Browder and Catherine Belton that UK corporate structures are absolutely being used by friends and allies of President Putin to move money abroad to help to finance Russian intelligence operations and other nefarious activity. However, as Mr Browder said, we are not prosecuting the crime and, as my right hon. Friend the Member for Barking pointed out, there has been only one prosecution despite hundreds of billions being stolen and moved through UK corporate structures.
In part, we are not prosecuting the crime because we are not policing the crime, and all of us on the Committee will have heard loud and clear last week’s evidence from City of London police and the National Police Chiefs’ Council, which said that they need more resource. It is as simple as that. They cannot afford the specialists they need to police this area, and the task of policing such crime would be an awful lot easier if we ensured that there was a proper gateway doing its job in Companies House.
We know that Companies House needs more resource as there has already been a wide-ranging debate. Indeed, the Minister, in his pre-ministerial life, is on the record as having speculated about what some of the resources might need to look like. We hope he will repeat those comments on the record as a Minister of the Crown in the Committee today.
Let us be clear about the risks, which were starkly described for us last week by the independent reviewer of terrorism legislation: there is a direct relationship between economic crime and national security. This is not simply a question of bad people stealing lots of money from good people; it is about a threat to our country. The Minister has an opportunity to ensure not only that our economy is operating on a clean-trade basis, but that our national security defences are strengthened. That is why the amendment is important, and why it is important that the Minister set out clearly today how he is going to approach the solution to this problem.
Kevin Hollinrake
I am grateful to the hon. Member for Glasgow Central, who I worked closely with on the Treasury Committee, for all her work on economic crime. I absolutely agree we need the right resources to go alongside the Bill, so I am fully committed to anything I said before in the Chamber or otherwise about ensuring that that resourcing is available. I certainly agree with the right hon. Member for Birmingham, Hodge Hill when he talks about clean trade—absolutely right. We do not want this country associated with dirty money in any shape or form.
The right hon. Gentleman gave an interesting example about the money laundering through Danske Bank, which was, as he said, hundreds of billions of pounds-worth of Russian money stolen from the Russian people flowing through UK shell companies to its destination. That was subject to regulatory action and potential criminal enforcement; it is not as though the matter was held secretly until it was identified locally in Danske Bank. Danske Bank will get sanctioned for that, so it is not as though law enforcement is not happening. However, the right hon. Gentleman and I would agree that, too often, big banks turn a blind eye to the problem on the basis that it is quite profitable for them, and the fines are ultimately a cost of doing business. What we need to do is hold people properly to account, including individual directors.
Dame Margaret Hodge
I agree, but the point with Danske Bank, as with so many of these massive scandals, is that it was a whistleblower who uncovered wrongdoing, not the enforcement agencies. We will come to whistleblowing later in our considerations, but what we want is for the enforcement agencies—in this case, Companies House—to be equipped to do the work themselves and not to rely on whistleblowers.
Kevin Hollinrake
I agree with the right hon. Lady’s point. As she knows, I am a big fan of improving the legislation on whistleblowers. I am delighted to say that role is part of my portfolio and I am determined to take that forward as quickly as possible.
Liam Byrne
The Minister is being characteristically generous in giving way. The point about Danske Bank is that the money was moved through UK corporate structures that should not have been set up in the first place. If we had a stronger verification regime—if we had a stronger set of obligations on Companies House and a better-resourced Companies House—we would surely have run a chance of the crime being prevented, because the checks would have created a tripwire that would have stopped the structures being set up and the money being moved through them. The point about resources and duties is incredibly important.
Kevin Hollinrake
I absolutely agree. That is the nature of and the substance behind the Bill—making sure that the resources fit the need and that Companies House can promote the integrity of the register and work with law enforcement agencies to share that information and identify the red flags with a risk-based approach. We need to make sure that the work it is doing is appropriate to the task it has been given and that it is sufficiently funded.
Currently, the fees for Companies House are set at a level commensurate with its activities. The Bill seeks to massively increase the scope of its functions to that gatekeeper approach, so it has to be sufficiently funded. The funding started in this spending round, with £63 million for personnel and improving technology to be able to more easily identify the red flags. Companies House is bringing in external expertise to look at its work and what it will need to do to take the expanded activities into account. We need to make sure that as we go forward the resources will be sufficient for it to deliver on its new duties. It is right not to put the cart before the horse. We cannot say, “It should be £50” or “It should be £100”. Various figures have been thrown about. I think the Treasury Committee suggested £100. We need first to identify what it will cost for Companies House to cope with the new duties and then set the figure attached to that cost, to make sure that it has the right resources but does not become a huge bureaucracy that is out of control in terms of costs.
Seema Malhotra
We are very quickly getting to the crux of the issues on resourcing for implementation. He referred to independent experts coming in to work with Companies House on its new capabilities and how it will need to be resourced. Will there be a recommendation from those experts on how much resource will be required? We have the objectives and we have debated whether they are sufficient to achieve the goals of the Bill, and we will come back to that point, but will there be a recommendation on how much resource is required and will that recommendation be a matter of public debate?
Kevin Hollinrake
Yes, in both cases. That work is going on now. Those recommendations will then be discussed with me and my colleagues in the Department and we will come back to the House. The decisions we make will be approved by the House under the affirmative procedure.
Liam Byrne
I suppose we may as well get all the details out now. The estimates for how much extra resource Companies House might need range from three times to 10 times its current level. I was very surprised to hear from Companies House that it was proposing to employ only 100 extra people. That is an increment of about £5 million to £6 million extra, which feels radically short of what is proposed and for the implications of the Bill. Will the Minister therefore put our minds at rest by saying to the Committee that those figures will be radically improved when the Companies House business case for the next financial year is approved?
Kevin Hollinrake
The shadow Minister also wants to intervene, so I shall take the interventions together.
Seema Malhotra
My intervention also relates to that of my right hon. Friend the Member for Birmingham, Hodge Hill. There is a risk of underestimating the amount of work, and of that then being locked in. I hope that during the course of the Committee, if we are to use our time to best effect, there will be further challenge to the scope of the work or to the expectations of how much work happens. We do not want the scoping for resources to be based on the Bill at the start; that is not necessarily what it will be at the end. Will the Minister clarify that the resourcing plan will be made in light of the ambition of the Bill, because we do not want it to fall short? The Minister’s words—about legislation with implementation—will keep coming back to him, and I am sure he is the first to want not to fall short of them.
Kevin Hollinrake
Those words will live with me as long as I am in Parliament.
Kevin Hollinrake
That is hugely important. The hon. Lady makes exactly the right case: for us to give a figure now, whether that is £50 or £100, is to put the cart before the horse. We all agree that the right resources will be needed, but they will be based on the duties in the final version of the Bill approved by both Houses. That is what we will seek to do with Companies House. My intention is absolutely that Companies House will do that.
In response to the point made by the right hon. Member for Birmingham, Hodge Hill, it is not just about people. I do not yet know the extra numbers that Companies House will dedicate to this work, or when. That is what we need to see in a clear plan that it will set out. Technology, however, can also play a huge part. Companies House holds a huge amount of data, public and non-public, that law enforcement agencies can make use of with a risk-based approach. Technology can certainly play a part, and that is not always inexpensive.
Liam Byrne
My sense is that the Minister will steer clear of specifying the order of magnitude by which we need to increase Companies House resources. That is a disappointment to many of us, but will he therefore advise the Committee how as a House of Commons we best guard against the risk of under-resourcing Companies House once the Bill has reached Royal Assent?
Kevin Hollinrake
Scrutiny—by Ministers and by Back Benchers, such as those in Committee and in all parts of the House. Parliamentary scrutiny is the most important thing—scrutiny of the plans of Companies House, to ensure that they are fit for purpose. I promise that no one is keener to see that than me.
May I address one other point in this conversation? Parkinson, for all his work, came up with two laws: first, that work expands to fill the time available; and, secondly, that expenditure rises to meet income, which we probably all recognise from our personal lives, but we could say the same of Government. We do not want to set a figure now, because if we did so, Companies House might expand to fill that envelope—
Kevin Hollinrake
But I do not. I want to see the plan, to ensure that it is fit for purpose and that it delivers an excellent service at the lowest cost to the taxpayer. That is what we need to do. Doing it this way around is a better way.
Dame Margaret Hodge
Several things arise from the Minister’s great contribution. First, I look forward to his support for our amendment to ensure proper parliamentary scrutiny of the work of Companies House, which will come later in our consideration of the Bill. Secondly, one knows how spending reviews go, and this will never become a top priority. I hope that the Government will see it is a security issue, but until they do so, it will not become a top priority for expenditure. That is why the Opposition—supported by the Minister, I hope, given his passion—want to put a figure into the legislation, to link it to inflation and to ringfence it, so that no Treasury official down the line can get hold of it. The final thing I wanted to ask—
Dame Margaret Hodge
I will be brief. We think that Companies House has to do more in a whole range of areas if it is to be effective, such as on information on directors and proper control of company service providers. We do not want to create another cohort of people who allow bad things to take place. Those things will require greater resources. Will the Minister make a commitment today on that? If we are successful in passing the amendment, will he take those things into account when thinking about the financing?
Kevin Hollinrake
Thank you, Mr Robertson. I think it is wrong to put a figure in the Bill. Do I believe that Companies House should be properly resourced? Absolutely, but we need to ensure that that happens through this process and through Companies House’s plan. I can reassure the hon. Lady on one thing: Companies House is supposed to get paid by the fees that it collects to cover its activities. It is not like the Treasury, which goes and nicks some of the money. It does not want that to become a tax; the organisation is funded by its fees. I think we would all agree to ensure that it is self-funded to the level that it needs to properly deliver on its duties. For all those reasons, I hope the hon. Member will withdraw her amendment.
Alison Thewliss
I would like to press the amendment to a vote because it does not set a figure or commit the Government to any particular sum of money, but guards against the under-resourcing that has plagued Companies House for many years. According to openDemocracy, economic crime costs the UK £290 billion a year, whereas Spotlight on Corruption tells us that the Government spend only £852 million on enforcement, or 0.042% of GDP. A lot more needs to be done. I am not committing the Government to any figure whatsoever, but the amendment would ensure that the register has the resources to fulfil its objectives. It is a simple and neat amendment.
Question put, That the amendment be made.
Kevin Hollinrake
The Government acknowledge the growing unease in many quarters about the limitations on the company registrar’s ability to manage the quality of information that finds its way on to the register for which she is the custodian. The entirely new objectives introduced by the clause set the scene for the rest of the Companies House measures in the Bill. They signal the biggest step change in the whole ethos of Companies House and the registrar since that role was established in 1844, which I think the Committee will welcome.
The objectives make it clear to all that the registrar will no longer simply be the passive recipient of information; in performing her duties and functions as modified and expanded in the other Bill provisions that we will discuss in Committee; the registrar will be emboldened to be much more active in her guardianship role. No longer will Companies House be a passive receptacle for company information; nor will it simply accept in good faith what it is given. This Bill will give the registrar wide-ranging new powers to assist her to query more information and to reject filings that the registrar does not believe meet the standards of proper delivery or which do not tally with information that the registrar already holds. The registrar will be able to analyse and share information with other bodies, including law enforcement.
Those are just a few examples of how Companies House will operate differently in the future. The new powers will be exercised with the new objectives introduced by this clause firmly in mind. The objectives are geared towards ensuring that information that companies and others provide is complete, accurate and not misleading, and towards minimising the extent to which companies and others carry out or facilitate the carrying-out by others of unlawful activity. The Government are confident that, in aggregate, their introduction will make Companies House a far more effective gatekeeper.
Seema Malhotra
I am grateful to the Minister. Now that we are debating clause stand part, perhaps I can officially say “welcome” to him—I was saving it until now. It is indeed good to see him in his place and to be having the debates with him on the Front Bench.
We have debated aspects of clause 1, and have raised relevant questions. The issue is not whether we agree with the objectives, because of course we agree with all the objectives that have been outlined. The issue is whether they go far enough. Objective 1 is about delivering documents to the registrar. Objective 2 is about those documents containing all the information that they are required to contain. Objective 3 is designed to minimise the risk of information on the register creating a false or misleading impression to the public. Objective 4 is about minimising the extent to which companies and firms carry out or facilitate the carrying out by others of unlawful activities.
I think we might ask ourselves the question again and again: why has it taken this long to get here when we have been having debates on the need to tighten up Companies House for so long and legislation has been promised for some time? When we read the provisions, I think we can say again: is this really the extent of our ambitions? Getting to second base is not the same as getting a home run, is it? I think that is the question and will remain the question. Although we agree with clause 1 and what is in it, we are going to keep asking the question about whether the basis on which so much else will be based in the Bill will be strong enough to give Companies House all it needs, along with the message about its duties to achieve its objectives.
This legislation is designed to tackle economic crime. As we have heard in the debate, it is also designed to protect UK national security. Those are two really serious matters that go together. We are talking about making it harder for kleptocrats, criminals and terrorists to engage in money laundering, with an impact on other crimes: crimes that go on in our streets, crimes related to drugs, crimes related to low-level theft and, now, even the security of our mobile phones and our data and conversations. So much more is at stake in terms of what goes on in people’s everyday lives and their everyday security, much more than perhaps we envisaged when this legislation was first promised at least six years ago. The scale of the challenge has absolutely increased, and the question is as much about whether we will be forward-looking in the legislation as it is about tackling the scale of the problem, on the basis of which legislation began to be drafted perhaps one or two years ago.
Liam Byrne
I think this has been a disappointing start to the Committee. Last week in the evidence sessions, I read out the objectives and asked the witnesses what they thought of them. We had anti-corruption organisations there—people who have given their lives to tackling corruption and economic crime—and they were very clear, saying the objectives were too weak and needed to be stronger. I will set out the politics of this for the Minister, new in his role as he is. He is on the wrong side of the argument. He risks going into the debates we are about to have as someone who it is too easy for His Majesty’s Opposition to characterise as soft on economic crime. That is not his position. It is not a position he wants to be in. I hope he will reflect on the debate we have had today and come back with stronger and proactive anti-corruption objectives, including a duty to prevent corruption placed on Companies House.
To summarise the debate we have had, we are going to have a set of objectives for Companies House. Then we are going to match the resources to those objectives. The problem with setting the bar for our objectives too low, too soft and too weak is that we end up setting a resource base that is too low, too soft and too weak. On this side of the Committee—on both sides I think—we would rather see a much tougher set of policy objectives, and we would want Companies House to have the requisite resources to fill that role. I am afraid the Minister has found himself on the wrong side of the argument today. I hope that he reflects and comes back—possibly on Report or in the other place—with a strong set of objectives and the resources to match.
Kevin Hollinrake
I thank the right hon. Gentleman for his comments. I do not agree with what he has said. I read through much of the evidence given to the Committee before I was part of it, and Transparency International said that
“the Government has taken an important step toward cracking down on kleptocrats, criminals and terrorists—including associates of the Putin regime—who abuse UK companies for nefarious purposes.”
It also says that the Bill
“presents a number of welcome reforms to the operation of Companies House that, if implemented effectively, would help to prevent money launderers from abusing the UK’s company incorporation system”.
There are people who agree with what we are doing here. We should of course reflect on the comments that have been made by hon. Members in the Committee, but I do think these objectives are important steps forward. We must ensure that they are effective, that there are no Swiss cheese loopholes, as the shadow Minister mentioned, and that the relevant bodies are properly resourced. That is a body of work I will continue with over the next few weeks.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clause 2
Memorandum of association: names to be included
Seema Malhotra
I beg to move amendment 85, in clause 2, page 2, line 15, at end insert—
“(2A) After subsection 1, insert—
‘(1A) The memorandum must also state—
(a) the nationality of the each subscriber; and
(b) the country in which each subscriber is ordinarily resident.’”
This amendment would require a memorandum on the formation of a company to include the nationality and country of ordinary residence of each subscriber (a subscriber being one of the company’s initial shareholders at the time it was set up) along with their name.
The Chair
With this it will be convenient to discuss clause stand part and clauses 3 to 8 stand part.
Seema Malhotra
Clause 2 is important, and we have no concerns with it at all. It amends section 8 of the Companies Act 2006 to state that, for individuals, “name” means a forename and surname, and it goes into further detail. It is another example of an area where it is extremely surprising that our system has lasted for so long while being so feeble in the extent of the information it requires of company subscribers. Subscribers are initial shareholders in the company when it was set up: those who sign the important memorandum of association in forming the company.
Currently, information about subscribers is extremely limited, and there is no verification or definition of what constitutes a subscriber’s name. That relates to the deeper issue, to which we will continue to refer in Committee, around the transparency of shareholders. Alongside our discussions of directors and officials, we must ensure that we keep shareholder transparency very much centre stage. Not having clear names affects the reliability of the subscriber information held by Companies House.
We welcome the clarity provided by clause 2, but we believe that the Bill could go further in requiring information from company subscribers. That is why we tabled amendment 85, which would insert a new provision that would require the memorandum on company subscribers to include the nationality of each company subscriber and the country in which the subscriber is ordinarily resident. Without that information, which should be verifiable, the formation of a company that registers with Companies House could be questioned by the registrar.
Transparency International has remarked that the UK has a terrible reputation as a hub for dirty money. That is something we do not even need to keep saying, because we are so used to hearing it. That is exacerbated and enabled by a lack of transparency about those who own and control UK-registered companies. If the Bill is to fulfil its ambition of clamping down on dirty money flowing through our economy, the Minister should support the amendment, which would provide that greater transparency and scrutiny of who owns companies registered with Companies House. I look forward to the Minister’s response.
Alison Thewliss
I rise to support this useful amendment. It is fundamentally about enhancing the transparency of the register and what we know about the people on the register. It is also about tracing control: who owns what and where they happen to be. That is useful. Those are things that the Bill should look to fix. The Bill is about putting right things that are not quite right. The amendment adds to the richness of the information that is available to people. It seems perfectly logical that the Minister should support it.
Liam Byrne
Let me go back to 1855 for a moment, which is when this House last debated the creation of limited liability companies. It is worth every member of the Committee studying the Hansards of those debates, because the speeches reveal that, when our ancestors in this place made it possible for people to pool together small amounts of capital but nevertheless receive a limit on the liability that they would encounter if things went bad, their view was that it was in the common good of the country to allow in Britain the invention of limited liability, which had operated in the United States for some time. The common good of the country was the guiding principle by which the debate was shaped, and eventually the Bill was passed.
Right now, too many people are not contributing to the common good, and are using UK corporate structures to circumvent their obligations to pay tax and obey the law of the land. We should be trying to crusade against that, and this amendment would help us do that.
At the end of this year, the register of beneficial ownership for property will be published, but it is already clear that there are shell companies that own assets, including property in expensive parts of this country, whose nominal shareholders are resident abroad. There has been an enormous surge in non-resident, foreign national shareholders of shell companies that own property in this country. We have not only the phenomenon of shell companies but, as Oliver Bullough made clear, the new phenomenon of shell people.
The Minister has a decision to take. Will he put in place measures that help us guard against that risk and ensure that we honour the principles that were agreed back in 1855, or will he leave our enforcement regime as weak as it is today?
Kevin Hollinrake
Before I turn to the amendment tabled by the hon. Members for Feltham and Heston and for Aberavon, it might be helpful if I set out the intentions and effect of the clause.
The purpose of the companies register is to provide details of company ownership, and via these clauses the Government are introducing measures in this Bill to improve transparency requirements and increase the usefulness of the information held on the shareholders, subscribers and guarantors of UK companies. Clause 2 provides that each person who decides to form a company—a subscriber—must state their name on the memorandum of association. Currently, a subscriber does not need to state their full name—they can merely state their name as J. Bloggs, for example—as there is no definition of “name” for subscribers in the Companies Act 2006 or the associated regulations. This clause provides that, in relation to a subscriber, “name” means forename and surname. In that example, the person would have to state “Joe Bloggs”.
The shadow Minister and the right hon. Member for Birmingham, Hodge Hill are absolutely right to try to get to the basis of ownership and control of companies. That is why we are focusing our attentions on the people who control companies—namely, the directors and persons of significant control. As the right hon. Gentleman states, if somebody really owns the company, that information would have to be disclosed and that person’s identity would have to be fully verified.
I remind the Committee that persons of significant control are not just those who hold more than 25% of shares in a company. They can also be people who own more than 25% of the voting rights of a company, people who have the right to appoint or remove the majority of the board of directors, and people who might influence or control the company through other means—namely, a nominee. The company may also be controlled by a trust or firm without a legal personality. The provisions really focus on directors and persons of significant control, which are defined in a number of ways.
Amendment 85 would require that the memorandum of association also states the nationality of the subscriber and the country in which each subscriber is ordinarily resident. Subscribers are the persons who agree to form a company and become its members by subscribing their name to a memorandum of association. Upon incorporation of the company, they become its members and usually, but not always, its shareholders. Their details are recorded in the company’s register of members.
The Bill already contains provisions that could not only achieve the intent behind the amendment, but require the same information from a wider category of person. Clause 45 inserts new section 113A into the Companies Act 2006. New section 113A provides a power for the Secretary of State to make regulations that amend the particulars required to be entered into a company’s register of members. That power could be used to require the nationality and country of ordinary residence of all members to be entered into a company’s register of members.
Dame Margaret Hodge
Is the Minister minded to use that power to enter the nationality of individuals on a company’s register of members?
Kevin Hollinrake
I am certainly minded to consider all aspects of the debate we have had in Committee and to discuss the matter with the Secretary of State and others. We are here to inform the debate, and Members on both sides of the House are better informed as a result.
Liam Byrne
In the light of that remark, will the Minister go further and tell the Committee how he will tackle the problem of shell people if we are unable to get information about them? Shell people is the phenomenon of having what look like foreign nationals or residents of other countries controlling shell companies, which may, in turn, own assets in this country. If it is not possible for us to establish the nationality or the ordinary residence of those people, how will we know whether we have a problem? If, for example, people put down their nationality as British, we would know where to find them, but if we do not have that information, we risk getting a little lost.
Kevin Hollinrake
If the person is a director or owns more than 25% of the shares in a company, they have to have their identity verified. If the right hon. Gentleman means nominees, such a person could easily be living in the UK. I am not sure that the right hon. Gentleman would be better served by knowing where they were based, unless we were taking a risk-based approach to people from a certain nation.
Kevin Hollinrake
Such as Russia. It is key that the ID verification works for directors and persons of significant control—that is where we are on that. We need to debate whether the amendment, which seeks to find out the nationality of company members, who are not necessarily shareholders or directors, serves any purpose at all.
Liam Byrne
We might as well pursue this point while we have the time. The 25% threshold is obviously very high, and an amendment will be tabled seeking to lower it. If that does not go through, however, the risk is that there will be members on the register with a significant or even a controlling stake of below 25% in a company, yet we will not know where they are resident or where they live. We are now running that risk.
Kevin Hollinrake
The definition of “persons with significant control” accounts for exactly that—it accounts for the fact that a person with influence on a company might have any level of shareholding, even including zero shares. That is catered for in the definition of “persons with significant control.” Of course, there is always discussion about how we find out about and verify such information, which is very difficult to ascertain in any circumstance. The subject of ID verification is interesting to debate. I have discussed different aspects of it with officials and we should definitely consider it further.
The regulations under new section 113A will be subject to the affirmative resolution procedure, so the overall intent behind the amendment would be better addressed in a wider conversation about what additional information, if any, it would be proportionate to require every company to provide about its members via these regulations. I hope I have provided some assurance that this amendment is not necessary. Therefore, I would be grateful if the hon. Member for Feltham and Heston would withdraw it.
Clauses 3 to 8 will require those seeking to form a company to confirm that they are doing so for lawful purposes. The clauses make it absolutely explicit that those forming companies are welcome to do so only if they intend to do so for a lawful purpose. Through the requirement and provision of the new statement, subscribers to a new company can be in no doubt that if they are found not to be telling the truth, action can be taken against them.
Clause 4 will require applications to register a company to include a statement that none of the company’s subscribers, founding members or initial shareholders is a disqualified director. The definition of “disqualified person” is provided in proposed new section 159A(2) of the Companies Act 2006. Clause 4 enables the registrar of companies to reject the application if any subscriber is a disqualified director. The registrar should reject such applications, because by being involved in the formation of a company, a disqualified person breaches the law.
Under clause 5, an application to incorporate a company must include a statement confirming that all the company’s proposed directors have either verified their identity or are exempt from verification requirements.
Dame Margaret Hodge
How will the exemption be defined? Will the regulations confirming the exemption be subject to the affirmative procedure? Also, I draw to the Minister’s attention an example that he could look at: Fedotov took advantage of exemptions to use Russian stolen wealth in the UK. These exemptions are very dangerous; I want to hear from the Minister how we will ensure that they are properly regulated and monitored by Parliament.
Kevin Hollinrake
The right hon. Lady makes a fair point. I am sure that she will accept that the Secretary of State is as keen as she is to clamp down on this activity. Exemptions can be made when directors undergo sufficient scrutiny on employment. Also, the director’s ID can be confirmed without verification when the prohibition to act as a director while unverified does not apply. An example would be directors appointed by the community interest companies regulator under section 45 of the Companies (Audit, Investigations and Community Enterprise) Act 2004.
Dame Margaret Hodge
I am worried about this. Will the Minister look at how Fedotov managed to get an exemption, and then perhaps write to Committee members about it? Then we could see whether there is a systemic issue, and whether we ought to have a better overview of the way in which exemptions are determined.
Kevin Hollinrake
I can see the officials writing like mad. I am sure that they will have picked up on that. I am happy to look at this as well. I reassure the Committee that the affirmative procedure is required, so that we can ensure sufficient scrutiny of exemptions from the obligation on directors to verify their identity, and so that Members can see why those exemptions are proposed.
We will come to other identity verification clauses later in Committee, but I am confident that Members will agree that clause 5 is vital. It improves the accuracy and integrity of the companies register by allowing the registrar to refuse incorporation of a company if the directors are neither ID-verified nor exempt from the requirement to be ID-verified.
Clause 6 requires a company’s subscribers to provide a statement when an application to register a company is filed confirming that none of its proposed directors is disqualified or ineligible to be a director. Disqualified or ineligible people include undischarged bankrupts and individuals subject to asset freezes. The clause allows a registrar to reject an application to register a company if a proposed director is disqualified or ineligible for appointment. The registrar’s rejection prevents the company from being formed. If the statement confirms that a proposed director who is disqualified has received a court’s permission to act, the registrar will accept the registration. The clause helps to ensure that disqualified and ineligible directors do not make it on to the companies register.
Clause 7 requires that applications to register a company include a statement that none of the people with initial significant control is a disqualified director. People with initial significant control are individuals or legal entities that will own or control the company once it is registered. The clause will ensure that the registrar has the necessary information and power to reject an application if the person with initial significant control is a disqualified director.
Alison Thewliss
This is about new registrations. Will the registrar go back through the Companies House records to find people who may still be on the register but ought not to be, because they have been disqualified?
Kevin Hollinrake
All directors and people with significant control need to be ID-verified for existing companies, and the same obligation will be placed on new corporations.
Finally, clause 8 will permit an application for the registration of a company to contain a statement that the identities of its persons with significant control have been verified. The clause will allow persons with initial significant control to comply with the ID verification requirements at the point of registering a company. Where a company’s subscribers cannot make a statement confirming that persons with significant control have complied with ID verification requirements, the company will nevertheless be registered. The registrar will then direct the persons with significant control to comply with the identity verification requirements.
Seema Malhotra
It is a pleasure to speak to clause 2 and to clauses 3 to 8. I have been listening carefully to the Minister and have a few questions. I have made extensive remarks in support for clause 2, so I do not intend to go much further on that. Suffice to say that we have had an important debate, and I think the Minister will find that we will continue to come back to some of these matters.
On the point about the nationality of the subscriber and the country in which they are ordinarily resident, I did not hear the Minister give a clear answer as to whether the Government might consider tabling future amendments if they do not want to support ours. I have good faith in the Minister and want him, on day one of taking up his responsibilities, to take on board hon. Members’ points, so I would be grateful if he could come back to us on how he plans to consider that matter. My hon. Friend the Member for Aberavon may want to apply a similar principle to other clauses, so it would be most helpful if the Minister could take away the point about the subscriber’s nationality and the country in which they are ordinarily resident.
We support clause 3, which will ensure that when a company registers, it cannot be formed for unlawful purposes. It is extraordinary that we have not made that clear before or sought such a declaration previously, but it is a necessary provision in the light of the scale of abuse of Companies House by those whom we are now seeking to prevent from doing so in the future. We need to clear out companies that are not performing the functions that we would expect of a company registered in the UK. As the Minister goes through the resources question as to how quickly we will be looking to Companies House to go through and verify existing company records, this will fall into that important cleaning-up exercise. It is a necessary provision and is intended to ensure that if such a declaration turns out to be inaccurate, the registrar can reject the company’s filing on the basis that a false filing offence will have been committed. That is an important step forward.
Clause 4 will ensure that when a company registers, it must declare that none of its subscribers—its initial shareholders—is a disqualified director. We welcome the clause, because it is important to think about people’s roles and how games could be played with Companies House, and therefore with Britain and the British public, without cross-checks and balances in place. The clause is necessary to ensure that the registrar is able to actively reject and remove company subscribers who have been disqualified as directors. It cannot be right that somebody who has been found unwilling or unable to meet their legal responsibilities as a director could still be involved in, and have control of, the formation of a new company. It was a loophole in the Companies Act 2006 that a disqualified director was not prevented from owning a newly established company. It was a loophole ripe for exploitation, but we welcome clause 4.
Liam Byrne
I want to reinforce the last point made by my hon. Friend the Member for Feltham and Heston. If we are going to equip the Minister with new powers, it is important that he tells the Committee, at this stage, how he intends to use them. The key question is: what is his deadline for ensuring that every single company on the register has fulfilled the obligations created by these clauses? Can he clarify what his risk tolerance for bad behaviour will be?
I ask the Minister that because I was forced to table parliamentary questions in October last year, which revealed—extraordinarily—that 11,000 companies on the Companies House register had still not disclosed their persons of significant control, even though it was a legal requirement at the time. That is a very big number, but despite that fact, only 119 convictions had been secured for wayward directors.
If we are going to give Companies House the new obligations and new duties that the Minister is taking through, but they are not going to be enforced, then frankly there is very little point in the Bill. If the Minister is not able to today, I hope that he will write to us later to confirm two things. First, will he confirm that his intention is for 100% of companies to meet their obligations under the Bill? Secondly, I think the whole Committee would welcome his setting out a timescale for seeing that target secured.
Kevin Hollinrake
A number of points have been raised. The shadow Minister talks about the veracity of information and how we can become certain of it. As she knows, we are talking about a huge number of records—double-digit millions when adding up companies and directors. If we added shareholders, that would be many millions more.
The focus of this debate should be on who is controlling a company, be it a zero shareholding, small shareholding or larger shareholding. That is why traditional ID verification focuses on directors, who are obviously the officers of a company and control it, or a person of significant control—someone who sits behind that organisation. That is why we ask for those IDs to be verified. That can be done by Companies House or a corporate service provider. Some of those have a dubious reputation—I am sure that will be discussed in Committee—but let us see this for what it is: many of them are bona fide, reputable organisations such as Deloitte, EY and PwC. If someone has proven their identity to those organisations [Interruption.]—I am someone who can see his wrongdoing, but I do not see wrongdoing on every single corner. Most people working in commercial enterprise are decent, honourable people who seem to do the right thing. We should keep that in the context of this debate.
The duty is on a director of an organisation to make a statement to say that their identity has been verified. If that statement is false, criminal sanctions are attached. That is how this is regulated. It would make no sense for Companies House to revisit tens of millions of records to ensure that people at Ernst & Young and Deloitte have properly verified the identity of an individual. They are subject to those criminal sanctions.
On multiple disqualifications, I think the hon. Member for Feltham and Heston was talking about some kind of “three strikes and you’re out” system for a director. The Insolvency Service has the opportunity to ban a director for up to 15 years. It is fair to say that if someone had constantly not paid their tax or filed their accounts and had been banned, their days as a director would be just about done by the time they had got three penalties of 15 years.
The exemptions, as I said before, will be brought forward by affirmative regulations. The provision is intended for when there is no need or purpose to going through another round of ID checks, to avoid needless bureaucracy. We should all welcome that because, as anyone who has been at any organisation knows, bureaucracy equals cost for somebody—whether that be a cost on commercial enterprises or on the taxpayer. We have to be careful not to step too far unnecessarily.
Liam Byrne
That is an important point. The Minister is basically telling the Committee that he wants to ensure that the verification checks are proportionate, but across Government—in the Passport Office, the visa service and benefits agencies—there is a well-established infrastructure for verifying identities. If people are applying to become a director or a person of significant control, it is hard for many of us on the Committee to understand why the checks on their identity should be much lighter than those applying for other benefits from the state.
Kevin Hollinrake
I do not understand why the right hon. Gentleman says that the checks are lighter. This is ID verification where the individual has to be identified against a form of ID such as a passport. It is a proper ID verification. That process will be brought forward so that the Committee can decide whether it is fit for purpose. It is absolutely right that we do that, but these are proper ID verification requirements.
The deadline for ID checking of existing directors is 28 days from the commencement of this legislation—[Interruption.] The right hon. Member for Birmingham, Hodge Hill is not even listening, even though I am answering his question. Existing directors will need to be verified within 28 days. The deadline that he asked for is 28 days from the commencement of the legislation.
Seema Malhotra
I thank the Minister for his comments. I think he has committed to write to me about nationality and country; he did make a note. Did he make a note? Did I get that right? It is a matter that my colleague will also be raising, but I think he said that he would write to me with the Government’s view on that matter. On the basis of that, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 2 ordered to stand part of the Bill.
Clauses 3 to 8 ordered to stand part of the Bill.
Clause 9
Names for criminal purposes
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
I do not think I did commit to write to the hon. Member for Feltham and Heston, but I am happy to do so if she would like. I am definitely committed to considering all the contributions to the debate.
The Companies Act 2006 contains a range of provisions, whose focus it is to mitigate potentially undesirable impacts arising from a company’s choice of name. For example, it is already unlawful to incorporate a company the name of which, in the opinion of the Secretary of State, constitutes an offence or is offensive. Clauses 9, 10, 11, 12 and 13 will place further controls and restrictions around the choosing of company names by making amendments to the Companies Act 2006.
Clause 9 will give the Secretary of State the ability to prevent the registration of a company name that, in his view, is intended to facilitate the commission of an offence involving dishonesty or deception, such as fraud. It is sadly all too common for Companies House to observe the opportunistic establishment of new companies, whose names, for example, appear to exploit natural disasters or humanitarian crises. At present, Companies House has no means of preventing the registration of company names capable of facilitating deception of this nature. This provision will provide that power.
Clause 10 builds on existing safeguards in the Companies Act 2006, which restrict the extent to which companies can adopt names that give the false impression of a connection with a UK public authority. At present, if a name was to suggest association with UK national or local government, the devolved Administrations or specified local authorities, the Act and associated regulations provide a framework within which consent needs to be sought. The clause supplements that framework by providing safeguards in the international sphere. However, rather than applying a system of consenting, the starting assumption will be to prohibit names that, in the opinion of the Secretary of State, give a misleading impression that the associated company is linked to a foreign Government or its agencies.
Such a prohibition will also apply to names that reference recognised international organisations—for example, NATO or the United Nations. Of course, there may be occasions where overseas Governments and international bodies quite legitimately wish to incorporate companies in the UK. The clause would not prevent those companies from having names that connect them with a Government or body where that connection is a true reflection of reality.
Clause 11 will give the Secretary of State the responsibility to reject the registration of names that comprise or contain what, in his opinion, constitutes computer code. Company names are a potential vehicle through which bad actors can infiltrate the systems of those who access or download them. Computer code embedded or incorporated within a company name has the potential to subvert and to exploit the networks of unwitting third parties. That is clearly something we would wish to guard against.
Clause 12 inserts a provision that effectively prevents a company from re-registering a name that has already been the subject of a direction. That change will prevent an administratively burdensome cycle of repeat name-change directions, which is clearly better avoided.
Clause 13 prevents directors and shareholders from carrying a name to another company when they have already been denied its usage, as a consequence of either a direction from the Secretary of State or an order made by a company names adjudicator. It does, however, recognise that there might be instances in which secondary use would be quite legitimate. Scope is therefore provided for the Secretary of State to approve a name, notwithstanding the general prohibition introduced by the clause.
Seema Malhotra
We support clause 9. We recognise that it amends the Companies Act to give the Secretary of State the ability to prevent registration of a company if they think the name of that company is intended to facilitate dishonesty or deception. Companies House deals with up to 100 cases of corporate identity theft every month, and given that this form of fraud and others are starting to become more prevalent, it is right that there be these new powers to prevent registration, stemming—we hope—the flow of new fraudulent registrations. An incredible amount of distress arises from the impact of that dishonesty and deception.
Clause 10 inserts into the Companies Act a new section prohibiting company names falsely connected to foreign Governments and international organisations, and the Minister has spoken about why that section is important. It gives the Secretary of State the ability to prevent the registration of a company with a proposed name that, in the Secretary of State’s opinion, suggests a connection with a foreign Government, its offshoots or international bodies where none actually exists. As has been mentioned, that could be the UN or NATO, or any other body. Of course, we support the principle behind that measure, but in the interests of transparency about the use of that power, could the Minister clarify whether, when the Secretary of State is asked to make a judgment in such a situation, he expects that the judgment will be publicly shared—that, for example, Companies House might report on the uses of that power as part of its reporting?
I also want to clarify how the power will be used. When a company is formed that the Companies House registrar suspects is not actually connected with a foreign Government or other international body, but looks like it might be, will the registrar have a duty to flag such instances with the Secretary of State? That is important, because it comes back to the question of the proactiveness of the registrar’s duties, so it would be helpful to clarify it. What about the scenario where an attempt is made to register a company with a proposed name that, were it to be raised, would go through that process and very correctly be stopped by the Secretary of State, but it is not picked up by Companies House? If that situation arose for any reason—it could be new staff, or it could be the pressure of time because of insufficient resources; mistakes can be made in those circumstances—could a third party then apply for the name of that company to be changed? How would that work if it were an international organisation?
If uses of the power were reported by Companies House, would we be able to search and see that a number of people had sought to set up a company called United Nations Associates, or something like that? Would we be able to have a sense of how Companies House is perhaps being used in that way?
Should a company that has had its name changed by direction of the Secretary of State continue to seek to trade under that company name—perhaps in an overseas jurisdiction, if the name is falsely connected with foreign Governments—it would be helpful to clarify what measures could be taken, and by whom, to seek to put an end to that. There may be an obvious answer.
Alison Thewliss
I want to highlight again to the Minister the issues in these clauses that Graham Barrow raised in the excellent evidence that he gave to the Committee last week. He said:
“The Bill does include the ability for Companies House to reject similar names, but if you have 3,000 companies a day—and that extends to companies across the world that may have similarities—I do not see how you are going to enforce that reasonably. There is just too much volume and too many potential comparative data points to compare them to.”
His suggestion was that the system needs to have
“a little bit of friction”.–––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 27 October 2022; c. 109, Q204.]
Instead of Companies House turning around an application in less than 24 hours, a little bit of time should be taken to assess and analyse it.
The human element of this process is also important. Some of it may be possible to achieve with clever computer algorithms to sift out any companies whose names are too similar to existing ones, but there needs to be human judgment as well. This goes to the point of Companies House resourcing and staff being able to understand what they see in front of them. That will take expertise and long-term knowledge, not only of the company in front of them but of the existing companies on the register—and they are there in their millions.
I will address a point that has not really been raised before about clause 11 and names containing computer code. When these kinds of things come up, I reach for the expertise that I have pretty much at hand. I went to my husband and asked him about this, because it is his profession—he is a computer coder by trade—so I thank Mr Joe Wright for his assistance. I said, “Is this really a problem, and what does it actually mean?” My understanding is that the clause is to guard against SQL injection into the Companies House register, because anyone pulling that out of the register can have their systems corrupted by companies that register with computer code.
My husband directed me to a very useful article, which people should have a wee look at, by Neil Brown on decoded.legal that looks into this in some detail. A company has been registered using computer code. It was registered under the name ; DROP TABLE "COMPANIES";-- LTD, which has some computer code around it. Dr Michael Tandy registered that company name, but Companies House did not publish the name on its register; it said that the name was available on request. Can the Minister clarify whether the clause will deal with that specific case, or whether it is broader than that?
The article by Neil Brown raises some questions. What exactly would be prohibited? The Bill does not define computer code; it prohibits the use of names that
“in the opinion of the Secretary of State”
are computer code. I do not know whether the Minister knows his SQL from his JavaScript, but that seems like a big judgment and responsibility to put on Government Ministers. In its very essence, computer code is just an instruction to a computer, and that instruction can be in plain English text as well. Can the Minister tell us exactly how this will be assessed and what systems will be put in place at Companies House to define what computer code is, in practice? That, again, comes down to the human element—someone understanding exactly what is in front of them.
I urge the Minister to give a wee bit more clarity about what is code, what is not code and what exactly the clause is intended to catch. There are such companies on the Companies House register, and because code can be in text that we would understand—rather than a series of numbers, letters and symbols—it might be more difficult to enforce this. I would be grateful if the Minister could help us understand a wee bit better how the Secretary of State’s complete discretion to define what is and what is not computer code will be used in practice.
Dame Margaret Hodge
This question is really just for information. Can the Minister explain why the three categories were chosen for inclusion in the Bill? Why are we only looking at these? What was rejected, and why did these three come about? I cannot understand it. Is there a right to appeal if somebody chooses a name for a legitimate reason but it is misunderstood by Companies House? Who will take the decision? Is that something the Secretary of State will delegate to Companies House, or will it have to come up for ministerial approval every time?
A slight aside: some of us had dinner last night with Catherine Belton, and she talks convincingly about the way that companies linked to the Kremlin have individuals who do not reveal that link. The link to foreign Governments is more worrying than the idea of someone abusing the name of foreign Governments to set up, say, a travel agency to go to Russia. That sort of thing seems to me perfectly all right. The other side of this coin is what causes great concern. It can become a vehicle for money laundering and hiding a lot of the Kremlin’s money in banks abroad.
Seema Malhotra
I echo the concerns raised by my right hon. Friend the Member for Barking. She has drawn out some important distinctions. One is where there has been duplicity in setting up a company with a particular name, and there may be good reason for wanting to challenge that. She has highlighted the safeguards, but she is right that we need clarity in relation to kleptocrats and real connections to foreign Governments, which the Bill is trying to stop.
I thank Joe Wright. The hon. Member for Glasgow Central is right, because technology and people who use it are getting more and more sophisticated. Embedded computer code can maliciously infect the systems of those who access or download data. I saw the very real impact of data getting on to servers when I recently visited a company in Liverpool for a roundtable. Their systems had gone down, but luckily they had safeguards to stop what had happened. How quickly viruses, spyware and other means of destruction can travel, and they pose such security risks for companies and countries. That is an important part of our security, so it would be helpful to have some further information on that.
We welcome clauses 12 and 13 as important provisions. Clause 12 ensures that companies cannot use names that are misleading or used to mask criminal purposes. Clause 13 provides a mechanism to ensure that where there is good reason for a direction to change company names, it is not bypassed by those who use the registrar for fraudulent purposes. What enforcement mechanisms would come into force in such situations?
Kevin Hollinrake
On a point of correction, I said in answer to a question from the right hon. Member for Birmingham, Hodge Hill that existing directors and people with significant control had 28 days to verify their identity. That figure has not been set yet. It will be set in a commencement order, which I will find out more about. The 28 days applies to relevant legal entities.
Kevin Hollinrake
I have only six minutes left, so if the right hon. Member wants to hear from me on all those points, he will have to keep it very short.
Liam Byrne
Could the Minister also clarify his target for compliance? I hope it is 100%, but if he could clarify that as well, I would be grateful.
Kevin Hollinrake
I am grateful. Of course, my target will certainly be 100%; I cannot imagine why it would not be. The 28 days refers to the time that relevant legal entities will have to rectify their identity from receipt of the registrar’s direction.
To answer the hon. Member for Glasgow Central on computer code, there have been a small number of instances where Companies House systems have identified computer code. What constitutes that may change and evolve over time, so the drafting is future proof. Companies House already has a security capability that will develop and evolve over time. Where necessary, Companies House’s internal scrutiny functions will consult other experts.
The right hon. Member for Barking asked what had been rejected. No other categories were rejected in the course of policy development. I think that these categories were deemed important, but I do not know of any others that were considered. The right to appeal regarding the name change would be through a judicial review. Clearly, it is fair to say that Companies House will use its judgment.
To answer the right hon. Lady’s point on the Secretary of State’s functions, Companies House exercises those functions. There is a well-established administrative process by which Companies House makes the Department aware of potentially problematic names, so the Secretary of State can also exercise their judgment. On how we identify any of those names, of course, a lot of that is technology-based.
Dame Margaret Hodge
I am really sorry, but I just want clarification. Does that mean the decision is taken by both Companies House and the Secretary of State—or a Minister on their behalf?
Kevin Hollinrake
As I understand it, Companies House makes the decision under delegated authority.
On trading styles or business names, which the shadow Minister mentioned, that is clearly not something that Companies House oversees directly, because it does not have a register of trading styles or business names. However, it does rely on third-party information to understand what a company may be trying to do regarding its trading style.
On the other problem—the other side of the coin, as the right hon. Member for Barking says—of money laundering and people supporting the Russian state, those matters are, of course, principally dealt with through money-laundering regulations or, indeed, sanctions regimes. People supporting the Russian regime, for example, should very often be subject to sanctions.
Question put and agreed to.
Clause 9 accordingly ordered to stand part of the Bill.
Clauses 10 to 13 ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned.—(Scott Mann)
Economic Crime and Corporate Transparency Bill (Sixth sitting)
Tuesday 1st November 2022
(2 years ago)
Public Bill CommitteesRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 1 November 2022 - (1 Nov 2022)
The Committee divided: - Ayes: 7 / Noes: 9 - Question accordingly negatived.
Stephen Kinnock (Aberavon) (Lab)
I beg to move amendment 87, in clause 14, page 8, line 11, leave out “at least” and insert “no more than”.
This amendment, and Amendments 88 to 93 would require that, when a company is ordered to change its name under the provisions of this Bill (including in cases where the name is considered misleading or it may facilitate criminal activity) the company must comply with the order within 28 days. This requirement would replace the Bill’s provision to provide the company with a potentially unlimited period of time to comply with the order.
The Chair
With this it will be convenient to discuss the following:
Amendment 72, in clause 14, page 8, line 16, at end insert—
“(2C) The Secretary of State must publish the use of any such direction as set out in subsection (2B) on the registrar’s website.”
This amendment would add a requirement for the Secretary of State to publish any extension of the period of compliance set out in subsection (2B) on the Companies House website.
Amendment 88, in clause 14, page 8, line 19, leave out “at least” and insert “no more than”.
This amendment is linked to Amendment 87.
Amendment 89, in clause 14, page 8, line 23, leave out “at least” and insert “no more than”.
This amendment is linked to Amendment 87.
Amendment 90, in clause 14, page 8, line 29, leave out “at least” and insert “no more than”.
This amendment is linked to Amendment 87.
Amendment 73, in clause 14, page 8, line 34, at end insert—
“(3B) The Secretary of State must publish the use of any such direction as set out in subsection (5)(a)(3) on the registrar’s website.”
This amendment would add a requirement for the Secretary of State to publish any extension of the period of compliance set out in subsection (5) on the Companies House website.
Clauses 14 to 16 stand part.
Amendment 91, in clause 17, page 10, line 5, leave out “at least” and insert “no more than”.
This amendment is linked to Amendment 87.
Amendment 74, in clause 17, page 10, line 10, at end insert—
“(The Secretary of State must publish the use of any such direction as set out in subsection (4) on the registrar’s website.”
This amendment would add a requirement for the Secretary of State to publish any extension of the period of compliance set out in subsection (3) on the Companies House website.
Clause 17 stand part.
Amendment 92, in clause 18, page 11, line 13, leave out “at least” and insert “no more than”.
This amendment is linked to Amendment 87.
Amendment 75, in clause 18, page 11, line 18, at end insert—
“(4A) The Secretary of State must publish the use of any such direction as set out in subsection (4) on the registrar’s website.”
This amendment would add a requirement for the Secretary of State to publish any extension of the period of compliance on the Companies House website.
Clauses 18 to 26 stand part.
Amendment 76, in clause 27, page 16, line 19, after “person” insert—
“and published on the registrar’s website”.
This amendment would add a requirement for the Secretary of State to publish any written notice of exception based on the national security etc. on the Companies House website.
Clause 27 stand part.
Stephen Kinnock
It is a pleasure to serve under your chairship, Ms Bardell.
I add to the comments of my right hon. and hon. Friends in welcoming the Under-Secretary of State for Business, Energy and Industrial Strategy, the hon. Member for Thirsk and Malton, to his place. Over the past few weeks and months, it has been a bit difficult to keep track of who is going where and of the blizzard of appointments. His appointment in particular stood out as a very wise decision by the Prime Minister. We very much look forward to working with the Minister on the Bill and on other issues.
I must add that I am looking forward to working with my colleague the shadow Minister, my hon. Friend the Member for Feltham and Heston. We will work together on the Bill, but I represent the shadow Home Affairs team, looking at the issues through the lens of security, which is so important to our country and is very much the other side of the coin from the economic resilience issue that we are also exploring.
I will speak to clauses 14 to 28 and the amendments to them. Economic crime has a devastating impact on an individual level for our constituents and businesses, and at a national level for our national security and economic resilience.
The Chair
Order. May I say that clause 28 stand part will be a separate debate? I remind the hon. Gentleman that in this group, we are debating up to clause 27 stand part.
Stephen Kinnock
Up to and including clause 27, finishing, and then moving on to clause 28. Thank you for that clarification, Ms Bardell.
The National Crime Agency estimates that £100 billion of dirty money flows through the UK every year and that fraud is causing £190 billion of damage to our economy. According to PwC, 64% of businesses have experienced fraud, corruption, or other economic or financial crime within the past two years, which is up from 50% only four years ago.
The Labour party believes in stronger action to defend our national interest, our economy and our national security from the organised criminals, fraudsters, corrupt oligarchs and kleptocrats. Indeed, as the shadow Home Secretary, the right hon. Member for Normanton, Pontefract and Castleford (Yvette Cooper), said on Second Reading:
“Ours is a country that has long prided itself on the rule of law and on strong economic institutions, which is what traditionally made it a good place in which to invest, but that is being undermined by economic crime”.—[Official Report, 13 October 2022; Vol. 720, c. 291.]
It is also being undermined by the illicit money flowing through what many call “Londongrad”. As much as that brings shame, it should also bring pride that we are coming together as parliamentarians to debate and scrutinise this important Bill.
We support the Bill, but the devil is in the detail. With 250 pages, a huge amount of detail needs extensive discussion. Part 1 is critical, because it aims to get to the crux of one of the major barriers to tackling economic crime. That problem is the underfunding, lack of regulation and lack of teeth at the heart of Companies House.
Clauses 9 to 22 cover legislation on changes to company names. I have moved amendment 87 and tabled amendments 72, 88 to 90, and 73 to clause 14, as well as amendment 91 to clause 17 and amendment 92 to clause 18. We are surprised that the Bill states that when a company is directed to change its name under the Companies Act 2006, including in cases where the name is considered misleading or might facilitate criminal activity, that company must comply with the direction in “at least 28 days”. That requirement would replace the provision to provide the company with a potentially unlimited period of time to comply with the order. In a moment, I will pause to allow the Minister to clarify whether that provision is deliberate, because it appears to be both rather confusing and rather too generous. Surely, it should say that the company must comply with the order within 28 days. That is what the amendment seeks to achieve—as opposed to “at least” 28 days, it must be within 28 days.
The Bill includes lengthy provisions on company names, and sets out how and for what reason a company may be required to change its registered name. The aim of those provisions is to enable companies’ names to be prohibited in cases where they may be intended to facilitate dishonesty, deception or another criminal offence. Although that aim is laudable, there appears to be a disconnect between the seriousness of the offences that the Government are seeking to prevent, and the lengthy periods of time that Ministers are prepared to allow for a company to comply with an order to change its name.
Given that such an order will generally be made only when a Minister has identified a clear risk of harm in relation to a company’s name—including a risk of fraudulent or other serious criminal activity—it is hard to understand why a company would then be given potentially limitless timeframes to comply with that order. The Opposition believe there should be, at the very least, a time limit on orders to change a name believed to be intended to deceive the public of the company’s true purpose. Companies that fail to comply with such an order within a reasonable period of time, and a 28-day limit seems reasonable to us, should also be penalised if they cannot provide a good reason for any delay or refusal to comply. I am happy to pause here if there is anything that the Minister would like to clarify.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
I am happy to do that. The issue is in the drafting. I had to read this on a number of occasions and speak to officials before I got my head around it, but the provision achieves the purpose that the hon. Gentleman sets out. Clause 14(5)(2) states:
“The direction must be in writing and must specify the period within which the company is to change its name.”
It is a fixed period of time. It sets out the ability to give a company more time in certain circumstances, but the intention is to do exactly as the hon. Gentleman wants: a company has 28 days to comply. It will be told how long it has to comply, and that may well be 28 days.
Stephen Kinnock
I thank the Minister for that response. As he pointed out, he had to read the provision several times in order to be clear on the drafting. Clause 14 (5)(3) says:
“The period must be a period of at least 28 days”.
Our intention is to make it clear that it has to happen within 28 days. There is a clear difference between “at least” and “within”. “At least” gives the impression that a company could have an unlimited period of time beyond those 28 days, whereas if we clearly state that it must happen within 28 days, then there is no room for doubt whatsoever. Would the Minister like to come back to me on that?
Kevin Hollinrake
Again, if the hon. Gentleman reads that in the context of clause 14(5)(2), he will understand that it is a fixed period of time. That is what companies will be given.
Stephen Kinnock
Maybe the Minister and I are just not seeing it through the same lens. I agree that there should be a fixed period, but I think it should be clearly defined that the fixed period must be a maximum of 28 days. Does the Minister think that the Bill as drafted makes that clear?
Kevin Hollinrake
The point is there may well be valid circumstances where a company might take longer than 28 days, for example if it needs to seek a resolution from its shareholders or directors. In those cases, a company might then apply to Companies House or the Secretary of State to extend that time period. That is where the “at least” comes in, and it must be seen in the context of the “within”. Listen, I am not a lawyer. I do not think the hon. Gentleman is a lawyer. The lawyers have chosen to draft the legislation in this way. I do think it serves the purpose, but I can understand why the hon. Gentleman is seeking clarification.
The Chair
Order. The hon. Member needs to respond first. Then the right hon. Lady can intervene.
Stephen Kinnock
You are absolutely right to keep us in line, Ms Bardell. We need to ensure we can operationalise the Bill in the clearest and most succinct way that leaves absolutely no room for doubt. The Bill is designed to regulate a sector of the economy that is like water; if it can find cracks to slip through, it will find them. We are trying to close those loopholes.
Dame Margaret Hodge
I am bewildered. The Minister may be too. Proposed new subsection (4A) in clause 14(5)(b) sets out that an application must be made “within the period of three weeks”. Obviously the lawyers do not think it is bad to put “within a period of three weeks” in that particular context. If someone says “at least”, that is a minimum, not a maximum. At least is a minimum. I cannot think that a lawyer would not have common sense about it. Perhaps the Minister wants to go away, reflect on this and move an amendment later. I do not believe lawyers are quite that removed from reality and common sense. It literally says in that clause “made within”. The lawyers do not mind using that term sometimes, so why can they not use it always?
Stephen Kinnock
My right hon. Friend has hit the nail on the head. I hope the Minister will reflect on that.
Moving on to clauses 15 to 22, we are content with clause 15, which would allow for objections based on the company name being misleading outside the UK and for the shareholders and directors of said company to be joined as respondents or defenders in the claim. In their February 2022 White Paper, the Government explained the rationale for expanding the grounds for objections to be made to a company’s name. It was broadly accepted that the current restrictions, for instance on names that imply a link to the UK Government, were too narrowly drawn.
Responses to the consultation reflected widespread concern about the impact company names that are clearly deliberately misleading might have on legitimate businesses in cases where rogue companies try to suggest they have a connection to a well-known business and thus benefit from wider public recognition of, and perhaps even loyalty to, an established brand. Such appropriation of company names is now understood as a means of scamming would-be investors out of their money. Earlier this year, for example, there were high-profile reports of a scam involving a company calling itself Diageo Partners Ltd. It attempted to solicit an investment by presenting itself as an arm of the well-known drinks company of that name. Another case flagged by the Financial Conduct Authority in January involved similar attempts by scammers to link themselves with the financial institution Wells Fargo.
Clause 15 is a welcome recognition of those issues and should go some way toward addressing them. However, many legitimate companies that raise objections via the Company Names Tribunal are currently facing delays of three months or more before they can get a decision. I wonder whether the Minister could explain what steps the Government will take to help speed up the Company Names Tribunal process and ensure that fraudulent company names are corrected as quickly as possible.
Kevin Hollinrake
I will address the hon. Gentleman’s points in my full response. There are some amendments we have tabled that address his exact points, and I would like to speak to those in detail.
Stephen Kinnock
Excellent.
We support clause 16, which gives extra powers to the Secretary of State to direct a company to change its name only if he or she deems it to be as little as “a risk of harm” and makes it clear that harm can apply outside the UK. However, in clauses 15 and 16, the Bill seeks to broaden the scope of misleading or otherwise harmful effect, which can be used as grounds to require a change of name. The provisions cover the potential for a misleading company name to cause harm in any part of the world, not just in the UK, and that is surely welcome recognition of the reality of today’s landscape of online fraud. Clearly, scammers and fraudsters have no respect for national borders and it is right that a UK company that is causing or attempting to cause harm in another country should be subject to enforcement actions requiring it to stop. The wording used in clause 16 and elsewhere, referring to actions that pose a risk of harm to the public, is exceptionally broad. Will the Minister expand on how that definition might be given greater clarity and, indeed, clearer definition? Will he provide some practical examples of how those powers might be used? I look forward to his insights.
Clause 18 introduces a procedure that allows the Secretary of State to direct a company to change its name where the name breaches the requirements of the Companies Act 2006, including as amended by the Bill. Failure to comply would be a criminal offence by the company and all responsible officers. The provisions in clause 20 would empower the registrar forcibly to change the name of the company if the company does not do so. That all sounds eminently sensible and we support the measures.
We support clause 21, which makes consequential amendments to the new powers to change a company name under the Bill, for example, because it contains computer code. That requires the registrar to replace the old name with the new one on the register. We also support clause 22, which provides for the Secretary of State to allow company names that are otherwise prohibited where considered necessary for national security or to prevent or detect serious crime.
While the previous clauses refer to company names, clauses 23 to 27 refer to a company’s trading name or business name, which can be different from the company name registered with Companies House. Business or trading names do not need to be registered with Companies House, but they need to adhere to the general restrictions listed in part 41 of the Companies Act 2006.
Clauses 23, 24 and 27 make similar changes to trading names as clauses 10, 16 and 22 in respect of company names. We have no objections there, although my hon. Friend the Member for Feltham and Heston might wish to speak to her amendment to clause 27 shortly. Clause 25 prohibits a company from using a business or trading name that is the same as a company name that it has been ordered to change. Continuing to use a trading name in such circumstances amounts to a criminal offence by the company and every responsible officer. Clause 26 states that where a company has been ordered to change its name, it is a criminal offence for an officer or shareholder of that company, with some exceptions, to use that company’s name as the business name for another company. We recognise the sound reasoning behind each of those clauses.
The Chair
Order. Will the Minister take a seat for a second? Seema Malhotra wants to make a contribution. If Members are looking to speak to amendments, may I remind them of the convention of bobbing? It helps the Chair out.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
Thank you, Ms Bardell. I do not think we were fully clear between us. It is a pleasure to serve under your chairship. I rise to speak to amendment 76, which is in my name and the name of my hon. Friend the Member for Aberavon. I want to conclude on the remarks he has already made.
Clause 27 sets out exceptions to name change directions if the Secretary of State is satisfied that it is in the interests of national security, or of preventing and detecting serious crime, for a business to carry on operating under a name that goes against regulations. We have tabled this amendment to require any exemption to a name change direction on the grounds of national security to also be subject to appropriate transparency.
Amendment 76 is a probing amendment designed to clarify the purpose and circumstances in which the Secretary of State can use their powers of exemption, and who will be aware of how the exemption is being used. The Minister may tell me that some of this is subject to greater security. In that case, which body or Committee would be aware, even under Privy Council rules, of the use of these powers?
Kevin Hollinrake
It is a pleasure to serve with you in the Chair, Ms Bardell.
As Members will have noted, this group is large and includes both amendments and clauses. The hon. Member for Aberavon—I appreciate his kind words and those of the hon. Member for Feltham and Heston—has tabled many amendments, and they would make changes across multiple clauses. It will therefore be helpful for all Members if I lay out the effects of the clause as currently drafted, before turning to the amendments and the many points made during the debate.
Clauses 14 to 22 together form the majority of the chapter on registered company names. At present, the Companies Act 2006 leaves it to the discretion of the Secretary of State to determine the time period within which a company must comply with a direction to change its name. Clause 14 amends that to standardise the various direction-issuing powers already found in part 5 of the Companies Act 2006 and those that are inserted by this Bill. This means that in all instances where companies are directed to change their registered names, they must do so within at least 28 days of the date of the direction. [Interruption.] There are two things I would say to the hon. Member for Aberavon. Clause 14 must be looked at in context, and the point is that proposed new subsection (2A) of section 64 of the Companies Act would give
“a period of at least 28 days beginning with the date of the direction.”
Combined with new subsection (2) of section 76 of that Act, as inserted by clause 14(5) of this Bill, that means the direction will be a fixed period. There will be a fixed period, just as he wants, and in all likelihood it will be 28 days. It may sound like odd drafting, but the “at least” part is to ensure that the direction cannot be less than 28 days to give companies a reasonable chance to make the change. Once the decision has been made on how long the company will get, that will be a fixed period, unless the company provides justification for changing it.
Dame Margaret Hodge
Further on in the Bill, there are a lot of Henry VIII powers. I cannot see the justification in this context, and perhaps the Minister can advise us why we cannot put 28 days in the Bill. It has to be “at least”, but it also has to be “at most”. Let us just put that in the Bill. I do not know why we give any Minister discretion on this. It ought to be in the Bill.
Kevin Hollinrake
It is in the Bill. The point is that the company, in some circumstances, can effectively apply to have that time period extended. That is the point of this; that is where the “at least” bit comes in.
Seema Malhotra
Perhaps the Minister can clarify whether a period of 128 days given in writing would be in line with the terms of the clause. Did he go back to the lawyers to see whether the clause could be redrafted to read that the period must be a maximum of 28 days, beginning with the date of direction? That would still allow for the terms of proposed new subsection (2B) and a permitted extension within three weeks.
Kevin Hollinrake
We need to allow for some discretion when certain companies cannot comply because of certain consequences and for whatever reason. As a simple example, a company might have to get an agreed resolution between directors or shareholders to change its name. That is why the term “at least” applies in the clause.
I would like to move on, because there is more that I would like to share with you, which deals with the issue from a different direction. I will come back to you, I promise you.
The Chair
Order. May I remind the Minister and other Members to speak through the Chair?
Kevin Hollinrake
I apologise. I will not do it again.
Clause 15 makes a set of changes in how objections to a company name are to be considered by the company names adjudicator, established under section 70 of the Companies Act 2006. In cases brought before the adjudicator under section 69 of the Act, the company complaining over another’s misuse of a name is known as the applicant, and the counterparty to that complaint is the respondent. Clause 15 amends section 69 in several ways. First, in recognising that the activities of companies registered in the UK are not constrained by our borders, it removes the geographic scope of complaints that the adjudicator can consider. That allows the adjudicator to consider the ability of a company name to mislead members of the public in jurisdictions other than the UK.
Secondly, the clause plugs a loophole in the existing legislation that allows directors of respondent companies to resign their position to avoid being joined alongside the company itself in the adjudication proceedings. Finally, at present it is the case that unless it can be demonstrated that the respondent registered a name in order to obtain money from the applicant, an application must be dismissed if the respondent has begun trading under the name or has incurred substantial start-up costs. That defence will no longer be available.
Clause 16 amends the Companies Act to lower the bar in terms of the harm test. Currently, section 76 of the Act allows the Secretary of State to direct a company to change its name if, in his opinion, the name gives such a misleading indication of its activities that it is likely to cause harm to members of the public. In future, the Secretary of State will form a view on the basis of whether the name poses a risk of harm, instead of considering whether the name is likely to cause harm, thus giving the Secretary of State greater discretion in the exercise of that power. The clause also clarifies that the potential harm at issue need not manifest itself in the UK alone, but might do so anywhere in the world.
Stephen Kinnock
The Minister is being very generous in giving way. The issue with clause 16 is the term
“pose a risk of harm to the public”,
which seems to be very broad. Can he expand on how that risk might be more clearly defined? Can he give a practical example of how the proposed powers might be used?
Kevin Hollinrake
If I may, I will come back to the hon. Gentleman on that point once I have some information on it from my officials.
Clause 17 will give the Secretary of State the ability to direct a change of a company name where, in his view, it has been used, or is intended to be used, to facilitate the commission of an offence involving dishonesty or deception, such as fraud.
Stephen Kinnock
Briefly on clause 17, I would just like to mark the card because, again, there is an issue with the use of the phrase:
“The period must be a period of at least 28 days”
in proposed new section 76A(3) of the Companies Act. I suggest that that phrase should be replaced with “This period must be a period of no more than 28 days, beginning with the date of direction”, because I think it would be so much clearer and tighter.
Kevin Hollinrake
I will come to that, but the hon. Gentleman’s solution to that does not give any discretion should a company need more time. [Interruption.]
Kevin Hollinrake
That is the reason why the clause is drafted in that way, but I will come back to the hon. Gentleman’s point before the end of my remarks.
The ability to direct a change of a company name recognises that there may already be some companies, among the 4.5 million or so companies already on the register, with names that are facilitating criminal conduct or have the ability to do so. In order to address those instances that may come to the Secretary of State’s attention, the clause will give him the ability to direct a company to change its name. The clause also sets time frames for compliance, penalties and methods of appeal.
I turn now to clause 18, which gives the Secretary of State the ability to direct the change of any company name already on the register of companies that appears to them to contravene any requirement of part 5 of the Companies Act 2006. The Secretary of State can also direct a change of name if, at the time of registration, they had proper grounds for forming an opinion on whether the name was in itself an offence or was offensive, being used for criminal purposes or contained computer code. Without the ability to take action to address such names once incorporated, undesirable impacts can go unchecked. A consequential amendment applies this section to provision on overseas companies.
Clause 19 complements clause 11 of the Bill. Clause 11 makes it unlawful for a company to be registered with a name that contains or comprises computer code. Clause 19 addresses the possibility that computer code lurks among the names of the 4.5 million or so companies already on the register, empowering the registrar to determine a new name.
Clause 20 provides the registrar with the power, by her own action, to change a company’s name where it has not followed a direction to do that itself. Where she does so, she must inform the company and annotate the register accordingly.
Clause 21 makes a consequential amendment related to the administrative aspects of the company name-changing powers contained within the Bill, specifically the duty of the registrar to issue a new certificate of incorporation following a change of a company’s name.
Clause 22 introduces a section into part 5 of the Companies Act that gives the Secretary of State discretion to disapply any prohibition on naming a company or operating under a company name where, in his view, that is justified in the interests of national security or for the purposes of preventing serious crime. On the point about the exercise of national security, commitments to transparency on security exemptions might well by their nature defeat the purpose of the exemption’s use.
I turn now to amendments 87 to 92, tabled by the hon. Members for Aberavon and for Feltham and Heston. The amendments concern clauses 14, 17 and 18, which I have just taken Members through. I thank the hon. Members for the amendments, as they have helpfully highlighted a gap in the Bill. We acted on that yesterday by tabling amendments that address the issue and, I hope, resolve it, albeit in a different way. I refer hon. Members to new clause 34, which effectively allows the registrar to instantly suspend the material on the register referring to the name. In that way, the Bill gives the Secretary of State a new range of powers to direct companies to change their names that supplement and strengthen the existing powers under the Companies Act. [Interruption.] That is on page 65 of today’s amendment paper.
In respect of the existing provisions, it is at the Secretary of State’s discretion to determine the period within which a company must comply with directions. Clause 14 of the Bill seeks to regularise that period across both existing and new direction provisions in part 5 of the Companies Act. That period would be a minimum of 28 days from the date of direction. These amendments seek to make the period no more than 28 days.
I have sympathy with the view that companies should not be afforded longer than necessary to take the steps to comply with a direction. I would, however, draw hon. Members’ attention to the fact that, in respect of the new classes of prohibited name, the Bill is drafted to provide the registrar with the discretion to remove the name of the subject of the direction from the publicly accessible register where a direction has been issued. I assure hon. Members that where there is potential for harm to be caused, the registrar will exercise that discretion and, therefore, the harm will cease at the point the direction is issued, regardless of the length of the compliance period.
Where a name is removed from the register, it would normally be replaced with a company registration number. I anticipate that we will legislate in secondary legislation for the registrar to annotate the register, explaining that the name had been changed because it was the subject of a direction. The Opposition’s amendments have highlighted that the suppression capability is not at present available to the registrar in all circumstances where a direction might have been issued. The Government amendments will ensure that in future it will be. Members can see those amendments in the amendment paper and will have the chance to debate them in a future sitting.
Clauses 23 to 27 comprise a chapter on business names. Clause 23 mimics clause 10, which I explained earlier, in the context of the use of business names in the UK. It builds on existing safeguards in part 41 of the Companies Act 2006, which makes it an offence for a person to carry on business that gives the impression of a connection with the UK Government and public authorities. The clause supports that framework by making an amendment to the 2006 Act that provides safeguards in the international sphere. The clause also contains the same safeguards for those conducting business with legitimate connections.
Clause 24 amends section 1198 of the 2006 Act to lower the threshold for the likelihood of harm required to satisfy the legal test. Currently, it is an offence for a person to carry on business in the UK under a name that gives such a misleading indication of activities that it is likely to cause harm to members of the public. In future, the offence will be based on whether the name poses a risk of harm to the public.
Clause 25 closes a loophole in existing legislation. At present, there is nothing to prevent a company that is the subject of a direction or order from carrying on business in the name that it has been directed or ordered to change. The clause makes it an offence to do so. There are exceptions to that where the period for complying with the direction or order has not passed, where the company has since been registered with the name following approval under proposed new section 57B of the 2006 Act, or where the direction or order was given before the clause commences.
Clause 26 introduces a proposed new section in the 2006 Act and builds on what is done in clause 25. Clause 26 makes it an offence for a company to carry on business in the UK under a name that another company has been directed or ordered to change where both companies share, or have shared, the same officers or shareholders.
Clause 27, the final clause in the group, introduces a proposed new section in the 2006 Act and gives the Secretary of State discretion to disapply any restriction or prohibition on carrying on business under a name, if it is in the interests of national security or for the purposes of preventing or detecting serious crime. Where such discretion is exercised, the Secretary of State must give written notice of confirmation to any relevant person. It is necessary that sufficient flexibilities exist in all areas to take the steps most appropriate to safeguard security and target serious crime.
Amendments 72 to 76 would impose a duty on the Secretary of State to publish details of instances where he had extended the deadline for companies to comply with directions that he had issued to them to change their company name. I am not sure, however, that it would achieve what the Opposition really intend it to. It is of course always dangerous to make assumptions, but I suspect that what those who have tabled the amendment really want is for information to be published about each and every direction that the Secretary of State has issued, and that is not what it would do. I reassure hon. Members that we will consider how that information might best be made available—potentially, for example, through annotations of the companies register, which would of course be available to view through the Companies House online service.
I thank Members for their patience. I have taken them through a technical but important part of the Bill. I hope that they will appreciate that their amendments perhaps do not have the desired effect, particularly taking into account the Government amendments that have been tabled.
Stephen Kinnock
I thank the Minister for coming back in such detail on our points. We certainly look forward to studying new clause 34. We have not really had an opportunity to look at it yet, but it is great to see that the Minister and his team have taken our amendments on board and come up with something that will hopefully enable us to find common ground.
I want to make two additional points. The first goes back over the ground of “at least” versus “within” debate. I spoke earlier about proposed new section 76A(3), on page 10, as introduced by clause 17(4), which says that the period must be a period of “at least” 28 days; our amendment suggests that it should be “no more than” 28 days. The Minister said that making that change would give no leeway to the Secretary of State to be able to override in certain cases. We accept that there are certain cases where further direction is required to extend the period; there may well be extenuating circumstances, and we certainly do not want to create a straitjacket for businesses—we take that point. However, proposed new subsection (4) does precisely that. That is why we should lay out in proposed new subsection (3) that the basic principle is “no more than” 28 days. We have no desire to change the provisions of proposed new subsection (4)—with extenuating circumstances, the Secretary of State should be able to extend the period.
We would be more than happy with that change. It only requires the insertion of “no more than” in proposed new subsection (3), and no change to proposed new subsection (4). That would give the right balance between the need for a basic, tightly defined standard and still having the ability for the Secretary of State to extend the period where required.
Kevin Hollinrake
As I said before, I think the Bill achieves the same objective; it might not be with the words of the hon. Gentleman’s choosing, but I think the objective is served by the drafting we have. It may well also be served by the drafting he suggests, but I do not see the point of changing the wording when it already does the same thing.
Stephen Kinnock
I thank the Minister for that response.
My second point is on clause 15, which considers changing names. As we have said, the clause is a welcome recognition of the issues around name changes and companies using names for fraudulent purposes—trying to give themselves connections to well-known brands and so on. Many legitimate companies that raise objections via the company names tribunal are facing delays of three months or more before they get a decision. I asked whether the Minister could assure us that the Government are alive to the issue. What steps might they be taking to speed that process up?
Kevin Hollinrake
I am happy to. I think we would all acknowledge that, due to various reasons beyond any of our controls, tribunals have fallen behind in the cases they are hearing. I am very happy to look at the timeframes that the hon. Gentleman refers to, as I was not aware of specific issues. The important principle behind the clauses is that they allow the Secretary of State, via Companies House, to bear down very quickly when there is the risk of harm to individuals, companies or others.
Stephen Kinnock
In the light of the fact that new clause 34 has been tabled, which we have not yet had the opportunity to study, we will not press the amendment. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
The Chair
Does the hon. Member for Feltham and Heston wish to move any of the other amendments?
Seema Malhotra
In the light of there being some connection between them all, I think we will not press them.
Clause 14 ordered to stand part of the Bill.
Clauses 15 to 27 ordered to stand part of the Bill.
Clause 28
Registered office: appropriate addresses
Stephen Kinnock
I beg to move amendment 86, in clause 28, page 17, line 14, at end insert—
“(2A) An address is not an ‘appropriate address’ if—
(a) it is not a place where the business of the company is regularly carried out;
(b) the registrar, upon inspection, has reasonable grounds to suspect that the company does not have permission to use the address; or
(c) it is a PO Box address.
(2B) The Secretary of State may by regulations make provision—
(a) for exceptions to subsection (2A) above; and
(b) for the registrar to exercise discretion to disapply subsection (2A) in exceptional cases.”
This amendment seeks to clarify the Bill’s definition of an “appropriate address” for a company’s registration.
The Chair
With this it will be convenient to discuss the following:
Amendment 94, in clause 28, page 17, line 32, at end insert—
“(4A) After section 87, insert—
‘87A Duty of the registrar to verify appropriateness of address of registered office
(1) This section applies where the registrar has received—
(a) a statement of the intended address of a company’s registered office (under section 9(5)(a)), or
(b) notice of change of address of a registered office of a company (under section 87(1)).
(2) The registrar must assess the risk that the company is involved in economic crime.
(3) If following the assessment required by subsection (2) the registrar considers that there is a real risk that the company is involved in economic crime, the registrar must—
(a) take steps to determine whether the address which has been supplied is an appropriate address within the meaning of section 86(2), and
(b) refer the matter to the relevant law enforcement agency.’”
Clause 28 stand part.
Clause 29 stand part.
Stephen Kinnock
This important amendment seeks to clarify the Bill’s definition of an appropriate address for a company’s registration. We have talked many times, both in this Committee and elsewhere, about red flags in company formation and registration. It must be an overriding aim of the Bill to ensure that any indicators of suspicious activity can be swiftly and easily identified in order to ensure that the appropriate investigations and, where necessary, enforcement actions are carried out at the earliest possible opportunity.
One thing is glaringly obvious from the many recent reports on how criminals are able to exploit weaknesses in the company registration system. The widespread, unchecked use of false addresses for criminal purposes is surely one of the most urgent problems for the Bill to address. In evidence to the Committee last week, there was a high degree of consensus from all our witnesses that the fraudulent use of addresses is among the most serious problem within the current register.
Bill Browder provided a cogent summary of the issue. I will not quote him in his New York accent, but I am sure you can imagine it. He said,
“This whole post-box idea just lends itself to anonymity and so on. Why do people not just register their companies at their own home or their own business address if there is a legit company? What is this business with 2,000 companies in one strange industrial park in Glasgow?”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 74, Q152.]
Though all due respect to SNP colleagues—I am quoting, Ms Bardell, please don’t shoot the messenger!
It is now a well-established fact that there can be hundreds, perhaps even thousands, of different companies registered to a single address. It is hard to think of a more obvious red flag. Ensuring that Companies House can more quickly and easily identify and investigate specific addresses used illegitimately by multiple companies is a vital prerequisite for better enforcement of laws on economic crime.
There are other fairly basic steps that the Government could take to tighten up rules on the kinds of addresses companies can provide as part of the registration process. Amendment 86 provides some specific examples of how that could be done. We hope that the amendment can serve as a starting point for efforts to ensure a much more rigorous set of registration requirements than those currently in place. An obvious place to start is to tackle the apparent overuse of PO box addresses. They have been linked with fraud and other criminal activity in several high-profile cases highlighted in recent media reports.
The FinCEN files also provide evidence of the scale of the problem in the UK. In its February 2022 report on economic crime, the Treasury Committee also described how PO boxes provide many criminal enterprises with a highly convenient way to establish a front for illicit activities while making detection and tracing of those involved much more of a challenge for law enforcement. Amendment 86 would seek to tackle the issue by establishing a general presumption against allowing companies to designate PO box addresses when registering, while leaving open the possibility for exceptions to be made in some cases where there may be legitimate reasons to do so.
Our amendment also goes further by introducing a general requirement for companies to provide a UK address where it actually conducts its business on a regular basis. The absence of such a requirement under the current rules makes it much easier to obscure the true purpose of a company and much harder for law enforcement to trace that and control it.
In part 2 of the Bill, the Government are seeking to strengthen requirements for limited partnerships to provide an address that is its principal place of business in the UK. The Opposition welcome that approach and believe that it could and should be applied more broadly. Therefore, amendment 86 proposes that the address requirement for all companies should be brought closer in line with those of limited partnerships under part 2, as proposed by the Government.
The amendments are all designed with our shared aims and values at heart. I hope that the Minister will take time to reflect and consider their worth.
Alison Thewliss (Glasgow Central) (SNP)
I support the amendment tabled by the hon. Member for Aberavon, and that tabled by the right hon. Member for Barking, because a lot more needs to be done to regulate what is an appropriate address and to verify it in the real world.
In his evidence, Graham Barrow mentioned a 92-year-old gentleman whose name has just been used by scammers for a second time. People fraudulently use names and addresses that belong to real people to set up companies and those people have no idea that their names have been abused. Graham Barrow also highlighted a piece on “You and Yours” on Radio 4 where a lady who had had Asda Limited registered to her terraced house in Huddersfield received 7 kg of post, and all kinds of other threats from bailiffs and others who turned up at her door. That goes to show how the current system is not working. I seek to be reassured by the Minister that the proposed clauses will be sufficient to deal with the problem.
Over many years I have been familiar with problems associated with Scottish limited partnerships—SLPs. The Ferret reported in October 2021 about a company named The Edinburgh Office—a company formation, agent-type of business—which had registered 2,000 companies at their registered address of 101 Rose Street South Lane in Edinburgh—there are no such things in Glasgow, obviously, but these things happen in Edinburgh. Perhaps they do not happen in Aberavon, but they happen in many, many places around the country. Such companies hide behind mailbox addresses. Many of them were at best iffy, others involved outright criminality and all kinds of nefarious activities.
There was a photograph in The Ferret article—I cannot pass it on to include in Hansard—which showed a boarded-up building. That should be a red flag: 2,000 companies registered to a boarded-up building that does not look like a working building at all, but those companies were allowed to carry on their business. I do not know whether the clauses will make a real difference and people will be empowered to check whether those addresses exist in the real world and are being used.
There is also the issue of companies abusing actual companies’ real addresses too. David Leask and Richard Smith, who have been excellent investigative journalists, taking Scottish limited partnerships to task for many years, reported in The Times back in April this year that an SLP in the name of Alexey Krapivin called Clover Consulting Partners gave its listed address as that of the Edinburgh legal firm Burness Paull. Burness Paull said that it knew nothing about it. Clearly, it had been receiving mail, so I do not know the extent to which it checks such things, after receiving mail for a company that does not exist. In any event, it ceased to offer services for company formation to companies of that kind back in 2018.
This company had been using Burness Paull’s address with absolute impunity, and it was not new to dodging the Companies House rules. The company was formed in 2005 and made no meaningful filings to Companies House until it was forced to register a person of significant control in 2017. That was 12 years of non-compliance with the existing Companies House rules, yet there was no comeback on that. I seek from the Minister provisions in the clauses around enforcement, which is not happening under the current rules. I need to be convinced by him that it will happen under the rules that he is laying out.
The clauses talk about fines on a standard scale, and all those kinds of things. Those fines are not even being issued. I have asked parliamentary questions about that. Since the rules came into force only one Scottish limited partnership has been fined for failing to register a person of significant control, and that fine was £210—nothing, in the scheme of things. I ask the Minister whether the rules will be enforced. Will addresses be checked, to ensure that they are real businesses, carrying out real work, with real companies and real people? If not, will he accept the amendment, which goes some way to ensuring that the companies exist at the addresses that they say they do. Without boots on the ground to check such things, it does not matter whether we set it up in Aberavon, Glasgow or Edinburgh; nobody will know that it is not true.
Liam Byrne (Birmingham, Hodge Hill) (Lab)
It is a pleasure to serve under your chairmanship, Ms Bardell. I support the amendment, and that tabled by my right hon. Friend the Member for Barking, because in many ways they go to the heart of whether the Minister is serious about stripping economic criminals of their balaclavas and cloaks of anonymity, which currently allow them to perpetrate some of the worst economic crime on the planet.
I said this morning that when we offer privileges to people in this country, whether benefits or a visa, we put them through the most substantial identification checks. We put those applying for visas for this country through a whole set of biometric checks, which I introduced. When we introduced them the first time around, and began washing those biometric checks against police computers, we discovered that visas had been issued in the past to some of the most obnoxious criminals on earth.
Verification checks are a good thing. I would say that they are required if we are to grant individuals the economic privileges that come through limited liability. That is the privilege that we are giving people when they register a company at Companies House. It is not just a free-for-all; it is a privilege that we created for the common good, and we should therefore ensure that we give it to not just anybody who happens to turn up but people we know. That is why we need a very clear story from the Minister about the regime that he will bring forward to ensure that the cloak of anonymity—these balaclavas on economic criminals—are gone once and for all. Unless we have that reassurance, the Bill will not be worth the paper that it is written on.
Dame Margaret Hodge
I rise to support amendment 86 and to speak to amendment 94 in my name. I have to say to the Minister that this is the first debate where there is a flaw in how the legislation is drafted, such that when the Bill becomes active, it will not serve the purpose that we all desire of it. I can see how we got there, but I ask him to consider looking at it in another way.
Kevin Hollinrake
Permission should certainly be sought; it is just that some people do not seek permission. That is the point behind the clause. We are putting provisions in place to clamp down on that behaviour and completely eradicate the possibility of someone doing that.
Dame Margaret Hodge
Okay, but I have not read anywhere in the Bill of a legal duty placed on an individual establishing a company to seek the permission of the person whose address it is, whether a householder or a business. I cannot see that in the Bill, so it would be helpful if the Minister could direct me to it.
That is point No. 1. My second point is that there is massive abuse of addresses, to which other Members have already pointed. In the FinCEN files, which I happened to have looked at again recently, one case involved a private address in Leicester that was used as the company address of 36 shell companies.
Kevin Hollinrake
I draw the Committee’s attention to the wording of clause 28, on an “appropriate address”:
“A company must ensure that its registered office is at all times at an appropriate address…An address is an ‘appropriate address’ if, in the ordinary course of events…a document addressed to the company, and delivered there by hand or by post, would be expected to come to the attention of a person acting on behalf of the company”.
It is therefore impossible to see how people could just pick any address, as some do now; that clearly would not be an appropriate address, because there would be nobody there to hand the correspondence on.
Dame Margaret Hodge
Interestingly enough, the example that I was halfway through describing proves that one could still choose an address and have documents delivered to it, but, if one had not sought permission of the person whose address it is, it could still be a phoney address.
To follow through on the example in the FinCEN files, a private address in Leicester had 36 shell companies, all with accounts in the Danske Bank in Estonia. The address was in fact that of the home of a Latvian cleaner called Dace Streipa—I hope I pronounced that correctly. When she was confronted by the journalist investigating the FinCEN files, she claimed to know nothing about it. Letters had kept appearing at her house, but she did not know what to do with them.
The other FinCEN files example was that of 175 Darkes Lane, Potters Bar, which I am sure the Minister will remember. It was home to more than 1,000 companies. It may be, then, that there is an obligation, but someone could choose any address, including my home address if they so wanted, and I am not sure that there is an obligation for the person who chooses that address to seek my permission to do so. If I am wrong, I am happy to take that back, but I do not think the clause that the Minister directed me to covers that. We want to stop the cuckooing activity.
Clauses 61 and 62 put duties on Companies House to ensure that identities are verified, but there is no duty to ensure the verification of addresses. That duty is needed: it is part of the proactive role that we talked about at the beginning of this morning’s debate. It should be proportionate and could be done with a risk-based assessment, but if we do not place a duty on Companies House to perform some sort of check on the addresses that are submitted in relation to the formation of each company, as well as a check on the identity of the individuals, we are digging a hole for ourselves and will find that the legislation we pass is not effective in the way that is wanted. I ask the Minister to give the idea really serious consideration, because I do not think the Bill goes far enough to give us the certainty that we seek on the legitimacy of companies that are formed.
The Chair
Order. Before I call the Minister, I remind the Committee that it is helpful if Members indicate in their substantive contribution whether they are going to press or withdraw an amendment.
Kevin Hollinrake
I hear clearly the comments made on both sides of the argument, but I think the provisions in the Bill do tackle the issues that Members are trying to tackle—
Kevin Hollinrake
The right hon. Lady should let me develop my argument, if she does not mind.
We are all aware of the frequent problems that arise when criminals incorporate companies using an address that belongs to a person who has nothing to do with that company, or when criminals hijack the details of a legitimate company and change the address to one that is invalid or ineffective. The Bill contains provisions that will not only reduce the risk of that happening, but mean that when it does happen the registrar can take swifter action to remedy the situation, which I think is what Members are asking for.
The Bill will operate like this. Clause 28 imposes new duties on companies to ensure at all times that their registered office address is an appropriate address. The companies and individuals involved would be guilty of an offence if they did not make sure that the address was appropriate—
Kevin Hollinrake
Let me develop my point a little bit. The meaning is clearly defined in the Bill: an appropriate address is an address where it can be reasonably expected that documents sent to the company will come to the attention of a person acting on the behalf of the company. It is inconceivable that a Latvian lady in Leicester who does not know why she is getting correspondence could be defined as somebody who is able to pass on the documentation to a person acting on behalf of the company.
Kevin Hollinrake
Let me just finish the other critical part of the definition. An appropriate address is an address where an acknowledgement of the delivery of documents is capable of being recorded.
Dame Margaret Hodge
The Minister has not answered the point about whether, in the Latvian cleaner example, her permission would legally have had to be sought for that address to be used, but let us put that to one side. He says that if it does happen, swift action will be taken; how on earth would that ever come to the knowledge of Companies House? How would it ever know if there is no system of spot checking to ensure that the addresses that are used are true? There is no system in the Bill. The main point of this whole argument is that we need a checking system—I accept that not every address would be checked, but it could be a spot-checking system—to ensure that the addresses are valid. That is not in the Bill.
Kevin Hollinrake
And I do not think the right hon. Lady imagines that the registrar could go around them all. I am glad we agree on that.
Kevin Hollinrake
I would like to finish the point. The key point is that the measure requires the people who control the company, be it the directors or persons of significant control, to make statements. If they make false statements or fail to comply with the requirement, they will be committing a criminal offence, as is every officer of the company who is in default.
What the right hon. Member for Barking seems to want is to have armies of address checkers going around the country. This is ex post regulation, which is a more effective means of regulation. I do not suppose that anybody on this Committee wants to inhibit the lawful, commercial activity of the vast majority of companies that go about their normal commercial business every single day.
Kevin Hollinrake
No, not at this point in time.
We are striking a balance between the two. These measures have to be seen in the context of the wider provisions of the Bill on checking the identity of directors and persons of significant control—the people who are controlling the company. If people make false statements, those people and that company will be guilty of an offence.
The shadow Minister wanted to intervene.
Seema Malhotra
Does the Minister agree that being able to use analytics to determine that 1,000 companies are registered at one address would not mean manually going through and using resources in that manner, and would mean—taking a risk-based approach—that we would identify where something needed to be done?
Kevin Hollinrake
Absolutely. We all agree with that. The registrar will look at that.
Kevin Hollinrake
If it is an example where 2,000 companies are registered at an address near Edinburgh, and somebody tries to register that address, that may well lead to a red flag. Companies House is investing in that capability, as part of its work. It is not just about people, but systems and automation of systems, in order to see those red flags. At that point in time, the system would potentially do what the right hon. Member for Barking wants it to do—raise a red flag. That could then be queried with the directors and the people who control the company, and could alert law enforcement authorities. I do not think anybody here is suggesting that Companies House becomes another law enforcement authority. There has to be information sharing between Companies House and the law enforcement authorities.
Liam Byrne
The Minister is being characteristically generous in giving way. The problem the Committee has with the argument about ex post facto regulation is that, if we take the example I gave this morning of the requirement to register persons of significant control, there are still 11,000 companies that have not registered persons of significant control, but there have only been 119 convictions. There is an enormous enforcement gap, which is a real concern to the Committee, not least because the powers that the Minister is seeking are for companies to verify an address, rather than creating a duty to verify the address. Witness after witness gave evidence to the Foreign Affairs Committee on the duty to verify the address, which is why that Committee, of which the Minister for Security was Chair, concluded that there must be a tough verification regime in place at Companies House.
Kevin Hollinrake
The right hon. Gentleman may think a duty to check 4.5 million addresses is proportionate. I think it would be disproportionate. The vast majority of those addresses are bona fide addresses of bona fide companies. We have to take a risk-based approach; I think we would both agree on that.
The right hon. Gentleman returns to resources. We have already had a long debate on resources. He knows that I agree that the registrar, and the law enforcement agencies for that matter, must have sufficient resources to ensure that the registration of persons of significant control is undertaken. That body of work is ongoing now with Companies House.
Stephen Kinnock
Would the Minister consider a PO box address to be an appropriate address—yes or no?
Kevin Hollinrake
No, and I will come to that point shortly.
Clause 29 provides an important new power for the registrar to deal effectively with those abusing our systems. As we have discussed and all agree, for too long criminals have acted with impunity, providing fraudulent addresses for companies set up deliberately to scam people, many of them vulnerable. We know the distress and inconvenience that can cause to many constituents, including when bailiffs arrive at the door in connection with a matter with which that person has no connection.
Alison Thewliss
What happens to all the companies that currently have a PO box, and how long do they have to comply with this measure?
Kevin Hollinrake
As for the period of compliance, we will let hon. Member know. There is a huge volume of records. We want Companies House to be more proactive. We do not want it to be swamped by information being supplied to it all at once. We need to make sure that the commencement order is carried out sensibly. Red flags could well be applied to a company address that has many other companies attached to it. If a company had registered multiple company directors or persons of significant control or had recognised multiple companies at one particular address, that should be the kind of red flag that, following a risk-based approach, would require checks and balances to be put in place. Those companies would be struck off the register and other actions would be taken against the individuals.
The new definition in clause 28 negates the need to include the reasonable suspicion element of amendment 86. Where the registrar, informed by the intelligence and information available to her, has reasonable grounds to suspect that the company does not have permission to use the address, she may come to the view that in the ordinary course of events, the appropriate address conditions will not be met. The registrar will then either reject it or change it according to the circumstances.
Seema Malhotra
If I am following the Minister’s arguments as he intends, is he saying that his view of objective 4 and how it would be interpreted means it would be implicit that the registrar would be expected to check addresses and ensure minimum fraudulent activity and so on? In response to the amendment tabled by my right hon. Friend the Member for Barking, which called for a duty on the registrar to verify the appropriateness of the address using a risk-based approach, I believe the Minister argued that that was implied and would therefore be done under the objectives as they stand.
I put it on the record that we agree with the new clauses and amendments that he has outlined and that were debated with clause 29. They are important. Does the Minister think that, even after his new powers and requirements are in place, the gap will be closed sufficiently? To say that the registrar could act on intelligence available to her either implies that somebody will give it to her or that there will be a function that will operate as if there were a duty. Is that his intention?
The Chair
I remind Members that interventions are supposed to be interventions and not substantive contributions.
Kevin Hollinrake
The objectives promote the integrity of the register. That is quite clear. The registrar therefore has the responsibility to act. The intelligence and information available to her could come from a number of sources, such as third-party sources, law enforcement agencies or financial institutions. Red flags within an organisation can come from a number of places. If a red flag leads to the conclusion that there are reasonable grounds to suspect the company does not have permission to use the address, the conditions will not be met and the registrar will either reject it or change it, according to the circumstances. The golden thread running through that is that the registrar has the power to act on information based on the risk-based approach, which conforms to the request from the right hon. Member for Barking that we do spot checks. A risk-based approach is far more effective than random spot checks. That is what we are trying to get to here.
The hon. Member for Glasgow Central asked about when people would have to move away from PO box addresses to an appropriate address. The earliest commencement by regulation is two months after Royal Assent.
Lastly, I turn my attention to the first element of amendment 86, which would have the effect of compelling companies to register their main place of business as their registered office. That would be problematic for many good companies. Let us take, for example, a company with a large, rural manufacturing facility, which might be considered its main place of business, and a city centre showroom. There are perfectly legitimate reasons for such a company to favour the city over the country as its registered office location. The amendment would prevent that. I hope hon. Members will be reassured that the provisions will be an effective means by which to monitor and police the accuracy of company address information and will feel able to withdraw their amendment.
Turning to amendment 94, I hope the right hon. Member for Barking will agree with me that the Bill’s new definition of what constitutes an appropriate address for the purposes of a company’s registered office address is an improvement on what has existed up to now. It requires the company to have authority to use the address on pain of criminal sanction for the company in breach and every one of its officers in default. I trust she and the Committee members will welcome the provisions that I have just described. I do not think it is proportionate to agree to routine or spot checking for each and every company and, in our view, we need to take a risk-based approach, which I think we all agree with, to make sure Companies House resources are used fruitfully.
In the light of the reforms proposed in the Bill, Companies House, armed as it will be with new powers and objectives, will home in on those companies that are most likely to be engaged in criminal activity. In some cases, intelligence and information-sharing enabled by measures in the Bill might suggest that the registered office address is a clue to that criminal behaviour and might prompt any one of a number of different approaches on the part of the registrar and, potentially, law enforcement agencies. For example, it is my expectation that in future Companies House will consider carefully whether to process multiple incorporations emanating from a single address, as described earlier, and deploy the new querying powers available to it before doing so.
Ultimately, the Bill seeks throughout to focus effort and resource where it will achieve the most meaningful impact. I hope that the right hon. Member for Barking will be reassured that proactive intervention, based on sound risk assessment, is a more cost-effective approach to take and that she will feel able to withdraw her amendment.
Liam Byrne
Perhaps the Committee could take more comfort from the approach the Minister has enunciated this afternoon if he could give us a sense of how many companies he thinks Companies House would be able to check under the new regime each year? Can he give us a sense of the scale and proportion?
Kevin Hollinrake
That is something that we will need to see—the plan for Companies House and the resources needed for that. A figure of £50 or £100 was quoted; if the company formation fee was £50, that would raise £20 million a year. That is quite a significant amount of money. As I said, cart and horse, first we need to see what powers and resources Companies House needs, and then we can apply the right levy in terms of the company formation fee to ensure that the resources are available. A review will also be conducted to ensure that those resources will still be available as time goes on. On that note, I conclude my remarks.
Dame Margaret Hodge
I want to say a number of things. First, may I say to Conservative Back Benchers that I do not think anyone in the room wants to do anything other than encourage maximum commercial activity to maximise growth? Right? I have looked at the issue for a long time, and my view, which I believe is shared by the Minister, is that if we do not sort out the dirty money, Britain will become a less attractive place in which to invest and grow. Let us be clear that we are not in any way trying to over-regulate or impede economic and commercial activity; we want to encourage it. Let us have that as a shared objective.
Secondly, I accept and applaud the work the Government have done on trying to hone down the definition of appropriate address. The proposed clauses and amendments on that are really important, but then comes the “but”, which is that all the evidence we have, from all the leaks we have had over the past decade or so, demonstrates that shell companies abuse addresses for nefarious purposes. That is how they work.
In his concluding remarks, the Minister said that Companies House would intervene “where intelligence and reasonable information was made available to her”. We are not asking for the addresses of 4.5 million companies, or whatever the figure is. The idea of knocking on the door of all such companies is obviously completely and utterly totally absurd, and that is why we are calling for a risk-based approach. The shadow Minister, my hon. Friend the Member for Aberavon, made a very good point; if we could just use the technology intelligently, we could then see whether the same address was being used by 10, 20 or 30 companies. There are ways of doing that, but at present, there is no duty or obligation on Companies Houses to check. I have not found it, but perhaps the Minister will be able to show it to me. We also know that if we do not make that duty clear, it will fall out of the in-tray and go to the back of the to-do list. We then leave the opportunity available for dirty money to enter the country and not be checked by Companies House.
Kevin Hollinrake
If the right hon. Lady looks at the literal interpretation of her amendment, she will see that it puts an obligation on Companies House to check every single address in the UK. It says:
“Duty of the registrar to verify appropriateness of address of registered office”.
It does not say “on a spot-check basis”. It seems to be a blanket provision. I agree with much of what the right hon. Lady has said, but I think we need to be careful. The drafting of this has to be right, because, as she rightly says, we do not want to impede the normal commercial activity of 4.5 million businesses in the UK. That would be detrimental to our constituents and the citizens of this country.
Dame Margaret Hodge
What I would say in answer is that we have had incredibly good advice on drafting, from both the House itself and our own advisers. I would urge the Minister to look at subsection (2) of my amendment, which looks at risk. If the amendment is not drafted absolutely perfectly, then I apologise, but we have done the best we can with the resources available to us. I am not in any way suggesting a 100% check. I am suggesting a risk-based check. If this provision is not included, we will be back in three years’ time and the Minister will be saying, “Oh my god, there’s a massive loophole, and we have to fix it.” Fix it now. That is all we are saying.
If I have the drafting wrong, I am happy to talk to the Minister and get it right. I want a risk-based check by Companies House for when red flags come out. By looking at and interrogating computer data, the registrar actually does it herself, instead of waiting for and depending on intelligence and reasonable information that is available—as the Minister said, in his words, which I assume were provided for him.
Liam Byrne
When my right hon. Friend has those conversations with the Minister, will she ensure she also talks to the Minister for Security? He was Chair of the Foreign Affairs Committee when it took evidence from a number of witnesses who explicitly called for a duty to verify addresses. That point was underlined in the Foreign Affairs Committee’s last report on illicit finance.
Dame Margaret Hodge
I am very happy to do that. I think we all want the same thing. All we are trying to do is find the best way of doing it. I will be pressing this amendment to a vote, I am afraid. My warning to the Minister is that if he does not do the work in this area, he will find that he has left a very wide loophole, which will be exploited by those who want to use us as a destination for illicit finance.
Stephen Kinnock
It is difficult for me to match what my right hon. Friend the Member for Barking has so eloquently said and what other colleagues have said. I think we need to reinforce the point that we need somewhere in the Bill a very clear indication that it is the duty of the registrar to conduct risk-based assessments. If not, the Bill will leave a loophole, and we should not allow that to happen. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendment proposed: 94, in clause 28, page 17, line 32, at end insert—
‘(4A) After section 87, insert—
“87A Duty of the registrar to verify appropriateness of address of registered office
(1) This section applies where the registrar has received—
(a) a statement of the intended address of a company’s registered office (under section 9(5)(a)), or
(b) notice of change of address of a registered office of a company (under section 87(1)).
(2) The registrar must assess the risk that the company is involved in economic crime.
(3) If following the assessment required by subsection (2) the registrar considers that there is a real risk that the company is involved in economic crime, the registrar must—
(a) take steps to determine whether the address which has been supplied is an appropriate address within the meaning of section 86(2), and
(b) refer the matter to the relevant law enforcement agency.”’—(Dame Margaret Hodge.)
Kevin Hollinrake
I beg to move, That clause 29 be transferred to the end of line 33 on page 76.
This motion would move clause 29 to the end of Part 1 of the Bill. It is proposed that it would be placed there under a new italic cross-heading, alongside other new clauses about moving addresses in the companies context (see NC5 and NC6).
The Chair
With this it will be convenient to discuss the following: Government amendment 7.
Government new clause 5—Rectification of register: service addresses.
Government new clause 6—Rectification of register: principal office addresses.
Government new clause 8—Power to require businesses to report discrepancies.
Government amendments 44 to 48.
Government amendment 50.
Kevin Hollinrake
The purpose of this set of amendments and new clauses is to better standardise address information requirements across the Companies Act 2006 to allow the registrar to take appropriate action when information is erroneous or misleading.
It is important for users of the company register that the information they find on it is accurate and has genuine utility for them. The amendments standardise the address information that companies will be required to file in relation to corporate directors, company secretaries, relevant legal entities and registerable persons—the latter two being the categories of people with significant control of a company. In future, a service address and a principal office address will be required for all those categories. The former measure will give certainty about where documents can be served, and the latter will give clarity about the physical whereabouts of the party concerned.
New clauses 5 and 6 address the circumstances in which it appears that the stated service address does not fulfil its requirements or that the person of significant control or the company cannot demonstrate that the stated address is their principal office address. The new clauses imitate section 1097A of the Companies Act 2006 as amended by clause 29 of the Bill.
Clause 29 amends the 2006 Act to give the Secretary of State the power to make regulations enabling the registrar to change a company’s registered office address when there is reason to believe that it is no longer appropriate. That power, and those contained within this group of amendments, will be an important weapon in the fight against identity hijack and abuses of innocent people’s address details.
Similarly, the purposes of the remaining amendments in the group are to strengthen the framework for changing address when it is expedient to do so, and to improve the utility of address data. I trust that the Committee will agree that these well-considered amendments and additions will add value for users of the Companies House registers and afford further protection against the nefarious use of private individuals’ information.
Seema Malhotra
I am grateful for the opportunity to speak in support the Government’s amendments and new clauses, which we welcome.
As the Minister has set out, new clauses 5, 6 and 8 give the Government the power to introduce regulations that authorise or require the registrar to change addresses and to serve documents to those with significant control. He also mentioned that new clause 5 mirrors section 1097A of the Companies Act, which confers a regulation-making power to enable the registrar to change a company’s registered address, and an equivalent power for a company’s service address. New clause 6 does the same for the registered principal address of a relevant person
As we have been discussing today, registering an address at Companies House does not require the permission of the owner or occupier of that location. It goes without saying that the negative impacts are significant, from visits from debt collectors or bailiffs to damage to a company’s credit rating. Under the regulations, anyone can apply to the registrar to have the registered office of a company changed, following a procedure. It is right that the Bill broadens that power to service addresses and principal addresses. Those are important steps, and the wider amendments close loopholes on company addresses.
New clause 8 allows documents to be served on persons of significant control over a company as well as on directors, secretaries and others. Amendment 44 requires a corporate director to include a principal office in all cases, rather than its registered or principal office. Amendments 46 and 47 do the same for corporate secretaries. Amendment 45 requires a company to provide a service address for directors who are not individuals. Amendment 48 requires a company to provide a service address for persons of significant control who are not individuals. Amendment 50 requires a principal office to be provided for all partners that are a legal entity in a limited partnership.
It goes without saying that all those amendments are welcome in limiting the value of registered offices used as a way of concealing where a company does its business. We support them, but a question remains about the missing link in the chain. We must ensure that, in the use of the powers that we have been talking about, the registrar will—I hope, from our discussions with the Minister—in due course have a duty to ensure that whatever can be done with a risk-based approach can make the most use of the additional powers and requirements being introduced in the Bill. Without that, it feels as if their impact will be far less, and the achievement of the goals of those powers and requirements will be considerably less than otherwise.
Question put and agreed to.
Clause 30
Registered email addresses etc
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
Clauses 30 and 31 relate to new requirements for companies to provide an email address to the registrar. When the Companies Act 2006 was drafted, the vast majority of filings presented by companies to Companies House were on paper, and communications to companies from Companies House were posted to the company. The effect of that, especially in the modern digital world, is to slow things down. These days, the vast majority of filings are made digitally, and the Companies Act needs to change to reflect that reality and more modern working practices.
Clause 30 will require that all companies maintain an appropriate email address. One benefit of that is that communications with a company can be expected to be quicker. In addition, it is a cheaper way to communicate and will provide savings for both Companies House and businesses. A failure to provide an appropriate email address will be an offence, and when a company notifies a change to its registered email address it will be obliged to provide a statement that the email address is appropriate. That will assist the registrar in instances where the email address is found not to be appropriate, and it turns out to be something other than a genuine mistake. I provide reassurance, however, that the effect of subsection (7) is that registered email addresses will not be made available for public inspection. That will reduce the risk of their being used fraudulently.
Clause 31 describes the means by which companies already on the register must provide their appropriate email address. Companies will be required to provide the appropriate email address in a statement submitted alongside their first confirmation statement after the requirements outlined in clause 30 come into effect. That transitional period has been selected to reduce the burden both on companies and on Companies House. Given the number of companies already registered with Companies House, it will provide a staggering of notifications of appropriate email addresses, allowing Companies House to deal with them in a timely manner. Companies will not have to provide an extra document to Companies House until they already have to make a required filing. That is a sensible and proportionate method of ensuring compliance with the new requirements. If the company does not supply the appropriate email address with its confirmation statement, it will be in breach of the requirements.
Seema Malhotra
I have just a few remarks. We have no issues at all with the clauses, and welcome them. Amending the Companies Act to require all companies to maintain an appropriate email address that can be used in correspondence and administrative matters with Companies House seems appropriate. The email address would be trusted, and any emails sent by the registrar would be expected to come to the attention of a person acting on behalf of the company. We therefore support clause 30.
It is also very sensible to have a transitional period. I am not sure whether clause 31 says how long the transitional period will last before the previous clause comes into effect, and I am not sure whether the Minister said so either. He may have a view on that, or he may come forward with it later.
Kevin Hollinrake
I am happy to come back to the shadow Minister with that information in due course.
Question put and agreed to.
Clause 30 accordingly ordered to stand part of the Bill.
Clause 31 ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Scott Mann.)
Economic Crime and Corporate Transparency Bill (Seventh sitting)
Thursday 3rd November 2022
(2 years ago)
Public Bill CommitteesRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 3 November 2022 - (3 Nov 2022)
The Committee divided: - Ayes: 10 / Noes: 7 - Question accordingly agreed to.
The Committee divided: - Ayes: 10 / Noes: 7 - Question accordingly agreed to.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
I beg to move amendment 1, in clause 32, page 22, leave out lines 8 to 12 and insert—
“(1) This section applies in relation to a person who has, at any time on or after the day on which section 32(2) of the Economic Crime and Corporate Transparency Act 2022 comes fully into force, become a person subject to relevant financial sanctions and who remains so subject.”
This amendment and Amendment 3 would mean that a person who is subject to sanctions is disqualified under the GB directors disqualification legislation only if those sanctions relate to asset-freezing.
The Chair
With this it will be convenient to discuss the following:
Amendment 93, in clause 32, page 22, line 12, after “force” insert
“, or a person who is suspected of the facilitation of the evasion of sanctions by a person so designated.”
This amendment seeks to expand the criteria for disqualifying individuals from being company directors to include people suspected of facilitating evasion of UK sanctions by sanctioned individuals, in addition to sanctioned individuals themselves.
Government amendments 2 and 3.
Amendment 83, in clause 32, page 22, line 20, at end insert—
“11B Designated persons: requirement to notify the registrar
(1) This section applies in relation to a person who becomes a designated person as defined by section 9(2) of the Sanctions and Anti-Money Laundering Act 2018 on or after the day on which section 32(2) of the Economic Crime and Corporate Transparency Act 2022 comes fully into force.
(2) If the person changes any details relating to any company on the register in the three months prior to the person becoming a designated person, the registrar must inform the Office of Financial Sanctions Implementation and the National Crime Agency of the changes made.”
This amendment requires Companies House to notify the OFSI and NCA if a designated person has changed any details relating to a company in the three months prior to their designation.
Clause stand part.
Clause 33 stand part.
Government amendments 4, 5 and 6.
Clause 34 stand part.
Clause 35 stand part.
Kevin Hollinrake
It is a pleasure to see you in the Chair, Ms Elliott.
Government amendment 1 is one of six amendments that the Government have tabled to clauses 32 and 34. Before I discuss the Government amendments and those tabled by the Opposition, it is worth explaining what clause 32 does in order to understand better the purpose of the Government amendments.
Currently, individuals subject to an asset freeze—designated persons under the regulations that contain prohibitions or requirements of the sort referred to in section 3(1)(a) of the Sanctions and Anti-Money Laundering Act 2018—can continue acting as a director. They can also be involved, directly or indirectly, in the promotion, formation and/or management of a company. It is not appropriate for asset-frozen individuals to be company directors. It would be perverse for a person who is forbidden from dealing with their own funds or economic resources none the less to be free to direct a company.
Clause 32 prohibits individuals subject to an asset freeze from acting as directors, and does so by amending the Company Directors Disqualification Act 1986 to prohibit individuals subject to an asset freeze on or after the day the provision comes into force from acting as directors of companies or directly or indirectly taking part in or being concerned in the promotion, formation or management of a company. Such individuals will only be permitted to take part in such activities with the leave of the court.
An individual in breach of that prohibition will be committing an offence, the maximum penalty for which will be two years’ imprisonment or a fine, or both. It will be a defence for the person if they did not know and could not reasonably have known that they were subject to an asset freeze at the time that they acted as a director or were involved in a promotion, formation or management of a company. The provision will take effect in England and Wales, and Scotland; clause 34 makes the equivalent provision for Northern Ireland.
Government amendments 1 to 6 all work to the same purpose. Collectively, they will ensure that new director disqualification measures impact those who should be prevented for public policy reasons from acting as directors, namely individuals who are subject to an asset freeze. The amendments will also ensure that we do not disproportionately and unnecessarily extend measures to categories of people whose sanction status has no bearing on whether they are fit to act as company directors. The narrower definition introduced via the amendments includes only designated persons subject to asset-freeze measures of the sort described in section 3(1) (a) of SAMLA.
Stephen Kinnock (Aberavon) (Lab)
Could I trouble the Minister to explain a little more about what categories of people who are sanctioned should therefore allowed to be designated as unqualified as directors under the legislation? He has said that amendments are an attempt to narrow the definition to assets-based, but is he therefore saying that someone who is sanctioned for human rights abuses should nevertheless be able to be qualified as a GB director?
Kevin Hollinrake
I will go on to describe the categories. As the hon. Gentleman knows, an assets freeze is a type of financial sanction. Only those sanctions are relevant to someone’s ability to manage, form or promote a company. Non-asset freeze financial sanctions, such as securities and money market instrument prohibitions, can apply to a broader category of person beyond designated persons, for example, all persons connected to a particular country. To subject entire populations of countries to the directorship ban is grossly disproportionate. It would also be operationally unenforceable, as only designated people appear in published sanctions lists.
Dame Margaret Hodge (Barking) (Lab)
I do not understand that. I do not know whether the Minister can explain it in ordinary language. It sounds to me like people with other financial interests will not be subject to this measure. I am sorry if I am being clueless, but I just do not understand what is being excluded at this point, and therefore what is included in this very welcome amendment.
Kevin Hollinrake
As I said in my explanation, for sanctions such as securities and money sanctions, those market instruments can affect entire populations; they do not just affect an individual. Those kinds of broad actions affect whole populations.
Kevin Hollinrake
The right hon. Lady can intervene again if she wants further clarification.
Dame Margaret Hodge
If someone has some ownership in the securities market—I am not a financial expert, so I do not know whether I am understanding this right—and one took action on the assets, that would have an impact beyond the individual. Is that what we are being told?
Kevin Hollinrake
No, that is not what the right hon. Lady is being told. If someone has ownership, they have an asset, and therefore if that asset is frozen they are a designated person. It is just that the instruments themselves can affect the broad category of people who may or may not own assets. What we are trying to do is target people who actually own the assets.
Dame Margaret Hodge
I am very grateful. This is really to understand it. If somebody is sanctioned, are they the sort of individual we would want to be a director of a company?
Kevin Hollinrake
It is not a person who is sanctioned. What we are trying to say is that everybody who is subject to an asset freeze is a designated person—exactly the kind of person the right hon. Lady would want to see sanctioned. Rather than getting into a to-and-fro debate, perhaps we can write to her and explain the situation in layman’s terms.
Kevin Hollinrake
Furthermore, the Foreign, Commonwealth and Development Office does not currently designate people in relation to non-asset freeze financial sanctions. Although that may change in the future, a directorship ban may not necessarily be the most appropriate measure to impose on those designated for non-asset freeze financial sanctions.
Stephen Kinnock
On the point about the FCDO not sanctioning anything apart from asset freezes, does it not impose travel bans? Is a travel ban not a non-asset freeze type of sanction?
Kevin Hollinrake
Yes, that is right. What we are focusing on in the Bill is people who are subject to asset freezes, not travel bans. Hon. Members can argue that other people should be banned from being the director of a company, but we do not think this is the appropriate place to make that restriction.
Stephen Kinnock
Are the Government saying that if somebody has been sanctioned and given a travel ban but not an asset freeze, they are still a fit and proper person to be a director of a British company?
Kevin Hollinrake
The point is that they may be or they may not be. Putting a broad ban in the Bill just because somebody is subject to a travel ban is not the appropriate way to do it, in terms of whether they are a fit and proper person to run a company.
Stephen Kinnock
Are the Government seriously arguing that somebody who has been sanctioned by the FCDO and given a travel ban but not an asset freeze is still a fit and proper person to be a GB director? If the Minister is saying that the Bill is not the proper place to deal with that issue, where in our legislative framework will it be made clear that somebody who has a travel ban under FCDO sanctions is not a fit and proper person to be director of a British company?
Kevin Hollinrake
What we are talking about here is financial sanctions. These matters relate to companies and financial sanctions, not to travel sanctions.
Let me explain these points further. Not automatically imposing these measures on potential future scenarios will give the Foreign, Commonwealth and Development Office the flexibility it needs to impose the most appropriate and meaningful conditions on people designated for financial sanctions beyond asset freezes. Without these amendments, director disqualification measures introduced by the Bill would automatically apply to anyone against whom the designation power under section 9 of SAMLA 2018 is utilised—for example, transport or immigration sanctions, or any future measures that His Majesty’s Government choose to design. Although those are extremely serious matters, such sanctions ought not by necessity impact on the person’s ability to act as a company director. Furthermore, should there be a future need to extend director disqualification measures to people subject to those broader sanctions, that can be done via future legislation as and when the need arises.
Dame Margaret Hodge
I am genuinely sorry to interrupt, and I am looking at the Minister for Security as well. It seems to me that if we consider the behaviour that somebody has done to be so bad that we want to sanction them in whatever way—through a travel ban, asset freeze or other mechanism—surely in those conditions we do not think they are a fit and proper person to start a business? I cannot see the logic of this; I cannot see where the pressure is coming from to have a distinction between the two, and why we should want it. Why are we putting this down? Why should somebody who has been guilty of a human rights abuse, who may not have an asset that we can sanction, still need to be defined as somebody who is not a fit and proper person to set up a company here? We do not want them to do that, do we?
Kevin Hollinrake
I think the best way forward on that is for myself and the Minister for Security to have a conversation. We can set out some of the reasons why that is the case in more detail in writing, as I promised to do earlier. We can then have a further discussion from there.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
When the Minister writes to my right hon. Friend the Member for Barking—which I am sure will be copied to all members of the Committee—it would be helpful to understand who would have been in scope in the original drafting, what specifically changed and who would be out of scope in the revised drafting. It would be clearer for us to know whether it has narrowed correctly, whether it is a tightening—and we should be happy with it—or whether, inadvertently, in dealing with one matter it has excluded others who might be useful to draw into the scope of the provision.
Kevin Hollinrake
That is perfectly reasonable. I tried to set out those kinds of example earlier, so I am very happy to clarify that in a letter to both the hon. Lady and the right hon. Member for Barking. Our position is that somebody might be subject to a travel ban for a number of reasons, and that does not necessarily exclude them from being a fit and proper person to run a company. Now, Members may think of some reasons why that individual should not be a fit and proper person, but I will set out why that person may still be fit and proper, and then we can all either agree, disagree or find a way of dealing with it.
Liam Byrne (Birmingham, Hodge Hill) (Lab)
It seems that if somebody is subject to a travel ban, they will fail pretty much every “know your customer” rule for every financial institution in the country. Indeed, we have set out regulations precisely to ensure that there are those tripwires. How will a company director be able to fulfil their duties? If the Minister cannot answer now, perhaps he can set that out in the correspondence to follow.
Kevin Hollinrake
That is exactly what I have already agreed to do. We will move on from that point, but, briefly, there will be instances where that person is not necessarily described as unfit or not proper to run a company, but we will set that out.
Amendment 83, tabled by the right hon. Member for Barking, introduces enhanced data sharing provisions to enable Companies House to more proactively identify and exchange information regarding suspicious activity with partners, including with law enforcement agencies. That is in addition to existing information sharing gateways and arrangements.
The Government believe it is better and more flexible to allow relevant operational agencies to formulate their own preferred approach to information exchange, rather than to define it inflexibly in primary legislation—[Interruption.] The right hon Member for Barking looks at me quizzically. I think she has picked up on one particular situation where she wants Companies House to act in a certain way, but she must agree that we could pick up myriad different situations where we might want Companies House to do something if we sat down and made a list. I am sure she does not want to get into the micromanagement of what Companies House should do in every circumstance. There will be millions of different things we expect Companies House to do. We prefer to give Companies House the objective of promoting the integrity of the registers and then hold it to account through the objectives and the provisions of the Bill. Specifying every single condition that we expect Companies House to operate in a certain situation is the wrong thing to do.
Liam Byrne
The last Bill Committee I had the pleasure of serving on was for the Data Protection Act 2018, which implements the general data protection regulation and prescribes all manner of protections for data privacy. This is our worry. When the new duty set out by the Minister for Companies House clashes with GDPR legislation, how do we resolve those clashes of principles to allow Companies House to share the data they need to share with the people they need to share it with in order to pinpoint the bad guys?
Kevin Hollinrake
That is a fair point and it is covered in the Bill, which seeks to make it easier for Companies House to share information proactively with other organisations or, indeed, commercial organisations and vice versa. Here, we are talking about specifying the exact circumstances in which that should happen, which we think is the wrong approach.
I now turn to amendment 93, which seeks to expand the criteria for disqualifying individuals from being company directors to include people suspected of facilitating evasion of UK sanctions by sanctioned individuals, in addition to the sanctioned individuals themselves. Any person enabling or facilitating the evasion of certain sanctions would already be committing an offence, for example, under regulation 19 of the Russia (Sanctions) (EU Exit) Regulations 2019. The maximum penalty on indictment is seven years in prison or a fine. Those are already dissuasive measures to ensure compliance with sanctions.
It is not appropriate and proportionate to apply director disqualification and offences to an individual who is only suspected of facilitating the evasion of sanctions. It is not clear what would constitute such suspicion and at what point a person would be prohibited to act. That could mean exposing an individual to criminal liability in circumstances reliant on suspicion alone, which I am sure the right hon. Member for Barking would not want to see. The uncertainty of what would constitute the criminal offence and potential interference with presumption of innocence has implications for the rule of law. I therefore ask hon. Members not to press their amendment.
I will now speak to clause 33. New section 11A of the Company Directors Disqualification Act 1986, introduced by the Bill, prohibits individuals subject to relevant financial sanctions, such as asset freezes, from acting as directors of companies. The clause limits the scope that prohibition by disapplying it for building societies, incorporated friendly societies, NHS foundation trusts, registered societies, charitable incorporated organisations, further education bodies and protected cell companies. The Secretary of State may, by regulations, repeal any of the subsections in the section, therefore applying the prohibition on individuals subject to an asset freeze from acting as directors in any of the organisation types in the clause. That allows the Secretary of State to apply those measures only to company directors in line with the policy focus of the measures in the Bill, without that unnecessarily applying to other entities currently not in scope. That will take effect in England and Wales and Scotland. Clause 35 makes equivalent provision for Northern Ireland.
Stephen Kinnock
Clause 32 raises important questions about who we should and should not allow to hold positions of power and responsibility in UK companies.
Currently, under the 1986 Act, the circumstances in which a disqualification order can be imposed are strictly limited. For the most part, they involve individuals with a criminal record for breaches of company legislation involving UK companies. Clause 32 expands the disqualification criteria to provide an explicit prohibition on any sanctioned individual serving as a company director. That is entirely proper, but the Opposition’s question is: why are the Government not going any further? They have considered who should be banned from serving as a company director, but the decision to add only those specifically designated under UK sanctions legislation feels like a missed opportunity.
We tabled amendment 93 to better understand and probe the Government’s thinking and to explore how additional changes could contribute to the Bill’s aims. The amendment is largely self-explanatory: it would add to the criteria those who aid and abet sanctioned individuals, or so-called “enablers” who help sanctioned individuals to evade our laws. The Minister will be aware of the army of lawyers, accountants and other so-called service providers who are in many ways doing Putin’s dirty work in London. In our view, it is crucial that they are caught in the net that the Bill seeks to cast.
Kevin Hollinrake
I totally agree with the hon. Gentleman that we need to clamp down on the enablers of dirty money, but does he understand the point behind the provisions? There are serious penalties for somebody convicted of breaking sanctions—up to seven years in jail—but his amendment seeks to penalise somebody who is not convicted but merely suspected of facilitating that kind of activity. Does he understand why that is a difficultly for the Government?
Stephen Kinnock
I do understand that; the Minister makes a valid point. As I was saying, this is what one might describe as a probing amendment to try to get from him a sense of the proactive action the Government are going to take to go after those enablers.
Dame Margaret Hodge
The Minister is quite right to say that the powers are there, but I hope he agrees that a way to facilitate this would be to introduce a new criminal offence of failure to prevent economic crime. In that case, the enablers to whom my hon. Friend refers could be caught and rightly punished for their role in colluding or facilitating economic crime.
Stephen Kinnock
I thank my right hon. Friend for that extremely useful and eloquent intervention. That is absolutely the case, because the enablers are, by definition, experts in knowing how to play and game the system. We know it is going on, but they are notoriously difficult to track down. If we put the onus on industries to act proactively to prevent this sort of activity, that changes the game and makes prevention much more of a duty. I agree with the Minister that we cannot punish people if they are only suspected, but we can have a proactive ex ante approach. I would be grateful to hear his thoughts on that. In many ways, the amendment was designed to illicit a response from the Minister on what my right. hon Friend has just so rightly described.
The Minister has already pointed out that specifically designated individuals represent just the tip of the iceberg in terms of the scale of economic crime in the United Kingdom. There are any number of others who seek to exploit weaknesses in our laws and our ability to enforce them—for example, by creating opaque corporate structures to hide kleptocrats’ assets. Adding to the criteria those who help to facilitate the evasion of sanctions by designated individuals—not necessarily as our amendment suggests, but through a more root-and-branch, proactive ex ante approach—is one way the Government could really improve the Bill. I would appreciate the Minister’s thoughts on that. Restrictions on company directorships, as envisaged by amendment 93, should go much further.
Clause 33 extends the provisions of clause 32 to sectors other than companies—for example, building societies—and clauses 34 and 35 extend the same provisions to Northern Ireland. We support those clauses and, of course, amendment 83, which was tabled by my right hon. Friend the Member for Barking.
At various points in recent years Ministers have outlined a number of specific proposals, which now appear to have fallen by the wayside. It seems reasonable to expect that all companies should have at least one director who is an actual human being. We do not have to be experts to intuit how easy it is to abuse the existing system, which allows a company to name another company as its director provided that at least one human being is on its board. In the Government’s own words in a 2021 consultation paper:
“Evidence suggests that the use of corporate directors can muddy the waters around ownership and provide a screen behind which to conduct illicit activity…More generally the opacity they create can weaken corporate governance by preventing individual accountability.”
The Government even went so far as legislating in the Small Business, Enterprise and Employment Act 2015 to enable the Secretary of State to impose a ban on corporate directors. After more than seven years, however, regulations to implement that have yet to be published. In fact, clause 37—on which my hon. Friend the Member for Feltham and Heston will speak shortly—makes some changes to the relevant section of the 2015 Act. The apparent intent of the changes, which is to make it easier for corporate directors to be held to account for their action, is certainly welcome, but what is not clear to Opposition Members is why the Government have decided to amend the primary legislation—namely, the 2015 Act—when, as we understand it, the secondary legislation to implement the ban on corporate directorships under that Act has still to be introduced. Perhaps the Minister will shed some light on that.
Another glaring omission is the issue of nominee directorships. As long ago as 2013, the Government raised that as an issue that company law reform should deal with. Again, the Government’s own words provide us with a useful summary of the problem:
“Where a company is being used to facilitate criminal activity, the individuals who really control the way that the company is run will likely want to avoid making this information public. They may use ‘nominee directors’ to do this. Nominee directors are individuals who go on the public record as the director of the company to be, effectively, a ‘straw man’ or ‘front man’ for the company. The beneficial owner ‘stands behind’ the nominee and controls the way that the company is run”,
de facto. The failure to address that in legislation remains a cause for serious concern.
Kevin Hollinrake
I am not sure I understand the hon. Gentleman’s point. Irrespective of who the directors are, if people of significant control are exerting such influence, they will have to be named and have their ID verified under the Bill.
Stephen Kinnock
My understanding is that the regulations under the 2015 Act have not yet been put in place. Our question is: why are the Government not implementing those regulations but instead seeking to introduce the provisions in the Bill? That is simply a point for clarification and explanation. We welcome the fact that ID verification is provided for, but we are trying to get to the bottom of who a nominee director is and who actually controls a company. It would be useful to understand what happened between 2015 and 2022 to prevent the implementation of the regulations.
Kevin Hollinrake
Two separate things are going on. The Bill enables regulations to ban corporate directorships unless the corporation itself has all its directors named and they are all actual persons and ID-verified. It will do exactly that. The other point that I think the hon. Gentleman is talking about is people who sit behind companies and influence them but might not be named in those companies. If people do that, they are persons of significant control; under the definitions in the Bill, someone does not have to own 25% of the shares of a company to be a person of significant control, but they have to be named and ID-verified.
Stephen Kinnock
I will stand up and then allow my right hon. Friend to intervene.
Dame Margaret Hodge
As I understand it, if the owner of a company is an opaque company in the British Virgin Islands or another one of our tax havens, the ability to get behind that and see the person of significant control is pretty nigh impossible, so there is still a mechanism there. People could intentionally set up a company in the UK that is totally owned by a company established in the BVI. That information is not currently on the public register, although we are anxiously waiting for it to be so in 2023. There is no way of getting the persons of significant control verified, because it is outside our control.
Stephen Kinnock
I will now stand up and allow the Minister to intervene on me.
Kevin Hollinrake
There are two separate things going on here: ownership and directors. We were talking about directors, and the right hon. Lady is now talking about ownership, which is a slightly different thing, but we will talk later about ownership and how that information has to be made public under this legislation.
Stephen Kinnock
I thank the Minister; I think he has just provided clarification that he is confident that there is now a ban on the use of nominee directors as a front to obscure true beneficial ownership. We are grateful for that absolute reassurance. There was perhaps a misunderstanding on our side of some of the technicalities in the Bill that I am seeking to probe, so I am grateful to the Minister for that clarification.
It is worth noting that the World Bank published a report just a few months ago that explained how, under current UK law, nominee directors of UK companies can neglect their duties by failing to submit accounts and certify companies as dormant, even though tens of millions of pounds are passing through those accounts. A crucial point is that the impunity of delinquent nominee directors is especially pronounced if such nominees are not UK residents. On the rare occasions that they are questioned, such directors tend to make the legally false argument that because they are only nominees they have no responsibility to know anything about the company, let alone control its actions.
The lack of progress on this issue—certainly until the Bill’s introduction—has raised concerns with us. Again, perhaps the Minister will say a little more about the Government’s thinking. What does he think has been the impact of not implementing the regulations from the 2015 Act? Can he reassure us with absolute confidence that the issue of delinquent nominee directors will be eradicated by the passing of the Bill?
Alison Thewliss (Glasgow Central) (SNP)
The hon. Gentleman is making a really important point about nominee directors. Is he aware of a “File on 4” programme —I believe it was aired last year—about nominee directors being recruited via Facebook groups and paid to take on that role? Is he concerned that it may still be possible to do that? Does the Bill need to do more to clamp down on the recruitment of nominee directors who get some money for taking on that role?
Stephen Kinnock
The hon. Lady raises an extremely important point and illustrates the absurdity of the situation we have got into. There seems to be a “wild west” approach to running corporate affairs in the UK and it is simply not acceptable. I thank her for that intervention and reiterate my hope that the Minister can give us an absolute reassurance that the issue of nominee directorships will be dealt with firmly and clearly in the Bill, without any loopholes. I also hope he will share any other thoughts he may have on the matter.
Liam Byrne
It is a pleasure to serve under your chairmanship, Ms Elliott. I am sorry that I have not checked the sartorial guidance for the Committee, but I assume it is okay for me to speak without a jacket on. I defer to the Chair if she wants me to clothe myself more adequately.
Liam Byrne
The Minister probably did not intend to set hares running, but he certainly has with his suggestions this morning. I know he will be alive to the Foreign Affairs Committee report on illicit finance that was published under the chairmanship of the right hon. and gallant Member for Tonbridge and Malling (Tom Tugendhat), who is now the Minister for Security, but I wish to share some of its headlines to underline a point that was wholly missing from the Minister’s presentation.
Let us start with the really bad news. First, the Select Committee concluded that
“assets laundered through the UK are financing President Putin’s war in Ukraine.”
Secondly, the report said:
“The Government’s unwillingness to bring forward legislation to stem the flow of dirty money is likely to have contributed to the belief in Russia that the UK is a safe haven for corrupt wealth.”
It is very welcome that the Government introduced sanctions and have brought forward this Bill, but I am afraid the Foreign Affairs Committee came to the conclusion that our sanctions regime was “underprepared and under-resourced.” We on the Select Committee found that there was not the capacity in the FCDO to match the speed and power of the sanctions regime brought into force by our American colleagues and, indeed, the EU. That is why the House was treated to the spectacle of a piece of enabling legislation that allowed us simply to copy and paste the sanctions regime from other countries into UK law.
There is a serious worry that the FCDO is not equipped to drive through the requisite disqualification of directors at the speed at which it should if it takes decisions on sanctions. I hear what the Minister says about creating some—I guess he would say—safeguards against the automatic suspension of directors, but in the absence of such a regime there is a real concern about an enforcement gap, because the FCDO sanctions and compliance team simply does not have the capacity to work things through with Companies House to ensure that the consequentials are followed through and that directors are disqualified when it is appropriate.
Among the measures that we in the House have previously invented are some of the provisions that I took through in the UK Borders Act 2007. We basically wrote into law the automatic consideration of sanctions such as the suspension of directorships. Many Opposition Members would be an awful lot more confident that bad people would be disqualified from directorships if they were sanctioned if we had some kind of legislative provision that created a duty, and therefore a burden, on Ministers and their officials to automatically consider people for the suspension of their directorships if a sanction of any description was imposed upon them.
This Committee is a chance for us to air different points of view about how we ensure that, as the Minister wants, London is a world capital of clean trade. I put this case before him so that he can reflect on it and perhaps come back to the Committee with further thoughts.
Dame Margaret Hodge
It is a pleasure to serve under your chairship, Ms Elliott.
I rise to speak to amendment 83. I did not quite understand the Minister’s attack on or dismissal of it on the basis that it was somehow an attempt to provide a detailed way for authorities to act. That is way beyond what we are attempting to do; all we want to do is make sure the authorities are aware. The Minister and I know, from working in this policy area for a long, long time, how poor all the enforcement agencies are at sharing information. When whistleblowers and others provide information about wrongdoing, too often that falls between the various enforcement agencies, gets lost and nothing ever gets done. We are not here to tell those agencies how to carry out their work, but to ensure that there is better communication.
The amendment addresses some of the issues my right hon. Friend the Member for Birmingham, Hodge Hill just raised. It tries to strengthen the sanctions regime against individuals and to stop those individuals moving their assets before they get sanctioned. Under the FCDO, the sanctions process inevitably takes a long time and people know they are about to be on the sanctions list, so they have time to rearrange their affairs so their assets cannot be frozen.
All the amendment would do—it is very simple—is put a duty on Companies House to tell the enforcement authority, whether that is the Foreign, Commonwealth and Development Office, the Office of Financial Sanctions Implementation, the National Crime Agency or whoever, about any changes that may have occurred in the accounts held by Companies House of individuals who have been sanctioned and whose assets have been frozen in the three months prior to those sanctions being put in place. That is crucial, but why?
In July 2022, OFSI and other UK Government agencies, together with the Joint Money Laundering Intelligence Taskforce, issued a red alert, which I hope the Minister has had a chance to look at. His colleague, the Minister for Security, the right hon. Member for Tonbridge and Malling (Tom Tugendhat), will certainly have done that. It sets out the evasion tactics that individuals use and that enablers, whom my hon. Friend the Member for Aberavon mentioned, take to support that evasion. The action that designated individuals take, supported by their advisers, includes the transfer of assets, such as shareholdings, to trusted proxies, such as relatives or friends. To quote the red alert, they will
“sell or transfer assets at a loss in order to realise their value before sanctions take effect”
and they will
“divest investments to ensure ownership stakes are below the 50% threshold”
needed for sanctions.
There are numerous other examples—the red alert includes a list of about 15 such examples—of ways that people avoid sanctions and avoid their assets being taken. The individuals may seem to have got rid of their assets, but they will retain control. They will have simply hidden their control and the form that that control takes, but in reality they will still have control. In some instances, assets have been transferred or directed to jurisdictions where sanctions are not in place, such as China, Brazil, India or the United Arab Emirates, or have been converted into cryptoassets, which we will come to later in our discussions about the Bill.
I came upon such tactics in the case of Usmanov, as we have discussed before, who dodged the sanctions, particularly in relation to his Mayfair mansion—I cannot remember how many millions that is worth. The shares in his London property firm were transferred to his Russian business empire on 21 February, less than a fortnight before he was sanctioned. The transfer involved property owned by Klaret Services UK Limited being sold to Russia’s largest iron ore company, Metalloinvest, in which Usmanov has a 49% share. That is just below the 50% threshold, although it is in Russia. That transfer is legal—he was able to act legally and within our law—and he was able to do it because we were so slow to sanction.
The sanctions against Usmanov did not cover his companies, so when he transferred the Mayfair property to a company, a different mechanism would have had to be adopted to capture its owner. As he had a 49% share in that company, it would have been difficult to pursue that. Both the shareholding in the company and the transfer mattered. Under our amendment, Usmanov would not have got rid of the property. Companies House would have had to give the enforcement agencies information about the transactions that had been undertaken in the three months prior to the sanctions, and those agencies could have taken action on it.
Kevin Hollinrake
I always listen to the right hon. Lady very carefully, so she can be sure that I have been listening. I am keen to tie up—as the shadow Minister, the hon. Member for Feltham and Heston, put it—any loopholes that we identify in the legislation. That is one of the purposes of Committee stage.
Broadly, I think the Committee and the wider House would accept that our sanctions regime, and the supervision regime at Companies House, are not fit for purpose today—that is why we are legislating. Clearly, the actions taken by Russia in recent months have further highlighted the work we need to do and the reform we need to put in place. The comments are welcome, and I think we are all trying to get to the same end point; we just want to make sure people do not suffer unintended consequences in the process.
I think the right hon. Lady said that Companies House is very poor at sharing information. That is probably a little unfair. Currently, it is not there to share information, other than by putting things on a public register for people to seek out; that has been its role in the past. Today, it is a register—we might call it a dumb register—and that is what we are seeking to change. We are seeking to give the registrar responsibility for promoting the integrity of the registers so that people can rely on the information in them and, as it says in the registrar’s objectives, to minimise unlawful activities and the facilitation of unlawful activities.
Dame Margaret Hodge
Obviously, Companies House has not had to do this to date; it has just been a library of dud data, really. What I was drawing to the Minister’s attention—I am sure he agrees with this—is that all the enforcement agencies working in this territory are poor at sharing information. That is why the stuff we get from whistleblowers so often falls through the middle somewhere and does not get tackled. That is why we should put a duty on the agencies to share information; we would not tell them how to do it, but just say, “This is really important if we are to bear down on wrongdoing.”
Kevin Hollinrake
I am still not sure I agree. Of course there are elements of our enforcement agencies that we are all frustrated by at times, but to my mind nobody goes to work to do a bad job. People are doing their best, often in very difficult circumstances. We all agree that we need to hold our enforcement agencies to account and properly resource them. What we are trying to do is provide them with more powers and ability, and then hold them to account for the use of those powers.
Liam Byrne
The Minister is being characteristically generous. As he reflects on the huge wisdom of the amendments tabled by my right hon. Friend the Member for Barking and perhaps returns to the Committee with some of his own, could he share with us how many of the 1,200 individuals and 120 businesses that have been sanctioned since Russia’s invasion of Ukraine have had directorships suspended?
Kevin Hollinrake
I do not know the answer to that question. When the Bill has received Royal Assent, it will facilitate exactly that process. At the moment, Companies House does not have the powers we would like it to have to bring that about. That is exactly what we are debating.
On amendment 83, I think the right hon. Member for Barking implies that Companies House knows of the changes with a company on an ongoing, dynamic basis. That is not how things work. Companies House does not have access to information until a company files an annual return. Companies do not provide information to Companies House on a daily or even monthly basis. That is not how it works.
Dame Margaret Hodge
But under the legislation, companies will have to provide information on changes of directorships and so on within 28 days, we hope—we had this argument yesterday—so Companies House will have that. I am not expecting it to go through 4 million companies, but there must be a way that the information can be highlighted by the IT system and, if we know a director is somebody who has been sanctioned, that information can be shared. Under the legislation, if a company has changed a directorship, as Usmanov did, it will have to provide that information within 28 days or whatever, and surely that will be there to share.
Kevin Hollinrake
A change of directorship, yes, but I do not think that is the situation the right hon. Lady was describing. She was talking about a movement of assets, as I understand it. I do not know the detail of the case she is talking about—[Interruption.] May I finish? If she is trying to prevent a person from moving assets around on the basis that Companies House needs to know about that as it is happening, that situation cannot be delivered. Companies can move assets around without asking the permission of Companies House or notifying it, so her amendment does not serve any purpose in that regard.
The right hon. Lady is absolutely right that any information that Companies House is made aware of and deems to be pointing to some kind of risk should be shared with the relevant agencies. We all agree with that point, and the Bill allows Companies House to do that for the first time. That is what we are trying to facilitate, but directing it to act in a certain way on a certain piece of information will lead us down a million rabbit holes, and we do not have the time or the ability to implement that through the Bill. We have to give it the powers and then let it get on with it while holding it to account against those broader objectives.
Alison Thewliss
My reading of the amendment is that it relates to a person changing any details relating to any company in the register in the three months prior. One of the red flags that Graham Barrow raised when he gave evidence was companies that switch their name backwards and forwards multiple times within a short space of time. Surely that would be a useful red flag for Companies House to report on, and the amendment would empower it to do that.
Kevin Hollinrake
That situation would be covered under the Bill because company naming is part of it. That is a different thing from what the right hon. Member for Barking was describing. She was taking about the movement of assets, and Companies House would not have access to that information on a dynamic basis. It clearly would have information on a name or director change, and it can act as it deems appropriate, in terms of notifying authorities or making further enquiries about what the company is doing.
Seema Malhotra
I am grateful to the Minister for giving way. I feel that we have allowed this conversation to get a bit more complicated than it needs to be on one specific point in relation to amendment 83, and I think the Minister has made it slightly more complicated too.
I understand that the Minister may be wondering whether a huge scope of things have happened in the three months prior to a person becoming a designated person. Does he agree that proposed new section 11B(2) could be tighter so that where it says, “If the person changes”, it specifies changes to owners, directors or other information relating to the company on the register in the three months prior to the person becoming a designated person? There should be a way, through the design of the computer systems, which is being undertaken as part of the transformation in Companies House, for the registrar to trigger an automatic alert when somebody becomes a designated person to inform the Office of Financial Sanctions Implementation and the National Crime Agency that something had happened on the record in the previous three months. That would therefore not require a huge amount of resource and labour, but there would be a useful report and trigger if the Bill required the registrar to do that.
Kevin Hollinrake
I do not disagree with that, but my point was not that it would be too much work for the registrar; I never said that at all. My point was that may well be that the Companies House registrar looks at the amendment—she may be listening to this debate—thinks, “It’s a really good idea to do that,” and builds that into her systems. As legislators, we could direct Companies House to do a million things, but surely we should give it the power to share this information in a way that provides the most appropriate risk alert processes. We should let it get on with it while holding it to account for the broader objectives. We should not micromanage Companies House.
Seema Malhotra
I thank the Minister for giving way. I do not think this is a case of micromanagement, and nor are we asking for hundreds of things. We are making a specific request, based on specific research. I think an automatic alert could be triggered, and perhaps the Minister—
Seema Malhotra
I will just finish my point. Should the registrar be watching this debate and decide that an automatic alert is a good idea, does the Minister agree that the power of information sharing would enable the registrar to consult the Office of Financial Sanctions Implementation and the National Crime Agency should a relevant change have occurred in the previous three months?
Kevin Hollinrake
As I have already said, such information-sharing is exactly what the Bill facilitates. It may well be that Companies House decides that that is exactly the right trigger to share information with the OFSI. Our view is that we should not direct Companies House in that level of detail as to how the registrar should perform her wider duty. We will continue to disagree on that point if the hon. Lady presses her amendment.
Stephen Kinnock
I thank the Minister for allowing me to intervene where I should have done in the first place. On the quantum that we are considering, as my right hon. Friend the Member for Birmingham, Hodge Hill has just said, 1,200 individuals and 120 businesses have been sanctioned since Putin’s illegal invasion of Ukraine. We are not talking about a huge number. Perhaps the terms of the amendment tabled by my right hon. Friend the Member for Barking could be more tightly drawn to make it clear that it is not about every movement of assets and everything a company has done, but simply designed to ensure that if there was a change of director or change of address, the registrar should share that information with the other relevant agencies. The quantum is quite small, so would the Minister consider that proposal?
Kevin Hollinrake
I think we need to move on, and I think the hon. Gentleman is missing the point as well. This is not about my deciding whether the proposal is right or wrong, or whether Companies House has or has not got the resources. For me, it should have the resources that it needs. However, it is for the organisation itself to determine the best way to alert other authorities to the risk. That is the principle at issue here, and it is one to which I will strongly adhere.
The argument about enablers has been well made, and we have referred to corporate criminal liability and the failure to prevent that. As the Committee is aware, I have been a key advocate in introducing such liability for fraud and other offences. Members may have noted the details of a case this morning, in which the current offence of failing to prevent bribery was a key element in the case against Glencore, which has pleaded guilty to that offence. The Serious Fraud Office launched a successful prosecution against Glencore and, although the number of times it has proceeded against a company is far too few, that prosecution shows that the current legislation can be effective. I am keen to discuss that further in our proceedings.
On travel bans and securities, Committee members might find it useful to sit down with officials to discuss those measures, so that they then understand why those things might not mean that a person is not a fit and proper individual to be a director of a company. I would be happy to extend that opportunity to members of the Committee.
The hon. Member for Glasgow Central spoke about nominee directors and associated abuses. Under the terms of the Bill, any director, nominee or otherwise, who acts outside the terms of the legislation and is subject to the control of another undisclosed person could be put in jail for two years. That is exactly what we are seeking to do and to clamp down on such inappropriate use of companies.
In terms of what the hon. Member for Birmingham, Hodge Hill said—is it right hon. or hon?
Kevin Hollinrake
Quite right, too; the right hon. Gentleman was Chief Secretary to the Treasury—I will go no further. The Foreign and Commonwealth Office is not responsible for the Office of Financial Sanctions Implementation—that is a function of His Majesty’s Treasury—which determines how the sanctions regime works once people are sanctioned. The OFSI ensures that the regime works effectively. It is fair to say that when that organisation was established fairly recently, it was not ready for the amount of work it had to do. It has been scaled up to make it a more effective organisation, which has been discussed in the context of resources generally.
Liam Byrne
Let me give the Minister a bit of feedback from my time as Chief Secretary to the Treasury. If a spending Minister comes before the Chief Secretary to say: “I’m really sorry, but we have a legal duty to do this”, it is an awful lot easier for them to win the case for the resource that they need than when they do not have the weight of that legal duty on their shoulders. Therefore, automatic consideration of a sanctioned individual for suspension of a directorship is a good thing to enshrine in a legal duty. I am trying to be helpful to the Minister, because I want him to be able to win arguments with the Treasury for the resources that he needs to achieve the objectives we both share.
Kevin Hollinrake
Yes, but we have to make careful use of our resources, otherwise there would be no money left.
We agree that sanctioned individuals should not be allowed to be directors of companies. That is what we are talking about, so there is no disagreement. Our disagreement is about how we share information between different agencies, and whether we should tell them how to do it, or they should do it themselves. We are parliamentarians; we are not experts in financial crime or how the financial system works. Wherever we can, we should leave it to the experts to determine the best way to share the information between agencies and—the important thing we are doing here—give them the powers to do that.
Question put, That the amendment be made.
The Chair
We now come to amendment 83, which has just been debated. Does Dame Margaret Hodge wish to move the amendment formally?
Dame Margaret Hodge
I just wish to tell the Committee that I will write to Companies House and see what response I get from the chief executive or director. Subject to that, at this stage, I will not move the amendment.
Clause 32, as amended, ordered to stand part of the Bill.
Clause 33 ordered to stand part of the Bill.
Clause 34
Disqualification of persons designated under sanctions legislation: Northern
Ireland
Amendments made: 4, in clause 34, page 23, leave out lines 13 to 17 and insert—
‘(1) This Article applies in relation to a person who has, at any time on or after the day on which section 34(2) of the Economic Crime and Corporate Transparency Act 2022 comes fully into force, become a person subject to relevant financial sanctions and who remains so subject.’
This amendment and Amendment 6 would mean that a person who is subject to sanctions is disqualified under the NI directors disqualification legislation only if those sanctions relate to asset-freezing.
Amendment 5, in clause 34, page 23, line 23, leave out ‘designated person’ and insert ‘person subject to relevant financial sanctions’.
This amendment is consequential on Amendments 4 and 6.
Amendment 6, in clause 34, page 23, line 23, at end insert—
‘(4) In this Article —
“designated person” has the meaning given by section 9 of the Sanctions and Anti-Money Laundering Act 2018;
“person subject to relevant financial sanctions” means a person who is a designated person for the purposes of any provision of regulations under section 1 of the Sanctions and Anti-Money Laundering Act 2018 that imposes a prohibition or requirement for a purpose mentioned in section 3(1)(a) of that Act (asset-freezing).’—(Kevin Hollinrake.)
See Member’s explanatory statement for Amendment 4.
Clause 34, as amended, ordered to stand part of the Bill.
Clause 35 ordered to stand part of the Bill.
Clause 36
Disqualified directors
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clauses 37 to 43 stand part.
New clause 35—Person convicted under National Minimum Wage Act not to be appointed as director—
‘(1) The Company Directors Disqualification Act 1986 is amended as follows.
(2) After Clause 5A (Disqualification for certain convictions abroad) insert—
“5B Person convicted under National Minimum Wage Act not to be appointed as director
(1) A person may not be appointed a director of a company if the person is convicted of a criminal offence under section 31 of the National Minimum Wage Act 1998 on or after the day on which section 32(2) of the Economic Crime and Corporate Transparency Act 2022 comes fully into force.
(2) It is an offence for such a person to act as director of a company or directly or indirectly to take part in or be concerned in the promotion, formation or management of a company, without the leave of the High Court.
(3) An appointment made in contravention of this section is void.”’
This new clause would disqualify any individual convicted of an offence for a serious breach of the National Minimum Wage Act 1998, such as a deliberate refusal to pay National Minimum Wage, from serving as a company director.
Kevin Hollinrake
Before I turn to the new clause, I will set out the intentions and effect of the clauses in the group. As part of the reform of Companies House, it is necessary to update the provisions regarding company directors. Most crucial to that is the introduction of a prohibition on people acting as company directors when they have not had their identities verified and reported their directorships to Companies House. That is a critical part of improving the integrity of the companies register. Accordingly, it is appropriate to provide teeth to ensure compliance with those obligations. The Bill will also create grounds for director disqualification if the person fails to verify their identity.
On new clause 35, all businesses, irrespective of their size or business sector, are responsible for paying their staff the correct minimum wage. The vast majority of responsible employers make sure they get it right. I assure the hon. Members for Aberavon and for Feltham and Heston that the Government take enforcing the minimum wage seriously, and we are clear that anyone who is entitled to be paid the minimum wage should receive it. We take robust enforcement action against employers who do not pay their staff correctly. Every area of regulation affecting businesses, whether it is employment practices or environmental impacts, has its own enforcement and penalty frameworks.
It is not entirely clear why we should single out breaches of the national minimum wage—important though it is—as being worthy of leading to disqualification. Nor does it immediately follow that someone who has breached their regulatory obligations in one of those areas should automatically be considered unfit to be a company director in the round. Having said that, I have some understanding when it comes to the new clause. There have been 16 people convicted under the National Minimum Wage Act 1998. I want to do some further research on that to see what has happened to those people and their director qualification or disqualification. That might inform debate more clearly.
I draw hon. Members’ attention to the fact that the greater flexibility in the Bill over the use of Companies House fees will cover the company investigation teams at the Insolvency Service, allowing the Government the potential to expand their work and go after a greater proportion of rogue directors. I respectfully ask hon. Members not to press the new clause.
Dame Margaret Hodge
This is a question of clarification: if a director is disqualified, can he or she still act as a shadow director?
Kevin Hollinrake
It depends on how the right hon. Lady defines a shadow director. If she is implying that they are a person of significant control influencing others, which I guess is what she means, I will point her to the definitions of a person of significant control. They are those who hold
“more than 25% of shares in the company…more than 25% of voting rights in the company…the right to appoint or remove the majority of the board of directors”
that might influence or control a company through other means. That means that the person is still covered under the legislation; if a person is exerting that control, they should be designated as a person of significant control and ID verified, as discussed previously. Any person who became disqualified before the clause comes into force and is disqualified at that time will also cease holding the office of director.
Clause 37 amends some yet to be commenced provisions of the Companies Act 2006 on when a corporate director can act and minimum age requirements for directors. The Small Business, Enterprise and Employment Act 2015 amended the 2006 Act to establish—as the hon. Member for Aberavon said—that company directors should, in future, be natural persons except where they have met specific requirements determined by regulations. We will bring forward those regulations following the enactment of the Bill to establish the exemptions to the general natural person director rule. After a transition period, companies must ensure that any corporate directors on their boards are compliant with the regulated exemption criteria. Where they fail to do so, those director appointments will be void once the transition period ends.
The clause makes it clear that should any non-compliant corporate director continue to act in the capacity of either a de facto or shadow director after the end of the transition period, they will be held liable for the consequences of their actions as they would be if they were a validly appointed director. The clause makes a similar clarification in respect of the principles that will apply in respect of an individual who does not meet minimum age requirements for a company director. In such instances, the appointment would also be void, but those who continue to purport to act as a director or operate in a shadow capacity will continue to be exposed to personal liability none the less.
Clause 38 repeals the power for the Secretary of State to require that companies with disqualified directors who have been given permission by the court to act as a director make a statement to the registrar confirming that permission. The power is no longer required, because the Bill introduces new requirements to provide statements about disqualification and permissions to act in sections 12, 12A, 167G and 790LA.
Clause 39 introduces a prohibition on an individual acting as a director unless their ID is verified or exempted from that requirement under the regulations. It establishes a duty on a company to ensure that unverified individuals do not act as directors unless they are exempted from the ID verification requirement. Failure to comply with the duty constitutes an offence committed by the company and every officer of the company who is in default.
Clause 40 will make it a criminal offence for a person to act as a director unless their appointment has been notified to the registrar. It will be a defence for a person to prove that they reasonably believed that the notice of their appointment had been given to the registrar. The actions taken by an unverified director, or a director whose appointment has not been reported to the registrar, will remain valid to ensure that third parties who have relied on the actions of an unverified director are not unfairly disadvantaged.
We want there to be consequences for not complying with ID verification obligations, and clauses 41 and 42 help us to achieve that. The clauses allow for the disqualification of individuals where they are persistently in default of the ID verification requirements for directors and people with significant control, or where they have been convicted by consequence of such contravention. Clause 41 legislates in respect of Great Britain, with clause 42 legislating to create equivalent powers for Northern Ireland.
Finally, clause 43 makes amendments to section 246 of the Companies Act 2006 regarding addresses on public record. It is consequential to other amendments to no longer require companies to hold their own local registers of directors.
The Chair
Before I call Seema Malhotra, I remind the Front-Bench spokespeople that they need to indicate to the Chair that they want to speak.
Seema Malhotra
Thank you, Ms Elliott. It is a pleasure to serve under your chairship.
I will speak for the Opposition on clauses 36 to 43, and I will say a few words about our new clause 35. We welcome what the Minister said, and we do not propose to push the new clause to a vote today, but I want to put some of our comments on the record. It would be useful if the Minister could clarify when he might want to come back and continue the conversation, subject to being able to look at further data on those who have been convicted under the legislation.
As we have established, clause 36 inserts proposed new sections 159A and 169A into the Companies Act, so that those who are disqualified from being a director under UK law cannot be appointed as one. New section 169A also says that a person who has been appointed as a director ceases to be one if they are disqualified. The two new sections appear straightforward, but has the Minister considered whether the provisions could be extended to ban the appointment of directors who may have been disqualified outside the UK? The Government could pursue that by extending the definition of directors disqualification legislation in new section 159A(2) to cover the analogous disqualification regimes in such jurisdictions as the Secretary of State may designate in regulations. That would allow the UK Government to specify or choose countries that have disqualification regimes that we would be happy to rely on. It seems that it might be a useful consideration, and I would be grateful for the Minister’s comments on that.
On clause 37, section 87 of the 2015 Act contains amendments that have not yet been brought into force. It requires all directors to be natural persons, and it contains provision for circumstances in which people under 16 can become directors. We support the clause, which would amend the provisions to ensure that persons remain responsible for their acts as directors—I think we have had a brief conversation on this—even though they are no longer legally considered to be directors. That is important, because the practical consequence of the clause is that if a person continues to act like a director, even if they have officially been removed from office, they can still be legally responsible for any breaches of the law that they commit as a director. That could be on wrongful trading or other matters. We welcome the clause. It is an important provision to ensure that shadow directors remain liable for contraventions of the Companies Act 2006. We recognise the need for clause 38 and support it.
Clause 39 introduces provisions that would provide that an individual cannot act as a director of a company unless their ID has been verified or they benefit from an exemption specified by the Secretary of State. In addition, it provides that breaching that would be a criminal offence for the director, the company and every other responsible officer, punishable by a fine. In practice, it would mean that once the clause comes into force, individuals should not take any actions on behalf of the company in their capacity as director until they verify their identity. We welcome and support the clause. We agree that that is a positive step in ensuring that directors are who they say they are. Hopefully, it will also mean that people will be less likely to commit or even attempt to commit economic crimes.
Questions remain on the implementation and enforcement of identity verification, some of which we have discussed previously. We recognise that there are ongoing concerns. Martin Swain of Companies House said that we are still in the “design phase” for ID verification. It is difficult to be clear on the implications of the legislation we are passing without having clarity over ID checks. When will they be operational? What can we expect to be in them? How quickly will we and the registrar expect them to be completed? Will the Minister confirm that they will be of the highest standards? Nick Van Benschoten of UK Finance said in his evidence to the Committee on verification standards that one of the key points is that they
“fall short of minimum industry standards.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 7, Q3.]
I am sure the Minister will want to ensure that ID verification will be of the highest standard.
I would like to press the Minister on the part of the clause that grants the Secretary of State the power to exempt certain directors from not acting until their identity has been verified. I am seeking clarity on why the measure is needed. Will it be for categories of people or individuals? Finally, will any use of the exemption be transparent and reported on? I think we have raised before the need to ensure there is sufficient clarity and accountability on the use of the powers.
Clause 40 makes it a criminal offence, punishable by a fine, for someone to act as a director unless their company has notified the registrar within 40 days. We welcome that, but I would like the Minister to clarify subsection (5), which allows a defence for a director who can prove they reasonably believed their company had been given notice of a director’s appointment. In the interest of working with the Government on this, may I ask the Minister for assurances on what would constitute proof of reasonable belief in this instance? Would it be possible to provide an example of where an exemption from sanctions might be applied? The Minister may want to write to me.
We welcome clauses 41 and 42. I realise we may be coming to the end of the sitting, so I will speak to clause 43 in detail later.
Ordered, That the debate be now adjourned.—(Scott Mann.)
Economic Crime and Corporate Transparency Bill (Eighth sitting)
Thursday 3rd November 2022
(2 years ago)
Public Bill CommitteesRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 3 November 2022 - (3 Nov 2022)
The Committee divided: - Ayes: 7 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 7 / Noes: 9 - Question accordingly negatived.
The Chair
I remind the Committee that with this we are discussing the following:
Clauses 37 to 43 stand part.
New clause 35—Person convicted under National Minimum Wage Act not to be appointed as director—
“(1) The Company Directors Disqualification Act 1986 is amended as follows.
(2) After Clause 5A (Disqualification for certain convictions abroad) insert—
‘5B Person convicted under National Minimum Wage Act not to be appointed as director
(1) A person may not be appointed a director of a company if the person is convicted of a criminal offence under section 31 of the National Minimum Wage Act 1998 on or after the day on which section 32(2) of the Economic Crime and Corporate Transparency Act 2022 comes fully into force.
(2) It is an offence for such a person to act as director of a company or directly or indirectly to take part in or be concerned in the promotion, formation or management of a company, without the leave of the High Court.
(3) An appointment made in contravention of this section is void.’”
This new clause would disqualify any individual convicted of an offence for a serious breach of the National Minimum Wage Act 1998, such as a deliberate refusal to pay National Minimum Wage, from serving as a company director.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
It is a pleasure to serve under your chairship, Mr Robertson. I will continue to speak to this group, finishing with a few remarks about clause 43 and our new clause 35.
We welcome clause 43 and recognise that it reflects new circumstances that arise from the Bill’s abolition of local registers of directors, set out in clause 50. We have further questions on that, which we will deal with when we come to later clauses.
On new clause 35, let me put our argument on the record. I thank the Minister for his comments, which I hope suggest that we will move on in some form, perhaps with the data he comes back with. Will he update us on when he expects to come back to us, so that we can come to a conclusion, and perhaps on an alternative way to make progress on the matter, during the passage of the Bill?
The reason my hon. Friend the Member for Aberavon and I tabled new clause 35 is to include provision such that persons convicted under the National Minimum Wage Act 1998 cannot be appointed as company directors. There are real questions about whether we would want an employer who wilfully neglected or refused to pay the national minimum wage to a worker who qualified for it to be the director of a company after the Bill comes fully into force. The new clause would strengthen a lot of the measures in the Bill, because we are talking about people we hope to trust to undertake their responsibilities as a director.
The Bill introduces a substantial amount of regulation about who can and cannot serve as a company director as a result of criminal or potentially criminal practices, so this feels like the right place for consideration of such a measure. I will welcome the Minister’s comments and I look forward to continuing to work with him as we make progress.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
It is a pleasure to speak with you in the Chair, Mr Robertson.
I am not quite clear when I will be able to get the information that we should have before we look at the matter in new clause 35. I think it is right to identify the scale and nature of the problem before we legislate, but I am certainly keen to do so, not least in my role as the person responsible for labour frameworks and markets.
I will respond to one or two of the comments of the hon. Member for Feltham and Heston. We already have power to ban directors disqualified overseas, under section 5A of the Company Directors Disqualification Act 1986. We can and have taken steps to disqualify directors who have been convicted of relevant foreign offences. On exemptions, I think we dealt with exemption from identity verification in a previous sitting. This will be set out in regulation, but that will probably include people who have already had their ID verified, for example.
The hon. Lady also asked about the defence of “reasonably believed” in clause 40. That would cover a situation where somebody had broken the rules but perhaps did not know that the rules had been broken. That would of course be subject to some kind of investigation, and the person could say, “It wasn’t me who submitted the return. I am not guilty of an offence.” It is a defence that somebody believed the information had been submitted correctly when actually it had not. I think that is a reasonable provision, which investigators would be able to take into account before taking forward a prosecution.
Question put and agreed to.
Clause 36 accordingly ordered to stand part of the Bill.
Clauses 37 to 42 ordered to stand part of the Bill.
Clause 43
Registrar’s power to change a director’s service address
Amendment made: 7, in clause 43, page 31, line 10, at end insert
“(but see subsection (4A)).
(4A) Subsection (4)—
(a) does not limit the service address that may be registered for the director under regulations under section 1097B (rectification of register), and
(b) ceases to apply in relation to the director if a new service address is registered for the director under those regulations.’”—(Kevin Hollinrake.)
Where a director’s service address is moved to their residential address under section 246 of the Companies Act 2006, subsection (4) imposes restrictions on further changes. This amendment ensures those restrictions do not bite on further changes under new section 1097B (inserted by NC5).
Clause 43, as amended, ordered to stand part of the Bill.
Clause 44
Register of members: name to be included
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clauses 45 to 48 stand part.
That schedule 1 be the First schedule to the Bill.
Kevin Hollinrake
A core purpose of the companies register is to provide details of company ownership. Users of the register, such as those who use it to confirm basic information about a company or to carry out due diligence work, have reported some problems with the way company ownership data is recorded. These clauses introduce measures to increase the usefulness of the information held on the members of UK companies. Collectively, they will mean that users of the register have more certainty about who they are doing business with, building confidence in the integrity of the companies register and preventing bad actors from exploiting it.
Clause 44 amends sections 112, 113 and 115 of the Companies Act 2006, which concern the provision of information relating to the members of a company. The clause provides that in the case of an individual, the requirement to enter a name in the register of members and the index of members means entering the individual’s forename and surname. In the future, entries will have to read “Joe Bloggs” and not “J. Bloggs”. The clause is necessary because there is currently no definition of “name” for members in the 2006 Act or associated regulations.
Clause 44 also provides that in the case of an individual usually known by a title, the title may be entered in the register of members and the index of members instead of the individual’s forename and surname. The 2006 Act currently allows directors to state their title instead of their forename and surname, or in addition to either or both of them, but it does not contain equivalent provision for members. The clause provides that if a person’s name or title is entered in a company’s register of members in a form that does not comply with the new requirements, that does not affect the person’s becoming a member of the company. It may well be that that was not the fault of the member themselves.
The objective of the clause is to increase transparency rather than introduce a condition around name format into the concept of membership. If a company fails to comply with the requirements of section 113 and/or section 115 of the 2006 Act, an offence is committed by the company, and every officer in default, so non-compliance can be pursued.
Clause 45 inserts into the 2006 Act new section 113A, which will allow the Secretary of State to make regulations to change the information required to be entered in a company’s register of members. Regulations could, for example, require all members to provide an address. Currently, the initial members, or subscribers, of a company are required to provide their name and address, but those who become members later are only required to provide their name.
As reforms are implemented to Companies House and the companies register, it is possible that further opportunities to improve information on shareholdings will be identified, on which the Government would want to act swiftly. For example, law enforcement may identify additional types of information that the registrar could require that would help in the prevention and detection of crime.
The power in clause 45 will align the position for members with that for directors and people with significant control, in respect of which there are already powers to amend the required information. Information provided in a company’s register of members is provided to Companies House via the company’s confirmation statement. This power will increase the usefulness of the information on the companies register.
Clause 46 amends section 125(1) of the Companies Act 2006, which gives the court the power to rectify the register. Without the clause, the court may order the rectification of the members register only in relation to names. The clause broadens the rectification power so that it is available in respect of any information on the members register. It means that a person aggrieved, any member of the company, or the company can apply to the court for rectification of the members register if the register does not contain necessary information, or if it contains unnecessary information. It is conceivable that information other than names may be included in a company’s register of members in error.
Given that clause 45 gives the Secretary of State the power to make regulations that require additional information to be entered in a company’s register of members, it is crucial that the rectification power is broadened. Information provided in a company’s register of members is provided to Companies House via the company’s confirmation statement. A wider power to rectify the members register will increase its integrity and, by extension, that of the company’s register as a whole.
As well as introducing measures to increase the transparency of company ownership, the Bill will introduce measures to prevent the abuse of personal information held on the Companies House register. Proposed new section 120A of the Companies Act, inserted by clause 47, allows the Secretary of State to make regulations that empower the registrar to order a company to refrain from using or disclosing individual membership information, except in specified circumstances. Members of a company will then be able to apply to the registrar to request that the order be made to the company.
Clause 47 also amends sections 114 to 116 and 120 of the Companies Act, so that where a company is ordered not to use or disclose member information, other obligations that would otherwise require that information to be inspectable by the public are switched off. The clause also provides that if a company fails to comply with an order for the restriction of the use or disclosure of information, an offence is committed by the company and every officer of the company who is in default. Adding such an offence is proportionate given the serious risk that individuals who have applied for protection face.
Clause 48 amends the Companies Act to remove the option for private, non-traded companies to elect to keep information about their members solely on the central register maintained by the registrar. The effect will be to require private companies that previously chose to keep information only on the central register to maintain their own register of members. It will be the sole responsibility of the company to update and maintain its register of members. The register of members is separate from the register of companies, which is maintained by the registrar.
Clause 48 also inserts a new transitional provision in relation to the abolition of the option to elect to keep members registers at Companies House rather than locally, requiring companies to enter in their register of members all the information that would have been required had the election never been made. Such companies will then be required to provide any updates to the registrar about their members via the confirmation statement. The clause also makes various consequential amendments to other sections of the Companies Act, which are in schedule 1.
Clause 48 also clarifies that, while the provisions relating to the central register were in force, the information about the members of a company that elected to hold membership information on the central register is to be considered prima facie evidence about the members of the company. However, from the point that the central register is abolished by the Bill, the prima facie evidence about the members of a company can be found in the company’s own register, held under section 113 of the Companies Act 2006.
Seema Malhotra
I thank the Minister for his comprehensive walk through these clauses, which I am sure he wrote overnight. It was very helpful. I have a few questions, but I will start by speaking to clause 44, which amends the Companies Act 2006 so that for individuals entered in a register of members, commonly denoting shareholders, “name” refers to a forename and surname. I have made the point before that it is quite staggering that we have not had such specification of the information that should be required. We absolutely welcome this measure and the encouraging of greater transparency of company shareholders.
We support the clause, but it seems to be countered by moves that arguably encourage less transparency of shareholders. In particular, the withdrawal of the central register, with information held only by the company rather than centrally, will make it harder to have public access and knowledge of who shareholders are.
It is important for us to emphasise why transparency continues to be so important. Transparency International has noted that, until now, shareholder information has been extremely limited and difficult to access. That has been a core factor in the UK’s unwanted reputation as a hub for dirty money and economic crime. The lack of any substantial rules and regulations around shareholder information reduces the reliability of the information published by Companies House and, in turn, of the totality of information about a company held by Companies House. We have tabled amendments to later clauses, but I wanted to make that broader point. While we talk separately about directors, officers and shareholders, in the end we are talking about entities working together as a whole, and wanting transparency about activity, and who is involved in it, as a whole.
Clause 45 concerns the power to amend required information. As the Minister outlined, the clause allows the Secretary of State to make regulations to specify changes to the information that must be entered in a company’s register of members. This is an important clause, and I have a couple of questions for the Minister. First, is there any consideration of what information may be required? I think there was some suggestion about the addresses of company members. In the Minister’s opinion, would the clause provide for a potential future decision by the Secretary of State to bring forward proposals to request identity verification and perhaps directors’ IDs from shareholders with shares of less than 5%?
I wonder whether this should be among the requirements for transparency of shareholder information in the Bill, which specifies changes to information that must be entered. If there are measures that could be brought forward, should they not be in the Bill rather than in future regulations? Is it a case of simply saying, “We will go as far as we think is relevant now and leave the option open for additions later”? Where the Minister thinks there could be further measures later, it would be interesting to debate whether some of them could be brought forward.
The Minister clearly set out the arguments for clause 46, and we support the expansion of the court’s powers.
Clause 47 relates to the register of members and the protection of information. As the Minister outlined, the clause would allow the Secretary of State to make regulations requiring a company to refrain from using or disclosing individual membership information except in specified circumstances. I was not fully clear who may make applications to the registrar not to use or disclose information. There may well be good reasons for such a request, but what individuals do the Government have in mind and in what circumstances could such a direction be made? Procedures in the future may result in less transparency, and for good reason, but it is important that we understand the reasons for that and that they are on public record as we consider the Bill.
It is possible that transparency is countered by the implementation of the Bill and the subsequent legislation for which it makes provision. That may reduce transparency by backdoor means, as it were, and reduce its scope to apply to those very individuals whom we may want to subject to such transparency. I am sure that the Minister understands why we want to probe that issue.
Clause 48 concerns the removal of the option to use the central register. Given all the measures relating to transparency and shareholder information, I am concerned about their total effect. The important principle running through the Bill is increased transparency in terms of publication and searchability, but the Bill also provides for private companies to exercise the option not to be on the central register. Perhaps I have not followed all the detail relating to the disclosure of shareholder information, but after the Bill’s implementation, I think there will be less publicly available shareholder information and not more. I look forward to the Minister’s response to those concerns.
Kevin Hollinrake
I think I have noted all the points raised by the hon. Lady. She is absolutely right that, in future, the Secretary of State could, through regulations, elect for the collection of more information from shareholders or any other relevant parties. We must all acknowledge that we do not want to put undue burdens on people who are trying to go about their normal, legitimate, bona fide commercial business. We are trying to strike a balance to ensure that we get the information from those we need it from, who may be acting for nefarious purposes.
On the hon. Lady’s point about the circumstances in which someone may want to remove details from the public register, that individual could be a celebrity, who would not want their address held publicly, or someone who fears domestic abuse. Those are the types of cases and circumstances that may arise. The information would still be held, just not in public. The law enforcement agencies would still have access to it, but the general public would not. When making such an application for removal, an individual would have to demonstrate evidence of risk, and could not simply say, “I want that information removing.” The registrar can refer cases to law enforcement agencies if she is in any doubt about whether the application has been made for bona fide reasons. She can also revoke a removal, if she feels that she has been given false information. I think they are reasonable provisions, and that judgment will be exercised.
On updating the register, the hon. Lady has tabled amendment 104, which we will consider in the next group. Perhaps we will have a good debate about that then.
Question put and agreed to.
Clause 44 accordingly ordered to stand part of the Bill.
Clauses 45 to 48 ordered to stand part of the Bill.
Schedule 1 agreed to.
Clause 49
Membership information: one-off statement
Seema Malhotra
I beg to move amendment 104, in clause 49, page 34, line 32, after “time” insert “and annually thereafter”.
This amendment would require a confirmation statement with company membership information as set out in clause 49 subsection 2 to be submitted annually.
The clause requires a company to provide a full list of shareholders when the first confirmation statement is filed after clause 44(3) comes into force. As I said, the clause is a welcome step in increasing the transparency of shareholder ownership and information, which we support strongly. Nevertheless, as has been said, the provisions in the Bill on shareholder information could and should go further. That is the context in which we tabled the amendment.
The amendment would provide that the confirmation statement about the company membership under this clause is submitted not only on a one-off basis but annually. The principle of shareholder information being submitted is one we support fully. If the Government believe that should be a one-off, I would be grateful if the Minister could explain why it need not be annual.
As I have mentioned, opaque shareholder ownership is a significant barrier to ensuring transparency and tackling economic crime. An example that has been cited already is Savaro Ltd. In August 2020, tonnes of ammonium nitrate exploded in Beirut port, killing more than 200 and wounding thousands more. The reported owner of the chemicals was a UK-registered private limited company called Savaro Ltd. The data provided by Savaro Ltd gives an insight into the poor quality of shareholder information held at Companies House and how that hinders investigation. Transparency International highlighted how, to identify the shareholders, it had to go back to 2015 for documents that named Status Grand as the sole owner.
Instead of identifying shareholders annually, companies only have to say that no shareholders have changed. The information is hidden in PDF documents, so it is unnecessarily time-consuming to establish who held shares in an entity at a particular point in time. Savaro is a clear example of how annual shareholder data, which the amendment would provide for, could assist considerably in investigating even criminal activity in UK companies.
Let me pre-empt the Minister’s pushing back on the amendment. One common argument against companies providing shareholder names annually is that it would prove too onerous a task for UK companies, but in answer to a written parliamentary question that I tabled his predecessor outlined that the average number of shareholders in UK companies in 2021-22 was only 2.15. The average number of directors was 1.59, so the number of shareholders was not that much higher. To argue that it would be onerous for the majority of companies to provide shareholder information does not seem so credible when set against the low average number of shareholders by comparison with company directors, as set out in the Government’s own data.
I urge the Government to consider this important amendment and hope the Minister will respond positively on how we might move forward with the sentiments and arguments behind it.
Kevin Hollinrake
I am grateful to the hon. Lady for her amendment. Clause 49 requires companies to provide to the registrar a one-off snapshot of relevant membership information when the first confirmation statement is due following the clause’s commencement. The amendment would require companies to provide that relevant membership information annually thereafter. The hon. Lady—or is she right honourable?
Kevin Hollinrake
It is only a matter of time. The hon. Lady cited the disturbing case, which I too read about, of Savaro Ltd in Beirut. It may be helpful for me to clarify how the clause as drafted works with existing company law. Companies are already required to provide a confirmation statement at least annually, which records changes in membership information in the previous period. One of the principles behind the confirmation statement is that companies should not be required to resubmit information that has already been filed on the register. Through the process, companies are required to either confirm the information submitted previously or provide Companies House with any updates to a variety of information, including the information contained in their register of members.
For example, if information submitted previously about a company’s members needed to be updated, or there were new members to disclose information about, the existing confirmation statement process already requires the disclosure of that information. Clause 49 introduces a requirement for companies to file a one-off snapshot of relevant information. That will be the means for companies to provide full names for all their members, as required by clause 44. That will give Companies House the starting point to display the information in a more user-friendly way. That information will then be maintained through existing confirmation statement requirements—annual updates, in effect.
The hon. Lady makes a good point about the usability of the information and the different PDFs being held. Companies House is looking at that. The Government would welcome suggestions on how best to display the information—a simple table would be preferable, in my view—which is to be determined as part of the implementation. That will involve user testing in the usual way to ensure that the information is displayed in a user-friendly way, as the hon. Lady seeks. Although I appreciate the intent behind the amendment, it would serve only to duplicate existing requirements, and would introduce the requirement to deliver potentially the same information on a yearly basis in cases where there had been no change in membership. I would therefore be grateful if she could withdraw it.
Seema Malhotra
I thank the Minister for his comments and his recognition of the important sentiments behind the amendment, which I will withdraw. I think some of the measures he outlined regarding the format of the information on Companies House and searchability will go a long way to addressing the point. I hope that we will be able to continue a dialogue on that, perhaps under his guidance about how we can best engage, to ensure that what is published is searchable and meets the important sentiments of transparency, so that frankly we never have another Savaro Ltd. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
Clause 49 is linked to clause 44, to which I spoke a few seconds ago and which introduces new requirements in respect of the names information to be provided to the company in relation to its members, for inclusion by the company in its register of members. Currently, information on shareholders can be contained across multiple filings. The clause requires certain companies to provide the registrar with a one-off list of all shareholders, including their names and how many shares they hold. The first confirmation statement will be due after the new names requirement in clause 44 comes fully into force.
Collecting that information via a one-off snapshot will improve the usefulness of the information on the register by enabling Companies House to display the information in a more user-friendly way. Companies will then confirm the information submitted previously, or provide any updates to Companies House—via the existing confirmation statement process—on the information contained in its register of members.
Seema Malhotra
I have no further points to add.
Question put and agreed to.
Clause 49 accordingly ordered to stand part of the Bill.
Clause 50
Abolition of local registers etc
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Amendment 69, in schedule 2, page 148, line 40, at end insert—
“167GA Unique identification number for directors
(1) On receipt of notification of a person becoming a director, the registrar must allocate that director a unique identification number, unless such a number has already been allocated to that person.
(2) Any information supplied to the registrar under or by virtue of this Act about a person who has been allocated a unique identification number under subsection (1) must include that number.”
Amendment 68, in schedule 2, page 150, line 36, at end insert—
“167KA Limit on number of directorships held
(1) Where notice has been given to the registrar that a person (P) has become a director, the registrar may determine that P may not hold that directorship.
(2) The registrar may make a determination under subsection (1) if the registrar considers that P holds an excessive number of directorships.
(3) The factors that the registrar may take into account in making a determination under subsection (1) are the experience, expertise and circumstances of P.
(4) If the registrar makes a determination under subsection (1), P may not hold office as a director of the company.”
Amendment 70, in schedule 2, page 150, line 39, after “167G,”, insert “167GA”.
This amendment would provide for penalties to apply to anyone failing to provide their unique identification number (see Amendment 69) to the registrar.
That schedule 2 be the Second schedule to the Bill.
Kevin Hollinrake
In last year’s consultation on the powers of the registrar, the Government asked stakeholders for their views about the requirements for companies to hold their own registers and to deliver the information contained in them to Companies House. Stakeholders were also asked whether the election regime, by which companies can choose to keep their registers only at Companies House, should be retained. They were clear that centralising certain registers with Companies House could reduce burdens on businesses. In response, the Government said that we would continue to consider updating the registers regime accordingly.
The Government have decided that, where possible, a single source of information about companies is preferable, and that that source should be Companies House. In future, the definitive registers of directors, secretaries and persons of significant control will, in all cases, be held by the registrar rather by companies themselves. Clause 50 introduces schedule 2, which contains the amendments to the Companies Act to implement that policy by setting out the requirements and processes that will apply upon the abolition of local registers and the existing election regime. The changes will apply to registers of directors, of secretaries and of persons of significant control.
Schedule 2 sets out the detailed requirements necessary to give effect to the new regime for companies’ registers. The schedule is necessarily long and detailed because of the complexity of re-engineering the existing system to repeal obligations to maintain local registers and replace them with a regime that will result in the population of central registers. What have largely been a range of duties for companies to maintain records are broadly being transposed into an analogous set of obligations to report that information to the registrar. In many instances, companies are currently obliged not only to maintain registers but to notify the registrar of changes to them. The eradication of local registers will therefore serve to ease burdens on business.
However, it is worth drawing attention to a number of areas in which the new registers regime will involve new reporting obligations for companies. Proposed new section 167G will replace section 167 of the Companies Act 2006 and introduce additional requirements on companies. When notifying the registrar of a new director, companies will be required to make statements to verify the director’s identity and that the individual is not disqualified or otherwise ineligible to be a director.
Proposed new section 790LB will permit that the notification of a new person with significant control, which is required under proposed new section 790LA, is accompanied by a statement confirming that the individual’s identity is verified. If a statement is provided in relation to a registrable relevant legal entity—a legal entity that itself has significant control in a company—it must specify the name of one of its relevant officers and must confirm that their identity is verified. The notice must be accompanied by a statement from the relevant officer confirming that they are the relevant officer of the registrable relevant legal entity.
On amendment 68, which was tabled by the hon. Member for Glasgow Central, given that in our consultation on potential reforms for inclusion in the Bill the Government considered the possibility of including a cap on directorships, I am sympathetic to the underlying intention of the amendment. Approximately three out of four respondents to the consultation opposed a cap. The Government chose not to proceed with one, believing it preferable to verify identities and provide more accurate linkage of records, thereby providing a more accurate picture of involvement with companies. That reasoning stands today.
Analysis of the companies register, together with comparison against other data sets and the reporting of anomalies from obliged entities, will assist in identifying circumstances in which we believe the number of directorships poses a risk of criminal activity. That information will be shared with the relevant enforcement and supervisory bodies.
The amendment proposes a form of fitness test rather than a cap. I acknowledge that this removes some concerns about the bluntness of such a cap and addresses some of the concerns raised by respondents in our original consultation. However, in return the amendment undermines the agency of company owners to act independently and in their own interests when appointing people to run the business they own. It places the registrar in the position of being a higher authority for such appointments. Would they ever have at their disposal the evidence to make a negative determination? What would be the implications of a negative determination on the actions taken by a validly appointed director up to the point of such a determination?
The possibilities in this policy area were given careful consideration as part of the Government consultation. We have not identified a legislative proposal along the lines of 68 amendment that is workable or appropriate. It would undermine business confidence in the UK if companies could not be sure whether their director appointments would take effect. We believe that the new and existing powers to analyse and query information and on identity verification, along with the enhancement that will be brought to linking people across multiple roles and the wider data-sharing possibilities for the registrar, all serve to strengthen our capacity to identify possible grounds for concern. Such concerns can be reported to the relevant agencies, investigated and acted upon, including by pursuing the disqualification of directors, if appropriate. I hope I have clarified why we do not believe the amendment should be taken forward.
Amendments 69 and 70 will be redundant once the expanded power under section 1082 is exercised, as amended under clause 66. The effect will be that all individuals who are under a duty to verify their identity will be assigned a unique identifier when they successfully complete identity verification. This will include all directors, who will commit an offence if they act as a director without having their identity verified.
Seema Malhotra
Will the Minister clarify what he said? Will all directors be given a unique identifier?
Kevin Hollinrake
Yes, that is in clause 66. Further detail about the use and allocation of unique identifiers will be set out in regulations made via the affirmative procedure, so Parliament will have sufficient opportunity to scrutinise them. There is no need, therefore, for the inclusion of a penalty for directors who fail to provide the registrar with their unique identifier. It will be the registrar who issues a director with a unique identifier, not the company or the director. I hope my explanation has provided further clarity on why the amendments are not needed. I urge the hon. Member not to press the amendments to a vote.
Seema Malhotra
May I ask your advice on procedure, Mr Robertson? Should I speak now on clause 50, the amendments and schedule 2, or should the SNP amendments be moved first?
Seema Malhotra
Thank you, Mr Robertson.
The importance of clause 50, which relates to schedule 2, is obvious and requires no further comment. The Minister’s description of schedule 2 as long and detailed was on the button. Its length is understandable given the changes it is making by abolishing the requirement for companies to maintain their own registers of directors, registers of directors’ residential addresses, registers of secretaries and registers of people with significant control. Instead, that information will be held centrally by the registrar, with the important provision that companies have a duty to update the registrar of any change to the information.
We welcome the proposed changes in clause 50, but I want to comment on amendments on 68, 69 and 70 tabled by my SNP colleagues, to which I am sure they will speak. Amendment 68 would limit the number of directorships that one individual may hold. Where notice has been given to the registrar that a person has become a director, the registrar may determine that they should not hold that position, if the registrar considers that they hold an excessive number of directorships. That may be achieved by setting a cap on the number of directorships held and it might be possible to override that limit if there were good reason, and a simple means introduced by which that application and argument could be made to the registrar. Such a proposal could be implemented sensibly to bring about the benefits that it offers, especially in the light of some of the abuses committed.
From our evidence sessions and debates in Committee, we have learned that individuals with multiple directorships are a massive red flag in terms of potential criminal activity. In evidence to us on 27 October, Bill Browder said:
“Why is it okay to have a person be a director of 400 companies? That does not make any sense to me. Why should there not be some limitation—maybe 10? Ten companies is a lot of companies—but 400 companies, or a thousand companies?”
––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 74, Q151.]
A limit on the number of directorships could easily be set in legislation and that would not stop people conducting their lawful business, but it would make it harder for criminals to use the system and our company structures to launder money and act as drivers of economic crime. It is worth reflecting on the fact that the evidence for that change came from a range of professional bodies. They also said that if they were directors of four, five, six or seven companies, how would they have the time to undertake their responsibilities with the required due care? The Minister referred to the consultation on this issue and said that three out of four of those consulted opposed a cap. Can he give us clarification on the year of that consultation? There are some questions about how we might interpret some of the responses, given the number of respondents and how many responded to all the questions.
In the light of that, I will make a few other remarks. The Association of Accounting Technicians, a registered charity based in London that acts as a professional body for accounting technicians worldwide, echoes Mr Browder’s assessment. In September 2020, it published an article recommending a cap of 15 directorships for one person, but it recognised, I think as we all do, that it is a difficult balancing act. We do not want to stop legitimate, lawful and productive activity, but we want to have a way of putting a stop to mechanisms that are easy to abuse. The AAT noted that there was a cap of 15 in Ireland, a general cap of 20 in India, and a cap of five in France that applies to public companies only.
Bodies that responded to the Government’s consultation made other interesting comments. There was a wide range of views on the cap, from two to 100 I think, with many suggesting between 15 and 25. This is an important conversation in the light of the scale and nature of economic crime, how it is changing, and the scale of abuse of our company structures. Some action has been undertaken in slightly different contexts, with less clarity about what has been happening with Russian money, Russian oligarchs and the connection to our international security. This year has really helped to challenge and expose much of that, albeit six years after legislation on economic crime was first promised. The point is that we have reached a place where our eyes are wide open now—or definitely wider, if not open completely.
Some of the wider comments and contributions to the Government’s consultation may well be worth going back to, in the light of what other countries do seemingly without impeding their economy or their companies’ activities. India is a good example of a nation whose trade is growing and that has a real focus on both domestic growth and international trade. I worry that we are closing down some of these debates, when this is a time to review them, perhaps with a slightly more open mind.
Seema Malhotra
The Minister asks a fair question. He is not necessarily stating a cap. Given what has come out in the consultation, and what has been in the articles about whether there should be a cap and what would be right for British companies, it is certainly open to further conversation. It is interesting that in the Government’s consultation many were suggesting between 15 and 25, which is in the ballpark of what has been happening in other countries. The make-up of our economy could be slightly different. We have to understand it in the round, and in the context of our economy, but it is a question of a scale of 400 to 1,000.
If the Minister is saying that there might be a level at which there starts to be a red flag, and implicitly that Companies House may implement the legislation, perhaps Companies House and the registrar will say, “Maybe we’ll just do a procedural check if we have 25-plus directorships.” I do not know. That is where data and analytics help, rather than a ballpark figure. It must be within a considered understanding of how our economy works, and how and where legitimate business is carried out, with a view from directors as well. We might find that it is an easier answer to reach, because it does not have to be one that only we, as Members of Parliament, comment on; it has to be informed.
We are not arguing for a hard cap. We are saying that, as the logic of the SNP amendment outlines, rather than managing on a case-by-case basis, having a way to manage risk structurally and procedurally is an important response to the evidence, the nature of use that we have seen and the situation we find ourselves in today. There is room to learn from the experience of other countries.
Amendment 69 would insert a provision into schedule 2, requiring that:
“On receipt of notification of a person becoming a director, the registrar must allocate that director a unique identification number, unless such a number has already been allocated to that person.”
Amendment 70 follows from that, and would provide penalties for anyone failing to provide their unique identification number to the registrar. We support the spirit of the amendments, but I refer the Committee to our amendments 102 and 103, which we will be speaking to in later debates. Our amendments take a slightly different approach and place a duty on the registrar to give every director a unique identification number, which is published on the registrar’s website. I think that approach is tighter.
I hope in his response that the Minister will be clear about what the registrar is required to do versus what they can do, and what will be and will not be published on the unique identifiers for directors.
Alison Thewliss (Glasgow Central) (SNP)
I rise to speak to amendments 69, 68 and 70. These are connected amendments to schedule 2. I appreciate the point about clause 66, but we will get to that when we get to it, and we are here now.
The evidence from various witnesses last week, which I have heard over many years, is that the Companies House register is a mess. The amendments seek to tidy it up to some extent. A unique identifier that follows a person all the way through, from becoming a director of a company to perhaps resigning as a director of that company and going on to be a director of a different company at a later stage, would help to trace that person through the Companies House system.
I have mentioned in previous debates that there are three Alison Thewlisses on the Companies House register. They are all me, but they appear three times, and nobody would necessarily know that they are the same person. It would make sense to have a unique identifier attached to me as a person so that people can easily find and trace my history as a company director.
I looked up the Minister on the Companies House register. He is there five times. There are five Kevin Paul Hollinrakes out there in the world. It would be useful for companies doing due diligence or for people seeking to look at somebody’s directorship history if there was only one Kevin Paul Hollinrake on the register and we could see a complete picture of all those registrations over the course of his life and career.
That is the main purpose of the amendments—to make registrations traceable and to make the system easier for users and for me, if I want to be a company director, to provide the correct information. I could say, “I am already a director—here’s my number; just add it on to the previous things I have.”
Amendment 70 seeks to prevent people getting around that system and trying to register themselves perhaps by using their middle name or a different name, as if they were a different person. The unique identifier, once allocated to a person, should always follow that person through the system. If I try to register with my middle name or a married name rather than my maiden name, the system should pick it up. That is often an issue for women in the system. They might look very much like two separate people, with a married name and a maiden name, but they are in fact the same person. That unique identifier within the system would help trace people through, simplifying it for everyone.
Kevin Hollinrake
The hon. Lady has obviously read clause 66, “Allocation of unique identifiers”, which I think is what she is seeking to achieve. What about that clause does she not like?
Alison Thewliss
Broadly, I support clause 66. The amendments are not to that clause, but to schedule 2, to tighten it up and to improve it in any way we can. I accept what the Minister says. Labour, too, has an amendment to tighten the provisions, and I dare say I will support that as well, when we get to that stage, because all such amendments are to press the Government to tighten things up and to improve the Bill.
On amendment 68 and the number of directorships held, in evidence we heard Bill Browder suggesting the scenario of a drunk Latvian having their passport taken and being registered as a director in hundreds and hundreds of companies. Bill Browder said rightly:
“Why is it okay to have a person be a director of 400 companies?” ––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 74, Q151.]
Clearly, that is ridiculous. There is no way that someone could fulfil their obligations as a director if they were the director of 400 companies at once. It would be impractical to suggest that anyone could.
Also, Thomas Mayne said:
“On the point about directors, there certainly should be”
a limit—
“it is crazy that you have these people with 1,000 companies.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October; c. 79, Q162.]
It really is.
I do not want to put a specific number in the Bill—that would be something for Companies House and regulations to decide—but we clearly all understand what an excessive number of companies is. Four hundred is excessive and 1,000 is ludicrous. Perhaps the cut-off could be at 20 or 30, although even at that I would struggle to say that someone could make a good job as a company director keeping an eye on all those companies. It is worthwhile looking at the issue, because it is a red flag in the system: if one person is registered to multiple companies, that is a red flag, and it should be something that triggers Companies House to look into them in more detail.
Seema Malhotra
The hon. Lady is making a powerful argument. The Minister asked her what she thought was not sufficient about clause 66. Does she agree that arguing for a unique identifier is about ensuring that it actually happens? The wording of proposed new paragraph (d) in clause 66(2)(c) is to
“confer power on the registrar…to give a person a new unique identifier”.
It is a power, rather than a duty. That seems to be at the heart of the disagreement—is it a power or is it a duty?
Alison Thewliss
I agree. I do not want to go too far on clause 66, as we have not reached it, but this is about ensuring that something is in the Bill, that it is hard and fast that it happens, rather than having a suggestion, something that the registrar might like to consider, or some kind of “have regard to”. It needs to be there and specified. That is what we are trying to achieve.
Proposed new subsection (3) in amendment 68, on what Companies House should take into account in making its determination under the clause, specifies the “experience, expertise and circumstances” of a director. If someone has long-term experience of running companies that actually existed and have filed accounts, there is something tangible there and then Companies House can say: “Oh yes, that person has 30 directorships, but they are active in all those directorships, and we know what they are.” However, if someone has no active activity that Companies House can fill in, that becomes a red flag under amendment 68. It would give Companies House a degree of discretion. Wherever it might want to put the number is also a factor.
The Minister is trying to suggest that having such a check would be an inhibition to business. I do not believe that, and I am interested to hear what evidence the Minister has to suggest that such a limit on directorships would inhibit businesses in any way. As the Labour spokesperson, the hon. Member for Feltham and Heston, mentioned, other countries have such a rule. Those restrictions are in place elsewhere around the world, so the comparison would be interesting: do they feel that businesses, directorships and the involvement of people in companies are inhibited by having such a rule? We are proposing a change to the Bill to help Companies House do its job, to help it with the red flags and to give it an action to take once it has seen the red flags and identified them through something such as holding multiple directorships.
Kevin Hollinrake
Let me quickly respond. The shadow Minister wanted to know the date of the consultation that the three out of four figure came from. It happened between 2019 and February 2021, so it was pretty recent.
The issue of whether there should be a cap and where it should be set has been raised by both hon. Members. We think it is wrong to set a cap. The hon. Member for Glasgow Central asks the interesting question of, “Why do we need all these companies, and why do they need to be registered?” We believe that it is ours not to reason why. We believe in freedom and that people should be allowed to live their lives as they choose. We do not seek to put restrictions on people for no good reason.
Kevin Hollinrake
I will go on. We think there may be a nefarious reason why a person is a director of many companies. The hon. Member for Glasgow Central mentioned red flags in her speech, and that is exactly how we see this operating. It may well be that Companies House determine that there is a cap of 20, and when somebody gets to 20 directorships, then they become a risk. It may then look further into what that person is doing and share that information with law enforcement agencies. We would rather leave it to the discretion of the registrar to determine where the red flags should be, rather than impose it through the Committee.
The hon. Member for Glasgow Central took the opportunity to google my directorships, and she found that incredibly easy to do. Just type in “Kevin Hollinrake directorships” and it lists all my directorships.
Kevin Hollinrake
It is my name and all my directorships are listed underneath.
Kevin Hollinrake
I am sure it is on Companies House right now. There are 20 records. The hon. Member for Glasgow Central would maybe say that I cannot be director of any more companies, as I am already director of 20, but I have valid reasons for being directors of all those. I can promise her that none of it was for criminal purposes. The hon. Lady may say there should be a limit, but we think that basically we should leave it to the discretion of Companies House and the registrar to do the right thing—set the red flags where most appropriate and then identify risk and act accordingly.
Alison Thewliss
The Minister talks about not wanting to look at someone’s motivation for having, say, 400 company directorships. It is really is a case of, “There might be a reason, but we’re not going to ask about it. Why should we?” I think Companies House should be inquisitive about somebody who has 400 directorships, but the Minister is not tasking it to be inquisitive through the legislation. Tasking Companies House to be specifically inquisitive on that point is important, because the Bill does not put a duty on it or give it the right to be inquisitive.
Looking at the Companies House register, it appears that the Minister is listed five separate times—with one appointment, with zero appointments, with one appointment, with another appointment and with 18 appointments. They all appear as separate entries, not as one single person. A unique identifier would seek to grab those entries and put them in one place. That would make more sense. It would make it more traceable. I gave the example of myself being in there three separate times with three separate directorships, which are from very different points in time. If the entries were all in one place, it would be a neater and tidier way of logging them.
The Chair
Does the Minister wish to speak again? No, okay.
Question put and agreed to.
Clause 50 accordingly ordered to stand part of the Bill.
Schedule 2
Abolition of certain local registers
Amendment proposed: 69, in schedule 2, page 148, line 40, at end insert—
“167GA Unique identification number for directors
(1) On receipt of notification of a person becoming a director, the registrar must allocate that director a unique identification number, unless such a number has already been allocated to that person.
(2) Any information supplied to the registrar under or by virtue of this Act about a person who has been allocated a unique identification number under subsection (1) must include that number.”—(Alison Thewliss.)
Question put, That the amendment be made.
Kevin Hollinrake
The clause would make amendments to the Companies Act 2006 to streamline filing obligations and remove unnecessary burdens, and to provide more protection of personal information than is currently the case. Clause 50 will remove the option for a company to elect to hold its register of directors or its register of people with significant control solely on the central register—the one held by the registrar.
Currently, when companies elect to hold their registers at Companies House, personal information, such as a date of birth, is publicly available on the register. That is because the election regime replicates what would happen if a member of the public asked to view the registers at the company’s registered office. When the election regime is removed, clause 51 will ensure that date of birth information is protected from public inspection, in the same way as dates of birth from non-elected filings are protected. The clause also provides that information such as dates of birth provided prior to 10 October 2015 will not receive automatic protection in the same way. Other provisions in the Bill will enable individuals to apply to protect historic information when it still appears on the public register.
The clause will amend the Companies Act 2006 to streamline and protect personal information of individuals that could otherwise increase the risk of identity theft or other fraud. It clarifies the extent of that protection, which, with some exceptions, will be applied to documents received from 10 October 2015.
Seema Malhotra
As the Minister mentioned, the clause amends the Companies Act in relation to individuals’ dates of birth and when they can be restricted from disclosure. The measures are important for occasions when the disclosure of someone’s date of birth would be inappropriate or unnecessary, so we support the clause.
Question put and agreed to.
Clause 51 accordingly ordered to stand part of the Bill.
Clause 52
Filing obligations of micro-entities
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
This group of clauses will improve the quality and value of financial information on the companies register.
Clause 52 will require a micro-entity company to file both its balance sheet and profit and loss account with the registrar. It removes the current option available for a micro-entity to omit—or fillet out—its profit and loss account when filing its accounts with Companies House. Clause 53 will require small companies to file a profit and loss account, and a directors’ report, when filing their accounts with the registrar. Clause 54 ensures that clauses 52 and 53 operate as intended by amending references to the existing small company and micro-entity filing obligations in the Companies Act 2006.
Clause 55 requires any companies seeking an audit exemption to provide an additional statement from their directors. That will help to deter fraudulent under-reporting by companies and, where a company director has provided a false statement, provide additional enforcement evidence that can make it easier to successfully prosecute directors. Finally, clause 56 removes the option for small companies, including micro-entities, to prepare and file a set of abridged accounts.
Collectively, the clauses will ensure that more financial information for micro-entities is publicly available on the register, helping to inform better business and lending decisions. They will ensure that the company’s turnover—one of the three eligibility criteria that determine the size of the company and what it must file with the registrar—is publicly available. The clauses will also provide greater transparency of micro-entity accounts, which will help to deter fraudulent or criminal activity and make such activity more easily identifiable.
It is crucial that we strike the right balance between transparency and burdens on business. As micro-entities already file a copy of their annual accounts for other purposes—tax returns with His Majesty’s Revenue and Customs, for example—the changes will not be overly burdensome for them.
Seema Malhotra
I thank the Minister for his comments. We welcome the measures in these clauses.
As the Minister said, clause 52 updates the filing requirements for micro-entities. A company is a micro-entity if it has any two of the following criteria: a turnover of £632,000 or less, a balance sheet of £316,000 or less, or 10 or fewer employees. The technical definition of a small company is any company that has any two of the following criteria: a turnover of £10.2 million or less, a turnover of £5.1 million or less, and 50 employees or less. Although we use the terms micro and small entities—in terms of the scale and size of other companies, that is significant—they can be larger than the terms indicate. That increased transparency from clause 52 is important.
We welcome clause 52 as a reflection of the fact that insufficient information is filed from those micro-entities to give a true and fair view of their financial position. The minimal disclosure requirements at present have also made them attractive to fraudsters who want to present a false picture.
There were 1.3 million micro-entity accounts filed in 2019-20. It is the most common choice for account filings. The Government’s December 2020 consultation on improving the quality and value of financial information on the register noted:
“Fraud investigation bodies have reported that micro-entity accounts are often used by companies that are investigated in money laundering cases.”
It is therefore absolutely right to tighten things up and seek greater transparency in the accounts and financial positions of companies’ activities. However, that raises the important question of whether any further work might be needed on micro-entities, although that question is for another debate.
On roll-out time, the Bill’s impact assessment suggests on page 76 that familiarisation time will be needed to get micro-entities up to speed with the changes, but there should not be significant additional costs, as companies already collect and submit additional information to HMRC in tax filings. In the light of what we and the Minister have said, we want moves that stop the criminal behaviour, but do not impede ordinary, good, productive and lawful business, so the measures are welcome. We want to see them come into force as soon as is practicable. The Secretary of State may make a determination later about when to bring the requirements into force, but perhaps the Minister will indicate today when he expects the Government will want the new requirements on micro-entities to become operational.
We welcome clause 52 as a necessary means to ensure that small businesses that are not micro-entities file full accounts to the registrar—which, again, will increase transparency and the availability of information. Clause 54’s consequential amendments seek to ensure that clauses 52 and 53 function as intended.
I want to make a few comments on clause 55. Perhaps the Minister can clarify the exemptions from audit requirements under this clause. When a company seeks an exemption from the requirement to have its accounts audited—for example, because it is a small company with £10 million or less in turnover—the clause would require directors to make a statement confirming that the company qualifies for an exemption.
I would appreciate it if, in the interest of the robustness of legislation, the Minister would expand on the clause and clarify what qualifies a company to have an exemption in that regard. The Government brought in an increase in audit exemption levels, effectively making more companies eligible for exemptions, and that goes back to the 2013 EU accounting directive, which sought to simplify requirements on companies submitting accounts and gave member states the flexibility to increase the small company accounting and audit exemption thresholds. Is there likely to be any review of those thresholds? Perhaps the Minister can enlighten me as to whether there is clear demand for that.
In the light of current circumstances—the clamping down on, and growth in, economic crime, as well as the transformations we will have seen in the last six, eight or 10 years—will the Minister tell us whether the high thresholds brought in by the Government have reduced audits and the transparency of information on the register? Have they affected the extent to which information filed by companies is trusted? Is the Minister interested in considering whether the levels for audit exemption are acceptable and right in the context of current economic crime, or does he think, in the light of the opportunities presented by the Bill, that there is reason to look at any of that again?
We welcome clause 56 as a necessary provision for improving the accuracy of information in relation to small companies.
Kevin Hollinrake
I will check the implementation date of the new rules around filing full accounts and let the hon. Member know in detail.
In terms of the audit exemption, the threshold is currently £10.2 million. We will always keep that under review, because we are trying to ease the burden on business while ensuring that nothing untoward is happening. Having been through the process myself, I know that auditing a business is very extensive, exhaustive and expensive. It is absolutely right that we seek to reduce burdens on business whenever we can, while also putting appropriate checks and balances in place.
Question put and agreed to.
Clause 52 accordingly ordered to stand part of the Bill.
Clauses 53 to 56 ordered to stand part of the Bill.
Clause 57
Confirmation statements
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
The clauses in this group will help the registrar to fulfil their new objectives, as set out in clause 1. Clause 57 obliges companies to notify the registrar of additional information that is required to be delivered under new requirements brought in via the Bill. Companies will have to do this before, or at the same time as, delivering their annual confirmation statement. The new information of which companies will have to notify the registrar will be to confirm the company’s lawful purpose. If it is the company’s first confirmation statement, as it is a newly incorporated company, the company will need to notify the registrar of any changes that have happened between its application for incorporation and the incorporation taking place.
The annual confirmation statement is a fundamental aspect of that data. It provides an opportunity for a company to focus its attention on the statutory requirements that it has to meet, and it also re-establishes the benchmark against which a company is assessed by others, including the registrar.
Clause 58 ensures that the registrar will have up-to-date information that will allow them to uphold the investigations and sanctions regime more effectively. The accuracy of the information provided in the confirmation statement is obviously of key importance, given that making false statements, or failing to deliver confirmation statements, may result in an offence being committed.
Dame Margaret Hodge (Barking) (Lab)
What happens if it is a false statement? Who will uncover that?
Dame Margaret Hodge
I ask the question for a reason. I did not intervene during the previous debate, but the Minister might know—I certainly do—that thousands and thousands of microbusinesses are supposed to put their annual accounts in to HMRC, but do not do so, and nobody ever goes after them. There therefore may be thousands and thousands of businesses that put in false statements. Given the anti-regulatory stance that the Minister has displayed today, I am just interested in knowing who will actually check the statements and what will happen then.
Kevin Hollinrake
I am very disappointed that the right hon. Lady regards me as anti-regulatory. I want a system that allows good, bona fide businesses to go about their daily business without unnecessary checks and balances. We cannot control everything that goes on in our society but, in the main, businesses are lawful, and undertake lawful and legitimate commercial activity.
If the right hon. Lady expects a world in which we check every single filing, nobody will be doing any commercial work in our society. The only people we will have will then be box-checkers, and where would the tax revenue come from to pay for all the things that both she and I want in our society?
We must have a proportionate balance between regulation, the cost of resourcing regulators and the needs of law enforcement agencies. That is why our belief, which I know is not entirely hers, is that we need to take an intelligence-based approach to regulation. That is the most effective way to do it.
Seema Malhotra
I think we all agree that we do not want to do things that impede lawful activity—that is not a matter for debate, really. The question is whether the systems will be strong enough. They do not have to be burdensome; there are ways in which systems can have automatic checks, and be underpinned by clear roles and responsibilities. The question of who would know whether there are errors in a confirmation statement, and how that would be checked, is quite an important one for ensuring that we are not—
Kevin Hollinrake
I do not disagree. I agree with the hon. Lady about automation, but checking every single document and every single file would be ludicrously burdensome, because 99% of those filings would be legitimate documents. I speak as somebody who has been an authorised person under the FCA, so I know how many checks, and double-checks, someone in such a position has to make. The vast majority of people who the FCA regulates do a bona fide, legitimate job.
We are trying to find the people who are not doing so, and what we are trying to do through the Bill is to allow the sharing of information and the cross-referencing of information to identify all the red flags—the hon. Lady talks about automation—and then trigger alerts that can be investigated. I think that we all agree about that, and that is the approach that we are taking.
As I was saying, these measures will all ensure that companies, once formed, will reassert to the registrar via their annual confirmation statement that the company’s intended future activities are lawful.
Clause 59 will oblige a company to notify the registrar via its first annual confirmation statement of a change in its principal business activity if such a change takes place between the company’s application to be incorporated and the incorporation taking place. That addresses the fact that there is currently no duty to notify the registrar during the incorporation process. This new obligation builds on the existing obligation in section 853C of the Companies Act 2006, whereby companies have to notify the registrar of a change in principal business activities via their annual confirmation statement.
Clause 60 amends section 853J(4) of the Companies Act so that the framing of criminal offences is consistent with similar provisions in this Bill. It also makes the same amendment to section 853L(1), which concerns the offence of failing to submit a confirmation statement on time. It will clarify that every officer of the company who is in default can commit the offence, as well as every director of the company. It also corrects an irregularity with the framing of the offence, which currently imposes strict liability on all the company’s directors and secretaries, regardless of whether they are in default—in other words, regardless of whether they authorised, permitted, participated in, or failed to take all reasonable steps to prevent, the contravention. I hope right hon. and hon. Members agree that it is important that these measures reach the statute book.
Seema Malhotra
We welcome clause 57 which, as the Minister said, prescribes the company’s duty to notify the registrar about certain events and provide certain information in advance of and at the same time as the delivery of the annual confirmation statement. That is obviously very important.
We have already debated some of the issues that clause 58 addresses. It is obviously an important clause, and the Minister has outlined that the approach is to hope for accuracy, based on risk assessments and red flags. We understand that, but it still does not feel as strong as we need it to be. It does not feel clear and strong on detecting issues, and it does not give the registrar a clear expectation of what the Minister intends. It felt a little like the Minister was just hoping that everything would work out. We should be clearer about what steps should be taken on detection, prevention and enforcement, and ensure that that is as strong as possible through the passage of the Bill. That is incredibly important, because we know that those are weak areas.
My right hon. Friend the Member for Birmingham, Hodge Hill made the very important point that we need to clarify what is expected of the registrar. They will be subject to many different demands, and in some ways it will make their life easier if they see in Hansard that there is a clear expectation from the Government, the Minister and the House about what is to be done. That would aid the call for greater resources, as it is frankly a way of making savings from enforcement later, and increasing the speed of detection will considerably lower the cost of economic crime. I hope that the Minister recognises that I am putting these comments and questions to him in the hope of detecting ways of tightening up the message about what we expect, in order to better implement the Bill and its stated goals.
We welcome clause 59, which I think we referred to earlier. Clause 60 will align terminology around existing offences relating to confirmation statements. The Minister outlined the detail of that. I raise a similar question as previously, because I seek clarity from him on what it will mean in practice for companies that breach the new provisions around confirmation statements. What is the result of failure to comply with the provisions, and who will be held to account? Clarifying that would be quite helpful. It would also be helpful to understand whether the Bill will allow for retrospective penalties, should information on the confirmation statements turn out to be misleading, and perhaps purposefully misleading.
Kevin Hollinrake
The hon. Lady raises some good points on retrospective penalties. I will find out that information and come back to her.
Question put and agreed to.
Clause 57 accordingly ordered to stand part of the Bill.
Clauses 58 to 60 ordered to stand part of the Bill.
Clause 61
Identity verification of persons with significant control
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss new clause 27—Reporting requirement (identity verification)—
“(1) The Secretary of State must publish an annual report on the progress of establishing identity verification procedures in relation to proposed officers and persons with initial significant control.
(2) The first report must be published within three months of this Act being passed.
(3) A further report must be published at least once a year.
(4) The Secretary of State must lay a copy of each report before Parliament.”
This new clause would add a requirement on the Secretary of State to report on the progress of establishing identity verification procedures for proposed company officers and persons with initial significant control.
Kevin Hollinrake
I am aware that hon. Members have tabled amendments in relation to ID verification in the groupings to follow, but I will first speak to the first clause in this chapter. Clause 61 introduces requirements for people who own or control companies to undergo ID verification to improve the reliability of information on the company register. The UK was the first G20 nation to introduce a public beneficial ownership register of companies: the people with significant control register, which has more than 5.8 million entries about people with significant control over entities on the company register. The clause will apply ID verification requirements to persons with significant control and relevant legal entities on the register. It is a vital clause.
If a company has not voluntarily delivered a statement confirming that the identity of a person with significant control is verified, the registrar will direct such a person with significant control to make an identity verification statement within 14 days. A company might be owned or controlled not only by individuals, but by legal entities—for example, other companies. To be a registrable relevant legal entity, a legal entity must meet certain conditions, and be subject to its own disclosure requirements. It is registrable in relation to a company if it is the first legal entity in the company’s ownership chain.
Where there is a registrable relevant legal entity in relation to a company, and the company has not voluntarily made an identity verification statement for that RLE, the registrar will direct such a relevant legal entity. That direction will require the entity to make a statement within 28 days, naming its verified relevant officer. The statement by the RLE must include a statement made by the relevant officer confirming that they are a relevant officer for the entity. That will prevent individuals from being notified without their consent or any relation to the entity.
The clause creates a duty on persons with significant control to maintain their verified status as long as they are registered with the registrar. The RLEs will also be under a duty to maintain a verified relevant officer as long as they are registered with the registrar. That is to ensure that a verified individual is always traceable for each RLE. Failure to comply with the registrar’s directions or to maintain a verified status is an offence under the clause.
Stephen Kinnock (Aberavon) (Lab)
It is a pleasure to serve under your chairship, Mr Robertson. I think it is safe to say that we are coming to one of the most significant and consequential aspects of the Bill.
Clauses 61 to 67 take up a full 15 pages and provide a framework for the verification of the identities of individuals listed on the register of people with significant control, whom I will henceforth refer to as PSCs. Since its launch in 2016, the PSC register—more colloquially described as the register of beneficial owners of UK companies—has made important progress towards corporate transparency, but it remains very much a work in progress.
Much of this Bill is rightly concerned with closing loopholes in existing legislation and, as it stands, the PSC system has loopholes that are big enough to drive a coach and horses through. Even if we could rely on the good faith of all those who register, we would still be stuck with the fundamental problem of the 25% ownership threshold. The ease with which that can be used to circumvent the registration requirement—for instance, simply by splitting ownership shares between four people, who may all be family members—has been extensively discussed and is well documented.
During last week’s evidence sessions, my right hon. Friend the Member for Barking rightly drew attention to the case for a threshold set much lower than 25%. In response, Professor Elspeth Berry argued that although the threshold should certainly be lowered, even
“a zero percentage could be considered.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 27 October 2022; c. 103, Q194.]
That is the case, given how many different and probably more relevant ways there are of measuring corporate control in the modern business environment.
The Government will likely argue that 25% is a widely used international standard, but we should be clear about what that means. Nowhere is it suggested in any of the international frameworks to which the UK is a party that 25% ownership is anything more than an example of how a country might seek to define beneficial ownership. In fact, many jurisdictions set ownership thresholds much lower than that. Some jurisdictions—including Belize and Jersey, which are not exactly known as paragons of corporate transparency—use a 10% threshold. The Government’s failure to take the opportunity provided by the Bill to revisit the definition of beneficial ownership is, to put it mildly, a disappointment.
I will now look more specifically at ID verification. Clause 61 is the first of a series of clauses in which the Government enable new powers to be introduced to ensure that information on PSCs can be verified. Subsequent clauses stipulate that full details of the verification regime will be set out in regulations at a later date.
The Opposition find the absence of substantial details on verification procedures in the Bill perplexing. It is now more than three years since the Government launched the first of what turned out to be no fewer than four separate consultations on proposed reforms to Companies House, which included proposed ID verification powers. It is not at all clear why, after all this apparent effort, Ministers are still unable to set out specific plans in legislation. Perhaps the reason is that they have been struggling to make a decision and stick to it.
In the first consultation document back in May 2019, the Government stated fairly unambiguously that they believed that Companies House should be given responsibilities for ID checks. That view was reiterated in subsequent consultation documents published in February 2021, which seemed to indicate that the Business Department is better at flogging a dead horse than at drafting legislation. More than a year passed before the Government finally published a White Paper. By that time, Ministers appeared to have gone lukewarm on handing responsibility for ID checks to Companies House, with a shift in emphasis towards outsourcing the checks to third parties that are collectively known as trust or company service providers. Somewhat confusingly, they are now referred to in the Bill as “authorised corporate service providers”, or ACSPs.
That is extremely problematic, for a whole range of reasons. First and foremost, TCSPs represent a highly fragmented sector, making supervision of their activities very difficult indeed. Some may be supervised by professional bodies—for example, if they provide accountancy or legal services—while others may be supervised by HMRC. In some cases, there is no supervision at all, leading RUSI’s Helena Wood to compare the sector to the wild west. Ministers now propose to place an enormous amount of trust, faith and responsibility on the shoulders of TCSPs, about which they know very little.
Speaking to the Treasury Committee earlier this year, Graeme Biggar, the then director-general of the National Economic Crime Centre, said:
“We are developing a plan with HMRC and the Treasury to have both more supervision of, and more enforcement against, company formation agents. We are on it, but it is not the most developed of our plans. We have really got to do more work on that.”
It would be excellent if the Minister could give us an update on the progress of the work that Mr Biggar referred to in that evidence.
As things stand, it is hard to imagine what the Government were thinking with the proposals in these clauses. This is not just a case of sharing responsibilities for supervision between the public and private sectors, as is already the case in the legal, accountancy and some other sectors; this is about outsourcing a set of tasks to the least regulated, least understood and potentially least reliable part of the entire financial services industry. The Government’s own assessment in their national risk assessment was that TCSPs pose a high risk of being used for money laundering purposes. A previous risk assessment said:
“Ineffective AML supervision leads to inadequate compliance with the rules, and low and poor quality reporting of suspicious activity”.
For at least the past seven or eight years, official reports and media coverage have documented the involvement of UK-based TCSPs in the efforts of oligarchs, many of whom are Russian, to conceal their wealth in opaque webs of corporate structures. It should be clear by now that the Opposition have serious concerns about the proposal to outsource ID checks to the sector. We have therefore tabled new clause 27, which would require annual reporting on the progress towards establishing verification procedures, in order to probe the Government’s rationale for the policy. I hope that the Minister will take seriously the concerns I have just outlined, and that due consideration will be given to whether the policy is really in the interests of tackling economic crime and improving corporate transparency.
May I just ask you for clarification, Mr Robertson? Do you wish me to stop there or—
Stephen Kinnock
I would be very happy to pause and provide the Minister with an opportunity to respond, if he wishes to do so, on clause 61.
The Chair
As you wish. I will bring Alison Thewliss in next, but we can come back to you, Mr Kinnock.
Alison Thewliss
I wholeheartedly support Labour’s new clause. There is an awful lot more that needs to be done to tighten up the measure on verification. Nick Van Benschoten, in his evidence, said:
“On the verification measures, one of the key points is that they fall short of minimum industry standards. Verification of identity is necessary but not sufficient. A key thing we have noted is that the Bill does not provide for order-making powers to allow Companies House to verify the status of directors or beneficial owners, and for that sort of requirement on company information agents and so on. That seems an odd gap.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 7, Q3.]
I wholeheartedly agree with that. It is the key part of the Bill. If we are not going to verify people on the register, there is almost no point in having the legislation. It is the verification that is crucial.
Hand in hand with that are the fines for not complying with the verification. I draw the Minister’s attention, again, to the people with significant control over Scottish limited partnerships. There has been one fine of £210 since the rules came into place. That is no kind of deterrent whatsoever. The rules need to be here, the verification needs to be right, and the sanctions for not complying must be enforced. I would say that even the sanctions are far too low.
Leaving trust and company service providers to verify identity leaves the door wide open to abuse. There is already abuse, and the Government’s position in the Bill is to continue to allow that to happen. As the hon. Member for Aberavon said, trust and company service providers have been identified in numerous Government documents as being the gap that allows money laundering and international crime. That cannot be allowed to continue in the Bill. If the Government leave the door open for the trust and company service providers, they will continue to abuse the system and the register will continue to be full of absolute guff.
I raised the issue of verification in the House, albeit, I appreciate, with a different Minister, the hon. Member for Torbay (Kevin Foster). He suggested that a decision had not yet been made on how the verification system would work. My suggestion was that it go through the UK Government’s existing verification scheme, which is used for passports, driving licences and tax returns, because that system is already up and running. The response suggested that that had not yet been decided.
However, it was drawn to my attention today that Companies House has already put out a tender for a verification system. A tender went out on 10 October and closed on 24 October for an “authentication digital delivery partner”, looking for people to come and work on this system. I am curious to know why, when we have not yet got this legislation in place, the Government have tendered the contract and closed the application process for the company to build the system.
I would be grateful for some clarification from the Minister on exactly what the status is of that £3.7 million contract, which Companies House has already put out to tender. Why has it gone out before the Bill has concluded if Companies House does not know what it is building yet, and when amendments are still being tabled? I appreciate that the Government want to move at speed, but putting the cart before the horse in this way seems quite wrong.
We would like the verification to be strengthened, but if the Government have already instructed a contractor on what it will build, why are we even here this afternoon?
Dame Margaret Hodge
I seek your guidance, Mr Robertson: we are talking about clause 60, are we not?
Dame Margaret Hodge
Yes; the others come later.
After the excellent speech by my hon. Friend the Member for Aberavon, I will speak briefly. I have two things to say. We will come back to the issue of shareholders, data and the threshold, which is really important, and I will certainly come back to the issue of trust or company service providers, because Labour Members all think that it is key to get that right if we are to have any credibility about the integrity of the list.
I want to talk about new clause 27. The Minister has said a number of times that he does not want to impede business. I do not think any Opposition Member wants to impede business either. We want to have smart regulation, not too much regulation. The purpose of this debate is to ensure that the regulation is indeed smart. At the moment, there are too many flaws.
The Chair
For clarification, we will not vote on new clause 27 until later in the proceedings, and probably not today. We are discussing it now. In view of the fact that new clause 27 has already been raised, would you like to speak to it now, Mr Kinnock?
Stephen Kinnock
I have made the points that I wish to make about new clause 27.
Kevin Hollinrake
As an overriding point, we all know how important the integrity of the ID verification system is. I completely agree with that and we need there to be confidence in it.
On the point raised by the hon. Member for Glasgow Central, it is not right that a tender has gone out already. A request for information has been put out to determine some of the characteristics of the suppliers to learn what services they provide, but a tender has not gone out. Once determined, the ID verification system will be brought to the House to be approved by affirmative resolution. There will be opportunities for debate at that time to make sure it is fit for purpose, both in the framework and how it will be operated.
On the comments the hon. Member for Aberavon made about persons of significant control, first, I think he makes the exact case that we would make. A 25% threshold is pretty much the global standard, but even if it were lowered, people could find ways around it—even if there were a 0% threshold, as was suggested by Professor Elspeth Berry. That is why the definition of a person of significant control is not solely about the percentage of the shareholding of a company. There are five definitions, including one I that believe will interest the hon. Gentleman, which is somebody who, other than by shareholding,
“has the right to exercise or actually exercises significant influence or control”
over a company. Therefore, there could be zero shareholding and they would still be a person of significant control. How is that enforced? If directors allow that to happen and do not declare that they have a person of significant control, they are liable for a fine and a custodial sentence of up to two years. We do deal with that in a reasonable way.
Some valid concerns have been expressed about company formation agents. I am happy to write to the National Crime Agency to ask what it has done about them. However, not all company service providers are company formation agents; there is a distinction. A company service provider may well be a large accountancy practice, such as Deloitte, PwC or KPMG. The hon. Member for Aberavon stated that such organisations know very little about their clients and offer a blanket service, but I do not think that is fair. My accountants can verify my ID and they know a great deal about me, I can promise the hon. Gentleman.
Of course we must make sure that the system is robust, and I acknowledge that there are some concerns about the supervision of those registered as supervised for money-laundering purposes. Of course we must be sure that the system is right. As hon. Members are aware, I think, the Treasury is looking at means of improving the regime to ensure that the supervision is much better, and it needs to be. The difficulty is—we will have more debate about the issue in forthcoming sittings—whether we want to get everything perfect in the system before we start ID verification, or whether we start ID verification. In my view, it is essential that we get that ID verification done as quickly as possible. Waiting until the AML supervision regime is absolutely perfect would be a mistake, in my view. The two things should happen concurrently.
I understand the reasoning behind new clause 27. I completely agree with the idea of giving confidence to Parliament that the matters are being taken forward. I am happy to commit to return to Parliament to communicate by whatever means is preferable—written ministerial statement or oral statement—what progress has been made to ensure that Parliament has the information that it needs to hold Companies House and other agencies to account.
The Chair
The Minister is finished. If someone else wishes to speak, they can stand in the normal way and indicate.
Dame Margaret Hodge
I am grateful to the Minister for saying that he will return to Parliament, but new clause 27 is designed to ensure that there is an annual report to Parliament. That means that our successors—certainly mine—will be able to hold Companies House to account over time. He knows that accountability is absolutely vital to ensuring the integrity of the system.
Question put and agreed to.
Clause 61 accordingly ordered to stand part of the Bill.
Clause 62
Procedure etc for verifying identity
Stephen Kinnock
I beg to move amendment 108, in clause 62, page 47, leave out lines 14 and 15.
The Chair
With this it will be convenient to discuss the following:
Amendment 109, in clause 62, page 47, leave out lines 18 to 20.
Amendment 78, in clause 62, page 47, line 20, at end insert—
‘(2A) No verification statement may be made by an authorised corporate service provider until the Treasury has laid before Parliament a report confirming that the Treasury’s review of the UK’s anti-money laundering and countering the financing of terrorism regulatory and supervisory regime has been completed.’
This amendment prevents an authorised corporate service provider from making a verification statement prior to the completion of the Treasury’s review of the UK’s anti-money laundering regime.
Amendment 107, in clause 62, page 47, line 20, at end insert—
‘(2A) The regulations must make provision for the evidence required to verify an individual’s identity for the purposes of subsection (2)(a) to include—
(a) an identity document with a photograph of the individual’s face; and
(b) an identity document issued by a recognised official authority.
(2B) For the purposes of subsection (2A)(b) above, “a recognised official authority” includes—
(a) a department or agency of the UK government;
(b) a department or agency of any of the devolved nations;
(c) a department or agency of the government of another country;’.
Amendment 110, in clause 62, page 47, leave out lines 34 to 37.
Amendment 111, in clause 62, page 47, line 43, leave out from “registrar” to the end of line 44.
Amendment 112, in clause 62, page 48, leave out lines 4 to 26.
Clause stand part.
Stephen Kinnock
I have spoken at some length about the Opposition’s concerns about the provisions in clauses 62 and 63 to authorise third-party trust or corporate service providers—or authorised corporate service providers, as they are described in the Bill—to carry out ID checks on the Government’s behalf. Amendments 108, 109 and 110 to 112 would simply remove those provisions from the Bill in the hope of prompting a rethink by the Government.
I should like to explain the thinking behind the amendments tabled by me and my hon. Friend the Member for Feltham and Heston. The purpose of amendment 107 goes back to what I have said about the surprising lack of specific details on the proposed verification process. As I have said, it is not as though the Government have not had enough time to think through what procedures might be necessary; four consultations have already taken place on the topic. Amendment 107 would incorporate into the Bill requirements for some form of official identification, including photo ID, to be submitted to the registrar. That should not be controversial. In fact, the amendment would merely reflect international best practice guidelines, including those published by the Financial Action Task Force, the IMF and the World Bank, among others, and the commitments made in the Government’s own White Paper.
Dame Margaret Hodge
It is a pleasure to rise to speak under your chairmanship, Mr Robertson, and I do so to speak to amendment 78. The amendment is part of a batch of amendments that we will get to later. I hope that hon. Members will bear with me if I speak longer on amendment 78, so that amendments 79, 82 and 83 will not require a long explanation.
This is one of the most important series of amendments that we have placed before the Committee. The purpose is to ensure that we close any loopholes, so that we do not find ourselves back in debate in a couple of years’ time, bemoaning the fact that we failed to create watertight legislation and that we do not have the information and data that we need to hold businesses to account.
I stress that our aim is not to be bureaucratic. The last thing anybody wants is bureaucratic regulation. However, if we do not have effective, smart regulation, we will not achieve the objective, which is shared across the House, of bearing down on illicit finance and on the abuse of our corporate structure system by ne’er-do-wells. Today, we are paying the price of those who came before us, from both political parties, who thought that by simply deregulating the whole of the financial services sector, they would encourage growth in the economy. They did encourage growth, but they also made us a destination of choice for too much illicit finance. That has come into focus with the war in Ukraine and the role of Russians in bringing their financing here. That money is used to fund Putin and his allies in the attack on Ukraine.
The Government have decided to outsource responsibility for checking the unique identification of beneficial owners. I can see why they have done so. It is quicker to do it that way than to build up the necessary resources in Companies House. Like my hon. Friend the Member for Aberavon, I would have had more confidence if we had done it in house, but that was the Government’s decision. The purpose of my amendment is not to challenge that decision. However, we need to trust the corporate service providers. We need to trust both the professionals and the others involved, whether they are lawyers or accountants, to do the job properly and honestly. At present, confidence and trust are not there.
I thought that the Government were on the same page on this issue. From all the leaks, and from all the information and intelligence about how illicit wealth from all the kleptocracies has reached our shores, I thought that they understood the role played by the TCSPs. I thought they understood the role that the TCSPs play, and therefore shared our concern that we need to get that regulatory framework right before we unleash a new system that, if it is not right, could lead to us peopling the new Companies House register with dud information that we do not want.
James Daly (Bury North) (Con)
I refer to my entry in the Register of Members’ Financial Interests as a practising solicitor and a partner in a firm of solicitors. The right hon. Lady has essentially said that everybody involved in the legal sector and financial advisers are potentially dishonest. They absolutely are not. The vast amount of people involved in the sector are honest, decent people who have a lot of regulation and try their damnedest to abide by all of it. The picture that the right hon. Lady paints is not correct.
Dame Margaret Hodge
That is not what I said. The hon. Gentleman may have chosen to interpret it that way—
Dame Margaret Hodge
No, I did not. I said that none of the professions has sufficient supervisory or regulatory capabilities, policies or practices in place to pull out the bad apples. I have nowhere ever stated that that applies to everyone, but I hope the hon. Gentleman agrees that the extent of people setting up shell companies —we are talking largely about shell companies—as vehicles to move illicit finance, whether through drugs, kleptocrats or people trafficking, is shocking.
Let me tell the hon. Gentleman my most egregious story, which has been mentioned—the Savaro story. We had this terrible explosion in Lebanon, with hundreds of people killed and lots of property destroyed. We were told that it was fertiliser held in the warehouse that was going to Mozambique. A couple of months after the explosion, I was rung up by a Reuters journalist with whom I have worked down the years, who said, “Did you know it was a UK limited company—Savaro Ltd?” He went on to say that not only was it a UK limited company, but, interestingly enough, it had told HMRC it was dormant, so it had not filled in its tax returns. It was registered in the name of a company service provider, a woman who lived in Cyprus. There were two lies in the system: a lie about the company service provider, and lying to HMRC.
I gave the usual quote and was then overwhelmed by people from Lebanon contacting me, including the Bar Association, all of whom were trying to find out the origins of what had happened. It then emerged that three Ukrainian Syrians—this was before the Ukrainian war—were the real owners. There was no way the fertiliser was going to be used in Mozambique; it was going to Assad to drop as barrel bombs on the civilian population of Syria. That is the sort of shocking outcome that comes from lack of proper regulatory control.
Kevin Hollinrake
I will deal first with amendment 78, tabled by the right hon. Member for Barking. As she knows, it would place a restriction on the permitted ID verification processes set out elsewhere in the Bill. It would allow a person such as a company director or beneficial owner seeking to verify their identity through an authorised corporate service provider to do so only once His Majesty’s Treasury had completed its review of the AML supervisory regime and laid the report before Parliament. I think that if the right hon. Lady thinks about it, she will probably want to go further than that, based on her remarks. I think she wants to go ahead only once the AML regime is properly supervised generally, not just to the point where we have the report from the Treasury. We are potentially talking about getting some way down the line before we are in a situation where she would be happy with the regime.
I take on board many of the comments the right hon. Lady made. Parts of the regime are not operating as they should—I quite agree. We absolutely need to fix that. As with other amendments proposed today, I am sympathetic to the intention; however, I think that there better ways to do it.
The practical effect of the amendment would be to place a temporary restriction on the functions that legitimate businesses may carry out. That restriction is unrelated to and may be unaffected by the publication of the review to which it is linked. It is anomalous and unfair that those businesses affected will still be subject to their current regulatory obligations to carry out ID checks. However, they will be prevented from making a statement reporting to Companies House that such checks have taken place, effectively delaying the whole regime. I also draw attention to the impact of the right hon. Lady’s amendment on those people who use agents to manage their interests. I accept that some are shady characters, but, as my hon. Friend the Member for Bury North stated, the overwhelming majority are not.
Alison Thewliss
The Home Office report, “National risk assessment of money laundering and terrorist financing 2020,” states:
“Company formation and related professional services are therefore a key enabler or gatekeeper of”
trade-based money laundering activity. Should that not raise more concerns for the Minister?
Kevin Hollinrake
The hon. Lady is mixing up two different things. I am not saying that some company formation agents are not shady—I have just said that. However, not all service providers are company formation agents. Many are bona fide solicitors or accountants that are household names. I think we need to keep this in perspective. The hon. Lady cites statistics on the capability of some of the sector in terms of proper supervision. According to OPBAS, 50% of professional body supervisors were “fully effective”. I think that figure should be much higher, but in its opinion 50% are fully effective, so it is not as if there are not some actors in this area that are doing the job absolutely right.
Many company directors and people with significant control that are currently registered at Companies House, all of whom will need to verify their identity under the transitional provisions post enactment, would prefer to do so by using their professional adviser. They will suddenly find that their long-established legal adviser is deemed fit by the Government to verify their identity for money laundering purposes, but unfit to report that to Companies House. The amendment would therefore create considerable inconvenience to individuals, as well as to corporate service providers.
I can assure the right hon. Member for Barking and the Committee that I will urge my counterparts at the Treasury to bring forward their consultation as quickly as officials can ready it. I also point to the powers in the Bill that will enable the registrar to keep an audit trail of the activity of agents to support the work of supervisors both immediately and following any changes from the Treasury’s review. I hope my explanation has provided reassurance.
Let me touch on one or two of the right hon. Lady’s other comments. On the light-touch financial services regulation that I think she was suggesting was responsible for the global financial crisis, this is not deregulation. This is the opposite of deregulation; we are making regulations about the verification of ID. I would also point to the penalties for wrongdoing. In certain circumstances, if someone is found guilty of the aggravated offence of false filing under these rules—I think some of the examples she gave would constitute that—the sanction would be two years in jail. That is not for fraud, but for the false filing. There are real teeth to this legislation, which will reduce the likelihood of this stuff happening in future.
The right hon. Lady’s amendment would effectively delay the whole regime we are talking about. She talks about Transparency International. As I said earlier, TI welcomes the reforms to the operation of Companies House that will effectively help to prevent money launderers from abusing the UK’s system. We need to ensure that this happens as effectively as possible. I agree with many of the concerns that she raises, but it is wrong to delay implementation as she suggests.
I turn to amendments 107 to 112. I thank hon. Members for their contributions. The procedure for ID verification, including the evidence required, will be set out in secondary legislation under the powers in new section 1110B of the Companies Act 2006 inserted by clause 62 of the Bill. The regulations will set out the technical detail of ID verification procedures, which will reflect evolving industry standards and technological developments. The regulations can specify the process of ID verification and the evidence of identity that individuals will be required to provide when verifying their identity with the registrar. The amendments, particularly amendment 107, would limit the documents acceptable for the purposes of ID verification to photographic IDs issued by Government agencies and identity documents issued by a recognised official authority. That would exclude individuals who do not have a photo ID, such as a passport, from verifying their identity.
Stephen Kinnock
It is absolutely clear that our amendment 107 uses the words “to include”. We are not limiting anything. The amendment sets out what the minimum should be. Surely the Minister agrees that an identity document with a photograph of the individual’s face and an identity document issued by a recognised official authority should be the bare minimum we would want in the Bill.
Kevin Hollinrake
Under the cross-Government identity proving framework in “Good Practice Guide 45”—GPG 45—a combination of non-photographic documents, including Government, financial and social history documents, can be accepted to achieve a medium-level assurance of identity. That includes birth certificates, marriage certificates and recent utility bills. The framework, which also recognises ID documentation from authoritative sources, such as the financial sector or local authorities, is routinely used to build a picture of identity. Restricting that process by defining a recognised authority as a Department or agency could therefore inadvertently disenfranchise individuals from meeting ID verification requirements. I take the hon. Member’s point that the amendment seeks to include certain forms of ID, but it might not serve the purpose that he thinks it would.
Seema Malhotra
I understand what the Minister says in relation to GPG 45. I wonder whether he has considered that, in circumstances where an identity document with a photograph of the individual’s face may not be available, for whatever reason, in some way having a photograph of the person’s face is the most important thing. Is that something he has considered as part of verification checks?
Kevin Hollinrake
All these matters need to be considered in the round when we come to the further details of ID verification. I was simply pointing out some of the shortcomings of the amendment.
In certain circumstances, non-photographic verification should also be available, to ensure that the Companies House service meets digital inclusion drivers and accessibility requirements, as set out in the Department for Digital, Culture, Media and Sport digital identity and attributes trust framework. The Companies House service must also adhere to the public sector equality duty.
The ability to verify using a range of documentation will maximise the number of service users able to verify digitally or at all. Not having that route would prospectively drive users toward assisted digital or non-digital routes, resulting in additional burden, an impact on ease of doing business, and increased cost and resource. It would also lead to far higher rejection rates, impacting company incorporations and appointments. As I said, the vast majority of companies are law-abiding, and it is disproportionate to put this burden on them.
I turn to the amendments that seek to remove parts of clause 62. Again, I have sympathy with my colleagues who are concerned about the effectiveness of the AML regime. Indeed, the measures in the Bill requiring corporate service providers to register with Companies House are intended to support the AML regime—a point raised earlier by the right hon. Member for Barking. There is a requirement for corporate service providers to register with Companies House as well as an AML supervisor. We will know who corporate service providers are registered with, and we will be able to provide their supervisors with information that will enable them to do their job more effectively. Where corporate service providers fail to act effectively, the registrar will be able to suspend or de-authorise them.
The practical effect of the amendments would be to limit verification pathways to the registrar only, preventing verification by the AML regulated sector from being acceptable for the purposes of ID verification under the Companies Act. That is unnecessary, and it would come at the expense of people and businesses conducting their activities entirely legitimately.
About half of company formations are currently submitted by third parties, very many of which take their responsibilities seriously and are highly diligent in conducting ID verification checks. They include high street accountants, regional legal firms servicing small businesses, and so on. I am concerned that preventing third parties from being able to register with Companies House and verify identities would have disproportionate consequences for those entities, possibly driving business away from them. That effect would be particularly acute where ID verification is taken as a package with company formation and other services. It is not clear how the amendments would affect the ability of corporate service providers to deliver documents on behalf of their clients if they are not required to be authorised, for example if they represent limited partnerships.
Many company directors and people with significant control currently registered at Companies House, all of whom will need to verify their ID under the transitional provisions post enactment, would prefer to do so by using their professional adviser. They would suddenly find that their long-established legal adviser was deemed fit by the Government to verify their ID for money laundering purposes under the money laundering regulations but unfit to do so under the Companies Act. The amendments would therefore create considerable disruption for individuals as well as corporate service providers. I hope that my explanation has provided reassurance and that hon. Members will consider withdrawing their amendments.
I have already described the new powers provided by clause 62. Beyond that, it is important to note that the regulations provided for by the clause can also specify the records that authorised corporate service providers will be required to keep in connection with the verification or reverification of identity. Those record-keeping obligations on authorised corporate service providers can be enforced through offences for non-compliance. Additionally, the Secretary of State can confer, by regulation, discretion on the registrar about when an individual’s identity ceases to be verified. The individual will then be required to re-verify their identity. Finally, regulations under the new sections introduced by the clause will be subject to the affirmative resolution procedure.
Stephen Kinnock
No. I have made clear to the Minister that we are deeply unhappy, particularly with the failure to take on board the recommendations under amendment 107 and the very important points my right hon. Friend the Member for Barking made.
Dame Margaret Hodge
Similarly, I will take the matter up elsewhere during the course of the Bill.
Stephen Kinnock
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 62 ordered to stand part of the Bill.
Clause 63
Authorisation of corporate service providers
Dame Margaret Hodge
I beg to move amendment 81, in clause 63, page 49, line 38, at end insert—
“(3A) When an application is made under this section, the registrar may request evidence from HMRC that a fit and proper person test has been carried out on the applicant.”
This amendment allows the registrar to request evidence from HMRC that a fit and proper person test has been carried out on a person applying to be an authorised corporate service provider.
The Chair
With this it will be convenient to discuss the following:
Amendment 82, in clause 63, page 49, line 45, at end insert—
“(ba) the registrar is satisfied—
(i) that HMRC has carried out a fit and proper person test on the applicant, and
(ii) that the applicant has met the requirement of the fit and proper person test, and”.
This amendment would mean that the registrar could only grant an application to become an authorised corporate service provider if satisfied that an applicant had passed HMRC’s fit and proper person test.
Government amendment 8.
Amendment 79, in clause 63, page 52, leave out from line 42 to line 28 on page 53, and insert—
“1098G Duty to provide information
(1) The registrar must carry out a risk assessment in relation to any authorised corporate service provider to establish whether the verification of identity by the authorised corporate service provider is likely to give rise to a risk of economic crime.
(2) If the risk assessment identifies a real risk of economic crime, the registrar may—
(a) require an authorised corporate service provider to provide information to the registrar; or
(b) require a person who ceases to be an authorised corporate service provider by virtue of section 1098F—
(i) to notify the registrar;
(ii) to provide the registrar with such information relating to the circumstances by virtue of which the person so ceased as may be requested by the registrar.
(3) The registrar may require information to be provided on request, on the occurrence of an event or at regular intervals.
(4) The circumstances that may be specified under section 1098F(2) or 1098G(1) (ceasing to be an authorised corporate service provider and suspension) include failure to comply with a requirement under subsection (1)(a).
(5) A person who fails to comply with a requirement to provide information under this section commits an offence.
(6) An offence under this section is punishable on summary conviction by—
(a) in England and Wales a fine;
(b) in Scotland and Northern Ireland a fine not exceeding level 5 on the standard scale and, for continued contravention, a daily default fine not exceeding one-tenth of level 5 on the standard scale.”
This amendment would give the registrar the power to require information from an authorised corporate service provider. This would replace the current provision in the Bill giving the Secretary of State a power to make regulations requiring the provision of such information.
Dame Margaret Hodge
I will speak very briefly. It would be nice if the Minister could agree to the amendments, which are simply there to tighten up the oversight of the bodies. Amendments 81 and 82 are connected, and would force HMRC to do what it is not currently doing and carry out proper checks on the TCSPs and monitor them properly. Amendment 79 gives the registrar the power to require information. At the moment, as I read the Bill, there is no power for the registrar to challenge any of the information provided to her by any corporate service provider.
Kevin Hollinrake
I thank the right hon. Lady for her contribution. Clause 63 introduces a requirement for third party agents who wish to provide corporate services to clients, such as incorporating companies and filing documents on their behalf, to be registered with Companies House as authorised corporate service providers. ACSPs will be required to be supervised for the purposes of the money laundering requirements at all times and to notify the registrar of any changes to supervision.
I understand and am sympathetic to the intention behind amendments 81 and 82. They are driven by concern that the UK’s AML supervisory regime is not as robust as it could be. The Government recognise that, as do I. It is being addressed by my colleagues at the Treasury, who are responsible for the supervisory regime. I am afraid, however, that the amendments would duplicate some of the regulatory obligations of HMRC, the default supervisor for corporate service providers, by adding to the role of the registrar of companies. Their effect would be to make an agency of my Department responsible for overseeing activities of another Department. Not only is that duplicative, but it is wrong for one branch of Government to mark the homework of another branch. The most efficient means to address any issues with the quality of supervision is to tackle them at source, which is work that HM Treasury is undertaking on supervisory reform. I hope I have provided clarity on why the amendments are not needed.
On amendment 79, I understand the right hon. Lady’s concerns, but I consider the amendment to be unnecessary. As I have set out, under the measures in the Bill corporate service providers will need to confirm they are supervised for the purposes of the money laundering regulations, register with the registrar and, in the case of an individual, have their identity verified before they are allowed to form companies or registerable partnerships or to file on their behalf. The ID verification checks undertaken by those providers will achieve the same level of assurance of the claimed identity as those undertaken through the direct verification route.
Dame Margaret Hodge
I am grateful to the Minister for giving way. Yes or no: will Companies House be able to challenge at any point information given to it by a TCSP—an authorised provider?
Kevin Hollinrake
As I understand it, yes, Companies House will have the rights and powers to do that, though we do not at this point know to what extent it will do so. The right hon. Lady spoke in a previous debate about spot checks. It would seem sensible to take that kind of risk-based approach. Certainly, an AML supervisor would have that ability as well.
Providers will be required to declare that they have completed all the necessary identification checks when they interact with the registrar. Under money laundering regulations, all agents are required to retain records, and the registrar can request further information and ID verification checks if necessary, which I think answers the question that the right hon. Lady just asked. The agent will be committing an offence if they fail to carry out the ID checks to the required standards, or at all.
Under the Bill, proposed new sections 1098F and 1098G of the Companies Act 2006, as introduced by clause 63, will enable the registrar to suspended and deauthorise an authorised corporate service provider. The Bill will allow the registrar to maintain an audit trail of agent activity and to share it with supervisors. That will serve as a prompt to supervisors to up their game. I hope that that explanation has further clarified why the amendments are not needed.
Dame Margaret Hodge
I will look in detail later to ensure that what I asked for is there, but I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendment made: 8, in clause 63, page 50, line 23, leave out “registered or”.—(Kevin Hollinrake.)
This amendment would mean that a firm applying to become an authorised corporate service provider would always have to state its principal office, rather than having the option of stating its registered office.
Stephen Kinnock
I beg to move amendment 98, in clause 63, page 53, leave out from line 29 to line 5 on page 54.
This amendment removes the provision enabling the authorisation of foreign corporate service providers.
The Chair
With this it will be convenient to discuss the following:
Amendment 99, in clause 63, page 53, line 37, leave out from “that” to “similar” and insert,
“has been assessed by the National Crime agency as having”.
This amendment would ensure that the judgement as to whether foreign jurisdictions have similar regulatory regimes would be in the remit of the National Crime Agency, rather than in the view of the Secretary of State.
Amendment 100, in clause 63, page 53, line 40, at end insert—
“(2A) No person who is subject to a relevant regulatory regime under the law of a territory outside the United Kingdom may become an authorised corporate service provider if there is evidence that they have been disqualified from acting as a corporate service provider in any other jurisdiction”.
This amendment ensures no corporate service provider based outside the United Kingdom can become an Authorised Corporate Service Provider if there is evidence that they have been disqualified from acting as a corporate service provider abroad.
Stephen Kinnock
Once again, I find myself somewhat baffled by what the Government are trying to get into the Bill. The provisions set out under clause 63 in proposed new section 1098I of the Companies Act 2006 would enable the Secretary of State to allow foreign corporate service providers to operate in the UK, outside the scope of the UK’s money laundering regulations. There has been such extensive coverage in recent years of the risks that that would entail that I am really quite amazed that this needs to be reiterated yet again, but, in a nutshell, any UK laws attempting to regulate the activities of company formation agents, some of which have been responsible for the most flagrant examples of money laundering and sanctions evasion according to recent reports, could well be rendered essentially meaningless by these few clauses.
I say that because, if enacted as drafted, the clauses would appear to hand the Secretary of State a blanket power to disapply the money laundering regulations to foreign agents, on no one’s authority but his or her own. We need not look too far for examples of how profoundly damaging that could be to our own laws, given how significant the divergences often are between anti-money laundering regimes in countries such as the UK, and those in overseas jurisdictions better known for their corporate secrecy than anything else. In fact, we need look no further than the UK’s own overseas territories and Crown dependencies.
Any Member who is either unaware of or in denial about the scale of the problem would be well advised to read an enlightening, although also alarming, article published by Forbes on 9 March 2022. It had the somewhat provocative title of “Evading Sanctions: A How-To Guide For Russian Billionaires”. The piece documented the use of opaque offshore corporate structures to launder literally billions-worth of assets held by Russian oligarchs in the last few months and years. What is most troubling about the account is that most of the jurisdictions that it specifically mentions as hotbeds of money laundering and sanctions evasion are UK-linked territories. It will surprise nobody that the list includes the Isle of Man, the British Virgin Islands and the Cayman Islands—in other words, the usual suspects.
I do not wish to dwell too long on the overseas territories, because I am sure there will be further discussions in the Committee when we come to debate later sections of the Bill. The point the Opposition are trying to make is simply that if we are going to allow businesses of any kind to operate in the UK, we should expect them to abide by our laws. If we start letting them off the hook, for reasons that Ministers have entirely failed to make clear, we are complicit in their actions. In short, the proposed new section 1098I would have us trust in the infinite wisdom of the Secretary of State to allow corporate service providers to operate outside the law, on the basis that those powers would be used only in cases where the relevant overseas jurisdiction has a regulatory framework with “similar objectives” to the UK’s own rules.
I frankly do not trust the wisdom of the Secretary of State to use those powers for good. I do not believe that it is at all appropriate for such sweeping, ill-defined powers to be conferred on the present or any other Secretary of State. Although amendments 99 and 100 are probing amendments that give us the opportunity to seek answers from the Minister on these extraordinary provisions, amendment 98 is intended quite simply to remove the powers from the Bill.
Kevin Hollinrake
Once more, I am sympathetic to the aims of the amendments. They are driven by concerns that AML supervisory regimes outside the UK may not be robust. That is why the Government are specifying that authorised corporate service providers must be subject to the UK’s AML regime. Nevertheless, it is possible that in the future the UK may become a party to an agreement—a trade agreement, for example—that would require it to accept applications from abroad where that regime is equivalent to that of the UK. I do not think the example the hon. Gentleman gave of Russia would qualify in that regard.
The power in the Bill would facilitate such an agreement and remove the need for primary legislation to implement it. I draw Members’ attention to the wording already in the Bill, in proposed new section 1098I(2), introduced by clause 63. The UK would only become a party to an agreement if it could be assured that the regime was no less effective than its own. To be confident of that parity, the Secretary of State would need to establish that a regime was the equivalent of the UK’s by considering evidence and advice from a range of sources, including the National Crime Agency. That would include the consideration for whether prospective authorised corporate service providers are disqualified under the relevant legislation.
As the legislation makes clear, the power would be subject to the affirmative resolution procedure and parliamentary scrutiny. While I understand any concerns expressed, I hope that Members will withdraw the amendment.
Stephen Kinnock
I thank the Minister for his response. As with the previous debate, I am not particularly happy with the position, and we will look for opportunities to return to the issue during the further passage of the Bill. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 63, as amended, ordered to stand part of the Bill.
Clause 64
General exemptions from identity verification: supplementary
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
We debated the clause at length in the previous groupings. I do not propose to repeat the arguments, and I hope the Committee agree with the Government’s position.
Stephen Kinnock
We have no further comments to add on clause 64.
Question put and agreed to.
Clause 64 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Scott Mann.)
Economic Crime and Corporate Transparency Bill (Ninth sitting)
Tuesday 8th November 2022
(2 years ago)
Public Bill CommitteesRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 8 November 2022 - (8 Nov 2022)
The Committee divided: - Ayes: 7 / Noes: 8 - Question accordingly negatived.
The Committee divided: - Ayes: 7 / Noes: 8 - Question accordingly negatived.
The Chair
Before we begin, I have a few preliminary reminders for the Committee. Please switch electronic devices to silent. No food or drink is permitted except the water provided.
Clause 65
Exemption from identity verification: national security grounds
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
I beg to move amendment 9, in clause 65, page 55, line 3, at end insert
“and section 167M(2) does not impose any obligation on a company in relation to the person”.
This amendment ensures that where a company director is exempt on national security grounds etc from being a person whose ID is verified, the company can also be relieved from the obligation to ensure that the director is ID verified.
The Chair
With this it will be convenient to discuss amendment 101, in clause 65, page 55, line 22, at end insert—
“(4) The Secretary of State must report any use of the identity verification exemption on national security grounds as provided for by this section to the Intelligence and Security Committee of Parliament. Each report—
(a) made under subsection (4) must include the name of the person and company exempt from identity verification.
(b) must include the Secretary of State’s reason for granting exemption on national security grounds.”
This amendment would place a requirement on the Secretary of State to report any use of the identity verification exemption on national security grounds to the Intelligence and Security Committee.
Kevin Hollinrake
It is a pleasure to serve with you in the Chair, Ms Bardell.
Amendment 9 is a technical amendment. Clause 65 enables the Secretary of State to exempt a person from identity verification requirements by written notice, if necessary in the interests of national security or to prevent or detect serious crime. The consequence of someone being subject to such a written notice is that they will not be obliged to observe certain rules. For example, an unverified individual benefiting from an exemption will not need to refrain from acting as a director and will not be liable for an offence for acting as such.
The amendment clarifies that companies whose directors are exempt from the prohibition to act when unverified are relieved of their duty to ensure that such a director has their identity verified. Therefore, they will not be criminally liable for failing to comply with that duty in relation to the exempted person. Relieving companies of the duty meets the original policy intention and is a logical consequence of the exemption granted to individuals on these grounds. I hope that my explanation has provided further clarity on why that is needed.
On amendment 101, any proposed use of the national security exemption in clause 65 will be carefully considered by the Secretary of State. A duty to report to Parliament’s Intelligence and Security Committee on the use of that exemption is unnecessary. The ISC’s oversight functions are clearly set out in the Justice and Security Act 2013 and the accompanying memorandum of understanding. It is inappropriate to include a specific oversight role for the ISC in relation to the deployment of this exemption. The amendment is therefore not necessary, and I ask hon. Members not to press it.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
It is a pleasure to serve under your chairship, Ms Bardell. I thank the Minister for his opening remarks. I recognise that clause 65 gives the Secretary of State the power to provide written notice to exempt someone from identity requirements if necessary in the interests of national security or for preventing or detecting crime. The Opposition recognises the importance of protecting national security, but the Minister will know from previous debates that we seek greater clarity about where exemptions may be granted, and the transparency and accountability around the use of those powers. The Government have tabled amendment 9, which is consequential to clause 65. If the clause is agreed to, the amendment makes sense.
Amendment 101, which my hon. Friend the Member for Aberavon and I tabled, comes back to scrutiny of the use of the exemption powers. I will probably say a few times today that the title of the Bill includes is the Economic Crime and Corporate Transparency Bill. Where there are questions about a potential lack of or reduced transparency and possible serious impacts, there should be accountability, even from the Secretary of State. We live in a democracy where the Government should be and are accountable for actions of the Secretary of State.
The amendment simply states that there should be a process by which any use of the identity verification exemption on national security grounds provided by the clause should be subject to some scrutiny. The Minister may have better ideas on how to deal with that question if the Intelligence and Security Committee is not the right place. We have used the ISC because it is a parliamentary Committee that deals with national security matters, is on Privy Council terms, and will have the confidence of Parliament and the Government in reviewing these matters and raising any questions. All the amendment does is provide scrutiny for the exemption process by referring a report to the Intelligence and Security Committee, which ensures that the information remains privileged and not publicly accessible. If the Minister is, as he intimated, unable to support the amendment, I urge him to give us confidence about how he would provide assurances.
Kevin Hollinrake
Perhaps I could give the hon. Lady some examples of the kinds of individuals the exemption might apply to. We expect the exemption to be used on very rare occasions, for individuals including, but not limited to, those working for the UK intelligence community or law enforcement agencies. She should bear in mind that the Secretary of State is introducing the provisions. I hope that she will be reassured that the powers will be used sparingly but wisely.
Seema Malhotra
I thank the Minister for his intervention. The issue is not what we assume and hope might happen, but having some checks and balances on the use of powers. It is part of our responsibility on the Committee to think that through.
Dame Margaret Hodge (Barking) (Lab)
That is always the case. Perhaps the Minister will reflect that Usmanov was a case in point. He exploited an exemption to hide some of the information around his ownership. It is worth all of us reflecting on that. Obviously the provision has to be there for good people, but it may become yet another opportunity for bad people. The Usmanov case was a classic one. I think Fedotov was another, if my memory serves me right. Apologies if I have this wrong, but Fedotov was another one who managed to get an exemption in some way. If these things are not done properly, and are not then properly monitored, they can go wrong.
Seema Malhotra
I thank my right hon. Friend for highlighting an important case in point.
Kevin Hollinrake
May I speak to that case very quickly? The Usmanov case was entirely different. A Secretary of State did not introduce legislation providing for a Russian oligarch to move, in that case, billions of pounds-worth of assets to his sister, I think. What we are talking about here is the Secretary of State using a power to remove somebody whose identity is sensitive from a public register—not allowing an oligarch to subvert the regulations.
Dame Margaret Hodge
I think the Minister is right about Usmanov, but on Fedotov I think it was something different. I cannot quite remember the details, but he managed to use an exemption to hide his identity. We raised it last week, and I think that officials were going to come back with a response. They may not have had time to read the letter yet, but that is more the case that one would think of.
The Chair
Order. For the benefit of those following our proceedings, I remind Members of the flow of debate: the Minister will respond to the shadow spokesperson, and the right hon. Member for Barking will have an opportunity to intervene on him then.
Seema Malhotra
Thank you, Ms Bardell. I thank my right hon. Friend for her intervention. To wrap up my remarks on this point, the Minister makes a valid point in relation to the types of cases and the circumstances under which people might be given exemptions, identified on national security grounds. My right hon. Friend makes a good point as well about where things might come through the system inadvertently. That is partly why we have checks and balances.
I take the Minister’s point about individuals who may be working for the intelligence and security community, but he could give us some reassurance by saying that every single Secretary of State in whose hands this power lies in future will consider every case carefully so we need have no cause for concern about that, given the transparency and accountability. We set up systems such that there are ways in which the decisions of Secretaries of State and Ministers have controls, checks and balances around them.
In circumstances in which a Secretary of State might say that a name is too secret to divulge, even knowing whether there has been use of the power—the number of times used and the categories for which it has been used—could still be important information. For example, what if suddenly in future the Secretary of State was determining 10 a month—I am not saying that they would? The Minister and I have no idea who the Secretary of State might be in five or 10 years’ time, so we have no idea whether there might be an abuse of the power. However, sometimes even having the number can be a red flag, because ordinarily we might expect one every three months, so why do we have five a month coming through?
There are therefore ways in which we can have such controls without putting someone’s identity or security—or the nation’s security—at risk. Having some controls over those powers is a big and important theme of the report. I ask the Minister to consider that and to say: “Look, we will consider whether we can have, without it being too onerous a job, some mechanism for controls and reporting on use of the powers, such as through Privy Council routes.” I would then be happy not to press my amendment.
Kevin Hollinrake
I am happy to reflect on that and have further discussion. As the hon. Lady and other Members know, I am keen for Parliament to have scrutiny of any measures that we introduce. We will take it away to consider.
Seema Malhotra
I appreciate the opportunity. I therefore will not press amendment 10.
Amendment 9 agreed to.
Clause 65, as amended, ordered to stand part of the Bill.
Clause 66
Allocation of unique identifiers
Seema Malhotra
I beg to move amendment 102, in clause 66, page 55, line 36, leave out “power” and insert “a duty”.
This amendment would ensure that all directors would be issued with a unique director identifier to be used for all their directorships regardless of whether they or an ACSP form the company.
The Chair
With this it will be convenient to discuss amendment 103, in clause 66, page 55, line 37, at end insert—
“which the registrar must make publicly available on the registrar’s website”.
This amendment would make all unique director identifiers available on the registrar’s website.
Seema Malhotra
The clause expands the existing powers of the Secretary of State to allocate individuals who have had their identity verified with unique identifiers, which are reference numbers used by the registrar to help to identify people. That is of course a welcome step but, following an earlier debate in Committee, there are three key issues that we touched on which I want to explore further: can we have confirmation, first, that each director will have a unique identifier; secondly, that that will be public, whether published as it is or in proxy form, so something is searchable as a unique identifier published for a director; and, thirdly, that all directorships for one person will be searchable under their unique ID?
Amendments 102 and 103 were tabled by my hon. Friend the Member for Aberavon and me. We first made reference to them in the debate on the SNP’s amendments 68 to 70 to schedule 2. Our amendments would amend clause 66. Amendment 102 would ensure that all directors would be issued with a unique director identifier to be used for all their directorships, regardless of whether they or a member of the Association of Corporate Service Providers forms the company, and regardless of other factors. It explicitly seeks to amend the legislation to make it a duty to give a unique ID, not a power. It is possible that the drafting of my amendment does not fully do that, based on this being underlying legislation as well, but that is certainly our intention. The Minister has previously said that he expects that a unique identifier will be given to all directors for all their directorships, but I do not fully understand whether the Minister is guaranteeing that.
Amendment 103 would make those unique IDs publicly available on the registrar’s website, allowing for greater transparency for the general public. Thom Townsend of Open Ownership said that we need to
“think long and hard about how we are using an identity, once verified, persistently in a lifelong way. Australia, New Zealand and India issue unique identifiers to directors—and, in Australia’s case, to beneficial owners—for life, which makes the investigation process much more straightforward.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 62, Q133.]
These amendments, I believe, do just what Mr Townsend recommends: provide unique identifiers, so that any investigation process can be much more straightforward.
I want to go into this issue a little further in light of the Minister’s previous comments. Section 1082 of the Companies Act 2006 states:
“The Secretary of State may make provision for the use…of reference numbers (‘unique identifiers’)”
It is a power, rather than a duty, and the amendments to section 1082 of the Companies Act contained in clause 66 would not change that. The Minister has said that the SNP amendments that we previously debated
“will be redundant once the expanded power under section 1082 is exercised”.––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 3 November 2022; c. 250.]
However, I cannot see where the Bill states that those amendments will effectively be redundant when it comes into force, so I would be grateful if he could come back on that point.
The explanatory notes say that the reason for unique identifiers not being publicly available is “to protect personal information” and to guard against
“the fraudulent use of unique identifiers.”
None of us wants to see the fraudulent use of unique identifiers, and I do take that point, if the argument is about whether those specific unique identifiers are the only solution to this issue. Sometimes, it depends on how unique identifiers are used: if they are used as part of log-on information or something like that, you could argue that there is potential for fraudulent use, but they could also be identifiers that do not really pose any kind of security or other risk to personal information. What we need, if we cut all the way through this, is a reference that would allow someone to link already public information to a single individual.
If having a public unique identifier were a problem for any reason, depending on how the new Companies House systems are put together and what that unique identifier gives access to, there could be other, very easy ways to achieve the same result. I might suggest different options, such as a function allowing people to check what other offices someone held. That already exists on the Charity Commission website, for example, where we can look up trustees of a charity and see what other trusteeships they hold—the entries are linked, and that link is done for the reader. Companies House already seems to try to do that, but cannot do it properly because it does not have the data to link people who are directors of different companies. For example, that is why, as I think the hon. Member for Glasgow Central noted, she had one appointment that came up three times—or was it the other way around?
Seema Malhotra
Right, her name is registered three times, rather than having one entry noting that she has three directorships. With identity verification and the issuance of unique identifiers, Companies House will know exactly how many directorships an individual has. Companies House may plan to update pages showing people’s total directorships once it issues unique identifiers, but that certainly is not clear.
An alternative is to have some form of proxy ID, which is becoming increasingly common. That is a unique ID linked to the director’s unique ID, which can keep the director’s ID itself private, but has a unique public identifier that is searchable and uniquely linked to the underlying identifier. That happens increasingly for email addresses, for example, when someone may not want their email address to be public, so a pseudo or proxy address is created so that the one that someone might publicly enter and others might publicly see is not the underlying email address, but is uniquely linked to it. There are ways in which technology can be used simply and easily. That is not a high-cost option and it can be built in to have what we need for public purposes—a unique identifier for a director that links all their directorships, if published, and is searchable.
I hope that those constructive suggestions and the way we laid out our reply when the Minister asked in a previous debate what we were not fully happy with in clause 66 mean that things are perhaps clearer. I look forward to the Minister’s response.
Alison Thewliss
I support the excellent amendments tabled by the hon. Member for Feltham and Heston. It is incredibly important that clarification is given through the register, for a number of reasons. A unique identifier that follows a person through their whole life as a company director is important. I mentioned before that I appear in the register three separate times. It would make sense for that to be consolidated in one entry so that people could see the course of that.
The identifier should go through all of the directorships that people have. We know—it has been raised previously in Committee—that some directors have many hundreds, or even thousands, of directorships to their name. It seems sensible to have clarity to ensure that they are the same person. A name such as mine is reasonably unusual—it is quite easy to find—but if a John Smith is on the register, it is much more difficult to establish that they are the right John Smith, the one who is the director of a company. Therefore the identifier becomes all the more important, particularly if that person changes their name. If Jane Smith becomes Jane Jones through marriage, it becomes more difficult to chase her through the register. It would therefore make sense, particularly for women, who are most likely to change their name, but also for other people who may change their names for a variety of reasons—perfectly honest ones, or, in some cases, to divert attention from their previous directorships, perhaps, or any previous misbehaviour—that that person’s ID should follow them around. Anybody doing due diligence on that person as a director could then find them on the register quite easily.
That goes to the point made by my hon. Friend the Member for Paisley and Renfrewshire North about phoenixing. If a company director has been involved in many phoenix companies, it would make sense for people to know that, and to know that they might well carry out that behaviour in future. It would enhance the clarity of the register against such fraud and poor behaviour. The example that the hon. Member for Feltham and Heston gave, of the Charity Commission register, was a good and relevant one, because it is about somebody’s appropriateness and that wider sense of understanding somebody’s behaviour through the register.
It is very important to make the change from “power” to “duty”. A person can have the power to do lots of things, but if they have no obligation to do them, that is quite a different scenario. Lots of the issues that the Companies House register has got itself into are down to those duties not having existed. It is important that those duties exist, and that we set them down in the Bill. I am not hugely confident that what we are talking about will happen if the duties and responsibilities are not set down in law. Future Ministers may decide not to bother with them. I am sure that the Minister would; future Ministers might not.
It is incredibly important that we do everything we can to make the Bill as tight as possible, and that we take all precautions against the abuse of the register. We must get rid of those abuses. We must make a better register, and better legislation, to ensure the integrity of the register in the future.
Kevin Hollinrake
I think that we are trying to achieve the same thing, just in different ways. We discussed this issue at length in previous sittings. Companies House is already actively working on unique identifiers. It is not credible to think that, having legislated for them, we will not implement them. A basic principle of the Bill is to be able properly to link individuals on the Companies House register, so that company directors have a better experience and so that it is easier for the public to identify the connection between directors, including persons of significant control, and companies.
Dame Margaret Hodge
I accept that great progress has been made in the Bill, but addresses and personal details are also important. We know the way in which addresses are exploited: people put 3,000 companies into one address. That is relevant information that Companies House needs to have.
Kevin Hollinrake
Addresses are not covered by the amendment, although we discussed the verification of addresses at length the other day. We think we have struck a fair balance in terms of a company address. The shadow Minister seems to be saying that she wants the unique identifier to be searchable; we think that the person’s name should be public and searchable. I did not quite understand her point about people hiding their email addresses or names, and searching by unique identifier, rather than the other way around. We think that the searchable entity should be the person’s name, and the Bill would then make it easier to see the connections between a director’s name and the different companies with which that person is connected.
Seema Malhotra
The example was given of the number of John Smiths there might be. There might even be a number of Seema Malhotras, but I do not know that there are as many.
Seema Malhotra
I think I found three. For the most part, the Minister’s arguments are very strong, but he is on very weak ground here. Is he seriously saying that if someone genuinely wants to see Mr John Smith’s directorships, they will have to spend three hours going through all the John Smiths? Would that be enough time to de-duplicate and link the right ones together? That is crazy. There is a much simpler solution. It would do the job, and bring us in line with other countries.
Kevin Hollinrake
I am not aware of the countries to which the hon. Lady refers. How would someone know the unique identifier so as to be able to search by that record? What someone will recognise is the name of the person, whether it is Usmanov or another name. That is likely to be the search term that people use, so we think that, for the public view, the most important link is the name. That would also have some implications in terms of potential fraud.
The unique identifier is there to do exactly what the hon. Lady and the hon. Member for Glasgow Central want it to do: it creates a connection behind the scenes, in Companies House, so that a simple search can reveal the connection between a person and all the different companies. That is how it works: we search by the names. We think that is the best way around. She wants to search by the unique identifier.
Seema Malhotra
May I kindly suggest that the Minister ask his officials more about how the unique IDs that are used in Australia, New Zealand and India are working, and whether there is something we might learn from them? If he has not been briefed on that already, it might be a useful step for him to take.
On the Minister’s second point, he is absolutely right that we usually start with a name. We might start with “Mr Kevin Hollinrake, Thirsk and Malton”, but we would then find his unique identifier and be able to use it to link him with the hundreds of other entries for Kevin Hollinrakes—perhaps some of them even live in Feltham and Heston—and see whether they are the same person.
If the Minister is unclear about what I referred to as a proxy identifier, I am happy to take that offline. It is a simple measure used for security reasons, and it is basically like having a “known as” name. Everyone might know the Minister by a nickname, but people will always be able to identify him, because the unique identifier is linked solely to the underlying email address or ID. It is not publicly the same, but it is uniquely linked, so that someone who uses one will access the data of the other.
Kevin Hollinrake
I am happy to look at the international examples that the hon. Lady mentions, and at the generic name issue. I think that is a fair point, and I have already asked officials to look at how that might work in the case of John Smith and the like. I have just done a quick search on one of my previous co-directors, Harry Hill, who has quite a generic name. If we put in “Harry Hill, Hunters, Companies House” it brings up the Harry Hill that is associated with me, not another Harry Hill. There are simple ways to make connections involving names such as John Smith. I will come back to the hon. Lady with an answer on that if I can.
We do not think that changing the power to a duty would have the desired effect of obliging people to have unique identifiers in the first place. That will be achieved by mandatory provisions including the regulations under the power contained in section 1082 of the Companies Act.
Seema Malhotra
I would appreciate it if the Minister came back to me on that point, because I am not clear that section 1082 of the Companies Act, as amended by the Bill, will achieve what he thinks it will. I want a clear answer about whether all directors will have a unique identifier under the new regime. That is question No. 1, and everything else follows from that.
Kevin Hollinrake
Yes, they will. That is exactly what the Bill provides. It is a mandatory provision, including the regulations under the power contained in section 1082 of the Companies Act. Those two things combined will ensure that Companies House provides a unique identifier for every company director and for every person of significant control. I think that is what the hon. Lady hopes to achieve.
Let me turn to amendment 103. Unique identifiers will be a tool to help Companies House to link an individual’s verified identity across multiple roles and company associations. For example, if an individual is a director for company A and also a person with significant control for company B, Companies House will be able better to link those appointments using the unique identifier. The identifiers should not be made public, in our view. Their purpose is to allow the person who is assigned the identifier to communicate securely and privately with Companies House. Making the unique identifiers public would, in our view, compromise their use, because they could be appropriated and misused by anyone looking at the register, including potentially to commit identify fraud and other crimes. However, Companies House will be making changes to how members of the public view the register, enabled by unique identifiers, so it will be possible accurately to see connections between individuals and entities, including how many companies an individual is a director of, or how many companies a person has significant control over. On that basis, I hope hon. Members will withdraw their amendment.
Seema Malhotra
I thank the Minister for his remarks. The matter is so important that we will want to push the amendment to a vote. It may be that what the Minister has just said on Companies House’s intentions resolves some of the issues in the end. What has been stated will happen, but we need to go further to be clear about when and how that will happen.
Question put, That the amendment be made.
Kevin Hollinrake
I beg to move amendment 10, in clause 67, page 56, line 3, after “subsection (1)” insert “—
(a) in the words before paragraph (a), after ‘not’ insert ‘, so far as it forms part of the register,’;
(b) ”.
This amendment spells out that section 1087 of the Companies Act 2006 is only concerned with information on the register of companies.
Kevin Hollinrake
Clause 67 amends section 1087 of the Companies Act 2006 to extend the list of registered material unavailable for public inspection to include
“any statement delivered to the registrar”
to confirm compliance with identity verification requirements, which means that statements delivered to the registrar concerning identity verification will stay private, protecting personal and sensitive information. Government amendment 10 clarifies that section 1087 is only about withholding from public inspection the portion of the registrar’s records concerning companies. Other provisions elsewhere in legislation provide for the withholding from public inspection of the portion of the registrar’s record pertaining to other entities, such as limited liability partnerships and limited partnerships.
Seema Malhotra
We have very few remarks to make. As the Minister has outlined, clause 67 amends the Companies Act to extend the list of material unavailable for public inspection to include
“any statement delivered to the registrar”
under the provisions listed. I make the general comment that we want to have greater clarity on this matter so that we do not inadvertently find ourselves, through the legislation, in a situation whereby director, shareholder or officer information becomes hidden for all the reasons outlined in the Bill. The clue is in the name—it is about corporate transparency. I am making a broad point about concerns of reducing transparency when we are here to increase it.
Amendment 10 agreed to.
Clause 67, as amended, ordered to stand part of the Bill.
Clause 68
Requirements for administrative restoration
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
New clause 45—Striking off a company: identity verification—
“(1) The Companies Act 2006 is amended as follows.
(2) After section 1003 (striking off on application by company) insert—
‘1003A Striking off on application by company: identity verification
Before striking off a company under section 1003, the registrar must first, in the case of each individual named as a director of the company—
(a) confirm that the individual’s identity is verified (see section 1110A), or
(b) confirm that the individual falls within any exemption specified in regulations made under section 12(2A)(b).’”
This new clause would extend directors’ Identity Verification requirements to dissolving a company in addition to registering a company.
New clause 46—Application for administrative restoration to the register—
“In section 1024 of the Companies Act 2006 (application for administrative restoration to the register), for subsection (3) substitute—
‘(3) An application under this section may only be made by a former director, former member, former creditor or former liquidator of the company.’”
This new clause would make it possible for a creditor or liquidator to apply to restore a company administratively.
Kevin Hollinrake
Clause 68 amends section 1025 of the Companies Act 2006 to require that outstanding fines or financial penalties must have been paid for a company that has been previously struck off to be restored to the register. I thank the hon. Members for Feltham and Heston and for Aberavon for new clauses 45 and 46.
First, new clause 45 seeks to ensure that before striking off a company, the registrar must check whether the named directors have had their identities verified or do not need to do so because are they are exempt. Secondly, there are two routes by which a dissolved company can be restored to the register: one is an administrative process involving application to the registrar; the other involves applying to the court to order restoration. New clause 46 would expand the categories of persons who can use the administrative route by allowing former creditors and former liquidators to apply to the registrar for a dissolved company to be restored to the register. At present, only former directors or members of the company can apply to the registrar. Creditors of the company at the time of its striking off or dissolution and former liquidators currently have access to the court application route under section 1029 of the Companies Act 2006.
While I appreciate that in comparison to the administrative route, the court route is more cumbersome and potentially costly, it exists for a reason. Where a creditor seeks restoration in an effort to prove a debt outstanding from a company, the court is best placed to determine the validity of the case. Opening the administrative restoration route to creditors would place the registrar in the position of having to judge the legitimacy of a creditor’s interest in a company. That is not and should not be the role of a registrar.
However, liquidators are a matter of public record and in many cases might be the official receiver. I appreciate that there may be instances where their interests in restoring a company might be in the wider interest of others, including potential creditors, and that there may be a case for giving them access to the less cumbersome administrative process. On the basis of our undertaking to consider the matter further, I shall be grateful if hon. Members do not press the new clause.
Although driven by good intentions, we believe that new clause 45 is unnecessary. As the Committee has heard, ID verification requirements will apply to all new and existing registered company directors, as well as to people with significant control and those delivering documents to the registrar. That means that directors and beneficial owners already on the register prior to the reforms coming into force will be covered by the ID verification requirements, although they will have a transition period within which to become compliant.
Directors of companies applying for strike-off under section 1003 of the Companies Act 2006 will therefore not evade verifying their identity before their company is struck off without exposing themselves to criminal liability. Crucially, anyone delivering an application to strike off a company to the registrar will also have to verify their identity. I hope that that explanation is appropriate, and provides such reassurance that hon. Members will consider not pressing the new clauses.
Stephen Kinnock (Aberavon) (Lab)
It is a pleasure to serve under your chairship, Ms Bardell.
Clause 68 makes welcome changes to the Companies Act and should make it easier to enforce penalties imposed in response to criminal breaches under it. The circumstances under which an application can be made for a company struck off the register to be restored to it are set out in section 1025 of the Companies Act. Clause 68 amends section 1025 to make it clear that, as a prerequisite for any such application, any outstanding fines imposed on the applicant and relevant company directors in relation to a criminal offence under the Companies Act must be paid in full. That is a positive step toward increasing levels of compliance with companies legislation in the UK.
The Minister may wish to clarify one point in relation to company directors convicted of criminal offences. In previous sittings, the Committee discussed the grounds on which someone can be disqualified from serving as a company director under the Company Directors Disqualification Act 1986 and subsequent amendments. They include the disqualification of individuals guilty of persistent breaches of companies legislation. That appears to leave the door open for someone to serve as a director, even if they have committed a criminal breach of the legislation, provided they have not done so on multiple separate occasions.
Will the Minister tell us whether the Government considered extending the criteria so that anyone with even a single criminal conviction related to companies legislation would be prohibited from serving as a director again? Does he believe that it might send a stronger message were the Government to adopt a zero-tolerance approach to these kinds of crimes? I hope that he will come back on that point. It has some relation to new clauses 45 and 46, and I look forward to the remarks of my hon. Friend the Member for Feltham and Heston on them.
Clause 69 establishes—
The Chair
Order. We are not there yet. The hon. Member is getting a little ahead of himself.
Stephen Kinnock
I am getting a bit excited. Sorry, Ms Bardell. I will leave it at that.
Seema Malhotra
I am grateful for the opportunity to speak to new clauses 45 and 46, following the remarks of my hon. Friend the Member for Aberavon. He and the Minister highlighted how clause 68 amends the Companies Act and provides that outstanding penalties will need to be paid by applicants or directors for a full strike-off. If I am correct, section 1025, which the clause amends, is about applications for administrative restoration by a former director or member—a shareholder—whereas a creditor would use a separate process under section 1029 to restore a company to the register. That is not being amended by the Bill and does not require payment of outstanding fines.
Kevin Hollinrake
As I said in my remarks, anyone delivering an application to strike off a company to the registrar would have to verify their identity. I do not see how that is not clear.
Seema Malhotra
I thank the Minister for that intervention. If he means that the aims of the new clause are already included in the proposed operation of the system, that is helpful clarification.
Currently, when companies are struck off the Companies House register, very little is done to check whether fraud has occurred and, in turn, that means that there are few repercussions for the directors of those companies. On average, 400,000 companies are struck off the register each year, so perhaps the Minister could go one step further and clarify whether such ID verification will apply to all directors of companies that are struck off. How will that happen if there are no unique identifiers? If wrongful actions are committed, will the proposed regime go one step further to ensure that red flags and investigations into possible misconduct or fraudulent activity will ensue? At the moment, unscrupulous directors are likely to misappropriate the strike-off process to avoid scrutiny and to rack up debts or to sell company assets ahead of the company dissolution, effectively absconding with the proceeds. Our new clause does not just call for a check on IDs but for red flags in the system to alert authorities to possible fraudulent activity that should be subject to further investigation. The Minister may want to respond to that suggestion later.
As I have outlined, creditors may seek to apply through the courts for a company to be restored, albeit under different legislation. New clause 46 would enable a creditor or a liquidator to apply to restore a company administratively. I believe it would be helpful to the Minister’s considerations to outline our intentions. The introduction of director identity verification may go some way to deterring directors from registering multiple companies fraudulently, but in the case of companies already struck off the register, there is limited opportunity to hold directors accountable for their wrongful actions and for returns to their companies’ creditors.
Members of the insolvency and restructuring trade body, R3, report that director disqualifications have little or no effect on fraudulent directors. It is absolutely shocking that the system has been allowed to continue in that way. There is little or no effect on fraudulent directors, and seriously rogue directors will often go on to commit repeat frauds despite being disqualified.
Those directors who have been disqualified may continue to operate behind the scenes as de facto directors, shadow directors or advisers to a company. We are trying to close some of those options, but there are all sorts of ways in which those who want to get around the system can do so if determined. Hence the need for the legislation to be more belt and braces.
A much more significant deterrent occurs when the company is put through an insolvency process and directors are held to account for the assets that have been misappropriated. If a company has been dissolved and automatically struck off the Companies House register—the company therefore no longer exists, in effect—that process can only take place if the company is first restored. However, if a company’s former creditors or liquidators at the time of the company’s striking off or dissolution wish to apply to restore the company, they must do so through the court.
The court process can clearly deter creditors as it is sometimes a complex procedure, in part due to the costs, which are typically £1,500 to £3,000, and in part due to the huge amount of time involved, which can be 12 to 18 months. Businesses are busy, creditors are busy, and the extra strain has to be weighed up against the cost of doing it. We have to have a solution. I am glad that the Minister has intimated that there ought to be a basis for what I think he described as a “less cumbersome” process. I agree. I hope that we will see some proposals, perhaps in Committee. It would be helpful to strike while the iron is hot.
Directors are all too easily able to create a significant barrier to the investigation of their conduct. Indeed, data from Companies House shows that only 2% of dissolved companies are put through a process to restore them to the register each year. I do not have the data on the number of creditors who might do so were it a less cumbersome process, but I think we can all agree that it would be far more than 2%. Certainly the research suggests that.
Under section 1024 of the Companies Act, former directors or members of a company can apply to restore a company administratively, avoiding a court process. However, that is not an option for a former liquidator or creditor of a company. New clause 46 would amend section 1024 so that a former creditor or liquidator could apply to restore a company administratively, without the need for a potentially lengthy and costly application to court. That would make it simpler for a company to be put through an insolvency process so that the company’s directors can be held to account for the assets that have been misappropriated and incur liability for their actions. Returns to creditors could then be made.
I hope that the Minister will, in his reflections, consider the wording of new clause 46. It might help him on the way to finding a simple solution. There is a real issue here. In the interests of fairness to businesses and creditors that do the right thing but are treated unfairly, it should not be so hard to bring to account those who had clearly planned to be struck off, more quickly, cheaply and easily.
Kevin Hollinrake
On the hon. Lady’s legitimacy argument, as I said, we can understand that there might be a case about liquidators. We have committed to look at that. It is much more difficult in the case of creditors’ interests. She talked about the misappropriation of funds, but it is not the registrar’s position—the registrar is not deemed capable—to determine whether that is the case. I do not see how a creditor’s interests can be decided on by the registrar. However, I commit to us looking at the liquidator element.
On the issues the hon. Lady has mentioned with respect to Companies House and new clause 45, the requirements under the objective at the start of the Bill make it clear that the registrar’s responsibility is to minimise unlawful activities. On whether a striking-off in certain circumstances is a red flag, there will be a number of ways in which that can be determined, either through automated processes or by human intervention. It is not realistic for the registrar to determine fraud, but it is definitely within her capability to determine whether there is a red flag around fraud. We expect the registrar to put those measures in place; in fact, there is a requirement for her to do that under objective 4— minimise unlawful activities.
We have had debates at length in previous sittings on whether we should dictate to the registrar how she should do that, with myriad conditions and circumstances involved and discussion as to what constitutes a red flag. On this side of the Committee, we believe that we should leave it to Companies House to determine how the registrar minimises unlawful activities and what constitutes a red flag. That, of course, will be shared with relevant enforcement agencies.
Seema Malhotra
I know the Minister is not intending to, and I would not want him to, misrepresent our position, but the difference between our views is generally whether there should be greater tools and provision in legislation to give the registrar teeth that might be helpful in her work. The Minister is right that it would not be for the registrar to determine fraud, but that there should be a red flag system whereby the registrar is uniquely in a position to be able to determine that.
Kevin Hollinrake
We are in total agreement—violent agreement—which is great.
The hon. Lady made a point about shadow directors. There are all kinds of ways in which a nefarious individual can influence the behaviour of a company, for which we cannot possibly legislate. There is no such thing as, and no legal status of, a shadow director. Therefore, how would we ban somebody from being one? We have to operate within the boundaries of the law. That is what we feel, and we have reached a fair balance here. I hope the hon. Lady will not press her new clauses to a vote later in the proceedings.
Question put and agreed to.
Clause 68 accordingly ordered to stand part of the Bill.
Clause 69
Delivery of documents: identity verification etc
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
The clause introduces identity verification requirements for individuals delivering documents to the registrar. It also requires that when an individual acts on behalf of another, they must confirm that they have the authority to do so. That will enable the registrar to reject documents unless they are accompanied by a true statement that the identity of the individual filing the document is verified and that the person filing the document is authorised to file.
An individual who delivers a document to the registrar on their own behalf must have their identity verified, and the document must be accompanied by a statement confirming their verified status. If an individual is exempt from identity verification requirements under the clause, they must provide a statement to that effect when delivering a document. Documents delivered on behalf of another person must be accompanied by a statement that the filer is authorised to do so. A document delivered by an employee of an authorised corporate service provider must additionally confirm that they are acting in the course of their employment.
Ensuring that individuals are identity verified before they can deliver documents to the registrar and that they are permitted to do so provides greater accountability because the documents will be traceable back to a verified identity.
Clause 70 creates a prohibition on delivery of documents to the registrar by disqualified persons. Clause 71 enables the registrar to reject documents that have been delivered by people who are not within the categories permitted to file documents under clauses 69 and 70.
Stephen Kinnock
Clause 69 establishes a requirement for anyone delivering documents to the registrar to have their identity verified, subject to certain exemptions, which may be set out in secondary legislation. However, it is not clear in what circumstances the Government might consider an exemption appropriate. The requirement for any exemption to be set out in secondary legislation subject to the affirmative procedure is welcome, because it enables the relevant changes to be scrutinised by Parliament. Nevertheless, it would be helpful if the Minister could provide an indication of what sort of exemptions might be expected.
Clauses 70 and 71 relate to the delivery of documents to the registrar. Clause 70 stipulates that disqualified individuals may not deliver documents on either their own or someone else’s behalf. As set out in the clauses, individuals delivering documents to the registrar will be required to make a series of statements confirming that they are not subject to any disqualification under companies legislation.
Kevin Hollinrake
The hon. Gentleman asked me for examples of exemptions. We expect exemptions to be used rarely, but examples might include Government Departments, local authorities and international organisations where the identity and accountability of the organisation delivering the information carries little risk.
Stephen Kinnock
I thank the Minister for that clarification. Assessing the meaning of “carrying little risk” is a subjective thought process, but he is right that not everything can be micromanaged in this process. We will probably never get absolute clarity on these issues, but it will be important that Parliament scrutinises the way in which exemptions are implemented so that we get to know what “little risk” means through their implementation. It will also be important for Ministers to keep a close eye on the risk management processes that need to be implemented. As the Minister rightly said, legislation without good implementation is not worth the paper it is written on.
In previous debates, this Committee has discussed issues involving the verification of information provided to Companies House and the enforcement of criminal penalties for those who fail to comply with requirements to provide truthful information. These clauses raise similar questions. For instance, could the Minister explain what actions the registrar will be able to take to verify that, if somebody delivering documents states that they are not acting on behalf of a disqualified individual, that is a true and accurate statement?
The clauses also relate to issues discussed by the Committee on authorised corporate service providers. We all want this Bill to make it much more difficult for the people who own or control companies to hide their identities behind layers of secrecy, which often take the form of corporate service providers or other individuals acting on behalf of those in control. It would be helpful if the Minister could provide more detail about how the Government plan to protect the system against abuse, particularly by third parties acting on behalf of criminal clients. Could he tell us, for instance, whether the Government have considered introducing a more proactive licensing system for corporate service providers—as is used by some other jurisdictions, including Jersey—and what assessment the Government have made of whether the Bill provides adequate safeguards against the submission of false statements to the registrar?
Kevin Hollinrake
I think the hon. Gentleman asked me to address two points. First, he asked how we will ensure that the documents filed are accurate. That goes back to the risk-based approach that the registrar should take on potential red flags and other such matters. Obviously, that role fits into the registrar’s wider objectives of ensuring that the information is accurate and minimising unlawful activity. It is a red-flag approach in terms of systemised and human intervention.
The hon. Gentleman’s second, wider point was on the penalties for false filing, which are up to two years in jail. I think most people will consider that to be a decent deterrent against abuse of the system.
Stephen Kinnock
I thank the Minister for that clarification. Does he have a view on the question of a more proactive licensing system for corporate service providers, along the lines of what is done in Jersey? Have the Government made any assessment of whether the Bill provides adequate safeguards against the submission of false statements to the registrar, particularly by corporate service providers?
Kevin Hollinrake
I fully recognise the concerns expressed across the Committee about our oversight of corporate service providers. As I say, we should not mix up the many bone fide companies and household name accountants and lawyers, but clearly there are concerns, for example about some company formation agents. We need to ensure that the system that supervises money laundering is much more effective—we know there are deficiencies. The Treasury is looking at that right now. It will report and say exactly what it will do to beef up the system and make sure it is more fit for purpose. I am taking a keen interest in that. I am just as keen as the hon. Gentleman and other Members that the system properly identifies people with shortcomings and identifies wrongdoing, and that we build a much better system of money laundering supervision.
The hon. Gentleman mentioned licensing. Let us see what the Treasury review says and then we can make judgment. In terms of oversight of the money laundering supervision system, I am as concerned as he is and as keen to make sure that that system is fit for purpose.
Stephen Kinnock
I thank the Minister for that clarification. Will he assure us that he will encourage his colleagues at the Treasury to consider the option of a licensing system within the terms of reference of the review?
Kevin Hollinrake
I am keen to make sure that the system works, whether by licensing or by some other means. There are lots of different options for what might be described as a system that is fit for purpose. Of course, in common with all Members of this House, we are keen to avoid unnecessary bureaucracy, but nevertheless we want a system that works and that we have faith in, so, in my view, all options should be on the table.
Alison Thewliss
I have a small query and seek clarification from the Minister. In clause 69(3), proposed new section 1067A(2) states:
“An individual may not deliver documents to the registrar on behalf of another person unless—
(a) the individual’s identity is verified”.
Will the identity of those entitled to deliver documents be added to the register, and will they have to be separately verified? I am not clear on the mechanism.
Kevin Hollinrake
Will the hon. Lady ask the question again? I did not quite get it.
Alison Thewliss
Yes, of course. I understand that if someone is delivering documents on behalf of themselves, there will be a check to see whether they are verified, but if someone is delivering documents on behalf of somebody else, the Bill seems to say that they also need to be verified. Is that subject to a separate verification list? That person would not be registering to be a company director in their own right; they would be delivering the documents to register somebody else, so is there now going to be a separate list for that?
Kevin Hollinrake
I think I have understood the hon. Lady’s question. Clearly, all directors and company service providers need to have their identity verified too. If that is what the hon. Lady is referring to, that is absolutely contained in the provisions of the Bill.
Dame Margaret Hodge
I was very interested in what the Minister said about ensuring that the authorised company service providers should be checked and supervised properly. It is really important to ensure that all the details of the individuals on the register can be found with certainty. However, we are all struggling with how to do that in quickest, most cost-efficient and effective way. Does the Minister agree that a suitable mechanism should be presented on Report—unless he would like to suggest one now—that does not waste time, keeps within the timeframe, does not require massive additional resources and enables swift action to be taken? I love the Treasury, but we should do this without having to wait for a Treasury review or reorganisation. Does he accept that that might be a way forward? We all want the same thing, and if we do not get this right there could be a huge flaw in the system we are establishing.
Kevin Hollinrake
We are on the same page about ensuring that the system is fit for purpose. It is difficult for me to do a review when the Treasury itself is doing one and is probably better placed than I am to do it, given its wider understanding of the system.
Kevin Hollinrake
Perhaps it might not be as ambitious as me, but it certainly has access to detailed information and the resources to properly conduct the review. The Treasury should be allowed to do that job.
I think that we are all on the same page. I am absolutely committed to ensuring that the system is fit for purpose. It is not a case of just getting the Bill passed; we need to ensure its implementation, as I have said many times in the House and in Committee.
Liam Byrne
I am sorry to intervene, but the Minister provokes me. A point to take away is that we are now bedevilled by a real problem in this country: responsibility for policing this area is divided between the Minister, the Treasury, the Foreign, Commonwealth and Development Office and the Bank of England. At the moment, as the Foreign Affairs Committee has said repeatedly, there is not an effective gearbox for joining those things together. If one of the Minister’s legacies could be to fix that problem, he would be cheered from all sides.
Kevin Hollinrake
God forbid that the Government work in silos, whoever is in power, but they do tend to do so at times. I am on the same page as the right hon. Gentleman and other Committee members that we must have a joined-up approach right across Government. The systems of supervision of money laundering must be fit for purpose, tight, verified and checked, and the people who do not do it right must be held to account. We must ensure that we get that right, and I am fully committed to that.
Question put and agreed to.
Clause 69 accordingly ordered to stand part of the Bill.
Clauses 70 and 71 ordered to stand part of the Bill.
Clause 72
Delivery of documents by electronic means
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
I hope that the clauses are pretty uncontroversial, but let us see. Companies House systems are already enabled to receive digital account submissions. The clauses will help Companies House to become a fully digital organisation by 2025.
Clause 72 transfers the power to require delivery by electronic means from the Secretary of State to the registrar. Filing information digitally is easier, quicker and more secure for filers. The information can be more easily checked for accuracy and compliance, and is less likely to be rejected for basic errors or omissions. That increases transparency. Suspicious activity can be better identified, contributing to our efforts to detect and prevent economic crime.
Clause 73 will require companies to deliver to the registrar a copy of a court order confirming their share capital reduction, rather than the original document itself. Clause 74 does the same in respect of a declaration of solvency. Clause 75 gives the registrar an administrative power to specify, in registrar’s rules, where documents must be delivered together.
Requiring companies to file component parts together will make it easier for Companies House to check that companies are meeting their filing obligations. It will also reduce unnecessary errors. Where filings are made that do not meet the requirements, they can be rejected, helping to improve the integrity of information on the register.
Stephen Kinnock
The main purpose of clause 72 is to make it easier for future changes to registrar’s rules to be made by the registrar directly, rather than through the Secretary of State. The Government’s intention is to facilitate the electronic delivery of documents. Using quicker, more efficient electronic systems for delivery should play an important role in wider plans for the transformation of Companies House and the service it provides.
With that in mind, could the Minister say a bit more about how the provisions fit into the ongoing Companies House transformation programme, particularly in relation to the planned new IT system? When might the fully electronic system for the submission and processing of documents submitted to the registrar be in place? We would be grateful for the Minister’s comments, particularly about timing.
Kevin Hollinrake
Companies House already has the capability to accept documents filed digitally—89% of companies already do that. Therefore, it is not an IT development requirement; it is just a requirement for companies to file documents digitally rather than using paper. It puts the onus on the companies rather than on Companies House itself.
In relation to authenticity, we are again back to the red-flag approach. Companies House has a requirement, an objective, to oversee the integrity of the register. There is definitely a risk-based approach to that. The aim is to try to put the red flags in place to ensure that we are identifying documents that are not authentic. Also, there are penalties for false filing of documents, which I think we went through previously.
Alison Thewliss
I have a brief point on a technical issue. It was flagged in evidence that some documents submitted electronically or posted on the Companies House website in electronic format were image files rather than searchable documents. I wonder what consideration the Minister has given to mandating the type of files that can be filed electronically, because it would make sense to accept them in a format that can then be searched online.
Kevin Hollinrake
The hon. Lady makes a good point. I do not know the detail behind that, but I am happy to go away and look at that for her.
Question put and agreed to.
Clause 72 accordingly ordered to stand part of the Bill.
Clauses 73 to 75 ordered to stand part of the Bill.
Clause 76
Power to reject documents for inconsistencies
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
Clauses 76 to 79 support the Bill’s overarching ambition to broaden the powers of the registrar to maintain the integrity of the register. Clause 76 provides a new power to reject documents for discrepancies. Currently, the registrar must accept documents if they have been properly delivered—that is, they meet the requirements as to their contents, form, authentication and manner of delivery, and the other requirements listed in section 1072 of the Companies Act 2006.
Documents containing information that is at odds with information that the registrar holds may none the less meet “proper delivery” requirements in their own right. If so, they must be placed on the register despite the apparent inconsistency. This clause cures that problem by enabling the registrar to reject a document if it appears to be inconsistent with other information that is held by or available to the registrar. The power is available if, due to the inconsistency, the registrar has reasonable grounds to doubt whether the document complies with the requirements as to its contents.
Dame Margaret Hodge
This is a question to aid understanding. This provision sets out the duties of the registrar in relation to documents, but the documents will actually be checked by the company service providers, will they not? That will be outsourced to those providers. I might be wrong—the Minister is looking puzzled—but that is the case if I read the situation correctly. Therefore, is this provision suggesting that there will be a check at Companies House on the work that the company service providers do? Perhaps the Minister can say a little about how that will be implemented. I thought that all that was to be pushed out to the company service providers.
Kevin Hollinrake
Not at all—quite the opposite. Companies House has a requirement to oversee the integrity of the register, and the clause states exactly that. If the registrar feels there is an error that she is not happy with in the document, or it is inconsistent, she can reject the document whether it is filed by a company service provider or by a director of the company.
Dame Margaret Hodge
For complete clarity, there will be a risk-based system of checks on documents provided as a mechanism for ensuring the accuracy of the documents that are submitted.
Kevin Hollinrake
Absolutely. That is exactly how we expect it to operate.
Once the registrar refuses the document, it will be treated as not having been delivered. Under clause 77, the Companies Act 2006 allows the registrar, upon receipt of an instruction from someone else and only with the relevant company’s or other body’s consent, to correct a document at the pre-registration stage if it appears to be incomplete or internally inconsistent. That power was useful when more companies filed on paper, as informally correcting material was easier than rejecting a document and waiting for it to be refiled. However, in the digital world, filings can now be rejected, returned to the filer and then refiled within minutes. There is no longer a need to informally correct a document pre-registration. Clause 77 therefore removes that power, which also encourages accuracy in filing by removing the expectation that a document can be informally corrected.
Clause 78 reduces the period of time for which the registrar must keep originals of documents that have been delivered in hard copy from three years to two years. Once that period has passed, the original documents can be destroyed as long as the information they contain has been recorded. The retention period that was previously reviewed was reduced from 10 years to three years when the Companies Act 2006 replaced the 1989 Act. The number of requests for the retrieval of filings has decreased further and steadily since then due to declining paper filings, improved image capture processes and increased confidence in digital records. It is therefore right to reduce the retention period again. The information in the documents will still of course be available electronically to users as appropriate.
Clause 79 amends the period for which the registrars in each UK jurisdiction must maintain certain records available for public inspection. The records in view are those concerning dissolved companies, including certain information regarding PSCs of dissolved companies, overseas companies that have ceased to have any UK connection, and overseas credit and financial institutions that have ceased to be required to file accounts with the registrar. The clause provides that those records can be moved to the Public Record Office two years after the relevant date of dissolution or cessation.
Dame Margaret Hodge
May I ask a question on that? It is relevant to later amendments. I do not know whether the Minister or his officials can help, but can Companies House stop a request for dissolution?
Dame Margaret Hodge
I think it can. I have tried to find its powers and cannot find them. The great example is the Savaro one. It was the UK-based company that owned the warehouse where the fire took place in Lebanon. It tried to dissolve the company, but I think the Minister intervened. I have looked up Savaro and it does still exist. It is quite important if we have a dirty company that wants to rush away. Do we have powers to dissolve it?
Kevin Hollinrake
I am happy to raise that with officials and come back to the right hon. Lady. [Interruption.] There is some flapping about right there, as I speak.
Kevin Hollinrake
Yes, the registrar can decline an application if it does not satisfy the requirements—[Interruption.]
The Chair
Order. If Members could refrain from shouting across the room, out of respect to our colleagues at Hansard and those watching proceedings, that would be greatly appreciated.
Kevin Hollinrake
The clause also provides that the registrar need not make these records available for public inspection 20 years after those dates.
Seema Malhotra
I will speak to clauses 76 to 79. I thank the Minister for his comments. He has outlined that clause 76 would amend the Companies Act 2006 to give the registrar the power to reject documents that are not consistent with information held by the registrar and that give the registrar reasonable grounds to doubt whether the document complies with Companies House requirements.
A document that is refused under this power is treated as not having been delivered. These clauses will apply to all documents filed with the Companies House registrar. Such documents could include the annual confirmation statement—formerly the annual return—the annual accounts, forms appointing or terminating directorships, applications to register a charge or the filing of changes to the articles of association. The broad list can be found on the Government website under the postal forms that a limited company can file with Companies House.
Clause 76 is a welcome measure that should help Companies House transition from passive administrator to active agent as regards the information submitted to it. Will the Minister expand on how the registrar will be alerted when inconsistent documents are submitted? Have there been discussions with the registrar about the process by which inconsistencies will be checked? The Government may be considering a risk-based approach such as automatic flagging, but it would be helpful to clarify how the system is likely to work and be implemented.
I was searching the legislation to see if there was any deadline for rejection by which Companies House will confirm the rejection of a document. I cannot see a timeline specified, but I would be grateful if the Minister could correct me if that is wrong. In the Bill as drafted, a rejected document is treated as never having been delivered. Could the Minister clarify that? It suggests to me—though it is not fully clear—that companies could be submitting information in good faith, maybe just before a deadline, but could be fined for missing a deadline if the document was subsequently rejected. It would be helpful to know whether Companies House will be working to a deadline to confirm or reject a document that has inconsistencies. If there will be, what might that mean for companies that submitted documentation in good faith, and what will happen with the resubmission of any documentation?
I have no particular comments on clause 77, but I have a question about clause 78 and the preservation of original documents. The Minister is right that our confidence in digital technology and digital records has improved significantly. Can the Minister clarify what needs to be kept in hard copy for two years? Does that refer to all the records that we have discussed? I am not clear about how that sits alongside options for electronic storage of original documents that had been certified by the registrar. There are some other mentions of certification in the Bill, so it would be useful to understand that. I do not have any other concerns or questions on that point.
Kevin Hollinrake
How can we consistently tackle inconsistency in the documentation? We are back to the red flags issue. It is up to Companies House to determine the circumstances in which something would have a red flag, in that it was incorrect. It is not impossible for the Committee to do Companies House’s job for it in terms of how it determines what might constitute a red flag, but I have every confidence that Companies House will determine that appropriately. Again, that is assisted by the requirement that when people file information that is clearly, patently and deliberately wrong, there are penalties for false filing.
As for deadlines, I do not think there is any deadline that the registrar has to adhere to for when determining something to be inconsistent or wrong. The document can be rejected and companies can expect that rejection to be speedy in the majority of cases. The registrar has discretion not to reject an inconsistent document if she feels it is not materially inconsistent. Those are points of detail that can probably be left to Companies House.
Seema Malhotra
I thank the Minister for his response. What he said about points of detail is true to some extent, but not fully true as regards what the provisions could mean for companies that have submitted information in good faith before a deadline. If documents are rejected after the deadline, it could result in the company being considered to have not submitted documents. There seems to be a slightly grey area. Would companies be fined for missing deadlines, or would they be given, in the case of a significant document, a short period of, say, seven days to resubmit it with corrections, without facing a penalty? It could be seen as a late submission. We just want a fair process in instances when genuine mistakes are made.
Kevin Hollinrake
So do I, and I would expect the registrar to use her judgment when determining whether something has been inappropriately filed. We would not expect a fine to be issued if it is not the company’s fault that it has missed a deadline, as in the situation that the hon. Lady describes. There is a wider requirement for any registrar to act reasonably in that regard.
Question put and agreed to.
Clause 76 accordingly ordered to stand part of the Bill.
Clause 77 to 79 ordered to stand part of the Bill.
Clause 80
Power to require additional information
Kevin Hollinrake
I beg to move amendment 11, in clause 80, page 63, line 2, at end insert—
“(vi) section 28 or 29 of the Limited Partnerships Act 1907;”.
This amendment spells out that statements made by a person in response to a requirement under section 1092A of the Companies Act 2006 can be used in criminal proceedings for the false statement offences under the Limited Partnerships Act 1907.
Amendment 11 reinforces the legal framework to maximise the prospects of truthful and accurate information being delivered to the registrar. The general rule is that fairness requires that a person who is compelled on pain of criminal sanctions to provide information to the authorities should not be prosecuted if the information they are forced to supply is incriminating. Proposed new section 1092C(1) of the Companies Act 2006, inserted by clause 80, ensures that that fairness requirement is met in relation to uses by the registrar under the new power in proposed new section 1092A to compel a person to provide her with information for the purposes of her being able to determine whether filing obligations have been met.
However, the privilege against self-incrimination is not absolute. As is the case elsewhere in the statute book, the Bill includes exceptions. A person compelled to provide information is not immune from prosecution for offences that prohibit the giving of false, misleading or deceptive statements. Proposed new section 1092C(2) provides for that exception. The amendment adds the two proposed new “false statements” sections that clause 129 of the Bill inserts into the Limited Partnerships Act 1907 to the list in proposed new section 1092C(2). That ensures that when the registrar compels a person to provide information under her new power to determine whether filing obligations concerning limited partnerships have been met, the person cannot claim privilege against self-incrimination if the information they are compelled to deliver reveals that they have submitted a false filing. I trust the Committee will agree that this is a well-considered amendment.
Seema Malhotra
We do not have extensive remarks. As the Minister has outlined, the clause introduces a new power for the registrar to require information to determine whether someone has met the requirements on document delivery. Failure to comply without a reasonable excuse would be a criminal offence.
The Chair
To clarify, we are debating Government amendment 11 to clause 80. Is that the amendment the hon. Lady is focusing on?
Seema Malhotra
Yes. Thank you, Chair. I was just speaking briefly to clause 80. The amendment spells out that statements made by a person in response to that requirement can be used in criminal proceedings on those false statements, and we support that.
Amendment 11 agreed to.
Kevin Hollinrake
I beg to move amendment 12, in clause 80, page 63, line 14, leave out subsection (5).
This amendment is consequential on NC17.
The Chair
With this it will be convenient to discuss the following:
Government new clause 16—Material unavailable for public inspection: verification information.
Government new clause 17—Material unavailable for public inspection.
Government new clause 18—Protection of information.
Government amendments 49, 40 and 39.
Kevin Hollinrake
These amendments relate to the register of overseas entities introduced by virtue of part 1 of the Economic Crime (Transparency and Enforcement) Act 2022. The new clauses mirror equivalent sections in the Companies Act 2006 as amended by part 1 of the Bill, which we have already debated. They will ensure consistency between the two Acts.
The amendments will ensure that the public register contains only information that it is necessary to display, and that certain information including email addresses is not made publicly available, because of the risk that that could facilitate identity theft or other fraud. New clause 16 will ensure that personal information supplied in connection with the verification process for the register of overseas entities can be appropriately protected from public inspection. It is right to ensure that certain personal information, including email addresses, is not made publicly available because of the risk that that could facilitate identity theft or other fraud.
Dame Margaret Hodge
Again, I am really asking for information. It would be interesting to learn whether the Minister knows how many overseas entities have been registered since the enactment of the 2022 Act. It could still end up being unclear who the real beneficial owner was of an overseas entity. If someone went to an overseas entity to find out who owns One Hyde Park, and it said that the owner was a British Virgin Islands company, would the owner of that company be shown?
Kevin Hollinrake
That does not directly relate to this amendment, but I will get back to the right hon. Lady on that point in a separate conversation. Details such as the name and company of the person verifying the information submitted by an overseas entity to the register will continue to be publicly visible; it is not our intention to change that.
New clause 17 replaces sections 22 to 24 of the ECTE Act with proposed new sections 22 and 23. As with new clause 16, new clause 17 adds to the list of information that the registrar must not make available for public inspection, to help prevent the abuse of such information. That includes categories of information that were never intended to be made available for public inspection, but were missed during the expedited passage of the ECTE Act through Parliament, such as the email address of an overseas entity. New clause 17 also includes new categories of information that an overseas entity will be required to provide as a result of other amendments that are being introduced by the Bill, including the title number of land that an overseas entity owns, and documents provided to the registrar under her new power to require further information. New clause 17’s insertion of new section 23 also means that the registrar can disclose protected information about trusts, date of birth and residential address only in two scenarios.
Amendments 12, 39, 40 and 49 are consequential on new clause 17. Under the amendments, the registrar need not retain material that must not be made available for public inspection longer than appears reasonably necessary to her for the purposes for which the material was delivered to her.
I will say to the right hon. Member for Barking that there have been over 3,000 registrations on the register of overseas entities since it was established on 1 August 2022. It is right to ensure that the public register of material concerning overseas entities contains only information that is necessary to display, and that certain information, including email addresses, is not made publicly available for the reasons that I have stated. It is also right to amend the Companies Act 2006 in a way that mirrors amendments made in the Bill, so that there is consistency between the two Acts.
Seema Malhotra
In the time that we have had, it has been difficult to go through exactly what all the new clauses and amendments mean for what is and is not hidden information. We may come back to this issue, so I will not oppose the measures today. New clause 16 confers a power to make regulations about identity verification.
Kevin Hollinrake
Protected information includes protected date of birth information, which means information as to the day of the month—but not the month of the year—on which the registered beneficial owner or managing officer of an overseas entity was born. It also includes protected residential information, which means information as to the usual residential address of an individual who is a registered beneficial owner or managing officer, and protected trust information, which means the required information about a trust.
Seema Malhotra
I thank the Minister for his clarification. He did set out a little of that when he spoke to the new clauses. Given the speed with which we are going through the Bill, it is sometimes a little hard to keep track of what has been added, and whether there are any other consequences from that. I am not saying that there are consequences, but it feels as though a lot of Government amendments have come forward. I am not necessarily objecting to those before us today, but as a matter of principle, we need to go through provisions to check whether the devil is in the detail; after all, as I have said, the Bill has “Corporate Transparency” in its title.
Kevin Hollinrake
We will debate the overseas entities register in more detail in part 3, so there might be a good opportunity for further debate then.
Seema Malhotra
That would be welcome. New clause 18 grants the Secretary of State the power to make regulations as they see fit, in order to protect material on the register. Further scrutiny will be required on what could happen in future, and the circumstances in which that power might be needed.
The perception may have been that we had opposing positions on some aspects of the Secretary of State’s powers, but we now find ourselves coming a little closer together. We are debating the Bill, which largely has cross-party support, in good faith, but there are many little ways in which things could get changed, without those changes being subject to full debate in the House. It is important that we debate that further during proceedings on the Bill. I repeat that I want to ensure that there is no devil in the detail. I appreciate the Minister committing to return to the issue in part 3, when we will have a chance to look at the matter in slightly more detail.
Dame Margaret Hodge
There was a report in The Guardian yesterday on an organisation called Wealth Chain Project. Its analysis showed that 138,000 residential and commercial properties in England and Wales are owned by offshore companies. We have managed to get 3,000 so far, so there is a heck of a lot—
Kevin Hollinrake
There is not a direct correlation between the two, because one overseas entity might own many UK properties.
Dame Margaret Hodge
Ah, that is a valid point, and I think the article deals with it. Some entities will own more than a few properties, but—sorry, I am just looking to see whether the article does make that point. The article demonstrates the enormous importance of Executive action. That is why the Opposition feel strongly that action should take place; there is no point in just putting legislation in place. There is a desire to monitor that action, and toughen up the provision to ensure that the action happens. I hope that the Minister bears that in mind. No matter how many entities own more than one property, 3,000 is still a long way from the 138,000, assuming that figure is accurate.
I am getting muddled by all these amendments. Will the Minister or his officials provide us with a list of what information will be on the register? What will we see? If we had that, we could take a view on whether that information is sufficient for all our purposes.
Liam Byrne
It is a pleasure to see you in the Chair, Ms Bardell. I fully appreciate the Government’s need to table amendments—the grind of Committee exposes all kinds of opportunities to improve and strengthen legislation—but this is a good example of the kind of measure that it would have been helpful to see at the beginning of the process, not halfway through, not least because we are all worried about Companies House and its capacity to hunt and root out badness. All of us have in our time, and in our own way, relied on journalists’ investigative capacity to flag bad activity. It is important to the Opposition and, I am sure, the Government, to hear from journalists and investigators on whether the measures that the Minister is introducing jeopardise or constrain their ability to conduct the investigations that they have carried out so admirably over the last few years.
I hope that the Minister will take up the suggestion of my right hon. Friend the Member for Barking and set out very clearly for us what information will be available. The whole Committee would be interested to hear, perhaps informally, from journalists on whether that information will constrain their ability to investigate; we can then decide whether to come back to this issue on Report.
Kevin Hollinrake
On the points raised by the right hon. Member for Barking, as I have said many times in Committee and in the House, implementation is everything. In my business, we used to say, “Ideas are 10 a penny. Execution is everything.” We have to ensure that we follow through on the measure, and that it is properly executed.
We will debate the overseas register at length when we come to part 3, so I ask the right hon. Lady to hold off on any key questions about that. We will try to get the answers that she wants, and will probably have a conversation about the kind of information that she wants to see. The provisions relating to overseas entities are about trying to identify the people who have control over those entities and companies. That is what the legislation is about: understanding who the directors are—for the first time, we will be able to see that properly—and the persons of significant control. They are not just people who own more than 25% of a company, but people who exert control in other ways.
The right hon. Member for Birmingham, Hodge Hill, is right that journalists play a key part in investigation. Many of them spend much of their time analysing databases of all kinds to try to find information that would be useful for law enforcement agencies. We want to ensure that that information is readily available to them, because they play a huge investigative role. We are very keen to ensure that they get the information that they need.
Amendment 12 agreed to.
Ordered, That further consideration be now adjourned. —(Scott Mann.)
Economic Crime and Corporate Transparency Bill (Tenth sitting)
Tuesday 8th November 2022
(2 years ago)
Public Bill CommitteesRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 8 November 2022 - (8 Nov 2022)
The Committee divided: - Ayes: 6 / Noes: 9 - Question accordingly negatived.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
It is a pleasure to speak with you in the Chair, Ms Elliott. Clause 80 gives the registrar of companies a new power to require information. The registrar’s existing powers are insufficient to tackle the large volume of inaccurate or suspicious information on the register. She has no powers to compel filers to furnish her with information to assist her to investigate filings that she is concerned are inaccurate or fraudulent, and that she may wish to remove. That means that suspect information is often accepted on to the companies register, damaging its accuracy, reliability and usefulness.
The insertion of proposed new section 1092A into the Companies Act 2006 will give the registrar a power to require that a person provide her with information for certain purposes. Those are: determining whether someone has complied with a delivery obligation or requirement; determining whether a document delivered to her satisfies the proper delivery requirements, including whether it contains accurate information; or determining whether or how to exercise her powers to remove improperly delivered information from the register or to resolve inconsistencies on it.
It is suspected that a significant amount of fraudulent information is already on the register. The power will therefore apply to existing register information as well as to all new information submitted to the registrar. The clause will also make it an offence for someone to fail to respond to the registrar’s request for information without a reasonable excuse. The maximum penalty for that offence will be two years’ imprisonment. It is imperative that we equip the registrar with all the tools necessary to challenge dubious information and ensure the integrity of the register. The power in the clause is the cornerstone of that ambition.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
It is a pleasure to serve under your chairship, Ms Elliott. I thank the Minister for his remarks. We support the clause, which provides for a power to require additional information. He is right that the proposed new section is the cornerstone of providing the registrar with the powers to maintain the integrity of the register, so we support the clause.
Liam Byrne (Birmingham, Hodge Hill) (Lab)
It is a pleasure to serve with you in the Chair, Ms Elliott. When the Minister winds up the debate on the clause, will he say a little more about some of the information that the registrar may be seeking, and in particular whether she is able to solicit information from people seeking to file accounts, and so on, that has been requested by other agencies? All kinds of information is sometimes beyond the purview of, for example, the National Crime Agency, and sometimes the registrar, rather than a police agency, making the first approach may be a more intelligent way to get the information needed for an investigation. It would be helpful if the Minister clarified whether Companies House can act in concert with other law enforcement agencies to gather information that is needed to help to bring prosecutions.
Kevin Hollinrake
I am grateful for the right hon. Gentleman’s remarks. The answer is yes, that is exactly what the legislation allows for: the risk-based flow of information between the registrar and law enforcement agencies. Of course, the power will be discretionary, so the registrar will determine when to exercise it, but it can be to request any information that she requires under legislation—both public and private information.
Question put and agreed to.
Clause 80, as amended, accordingly ordered to stand part of the Bill.
Clause 81
Registrar’s notice to resolve inconsistencies
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Government amendment 13.
Clause 82 stand part.
Clause 83 stand part.
Government new clause 7—Power to require businesses to report discrepancies.
Kevin Hollinrake
Clause 81 enables the registrar to require a company to resolve an inconsistency where it appears that information contained in a document delivered to the registrar in relation to a company is inconsistent with any other records she holds, including records about other business entities or organisations such as limited liability partnerships and limited partnerships. Currently, the inconsistency resolution power is available only if there is an inconsistency between the delivered information and the information on the companies register.
Where the registrar suspects that information submitted to her is inaccurate, but that suspicion is based only on information that she holds but that is not published on the register, for instance information gleaned from law enforcement agencies—that is the point the right hon. Member for Birmingham, Hodge Hill just mentioned—she will be able to issue a notice to require the company to correct the mistake. The clause will strengthen the registrar’s ability to ensure the register is accurate and reliable.
Government amendment 13 and new clause 7 are concerned with the identification and rectification of discrepancies between information that businesses, such as banks, lawyers or accountants, obtain in the course of their business relationships with customers, and information that the registrar curates. In our White Paper in February, the Government committed to expand current discrepancy reporting requirements to include discrepancies in director information and in registered office addresses. That would build on the discrepancy reporting that already occurs under the money laundering regulations in relation to beneficial ownership. It is a key part of our vision for Companies House reform that there are active and effective feedback loops from the private sector to help the registrar maintain the accuracy of the data she holds. This will benefit business and help protect personal information.
The power inserted by new clause 7 introduces a regulation-making power into the Companies Act 2006. Regulations made under that power can set out who must check for discrepancies and what information they check, beyond just discrepancies in relation to beneficial ownership information. The regulations can also be used to create offences for failure by those obliged to check for discrepancies to comply with those obligations.
Government amendment 13 omits section 1095A from the Companies Act. This power to resolve discrepancies in certain circumstances is no longer needed because of the wider power introduced by clause 82, which enhances and rationalises the registrar’s powers to remove material from the register. Proposed new section 1094 of the Companies Act, as substituted by clause 82, gives the registrar the power to remove material on the register where it has not met proper delivery requirements or is unnecessary. The registrar could exercise that power on her own motion, or on application.
Clause 82 will strengthen the registrar’s powers, enabling her to proactively clean up the register. The power is safeguarded by the requirement that the registrar may exercise it only if satisfied that the interest of the company or applicant in removing the material is not outweighed by any interest of other persons in the material continuing to appear on the register. That matches the test that the court has to apply, which is the focus of clause 83.
Clause 83 expands the range of people whose interests a court must take into account when considering whether to make an order to remove material that has legal consequences from the register. Currently, a court can only make an order to remove material if satisfied that the material is damaging to a company and removing the material outweighs the interests of any other person in the material in retaining it.
That test overlooks the fact that a person other than the company might have their interests affected by a filing—for example, a person whose name has been fraudulently registered as a director of a company with which the person in fact has no connection. Clause 83 amends section 1096(3) of the Companies Act so that the court must now also take into account the interests of an applicant, who may be different to the company, as well as the company.
Seema Malhotra
I have a few questions on the clauses. Clause 81, on the registrar’s notice to resolve inconsistencies, would expand the powers of the registrar to identify inconsistencies by considering all records—it goes wider than just the information on the register. Any notice given would state the nature of the inconsistency and give the company 14 days to resolve it. Could I ask the Minister to clarify what will happen if a company exceeds this 14-day period?
On new clause 7 on the power to require businesses to report discrepancies, I want to understand how that might be operationalised. Would the registrar seek information from businesses, or would businesses be expected to do something without being requested to? It was not quite clear how the measure would be used. On businesses that might come under scope, the Minister mentioned financial services, but the proposed new section under new clause 7 refers to regulations imposing requirements on
“a person who is carrying on business in the United Kingdom”.
Any company or business may be required to report discrepancies. It would be helpful to understand that point, as there is a fair bit of detail in new clause 7. I would appreciate the Minister’s comments on that.
Clause 82 creates a new power for the registrar to remove information that was submitted to it and accepted despite not meeting proper delivery requirements. There may well have been reasons for the information being accepted. As the Minister mentioned in a previous debate, for some reason there may have been a minor issue that was considered not significant—I think he may have used the word “material”—and the information did not meet proper delivery requirements. Could I clarify whether the Minister would expect there to be any notification to directors or officers about material being removed? Would any note be made on the register as a record of material having been removed? It would simply be a matter of putting on a company’s record that material was there and accepted even though it did not meet properly delivery requirements and was subsequently removed. It is not about there being a risk of a cover-up, with material being removed, but it is helpful to have an audit trail. Perhaps the Minister can outline how he envisages that power being used.
Clause 83 amends the Companies Act 2006 so that, as regards material being removed, the court may take into consideration whether the interests of an applicant outweigh the interest of other parties. Can I clarify how this would be used? Would it be used when a third party did not believe that it was appropriate to remove the material? Who else might the applicant be? I am trying to understand when it might be used and a case might come to court to weigh the pros and cons in terms of parties’ interests in having that material removed. It would be helpful to have some clarity on that.
Alison Thewliss (Glasgow Central) (SNP)
I have some questions about new clause 7. I am reading through it and trying, as I have done with many of the amendments, to put myself in the scenario of being the person who is carrying on business in the United Kingdom. It says that as that person, I am obliged to
“obtain specified information about a customer (or prospective customer)…before entering into a business relationship with them, or…during a business relationship with them”
and I have to identify any discrepancies and report them to the registrar. I get that: if I do that and I see a discrepancy, I have an obligation to report it. It feels as though the Minister is bringing forward a very soft version of a failure to prevent offence, which of course I am fine with.
I want to double-check something, however. The new clause goes on to talk about offences that might be created for failure to comply with the requirements, and I want to know what happens if I, as the person carrying on the business, do not spot a discrepancy. How is it ascertained whether I did not spot the discrepancy—whether it was a genuine mistake on my part—or whether I failed to report something that somebody else later picked up?
We are talking here about convictions, punishable as set out near the end of the new clause, and I am curious about how the regulations will work in practice. If I do not spot a discrepancy and report it, how does the law know that I did not spot it? Perhaps I ignored it because I thought it was not relevant or important, or perhaps I did it deliberately. If I come back after the fact and say, “I didn’t report it because I didn’t see it,” or “I didn’t report it because I didn’t want to,” those are two very different things.
I do not quite understand how the new clause will work. Some people might think it is good and beneficial to go clyping and grassing up people who do not comply, and that is fine, but it is quite a different thing if a discrepancy has been overlooked. I would like the Minister to explain how that will work in practice.
Kevin Hollinrake
I will first take the latter point, which covers some of the shadow Minister’s points as well. There will be more detail in secondary legislation about how new clause 7 is expected to operate, but it is quite reasonable to think that third party business entities will understand how this should work. Within that, we would expect there always to be a reasonableness defence if an error was made or something was done in good faith. We would not expect a penalty to be applied in that case, but there will be more detail on that in secondary legislation.
The shadow Minister asked what would happen if an organisation failed to comply with a notice within the 14-day period that it is given to respond. There is an unlimited fine, potentially, for failure to comply. Other situations might even lead to somebody facing a prison sentence of up to two years, in certain instances. A lot would depend on the circumstances involved. That also relates to what the hon. Member for Glasgow Central asked.
The shadow Minister asked for more detail about how the relationship between the registrar and third party companies would work. This does not just refer to the financial sector; it also refers to the legal sector. It would pertain to any organisation that is supervised by money laundering regulations. I think that is the extent to which companies would be bound by the rules on checking discrepancies.
The shadow Minister asked whether there would be a flag if a record was removed. Clearly, there will be a red flag for the registrar themselves, depending on the reason why that record has been removed, and that may be something we cover in further detail in secondary legislation. My immediate reaction is that we would not want red flags to be set against a company that had made an honest mistake, because that might unreasonably set some hares running. I am a little concerned that that might happen if we did as the shadow Minister described.
Seema Malhotra
For clarity, perhaps I can distinguish the difference between a red flag and a record of what has happened. We keep a record of what happens, but a red flag is a cause of concern.
Kevin Hollinrake
Yes. The registrar will have the ability to annotate the register as is appropriate in the regulations we intend to make using the power found in section 1080.
Question put and agreed to.
Clause 81 accordingly ordered to stand part of the Bill.
Clause 82
Administrative removal of material from the register
Amendment made: 13, in clause 82, page 65, line 21, at end insert—
“(6) Omit section 1095A (rectification of register to resolve a discrepancy).”.—(Kevin Hollinrake.)
This repeals section 1095A of the Companies Act 2006 as in practice the only circumstances in which material would be removed from the register under that section are caught by new section 1094 (inserted by clause 82 of the Bill).
Clause 82, as amended, ordered to stand part of the Bill.
Clause 83 ordered to stand part of the Bill.
Clause 84
Inspection of the register: general
Kevin Hollinrake
I beg to move amendment 106, in clause 84, page 65, leave out lines 40 and 41 and insert—
“sections 64(6A), 67(1A), 73(7), 75(4A), 76(5A), 76A(9) and 76B(9) (which confer powers to suppress a company’s name that it has been directed or ordered to change);”.
This is consequential on NC34.
The Chair
With this it will be convenient to debate Government new clause 34—Requirements to change name: removal of old name from public inspection.
Kevin Hollinrake
Members of the Committee might remember that when we discussed the provisions concerning company name change directions last Tuesday, there was much debate about the 28-day compliance period, a topic on which I have since written to the hon. Member for Feltham and Heston. It is fair to say that we might not have exactly achieved a meeting of minds on that occasion, but we will try again today.
I am grateful to the hon. Members for Feltham and Heston and for Aberavon for withdrawing their amendments in the hope that we could get to a place we agreed on. I think we all agree that a company should have a reasonable amount of time to change its name and that we would prefer compliance rather than an imposed solution involving the registrar defaulting the company’s name to its rather anonymous company registration number.
Compliance will, quite legitimately, take some time and effort on behalf of the company. Notice of a proposed change will have to be given to shareholders, and those representing not less than 75% of the total voting rights of eligible shares will have to agree to the change. That is why it is the Government’s position that a company should have a minimum period of 28 days to change its name following a direction, with the possibility to ask the Secretary of State to extend that period where necessary.
Hon. Members are right, however, to be concerned about the harm that can flow from offending names. Where the Secretary of State has determined it appropriate to issue a direction, it will almost invariably be the case that the name’s presence on the register risks causing harm to users. That is why clauses 17 and 18 give the registrar new powers to remove a company name from the publicly accessible part of the register at the point a direction is issued, so any ongoing harm would be curtailed immediately at that point.
The earlier amendments have very helpfully highlighted for us that this ability to remove an offending name from the publicly inspectable part of the register is not available to the registrar in respect of the name change direction and order provisions that already exist in the Companies Act 2006—but it ought to be. New clause 34 addresses that issue, ensuring that the registrar will have the ability to suppress the name and the subject of a direction or order under all circumstances under which one might be issued.
Government amendment 106 ensures that the general right for people to inspect the register does not extend to offending names that have been suppressed. The effect is that we strike a fair balance between allowing companies adequate time to comply with a name change direction and protecting users of the register from harm that might arise from the offending name remaining visible while the company goes through its internal name change process. I hope hon. Members will welcome these amendments, and I commend them to the Committee.
Seema Malhotra
I thank the Minister for his remarks, and wish to speak to this group on behalf of my hon. Friend the Member for Aberavon as well. I must say that these provisions are not easy to follow, so forgive me for feeling like I will need to reread Hansard in a darkened room in order to completely follow what the Minister has said.
Dame Margaret Hodge (Barking) (Lab)
I do not think any of us understood a word of that. It would be really nice if the Minister could explain it in black and white, because I just could not get what that was getting at at all.
Kevin Hollinrake
In layman’s terms, it means that if a company is required to change its name because it could cause harm, the registrar can immediately suspend that name from the register—as we discussed last week—so it cannot cause harm.
Dame Margaret Hodge
Perhaps the Minister could also explain how that is different from what we agreed last week.
Seema Malhotra
I thank my right hon. Friend for her question, which the Minister may wish to answer before I continue my remarks.
Kevin Hollinrake
It extends the extent. The registrar did have that power to a certain degree for certain names, but they did not have it in every circumstance, so the Bill extends its right to use the power. Basically, in any situation where a name change is required because it could cause harm to the public, the registrar can immediately suspend that name from the register so that it cannot cause harm in any circumstance.
Seema Malhotra
I am grateful to the Minister for his intervention.
The clauses on the register include important provisions related to information sharing and the parameters of information that may be made available to the public. They are hugely important on a number of levels, facilitating access to relevant information for law enforcement and, more broadly, building public trust and confidence in our laws on economic crime. As drafted, the Bill appears to lean much more heavily towards restricting the availability of information to the public, and as we have said, an explanation of the Government’s thinking and rationale on these issues would be helpful for the deliberations of the Committee.
Clause 84 deals specifically with exemptions from requirements to make information publicly available. Exempting information from public disclosure pending verification by the registrar is a reasonable provision, since it could be argued that such information might otherwise give a misleading or inaccurate picture of the registry if certain information released to the public was ultimately excluded on the grounds that it could not be verified.
Clause 84 also deals with the names of companies registered incorrectly or used for criminal purposes. As the explanatory notes confirm, the intention is to prevent such information from being disclosed to the public, but a slightly clearer explanation of those provisions would be helpful. It seems reasonable in most cases to exclude information submitted in error to the registrar. On company names used for criminal purposes, perhaps the Minister could explain whether the intention of clause 84 is to prevent the disclosure of information relevant to a specific ongoing criminal investigation.
Seema Malhotra
Have I jumped? That is my fault. I have just checked the grouping, and I see that we are discussing clauses 82 and 83. In which case, I will stop there.
Seema Malhotra
I thought it was clause 84 stand part, clause 85 stand part and clause 86 stand part.
Liam Byrne
On a point of order, Ms Elliott. I would be really grateful if you could just clarify where we are in the debate.
The Chair
We are debating Government amendment 106 to clause 84, with which it is convenient to consider Government new clause 34. It is this light; I am afraid I am reading eights for threes. I am terribly sorry.
Seema Malhotra
That is clear. I was slightly confused by the grouping, but that is absolutely clear, and I will continue my remarks when we come to the next group.
Kevin Hollinrake
I have nothing further to add.
Amendment 106 agreed to.
Question proposed, That the clause, as amended, stand part of the Bill.
Kevin Hollinrake
Clauses 84 to 86 all make amendments to the provisions in the Companies Act 2006 about rights to inspect the register and obtain copies of the material on it.
Section 1085 of the Companies Act requires the registrar to make company information available for public inspection. Clause 84 makes consequential technical amendments to the section resulting from the various amendments to the Companies Act that are made elsewhere in the Bill—[Interruption.]
The Chair
Order. We need some clarity. We are in the middle of a Committee sitting and it is not appropriate to speak from beyond the bar. May I also say that we need some light? [Interruption.] Order. We will resume.
Kevin Hollinrake
I can see my notes very clearly. It is absolutely fine.
The amendments qualify the inspection rights in section 1085 of the Companies Act to ensure that certain information cannot be inspected. The information in question comprises company names that have, for example, been the subject of a registrar name- change direction because of concern that the name’s use is for criminal purposes.
The technical amendments to the Companies Act made by clauses 85 and 86 improve the integrity of the companies register and prevent the abuse of personal information held on it. Clause 85 makes amendments that relate to copies of material on the register, clarifying that the right to require a copy of material on the register applies only to materials that are available for public inspection. The clause also removes the option that an applicant has for submitting applications to require a copy of an enhanced disclosure document in paper form or electronically. It allows the registrar to determine the form and manner in which copies of registered material are to be provided under section 1086 of the Companies Act.
Seema Malhotra
Clause 84, as I alluded to earlier, deals with names of companies registered incorrectly or used for criminal purposes. The explanatory notes confirm that the intention is to prevent such information from being disclosed to the public. Excluding information submitted to the registrar in error seems reasonable, as I mentioned earlier, in most cases. With regard to company names used for criminal purposes, I would be grateful if the Minister could clarify whether the intention behind clause 84 is to prevent the disclosure of information relevant to a specific criminal investigation that may be ongoing. I am sure that we all agree that sensitive information should not be disclosed if doing so would compromise an active investigation by law enforcement agencies. If, however, all investigations and, where relevant, prosecutions and court proceedings have reached their conclusion, there might be an argument for public disclosure of said information about the company in question to then be permitted.
If it is the Government’s intention to prevent disclosures of company names used for criminal purposes only in circumstances where it is absolutely necessary to do so, perhaps the wording of clause 84, which is currently quite broad, may be usefully amended to reflect that. I am also raising those concerns on behalf of my hon. Friend the Member for Aberavon. Perhaps there could be a specific provision enabling information on such company names to be disclosed to the public once any criminal proceedings are over in cases where there may be a public interest to do so. It would be helpful if the Minister could set out the Government’s thinking on those issues.
Clause 85 amends the Companies Act to give more powers to the registrar, for instance in relation to the format in which information may be provided. The provision enabling the registrar to require an application for access to information to be submitted electronically is broadly welcome, inasmuch as it supports the wider objective of delivering more streamlined and effective services, although it may be helpful for the Minister to clarify when he expects a fully electronic process for members of the public to request and access information held by the registrar to be up and running.
Clause 86 extends the scope for information, including information of the kind covered by previous clauses, not to be disclosed by the registrar. The more general question of what information should be made publicly available, and the criteria on which those decisions are made, will be discussed shortly in relation to the next clause, but I would be grateful for the Minister’s comments.
Kevin Hollinrake
Clause 84 relates to issues that we debated earlier. The information in question comprises company names that have, for example, been the subject of a registrar name change direction because of a concern that the name’s use is for criminal purposes. I do not think that there is anything different here from what we have already discussed. It deals only with the exception to the general rule of making the entire register available to the public where the registrar uses her discretion to take a name off the register. It is not related to police investigations; she would suppress the name of a company for other reasons.
Question put and agreed to.
Clause 84, as amended, accordingly ordered to stand part of the Bill.
Clauses 85 and 86 ordered to stand part of the Bill.
Clause 87
Protecting information on the register
Seema Malhotra
I beg to move amendment 114, in clause 87, page 68, line 7, at end insert—
‘(7A) Regulations under subsection (1) above may not prevent the registrar from making available for public inspection information mentioned in paragraphs (a) to (d) unless there are compelling reasons for the information to be withheld.
(7B) For the purposes of subsection (7A) above, “compelling reasons for the information to be withheld” include circumstances in which the registrar may decide that public release of the information may result in—
(a) a serious threat to the personal safety and security of the individual to which the information relates;
(b) adverse effects on any investigation by an appropriate officer of a suspected offence under this Act;
(c) adverse effects on the ability of an appropriate officer to impose a penalty for any offence under this Act; or
(d) a clear risk to the national security of the UK;’.
This amendment seeks to expand the registrar’s powers to release information about the Companies House register, where it is in the public interest to do so, while also enabling personal information relating to an individual to be withheld in cases where there are compelling reasons to do so.
It is a pleasure to speak to the amendment, tabled in my name and that of my hon. Friend the Member for Aberavon. It appears at least possible that the Government could place strict limits on the rights of journalists to request information, for example, in connection with investigations that may well be firmly in the public interest. Disclosures of that kind have been seen in the Panama papers and the Paradise papers. Those are just two examples of how important it is that legitimate journalistic access to information held by the registrar must be protected.
It is with those concerns in mind that we have tabled amendment 114. Its aim is to ensure that there is a default presumption in favour of disclosing information in response to a request, whether from a journalist or an ordinary member of the public, and to ensure that legitimate requests are refused only when there is clear evidence of a compelling reason to do so. We believe that the powers granted to the Secretary of State under clause 87, as drafted, are simply too broad. We therefore strongly urge the Government to support the sentiments in amendment 114.
Kevin Hollinrake
I am not sure that what we are trying to do here is relevant to the matter that the hon. Lady raised. Amendment 114 would prevent regulations being made to allow the registrar to make information unavailable for public inspection under new section 1088 unless there are compelling reasons for the information to be withheld, which this amendment outlines.
Of course, there are instances where disclosure of information on the public register is inappropriate—I think we have all agreed that through the course of this debate—for instance, where it could lead to an increased risk of fraud and identity theft, or put individuals at risk for some reason, such as in cases of domestic abuse. There are limitations in the extent to which existing provisions in the Companies Act 2006 allow personal information to be withheld from the public register. We want to expand that to ensure that personal information is properly protected.
Clause 87 amends the Companies Act to allow individuals to apply to the registrar to suppress information relating to an individual or address and prevent it from being disclosed or made available for public inspection. That will include their residential address, signature, business occupation, and date of birth in old documents.
Dame Margaret Hodge
This is another opportunity to raise the issue, to which I have not had an answer, of Fedotov. That is how he kept his name off the—[Interruption.] It is. We just need an answer.
Kevin Hollinrake
The answer is that any person applying under the exemption will have to prove to the registrar that there is sufficient evidence of a serious risk of violence or intimidation to protect their names or information. If necessary, the registrar will refer cases to an appropriate law enforcement agency and will have the power to revoke protection if information comes to light to suggest that false evidence has been provided.
Does the right hon. Lady honestly think that a registrar, who has a duty and responsibility to protect the integrity of the register, would assist an oligarch, for example, in trying to hide information? I think we are into conspiracy theory territory here, which I do not think will get us very far.
Dame Margaret Hodge
In general, I would agree with the Minister. However, the truth is that Fedotov did manage that. If the Minister could provide an explanation of why and how that happened, then we might get greater comfort in this Committee that those circumstances will not arise again.
Kevin Hollinrake
I committed earlier to look into that case, and I will, but the Usmanov case, as I said, was a completely different case. The whole reason why we are bringing forward this legislation is to improve transparency and fight economic crime. The right hon. Lady’s indication that perhaps the registrar might be complicit with Russian oligarchs, who may be guilty of economic crime, is not really plausible.
These are reasonable provisions for people whom we suggest might be at risk of harm if we publish that information, and they have to demonstrate that that harm is a salient risk. They are reasonable provisions that would be used fairly sparingly in the main, but nevertheless there have to be those kinds of provisions where somebody is at risk of harm. That does not exempt the applicant from providing the information to the registrar, where it is still required by legislation, but it will no longer be displayed publicly. Critically—and this should answer the right hon. Lady’s point—information would still be available to law enforcement agencies and other public bodies. It would not be appropriate to limit the registrar’s ability to protect personal information in the way proposed by the amendment.
Seema Malhotra
I will not push amendment 114 to a vote. It is an area where there is probably further debate to be had but, having reflected on that with my hon. Friend the Member for Aberavon, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
As we have discussed, there are instances where disclosure of information on the public register can lead to an increased risk of fraud and identity theft or put individuals at risk for other reasons, such as in cases of domestic abuse. The clause addresses this by amending certain sections of the Companies Act 2006 that confer or otherwise relate to the power for the Secretary of State to make regulations, permitting applications for personal information to be suppressed or protected, which means that the information is not made available on the public companies register.
Seema Malhotra
I wish to make a few remarks. I take on board the Minister’s comments, and we all agree about instances where there may be domestic violence reasons, for example, or other security and personal information reasons for why an individual’s home addresses and so on should not be disclosed. As discussed earlier, transparency plays a vital role in building public confidence in our ability to crack down on fraudulent or other criminal abuses of our companies legislation. Arguably, clause 87 grants an extraordinary degree of power to the Secretary of State to specify in regulations not just what information may be disclosed to the public, but who might be permitted to request information in the first place and on what grounds. It is quite a long clause. We had a debate before on the questions about safeguards, some of the uses of those powers and the extent to which there may be information that is not publicly available that ought to be, in the public interest. I would be grateful for a further discussion of the matter. I will work with my hon. Friend the Member for Aberavon to put together a note for the Minister with some more specific points to which it would be useful to have responses before Report.
Kevin Hollinrake
I just want to reiterate that all protected information, whether suppressed or not, is available to law enforcement agencies. That is the critical point. Individuals who seek to use these exemptions have to provide sufficient evidence of a serious risk of violence or intimidation, and that protection can be revoked if new information comes to the registrar’s attention that she feels casts doubt on the original assertions.
Question put and agreed to.
Clause 87 accordingly ordered to stand part of the Bill.
Clause 88
Analysis of information for the purposes of crime prevention or detection
Dame Margaret Hodge
I beg to move amendment 119, in clause 88, page 68, line 15, leave out from “must” to the end of line 17 and insert
“analyse information within its possession with a view to preventing or detecting crime.”
The Chair
With this it will be convenient to discuss the following:
Amendment 120, in clause 88, page 68, line 17, at end insert—
“(1A) In carrying out the analysis the registrar must make use of its power to require additional information under section 1092A where the registrar considers that such additional information may contribute to the prevention or detection of crime.”
Amendment 116, in clause 88, page 68, line 17, at end insert—
“(1A) As part of the analysis under subsection (1), the registrar must carry out a risk assessment to identify where the information it holds might give rise to a matter of concern.
(1B) Where the assessment identifies a matter of concern, the registrar must—
(a) carry out whatever further analysis it considers necessary; and
(b) share any evidence of unlawful activity it identifies with the relevant law enforcement agency.
(1C) For the purposes of this section, a “matter of concern” includes—
(a) inaccurate information;
(b) information that might create a false or misleading impression; or
(c) evidence of economic crime.”
New clause 37—Duty to check person of significant control status—
“(1) The Companies Act 2006 is amended as follows.
(2) After section 790LP (Offence of failing to comply with sections 790LI to 790LN) insert—
“790LQ Duty to check person of significant control status
(1) This section applies when a registrable person’s identity is verified under section 1110A(1) and a risk assessment carried out under section 1062A(1A) has identified a matter of concern in relation to the registrable person.
(2) The registrar must take steps to ensure that the registrable person whose identity is being verified is a person with significant control over the company.””
New clause 38—Risk-based examination of accounts of dissolved companies—
“(1) The Companies Act 2006 is amended as follows.
(2) After section 1062A (analysis of information for the purposes of crime prevention and detection) insert—
“1062B Risk-based examination of accounts of dissolved companies
(1A) In a case where the registrar’s risk assessment under section 1062A(1A) has identified a matter of concern in relation to a dissolved company, the registrar must examine the accounts of the dissolved company with a view to establishing whether any economic crime has been committed.
(1B) The registrar must share details of any evidence gathered under subsection (1A) with the relevant law enforcement agencies.””
New clause 41—Disclosure of control of 5% or more of shares in a public company—
“(1) This section applies to shareholdings in public companies as defined by section 4 of the Companies Act 2006.
(2) A person who controls 5% or more of the shares in a public company must declare this fact to the registrar.
(3) The duty in subsection (2) applies whether the person controls the shares directly or indirectly.
(4) The registrar may impose a penalty on any person who fails to comply with the duty in subsection (2).”
This new clause would require all persons controlling 5% or more of the shares in a public company to declare the total amount of their shareholding to the registrar. This would, for example, require a person controlling shares through multiple nominees to declare the total number of shares they control.
New clause 42—Verification of persons controlling 5% or more of shares in a public company—
“(1) This section applies where—
(a) a person has disclosed to the registrar control of 5% or more of the shares in a public company under section [Disclosure of control of 5% or more of shares in a public company], and
(b) the registrar has identified a matter of concern under subsection 1062A(1A) of the Companies Act 2006.
(2) the registrar must—
(a) verify the identity of that person, and
(b) verify the number of shares that person claims to control.”
This new clause should be read together with Amendment 116 which inserts subsection 1062A(1A) into the Companies Act 2006. It would require the registrar to verify both the identity and the shareholding of a person who controls 5% or more of shares in a company where the registrar’s risk-based analysis set out in Amendment 116 has identified a matter of concern.
New clause 43—Disclosure of shares held by nominee—
“(1) This section applies to public companies as defined by section 4 of the Companies Act 2006.
(2) Any person holding shares in a public company as nominee for another person must disclose this fact to the registrar.
(3) The registrar may impose a penalty on any person who fails to comply with the duty in subsection (2).”
This new clause would require shareholders of a company to disclose the fact that they are acting as nominees. Failure to comply could result in a penalty.
Dame Margaret Hodge
The Minister is delighted. All the provisions are grouped together, so he will have to listen to me forever. The lighting is not much better, but we will see how we go—I know we are saving energy.
The provisions that we are discussing all sit together. I will start with amendments 119 and 120, with which we are trying to strengthen the duties, rather than the powers, of Companies House. During the course of the Committee’s discussion of the Bill, we have considered how UK corporate structures and vehicles are used to move, hide and launder money. When the Bill is enacted, although I hope that it will be amended to strengthen the nature of the information we get by strengthening the supervision of company service providers, Companies House will hold a wealth of data.
Amendment 119 seeks to make it compulsory for Companies House to analyse that data to prevent and detect crime. By removing some words, it would be tougher than the current wording of the clause, according to which Companies House could analyse that data, but does not necessarily have to. The clause says
“as the registrar considers appropriate”,
and, without the amendment, Companies House could and will argue that it does not consider analysis “appropriate”. We would remove that provision and say that the registrar must use the data that has been made available to her to see whether or not it can support us in our efforts to avoid crime.
I have one other thing to say about this issue. We have talked a lot in the debate about corruption and the way in which it has impacted the UK economy. As we discuss the Bill further, we have to remember the impact it will also have much more widely. According to the ONE Campaign’s latest estimate, around $1 trillion is lost every year to corruption in developing countries. A lot of that comes through the abuse of corporate structures that we have in the UK. That is just one example that demonstrates how UK corporate structures facilitate theft and corrupt activity.
I know that that is under the current regime and that much of this should go when we get to our new regime. However, I will give another example of how the abuse of UK corporate structures led to money, again, coming out of Russia, which is the bottle laundromat—another of these laundromats—that was uncovered by Transparency International. British companies were, again, at the centre. It was a money laundering operation from 2014 to 2016 where $820 million came out of Russia. Again, it involved—classically—a network of shell companies, many of them UK firms, that apparently sold bottle-moulding machines to Russia.
Kevin Hollinrake
The right hon. Lady raises some important cases, and she is right to do so. Is that not exactly why we are trying to do this in this way? There are 4.5 million companies registered in England. Around 700,000 companies are registered every year, or 2,000 a day, and 400,000 are dissolved every year. If she is asking Companies House to analyse every single company—that is exactly what her amendment says—to determine risk, she is asking too much of Companies House and she will miss the important needles in the haystack that she refers to.
Dame Margaret Hodge
Were I asking that, that would be unreasonable but if the Minister takes all my amendments together, he will see that they and others talk about a risk-based assessment of the available data.
Kevin Hollinrake
The amendment does not say that. It says that
“the registrar must carry out a risk assessment”,
not a risk-based approach. There is a big difference in terms of what the right hon. Lady is asking for.
Dame Margaret Hodge
But when we come to the new clauses, which we will discuss later, they say “risk-based”. It is a risk-based assessment. Perhaps the Minister could explain what the difference is.
Kevin Hollinrake
The amendment says
“a risk assessment to identify where the information it holds might give rise to a matter of concern.”
That certainly says to me that a risk assessment would be required for every company. To me, a risk-based approach would identify various pieces of information, and Companies House would act on that information and determine whether the risk is from companies, directors or persons of significant control and act on that. That is our approach; the right hon. Lady’s approach is moving away from that.
Dame Margaret Hodge
The Minister is misinterpreting our approach. I am sorry if he reads it that way, but I agree that we are not asking for 100%. He calls it a risk-based assessment; I call it a risk assessment. Apologies for the difference in language.
Liam Byrne
If we were having this debate in my constituency, my constituents would say to me and, indeed, to the Minister, “We want to hire a police officer to stop crime.” If we look at a definition of what a police officer does, they maintain law and order in local areas, prevent crime, reduce fear of crime and improve the quality of life for all citizens. We want Companies House to stop economic crime and that is what my right hon. Friend’s amendments seek to achieve.
Dame Margaret Hodge
And presumably the policeman does not knock on every door.
Dame Margaret Hodge
At the moment, the Bill says—I can’t read it because there is no bloody light! It is a thing that as you get old, your eyes aren’t brilliant:
“The registrar must carry out such analysis of information within the registrar’s possession as the registrar considers appropriate”.
We are attempting to take that wording out of the Bill to make it a duty, because otherwise we know from the other enforcement agencies and the work of other Government agencies that unless clearly directed, the real work would not be done. There would be an excuse. They would be busy doing something else. This is their key proactive role. We can go on and on about it during the course of the Bill, but I assure the Minister that the registrar should do it in a risk-based way. She should not do it, as the Bill says, as is appropriate; she should just do it. That is really the first thing.
I will quickly describe the bottle laundromat. The Minister and I are very familiar with all the stories, but other members of the Committee are not, and the stories are pretty shocking. Every time we hear another one, it is shocking. The stories reinforce the justification for the sort of interventions that Labour Members want to include in the Bill.
Dame Margaret Hodge
I think this is about a different interpretation of words.
The amendment would require Companies House to conduct risk assessments of the information and data it holds on the register for the purposes of the prevention and detection of economic crime. The amendment also creates a basis for new clauses 37 and 38, to introduce an obligation on Companies House to use all the data it collects to identify where economic crime risks lie.
I genuinely think we are quarrelling about words, not about what we want to do. On the basis of that risk assessment, or whatever word the Minister wants to use, Companies House would then decide when to use its powers proactively.
Interestingly enough, my wonderful staff have looked it up, and everybody else uses these terms. We are not alone in this. The Financial Action Task Force standards talk about risk assessments. It talks about a “risk-based approach”. Is that language better for the Minister?
Dame Margaret Hodge
It means the same to us—I think the Minister is really being a little bit pedantic here. If we bring the amendments back on Report with the words “risk-based”, perhaps we will have a better chance of getting them through.
The risk-based approach is central to the implementation of FATF’s recommendations. The UK’s AML regime and the Council of Europe use a risk-based approach, as does the private sector. I want to use a risk-based approach, and so does the Minister, so why do we not just get on with it?
Kevin Hollinrake
We do, and it is exactly what the clause states:
“The registrar must carry out such analysis of information within the registrar’s possession as the registrar considers appropriate for the purposes of preventing or detecting crime.”
In other words, the registrar identifies a red flag and then does an investigation. The right hon. Lady’s amendment 116 says:
“the registrar must carry out a risk assessment to identify where the information it holds might give rise to a matter of concern.”
That is a non-risk-based assessment.
The Chair
Order. Minister, may I intervene for a second? You will have time to respond to all this in the debate, but that is a very long intervention.
Dame Margaret Hodge
I have to say we disagree, but I will come back to this issue. I think our proposals strengthen the Bill.
I tabled my amendments to clause 88 because I do not support the wording of
“as the registrar considers appropriate”.
I have to say to the Minister that we discovered in this morning’s sitting that the company registrar has so far registered 3,000 properties for a register that has now been in place since August. In three months, she has done 3,000, but there are 138,000 to deal with. At that rate—if she does 12,000 a year—she will be there till doomsday, so putting a little bomb underneath her to ensure that she takes action is important.
Liam Byrne
My right hon. Friend is making a brilliant speech. If anything, the Minister has caused more alarm than he might have intended this afternoon by referring to the language in the Bill that says the registrar must take account of the information that she holds. There is no way that we would ask a police officer to police Hodge Hill simply with reference to the information that that police officer happens to hold. We would ask the police officer to look at the crime environment in the constituency as a whole, taking account of all kinds of perspectives, not simply the information that he or she happened to have in their little black book.
Dame Margaret Hodge
I will move on to new clause 37, which has the aim of checking that the stated person of significant control really is the person who controls the company. Powers to get information, to reject documents, to require information and to remove documents all sit in the Bill. The new clause would ensure that, through a risk-based assessment—I just reiterate that for the Minister—Companies House would proactively check that the person named as the PSC was the PSC in reality. Current legislation requires the ID verification of a company owner, but not the verification of their status as a company owner, so the risk remains that nominees will continue to be put forward as owners of companies despite the real control being elsewhere. The risk is heightened if the Minister does not move to ensure that company service providers are properly regulated, supervised and vetted before the whole system comes into force.
In the current system, there are endless examples that demonstrate the extent of the problem that the Minister and the Government are trying to tackle—we are trying to contribute to that process. One is the famous dentist in Belgium. From an interrogation of the Companies House register, we know that five beneficial owners control more than 6,000 companies, which is a huge red flag. Some 4,000 of them are under the age of two, and 400,000 companies—almost 10% of the total—still do not declare a person of significant control. We have the Azerbaijan laundromat example, where a lorry driver in Baku was named as the person of significant control and had no idea that kleptocrats from Azerbaijan were taking all the money out of the banks and money laundering it elsewhere.
There is one filing in Companies House for which I thought I would name the person of significant control. The company is called Global Risks Reduction Funding Ltd, and the name is listed as—I will take a deep breath—
“Neutral-Claimant-Federal-Witness-Director-Captain-Postmaster-Bank-Banker-Plenipotentiary-Notary-Judge-Vassalee For The Vessel-Phouthone-Thone: Siharath.”
I do not think anybody has questioned that as the person of significant control. The whole thing is absurd.
An important point for the Minister is that, in 2019, Transparency International did a quick Google search and found 23 active company service providers that were offering the service of nominee persons of significant control—that was one quick search of one directory. When Global Witness undertook research on Scottish limited partnerships, it found that 40% of the beneficial owners of Scottish limited partnerships were either a national of a former Soviet country, or a company incorporated in the former Soviet Union.
Alison Thewliss
I have been tracking for some time the number of times when a person of significant control for Scottish limited partnerships has not even been registered. Does the right hon. Lady agree that it is ridiculous that there are still 201 companies for which a person of significant control does not exist at all?
Dame Margaret Hodge
Yes. The law is being broken but nobody is pursuing those who are guilty.
These are all reasons for closely monitoring data on persons of significant control. The measure would simply put a duty on Companies House to be proactive and to check the status of the person named on a risk-based basis, not just via their personal details.
New clause 38 deals with dissolution, which has been raised with me by a number of stakeholders. We know of numerous instances of bad people dissolving companies for nefarious purposes. The new clause would ensure that the registrar looks at the accounts of a company seeking to dissolve to ensure that no fraud or other crime has occurred. If the registrar found such cause for concern, she would have to pass the information on to relevant enforcement agencies.
We are all very familiar with the phoenixing of companies and the role that that practice has played in facilitating fraud. I have chosen as an example the case of Rodney and Pauline Williams, which is typical. They ran a company called Curio Bridal Boutique Ltd. They made false representations to take money out of the company and put it into another company in anticipation of winding up Curio Bridal Boutique. They took £111,000, of which they put £42,000 into the pockets of their own family. They were detected and convicted, but sadly the successful detection of such cases is all too rare and the practice happens all too often.
The Troika Laundromat—another of the laundromats that has hit us over the last 10 years or so—is another example of where a leak of documents showed how one of Russia’s largest investment banks, Troika Dialog, was central to the channelling of billions of dollars out of Russia. That leak covered 1.3 million transactions. It involved more than 1,000 UK limited liability partnerships, and it was found that the UK had been handling nearly £10 billion of dodgy Russian money. One UK-based company was found to have made payments totalling £360 million, although it filed accounts each year and dared to declare itself dormant. It then dissolved itself in 2014. That company was called Stranger Agency LLP.
Seema Malhotra
It is a pleasure to speak in this debate on amendments and new clauses relating to clause 88. My right hon. Friend has gone through the measures in considerable detail, so I will limit my remarks, but I want to put on record a number of points about them, because they are important.
Amendments 119, 120 and 116 would ensure that the registrar, rather than carrying out analysis as she sees appropriate, would analyse information in her possession with a view to preventing or detecting crime. I hope that hon. Members agree that we all want the same thing. I also hope that the Minister recognises the work that has gone into thinking this through and seriously considers taking some of the sentiments and wording of the amendments, or perhaps some other wording, to add another layer of robustness to the Bill.
Although the clause does not contain many subsections, it is important, because it is a very big aspect of what we need to be working to achieve and supporting the registrar to achieve, yet it does not go into much detail about Parliament’s intentions and what the Minister expects. The Minister and I disagree slightly. Although I agree that some of the amendments might be slightly more prescriptive than we might like—that is partly about probing and making points on the record—the clause sets out remarkably little direction on a very big part of what we want the registrar to do. I hope that the Minister will be able to reflect on the amendments in the round in the context of adding a layer of robustness to the Bill by ensuring that the registrar is clear on her duty to use the information available and the importance of doing so, and therefore giving confidence. Sometimes when legislation is a little too broad, or not clearly interpreted, it can lead to inertia. It is not always clear what can be done or what was intended by Parliament. Therefore, the reaction is to do less just in case something would cross a line. That is where clarity on how the legislation will be interpreted is important. If there are ways in which we can go further without a downside, we should consider them.
Amendment 120 would ensure that, in carrying out the analysis, the registrar will make use of the power to require additional information under section 1092A, where the registrar considers that additional information may contribute. Making that explicit would be helpful. Amendment 116 would require the registrar, when analysing information for the purposes of detecting and preventing economic crime, to take a risk-based approach. I think that we all agree on that, but my right hon. Friend the Member for Birmingham, Hodge Hill expressed what we expect from the police in terms of thinking a little more widely in relation to the prevention of crime.
We do not seek to extend the requirements too far beyond what is practical for the registrar to do, or to detract from their main responsibilities. This is complex, and it is important to think about the role and objective of prevention, and to give some greater clarity about what might be expected by Parliament in relation to achieving it. Where the risk-based assessment that could be carried out identifies a matter of concern, it would be clear that it was Parliament’s intention that further analysis that may be needed can be carried out, and that information can and should be shared with the relevant law enforcement agency.
As we have stated, the amendments would help to ensure that the legislation in the end does in practice what it sets out to do. That is what we all want to achieve. Indeed, the amendments would give a little more shape to the proactive role that Companies House would have in detecting and preventing economic crime.
I will speak briefly to new clause 37, tabled by my right hon. Friend the Member for Barking. We welcome the new clause, which would insert a duty on the registrar to check an individual’s person of significant control status. That would apply where the registrable person’s identity is verified in the way that she outlined. The registrar would then take steps to ensure that the registrable person whose identity is being verified is indeed a person with significant control over the company. The new clause would ensure that, where there is an identified risk suggestive of potential economic crime with regard to a registrable person who is a person of significant control, that person’s status is then investigated by the registrar or put forward for further investigation, depending on the circumstance.
As we have called for throughout the Committee, we must ensure that the Bill acts on its aims and helps move and encourage Companies House to shift from being a passive administrator to a proactive agent, because Companies House plays a very important role as a first line of defence. The new clause would do just that. I welcome the Minister’s thoughts on these measures. If he opposes the new clause, as he has hinted he might, can he see some arguments for adding some necessary teeth to the legislation, and might he bring forward suggestions of his own?
New clause 38 would provide that in a case where the registrar’s risk assessment under section 1062A(1A) has identified a matter of concern in relation to a dissolved company, the registrar must examine the accounts of the dissolved company with a view to establishing whether any economic crime has been committed. The registrar must share details of any evidence gathered under subsection (1A) with the relevant law enforcement agencies. We welcome the introduction of the new clause, as it would ensure that directors of companies that have been set up and used for fraudulent or criminal purposes are unable to simply dissolve the company to avoid scrutiny or investigation before potentially committing a similar offence with another company.
R3, the insolvency and restructuring trade body, said in its written evidence to the Committee that
“the Government has missed a crucial opportunity to truly close some of the loopholes currently exploited so easily by fraudsters. The Bill’s proposals will be limited in their efficacy to bring about real change to preventing and disrupting economic crime if companies used as vehicles for fraud continue to be dissolved and struck off the Companies House register automatically, with next to no due diligence carried out to ascertain whether the company has been involved in fraudulent activity”.
New clause 38 would tackle precisely that issue, which has arisen in other parts our debate, and introduce the due diligence necessary to ascertain whether a dissolved company has been involved in criminal activity. In its evidence, R3 outlines that around 400,000 companies—I think the Minister also cited this number—are dissolved and struck off the Companies House register each year. We would be grateful if the Minister responded to what we see as a loophole and, in light of previous discussions, explained whether it goes as far as it could.
I will speak briefly to new clauses 41 to 43. New clause 41 would require a person who controls 5% or more of the shares in a public company to disclose the total amount of their shares to the registrar. It would also require a person controlling shares through multiple nominees to declare the total number of shares they control.
New clause 42 would require Companies House to verify both the identity and the shareholding of a person who controls 5% or more of shares in a company where the registrar’s risk-based analysis set out in amendment 116 has identified a matter of concern. New clause 43, tabled by my right hon. Friend the Member for Birmingham, Hodge Hill, would introduce a new provision requiring disclosure of shares held by a nominee. Under the new clause, any person holding shares in a public company as nominee for another person must disclose that fact to the registrar. The registrar may also impose a penalty on any person who fails to comply.
Liam Byrne
It is a pleasure to speak to new clause 43, which is in my name but has been drafted with the assistance of my right hon. and hon. Friends. In introducing it, I have to think that the Minister is a lucky man, because there are very few opportunities when any of us in this place have the chance to translate a life’s work into the law of the land. Yet that is precisely the opportunity that we have afforded to the Minister, who is steering the Bill so ably through Committee. That is why we are here to help him. The Minister will know that he is living the dream.
I know that the Minister is not insensible to the scale of economic crime in this country or to the threat that it poses, because I was privileged enough to be there in Westminster Abbey just a few months ago, when he got up to speak with his customary eloquence to the launch of the economic crime manifesto. That has been drawn up with input from so many right hon. and hon. Members, and it is the manifesto that declares loud and clear:
“Dirty money is a national security threat…Dirty money causes massive financial damage…Dirty money is damaging the UK’s reputation…Dirty money may be pushing up prices for British citizens…Dirty money undermines the rule of law and democratic institutions.”
The Minister knows what he is talking about when it comes to the Bill, which is why he is stewarding it so ably through Committee. That is why I know that, as a canny captain in his Department, he is alive to all the constructive recommendations that we are making to him, because that that strengthens his hand.
The Minister has obviously got some theatre to perform because he has to get the Bill through the House and then get it through the House of Lords, and then back through the House of Commons. As an experienced and seasoned political operator, he will know that it is really wise to make a few strategic concessions to the Opposition to keep them on side. Although he has not revealed that yet by making us any concessions, it will not be long, and it could be at the conclusion of my speech to new clause 43, because it is a blindingly obvious improvement to a current hole in the Bill.
To make that case, I need to demonstrate three things this afternoon: that use of proxies by bad people is a problem; that use of proxies by bad people is a problem here in our country; and that the Bill is deficient and needs toughening up.
Let me share a few examples of why proxies are such a problem. Where better to start than with exhibit A, Roman Abramovich, who was finally sanctioned earlier this year after a disgraceful period of licence in which he was allowed to do terrible things like buy football clubs? Now he has of course put Chelsea football club into some sort of trust. The money is frozen. He has declared that all net proceeds from the sale will be donated to the victims of the war. Members on both sides will have been as surprised as I was to hear from the Foreign Office Minister this morning at Foreign Office questions that that money has still not been routed to victims of Russia’s barbarity in Ukraine; it is still frozen by red tape and bureaucracy in this country.
That is an outrage, because Roman Abramovich secretly transferred hundreds of millions of pounds in assets, including private jets—including the world’s biggest private jet—to his children just days before he was placed under sanctions. That is not my view; that is the view of the Federal Bureau of Investigation. The oligarch has seven children, aged between eight and 30. He is alleged to have made his offspring the beneficiaries of an offshore trust in Cyprus that controls his assets. That transfer was made in February and included a £282-million Boeing 787 Dreamliner, super yachts and trophy items bought through a network of shell companies, including some in Jersey and the British Virgin Islands: Wotton Overseas Holdings Ltd, Jersey; Clear Skies Flights Ltd, Jersey; and Wenham Overseas Ltd, British Virgin Islands.
All that begins to illustrate how a bad actor has used proxies to circumvent sanctions and sanction controls. The tragedy of course is that it was not Companies House that proactively brought the matter to the House to say, “Here we are, folks. I think we have a bit of a problem”; no, we have to learn about it not from Companies House or a British crime enforcement agency, but from the United States, where the authorities brought an action and forced disclosure of the information in the American courts. That underlines my point that use of proxies is a systemic problem.
I want to go further, however, and to illustrate how the use of proxies is a systemic problem of economic crime here in our country. Who better to illustrate that than Alisher Usmanov? He has strong ties to President Putin and his inner circle. On 22 March this year, it was revealed that Usmanov’s sister, a gynaecologist based in Tashkent, had the beneficial ownership of 27 different Swiss bank accounts with hundreds of millions of dollars in them. In fact, analysis of the suspicious activity reports related to those accounts showed that they had been moving around about $1.6 billion. That was revealed in The Guardian newspaper. His assets include a $600-million super yacht, the Dilbar, an Airbus H175 helicopter and UK properties including Sutton Place, a 16th-century Tudor house in Surrey, which are held through a range of different trusts. He is widely known as someone whom we should be taking far more aggressive action against than we are today.
We then have the case of Dimitry Mazepin. He was —is—the controller of Uralchem and a number of other fertiliser companies on behalf of President Putin and the Russian Government. Among the holding companies in Mazepin’s group is Uralchem Freight, based in Cyprus, which has control of a fertiliser terminal in Latvia. The Latvian press, however, reports that the beneficial owner of that organisation is someone called Aamar Atta Bhidwal. That is the same name as a director of Quest Resources, incorporated at Companies House on 16 July 2021, in Guisborough. The co-director was someone called Gordon Alexander, a director of Hutton Chemicals. Quest is also, we are told, in the beneficial ownership of a company with close association with Mr Mazepin.
Clearly, there is already a risk that UK nationals on the Companies House register can be used as proxies, whether wittingly or unwittingly, by someone who is sanctioned.
Kevin Hollinrake
I intervene in the hope that I might abbreviate the debate—I am probably going to fail. Is the right hon. Gentleman aware that it is already the case in law that a share held by a person as a nominee or proxy for another is to be treated as though the share is held by the true owner? Also, in law, failure to declare the true owner is a criminal offence. Is he aware of that?
Liam Byrne
Yes, of course, but the Minister must also be aware that the provisions he has sketched into the law have comprehensively failed, as my next example will now prove.
Mazepin was the majority owner of Hitech Grand Prix, and his son was a racing driver. His company, Uralkali, was the sponsor of this company until March 2022. In March of this year, 75% was transferred to a company called Bergton Management Ltd. The shares were not sold; they were relinquished. There does not seem to have been any cash paid out for this major economic interest in a globally significant grand prix company.
From Bergton Management Ltd, the ownership of the assets moved to somebody called Oliver Oakes, who now controls 75% of the shares. He created Uralkali racing in January of this year. In an interview last year, he called Dmitry Mazepin a friend, associate, colleague and manager. I saw from the Companies House register this morning that he created Hitech Global Holdings on 11 March 2022, just three days after Mr Mazepin and his son were sanctioned.
There is a clear risk that oligarchs are using proxies, and that this misbehaviour is washing up on our shores and in Companies House. That leaves us with the third question: whether there is a hole in the Bill here. We need look no further than the evidence that UK Finance provided to the Committee. I said:
“So you would say to Members of Parliament who are worried about bad people transferring control of an economic asset to proxies that, at the moment, we do not have enough safeguards in the Bill.”
The answer came:
“I think they could be improved, yes.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 11, Q10.]
Here is a simple opportunity for the Minister to apply a bit of good old-fashioned belt and braces, make the Opposition happy, keep them on side and ensure that some of his former colleagues who put together the economic crime manifesto are singing his praises wherever they can—accept either the principle or the wording of new clause 43. It asks for nothing more than that any person holding shares in a public company as a nominee for another person must disclose that fact to the register, or face a sanction. That is straightforward, it is not complicated, and it would make a difference.
Kevin Hollinrake
I am grateful to the right hon. Gentleman for his kind words. I remember very clearly my speech in Westminster Abbey that night. He might remember that I talked about corporate criminal liability and whistleblower reform, which are absolutely essential. Indeed, at least one of those falls under my portfolio, so I am certainly committed to bringing forward those reforms when I can.
The only difference between hon. Members of the Opposition and ourselves is the means by which we would achieve the same end. On amendments 119 and 120, I am always happy to look at sensible amendments that take us forward. When Opposition Members talk about those cases, they are talking primarily about cases in the past where we did not have the powers that this Bill provides, and where we did not have the level of enforcement; we both agree that that needs improvement.
Where we differ is on how we go about this. I have serious concerns about the provisions in amendment 116, tabled by the right hon. Member for Barking, which seem to require the registrar to look at every single company on the record. That is exactly what it says. It says that the registrar
“must carry out a risk assessment to identify where the information it holds might give rise to a matter of concern.”
The registrar can do that only by looking at every single record.
Kevin Hollinrake
I will just develop my arguments. I listened to hers at length, and I heard them very clearly. Our approach is a more workable one. I do not think her approach is workable. I think that if we listen to each other’s arguments, we are probably saying the same thing. We are trying to overlay the information that sits with the registrar herself in Companies House with information from others, such as banks, lawyers, accountants—we discussed that in earlier debates—and law enforcement agencies in order to identify where the information she holds identifies risks, so that she can then carry out an investigation.
Kevin Hollinrake
I will develop my point a little further, and then I will let the right hon. Lady intervene.
Liam Byrne
My concern was to ensure that the registrar has a crime-fighting obligation, and that when she conducts her risk assessments, she is not constrained merely to the information that is before her—that which is on the register.
Kevin Hollinrake
As the right hon. Member knows, objective 4 establishes exactly that: an obligation
“to minimise the extent to which companies and others carry out unlawful activities, or…facilitate the carrying out by others of unlawful activities.”
That is quite clearly in the Bill.
New clauses 37 and 38 would require the status of a person with significant control and the accounts of dissolved companies to be checked by the registrar. The registrar would be required to carry out a risk assessment of all those companies—roughly 1,000 companies per day. Members might be thinking that every person with significant control has some connection to Russian dirty money or Russian oligarchs, but the vast majority of state-owned enterprises have a person with significant control, because they own more than 25% of those companies. For the registrar to look at 1,000 companies every single day to determine whether there is a risk, and then investigate further—that is exactly what the right hon. Lady’s new clauses would require—would not be practical.
Dame Margaret Hodge
This is becoming a rather absurd psephological debate. I have just asked my right hon. Friend the Member for Birmingham, Hodge Hill whether I have got the wording wrong—whether there is a great difference between risk assessment and risk-based assessment. Perhaps Government Members will tell me differently, but those two things are the same, and we should not try to locate a difference between them.
The last thing any of us wants to do is micromanage any of our organisations through legislation, but we have to look at the experience and the record of all the enforcement agencies and bodies in the financial services sector over the years. If we have colleagues of ours in the House doing that, they will meet with massive criticism. One way to tighten and toughen this up without having to get involved in the minutiae is to move from powers to duties, which is the purpose of a lot of the amendments we are debating today. If the Minister does not take seriously some of these practical suggestions, he is in danger of setting up a new system that is as open to abuse as the current system, and we will be back here in a couple of years putting it right.
Kevin Hollinrake
All legislation needs improvement, but we must not put the registrar under a duty that makes her job impossible. That is what the right hon. Lady’s amendment would do. That is what I am pointing out to her; not that I do not think—
Kevin Hollinrake
I cannot let the right hon. Lady intervene again. We are pressed for time. We just do not agree on this point. I think that we agree on the broad sentiment that there should be a risk-based analysis, but that is not what her amendment says.
With 1,000 companies resolved every day, it would be impractical to have a risk assessment of every single one of those companies and to then do the risk-based analysis. I think that the amendments are too directive, and I ask Members not to press them. I am happy to consider whether there is a less prescriptive formulation that we could add to the clause to have that effect. I completely understand and concur with Members’ broad objective. Of course we want a proactive regulator who determines where the risks are and acts on information, be it from journalists, private sector companies or enforcement agencies, to inform her work and to make sure that she pursues those who are most likely to be guilty of wrongdoing.
A couple of Members referred to the Russian sanctions regime. In the Russia (Sanctions) (EU Exit) (Amendment) (No. 13) Regulations 2022, we broadened the designation criteria to include specified immediate family members and those with links to Russian state-owned businesses. There are, of course, things like the combating kleptocracy cell at the National Crime Agency.
New clauses 41, 42 and 43 seek to address concerns about nominee shareholders. New clauses 41 and 42 would require people who control, directly or indirectly, 5% or more of the shares in a public company to declare themselves. New clause 43 would require any person holding shares in a public company as a nominee for another person to disclose that fact to the registrar. The new clauses would put additional obligations to disclose information to the registrar on to the person who holds the shares, rather than the company to which the shares relate.
New clauses 41 and 42 would create a burden in relation to public companies that would not exist for private companies. It would not be proportionate to impose such a burden on public companies that are low risk and that have additional requirements placed on them. It is already the case in the law on nominee shareholders or proxies that a share held by a person as a nominee for another is to be treated as though the share is held by the true owner and not by the nominee. Failure to declare a shareholder is a criminal offence and if the court were to find that a person should have been registered, the person and their company would be at risk of prosecution. I hope that provides the assurance that right hon. and hon. Members need.
Dame Margaret Hodge
I know that we share the objectives, but I feel very frustrated by the inability to decide whether a risk assessment and a risk-based assessment are the same. For the life of me, I cannot see the difference. We will put it to the vote and see whether those in favour of risk-based assessments are happy to go with “risk assessments”.
Kevin Hollinrake
That is not what the right hon. Lady has put in her amendment. It says not “risk-based assessment” but “risk assessment”.
Dame Margaret Hodge
I would say that there is no difference. In amendment 116, we have “risk assessments”. For those of us who think this is the way forward, I have to say that the Minister’s argument seems constructed rather than real.
Liam Byrne
On a point of order, Ms Elliott. Can you clarify the order of consideration for the amendments and new clauses in this group?
The Chair
Let me be clear. We are discussing amendment 119 to clause 88. Does the right hon. Member for Barking want to press the amendment to a vote?
Dame Margaret Hodge
No. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendment proposed: 116, in clause 88, page 68, line 17, at end insert—
‘(1A) As part of the analysis under subsection (1), the registrar must carry out a risk assessment to identify where the information it holds might give rise to a matter of concern.
(1B) Where the assessment identifies a matter of concern, the registrar must—
(a) carry out whatever further analysis it considers necessary; and
(b) share any evidence of unlawful activity it identifies with the relevant law enforcement agency.
(1C) For the purposes of this section, a “matter of concern” includes—
(a) inaccurate information;
(b) information that might create a false or misleading impression; or
(c) evidence of economic crime.’—(Dame Margaret Hodge.)
Question put, That the amendment be made.
Kevin Hollinrake
Currently, the registrar cannot proactively share the information she holds on businesses and individuals that is of use to law enforcement agencies and regulatory bodies. Nor can she carry out routine analysis to spot patterns of behaviour that are indicative of criminal activity. The clause inserts a new function for the registrar so that she is obliged to undertake such analysis as she considers appropriate for crime prevention and detection purposes, such as spotting fraudulent activity. That will provide the statutory basis on which the registrar’s new intelligence hub will be founded. The hub will be instrumental in identifying strategic and tactical economic crime threats posed by information on the register. That has long been called for. Under the data sharing powers that sit elsewhere in the Bill, the registrar will be able to proactively exchange the fruits of her analysis. The new clause is critical in supporting law enforcement agencies to tackle economic crime.
Seema Malhotra
As I have said before, we do not necessarily have any problem with what is in the Bill. It is about what is not in the Bill. The clause is important. We have debated how it can be improved and I am sure we will come back to debate that further. On the basis that it is an important part of the Bill, we support clause stand part.
Question put and agreed to.
Clause 88 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Scott Mann.)
Economic Crime and Corporate Transparency Bill (Eleventh sitting)
Tuesday 15th November 2022
(2 years ago)
Public Bill CommitteesRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 15 November 2022 - (15 Nov 2022)
The Committee divided: - Ayes: 6 / Noes: 8 - Question accordingly negatived.
The Chair
Good morning. I have a few preliminary announcements. Please switch all electronic devices to silent. No food or drink other than water is permitted during Committee sittings.
Clause 89
Fees: costs that may be taken into account
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
I beg to move amendment 14, in clause 89, page 68, line 33, at end insert—
“(aa) any function of a Northern Ireland department under or in connection with the Company Directors Disqualification (Northern Ireland) Order 2002 (S.I. 2002/3150 (N.I. 4));”
The amount of fees set under the Companies Act 2006 is determined in accordance with regulations. This amendment allows the regulations to reflect the costs or likely costs of a Northern Ireland department in discharging functions relating to directors disqualification.
Kevin Hollinrake
It is a pleasure to speak with you in the Chair, Mr Robertson. The Bill seeks to ensure that companies and other entities benefiting from incorporated status directly contribute to maintaining the integrity of the company register. We will do that by including investigation and enforcement costs in Companies House fees. We will debate those issues shortly, but first, I hope that Members will agree that it is right that the costs incurred through pursuing enforcement activity in Northern Ireland should also be included in the Secretary of State’s decision making when setting Companies House fees, which is the effect of these amendments.
Amendment 14 agreed to.
Amendments made: 15, in clause 89, page 68, line 36, at end insert—
“(ba) any function of a Northern Ireland department under or in connection with the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), so far as relating to bodies corporate or other firms;”.
The amount of fees set under the Companies Act 2006 is determined in accordance with regulations. This amendment allows the regulations to reflect costs or likely costs of a Northern Ireland department under the insolvency legislation.
Amendment 16, in clause 89, page 68, line 40, at end insert—
“(d) any function carried out by the Insolvency Service in Northern Ireland on behalf of a Northern Ireland department in connection with the detection, investigation or prosecution of offences, or the recovery of the proceeds of crime, so far as relating to bodies corporate or other firms.”.—(Kevin Hollinrake.)
The amount of fees set under the Companies Act 2006 is determined in accordance with regulations. This amendment allows the regulations to reflect costs or likely costs of the Insolvency Service in Northern Ireland in connection with enforcement.
Stephen Kinnock (Aberavon) (Lab)
I beg to move amendment 115, in clause 89, page 68, line 40, at end insert—
“(3B) Prior to making any changes to the level of fees payable to the registrar, the Secretary of State must—
(a) consult with the registrar on the proposed changes; and
(b) set out in writing what the basis is for the proposed changes, with reference to subsection (2) above.”.
The Chair
With this it will be convenient to discuss the following:
New clause 25—Fee for registering a company—
“(1) The Companies Act 2006 is amended as follows.
(2) In section 1063, after subsection (3), insert—
‘(3A) Regulations under this section must set a fee of at least £50 for the incorporation of a company.’”.
New clause 33—Fees—
“(1) Section 1063 (Fees payable to registrar) of the Companies Act 2006 is amended as follows.
(2) Before subsection (1) insert—
‘(A1) The registrar must charge a fee of £100 for the incorporation of a company.
(B1) The Secretary of State must once a year amend the fee in subsection (A1) to reflect inflation.
(3) In subsection (1)—
(a) after “fees” insert “other than the fee in subsection (A1)”
(b) in paragraph (a) after “functions” insert “other than the incorporation of a company’.
(4) In subsection (5), in paragraphs (a) and (b) after ‘regulations’ insert ‘or subsection (A1)’.”.
This new clause requires Companies House to charge a fee of £100 for the incorporation of a company. It gives the Secretary of State the power to amend this fee once a year to reflect inflation.
New clause 40—Retention of fees by Companies House—
“(1) The Secretary of State must report to Parliament on the case for incorporation fees for companies being retained by the registrar.
(2) The report must be laid before Parliament within three months of this Act being passed.”.
Stephen Kinnock
It is a pleasure to serve under your chairship, Mr Robertson. I rise to introduce amendment 115. When considering any piece of legislation that creates new criminal offences, one of the most important questions we have to ask is how confident we can be that the offences will be adequately policed and enforced. The question is particularly relevant in our deliberations on this Bill, because there is such a wealth of evidence that the laws we already have on economic crime are not being enforced as rigorously as we would hope. The reason is clear: the chronic under-resourcing of the various law enforcement bodies in recent years—or, to put it another way, under this Government.
I am sure that the Minister needs no convincing on this point. In fact, some of the most compelling arguments for greater resourcing for economic crime enforcement have been made by the Minister himself. Just over four months ago, he joined my right hon. Friend the Member for Barking in leading a debate on this issue. The motion for that debate pointed out that
“law enforcement agencies are significantly under-resourced to deal with the scale of the problem”.
In speaking to the motion, the Minister pointed out:
“We know that roughly 40% of our crime is economic crime, yet only 0.8% of our resources in man hours are dedicated to tackling economic crime, so there is a huge disparity.”—[Official Report, 7 July 2022; Vol. 717, c. 1042.]
Those figures are striking, and it should alarm Committee members that the Bill is likely to widen that disparity even further. The reforms to Companies House set out in part 1 of the Bill represent
“its biggest upgrade in 170 years”.
Again, I am quoting the Government’s own words. It is still the case today that if someone goes to the official Companies House website to search the register, they find a disclaimer stating:
“Companies House does not verify the accuracy of the information filed”.
Of course, one of the most important goals of the Bill is to change that, through new requirements on Companies House to verify the accuracy of new filings, and to continuously monitor and update records; but despite that fundamental shift in the scale and scope of its responsibilities, there is nothing in the most recent corporate plan for Companies House, published in July this year, on increasing either its budget or workforce in the light of those changes.
Not only is there unlikely to be additional Treasury funding for Companies House, but it appears there may even be cuts. Given the repeated warnings from the Chancellor to expect “eye-watering” decisions on public spending in this week’s fiscal statement, it seems unlikely, to say the least, that Companies House can expect a financial settlement that is even remotely commensurate with its obligations under the Bill. If the Minister could provide any reassurance to the contrary, it would certainly be welcomed by the Opposition—but we are not holding our breath.
In the absence of more resources from the Treasury, we are left with just one option, which is for Companies House to generate more income from registration fees. The case for higher fees is compelling. Not only is there the increased workload that the Bill will create for Companies House, but it has been abundantly clear for some time that the fees charged for registration are ludicrously low. The Minister is aware that it is undeniably too cheap, quick and easy to form a new company in the UK; there is minimal to non-existent verification or oversight.
For evidence of what appears to be emerging cross-party consensus on the necessity for higher fees, we need look no further than the exceptionally thoughtful and balanced report on economic crime published by the Treasury Committee in February this year, which stated:
“The low costs of company formation, and of other Companies House fees (such as filing fees), present little barrier to those who wish to set up large numbers of companies for dubious purposes…The Government should…review…Companies House fees to bring them closer to international standards.”
As a member of the Treasury Committee at the time of the report’s publication, the Minister presumably agreed with that statement back in February. I see no good reason why the position would have changed since then.
It is striking that the Bill does not address the question of fees payable to Companies House until clause 89. Even then, the clause sets out what costs may be taken into account in setting future fees, but avoids the next logical question of what an appropriate fee might be. Like so many fundamental details of how the legislation will work when in force, that has been left up to regulations that will be made at some indeterminate point in the future. It does not seem unreasonable to expect, or at least hope for, more detailed provisions on the subject in the Bill.
Clause 89 refers to the need for future regulations setting new fee levels to reflect the expanded responsibilities of Companies House under the Bill and other recent legislation. That is welcome as far as it goes, but unfortunately it does not go far enough. Through amendment 115, the Opposition seek to fill some of the gaps left open by the Bill by introducing an explicit requirement for the Secretary of State to consult with the registrar before changing fees. It would also require the Secretary of State to set out explicitly in writing the justification for any changes to the functions and workload of Companies House.
The amendment would provide a stronger statement of the necessity of setting fees at a level commensurate with the actual day-to-day needs of Companies House in carrying out its responsibilities under this and other relevant legislation. It should go without saying that fees should not be set at such low rates that we become a magnet for dodgy business dealings by criminals in search of the weakest possible regulatory environment; but it is not by any means clear that we can trust the Government’s wisdom in determining appropriate fees. A clearer, stronger set of criteria for such decisions should be incorporated into the Bill. Amendment 115 provides what we hope is a useful way forward.
Turning to new clauses 25, 33 and 40, there are strong arguments in favour of setting a specific level of fee as a baseline for any future changes. We should all be in agreement by now that the current fee—it is just £12 to register a company—is far lower than it should be. Certainly, that was the message from the many expert witnesses who gave evidence to the Committee last month. I recall in particular the testimony of Nick Van Benschoten of UK Finance, who pointed out that the UK’s £12 fee puts it in closer alignment with countries such as Benin and Turkmenistan than with comparably well-developed economies in Europe and North America, where fees roughly in the range of £50 to £100 are the general rule.
New clause 25, tabled by Scottish National party Members, suggests a minimum fee of £50. That would certainly be a good start, but the Bill could and should go further. New clause 33, tabled by my right hon. Friend the Member for Barking, would require a fee of at least £100 to be charged for company formation, with annual increases based on inflation. On behalf of the official Opposition, my hon. Friend the Member for Feltham and Heston and I are pleased to add our names to the proposed new clause, which we believe is a necessary and proportionate solution to the problem at hand.
It should be pointed out that the figure of £100 has not been plucked out of thin air. It is useful to return to the report that I mentioned by the Treasury Committee, of which the Minister was a member at the time. It concluded that a £100 fee for company formation would not deter genuine entrepreneurs, and would raise significant additional funding for Companies House and the fight against economic crime. It would be helpful if the Minister could confirm whether that remains his view. If he has changed his mind, he may wish to say a little about the basis on which he has done so.
New clause 40, also tabled by my right hon. Friend the Member for Barking, would add a further requirement on the Government to review and report on the case for measures to ensure that any future revenue from fees can be retained by Companies House for reinvestment in its work to police and enforce our laws against economic crime, under its remit as set out in the Bill and elsewhere. Again, this is a common-sense proposal that we should all welcome. It should not continue to be the default position that either all or a large part of any fees payable to Companies House go straight to the Treasury, with no guarantee that there will be any reinvestment into efforts to tackle economic crime. New clause 40 would make an important contribution by addressing that problem. I look forward to hearing the Minister’s response.
Alison Thewliss (Glasgow Central) (SNP)
New clause 25 is a probing amendment. I am minded to have a higher fee than £50, but what does the Minister think the baseline ought to be? Is it £100 or £50, or is he not prepared to put a number on the minimum price for registering a company? By way of contrast, a provisional driving licence fee application is £34, a passport is £75.50, and citizenship is £1,330 pounds. The Government are prepared to levy a whole range of fees for a whole range of privileges to do with living in this country; £12 to register a company seems miraculously low in comparison to all the other fees that the Government are willing to charge. In all those cases, I am sure that the Government would say that they are trying to recover costs, but they are not prepared to say how much it would cost to run Companies House in such a way that it can prevent economic crime, although that is pretty crucial to the whole endeavour.
I agree with everything the hon. Member for Aberavon has said, and I support the amendments from the right hon. Member for Barking, who is, I am sure, absolutely correct in everything she is about to say; I often agree with everything she says. I draw the Government’s attention again to the written evidence from UK Finance, which says:
“Clause 89 should be amended to ensure an initial increase in registration fees within six months of commencement, and to ensure annual reporting on planned investment, fee increases and scheduled implementation of new powers.”
If we set a minimum in legislation and do not update it, the problem is that often prices increase—mostly artificially, but also through factors such as the runaway inflation that we see in the UK at the moment. It is important to commit to an annual increase and annual reporting to ensure that fees keep pace with changes in a way that is considered reasonable.
Twelve pounds to register a company is really nothing in the grand scheme of things. I ask the Minister to consider how we can better ensure that the Companies House registration scheme forms part of the deterrent. Rather than allowing the bulk creation of lots of small companies at £12 a pop, we can ensure that people say, “This is a real company. There is a real financial commitment to it.” I do not think that any company will be deterred by a fee of £100 rather than £12.
Dame Margaret Hodge (Barking) (Lab)
On a point of order, Mr Robertson. Why is new clause 29 not included in this group?
Dame Margaret Hodge
Thank you. New clause 29 is on a similar area of debate, so there might be a bit of repetition when we come to it. The new clauses we are discussing speak for themselves. The Minister knows full well that it is really important that we get a grip on economic crime, and that means resourcing our enforcement agencies. He often says—and I completely agree—that it is pointless passing legislation if we do not enforce it, and that means funding agencies properly. If we look at the record on enforcement, it is pretty abysmal right across the piece.
That particularly goes for Companies House. The first conviction it achieved was against Kevin Brewer, a man in his mid-60s who formed a company and stated that Vince Cable, then Secretary of State for Business, Innovation and Skills, was a director and shareholder. He formed another company and put Baroness Neville-Rolfe and the right hon. Member for Braintree (James Cleverly), now Foreign Secretary, down as directors. He did it to demonstrate that Companies House never checks the data. When he put that information in the public domain, Companies House’s response was to sue him, and he had to pay a hefty fine. I am sure that the Minister will agree that this was a case of a genuine whistleblower trying to demonstrate that the system was not working and being wrongly pursued by the authorities. It should never have happened. That is the record of Companies House to date. We hope the reforms we are discussing and debating will improve the matter.
The current position is absurd. Everybody has used figures, but the figure that I like to use is the £12 it costs to form a company against the £1,220 it costs to get a visa for a skilled worker. Our perspective is just wrong. Everybody wants to make it easy to create new companies, but any business worth its salt would not find a greater sum an inhibiter to creating a new business. We just have this completely wrong, and that is what the Opposition are trying to put right in a way that does not burden the taxpayer.
Dame Margaret Hodge
I know it is, but most of that comes from the economic crime levy. The £300 million comes from the economic crime levy; £100 million comes from the Government’s coffers. Correct me if I am wrong, but that is my understanding of it, so a third of that—£32 million or £33 million—is the Government’s annual contribution out of taxation. That is where I got the figure from. If I am wrong, I stand to be corrected, but that is my understanding.
Looking across the world, even the British Virgin Islands, our favourite secrecy jurisdiction, charges £1,000 to people who wish to create a company there; I cannot think that that has put anyone off using the BVI if they want a secrecy jurisdiction to support them. Australia charges £247; in the USA, in California, it is £150; in Delaware, another secrecy jurisdiction, it is £590; in New York, £570; Italy, £2,000; and Germany, £383. Even with our new clause, we would still be a cheap place in which to do business.
That is all I need to say at this point. We brought in new clause 40 because we think that should also be embedded. The Minister may tell me that it happens, but we think it should be embedded in legislation so that no future Government are ever tempted to take the money they earn from fees and put it towards other purposes. I hope that the Minister will accept that.
Again, correct me if I am wrong, but I have not seen anything in legislation that ensures that money raised in fees goes directly to enforcement. The Minister may want to do that, but his successors may not feel the same. The issue is never a high political priority so it is important that we get sustainability for the issue over time. That is the reason for the new clause.
Liam Byrne (Birmingham, Hodge Hill) (Lab)
It is a pleasure to speak with you in the Chair, Mr Robertson. It is fantastic for the Minister to be able to kick off today with this debate—surely there has never been a Minister as lucky as this one is in taking this Bill through Committee. Here we have an entire Opposition side of the Committee united in wanting to give the Minister the tools to do the job—the job for which he has argued for years and years in this House.
We want to send the Minister into the spending review, with his colleague the Chancellor of the Exchequer, with his hands bound. We want to ensure that he goes into those conversations with the law of the land changed, so that he is required to put up the fees for Companies House and actually has the money he needs to do the job. We know that that is not going to damage the business investment environment in this country. How? Because it could not get any worse than it is today.
The business investment level in this country over the last 12 years has now been the worst in the G7, so it is unlikely to get any worse if fees at Companies House are put up a little bit: it is already spectacularly bad. That underlines a simple point: that the level of economic crime in this country is now so infamous around the world that it could be damaging the level of business investment here. If we are known around the world—certainly, in Washington and in European capitals—as a global epicentre of dirty money, how does that help us become a great, global hub of business investment in years to come? Obviously, it does not. There is a competitive advantage to be had by becoming one of the great capitals of clean trade. Here we are, an Opposition united in wanting to help the Minister achieve that ambition and make sure that he has the resources to do the job.
In the public evidence sessions, we heard a clear set of arguments as to why these amendments need to be made. We heard that our country has now become the centre of the Russian laundromat, the Troika laundromat and the Azerbaijan laundromat. Indeed, the Security Minister and I were on the Foreign Affairs Committee together when we heard the most appalling evidence that some of the biggest money-laundering scandals have involved UK corporate structures more than anything else; I think I am right that about 40% of the billions laundered through Danske Bank came through UK corporate structures. That is truly a mark of shame, and why Bill Browder was absolutely right when said in evidence to this Committee that it is appalling—a matter of shame—that there has been only one prosecution for money-laundering around economic crime in this country. That truly is an appalling record of law enforcement.
Worse than that, we also heard from the Independent Reviewer of Terrorism Legislation that the situation is not simply bad news for economic crime, but a national security issue. When the Independent Reviewer of Terrorism Legislation tells the Committee that it is a matter of national security that we clean up the dark mass of economic crime in this country, we as Members of Parliament ought to listen and do something about it. Then we heard from a range of police specialists who said, first, that they thought the problem was getting much worse quite quickly, and secondly, that they did not have the resources they needed to enforce the law in this area.
All that evidence points in one direction: Companies House needs more money. When we took evidence from representatives of Companies House, we heard, startlingly, that they have not even discussed their budget with the Treasury for the next financial year, which is due to start in only a few months’ time. They mooted the idea of asking for cash for an extra 100 people, which the dogs in the street know is not going to be enough to enforce the measures in the Bill.
With all his native cunning and wit, the Minister needs to find a way to make the concessions the Opposition are asking for and to agree to the amendment, so that he can be the great, historic, legendary, reforming Minister who took the bull by the horns once and for all and helped make sure that this country is once more renowned around the world as a capital of clean trade—all because of the efforts, cunning and wisdom of the Minister in accepting the amendment before him today.
Kevin Hollinrake
I thank the right hon. Gentleman and other Members for the amendments and their contributions. I would never take credit for all the progress we are making on economic crime. In fact, I would hark back to the words of Ronald Reagan, who said something like, “There is no limit to what you can achieve in life, as long as you don’t mind who takes the credit.” I am happy to share the credit with anybody on this Committee or the many people who have campaigned on the issue over the years.
One thing I do agree with the Opposition about—it is a point on which we all agree—is that Companies House and the other enforcement agencies should have enough money to do the job. That is what we are trying to get to and what I think we will get to. I also agree that, in the past and currently, enforcement agencies have been and are under-resourced, so we need to do something about that. I also have to agree with myself on the statements I made about the proportion of spending on law enforcement for economic crime and in respect of the Treasury Committee report’s conclusion that Companies House fees should be raised. My position on that absolutely stands.
I disagree on a number of points, the first being that this situation is somehow just the current Government’s fault—that somehow, Companies House fees have been reduced to £12 over recent years. That is not the case; it has been the case for years, including when Opposition Members were in charge of setting those fees. The right hon. Member for Birmingham, Hodge Hill was in the Treasury at the time when fees were at £12. The reason for that is that Companies House has always had the principle that its fees are levied to the extent it needs to do the job that it is set to do.
Kevin Hollinrake
Very briefly, because we are over half an hour into this debate already.
Liam Byrne
We are just getting warmed up. The Minister is absolutely right to flag that point. The fee level was always set in relation to the perception of the crime environment at the time, which was very different in 2009-10 from what it is today. As we have heard in the evidence, the crime environment is much worse and is multiplying exponentially each year, which is why the fees have to go up so dramatically. Hopefully, that is the point he is going to make.
Kevin Hollinrake
Again, we are all in agreement. Changing the environment is what this Bill—this very substantial document—is all about. There is no doubt that the situation has been hastened by what we have seen in Ukraine and other matters. It is absolutely high time to do this; I agree.
The shadow Minister suggested that somehow the fees to Companies House are going to face cuts in the future—that is the opposite of what is happening. I think he said the disparity would widen and there would be an absence of additional funding. That is absolutely the wrong way to look at the situation. The right hon. Member for Barking said that somehow these matters would be subject to cuts, and we would have to go to the Treasury as part of the comprehensive spending review to get funding for Companies House. That is exactly what is not happening—what is happening is that Companies House will collect the fees that it needs to do the job.
The position we take is that we do not put the cart before the horse. Companies House needs to set out exactly what resources, staffing and IT implementation it will need to do the job. It will present that to the Treasury and the Department for Business, Energy and Industrial Strategy and say, “Right, this is what we need to do”. Fees will then be set on a commensurate basis and ringfenced to the job, not stolen by the Treasury. They are set in accordance with the rules and the oversight that they need, including enforcement. As we know, Companies House is moving from that dumb register to being a proactive body, in terms of overseeing the integrity of the register.
Kevin Hollinrake
I am coming to that. The simple answer is that, when the fees are assessed, they are subject to regulations that are subject to parliamentary scrutiny. They are laid before the House before the fees are approved.
Kevin Hollinrake
It is under the affirmative resolution. Different Members have suggested different figures, from £50 to £100. The right hon. Member for Barking said £1,000, as if to say, “We charge that in the BVI, therefore why not charge it in the UK?” That was the implication. What she said was that the people who look to use those jurisdictions to hide their money would be quite happy to pay £1,000, but that is exactly the point. On 99.9% of occasions, we are not just dealing with companies that indulge in nefarious activities; we are talking about not deterring bona fide businesses by setting the fee level at a fair level that does not deter business activity but does mean that Companies House has the right enforcement capability. That is what we want to get to, and we want to ensure that Companies House is able to do that.
I will touch on a couple of the points made about the SFO case last week, which I think we all welcome. It was not actually about resourcing; changing legislation made that possible. It was about corporate criminal liability and failure to prevent, which was successfully enforced in that case. That is a lesson for us all. The right hon. Member for Birmingham, Hodge Hill said that there has been only one case ever of a successful economic crime prosecution in the UK, and that Bill Browder had said that. Mr Browder did not say that; there have been many prosecutions of economic crime. To clarify, he was talking about it in connection to the money that came out of Russia.
Companies House is funded by the fees that it charges. If the Secretary of State considered changing those fees, there would of necessity be an appraisal of the resourcing needs of Companies House before that could take place. Fees can be charged only to cover the costs of the activities that they are intended to fund, including enforcement.
In order to arrive at an appropriate level of fee, my Department would have to work directly with Companies House to determine the funding requirements. Of course, there has to be Government oversight of that, because that is what we are elected to do. It is right that the Secretary of State would oversee that and then present it to Parliament for scrutiny. I agree that companies will justifiably want to understand how and why a particular level of fee has been arrived at, but the mechanism for that already exists. Fees will continue to be set by regulations, and the basis for any changes will be included in the accompanying analysis and explanatory memorandum that are published and presented to Parliament for scrutiny.
New clauses 25 and 33, introduced by the hon. Member for Glasgow Central and the right hon. Member for Barking, will shortly set out intentions on the level of fees to be charged. We do not intend to enshrine a level of fee in primary legislation, as doing so would restrict flexibility that may be required at a future date. We will commit to reviewing the fees on a regular basis to ensure that they provide the funding that Companies House needs.
Liam Byrne
I think we all welcome the revelation that fees will be set shortly. What month of the year does the Minister think that might be?
Kevin Hollinrake
Sorry, I did not catch that. Will the hon. Gentleman repeat the question? I do apologise.
Liam Byrne
The Minister said that he will set out the fees shortly, but what month of the year does he mean by “shortly”?
Kevin Hollinrake
I am a new Minister, but I have heard many Ministers speak on such occasions and I have never heard a Minister commit to a date before.
Kevin Hollinrake
I cannot imagine that in his many years as a Minister the right hon. Gentleman would have ever set out a date, but it will be shortly.
Finally, I turn to proposed new clause 45 and the points made by the right hon. Member for Barking. The Bill amends the fee-raising power within the Companies Act 2006, in order to enable costs associated with investigation and enforcement to be included when setting the level of fees. Companies House is able to retain incorporated fee income under current arrangements between the Treasury and Companies House, with the arrangement reviewed periodically. Legislation does not set the level of fees, but rather the level of fees is set by our regulations. I have to say to the right hon. Member for Barking that that is under the negative resolution procedure and therefore receives parliamentary scrutiny.
Dame Margaret Hodge
If it is under the negative resolution procedure, the Minister well knows that it will not receive the parliamentary scrutiny it deserves. The advantage of the way we framed our new clauses is that the fee would automatically rise with inflation rather than any other mechanism being needed. I would have thought the Minister would welcome that because it would ensure consistent resourcing.
Kevin Hollinrake
I do not accept that the two things—inflation and the resources needed by Companies House—necessarily correlate. Salaries do not rise automatically on that basis. As the right hon. Lady will know, Companies House reports annually and I am keen to ensure that there is the right level of scrutiny around this type of activity in terms of resourcing, as I have said to her before. Therefore I do not think an automatic inflationary increase is right, but I absolutely believe in parliamentary scrutiny and it is something that perhaps we can discuss.
Dame Margaret Hodge
Will the Minister therefore come back with an amendment that provides for affirmative resolution?
Kevin Hollinrake
That may be something that the right hon. Lady wants to table, but this is a significant commitment, both in terms of legislation and resourcing. I cannot imagine a situation where Companies House comes to the Secretary of State or to me, as I will have some oversight over it, and say, “We need this level of resourcing, which will impact on fees in this way,” and we respond by saying, “Actually, that is too much.” It depends what they say, of course, and it is right that we have scrutiny over that, but I am sure there will be many mechanisms the right hon. Lady can use to ensure we have that level right.
Stephen Kinnock
No. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendment made: 17, in clause 89, page 69, line 5, at end insert—
“(b) the reference in subsection (3A)(d) to functions carried out by the Insolvency Service in Northern Ireland on behalf of a Northern Ireland department, so long as the functions referred to are functions of a Northern Ireland department that are of a similar nature.”—(Kevin Hollinrake.)
The amendment allows the reference to functions carried out by the Insolvency Service in Northern Ireland on behalf of a Northern Ireland department to be amended in the event that, in future, the functions are exercised otherwise than by the Insolvency Service in Northern Ireland.
Question proposed, That the clause, as amended, stand part of the Bill.
Kevin Hollinrake
As I have just set out to the Committee, clause 89, as amended, will enable Companies House fees to be used to fund enforcement and prosecution action against companies and other entities. As we increase the powers of the registrar and expand the role that Companies House and the Insolvency Service play in tackling economic crime, we need to make sure that they are appropriately resourced to carry out that activity. The clause is therefore vital in ensuring that Companies House can do that.
Question put and agreed to.
Clause 89, as amended, accordingly ordered to stand part of the Bill.
Clause 90
Disclosure of information
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
I beg to move amendment 105, in clause 90, page 69, line 24, at end insert
“and,
(c) to an insolvency practitioner appointed over a corporate who has requested information not publicly available on the register about to a corporate over which they have been appointed, or any other corporates linked to that of the entity to which they have been appointed, from the Registrar.”
This amendment would enable the Registrar to share non-public information on the register upon request by insolvency practitioners, in relation to the corporate over which they have been appointed, or any other corporates linked to that of the entity to which they have been appointed.
It is a pleasure to serve under your chairship, Mr Robertson. Clause 90 amends the Companies Act 2006, inserting proposed new sections that allow any person and the registrar to disclose information to each other, and help the registrar to perform its functions. It is an important clause that effectively widens disclosure provisions, allowing the registrar to disclose any information held, and to do so proactively where that disclosure enables the exercise of the registrar’s functions. I am concerned that it perhaps does not go far enough. We heard in evidence about the importance of clarity around information sharing, what is and is not permitted, and what can be disclosed.
It is in this light that I speak to amendment 105, in my name and that of my hon. Friend the Member for Aberavon, which would enable the registrar to share non-public information on the register on request by insolvency practitioners in relation to a corporate over which they have been appointed, or any other corporates linked to the entity to which they have been appointed. In short, the amendment would ensure that, where the registrar holds non-public information that could aid insolvency practitioners in carrying out their duties in investigating a corporate that they have been appointed to investigate, the registrar can, on request, share that information with the insolvency practitioners.
As R3, the insolvency practitioners group, laid out in its evidence to the Committee, insolvency practitioners, when appointed over corporate entities, are required by law
“to investigate a company’s affairs and director conduct…in order to discharge their duties.”
The group recommends
“that insolvency practitioners be able to request access to Companies House’s non-public information pertaining to any other corporates linked to that of the entity to which they have been appointed.”
This is a simple but quite important amendment, which would ensure that, where economic crime could have taken place in a dissolved company, insolvency practitioners can proactively request all the non-public information held by the registrar on the register that would help in either preventing or detecting the possible economic crime. It is not about a fishing expedition, or anything like that: it is about giving, in specific circumstances, insolvency practitioners the further tools that they have said are important to help them to do their incredibly important job.
I ask the Minister to give the amendment serious consideration. We are not necessarily planning to press it to a vote, because this is an area where he will probably see the merits of the argument. He may want to come back to it later, perhaps with a Government proposal, or we may pick it up again. It seems to plug an important gap in a part of the legislation that concerns the disclosure of information. The legislation is proactive, from the point of view of the registrar being able to share information; if, however, the registrar does not know where it might be needed, insolvency practitioners, who have duties under the law, should have the opportunity to request information that can provide evidence for economic crime or give insight into a company, so that potential economic crimes do not go undetected and unpunished.
Kevin Hollinrake
I thank the hon. Members for the amendment.. The registrar is already permitted to share information with insolvency practitioners for purposes connected with her own functions—clearly now expanded, given this legislation. However, we acknowledge that there may be other specific circumstances in which she wishes to share information, so I sympathise with the tabling of the amendment.
Seema Malhotra
I thank the Minister for his remarks. That is a constructive step forward. I would be very happy to meet the Minister, whether before Committee stage concludes or soon after at Report stage. It feels quite an important space. We would be prepared to look at rewording the amendment or to work with the Government on one to see if it needs to be narrower but still serve the purpose. That makes for better legislation and we would be very happy to look at it. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to consider the following:
That schedule 3 be the Third schedule to the Bill.
Clause 91 to 93 stand part.
New clause 36—Disclosure of PSC information to local authorities—
‘(1) The Companies Act 2006 is amended as follows.
(2) After section 790ZH (inserted by section 92 of this Act) insert—
790Z1 Disclosure of PSC information to local authorities
‘(1) The Secretary of State may by regulations make provision to facilitate the release of information held by companies on people of significant control to any relevant local authority which may request such information for the purposes of—
(a) tackling economic crime; and
(b) recovering a relevant unpaid debt;
(2) For the purposes of subsection (4A)(a) above, “tackling economic crime” includes any reasonable steps which the local authority may see fit to take as part of an investigation into a company which the authority has reasonable grounds to suspect may be involved in the commission of a relevant offence.
(4) For the purposes of subsection (4B) above, a “relevant offence” includes an offence under—
(a) the Proceeds of Crime Act 2002; and
(b) the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, as amended.
(5) For the purposes of subsection (4A)(b) above, a “relevant unpaid debt” includes unpaid business rates subject to recovery by the local authority under the Local Government Finance Act 1988.’
This new clause makes specific provision for relevant information to be disclosed, upon request, to a relevant local authority in connection with any effort by such an authority to investigate suspected economic crime, or to collect outstanding debts from companies which have not paid business rates.
Kevin Hollinrake
Currently, the registrar is restricted in what information she can share, which can be done only on a reactive basis. Clause 90 enhances the data sharing powers of the registrar so that she can proactively share information. Sharing will be allowed for the purposes of the registrar’s own functions or where she is sharing with a public authority for the purposes of their function.
Schedule 3 makes consequential amendments to the Companies Act 2006 and the Economic Crime (Transparency and Enforcement) Act 2002 resulting from clause 90. Clauses 91 to 93 make further amendments to the Companies Act to improve the registrar’s information sharing capabilities, ensure that the necessary safeguards are in place and improve the integrity of the register. Clause 91 closes a gap by making it an offence for a company to use or disclose protected information in contravention of section 241 of the Companies Act.
Clause 92 confers a power on the registrar on application to make an order requiring a company not to use or disclose relevant people with significant control particulars. Currently, the registrar can use directors’ residential addresses only for the purpose of communicating with the director. Clause 93 will remove the restriction on the use of protected information, specifically directors’ residential addresses. That means that the registrar will be able to use residential address information for alternative purposes such as cross-checking the accuracy of information on the register. That will help to improve the integrity of the register.
I thank hon. Members for new clause 36. Its effect would be to give the Secretary of State a power to make regulations to facilitate the release of people of significant control information from companies to local authorities for the purposes of tackling economic crime and recovering a relevant unpaid debt. We do not believe that the amendment is necessary. Clause 92 already provides a power for the Secretary of State to make regulations that specify the circumstances in which a company may disclose relevant PSC particulars.
Furthermore, the Government consider that it would be more appropriate for the registrar to have the power to disclose such information to local authorities, rather than the company, given the closeness of the relationship between a company and its people of significant control, and the risk of tipping off. A company may have only one director, person of significant control and shareholder. Such person could, in effect, be disclosing self-incriminating information about themselves.
Committee members can rest assured that under the new powers given to the registrar in clause 90, they can disclose information to a public authority for purposes connected with that public authority’s functions. That includes local authorities. The registrar may also disclose information to any persons for purposes connected with its own functions, such as for the purposes of crime prevention and detection. Clause 90 already provides a route for local authorities to access PSC information for the purposes of tackling crime and recovering relevant unpaid debt. I hope that provides reassurance to hon. Members.
Seema Malhotra
It is a pleasure to speak in this stand part debate. I will defer to my hon. Friend the Member for Aberavon to speak to new clause 36.
I have referenced some points on clause 90 and its importance. I will make a couple of other remarks on that more generally. It widens disclosure provisions, and the registrar will proactively disclose information held where that disclosure enables the exercise of her functions. I have a question for the Minister on subsections (5) and (6), where offences and defences are set out. That is obviously important, but I have a concern about the disclosure or data sharing provisions.
The fear of being on the wrong side of the law can sometimes deter the use of those powers. It is a question about whether there has been any discussion with the registrar, for example, about the interpretation of the wording; being as clear as possible about what is permissible within the law and where the offences might be, and the possible defence for a person who could be charged with an offence under subsection (5). So often we say, “There are powers to do X” or “The police have a power”, but there are concerns about the use of that power and how someone could be accused of not using that power within the law, so we might end up having a challenge. Someone could go through a process to clear their name or to say that their actions were within the scope of the law. We just need to be clear to reduce the challenges that can come later.
Perhaps the Minister will respond today or clarify in discussions with the registrar on this very important clause that it is as clearly worded as it could be, with less room to be challenged where that power is used as intended by Parliament.
Schedule 3 makes consequential amendments to clause 90 and amends the Companies Act to enable the registrar to disclose usual residential addresses. It states that where additional trust information is protected from disclosure to the public, regulations made under section 25 may not require the registrar to refrain from disclosing that information under proposed new section 1110E. Will the Minister explain that aspect a little further? Broadly, we welcome the schedule as a necessary provision in expanding the information sharing aspect.
Clause 91 highlights an offence that can be committed by a company and every officer who is in default. Clause 92 confers a power on the Secretary of State, on application, to make regulations requiring the registrar to make an order requiring a company not to use or disclose relevant information regarding persons of significant control. The Minister has spoken to this point briefly, but could he expand a little more on the introduction of this clause, and can he provide any examples of instances in which—as per clause 92—the Secretary of State might require a company not to disclose PSC information? We would welcome that clarity.
I have no further comments on clause 93, which restricts the registrar from using directors’ residential addresses for anything other than communicating with the director. I would welcome the Minister’s clarification of the points I have raised.
Stephen Kinnock
I rise to speak in support of new clause 36. In considering the Bill’s provisions on information sharing, we should ask ourselves two main questions. First, do the clauses strike the right balance between protecting individuals’ privacy on the one hand, and making as much information as possible available to members of the public on the other? Secondly, does the Bill make adequate provision for information to be shared between organisations in order to facilitate the robust enforcement of these laws? It is the second of those questions that new clause 36 seeks to address.
On a number of issues, the Committee has been able to find an encouraging degree of cross-party consensus on the actions we need to take against economic crime. I think we can all agree that the existing frameworks for law enforcement are not currently up to the task. It has been widely acknowledged for some time now that the diffuse nature of enforcement responsibilities across so many different government agencies, police forces and private sector institutions often acts as a hindrance to efforts to achieve a comprehensive, strategic approach across all sectors involved. Alongside the Economic Crime (Transparency and Enforcement) Act 2022, which came into force earlier this year, the Bill seeks to reduce barriers to information sharing in order to facilitate more timely and effective enforcement action where it is needed. However, the information-sharing provisions that we are currently discussing leave some important issues unresolved.
With new clause 36 we have sought to address one of the most troubling gaps in the Bill as currently drafted: the absence of any specific measures to facilitate information sharing with local authorities. That is a serious weakness that, if left unaddressed, could pose a serious challenge to efforts to ensure a strong, unified, cross-government approach to law enforcement, in terms not only of Whitehall but the vertical relationship between national Government and local government. Many local authorities, particularly in London, are at the coalface when it comes to dealing with some of the most pernicious effects of money laundering and other forms of economic crime. It is disappointing that the Committee was not able to hear from any local government representatives during our evidence sessions. I would be grateful if the Minister could set out what steps, if any, the Government took to consult local authorities during the process of drafting the Bill.
In the meantime, I would like to share some of the points raised with me recently by members and officers from Westminster City Council. It should come as no surprise to Committee members that the effects of money laundering and other criminal activity, particularly in relation to property ownership, can be seen more acutely in Westminster than probably anywhere else in the country. As we should have the opportunity to discuss issues related to property ownership when we debate part 3 of the Bill, at this point I want to provide an example that illustrates the need for measures that specifically address the need for more information sharing with local authorities.
In Westminster, the council is trying to deal with a range of problems caused by the huge and growing presence of so-called American-style candy stores and souvenir shops across central London, with 21 such stores in the Oxford Street area alone. Extensive investigations by council officers, together with raids that have led to the seizure of more than £650,000-worth of counterfeit goods, provide an important evidence base that indicates the scale of the problem. Among the goods seized in those raids were thousands of disposable vapes that are in breach of UK standards on nicotine levels. That suggests that these stores may pose risks to public health, in addition to their apparent role in illicit financial activity. In Westminster alone, unpaid business rates from the stores amount to some £8 million.
Alison Thewliss
I very much agree with the hon. Member for Aberavon. As a former local government councillor, I can confirm that there definitely needs to be an interface between central Government and local government and it needs to look at economic crime. I was curious about previous discussions we have had about fit and proper persons. The fit and proper person test applies to parts of licensing within local government, but there is not necessarily any way of linking that with Companies House information.
The point about phoenixing is also important. Local businesses often come to local government for support, particularly during the pandemic or other times of crisis, and quite rightly so. Councils may hold information about the legitimacy of companies that have perhaps phoenixed many times—they applied for Government grants but the previous directors of the company dissolved it when business rates were due. Local government will have information, but there is not necessarily a place for it to reside. The Government need to think about how that information goes between the two levels of government.
With companies involved in property or homes of multiple occupation, there may be concerns about the fit and proper persons test and how that interacts with the companies engaged in housing provision. There needs to be some thought as to how those bits interact. We very much encourage the Minister to look at how the Government can be involved in that, and we support the Opposition new clause.
Kevin Hollinrake
I shall respond briefly to the queries raised. All the information must be handled in accordance with the Data Protection Act 2018. The way the Bill operates is consistent with similar legislation that deals with data sharing.
The hon. Member for Feltham and Heston raised the issue of the protection of information. The provision applies in a situation of risk of harm or serious risk of violence or intimidation—for example, in respect of domestic abuse victims.
Data sharing was raised by both shadow Ministers—the hon. Members for Feltham and Heston and for Aberavon. It is permitted to assist public authorities when they exercise public functions, such as confirming the accuracy of data or providing intelligence to law enforcement agencies.
Stephen Kinnock
Does the Minister have any comments on the points about local authorities?
Kevin Hollinrake
Data sharing is permitted to assist public authorities when they exercise their public functions. For example, they could ask the registrar to confirm the accuracy of data that is held, which may lead to information being shared for intelligence purposes with enforcement agencies.
Kevin Hollinrake
Local authorities are a subset of public authorities.
Question put and agreed to.
Clause 90 accordingly ordered to stand part of the Bill.
Schedule 3
Disclosure of information: consequential amendments
Amendment made: 49, in schedule 3, page 162, line 5, leave out paragraphs 5 to 7.—(Kevin Hollinrake.)
This amendment is consequential on NC17 and NC18.
Schedule 3, as amended, agreed to.
Clauses 91 to 93 ordered to stand part of the Bill.
Clause 94
General false statement Offences
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
Clause 94 amends the general false statement offence in section 1112 of the Companies Act 2006 to create two separate offences: a basic offence and an aggravated offence. The Bill also amends section 32 of the Economic Crime (Transparency and Enforcement) Act 2022 to make a mirror-image, two-tier approach. The existing false statement offence under the Companies Act requires a document or a false, misleading or deceptive statement to have been delivered or caused to be delivered knowingly or recklessly to the registrar. Clause 94 substitutes that existing offence for two new offences with commensurate penalties.
The basic offence is committed when the false statement is made without reasonable excuse. The aggravated offence is committed when the false statement is knowingly made. It is worth noting that that refines the amendments made by the Government during the passage of the 2022 Act in response to parliamentary scrutiny. When either offence is committed by a firm, every officer of the firm that is in default also commits the offence. The structure of the new sections maintains consistency with amendments to the 2022 Act, the Limited Partnerships Act 1907 and the Reports on Payments to Governments Regulations 2014, as amended by the Bill.
On clause 95, we have already discussed many of the new powers that we are providing to the registrar and how they are intended to work. In exceptional circumstances, it may be necessary for the Secretary of State to allow material that would otherwise be treated as false, misleading or deceptive to be deliberately provided to the registrar to protect our nation’s interests or to assist in the prevention or detection of serious crime. The clause ensures that when such action is taken, the Secretary of State can issue a certificate that ensures that the person to whom it is issued is not liable for the commission of acts that might otherwise amount to a false filing offence.
Clearly, the work of our law enforcement and intelligence agencies must be able to be carried out without fear of prosecution when they are acting in our interests. The certificate that may be issued provides an exemption for those purposes. The Secretary of State must be satisfied about the reason why a certificate has been sought and may issue one only if to do so is in the interest of national security or for the prevention or detection of serious crime. The certificate can be revoked at any time.
To further limit the circumstances in which a certificate can be issued, serious crime is defined in the clause, providing further assurance about the need for such a certificate. The definition of serious crime aligns with that used in section 18 of the 2022 Act, which allows the Secretary of State to exempt a person from the requirements of the register of overseas entities for the same reasons. The Government listened to the concerns expressed about such exceptions and exemptions during the expedited passage of the 2022 Act; the clause is therefore carefully constructed so as to be as narrow as possible.
Stephen Kinnock
One of the key problems the Bill seeks to address is the difficulty that arises when enforcing laws for which the burden of proof is exceptionally high. In that regard, the Opposition welcome the changes set out in clause 94. The current requirement to prove that somebody who has delivered false or misleading information or documents to Companies House did so knowingly and recklessly seems to set the bar so high as to act, in effect, as a hindrance to successful prosecution. It is a sensible change to replace the current requirement with language that enables a defence on grounds of a reasonable excuse, especially in the context of the related provision in the clause to prosecute those who can be shown deliberately to have provided false information for an aggravated offence that is subject to imprisonment for up to two years.
Clause 95, however, raises some questions that I hope the Minister will clarify. It will amend the Companies Act to allow the Secretary of State to issue any individual with a certificate that, it would seem, could provide blanket immunity from prosecution for any offence related to the delivery to the registrar or the making of a statement that is misleading, false or deceptive. This power is potentially very broad and, beyond a couple of lines stating that a certificate could be issued for reasons of national security or to assist in the prevention or detection of serious crime, there is little clarity as to how it might be used. I am sure the Committee would be grateful if the Minister could provide any further detail on how frequently and in what kinds of circumstances the power might be used. Perhaps the Minister could also set out in a bit more detail what safeguards, if any, might be put into place to ensure that the power is used only in cases in which there is a compelling need to do so.
Alison Thewliss
I am glad that an aggravated offence is included in clause 94, on general false statement offences, because quite clearly there are some people who are absolutely taking the piss in terms of their company registration.
The false filing bit leads me to the topic of enforcement, which is the other side of the puzzle. Out of interest, I tabled a written parliamentary question to the Minister to ask
“how many fines have been levied in each of the past ten years for the offence of false filing to companies house, and what estimate he has made of the value of those fines.”
His response was quite interesting. In 2012, the number of fines levied was nil, as it was in 2013. In 2014, 2015, 2016 and 2017 it was also nil. In 2018, things got slightly better, because one fine of £1,602 was levied. In 2019, there was a much better £15,000 fine for false filing. In 2020 and 2021, the number of fines was nil, and up to 31 October 2022 there was one fine of £500.
I guess there have been far more instances of false filing to Companies House in the past 10 years than those fines suggest. I do not believe that there have been only three cases of false filing to Companies House, because all the evidence suggests that it is absolutely rife. Will the Minister tell us more about how, in looking at the false statement offences, the aggravated offences and the fines that will be levied for non-compliance, he intends to pursue those who file false statements? Currently, they are not being pursued at all.
Kevin Hollinrake
I think the shadow Minister, the hon. Member for Aberavon, had two main queries. On the type of circumstance in which a certificate would be issued, it is impossible to predict other than to say that it would be when it is in the interests of national security or in the case of a serious crime, which is defined in the clause. The actual circumstances around that are incredibly difficult to predict. It is fair to say that we expect such a certificate to be issued on extremely rare occasions, but we cannot rule out the possibility of our needing to do so. Ultimately, it has to be a judgment for the Secretary of State.
On false filing, I well remember responding to the written question from the hon. Member for Glasgow Central. It was a very fair question. That is why we are in this Committee Room: it is about not just legislation but implementation. There have to be the proper resources for Companies House to do that job and I absolutely want to make sure that it has not just the powers but the resources to interrogate the database, make sure it is accurate and share the data information, because it is critical to look at the context. A number of things align in this respect: it is about the powers, the resources, the data-sharing capability and, for the first time, the sanctions of up to two years in prison on individuals who file falsely.
We absolutely want to ensure that the figures improve. I absolutely agree with the hon. Lady that there will be many more cases of false filing than those that have been identified, but to be fair to Companies House, without the resources to do it, which it has never been given before, that is a pretty difficult job for it to do. Companies House does publicly report annually, and I would very much like to see that kind of accountability in future reports, in terms of its efficacy in this area.
Question put and agreed to.
Clause 94 accordingly ordered to stand part of the Bill.
Clause 95 ordered to stand part of the Bill.
Clause 96
Financial penalties
Dame Margaret Hodge
I beg to move amendment 84, in clause 96, page 75, line 23, leave out “the Consolidated Fund” and insert
“a fund established by the Secretary of State for the purposes of tackling economic crime (see section 1132B)”.
This amendment requires penalties paid to the registrar to be paid into a fund for the purposes of tackling economic crime, rather than the consolidated fund.
The Chair
With this it will be convenient to discuss the following:
Amendment 80, in clause 96, page 75, line 26, at end insert—
“1132B Fund for the purposes of tackling economic crime
(1) The Secretary of State must by regulations establish a fund for the purposes of tackling economic crime.
(2) Penalties received by the registrar under section 1132A must contribute to the fund.
(3) The regulations must specify the purposes for which the fund may be used including funding the activities of law enforcement agencies in tackling economic crime.
(a) funding the activities of law enforcement agencies in tackling economic crime;”
This amendment provides for a fund to be established for the purposes of tackling economic crime.
New clause 29—Report into the merits of a fund for tackling economic crime—
“(1) The Secretary of State must produce a report into the merits of a fund for tackling economic crime.
(2) The report must consider the case for penalties paid to the registrar to be ringfenced and used solely for the purposes of tackling economic crime.
(3) The report must be laid before Parliament within six months of this Act being passed.”
This new clause requires a report into the merits of a fund for tackling economic crime to be laid before Parliament.
Dame Margaret Hodge
Let us see where we get with this one—I will have another go. This is a vital amendment and I hope that the Government will listen carefully, because it would go a long way to ensuring that our enforcement capabilities, which we have been talking about all morning, really are fit for purpose and properly funded, without burdening the taxpayer—that is really important. If we tried to get competition between funding enforcement and funding other Government priorities, we would get nowhere in trying to ensure properly funded enforcement agencies.
The UK’s record is abysmal. I am going to put this on the record. The NCA has had five prosecutions each year for the last five years. That is hopeless. Money laundering prosecutions are down 35% over the last five years, at a time of exponential growth in money laundering. Less than 1% of the billions of pounds laundered annually is ever restored to us. And the number of criminal fraud cases by the SFO has halved in the last three years, although again I welcome the Glencore case, and I agree with the Minister that it shows the importance of introducing the offence of failure to prevent economic crime.
This is not a criticism of the agencies; it is a criticism of us and our failure to fund this work properly, which is what we are trying to do here. If we look at the totality of the UK’s expenditure on enforcement, we see that it is pathetic. It is 0.042% of GDP, whereas we know that the cost to the UK economy of economic crime is 14.5%, so there is an absurd relationship between our need to detect and prevent crime and our capability to do so. The FBI is 15 times larger than the NCA. We have already said that the police spend less than 1% on fraud, even though it represents 40% of crime—and that is just reported crime. And we have already said that the Americans have increased their budget, because they see this as a security threat, whereas we have reduced one.
I would welcome a comment from the Minister on this matter. My understanding is that the Government contribution to the fight against economic crime is £100 million. Out of the totality of £400 million in the budget, £300 million comes from the economic crime levy and only £100 million, over the comprehensive spending review period, comes from the taxpayer, so that is a mere £32 million or £33 million a year.
Kevin Hollinrake
If the right hon. Lady includes what we resource—the SFO, NCA and other enforcement agencies—it is not entirely clear, but we give about £825 million a year to our enforcement agencies.
Dame Margaret Hodge
The Minister knows that that is not necessarily to fight economic crime, but to fight other crimes. I was talking about the economic crime levy and those are the figures that I have.
It is irritating but understandable that the enforcement agencies prioritise other crimes in their day-to-day work; they do not prioritise economic crime. Despite the lack of funding, a lot of money is brought in by the enforcement agencies. Between 2018 and 2021, £3.9 billion was brought in in fines, confiscation and forfeiture. If all of that had been reinvested, all of the agencies would have had an extra £748 million to fight economic crime over that period. That would have had a fantastic impact on our ability to fight, detect and prevent economic crime.
It has been said in previous debates that money from fines cannot be hypothecated in that way, but I draw the Minister’s attention to three precedents that negate that claim. In June 2022, the Information Commissioner announced a new arrangement allowing the office to keep some of the proceeds of its civil penalties to fund its work with the big tech companies. In 2019, Ofwat kept the proceeds of penalties it had raised on Southern Water to pay out to and reimburse customers. The Gambling Commission can also require payments rather than penalties to compensate victims or make payments to charities. Those are three precedents on which the Minister could build the argument that it would be perfectly appropriate for the proceeds of fines to be kept in order to resource the fight against economic crime.
I also draw the Minister’s attention to a report on fraud published by the House of Lords last week, which states:
“To support the forthcoming fraud strategy”,
which is only a part of addressing economic crime,
“with adequate resources, the Government must commit to a long-term funding strategy with an increased offer for law enforcement agencies”—
and this is the important bit—
“focussed primarily on recycling revenue collected by law enforcement agencies back into law enforcement activity.”
The House of Lords has, therefore, come to the same conclusion as we have in tabling this amendment.
The UK’s asset recovery incentivisation scheme ensures that some assets are recycled. Most of them go to the Treasury. Of the £354 million recovered in 2021-22 from confiscation orders, forfeiture orders and civil recovery orders, only 40% went back into fighting crime. If we compare ourselves with the Americans, we will see that all of their forfeiture proceeds go back into enforcement.
Under our proposal, money would be ring-fenced and it would be a cross-Government fund to finance enforcement against fraud and dirty money. The Minister knows that if the UK is to tackle economic crime effectively, far greater ambition is needed on the scale of public investment, and establishing an economic crime fund is the radical response that we need.
Stephen Kinnock
I would like to add some comments to the eloquent remarks of my right hon. Friend the Member for Barking.
In clause 96, the Government provide a framework for the registrar, within parameters to be set out by the Secretary of State in regulations, to impose direct financial penalties for many offences without the need for lengthy and often costly court proceedings. That is surely a welcome development, at least in so far as it should enable the registrar to take swifter action to deal with any offences involving false representations made to Companies House.
Of course, we will need to look closely at the details of how that will work in practice. In that respect, it is right that the Bill provides for parliamentary scrutiny of the relevant regulations via the affirmative resolution procedure. If the Minister could give a rough indication of when we can expect those regulations to be published, I am sure that the Committee would be grateful.
One thing that clause 96 makes clear is that any civil penalties imposed by the registrar will not exceed £10,000. I would be grateful for an explanation from the Minister about how that figure was arrived at, and whether he is confident that the power to impose a fine at that level will act as a deterrent to would-be offenders. Given the profit margins involved in some of the most serious crimes, we must ensure that the threat of civil penalties is both real and sufficient in terms of its potential to take a meaningful chunk out of criminals’ assets. I am not entirely convinced that the threat of a £10,000 fine will be taken all that seriously by some of the intended targets, but if the Minister is aware of any convincing evidence to the contrary, I would be glad to hear it.
Even if we assume that the Government make rapid progress with the regulations enabling the registrar to impose civil penalties, we must then address—not for the first time in Committee—what happens to any funds raised from civil penalties. In amendments 84 and 80 and new clause 29, my right hon. Friend the Member for Barking has once again provided the Committee with an eminently reasonable and sensible answer to that question. Taken together, these amendments would require any fines paid to the registrar to be specifically designated and ring-fenced for the purposes of tackling economic crime.
The asset recovery incentivisation scheme, introduced by the previous Labour Government, provides a template of sorts, but given the scale of the threat that we now face from economic crime, we need to go further. It is surely a no-brainer that any fees paid to the registrar, together with penalties for those who break the rules, should be reinvested in broader cross-Government efforts to tackle economic crime. That would provide a stronger incentive for tougher enforcement and a more sustainable long-term funding model for Companies House and other enforcement bodies at no additional cost to the taxpayer. Opposition Front Benchers therefore fully support these amendments. We hope that Members on the Government Benches will do the same.
Kevin Hollinrake
I am very sympathetic to the points raised by contributors to this debate, and I am fully signed up to making sure that our law enforcement agencies have a long-term funding solution. As the right hon. Member for Barking knows, I am very sympathetic to the need to properly resource enforcement agencies, and, indeed, to the need for clarity on what funding is in place, right across the piece. We could have various different debates about what level that should be and on whether it should be £30 million a year. It is an awful lot more than that, but I accept that there should be more clarity. Wherever we can, we should seek to raise the moneys that the enforcement agencies need to do their job properly.
We are developing a new funding model for Companies House, which demonstrates our commitment to tackling economic crime. The combination of last year’s spending review settlement and private sector contributions through the new economic crime levy will provide funding of £400 million over the spending review period. That applies to the AML regulated sector and will fund new or uplifted activity to tackle money laundering, starting from 2023-24. There will be a wide-ranging review three years later to provide transparency on how the levy is performing against its original purpose, including how the money is being spent.
In addition, as the right hon. Member for Barking set out, a proportion of assets recovered under the Proceeds of Crime Act 2002 are already reinvested in economic crime capability under the asset recovery incentivisation scheme. The figures that she quotes are interesting, because according to my note here, the receipts paid should be split 50:50 between the Home Office and the Treasury and operational partners, which should be the enforcement agencies. It should be an equal split. I do not know about the numbers that she gives regarding the situation in the US, but I am happy to look at that in further detail. I am very keen to make sure that resources are made available.
There is probably a difference here in relation to fines. The right hon. Lady acknowledges that POCA offences have been subject to the oversight of our courts. In terms of fines and civil penalties, however, there are strict guidelines on how that money can be spent. It is interesting to look at the examples she quotes, but I think that two of them concern reimbursement of victims rather than further resourcing of the relevant agencies. I also slightly worry about the unintended consequences of allowing the regulator to simply issue fines and keep them. Many of those fines may be issued not because of transgressions related to economic crime; they may be related to other offences and other things.
The shadow Minister, the hon. Member for Aberavon, raised the issue of whether the level of £10,000 was appropriate. It is quite a lot of money, of course. The vast majority of businesses registered with Companies House are smaller companies. For a smaller company, £10,000 is an awful lot of money. It is, of course, an option. It is not that the registrar cannot refer this to law enforcement agencies. She can determine whether to impose a civil penalty or refer the matter to a law enforcement agency if it is serious enough. We felt that £10,000 was a reasonable compromise. On that basis, I hope that the right hon. Member for Barking will withdraw the amendment.
Dame Margaret Hodge
I would like to press amendment 84 to a vote, but I do not intend to press amendment 80.
Question put, That the amendment be made.
Kevin Hollinrake
At present, most obligations relating to the functions of the registrar are enforced through the criminal justice system. Clause 96 inserts new section 1132A into the Companies Act 2006, which gives the Secretary of State the power to make regulations to enable
“the registrar to impose a financial penalty on a person if satisfied, beyond reasonable doubt, that the person has engaged in conduct amounting to a relevant offence under this Act.”
The registrar will have the discretion to choose to either pursue a financial penalty or pass a case on to law enforcement to consider criminal prosecution. Clause 96 contains a delegated power regarding the level of financial penalty. That is because in order to best support enforcement agencies in their fight against economic crime, there is likely to be a need to review and refine the enforcement procedures and processes.
Dame Margaret Hodge
Will the Minister confirm whether the action of Companies House under this clause should be part of the annual report to Parliament?
Kevin Hollinrake
I think that is a very sensible suggestion and I am happy to take that away. I would like to see a number of things in that report that are currently not there. If we look at the most recent report, we see a number of references to this particular legislation. It welcomes this legislation, and I think it is important that the body reports publicly and to Parliament, as would be the case with the measures that the right hon. Lady mentions.
Similarly, there may be reason to review the appropriate financial penalty amount, and interest or late payment amount, to deter misconduct against the register as effectively as possible. The regulations will be subject to the affirmative procedure, which will provide the appropriate amount of parliamentary scrutiny of any proposed further changes.
Clause 97 will strengthen the link between civil sanctions and director disqualification by amending section 3 of the Company Directors Disqualification Act 1986, which states that the court may make
“a disqualification order against a person where it appears to it that he has been persistently in default in relation to provisions of the companies legislation”,
and that
“the fact that a person has been persistently in default…may…be conclusively proved by showing that”,
in the previous five years,
“he has been adjudged guilty…of three or more defaults”.
Under proposed new section 1132A of the Companies Act 2006, the registrar will be able to impose a financial penalty on a person, if she is satisfied beyond reasonable doubt that the person has engaged in conduct amounting to an offence.
Section 3 of the CDDA will be amended so that the imposition of a financial penalty can count as a default. That will provide a greater deterrent to those who seek to circumvent legislative requirements. Not only will individuals face the risk of a financial penalty but the risk of being disqualified will become more likely when a financial penalty has been imposed. Clause 98 mirrors the provisions in clause 97 so that they apply in Northern Ireland, amending the current provision in article 6 of the Company Directors Disqualification (Northern Ireland) Order 2002.
Stephen Kinnock
We are disappointed that clause 96 will go forward unamended, because we feel that there are real risks in not directly linking the moneys raised with reinvestment specifically into economic crime. It is important to put that disappointment on the record.
Kevin Hollinrake
Of course, there is a link in the average scheme. I think £1.3 billion has been raised from asset recovery for law enforcement agencies since 2007, so there is a link. The point that we disagree on is fines.
Stephen Kinnock
I thank the Minister for that intervention. The amendments were trying to require any fines paid to the registrar to be specifically designated and ringfenced for the purposes of tackling economic crime. It is the lack of a specific designation and ringfencing that is disappointing, but we are where we are, and we move forward.
I will comment briefly on the final two clauses in the group. They are largely supplementary to the provisions that we have already discussed, but are nevertheless important. I particularly welcome the clarification in clause 97 that individuals subject to civil penalties under the preceding clauses will be treated in a similar way to those with a criminal conviction for the purposes of determining whether they meet the criteria for disqualification from serving as company directors. Making it clear that the same standards of conduct apply to those with a record of civil or criminal penalties should buttress the new system for civil enforcement fines, and will hopefully increase compliance.
The provisions of clause 97 that apply within Britain would be extended to Northern Ireland under clause 98. As I have said before, ensuring that a common set of rules and regulations is applied across the UK as a whole can only be a good thing.
Question put and agreed to.
Clause 96 accordingly ordered to stand part of the Bill.
Clauses 97 and 98 ordered to stand part of the Bill.
Clause 99
Meaning of “limited partnership”
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
This is a very simple measure. The Government are seeking to tackle the misuse of limited partnerships while modernising the law governing them. The clause clarifies the meaning of the term “limited partnership”. The revised wording removes ambiguity and sets out that it is possible to be a limited partnership only by virtue of being registered as a limited partnership under the Limited Partnerships Act 1907. Furthermore, the Companies Act 2006 provision relating to the index of company names is amended to refer to limited partnerships registered under the Limited Partnerships Act. That allows the registrar to remove firms from the index of company names if they are dissolved, cease to be registered under the Limited Partnerships Act, or both.
Seema Malhotra
The clause inserts the definition of limited partnership into the Bill and makes clear that the registrar is obliged to maintain only those limited partnerships registered under the 1907 Act within the registrar’s index of names.
Limited partnerships are a specific type of business structure in UK law that confer limited liability on some partners and therefore have to be registered with Companies House in line with the Limited Partnerships Act 1907 and the Partnership Act 1890, but numerous reports and consultations by the Government have identified the risk of economic crime through limited partnerships and Scottish limited partnerships. As I know the Minister will be well aware, the consultation in 2018 also emphasised the apparent attractiveness of such partnerships as vehicles for organised crime, and I am sure we will come back to that when we consider amendments to this part of the Bill. The consultation noted specifically that the National Crime Agency reported a high volume of suspected criminal activity involving Scottish limited partnerships. It also referred to claims made in an investigation that 113 SLPs were involved in a much larger money laundering scheme that transferred more than $20 billion out of Russia between 2010 and 2014.
Limited partnerships and Scottish limited partnerships have been identified by the Government for some time as high-risk corporate structures when it comes to facilitating and enabling economic crime. It is positive that we have reached this point, but it is disappointing how long it has taken. The clause is important, as it ensures that the registrar is obliged to maintain those limited partnerships that are registered as such, thereby ensuring that the registrar is not under any obligation to maintain names of defunct limited partnerships.
Alison Thewliss
My views on the abuse of Scottish limited partnerships are on the record, and the Minister is well aware of them. Anything that will help to tighten up protection against that abuse is welcome, but again, a lot of this goes to enforcement. It is not good enough just to legislate. There has to be enforcement, and the current enforcement has been absolutely woeful, with just one fine for failing to register a person with significant control. When the legislation started in January 2018, 7,078 people were not registered as they should have been as persons with significant control. That now stands at 201, but 201 is still too many, and the Government are still not issuing any fines for not complying with the obligations under that law. As with all the measures within this part of the Bill, my concern is about enforcement and making sure that everything is absolutely watertight, because if there is no consequence—at the moment, there is no consequence for non-compliance—people will continue to abuse the systems.
I caution the Minister also that when the rules around Scottish limited partnerships were tightened, people just moved to the next structure, and the next structure was limited partnerships in Ireland. Ireland has seen a huge surge in people abusing its corporate structures, which are similar to ours for historical reasons, but nobody warned the Irish that this was coming. I would be interested to know how the Government intend to monitor the tightening up of this legislation so that we are not just pushing down the bubble in the wallpaper for it to come up somewhere else.
Kevin Hollinrake
As the hon. Member for Glasgow Central knows, the new provisions apply to Scottish limited partnerships, as well as limited partnerships. She is absolutely right to say that it is about not just the powers but the resources. I fully concur with that, as we have said previously. I will not reiterate those points.
The hon. Lady make her points on displacement—people will stop doing it here or in Scotland and go to Delaware, Ireland, or wherever else—well, of course. But we can do precious little about that, other than work on international co-operation through organisations such as the Financial Action Task Force, as we do internationally, to put pressure on all those jurisdictions. My view on the suggestion that has been raised many times that people will simply go somewhere else is that if all we can do is ensure they do not carry on their nefarious activities here, that is at least something. However, we certainly must work internationally with others on what happens globally.
Question put and agreed to.
Clause 99 accordingly ordered to stand part of the Bill.
Clause 100
Required information about partners
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to consider the following:
That schedule 4 be the Fourth schedule to the Bill.
Clause 101 stand part.
Clause 102 stand part.
New clause 56—Limited partnerships: registration of persons of significant control—
“(1) The Secretary of State must by regulations make provision about the registration of persons of significant control in relation to limited partnerships.
(2) For the purposes of regulations under this section, ‘persons of significant control’ may include persons with a right to—
(a) 25% or more of the surplus assets on winding up,
(b) a voting share of 25% or more,
(c) appoint or remove the majority of managers,
(d) exercise significant influence or control over the business, or
(e) exercise significant influence or control over a firm which would be a person of significant control if it were an individual.
(3) No regulations to which this section applies may be made unless a draft of the statutory instrument containing the regulations (whether or not together with other provisions) has been laid before, and approved by a resolution of, each House of Parliament.”
Kevin Hollinrake
Clause 100 and schedule 4 significantly increase the amount of information that must be provided about a new limited partnership and its prospective partners, and, subsequently, when they make their annual confirmation statements or deliver notifications that report changes. Schedule 4 sets out what information must be provided, including date of birth, nationality and the usual residential address when the partner is an individual.
Clause 101 is intended to ensure that existing limited partnerships registered prior to the commencement of the Bill are equally required to deliver the relevant information set out in schedule 4. The general partners of limited partnerships will be required to provide the registrar with the required information of each person who is a partner in the limited partnership, or who became a partner on registration within a six-month transitional period.
Failure to comply with those requirements may give the registrar reasonable cause to consider that the limited partnership is no longer operating and is dissolved. That will mean that the registrar may exercise her confirmation of dissolution power, which we will debate later on. If the registrar goes through the confirmation of dissolution process, she may deregister the dissolved firm.
Clause 102 provides that the Secretary of State may, by regulations, designate a standard system for classifying the business of a limited partnership. That will make it easier to collate and sort information about a limited partnership’s activities and it aligns with the position for companies. I thank the right hon. Member for Barking for her new clause 56. Perhaps she should speak about that now, and I will respond to her points.
Dame Margaret Hodge
I am grateful to the Minister and I agree with him that what we are all attempting to do here is trying to clean up the act in the UK. Some of our amendments are pragmatic, and I just hope that the Minister will listen and take them on board.
I want to go back to first principles, from when I started working in this area almost a decade ago. It was absolutely clear that transparency is a powerful tool in preventing and detecting economic crime. Sunshine is the best disinfectant. David Cameron used that phrase when he introduced the register of beneficial ownership, saying that we had a “gold standard”. It did not quite turn out that way, but that was what he wanted. To go back to the days of 2018, the Financial Action Task Force said that Britain was
“a global leader in promoting corporate transparency”.
We should hang on to that.
In 2014, the Cameron Government said it was “particularly important” that plans to force companies to name their ultimate owners should include English limited partnerships, in order to ensure that there were no loopholes or unintended consequences. That was completely right, yet two months later, in an inexplicable move, English limited partnerships were dropped. I do not know if the Minister has an explanation—I am happy to give way if he has—but that is what happened.
New clause 56 would introduce transparency into the system. I recognise that it is not a perfect answer, but it is a huge improvement on the status quo. We want to use the mechanism of the persons of significant control register. We propose that all limited partnerships, whether they are Northern Irish, English or Welsh, would have to register a person of significant control. All limited partnerships would therefore be treated in the same way.
As the Minister knows, limited partnerships have been used time and again by criminals to move and hide dirty money. I will give just one egregious example. In 2014, the US imposed sanctions on the Rotenberg brothers, Boris and Arkady, who are known as close friends of Putin, in response to the annexation of Crimea. A later investigation by the UK Senate found that the two brothers had used an English limited partnership, Sinara Company, to pay a front figure in the art industry, a man called Gregory Baltser, a huge amount of money to get around the sanctions, buying and selling paintings worth up to $18 million. Paintings by Magritte, Chagall and Braque were sold through this intermediary, Baltser. It was all done through an English limited partnership.
When the Government tightened up on Scottish limited partnerships, criminals moved to other forms, as the hon. Member for Glasgow Central said. I quote to the Minister a Russian-language newsletter that was circulated to clients by a formation agency called LAS, which said, after the UK tightened up on Scottish limited partnerships, that there is always a way out:
“As a substitute for Scottish partnerships, we offer the registration of English, Welsh and Irish LP partnerships, which have an identical legal form and similar benefits…At the moment, the privileges of this type of partnership are that they do not fall and will not fall under the laws on the disclosure of information about controlling persons.”
Transparency International’s report, which the Minister has quoted previously in our debates, shows how the structures are open to abuse by bad actors. It analysed 1,628 limited liability partnerships used in various corruption and money laundering schemes over a 12-year period between 2004 and 2016 for the nationality of the person of significant control. Russians were the most frequent nationality, at 17%; UK nationals were 16%; and Ukrainians, 15%. Nationals from the combined former Soviet states constituted half of those in the disclosures. That is a good red flag. The benefit of the persons of significant control register is that it would provide that red flag if it was extended elsewhere.
Limited partnerships are used by formation agencies, over whom there is also a red flag. Finance Uncovered and the BBC found that the five busiest formation agencies in 2017 created 28% of all English limited partnerships created that year.
Economic Crime and Corporate Transparency Bill (Twelfth sitting)
Tuesday 15th November 2022
(2 years ago)
Public Bill CommitteesRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 15 November 2022 - (15 Nov 2022)
The Chair
I remind the Committee that with this we are considering the following:
That schedule 4 be the Fourth schedule to the Bill.
Clause 101 stand part.
Clause 102 stand part.
New clause 56—Limited partnerships: registration of persons of significant control—
“(1) The Secretary of State must by regulations make provision about the registration of persons of significant control in relation to limited partnerships.
(2) For the purposes of regulations under this section, ‘persons of significant control’ may include persons with a right to—
(a) 25% or more of the surplus assets on winding up,
(b) a voting share of 25% or more,
(c) appoint or remove the majority of managers,
(d) exercise significant influence or control over the business, or
(e) exercise significant influence or control over a firm which would be a person of significant control if it were an individual.
(3) No regulations to which this section applies may be made unless a draft of the statutory instrument containing the regulations (whether or not together with other provisions) has been laid before, and approved by a resolution of, each House of Parliament.”
Dame Margaret Hodge (Barking) (Lab)
I am not going to recap, because we want to make progress, but I hope the Minister is listening. We are talking about a way of improving transparency, accepting that the new clause is not the perfect answer.
English limited partnerships have no directors, but they do have individuals required to sign paperwork, and the formation agencies that help to establish such limited partnerships often hire proxies to do that. A great example of that is Ruth Neidhart, a 71-year-old Swiss national who lived in Cyprus. She is a ceramic artist, she sometimes arranges pottery painting sessions for children’s birthday parties, and she has been signing documents for a formation agency called IOS since at least early 2009. We see that see that she has signed 161 of these ELPs since 2016 and has links to IOS companies in Nevis, the British Virgin Islands, Belize and the Bahamas, all offshore firms that have been used to form UK shell companies.
Alexandru Terna, a 32-year-old Romanian who lives on a busy road junction in west London in what is described as “a modest house”, has signed 306 of these ELPs. He said in an email to Finance Uncovered, which covered the story:
“We worked only with [LAS],”
the formation agent. He added:
“We have never been involved in the management or control of any of these companies or any other company, where we were appointed as signatories.”
I thought that was interesting. Then we have the infamous Moldovan bank fraud, where $1 billion vanished from three Moldovan banks in just two days through limited partnerships—a series of Hong Kong and UK-registered companies. The new owners took over the bank in 2012, buying shares and using funds from UK limited companies.
The Government argue that these limited partnerships are not legally separate from their partners and so they cannot be beneficially owned. However, the person of significant control requirements require control—that is the issue—and not necessarily ownership. There does not have to be separate legal personality and ownership for there to be significant control, and if there is a corporate partner, there must be a human being controlling that corporate partner. The corporate partner cannot exist without somebody controlling it.
The PSC is defined as somebody with more than 25% of assets or more than 25% of voting share, or—this is another aspect of the definition—who exercises significant influence or control over the business. In practice, all the leaked documents we have seen from journalists show that formation agencies routinely create ELPs and issue clients with documents that declare them as beneficial owners, so they use that term anyway; they see them as beneficial owners. Indeed, ELPs also open bank accounts. There is somebody behind them, and we need to try to get to that person.
I accept that what we are proposing is not a perfect answer, but I think it is better than the status quo. We would get nominees putting themselves forward, and we would get company service providers declared as persons of significant control, but the same nominee appearing frequently would be a red flag, and company service providers reappearing in relation to lots of companies would also be a red flag. Remember: transparency is the best disinfectant.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
I am very pleased to respond to the right hon. Lady’s speech. In relation to some of the issues we have with limited partnerships, she has set out her case very well and fairly.
Through the Bill, we are trying to make it easier for Companies House to spot exactly the kinds of red flags the right hon. Lady has referred to. She mentioned people such as Alexandru Terna. Under this legislation, for the first time, significant penalties will accrue to somebody who does not declare their partners accurately. As I have said on a number of occasions in recent days, I am sympathetic to a number of the right hon. Lady’s amendments, including new clause 56. I understand the reasons why she has tabled it.
The new clause would partially duplicate the Scottish Partnerships (Register of People with Significant Control) Regulations 2017. Scottish limited partnerships have legal personality, meaning that in the eyes of the law they are a separate legal entity and have distinct duties and liabilities to those of their partners. It is therefore possible to apply persons of significant control requirements to those entities. As the right hon. Lady said, the same is not true of English, Welsh or Northern Irish limited partnerships, which do not have legal personality. Unlike SLPs, those forms of limited partnership register with Companies House but are not a separate legal entity from their partners. The partners are the embodiment of the partnership; as such, legislating for the registration of people who have significant influence or control over an English, Welsh or Northern Irish LP is legislating for the registration of people who control other people. I will return to that point in a second.
Not having legal personality means that limited partnerships cannot own property or assets in their own name; any assets are held in the name of the partners themselves. They are a registrable legal relationship, and can be thought of a bit like a marriage: the act of registering gives the relationship legal force and bestows rights and duties on the partners, but it does not create something separate that can be owned. Like a marriage, a partnership ends on the death of a partner.
It is therefore not legally possible to apply the persons of significant control requirements currently applied to Scottish LPs to English, Welsh and Northern Irish LPs. It would be possible to draft legislation for a different regime applying a different definition of beneficial ownership, but given that the partnership only exists as a business relationship between partners and its body exists in the person of the partners, it is not apparent who, beyond the partners, should be registered. A likely outcome would therefore be all limited partnerships reporting that no person met the requirements, other than those already registered as partners.
Nevertheless, I understand that the intention of the right hon. Member for Barking is to increase transparency about who is managing and controlling a limited partnership. That is why the clauses that we are debating will increase the amount of information that is available concerning the partners of a limited partnership, and place a legal duty on partners to update those details with the registrar. In addition, the identities of all general partners must now be verified, and any corporate general partner must name an individual who may be contacted in relation to the limited partnership and whose identity must also be verified.
Although the right hon. Lady admits that her new clause is not a perfect solution, she has raised a good point. In consultation with her and officials, I will give further consideration to this matter, to ensure that there are no other means by which somebody may have undue control over a limited partnership. I am keen to work with her and discuss how we might do that.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
It is a pleasure to say a few words on this topic—we have had a very good and extensive debate on these clauses, so I will limit my remarks.
I think we are in violent agreement that more needs to be done. I made remarks earlier about the extent to which we have seen the misuse of partnerships grow. Research in the past eight to 10 years has shown the growth in the formation of limited partnerships and the extent to which they are used for economic crime. We have taken a long time to get here, but it is useful and important that we are now at this point.
Schedule 4, which is inserted into the Bill by clause 100, sets out information that must be provided to the registrar by partners who are individuals and corporate bodies in relation to limited partnerships. I think we all support the introduction of these measures as necessary for increasing the information and transparency around who actually owns and controls limited partnerships. As the Minister is responding to the points and questions raised by my right hon. Friend the Member for Barking, I think those points about transparency and how that works across these clauses and the framework of the legislation as a whole are extremely important.
There is a transitional period of six months for compliance after the Bill comes into force, and the Bill provides that non-compliance will be
“treated by the registrar as reasonable cause to believe that the limited partnership has been dissolved”.
We have raised related questions in the course of debate. Although we may recognise the need for a transitional period, why are we waiting six months? What reassurances can the Minister give us that there are adequate safeguards against limited partnerships that have been set up for criminal purposes simply taking no action during the six-month period in order to avoid scrutiny and transparency?
The Minister may refer us to other parts of the Bill where we have discussed what can happen when companies get dissolved. However, we do not want to strengthen the legislation on one hand but, on the other, provide a way for those who have been using these vehicles for years, given the scale of economic crime that the research suggests, to have a “get out of jail free” card because of the time allowed for compliance and the lack of scrutiny of what is happening.
On new clause 56, I am really pleased that the Minister recognises the arguments that have been made, and his openness about wanting to work together. As my right hon. Friend the Member for Barking said, the wording may not be perfect, but let us work together on the solution. That is important if the Committee is to make sure that the legislation is improved prior to its return to the whole House on Report.
I think it is worth saying that those who have given evidence to the Committee will also be looking for changes. There have been numerous reports by the Government themselves highlighting the use and abuse of the limited partnership model for the purpose of economic crime. To give one example, when giving evidence to the Committee, the legal professor Elspeth Berry said of limited partnerships:
“I dread explaining them to my students, because of the difficulty in trying to get at who owns limited partnerships and who is in control of what is going on”.––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 27 October 2022; c. 103, Q194.]
Clearly, there is opinion among experts that mirrors the wider concerns that we have heard about the opaqueness of ownership and control information around limited partnerships.
Kevin Hollinrake
It is clear from the number of different things that we have discussed over recent days that we need to work on a number of points to improve the legislation. There is no question about that, and I am grateful to hon. Members for their contributions to that end. The shadow Minister raised the six-month transitional period. Clearly, we are trying to strike a balance between rooting out wrongdoing and ensuring that legitimate organisations have time to provide the information. I think it is a reasonable time period. It may be that something happens as she described, and some nefarious activities are—
Seema Malhotra
Will the Minister consider this a little further in the light of the fact that the Bill’s provisions will not come as a surprise? The Bill has been introduced, there has been Government documentation and consultation, and so on. Might the six months be looked at again in the light of that fact?
Kevin Hollinrake
I was going on to say that I think the period is fair. As the hon. Lady knows from the debate that we have had over recent days, the way the legislation works is that a number of different pressure points are applied to those who are potentially guilty of wrongdoing. The dissolution of a partnership may well be a red flag for Companies House in certain circumstances, together with other information that it may glean, including from the confirmation statements that general partners have to submit—those are combined with criminal sanctions, of course—and information sharing. All those things come together in this holy alliance to clamp down on the opportunities created by limited partnerships and other vehicles that we have discussed. I think it is a fair balance, but I am always happy to continue to debate these things.
Question put and agreed to.
Clause 100 accordingly ordered to stand part of the Bill.
Schedule 4
Required information
Amendment made: 50, in schedule 4, page 164, line 1, leave out “registered or”.—(Kevin Hollinrake.)
This amendment would mean that, in relation to the registration of limited partnerships, the required information that must be provided about a partner that is a legal entity includes its principal office in all cases, rather than there being an option to provide its registered or principal office.
Schedule 4, as amended, agreed to.
Clauses 101 and 102 ordered to stand part of the Bill.
Clause 103
A limited partnership’s registered office
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
Currently, limited partnerships must provide a proposed principal place of business only on registration. There is a requirement to notify the registrar if the principal place of business changes, but the penalty is just a fine of £1 per day, which does not effectively deter non-compliance. There are many cases where limited partnerships have not informed the registrar that their principal place of business has changed, meaning that she is unable to notify them of any changes or serve documents on them.
Clause 103 therefore introduces a requirement for general partners to maintain a registered office address that is in the original jurisdiction of registration in the United Kingdom and keep this up to date. This means where the principal place of business changes, including by moving abroad, the registrar still has a UK registered office address on record for the limited partnership. An important attraction of limited partnerships for legitimate businesses is the flexibility to move their principal place of business abroad. The clause therefore retains that flexibility while also ensuring the registrar has an appropriate address in the United Kingdom for contact and potential enforcement purposes.
The clause also sets certain conditions for the address to shore up the limited partnership’s connection to the UK and allow scrutiny of the limited partnership. For example, the address must be able to be used for communication purposes and it must be possible for the delivery of documents there to be recorded by an acknowledgement of delivery. The address must be either the limited partnership’s principal place of business, the usual residential or office address of a general partner, or the address of an authorised corporate service provider that is acting for the limited partnership.
The general partners of limited partnerships can change the registered office address, but they must inform the registrar of the change and confirm that the new registered office address is an appropriate address. This is a critical part of limited partnership reform. Failure to meet the address requirements will be an offence and may result in a substantial fine. The clause mirrors changes made by part 1 of the Bill to powers for the registrar to move registered office addresses, either on application or on the registrar’s own motion, where the address fails the “appropriate address” test.
Clause 104 extends the requirement to have a registered office address to limited partnerships that were registered before commencement of the Bill. It gives them a period of six months to comply with the new requirements. The end of the transition period will provide the registrar with a point at which to assess which limited partnerships have failed to comply and may therefore be inactive. The registrar can then treat the limited partnership as dissolved and update the register accordingly, which will assist enforcement and compliance activities.
Seema Malhotra
I thank the Minister for his remarks. I have some brief comments to make about clauses 103 and 104 stand part. The Minister has outlined what the clauses do. Clause 103 inserts a new section into the Limited Partnerships Act 1907 that establishes on general partners of limited partnerships a duty to ensure that the firm’s registered office is at all times an appropriate address at which to receive correspondence. The clause introduces a new power for the Secretary of State to make regulations giving the registrar the power to change a limited partnership’s registered office address. The appropriate address is supposed to be within the original jurisdiction.
While new regulations on the addresses of limited partnerships are needed, Elspeth Berry, a legal expert on limited partnerships, set out in her written evidence to the Committee concerns about this element of the Bill. She said:
“The requirements for an “appropriate” registered office address or email are an improvement but do not guarantee a genuine economic link to the UK…The “appropriate” address for the registered office, and email address, ensure that the address is used with consent, and someone will answer. However, the provisions still lend themselves to maildrops, with no real economic presence. None of the options intended to link an LP to the UK demonstrate a real economic link. Option 1 is apparently already complied with by most rogue LPs already, because they have no real place of business in the UK, so anywhere can be the “principal” place. Option 2, the usual residential address of a partner, can be redacted, so redaction must not apply if it is also chosen as the registered office. Option 3 is the address of a corporate general partner, with all the lack of transparency that entails. Option 4 is an ACSP address, which can be a maildrop.”
Will the Minister respond to those concerns? What assurances have the Government received that the provisions in the clause will genuinely guarantee the economic link to the UK that is intended? If not, will he look again at this part of the Bill? It would be a shame to get to the point of the Bill becoming an Act without it being able to do what is intended.
Clause 104 provides for a six-month transitional period during which the general partners of existing firms must submit a statement specifying the firm’s registered office, per the regulations set out in clause 103. Will it really take six months to specify an address? Is that not something that the Minister can look at? Other provisions of the Bill refer to 28 days, so why this six-month period? Perhaps six months emerged from a consultation as the most effective option, or it has simply been passported into the Bill because that is in alignment with some other regulation. Was it just cut and paste? If, however, not much thought has gone into this transition period, and if there are no downsides to doing so, we have an opportunity to amend,. Again, I will be grateful for the Minister’s response.
Alison Thewliss (Glasgow Central) (SNP)
I very much agree with the hon. Member for Feltham and Heston. Without rehashing our previous arguments about addresses—checking whether they are real addresses and whether someone can pick up mail there, which requires people going to make such checks—I note the concerns of the Law Society of Scotland that “principal place of business” could still be a bit unclear. It points out in its briefing that a number of other concepts already exist in legislation, such as “head office”, “establishment” or “centres of main interest”. That makes things confusing and more easy to get around if people wish to do so.
The society believes that another issue has emerged, in part owing to covid: not everybody has a principal place of business as we used to understand it—a head office with a sign above the door. That is what we were used to seeing, but now that people work remotely, sourcing a principal place of business might become more difficult. Businesses have adapted, so it will be useful to understand from the Minister whether such things will be caught by the legislation. Someone might not have a traditional headquarters in the old way, and so might not be caught by the legislation. I seek his assurance about the intention of the Bill.
The Law Society of Scotland briefing also points out that members of a management team might not all be based in the same location; they might be working remotely or in different countries around the world. Again, sourcing that person who has responsibility at a principal place of business has become a little murkier as a result of changes in working practices. We need to ensure that legislation keeps pace with that and that there is not a workaround for those who want to avoid scrutiny.
Kevin Hollinrake
A few minor points have been made additional to the ones that have been discussed before. The shadow Minister, the hon. Member for Feltham and Heston, asked about the corporate general partner. Clearly, there is still a person behind a corporate general partner—an officer has to register their identity behind the corporate general partner, so there is an actual person behind it.
The shadow Minister also referred to the six months. As I said, I think that is a reasonable period, but she might think differently and seek to amend it on that basis. To me, it is not just about the time period, but about the other points—the foundations of the Bill, which are the sanctions, the red flags and the sharing of information. Those are the important things. The downside she mentioned is the impact on legitimate businesses, for which the time period may not be sufficient.
Clearly, there is a link to the UK in terms of how the entity is established. The limited partnership is established and has to maintain its registered address. I do not think that any of these measures contain a requirement to have an economic link to the UK, but I will discuss that with officials.
Dame Margaret Hodge
The Minister said earlier something that I did not think was the case. I thought that corporate general partners did not have to register the person behind the company. That is the problem: people register the company without registering the person.
Kevin Hollinrake
Absolutely, although I will clarify that with my officials. We discussed this issue before. I will confirm it later today, if I can, but I am sure that that is the case.
There is no requirement to have an economic link. The link is with the person, the general partner and the limited partners, and the UK-based address. That is the link to the UK that these measures seek to ensure.
Question put and agreed to.
Clause 103 accordingly ordered to stand part of the Bill.
Clause 104 ordered to stand part of the Bill.
Clause 105
A limited partnership’s registered email address
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
The two clauses mirror the provisions in clauses 30 and 31, which we debated previously. They apply to limited partnerships the registered email requirements introduced for companies. Clause 105 requires limited partnerships to have a registered email address. The email address must be “appropriate”, which means that
“in the ordinary course of events, emails sent to it by the registrar would be expected to come to the attention of a person acting on behalf of the limited partnership.”
Clause 106 provides for a transition period of six months for existing limited partnerships to provide an appropriate email address to the registrar. If, at the end of six months, a limited partnership has failed to supply an appropriate email address, the registrar will have reasonable cause to believe that the limited partnership is dissolved. That will mean that the confirmation of dissolution process, which we will debate later, is open to the registrar, who may consequently move to deregister the limited partnership.
Seema Malhotra
It is a pleasure to speak to clauses 105 and 106. As the Minister said, clause 105 inserts new provisions in the Limited Partnerships Act 1907. The new measures provide that all general partners must maintain an appropriate email address. The Minister has probably outlined this before, but it is helpful to consider what we mean by “appropriate”. Email addresses can be anything—for example, mylp@gmail.com—or they could be more robustly connected to an entity. Will the Minister say anything further about the definition of an appropriate email address? Is it just one that works and to which somebody responds in the end? A failure to comply would be an offence, and it is right that a general partner could face a fine.
Clause 106 gives the general partners of a limited partnership a six-month transition period in which to submit their email addresses to the registrar and comply with the provisions introduced by clause 105. I think the Minister knows exactly what my concerns are about how long it can take to register an email address with the registrar. The most honest businesses and those doing the best are probably more likely to comply more quickly. Again, I make the point that it feels as though six months is an extremely long time for limited partnerships to comply with these new measures.
Kevin Hollinrake
The hon. Lady asked about the definition of an appropriate email address. As I said, it is an appropriate email address if emails sent to it would be
“expected to come to the attention of a person acting on behalf”
of a limited partnership. I think that is pretty clear—it has to be an address that can receive emails and to which somebody can respond.
On the question asked by the right hon. Member for Barking, where the partner is not an individual but a firm or body corporate, information is also required on the individuals involved in the management of those firms. That includes making sure that there is a named contact.
Question put and agreed to.
Clause 105 accordingly ordered to stand part of the Bill.
Clause 106 ordered to stand part of the Bill.
Clause 107
Restrictions on general partners
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
New clause 49—Requirement for all company directors to be natural persons—
“The Secretary of State must, on a date no later than 31 March 2023, make regulations to bring into force section 87 of the Small Business, Enterprise and Employment Act 2015 (Requirement for all company directors to be natural persons).”
This new clause would bring into effect provisions of the Small Business, Enterprise and Employment Act 2015 enabling a ban on the designation of a company as the beneficial owner of another company, requiring all company directors to be “natural persons”.
New clause 57—Limited Partnerships required to have at least one partner who is a natural person—
“(1) A limited partnership must have at least one partner who is a natural person.
(2) This requirement is met if the office of partner is held by a natural person as a corporation sole or otherwise by virtue of an office.
(3) For the purposes of this section, “limited partnership” includes Scottish limited partnerships and limited partnerships in Northern Ireland.”
New clause 58—Limited Liability Partnerships required to have at least one member who is a natural person—
“(1) A limited liability partnership must have at least one member who is a natural person.
(2) This requirement is met if the office of member is held by a natural person as a corporation sole or otherwise by virtue of an office.”
Kevin Hollinrake
Clause 107 requires a limited partnership to confirm on application for registration that none of its general partners are disqualified under directors disqualification legislation. It also introduces a duty on all general partners of a limited partnership to take any steps necessary to remove a disqualified general partner on pain of criminal sanction for failure to take those steps.
General partners are responsible for the management of limited partnerships, including the movement of funds. There is currently nothing in place to remove a general partner from a limited partnership once they become disqualified. The clause is needed to ensure that disqualified individuals are prevented from being general partners of a new limited partnership set up after the Bill and to ensure that existing general partners of extant firms who become disqualified, or already are when the Bill comes into force, cease to be a general partner.
New clause 49 would require the Secretary of State to make regulations under section 87 of the Small Business, Enterprise and Employment Act 2015, which amended the Companies Act 2006 to require all company directors to be natural persons, with the power to make exceptions in regulation. I have every sympathy with the intention of the amendment, which challenges the Government to act on something they have long promised. I am happy to commit to the Committee that such regulations will be made soon.
Kevin Hollinrake
Very similar. It is sooner than shortly. The ban on the appointment of corporate directors will not and should not be absolute. That is why the Companies Act provides for a delegated power to create exemptions by regulations. Those regulations will address the limited circumstances under which a company will be permitted to have a corporate director. It is important that those regulations are in force before we ban the appointment of any corporate directors and are aligned with the new reforms proposed in the Bill.
Dame Margaret Hodge
I am grateful, thinking about my new clause, because it sounds like there might be movement on that. I want to ask the Minister a difficult question: what are the legitimate reasons for limited liability partnerships to have a corporate member? What on earth is a legitimate reason? I cannot think of one.
Kevin Hollinrake
It might be an investment fund. It might be an insurance company or a collective around investment funds that derive returns for our pensions for millions of people up and down the country. It may well be that a corporate body is part of that limited partnership. I think that is perfectly reasonable, and I imagine we would expect that to be the case.
Dame Margaret Hodge
Even in that case, why not have a natural person—a named individual? I just do not get it.
Kevin Hollinrake
That is exactly what we have. Does the right hon. Lady mean in terms of companies, or in terms of limited partnerships?
Dame Margaret Hodge
Yes, in companies; no, I mean in limited partnerships. Apologies.
The Chair
Order. We cannot have a general conversation. The person speaking is the person I call to speak—at the moment, that is the Minister.
Dame Margaret Hodge
Apologies to you, Mr Robertson. I got carried away. I am talking to limited liability partnerships. I cannot see the point of hiding behind a corporation rather than having a natural person.
Kevin Hollinrake
There is a bit of confusion generally about the difference between limited partnerships and limited liability partnerships. I think we are talking about limited partnerships here.
Kevin Hollinrake
A named individual will be required for corporate partners—namely, a registered officer. I made that commitment earlier in the debate. I hope the right hon. Lady will be reassured on that point.
Seema Malhotra
On a point of clarification, the Minister just talked about limited partnerships, where a named individual is required. I know this is confusing. Would the situation be the same in relation to limited liability partnerships?
Kevin Hollinrake
Yes, as I understand it, but I will get clarification on that.
Dame Margaret Hodge
I am trying to think this through properly: I may be wrong. In the circumstances where the corporation is offshore—an offshore company owns it—would there have to be a natural person named?
Kevin Hollinrake
Yes. There is no distinction between companies or corporate partners operating offshore to those that are operating onshore. There will be a registered officer in all circumstances.
The regulations will address the limited circumstances under which a company will be permitted to have a corporate director. It is important that the regulations are in force before we ban appointment of any corporate directors, that they are aligned with the new reforms proposed in the Bill and, most importantly, that identity verification of the officers of the corporate director can be carried out.
It is the Government’s intention that any corporate director be as transparent and accountable as a natural person and therefore we intend to make our corporate director regulations come into force alongside the regulations enabling identity verification. Introducing those regimes will be one of the implementation priorities post Royal Assent. I repeat my commitment to the Committee that the regulations will be brought forward.
I understand that the intention of new clause 57 is to ensure that limited partnerships should always have a partner who is a natural person, in order that the person might be contacted in relation to that limited partnership’s activities. Clause 108 inserts proposed new section 8K into the Limited Partnerships Act 1907: the new section places a duty on limited partnerships to have a registered officer who is a natural person for any general partner who is a legal entity and goes on to place strict duties for notifying any changes to that person to the registrar.
The duty in the proposed new section applies only to general partners and not all partners because limited partners are not permitted to engage in management activities. The objective of the new clause in the name of the right hon. Member for Barking would not be met if a limited partnership’s only natural person was a limited partner, because they would not be permitted to correspond with or act in relation to a notice from the registrar.
New clause 58 targets the misuse of limited liability partnerships in opaque corporate structures. While I sympathise with the intent, I cannot support the new clause. UK limited liability partnerships have been named in a number of international money laundering scandals. Many of those will have partners that are solely corporate structures. I am concerned about the abuse, but just as with companies, there can be legitimate reasons why a limited liability partnership might have all corporate partners. For instance, an investment company might a manage a pension fund for a limited partnership. The investment company would be the general partner and manage investments for the limited partners, which generate pension income. It is important for us to get the balance right.
Dame Margaret Hodge
That was a very useful contribution, and I thank the Minister. Through these new clauses we are simply trying to strengthen transparency so we know who is behind the corporates structures. Before the Minister was in his post, the Government themselves cited in their White Paper on corporate transparency three massive scandals: the Azeri scandal, Danske Bank and the Moldova bank fraud. All of those involved limited partnerships or limited liability partnerships, which have the features of a corporate entity acting as a partner and were located offshore in one of the secrecy jurisdictions. We are trying to get at that with these new clauses. If we have not got them quite right, I look forward to the Minister coming forward with other propositions.
It is the opaque corporate structures that hide the true identity of the individual who owns or controls a company. That is a classic way that bad people hide their dirty money. This is not an exception—I know that the Minister likes to sometimes say that, but the recent Transparency International analysis of limited liability partnerships found that one in 10 had the identical characteristics to entities that are involved in serious financial crime. That is quite high, and just another red flag. These companies were a newly formed identity, entered immediately into deals and laundered the money or were suspected of laundering the money. Very shortly after the wrongdoing, they closed the company. An awful lot of times I have come across companies with no financial history. They never submit any accounts to HMRC and claim that they have no assets in the accounts. A company might be using nominees and secret offshore jurisdictions, which we have talked about.
The other interesting thing in the Transparency International evidence, which the Minister might want to reflect on, is that out of the 1,532 companies that they looked at, 94% had at least one corporate partner with a registered address in one of 21 high-risk jurisdictions—the BVI, Belize and so on. I like to have these little stories to tell: there is the bottle laundromat that the Minister will know well, which ended up with £750 million being laundered out of Russia, stolen from the Russian people between 2014 and 2016. Some 130 companies were used. They falsified sales to Russia of bottle-making machines. They never really produced the machines, but in paying for them, they got the money out of Russia. There were three UK LLPs, all of which had two or more offshore corporate partners from one or more high-risk jurisdictions behind them.
This is not an insubstantial problem: it is a big problem. These are not just exceptional occurrences; they occur with too much frequency. What we are trying to do here is not a silver bullet, but we think it is part of the jigsaw that needs to be put together to improve transparency and therefore make things more difficult for people who engage in money laundering and other crime and for people to hide who they are. We are just saying that one natural person should be listed on the board. I am a bit unclear as to whether our proposal would actually achieve that or whether there are other ways of getting to the same objective, one that I think we probably share. I do not know why—I find it a bit odd—we in the UK are offering UK legal protection and privileges, things like limited liability or the rule of law, and sort of by accident we are offering anonymity to people offshore who are not in the least bit troubled by UK law, because they are completely beyond its reach. It seems to me that the current structure enables that to happen.
The new clauses would ensure that partners or members could no longer hide behind offshore corporate partners and members without a named individual being on the line for—held to account for—any wrongdoing. We will still, I know, get nominee directors. Trust and company service providers will still put themselves forward as the named people, or people working in TCSPs will still do it. But I think that this proposal would help with raising red flags and enabling Companies House to focus its activity on those areas where there is the greatest danger.
Seema Malhotra
It is a pleasure to speak to these measures. We have had quite an extensive debate, so I will make just some limited remarks on clause 107 and new clauses 57 and 58. Clause 107 is a very important clause, inserting a requirement on registration for confirmation that a limited partnership’s proposed general partners are not disqualified under the director’s disqualification regime. It also inserts, under proposed new section 8J, a new duty to take steps to remove a general partner who is disqualified. If general partners fail to do that, they will be liable to an offence.
Those requirements are extremely important. I think that some of the debate is just on where some measures perhaps do not go far enough. In summary, we support the arguments made by my right hon. Friend the Member for Barking on new clauses 57 and 58.
I want to read out another contribution from Professor Berry. I think it is important to keep these contributions on the record in our discussions—recognising as well some of what the Minister has said. As Professor Berry set out in her written evidence to the Committee about the issue of corporate directors, ascertaining an individual acting as a director through a body corporate is certainly more opaque than if the director is just a natural person. The situation is very confusing, but I will read out what the professor said. She stated that
“the concept is demonstrably open to abuse, a ban”
on corporate directors
“was originally proposed in the interests of accountability and transparency, and a legal entity is incapable itself of carrying out the functions or duties of a director…Not only are corporate partners/LLP members a significant feature of wrongdoing…the attempts in the Bill to trace an individual somewhere behind them are so complex as to be unworkable in practice…impossible in practice for CH to check, and an obvious route for obfuscation by wrongdoers. E.g the concept of a named officer or of a managing officer of a corporate partner (and presumably of an LLP member), compounded by the fact that a named officer’s residential address can be redacted and they need not supply a service address.”
As the Minister reflects on our discussions and how we move forward, he should bear in mind the concerns raised by Professor Berry. Whatever is brought forward by the Government—however they have reconsidered it, and tested what it will do and mean in practice—does it pass the Professor Berry test, and meet the challenges that have been put to us regarding the legislation and what could otherwise slip through the net?
Kevin Hollinrake
I think it passes that test; it certainly seems to pass the test of the new clause tabled by the right hon. Member for Barking. In her remarks, she said that we are just looking at one person behind that corporate entity: that is exactly what we are achieving through the regulations, making sure that there is an actual person—a registered officer, a managing officer—who sits behind any corporate entity. That person will be verified, with a UK address. The TCSPs within those organisations, to which the right hon. Lady referred, will also have their identify verified, and anyone who is found guilty of false filing could face significant fines and jail sentences. I think the Bill achieves what she has set out, but as I said in my earlier remarks, I am happy to consider what further restrictions on those corporate entities might be appropriate.
Question put and agreed to.
Clause 107 accordingly ordered to stand part of the Bill.
Clause 108
Officers of general partners
Kevin Hollinrake
I beg to move amendment 18, in clause 108, page 86, line 32, at end insert
“, and
(b) confirming that the proposed registered officer meets the requirement in section 8K(1)(c)(i) or confirming that the proposed registered officer meets the requirement in section 8K(1)(c)(ii).”
This amendment would require each general partner that is a legal entity to state, in an application for registration of a limited partnership, whether its registered officer is identify verified or exempt.
The Chair
With this it will be convenient to discuss the following:
Government amendments 19 to 24, 26 to 28, 37 and 41.
Government new clause 9—National security exemption from identity verification.
Kevin Hollinrake
Amendments 18 to 24 and 26 to 28 make changes to clauses 108 and 111 of the Bill to extend identity verification requirements to registered officers of corporate general partners of limited partnerships. General partners will be required to confirm whether their registered officer is identity-verified or exempt when registering a limited partnership, becoming a general partner, changing a general partner, or changing the registered officer. A failure to do so will result in those general partners committing an offence. Each proposed registered officer will also be required to confirm whether they are identity-verified or exempt. The corporate general partner will be required to maintain a registered officer, who will have to be verified at all times unless exempted from those requirements.
The other amendments in the group mirror the changes made by clauses 64 and 65, the principles of which we have already debated. They include allowing the Secretary of State to make regulations setting out exemptions to the ID verification requirement. Exemptions may be warranted: for example, where it would not be appropriate to require a registered officer who has already undergone sufficient checks as part of their appointment process to verify their identity. Similarly, the amendments also mirror the regulations requiring statements about identity verification to be accompanied by other statements or other information; making statements relating to ID verification unavailable for public inspection; and introducing an identity verification exemption on the grounds of national security, or to prevent serious crime.
Seema Malhotra
We will keep our comments on this first group of amendments very brief. Broadly, we support these amendments. I would like clarification on a couple of points about amendments 22 and 37 and new clause 9.
Kevin Hollinrake
The hon. Lady is quite right. Exemptions might be applied where somebody’s identity can be confirmed without verification. An example could be a director appointed by the community interest companies regulator under section 45 of the Companies (Audit, Investigations and Community Enterprise) Act 2004. The CIC regulator and its office is part of a Government Department that is co-located within the registrar. That is simply to ease the burden of bureaucracy where unnecessary.
We expect the powers to be used very rarely. We discussed the matter at length earlier in our proceedings and we do not think there is any reason to go further than that at this point in time. I am sure it is a matter for further debate as we progress.
Amendment 18 agreed to.
Amendments made: 19, in clause 108, page 87, line 11, at end insert
“, and
(ii) confirming that the individual meets the requirement in section 8K(1)(c)(i) or confirming that the individual meets the requirement in section 8K(1)(c)(ii).”
This amendment would require each proposed registered officer to confirm, in an application for registration of a limited partnership, whether they are identify verified or exempt.
Amendment 20, in clause 108, page 87, line 24, leave out “and”.
This amendment is consequential on Amendment 21.
Amendment 21, in clause 108, page 87, line 26, at end insert
“, and
(c) either—
(i) is an individual whose identity is verified (within the meaning of section 1110A of the Companies Act 2006), or
(ii) falls within any exemption that may be specified by regulations made by the Secretary of State for the purposes of this sub-paragraph.”
This amendment would require a general partner’s registered officer to be identity verified or exempt.
Amendment 22, in clause 108, page 88, line 22, at end insert—
“(7) Regulations under subsection (1)(c)(ii) are subject to the affirmative resolution procedure.”
This amendment makes regulations providing for exemptions from identity verification requirements subject to the affirmative resolution procedure.
Amendment 23, in clause 108, page 88, line 33, leave out from “partner” to end of line 35 and insert—
“(i) confirming that the new registered officer meets the requirements in section 8K(1)(a) and (b), and
(ii) confirming that the new registered officer meets the requirement in section 8K(1)(c)(i) or confirming that the new registered officer meets the requirement in section 8K(1)(c)(ii), and”.
This amendment would require a general partner, when changing its registered officer, to specify whether its new registered officer is identify verified or exempt.
Amendment 24, in clause 108, page 88, line 38, at end insert
“, and
(ii) confirming that the individual meets the requirement in section 8K(1)(c)(i) or confirming that the individual meets the requirement in section 8K(1)(c)(ii).”—(Kevin Hollinrake.)
This amendment would require a new registered officer to confirm whether they are identify verified or exempt.
Kevin Hollinrake
I beg to move amendment 25, in clause 108, page 91, line 6, at end insert—
“8PA Regulations about change of registered officers’ addresses by registrar
(1) The Secretary of State may by regulations make provision authorising or requiring the registrar to change a registered service address of a registered officer of a general partner if satisfied that the address does not meet the requirements of section 1141(1) and (2) of the Companies Act 2006.
(2) In this section—
‘registered officer’ has the meaning given by section 8K(3);
‘registered service address’, in relation to a registered officer, means the address for the time being shown in the register as the registered officer’s current service address.
(3) The regulations may authorise or require the address to be changed on the registrar’s own motion or on an application by another person.
(4) The regulations—
(a) may include provision corresponding or similar to any provision that may be included in regulations under section 1097B of the Companies Act 2006;
(b) must include—
(i) provision about appeals corresponding to the provision that must be included in regulations under section 1097B by virtue of subsections (7) and (8) of that section;
(ii) provision corresponding to subsection (9) of that section.
(5) Regulations under this section are subject to the affirmative resolution procedure.”
This amendment confers a regulation-making power to enable the registrar to change the registered service address of a registered officer of a general partner in a limited partnership.
The Chair
With this it will be convenient to discuss the following:
Government amendment 29.
Clause 114 stand part.
Government amendments 31, 35 and 36.
Kevin Hollinrake
Amendments 25, 29, 31, 35 and 36 aim to bring about alignment between companies and limited partnerships legislation. Amendments 25 and 29 enable the Secretary of State to make regulations that empower the registrar to take action to move a service address of a general partner, or a registered officer of a general partner, where it does not meet the requirements as set out in legislation, or where it is not the service address of the individual. Those two secondary legislation powers are sufficiently broad that the provisions in clause 114, which provide the registrar with a more narrowly drawn power to move service addresses, are no longer needed. Clause 114 should therefore not stand part of the Bill.
Amendments 31 and 36 are consequential on the fact that proposed new section 10A of the Limited Partnerships Act 1907 is no longer needed, and they remove cross-references to it. Amendment 35 ensures that when the registrar receives an application to change the service address, she will be prevented from making that information available for public inspection. The registrar will, however, have to make available for public inspection any court order or direction to change a service address.
Seema Malhotra
We broadly support the amendments. Clause 114 inserts a proposed new section into the Limited Partnerships Act 1907 that would give the registrar the power to change the service address of a relevant individual. Amendments 25 and 29 confer a regulation-making power to enable the registrar to change the registered service address or principal office address of a general partner in a limited partnership. Although we do not oppose the amendments, I would be grateful to understand why they are regulation-making powers. If there is a basis for legislating for the regulations, why are they not in the Bill? Is it just a case of creating the provisions now? It would be helpful to understand that.
Amendment 35 would mean that
“any application or other document delivered to the registrar under section 8PA, 8G or 8V (changes of addresses by registrar) other than an order or direction of the court”
would be unavailable for public inspection. What information will that cover? In the light of the transparency arguments being made, would any relevant information not be publicly available? As the Government have tabled a lot of amendments, it would be helpful to slightly disentangle some of their implications.
Kevin Hollinrake
I am grateful to the hon. Lady for her points. On why the amendments confer regulation-making powers, as she knows, regulations give us flexibility to change things more easily. The provisions of the regulations are probably moveable feasts. It is sensible not to have them in the Bill, but to be able to learn and change areas as we go along.
Amendment 35 would prevent documents relating to changes of address by the registrar under new powers from being made available for public inspection. If I can, I will get back to the hon. Lady later in the debate about the particular circumstances she described.
Amendment 25 agreed to.
Amendment made: 26, in clause 108, page 91, line 6, at end insert —
“8PB Registered officers: statements about exemption from identity verification
(1) The Secretary of State may by regulations make provision requiring a relevant statement delivered to the registrar to be accompanied by additional statements or additional information in connection with the subject-matter of the relevant statement.
(2) In this section “relevant statement” means a statement under any of the following provisions that confirms that a general partner’s registered officer falls within an exemption from identity verification—
(a) section 8A(1C)(b) or (1F)(c)(ii);
(b) section 8L(3)(a)(ii) or (b)(ii);
(c) section 8Q(4)(b) or (7)(c)(ii);
(d) section109(2)(a) or113(2)(a) of the Economic Crime and Corporate Transparency Act 2022.
(3) Regulations under this section are subject to the affirmative resolution procedure.”—(Kevin Hollinrake.)
This amendment allows the Secretary of State to make regulations requiring statements about identify verification to be accompanied by other statements or information. It mirrors the amendment to the Companies Act 2006 made by clause 64 of the Bill.
Question proposed, That the clause, as amended, stand part of the Bill.
Kevin Hollinrake
When registering a limited partnership, the names of the general partners are currently required. Not all general partners are individuals; they can instead be a business entity. That means there is often no named individual associated with that general partner or indeed the partnership. Clause 108 introduces a requirement for general partners that are legal entities to provide a registered officer for that entity. As I set out earlier, general partners must ensure that their registered officers are individuals and have had their identity verified. The clause also requires general partners that are legal entities with one or more corporate managing officers to have a named natural person contact for each of those corporate managing officers.
The measures will increase transparency of the partnership activity by further identifying who is involved in the chain of management. They also ensure that the registrar has a point of contact for the general partner for compliance and enforcement purposes. General partners who are legal entities are responsible for keeping that information up to date. If they fail to comply, they are liable for an offence and a substantial fine. That could also fall on any managing officers who are in default.
Clause 109 introduces a six-month transition period within which existing partnerships’ general partners that are legal entities must bring themselves into compliance by submitting a statement to the registrar setting out those details. That allows the register to be brought up to date while giving sufficient time for general partners to submit the required information without being immediately liable to an offence.
Seema Malhotra
Clause 108 amends the Limited Partnerships Act 1907 by inserting provisions, as outlined by the Minister, that set out that general partners that are legal entities must specify the name or names of a proposed registered officer. That will make it possible to contact an individual person in general partners that are legal entities.
We have had some broad debate on the matter, but we have no objection to clause 108, which is welcome. Obviously, questions about transparency go further, but we welcome and support the clause.
Clause 109 relates to the transitional provisions. We understand the need for that, but the Minister will know my views on the six months.
Clause 108, as amended, ordered to stand part of the Bill.
Clause 109 ordered to stand part of the Bill.
Clause 110
Removal of option to authenticate application by signature
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
Clause 110 removes the option to authenticate limited partnerships registration applications, as well as applications for designation as a private fund limited partnership, by signature. A signature, which is something readily forged, is no longer a necessary requirement as the Bill introduces other means of electronic authentication to ensure the correct delivery of documents to the registrar by authorised persons. Those means will be robust, secure and effective. Furthermore, other similar provisions that require general partners to deliver documents to the registrar, such as confirmation statements, do not require a signature. The clause therefore creates alignment across the Limited Partnerships Act.
Seema Malhotra
This clause amends the Limited Partnerships Act by removing the need for a signature when applying for registration of a limited partnership, as the Minister outlined along with the reasons for that. It aligns with new provisions set out in the Bill that impose obligations on general partners to deliver statements and other documents that do not require a signature. I will welcome assurances from the Minister that the Government have carried out some analysis of whether the removal of the option to authenticate an application by signature will have any impact on the effectiveness of the registrar in detecting or preventing economic crime. I will be grateful for that, for the background and for the possible impacts of the measure.
Kevin Hollinrake
As I said, a wet signature is not the key to preventing inappropriate filing documents or inappropriate use of any kind of entity, be it a limited partnership or a company. We are in the modern age now, when many of us approve documents through electronic means. The key to ensuring that we have a register that has integrity and is correct is in the other measures, as we have set out many times.
Seema Malhotra
I understand what the Minister is saying about a wet signature depending on the circumstance, but a lot of documents can be signed electronically but still with a signature. I want to clarify, given the total removal of a wet signature, whether something can be signed electronically and in what circumstances. I know of a situation in which some signatures were put on documentation fraudulently, and that is now being uncovered as evidence of a fraud that took place.
Kevin Hollinrake
The clause does remove the option of a wet signature. It means that electronic means are fine, which already applies to companies. The key to uncovering an undoing, with a wet signature or not, is the other measures in the Bill: sharing of information, sanctions for false filing of documents, criminal sanctions and all those other measures that we discussed by which we can identify wrongdoing and take action against those who are culpable.
Question put and agreed to.
Clause 110 accordingly ordered to stand part of the Bill.
Clause 111
Notification of information about partners
Amendments made: 27, in clause 111, page 92, line 34, at end insert—
“, and
(b) confirming that the proposed registered officer meets the requirement in section 8K(1)(c)(i) or confirming that the proposed registered officer meets the requirement in section 8K(1)(c)(ii).”
This amendment would require a new general partner which is a legal entity to confirm whether its proposed registered officer is identify verified or exempt.
Amendment 28, in clause 111, page 93, line 17, at end insert—
“, and
(ii) confirming that the individual meets the requirement in section 8K(1)(c)(i) or confirming that the individual meets the requirement in section 8K(1)(c)(ii).”—(Kevin Hollinrake.)
This amendment would require the proposed registered officer for a new general partner which is a legal entity to confirm whether they are identify verified or exempt.
Seema Malhotra
I beg to move amendment 162, in clause 111, page 95, leave out lines 22 to 24.
This amendment would remove the provision for it to be a defence for a person charged with an offence under this section to prove that they reasonably believed that notice had been given under proposed section 8Q of the Limited Partnerships Act 1907.
It is a pleasure to move the amendment, which I tabled with the hon. Member for Aberavon. The clause inserts new sections into the Limited Partnerships Act requiring general partners to notify the registrar of changes to a limited partnership’s partners and information about partners, and changes occurring between an application and the limited partnership’s registration. It also inserts offences for failing to notify information about partners. If the limited partnership does not notify Companies House of notifiable changes within 14 days of a change occurring, the limited partnership will have committed an offence. We have concerns about certain provisions in the clause, which is why we tabled the amendment.
As Professor Berry, a legal professor, set out in her written evidence submitted to the Committee:
“The Bill should not provide a defence if a general partner reasonably believed notice of their appointments had been given to the Registrar… General partners are personally liable for the acts of one another…and are jointly responsible for registering/filing notice of appointment. If they themselves fail to register/file, they should be required to wait to see a change on register. Reasonable belief would provide a loophole.”
That is a significant point. If the Minister is unable to support this amendment or to commit to looking at this more closely and coming back to the Committee, I ask him to identify whether and where Professor Berry is wrong in her written evidence or in the concerns she raised. What assurances has he received, what questions has he asked of officials, and what advice has he taken that this defence does not merely create an unnecessary loophole through which regulations can continue to be abused?
In the interests of ensuring that the legislation is as robust as possible, I urge the Minister to accept this amendment. I look forward to his response.
Kevin Hollinrake
On the hon. Lady’s point relating to amendment 35 regarding an address that might be removed from public view, a person could apply to the registrar because their address has been fraudulently registered as that of a general partner. Amendment 35 would mean that the person’s application was not visible to the public, therefore protecting the applicant. That is the sort of circumstance in which the registrar would use that power.
Clause 111 makes it an offence for a person to act as a general partner of a limited partnership if the registrar has not been notified that the person has become a general partner with 14 days of their appointment. A general partner who manages the firm without that notification having been given on time but in the reasonable belief that notification was given has a defence to prosecution. Amendment 162 would remove that defence, making the person strictly liable despite their reasonably held belief. General partners who deliberately fail to comply with the requirement to notify the registrar of their appointment should of course be punished for that offence. In the example that the hon. Lady raises, it may well be that if other general partners were guilty of not properly submitting information, they may be guilty of that offence too. The registrar would make a decision accordingly.
Notwithstanding that the Bill creates these offences, in our view the general partner should not be liable for the offence if they have acted on the basis of an objectively reasonable belief. Examples of circumstances in which a general partner might reasonably, but mistakenly, believe that notification of their appointment had been given might include where a general partner has asked its authorised corporate service provider to submit the application, which has been delayed in circumstances beyond the general partner’s control and without their knowledge, or where there has been a technical hitch of which they were unaware—for example, if the information was being supplied electronically. I therefore ask that the amendment be withdrawn.
Seema Malhotra
I thank the Minister for his response. There might be a question about whether confirmation is received or one can go online and check. The Minister’s response does not seem as robust as I was expecting or hoping in relation to this as a potential loophole.
Kevin Hollinrake
Sometimes in life, things happen and it may well be that they are not drawn to the attention of the general partner. The hon. Lady may think there should be a requirement on the general partner to check that the record has been properly made. It is a reasonableness defence. We expect the registrar to use her judgment in the exercise of any decision about whether an offence has been committed. We may need to agree to disagree on this particular point.
Seema Malhotra
I am not going to press the amendment to a vote, but I do think this is something we should come back to. If the risk is a serious one, we need to take it seriously. I will look to how we might progress this issue through the future stages of the Bill. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendment made: 29, in clause 111, page 95, line 45, at end insert—
“8V Regulations about change of general partner’s addresses by registrar
(1) The Secretary of State may by regulations make provision authorising or requiring the registrar to—
(a) change a registered service address of a general partner in a limited partnership if satisfied that the address does not meet the requirements of section 1141(1) and (2) of the Companies Act 2006;
(b) change the address registered as the principal office of a general partner in a limited partnership if satisfied that the address is not in fact their principal office.
(2) In this section—
‘address registered as the principal office’, in relation to a general partner, means the address for the time being shown in the register as the address of the general partner’s current principal office;
‘registered service address’, in relation to a general partner, means the address for the time being shown in the register as the general partner’s current service address.
(3) The regulations may authorise or require the address to be changed on the registrar’s own motion or on an application by another person.
(4) The regulations—
(a) may include provision corresponding or similar to any provision that may be included in regulations under section 1097B of the Companies Act 2006;
(b) must include—
(i) provision about appeals corresponding to the provision that must be included in regulations under section 1097B by virtue of subsections (7) and (8) of that section;
(ii) provision corresponding to subsection (9) of that section.
(5) Regulations under this section are subject to the affirmative resolution procedure.”—(Kevin Hollinrake.)
This amendment confers a regulation-making power to enable the registrar to change the registered service address or principal office address of a general partner in a limited partnership.
Question proposed, That the clause, as amended, stand part of the Bill.
The Chair
With this it will be convenient to consider clauses 112, 113 and 115 stand part.
Kevin Hollinrake
Under current legislation, general partners are required to notify the registrar of changes to partners or partner information. Clause 111 clearly sets out what information must be kept up to date on the register and places responsibility on general partners to notify the registrar of changes. They will commit an offence and be liable for a substantial fine in instances of non-compliance. Clause 111 goes further, stating that general partners who join limited partnerships after registration must notify the registrar within 14 working days of their appointment. Otherwise, they are prohibited from managing the business.
Clause 112 requires that general partners of limited partnerships registered prior to the commencement of this Bill provide the information set out in clause 111 within a six-month transition period. If the required information is not submitted within this period, the Registrar may reasonably conclude the limited partnership is dissolved and consider taking steps towards deregistering it. Clause 113 requires that new general partners of limited partnerships that were registered prior to the commencement of this Bill must inform the Registrar who their managing officers or named contacts are, or to confirm that they do not have any managing officers. Again, there is a six-month transition period during which this information must be provided.
Clause 115 creates a more robust offence for failing to provide requested information to the registrar, replacing the existing offence with a stiffer penalty. The current penalty of a £1 daily fine on each of the general partners, set back in 1907 when the original legislation was passed, is an insufficient deterrent. The new penalty may be applied if the general partners fail to inform the registrar of changes to a limited partnership’s name, place of business, nature and character of business, or capital contributions by partners occurring after application but before registration.
Dame Margaret Hodge
This batch of clauses we are considering introduces a range of penalties. Does the Minister agree that the use of those penalties should be part of the annual report to Parliament?
Kevin Hollinrake
The right hon. Lady makes a fair point. As I said earlier, that is the kind of information I would like to see reported, so that Parliament and the public can see activities surrounding the legislation and the regulations clearly and ensure that Companies House is doing its job. There should be a proper conversation with members of the Committee, the wider House, officials and indeed Companies House to determine what the appropriate measures should be, but the key thing is not the measures, but the outcomes. I think the right hon. Lady, like me, would be very happy if no penalties were applied, as long as our system was 100% clean. That is what we are aiming for, and ideally it is what our measures will achieve; to me, that is the most important thing.
Question put and agreed to.
Clause 111, as amended, accordingly ordered to stand part of the Bill.
Clauses 112 and 113 ordered to stand part of the Bill.
Clause 114 disagreed to.
Clause 115
Notification of other changes
Amendment made: 31, in clause 115, page 99, line 1, leave out
“10A (inserted by section 114 of this Act)”
and insert “10”.—(Kevin Hollinrake.)
This amendment is consequential on Amendment 30.
Clause 115, as amended, ordered to stand part of the Bill.
Clause 116
Confirmation statements
Kevin Hollinrake
I beg to move amendment 32, in clause 116, page 102, leave out lines 6 and 7.
This amendment means that new section 10E of the Limited Partnerships Act 1907 (confirmation statements) will apply to Scottish limited partnerships. As a consequence, Amendment 33 leaves out the power in clause 117 to amend existing provision about confirmation statements for Scottish limited partnerships.
The Chair
With this it will be convenient to discuss the following:
Government amendment 33.
Clauses 116 and 117 stand part.
Kevin Hollinrake
To aid understanding of the amendments, I will first explain clauses 116 and 117, which they amend. It is essential that the registrar and the public can be assured that the information held on the register concerning limited partnerships is accurate and up to date. Scottish limited partnerships already supply some of that information through a confirmation statement.
Clause 116 introduces a similar requirement for all limited partnerships, irrespective of the jurisdiction of their registration, to confirm that the information held about them on the register is current. It will also ensure that limited partnerships that are registered prior to commencement of the Bill provide a confirmation statement within six months. Limited partnerships that wish to update the registrar on a more frequent basis will be permitted to do so by notifying the registrar. Given that it is critical for the register to be up to date, general partners of limited partnerships that fail to deliver their confirmation statement will commit an offence. SLPs already submit confirmation statements to the registrar concerning the information held about them and their beneficial owners. That is a requirement under the Scottish Partnerships (Register of People with Significant Control) Regulations 2017.
Seema Malhotra
I may not have indicated clearly that I wished to speak earlier, Mr Robertson, and that may be why I was not called to speak in the clause stand part debate for clauses 111 to 115. Nevertheless, my speeches were not going to be long ones, so we will move forward.
We are generally supportive of clauses 116 and 117. Clause 116 inserts new sections into the Limited Partnerships Act 1907 to assist in keeping the register up to date and places a requirement on limited partnerships to deliver statements to the registrar specifying what changes have been made to the partnerships that must be delivered to the registrar within 14 days of every review period, which is every year from the date the limited partnership was registered. We welcome the clause as a necessary provision to maintain the accuracy of the register in relation to limited partners.
Amendment 32 means that new section 10E of the Limited Partnerships Act, on confirmation statements, will apply to Scottish limited partnerships. As a consequence, amendment 33 leaves out the power in clause 117 to amend existing provision about confirmation statements for Scottish limited partnerships. We support clauses 116 and 117 and the Government amendments.
Amendment 32 agreed to.
Clause 116, as amended, ordered to stand part of the Bill.
Clause 117
Confirmation statements: Scottish partnerships
Amendment made: 33, in clause 117, page 103, line 2, leave out from beginning to “(review” in line 17 and insert—
“In regulation 37 of the Scottish Partnerships (Register of People with Significant Control) Regulations 2017 (S.I. 2017/694)”.—(Kevin Hollinrake).
See Member’s explanatory statement for Amendment 32.
Clause 117, as amended, ordered to stand part of the Bill.
Clause 118
Power for HMRC to obtain accounts
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
Limited partnerships are tax transparent, meaning that the individuals that are part of the limited partnership pay tax, rather than the limited partnership itself. In many cases, the partners of a limited partnership will pay tax in the UK, either because they are individuals who pay income tax or because they are corporate entities that pay corporation tax. Where the partners are UK corporate entities, they will also provide accounting information to the registrar. However, there are some limited partnerships whose partners do not pay tax in the UK or which are not legally required to provide accounting information to the UK Government.
The clause will give the Secretary of State the power to make regulations that require the general partners of UK-registered limited partnerships to provide accounting information to HMRC, closing the current gap. General partners who do not comply with that requirement will commit an offence and be liable to a fine or imprisonment.
Dame Margaret Hodge
That sounds like a good idea, but HMRC is absolutely hopeless at using such powers. Time and again with these limited partnerships where scandals have emerged, it appears companies have told HMRC that they are dormant. They have not submitted accounts, and HMRC never checks up on them. What steps will the Minister take to make sure that those useful powers are used?
Seema Malhotra
I thank my right hon. Friend for her remarks. The clause is extremely important for HMRC, providing clarity around accounts and accounting information and what tax should be due. It gives HMRC powers to request information and inserts a new section into the Limited Partnerships Act 1907 to create a new power for the Secretary of State to make regulations that require general partners to prepare accounts and, on request, make accounting information available to HMRC.
We very much support the measure. We want enhanced powers for HMRC to help with the detection and prevention of economic crime, and indeed the paying of rightful tax through better accounting information and submission of tax returns. I support the question that my right hon. Friend the Member for Barking asked about how we can ensure that HMRC uses the powers in a useful way.
Kevin Hollinrake
The right hon. Member for Barking went to a very tough school. She is not an easy person to please. Quite rightly, she is very demanding of more action in various areas; I support that, as she knows. HMRC is not directly answerable to BEIS. It reports to the Treasury, of course.
Kevin Hollinrake
The right hon. Gentleman knows that very well. I agree about enforcement, but I question the right hon. Lady’s language a little bit. She implied that HMRC is useless in certain contexts. I have met Jim Harra and other people from HMRC and found them to be diligent, decent people seeking to do the right job. The vast majority of people in any agency—officials, or whoever—do not go to work to do a bad job, so I think the language she used is not helpful.
We do need to beef up enforcement in all sectors, whether we are talking about tax avoidance, evasion or economic crime, and I absolutely support that. We see time and again that the return on investment from the extra enforcement capability is more than worth while for the taxpayer. I appreciate the spirit of the right hon. Lady’s remarks but not some of the language around them. Certainly, enforcement in all areas is something we need to look at carefully.
Question put and agreed to.
Clause 118 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Scott Mann.)
Economic Crime and Corporate Transparency Bill (Thirteenth sitting)
Thursday 17th November 2022
(2 years ago)
Public Bill CommitteesRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 17 November 2022 - (17 Nov 2022)
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
I beg to move amendment 95, in clause 119, page 105, leave out lines 8 and 9 and insert—
“‘(2B) A limited partnership is dissolved if—
(a) it ceases to have any general partners,
(b) it ceases to have any limited partners, or
(c) each general partner is either insolvent or disqualified under the directors disqualification legislation (see section 8J(3)), irrespective of whether they became insolvent or disqualified before or after this subsection comes into force.’;”
This amendment would mean that limited partnerships dissolve if all of the general partners are either insolvent or disqualified, rather than only dissolving if they are all insolvent. Together with amendment 96 it would mean that limited partnerships would not dissolve if all of the limited partners are insolvent.
The Chair
With this it will be convenient to discuss the following:
Government amendments 96 and 97.
Clause 119 stand part.
Clause 120 stand part.
Government new clause 30—Duty to notify registrar of dissolution.
Government new clause 31—Winding up limited partnerships on grounds of public interest.
Government new clause 32—Winding up dissolved limited partnerships.
Kevin Hollinrake
It is a pleasure to speak with you in the Chair, Ms Elliott.
This group of amendments and new clauses make provision about the circumstances in which limited partner ships dissolve, prescribe the winding-up responsibilities of the partners, and establish powers of the court to wind up limited partnerships. The lead amendment provides that a limited partnership is dissolved: if it ceases to have any general partners; if it ceases to have any limited partners; or where all general partners are either insolvent or disqualified under the directors disqualification legislation.
Government new clause 30 and amendments 96 and 97 concern the duty to notify the registrar of dissolution. Amendment 96 provides for who winds up a dissolved limited partnership. If there are general partners at the time it dissolves, the responsibility falls to them. If there are no general partners, the limited partners are obliged to take all reasonable steps to ensure that the firm is wound up.
The effect of new clause 30 is that when a limited partnership dissolves and has at least one general partner, they must notify the registrar of the dissolution. When there are no longer any general partners at the time of dissolution, the limited partners will be required to notify the registrar. Amendment 97 removes subsection (3) from the clause as the penalty for failing to notify the registrar of dissolution is covered by new clause 30. The rationale for the provisions is that the registrar needs to be informed of a limited partnership’s dissolution so that she can reflect that in the index of limited partnerships’ names which she maintains.
Government new clause 31 concerns winding up limited partnerships in the public interest. This new clause will allow the Secretary of State—in effect, the Insolvency Service—to petition the court to wind up any limited partnership in the United Kingdom, whether solvent or insolvent, and for the court to order the winding up of a limited partnership if it considers it just and equitable to do so. The Secretary of State will be able to receive information from bodies across Government, such as a law enforcement agencies or investigatory bodies, or indeed the registrar under her new information-sharing power. That will help the Secretary of State decide whether to petition the court.
Government new clause 32 allows the Secretary of State or any other person with sufficient interest to apply to the court for orders in relation to the winding up of a limited partnership. The court may make such orders if it appears to the court that a dissolved limited partnership has not been wound up properly or at all. That will ensure that dissolved limited partnerships are properly wound up in a timely manner.
The clause amends and clarifies the existing law around the winding up of limited partnerships. The changes work together with the amendments in this group to make the register more transparent. Specifically, the remaining changes in the clause, which we have not yet debated, concern the application of the actions of limited partners. They provide that a limited partnership shall not be dissolved by the bankruptcy of a partner, and remove the current provision in the Limited Partnerships Act 1907 relating to the winding up of limited partnerships.
Turning to clause 120, the Partnership Act 1890 provides that a court may dissolve a partnership when a partner is found to be suffering from “lunacy or unsound mind”. Clause 120 updates that provision with references to modern definitions of “mental disorder”. The clause also modernises the Limited Partnership Act 1907 by removing reference to the “lunacy” of a limited partner as being grounds for the dissolution of the partnership.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
We largely support the Government amendments, but I will ask a few questions and speak to clauses 119 and 120 stand part. As the Minister outlined, clause 119 concerns the dissolution and winding up of limited partnerships. It sets out that:
“A limited partnership is dissolved if it ceases to have a general partner or ceases to have a limited partner.”
The clause also sets out what happens if a limited partnership is dissolved at a time when the firm has at least one general partner. As the Minister said, it requires the general partner to notify the registrar before they wind up the limited partnership, and it would be an offence for the partners to fail to notify the registrar of the firm’s dissolution. We welcome the new provisions, but I would also welcome the Minister’s thoughts on some comments made by Professor Berry in her evidence. She stated that:
“The Bill inappropriately amends partnership law to prevent automatic dissolution on the bankruptcy of a general partner in an LP… Personal liability is no guarantee of good behaviour if the partner is already insolvent, and indeed the same restriction remains on general partners of a general partnership.”
If I have understood correctly, amendment 95 would mean that a limited partnership is dissolved if all the general partners are either insolvent or disqualified, rather than if they are all insolvent. Taken with amendment 96, it would mean that limited partnerships would not dissolve if all the limited partners are insolvent. Amendment 96 would mean that any insolvent general partners who are not disqualified must wind up a dissolved limited partnership or take “reasonable steps” to ensure that it is wound up. If there are no general partners, the insolvent limited partners must take reasonable steps to ensure that it is wound up. We support amendments 95 and 96.
I will speak briefly to Government new clause 30 and make a few comments about amendment 97. New clause 30 would introduce a new duty on the general partners of limited partnerships to notify the registrar in the event of a dissolution. If the general partners fail to comply,
“an offence is committed by each general partner who is in default”,
but
“where the general partner or limited partner is a legal entity, it does not commit an offence as a general partner or limited partner in default unless one of its managing officers is in default.”
New clause 30 also states:
“Where any such offence is committed by a general partner or limited partner that is a legal entity, or any such offence is…committed by a managing officer that is a legal entity, any managing officer of the legal entity”—
are you still following this, Ms Elliott?—
“who is in default also commits the offence if—
(a) the managing officer is an individual, or
(b) the managing officer is a legal entity and one of its managing officers is in default.”
Some of this speaks to the complexity of some of these structures, which is why it is important to be moving forward in this way. Although we welcome new clause 30, will the Minister expand on the regulations in relation to general partners who are legal entities? Could there be a situation in which none of the criteria needed for an offence to be committed is met when the general partner is a legal entity? Is there still a loophole?
We welcome new clause 31, which would allow a court to order the winding up of a limited partnership on a petition by the Secretary of State in the public interest. New clause 32
“would mean that if a limited partnership has not been wound up as is required by section 6(3A) or 6(3B), the court can make various orders on an application by the Secretary of State or a person with sufficient interest”
to order a winding up of the limited partnership. We believe the measures strengthen the legislation, so can the Minister comment on those two points?
Clause 120 amends the Partnership Act, specifying the provision for the dissolution of a partnership on the grounds of a partner’s lunacy. It is right that we update those references to “mental disorder” within the meaning of modern legislation. However, in her written evidence to the Committee, Professor Berry makes an important point that the clause may give the impression that it
“appears to mean that mental health disorder of a limited partner is now a ground for dissolution (whereas previously it was not), which cannot be intended.”
Can the Minister respond on that point as well, just to make sure that that is not a consequence in the way by Professor Berry suggested?
Kevin Hollinrake
It might be helpful if the hon. Lady shared with me Professor Berry’s written comments, so I can look at it in more detail. Clearly, if a general partner is a legal entity, there is a named individual behind that. We have discussed that at length before. With that information, I will write back to her to clarify those points.
Amendment 95 agreed to.
Amendments made: 96, in clause 119, page 105, line 11, leave out paragraphs (e) to (g) and insert—
‘(e) for subsections (3A) and (3B) substitute—
“(3A) If a limited partnership is dissolved at a time when the partnership has at least one general partner who is—
(a) solvent, and
(b) not disqualified under the directors disqualification legislation, the general partners at that time who are solvent and are not so disqualified must either wind up the partnership’s affairs or take all reasonable steps to ensure that its affairs are wound up by a person who is not a partner at that time.
(3B) If a limited partnership is dissolved at a time when the partnership does not have a general partner who is—
(a) solvent, and
(b) not disqualified under the directors disqualification legislation, the limited partners at that time who are solvent must take all reasonable steps to ensure that the partnership’s affairs are wound up by a person who is not a limited partner at that time.
(3BA) For enforcement of the duties under subsections (3A) and (3B) see section 25B.”
(f) omit subsection (3C).’
This amendment means that any solvent general partners who are not disqualified must wind up a dissolved limited partnership or take reasonable steps to ensure it is wound up. If there are no such general partners, the solvent limited partners must take reasonable steps to ensure it is wound up.
Amendment 97 in clause 119, page 105, line 36, leave out subsection (3).—(Kevin Hollinrake).
This amendment is consequential on NC30.
Clause 119, as amended, ordered to stand part of the Bill.
Clause 120 ordered to stand part of the Bill.
Clause 121
The register of limited partnerships
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
This is a simple clause that removes outdated requirements for the registrar to file statements made by limited partnerships and issue certificates of registration for the statements filed. It brings those into line with the more modern approach for the companies register. The clause introduces a definition of the register of limited partnerships, making clear that it is part of the records the registrar holds under section 1080 of the Companies Act 2006.
Seema Malhotra
As the Minister outlined, the clause increases clarity over the inspection of the register, and we support it.
Question put and agreed to.
Clause 121 accordingly ordered to stand part of the Bill.
Clause 122
Material not available for public inspection
Kevin Hollinrake
I beg to move amendment 34, in clause 122, page 107, line 34, leave out “available for public inspection” and insert
“the following material available for public inspection, so far as it forms part of the register of limited partnerships”.
This amendment spells out that the relevant material is only to be made unavailable for public inspection if it forms part of the register of limited partnerships.
The Chair
With this it will be convenient to discuss the following:
Government amendment 38.
Clauses 122 and 123 stand part.
Kevin Hollinrake
Clause 122 will prevent personal or confidential information, such as a partner’s residential address and date of birth or a limited partnership’s email address, from being disclosed to the public. That aligns the position of limited partnerships with that of companies as set out in the part 1 clauses that we have already debated.
Seema Malhotra
Clause 122 inserts a new section into the Limited Partnerships Act, as the Minister outlined, to set out provisions for certain information that the registrar must not make available for public inspection. The Minister outlined that that could include dates of birth, residential information, and I think also email addresses, for the limited partnership.
We understand the need for the measure, and the Committee has debated previously the need to hold back information for personal security or privacy reasons, but information sharing might sometimes be necessary. We have talked about those who need access to information because they are undergoing insolvency or other proceedings. Is there a mechanism by which the Government could enable information that would ordinarily be protected to be shared with third parties where it is deemed necessary and does not threaten the integrity of the register or the privacy of limited partnerships? This does get confusing, so we are probing where the registrar may be able to share information, if there is a reason to do so in terms of preventing economic crime.
Amendment 34 spells out that the relevant material is to be made unavailable for public inspection only if it forms part of the register of limited partnerships. Amendment 38 will make statements required to be made when documents are delivered unavailable for public inspection. Such statements relate either to identity verification or to an individual being an authorised corporate service provider or employee of an authorised corporate service provider.
I want to ask the Minister for more detail about why that is protected information. Have the Government considered whether it would be helpful and transparent for third parties dealing with a limited partnership to know whether an individual involved in its registration is related to an ACSP? That may be particularly useful given the evidence that has already been recounted to the Committee on the increased risk of economic crime when an ACSP is involved in the registration of the company or limited partnership. This is about transparency in relation to ACSPs.
Kevin Hollinrake
As the hon. Lady sets out, the reason for some information not being made public is security—to prevent ID theft, for example. Throughout the Bill, we are giving the registrar powers to share information wherever necessary, particularly if it relates to tackling economic crime. Nothing in the Bill would prevent any information, public or private, from being shared with law enforcement agencies. That is quite clear; the Bill facilitates that.
On authorised corporate service providers, the measure relates to statements and not things such as ID verification. This is where it may be considered that a statement is not suitable for sharing with the general public, which we have discussed in previous debates.
Amendment 34 agreed to.
Amendments made: 35, in clause 122, page 107, line 34, at end insert—
“(za) any application or other document delivered to the registrar under section 8PA, 8G or 8V (changes of addresses by registrar) other than an order or direction of the court;”.
This amendment would mean the documents mentioned in it are unavailable for public inspection.
Amendment 36, in clause 122, page 107, leave out lines 35 to 37.
This amendment is consequential on Amendment 30.
Amendment 37, in clause 122, page 108, line 4, at end insert—
“(ba) so much of any statement delivered to the registrar as is required to contain the information mentioned in any of the following provisions (which relate to identity verification)—
section 8A(1C)(b) or (1F)(c)(ii);
section 8L(3)(a)(ii) or (b)(ii);
section 8Q(4)(b) or (7)(c)(ii);”.
This amendment would make statements relating to identity verification of registered officers unavailable for public inspection.
Amendment 38, in clause 122, page 108, line 7, at end insert—
“(ca) any statement delivered to the registrar by virtue of section 1067A(3) or (4) of the Companies Act 2006 (delivery of documents: identity verification and authorised corporate service providers);”.
This amendment would make statements required to be made when documents are delivered unavailable for public inspection. The statements either relate to identity verification or to an individual being an authorised corporate service provider or employee of an authorised corporate service provider.
Amendment 39, in clause 122, page 109, line 4, leave out “and”.
This amendment is consequential on Amendment 40.
Amendment 40, in clause 122, page 109, line 7, at end insert—
“(c) section 22(5) of the Economic Crime (Transparency and Enforcement) Act 2022 (extent of obligation to retain material not available for public inspection).”.—(Kevin Hollinrake.)
This amendment is consequential on NC17.
Clause 122, as amended, ordered to stand part of the Bill.
Clause 123 ordered to stand part of the Bill.
Clause 124
Disclosure of information about partners
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
This is another simple clause, which ensures that personal information is used only for its intended purpose and prevents personal information from being exposed to abuse. The clause prevents the registrar from disclosing personal information about partners unless, in a few limited circumstances, it is necessary to do so. In all cases, information will remain available to law enforcement.
Seema Malhotra
We support the clause. As the Minister said, it restricts the registrar from disclosing certain information unless specific conditions apply. As we have rehearsed in other debates, we acknowledge the importance of ensuring that law-abiding individuals who have provided personal information are adequately protected. I am grateful for the Minister’s confirmation and clarity that that information would still be available to law enforcement officers.
I am less clear about what is proactively and reactively available, in the sense of whether it is for the registrar to make the information available or for law enforcement to request it. Perhaps the Minister could just confirm that it can work both ways.
Kevin Hollinrake
Yes, it can.
Question put and agreed to.
Clause 124 accordingly ordered to stand part of the Bill.
Clause 125
Registrar’s power to confirm dissolution of limited partnership
Seema Malhotra
I beg to move amendment 163, in clause 125, page 112, line 35, leave out “power” and insert “duty”.
This amendment is consequential on Amendment 164.
The Chair
With this it will be convenient to discuss the following:
Amendment 164, in clause 125, page 112, line 37, leave out “may” and insert “must”.
This amendment would turn the registrar’s power to confirm dissolution of limited partnerships if it has reasonable cause to believe the limited partnership has been dissolved into a duty on the registrar.
Amendment 165, in clause 125, page 113, line 15, at end insert—
“and,
(d) be published on the registrar’s website and remain published on the registrar’s website for a minimum of 20 years from the date on which it was first published.”
This amendment would require the limited partnership dissolution notice to be published on the registrar’s website and remain published for a minimum of 20 years.
Seema Malhotra
Clause 125 sets out a process for the registrar to confirm the dissolution of a limited partnership that the registrar has reasonable cause to believe has been dissolved. The registrar will be required to publish a notice stating that they believe the limited partnership is dissolved and asking for anyone to come forward with information to the contrary. While we support the clause, to enable the register to be kept up to date and for information on it to be as accurate as possible, we believe that certain elements of it could and should go further to make things more robust, and we have tabled amendments 163 to 165 to address that.
I will discuss amendments 163 and 164 together. Amendment 164 would amend the provisions setting out the registrar’s power to confirm the dissolution of a limited partnership by replacing “may” with “must”, such that the registrar must publish a dissolution notice and begin the dissolution process should they have reasonable cause to believe that a limited partnership has been dissolved. In short, the amendment would turn the registrar’s power to confirm the dissolution of a limited partnership, if they have reasonable cause to believe that it has been dissolved, from a power into a duty.
Amendment 163 is consequential on amendment 164. The explanatory notes to the Bill describe that
“there are currently thousands of limited partnerships on the register which the Registrar either knows or suspects are inactive.”
The registrar’s power to confirm the dissolution of these partnerships should not be optional, hence our amendments would make it a duty.
Amendment 165 would introduce a requirement that the limited partnership dissolution notice published in the Gazette must also be published on the registrar’s website and remain published for a minimum of 20 years. This would ensure that the notice of the partnership’s dissolution is transparently and clearly available to third parties who would benefit from such information. As Professor Berry set out in her written evidence:
“All dissolution/deregistration information should be shown on the Register and retained for at least 20 years. This is essential…so that third parties can fully examine the recent history of a particular participant or investigate suspicious networks.”
It is an important principle that innocent third parties should be able to access all information about former participants following the dissolution of a limited partnership. I would be grateful for the Minister’s comments.
Gavin Newlands (Paisley and Renfrewshire North) (SNP)
It is a pleasure finally to speak in the Committee. It would be an exaggeration to call me the second chair of the SNP; I am more the office junior to my hon. Friend the Member for Glasgow Central, given her knowledge on these matters. I do not intend to repeat much of what was said by the hon. Member for Feltham and Heston, whose amendments I support.
I will make a wider point about power versus duty. In pretty much every Bill Committee I have sat on—perhaps it is something to do with the Bills—amendments have been tabled that seek to replace powers with duties. We all know that there are so many Government agencies and bodies that have lots of powers that are rarely, if ever, used. I have yet to hear a robust response from a Minister as to why we should not replace a power with a duty. Perhaps we will hear one—it may be the first time ever—when the Minister gets to his feet, but I highly doubt it.
In general, the Bill is good, and it enables Companies House and the Secretary of State to do a lot of vital and long overdue work. Sadly, it does not compel them to do enough. That is my issue, and that is why I support the amendments.
Kevin Hollinrake
The quick answer to the hon. Gentleman’s comment is that we believe in people using their judgment. The registrar, who we believe to be a competent person, should use her judgment in these cases. It may not always be proportionate in the circumstances to issue a notice of dissolution. However, I am grateful for the amendments.
The Bill allows the registrar to remove a limited partnership from the index of names without going through the dissolution notice process if she is absolutely certain that the partnership was dissolved, resulting in its deregistration. Amendments 163 and 164 would compel the registrar to publish a notice warning of dissolution, and then a notice confirming dissolution within two months if she reasonably believes that a limited partnership is dissolved. The registrar, despite being certain that the limited partnership was dissolved, would be forced to go through the warning notice and representation-seeking process to confirm that. It would unnecessarily take longer for the registrar to deregister a limited partnership that she was certain had been dissolved.
Furthermore, the process of issuing a dissolution notice attracts a cost. Were the registrar to issue a warning notice, wait for representations and then issue a dissolution notice each and every time she had reasonable cause to believe that a limited partnership had dissolved, the cost may be significant. The registrar should therefore be given flexibility to use her judgment to determine whether to begin the dissolution notice process on a case-by-case basis.
I support the intentions of the hon. Members for Feltham and Heston and for Aberavon, through amendment 165, to increase transparency and bring clarity to the register concerning limited partnerships that are dissolved. The Bill already requires the registrar to issue the notice of dissolution in the Gazette, which is a matter of public record and can be accessed by the public indefinitely. That information will also be added to a limited partnership’s record, with the information being made available to the public for 20 years, either on the register or through the public records office. The information would therefore already be in the public domain. However, I would like to explore with Companies House the feasibility and costs associated with also publishing that information on its website, as the hon. Members have suggested. I will return to them on that point.
Seema Malhotra
I thank the Minister for his comments, which I welcome, and I thank SNP colleagues for their support.
I will reflect on the Minister’s comments in relation to amendments 163 and 164. Obviously, we want to look at proportionality of resources alongside the management of risk and the effectiveness of provisions. I will not press the amendments to a Division today.
In relation to the Minister’s comments on amendment 165, I welcome his taking our suggestion away to look at it, and I look forward to hearing from him in due course. Perhaps he could produce a short note to confirm how the Government might want to move forward with our suggestion. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
Clause 125 will allow the registrar to confirm that a limited partnership is dissolved where she has reasonable cause to believe that it is, and to remove the name of the dissolved firm from the index of limited partnerships that she maintains. It is important that limited partnerships and interested parties are given sufficient notice of the potential dissolution, allowing them to make representations to the registrar if they object. The registrar will therefore be required to publish a notice of her intention to dissolve the limited partnership in the Gazette and to notify the limited partnership of her intention. After a period of not less than two months, the registrar may publish a second notice in the Gazette, which will effectively dissolve the limited partnership, if it is not dissolved already, and let it be deregistered.
Within a period of six years from dissolution, a dissolved limited partnership’s former general partner may apply to the registrar for the partnership to be revived if they bring the limited partnership’s information up to date and pay any fines or penalties that are owed. The Secretary of State, any partner or any person with an interest in the limited partnership may also apply to the court for the limited partnership to be revived. We expect that confirmation of dissolution power to dramatically reduce the number of limited partnerships that are currently registered. A more accurate and up-to-date register will give clarity to the public and law enforcement about the number of active limited partnerships.
Clause 126 will, within a six-month period following commencement of the Act, allow the registrar to publish a notice in the Gazette that limited partnerships are dissolved without having to follow the warning notice and representation-gathering process. This will immediately dissolve those limited partnerships that failed to comply in the six-month transitional period with the requirement to supply the registrar with information required under the Bill.
Clause 127 allows limited partnerships that are not dissolved to deregister and, should the partners want to, continue as general partnerships without the need to wind up the affairs of the firm. All partners in the limited partnership must agree to the deregistration process. That avoids both the potentially protracted process of dissolving and winding up the limited partnership before it becomes a different entity, and the associated administrative burden that would fall upon the registrar.
Seema Malhotra
We discussed clause 125 previously, but it is perhaps helpful to summarise it. Labour supports the clause. It would insert proposed new sections 18 to 24 into the Limited Partnerships Act 1907. They would give the registrar the power to publish a warning notice if she has reasonable cause to believe that a limited partnership has been dissolved. In the absence of any information to the contrary being received within two months, the registrar would have the power to publish a dissolution notice, and the partnership would be dissolved. The proposed new sections also provide for a process for applications to the registrar or court to revive a limited partnership if certain conditions are met.
Clause 126 is a transitional provision. It provides that if the registrar exercises the powers in clause 125 during the six-month period—is it during the six-month period or after it?—after the Bill comes into force, she can publish a notice stating that she has reasonable cause to believe that a limited partnership has been dissolved without having to comply with the warning notice or notification provisions. Will the Minister clarify whether the power applies within the six months or after the six months?
Clause 127 inserts a proposed new section into the Limited Partnerships Act to allow limited partnerships that want to cease to exist to apply to the registrar to be removed if all the partners agree to deregister the partnership. Will the Minister assure the Committee that the clause will not enable limited partnerships involved in wrongdoing and economic crime to voluntarily dissolve before any scrutiny or investigation into them? Will there be safeguards against that occurring?
Kevin Hollinrake
On the hon. Lady’s point of clarification, it is after the six-month period.
On the hon. Lady’s latter point, about the dissolution of a company, will she clarify what question she wants me to address?
Seema Malhotra
I am very happy to. Clause 127 enables limited partnerships to apply to be deregistered if all partners agree. My question relates to the potential opportunity that that provides a partnership where there has been wrongdoing or economic crime and the deregistration is an attempt to avoid scrutiny or investigation. Are there any safeguards around that? Will checks take place if partners apply to voluntarily deregister under the provisions of the clause?
Kevin Hollinrake
That is a fair point. Off the top of my head, I would say that that might be a red flag and the registrar would look in more detail into the parties related to the deregistration, but I will write to the hon. Lady to provide further detail on that point.
Question put and agreed to.
Clause 125 accordingly ordered to stand part of the Bill.
Clauses 126 and 127 ordered to stand part of the Bill.
Clause 128
Delivery of documents relating to limited partnerships
Seema Malhotra
I beg to move amendment 166, in clause 128, page 117, leave out lines 7 to 23 and insert—
“(1) An individual may not deliver a document under a provision listed in subsection (4) to the registrar on their own behalf unless—
(a) the individual’s identity is verified (see section 1110A which, for the purposes of this section, will apply to limited partnerships as it applies to companies), or
(b) the individual falls within any exemption that may be specified in regulations made by the Secretary of State for the purposes of this paragraph.
(2) An individual may not deliver documents to the registrar on behalf of another person unless—
(a) the individual’s identity is verified (see section 1110A),
(b) the individual is an authorised corporate service provider,
(c) the individual is an employee of an authorised corporate service provider and is acting in the course of their employment, or
(d) the individual falls within any exemption that may be specified in regulations made by the Secretary of State for the purposes of this paragraph.
(3) A document delivered to the registrar by an individual on their own behalf must be accompanied by—
(a) a statement that the individual’s identity is verified, or
(b) a statement that the individual falls within an exemption specified in regulations under subsection (1)(b).
(3A) A document delivered to the registrar by an individual on behalf of another person must be accompanied by—
(a) a statement that the individual’s identity is verified and that they have the person’s authority to deliver the document,
(b) a statement that the individual is an authorised corporate service provider and that they have the person’s authority to deliver the document,
(c) a statement that the individual is an employee of an authorized corporate service provider and is acting in the course of their employment and that the authorised corporate service provider has the person’s authority to deliver the document, or
(d) a statement that the individual falls within an exemption specified in regulations under subsection (2)(d) and that they have the person’s authority to deliver the document.
(3B) Regulations under subsection (1)(b) or (2)(d) are subject to affirmative resolution procedure.”
It is a pleasure to move the amendment tabled by my right hon. Friend the Member for Barking. The clause sets out that certain documents relating to a limited partnership can be delivered to the registrar only by an authorised corporate service provider. The documents include, but are not limited to, applications for registration, changes of address, changes relating to partners, and confirmation of statements.
We are concerned by the provisions set out in the clause, particularly those on allowing documents relating to limited partnerships to be submitted only by ACSPs, given the concerns that have been raised about economic crime committed through ACSPs. As a result, we support amendment 166, which would expand beyond just ACSPs the range of people who can deliver documents relating to limited partnerships. It would remove the provision in the clause that mandates that only ACSPs can deliver such documents and replace it with new provisions.
Kevin Hollinrake
I am happy to provide that clarification. I thank the right hon. Member for Barking, who is not present today, for her amendment. The measures in part 2 are intended to tackle the role of limited partnerships in global money laundering schemes. Clause 128 ensures that key documents pertaining to limited partnerships can be submitted only by an authorised corporate service provider. The key is that those providers must be registered with the registrar and supervised for anti-money laundering purposes. Doing so will give the registrar a clear audit trail of who has been setting up and providing corporate services to limited partnerships, and enable that audit trail to be shared with AML supervisors.
The hon. Member for Feltham and Heston is absolutely right to say that there are question marks over corporate service providers. We know that, and we recognise those comments from UK Finance. That is why the Treasury is undertaking the consultation on how we can improve the supervision of corporate service providers, which certainly needs to be done. As I have said many times, corporate service providers can be major accountants that are bona fide organisations; the hon. Lady refers to the minority of corporate service providers that we do need to better regulate and supervise. That body of work is currently being undertaken.
We think the approach of requiring ACSPs to provide the documentation, which is more restrictive than the filing options for limited companies, is appropriate given both the relatively low numbers of limited partnerships created each year and the fact that they are used chiefly by the investment sector, which routinely uses agents. The amendment would require individuals to submit documents if their identity was verified, but it would remove the requirement for individuals to be relevant persons under the money laundering regulations. I do not think that would be the right approach. It would mean that they would not, for example, have the obligation to conduct due diligence checks on those on whose behalf they were acting or to adhere to record-keeping requirements, and they would not be supervised for anti-money laundering purposes.
Clause 128 will serve not just to better support supervision but as a prompt for better supervision, so I invite the hon. Member for Feltham and Heston to withdraw the amendment.
Seema Malhotra
I thank the Minister for his remarks. This is an important debate. I am not sure that we have exhausted it today, and we may not, but it strikes me that the Minister’s main argument—that the volume of registrations might be less—is not the strongest. I wish to look further at what he said about who and what would fall under anti-money laundering regulations and whether the amendment could reduce some of the scrutiny and controls in that respect. I do not believe that would necessarily be the case if we were effectively allowing individuals to submit documents on their own behalf if they wished to do so.
It would be worth our coming back to this issue. I do not intend to press the amendment to a vote, and I am sure that my right hon. Friend the Member for Barking will also want to reflect on the Minister’s comments, but we remain concerned about the delivery of documents relating to limited partnerships. I recognise what the Minister said, but I also appreciate—he will know this from his work on these issues in the past—the concerns about trust and company service providers and ACSPs. If we can make the provision a little stronger and a little more in line with the way the process works for companies, and if we push the argument just a little further and there is not as strong a downside as the Minister believes, it may be worth coming back to this issue. I will reflect on it with my right hon. Friend. On that basis, I intend to withdraw the amendment.
Kevin Hollinrake
Just to clarify, my argument was not that smaller numbers of limited partnerships are being set up and therefore the risk is less. It is quite the opposite: we know that limited partnerships have been involved in economic crime so we think the risk is greater. That is why we want to put in an extra layer of scrutiny. We believe that introducing somebody who is supervised under the AML regulations provides that extra level of scrutiny and an extra level of check and balance in the process. That is our basic argument.
Seema Malhotra
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendment made: 41, in clause 128, page 117, line 39, leave out from beginning to end of line 16 on page 118. —(Kevin Hollinrake.)
This amendment is consequential on NC9.
Question proposed, That the clause, as amended, stand part of the Bill.
Kevin Hollinrake
Clause 128 is another simple clause. It ensures that key documents pertaining to limited partnerships can be submitted only by an authorised corporate service provider. I have already set out why clause 128 is so important in making limited partnerships and their partners subject to a greater level of scrutiny than they are currently exposed to.
Seema Malhotra
As the Minister has outlined, clause 128 inserts into the Limited Partnerships Act proposed new sections 26 and 27, which require applications for registration and documentation of changes to be submitted by an ACSP. We have had a useful debate to which I am sure we will return.
Proposed new section 27 gives the Secretary of State the power to disapply section 26 if that is necessary
“in the interests of national security”
or
“for the purposes of preventing or detecting serious crime”.
We did not go into this exemption in much detail and the Minister may have some further comments on it. The ideas of national security and preventing or detecting serious crime are quite broad; perhaps the Minister could comment on some of the circumstances in which he sees the power being used by the Secretary of State and whether this might be an example of where the use of the power and the number of times it is used should be reported through some mechanism to Parliament.
Kevin Hollinrake
We have debated the same issue at length on a number of occasions. We feel they are proportionate powers to hand the Secretary of State and will be used very rarely.
Question put and agreed to.
Clause 128, as amended, accordingly ordered to stand part of the Bill.
Clause 129
General false statement offences
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
Clause 129 simply introduces two false statement offences—basic and aggravated— into the Limited Partnerships Act. The offences mirror those in the Companies Act and the Economic Crime (Transparency and Enforcement) Act 2022. The Committee has supported this approach when debating other clauses.
Seema Malhotra
I thank the Minister for his remarks. I just want to clarify for the record that clause 128 was confusing, Ms Elliott, because I was talking about proposed new sections 26 and 27, which are in clause 128. I hope that has cleared that up.
Clause 129 relates to general false statement offences. As the Minister said, the clause introduces two levels of offences relating to the submission of a false, misleading or deceptive document or statement to the registrar. That is absolutely right. Proposed new section 28 defines offences where such submissions are made without reasonable excuse and proposed new section 29 defines aggravated offences where such submissions are made knowingly. In each case, where an offence is committed by a legal entity, every managing officer of the entity will also be deemed to have committed the offence. We welcome the new offences and support the clause.
Question put and agreed to.
Clause 129 accordingly ordered to stand part of the Bill.
Clause 130
Service on a limited partnership
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
Clause 130 specifies how documents may be served at the registered office for the purposes of the Limited Partnerships Act. The clause is necessary to ensure that the registrar or another body can serve documents to a limited partnership’s registered address with assurances that they will be received. It is in line with the principles we discussed in part 1 of the Bill.
Seema Malhotra
I thank the Minister for his comments. We support this straightforward clause. It inserts a new section in the Limited Partnerships Act to enable documents to be served on the limited partnership by leaving them at or sending them to their registered office. We welcome and support the clause.
Question put and agreed to.
Clause 130 accordingly ordered to stand part of the Bill.
Clause 131
Application of company law
Kevin Hollinrake
I beg to move amendment 42, in clause 131, page 120, line 18, leave out
“any Act, whenever passed or made”
and insert
“either of the following, whenever passed or made—
(a) an Act;
(b) Northern Ireland legislation.”
This would allow for consequential amendments to be made to Northern Ireland legislation if the power inserted by clause 131 of the Bill is exercised to apply company law to limited partnerships, for example amendments to the Company Directors Disqualification (Northern Ireland) Order 2002.
The Chair
With this it will be convenient to discuss the following:
Clauses 131 to 133 stand part.
New clause 48—Application of Part XIV of the Companies Act 1985 to limited partnerships—
“In Part XIV of the Companies Act 1985, references to a company shall include references to a limited partnership.”
This new clause would extend the investigations regime under Part XIV of the Companies Act 1985 to include Limited Partnerships.
Kevin Hollinrake
To set the context, clause 131 permits the application of company law to limited partnerships where that provision of company law is similar to, or corresponds to, limited partnership law. That will ensure that when company law is amended over time, the corresponding limited partnership law can be amended alongside it, making it easier to keep company law and limited partnership law aligned. To ensure the appropriate level of parliamentary scrutiny, the regulation-making power in the clause will be subject to the procedure applied to the company law that it will adapt. Government amendment 42 amends clause 131 so that the Company Directors Disqualification (Northern Ireland) Order 2002 can be updated to apply to limited partnerships, so that we can disqualify general partners for their actions within a limited partnership.
Turning to clause 132, there is some ambiguity as to whether a limited partnership that is registered in Scotland, or one that is in business in Scotland but registered elsewhere in the UK, has legal personality distinct from its partners. That has significant consequences as the partnerships that are legal persons distinct from their partners can, for example, enter into contracts and own property in their own right. The clause clarifies that only those limited partnerships that have been registered by the registrar for Scotland are legal persons distinct from their partners. That puts beyond doubt the fact that limited partnerships that have their principal base of business in Scotland but are not registered in Scotland are not legal persons in their own right—the place of registration is determinative.
Clause 133 provides that regulation-making powers can also make consequential, supplementary, incidental, transitional and saving provisions. It sets out definitions for negative and affirmative procedures. I am happy to let Opposition Members speak to their amendment before I respond.
Seema Malhotra
It is a pleasure to speak to new clause 48, which would extend the investigations regime under part XIV of the Companies Act 1985 to include limited partnerships. The new clause simply applies to limited partnerships the investigation regimes that companies are currently subject to. We have heard throughout the Committee’s debate on part 2 of the Bill how limited partnerships can be used as a vehicle for economic crime. We have raised numerous concerns, reports and consultations by this Government and other agencies that identify the risk of economic crime through limited partnerships and Scottish limited partnerships. As a result, new clause 48 provides a simple mechanism for applying more scrutiny and transparency to limited partnerships—something I am sure the Government will agree is important. I would be grateful for the Minister’s response on this matter. I hope the Minister will consider the strong reasons for bringing in this new clause.
Kevin Hollinrake
On new clause 48, it is of course right that Companies House should have the necessary powers to investigate wrongdoing by limited partnerships. I am fully signed up to improving transparency and scrutiny, as the shadow Minister knows. One thing we want to avoid, though, is duplication. I will set out why I think the amendment is unnecessary on that basis.
The provisions set out in part XIV of the Companies Act 1985 allow the Secretary of State to appoint investigators to conduct investigations into companies’ affairs. Part XIV applies to companies, overseas companies, and limited liability partnerships. All of these are bodies corporate with independent legal personality. In these cases, it makes sense to have powers to investigate the conduct of the people running them to ensure that they cannot hide behind the independent legal personality of the entity itself.
In contrast, where a limited partnership has no separate legal personality, the conduct of its partners is unshielded. They can already be investigated for fraudulent and other unlawful conduct under existing criminal law and prosecuted accordingly. Where a partner in a limited partnership is itself a company, the provisions of part XIV would already apply to them. It is therefore unnecessary to extend the investigations regime under part XIV in its entirety to limited partnerships, as this amendment would.
Nevertheless, I welcome and am happy to consider suggestions that help us to root out wrongdoers and deal with them appropriately. I have asked my officials to consider which of the measures in part XIV of the 1985 Act there might be a case for refashioning to bolster the authorities’ ability to investigate limited partnerships and those concerned in their management.
Seema Malhotra
I thank the Minister for his very helpful response to new clause 48. I think it is the right way forward to be considering the provisions in part XIV of the Companies Act 1985 that might be relevant and applicable, so that we do not duplicate what may be on statute elsewhere. The easiest way to keep this issue on record for further debate would be for the Minister to come back to me in writing once officials have had a chance to make their assessment. We would be grateful for that.
Clause 131 sets out provision for regulations to be made by the Secretary of State to facilitate the continuing alignment of partnership law with general company law. We support this, and the discussion we have just had is in alignment with that principle. We also support amendment 42. Clause 132 sets out provisions to make it clear that a limited partnership registered in any part of the UK other than Scotland does not have an independent legal personality, even if its principal place of business is in Scotland. The location of registration is the determining factor. It would be helpful if the Minister spoke to this measure, so that we are clear on the reasons behind it. Clause 133 inserts new section 28 into the Limited Partnerships Act 1907 and sets out the general provisions for regulations that can be made under that Act and that the power to make regulations will be exercisable by SI.
I also just wanted to clarify the process by which regulations will be made, because I think they are subject to negative procedure rather than positive resolution procedure. I just wondered why the Government have made that decision about these regulations.
Kevin Hollinrake
In terms of the situation with Scotland, it can be confusing for third parties—it might be a bank, for example; opening a bank account—to understand the difference between a business that is operating in Scotland and has a base there, and one that is registered as a Scottish limited partnership. This measure is trying to clarify in law the difference between the two, to try to ensure that the right questions are asked in those circumstances. That is the basis for this clarification.
If I may, I will write to the hon. Lady to say why we have determined that regulations made under the negative or affirmative procedure should be treated in the way she describes.
Amendment 42 agreed to.
Clause 131, as amended, ordered to stand part of the Bill.
Clauses 132 and 133 ordered to stand part of the Bill.
Clause 134
Limited partnerships: further amendments
Question proposed, That the clause stand part of the Bill.
The Chair
With this, it will be convenient to consider that schedule 5 be the Fifth schedule to the Bill.
Kevin Hollinrake
Clause 134 omits section 17 of the Limited Partnerships Act 1907, which gives a power to the Board of Trade to make rulings relating to the registrar’s functions, including duties, forms and performance of officers. This is because section 1068 of the Companies Act 2006 contains a power for the registrar to impose requirements about the form, authentication and manner of delivery for documents, which renders section 17 of the 1907 Act unnecessary.
Schedule 5 adds new headings to the 1907 Act to ensure that the legislation flows coherently. These reflect the new provisions inserted into the 1907 Act by this Bill.
Seema Malhotra
I am grateful to the Minister for laying that out. As he outlined, clause 134 omits section 17 of the Limited Partnerships Act 1907 and introduces schedule 5 to that Act, which makes consequential amendments. We have no issues with or comments to make on this clause.
Question put and agreed to.
Clause 134 accordingly ordered to stand part of the Bill.
Schedule 5 agreed to.
Clause 135
Register of overseas entities
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
The clauses that we will now debate in part 3 of the Bill make amendments to the Economic Crime (Transparency and Enforcement) Act 2022, which establishes the register of overseas entities. The amendments all serve either to either address issues identified post-implementation or to align the ECTE Act with similar provisions in companies legislation, for instance provisions relating to false statement offences.
The ECTE Act requires overseas entities that own or intend to own land in the United Kingdom to register their beneficial owners with Companies House in certain circumstances. The ROE opened for registrations on 1 August 2022. Section 3 of the ECTE Act currently states that the register is to consist of the following:
“a list of registered overseas entities…documents delivered to the registrar under this Part or regulations made under it, or otherwise in connection with the register, and…any other information required to be included in the register by this Part or regulations made under it.”
Stephen Kinnock (Aberavon) (Lab)
It is a pleasure to serve under your chairmanship, Ms Elliott. I want to make a few general points about registers of beneficial ownership and have a number of questions for the Minister, as a preamble to commenting on clause 135 specifically. Registers of beneficial ownership are not, of course, a new concept. We have had one for UK companies, namely the people of significant control register, since 2016. In that year, David Cameron made what would turn out to be the first of many promises to introduce a register of overseas owners of UK property, meaning that for the first time
“foreign companies that already hold or want to buy property in the UK will be forced to reveal who really owns them”.
Yet here we are, six and a half years and four Prime Ministers later, still discussing how to implement the register. After years of kicking the can down the road, it took the Russian invasion of Ukraine to jolt the Government into action. The first of this year’s economic crime Bills, now the Economic Crime (Transparency and Enforcement) Act, provided the legislative basis for the register of overseas entities, which at long last went live on 1 August.
As much as I welcome the fact that the register is now up and running, it remains very much a work in progress. The legislation passed earlier this year was rushed through on an expedited timetable, with just two weeks of debate. The need to amend what was clearly a hastily drafted law is reflected in the changes set out in clauses 135 to 140. Before addressing the substance of the clauses, it is worth taking stock of what progress has been made in setting up the register and, more importantly, what more needs to be done. According to Government figures, some 32,000 overseas companies are required to register with Companies House by 31 January. Between them, those companies own almost 100,000 properties in the UK. It was the Minister himself, in his previous incarnation as a Back Bencher, who argued forcefully back in March for the transition period during which those 32,000 companies would be required to register to be limited to six months.
Now that we have reached the halfway point in the process, I asked the Minister in written questions how many companies have now registered. Members might have reasonably expected the number to be somewhere in the region of 16,000, or half of the 32,000 total required. Imagine my surprise and disappointment when the Minister replied to my written question saying that, in fact, only 3,214 entities had registered as of last week; in other words, just 10% of those required. If progress were to continue at such a sluggish rate, the register would not be completed until 2025. I therefore ask the Minister whether he has a magic wand, and whether he intends to use it to ensure that the remaining 90% of companies comply with the registration requirement in the next three months.
I will also ask the Minister what he thinks is the reason for the astonishingly low number of registrations to date. But the answer to that question is in fact clear: the failure of the Government to enact the new law until the situation became urgent due to the war in Ukraine meant that the regulations and statutory guidance were sloppily drafted without consultation, leaving the entire framework riddled with holes and shrouded in uncertainty.
I hope the Minister will take the opportunity we have today to clarify some of the issues. Companies House has written to entities to inform them that they need to register, but the data used to contact them came from the Land Registry. That data is, in many cases, out of date. What assessment have the Government made of the accuracy of the contact information provided by the Land Registry? What steps is the Minister taking to ensure that everyone who is expected to register is at least made aware of the requirement in time for them to apply ahead of the 31 January deadline?
Will the Minister also confirm what additional resources, if any, have been made available to Companies House to support the introduction of the register? How many staff are now working to support its implementation? What preparations are the Government making to deal with companies that fail to comply before the deadline? Specifically, how will Companies House identify such companies and work quickly to impose the financial and criminal penalties that the Government have provided for? Will the Minister explain how the Government plan to deal with companies whose beneficial ownership cannot be verified? His Department’s guidance says that entities that claim to have no beneficial owner should provide information without a “managing officer”, but that term is not defined in the guidance. Can the Minister shed some light on this?
Clause 135 makes what appear to be minor technical changes to the wording of documentation to be held as part of the register. To the extent that those changes help ensure that the information on the register is giving as complete and as accurate a picture of companies beneficial ownership as possible, the changes are welcomed by the Opposition.
Kevin Hollinrake
I very much value the hon. Gentleman’s comments and reflections. There is no doubt at all that the measures are a work in progress; that is one of the reasons behind the Bill, of course. I enjoyed answering his questions in writing and we will no doubt correspond further on such matters. He is right to scrutinise the activities of Companies House, which I have sought to do as well.
Let me give a few facts that may help the hon. Gentleman. As of today, there are 3,893 registrations; that is a more up-to-date figure than the one I gave him on 11 November, which was about 3,500. That equates to about 400 in the past six or seven days, which illustrates that the number of registrations is increasing significantly. We always thought that there would be a last-minute rush to file because, as the hon. Gentleman knows, there are significant penalties for not doing so: up to £2,500 per day and a prison sentence of up to five years. That is the risk that those who do not comply are taking, which is pretty significant, so we always thought that there would be a last-minute rush.
To answer one or two of his other questions, eight people are working full time on the register of overseas entities and 20 are trained to handle registrations. They are deployed relevant to workload. There is no current backlog at His Majesty’s Revenue and Customs in this regard. A managing officer is defined in the Act as being akin to a director, secretary or manager.
Stephen Kinnock
On that point about staffing, I think the Minister’s point is that there will be a last-minute rush. Is he confident that the current staffing levels are sufficient to cope with that last-minute rush—that surge?
Kevin Hollinrake
I am not intimately involved in the management of the register. It would be interesting to see and that is a fair point. I will write to the hon. Gentleman. I have asked Companies House to provide us with that information, which it has done, about the activities it is undertaking to pursue people who have not yet completed their registration. We will continue to do that. In the meantime, I am happy to write to the hon. Gentleman on the points he has raised and, indeed, on his further point about making sure that we have enough staff to deal with the last-minute rush that we anticipate.
Stephen Kinnock
I thank the Minister for that. Does he have any thoughts on the interface between the Land Registry and the register of beneficial owners? It appears that a lot of the information on the Land Registry is seriously outdated. What steps are being taken to address that challenge, and does he see a risk in the communication between them?
Kevin Hollinrake
I do not see there being a risk of a lack of communication; they seem to be working together adequately. There is no doubt that some information is out of date. Many overseas entities have not kept their address details up to date, and many letters have been returned as undeliverable. Companies House is undertaking open-source research to try to identify up-to-date addresses, and we are working with stakeholders to raise awareness of the requirements and the deadline.
Companies House is used to dealing with large number of registrations, and we believe it can handle much larger volumes than it is receiving. The hon. Gentleman has asked some detailed questions and made some salient points that I want to follow up with Companies House in order to make sure that we can maintain the register properly, and I suggest we correspond on that basis.
Question put and agreed to.
Clause 135 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Scott Mann.)
Economic Crime and Corporate Transparency Bill (Fourteenth sitting)
Thursday 17th November 2022
(2 years ago)
Public Bill CommitteesRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 17 November 2022 - (17 Nov 2022)
The Chair
With this it will be convenient to consider clauses 137 and clause 157 stand part.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
It is a pleasure to speak with you in the Chair, Sir Christopher.
The clause amends section 15 of the Economic Crime (Transparency and Enforcement) Act 2022 to align it with amendments made to section 32 during the passage of that Act and with amendments introduced by this Bill. The clause substitutes section 15 and adds proposed new sections 15A and 15B.
Proposed new section 15 restates and slightly amends the general false statement offence in section 32 of the ECTE Act to reflect changes made by the Judicial Review and Courts Act 2022. Existing section 15 restricts the false statement offence to being committed when a person knowingly or recklessly makes a false statement in response to a notice. Proposed new sections 15A and 15B amend that offence to change the threshold to be met, by splitting it into two separate offences. That aligns with section 32 of the ECTE Act and amendments to that section introduced by the Bill.
Clause 137 amends section 32 of the ECTE Act on the general false statement offence. The effect of the amendment is that both the basic offence and the aggravated offence are expanded so that a false statement offence can be committed by a legal entity, and, where this is the case, by every officer of the entity in default. That maintains consistency with other legislation amended by the Bill. The penalty for committing the aggravated offence on summary conviction in England and Wales is also amended in line with the Judicial Review and Courts Act.
Clause 157 amends the Reports on Payments to Governments Regulations 2014. Those regulations require certain large businesses in the extractive industries to report annually their payments to overseas Governments associated with the extraction activities. The regulations were brought in to support accountability and to reduce space for corruption.
The Government are conducting a post-implementation review of the regulations to evaluate their impacts and effectiveness. However, in advance of that, the Government propose that the false statements offences and penalties in the regulations be updated to provide consistency with other offences, as previously outlined.
Clause 157 does not alter the requirement for any prosecutions for non-compliance with the 2014 regulations to be mounted or approved by the Attorney General or the Director of Public Prosecutions—or, in Northern Ireland, by the Secretary of State or the Northern Ireland Director of Public Prosecutions—to ensure that they are in the public interest.
Stephen Kinnock (Aberavon) (Lab)
It is a pleasure to serve under your chairship, Sir Christopher. Compared with clause 135, clauses 136, 137 and 157 are more substantial. In drafting them, the Government appear to have accepted that the existing law in relation to false statement offences is too narrow to serve either as an effective deterrent or as a useful tool for law enforcement.
Clause 136 removes the requirement to prove that false information had been submitted knowingly and recklessly. That is a very high bar for prosecutors to clear, and the introduction of a broader set of criteria for these offences is therefore welcome. The changes will replace the existing false statement offence with a two-tier approach that will provide a range of options for dealing with overseas entities that either fail to provide information about beneficial ownership upon request or respond with false or misleading information.
The basic offence, which will not require evidence that a false statement had been made knowingly or recklessly, should provide a strong incentive for companies to be as rigorous as possible in ensuring that any information they provide is completely accurate. Of course, the financial penalties for such an offence will need to be set at a level sufficient to impose a significant cost on non-compliant companies. Will the Minister therefore comment on how he will ensure that penalties are set at a rate commensurate with achieving that objective?
Particularly welcome is the additional provision in clause 137 for an aggravated offence in cases where an intent to mislead can be proven, as is the extension of the changes to the reporting requirements in relation to payments to foreign Governments under clause 147. The threat of criminal convictions, with custodial sentences of up to two years, sends a strong message that fraudulent activities must not and cannot be tolerated.
Of course, in these clauses, as elsewhere in the Bill, the jury will be out on whether the changes will have any meaningful impact on economic crime until we can be sure that compliance with the law is robustly monitored and that non-compliance will be punished to the fullest extent of the law. The Committee will be grateful for any reassurances that the Minister can provide, especially on what preparations are being made to ensure that offences are identified and prosecuted as swiftly as possible, because he has repeatedly said that legislation without robust implementation is not worth the paper it is written on.
Kevin Hollinrake
As for the level of fines, in England and Wales they can be unlimited—level 5 on the scale.
Stephen Kinnock
I thank the Minister for that clarification. Does he have any broader assurances around enforcement and implementation? It would be useful to get a sense of what institutional or organisational capability he envisages, and of whether that is in line with what the Bill is trying to achieve.
Kevin Hollinrake
As the hon. Gentleman knows, as we have discussed on many occasions and as I am on the record as saying, legislation without implementation is worthless. We need to ensure that offences are discovered and then prosecuted. Of course, we must ensure that the registrar, and the law enforcement agencies they work with, have sufficient capacity and resources to do the job. The Bill does not cover that directly, but I am certainly keen to ensure that happens.
Stephen Kinnock
I thank the Minister for those assurances. I have no further comments.
Question put and agreed to.
Clause 136 accordingly ordered to stand part of the Bill.
Clause 137 ordered to stand part of the Bill.
Clause 138
Meaning of “service address”
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
Clause 138 will improve the effectiveness of the register of overseas entities by defining “service address” so that it has the same meaning as in the Companies Act 2006. That will help those registering as overseas entities to ensure that they understand what a service address is, and that they must provide an address that meets the definition.
Stephen Kinnock
Clause 138 is another relatively minor change to the definition of a company’s service address, and it brings the definition used for the purposes of the overseas entities register into line with the language in the Companies Act. That language, the Committee will recall, defines a service address as a place where documents may be served to someone. We have already debated the potential problems of relying on such a definition in the context of amendments in which the Opposition sought to restrict and clarify what counts as an appropriate address for a company to register.
While we will not go back on all that and re-litigate those lengthy arguments, and while we will not oppose the clause, I put on the record that the Opposition do not believe that the Bill goes as far as it could and should have to prevent the fraudulent or unauthorised use of addresses. I am sure that we will come back to that on Report.
Question put and agreed to.
Clause 138 accordingly ordered to stand part of the Bill.
Clause 139
Meaning of “registered overseas entity” in land registration legislation
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
The clause amends the Land Registration Act 2002, Land Registration etc. (Scotland) Act 2012 and the Land Registration Act (Northern Ireland) 1970. It will improve the effectiveness of the register of overseas entities by punishing a registered overseas entity for failing to comply with the registrar’s new power—as inserted into the Companies Act by the Bill—to require information from the entity.
Currently, an overseas entity will lose its status as a registered overseas entity if it fails to provide an annual update to the registrar. The clause adds that an overseas entity will also lose its status as a registered overseas entity if it fails to respond to a notice from the registrar requesting information. Once it is no longer considered to be a registered overseas entity, the entity will be treated as non-compliant. A non-compliant entity will find it difficult to sell, lease or raise charges over its land and cannot therefore deal freely with it.
Upon submitting the requested information to the registrar, the overseas entity will once more be compliant. However, the compliance status is not retrospective. Any person dealing with the overseas entity in the non-compliance period will be unable to register any completed transaction with the land registries. I know that all Members will join me in wanting to ensure the robustness of the register and ensure that overseas entities comply with their duties, or face tough restrictions. The clause will help Companies House to do so.
Stephen Kinnock
The clause makes some relatively minor changes to the language on the requirement to provide information requested by the registrar. The effect is to extend the existing restrictions on the ability of an overseas entity to deal with property it owns, such as by selling it, in order to apply the restrictions to companies that fail to comply with the registrar’s requests for information. The change is sensible and pragmatic, and the Opposition support it.
Question put and agreed to.
Clause 139 accordingly ordered to stand part of the Bill.
Clause 140
Power to apply Part 1 amendments to register of overseas entities
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Government new clause 19—Resolving inconsistencies in the register.
Government new clause 20—Administrative removal of material from register.
Kevin Hollinrake
Section 27 of the ECTE Act allows the registrar to require an overseas entity to resolve an inconsistency in information delivered to her where it appears to be inconsistent with other information on the register of overseas entities. New clause 19 amends section 27, so that the registrar may use any information she possesses, not only that published on the register, to require an overseas entity to resolve a suspected inconsistency. That will strengthen her ability to ensure that the register is accurate and reliable.
Government new clause 20 mirrors amendments made in the Bill to equivalent sections in the Companies Act 2006 to ensure consistency between the Act and this Bill when it becomes an Act, and to enhance the registrar’s power to remove material from the register, which is limited under section 28 of the ECTE Act. She can only remove from the register information where there was a power but no duty to include it, or where it no longer appears reasonably necessary for the purposes for which the material was delivered to the registrar.
Proposed new section 28 will ensure that material that is unnecessary or does not meet proper delivery requirements can be removed at the discretion of the registrar, either unilaterally or upon application. The Secretary of State will also have the power to specify what sort of material can be removed from the register upon application, so that the scope of material eligible for removal can be modified in line with future operational needs. Under proposed new section 28A, the Secretary of State must make regulations that set out what notice the registrar should give when unilaterally removing information, and the processes to be followed in determining applications for removal.
The clause strengthens the registrar’s powers and ensures that she has all the necessary tools at her disposal to clean up the register of overseas entities proactively. The clause also allows the Secretary of State to amend the ECTE Act to apply any changes that part 1 of the Bill may make to corresponding provisions in the Companies Act. The ECTE Act contains a number of provisions that correspond to those in the Companies Act. Given the number of changes that part 1 of the Bill makes to the Companies Act, the clause is necessary to ensure that accuracy and consistency are maintained between the ECTE Act and the Companies Act, and the respective registers of overseas entities and of UK companies.
Stephen Kinnock
The clause provides for certain changes to be made to the Companies Act via regulations using Henry VIII powers, where necessary, to bring the Act into line with the provisions in part 1 of the Bill. The Government’s use of Henry VIII powers to change primary legislation has generated some criticism in other contexts, but the provision that the Government have made in this clause for the relevant regulations to be subject to the affirmative procedure represents a welcome commitment to parliamentary scrutiny on their part.
Finally, the Government’s new clauses 19 and 20 have been tabled to ensure that the provisions on resolving inconsistencies in the register and on removing material from it are applied to overseas entities on the same basis as to other registered companies. Those are also sensible and pragmatic changes, which the Opposition are happy to support.
Question put and agreed to.
Clause 140 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Scott Mann.)
Economic Crime and Corporate Transparency Bill (Fifteenth sitting)
Tuesday 22nd November 2022
(2 years ago)
Public Bill CommitteesRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 22 November 2022 - (22 Nov 2022)
The Chair
With this it will be convenient to discuss that schedule 6 be the Sixth schedule to the Bill.
The Minister for Security (Tom Tugendhat)
It is a great privilege, as always, to be with you this morning, Mr Paisley, and to enjoy the possibility of conversing about the Proceeds of Crime Act 2002.
The clause introduces schedule 6 to the Bill, which amends the criminal confiscation powers contained in parts 2, 3 and 4 of the Proceeds of Crime Act 2002—known as POCA, not to me, but to some presumably—to make it easier for law enforcement agencies to seize, detain and recover cryptoassets in more circumstances than at present. Schedule 6 will amend the provisions in each of the three existing confiscation regimes that extend to England and Wales, Scotland, and Northern Ireland so that the measures apply in all parts of the United Kingdom. That is reflected in the three parts of schedule 6.
Key definitions in schedule 6, such as those of “cryptoasset” and “cryptoasset exchange provider”, are consistent with those used elsewhere in the Proceeds of Crime Act. The schedule includes powers to update those defined terms to ensure that the measures in the Bill can keep pace with the constantly evolving criminal use of cryptoassets, the rapidly changing nature of crypto technology as well as stay aligned with other legislation dealing with similar threats.
Stephen Kinnock (Aberavon) (Lab)
It is a great pleasure to serve under your chairship today, Mr Paisley. I take the opportunity to welcome the Minister to his place; I do not think that I have done so formally, although I might well have done informally. It is good to see him in his place.
I want to make some general comments about cryptocurrencies and about the clause and schedule 6. Broadly speaking, they have some positive aspects, but we also have some questions for the Minister, and I am sure that he will explain the position with his customary lucidity once I have sat down.
Cryptocurrencies and other digital assets are not new, but how they should be regulated is still very much an open question in the UK and internationally. The Government’s decision to expand the legal framework for asset recovery under the Proceeds of Crime Act is a positive development. For that to work, however, we need to be clear about what the legislation intends to achieve.
It is fair to say that the Government have sent mixed messages about their approach to regulating cryptoassets. On the one hand, they have acknowledged the need to tackle the use of cryptoassets for criminal purposes, hence the decision to extend the money laundering regulations to cryptoasset businesses, which has been under the supervision of the Financial Conduct Authority since January 2020. In the factsheet published alongside the Bill, the Government set out their view:
“Cryptoassets are now increasingly being used by criminals to move and launder the profits of various crimes including drugs, fraud, and money laundering. There is also an increased risk that cryptoassets are being exploited to raise and move funds for terrorist activities.”
On the other hand, earlier this year, the then Chancellor of the Exchequer, who is now the Prime Minister, said that it was his
“ambition to make the UK a global hub for cryptoasset technology”.
The then Economic Secretary to the Treasury echoed that, saying in a speech at the Innovate Finance global summit in April:
“If there is one message I want you to leave here today with, it is that the UK is open for business—open for crypto-businesses”;
and
“Because we want this country to be a global hub—the very best place in the world to start and scale crypto-companies.”
It concerns me that the Government do not seem to have made up their mind whether as a country we should value crypto firms and want to entice them to the UK, or whether we should recognise the ease with, and scale at which, criminal activity within crypto markets is allowed to happen and therefore should prioritise tightening regulation and enforcement by cracking down on the widespread use of such assets to defraud individuals and undermine our national security. Perhaps the Minister will shed some light on that strategic dilemma or ambiguity and on how the Government plan to reconcile those two apparently competing aims.
I do not want to pre-empt what the Minister will say, but I imagine that he will claim that it is possible to do both.
Stephen Kinnock
But is it not simply the case that we are not putting enough resources into the enforcement of laws and the policing of such markets? That is fundamental to achieving the regulatory aim of that side of the equation.
Crypto-expert Aidan Larkin recently told me how the US Government’s money laundering and asset recovery section brings in around $800 million a year in crypto-recovery alone, while the UK brings in close to nothing, because the UK Government fail to employ the handful of experts required simply to study the blockchains via things such as bitcoin analytics and to follow the illicit finance—“to follow the money”, as the saying goes. I cannot pretend to be an expert on the technical aspects of that, but it feels like a missed opportunity to go after illegal activity. We have surely reached a point in time when that could be self-funding, if we did it properly.
I am simply not convinced that the system for regulating cryptoassets is working as well as intended. Indeed, it is pretty telling that in response to written questions 86505 and 86504, which I tabled last week, the Minister admitted that none of the 200-plus crypto businesses operating without commission had been subject to any criminal or civil penalties.
As I mentioned, since January 2020 there has been a requirement for new businesses carrying on cryptoasset activity in the UK to register with the FCA. The requirement was extended to existing businesses the following year. The implementation of the register, however, has been beset by problems, not least of which is the fact that a very large number of the firms required to register have not done so. The FCA seems to have been unable to do much about that.
Only a couple of weeks ago, the Financial Times reported that only 16% of applications for registration have been approved by the FCA. The FCA has said that a large number of firms that failed to meet the conditions for registration have withdrawn their applications and that many of those appear to have carried on doing business without the requisite permission. Indeed, the FCA maintains a list of unauthorised cryptoasset businesses operating in the UK. As of last week, 245 firms were on that list. Will the Minister explain what is being done to prevent those 245 firms that operate outside the money laundering rules from scamming members of the public, facilitating money laundering or assisting the evasion of economic sanctions?
The Government have been aware for some time of problems involving the use of cryptoassets to defraud members of the public. In October 2018, the Government’s own Cryptoassets Taskforce published a report that identified advertising that misleads people deliberately, by overstating the potential gains from investing in such assets and downplaying the risks involved, as a significant problem for the Government to address. Only now, after four years, are new rules being introduced to expand the FCA’s remit to include consumer protection in relation to misleading financial promotions.
Despite that, however, a clear gap remains between the scale of criminal activity in the sector and the ability of the FCA and police forces to respond. In recent evidence provided to the Treasury Committee, Ian Taylor of the crypto trade body, CryptoUK, said that the recent collapse of high-profile crypto exchanges such as FTX could have been prevented had a stronger regulatory system been in place. Multiple witnesses testified to the Committee that, without additional staff with the right expertise, the FCA was unlikely to be able to regulate the crypto sector effectively.
Let me turn to the substance of the clause and schedule 6. It is clearly necessary for the law to be brought up to date to reflect the use of digital assets for criminal purposes. The clause and schedule amend the Proceeds of Crime Act 2002, to extend to intangible assets the same confiscation powers that are already used to recover physical assets like cash. That is an important first step, but in many ways the Bill leaves open more questions than it answers.
For instance, the Bill provides new powers to seize cryptoasset-related items, but the definition of those items is incredibly vague, encompassing any item of property that may provide access to some kind of information that could be relevant to an effort to seize a cryptoasset. Given the broad scope of the powers, alongside the related provisions on the destruction of confiscated property, we need more information from the Minister about how the powers are likely to be used in practice.
Alison Thewliss (Glasgow Central) (SNP)
I agree very much with what has been said from the Labour Front Bench. I ask the Minister about the interaction between this Bill and all the other Bills that are considering crypto at the moment, including the Online Safety Bill, which addresses some aspects of people being exposed online to financial crime. The Treasury Committee report on economic crime pushed quite strongly on having an aspect on economic crime in the Online Safety Bill, because it is important that people are not scammed online. To me and to many others, crypto seems very much a place where people do get scammed and lose all their money.
I draw the Committee’s attention to an interview by Henry Mance in the Financial Times yesterday with Stephen Diehl, who is very cynical about the crypto industry and its ability to rip people off. We have to be incredibly careful about the areas we are getting into; we are legislating for something that is moving very quickly. Given the number of Government amendment that will be made to the schedules in this part of the Bill, we need to think carefully about what we are putting in and whether it is suitable for seizing assets and for protecting people against crypto-related fraud more widely.
My other point is about expertise. I have talked an awful lot about the Government having expertise in various areas on the enforcement side, because if there is no expertise in enforcement, the laws that we are considering will just not be enforced. In our evidence session, Andy Gould said:
“We have been investigating cryptocurrency since 2015 or 2016. One of my sergeants has just been offered 200 grand to go to the private sector. We cannot compete with that. That is probably the biggest risk that we face within this area at the moment.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 24, Q37.]
If the money is not there in policing to retain the expertise to prosecute crypto crimes and to make sure that the legislation works in practice, rather than just on paper, the Government will be very much behind the curve.
I add my hesitation on the messages the Government are giving out on regulating and encouraging and on cracking down on a sector that has the potential, as we have seen with the collapse last week, of losing an awful lot of people their money and of making some people an awful lot of money out of those who have lost it.
Tom Tugendhat
If I may, I will just give a quick explanation of what crypto is because there seems to be some misunderstanding. Crypto is both a technology and a financial instrument. The financial instrument element is only part of it. Allowing for crypto technology is basically allowing for mathematics. Passing laws against crypto is like passing laws against mathematics—we can try, but it is not going to work.
What the now Prime Minister was talking about was encouraging the mathematics, the algorithms and the technology to develop in this country to create the kind of industry and the kind of infrastructure that would allow the technological use of algorithms for the transfer, sometimes of wealth, sometimes of knowledge, sometimes of contractual obligations. That is what blockchain fundamentally is.
On top of the blockchain, there are various forms of currency. There are bitcoins, which are proof of work, and then there is ethereum, which is proof of stake. These are different kinds of technologies and different ways in which cryptoassets use the blockchains and the technology that has underwritten them.
Having regulation for the currency is not the same as having regulation for the underlying mathematics. We would not say that we have regulation for the economist in the same way that we have regulation for the bank—they are different things. The Government are doing the right thing. We recognise that there is technology, and supporting it; we recognise that there are financial instruments, and are looking to work with others to make sure that those financial instruments are regulated in a sensible way. Now, that is difficult: I will be honest. It is difficult because the technology and its use are changing remarkably. The hon. Member for Aberavon spoke about FTX. As he may know, other companies such as Celsius and Gemini have stopped trading in various different ways, as well. It is not just about one instrument. It is certainly arguable that FTX got into difficulties for reasons other than lack of regulation.
The hon. Member’s point about advertising is extremely valid. There is a real challenge. That is different—it does not quite relate to this element of the Bill. We are seeing increasing amounts of financial advertising online in different ways. I do not know how many members of the Committee have Instagram accounts, but the number of Instagram messages I get advertising foreign exchange trading is frankly bizarre.
Tom Tugendhat
I do not want to know what they advertise to the right hon. Gentleman. They don’t do it by pigeon.
The reality is that there are different ways in which people are trying to hack and attack, to steal from individuals in our country and around the world. That is why the work we are doing on the Joint Fraud Taskforce, which met yesterday, and on many other aspects of regulation, such as the Online Safety Bill, which the hon. Member for Glasgow Central quite rightly spoke about, is so important. The FCA has moved forward on many of those areas, in a sensible way, to balance the need of the technology to advance with the protection of society. It is certainly true that many people have lost a lot in recent weeks and months. I do not think anybody was under any great illusion, though, that cryptocurrencies were not a high-risk item, to put it politely. Anything worth about $1 10 years ago and $60,000 a few years later is probably not a stable currency. It may be many things, but it is probably not stable. It is now worth about $10,000 or so—
Tom Tugendhat
So, $13,000. That certainly speaks to the level of volatility. It has been up and down like a yo-yo in between times, so it is not exactly as though anybody would have been recommended it as an investment vehicle. I understand the hon. Lady’s points about online safety and fraud, and she is completely correct, but that is being addressed in different aspects of Government policy. What the Bill does is make sure that those assets that are held in cryptocurrency can be seized, as other assets can. It is certainly true that they are held in different ways, as the gentleman who is going through the waste dump in Wales is discovering. That means that seizing the assets needs a certain ambiguity in the legislation in order to keep it updated for the future. The Government have made a sensible series of suggestions to balance that need for advancing the technology and protecting consumers.
Stephen Kinnock
The Minister is being very generous. On that point about seizing the assets, will the Minister comment on the feedback that Aidan Larkin, an expert in this area, gave me, which is that in the United States money laundering and asset recovery measures bring in about $800 million per year? He says that we do not employ enough people doing block chain analytics. We are missing a big opportunity to generate revenue for the Exchequer.
Tom Tugendhat
I am delighted that the hon. Gentleman will now be supporting this element of the Bill, because that is exactly what it is for.
Stephen Kinnock
I thank the Minister for sitting down even before I had intervened.
Stephen Kinnock
It seems that this is an issue around resourcing and having the people in place—the handful of experts that we need to study the blockchains. Will the Minister assure the Committee that that resourcing will be provided?
Tom Tugendhat
I can assure the hon. Gentleman that the National Crime Agency, working alongside partners in places such as GCHQ, has enormous amounts of technology to look at cryptoassets in various different ways. The Bill—which I am delighted to hear the hon. Gentleman supports so enthusiastically—will indeed give the powers that he looks for.
Question put and agreed to.
Clause 141 accordingly ordered to stand part of the Bill.
Schedule 6 agreed to.
Clause 142
Cryptoassets: civil recovery
Tom Tugendhat
I beg to move amendment 121, in clause 142, page 125, line 18, at end insert—
“(2) It also contains related amendments.”.
This amendment provides for Schedule 7 (cryptoassets: civil recovery) to contain related amendments.
The Chair
With this it will be convenient to discuss Government amendments 51 to 64, 156, 157, 65 to 67 and 158 to 161.
Tom Tugendhat
This is a series of small wording and technical amendments that make no substantial changes to schedule 7, but simply ensure clarity and maintain consistency in the Bill’s drafting.
Stephen Kinnock
The use of enhanced powers to seize and detain digital assets, as set out in schedule 6, will be subject to a court order. Clause 142 and schedule 7 and the related Government amendments extend civil recovery powers, which may be used in the absence of a criminal conviction, to a range of organisations including the National Crime Agency, His Majesty’s Revenue and Customs and the Serious Fraud Office, in addition to police forces. It would be helpful if the Minister could explain how the Government will ensure that these enforcement powers will be used effectively in a way that avoids duplication of effort and ensures that there is a clear division of responsibilities of the different agencies. As I have said before, numerous additional powers are provided for in the Bill that require further clarification.
The Chair
Order. I encourage you to speak to amendment 121. We will come to the other amendments in the next group.
The Chair
I do not want to stop you in case you have something material to put on the record on amendment 121.
Stephen Kinnock
I have no substantial comment on the Government amendments. I should have made that clear. As the Minister says, these are technical amendments that do not have a huge amount of consequence.
I return to the issue of powers provided for in the Bill that require further clarification. I would be particularly grateful if the Minister could explain how the provisions enabling a digital asset to be converted into its equivalent value in cash might be used in practice.
In my view, there are other important issues in this area, which the Bill fails to address. I would be grateful if the Minister could set out what plans, if any, the Government have to update the asset confiscation powers we have been discussing and to extend the scope of the money laundering regulations to reflect technological developments such as non-fungible tokens and the use of digital works of art as a means of disguising illicit financial transactions.
Tom Tugendhat
I was rather under the impression that we had not voted on the amendment.
The Chair
We are not voting yet—we will be coming to a vote in a moment. It is for you to now conclude the debate.
Tom Tugendhat
It feels a bit sentence first, verdict afterwards, but all right.
The Chair
We have been doing it for thousands of years. Don’t worry—you will get used to it.
Tom Tugendhat
I have nothing further to add on that.
Amendment 121 agreed to.
Question proposed, That the clause, as amended, stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
That schedule 7 be the Seventh schedule to the Bill.
Government new clause 23—Cryptoassets: terrorism.
Government new schedule 1—Cryptoassets: terrorism.
I call the Minister to speak to clause 142 stand part, although that might seem a bit déjà vu for some folk now.
Tom Tugendhat
It is unusual to have the Opposition argument before the ministerial one—
Stephen Kinnock
I apologise for jumping the gun, but I thought we had already debated the group.
Tom Tugendhat
I am delighted to have had the position set out so clearly.
Perhaps it would be helpful if I answered some of the hon. Gentleman’s questions. The reality is that this part of the Bill is to allow law enforcement agencies to search for physical items linked to cryptoassets. As I said in answer to an earlier point, many of the assets are held in different ways. Therefore, seizing physical assets in order to link to cryptoassets is often necessary.
To use the proposed powers, officers will need reasonable grounds to suspect that the cryptoassets have been obtained through unlawful conduct or are intended for use in unlawful conduct. The powers to search for and detain assets are supplemented by powers to ultimately forfeit the cryptoassets where a magistrates court, or a sheriff court in Scotland, can be satisfied that they have been obtained through, or are intended for use in, unlawful conduct. The powers to seize or freeze and ultimately recover cryptoassets may be used irrespective of whether the asset holder has been convicted of a criminal offence. They are, therefore, an important tool for disrupting criminal activity.
Government new clause 23 and new schedule 1—which we have just heard the Opposition debate—mirror in counter-terrorist legislation the civil recovery powers in schedule 7 to the Bill by introducing new provisions into the Anti-terrorism, Crime and Security Act 2001 and the Terrorism Act 2000. That addresses a gap in existing counter-terrorism legislation and ensures that the UK’s world-leading counter-terrorism framework keeps pace with modern technology.
The creation of cryptoasset-specific civil forfeiture powers in both the Proceeds of Crime Act and counter-terrorism legislation will, importantly, mitigate the risk posed by those who cannot be prosecuted under the criminal system, but who use their proceeds stored as cryptoassets to perpetrate further criminality. Key definitions in the measures inserted by schedule 7 and new schedule 1 are in line with existing legislation and with schedule 6 to the Bill. Similarly, they include powers to update the defined terms and adapt the process for forfeiture of frozen cryptoassets, if needed. With that, I believe I have answered the Opposition’s questions before they were even asked.
Stephen Kinnock
The Opposition are concerned about enforcement. As the Minister and I have agreed throughout the debate, and as his ministerial colleague has frequently said, legislation without implementation is not worth the paper it is written on. There is little point in us passing a law that cannot or will not be enforced effectively. I am, and the Opposition are, genuinely concerned about the real risk in the proposals, partly because so much detail has yet to be made clear, but mostly because of the huge gap between what we expect of law enforcement and what resources the Government are prepared to put in.
As I said about the FCA, even the most basic requirement for cryptoasset firms to register is starting to appear unworkable. Will the Minister explain, if we cannot even get such businesses to register, how on earth will we ever be able to identify which ones are breaking the law, much less impose any penalties? I look forward to his clarification.
Tom Tugendhat
I am pleased that the hon. Gentleman is so supportive of the work of the NCA, because it, GCHQ and others have been working extremely hard on identifying the movement of cryptoassets around not just the UK, but wider areas and jurisdictions. That is enormously important for the element of seizure to which he is referring.
It is also important that the conversion powers that the hon. Gentleman spoke about are understood for what they are. A few moments ago, the hon. Member for Glasgow Central asked about market volatility. That is true at any point, including at moments of seizure. Therefore, in order to avoid market volatility at moments of seizure—particularly when assets have been taken, converted to crypto in order to be moved abroad and then seized—having control of those assets means that one needs to put them into cash in order to have a recoverable asset, so this provision is extremely sensible.
The new powers are modelled on existing powers that many law enforcement agencies use to disrupt criminal and terrorist networks. They exercise proportionality and investigatory powers that are absolutely necessary, and no more.
Question put and agreed to.
Clause 142, as amended, accordingly ordered to stand part of the Bill.
Schedule 7
Cryptoassets: civil recovery
Amendments made: 51, in schedule 7, page 206, line 42, leave out “Chapter” and insert “Part”.
This amendment makes a minor technical correction to inserted section 303Z42 of the Proceeds of Crime Act 2002, which relates to the procedure for applying for the forfeiture of cryptoassets.
Amendment 52, in schedule 7, page 206, leave out lines 45 to 47 and insert—
“(3) Where an application is made under section 303Z41 in relation to cryptoassets held in a crypto wallet that is subject to a crypto wallet freezing order—
(a) subsections (4) and (5) apply, and
(b) the crypto wallet freezing order is to continue to have effect until the time referred to in subsection (4)(b) or (5).”
This amendment amends inserted section 303Z42 of the Proceeds of Crime Act 2002 to provide that a crypto wallet freezing order continues to have effect until the end of any forfeiture proceedings started in respect of cryptoassets held in a crypto wallet that is subject to such a freezing order.
Amendment 53, in schedule 7, page 207, line 12, leave out “(4)” and insert “(4)(b)”.
This amendment is consequential on Amendment 52.
Amendment 54, in schedule 7, page 211, line 24, leave out from “applies” to end of line 28 and insert “—
(a) the magistrates’ court or sheriff decides—
(i) to make an order under section 303Z41(4) in relation to some but not all of the cryptoassets to which the application related, or
(ii) not to make an order under section 303Z41(4), or
(b) if the application is transferred in accordance with section 303Z45(1), the High Court or Court of Session decides—
(i) to make an order under section 303Z45(3) in relation to some but not all of the cryptoassets to which the application related, or
(ii) not to make an order under section 303Z45(3).”
This amendment provides that an application under inserted section 303Z46 of the Proceeds of Crime Act 2002 (continuation of crypto wallet freezing order pending appeal) may be made in circumstances where a forfeiture application under section 303Z41 of that Act is transferred in accordance with section 303Z45 of that Act to be heard by the High Court or the Court of Session.
Amendment 55, in schedule 7, page 211, line 31, leave out “(1)(a) or (b)” and insert “(1)”.
This amendment is consequential on Amendment 54.
Amendment 56, in schedule 7, page 211, line 37, leave out “under section 303Z47” and insert
“(whether under section 303Z47 or otherwise)”.
This amendment is consequential on Amendment 54.
Amendment 57, in schedule 7, page 211, line 39, leave out “(1)(a) or (b)” and insert “(1)”.
This amendment is consequential on Amendment 54.
Amendment 58, in schedule 7, page 213, line 2, leave out “with the approval of” and insert
“if the officer is a senior officer or is authorised to do so by”.
This amendment amends inserted section 303Z48 of the Proceeds of Crime Act 2002 to provide that an enforcement officer may destroy forfeited cryptoassets only if the officer is a senior officer or is authorised to do so by a senior officer.
Amendment 59, in schedule 7, page 214, line 44, after “may” insert “, subject to subsection (7A),”.
This amendment and Amendments 60 and 62 amend inserted section 303Z51 of the Proceeds of Crime Act 2002 to provide that cryptoassets may not be released under that section while forfeiture proceedings are ongoing in respect of those cryptoassets.
Amendment 60, in schedule 7, page 215, line 8, after “may” insert “, subject to subsection (7A),”.
See Amendment 59.
Amendment 61, in schedule 7, page 215, line 24, at end insert “or”.
This amendment makes a minor technical correction to the release condition in inserted section 303Z51(7) of the Proceeds of Crime Act 2002.
Amendment 62, in schedule 7, page 215, line 29, at end insert—
“(7A) If an application under section 303Z41 is made for the forfeiture of the cryptoassets, the cryptoassets are not to be released under this section until any proceedings in pursuance of the application (including any proceedings on appeal) are concluded.”
See Amendment 59.
Amendment 63, in schedule 7, page 226, line 18, after “cryptoassets” insert—
“, or of property which they represent,”.
This amendment amends inserted section 303Z63 of the Proceeds of Crime Act 2002 (converted cryptoassets: victims and other owners) to provide that the condition in subsection (5)(a) of that section is met where the applicant was deprived of cryptoassets or of property which those cryptoassets represent.
Amendment 64, in schedule 7, page 227, leave out lines 1 to 5 and insert—
“(a) if the conditions in this Chapter for the detention of the converted cryptoassets are no longer met, or”.
This amendment amends the release condition in inserted section 303Z63(8) of the Proceeds of Crime Act 2002 (converted cryptoassets: victims and other owners) to provide that the release condition is met where the court is satisfied that the conditions in Chapter 3F of Part 5 of that Act for detention of the converted cryptoassets are no longer met.
Amendment 156, in schedule 7, page 230, line 22, at end insert—
“Amendments to the Proceeds of Crime Act 2002
1A In section 2C(3A) of the Proceeds of Crime Act 2002 (prosecuting authorities), for ‘or 303Z19’ substitute ‘, 303Z19, 303Z53 or 303Z65’.
1B (1) Part 2 of the Proceeds of Crime Act 2002 (confiscation: England and Wales) is amended as follows.
(2) In section 7 (recoverable amount)—
(a) in subsection (4)(c), for ‘or 303Z14(4)’ substitute ‘, 303Z14(4), 303Z41(4), 303Z45(3) or 303Z60(4)’;
(b) in subsection (4)(d), after ‘303Q(1)’ insert ‘or 303Z44(1)’.
(3) In section 82 (free property)—
(a) in subsection (2)—
(i) in paragraph (ea), for ‘or 10Z2(3)’ substitute ‘, 10Z2(3), 10Z7AG(1), 10Z7BB(2), 10Z7CA(3), 10Z7CE(3) or 10Z7DG(3)’;
(ii) in paragraph (f), for ‘or 303Z14(4)’ substitute ‘, 303Z14(4), 303Z32(1), 303Z37(2), 303Z41(4), 303Z45(3) or 303Z60(4)’;
(b) in subsection (3)—
(i) after paragraph (b) insert—
(ii) in paragraph (c), after ‘303Q(1)’ insert ‘or 303Z44(1)’;
(iii) after paragraph (e) insert—
(iv) in paragraph (f), after ‘10I(1)’ insert ‘or 10Z7CD(1)’.
1C (1) Part 3 of the Proceeds of Crime Act 2002 (confiscation: Scotland) is amended as follows.
(2) In section 93 (recoverable amount)—
(a) in subsection (4)(c), for ‘or 303Z14(4)’ substitute ‘, 303Z14(4), 303Z41(4), 303Z45(3) or 303Z60(4)’;
(b) in subsection (4)(d), after ‘303Q(1)’ insert ‘or 303Z44(1)’.
(3) In section 148 (free property)—
(a) in subsection (2)—
(i) in paragraph (ea), for ‘or 10Z2(3)’ substitute ‘, 10Z2(3), 10Z7AG(1), 10Z7BB(2), 10Z7CA(3), 10Z7CE(3) or 10Z7DG(3)’;
(ii) in paragraph (f), for ‘or 303Z14(4)’ substitute ‘, 303Z14(4), 303Z32(1), 303Z37(2), 303Z41(4), 303Z45(3) or 303Z60(4)’;
(b) in subsection (3)—
(i) after paragraph (b) insert—
(ii) in paragraph (c), after ‘303Q(1)’ insert ‘or 303Z44(1)’;
(iii) after paragraph (e) insert—
(iv) in paragraph (f), after ‘10I(1)’ insert ‘or 10Z7CD(1)’.
1D (1) Part 4 of the Proceeds of Crime Act 2002 (confiscation: Northern Ireland) is amended as follows.
(2) In section 157 (recoverable amount)—
(a) in subsection (4)(c), for ‘or 303Z14(4)’ substitute ‘, 303Z14(4), 303Z41(4), 303Z45(3) or 303Z60(4)’;
(b) in subsection (4)(d), after ‘303Q(1)’ insert ‘or 303Z44(1)’.
(3) In section 230 (free property)—
(a) in subsection (2)—
(i) in paragraph (ea), for ‘or 10Z2(3)’ substitute ‘, 10Z2(3), 10Z7AG(1), 10Z7BB(2), 10Z7CA(3), 10Z7CE(3) or 10Z7DG(3)’;
(ii) in paragraph (f), for ‘or 303Z14(4)’ substitute ‘, 303Z14(4), 303Z32(1), 303Z37(2), 303Z41(4), 303Z45(3) or 303Z60(4)’;
(b) in subsection (3)—
(i) after paragraph (b) insert—
(ii) in paragraph (c), after ‘303Q(1)’ insert ‘or 303Z44(1)’;
(iii) after paragraph (e) insert—
(iv) in paragraph (f), after ‘10I(1)’ insert ‘or 10Z7CD(1)’.”
This amendment contains consequential and other amendments to Parts 1 to 4 of the Proceeds of Crime Act 2002 in relation to the civil recovery of cryptoassets.
Amendment 157, in schedule 7, page 230, line 24, at end insert—
“(1A) In section 278 (limit on recovery)—
(a) in subsection (7)(a), for ‘or 303Z14’ substitute ‘, 303Z14, 303Z41, 303Z45 or 303Z60’;
(b) after subsection (7A) insert—
‘(7B) If—
(a) an order is made under section 303Z44 instead of an order being made under section 303Z41 for the forfeiture of recoverable property, and
(b) the enforcement authority subsequently seeks a recovery order in respect of related property,
the order under section 303Z44 is to be treated for the purposes of this section as if it were a recovery order obtained by the enforcement authority in respect of the property that was the forfeitable property in relation to the order under section 303Z44.’”
This amendment contains a consequential amendment to section 278 of the Proceeds of Crime Act 2002 in relation to forfeited cryptoassets.
Amendment 65, in schedule 7, page 231, line 3, after “may” insert “, subject to subsection (7A),”.
This amendment and Amendments 66 and 67 amend inserted section 303Z17A of the Proceeds of Crime Act 2002 to provide that money may not be released under that section while forfeiture proceedings are ongoing in respect of the money.
Amendment 66, in schedule 7, page 231, line 13, after “may” insert “, subject to subsection (7A),”.
See Amendment 65.
Amendment 67, in schedule 7, page 231, leave out lines 25 to 36 and insert—
“(7) The release condition is met—
(a) in relation to money held in a frozen account, if the conditions for making an order under section 303Z3 in relation to the money are no longer met, or
(b) in relation to money held in a frozen account which is subject to an application for forfeiture under section 303Z14, if the court or sheriff decides not to make an order under that section in relation to the money.
(7A) Money is not to be released under this section—
(a) if an account forfeiture notice under section 303Z9 is given in respect of the money, until any proceedings in pursuance of the notice (including any proceedings on appeal) are concluded;
(b) if an application for its forfeiture under section 303Z14 is made, until any proceedings in pursuance of the application (including any proceedings on appeal) are concluded.”
See Amendment 65. This amendment also replaces the release condition in inserted section 303Z17A(7) of the Proceeds of Crime Act 2002 to include changes for consistency with equivalent provisions in Part 5 of that Act.
Amendment 158, in schedule 7, page 235, line 5, at end insert—
“(20A) In section 386 (production orders: supplementary), in subsection (3)(b), for ‘or a frozen funds investigation’ substitute ‘, a frozen funds investigation or a cryptoasset investigation’.”
This amendment contains a consequential amendment to section 386 of the Proceeds of Crime Act 2002 in relation to production orders and cryptoasset investigations.
Amendment 159, in schedule 7, page 236, line 11, at end insert—
“(30) In section 416 (other interpretative provisions), in subsection (1), after the entry for ‘confiscation investigation’ insert—
‘cryptoasset investigation: section 341(3D)’.”
This amendment contains a consequential amendment to section 416 of the Proceeds of Crime Act 2002 in relation to the meaning of “cryptoasset investigation” in Part 8 of that Act.
Amendment 160, in schedule 7, page 236, line 11, at end insert—
“3A In section 438 of the Proceeds of Crime Act 2002 (disclosure of information by certain authorities), in subsection (1)(f), for ‘or 3B’ substitute ‘, 3B, 3C, 3D, 3E or 3F’.
3B In section 441 of the Proceeds of Crime Act 2002 (disclosure of information by Lord Advocate and by Scottish Ministers)—
(a) in subsection (1), for ‘or 3A’ substitute ‘, 3A, 3C or 3F’;
(b) in subsection (2)(g), for ‘or 3B’ substitute ‘, 3B, 3C, 3D, 3E or 3F’.
3C In section 450 of the Proceeds of Crime Act 2002 (pseudonyms: Scotland), in subsection (1)(a), for ‘or a frozen funds investigation’ substitute ‘, a frozen funds investigation or a cryptoasset investigation’.
3D In section 453A of the Proceeds of Crime Act 2002 (certain offences in relation to financial investigators), in subsection (5), at the end of paragraph (dc) (before the ‘or’) insert—
‘(dd) section 303Z21 (powers to search for cryptoasset-related items);
(de) section 303Z26 (powers to seize cryptoasset-related items);
(df) section 303Z27 (powers to detain cryptoasset-related items);’.”
This amendment contains consequential amendments to Parts 10 and 12 of the Proceeds of Crime Act 2002. The amendments relate to the disclosure of information obtained during cryptoasset investigations, the use of pseudonyms during such investigations and offences against accredited financial investigators exercising powers in connection with such investigations.
Amendment 161, in schedule 7, page 236, line 21, at end insert—
“Amendments to the Civil Jurisdiction and Judgments Act 1982
5 (1) Section 18 of the Civil Jurisdiction and Judgments Act 1982 (enforcement of UK judgments in other parts of UK) is amended as follows.
(2) In subsection (2)(g), for ‘or a frozen funds investigation’ substitute ‘, a frozen funds investigation or a cryptoasset investigation’.
(3) In subsection (4ZB)—
(a) after paragraph (b) insert—
‘(ba) a crypto wallet freezing order made under section 303Z37 of that Act;
(bb) an order for the forfeiture of cryptoassets made under section 303Z41 or 303Z45 of that Act;’;
(b) after paragraph (d) insert—
‘(da) a crypto wallet freezing order made under paragraph 10Z7BB of that Schedule;
(db) an order for the forfeiture of cryptoassets made under paragraph 10Z7CA or 10Z7CE of that Schedule.’
(4) In subsection (5)(d)(i)—
(a) after ‘(a)’ insert ‘, (ba)’;
(b) for ‘or (c)’ substitute ‘, (c) or (da)’.”—(Tom Tugendhat.)
This amendment amends the Civil Jurisdiction and Judgments Act 1982 to include provision about the enforcement of certain cryptoasset-related orders in different parts of the UK.
Schedule 7, as amended, agreed to.
Clause 143
Money laundering: exiting and paying away exemptions
Question proposed, That the clause stand part of the Bill.
Tom Tugendhat
In a most unusual role, I shall start this time. Clauses 143 and 144 expand the types of case in which businesses can deal with clients’ property without first having to submit a defence against money laundering suspicious activity report—a so-called DAML. The changes will reduce nugatory regulatory burdens on businesses and help focus private sector and law enforcement resources on proactive, high-value activity, while removing disproportionate delays to businesses and customers.
A DAML effectively freezes a transaction until the UK Financial Intelligence Unit in the National Crime Agency—the UKFIU—decides to provide consent for the transaction to go ahead. Alternatively, the UKFIU could refuse it and pursue further investigation. If the UKFIU does not respond within seven working days, the business can assume that they have consent and proceed with the transaction. That means businesses regularly waiting seven working days before being able to proceed with a transaction. Businesses cannot inform customers that the delay is due to a DAML, as doing so may amount to a criminal offence.
The volume of DAMLs submitted by businesses to the UKFIU rose by 80% to 62,341 in the last year that data was available, which is creating a disproportionate burden on staff in the regulated sector, as well as in the NCA and wider law enforcement. The clauses will ensure that we are taking action to handle those rising volumes and that the DAML reporting system is used proportionally.
The exemption created by clause 143 will apply when a business in the anti-money laundering regulated sector ends a relationship with a customer and pays away any money or property suspected to be the proceeds of criminal conduct. The clause enables the business to pay back money or property under the value of £1,000 without first submitting a defence against money laundering suspicious activity report to the UKFIU and without committing a money laundering offence.
DAMLs below £1,000 are of limited value to law enforcement. That is because £1,000 is the minimum amount for law enforcement to pursue an account freezing order under the civil recovery provisions, and because of the need to prioritise higher volume cases. As a result, DAMLs below £1,000 are rarely refused consent by the UKFIU, but they place a burden on reporters to submit.
The exemption created by clause 144 will apply when a person carrying out business in the anti-money laundering regulated sector suspects that only part of their customer’s property is the proceeds of criminal conduct. The clause enables the business to allow the customer access to their property without the business committing one of the principal money laundering offences or first submitting a defence against money laundering suspicious activity report. This is provided that the conditions of the exemption are met, including the condition that, as a minimum, the value of the suspected criminal property in the account is withheld when allowing a customer access to their funds.
The Chair
Thank you, Minister. It is not unusual to start when your name is on the clause.
Stephen Kinnock
According to the Government’s impact assessment, the purpose of clauses 143 and 144, which expand the scope of exemptions from money laundering offences, is to reduce the number of ineffective defence against money laundering reports submitted to the NCA’s financial intelligence unit. It is worth bearing in mind that the purpose of the reporting system is to enable regulated firms to notify the FIU when they are asked by a client to make a financial transaction that may amount to a money laundering offence. The FIU has seven days to review the report, and if it turns out that there is a connection to money laundering, it can ensure that appropriate enforcement action is taken.
The reports can, and often do, serve as a valuable means of identifying criminal activity. The Government’s wish to reduce the number of DAML reports is understandable, but we must not throw the baby out with the bathwater. It is important for the Minister to explain to the Committee how those measures are sufficiently targeted that they reduce the number of unnecessary or unhelpful reports without causing a similar reduction in reports that might help to identify serious crime.
Clauses 143 and 144 provide exemptions from money laundering offences for certain transactions involving property worth less than £1,000, and in cases where some but not all of a client’s assets may involve criminal funds. I would be grateful if the Minister would explain the Government’s reasoning in setting the relevant thresholds at the specific levels provided for in those clauses.
I want to touch on a couple of broader points. The Government are right that the SARs process is in need of considerable reform. There are many steps the Government could take to improve the quality of reporting in addition to the measures set out in those clauses. For instance, the Solicitors Regulation Authority published a report last month in which it noted that, in two thirds of the reports it reviewed, the firms making the report did not include the glossary codes that enable the NCA to triage reports effectively and ensure an appropriate enforcement response. Additionally, the SRA found that as many as a quarter of the DAML reports it reviewed failed even to describe the criminal conduct that was suspected. Those findings are clear evidence that many law firms do not have an adequate level of understanding of the laws they are expected to help enforce. The same may well be true in other regulated sectors.
Will the Minister set out what steps the Government are taking to ensure that regulated firms have a better understanding of their obligations under the law, and how official guidance might be improved to help firms to submit better quality reports? I point out that significant improvements could be made to the speed and efficiency of the SARs process by making use of new and emerging technologies. If the FIU could use more cutting-edge software applications and algorithms to help identify the most serious crimes, it would go a long way towards addressing the problems that the Government seek to tackle. Perhaps the Minister might comment on the Government’s work in that area.
Tom Tugendhat
I am delighted to respond to that. The rising volume of DAMLs being submitted has already had an impact on effectiveness. That is welcome, in that businesses are taking their responsibilities extremely seriously, and the UKFIU is responding appropriately when it receives them. Although, as the hon. Member quite rightly says, technology can help, the reality is that there is still an awful lot of work to be done. That is why these provisions are so reasonable.
The provisions are reasonable because property or criminal funds worth less than £1,000 are already exempt from asset seizures in different circumstances. It makes absolute sense to have a restriction on that in the Bill and apply the same threshold to allow the UKFIU to target, as much as possible, those serious money laundering accusations and investigations appropriately—and, indeed, to arrest more criminals.
Stephen Kinnock
I thank the Minister for that response. Would he care to comment on the feedback from the Solicitors Regulation Authority, which points particularly at the fact that many of the firms doing the reports were not including key information such as glossary codes and sometimes did not even describe the criminal conduct that they suspected? Is there something more that could be done so that the information at source was in a better state? Does he think that the feedback from the SRA could be a good basis on which to achieve that?
Tom Tugendhat
I am sure that having data at source in as clean and fluent a fashion as possible, so that it is complete and allows investigation, is absolutely essential. I am sure that solicitors will feel the responsibility to do that. I am grateful to the hon. Gentleman for raising that point.
Question put and agreed to.
Clause 143 accordingly ordered to stand part of the Bill.
Clause 144 ordered to stand part of the Bill.
Clause 145
Information orders: money laundering
Question proposed, That the clause stand part of the Bill.
Tom Tugendhat
Clause 145 amends the existing information order power in the Proceeds of Crime Act 2002 to bolster the UKFIU intelligence-gathering powers. Clause 146 addresses a gap in counter-terrorism legislation by mirroring those in the Terrorism Act 2000. The clauses will align the UKFIU more closely with the international standards of the Financial Action Task Force, known as FATF—including to me, actually—and enable greater collaboration with international financial intelligence units. That aids public safety in the UK and overseas, and furthers the UK’s efforts to combat illicit financial flows entering the UK economy.
FATF is the international body devoted to developing and promoting policies to combat money laundering and terrorist financing. As a member, the UK agrees to promote FATF’s anti-money laundering standards, which are expressed in the form of recommendations. FATF, the global money laundering and terrorist financing watchdog, evaluated the UK in 2018 and rated it only “partially compliant”. That rating was affected by the UKFIU’s limited ability to conduct operational strategic analysis in cases where a business has not already submitted a suspicious activity report.
Clause 145 amends the existing information order power by removing the requirement for a preceding suspicious activity report, or SAR, before an application can be made to a magistrates or sheriff court. Clause 146 mirrors that for counter-terrorism legislation. The information order will compel business in the anti-money laundering regulated and terrorist financing regulated sectors to provide information about a customer or client. That information will enable the UKFIU to conduct its operational strategic analysis functions by proactively gathering financial intelligence rather than relying on the reporting sector to have submitted information already. Further, the clauses will enable the UKFIU to better assist international counterparts to gather information, for example, relating to sanctions evasion and maximising the effort to prevent terrorist finances from entering the UK’s economy.
The information sought under an information order is designed for intelligence purposes only. To ensure the power is used appropriately, a code of practice must be made by the Secretary of State. The person making the application must have had regard to the code of practice when applying to the court for an information order. The measure has been developed collaboratively with the UKFIU.
Stephen Kinnock
I thank the Minister for including the provisions in the Bill, which should make it easier for the NCA to access the information that it needs to gather intelligence and conduct analysis of the range of threats that we face from money laundering and terrorist financing. The provisions in the clauses should also help to ensure that the UK is able to provide more effective assistance to law enforcement bodies in other countries in response to requests for information.
Given that so much economic crime is inherently an issue that cuts across international borders, it is absolutely right for the Government to do all that they can to enforce the law within our own borders and to help Governments in our partner countries overseas to do the same.
Question put and agreed to.
Clause 145 accordingly ordered to stand part of the Bill.
Clause 146 ordered to stand part of the Bill.
Clause 147
Enhanced due diligence: designation of high-risk countries
Question proposed, That the clause stand part of the Bill.
Tom Tugendhat
The clause amends the Sanctions and Anti-Money Laundering Act 2018 to allow the Treasury to directly publish and amend the UK’s high-risk third countries list on gov.uk.
Under the 2017 money laundering regulations, businesses are required to conduct enhanced checks on business relationships and transactions with high-risk third countries. High-risk third countries are those identified by the Financial Action Task Force as having poor controls and significant shortcomings in their anti-money laundering and counter-terrorist financing regimes.
Currently, a statutory instrument needs to be laid several times a year to update the UK’s list each time the FATF’s own list is amended. The clause will allow for more rapid updates to the list, helping the UK to be even more responsive to evolving money laundering threats by ensuring that risks are communicated and mitigated by the regulated sector as soon as possible. By removing the need to introduce legislation for each update, the change will also ease pressures on ministerial and parliamentary time, thereby responding to Parliament’s call to streamline the process—very much like this Committee.
Stephen Kinnock
Clause 147 raises a number of concerns for us, which I hope the Minister will be able to address. It aims to change the procedure for updating the Treasury’s list of countries designated as high risk due to serious deficiencies in their anti-money laundering and counter-terrorist financing systems, which was established by the Sanctions and Anti-Money Laundering Act 2018. The clause will enable the Treasury to update the list directly, without the need for regulations, in effect removing the opportunity for Parliament to scrutinise any changes to the list.
During the passage of the 2018 Act, there was cross-party consensus on the need for any UK list of designated high-risk countries to reflect international standards, primarily by mirroring the lists maintained by the Financial Action Task Force. The problem with clause 147 is that it appears to enable the Treasury to make any future updates to the UK list, even in ways that diverge from the FATF lists, without any opportunity for Parliament to scrutinise or debate the proposals. Given the zeal for deregulation that we have often seen from the current Government, it takes no great stretch of the imagination to foresee a situation in which the Treasury determines that the FATF lists are unduly stringent and that certain countries and territories should be removed from the UK’s list of high-risk countries, even in cases where issues identified by the FATF remain unresolved.
Looking at the relevant impact assessment, it seems that the intention is to enable Ministers to update the list “more swiftly” when needed, thus making the UK’s list more “responsive” to emerging developments than is possible under the current system. But even if the aim is reasonable, the methods are questionable. For one thing, the 2018 Act stipulates that regulations updating the list of high-risk countries are subject to the affirmative procedure, under which Parliament is given the opportunity to retrospectively review changes that have already been made by the time the regulations are published. Together with the fact that updates are generally needed no more frequently than once every three months, this does not seem to place an undue burden on Ministers.
The changes made by clause 147 do not seem proportionate to any identifiable problem with the current system. The Opposition therefore strongly encourage the Minister and his colleagues to revisit the clause, on the basis that a convincing case for the need to remove Parliament’s oversight of this process has not been made.
Dame Margaret Hodge (Barking) (Lab)
I concur entirely with the remarks by my hon. Friend the Member for Aberavon, but I want to ask a couple of questions.
First, the Minister will know that we are considering how we can move from freezing the assets of people who are sanctioned to seizing them. One of the ways in which that could be facilitated, from the advice I have received from various non-governmental organisations and lawyers, is to have a sort of kleptocrats list. I wonder if he would take that idea away and, in considering the request for greater parliamentary oversight, look at whether we could designate particular jurisdictions as kleptocracies. All the advice I get indicates that that would make it easier to do the seizing as well as freezing. Of course, in relation to Ukraine, that would mean that some of the £18 billion that has been seized from Russia could be recommissioned and used to help us rebuild Ukraine.
Tom Tugendhat
The idea of a kleptocrats list is an interesting one. It is not one I have heard before. If the right hon. Lady will forgive me, I will look into it and respond to her in writing; I have not thought about the matter, so I will have to give it some thought.
The list of high-risk third countries is based on the FATF list, which, as the hon. Member for Aberavon knows, has provided the basis for all the statutory instruments that have passed with no objection or issue. This measure will not save much ministerial time, if any at all, but it will save parliamentary time. Given how hard-pressed Parliament is to debate so many issues, I think it is a reasonable provision. Given the alignment between the UK regime and the international FATF standards, that seems to be a pretty standard change.
On the question of debating other areas, there is often cause to debate other countries’ inclusion or exclusion from such lists, and the Treasury, the Foreign Office and other Departments and organisations often have views. I am not sure this is the Bill in which to do that; this Bill is simply about correcting a slight bump in the road and speeding up the process.
The Chair
I call Neil Kinnock—I beg your pardon, Stephen. People used to do that to me and they always got it wrong.
Stephen Kinnock
Don’t worry, Mr Paisley—we could probably exchange notes on that at great length.
I thank the Minister for those points. I recall his time as chair of the Foreign Affairs Committee, when he pushed relentlessly and convincingly for parliamentary scrutiny of a whole range of key issues and decisions. Given that parliamentary scrutiny was built into the 2018 Act, it seems difficult to justify its deliberate removal from the process by this Bill. It seems like it would be good to have those guard rails in place to avoid the risk of somebody in the Treasury deciding at some point that big decisions should be made without any parliamentary scrutiny at all. Does he not agree that this is a real missed opportunity?
Tom Tugendhat
No, I do not. I always found that when I wanted to get parliamentary scrutiny as Chair of a Committee, I managed to find ways to do that—often through debates, in which the hon. Gentleman was a wonderful speaker—and to change Government policy by using not only Parliament, but the media and other forms of pressure. There is a difference between seeking to change Government policy on various aspects of areas that should really be considered as wider policy, and seeking to implement these changes, which are, let us be honest, rather technical and not issues of major parliamentary debate.
Question put and agreed to.
Clause 147 accordingly ordered to stand part of the Bill.
Clause 148
Direct disclosures of information: no breach of obligation of confidence
Tom Tugendhat
I beg to move amendment 122, in clause 148, page 136, leave out lines 22 and 23 and insert—
“(1) The protections set out in subsection (1A) apply in relation to a disclosure made by a person (‘A’) to another person (‘B’) if—”.
This amendment and Amendments 125 and 135 provide that disclosures mentioned in clause 148(1) do not give rise to any civil liability, on the part of the person making the disclosure, to the person to whom the information disclosed relates. There is an exception for liabilities under the data protection legislation.
The Chair
With this it will be convenient to discuss the following:
Government amendments 123 to 135.
Clause stand part.
Government amendments 136 to 142.
Amendment 167, in clause 149, page 138, line 8, at end insert—
“(vi) a firm or individual carrying on statutory audit work or local audit work,
(vii) an individual appointed to act as an insolvency practitioner,
(viii) a firm or sole practitioner providing to other persons accountancy services, or providing material aid, or assistance or advice, in connection with the tax affairs of other persons, or
(ix) an auditor, external accountant or insolvency practitioner as defined in Section 11 of The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.”
This amendment includes accountants in various roles in the indirect information sharing provisions set out in clause 149, allowing them to pass on information regarding suspicious activity.
Government amendments 143 to 152.
Clauses 149 to 152 stand part.
Government amendments 153 to 155.
Clause 153 stand part.
That schedule 8 be the Eighth schedule to the Bill.
Tom Tugendhat
Large amounts of financial data flow through the United Kingdom every hour. The majority relate to entirely legitimate and proper activity; however, a small proportion involve criminal activity. As hon. Members heard from several witnesses to the Committee, the sharing of information regarding criminal activity between businesses is currently constrained by duties of confidentiality. These clauses and the associated Government amendments address that constraint.
Clause 148 enables direct disclosure of information between two businesses in the anti-money laundering regulated sector for the purposes of preventing, investigating and detecting economic crime, without a breach of their obligation of confidence to their customers.
Tom Tugendhat
I am glad to have support from further down the Treasury Bench.
To request information, a business must have reason to believe that the other business holds information that will, or may, assist in carrying out its relevant actions. Relevant actions include deciding whether further customer due diligence is needed, restricting access to products, or terminating a business relationship with the customer as a result of the additional information obtained.
Amendments 122 to 135 amend clause 148 to expand the provisions to offer protection from civil liability owed by the person sharing information to the person to whom the disclosure relates. As the Committee heard when UK Finance gave evidence, the banking sector maintains that without greater protection, information is unlikely to be shared, as doing so creates limited benefit in comparison with the risk of potential protracted and expensive litigation from customers. Greater use of the provisions will make it harder for criminals to exploit UK businesses. We have listened to the sector and tabled these amendments.
Clause 149 enables indirect information sharing by certain businesses via a third-party intermediary, on a similar basis to elements of clause 148. A business may share information about a current or former customer whom they have already decided to take action against due to an economic crime risk—or who would have been subject to that decision were they still a customer—either by terminating a business relationship or by refusing or restricting access to a product or service. The business must be satisfied that sharing the customer’s information will assist other businesses in carrying out their relevant actions. As with clause 148, the Government have tabled amendments 136 to 141 and 143 to 151 to disapply civil liability for a person who discloses such information.
Government amendments 142, 152 and 155 extend the scope of the indirect information-sharing provisions to cover large and very large accountancy and legal businesses. The benefit of bringing those businesses within the scope of the provision is that those firms have experience of dealing with high-risk clients. Criminals are known to exploit the information gaps that currently exist between businesses in these sectors, and encouraging further information sharing creates greater opportunities to prevent economic crime.
Clauses 148 and 149 do not disapply any liabilities arising under data protection legislation. The hon. Member for Feltham and Heston tabled amendment 167, which would expand clause 148 to include the accountancy sector. I hope that she is reassured that the Government amendments that I have just described achieve that objective.
Government amendments 153 and 154 make express provision for aiding, abetting, counselling and procuring in the definition of economic crime. Schedule 8 sets out the offences that are included in the definition of economic crime for the purposes of direct and indirect disclosures of information, the Law Society’s fining powers, and the objectives of regulators of legal services. The schedule is divided into common-law and statutory offences. No new offences are created by the Bill; the schedule has been included because there is no existing relevant definition of economic crime. The schedule is essential to provide clarity and certainty about the meaning of economic crime, in order for individuals, regulators and businesses to use the disclosure of information provisions effectively and to properly apply the new measures relating to legal services.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
It is a pleasure to serve under your chairship, Mr Paisley, and to speak to this rather large group. I thank the Minister for his comments, which I find reassuring. I will deliver my own remarks for the record, but his comments, particularly on our amendment 167, were helpful.
This important group of clauses and amendments relates to supporting disclosures to prevent, detect or investigate economic crime. The Minister is absolutely right about the concerns—raised by UK Finance specifically—that the clauses go a considerable way to addressing.
Clause 148 concerns direct disclosure of information and, as the Minister outlined, disapplies the duty of confidentiality owed by a business where the business making the disclosure knows the identity of the recipient and certain conditions—broadly outlined in subsection (1)—are met. The explanatory notes contain the example of a bank that identifies a transaction that it believes is irregular and wants further information from another party—perhaps more information on the identity of the payer or more clarity on the source of the funds. We understand why such information might be wanted and the importance of being able to get such clarity. In effect, clause 148, along with clause 149, about which I will say a few words separately, removes the civil liability for an institution in sharing that information with another entity for the purposes of detecting and preventing economic crime.
Given the concerns about the difficulties with information sharing, and the resistance that there has been to sharing information because of lack of clarity about the law or about where liability lies under data protection rules, these measures are welcome. They have perhaps taken longer to be introduced than we would have liked, but they are certainly welcome, and we hope that they will increase the detection of economic crime and reduce moves by those involved in it to seek to use our institutions to launder and hide money.
Although I welcome the removal of barriers to information sharing, I wonder whether the clauses give regulated sectors or actors so-called safe harbour as comprehensively as they might. Helena Wood of the Royal United Services Institute said in her evidence to the Committee:
“Although the provisions in the Bill will go some way towards increasing private-to-private information sharing and, in particular, the risk appetite in the banking sector, they really do not keep pace with the global standard. What we would like in the next economic crime plan”—
I think we are all hoping to see that soon; shortly is the word used in this Committee—
“is something much more ambitious. In many ways, I would say that while it is welcome, the Bill is a slight missed opportunity with regard to information sharing, given that it really does not push forward to this big data analytics model that others are moving towards.” ––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 27 October 2022; c. 90, Q170.]
Tom Tugendhat
I am sorry to hear that the hon. Lady was considered a risk to public safety, a danger or a threat to the nation in any way. She is none of those things; she is a highly valued Member of this House and a friend to many of us. I can only imagine the unwisdom of whoever it was who decided to terminate a relationship with her. I hope that the decision is being reviewed and that the person is now enjoying a holiday on the Falkland Islands.
It is worth pointing out that the comparisons that this has with other jurisdictions should be looked at carefully. Not every jurisdiction has the same application of the ECHR, GDPR or various other constraints on sharing information and protecting privacy that the UK has. In the Netherlands, the transaction monitoring scheme has so far involved only the sharing of business data, so there are various different ways in which these applications are not exactly applicable. It is worth pointing out that, under the provisions, an individual’s right to a basic bank account, as established by the Payment Accounts Regulations 2015, is unaffected.
That means that affected individuals will be able to continue to access basic accounts, providing their account is not being used or has not been used for criminal activity, or that maintaining the account would breach any other legal obligations under the money laundering regulations. Moreover, the clause stipulates that before information is shared about a customer, the sharer must have taken action against the customer, or would have if they were still a customer. As a result, no one will have information shared unless the bank has already decided to take action against them or would have decided to do so.
We do not foresee a significant increase in the number of new individuals being denied access to services. Certainly, the hon. Lady’s comments about her constituent should be viewed in that context. However, if there are individual cases that she feels that I—or, indeed, my hon. Friend the Member for Thirsk and Malton—can help with, I would be very happy to look at them, as I am sure my hon. Friend would be as well.
The forms of redress that the hon. Lady raises are important. That is where going through the Information Commissioner’s Office or the Financial Ombudsman Service, depending on the nature of the complaint, is important. She raised many other questions, and although I will not be able to get to them right now, I will be happy to write to her on some of those individual items.
Seema Malhotra
I thank the Minister for his comments. If he is happy to write to me, I would be grateful for that. Can I clarify whether that will also cover some of the questions I raised about the expected timing of sharing information and the procedures for those who may have been caught up inadvertently? Procedurally, we need to understand how they can be dealt with. Rather than Ministers having to deal with individual cases, we want a mechanism that will make the system work fairly.
Tom Tugendhat
The hon. Member is making a perfectly reasonable point. I agree, and I will write to her about those timings so they are clearly on the record and we understand what is being asked and what the expected timeframes are.
It is also worth saying that the warning condition is more active because a business has already taken or would have taken a decision where a person is a customer. That is different from the request condition, where it is sharing in response to a specific request. The two are not quite identical, but I hope that answers the hon. Lady’s questions. I will write to her shortly.
Amendment 122 agreed to.
Amendments made: 123, in clause 148, page 136, line 24, leave out ‘to which’ and substitute ‘in circumstances where’.
This amendment and Amendments 124, 126, 127, 128 and 130 extend the power to expand the kinds of business in relation to which the provision can apply, so that it can describe attributes of the person as well as the business.
Amendment 124, in clause 148, page 136, line 25, leave out ‘to which’ and substitute ‘in circumstances where’.
See Member’s explanatory statement for Amendment 123.
Amendment 125, in clause 148, page 136, line 31, at end insert—
‘(1A) The protections are that, subject to subsection (9), the disclosure does not—
(a) give rise to a breach of any obligation of confidence owed by A, or
(b) give rise to any civil liability, on the part of A, to the person to whom the disclosed information relates.’
See Member’s explanatory statement for Amendment 122.
Amendment 126, in clause 148, page 136, line 32, leave out ‘to’.
See Member’s explanatory statement for Amendment 123.
Amendment 127, in clause 148, page 136, line 33, after ‘(a)’ insert ‘where the business carried on is’.
See Member’s explanatory statement for Amendment 123.
Amendment 128, in clause 148, page 136, line 34, leave out ‘business of a description prescribed’ and insert ‘in circumstances prescribed, in relation to the business or the person carrying it on,’.
See Member’s explanatory statement for Amendment 123.
Amendment 129, in clause 148, page 137, line 12, leave out ‘A’ and insert ‘The protections set out in subsection (7A) apply in relation to a’.
This amendment and Amendments 131, 133 and 135 provide that the disclosures mentioned in clause 148(7) do not give rise to any civil liability, on the part of the person making the disclosure, to the person to whom the information disclosed relates. There is an exception for liabilities under the data protection legislation.
Amendment 130, in clause 148, page 137, line 12, leave out ‘to which’ and substitute ‘in circumstances where’.
See Member’s explanatory statement for Amendment 123.
Amendment 131, in clause 148, page 137, line 14, leave out from ‘request’ to ‘R’ in line 15 and insert ‘if’.
See Member’s explanatory statement for Amendment 129.
Amendment 132, in clause 148, page 137, line 16, leave out ‘to which’ and substitute ‘in circumstances where’.
See Member’s explanatory statement for Amendment 123.
Amendment 133, in clause 148, page 137, line 19, at end insert—
‘(7A) The protections are that, subject to subsection (9), the disclosure does not—
(a) give rise to a breach of any obligation of confidence owed by R, or
(b) give rise to any civil liability, on the part of R, to the person to whom the disclosed information relates.’
See Member’s explanatory statement for Amendment 129.
Amendment 134, in clause 148, page 137, line 22, leave out from ‘applies,’ to the end of line 23 and insert ‘does not—
(a) give rise to a breach of any obligation of confidence owed by them, or
(b) give rise to any civil liability, on the part of R, to the person to whom the disclosed information relates.
This is subject to subsection (9).’
This amendment and Amendment 135 provide that use of information disclosed under clause 148(7) to enable a clause 148(1) disclosure to be made does not give rise to any a civil liability, on the part of the person making use of the information, to the person to whom the information relates. There is an exception for liabilities under the data protection legislation.
Amendment 135, in clause 148, page 137, line 25, after ‘contravene’ insert ‘, or prevents any civil liability arising under,’.—(Tom Tugendhat.)
See Member’s explanatory statement for Amendments 122, 129 and 134.
Clause 148, as amended, ordered to stand part of the Bill.
Clause 149
Indirect disclosure of information: no breach of obligation of confidence
Amendments made: 136, in clause 149, page 137, leave out lines 27 to 29 and insert—
‘(1) The protections set out in subsection (2A) apply in relation to a disclosure made by a person (“A”) to another person (“B”) if—’.
This amendment and Amendments 139 and 151 provide that the disclosures mentioned in clause 149(1) do not give rise to a civil liability on the part of the person making the disclosure, to the person to whom the information disclosed relates. There is an exception for liabilities under the data protection legislation.
Amendment 137, in clause 149, page 137, line 30, leave out ‘to which’ and substitute ‘in circumstances where’.
This amendment and Amendments 138, 140, 141, 142, 144 and 147 extend clause 149 disclosures so they apply in relation to persons with a large or very large UK revenue who carry on legal or accountancy services in the regulated sector.
Amendment 138, in clause 149, page 137, line 39, leave out ‘to which’ and substitute ‘in circumstances where’.
See Member’s explanatory statement for Amendment 137.
Amendment 139, in clause 149, page 138, line 1, at end insert—
‘(2A) The protections are that, subject to subsection (9), the disclosure does not—
(a) give rise to a breach of any obligation of confidence owed by A, or
(b) give rise to any civil liability, on the part of A, to the person to whom the disclosed information relates.’
See Member’s explanatory statement for Amendment 136.
Amendment 140, in clause 149, page 138, line 2, leave out ‘to’.
See Member’s explanatory statement for Amendment 137.
Amendment 141, in clause 149, page 138, line 3, after ‘(a)’ insert ‘where the business carried on is’.
See Member’s explanatory statement for Amendment 137.
Amendment 142, in clause 149, page 138, line 8, leave out from ‘provider,’ to ‘by regulations’ in line 9 and insert—
‘(aa) where—
(i) the business carried on is business in the regulated sector within paragraph 1(1)(l) or (n) of Schedule 9 to the Proceeds of Crime Act 2002 (accountancy or legal services), and
(ii) the UK revenue of the person carrying on the business is large or very large for the relevant financial year (see subsection (10)), and
(b) in circumstances prescribed, in relation to the business or the person carrying it on,’.
See Member’s explanatory statement for Amendment 137.
Amendment 143, in clause 149, page 138, line 11, leave out from ‘to B,’ to end of line 14 and insert
‘the protections set out in subsection (5A) apply in relation to a further disclosure of that information made by B to another person (“C”) if—’.
This amendment and Amendments 145 and 151 provide that the disclosures mentioned in clause 149(4) do not give rise to a civil liability, on the part of the person making the disclosure, to the person to whom the information disclosed relate. There is an exception for liabilities under the data protection legislation.
Amendment 144, in clause 149, page 138, line 15, leave out ‘to which’ and substitute ‘in circumstances where’.
See Member’s explanatory statement for Amendment 137.
Amendment 145, in clause 149, page 138, line 18, at end insert—
‘(5A) The protections are that, subject to subsection (9), the disclosure does not—
(a) give rise to a breach of any obligation of confidence owed by B, or
(b) give rise to any civil liability, on the part of B, to the person to whom the disclosed information relates.’
See Member’s explanatory statement for Amendment 143.
Amendment 146, in clause 149, page 138, line 22, leave out ‘A’ and insert
‘The protections set out in subsection (7A) apply in relation to a’.
This amendment and Amendments 148, 149 and 151 provide that the disclosures mentioned in clause 149(7) do not give rise to a civil liability, on the part of the person making the disclosure, to the person to whom the information disclosed relates. There is an exception for liabilities under the data protection legislation.
Amendment 147, in clause 149, page 138, line 22, leave out ‘to which’ and substitute ‘in circumstances where’.
See Member’s explanatory statement for Amendment 137.
Amendment 148, in clause 149, page 138, line 24, leave out from ‘person’ to ‘at’ in line 25 and insert ‘if’.
See Member’s explanatory statement for Amendment 146.
Amendment 149, in clause 149, page 138, line 28, at end insert—
‘(7A) The protections are that, subject to subsection (9), the disclosure does not—
(a) give rise to a breach of any obligation of confidence owed by R, or
(b) give rise to any civil liability, on the part of R, to the person to whom the disclosed information relates.’
See Member’s explanatory statement for Amendment 146.
Amendment 150, in clause 149, page 138, line 31, leave out from ‘applies,’ to end of line 32 and insert ‘does not—
(a) give rise to a breach of any obligation of confidence owed by them, or
(b) give rise to any civil liability, on their part, to the person to whom the disclosed information relates.
This is subject to subsection (9).’
This amendment and Amendment 151 provide that the use of information disclosure under clause 149(7) for the purposes of making a disclosure under clause 149(1) does not give rise to a civil liability, on the part of the person making use of the information, to the person to whom the information relates. There is an exception for liabilities under the data protection legislation.
Amendment 151, in clause 149, page 138, line 34, after ‘contravene’ insert ‘, or prevents any civil liability arising under,’.
See Member’s explanatory statements for Amendments 136, 143, 146 and 150.
Amendment 152, in clause 149, page 138, line 34, at end insert—
‘(10) In subsection (3)(aa) “relevant financial year”—
(a) for the purposes of subsection (1)(a), means the financial year immediately preceding that in which the disclosure by A is made;
(b) for the purposes of subsection (4)(a), means the financial year immediately preceding that in which the disclosure to C is made.
And, for the purposes of subsection (3)(aa), the question of whether a person’s UK revenue is large or very large for a particular financial year is to be determined in accordance with sections 55 to 57 of the Finance Act 2022 (calculation of UK revenue for the economic crime (anti-money laundering) levy).’—(Tom Tugendhat.)
This amendment include a definition of “relevant financial year” and explains how to determine if a person’s UK revenue is large or very large for the purposes of the new provision added by Amendment 142.
Clause 149, as amended, ordered to stand part of the Bill.
Clauses 150 to 152 ordered to stand part of the Bill.
Clause 153
Other defined terms in sections 148 to 151
Amendments made: 153, in clause 153, page 140, line 19, at end insert—
“(ba) constitutes aiding, abetting, counselling or procuring the commission of a listed offence, or”.
The amendment makes express provision about aiding, abetting, counselling and procuring in the definition of economic crime.
Amendment 154, in clause 153, page 140, line 21, after “(b)” insert “or (ba)”.
This amendment is consequential on Amendment 153.
Amendment 155, in clause 153, page 140, line 34, at end insert—
““financial year” means a period of 12 months ending with 31 March;”.—(Tom Tugendhat.)
This amendment adds a definition of “financial year” and is consequential on Amendment 152.
Clause 153, as amended, ordered to stand part of the Bill.
Schedule 8 agreed to.
Clause 154
Law Society: powers to fine in cases relating to economic crime
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clause 155 stand part.
Government new clause 47—Scottish Solicitors’ Discipline Tribunal: powers to fine in cases relating to economic crime.
Tom Tugendhat
His Majesty’s Government’s national risk assessment for 2020 assessed the legal services sector as being at high risk of exposure to money laundering. The crisis in Ukraine has highlighted that the sector is exposed to further-reaching risks, such as sanctions breaches. The Bill therefore contains measures that strengthen the legal sector’s response to economic crime.
Clause 154 removes the statutory limit on the Solicitors Regulation Authority’s financial penalty powers for disciplinary matters related to economic crime, as delegated by the Law Society. Currently, the SRA can direct a solicitor or traditional law firm to pay a penalty up to £25,000. The limit is set out in primary legislation and can be amended only by an order made by the Lord Chancellor. This measure will remove the need for the Lord Chancellor to make an order, thereby ensuring greater flexibility to, if required, amend penalty limits for disciplinary matters relating to economic crime.
New clause 47 gives the Scottish Solicitors’ Discipline Tribunal parity with England and Wales in respect of the fining powers available to it for economic crime-related solicitor misconduct. Currently, the SSDT may impose a maximum fine of £10,000. In comparison, the equivalent tribunal in England and Wales—the Solicitors Disciplinary Tribunal—has the power to impose an unlimited financial penalty. This change will provide the SSDT with fining powers that act as a proportionate deterrent against breaches of the rules and legislation related to economic crime, including offences linked to money laundering, terrorist financing and sanctions. The exercise of this power will be subject to the oversight of the Court of Session to ensure that the SSDT acts in an effective and proportionate way. The changes sought in clause 154 and new clause 47 are needed to ensure that the SRA and the SSDT have the enforcement tools required in the context of economic crime compliance.
Clause 155 enshrines in legislation the duty of legal services regulators to promote the prevention and detection of economic crime. Our legal sector is internationally renowned for its high standards of excellence and professional conduct. The vast majority of the sector is compliant with its economic crime duties. However, it is crucial that regulators have the right tools to effectively promote and monitor compliance. The clause puts it beyond doubt that it is the duty of legal services regulators to take appropriate action to ensure that their regulated communities comply with economic crime rules. It will give frontline regulators a clear basis for any supervision or enforcement action they may carry out to uphold the economic crime regime.
Stephen Kinnock
Clause 154 would lift the current statutory cap on the penalties that may be imposed by the Solicitors Regulation Authority, as delegated by the Law Society, for breaches of the law on economic crime. I am sure that Members on both sides will welcome the change if, as the Government argue in their impact assessment, it increases the deterrent effect of the financial penalties that may be levied for disciplinary matters. Although the Government provide limited evidence to support that claim, it is at least a reasonably logical conclusion.
However, the proposals raise a number of questions, principally around the degree to which clauses 154 and 155 reflect the input received from the sector in response to consultation earlier this year. Specifically, a number of serious concerns were expressed by the Solicitors Disciplinary Tribunal when the SRA consulted on planned increases to its powers to impose fines.
The tribunal argued that the SRA’s powers should be limited to imposing relatively low penalties for minor technical or administrative errors. It argued that increasing the maximum level of fines that the SRA could impose would erode transparency by preventing cases of serious misconduct from coming before a public hearing, which could also remove the scope for a detailed, publicly accessible explanation of any penalties, as is generally provided by the tribunal’s decisions under the current system. In summarising its concern, the tribunal argued that the diminution in the transparency of decision making and detailed reason would be in neither the public’s nor the profession’s interest.
It should be noted that those objections were raised, not in response to the proposed changes set out in this Bill, but in the context of the increase in the maximum level of financial penalties that the SRA may impose from £2,000 to £25,000, which came into effect in July. That change in itself begs a number of questions. In particular, can the Minister explain how many and what proportion of the fines imposed by the SRA since July have been at the £25,000 maximum? Could it not be argued that the Government have not provided enough time for the effectiveness of recent changes to be adequately assessed?
Can the Minister also set out the Government’s reasoning in lifting the cap on the SRA’s fining powers, with specific regard to the objections raised by the Solicitors Disciplinary Tribunal, and other stakeholders, around the transparency of the process?
Clause 155 would amend the Legal Services Act 2007 to set an additional objective for regulators in the legal sector to prevent economic crime. Given the objections that have been raised in the sector relating to clause 154, I would be grateful if the Minister provided further details of any consultation between his Department and providers of legal services, as well as the Legal Services Board, on this proposal.
Finally, it would be helpful if the Minister explained the rationale for the decision to set out, in this Bill, an explicit objective to prevent economic crime for providers of legal services, but not for other sectors covered by the money laundering regulations. The impact assessment sheds limited light on the Government’s thinking in this area, so any additional detail that the Minister could provide today would be welcome.
Alison Thewliss
My understanding is that the Law Society of Scotland has no particular objections to the amendments.
Tom Tugendhat
The hon. Member is asking about various of the different fining elements. Clearly, the fines discussion is a matter for the individual cases, and would be determined on a case-by-case basis, but I think that removing the cap, which, in modern terms, is actually relatively low—certainly, when compared with financial abuses and other forms of regulation—is entirely reasonable.
The Solicitors Regulation Authority does not, in any way, have any power to strike off a suspended solicitor, so the SDT remains an extremely important part of the disciplinary process. There are various different aspects at play here, but the proposals make good sense and are reasonable. I will happily write to the hon. Member on the issue he raised separately and come back to him about it later.
Stephen Kinnock
I thank the Minister for that clarification, and I am grateful for his offer to write with further details. On the point about using the Bill to prevent economic crime with respect to providers of legal services, but not for any other sector covered by the money laundering regulation, would he care to shed more light on the rationale for that decision?
Tom Tugendhat
The other sectors are already covered by the money laundering regulation. That element is focusing on legal services because that was a lacuna in the law.
Stephen Kinnock
I thank the Minister for that clarification. There is a broader scope to economic crime, not just a specific focus on money laundering, and that covers a wider range of aspects of economic crime, although there is an explicit objective in the Bill that it is limited to providers of legal services. I wonder why that broader scope will not be applied beyond the money laundering concerns.
Tom Tugendhat
The changes are being made and the new clause is important for exactly the reasons the hon. Gentleman has highlighted. The new clause will remove an obstacle with respect to the SRA exercising its judgment and punishing appropriately those who might be committing any number of different crimes, which I hope they will not be doing. The measure will give us a provision to enable us to deal with that. The reality is that much of the money laundering regulation has already been covered, along with different aspects of financial services. The proposals specifically address legal services and particular aspects. They are an important addition, and I am happy to support them.
Question put and agreed to.
Clause 154 accordingly ordered to stand part of the Bill.
Clauses 155 to 157 ordered to stand part of the Bill.
Clause 158
Power to make consequential provision
Question proposed, That the clause stand part of the Bill.
Tom Tugendhat
Indeed, and I am delighted to be called to speak to it.
The clause provides the Secretary of State with the power to make consequential amendments that arise from the Bill. The power is necessary to ensure that other provisions on the statute book properly reflect and refer to the provisions in the Bill once it is enacted and to ensure that there are no legislative inconsistencies. If regulations are made under the clause that do not amend primary legislation, they will be subject to the negative resolution procedure. If regulations are made under the clause that amend primary legislation, they will be subject to the affirmative resolution procedure. This, I hope, will provide the appropriate parliamentary scrutiny.
Seema Malhotra
I thank the Minister for his comments. May I clarify the process, Mr Paisley? In previous sittings, during each clause stand part debate the Minister has been called followed by the Opposition spokesperson. Perhaps that has had some variation, but it would be helpful to understand whether we need to do anything differently.
The Chair
No, nothing at all; it is just that the Minister did not indicate that he wished to speak. Members can speak at that point. Those clauses have been dealt with.
Seema Malhotra
I think that there was a slight misunderstanding, but we will move on.
Clause 158 confers on the Secretary of State a regulation-making power to make consequential amendments that arise from the Bill. I want to raise a general point: the Minister did speak to this, but perhaps he could say a little more about examples of where the Secretary of State might need to use the power. Perhaps it is written somewhere, but I am not fully clear whether any changes that come through secondary legislation to the Act itself—I think that is a Henry VIII power in this clause—would be taken through the affirmative procedure.
It has been a general theme of debate though our proceedings that we need to make sure that there is sufficient provision for the transparency, scrutiny and accountability of changes, as well as for accountability of the Secretary of State’s use of powers for the reporting that there should be on how well the provisions are working. The power to make consequential amendments comes at the end of the Bill in clause 158, but it is a Henry VIII power that means that amendments to primary legislation can be made. That is different from the power to make regulations under secondary legislation, which we have been debating.
The Government have said that the power is needed to ensure that other provisions on the statute book properly reflect and refer to provisions in the Bill once it is enacted. I want to be clear about what the scope of the use of this power would be, how it is intended and how it would be reported on. Would an affirmative or negative procedure be used to make any changes under this clause?
Dame Margaret Hodge
We have raised a number of amendments to the Bill during the course of consideration in Committee, many of which I consider to be technical and things that would improve the processes. All those amendments so far have been rejected. I wonder whether, rather than bringing us back at a later stage as the clause proposes, the Minister would undertake, together with his ministerial colleague, to look again at some of those amendments, which are really just practical, pragmatic amendments, with a view to bringing them back. Would he bring them back on Report?
Tom Tugendhat
I will answer the second question first, if I may. I am absolutely certain that my hon. Friend the Member for Thirsk and Malton and I will look with great interest at the suggestions that the right hon. Lady has made. As she knows, we share many similar ambitions. We will have a look at those suggestions with officials. Certainly, there are some that we think could improve the Bill—I do not think there is any great debate about that—and I will make sure that we keep her informed. Her contribution and help, not just today and on the Bill, have been enormous, and I pay enormous tribute to the work that she has done over many years in fighting money laundering and different forms of economic crime.
On this specific power, the hon. Member for Feltham and Heston raises a very important point, which is that the clause does give large consequential provision to the Government to change aspects of the Bill. I understand the concerns that she raises. The nature of the Bill, however, is that it has quite a consequential impact on other elements of legislation, as she herself has highlighted. Therefore there are knock-on elements that will no doubt require minor redrafting and changes at various different points as the Bill goes into law. I am afraid that is slightly the nature of these operations, as she understands extremely well. That is what this power is for.
It is worth saying that any significant or substantial changes that really do change the intent of the Bill should be brought back in primary legislation, because this is clearly a provision in order to enable the Bill to operate, not to change the intent that this House gives it.
Seema Malhotra
I thank the Minister for his comment, which puts that clarification on the record for successive generations of those who will sit in his seat—perhaps he will be promoted to higher office. It is important that that comment is on record, because we have to create legislation for not just today but tomorrow.
Tom Tugendhat
I beg to move amendment 43, in clause 159, page 144, line 21, at end insert—
“(ba) regulations under section (registration of qualifying Scottish partnerships), unless they are regulations under that section that only make provision that corresponds or is similar to provision made or capable of being made by a statutory instrument that is itself subject to annulment in pursuance of a resolution of either House of Parliament;”.
This provides for regulations under NC22 to be subject to the affirmative procedure unless they only make provision corresponding or similar to provision make by a statutory instrument that is itself subject to the negative procedure.
The Chair
With this it will be convenient to discuss Government new clause 22—Registration of qualifying Scottish partnerships.
Tom Tugendhat
Clause 159 provides that regulations made under the Bill are to be made by statutory instrument. The clause also sets outs the parliamentary procedure for how regulations under the Bill should be made, including situations in which legislation must be subject to the affirmative resolution procedure or the negative resolution procedure. The clause is a standard provision to enable regulations to give the intended effect to the measures in the Bill. It is necessary to ensure appropriate parliamentary scrutiny of such regulations.
Seema Malhotra
Clause 159 provides that regulations under the Bill are to be made by statutory instrument. To a large extent, we have had clarification that any subsequent changes will be made through the affirmative procedure in Parliament, enabling greater scrutiny and transparency over the Bill’s implementation. I am not sure if there is a list anywhere of all the regulation-making powers that have been specified in the Bill. I feel like there is probably a summary somewhere of all of those powers, and whether any are subject to the negative procedure. I think that would be a helpful review for the Committee to have.
New clause 22 allows regulations to be made about the registration of certain Scottish partnerships, and to apply law related to companies or limited partnerships. It will allow the Scottish Partnerships (Register of People with Significant Control) Regulations 2017 to be amended or replaced in relation to those partnerships. We welcome the inclusion of amendment 43 alongside the new clause, which provides for regulations under new clause 22 to be subject to the affirmative procedure, unless they make provisions corresponding to provisions made by statutory instruments that are subject to the negative procedure. In light of my previous comments, I think it is healthy for us to clarify and have a clear summary of which are affirmative and which are negative, and the safeguards around them. That would ensure the transparency of regulation making subsequent to the passing of the Bill.
Kevin Hollinrake
It is a pleasure to speak with you in the Chair, Mr Paisley. I will speak briefly to amendment 43 and new clause 22, which are minor technical changes necessary due to the European Communities Act 1972 having been repealed. They give the Secretary of State the power to apply company or limited partnership law by regulations to Scottish qualifying partnerships, as well as to impose new requirements of Scottish qualifying partnerships not included in company or limited partnership law, such as identity verification. It allows the Government to retain the measures introduced by the Scottish Partnerships (Register of People with Significant Control) Regulations 2017 in relation to SQPs and to amend them in the future. Provisions about the registration of Scottish qualifying partnerships exist in the 2017 regulations, made using powers under now repealed section 2(2) of the European Communities Act 1972.
That has two consequences. First, there is no existing power to amend the regulations, other than by an Act of Parliament. Secondly, if not replaced under section 1 of the proposed retained EU law Bill, the 2017 regulations will be revoked at the end of 2023. This power will allow us to keep the existing requirements on Scottish qualifying partnerships and to add new ones. Without the amendment and new clause, it will not be possible to extend key measures introduced via the Bill, such as identity verification, to Scottish qualifying partnerships, thereby creating a dangerous loophole. I hope that my explanation has provided further clarity.
It is clear that regulations made under the Bill may make consequential, supplementary, incidental, transitional or saving provisions and regulations under specified clauses must be subject to the affirmative resolution procedure. I am sure we can write to the hon. Lady to set out exactly what those situations are.
Alison Thewliss
I am glad to see any loopholes getting closed, even if the amendment is sneaking in at the end of the Bill. It is good to see it. As I have said at many points in Committee, enforcement needs to be laid down on all these things, because at the moment all things to do with Scottish partnerships are not being enforced. People are not being fined for not complying with the regulations. I hope that it will result in some tightening up and some fines being issued—and, if required, in some people being jailed for not complying with the regulations as set out.
Tom Tugendhat
My hon. Friend the Under-Secretary has spoken to a lot of the issues, so I will just list clauses covered by the affirmative resolutions briefly—the others will be negative. That will include regulations under clauses 33, 35, 140(1), 141 and schedule 6, on powers to amend certain definitions relating to cryptoassets, clause 142 and schedule 7, on powers to amend certain definitions relating to cryptoassets and then clauses 143, 148, 149, 153 and 158. I am happy to write to the hon. Lady so that she has those details.
Amendment 43 agreed to.
Clause 159, as amended, ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned.—(Scott Mann.)
Economic Crime and Corporate Transparency Bill (Sixteenth sitting)
Tuesday 22nd November 2022
(2 years ago)
Public Bill CommitteesRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 22 November 2022 - (22 Nov 2022)
The Minister for Security (Tom Tugendhat)
It is nice to see you this afternoon, Ms Elliott. I look forward to proceeding in order for some parts of this afternoon sitting.
Clause 160 details the Bill’s territorial extent. In preparing the Bill, both Ministers and officials have engaged extensively with their counterparts in the devolved Administrations to ensure that we tackle economic crime and strengthen corporate transparency across all of the United Kingdom. The measures in the Bill extend to England and Wales, Scotland, and Northern Ireland. Some of its provisions have a lesser extent, where they amend existing legislation that extends only to one or two different parts of the UK. In the opinion of the UK Government, the Bill makes some provision for areas within the devolved competence of Wales, Scotland and Northern Ireland. However, the Bill respects the devolution settlements and, where relevant, legislative consent motions are being sought from the devolved Administrations.
Clause 161 sets out procedural detail for the commencement of the Bill’s provisions. It stipulates the various dates when, and conditions under which, the various sections and subsections will come into force. The Secretary of State can make regulations that set the date for certain provisions to come into force. Different days may be appointed for different purposes. The Secretary of State can also make transitional or savings provisions for regulations made under certain clauses, as set out in the Bill. Any regulations made under the clause are to be made by statutory instrument.
Clause 162 establishes that the title of the Bill once it becomes an Act will be the Economic Crime and Corporate Transparency Act. The short title is a standard clause in any Bill.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
It is a pleasure to serve under your chairship, Ms Elliott.
I have a few limited remarks to make as we approach the end of clause-by-clause consideration and before we move on to new clauses. As the Minister said, clause 160 extends the Bill to England and Wales, Scotland, and Northern Ireland. I was grateful for his comments about liaison with the Scottish Parliament and the Welsh Senedd. There are obviously current challenges in respect of the Northern Ireland Executive. I would be grateful for some clarity about how the engagement with the devolved Administrations is going, because it has been a theme, certainly during the earlier debates. It is important that we can have confidence that all the issues that are being raised in our deliberations are coming into the Bill.
Clause 161 sets out when the Bill’s provisions will come into force. I am sure the Minister will want to give assurances that that will be no later than is absolutely necessary, bearing in mind the urgency of the measures. Clause 162 establishes the short title and we welcome it.
Tom Tugendhat
Different devolved Administrations have been contacted in different ways. Some of them have been written to, and I have sought conversations with some, although that has not always been achieved because of other people’s diaries as well as my own. The conversation is ongoing and, although I hope the Bill will be passed soon, it will have to continue because many things are going to change over the coming years.
Question put and agreed to.
Clause 160 accordingly ordered to stand part of the Bill.
Clauses 161 and 162 ordered to stand part of the Bill.
New Clause 1
Change of addresses of officers of overseas companies by registrar
“In section 1046 of the Companies Act 2006 (overseas companies: registration of particulars), after subsection (6) insert—
‘(6A) Where regulations under this section require an overseas company to deliver to the registrar for registration—
(a) a service address for an officer of the company, or
(b) the address of the principal office of an officer of the company,
the regulations may make provision corresponding or similar to any provision made by section 1097B or 1097C (rectification of register relating to service addresses or principal office addresses) or to provision that may be made by regulations made under that section.’”.—(Kevin Hollinrake.)
Where an overseas company is required to provide a service address or principal office address for a director or secretary, this new clause enables regulations to be made conferring power on the registrar to change the address if it does not meet the statutory requirements or is inaccurate.
Brought up, and read the First time.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
I beg to move, That the clause be read a Second time.
The Chair
With this it will be convenient to discuss the following:
Government new clause 2—Overseas companies: availability of material for public inspection etc.
Government new clause 3—Registered addresses of an overseas company.
Government new clause 4—Overseas companies: identity verification of directors.
Kevin Hollinrake
It is always a pleasure to serve with you in the Chair, Ms Elliott. Government new clauses 1 to 4 will introduce delegated powers allowing for the application of the Companies House reform measures elsewhere in the Bill to overseas companies registered in the UK. In this context, an overseas company is one that is incorporated overseas but that has a physical establishment or branch in the UK. Under long-standing provisions in the Companies Act 2006, that presence brings with it certain obligations to register information with Companies House.
New clauses 1 to 3 allow for the making of regulations requiring overseas companies that have established a physical presence in the UK to provide an appropriate address for the overseas company, their directors or other officers, to the same standard required of domestic companies incorporated here in the UK. The aim is the same—to ensure that addresses and email addresses on the companies register are accurate and that documents sent to them will reach the companies concerned or their officers.
New clause 4 allows the application, through regulations, of identity verification requirements to directors of overseas companies operating in the UK. Through that, the Government seek to ensure that companies governed by the laws of other jurisdictions that operate in the UK are subject to identity verification requirements that are introduced by the Bill and will apply to UK companies. Regulations under the power will include requiring the delivery of statements or other information to the registrar. They will also include exemptions from identity verification on national security grounds.
The application of identity verification obligations through secondary legislation will allow the Government to adapt ID verification requirements at speed. Overseas companies who operate within the UK are only within limited control of UK law. UK legislation affecting them therefore needs to adapt more quickly to their changing circumstances than primary legislation would allow for.
Seema Malhotra
It is a pleasure to speak to the new clauses. The Minister has outlined the rationale for them, which is to bring some of the rules around overseas companies more in line with some other changes being made in the Bill. We welcome that, but I have a few questions.
New clause 1 outlines that where an overseas company is required to provide a service address or principal office address for a director or secretary, regulations can be made conferring power on the registrar to change the address if it does not meet the statutory requirements or is inaccurate. Who might determine whether the address is inaccurate? Is the expectation that the registrar finds that out or is that just about if something happens to be found out by chance? Is there any more information on how the power might be used to determine that an address is inaccurate?
New clause 2 confers a regulation-making power to require overseas companies to register information. The new clause makes it clear that the regulations can provide for the information to be withheld from public inspection and can confer a discretion on the registrar. We have had similar debates in Committee already. We will keep coming back to the question of the use of powers and the reporting on the use of those powers, particularly where information may be withheld. Would this be an example of a new power on the withholding of information from public inspection where the number of times it is used ought to be reported on? That would not need to give away details about whom the power had applied to, but it would help give an overall view of how the powers in the Bill were being used.
Under new clause 3, new regulations would require overseas companies to provide and maintain an appropriate address and email address. Would those new regulations be subject to the affirmative procedure, assuming that they would be in secondary legislation rather than in the Bill? It was not fully clear to me whether some of these matters were included in the Bill or whether they were regulations to enable the measures to come in later. Will the Minister clarify that?
Kevin Hollinrake
I am happy to, and I thank the hon. Lady for her points. As we have said during similar discussions, the registrar will have access to information; most of the queries that she will follow up will have come through information received during the course of her duties. It does not make sense for Companies House to physically validate all addresses, but nevertheless information may well come to light through the registrar’s work or the requirement for other bodies to share information with her if they feel that inaccurate information is on the register. That is how we anticipate that information will come forward.
I will not revisit the issue of national security other than to say that the power will be used sparingly and that we do not know what we do not know, so it is important that we have a provision that might be necessary in future.
Regulations under new clause 4 will correspond to regulations applying to UK companies made and debated by Parliament under the affirmative procedure. The extension to overseas companies would therefore not require additional scrutiny by Parliament and the regulations will be subject to the negative procedure.
Question put and agreed to.
New clause 1 accordingly read a Second time, and added to the Bill.
New Clause 2
Overseas companies: availability of material for public inspection etc
“In section 1046 of the Companies Act 2006 (overseas companies: registration of particulars), after subsection (6A) (inserted by section (Change of addresses of officers of overseas companies by registrar) of this Act) insert—
‘(6B) Regulations under this section may include provision for information delivered to the registrar under the regulations to be withheld from public inspection.
(6C) The provision that may be made by regulations under this section includes provision conferring a discretion on the registrar.’”—(Kevin Hollinrake.)
Section 1046 of the Companies Act 2006 confers a regulation-making power to require overseas companies to register information. The new clause makes it clear that the regulations can provide for the information to be withheld from public inspection and that they can confer a discretion on the registrar.
Brought up, read the First and Second time, and added to the Bill.
New Clause 3
Registered addresses of an overseas company
“(1) The Companies Act 2006 is amended as follows.
(2) After section 1048 insert—
‘1048A Registered addresses of an overseas company
(1) The Secretary of State may by regulations make provision requiring an overseas company that is required to register particulars under section 1046 to deliver to the registrar for registration—
(a) a statement specifying an address in the United Kingdom that is an appropriate address for the company;
(b) a statement specifying an appropriate email address for the company.
(2) The regulations may include provision—
(a) allowing an overseas company to change the address or email address for the time being registered for it under the regulations;
(b) requiring an overseas company to ensure that the address or email address for the time being registered for it under the regulations is an appropriate address or appropriate email address.
(3) The regulations may include—
(a) provision for information contained in a statement specifying an appropriate email address to be withheld from public inspection;
(b) provision corresponding or similar to any provision made by section 1097A (rectification of register relating to a company’s registered office) or to provision that may be made by regulations made under that section.
(4) In this section—
“appropriate address” has the meaning given by section 86(2);
“appropriate email address” has the meaning given by section 88A(2).
(5) Regulations under this section are subject to negative resolution procedure.’
(3) In section 1139 (service of documents on company), for subsections (2) and (3) substitute—
‘(2) A document may be served on an overseas company whose particulars are registered under section 1046—
(a) by leaving it at, or sending it by post to, the company’s registered address, or
(b) by leaving it at, or sending it by post to, the registered address of any person resident in the United Kingdom who is authorised to accept service of documents on the company’s behalf.
(3) In subsection (2) “registered address”—
(a) in relation to the overseas company, means the address for the time being registered for the company under regulations under section 1048A(1)(a);
(b) in relation to a person other than the overseas company, means any address for the time being shown as a current address in relation to that person in the part of the register available for public inspection.’”—(Kevin Hollinrake.)
Regulations under this new clause can require an overseas company to provide and maintain an appropriate address and appropriate email address. Broadly speaking, an address is appropriate if documents sent there will reach the company.
Brought up, read the First and Second time, and added to the Bill.
New Clause 4
Overseas companies: identity verification of directors
“After section 1048A of the Companies Act 2006 (inserted by section (Registered addresses of overseas companies) of this Act) insert—
‘1048B Identity verification of directors
(1) This section applies in relation to an overseas company that is required to register particulars under section 1046.
(2) The Secretary of State may by regulations make provision for the purpose of ensuring that each individual who is a director of such a company—
(a) is an individual whose identity is verified (see section 1110A), or
(b) falls within any exemption from identity verification that may be provided for by the regulations.
(3) The regulations may include provision—
(a) requiring the delivery of statements or other information to the registrar;
(b) for statements or other information delivered to the registrar under the regulations to be withheld from public inspection;
(c) applying section 167M (prohibition on director acting unless ID verified), with or without modifications;
(d) applying section 1110D (exemption from identity verification: national security grounds), with or without modifications.
(4) Regulations under this section are subject to negative resolution procedure.’”—(Kevin Hollinrake.)
Regulations under this new clause can impose identity verification requirements on the directors of overseas companies, corresponding to the requirements introduced by the Bill for directors of UK companies.
Brought up, read the First and Second time, and added to the Bill.
New Clause 5
Rectification of register: service addresses
“(1) The Companies Act 2006 is amended as follows.
(2) After section 1097A insert—
‘1097B Rectification of register: service addresses
(1) The Secretary of State may by regulations make provision authorising or requiring the registrar to change a registered service address of a relevant person if satisfied that the address does not meet the requirements of section 1141(1) and (2).
(2) In this section—
“registered service address”, in relation to a relevant person, means the address for the time being shown in the register as the person’s current service address;
“relevant person” means—
(a) a director of a company that is not an overseas company,
(b) a secretary or one of the joint secretaries of a company that is not an overseas company, or
(c) a registrable person or registrable relevant legal entity in relation to a company (within the meanings given by section 790C).
(3) The regulations may authorise or require the address to be changed on the registrar’s own motion or on an application by another person.
(4) The regulations must provide for the change in the address to be effected by the registrar proceeding as if the company had given notice under section 167H, 279H or 790LC of the change.
(5) The regulations may make provision as to—
(a) who may make an application,
(b) the information to be included in and documents to accompany an application,
(c) the registrar requiring the company or an applicant to provide information for the purposes of determining anything under the regulations,
(d) the notice to be given of an application or that the registrar is considering the exercise of powers under the regulations,
(e) the notice to be given of any decision under the regulations,
(f) the period in which objections to an application may be made,
(g) how the registrar is to determine whether a registered service address meets the requirements of section 1141(1) and (2), including in particular the evidence, or descriptions of evidence, which the registrar may without further enquiry rely on to be satisfied that the address meets those requirements,
(h) the referral by the registrar of any question for determination by the court,
(i) the registrar requiring the company to provide an address to be registered as the relevant person’s service address,
(j) the nomination by the registrar of an address (a “default address”) to be registered as the relevant person’s service address (which need not meet the requirements of section 1141(1) and (2)),
(k) the period for which the default address is permitted to be the relevant person’s registered service address, and
(l) when the change of address takes effect and the consequences of registration of the change (including provision similar or corresponding to section 1140(5)).
(6) The provision made by virtue of subsection (5)(k) may in particular include provision creating summary offences punishable with a fine not exceeding level 3 on the standard scale or, for continued contravention, a daily default fine not exceeding one-tenth of level 3 on the standard scale.
(7) The regulations must confer a right on the company to appeal to the court against any decision to change the relevant person’s registered service address under the regulations.
(8) If the regulations enable a person to apply for a registered service address to be changed, they must also confer a right on the applicant to appeal to the court against a refusal of the application.
(9) On an appeal, the court must direct the registrar to register such address as the relevant person’s registered service address as the court considers appropriate in all the circumstances of the case.
(10) The regulations may make further provision about an appeal and in particular—
(a) provision about the time within which an appeal must be brought and the grounds on which an appeal may be brought;
(b) further provision about directions by virtue of subsection (9).
(11) The regulations may include such provision applying (including applying with modifications), amending or repealing an enactment contained in this Act as the Secretary of State considers necessary or expedient in consequence of any provision made by the regulations.
(12) Regulations under this section are subject to affirmative resolution procedure.’
(3) In section 1087 (material not available for public inspection), in subsection (1)(ga)—
‘(a) after “1097A” insert “, 1097B”;
(b) for “company registered office” substitute “registered office, service address”.’”—(Kevin Hollinrake.)
This new clause confers a regulation-making power to enable the registrar to change a person’s registered service address. It is based on section 1097A of the Companies Act 2006, which makes similar provision in relation to a company’s registered office.
Brought up, read the First and Second time, and added to the Bill.
The Chair
With this it will be convenient to discuss Government new clause 11—Power to amend disqualification in relation to relevant entities: NI.
Kevin Hollinrake
Through other provisions in this Bill, a disqualified individual is prevented from acting as a general partner of a limited partnership. However, that would only cover individuals who have been disqualified for their actions as directors in a company. We also need to be able to disqualify general partners for their actions within a limited partnership. Currently, that cannot be done because the Company Directors Disqualification Act 1986 applies only to directors of companies and other limited corporate entities such as building societies and NHS foundation trusts. We would like to ensure that general partners are subject to the same requirements as directors. New clauses 10 and 11 therefore provide powers to update the 1986 Act and the Company Directors Disqualification (Northern Ireland) Order 2002 to apply to limited partnerships, limited liability partnerships and Scottish partnerships.
Seema Malhotra
It is a pleasure to say a few words in support of new clauses 10 and 11. New clause 10 introduces new provisions allowing the Secretary of State to make regulations applying the Company Directors Disqualification Act to relevant entities. The new clause outlines that these relevant entities include limited partnerships and Scottish limited partnerships. New clause 11 has the same effect and applies the same principles to the context of Northern Ireland. We welcome the new clauses, especially given our calls in Committee to extend directors disqualification criteria to limited partnerships.
Kevin Hollinrake
I have nothing further to add.
Question put and agreed to.
New clause 10 accordingly read a Second time, and added to the Bill.
New Clause 11
Power to amend disqualification legislation in relation to relevant entities: NI
“(1) The Company Directors Disqualification (Northern Ireland) Order 2002 (S.I. 2002/3150 (N.I. 4)) is amended as follows.
(2) In Article 2(2) (interpretation), for the definition of ‘regulations’ substitute—
‘“regulations”, except in Articles 13D and 25D, means regulations made by the Department subject (except in Article 23(3)) to negative resolution;’.
(3) After Article 25C insert—
‘25D Power to amend application of Order in relation to relevant entities
(1) The Secretary of State may by regulations amend this Order for the purpose of applying, or modifying the application of, any of its provisions in relation to relevant entities.
(2) For that purpose, the regulations may in particular—
(a) extend the company disqualification conditions to include corresponding conditions relating to a relevant entity;
(b) limit the company disqualification conditions to remove conditions relating to a relevant entity;
(c) modify which company disqualification conditions can, in combination with each other, result in a person being disqualified under this Order;
(d) provide for any of the company disqualification conditions to result in or contribute to a person being disqualified from acting in a role or doing something in relation to a relevant entity.
(3) In this Article “the company disqualification conditions” means the conditions that can result in or contribute to a person being disqualified under this Order from acting in a role or doing something in relation to any entity.
(4) In this Article a “relevant entity” means—
(a) a limited partnership registered under the Limited Partnerships Act 1907;
(b) a limited liability partnership registered under the Limited Liability Partnerships Act 2000;
(c) a partnership, other than a limited partnership, that is—
(i) constituted under the law of Scotland, and
(ii) a qualifying partnership within the meaning given by regulation 3 of the Partnerships (Accounts) Regulations 2008.
(5) Regulations under this Article may make consequential, supplementary, incidental, transitional or saving provision.
(6) The provision which may be made by virtue of paragraph (5) includes provision amending provision made by or under either of the following, whenever passed or made—
(a) an Act;
(b) Northern Ireland legislation.
(7) Regulations under this Article are to be made by statutory instrument.
(8) A statutory instrument containing regulations under this Article may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.’”—(Kevin Hollinrake.)
This new clause allows the Secretary of State to make regulations applying the CDD(NI)O 2002 in relation to relevant entities, meaning that a person’s conduct in relation to relevant entities would lead to disqualification, and disqualifications in other circumstances would prohibit a person from acting in relation to relevant entities.
Brought up, read the First and Second time, and added to the Bill.
New Clause 12
Required information about overseas entities: address information
“In the following provisions of Schedule 1 to the Economic Crime (Transparency and Enforcement) Act 2022 (which refer to an entity’s registered or principal office) omit ‘registered or’—
paragraph 2(1)(c);
paragraph 5(1)(b);
paragraph 6(1)(d);
paragraph 7(1)(b).”—(Kevin Hollinrake.)
This new clause would mean that the required information that must be provided about an overseas entity, a corporate registrable beneficial owner or managing officer includes its principal office in all cases, rather than there being an option to provide its registered or principal office.
Brought up, and read the First time.
The Chair
With this it will be convenient to discuss the following:
Government new clause 13—Registration of information about land.
Government new clause 14—Registration of information about managing officers: age limits.
Government new clause 15—Registrable beneficial owners: cases involving trusts.
Government new clause 21—Enforcement of requirement to register: updated language about penalties etc.
Kevin Hollinrake
All the new clauses relate to the register of overseas entities. New clause 12 will mean that the required information that must be provided about an overseas entity, a corporate registrable beneficial owner or a managing officer will always include its principal office, rather than there merely being an option to provide its registered or principal office. The new clause will improve the quality of the information provided and align with the information required about other types of legal entities.
New clause 14 will ensure that overseas entities that provide the details of a managing officer who is under the age of 16, or who is a legal entity, must also provide details of a person who is more than 16 years old. This is to ensure that there is a person who can be contacted about the overseas entity, in addition to the relevant person who verified the information. It is possible that in jurisdictions outside the UK, individuals younger than 16 may be allowed to act as company directors, secretaries or equivalents. Directors of UK companies are required to be at least 16 years of age, so the new clause provides consistency by requiring the contact details of someone who is at least 16 years of age.
New clause 21 will update the language about penalties for non-compliance in section 34 of the Economic Crime (Transparency and Enforcement) Act 2022 to reflect changes made by the Judicial Review and Courts Act 2022. It will ensure consistency with the wording used in other clauses in the Bill.
New clause 13 will require overseas entities to include the title number for relevant interests in land that they hold in their application for registration, both when providing an update and when applying to be removed from the register. Overseas entities that are already registered will be required to provide this information when they next provide an update or, if sooner, when they apply to be removed from the register. The collection of this information will improve the effectiveness of the register and will help law enforcement agencies with their investigations. The information will not be made publicly available because the Government do not consider that to be appropriate, given privacy concerns.
Let me turn new clause 15. In advance of the launch of the register, the Register of Overseas Entities (Delivery, Protection and Trust Services) Regulations 2022 were made. Regulation 14 specified the circumstances in which a legal entity trustee is deemed to be
“subject to its own disclosure requirements”.
By virtue of a legal entity trustee being a registrable beneficial owner, the overseas entity must provide the required information about the trust and persons connected to it, such as beneficiaries, settlors and interested persons.
Dame Margaret Hodge (Barking) (Lab)
This is an issue for clarification, because it impacts on whether we move our new clause 59. Will the information that we are now going to get about trustees and beneficiaries be made public? Will it be open to the public in the same way as other information about beneficial owners is open to the public? I ask because that is what our new clause would achieve.
Kevin Hollinrake
I will deal with that, if I can, as I go through. Essentially, trusts are often there to protect the identity of vulnerable persons, so I am not sure that the provision will do what the right hon. Member wants to do in her new clause, but we can probably discuss that when we discuss her new clause.
Kevin Hollinrake
Without regulation 14, if the corporate trustee were not subject to its own disclosure requirements, the overseas entity would have to “look through” the legal entity trustee to find a registrable beneficial owner higher up the chain of ownership. But in the situations we are talking about it is information about the trust that is wanted, rather than information about the ownership or control of the legal entity trustee. Currently, regulation 14 therefore ensures that Companies House, His Majesty’s Revenue and Customs and law enforcement agencies receive the information about the trust and persons connected to it, which I think may be the point that the right hon. Member raises and which is much more useful to meet the aims of the register.
New clause 15 goes further by ensuring that a legal entity acting as a trustee is always a registrable beneficial owner whether or not it is “subject to its own disclosure requirements” and even if there is another registrable beneficial owner further down a chain of ownership. This maximises the transparency in respect of the involvement of a legal entity trust in a chain of ownership.
The provisions also provide a power to expand the description of persons who are registrable beneficial owners where the overseas entity is part of a chain of entities that includes a trustee. It is appropriate to have a power to expand the description, given that there may be complex arrangements that attempt to circumvent the requirements. The provisions revoke regulation 14 because it is no longer needed.
Seema Malhotra
It is a pleasure to make a few remarks on the new clauses which, certainly from the way the Minister has outlined them, are welcome, in that they require more information and transparency around overseas entities. We welcome all the new clauses in that regard. I do not propose to go through them—the Minister went through them in considerable detail—but I have a few comments.
On new clause 13—in fact, in relation to all the new clauses—we welcome the additional transparency. I make the point again that a particular reason for that is the large-scale abuse that we know has occurred and occurs through these rather opaque offshore corporate structures.
On new clause 14, it is welcome to have the threshold at 16 years old, but I want to clarify what that means. Can there technically be a managing officer who is under 16 but an individual who is over 16 and is a contact on their behalf? It would be helpful to know whether there could still technically be an officer who was 12, 13 or 14. It would be useful to have clarity on that.
On closing the potential loophole of beneficial owners avoiding scrutiny by acting as a trustee, it is important to have the information. I want to clarify whether it should be the same amount of information about those who have been avoiding scrutiny as trustees. Will that information be published so that third parties can search it and investigate for themselves?
Kevin Hollinrake
As I understand it, somebody under the age of 16 could be the managing officer, but we still require somebody over the age of 16 to be contactable. That is how we square that particular circle. It is not in our gift to legislate for how other jurisdictions describe directors of companies.
Forgive me, but I missed the hon. Lady’s second point. If she could restate it, I will try to address it.
Seema Malhotra
My second comment was about trustee information. New clause 15 expands the definition of “registrable beneficial owners” in part 1 of the Economic Crime (Transparency and Enforcement) Act 2022 in relation to an entity one of whose beneficial owners is a trustee, such that the beneficial owner may be included. There is also a power to expand that definition further. It looks like it is closing a potential loophole that enables beneficial owners to avoid scrutiny through acting as a trustee. The question was about whether the new information about trustees will also be published, whether there will be full transparency and whether it will be searchable by any interested parties.
Kevin Hollinrake
Okay. That was a similar point to the one made by the right hon. Member for Barking. No, we do not feel that is right. We do not believe that trust information should be made publicly available, given that trusts are often used to protect vulnerable people. I reassure the hon. Lady that that information will be shareable with HMRC, law enforcement and other persons with functions of a public nature once the relevant regulations have been made.
Question put and agreed to.
New clause 12 accordingly read a Second time, and added to the Bill.
New Clause 13
Registration of information about land
“In Schedule 1 to the Economic Crime (Transparency and Enforcement) Act 2022 (required information), in paragraph 2—
(a) in sub-paragraph (1), after paragraph (g) insert—
‘(h) if the entity is the registered proprietor of one or more qualifying estates in land in England and Wales, the title number of each of them;
(b) if the entity is the registered owner of one or more qualifying estates in Northern Ireland, the folio number in respect of each of them;
(c) if the entity is—
(i) entered as proprietor in the proprietorship section of the title sheet for one or more plots of land that are registered in the Land Register of Scotland, or
(ii) the tenant under one or more leases registered in the Land Register of Scotland,
the title number of the title sheet, in respect of each of them, in which the entity’s interest is registered.’;
(b) after sub-paragraph (2) insert—
‘(3) In sub-paragraph (1)(h)—
“registered proprietor”, in relation to a qualifying estate, means the person entered as proprietor of the estate in the register of title kept by the Chief Land Registrar;
“qualifying estate” has the meaning given by paragraph 1 of Schedule 4A to the Land Registration Act 2002.
(4) In sub-paragraph (1)(i)—
“registered owner”, in relation to a qualifying estate, means the person registered in the register kept under the Land Registration Act (Northern Ireland) 1970 (c. 18 (N.I.)) as the owner of the estate;
“qualifying estate” has the meaning given by paragraph 1 of Schedule 8A to the Land Registration Act (Northern Ireland) 1970.
(5) In sub-paragraph (1)(j)—
(a) “lease”, “plot of land” and “proprietor” have the meanings given by section 113(1) of the Land Registration etc. (Scotland) Act 2012;
(b) the reference to an entity’s being entered as proprietor in the proprietorship section of a title sheet is a reference to the name of the entity being so entered.’”—(Kevin Hollinrake.)
This new clause requires an overseas entity, when applying for registration in the register of overseas entities or providing an update, to include the title number etc for relevant interests in land held by it. For entities already registered, it will operate when they next provide an update.
Brought up, read the First and Second time, and added to the Bill.
New Clause 14
Registration of information about managing officers: age limits
“(1) Schedule 1 to the Economic Crime (Transparency and Enforcement) Act 2022 (applications: required information) is amended as follows.
(2) In paragraph 6(1), after paragraph (f) insert—
‘(g) if the officer is under the age of 16 years old, the name and contact details of an individual who is at least 16 years old and is willing to be contacted about the officer.’
(3) In paragraph 7(1), for paragraph (g) substitute—
‘(g) the name and contact details of an individual who is at least 16 years old and is willing to be contacted about the officer.’”—(Kevin Hollinrake.)
This new clause means that, where an application for registration as an overseas entity is required to provide details of a managing officer, there will be a requirement to include the name of an individual who is at least 16 years old and is willing to be contacted about the officer (unless the officer is an individual of at least that age).
Brought up, read the First and Second time, and added to the Bill.
New Clause 15
Registrable beneficial owners: cases involving trusts
“(1) Schedule 2 to the Economic Crime (Transparency and Enforcement) Act 2022 (registrable beneficial owners) is amended in accordance with subsections (2) to (5).
(2) In paragraph 3 (legal entities), in paragraph (b), after ‘(see Part 3)’ insert ‘or is a beneficial owner of the overseas entity by virtue of being a trustee’.
(3) In paragraph 8 (beneficial owners exempt from registration), after paragraph (b) insert—
‘(ba) the person is not a beneficial owner of the overseas entity by virtue of being a trustee,’.
(4) For the heading of Part 6 substitute ‘Powers to amend this Schedule’.
(5) Before paragraph 25 insert—
‘Expansion of meaning of “registrable beneficial owner” where trusts in view
24A (1) The Secretary of State may by regulations amend this Schedule so as to expand the description of persons who are registrable beneficial owners of an overseas entity in circumstances where the overseas entity is part of a chain of entities that includes a trustee.
(2) For these purposes an overseas entity is part of a chain of entities that includes a trustee if there is a legal entity which is a beneficial owner of it by virtue of being a trustee.
(3) Regulations under this paragraph are subject to the affirmative resolution procedure.
Power to amend thresholds etc’.
(6) Regulation 14 of the Register of Overseas Entities (Delivery, Protection and Trust Services) Regulations 2022 (S.I. 2022/870) (description of legal entity subject to its own disclosure requirements) is revoked.”—(Kevin Hollinrake.)
This new clause expands the definition of “registrable beneficial owner” in Part 1 of the Economic Crime (Transparency and Enforcement) Act 2022 in relation to an entity one of whose beneficial owners is a trustee. There is also a power to further expand the definition.
Brought up, read the First and Second time, and added to the Bill.
New Clause 16
Material unavailable for public inspection: verification information
“In section 16 of the Economic Crime (Transparency and Enforcement) Act 2022 (verification of registrable beneficial owners and managing officers), in subsection (2), after paragraph (c) insert—
‘(d) requiring the registrar not to make available for public inspection certain information delivered to the registrar by virtue of the regulations.’”—(Kevin Hollinrake.)
Section 16 of the Economic Crime (Transparency and Enforcement) Act 2022 confers power to make regulations about identity verification. This new clause allows the regulations to provide that information provided under the regulations is protected from public inspection.
Brought up, read the First and Second time, and added to the Bill.
New Clause 17
Material unavailable for public inspection
“For sections 22 to 24 of the Economic Crime (Transparency and Enforcement) Act 2022 substitute—
‘22 Material unavailable for inspection
(1) The following material must not, so far as it forms part of the register, be made available by the registrar for public inspection—
(a) so much of any application or other document delivered to the registrar under section 4, 7 or 9 as is required to contain—
(i) protected date of birth information;
(ii) protected residential address information;
(iii) protected trusts information;
(iv) the name or contact details of an individual provided for the purposes of section 4(1)(d), 7(1)(e) or 9(1)(f) or paragraph 6(1)(g) or 7(1)(g) of Schedule 1;
(v) an overseas entity’s email address (see paragraph 2(1)(e) of Schedule 1);
(vi) any title numbers or folio numbers in respect of land (see paragraph 2(1)(h), (i) and (j) of Schedule 1);
(b) any information that regulations under section 16 provide is not to be made available for public inspection;
(c) the following—
(i) any application or other document delivered to the registrar under regulations under section 25 (regulations protecting material), other than information provided by virtue of section 25(4);
(ii) any information which regulations under section 25 require not to be made available for public inspection;
(d) any application or other document delivered to the registrar under section 28 (administrative removal of material from the register);
(e) any court order under section 30 (rectification of the register under court order) that the court has directed under section 31 is not to be made available for public inspection;
(f) any statement delivered to the registrar by virtue of section 1067A(3) or (4) of the Companies Act 2006 (delivery of documents: identity verification requirements etc);
(g) any statement made in accordance with regulations made by virtue of section 1082(2)(c) of the Companies Act 2006 (statement of unique identifier);
(h) any document provided to the registrar under section 1092A of the Companies Act 2006 (power to require further information);
(i) any email address, identification code or password deriving from a document delivered for the purpose of authorising or facilitating electronic filing procedures or providing information by telephone;
(j) any record of the information contained in a document (or part of a document) mentioned in any of the previous paragraphs of this subsection;
(k) any other material excluded from public inspection by or under any other enactment.
(2) In this section—
“protected date of birth information” means information as to the day of the month (but not the month or year) on which an individual who is a registrable beneficial owner or managing officer of an overseas entity was born;
“protected residential address information” means information as to the usual residential address of an individual who is a registrable beneficial owner or managing officer of an overseas entity;
“protected trusts information” means the required information about a trust (see sections 4(3), 7(3) and (4) and 9(3) and (4).
(3) Information about a registrable beneficial owner or managing officer does not cease to be protected date of birth information or protected residential address information when they cease to be a registrable beneficial owner or managing officer.
(4) Where subsection (1), or a provision referred to in subsection (1), imposes a restriction by reference to material deriving from a particular description of document (or part of a document), that does not affect the availability for public inspection of the same information contained in material derived from another description of document (or part of a document) in relation to which no such restriction applies.
(5) The registrar need not retain material to which subsection (1) applies for longer than appears to the registrar reasonably necessary for the purposes for which the material was delivered to the registrar.
23 Disclosure of protected information
(1) The registrar must not disclose protected date of birth information, protected residential address information or protected trusts information unless—
(a) the disclosure is permitted by section 1110F of the Companies Act 2006 (general powers of disclosure by the registrar), or
(b) the information is required to be made available for public inspection (as a result of being contained in a document, part of a document, or record to which section 22(1) does not apply).
(2) In this section the following have the meaning given by section 22(2)—
“protected date of birth information”;
“protected residential address information”;
“protected trusts information”.’”—(Kevin Hollinrake.)
This new clause replicates for the register of overseas entities a number of changes made by the Bill in relation to companies. It also extends the list of information unavailable for public inspection.
Brought up, read the First and Second time, and added to the Bill.
New Clause 18
Protection of information
“For section 25 of the Economic Crime (Transparency and Enforcement) Act 2022 substitute—
‘25 Power to make regulations protecting material
(1) The Secretary of State may by regulations make provision requiring the registrar, on application—
(a) not to make available for public inspection any information on the register relating to an individual;
(b) to refrain from disclosing information on the register relating to an individual except in specified circumstances;
(c) not to make available for public inspection any address on the register that is not information to which paragraph (a) applies;
(d) to refrain from disclosing any such address except in specified circumstances.
(2) The regulations may make provision as to—
(a) who may make an application;
(b) the grounds on which an application may be made;
(c) the information to be included in and documents to accompany an application;
(d) the notice to be given of an application and of its outcome;
(e) how an application is to be determined;
(f) the duration of, and procedures for revoking, any restrictions on the making of information available for public inspection or its disclosure.
(3) Provision under subsection (2)(e) or (2)(f) may in particular—
(a) confer a discretion on the registrar;
(b) provide for a question to be referred to a person other than the registrar for the purposes of determining the application or revoking the restrictions.
(4) Regulations under subsection (1)(a) or (1)(c) may provide that information is not to be made unavailable for public inspection unless the person to whom it relates provides such alternative information as may be specified.
(5) The circumstances that may be specified under subsection (1)(b) or (d) by way of an exception to a restriction on disclosure include circumstances where the court has made an order, in accordance with the regulations, authorising disclosure.
(6) Regulations under subsection (1)(b) or (d) may not require the registrar to refrain from disclosing information under section 1110F of the Companies Act 2006 (general powers of disclosure by the registrar).
(7) Regulations under this section may impose a duty on the registrar to publish, in relation to such periods as may be specified—
(a) details of how many applications have been made under the regulations and how many of them have been allowed, and
(b) such other details in connection with applications under the regulations as may be specified in the regulations.
(8) Regulations under this section are subject to affirmative resolution procedure.’”—(Kevin Hollinrake.)
This new clause replicates for the register of overseas entities the provision made by clause 87 of the Bill in relation to companies.
Brought up, read the First and Second time, and added to the Bill.
New Clause 19
Resolving inconsistencies in the register
“(1) Section 27 of the Economic Crime (Transparency and Enforcement) Act 2022 (resolving inconsistencies in the register) is amended as follows.
(2) For subsections (1) and (2) substitute—
‘(1) Where it appears to the registrar that the information contained in a document delivered to the registrar by an overseas entity in connection with the register is inconsistent with other information contained in records kept by the registrar under section 1080 of the Companies Act 2006, the registrar may give notice to the overseas entity to which the document relates—
(a) stating in what respects the information contained in it appears to be inconsistent with other information in records kept by the registrar under section 1080 of the Companies Act 2006, and
(b) requiring the overseas entity, within the period of 14 days beginning with the date on which the notice is issued, to take all such steps as are reasonably open to it to resolve the inconsistency by delivering replacement or additional documents or in any other way.
(2) The notice must state the date on which it is issued.’
(3) In the heading, omit ‘in the register’.”—(Kevin Hollinrake.)
This new clause makes changes for the purpose of resolving inconsistencies in information relating to overseas entities that corresponds to the changes made by clause 81 of the Bill in relation to companies.
Brought up, read the First and Second time, and added to the Bill.
New Clause 20
Administrative removal of material from register
“(1) In the Economic Crime (Transparency and Enforcement) Act 2022—
(a) for section 28 substitute—
‘28 Administrative removal of material from the register
(1) The registrar may remove from the register anything that appears to the registrar to be—
(a) a document, or material derived from a document, accepted under section 1073 of the Companies Act 2006 (power to accept documents not meeting requirements for proper delivery), or
(b) unnecessary material as defined by section 1074 of the Companies Act 2006.
(2) The power to remove material from the register under this section may be exercised—
(a) on the registrar’s own motion, or
(b) on an application made in accordance with regulations under section 28A(2).
(3) The Secretary of State may by regulations provide that the registrar’s power to remove material from the register under this section following an application is limited to material of a description specified in the regulations.
(4) Regulations under this section are subject to the negative resolution procedure.
28A Further provision about removal of material from the register
(1) The Secretary of State must by regulations make provision for notice to be given in accordance with the regulations where material is removed from the register under section 28 otherwise than on an application.
(2) The Secretary of State must by regulations make provision in connection with the making and determination of applications for the removal of material from the register under section 28.
(3) The provision that may be made under subsection (2) includes provision as to—
(a) who may make an application,
(b) the information to be included in and documents to accompany an application,
(c) the notice to be given of an application and of its outcome,
(d) a period in which objections to an application may be made, and
(e) how an application is to be determined, including provision as to evidence that may be relied upon by the registrar for the purposes of satisfying the test in section 28(1).
(4) The provision that may be made by virtue of subsection (3)(e) includes provision as to circumstances in which—
(a) evidence is to be treated by the registrar as conclusive proof that the test in section 28(1) is met, and
(b) the power of removal must be exercised.
(5) Regulations under this section are subject to the negative resolution procedure.’;
(b) omit sections 29 and 29A (application to rectify register and resolution of discrepancies).
(2) In section 1073 of the Companies Act 2006 (power to accept documents not meeting requirements for proper delivery), in subsection (6)(a), after ‘section 1094A(1)’ (inserted by section 82 of this Act) insert—
‘or any corresponding provision of any other enactment’.”—(Kevin Hollinrake.)
This new clause replicates for the register of overseas entities the changes that clause 82 of the Bill makes in relation to the register of companies.
Brought up, read the First and Second time, and added to the Bill.
New Clause 21
Enforcement of requirement to register: updated language about penalties etc
“(1) The Economic Crime (Transparency and Enforcement) Act 2022 is amended as follows.
(2) In section 34 (power to require overseas entity to register if it owns certain land)—
(a) in subsection (4)(a), for ‘the maximum summary term for either-way offences’ substitute ‘a term not exceeding the general limit in a magistrates’ court’;
(b) omit subsection (5).
(3) In section 36 (meaning of ‘daily default fine’) after ‘applies for’ insert ‘the’.”—(Kevin Hollinrake.)
This new clause updates the penalty provision for the offence in section 34 of the Economic Crime (Transparency and Enforcement) Act 2022 to reflect changes made by the Judicial Review and Courts Act 2022. This ensures consistency with the language that clauses 136 and 137 introduce into the 2022 Act.
Brought up, read the First and Second time, and added to the Bill.
Ordered, That further consideration be now adjourned. —(Scott Mann.)
Economic Crime and Corporate Transparency Bill (Seventeenth sitting)
Thursday 24th November 2022
(1 year, 12 months ago)
Public Bill CommitteesRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 24 November 2022 - (24 Nov 2022)
The Committee divided: - Ayes: 7 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 7 / Noes: 9 - Question accordingly negatived.
Alison Thewliss (Glasgow Central) (SNP)
I beg to move, That the clause be read a Second time.
The new clause is designed to ensure disclosure of information relating to bank accounts held by subscribers to a memorandum of association. Like many of the amendments that the Opposition have proposed, it is aimed at tightening up loopholes, making things just that wee bit more transparent, and flagging up any issues to Companies House. The issue of bank accounts and people carrying on business at a particular address in the UK has been discussed previously. Adding a bank account to that, so that one can go, “This is a bank account. This bank account is held in the UK,” and one can find that account quite easily as a result, seems to be a sensible way to close down yet another loophole in the Bill. It will continue the jurisdiction of the issuing bank of each account, which goes to some of the other points made about Companies House registration being used and abused as a means of setting up bank accounts in other jurisdictions. People were abusing the veneer of respectability afforded to them by a company registration in the UK to then set up bank accounts in other countries, which affects those other countries through the perpetration of fraud or dubious activities in those countries by those using that Companies House veneer of respectability.
The new clause would provide a bit more transparency by giving the company registrar more information, which would be useful in terms of those red flags and making it clear where companies are actually based and carrying on their business. If, for example, a company’s bank account is held in Mauritius and it claims to carry out its business in the UK, Companies House could query that and ask, “If you are really carrying on your business in the UK, why is your bank account held in Mauritius?” That would be a red flag for the registrar and would be an extra small but significant hoop that a company would have to jump through to make the situation clearer and to give Companies House a bit more reassurance that the business that is registering is indeed legitimate. It adds a helpful grip within the system, and helps Companies House to identify any red flags. I urge the Minister to consider whether this is a measure that would help Companies House in its work.
Stephen Kinnock (Aberavon) (Lab)
It is a pleasure to serve under your chairship, Sir Christopher. New clause 24, tabled by SNP Members, would add to the transparency of the companies register and enhance the ability of law enforcement to identify suspect registrations. It would do so by requiring the subscribers or initial shareholders of a company to provide information on the location of any bank account held either by the individual shareholders or in the name of the company itself.
The new clause reflects an acknowledgement of the realities that have been exposed by many of the recent leaks and investigative reporting by the media of the widespread criminal use of bank accounts registered in jurisdictions known for exercising minimal oversight over financial activity and for lax controls on money laundering offences. Given that the entire point of the Bill is to clamp down on the ability of criminals to exploit gaps in laws and regulatory approaches to economic crime across different countries, the Opposition sincerely hope that the Government welcome proposals that are intended to provide law enforcement with as much information as possible to facilitate the detection of economic crime. Requiring Companies House to record information on the location of relevant individuals’ bank accounts seems like an eminently reasonable measure that could make a valuable contribution to the fight against economic crime.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
It is a pleasure to serve with you in the Chair, Sir Christopher. I thank the hon. Member for Glasgow Central for the new clause, which raises an interesting point. I have concerns about the privacy issues involved in putting this information in the public domain, and I wonder whether she has considered that. We are potentially talking about personal bank accounts rather than company bank accounts.
A similar proposal to require the disclosure of bank account information relating to companies was included in the 2019 corporate transparency and register reform consultation, as the hon. Member mentioned. Respondents did not on balance support the proposal and the Government subsequently agreed that the proposal did not offer sufficient benefits to justify the additional burden being imposed on companies. There is also concern that there would be practical difficulties with implementation, such as the inability to confirm information provided, or to identify where it is missing, which would reduce the effectiveness of the proposal.
There are some other measures we can use. The European Union’s fifth anti-money laundering directive required the UK to build a centralised automated mechanism, a bank account portal, designed to help law enforcement and AML supervisors to access information on the identity of holders and beneficial owners of bank accounts and safe deposit boxes. Following the UK’s exit from the EU and the agreement of the trade and co-operation agreement in January 2021, the Government reviewed the case for building the portal. At that point, law enforcement did not believe there was a strong rationale for an alternative, centralised mechanism in order to support its work and the Government concluded that we should not build a bank account portal. UK money laundering regulations have been amended to remove redundant obligations.
I would be grateful if the hon. Member withdrew her amendment, but I would like to explore the issue further, certainly as it relates to company bank accounts, so we will perhaps return to it at a later stage.
Alison Thewliss
I thank the Minister for his consideration of this proposal. I would be interested to know what has changed since the previous consideration was arrived at that such provisions were not necessary. He suggests he will weigh that up and perhaps bring forward some amendments on Report, I beg to ask leave to withdraw the amendment.
Clause, by leave, withdrawn.
New Clause 26
Reporting requirement (objectives)
“(1) The Secretary of State must publish an annual report assessing whether the powers available to the Secretary of State and the registrar are sufficient to enable the registrar to achieve its objectives under section 1081A of the Companies Act 2006 (inserted by section 1 of this Act).
(2) Each report must make a recommendation as to whether further legislation should be brought forward in response to the report.
(3) Each report must provide a breakdown of the registrar’s annual expenditure.
(4) Each report must provide annual data on the number of companies that have been struck-off by the registrar, the number and amount of fines the registrar has issued, and the number of criminal convictions made as a result of the registrar’s powers as set out in this bill.
(5) Each report must provide annual data on the number of cases referred by the registrar to law enforcement bodies and anti-money laundering supervisors.
(6) Each report must provide annual data on the total number of company incorporations to the registrar, and the number of company incorporations by Authorised Company Service Providers to the registrar.
(7) The first report must be published within one year of this Act being passed.
(8) A further report must be published at least once a year.
(9) The Secretary of State must lay a copy of each report before Parliament.”—(Seema Malhotra.)
This new clause would add a requirement on the Secretary of State to report on the powers available to the Secretary of State, the Department for Business, Energy and Industrial Strategy, and Companies House in relation to the registrar’s powers to achieve their objectives set out in clause 1.
Brought up, and read the First time.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
I beg to move, That the clause be read a Second time.
The Chair
With this it will be convenient to discuss the following:
New clause 28—Reporting requirement (strike-off powers)—
“(1) Within one year of the day on which this Act is passed, and every three years thereafter, the Secretary of State must publish a report on the powers available to the Secretary of State and the registrar in relation to the registrar’s powers under this Act to strike off a company.
(2) Each report in subsection (1) must include but is not limited to—
(a) whether the appropriate mechanisms are available to the Secretary of State to prosecute directors of companies struck off the Companies House register in relation to the Act, and to recoup money on behalf of creditors, and
(b) how much money has been returned to creditors as a result of the Act’s provision for the registrar to strike a company’s name off the register if the company does not change its address from the default address, including the proportion of this money returned to the Government.
(3) Each report must make a recommendation as to whether further legislation should be brought forward in response the report.”
This new clause would add a requirement on the Secretary of State to report on the powers available to the Secretary of State, the Department for Business, Energy and Industrial Strategy, and Companies House in relation to the strike-off provisions in this Act.
New clause 63—Annual report on activity under this Act—
“(1) The registrar must publish an annual report on the implementation of, and activities under, the provisions of this Act which are relevant to the work of the registrar.
(2) The report mentioned in subsection (1) must include, but need not be limited to—
(a) information on the use of the registrar’s powers under this Act, including in relation to—
(i) financial penalties imposed, and
(ii) the number of cases of unlawful activity or suspected unlawful activity identified by the registrar;
(b) details of the steps the Registrar has taken to promote the registrar’s objectives under this Act; and
(c) the use of exemption powers for the Secretary of State introduced by this Act.
(3) The first report under subsection (1) must be published within six months of the date on which this Act receives Royal Assent.”
Seema Malhotra
It is a pleasure to serve under your chairship today, Sir Christopher, and to speak to new clauses 26, 28 and 63, which stand in my name and that of my hon. Friend the Member for Aberavon. They draw together conversations we have had in Committee about the importance of transparency and feedback on the powers and measures in the Bill and would provide Parliament with a means of interrogating their effectiveness.
New clause 26 would introduce a reporting requirement in relation to the objectives in the Bill. The Secretary of State would be required to report on the effectiveness of the powers available to the registrar to achieve her objectives as set out in clause 1. To coin a phrase for which the Minister may want to take credit, what is the point of legislation without good implementation? I think we are all agreed on that point. It is therefore important to ask: how is Parliament going to know? How are we going to spot any issues? How will we know that either further measures need to be developed or new powers need to be brought in? The new clause would provide a way for us to have that transparency and feedback.
We have done our best to draft the new clause in such a way that the Minister will be able to simply accept it or come back to us with what he thinks needs amending. Importantly, it would require the Secretary of State to
“publish an annual report assessing whether the powers available to the Secretary of State and the registrar are sufficient to enable”
Companies House to achieve its objectives. Each report would make a recommendation as to whether further legislation should be introduced in response to the report and provide a breakdown of the registrar’s annual expenditure, alongside data on the number of companies that have been struck off by the registrar, the number and amount of fines the registrar has issued and the number of criminal convictions resulting from the application of the registrar’s powers as set out in the Bill. It would also provide data on the number of cases referred by the registrar to law enforcement bodies and anti-money laundering supervisors, which is extremely important.
We need to know what has emerged from the system in order to be able to interrogate how well referrals have been taken forward and how quickly and effectively that was done. Without that information, it will be much harder to interrogate what is happening on the other side and the effectiveness of law enforcement, which has been raised during our deliberations as a real weak point in our system that needs toughening up, strengthening and supporting with the resources required. New clause 26 is important to enable adequate parliamentary scrutiny and have the ongoing debate in Parliament about the effectiveness of the measures we are passing.
New clause 63 would introduce a similar reporting requirement in relation to the registrar’s general activity in the Bill. We have laid out some of the measures, including financial penalties imposed, the number of cases of unlawful activity or suspected unlawful activity identified by the registrar, and
“the use of exemption powers for the Secretary of State introduced by this Act”.
The report does not necessarily need to specify details of what has been exempted, but it is important that Parliament has an understanding of the use of those powers, the number of times they are used, and so on. We suggest that this second report is published within six months of the Bill receiving Royal Assent.
Turning to new clause 28, the registrar’s new powers include the ability to change the address of a company’s registered office where the registrar is satisfied that the company is not authorised to use the address. The Government say the registrar will have the power to change a company’s address to Companies House’s own address and then to strike the company off the register. Currently when fraudulent companies are struck off the register, there is little due diligence done, and I know the Minister has expressed concern about this matter. It does not result in significant repercussions for the directors of a company, and a huge number of companies—nearly 400,000 a year—are struck off because they have failed even to file accounts. Directors are not investigated for misconduct or held accountable, and we know these issues have been raised by R3 and others.
Alison Thewliss
I rise to support the new clauses in the name of the official Opposition, because Parliament will need to keep a close eye on how a lot of things in this Bill are being implemented and whether they are effective at tackling economic crime. We had a lot of debate in previous sessions about powers versus duties in the Bill and said, “If they are powers, that is one thing but if they are duties, that is quite another.” If these powers are being exercised, we need to be certain of that and keep a close eye on this Bill. These useful new clauses would allow Parliament to keep a close eye on these things, because they would require the Secretary of State to publish these annual reports to give more granular and specific detail on whether the measures brought forward in the Bill are being used and are effective.
Dame Margaret Hodge (Barking) (Lab)
It is a pleasure to serve under your chairship, Sir Christopher. I rise to make the simple point that the new clause is not a technical amendment; it is about an issue of principle. It is about transparency and accountability. It is not a provision that improves things at the margin; it is about making the legislation fit for purpose. Without it, the legislation will not be fit for purpose.
Throughout my history of learning about dirty money and money laundering, it has been absolutely clear to me that we have a range of tools already in legislation. As we do not have any accountability to Parliament as to how and whether those tools are employed, we do not know how effective we are in the battle against dirty money. Let me give three examples. There is now a new bit of legislation on unexplained wealth orders; it is the first time that I have known Ministers to agree to an annual report to Parliament. They agreed to it when we did the emergency legislation. I have been arguing for that for years, so I was pleased to see it, but until that moment we did not know, and we have not seen the report yet.
A better example is golden visas. We are still waiting for the report on golden visas, how they were abused, misused and used during that period, and who was let into the country on one. Another example is the amount of money that has been frozen from people who have been sanctioned by this Government. We do not have a clue how much that is. The Government put out a figure the other day for how much Russian state money had been frozen—£18 billion—but we do not have a clue how much money we have managed to get off some of the characters we know are sitting on billions.
If there is going to be effective legislation, we need clear transparency and proper accountability. That is something that the Opposition feel incredibly strongly about. We will be pressing the new clause to a Division, because it is a sensible, pragmatic and practical provision that should be in the Bill.
Kevin Hollinrake
I thank the hon. Members for Feltham and Heston and for Aberavon for tabling their new clause. I also thank the right hon. Member for Barking and the hon. Member for Glasgow Central for their contributions. I agree with much of what they said. As they know, I fully agree that Parliament should be regularly updated on the implementation and impact of this legislation. What gets measured gets done, and it is vital that we know what is being done with this legislation.
I will speak to new clauses 26 and 28 first, because I think there may be a duplication of things that exist already. Much of the information suggested by new clause 26, such as Companies House expenditure and the numbers of companies incorporated and struck off, is already published in the Companies House annual report. Companies House already reports publicly on its activities and its regular statistical releases on gov.uk. On new clause 28, through dissolution a company is brought to a point at which it ceases to exist and ceases to appear on the register. A company can seek its own voluntary strike-off, or it can be struck of compulsorily by the registrar. In principle, that process takes place when there is reason to believe that the company is no longer in operation or carrying on business. In both cases, statutory processes ensue whereby the public generally are informed that the dissolution is in train by publications in the Gazette. There are opportunities for third parties to intervene and object to a company being dissolved.
Concerns have been expressed that unscrupulous companies choose to give the impression that they are defunct in order to precipitate their dissolution and evade creditors. That concern is ultimately misplaced, as any assets left in a company following its dissolution will not be held by the company any more, and will be passed to the Crown, bona vacantia—as ownerless property. It is also important to note the effects of the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021, which amended the Company Directors Disqualification Act 1986 by introducing a mechanism for disqualifying directors of dissolved companies.
It is also worth noting that the 1986 Act includes provision not only for disqualifying directors but for ordering disqualified directors to pay compensation. That provision is in section 15A of the Act and, as amended by the 2021 Act, covers directors of both insolvent companies and dissolved companies. If a director is disqualified and the conduct for which they were disqualified caused loss to the creditors of an insolvent or dissolved company, the director can be ordered to pay compensation either for the benefit of specified creditors or by way of a contribution to the assets of the company.
The Bill introduces a new circumstance under which the registrar might seek to strike off a company that persistently fails to provide an appropriate registered office address. I assure Members that the registrar will initiate dissolution in those particular circumstances only after having assessed the risks of doing so. The normal notification procedures, by way of the Gazette and Companies House webpages, will apply.
As noted, Companies House already makes data on company dissolutions regularly available. I question what benefit the reporting proposed by the new clause would add, as it is not clear to me that the information it covers would necessarily be available to the Secretary of State. However, I acknowledge the concern about the manner in which compulsory strike-off operates. I have asked my officials to advise me on the extent to which the Bill’s new information-sharing provisions might improve safeguards and transparency in this area. I am of course happy to engage further with Members on this topic in due course.
Most of the comments related to new clause 63. I absolutely agree that there needs to be a mechanism by which progress made on the implementation of the provisions in the Bill is reported to Parliament. There should be regular reporting on the registrar’s use of the new powers. I also accept that it is important to give Parliament an early opportunity to scrutinise how quickly Companies House implements the reforms.
I believe, however, that the new clause requires further consideration. As drafted, it has the potential to place unintended obligations on the registrar. For example, it will require the registrar to report on the imposition of financial penalties before the commencement date of the regulations. It also requires the registrar to indefinitely report on the implementation of the legislation, even if it is completed in the near future.
With the agreement of the Committee, I would like to ask my officials to consider the new clause further. I hope Members are reassured that we will give it consideration. If the new clause is withdrawn, we will have further discussions about what we might put in its place.
Seema Malhotra
I thank the Minister for his comments about the new clauses. I appreciate his response on new clause 63 and very much look forward to hearing from his officials about the proposed reports, but will he tell us when we will hear from them? None of us wants the measure to be lost in the course of proceedings, and we do not want it to be left to the Lords, so I would be grateful if he can tell us when he expects us to hear a response. Assuming that it will be positive, I am happy not to press new clause 63 to a vote.
On new clause 26, the Minister did not respond with the detail that I was expecting. I understand that some data is already published. We can have an argument about whether it is there, but it is easy for there to be a summary. If Parliament is looking at one document, it will want that data. It will want to review the later data in the context of the more procedural data that Companies House already publishes. I cannot see that it is onerous to publish a summary of data that already exists.
Dame Margaret Hodge
In the Minister’s response to my hon. Friend, he said that there was duplication of subsections (1) and (3). All the other things that were listed in subsections (4), (5), (6), (7), (8) and (9) are issues on which we want an annual report to Parliament because that shows us whether the legislation is working. If there is duplication, it is not the end of the world. There is a lot of duplication in our legislation—I am sure, Sir Christopher, that you are an expert on that—but that is not a sufficient argument to put the whole new clause out of the Committee’s consideration.
Seema Malhotra
My right hon. Friend is absolutely right; indeed, that is precisely where my concerns lay. The Minister simply talked about the relatively small part of the reporting requirement. If there were an argument as to whether to include it or not, my argument would continue to be that that is relevant to have in the context of the full reporting requirement that we are arguing for. There is not anywhere else in the legislation—unless the Minister can direct me to it—that will provide Parliament with such a report.
Kevin Hollinrake
Just to abbreviate the debate, much of the information in new clause 26 is already reported by Companies House in its annual report. I think it is being said that the key measures are the additional ones in new clause 63, which relate to what the Bill’s provisions will give effect to. I am happy to return to the Committee before Report to say where we feel the new clause needs to be addressed. If we do not do it at that point, the hon. Lady is welcome to table an amendment on Report.
Seema Malhotra
I thank the Minister. To clarify, he referred to coming back on new clause 63; my question is in relation to new clause 26 and whether and how the later subsections are all going to be covered by the Companies House annual report. It would be helpful if he responded to that, because currently I am not clear that they are all covered.
In new clause 26, we are asking for an assessment of whether
“the powers available to the Secretary of State and the registrar are sufficient to enable the registrar to achieve its objectives”
and about
“making recommendations as to whether further legislation should be brought forward in response to the report.”
Yes, there may be details elsewhere, but they could be summarised for the ease of use of the report. The new clause requires
“a breakdown of the registrar’s annual expenditure”
and
“data on the number of companies struck off”.
That information may well also be elsewhere. Will the Minister confirm whether
“the number of cases referred by the registrar to law enforcement bodies and anti-money laundering supervisors”
and so on is all going to published elsewhere?
Dame Margaret Hodge
May I also draw the Minister’s attention to new clause 26(6), which is important? It asks for an annual report of the total number of companies incorporated to the registrar and
“the number of company incorporations by Authorised Company Service Providers”.
The purpose of that particular bit of information relates to our concern about the integrity and honesty of company service providers. I do not believe that is covered in the Companies House report. I accept that there may be some duplication—we got that wrong—but there are issues of huge importance in terms of accountability and the integrity of the data that we would lose if new clause 26 were simply ignored.
Seema Malhotra
I thank my right hon. Friend for explicitly emphasising the importance of subsection (6). She is absolutely right. The Minister will be mindful of the importance of transparency in respect of the issues relating to incorporations by authorised company service providers. Will he confirm that all the subsections in new clause 26 will be explicitly covered elsewhere? If not, we will want to pursue the matter of how that information is going to be published by Companies House and the Secretary of State.
Kevin Hollinrake
Nobody is ignoring the comments that have been made. Nobody is keener than I am to make sure that there is proper scrutiny of what Companies House does with the powers. We should absolutely ensure that.
On the requirement for the Secretary of State to report on the use of the powers, any Secretary of State appointed by any Government, be they Labour or Conservative, will of course always review the powers needed and whether there is a need to legislate further. It is not right to dictate in legislation that the Secretary of State should do this, that or the other and I would not expect any Opposition to require that.
Companies House already reports on the number of companies incorporated and struck off—that is already in the annual report. It is an interesting point about corporate service providers; the right hon. Member for Barking has concerns in that regard, and I do too. I suggest that I should look at the matter further with officials and come back to the hon. Member for Feltham and Heston well in advance of Report—outside the tabling time—and if we are not going to do anything, she can table a similar new clause. If we are going to do something, that might address her concerns or she might need to go further. Those options are open to her and I hope she will give us time to try to address these matters to the House’s satisfaction.
Seema Malhotra
I thank the Minister for his comments. He has said he will review the issues addressed in new clauses 26 and 63 with his officials. There may well be areas in which, on further reflection, he agrees with us that more could be done.
On the Minister’s comment about the Secretary of State being able to introduce legislation at any time, the point that was missed was that we know the speed with which we have to respond to economic crime. If we think back to 2016, we can see that we did not act fast enough—we have not acted fast enough in the past six years—so there is strong merit in having a mechanism that speeds up any requirements for future legislation through a report that can be reviewed and followed up on.
If the Minister is committing to review the matter and come back to us, we accept that. We would like to be involved in the discussions, perhaps after he has had an initial discussion with his officials. If there is a way to move forward with consensus, perhaps prior to Report, that could be a positive way forward. I therefore beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 29
Report into the merits of a fund for tackling economic crime
“(1) The Secretary of State must produce a report into the merits of a fund for tackling economic crime.
(2) The report must consider the case for penalties paid to the registrar to be ringfenced and used solely for the purposes of tackling economic crime.
(3) The report must be laid before Parliament within six months of this Act being passed.”—(Dame Margaret Hodge.)
This new clause requires a report into the merits of a fund for tackling economic crime to be laid before Parliament.
Brought up, and read the First time.
Question put, That the clause be read a Second time.
Seema Malhotra
On a point of order, Sir Christopher, is it procedurally correct for my right hon. Friends the Members for Birmingham, Hodge Hill and for Barking to speak before I make my comments?
The Chair
People can speak in whichever order they wish. If the right hon. Lady and the right hon. Gentleman rise before you do, I will call them first. Let’s suck it and see.
New Clause 44
HMRC anti-money laundering function
“(1) The Commissioners of Revenue and Customs Act 2005 is amended as follows.
(2) After section 5 (Commissioners’ initial functions), insert—
‘5A Commissioners’ Anti-Money Laundering Functions
(1) The Commissioners shall be responsible for anti-money laundering supervision.
(2) The Commissioners shall treat the function in subsection (1) as a priority equal to the functions in section 5.’”—(Dame Margaret Hodge.)
This new clause would require HMRC to prioritise its AML supervisory function.
Brought up, and read the First time.
The Chair
With this it will be convenient to discuss new clause 72—Office for Professional Body Anti-Money Laundering Supervision: powers and duties—
“(1) The Secretary of State must by regulations set out a further power and duty for the Office for Professional Body Anti-Money Laundering Supervision.
(2) The power referred to in subsection (1) is the power to impose unlimited financial penalties on Professional Body Supervisors that fail to—
(a) adopt an effective risk-based approach to anti-money laundering supervision;
(b) impose proportionate and dissuasive sanctions for non-compliance with anti-money laundering requirements; and
(c) fail to separate their advocacy and regulatory functions.
(3) The duty referred to in subsection (1) is the duty to publish the details of any sanctions imposed on Professional Body Supervisors, and its reviews of Professional Body Supervisors with data disaggregated by body rather than by sector.”
Dame Margaret Hodge
I will speak to new clause 72 first and come back to new clause 44. The Minister and the Government will know that time and again we have said we are concerned about the way in which professionals are checked, supervised and regulated in the financial services sector and that the current system is not fit for purpose. I think we all recognise that it is the professionals who play a key role in enabling the fraudsters and money launderers to successfully commit economic crimes. It is they who either facilitate, collude in or enable the wrongdoing.
Kevin Hollinrake
Can I just say something from my own business experience? We had two very thorough inquiries from HMRC, which spent days in our office looking at our money laundering procedures. I am pleased to say that we passed the test, but HMRC really does take its job seriously.
Dame Margaret Hodge
I do not know whether I have the quote here from the previous HMRC permanent secretary—I will dig it up and send it to the Minister—but he actually said, in evidence to the Treasury Committee I think, that he did not quite understand why it was part of his job to do the supervision. I am not quoting him accurately, but the purport of what he said was that they see it as marginal and a sort of add-on—I think he used the word “add-on”—to their main function, which is to get the money in.
The position and reputation that professionals enjoy through membership of professional bodies is really important. Therefore, the professional bodies themselves should be taking steps to minimise and attack suspicious activity where it takes place, and they should be calling it out. It is in everybody’s interest to get the bad apples.
Let me give some evidence of the current failings as we see them. The 2021 review of OPBAS—the body responsible for all the professional bodies—found that 81%, or eight out of 10, were not supervising their members effectively. This review was done only on the legal and accountancy professions. Half the supervisors did not ensure that their members were taking timely action to improve their money laundering procedures where they were found wanting. A third of the supervisors did not have effective separation between the advocacy role and the supervision role, which I think is an important aspect. For a proper review, one would separate bodies undertaking supervision and bodies undertaking advocacy to ensure there is no conflict of interest.
Some 60% of the firms visited by the Solicitors Regulation Authority in 2021 were failing to comply fully with their duties to have adequate AML controls in place. OPBAS found that nine supervisory bodies of MLR are engaging in what it calls “low levels of enforcement”. The way in which those bodies respond when they find something going on is to have a quiet chat rather than issue fines and publicly censure lawyers for breaching the MLR rules. The highest ever AML fine for a law firm by the SRA was £232,500, and it was for Mishcon. If that fine had been levied by the FCA under similar powers, it would have been £5.4 million.
The Council for Licensed Conveyancers, another group of professionals who are active in this area, imposed zero fines, despite finding that two out of three of the firms it is responsible for supervising were non-compliant with AML regulations in 2019-20. To use another example, the Law Society of Northern Ireland imposed just one fine—of £1,750—in the year 2019-2020, despite it finding 228 cases of non-compliance. That is a considerable body of evidence, if I may say so, that shows that the current system is broken and not fit for purpose.
The Chartered Institute of Taxation, a group I work with a lot, found that a third of the firms visited were non-compliant, but only four firms were disciplined for failure to provide renewal forms by the required deadline and fined for failure to submit appropriate criminality check certificates or to deal with the action points that had been raised with them in the review by CIOT of their AML procedures. In three of the four disciplinary cases by CIOT, a financial penalty was imposed, and only in the fourth was the member suspended.
I know that the Government are looking at the supervisory framework but, as is the way with Governments, that could take forever. We want to implement these reforms swiftly, so we must have some assurance and confidence, particularly because of the outsourcing of the checks on individual companies, that the professionals will seek out the miscreants in their profession. We cannot wait for the review, to put it bluntly. With these measures, we have taken the least of all the options the Government have put forward and proposed it for legislation. If the Government, on reflection, want to come back with a tougher regime, that is fine, but at least we would have the minimum in place as we enact the legislation and the reform of Companies House. Our new clause says, “Action now. Toughen up the powers and duties of OPBAS—introduce greater transparency into the system, and comeback if that is needed.” We are suggesting new powers and duties for OPBAS. The power is
“to impose…financial penalties on Professional Body Supervisors that fail to…adopt an effective risk-based approach to anti-money laundering supervision…impose proportionate and dissuasive sanctions for non-compliance…and…separate their advocacy and regulatory functions.”
This is minimal, sensible and desperately needed now if we are to go ahead, with the speed that we all want, with the implementation of the legislation.
Seema Malhotra
I do not propose to spend much time speaking in support of the new clauses. The arguments made by my right hon. Friend the Member for Barking have broadly said it all. She highlighted the high levels of non-compliance, the very low levels of fines and disciplinary measures, and the frustration of the sectors in terms of tools to really root out the rogue players who need action taken against them. The new clauses would be very effective and are much needed, for the reasons outlined—in trying to get action now, toughening up powers and providing greater transparency. For the reasons that I have outlined, I totally agree that the Bill is the right place for these measures. We should not have to wait and wait and wait for what is likely to come and will almost certainly draw the same conclusions.
New clause 44 would have the effect of amending the Commissioners for Revenue and Customs Act 2005 such that the commissioners would be responsible for anti-money laundering supervision, and it states:
“The Commissioners shall treat the function in subsection (1) as a priority”.
New clause 72 would introduce provisions requiring the Secretary of State, by regulations, to set out a further power and duty for the Office for Professional Body Anti-Money Laundering Supervision. This is defined as
“the power to impose unlimited financial penalties on Professional Body Supervisors that fail”—
that fail—
“to…adopt an effective risk-based approach to anti-money laundering supervision…impose proportionate and dissuasive sanctions for non-compliance with anti-money laundering requirements …and …separate their advocacy and regulatory functions.”
We want stronger action taken against economic crime, not least because we know the scale at which it comes through the cracks, with the damage that it does to our economy. It seems to me that tightening up the roles and the performance of professional body supervisors and HMRC in some way is an opportunity that we should not miss.
The proposed clause would also insert a duty
“to publish the details of any sanctions imposed on Professional Body Supervisors, and…reviews of Professional Body Supervisors with data disaggregated by body rather than by sector.”
The sum of the two new clauses is to ensure the urgent improvement of the UK’s anti-money laundering sector. Throughout our witness sessions and Committee debates, we have heard about the lack of effectiveness of our AML system. I think that is a view also supported by the Minister. The changes are a much-needed strengthening and safeguarding against potentially rogue corporate service providers, the third parties who act on behalf of companies and can carry out the identity verification of directors.
Alison Thewliss
I support the new clauses. The anti-money laundering supervisory duties are incredibly important, as they are part of firmly closing the door on economic crime. It is important that we use this opportunity to strengthen the powers in the Bill. Frankly, if we do not do it now, when will we get round to it again?
New clause 44 asks HMRC to prioritise its AML supervisory function. That seems sensible. I would note that some additional resources will be needed; the Treasury Committee’s economic crime report points to the fact that some 30,000 businesses fall into this bracket.
I note the ongoing review of OPBAS. I do not want the Minister to get ahead of the review, but it might be useful to get a perspective on the direction of travel. At the most extreme end of that review—the Committee heard evidence on this point recently—the Government could propose that OPBAS loses its AML supervisory function. It would be interesting to hear the Minister’s perspective on where he thinks the review will end up. It is quite awkward that the review does not tie in with the Bill’s timetable: the review is ongoing, we are legislating here and we do not quite know where it will end up.
I wonder whether the Minister could clarify a point that the FCA’s chief executive, Nikhil Rathi, could not clarify when he came to the Committee. The most recent report about the performance of OPBAS is dated September 2021. It feels to me that we are overdue a report on the effectiveness of OPBAS. Is the delay a result of the ongoing review or is there some other reason for it? The September 2021 report stated that:
“The vast majority (just over 80%) of PBSs had not implemented an effective risk-based approach. Only a third of PBSs were effective in developing and recording in writing adequate risk profiles for their sector”.
The report also raised various other points about the effectiveness of OPBAS. It has been operating for several years now, but we still do not feel that it is doing what it should to supervise and ensure that the anti-money laundering responsibilities of those it supervises are carried out. If the Minister does not have information on the status of that report today, I would be perfectly content for him to write to me.
Maybe OPBAS has upped its game incredibly since the last report came out—we just do not know. That also hinders our approach to the Bill, because we do not know whether these functions are being adequately carried out. While the FCA chief executive was able to say that there has been improvement, he was not able to say what that improvement looks like. Have 100% of PBSs now implemented an “effective risk-based approach” or is it 50%, or somewhere in between? We just do not know.
It is important that we use all the opportunities we have in the Bill to up the resources for the FCA, OPBAS and HMRC to carry out their functions. As I say, anti-money laundering supervision is the key to ensuring we close the door on money laundering. Those bodies are meant to stop it, and if we do not tighten the legislation and provide the resource there is very little point having the Bill.
The Minister for Security (Tom Tugendhat)
I thank the right hon. Member for Birmingham, Hodge Hill and for Barking for their amendments, and I welcome the effort and energy they put into the oversight mechanisms that are so important in ensuring that the Bill is effective. That is the nice bit. They know what is coming next.
I do agree enormously on the importance of supervision, which has been emphasised, but I am afraid I cannot support new clause 44. Despite what the right hon. Member for Barking says, HMRC already has an anti-money laundering supervisory function and it does take its responsibilities extremely seriously. It supervises nine sectors and is the default supervisor for trust and company service providers where they are not already subject to supervision by the FCA or one of the 22 professional bodies.
Dame Margaret Hodge
I wish I had brought some of my previous notes with me. What evidence does the Minister have of that, apart from HMRC telling us that?
Dame Margaret Hodge
I am amazed that it did. Is there evidence of the number of visits or assessments carried out? I can remember a quote from the previous permanent secretary, who said, “It is not our core business.”
Tom Tugendhat
The core business of HMRC is raising money and ensuring that that money is clean. That is absolutely essential. Until HMRC works out whether or not the money is clean, it is hard to raise money. I would be hard pressed to describe my hon. Friend the Under-Secretary as a dodgy individual, but if he is going through these AML checks I think it is a good indication that HMRC is taking such matters very seriously. As I say, the checks are already being done and the responsibilities are held by branches of the Government, including HMRC and other professional bodies.
The amendments are therefore a duplication. The reality is that HMRC carried out 3,500 formal compliance inspections with businesses last year and issued over £2.5 million of penalties in 2021-22. That demonstrates that the business checks are not symbolic. They are not minor. They are extremely serious. HMRC takes them very seriously. I think the Government is entirely in agreement with the right hon. Lady that these checks need to happen, but the scale and type of reform to improve effectiveness and solve these problems is not yet clear. The Treasury will no doubt have many views when its formal consultation on the possible options opens. The consultation will ensure that the risks and implications of each option are fully understood before the Government commit to any particular model. The right hon. Lady knows very well that we need to get this right, not just to be quick.
On new clause 72, I welcome the desire to strengthen the UK’s anti-money laundering regime. I also share the support for the work OPBAS does. However, it is not yet the right time for the proposed changes, and I cannot support the suggested amendment. In June of this year, the Treasury published a review of the UK’s anti-money laundering regime, which considered the performance of the supervisory regime, including the work of OPBAS. It concluded that although there have been significant improvements in recent years, further reform is necessary to ensure effective supervision across the regulated sector. The review set out four options for reform, ranging from strengthening OPBAS to structural reform to establish a new statutory supervisor. Further policy work to develop these options is already under way, and the Treasury has committed to publishing a consultation before a decision on the direction for reform is made. It would be wrong to preclude the ongoing policy analysis and public consultation by making the changes proposed by the amendment.
Dame Margaret Hodge
I heard the Minister’s words with gloom. Initially, the Government put out a consultation with four options, and to speed it up, we decided to go with the weakest of the options—the one to which there would be the least objections. What I think I just heard him say, which is so gloomy, is that the Government will now publish a further consultation. All this stuff in the Bill will come into being and we will have absolutely no assurance that proper checking, regulation and supervision will be carried out on company service providers.
Tom Tugendhat
As I say, this is really a matter for the Treasury, and it has committed to publishing a consultation before the decision is made. It would be wrong of me to preclude the ongoing policy analysis and public consultation by making—
Seema Malhotra
May I clarify whether the Minister has had any discussions with Treasury colleagues about the matter and raised his concerns? Have they acknowledged the need to act much faster?
Tom Tugendhat
I have had many conversations with Treasury colleagues in recent weeks and months on various aspects of the challenges that economic crime poses to the UK. Many of us are committed—in fact, the Treasury is very committed—to ensuring that economic crime is reduced in this country. The support that the Treasury has given in various different ways has resulted in many things, including a very successful operation conducted this morning by the Metropolitan police that resulted in the arrest of many people connected to economic crime. That may sound tangential on the grounds that it is about fraud, but the reality is that all of it is connected. We see a very strong overlap between money laundering, fraud and various other different forms of economic crime. The Treasury, unsurprisingly, is extremely committed to making sure that economic crime in this country reduces. The Home Office and the Department for Business, Energy and Industrial Strategy are absolutely committed to making sure that we considerably reduce the level of fraud in this country.
What is important now is to ensure that we make OPBAS as effective as possible, and that we look for some of the reforms that we have started to highlight, because that means that the changes required by the amendment will be unnecessary. I hope that we can focus on that aim.
I have just been given a statistic that records that in October 2022, HMRC named 68 estate agents that had breached anti-money laundering regulations, and fined them a collective total of £519,000. We can see that the supervision of estate agents is not just conducted by my hon. Friend the Under-Secretary but by many others around the country and is taken extremely seriously.
Dame Margaret Hodge
I hear what the Minister says, but I think we will just be setting up another duff register unless we get the regulation of those company service providers toughened up at the same time as we introduce the Bill. I want to press new clause 72 to a vote.
The Chair
You will not be able to do that now, and in the meantime, you must seek the leave of the Committee to withdraw new clause 44.
Dame Margaret Hodge
Thank you very much, Sir Christopher. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 50
Requirement for UK-resident director
‘(1) The Companies Act is amended as follows.
(2) In section 156B of the Companies Act 2006, inserted by section 87 of the Small Business, Enterprise and Employment Act 2015, after subsection (4) insert—
“(4A) The regulations must also include provision to require all companies to have at least one director who is ordinarily resident in the UK.”’—(Stephen Kinnock.)
This new clause would amend the Small Business, Enterprise and Employment Act 2015 to require all companies to have at least one person who ordinarily resides in the UK as a director.
Brought up, and read the First time.
Stephen Kinnock
I beg to move, That the clause be read a Second time.
New clause 49 sought to ensure that the provisions of the Small Business, Enterprise and Employment Act 2015, which require company directors to be natural persons, would be brought into force. The Opposition welcomed the Minister’s commitment to introducing the necessary regulations to enact that measure in the near future, and we are very pleased to have that on the record. At the same time, however, the Opposition remain convinced that there is much more that the Government could and should be doing to reduce the risks of money laundering and economic crime within the company registration requirements. The new clauses we are about to discuss provide a number of different means by which the law could be further strengthened against the risk of such abuses.
New clause 50 would make it a requirement that every company registering in the UK has at least one director who is ordinarily resident here. I have already spoken in Committee about the risks that often come with a system that allows companies to register in places to which they have a tenuous connection in terms of actually doing business there. Although there may be certain limited circumstances in which it might be legitimate for a company with no UK-based directors to register with Companies House, I am struggling to see what they might be. On the other hand, I can think of plenty of reasons why the fact that a company has no UK-based directors might be considered a red flag for money laundering risks, calling for additional scrutiny from the registrar.
Kevin Hollinrake
I thank the hon. Member for his amendment. As he set out, new clause 50 would require all companies to have at least one person who ordinarily resides in the UK among their directors. The proposal has been considered and rejected before. I am aware that some other jurisdictions have similar provisions, but the UK has chosen not to enact that type of measure for two reasons. First, it goes against the long-standing principle that any legitimate global citizen can do business freely in the UK. If we mandate a UK resident director, we are effectively asking an overseas investor looking to set up a business here to have a UK business partner. That sounds to me very much like something that the Chinese state might do. We do not consider that it is right for our open economy.
Secondly, we are not persuaded that there are enforcement or accountability benefits that will lower levels of corporate abuse or economic crime. The reforms in the Bill, such as identity verification, intelligence sharing and greater information querying, will help to deliver much-increased transparency and accountability. That will help us to discover rogues faster, share their details more quickly, hold them to account and, where necessary, close down their businesses, or indeed ask questions of them before we even allow them to incorporate here.
It is my expectation, as the hon. Member for Aberavon has set out, that Companies House will work with the NCA and others to put in place the systems to raise red flags so that when we see applications to incorporate companies from individuals from certain jurisdictions, more questions will be asked. If the registrar is not persuaded by the responses, she may simply say no. The addition of a UK resident director will not provide additional value and I very much hope that the hon. Gentleman will withdraw his new clause.
Stephen Kinnock
I thank the Minister for his remarks. We are talking about how to make it as easy as possible for those red flags to be clear. If we were to do exception reporting, there may, of course, be a clear explanation in certain circumstances for why there is not a single UK-based company director and perfectly legitimate reasons for that. We think that it would be better to do the exception reporting on that basis, so that we are casting the net and identifying red flag areas because of the nature of the company directors and where the risk would appear to be.
I take it from the Minister’s remarks that there is not a great deal of room for negotiation on that point. However, we are trying to put forward a sensible and pragmatic solution. Can the Minister say any more about how to look through the telescope in terms of exception reporting? We argue that exception reporting could be conducted on the basis of explaining why there is not a single UK-based company director while maintaining the blanket provision that there should always be such an individual in order to minimise risk.
Kevin Hollinrake
That is exactly how we expect the process to operate. If there are red flags of concern—an exception report, as the hon. Gentleman calls it—the registrar can ask further questions and may deny that company the right to establish itself in the UK. I think those checks and balances are in place, and of course, as hon. Members have said, it is very important that those opportunities are used by the registrar. I am very keen to ensure that we have the opportunity to scrutinise the use of those powers.
Stephen Kinnock
I thank the Minister for those points. I see that we will agree to disagree on this. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 51
Registration requirements: UK-based assets held by overseas entity
‘(1) The Economic Crime (Transparency and Enforcement) Act 2022 is amended as follows.
(2) In Schedule 2—
(a) in sub-paragraph (a) of paragraph 2, for “and” substitute “or”;
(b) after sub-paragraph (a) of paragraph 2 insert—
(aa) is a beneficial owner of any UK-based assets held by overseas entity, and”.’—(Stephen Kinnock.)
The intention of this new clause is to broaden the scope of registration requirements for overseas entities, as set out in the Economic Crime (Transparency and Enforcement) Act 2022, to include the beneficial owners of any UK-based assets owned by an overseas company, as well as the beneficial owners of the company itself.
Brought up, and read the First time.
Stephen Kinnock
I beg to move, That the clause be read a Second time.
The purpose of the new clause is to close what appears to be a loophole in the current requirements on the registration of overseas entities that own property in the UK. The case for the new clause is simple. Under the current rules, as set out primarily in the Economic Crime (Transparency and Enforcement) Act 2022, a foreign company that owns property or land in the UK is required to declare the beneficial ownership of the company itself. It is, however, unclear whether it would also be required to disclose the ultimate beneficial owner of any property owned by that company.
In recent years, we have seen ample evidence of how easy it can be—
Kevin Hollinrake
I am trying to understand the new clause. How could someone be the beneficial owner of a company and someone else own the assets? If the beneficial owners own the company, how can a different beneficial owner own the assets?
Stephen Kinnock
According to our interpretation, schedule 2 of the 2022 Act is unclear about whether a company would be required to disclose the ultimate beneficial owner of any property owned by that company. Our worry is that there is a loophole in the law that talks about the beneficial owner but does not give us the tools to obtain disclosure of who is the ultimate beneficial owner of the property.
In recent years, we have seen ample evidence of how easy it can be for money launderers and the enablers of economic crime to exploit any grey area, perceived or actual, in the laws that apply to them. Therefore it is essential that the law is absolutely crystal clear on that point. It is about tightening up the law as it stands.
We already know that the beneficial ownership of property and other assets is often shrouded in layer on layer of corporate secrecy. In its official guidance and examples of best practice on beneficial ownership, the Financial Action Task Force draws a distinction between the ownership of a company on the one hand and the ultimate beneficial ownership of any assets held by that company on the other. The guidance makes it clear that they are not necessarily the same thing. One of the most salient differences is that although a company can be the legal owner of a property, the ultimate beneficial owner of that property will always be a natural person, or, in layman’s terms, a human being. It is not clear whether the current legal framework for the register of overseas entities is sufficiently clear on that point.
To make a significant difference in terms of transparency, the register must require all companies to disclose the ultimate beneficial owner of any UK property under their control. It must publish that information. I would be grateful to hear the Minister’s thoughts on whether the legislation currently provides an adequate degree of clarity. If he agrees that the requirements could be made clearer, I hope that we can trust that the necessary changes will be incorporated in the Bill, or set out in regulation.
Kevin Hollinrake
Again, I thank the hon. Gentleman for tabling the new clause. I understand what he is seeking to do, and I support him in that endeavour. I believe that the intent behind the new clause is the concern that assets other than land can be used for illicit purposes, but I am not sure that the new clause, as drafted, serves to address that.
As the hon. Gentleman knows, overseas entities are required to register beneficial owners with Companies House. Those registered as the beneficial owners of the overseas entity are the same persons as the beneficial owners that the new clause seeks to make registerable. Any assets held by the overseas entity are ultimately owned by those already required to register with Companies House.
Say an overseas entity owns a case of whisky, so we know who is the beneficial owner of that case. Who then owns the bottles of whisky in the case? It is the same owner as the one who owns the case. There is no separate owner—they either own the case of whisky, or they do not. I honestly do not think that the new clause would achieve what the hon. Gentleman wants it to achieve. If we think about yachts and other property, if we know the beneficial owner of the company, we also know the owner of the assets inside it. I hope that the hon. Gentleman will withdraw the motion.
Stephen Kinnock
I thank the Minister for that clarification. What rang alarm bells with us were the comments of the Financial Action Task Force, which drew the distinction between the ownership of a company and the ultimate beneficial ownership of any assets held by that company. The Minister has made his position clear, and, again, we just agree to disagree. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
Ordered, That further consideration be now adjourned. —(Scott Mann.)
Economic Crime and Corporate Transparency Bill (Eighteenth sitting)
Thursday 24th November 2022
(1 year, 12 months ago)
Public Bill CommitteesRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 24 November 2022 - (24 Nov 2022)
The Committee divided: - Ayes: 6 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 8 - Question accordingly negatived.
The Chair
Order. Let me just tell Members about the dilapidations in this room. The thermometer does not work, so we are not able to confirm our own instincts that it is quite cold. I suggested the window be shut, and I am told that it will not shut properly. If Members are very cold during the course of the afternoon, we may have to suspend the sitting for five or 10 minutes so we can go out and get some collective exercise together.
New Clause 52
Beneficial owners: shares and voting rights held by immediate family
“(1) The Economic Crime (Transparency and Enforcement) Act 2022 is amended as follows.
(2) In Schedule 2, after paragraph 6 insert—
‘(6A) For the purposes of subsection (6) above—
(a) Condition 1 is also met where 5% or more of shares are held, directly or indirectly, by X and one or more members of the immediate family of X; and
(b) Condition 2 is also met where 5% or more of voting rights are held, directly or indirectly, by X and one or more members of the immediate family of X.’”—(Stephen Kinnock.)
The intention of this new clause is to close a loophole in the current rules on registration of overseas entities, so that a threshold lower than 25% ownership or control is applied where a company’s shares or voting rights are held by multiple members of the same family.
Brought up, and read the First time.
Stephen Kinnock (Aberavon) (Lab)
I beg to move, That the clause be read a Second time.
Conservative Members will have gathered by now that the common theme of many of the new clauses tabled by the Opposition on the register of overseas entities is really closing loopholes. We may not, even will the best will in the world, be able to foresee at this stage exactly where any loopholes may arise, but we can at least act now to close the most obvious and predictable ones. In that spirit, new clause 52 seeks to address one of the most widely documented and understood means by which criminals attempt to conceal the true owners of property in places such as the UK.
As the Financial Action Task Force guidance on transparency and beneficial ownership explains:
“Criminals often use informal nominee arrangements whereby friends, family members or associates purport to be the beneficial owners of corporate vehicles. This can be particularly challenging given the informal and private nature of such arrangements. This issue can be addressed by placing obligations on the nominee to disclose to the company registry the identity of the person on behalf of whom they are acting and imposing sanctions for false declarations.”
Going back as far as the Small Business, Enterprise and Employment Act 2015 as well as in more recent legislation, the Government have made significant strides toward eliminating legal loopholes used to conceal economic crime—for instance by abolishing bearer shares and providing for a requirement for company directors to be natural persons, which the Minister assures us will be brought into effect shortly.
Although I commend the Government for having taken those steps, it is clear that we need to go further. Given how high the Government have set the threshold at which ownership of a company’s shares must be declared—at 25%—the need to tackle risks of concealing ownership by spreading shares among several different people becomes all the more urgent. Splitting ownership between family members would appear to be the easiest and most obvious way to do this. If the threshold for declaring ownership is set at 25% of a company’s shares or voting rights, it takes little imagination to come up with a solution: simply break up the shares so that on paper, if not in reality, five members of the same family appear to own no more than 20% of the company each. As a result, none of them have to disclose their connections with the company under our current laws.
Although it should be acknowledged that similar issues involving the use of nominee directors, for example, raise some complicated legal questions, the use of family members to conceal the beneficial ownership of a foreign company is surely an issue that can be easily dealt with. New clause 52 provides a simple solution that I hope the Government will accept in the constructive spirit in which it is proposed.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
Although I welcome the spirit of the new clause and the hon. Member’s wish to close a loophole, I do not think there is one. Let me set out why. It is his position that persons might deliberately reduce their shareholding below the 25% threshold, or hold shares via multiple family members, in an effort to avoid scrutiny. The 25% threshold follows the UK’s people with significant control regime, which similarly requires beneficial ownership information for UK-registered companies.
When the PSC regime was in development, significant analysis, including consultation, considered the question of thresholds. The threshold of more than 25% reflects the level of control a person needs in voting rights, under UK company law, to be able to block special resolutions of a company. It was considered that 25% represented the optimum opportunity to understand who is in a position to exert significant influence and control over a company. Collecting information on legal ownership below that threshold would be much more akin to what would be done to have the effect of creating a register of shareholders, rather than beneficial ownership.
In any case, reducing shareholdings will not allow an individual legally to evade scrutiny if they continue to exert significant influence or control. The Economic Crime (Transparency and Enforcement) Act 2022 already addresses that; anyone who has a right to exercise, or actually exercises, significant influence or control over an overseas entity is still required to be registered under condition 4 of schedule 2, which states that,
“X has the right to exercise, or actually exercises, significant influence or control over Y”.
Condition 3 states that,
“X holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of Y.”
There are other conditions within the definition, other than the 25%.
Information submitted about beneficial owners must be verified by a UK-supervised “relevant person”, such as a lawyer or accountant. Where shares are held through multiple members of the same family, relevant persons are likely to notice that when verifying an overseas entity’s application. Where a nominee holds shares for another person, the ECTE Act requires the other person to be recorded as the beneficial owner, not the nominee. That is exactly what the hon. Member for Aberavon set out. It is an offence to deliver false or misleading information to Companies House, and anyone who delivered, or caused to be delivered, such information would be at risk of prosecution—including, potentially, the lawyer or accountant.
From April 2023, UK anti-money laundering supervised relevant persons will be required to report material discrepancies to Companies House in the information contained on the register of overseas entities. That would include where a person has not been recorded as a registrable beneficial owner when a relevant person believes they should have been. The Government do not intend to lower the threshold at this time, but the Bill includes a power to amend the beneficial ownership threshold, which will be subject to the affirmative resolution procedure. I hope that these reassurances will persuade the hon. Gentleman to withdraw the new clause.
Stephen Kinnock
I thank the Minister for his response. I think the spirit of the new clauses is about prevention being better than cure. The Opposition feel that, if we look at the spectrum from deeply opaque business practices to fully transparent ones, when family members are involved we are almost by definition at the more opaque end of the spectrum. By definition, family members will be in a position to communicate with one another, things will not be on the record and the whole thing can be easily cooked up in the way that I outlined. For example, if five family members were given 20% each, they would come in under the 25% threshold.
Does the Minister agree that where family members are concerned things are more likely to be at the more opaque end of the spectrum and therefore the Bill should reflect that and have the lower threshold, as set out in the new clause?
Kevin Hollinrake
I go back to what I said earlier; I think there are all kinds of ways in which somebody could try to subvert the regulations. That is the reality and that is why we are putting the onus not only on the people concerned with the entity but on the people who represent the entity. That is the lawyer, or the accountant, and they should ask all the questions that the hon. Member set out. They should notice a family connection and potentially the person behind those individuals.
However, as I said before, someone could potentially have 0% ownership of an entity and still exert significant control. That is the point. What we are saying is that even if they have 0%, the rules still catch them if they are the person who is exerting control in a way that influences directors or shareholders, or indeed if they can appoint or dismiss directors. All those things are covered under the current provisions.
Stephen Kinnock
As I have said, we are very much about prevention being better than cure and a smart as possible approach to risk management. However, I take the Minister’s comments on board and I have no further comments to make. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 53
Beneficial owners in overseas territories
‘(1) The Sanctions and Anti-Money Laundering Act 2018 is amended as follows.
(2) In section 51, after subsection (5) insert—
“(5A) The Secretary of State must ensure that the Order in Council under subsection (2) above comes into effect on date no later than 30 June 2023.”’—(Stephen Kinnock.)
This new clause would amend the Sanctions and Anti-Money Laundering Act 2018 to ensure that an Order in Council requiring open registers of beneficial ownership in the British Overseas Territories comes into force no later than 30 June 2023.
Brought up, and read the First time.
Stephen Kinnock
I beg to move, That the clause be read a Second time.
New clause 53 would amend the wording of provisions in the Sanctions and Anti-Money Laundering Act 2018 to require the introduction of open registers of beneficial ownership in each of the UK’s overseas territories.
Some of the Committee’s Members are veterans of the struggle to incorporate the requirement into the 2018 Act and will no doubt recall that it was only thanks to the persistent effort of certain Back Benchers against the determined resistance of Ministers that the necessary amendment was ultimately made. It would be remiss of me not to pay particular tribute to the efforts on this issue of my right hon. Friend the Member for Barking. The Minister also deserves recognition for his advocacy on the need for transparency to be extended to the overseas territories, albeit in his previous incarnation as a Back-Bench Member of this House.
Stephen Kinnock
My right hon. Friend asks a very good question, while chuntering from a sedentary position. I trust that the Minister’s views have not changed with his recent promotion.
The fundamental principle behind new clause 53 is simply that there should be no double standards in the legal requirements for transparency of beneficial ownership across different parts of the UK, including in the overseas territories. To put it bluntly, we have simply witnessed too many scandals involving money being laundered through territories for whose administration the UK is ultimately responsible to accept the idea that we must simply leave them to their own devices.
I will not name names here, but I think—
Stephen Kinnock
My right hon. Friend may well wish to do so.
I think that any member of this Committee will understand what I mean when I refer to certain “usual suspects” in cases involving financial dealings that, even with the most charitable interpretation, can only be described as being questionable at best.
The language that was ultimately added to the Sanctions and Anti-Money Laundering Act 2018 reflected a recognition from Members of all parties and in both Houses that the same standards requiring open, publicly accessible registers of beneficial ownership should apply to both the UK and its overseas territories. It also reflected the widespread consensus that if we wanted to ensure that the overseas territories played by the same standards, we should be prepared to use sticks as well as carrots.
The result of that consensus was the provision in section 51 of the 2018 Act that any overseas territory that had not established a beneficial ownership registry in line with the standards of our own by the end of 2020 should be subject to direct legislation by an Order in Council. As I have already mentioned, the Government practically had to be dragged kicking and screaming to the point where they accepted that provision in the first place. However, as subsequent events have demonstrated, the real problem is that Ministers have interpreted section 51 of the Act so creatively that in effect they have completely undermined if not the letter then certainly the spirit of the law.
It seemed clear to those who pushed for section 51 of the 2018 Act that what it required was for beneficial ownership registries to be in place by the end of 2020, whether as a result of the overseas territories’ own legislation or an Order in Council. According to the spin the Government chose to put on it, its obligation had been met simply by the publication of a draft Order in Council, regardless of when, or even whether, such an order might actually come into force. The result is that we are here yet again—almost five years later—still discussing how to ensure the implementation of registers to the same standards across all of the UK’s territories. Surely it should not be beyond the wit of Ministers—even in this Government—to have sorted this out by now—[Interruption.] I am just checking that hon. Members are still awake on the Back Benches.
Kevin Hollinrake
I am certainly not arguing against the spirit of the new clause. I add my thanks to the right hon. Member for Barking and, indeed, my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell), who took great action on this matter way before I became interested in the whole subject—although it is true to say that I took an active interest from the Back Benches on ensuring that we address this issue.
I do not accept the hon. Gentleman’s characterisation of our approach as being hands off. I do not consider 250 pages of legislation as being hands off at all. There is much we want to do and agree on, and I have to agree with what I said previously. The hon. Member for Aberavon may regard me as poacher turned gamekeeper, but I do not see that at all. I still want to ensure these measures are in place. In fact, we should go further than his new clause, and I will explain that in a second.
When amendments were tabled to the Bill that became the 2018 Act several years ago, we were clearly in a very different place. All inhabited overseas territories have now committed to introducing publicly accessible registers of company beneficial ownership, and the UK Government expect them to be in place by the end of 2023, so there is a deadline on which the order could be placed. As well as overseas territories, we have committed to asking the Crown dependencies to also do that, and that does not feature in the hon. Gentleman’s new clause, so it is important that this goes further than he set out.
Dame Margaret Hodge
The Minister is correct in what he says, but could he deny the rumour I have heard, which is that they are trying to get around ensuring public accountability by charging anybody who wishes to look at the register by entry? If a charge is levied for entry to everything that appears on the register, that would diminish the intended public accountability.
Kevin Hollinrake
I am not aware of that. Clearly, it is important that the overseas territories and Crown dependencies respect the will of Parliament and the spirit of the will of Parliament, so we would be very concerned if that is the case.
Dame Margaret Hodge
I have raised this issue with the right hon. Member for Sutton Coldfield, who now sits in the Foreign Office, but I do not think it is entirely within his portfolio. Will the Minister agree to pursue the issue? If that is the way they have tried to avoid or play down the intent of Parliament, it is a very serious matter.
Kevin Hollinrake
I do not think we should operate on the basis of rumours, but I hope that the overseas territories and Crown dependencies will be following this debate with interest. We want them to follow both the spirit and the letter of the legislation that is implemented. The information should be publicly available—that is the clear intention.
This is a major commitment that will put the overseas territories and Crown dependencies ahead of most jurisdictions, and it will be a vital element of promoting greater transparency around the control and ownership of companies. I have sought assurances that it is not a hollow commitment. The FCDO is providing support to the overseas territories through Open Ownership, a respected and expert NGO, to ensure that each territory can progress its publicly accessible registers, and significant progress has been made. For example, Gibraltar’s register is already live, so it will be interesting to hear about the right hon. Lady’s experiences of that.
Dame Margaret Hodge
The Minister has jogged my memory. It was actually from the implementation of the Gibraltar register that I heard that, although it is live, there is a charge for accessing information.
Kevin Hollinrake
That may be something that the right hon. Lady will investigate. I am happy to make the commitment that we will do so as well.
The Cayman Islands has completed a consultation on the approach to its register, and the technical work to hit the target date is under way. The BVI recently passed primary legislation to enable the framework for regulations to be made for its register in preparation for the end of 2023. Smaller overseas territories are also working with the FCDO to update their systems to allow public access to this important information. Notably, in Anguilla the FCDO financed a completely new register, which is designed to allow public access.
The effect of new clause 53 would be to move the timeline forward by only six months for the overseas territories. All the territories are now willingly implementing publicly accessible registers and putting significant effort into the policy, despite the fact that most jurisdictions around the world are not doing so. To move forward an agreed timeline would not show good faith in our partnership with the territories. I can commit to keep the House regularly up to date on progress with the territories, and the UK Government will continue to work collaboratively, and as equal partners, with the overseas territories on their commitment.
Stephen Kinnock
I fear that it is a bit naive and complacent to think that this is going to be done by consensus. Five years have gone by since the 2018 Act was introduced and it is extraordinary that we may have to wait another 12 months, as the Minister says. Frankly, I remain sceptical that, without a stick as well as a carrot in this conversation, anything will ever happen. I would welcome any feedback that the Minister has on that point. I do not really have a specific question for him, but I am struggling to understand why we can possibly think it is acceptable that here we are, five years later, with a chasm in our ability to implement and go after the things that we want to go after. Does he really think it is justifiable to wait another 12 months, rather than just accepting the new clause?
Kevin Hollinrake
As Ronald Reagan used to say about the Russians: trust, but verify. It is important that we trust our partners but also that we see what they are doing to put these measures into effect. I quoted a number of examples where that has been done. All these overseas territories are putting the measures in place. It is right to work on a basis of good faith. We have the stick the hon. Gentleman requires, if necessary. Beyond the end of 2023, we can then use the Order in Council procedure, as he suggests. I will ensure that we keep watch over the situation very carefully, as I have committed to do. The hon. Gentleman can rest assured that it is our understanding that these measures will be in place. I urge him to withdraw the new clause on that basis.
Stephen Kinnock
Unfortunately, we remain unconvinced by the Minister’s answers on these points and we wish to push the new clause to a vote.
Question put, That the clause be read a Second time.
Stephen Kinnock
I beg to move, That the clause be read a Second time.
Given the extensive discussions we have had on issues involving money laundering risks, including risks in relation to certain designated high-risk jurisdictions overseas, there is a fundamental question that we are not sure we have got to the bottom of. That question, which is addressed in part by new clause 54, is why we should allow a company incorporated overseas in a jurisdiction that operates on the basis of lax money laundering controls to do business in the UK at all, much less to own property or land here.
As we have already discussed, the primary purpose of the Treasury’s list of designated high-risk countries is to mirror the list of jurisdictions identified by the Financial Action Task Force as posing serious threats of money laundering and terrorist financing on account of weaknesses in their laws, inadequate law enforcement or some combination of the two.
New clause 54 seeks to incorporate into the Bill what we on the Opposition Benches believe to be a matter of basic common sense: if a company was initially formed under laws designated by the Treasury, under international guidelines, as seriously deficient in their approach to money laundering risks, that company should not be allowed to own land or property in the UK. It is a straightforward solution to a very serious problem. It would go a long way towards driving tainted money out of the UK property market. I hope that, on this basis, the Government will support new clause 54.
Kevin Hollinrake
New clause 54 seeks to prevent the acquisition of land in the UK by companies registered in jurisdictions that are listed as high risk by the Financial Action Task Force or so designated by the Secretary of State under the UK’s money laundering regulations. The Financial Action Task Force lists jurisdictions identified as having strategic deficiencies in their anti-money laundering and counter terrorist financing regimes that could pose an increased illicit finance risk.
The new clause is well intentioned and hon. Members are to be commended for their determination to rid the UK of dirty money. However, we do not believe that the new clause will have the intended effect. Jurisdictions that appear on the taskforce’s list of jurisdictions under increased monitoring, which include some key UK partners and Commonwealth members, have committed to swiftly resolve the identified deficiencies within agreed timeframes. The list is updated three times a year, and under the UK’s AML regulations, obliged businesses are already required to take enhanced due diligence measures for customers and transactions linked with individuals or companies established in high-risk jurisdictions.
Liam Byrne
No one could accuse the Minister of being an innocent abroad in a world that is not innocent, but I have to ask him whether he seriously believes the content of the paragraphs that he has just read out. I have no doubt that there are countries around the world that have said that they are going to increase their AML supervision, but we now have a situation in this country where we have some very bad people, such as Usmanov and others, who own property portfolios of up to £50 million. We have allowed them to do that, and now we cannot take those portfolios off them, so could the Minister at least tell us how he is going to seriously get a grip on bad people from bad countries being allowed to buy assets here in the UK?
Kevin Hollinrake
We have applied sanctions on a targeted basis to some of those actors—[Interruption.] The right hon. Gentleman raises his eyebrows. Is he not aware of the sanctions we have applied to certain individuals from high-risk jurisdictions?
Liam Byrne
As the Minister knows, I am one of the Members who pushed for the Government to toughen up their sanctions after they left so many people off the sanctions list the first time around. Going forward, how is he going to stop bad people from bad countries who have no intention of improving their AML regulation buying mansions in London?
Kevin Hollinrake
It is entirely wrong to tar everybody from one country with the same brush. Clearly there are some deficiencies, but is the right hon. Gentleman honestly saying that every person from a jurisdiction that has deficiencies in its AML regime is a bad person? I think that is what he said, and I think it is entirely inappropriate.
Liam Byrne
I am grateful for the chance to put the question where it belongs, which is back on the Minister. The question was very simple: how is he going to ensure that bad people who happen to live in bad countries are prohibited from buying assets here in London? How is he going to do that? Tell us!
Kevin Hollinrake
Through the provisions in this 250-page piece of legislation; through the provisions in the legislation that was passed earlier this year, which both of us campaigned for; and through other things, such as the sanctions regime—through all those different things. It is our view that we should look at the people, not necessarily the jurisdiction. Of course, we work internationally to improve jurisdictions around the world, but it is wrong to suddenly say that countries, potentially including Commonwealth countries, are bad countries, which I think is what the right hon. Gentleman said.
Liam Byrne
We may as well pursue this to its death—I am grateful to the Minister for being so generous in giving way. Let us take the example of Usmanov. He has only recently been sanctioned, but when we read the indictment, we see that it is very clear that he has been an associate, colleague and enabler of President Putin for an awfully long time. The sanctions came ex post facto, after he had been allowed to acquire assets. How do we create a more preventive regime to stop this kind of nuisance on our shores?
Kevin Hollinrake
The right hon. Gentleman is saying that no Russian should ever be able to buy property in the UK—
Kevin Hollinrake
That is exactly what he is saying. Russia is a high-risk jurisdiction; is he saying that no Russian can buy property in the UK?
Liam Byrne
I am grateful for the chance to clarify. The Minister is engaged in the old debating tactic of putting the question back on me, but the question is on him: how is he going to stop individuals like Usmanov buying property in London in the future? What safeguards does he think he has in place? When a sanction has not yet been put in place, how is he going to stop people about whom we have serious concerns acquiring that kind of asset?
Kevin Hollinrake
If the right hon. Gentleman is saying that people are guilty until proven innocent, that is entirely the wrong way to look at this issue. Of course, those decisions have to be information-led; many of the provisions in the Bill are about information sharing and being information-led, looking at the red flags, identifying the people who we potentially need to be concerned about, and preventing those people’s actions on that basis.
Liam Byrne
The Minister is being characteristically generous with his time. Is he therefore reassuring the Committee that if the provisions in the Bill had been in place, Usmanov would have been prohibited from buying a mansion three years ago—yes or no?
Kevin Hollinrake
He may not have been, because he was not on the sanctions list at that point, and he was not on a sanctions list anywhere else in the world, as far as I am aware. He may have been—I do not actually know that information—but Usmanov would have been treated like anybody else under our system. It is interesting how quickly the Opposition sometimes will jettison some of the fundamentals of our society, one of which being that a person is innocent until proven guilty. We need the evidence before we can sanction somebody. We will adhere to that principle—certainly I will as long as I am in Parliament.
This new clause would prevent the registration of titles by legitimate companies in any of the jurisdictions on the lists. That would have a detrimental impact on those companies wishing to invest in the UK, as not every company incorporated in those jurisdictions is a bad actor. Although the new clause would prevent registration of title by an overseas entity, it is not possible to prevent a transaction from taking place and money changing hands. Unintended consequences would be likely.
Any overseas entity applying to the Land Registry to register title must now be registered with Companies House and have an ID number. That provides a safeguard against bad actors, more transparency about the overseas entity, and information for law enforcement should it later transpire that the overseas entity is involved in criminal activity. Therefore, I politely ask for this new clause to be withdrawn.
Stephen Kinnock
We are really just going back to the point about prevention being better than cure. Of course, what is really important here is that it is our sovereign Government, our Treasury, doing the designations. It is our Treasury and other expertise in our British Government saying, “That jurisdiction over there is high risk. It has lax control on money laundering. It has no sense, really, of what is going on. It’s a kind of wild west in its business environment.” That should raise many red flags and set many alarm bells ringing. The constructive spirit of this proposal is to say, “Look, we know where there are red flags. We should be acting on those red flags in a preventive way,” rather than, as my right hon. Friend the Member for Birmingham, Hodge Hill said, an ex post facto way, because once the damage is done, it is a lot more costly and a lot more insidious, because we have not dealt with the issue at source and then we are left to clear up the mess and pick up the pieces. That is the spirit in which the proposal is made. I invite the Minister to express any reflections that he has on what is actually a kind of philosophical point about the Bill. Is prevention better than cure—yes or no?
Kevin Hollinrake
Yes, undoubtedly, but I think that putting a blanket restriction on bona fide companies and bona fide individuals buying from those jurisdictions is disproportionate and wrong. I absolutely agree with the hon. Gentleman in terms of the spirit of the new clause and of his point about red flags. That is exactly the way the system works. Yes, certainly, the registrar should definitely look at the jurisdiction from which the person is purchasing a property, for example. That may well be the red flag that the hon. Gentleman refers to. To me, that is a more appropriate way of dealing with this matter than simply a blanket ban on purchase.
Stephen Kinnock
I thank the Minister for those points. We remain unconvinced by the position and would like to push this new clause to a Division.
Question put, That the clause be read a Second time.
Stephen Kinnock
I beg to move, That the clause be read a Second time.
New clause 55 also provides a simple solution to what appears to be a flaw in the Bill’s current drafting, which could be exploited by criminals seeking to exploit any legal loopholes left open to them. Under the Economic Crime (Transparency and Enforcement) Act 2022, companies required to register their ownership of UK property are required to provide annual updates on any changes to their beneficial ownership. It is not hard to see how that could be used as a loophole to conceal the ownership of property by, for instance, an individual designated by UK sanctions. A company could, at least in theory, report to Companies House that its beneficial owner was the same as it had been the previous year, without disclosing the fact that another individual had been a beneficial owner at some point during the intervening 12 months.
New clause 55 is intended to probe the Government’s thinking in this area and, as with the previous new clause, to provide the Minister with an opportunity to set out in detail how the Government plan to ensure that the laws leave no foreseeable loopholes open for exploitation by criminals.
Kevin Hollinrake
I might get into trouble with you, Sir Christopher, but on the previous new clause, countries on the high-risk jurisdiction list include Israel, Turkey and the Czech Republic. Is it honestly the Opposition’s intention to prevent individuals and companies from those jurisdictions from buying property in the UK? We should think again.
I thank the hon. Member for Aberavon for new clause 55. I wholeheartedly agree that keeping the information on the register up to date is critical. The annual update requirement is intended to provide certainty for third parties transacting with overseas entities. Property transactions often take many months to complete, and during that time a third party transacting with an overseas entity must have certainty that the entity remains compliant with the requirements of the register so that transactions are not disrupted. The key sanction for non-compliance with the register, which interferes with existing property rights, is to make it impossible for a buyer to register a title if purchasing from a non-compliant overseas entity. The onus is therefore on the buyer and their agents to ensure that they do not transact with a non-compliant entity.
In order to protect the buyer, likely to be an innocent third party, it follows that there must be absolute legal certainty about the compliance status of the overseas entity throughout the duration of the transaction. An annual update provides that certainty, giving enough time for transactions to be completed before the requirement for an update kicks in. If an update is not made on time, the overseas entity is regarded as non-compliant, and the restrictions on land transfers will bite.
The hon. Member talked about somebody switching ownership between the two reporting times. I cannot honestly see what the benefit to anybody of doing that would be, but he may wish to give me examples.
The ECTE Act includes a power to amend the update period by regulations. Should it become clear, once the register has bedded in, that the update period is too long or too short, that power can be exercised to change the update period. I therefore ask that the probing new clause be withdrawn.
Stephen Kinnock
I thank the Minister for those clarifications. This was an opportunity to set out those assurances, which we are happy to accept. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 56
Limited partnerships: registration of persons of significant control
“(1) The Secretary of State must by regulations make provision about the registration of persons of significant control in relation to limited partnerships.
(2) For the purposes of regulations under this section, ‘persons of significant control’ may include persons with a right to—
(a) 25% or more of the surplus assets on winding up,
(b) a voting share of 25% or more,
(c) appoint or remove the majority of managers,
(d) exercise significant influence or control over the business, or
(e) exercise significant influence or control over a firm which would be a person of significant control if it were an individual.
(3) No regulations to which this section applies may be made unless a draft of the statutory instrument containing the regulations (whether or not together with other provisions) has been laid before, and approved by a resolution of, each House of Parliament.”—(Dame Margaret Hodge.)
Brought up, and read the First time.
Question put, That the clause be read a Second time.
Dame Margaret Hodge
I beg to move, That the clause be read a Second time.
We touched on this issue last week. The new clause is what I consider to be another perfectly sensible, rational, pragmatic amendment that enhances transparency and accountability. It would ensure that the legislation worked effectively rather than ineffectively, as we think will be the case at the moment.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
It is a pleasure to serve under your chairship this afternoon, Sir Christopher, and to speak briefly in support of the speech of my right hon. Friend the Member for Barking. The new clause is short and, on that basis alone, the Minister might want to look closely at it for inclusion in the Bill. It is important and significant.
We almost thought we would not have this conversation when we debated the Government new clause 15 on Tuesday, until the Minister made it clear that information about trustees would not be published. That feels like a space that is a black hole for more to be hidden in. If we do not do this, the Minister will probably see a rise in the use of trusts to achieve less transparency.
For all the reasons my right hon. Friend the Member for Barking outlined, it is important that the information about trustees is available for public inspection. I will welcome the Minister’s comments. Perhaps he has thought further on the arguments since Tuesday. Here is further room for him to consider information on trustees, where it is held and its being published for public inspection. That would be in the public interest.
Kevin Hollinrake
The word “trust” in this context sends shivers down all our spines. I understand the rationale behind the new clause, but the right hon. Member for Barking is right in that I will state my position.
There is a key matter here. The right hon. Lady cited a couple of examples, one a trust and one a company, where she implied a disguised ownership of certain assets. The current requirements of legislation are that information about a registrable beneficial owner of a trust is displayed publicly. If someone is a beneficial owner, their name is revealed publicly. She might argue that that person could be lying, but they can lie about ownership of anything—“I don’t own any of this and do not exert control”—as we have discussed before.
The amendment makes all trust information available, even if that sits below the 25% or whatever ownership there might be of the trust or its benefit.
Dame Margaret Hodge
Usmanov is the better example, although I could have talked about Gutseriev or Fedotov, or about Azerbaijan—I had a debate in the House on the leading family of Azerbaijan. The reason all those things hang together is that the beneficial ownership is passed to a daughter or sister, or the shareholding is below 5%, and we are creating all these legal loopholes that enable the Usmanovs, Gutserievs, Fedotovs and all those people to hide their real control of an asset. That is really the point. That is what we are trying to get at—having it out in the open. What we have said constantly with our amendments is that if there are minor flaws with the way we have put them together, we are happy to listen, but I am absolutely certain that the principle behind them is correct.
Kevin Hollinrake
I just do not think that is right. The right hon. Lady might not have meant this exactly, but even if ownership is reduced—this goes for a company more than a trust—to below 5%, the amendment would not even solve that issue, would it? The legislation requires the beneficial ownership to be registrable and for there to be openly available information. Of course the person who is entering that information could lie. A lawyer or accountant could lie. But now they are subject to a criminal sanction for doing that if it is proven. As has been mentioned, information around trusts is a concern. It should raise red flags with Companies House. That information can of course be shared.
The other thing I would say is that trusts are used for legitimate purposes, including to protect the privacy and safety of children, for example, and other vulnerable individuals. The ECTE Act allows the registrar to disclose protected trust information to HMRC, and regulations will soon be made to allow the registrar to disclose the information to other persons with functions of a public nature, such as tackling crime.
Dame Margaret Hodge
The Minister often says this, but there are two issues here. If the trust or any of these entities are for legitimate purposes, the people involved should have absolutely no fear of transparency. That is the fallacy in the argument. If nobody is doing anything wrong, they should not worry about the information being public. If there are really good reasons, as there occasionally may be, for keeping confidential the name of a particular individual in a particular trust, we can and we are putting in legislation that covers those exceptional circumstances, but using the exceptional circumstance to justify the general rule is simply not good enough.
Kevin Hollinrake
We may have to agree to disagree. The requirement to register somebody of beneficial ownership is quite clear. If there is a beneficial owner, that person will have to be publicly named. That is what we seek to achieve through this legislation, and that is what we think it does. There are some points in the amendment that we think are relevant, including potentially widening access to information in certain circumstances with certain authorities. We will consider that, but we cannot accept the totality of the amendment at this time.
Question put, That the clause be read a Second time.
The Chair
With this, it will be convenient to discuss:
New clause 61—Reporting requirement (overseas territories)—
“‘(1) The Secretary of State must, no later than six months from the date on which this Act comes into force, carry out and publish the results of a review of the level of regulation of cryptoasset businesses for the purposes of tackling economic crime in—
(a) each of the Crown Dependencies; and
(b) each of the UK Overseas Territories.
(2) Following the publication of such a review, the Secretary of State must prepare and publish a strategy for enhancing the level of regulation of cryptoasset businesses in any of the jurisdictions mentioned in subsection (1) above which may have serious deficiencies in their regulatory frameworks in relation to such businesses.
(3) For the purposes of subsection (2) above, criteria for identifying serious deficiencies shall include—
(a) the level of compliance by each jurisdiction with international standards set out by the Financial Action Task Force and affiliated regional bodies;
(b) the level of compliance by each jurisdiction with its legal obligations under any relevant international agreements to which it is a party; and
(c) the level of enforcement in each jurisdiction of relevant laws applicable in that jurisdiction.
(4) The strategy required by subsection (2) above must include specific plans to ensure parity between—
(a) legal frameworks; and
(b) law enforcement efforts
between the UK and each Crown Dependency and Overseas Territory.”
Stephen Kinnock
New clause 60 takes us back to some of the issues we touched on during Tuesday’s debate on part 4 of the Bill in relation to cryptoassets. Considering how many new regulations there are in this area, it is worth taking stock of how well the regulations already in place have been implemented to date and what more needs to be done to ensure that those responsible for enforcing the measures in the Bill have the powers, the expertise and the capacity they need.
The Minister for Security (Tom Tugendhat)
I am sympathetic to the intent of new clause 60, but I cannot agree to it. It remains vital to maintain a robust supervisory regime for cryptoasset firms, but that is something the FCA already does.
The FCA’s approach to assessing firms in the initial stages through registration removes poor-quality firms and bad actors from the UK system, reducing the risk of domestic firms being used to launder the proceeds of illicit activity. That robust gateway has already prevented over 200 firms that were unable to manage anti-money laundering and counter-terrorist financing risks from being registered.
Cryptoasset firms approved to operate in the UK are subject to ongoing supervision by the FCA to make sure they continue to meet those standards. The regime also provides the FCA with a number of powers in relation to those who do not meet the UK’s standards. For example, the FCA can direct a firm to make disclosures, implement additional controls and oversights, and issue injunctions to prevent potentially illicit cryptoasset activity. Furthermore, the FCA is already subject to oversight by His Majesty’s Treasury, the lead Department for anti-money laundering regulations, and, as a statutory regulator, it is also directly accountable to Parliament.
I turn to new clause 61. Again, I am sympathetic but do not support it. As we have discussed, FATF sets international standards on anti-money laundering and counter-terrorist financing, including in relation to the regulation of cryptoasset businesses, or “virtual asset service providers”, as the taskforce calls them.
FATF and its regional bodies are responsible for assessing their members against international standards. That includes assessments of the Crown dependencies and overseas territories on their regulation of cryptoasset businesses. A UK review of the Crown dependencies and overseas territories would not add value to that. The Crown dependencies and overseas territories co-operate with the UK and are committed to meeting international standards on fighting financial crime and countering terrorist finance. I therefore ask the hon. Member for Aberavon to withdraw the proposed new clauses.
Stephen Kinnock
I thank the Minister for that feedback. We want to ensure there is a mechanism to check and verify that the FCA is able and resourced to do what we want it to do. Our worry is that if we take a hands-off approach and leave it to its own devices without looking at whether it is achieving what we want it to achieve, in this fast-moving world, we could potentially lose control of the situation. I am sure that that would be a matter of regret to the Minister and the Committee.
New clause 61 is about ensuring that UK authorities can keep a close watch on developments in the overseas territories and take any necessary steps to ensure that we avoid the same kind of race to the bottom that has turned some of those territories into a magnet for a host of dodgy—and often outright criminal—financial transactions in recent decades. There are already reports of rapidly growing cottage industries springing up in places such as the Cayman Islands, aiming to facilitate the incorporation of cryptoasset businesses with, we can only assume, minimal regulatory oversight.
I thank the Minister for his comments, but will he say a bit more about how we are ensuring and building robust approaches to regulating crypto-related risks in our overseas territories, as well as the Crown dependencies, in the light of those growing cottage industries, the increasing risk, and our responsibility for what is happening there? Does he feel that there is anything more that could or should be done?
Tom Tugendhat
The hon. Member raises some important points. I do not in any way wish to disabuse him of the view that there is a risk with this industry; crypto has posed challenges to many areas. It is worth pointing out that the FCA has a budget of £600 million and co-operates extremely closely with the overseas territories and their regulatory bodies. It provides not just an oversight function here, but an education function for many others, and it sets an example that many other jurisdictions seek to emulate.
I urge the hon. Member to look at the way in which the FCA actually works, and at the way in which the overseas territories and Crown dependencies already co-operate. That is not to say that there are not problems—there are often problems in such regulatory environments, which we need to address—but the correct thing to do is to work with the FCA, as it is already doing an excellent job, and ensure that it is properly resourced. As I said, £0.6 billion seems like quite a lot, and there are various ways in which we are supporting further improvements via co-operation.
Stephen Kinnock
I thank the Minister for those points. We feel that it is a bit of a leap of faith but, on the basis of the assurances that he has given, I am happy to withdraw the clauses. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 64
Disclosure of information in the public interest likely to be relevant to the investigation of economic crime
“(1) It is a defence to an action based on the disclosure or publication of information for the defendant to show that—
(a) the disclosure or publication complained of was likely to be relevant to the investigation of an economic crime, and
(b) the defendant reasonably believed that the disclosure or publication complained of was likely to be relevant to the investigation of an economic crime.
(2) Subject to subsection (3), in determining whether the defendant has shown the matters mentioned in subsection (1), the court must have regard to all the circumstances of the case.
(3) In determining whether it was reasonable for the defendant to believe that the disclosure or publication complained of was likely to be relevant to the investigation of an economic crime, the court must make such allowance for editorial judgement as it considers appropriate.
(4) For the avoidance of doubt, the defence under this section may be relied upon irrespective of whether the statement complained of is a statement of fact or a statement of opinion.”—(Liam Byrne.)
Brought up, and read the First time.
The Chair
With this it will be convenient to discuss new clause 65—Economic crime: power to strike out statement of case for abuse of process—
“The court may strike out the whole or part of any statement of case which can be reasonably understood as having the purpose of concealing, or preventing disclosure or publication of, any information likely to be relevant to the investigation of an economic crime.”
Liam Byrne
It is a pleasure to serve with you in the Chair, Sir Christopher. I thank the Minister for Security, along with the right hon. Member for Haltemprice and Howden (Mr Davis) and the hon. Member for Isle of Wight (Bob Seely), who have worked assiduously on this issue over the course of this year.
In many ways, we have debated this issue a lot during our consideration of the Bill. There is a shared belief across the Committee that sunlight is the best disinfectant and, because this is the Economic Crime and Corporate Transparency Bill, it is important that we empower everyone who brings transparency to the business of investigating economic crime, including journalists.
Yet I am afraid that, to many people, “global Britain” now means that our country is a global centre for lawfare. Our courts, which have been sanctuaries for justice for 1,000 years, have become arenas of silence where expensive lawyers—Schillings and others—are used systematically by bad people to try to rack up enormous costs for journalists, to such an extent that they are no longer able to bring important information and news into the public domain.
The issue is now so serious that, when the Foreign Policy Centre surveyed investigative journalists around the world, it found that three quarters of them had received legal threats designed to shut them up. The origin of those threats is, by and large, this country; in fact, this country was responsible for more legal threats than the United States and the European Union put together. We have become a global centre for lawfare against people who are being so courageous and brave in trying to bring crime to public attention.
We have so many of these strategic lawsuits against public participation, as they are called, that there is now a clear playbook. First, the company or oligarch will try to target an individual. They will always try to target the individual journalist rather than the organisation they work for because, frankly, they know that they can intimidate the individual far more than they can intimidate a corporate organisation. That is exactly what brave journalists such as Carole Cadwalladr and Catherine Belton had to face.
Secondly, the company or oligarch will then file the most ludicrously exaggerated claims. Look, for example, at the claims that Mr Mohamed Amersi has filed against a former Member of this House, Charlotte Leslie. It is the most ridiculous, conflated nonsense that he is trying to put through the court, but that is par for the course, because, of course, they are not interested in winning the case; all they are interested in doing is racking up as much cost as possible to damage the poorer party.
Thirdly, the claimant will go to enormous lengths to try to intimidate the individual. In “Kleptopia”, the journalist Tom Burgis, the author of that and other wonderful books, tells a story of how private investigators from Eurasian Natural Resources Corporation suddenly turned up at a meeting in an underground car park between him and a former director of the Serious Fraud Office. There is no way they could have known that meeting was taking place unless they were hacking and bugging his phone, but that is the kind of intimidation that these individuals think is acceptable.
Fourthly, these oligarchs will try to co-ordinate with others. Look at the way Roman Abramovich tried to intimidate Catherine Belton: he sidled up with all sorts of cronies and mates to try to bring a concerted action against her and her publisher, HarperCollins. Finally, they will try to file claims in multiple jurisdictions, such as Australia, in order to maximise the costs.
If anyone thinks that this is something of the past, there is one case in particular that shows that it is very much of the present. The Nazarbayevs are trying to take the Bureau of Investigative Journalism to court. That is a great example, frankly, of this whole playbook being thrown at journalists trying to expose economic crime.
The Nazarbayev Fund’s holding company, Jusan Technologies Ltd, issued defamation proceedings in the High Court on 16 August. It has also filed against the Telegraph and openDemocracy. Its lawyers, Boies Schiller Flexner, the firm, incidentally, that represented Harvey Weinstein, are trying to use the Defamation Act 2013 to attack and shut down the team of investigative journalists for the crime of exposing the network of funds— $7.8 billion-worth of gross assets—held through a company registered in the UK that recently had just one employee. Documents revealed by the journalists in October 2021 showed that Jusan Technologies was the centre of a sprawling corporate operation, with private interests held by well-connected members of the Kazakh elite and businesses connected to the ruling family of the United Arab Emirates, and assets held through dozens of businesses scattered throughout Kazakhstan, Luxembourg, the UAE, the UK and now the United States.
All the tactics I mentioned are now being used against the Bureau of Investigative Journalism. It is simply outrageous that a country that prides itself on being the home of free speech is now home to courts being used to silence journalists. New clauses 64 and 65 seek to take the regime set out in clause 155 onwards, related to protected disclosures, and say, “Well, look, if we are going to protect disclosures, then among the group that we should be trying to protect are journalists, and the disclosures that we should be trying to protect are of information relating to the investigation of an economic crime.”
With my thanks to the Clerks and others, we have taken a slightly different approach in the new clauses, but that is basically the intellectual and philosophical approach that we seek to take, and that is why people are happy that the new clauses are within the scope of the Bill. Crucially, the new clauses seek to equip a judge—not us here in this House—with the power to dismiss legal actions clearly designed to silence journalists and others investigating economic crime.
Stephen Kinnock
I will be brief. I fully support the comments made by my right hon. Friend the Member for Birmingham, Hodge Hill, and I fully support the new clause. I pay tribute to the other Members he mentioned who have played an important role in raising the profile and awareness of this very important issue. The Committee has an opportunity to reflect on the need for urgent action by the Government to crack down on abuses of our legal system by the wealthy and powerful individuals who seek to shut down dissenting voices whose investigations are inconvenient to them.
Surely, the Government have been aware for some time of the most flagrant cases of jurisdiction shopping by oligarchs and kleptocrats in British courts, but recognition of the problem has not been backed up by the necessary legislation. The Government have missed repeated opportunities to legislate against SLAPPs, and although consultations have been launched and expert advice and evidence has been reviewed, we still have not seen meaningful action to deal with these problems. It remains unclear when, or even if, new legislation will be forthcoming. I look forward to hearing what the Minister has to say on this important subject.
Alison Thewliss (Glasgow Central) (SNP)
I very much to support everything that the right hon. Member for Birmingham, Hodge Hill said. In his evidence to the Committee, Thomas Mayne of Chatham House said:
“This is a perfect opportunity for some kind of anti-SLAPP legislation to be put in the Bill.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 80, Q166.]
If the new clause is not going to be accepted this afternoon, will the Minister explain exactly when we will pass this legislation? Not “in due course”, not “at some point”, not “when legislative time permits”—when precisely will we legislate on this issue, if not now?
Tom Tugendhat
It is a huge pleasure to speak on this new clause. None of what I am going to say to begin with will particularly surprise the right hon. Member for Birmingham, Hodge Hill, because—
Tom Tugendhat
He knows very well that I am not going to accept it. The way in which the new clause is set out cuts across many other aspects of law, and it would quite severely affect jurisprudence in this country. However, he is absolutely right to point out the issue, and it is worth taking a bit of time to explain how we intend to address it.
The right hon. Gentleman is correct that the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Thirsk and Malton, and I are extremely clear that this is an important aspect of legal reform that we need to see in the United Kingdom. It is important because it affects freedom of speech in this country, as the right hon. Gentleman rightly says, and because it has a certain negative influence on the legal environment in which, sadly, people have to operate. He rightly spoke about Catherine Belton, whose work in exposing many of the crimes of the Putin regime has been frankly exemplary and heroic.
It is important that we address this. The way to do that is not to treat it simply as an economic crime, which it is not. It is not just a crime that affects the economy of our country or the movement of dirty money. It is a crime that is about freedom of speech and the access to justice that many people in our county need. We should look at it more as an offence against a fundamental democratic value than as an economic crime. That is why the work is being done with the Ministry of Justice, for rather obvious reasons. We are ensuring that we have a piece of anti-SLAPPs legislation, as the right hon. Gentleman correctly calls it, that addresses the whole problem.
The UK is still leading the way on the issue at national level. We are not yet where we wish to be, but we are doing better than many others. It is worth remembering that many different groups are working on this. The Solicitors Regulation Authority is already doing a lot of work to review the 20 firms suspected of involvement in SLAPP activity. The SRA is shortly to issue its regulated professionals with another warning notice, which will provide guidance on conduct in such disputes. It has already outlined guidance on certain oppressive behaviours, and has expressly linked those to the growing focus on the use of SLAPPs in England and Wales.
As the right hon. Member for Birmingham, Hodge Hill knows, there are many different tactics—aggressive letters, labelling correspondence and seeking to run up bills, as he rightly identified—that challenge people’s access to justice. They are exactly what the SRA is looking at and will be communicating with the MOJ about.
Dame Margaret Hodge
First, will the Minister describe the action that, according to him, the Government are taking? I do not understand what action they are taking.
Secondly, the new clauses that my right hon. Friend the Member for Birmingham, Hodge Hill tabled were written by a group of lawyers who support the UK Anti-SLAPP Coalition. They are not like the new clauses that we put together—they have been given considerable consideration—so I do not quite see how they could be bad law. They have thought this through.
Thirdly, there is a real tendency—I say this with the greatest respect and affection for the Minister’s work—for Ministers to shift a bit a paper to the left or right and do nothing with it. It is the easiest thing to do. We have described this as a once-in-a-lifetime opportunity to change the world; I plead with the Minister to grasp it and accept the new clauses. Let us move forward, rather than shifting the paper aside.
Tom Tugendhat
I am surprised to hear the right hon. Lady speak so negatively about her other amendments and new clauses. New clause 64 is not the only one that is well drafted; others have been as well. New clause 64 focuses, quite rightly, on getting anti-SLAPP provisions into the Bill, but it would extend the reach a bit further than we could take. I am happy to look further at the issue. I am happy to listen carefully to the opinions not only of the right hon. Lady, but of the people who advised the right hon. Member for Birmingham, Hodge Hill, on different approaches to the question. I am extremely happy to listen, but I am afraid we will not accept the new clause.
Seema Malhotra
When the Minister talks about looking more closely at this new clause, does he mean in the proceedings on the Bill?
Tom Tugendhat
I will be looking closer at the new clause in the proceedings on the Bill, but whether it makes it through will not necessarily be my final decision, as she knows very well. I would be interested to hear the arguments of the people to whom the hon. Lady has spoken.
Liam Byrne
I am grateful for the chance to intervene, because I sense that the Minister has almost reached the conclusion of his remarks without giving the Committee the date on which a more comprehensive proposal, which is what he argues for, will be presented to the House. We know that the Ministry of Justice has already conducted its consultation, and that the consultation responses have been analysed, but we have not had a hard date from either the Leader of the House or the Justice Secretary. If the Minister is in reassuring mode, he could perhaps furnish us with that date now.
Tom Tugendhat
I am afraid I will have to ask the Ministry of Justice for that information, but I am happy to write to the right hon. Gentleman. With that, I rest.
Liam Byrne
The truth is that people will be appalled by this debate. We gathered an enormous number of campaign groups and journalists together in the House on Tuesday evening, at a function that I had the privilege to co-sponsor with the right hon. Member for Haltemprice and Howden. The kinetic energy behind reform is significant. The law will change—we will get there—but the question is whether this Government want to be the authors of that change or continue to oppose it.
Every single day that the law does not change, bad people and bad lawyers will be racking up millions of pounds in legal costs in order to intimidate and stop publication by journalists who are hunting the truth. I am afraid that is not a good place for this Government to be in.
James Daly (Bury North) (Con)
I refer the Committee to my entry the Register of Members’ Financial Interests. The question I have is not a challenge to what has been said. As a practising solicitor I agree with the points the right hon. Gentleman is making, but the new clause would impact upon some general points regarding the professional duties of solicitors to their clients. A solicitor accepts a brief and then has to act in the best interests of that client and do various other things. If that involves criminality, it is a different question altogether. The Law Society is very much behind these proposals; what further regulation or advice should there be for solicitors to ensure that they can act within legislation such as that proposed?
The Chair
Order. The hon. Gentleman referred to his entry in the Register of Members’ Financial Interests but did not specify what it was or how it was relevant to his question.
James Daly
I apologise; I said I was a practising solicitor part way through my intervention. I mentioned that because I was touching on the legal profession, how it interacts with legislation and professional duties, as also mentioned by my right hon. Friend the Minister for Security.
Liam Byrne
The hon. Member is not just a practising solicitor, but clearly also a recovering solicitor. The SRA has been on the front foot in wanting to crack down on some of the bad behaviour. We had this debate in January on the Floor of the House; it was one of the best debates I have seen in 18 years in this place. What became clear was that, although there are some in the legal profession who do have to operate on that cab-rank rule—they have to step forward and plea in favour of people who are at the front of the queue—there are others who have choices about who they represent. The truth is that here in London there are groups of lawyers, such as Schillings—there are many others—who are making millions out of some very bad people. In fact, those people are so bad that they have subsequently been sanctioned, in this country and around the world.
Dame Margaret Hodge
Does my right hon. Friend agree that if the SRA were to fine those solicitors who engaged in that sort of false litigation—it is phony litigation—it would be a little cost on business given the millions they are making? Abramovich, for example, is worth, as far as we know, £12 billion. If he spends £50 million on a legal case, it is peanuts to him, and it is certainly peanuts to the solicitors who are subject to fines by the SRA.
Liam Byrne
My right hon. Friend is absolutely right that the whole strategy behind a strategic legal action against the public participant is not to win: they just want to damage their opponent to such an extent that they cannot afford to tell the truth.
It has been a disappointing debate, and it will disappoint many of the people who are watching and following it. It is unfortunate timing, because the anti-SLAPP coalition is coming together for its second annual conference on Monday, when it will publish a draft and more comprehensive law. We have not had a date from the Minister as to when the Government may have listened and brought forward a more comprehensive argument. If the argument is that the measures I am moving today are too fragmented or nugatory, that is fine, but let us hear the date for when a more comprehensive solution will be proposed. The Secretary of State for Justice has said it will be forthcoming but has not provided the date. That was the point of the new clauses: we want to know the date.
Liam Byrne
I beg to move, That the clause be read a Second time.
In a way, new clause 66 builds on the debate we have just had, but it takes the proposed reform in a slightly different direction. The Minister is well aware that in earlier debates we touched on the problem that when lawyers engage in work that falls squarely within the scope of money laundering regulations, there is a risk that regulated activity can slip through the cracks in the supervision regime because of the lack of a default supervisor for the legal sector. When a lawyer is engaged in regulated activity but is not a member of a particular legal supervisory regime, high-risk work is in effect unsupervised. I do not think that is where the Committee wants things to be.
In particular, the problem can occur in relation to wills, estate planning and estate administration, but it potentially extends to quite a wide range of individual legal professionals. For example, unregistered solicitors who do not have a practising certificate are prohibited by law from acting as solicitors, but may still offer other regulated services without being subject to the SRA’s supervisory authority. As the Government’s recent review of the anti-money laundering regulatory and supervisory regime highlighted, the absence of a default supervisor for those lawyers leaves us with a significant supervisory gap. I think it is a hole in the supervisory regime that the Minister will want to fix. We tabled the new clause to uncover what his strategy might be.
Seema Malhotra
It is a pleasure to speak briefly in support of new clause 66, tabled by my right hon. Friend the Member for Birmingham, Hodge Hill. He laid out clearly his reasons for doing so, and I think we all share his concern.
The new clause concerns the introduction of a default supervisory authority for independent legal professionals, and includes provisions such that when an independent legal professional is not a member of any of the professional bodies listed in schedule 1 to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, but undertakes regulated business within the scope of regulation 12 of them, the Solicitors Regulation Authority should be the default body for that independent legal professional.
As my right hon. Friend outlined, it is concerning that legal professionals who are not members of any professional legal bodies are still undertaking activities and taking cases. It is effectively a loophole that can enable rogue actors to act as legal professionals without the supervision or membership of a professional body, thereby avoiding scrutiny of their actions, which could facilitate economic crime and money laundering. Clearly, we need a solution. My right hon. Friend suggested that it is a problem that the Government need to fix; we would be keen to work with them on how that will happen. I think we all want to find a solution, and to do so before the Bill goes much further through the House.
Tom Tugendhat
I thank the right hon. Member for Birmingham, Hodge Hill for tabling the new clause and the hon. Member for Feltham and Heston for her comments on how it is designed to elucidate answers for procedure rather than to push for a change in the law. There is a lot that really does need further investigation, but the reality is that although we should all seek to prevent legal professionals from undertaking activity connected to money laundering, the new clause would not quite do that.
As the hon. Member for Feltham and Heston will know, there are currently nine UK professional body supervisors—known as PBSs—that supervise legal professionals for anti-money laundering purposes. Of course, the SRA is one of them. They cover different professions and the different jurisdictions: England and Wales, Scotland, and Northern Ireland. Supervisors already work closely with the Office for Professional Body Anti-Money Laundering Supervision—OPBAS—which we spoke about earlier, to ensure full compliance.
The vast majority of legal professionals are already carefully conducting strong anti-money laundering work. However, the Government’s review of the UK’s AML regime, published in June, identified concerns in the legal sector that a small number of professionals may be unsupervised. The examples are limited to some specific and small subsectors, such as specialist wills and estate planners and one or two unregistered barristers.
The review concluded that further reform of the supervisory regime is necessary to improve its effectiveness and proposed four options for reform, which could include giving the SRA, or other legal sector supervisors, a greater role. The review committed to taking forward a public consultation to develop the options further, which is necessary given the potential scale of the reform and the need to ensure that we fully understand the risks and impact of our final decision. I reassure Members that the Government are focused on ensuring that the reform addresses the problems identified in the review, including that of supervisory gaps.
The new clause would require the SRA to supervise independent legal professionals in Scotland and Northern Ireland who are not regulated by any of the professional bodies listed in the money laundering regulations. Additionally, each AML supervisor currently represents different legal professions with diverging practices and processes. In the absence of broader AML reforms and appropriate resourcing, it would be difficult for the SRA to supervise those who are not currently members of its own regulated community, as the new clause would require.
I share the desire of the right hon. Member for Birmingham, Hodge Hill to strengthen our supervision regime; however, given the ongoing reforms to AML supervision that would be interrupted by the new clause, and its likely impact on the SRA, it would not be appropriate to accept it at this moment. I therefore urge the right hon. Gentleman to withdraw the motion.
Liam Byrne
The Minister made the case for the new clause rather well. I am grateful for his confession that significant numbers of businesses are in effect not covered by a default supervisor. If anything, he will have alarmed those listening from the other place who will, no doubt, want to pick up the new clause and build on it, especially given the Minister’s intention—sotto voce, I think—to try to move in the direction of reform.
The point I want to underline is that the challenge we are presenting is not about firms that are covered by a supervisory regime; our worry is about firms that are not covered. The Minister wisely began his remarks by talking about the nine different sets of legal sector supervisors. He may know that almost a quarter of legal firms visited by these nine supervisors were assessed as being non-compliant with AML rules, and 71% of the firms visited by the biggest legal sector supervisor—the SRA—have not put in place an independent audit function to gauge the effectiveness of their AML policies, controls and procedures. He may also know that 60% of the firms that were subject to a full on-site inspection by the SRA were not fully compliant with requirements to have in place adequate AML policies, controls and procedures. This is a significant problem.
I think the Minister is indicating that the Government are open to reform. It was not clear to me precisely which aspects of the new clause were being opposed, but we think that the place to really get this done in a thorough way may be the other place, safe in the knowledge that the Bill will come back to the Commons in a much healthier state. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 67
Civil asset recovery in cases of economic crime
“The Secretary of State must by regulations make provision for costs in civil recovery proceedings involving economic crime to be awarded against the enforcement authority only where the respondent can show that the enforcement authority has acted unreasonably, dishonestly or improperly.”—(Liam Byrne.)
Brought up, and read the First time.
The Chair
With this it will be convenient to discuss new clause 68—Criminal asset confiscation in cases of economic crime—
“The Secretary of State must by regulations make provision for the parties to bear their own costs in criminal confiscation proceedings following an unsuccessful prosecution of an economic crime.”
Liam Byrne
The new clause would cap legal costs where the Government try to bring unexplained wealth orders into effect. That point was picked up by the Foreign Affairs Committee when it was ably chaired by the Minister for Security. It also featured heavily in the economic crime manifesto which the other Minister helped launch in Westminster Abbey not too long ago, in the heady days of summer, when he was among the leading campaigners for cleaning up economic crime—his apprenticeship for the Bill in many ways.
You will know, Sir Christopher, that we have a real problem in this country, in that we introduced a brilliant legal reform back in 2018—I cannot remember whether that was one, two or three Governments ago, but it was introduced by a Conservative Administration and supported by Members across the House. Indeed, when I was in Washington with the Minister earlier in the year, unexplained wealth orders were lauded by the Department of Justice, the Department of the Treasury and everyone else we met as a really serious bit of legal innovation that the rest of the world could learn from. It fell to us to explain that all four of the unexplained wealth orders that have been moved so far have failed. Of course, one reasons that they are failing is because the poor National Crime Agency—I mean poor financially—is having to go up against some of the richest people in the world, and is simply being outgunned and outspent in court.
The case of Aliyev is a good example. I think it was the second unexplained wealth order, and the National Crime Agency sought to target properties owned by Ms Nazarbayeva and her son Nurali Aliyev. It was always going to be a difficult case, because the mother was the Speaker in Kazakhstan’s Senate and a successful businessperson—she was named in Forbes and all those kinds of things. Her son, who is an investor and entrepreneur, had founded Capital Holdings JSC, a business that manages about 25 different companies. However, the National Crime Agency suspected that the source of Nurali’s property wealth was his father, who had held several senior public roles in Kazakhstan and had fallen out with the Government. Unfortunately, he died in suspicious circumstances in 2015. The NCA suspected that the father had been involved in bribery, corruption and money laundering, and it had prayed in aid lots of good evidence in order to substantiate its case.
The enormously complex legal structures involved in the case meant that the National Crime Agency had to serve the unexplained wealth order against a host of offshore companies that owned the properties. It had to serve against the London solicitor Mr Andrew Baker, who was a trustee of the complex arrangements. Two of the properties were bought by companies in the British Virgin Islands and sold on to Panamanian companies. A third was sold from a BVI company to a company in Curacao, and then to another in Anguilla. It was the classic type of case that the Bill is designed to police.
In early April, however, Mrs Justice Lang discharged the unexplained wealth order that had been granted, because of new evidence that had been presented. Reuters subsequently reported that the protagonists in the case were seeking £1.5 million-worth of costs from the National Crime Agency, which had to fork out an interim payment of £500,000. Given that the NCA’s anti-corruption budget was only about £4 million in the year in question, Members can see what kind of impact such tactics can have. In the United States, which is much better at this than we are, there is a much stronger cost-control regime.
Again, this measure that has cross-party support. I think the hon. Member for Amber Valley (Nigel Mills) sought an amendment to the Criminal Finances Act 2017 that would have changed the law so that costs could not be awarded on an indemnity basis. I am no expert on that particular amendment, but it was rejected by the Government. None the less, there have been efforts by hon. Members across the House to try to get a handle on the matter.
Kevin Hollinrake
The right hon. Gentleman says that there is a much stricter cost-control regime in the United States. He is clearly not aware that there is no such regime in the United States, because no adverse costs are awarded. It is a completely different legal system.
Liam Byrne
I meant, in summary, the economic effect. The impact is that agencies have much greater latitude to bring cases against bad people in American courts without fear of what it will do to their enforcement budget. That is exactly where we need our enforcement agencies to be. If we are going to strengthen their hand, to really effectively police the problem and to respect what the Government need to do, namely, to ensure that we maximise the effectiveness of our enforcement agencies within tight budgets, the measure should, I hope, be accepted by the Government. I am delighted to have had the opportunity to move the new clause.
Stephen Kinnock
I wish briefly to concur with my right hon. Friend’s every word. He has made a powerful case about unexplained wealth orders. That was something of a false dawn for the reasons he set out. Similar to what we said about SLAPPs, we are concerned about the chilling effect—the vast disparity between the financial firepower of the people that the UWOs seek to go after and that of the NCA and, frankly, the British state.
My right hon. Friend’s new clause would absolutely push the Bill in the right direction. It provides a means for us to level the playing field. On the basis of that common-sense proposal, we can start to have serious conversations about how to crack down on some of the kleptocrats. I thank my right hon. Friend for his clause and the manner in which he has proposed it. I hope that the Minister will seek to champion it rather than oppose it.
Tom Tugendhat
I am grateful for the intent behind new clause tabled by the right hon. Member for Birmingham, Hodge Hill. He has an absolutely valid point—we need to equalise the firepower between some of the organisations. We have a fundamental challenge, because we cannot assume that arising from the actions of a UWO, which is not a human rights action but to do with civil litigation, costs should fall on the losing party. We must look at how to balance the different elements.
My own inclination would be look more at how we fund our agencies to do this work. Some members may have heard that I once was in the Army. The way the armed forces does such things is by having two different forms of budget—the ongoing budget and the war reserve. I am much more inclined, and much more persuadable, towards the argument that we should be making sure that the agencies that take on such claims have a war reserve to ensure that they can meet the costs without that affecting their ongoing work, rather than changing the law in a way that would affect civil liabilities in many different areas.
Dame Margaret Hodge
To be honest, I do not think that would prevent the impact that the fear of incurring costs would have on how any of the agencies operate. Everyone in the House has great respect for Bill Browder, and I am sure that the Minister will have talked to him about the issue, and I know that the Under-Secretary has, too. Bill Browder is completely shocked and astounded by the fact that we allow any costs at all to be claimed by successful litigants when they challenge Government action.
I do not know whether either Minister had the chance to meet Judge Mark Wolf, who is over here campaigning for an international anti-corruption court. I do not know whether they have come across him. He was here last week and, when we talked about such litigation, he expressed absolute astonishment that defendants in any of these cases, have the right to any of their costs being met. In America, looking at those figures, great success comes from that hugely important lack of ability to claim costs.
Tom Tugendhat
It is worth pointing out that the Americans do not use unexplained wealth orders, which, after all, are civil litigation, because they do not have them. Therefore, the question of costs does not apply in the same way.
Dame Margaret Hodge
I would not use the example of unexplained wealth orders. They have not worked in the way that we had all hoped and intended. On the failure to prevent bribery, if we think of the acts that the Serious Fraud Office has been engaged in—I think it is with Serco, where they face a couple of million pounds in claims and costs. It goes right across the panoply of tools that we have to fight economic crime.
Tom Tugendhat
This new clause clearly focuses on the Proceeds of Crime Act 2002 and the different ways in which it would be affected. I will not accept it, for the reasons that I have given; I believe it expands far too far into other areas of civil litigation. I do, however, take the right hon. Lady’s point entirely. The ways in which our agencies can defend themselves has already been on my plate for many, many weeks.
Liam Byrne
The Minister has had quite an education since becoming a Minister and joining the ranks of the Government, because, of course, it was in the Foreign Affairs Committee report on tackling illicit finance in which he authored a number of quite strong words about the need to reform and improve the regime for unexplained wealth orders, which are an important legal innovation. They are looked up to by enforcement agencies from around the world, and it is a national embarrassment that they are not working. It could well be, as the Minister argues, that the right answer is to create a war-fighting fund for our enforcement agencies, but that would have been possible if the Government had not opposed all the amendments that we suggested to create and restock the war chest that might be needed.
I appreciate that in this business a politician’s first instinct is to want to have their cake and to eat it, but unfortunately the Minister voted against putting us in that position at an earlier stage in the Bill. It is therefore important to send a clear signal to the other place that this is an important set of reforms for the Government to focus on and get right. I will therefore press the new clause to a vote.
Question put, That the clause be read a Second time.
Economic Crime and Corporate Transparency Bill (Nineteenth sitting)
Tuesday 29th November 2022
(1 year, 11 months ago)
Public Bill CommitteesRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 29 November 2022 - (29 Nov 2022)
The Committee divided: - Ayes: 6 / Noes: 8 - Question accordingly negatived.
Gavin Newlands (Paisley and Renfrewshire North) (SNP)
I beg to move, That the clause be read a Second time.
It is a pleasure to serve under your chairmanship, Mr Robertson, and it is fantastic to rise to do something more worthy in Committee than pour water for my hon. Friend the Member for Glasgow Central.
I accept completely that, as has been said many times, the Bill is excellent and we just need to tighten it up, and that it contains provisions, including on unique identifiers, that will help to block some of the more obvious means of carrying out the practice of phoenixing, which has been discussed both when we took oral evidence and throughout line-by-line scrutiny. However, it is my view, and that of many others, that we are missing a golden opportunity to fully address phoenixing with the Bill and to tighten up all parts of the regulations relating to Companies House.
The genesis behind new clauses 69 and 70 is a specific directorate and company the businesses of which have unfortunately harmed my constituents and many others across Scotland and throughout the UK. New clause 69 would stop those who burn through multiple limited companies leaving a train of destruction in their wake, with little or no recourse for the authorities. It would not prevent those who have no nefarious or ill intent but find that their company is unsuccessful, even on more than one occasion. It would not apply automatically to any individual who hits the three winding-ups limit; it would only allow the registrar to act if there were grounds to do so.
Around 10 years, a company called HELMS—Home Energy and Lifestyle Management Systems—controlled and operated by a man named Robert Skillen, went door to door in my constituency offering solar panels and home insulation as part of the now-scrapped UK Government green deal scheme. You will be pleased to know, Mr Robertson, that I do not intend to go over the whole story; suffice it to say that hundreds of my constituents and thousands of people across Scotland are still paying the price to the tune of thousands of pounds each.
Skillen was able to wind up HELMS, move on to his latest venture with millions in his back pocket and face no consequences for his personal actions. He is an individual—there will be thousands like him—with a long track record of extracting maximum value from his scams via limited companies and then setting up shop for a new crack at it, having defrauded thousands of people. He even had the cheek to set up a company to assist those who had been defrauded by his previous company to receive compensation from which he would receive a cut. That type of individual is currently beyond the reach of the law; hopefully, provisions such as the new clause would assist with that.
Mr Skillen was fined £200,000 by the Information Commissioner’s Office and £10,500 by the Department of Energy and Climate Change, as it was at the time, but the fact is that of that £200,000 he paid only £10,000 before winding the company up. That led the ICO to lobby the Government to enable it to fine individuals such as Robert Skillen up to £500,000.
In respect of cases such as those of Mr Skillen and many others who make sharp practice look easy and do so without any care or remorse, the new clause would act as a deterrent to the manipulation of company registration for personal gain and enrichment and prevent those who have used multiple company identities for malfeasance or sinister purposes from continuing that pattern of behaviour ad nauseum. I stress that the point of the new clause is not to prevent those who have had genuinely unsuccessful businesses from starting afresh. The registrar should be able to separate those cases from those of people with evil intent.
Companies House already has the power to disqualify directors and the new clause would simply allow it to consider slightly wider grounds on which such a disqualification could rest. It would help to put an end to the cases that every Committee member will have encountered in their constituencies of companies taking payment for goods and services, shutting up shop with the cash pocketed and then popping up again under a different name but carrying out exactly the same work. The purpose of the new clause is to tease out from the Minister the Government’s approach to phoenixing. With that, I rest.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
It is a pleasure to serve under your chairship, Mr Robertson, and to follow the hon. Member for Paisley and Renfrewshire North, who made a very important speech. New clause 69 would introduce new provisions to prevent the continued trading of companies repeatedly declared insolvent and the practice of phoenixing, which the hon. Member outlined. It states:
“A company may not be registered under the Companies Act 2006 if, in the opinion of the registrar of companies, it is substantially similar to a company which has been subject to winding up procedures under the Insolvency Act 1986 on more than three occasions in the preceding ten years.”
A company may be “substantially similar” to previous companies in terms of its name, registered office, proposed officers and so on. This would mean that there is more scrutiny, and questions are raised about whether a company should be able to continue trading.
It is very important, for the reasons we have outlined in Committee, to seek to protect the public and other businesses from unscrupulous operators effectively carrying on their business activity and going through the same cycle of building up debts, which leads to consumer issues, and simply disappearing and starting again. We must deal with that behaviour, which is a route through which economic crime takes place, and that is why we support the new clause. We will listen closely to the Minister’s response on how the Government propose to tackle the issue of phoenixing.
I note the similarity between the intentions of this new clause and new clauses 28 and 46, tabled by my hon. Friend the Member for Aberavon and I, which we have discussed. In different ways, all those new clauses would tighten up glaring loopholes around strike-off, insolvency and phoenixing that enable those who are participating in economic crime to avoid scrutiny. We welcome the new clause, and we look forward to the Minister’s response.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
It is a pleasure to serve with you in the Chair, Mr Robertson. I appreciate the spirit of the amendment, and I also appreciate the hon. Member for Paisley and Renfrewshire North describing this as an excellent Bill—a very constructive point—but one that needs tightening up; I understand his points and applaud the efforts made by him and other Opposition Members to do so.
I am fully aware of the devastating consequences that such issues have on businesses, suppliers, supply chains and our constituents. I have a case of a gentleman called Scott Robinson who repeatedly closed his investment business down. It was called TBO Investments at one point and then became Mount Sterling Wealth. He effectively took his clients with him, and people lost huge amounts of money. They had provided money for him to invest based on supposedly low-risk investments, but he was actually gambling that money in very high-risk investments, and he did that time and again. I really sympathise with the spirit of the amendment, and I am keen to look at not just phoenixing but other types of situation where people deliberately take risks like that that have devastating consequences for consumers and businesses in our constituencies.
Gavin Newlands
The Minister says he will look at this and is sympathetic to the issue. For clarity, does that mean a later stage beyond the Bill or at a later stage of the Bill?
Kevin Hollinrake
In my view, it needs further work rather than just plonking the new clause in the Bill. There is a wider issue here and I am pleased to see that he seems to acknowledge that. Certainly, a piece of work is needed to look at this in detail. There are some measures in place already—just the pre-pack arrangements subject to Committee scrutiny. I will come on to that in a second.
There are existing provisions in the Bill that provide safeguards against the fraudulent phoenixing behaviour that the new clause targets. Section 216 of the Insolvency Act 1986 makes provision for restriction and prohibition on the re-use of a company name when new companies are formed, which is an intrinsic feature of phoenixing and one that the hon. Gentleman addresses in his new clause. That provision will be complemented by the new powers contained in the Bill. For instance, the registrar may choose to exercise the power to compel the production of information to help her determine whether an application to incorporate a company complies with the proper delivery requirements. They will include that those named as prospective directors can lawfully act as such, which would not be the case if they were barred under the 1986 Act from acting as a director of a company using a prohibited name, and the registrar would be empowered to reject the incorporation application. Furthermore, the registrar will have greater power to direct companies to change their names if they deliberately mislead in their purpose. Such powers provide the registrar with a powerful tool when considering new company registrations.
The registrar will be able to examine and interrogate information already held and share data with law enforcement partners and other authorities. That will allow other key characteristics such as verified identities, the registered office, proposed officers and business activities to be critically assessed with intelligence received to spot patterns of phoenixing.
If adopted, the new clause would be largely duplicative of provisions already in place or those introduced by the Bill. It would also erode the registrar’s discretion in the application of their powers as envisaged. There will be some instances when companies are captured by the new clause and are not culpable, but are merely victims of a legitimate business failure trying to start their enterprise. For instance, the new clause mentions companies that have
“been subject to winding up procedures”.
In that situation, they may be companies that have not necessarily gone into liquidation. There might be other legitimate reasons that those procedures have taken place, which may not be reflective of something that might be considered phoenixing. So, the registrar must be allowed to apply their powers according to the facts and information available. As I have said, I am keen to look at that, including the pre-pack rules, to see where we can tighten up on the matter to make sure those instances are minimised. For all those reasons, I hope the hon. Member will withdraw his new clause.
Gavin Newlands
I thank the Minister for his response. The new clause was very much a probing amendment and the Minister points out one weakness. It is a small new clause for dealing with quite a big problem and I may look to table a much more rounded amendment on Report. With that, I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 70
Bar on directors in breach of duties receiving public funds
“(1) A company with a director or directors which are in breach of the general duties outlined in Chapter 2 of the Companies Act 2006, or who have been found to have committed statutory breaches of employment law, may not receive Government provided funds or financial support, unless subsection (2) applies.
(2) A company whose director or directors meet the criteria outlined in subsection (1) may receive Government provided funds or financial support if such funds or support are provided solely and specifically for the direct benefit of the company’s employees.”—(Gavin Newlands.)
This new clause seeks to prevent directors who fail to comply with their duties as a company director or with employment law provisions from being able to access funds in instances where these funds are for the benefit of the company and not the company’s employees.
Brought up, and read the First time.
Gavin Newlands
I beg to move, That the clause be read a Second time.
It is like London buses—I am back. I do not propose to take as long to speak to new clause 70, which proposes to turn off the tap of public funding to those who have failed to discharge their duties under the Companies Act or who have failed to discharge their duties to their company’s staff. I mentioned Mr Skillen previously, and his local constituency got in touch with me to tell me that he is back in business and that his company had been in receipt of public funds. The aforementioned Mr Skillen is currently a director of four limited companies, each one coming after the winding up of HELMS. Those companies are interlinked via control and ownership structures. Through that, Government loan funding was applied for and granted just before Mr Skillen became a director and owner of a large chunk of the new enterprise.
My new clause is very simple and would prevent those who fail to discharge their duties from receiving public money or support for any company for which they are listed as a director. Mr Skillen’s modus operandi was to misuse and mis-sell under the Government’s green deal scheme, but he popped up a few years later at a company benefiting from taxpayer funding and is involved in the energy business as well. It is simply not good enough that policy interventions intended to promote a wider economic strategy, be it local or national, are manipulated and used by spivs who are able to hide behind company registration and face no barriers to their actions from the registrar, short of the nuclear option of being barred from acting as a director.
We have seen a number of cases over recent years of multinational companies, such as P&O Ferries and, not quite to the same extent, British Airways, breaching their duties as employers and breaching employment law. Indeed, the chief executive of the former happily admitted breaking the law while appearing before the Transport Committee’s joint session with the Business, Energy and Industrial Strategy Committee. Such blatant and open law breaking cannot be rewarded with taxpayer support, and the new clause would ensure that those breaching laws that are meant to protect workers cannot then dip into the same workers’ pockets for financial support. It would not impact on workers, because any funding, such as for a furlough scheme, would not be affected by the new clause.
Seema Malhotra
This is a useful new clause, in the spirit of some of the new clauses that we have tabled on what should and should not be available to directors who are in breach of their duties, disqualified and so on. The new clause, tabled by our colleagues from the SNP, would introduce new provisions that bar directors who are in breach of their duties from receiving public funds. Under the new clause, a company with a director or directors who are in breach of the general duties outlined in the Companies Act 2006, or who have been found to have committed statutory breaches of employment law, should not receive Government-provided funds or financial support unless it is solely and specifically for the purpose of directly benefiting the company’s employees.
This is an important debate, and I would be interested in the Minister’s response. When taxpayers find out that their money goes towards effectively supporting or enriching directors who are in breach of the Companies Act, there will be a real question about what the Government can do to further disincentivise and not reward those who are in breach of employment law or other areas of legislation. We support the sentiments behind the new clause and the arguments being made, and I look forward to the Minister’s response.
Kevin Hollinrake
I thank the hon. Member for Paisley and Renfrewshire North for his new clause; again, I support the motivation behind it. Clearly, there are restrictions already. Where a director has failed to observe a specific duty under the Companies Act 2006, they will potentially find themselves liable to criminal sanction and disqualification. I accept the fact that we have not focused too much on that area in the past, but that is exactly why we are legislating in the Bill to make the registrar far more proactive in her work. Where an employer has committed a breach of employment law, the relevant statute will generally provide appropriate remedies either by way of a right of action for the worker—normally in an employment tribunal or the courts—or by way of state enforcement, or sometimes both.
The new clause seeks to isolate only two triggers for denying access to financial support. Although they may have merit as triggers, who is to say that there are no other matters of conduct on the part of either a company or its directors that might lead one to question the wisdom of awarding it taxpayers’ money? Obviously, that should be determined within the scheme rules. The hon. Gentleman pointed to a case in which a director was interlinked with four other companies. There are already restrictions on Government loans—covid loans, for example—which must be taken into account where there are interlinked schemes, and he is probably aware of that.
Gavin Newlands
I appreciate the Minister’s response. To pick up on a couple of his points, he said that there are already remedies available, but as we have seen there are far too few for employees who suffer at the hands of a nasty business owner. We have all seen such cases on the news or from our own case loads.
The Minister mentioned the regulations governing covid loans. Clearly, that is a very specific example, and he makes a fair point, but that is not the case for all public moneys. However, this is a probing provision and would require further work before I sought to test the Committee or the Chamber with a vote. I therefore beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 71
Suspicious Activity Reporting: risk rating
“(1) The Proceeds of Crime Act 2002 is amended as follows.
(2) After subsection 339(1) insert—
‘(1ZA) An order under subsection (1) must prescribe that a risk rating be included as part of a disclosure.’”—(Dame Margaret Hodge.)
Brought up, and read the First time.
Dame Margaret Hodge (Barking) (Lab)
I beg to move, That the clause be read a Second time.
I will be on my feet for a bit, so I will try to be succinct—I know that Members have other things to do this afternoon. [Laughter.] It may be impossible for me. I want to say quite a lot about this new clause.
New clause 71 is about reforming of the suspicious activity reports regime. Ministers will accept that the SARs regime is a central tool in our defence against money laundering, but I hope they also accept that the current system is broken—it is not working. The new clause would introduce a new risk rating system, which would transform the efficacy and efficiency of the current regime.
SARs are very valuable and a vital source of intelligence. They are made mainly by financial institutions, but also by solicitors, accountants or estate agents, and they report suspicious activity. They have been absolutely instrumental in a range of successful actions against criminal activities, locating sex offenders, tracing murder suspects and identifying those involved in online child abuse, and they have shown how young women are trafficked into the UK. They have also been instrumental in closing down fraud and money laundering.
To give one example of a successful case involving fraud, a vulnerable elderly man in his 80s was the victim of a fraudster who had gained his personal details through a cloned website, when the elderly man believed that he was making a genuine investment. The reporter who saw the transaction going through was suspicious when the fraudster tried to impersonate the victim and access his main funds. He reported the transaction, and the UK Financial Intelligence Unit, which operates the SARs regime, received that report. The unit immediately passed it on to the enforcement agency—I wish this happened every time—which visited the victim in his house. The agency was then able to quickly contact the institution where the transaction was supposed to take place. It reported that the suspicious activity was wrong and confirmed the real identity and bank details of the elderly man, which all prevented him from losing in excess of £80,000.
This scheme is therefore important, and it is successful when it works well. However, at present, the sheer volume of SARs and the limited resources available mean that the information is not analysed and often simply not used. In evidence to the Treasury Committee, Mark Steward, the director of enforcement at the Financial Conduct Authority, said:
“More needs to be done in order to get more out of the valuable data that is in there. Otherwise, it just sits there.”
Graeme Biggar, also giving evidence to the Treasury Committee, as director general of the National Economic Crime Centre, said:
“Twenty years ago, we got 20,000 suspicious activity reports in, largely from banks. This year, we would not be surprised if we got three quarters of a million, and the number of defence against money laundering SARs, where we are told in advance and given the option to refuse permission to proceed, is going to double, we think, this year. The sheer volume coming through is really significant and very hard to deal with.”
According to research from Spotlight on Corruption, only 118 people handle the SARs. That is one employee to 4,250 SARs. The Australians, who have a similar enforcement regime, and who have also experienced an explosion in SARs, have a staff complement of one to 1,400—three times better than our own. The Committee has often talked about the relative budgets for enforcement of the UK and the USA. The USA has increased funding of the Financial Crimes Enforcement Network by 30%, and its staffing by 50%. The Minister should recognise that the Federal Bureau of Investigation’s budget is now 15 times larger than the National Crime Agency, although our population is only five times smaller than America’s.
The Financial Action Task Force review in 2018 said SARs should be reformed, and SARs were criticised by the FATF. The Treasury Committee report in 2019 talked about SARs reform. In 2017, the Government had announced a reform programme for SARs, led by the Home Office together with the NCA. That reform programme constituted action 30 in the economic crime plan. The intent was to have an IT transformation, better analytical resources and capabilities, and an improvement in SARs processes. That SARs programme was reviewed by the Government’s Infrastructure and Projects Authority, and was given an amber rating in 2021. So reform started in 2017, the programme was given an amber rating in 2021, and today, in 2022, it is not complete and there is no timetable from the Home Office—maybe the Minister can help with that—or a target date for completion, which was a criticism the Treasury Committee made of the programme. Delivery was originally promised by December 2020, but we are two years on from that and we are a long way from seeing SARs completed.
In that context, new clause 71 introduces a risk-rating regime. I do not think anybody thinks that is a crazy idea, and I hope the Minister will—just for once—adopt one of the suggestions that the Opposition have made in Committee. I hope he will not say that we do not need the legislation. We are nearly six years on from when the reform programme was announced, and reform has not happened. The Government cannot, despite the best efforts of right hon. Member for Uxbridge and South Ruislip (Boris Johnson), ignore legislation, although they seem to be ignoring the desire to reform the SARs programme.
If Ministers want action, which they have consistently said they seek with the Bill, they should accept new clause 71. If they simply see this measure as party political, they should not. We do not deal with the funding issue in the new clause, but we will ensure that the focus is on the most significant SARs. That will lead to more enforcement. I urge the Minister to adopt our new clause.
Seema Malhotra
It is a pleasure to speak briefly in support of the new clause tabled by my right hon. Friend the Member for Barking. It would amend the Proceeds of Crime Act 2002 such that any disclosure made as part of the suspicious activity reporting regime must include a risk rating. My right hon. Friend outlined very effectively the reasons why the new clause is important. Much of the evidence in our meetings at the outset of the Bill, which set out the context and stakeholder views, it was clear that the SARs regime was failing. The databases of referrals were going unreviewed and unlooked at, because the resources were not there. There was no effective means that we could see of prioritising SARs fed into the NCA.
SARs is an essential tool in our defence against money laundering, but if the system is not working, something needs to happen. Having an extra step in the process to help with prioritisation, look at risks and deal with those identified as higher risk would help, as my right hon. Friend outlined, to bring in quality, at a time when we know that quantity is the new battle. She said that the current estimate is three quarters of a million referrals, which is extraordinary. Given the scale and types of economic crime, the number of referrals is likely to get worse, not better. That is a good thing if we are starting to highlight and refer more cases as we start to clean up our systems. However, we then need to deliver on that; otherwise, the downside is that we will reduce confidence among those doing the referrals that anything will actually happen.
Nigel Kirby of Lloyds Bank said in his evidence to the Committee:
“I think the SARs regime and the Proceeds of Crime Act 2002 itself actually need—well, not necessarily to be turned upside down, but to be looked at as a whole.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 19, Q26.]
I think we have some agreement that the system itself is important, essential and necessary but that it needs wholesale reform to make it more efficient and effective and to ensure that it does what we ask of it.
The Minister for Security (Tom Tugendhat)
I thank the right hon. Member for Barking for the new clause. I will slightly gloss over one element and focus on something she mentioned several times—I always listen carefully to what she says—about the comparison between the FBI and the NCA. I take the comparison, but the NCA is not a direct comparator for the FBI. After all, the FBI includes the equivalent to MI5. It also includes counter-terrorism police and a lot of what we call regional organised crime units. It includes a lot of other areas of policing that simply do not come under the NCA’s budget, so the comparison of budgets is not apples and oranges; it is more like apples and cider—the bulk of one and the punch of the other are not quite the same. I hope the right hon. Lady will forgive me for saying that that is not entirely a fair comparison.
That said, the NCA does an enormous amount of good work and uses SARs in many different ways. I have the figure here: the UKFIU received and processed nearly 600,000 SARs in 2019-20. That has increased significantly every year. The action taken has resulted in about £192 million being denied to criminals in 2019-20, up 46% on the previous year. So this is something that we are already using heavily.
Dame Margaret Hodge
We all think that SARs is a helpful regime. I wonder whether the Minister has been given the information by the NCA. It got more than half a million SARs, but how much of that data did it use to get the millions that it got in? That is a heck of a lot of data, which should yield a huge amount of valuable information.
Tom Tugendhat
First, not every SAR leads to an actionable offence. Many of them are simply, and quite rightly, reports. They are reports because there are suspicions, but suspicion does not necessarily mean guilt. Many times these are companies that are taking on clients or that have clients who are suspicious, and they want to be sure they are doing the right thing so, responsibly, they report in. We should not confuse the absolute number of reports with a level of criminality. That would not be fair on the British population, those doing the reporting or the NCA, which is looking into these things.
Alison Thewliss (Glasgow Central) (SNP)
I did not mean to stop the Minister in mid-flow. He says that the number does not necessarily correlate to criminality. Is he concerned to hear that trust and company service providers have provided only 31 SARs, according to Graeme Biggar when he gave evidence to the Treasury Committee? A total of 31 seems impossibly low for the number of trust and company service providers, compared with what comes in from others.
Tom Tugendhat
The hon. Lady makes a fair point, but as she knows well that is not the point of the new clause, which is about the supervision of SARs and the ways in which they are checked and verified. That said, I have listened carefully to her and will have a look at that, because I do appreciate the point she makes. That said, I think these codes already enable the NCA to triage effectively, although if she has better ideas I am happy to listen and look at them further. However, I am to be convinced, because I think the Bill already addresses the areas she indicates. I get the point she is trying to make, but I am not sure that her suggestions would lead to a significant improvement on what is already there.
Dame Margaret Hodge
I am trying to untangle what the Minister said. If he is open to further discussions, I do not think that there is a rating regime. All we are saying is that there should be a rating regime so that the most urgent cases come at the top. My understanding is that that does not exist. There may be some form of triaging that I am not aware of. We just want to introduce a rating regime. If he is willing to engage in discussions before Report, I am happy not to put the matter to the vote. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 72
Office for Professional Body Anti-Money Laundering Supervision: powers and duties
“(1) The Secretary of State must by regulations set out a further power and duty for the Office for Professional Body Anti-Money Laundering Supervision.
(2) The power referred to in subsection (1) is the power to impose unlimited financial penalties on Professional Body Supervisors that fail to—
(a) adopt an effective risk-based approach to anti-money laundering supervision;
(b) impose proportionate and dissuasive sanctions for non- compliance with anti-money laundering requirements; and
(c) fail to separate their advocacy and regulatory functions.
(3) The duty referred to in subsection (1) is the duty to publish the details of any sanctions imposed on Professional Body Supervisors, and its reviews of Professional Body Supervisors with data disaggregated by body rather than by sector.”—(Dame Margaret Hodge.)
Brought up, and read the First time.
Question put, That the clause be read a Second time.
The Chair
With this it will be convenient to discuss new clause 74—Failure to prevent fraud, false accounting or money laundering: director liability—
“(1) If an offence under section [Offence of failure to prevent fraud, false accounting or money laundering] is committed by a body corporate and it is proved that the offence—
(a) has been committed with the consent or connivance of an officer of the body corporate, or
(b) is attributable to any neglect on the part of an officer of the body corporate, the officer (as well as the body corporate) commits the offence.
(2) For the purposes of this section, ‘officer’ means—
(a) a director, manager, associate, secretary or other similar officer, or
(b) a person purporting to act in any such capacity.”
Dame Margaret Hodge
I will speak for a little longer on new clause 73, but hopefully we will get through the others more quickly. It is probably one of the most important new clauses that we have tabled. It sits with new clause 79, which we will come to a little later. If we can make progress on this issue, we will be putting some better meat on the bones of what is still quite timid legislation.
We all want to do all we can to prevent economic crime from occurring in the first place. Prevention and early intervention is obviously the best, cheapest and most effective way of tackling the problem of dirty money. We want to stop it happening in the first place. We also all know that much economic crime takes place because lawyers, company service providers, accountants, bankers or estate agents either enable or collude with bad actors, helping them or turning a blind eye to the things that they do, thus enabling money to be laundered, crime to be committed, and our systems to be used to commit financial crimes.
There is currently too little in our laws and regulations that will stop the enablers—accountants and all the others—supporting and enabling economic crime. Companies and individuals are not held to account for what they do. The new clause aims to put a halt to that. We need to reform our outdated corporate liability laws so that not only companies but senior managers can be prosecuted if they fail to prevent fraud, false accounting and money laundering. It is not because we want to have endless prosecutions, or to fill prisons with these enablers, but because the threat of criminal prosecution will act as the best and most vital deterrent in preventing professionals from helping criminals to launder and manage their dirty money.
As we have said time and again in Committee, most professionals act with integrity. Those professionals with integrity have absolutely nothing to fear from the new clause. Indeed, the majority, who act responsibly, should welcome the change, because it will help us to clean up their profession, get rid of the bad apples and restore our reputation as a trusted jurisdiction. The Minister knows very well—I am trying to find the right Minister—
Dame Margaret Hodge
Both Ministers know that reform has been promised, and delayed, for a long time. The 2015 Conservative manifesto committed to making it illegal for companies to fail to put in place measures to prevent economic crime. The 2017 Ministry of Justice consultation on corporate liability reform sat for three and a half years. Inexplicably, it found that there was not enough evidence to pursue reform. I can only imagine that the Ministry was strongly lobbied. It said there was not enough evidence despite the fact that 76%, or three out of four respondents, said that the identification doctrine, which we will come to, inhibits the holding of companies to account for economic crime, and that two out of three respondents thought that corporate liability reform would result in improved corporate conduct. Despite all that, the Ministry chose not to pursue reform.
We then got the Law Commission’s review in 2022. It found that the current situation was “highly unsatisfactory” and that, on the status quo on corporate liability, “the identification doctrine”—for fraud and money laundering, the way in which we determine whether the people involved represent the “directing mind and will” of the company and can therefore be held responsible—
“is an obstacle to holding large companies criminally responsible for offences committed in their interests by their employees.”
The commission said that the status quo is “unfair” and that if the law remains unchanged it
“will continue to enable large companies to be acquitted for conduct which would see small businesses convicted.”
It also stated that that
“could diminish confidence in the criminal law”
and, finally, that the status quo incentivises poor corporate governance and
“rewards companies whose boards do not pay close attention.”
Given all that, I cannot think of a stronger indictment of the status quo.
There are endless examples of where our failure to modernise our criminal liability law has led to failure in the courts. The Barclays bank action is probably the most infamous, or famous, of them all. In 2008, during the financial crisis, Barclays wanted to avoid nationalisation and entered into a deal with Qatar, from which it received more than £11 billion and a loan of £3 billion. The bank, however, also set up what was called an advisory service agreement—in a sense, as I can say under parliamentary privilege, it was a bribe—and, under it, £322 million was given to those who facilitated the deal between Qatar and Barclays bank.
The Serious Fraud Office tried to prosecute the bank and its chief operating officer with charges of conspiracy to commit fraud and charges involving “disguised commissions”—in my interpretation, bribes. The court threw out all the charges, saying that the alleged criminal dishonesty of senior officers “could not be attributed” to Barclays. So the chief executive could not be held responsible for what the bank did, because the chief executive was not the bank, but reported to the bank. It was a crazy judgment. The court also dismissed cases against other individuals, as they could not be defined as the “directing mind and will” of Barclays.
There was, then, a Barclays fiasco, but there were other examples, such as the LIBOR rate-rigging scandal. No criminal prosecutions were brought, although the individuals prosecuted gave evidence that their managers knew what they were doing, so the company itself was liable. If the Minister for Security will allow this comparison, the US brought criminal enforcement action against 12 of the banks in the LIBOR scandal—British banks—and extracted $3.4 billion in criminal fines. Other examples include HBOS—to which the Under-Secretary often refers—Serco and the tagging contract, London Capital & Finance, and so on and so forth.
In 2022, four parliamentary Committees called for the reform of corporate criminal liability legislation. In February 2022, the Treasury Committee urged the Government to
“act quickly in bringing forward any legislation flowing from the Law Commission’s review. In the meantime, corporate criminals will continue to be able to escape prosecution for economic crimes.”
I probably do not have to quote this one, as the Minister might remember it, but the Foreign Affairs Committee called for
“reform of outdated and ineffective corporate criminal liability laws which mean that it is difficult to hold large companies to account for economic crimes.”
Dame Margaret Hodge
Anyway, I thought it was a speech in favour of the intent of this new clause.
Failure to prevent offences have proved effective elsewhere, as the Minister himself has said. We use them to tackle bribery and tax evasion, and the Minister always raises the best example when he refers to what used to go on in the construction industry. In my youth, people would regularly have terrible accidents on construction sites, some of which were fatal. It was only when a duty was introduced for those who ran construction companies to ensure the health and safety of their workers in the workplace, meaning it would be a criminal offence if they failed to do so, that miraculously, overnight, deaths on building sites came almost to a 100% halt. We have lots of examples of where a failure to prevent does not end up with people being locked up but does change behaviour. That is what we are trying to do.
I have lots of examples of areas where the Bribery Act 2010 has been successful and this is not one. This is the last legislative opportunity we will have in this Parliament to put into effect something that Members across the House think is important. There is so much evidence from so many bodies emphasising the importance of this bit of legislation. I cannot see any argument for delay. Before they reached their great, really important roles on the Front Bench, both Ministers argued passionately, frequently and loudly for this reform. I hope they will accept the new clauses, together with new clause 79, on the identification principle. With the inclusion of those three new clauses, we can hold our heads up high and say that we have done good work in Parliament.
Stephen Kinnock (Aberavon) (Lab)
It is a pleasure to serve under your chairship, Mr Robertson. I pay tribute to my right hon. Friend the Member for Barking. The passion and eloquence with which she spoke was exemplary in terms of reminding us about what is at the heart of the Bill and one of the top priorities that we want to achieve. I do not want to say much more; how can I follow that?
New clause 73 would introduce a new offence of failing to prevent fraud, false accounting or money laundering, and new clause 74 would extend that offence, so I shall take them together. In effect, the new clauses would extend current failure to prevent offences beyond bribery and tax evasion to other economic crimes, money laundering and fraud. The offences would be applicable both to companies themselves and to senior managers or directors.
The Labour Front Bench team welcomes the new clauses tabled by my right hon. Friend the Member for Barking as vital to help to drive cultural change and corporate governance standards for the prevention of economic crime in the UK. They would also standardise criminal rules for holding companies to account across different economic crimes.
The call for this change is supported by a number of stakeholders, including Spotlight on Corruption, which made the following argument in written evidence to the Committee:
“Most urgently, a new failure to prevent fraud offence would help address the UK’s serious fraud epidemic. Fraud accounts for 40% of all recorded crime, but fraud prosecutions have fallen from 42,000 in 2011, to 13,500 in 2021 in the last decade, a 67% decrease. According to the Crown Prosecution Service (CPS): ‘an extension of the “failure to prevent” model to fraud, false accounting and money laundering would be unlikely to require companies to do more than what they would already be expected to do under the current law (which relies on the identification doctrine) but it would enable prosecutors to hold them to account more effectively where they fail to do so’. The heads of the Serious Fraud Office (SFO) and the CPS have both recently called for new failure to prevent offences.”
I refer the Minister, in addition to the stakeholders that support the call for change, to his own words on Second Reading. I will not replay his greatest hits—that my right hon. Friend the Member for Barking has already done so—but he has stated clearly that he sees this offence as “the No. 1 measure” that we need. The Opposition fervently hope that both Ministers will agree with their former selves that this is the No. 1 measure we need in the prevention and detection of economic crime. We urge the Conservative Front-Bench team to accept the new clause as a necessary and urgent provision to tackle economic crime that would have support across the board.
Alison Thewliss
I, too, rise to support the new clauses, which are incredibly important.
“Of all the measures we have talked about today, this would have the biggest effect in terms of cutting down on economic crime, because lots of our financial organisations are complicit when it suits their interests to be so.”—[Official Report, 13 October 2022; Vol. 720, c. 309.]
If the Under-Secretary recognises those words, it is because they are his own from just a few weeks ago, on 13 October 2022. What a long time it has been; here we are today at the end of November.
It is important that we use the new clauses as an opportunity. As the right hon. Member for Barking said, this is an opportunity to make this change now and get it right. It cannot be said that the Ministers present do not agree with the measures. The Under-Secretary argued for a failure to prevent economic crime offence not just on 13 October 2022 but on 7 July 2022 and 1, 22 and 28 February 2022, on 2 December 2021, on 9 November 2021, on 22 September 2021, on 18 May 2021, on 9 November 2020, on 25 February 2020, on 19 July 2019, on 23 April 2019, on 18 December 2018 and on 9 October 2018. Why have we got to the point today where he is arguing against something that he has argued for so consistently and repeatedly in this House?
Alison Thewliss
I will if the Minister can give me an explanation as to why he is not going to back the new clause.
Alison Thewliss
I suspect that if it goes to a vote, he will vote against the new clause, so he does not even need to argue against it. If it goes to a vote, he and his colleagues will vote against something that he has consistently and repeatedly supported in this House. He knows in his heart of hearts that this is the right thing to do. I am very interested to know whether, if the Government will not support the new clause—whether it goes to a vote or not—they will introduce something similar on Report. Both Ministers know that this is the right thing to do. The opportunity is here in the Bill. If the opportunity is there and the will is not, that leaves huge questions for the credibility of the entire Bill.
Tom Tugendhat
I am delighted to speak on the new clause. As the right hon. Member for Barking correctly identifies, it touches on many areas that my hon. Friend the Under-Secretary and I have spoken about on numerous occasions, and we are not alone in having done so. Section 172(1)(b) and (d) of the Companies Act 2006 speaks about the interests of employees and of the community being the responsibility of directors as well, so having an emphasis on directors’ responsibility in corporate legislation is not new. My hon. Friend the Under-Secretary has also spoken about it in building safety legislation, which the right hon. Lady cited.
There are many different examples of our recognition that the interests of the whole of society and of the whole United Kingdom are better protected when directors understand that they are there not simply to advance shareholder value, but to further the interests of the whole community of their employees and wider society in actions and responsibilities they undertake. Although I see all of the responsibility laid out and I take very seriously the point the right hon. Lady made, we still need to do a little bit of work on how this can be made to work. There are arguments, some of which hold water, about whether the 2017 money laundering regulations include elements that already cover some of these areas, and there are arguments about whether the Law Commission will want to look at different bits of this. I can assure the right hon. Lady that I will look at this extremely seriously, because she is absolutely right that the Bill offers an opportunity to introduce different reforms. I will look to make sure that any opportunity is fulfilled as quickly as possible.
Dame Margaret Hodge
I am grateful for that. The hon. Gentleman referred to the Companies Act 2006—I cannot remember which section. In the days when Tony Blair changed our jobs every year, I was lumbered with taking through the biggest Act in Parliament. We deliberately put that section in, in the face of massive opposition. At the time there was a front page story in the FT that said, “How dare you talk about any interest but shareholder interest?” But the provision has stood the test of time, I am pleased to say, and I am glad to hear him cite it.
I do not want to embarrass Ministers today by putting the issue to a vote. I know that they feel strongly about this, but so do we—really strongly. The Bill will not pass any litmus test of its potency if the new clause is not included. I know there will be resistance because the professions that would be subject to the new potential criminal liability are very strong in lobbying. They are probably strongly lobbying the Department for Business, Energy and Industrial Strategy, as well as the Treasury and other Government Departments. I say to Ministers that they have to resist that lobbying with every bone in their bodies, because this is not an attack on any profession. There ought to be a new offence that cleans up the profession, and we will pursue this issue right through every phase and stage of the Bill’s passage.
I want to say one final thing to the Minister. Of course we need to make the new clause work, but for goodness’ sake, we have the same offence in the Bribery Act and the tax evasion legislation, and it works perfectly well.
Kevin Hollinrake
The right hon. Lady makes a very important point about vested interests. We have previously discussed the influence of people who may not be keen on these kinds of clauses. I would say to anybody in the financial services sector who is making these claims that there are potentially huge benefits from preventing fraud across the board, because 70% of online fraud, which costs banks a lot of money, comes from platforms, and this kind of legislation could make the platforms responsible for removing content. So the sector could see benefits as well as potential new obligations.
Dame Margaret Hodge
I am grateful to the Minister for reinforcing my argument. I would add simply that the same is true of the online harms Bill. If we had director liability there, I think we would see a lot of the online harms disappearing, but that is for next week.
On how the new clause would work, we can mirror processes that take place in other bits of legislation. To say that it is already covered is a nonsense, because we would not have had the failure of the Barclays case and all the other cases that I cited to the Minister had we already put in place legislation that was appropriate for ensuring that companies and their directors are held to account. I will not put the matter to a vote, but this is a hugely important issue. I look forward to our debating it further at other stages during the course of the Bill. I wish Ministers well in their attempts to get it past the Government, but if they do not, Parliament will do so. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 75
The Economic Crime Committee of Parliament
“(1) The Secretary of State must by regulations establish a body to be known as the Economic Crime Committee of Parliament (in this section referred to as “the ECC”).
(2) The ECC will consist of nine members who are to be drawn both from the members of the House of Commons and from the members of the House of Lords.
(3) Each member of the ECC is to be appointed by the House of Parliament from which the member is to be drawn.
(4) The ECC will have the power to meet confidentially.
(5) The ECC may examine or otherwise oversee any regulatory, enforcement or supervision agencies involved in work related, but not limited to—
(a) tax avoidance and evasion by corporations;
(b) illicit finance;
(c) anti-money laundering supervision;
(d) tackling fraud;
(e) kleptocracy and corruption; and
(f) whistleblower protection.”—(Dame Margaret Hodge.)
Brought up, and read the First time.
Dame Margaret Hodge
I beg to move, That the clause be read a Second time.
I have been promoting accountability for years now. In the work that I did with the Minister as we thought about how we could tackle economic crime and turn round the tanker, we always said there were four ways in which we had to respond. One was through having not more regulation, but smart regulation. The second was through tough enforcement. The third was through broad transparency—the ruling of the European Court of Justice last week is an absolute nightmare that could create real difficulties for us in the economic crime space. The fourth was accountability, and with the new clause we are suggesting a way for us to have that accountability.
There is interest in this subject across the House. The hon. Member for Hitchin and Harpenden (Bim Afolami) has written a paper on these issues. Can we find a mechanism for holding the regulatory bodies properly accountable to Parliament for what they do?
A lot of these questions arose when I chaired the Public Accounts Committee and we first started looking at tax avoidance. The rule is that everybody should be equal before the law in tax, but there was always a suspicion that sweetheart deals were being struck with certain big corporations and high net worth individuals. In fact, early on we came across one involving Goldman Sachs; on the back of a story in Private Eye, we uncovered a sweetheart deal. To this day, though, I do not understand whether Google is paying the correct tax or whether there is a deal there, and I could say the same about a lot of the big multinational companies. Because of the confidentiality of taxpayers’ interests, Parliament has no way to get the information that it needs to assure itself that the tax authorities are treating all taxpayers equally.
I have worked with all the agencies in this area—the NCA, the Serious Fraud Office, the Metropolitan police and so on—so whistleblowers, or just people who come across something that is wrong, often come to me, and I give the case to one of the agencies—and that is the last I ever hear of it. I always pursue the cases, but all too often I get the response, “Oh, there are security reasons for you not being given the information.” There was the Savaro case, which I referred to BEIS at the time. It went through BEIS and I still do not know whether anybody was pursued. Certainly, there were people behind that explosion in Lebanon, which led to so many deaths and loss of property.
I think that Parliament needs a better hold on what is happening and better accountability around how those agencies are operating. In the new clause, we suggest that we mirror the Intelligence and Security Committee, which meets under Privy Council terms. The proposed economic crime committee could be a Committee of both Houses, meeting under Privy Council terms and overseeing all the regulatory bodies in this space—in financial services and economic crime. It could call for papers relating to individual cases, which would remain confidential because the ECC would meet in private. The ECC could then produce reports on systemic changes that are necessary, arising from consideration of those individual cases.
I think that that would massively improve accountability, as well as the performance and effectiveness of the agencies. With that information, members of the ECC would have a better understanding of what, if anything, they needed to do as legislators to improve the situation. I believe that this committee will happen one day, but I am proposing it today as a new clause in this Bill. I know that the hon. Member for Hitchin and Harpenden and those who support him in this mission would be happy to support me today, and I hope that Ministers give it a good hearing.
Stephen Kinnock
I am happy to support new clause 75, tabled by my right hon. Friend the Member for Barking, which would require the Secretary of State by regulation to establish a body to be known as the economic crime committee of Parliament.
The new clause is driven by and based on the fundamental principles of transparency and accountability. Our call for those two principles to be adhered to is important because it recognises that the structures for reviewing progress, and scrutinising and reviewing economic crime, are simply not good enough. There is too much siloed thinking. This aspect of scrutiny does not sit neatly within BEIS, the Treasury, the Home Office, or the Ministries of Defence and of Justice; it really spans the waterfront, yet those Departments are all vital parts of what should be a systemic approach to tackling economic crime.
The proposed committee would consist of nine Members drawn from the House of Commons and the House of Lords, with each member of the ECC appointed by their respective House of Parliament. The ECC would have the power to meet confidentially; it could examine or otherwise oversee any regulatory enforcement or supervision agencies involved in work related to, but not limited to, tax avoidance and evasion by corporations, illicit finance, money laundering, fraud, kleptocracy, corruption, and whistleblower protection.
We welcome the new clause as it would introduce a vital mechanism for transparency and accountability within the Bill. If the Minister does not agree with it, we hope that he will acknowledge that the existing mechanisms are unfit for the kind of joined-up, systemic, expert-driven scrutiny that is needed to keep pace with and keep ahead of economic crime. Throughout this Committee’s proceedings, my colleagues and I have tabled amendments and new clauses designed to increase the scrutiny and transparency of the measures that the Bill will introduce, so as to ensure that when they are implemented, they are as effective as possible. If the Minister is not able to support the new clause, Parliament and the country more broadly would need him to come up with something better.
Alison Thewliss
I wholeheartedly agree with the new clause. When the Treasury Committee looked at this issue, what struck me was that economic crime was nobody’s priority. Our report said:
“Economic crime seems not to be a priority for law enforcement. The number of agencies responsible for fighting economic crime and fraud is bewildering.”
If it is bewildering in that sense, it is bewildering to Parliament, too. This is a BEIS and Home Office Bill, yet it has huge Treasury implications and huge security implications, and that gets to the heart of why this new clause is so important. There needs to be a body in Parliament that holds all these agencies to account in one place. If BEIS does a little bit, and the Home Office does a little bit, and security does a little bit, and the Treasury does a little bit, there will not be the cohesive scrutiny of all those agencies that is needed. Committees could well be palmed off with different responses by different agencies, with nobody consistently holding them to account.
The work of the Treasury Committee is very wide ranging. We have two meetings a week, and that is not enough to cover all the issues we need to cover. Setting up a bespoke Committee that could build up expertise on this issue would allow for that accountability. It could meet in private if it needed to, although it would ideally meet in public. The point is that it would keep an eye on all the things that we have agreed to in the Bill, and we would be holding all these agencies and Ministers to account in a consistent way. The reports of the ECC would also, we hope, be taken seriously, and its recommendations implemented.
It is not really enough that the Treasury Committee or another Committee looks at economic crime every once in a while and sees how things are going. The Treasury Committee has done that previously, looking back at previous reports and asking, “How are things going now?” but there is not that week in, week out consistent scrutiny of what is happening. Without scrutiny and consistency, it is difficult to see how the Government will get this right. We are legislating here, but legislation cannot be put on a shelf and left; it has to be living legislation that is scrutinised on a regular basis. A committee of sort proposed in the new clause really would give Parliament a lot of power to ensure that these measures are implemented correctly and that the agencies responsible for economic crime, which affects all of our constituents, continue to be held to account.
Tom Tugendhat
The right hon. Member for Barking will not be surprised to hear that I am a huge fan of parliamentary scrutiny, not just of Government but of various issues that others have sometimes felt are not in the immediate remit of the scrutinising Committee. As she will be aware, I received some criticism when the Foreign Affairs Committee, which I was fortunate to chair, focused so clearly on economic crime in 2017-18—in fact, it was some of the first work that we did—because of the national security threat that it poses to the United Kingdom. Its importance in foreign policy is very clear.
The Treasury Committee has done an awful lot of extremely good work on this issue; over the years, it has done some excellent reports on economic crime. The Public Accounts Committee, the Justice Committee and others have also focused on economic crime at various points. However, while I completely understand the right hon. Lady’s argument, I cannot support the new clause, because it is simply not up to a Secretary of State to set up a Committee of the House. As she knows very well, that is a decision for the House; it would therefore not be appropriate to have that provision in the Bill.
I would add that there are various other elements that already scrutinise quite a lot of the agencies referred to. There is the Economic Crime Strategic Board, co-chaired by the Chancellor and the Home Secretary—I know it is within Government, but it is still a challenging body because it supervises the agencies of Government. Various other levels of scrutiny appear at different points, which help to oversee the function of the agencies and different elements that the Government are trying to deliver—that the ministerial element of the Government is trying to get the bureaucratic element of the Government to deliver. It is really important that we keep those intentions.
Dame Margaret Hodge
I am sure that, in that spirit, the Minister also accepts that scrutiny by the Executive is different to scrutiny by the legislature.
Dame Margaret Hodge
What we are seeking is scrutiny by the legislature. I take what he said, and will reflect on it. There is cross-party support for this concept; whether we have got it quite right is open to debate, and we will have to find another means of getting it debated in the House. On that basis, I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 76
Whistleblowing: economic crime
“(1) Whistleblowing is defined for the purposes of this section as any disclosure of information suggesting that, in the reasonable opinion of the whistleblower, an economic crime—
(a) has occurred,
(b) is occurring, or
(c) is likely to occur.
(2) The Secretary of State must, within twelve months of the date of Royal Assent to this Act, set up an office to receive reports of whistleblowing as defined in subsection (1) to be known as the Office for Whistleblowers.
(3) The Office for Whistleblowers must—
(a) protect whistleblowers from detriment resulting from their whistleblowing,
(b) ensure that disclosures by whistleblowers are investigated, and
(c) escalate information and evidence of wrongdoing outside of its remit to another appropriate authority.
(4) The objectives of the Office for Whistleblowers are—
(a) to encourage and support whistleblowers to make whistleblowing reports,
(b) to provide an independent, confidential and safe environment for making and receiving whistleblowing information,
(c) to provide information and advice on whistleblowing, and
(d) to act on evidence of detriment to the whistleblower in line with guidance set out by the Secretary of State in regulations.
(5) The Office for Whistleblowers must report annually to Parliament on the exercise of its duties, objectives and functions.” —(Dame Margaret Hodge.)
Brought up, and read the First time.
Dame Margaret Hodge
I beg to move, That the clause be read a Second time.
This new clause relates to another issue on which there is cross-party support: reform of whistleblowing. It has been put together for me, although it is in my name, by the hon. Member for Cheadle (Mary Robinson), who leads the all-party parliamentary group for whistleblowing. I must put it on the record that she has been a fantastic campaigner in this area and an outspoken champion for the countless courageous individuals who have dared to speak out. As she rightly says, for most of those individuals whistleblowing has shattered their lives, with many losing their health and livelihood. What we are talking about here is really important.
Our new clause would introduce an office for whistleblowers, which would protect the whistleblowers and ensure that their disclosures are investigated and information provided is passed to the relevant authorities. In clause 4, we set out ways in which whistleblowers would provide that service. I think that the hon. Member for Thirsk and Malton is the Minister replying to this debate; I know that he is passionate about this topic, because he has said so on lots of occasions—most recently on Second Reading on 13 October, when he said:
“We do not protect or compensate whistleblowers, and that is wrong. Those people do the right thing and come forward but—not to put too fine a point on it —we hang them out to dry.”—[Official Report, 13 October 2022; Vol. 720, c. 309.]
He went on to say:
“It is pointless having lots of law enforcement people charging around not knowing where to look. Whistleblowers tell us where to look. Some 43% of all financial crimes are identified through whistleblowers, yet it is something we do not talk about. We do not just need more regulators; we need somebody to point us in the right direction. Regulators will always be watchdogs, never bloodhounds. We need the bloodhounds in the organisations who are willing to speak up if things are going wrong.”—[Official Report, 7 March 2022; Vol. 710, c. 121.]
Hear, hear to that, but let us have some action arising out of those passionate words.
Whistleblowing plays an absolutely key role in addressing economic crime, whether it is for money laundering or other crimes. Think of the Panama papers 2016—we would never have had them—or the Paradise papers, the Russian and Troika laundromats, the Azerbaijan laundromat, the FinCEN files and the Pandora papers. Let us look at just one of those—the Panama papers—which were 11.5 million legal documents held by the Panamanian law firm Mossack Fonseca. It basically made its money by creating offshore companies and bank accounts to launder and hide the money. The story was given to a German paper, then 370 journalists got involved in investigating the data, working in 80 countries.
Just think what came out of that. Twelve current and former world leaders were named in those papers. There was a $2 billion trail to Putin through his close friend Sergei Roldugin, known as Putin’s wallet. The money went all over the world, including into an upmarket ski resort in Leningrad owned by a company funded by this dirty money and where Putin gave his daughter a sumptuous wedding. The Icelandic Prime Minister resigned off the back of the papers. The Pakistani Prime Minister was removed from office due to allegations of corruption and fraud.
Through the leak, some £1.2 billion of tax revenue was restored to 23 national Governments. In the UK, there was an extraordinary list of the rich and powerful, from Kevin Keegan to Nick Faldo, Lewis Hamilton, Tiger Woods, Gary Lineker, Madonna, Keira Knightley, Simon Cowell, Nicole Kidman, the Barclay brothers, Stuart Gulliver of HBSC, and political figures like Arron Banks, Michael Ashcroft and the right hon. Member for North East Somerset (Mr Rees-Mogg). They were all named and exposed.
Going back to my Public Accounts Committee days, the work we did all came from whistleblowers in the area of economic crime. I referred earlier to the Goldman Sachs sweetheart deal. That emerged from a whistleblower—a lawyer working in His Majesty’s Revenue and Customs. We had a very frustrating session. We knew something was going on, and we interviewed the head of tax at HMRC, but he would tell us absolutely nothing. I then got a bundle of papers from a lawyer who was working there, and in that bundle was a sheet of paper that had on it two things. It said that a meeting was held by the head of law, and he had said that the head of tax had shaken hands on the deal, which the head of tax had denied at the Treasury Committee. He also said that the deal was unconscionable.
We called back the head of tax and head of law and interrogated them. They still said nothing. Then my hon. Friend the Member for Norwich South (Clive Lewis) said to me, “Put the guy on oath. He might tell you something.” That had never happened in a Select Committee. I turned to the clerk, who told me that I could put him on oath, and said, “Go and find a Bible.” It took them 20 minutes to find a Bible. But the point is that all that from a whistleblower led to the trail that I think has certainly ended up with me being on this Committee considering the Bill today.
What is so terrible about that story is that the then head of tax left public service, and I asked the person who became the permanent secretary in HMRC every time she appeared before the Committee, “Are you looking after that whistleblower? Is he okay?” She always gave me assurances that he was, but actually they raided his computer and telephone. His marriage broke up, and in the end life became so intolerable that he had to leave public office. It is one of the things I feel great shame about really—that I was not able even in that position to protect him, even though it was his revelations that enabled us to start discovering what was going on.
Whistleblowing helps everywhere. It is a vital way of revealing wrongdoing in all sorts of sectors. It was a child sex abuse whistleblower who helped reveal the child sexual exploitation in Rotherham. The NHS is full of workers who blew the whistle on things such as the lack of personal protective equipment. The Public Accounts Committee saw another example, relating to Serco, where a GP contract was done in Cornwall but they were lying about their performance. A whistleblower came to us, but Serco’s response was simply to rifle through everybody’s lockers to try to find out who the whistleblowers were. Serco was not interested at all in the fact that the information it provided was inaccurate, or in trying to improve the quality of the service.
Interestingly, whistleblowers in America are treated very differently, particularly on the issue of compensation. To give one example, in the JPMorgan case, there was a $45 million settlement after two whistleblower employees at a Georgia mortgage broker alleged that the bank had scammed a programme that was intended to make it easier for veterans to qualify for loans, and had submitted fraudulent claims to the Government. The whistleblowers were awarded $11 million. Facing the same charges, Wells Fargo later settled for $108 million. A whistleblower revealed massive robo-signing at the four banks that were the country’s largest mortgage providers. The companies had allegedly relied on a company called Docx to forge signatures on thousands of mortgage documents. The suit was settled for $95 million, and the whistleblowers received $18 million for helping to expose the fraud.
The Minister well knows the facts that I will give him now. In 2018, 40% of whistleblowers reported going on sick leave—that is the pressure in the workplace. Only 4% of whistleblowers who bring claims under the current legal structure succeed. Of the 1,041 whistleblower reports submitted to the FCA in 2021-22, only three have resulted in any significant action. The Minister must agree that enough is enough. We in this country cannot go on failing to treat whistleblowers with the respect, support and advice that they deserve. Our new clause starts the process of reform. It does not do everything—for example, it does not do financial compensation—but it is a start.
Finally, please do not just say, “We are looking at this.” Do not tell us you will come back. This is a once-in-a-lifetime opportunity.
Kevin Hollinrake
The right hon. Lady makes an interesting point about how compensation works in the USA. She will be aware that Protect, the most high-profile whistleblower organisation in the UK, is against a compensation scheme similar to that in the USA. There is good reason for that: very few whistleblowers in the USA actually get compensation, which is one of the flaws in the scheme. Does she agree that we must think carefully about how we introduce whistleblower reform? It needs to be well thought through, rather than simply rushed.
Dame Margaret Hodge
I agree that we have to think carefully, but setting up an office for whistleblowing, which is what our new clause would do, could be the start. We might get some proper expertise in there, so as to think through some of the more complex issues.
Minister, grasp the opportunity and agree with our proposal. It would set up a new office—a central place for any would-be whistleblower to come for advice. It would support regulation in organisations. It would be a central place for setting standards, monitoring, evaluating and reporting. It would ensure that those who inflict or suffer detriment will be properly held to account or properly compensated. An office for whistleblowers would drive up standards across both the private and public sectors, increase transparency and restore public confidence. Whistleblower discrimination is a global problem, and the new office would set a global standard here in the UK.
Stephen Kinnock
I will be brief because my right hon. Friend the Member for Barking has, again, made the case so eloquently. We support new clause 76. The basic fact is that by their very nature, money laundering and economic crime are very often linked to serious organised crime gangs and hostile states. We are dealing with some pretty frightening people. Without adequate protection, the stakes for an informed insider blowing the whistle are simply too high.
New clause 76 would take those vital first steps to provide more adequate protection for whistleblowers and enable the greater detection of fraud and economic crime by establishing a body specifically set up to both protect whistleblowers and investigate their reports. We feel strongly that the Government must bring forward steps to protect and enable whistleblowers. New clause 76 provides an excellent and strong platform to make that happen.
Alison Thewliss
We also support this important new clause. In a recent speech, the Minister said that 43% of all economic crime was identified by whistleblowers, which illustrates why the new clause belongs in the Bill. We all know from whistleblowers’ stories that doing the right thing comes often at a significant cost personally, professionally and financially. It is important that we do anything we can to support those whistleblowers and to make sure they feel comfortable to go ahead and do what they do to ensure that we are all protected. I look forward to hearing the Minister supporting the new clause, because he has supported it umpteen times in the past.
Kevin Hollinrake
I think this is the last occasion I have to address the Committee, so I thank all Members for their contributions. We have had very constructive debates throughout the days that we have looked at the Bill. I thank the officials for all their work in these areas.
Not for the first time, I am very sympathetic to the new clause and to the previous one on failure to prevent. Nothing I have seen or heard since I started as a Minister only a few weeks ago has changed my mind on the things I have said in the House and other places about the need for whistleblower reform and failure to prevent reform. There is no conspiracy behind the scenes here. There is a difference between arguing against the principle of something and arguing against the provisions of something. That is where we probably differ a little.
As the hon. Member for Glasgow Central said, I have said before that 43% is the stat for the discovery of financial crime. In my experience, it is much higher than that—about 100%. Everything I have dealt with has been brought to the attention of authorities through whistleblowers, not least Ian Foxley, my constituent who was very important to the case on GPT Special Project Management Ltd that the right hon. Member for Barking referenced. He was the bloodhound in that case. We need those bloodhounds.
Since taking over as Minister with whistleblowing in my portfolio, I have asked officials to prioritise this review and to get it moving properly, and that is what we have committed to do. There are differences in where we go with it: do we do something to address the cases like Ian Foxley’s and the others the right hon. Lady references? Sally Masterton addressed those cases. Do we do something longer term and more complex? It is either low-hanging fruit or something more radical.
My hon. Friend the Member for Cheadle has done fantastic work in this area. I am keen to engage with her and my hon. Friend the Member for Weston-super-Mare (John Penrose) to make as much progress as we can as quickly as we can. Ian Foxley’s case is interesting because he was prevented from getting compensation. He was very successful in getting that case highlighted and the authorities successfully prosecuted it, but he was denied compensation because the PIDA rules on what it describes as an employee did not cover his particular category. That is a relatively easy issue to fix and something I want to look at.
The other part of the current legislation is around prescribed persons. There are 80 prescribed persons at the moment: people to whom others can make a protected disclosure. We are extending that this week when I introduce a statutory instrument on extending the number of prescribed persons to whom whistleblowers can go to seek assistance. Indeed, some of those prescribed persons are in this room. Members of Parliament are prescribed persons, as are some Ministers, but so too are our agencies. That is probably my biggest concern.
I took the case of Sally Masterton, who was key to highlighting the HBOS Reading scandal, which I have referred to many times in Parliament, to the Financial Conduct Authority. When I asked Andrew Bailey, who was then the chief executive of the FCA, whether he had followed his own whistleblowing procedures in relation to Sally Masterton, who was terribly mistreated by Lloyds Banking Group, he refused to answer the question because I was not a relevant person, under the relevant legislation. That is quite astounding, when it was Parliament that legislated to introduce the whistleblowing protections in the first place.
There are things that we need to do quickly that would address many of the problems, but we have done much. We have improved the guidance on what a prescribed person needs to do. We have a requirement on people to make public annual reports on what they have done in terms of whistleblowers, but I am keen to hold regulators’ feet to the fire in this area. I ask the right hon. Member for Barking not to pre-empt the review that I am urgently undertaking, because she knows how serious I am. I would like to bring forward effective reform very quickly, and to effect change more quickly. I fear that the new clause would delay the reform, when we can make progress by other means.
Dame Margaret Hodge
I hear what the Minister says. I simply say to him that finding legislative time will be a battle, so I hope that he has some mechanism to get the reform through.
Kevin Hollinrake
There are things that we can do without primary legislation that could move much more quickly.
Dame Margaret Hodge
I hear that. This matter will be debated by others on Report. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 79
Identification doctrine
“(1) A body corporate commits an offence listed in Schedule 8 where the offence is committed with the consent, connivance or neglect of a senior manager or senior managers.
(2) An individual is a ‘senior manager’ of an entity if the individual—
(a) plays a significant role in—
(i) the making of decisions about how the entity’s relevant activities are to be managed or organised, or
(ii) the managing or organising of the entity’s relevant activities, or
(b) is the Chief Executive or Chief Financial Officer of the body corporate.
(3) A body corporate also commits an offence if, acting within the scope of their authority—
(a) one or more senior managers engage in conduct, whether by act or omission, such that, if it had been the conduct of only one representative, that representative would have been a party to the offence; and
(b) the senior manager who is responsible for the aspect of the organization’s activities that is relevant to the offence — or the senior managers collectively — fail to take all reasonable steps to prevent that offence being committed.”—(Dame Margaret Hodge.)
Brought up, and read the First time.
Dame Margaret Hodge
I beg to move, That the clause be read a Second time.
This goes with the failure to prevent, so I will not speak to the new clause. It literally just sorts out the legalese to ensure that we can get at companies and their directors.
Dame Margaret Hodge
Yes, because I want it on the record. I am just conscious that Members want to get on, and that the argument is the same.
Stephen Kinnock
We fully welcome the new clause, which we think is very important to ensure that all perpetrators of economic crime are caught and dealt with.
Tom Tugendhat
I merely point out that, while the new clause addresses many of the points that the right hon. Member for Barking has raised before, it also raises many of the same challenges. For that reason, I will object to it.
Dame Margaret Hodge
I will not at this point press the new clause to a vote, so I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 80
Forfeiture of recoverable property obtained through economic crime
“(1) Where the conditions in paragraph(2) are fulfilled, a notice may be served in accordance with subsection(4) by the Director of Public Prosecutions, the Director of Serious Fraud Office, or the Director General of the National Crime Agency (hereafter, ‘the Director’) upon the holder of an account held at a bank in the United Kingdom.
(2) The conditions mentioned in paragraph(1) are that—
(a) the Director has reasonable grounds to believe that property held in the bank account is recoverable property obtained as a result of an economic crime offence;
(b) in relation to the bank account or any property in the bank account, a consent request has been made to an authorized officer under Section 335 of the Proceeds of Crime Act;
(c) an authorized officer refused the consent requested;
(d) a court has granted an extension of a moratorium period for 186 days under section 336A of the Proceeds of Crime Act 2002; and
(e) a court has granted approval to the Director to serve the notice.
(3) A notice under this section shall be a notice by way of representation and shall—
(a) state the name of the holder of the bank account to whom it is addressed;
(b) specify the details of the bank account and of the property or part of the property in the bank account which in the opinion of the Director is recoverable property;
(c) state a date on which, and a place and time at which, the holder of the bank account is required to attend a hearing of the Court to show cause why the property so specified is not recoverable property and should not be forfeited; and
(d) be served on—
(i) the holder of the bank account, and
(ii) the bank at which the account in question is held,
and if an address for service on the holder of the bank account is not known, service on the bank only shall be taken as sufficient for the purposes of this paragraph.
(4) In this section and section [ Forfeiture of recoverable property obtained through economic crime: summary procedure ]—
(a) ‘economic crime offence’ means an offence listed in Schedule 8 of this Act; and
(b) ‘recoverable property’ has the meaning given in section 304 of the Proceeds of Crime Act 2002.”—(Dame Margaret Hodge.)
Brought up, and read the First time.
The Chair
With this it will be convenient to discuss new clause 81—Forfeiture of recoverable property obtained through economic crime: summary procedure—
‘(1) If the person on whom a notice under section [Forfeiture of recoverable property obtained through economic crime](3)(d)(i) served (the “respondent”) fails to attend the hearing as required by the notice, the Director may apply forthwith for a forfeiture order, and the Court may make such an order, without further notice to the respondent.
(2) If the respondent appears (whether in person or by a legal representative) at the hearing, the respondent may—
(a) at the hearing, satisfy the Court that the property is not recoverable property; or
(b) request that the question of whether or not the property is recoverable property be determined at such later date as the Court may order.
(3) If the respondent makes a request under subsection(2)(b), the respondent must provide an affidavit in answer to the notice within the period of 21days beginning with the date on which the matter is placed on the list, satisfying the Court that the property is not recoverable property.
(4) Unless the respondent satisfies the Court that the property is not recoverable property obtained as a result of an economic crime offence, the Court shall, upon the application of the Director, make a forfeiture order in relation to the property specified in the notice or any part of it.
(5) Property which is forfeited pursuant to a forfeiture order under this section shall be paid into the top slice of the Asset Recovery Incentivisation Scheme run by the Home Department.’
Dame Margaret Hodge
I will speak to this very quickly, too. This is an interesting new clause, because its purpose is to tackle the issue of suspicious wealth remaining frozen in bank accounts and serving no useful purpose. We propose a new, more straightforward, pragmatic solution to deal with suspicious wealth, enabling our enforcement agencies to confiscate the moneys in the bank and repurpose them so that much of the wealth can be used to fund and strengthen our anti-money laundering enforcement capacity and perhaps be given back, in some cases, to the nations from which it has been stolen.
When a banker sees a suspicious transaction, he or she is required to ask for consent from the police to allow the transaction to go ahead. If the police officer refuses consent, the moneys can be frozen in the bank account. Under our new clause, the money would then remain frozen for six months, and the director of the Serious Fraud Office could apply to the courts to confiscate or seize the moneys. They will be granted that application unless the respondent proves to the court that the funds do not have a criminal origin. The onus is on the respondent to prove that he or she has obtained the assets legitimately. The SFO does not have to prove that the respondent committed a criminal activity; it is up to the respondent to prove that the funds are legitimately and honestly acquired and are not linked to acts of criminality. The new clause is modelled on unexplained wealth orders.
This would add an important new weapon to our arsenal in the fight against economic crime, as it provides for the non-conviction-based confiscation of frozen assets. Although they are not my favourite people, the people of Jersey have introduced a very similar law and recently managed to secure £1.7 million that was frozen in accounts there. That was money paid to Lieutenant General Jeremiah Useni, who had held office in the Abacha regime in Nigeria, and the allegation was that it was the proceeds of corruption. Although he tried to get his money back, he could not, and a lot of the £1.7 million went back to Nigeria.
The British Bankers’ Association thinks that we have up to £50 million held in frozen accounts, untouched. We need a little touch of boldness from the Minister. He should not just accept the message of “resist” that he gets from his officials. He should give good consideration to this sensible, practical, good idea of seizing money stolen by bad people and giving it back to the citizens who have been robbed, or repurposing it to strengthen the fight against economic crime.
Stephen Kinnock
We welcome these new clauses, which would give effect to the Government’s stated intention to unlock the proceeds of crime held in bank accounts to fund law enforcement efforts to tackle economic crime. Their adoption would also optimise the potential of the defence against money laundering regime and streamline the process of UK law enforcement identifying tainted wealth and being able to seek its forfeiture.
Tom Tugendhat
I thank the right hon. Member for Barking. While I agree with the intent behind her new clauses, I argue that they narrow slightly the scope in which the state can already recover much of the proceeds of crime. While they attempt to simplify, the reality is that we are already recovering large sums. I am not saying that we could not do more—we certainly could—but I am not convinced that the new clauses would add significantly to existing legislation. Last year, for example, a record £115 million of proceeds of crime were recovered under existing powers.
Dame Margaret Hodge
That is not a brilliant argument, but I will pursue this issue on Report, as we are doing with other issues around seizing and freezing assets. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 84
Compensation for Victims of Economic Crime
‘(1) The Secretary of State must, no later than 90 days from the date on which this Act comes into force, publish and lay before Parliament a strategy for the potential establishment of a fund for the compensation of victims of economic crime.
(2) The strategy may include provisions on the management and disposal of any assets realised by the government, or any body with law enforcement responsibilities in relation to economic crime, under relevant UK legislation.’—(Stephen Kinnock.)
This new clause would require the Secretary of State to prepare and publish a strategy on the potential establishment of a fund to provide compensation to victims of economic crime.
Brought up, and read the First time.
Stephen Kinnock
I beg to move, That the clause be read a Second time.
As this is the last time I will be on my feet, I thank the Committee; it has been an excellent set of debates, and I look forward to further constructive engagement with the Government on these matters.
The context of new clause 84 is the devastation caused by Putin’s barbaric and illegal war for the lives and livelihoods of Ukraine’s population. This demands a concerted cross-party and international effort, of which the UK should be at the forefront, as the staggering costs of reconstruction are sure to remain a key challenge long after the war itself has reached its inevitable end.
The new clause would require the Government to prepare and publish a wide-ranging strategy for efforts to ensure that the necessary financial compensation is made available to victims of economic crime, wherever they may be. This could and should be applied to victims of international crimes, of which the war in Ukraine is without doubt an example, but it could be applied more broadly as a means of providing a measure of justice to the victims of any other kleptocratic regimes around the world. The new clause would provide a mechanism for compensating victims of economic crime in the UK, including the thousands, or perhaps even millions, of British victims of online scams and other kinds of fraud. We therefore commend the new clause to the Committee, and I look forward to the Minister’s response.
Alison Thewliss
If this is indeed the last opportunity I have to speak in the Committee, I thank the Ministers. I hope they have been listening closely to what we recommend and will bring back amendments on Report. I also thank my hon. Friend the Member for Paisley and Renfrewshire North for being so patient and helpful in supporting me throughout the passage of the Bill.
The new clause gets to the heart of the matter. Victims of economic crime often receive very little compensation but suffer greatly from the impact of the crime. It can be devastating for people, both financially and personally, and they are deeply affected by it for the rest of their lives, so anything that will go towards helping to compensate those victims seems like a sensible prospect.
Tom Tugendhat
As this is probably the last time I will speak in the Committee, I thank you, Mr Robertson. I also thank the right hon. Member for Barking for her input into the Bill not just today, but over many years and as Chair of the Public Accounts Committee. The way in which she has championed tackling economic crime, drawn the House’s attention to it, and focused the country on the real threats that we have faced has been impressive to us all, and I am personally enormously grateful to her. She certainly helped my work enormously when I chaired the Foreign Affairs Committee, and she has now helped to focus my work as a Minister. I am very grateful that I have had the privilege of working with her.
Dame Margaret Hodge
I forgot to thank you, Mr Robertson, for chairing the Committee and for showing such an interest in what we are doing. I also thank the Ministers and Members of all parties who have spoken and participated. I look forward to working further to get even more into the Bill.
Tom Tugendhat
If anybody thinks that I was trying to soft-soap the right hon. Lady in order to shut her up in future sittings, they do not know her very well. It would have not worked, and I have not tried it. All I have done is to pay credit to somebody who has definitely earned it. I also thank my fellow Minister and the Whips, who have got us through at lightning speed.
On the new clause, the powers in part 4 already increase the focus on victims. The compensation principles of the Serious Fraud Office, CPS, the National Crime Agency and others have committed law enforcement bodies to ensuring that compensation for economic crime is considered in every relevant case, including where there are overseas victims, so I believe that the Bill already focuses on many of the aspects that we have discussed. That said, we are coming to Report. As always, I will be listening, but I have yet to be convinced about the new clause, because I believe that it has largely been covered.
Stephen Kinnock
Has the Minister any thoughts on the international forums that have been set up—for example, the Russian Elites, Proxies, and Oligarchs Taskforce and the European Commission’s Freeze and Seize Taskforce. What contribution are the UK Government planning to make to those processes?
Tom Tugendhat
I can speak directly to that, because I have recently had a meeting about it with other Governments and other jurisdictions. So far, many people have come up with ways to freeze assets. That is not a particular challenge; the UK does so very actively. Seizing and forfeiting in totality is a different challenge, because it depends on ownership and on many aspects of common law jurisdiction that we would not want to understate. I assure the hon. Gentleman honestly that I have not given up on this, because compensation for the victims in Ukraine is the very least that we should expect, as he correctly identified. Ukraine’s inevitable victory, which is absolutely assured, leads us to start thinking about how we reconstruct that extraordinary country. It is clear that Russian state assets held abroad—some, sadly, are held in the UK—should go some way to contributing to that.
That said, how do we construct the legal arguments to ensure that that is possible? They need to be in keeping with British common law, for obvious reasons. We do not want a jurisdiction of forfeiture; we want a jurisdiction of law. There is more work to be done, therefore. We are working very closely with other common law jurisdictions, such as Australia, Canada and, indeed, the United States. There is an ongoing discussion, but it is not quite as straightforward as I would have hoped.
Stephen Kinnock
I have no further comments, and I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Schedule 1
Cryptoassets: terrorism
“Part 1
Amendments to the Anti-terrorism, Crime and Security Act 2001
1 Schedule 1 to the Anti-terrorism, Crime and Security Act 2001 (forfeiture of terrorist property) is amended as follows.
2 After Part 4B insert—
‘Part 4BA
Seizure and detention of terrorist cryptoassets
Interpretation
10Z7A (1) In this Schedule—
“cryptoasset” means a cryptographically secured digital representation of value or contractual rights that uses a form of distributed ledger technology and can be transferred, stored or traded electronically;
“crypto wallet” means—
(a) software,
(b) hardware,
(c) a physical item, or
(d) any combination of the things mentioned in paragraphs (a) to (c),
which is used to store the cryptographic private key that allows cryptoassets to be accessed.
“terrorist cryptoasset” means a cryptoasset which—
(a) is within subsection (1)(a) or (b) of section 1, or
(b) is earmarked as terrorist property.
(2) The Secretary of State may by regulations made by statutory instrument amend the definitions of “cryptoasset” and “crypto wallet” in sub-paragraph (1).
(3) Regulations under sub-paragraph (2)—
(a) may make different provision for different purposes;
(b) may make consequential, supplementary, incidental, transitional, transitory or saving provision.
(4) A statutory instrument containing regulations under sub-paragraph (2) may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.
(5) In this Part—
“cryptoasset-related item” means an item of property that is, or that contains or gives access to information that is, likely to assist in the seizure under this Part of terrorist cryptoassets;
“senior officer” means—
(a) a senior police officer;
(b) an officer of Revenue and Customs of a rank designated by the Commissioners for His Majesty’s Revenue and Customs as equivalent to that of a senior police officer;
(c) an immigration officer of a rank designated by the Secretary of State as equivalent to that of a senior police officer;
“senior police officer” means a police officer of at least the rank of superintendent.
Seizure of cryptoasset-related items
10Z7AA (1) An authorised officer may seize any item of property if the authorised officer has reasonable grounds for suspecting that the item is a cryptoasset-related item.
(2) If an authorised officer is lawfully on any premises, the officer may, for the purpose of—
(a) determining whether any property is a cryptoasset-related item, or
(b) enabling or facilitating the seizure under this Part of any terrorist cryptoasset,
require any information which is stored in any electronic form and accessible from the premises to be produced in a form in which it can be taken away and in which it is visible and legible, or from which it can readily be produced in a visible and legible form.
(3) But sub-paragraph (2) does not authorise an authorised officer to require a person to produce privileged information.
(4) In this paragraph “privileged information” means information which a person would be entitled to refuse to provide—
(a) in England and Wales and Northern Ireland, on grounds of legal professional privilege in proceedings in the High Court;
(b) in Scotland, on grounds of confidentiality of communications in proceedings in the Court of Session.
(5) Where an authorised officer has seized a cryptoasset-related item under sub-paragraph (1), the officer may use any information obtained from the item for the purpose of—
(a) identifying or gaining access to a crypto wallet, and
(b) by doing so, enabling or facilitating the seizure under this Part of any cryptoassets.
Initial detention of cryptoasset-related items
10Z7AB (1) Property seized under paragraph 10Z7AA may be detained for an initial period of 48 hours.
(2) Sub-paragraph (1) authorises the detention of property only for so long as an authorised officer continues to have reasonable grounds for suspicion in relation to that property as described in paragraph 10Z7AA(1).
(3) In calculating a period of 48 hours for the purposes of this paragraph, no account is to be taken of—
(a) any Saturday or Sunday,
(b) Christmas Day,
(c) Good Friday,
(d) any day that is a bank holiday under the Banking and Financial Dealings Act 1971 in the part of the United Kingdom within which the property is seized, or
(e) any day prescribed by virtue of section 8(2) of the Criminal Procedure (Scotland) Act 1995 as a court holiday in a sheriff court in the sheriff court district within which the property is seized.
Further detention of cryptoasset-related items
10Z7AC (1) The period for which property seized under paragraph 10Z7AA may be detained may be extended by an order made—
(a) in England and Wales or Northern Ireland, by a magistrates’ court;
(b) in Scotland, by the sheriff.
(2) An order under sub-paragraph (1) may not authorise the detention of any property—
(a) beyond the end of the period of 6 months beginning with the date of the order, and
(b) in the case of any further order under this paragraph, beyond the end of the period of 2 years beginning with the date of the first order; but this is subject to sub-paragraph (4).
(3) A justice of the peace may also exercise the power of a magistrates’ court to make the first order under sub-paragraph (1).
(4) The court or sheriff may make an order for the period of 2 years in sub-paragraph (2)(b) to be extended to a period of up to 3 years beginning with the date of the first order.
(5) An application to a magistrates’ court, a justice of the peace or the sheriff to make the first order under sub-paragraph (1) extending a particular period of detention—
(a) may be made and heard without notice of the application or hearing having been given to any of the persons affected by the application or to the legal representatives of such a person, and
(b) may be heard and determined in private in the absence of persons so affected and of their legal representatives.
(6) An application for an order under sub-paragraph (1) or (4) may be made—
(a) in relation to England and Wales and Northern Ireland, by the Commissioners for His Majesty’s Revenue and Customs or an authorised officer;
(b) in relation to Scotland, by a procurator fiscal.
(7) The court, sheriff or justice may make an order under sub-paragraph (1) if satisfied, in relation to the item of property to be further detained, that—
(a) there are reasonable grounds for suspecting that it is a cryptoasset-related item, and
(b) its continuing detention is justified.
(8) The court or sheriff may make an order under sub-paragraph (4) if satisfied that a request for assistance is outstanding in relation to the item of property to be further detained.
(9) A “request for assistance” in sub-paragraph (8) means a request for assistance in obtaining evidence (including information in any form or article) in connection with the property to be further detained, made —
(a) by a judicial authority in the United Kingdom under section 7 of the Crime (International Co-operation) Act 2003, or
(b) by an authorised officer, to an authority exercising equivalent functions in a foreign country.
(10) An order under sub-paragraph (1) must provide for notice to be given to persons affected by the order.
Seizure of cryptoassets
10Z7AD (1) An authorised officer may seize cryptoassets if the authorised officer has reasonable grounds for suspecting that the cryptoassets are terrorist cryptoassets.
(2) The circumstances in which a cryptoasset is “seized” for the purposes of sub-paragraph (1) include circumstances in which it is transferred into a crypto wallet controlled by the authorised officer.
Prior authorisation for detention of cryptoassets
10Z7AE (1) Where an order is made under paragraph 10Z7AC in respect of a cryptoasset-related item, the court, sheriff or justice making the order may, at the same time, make an order to authorise the detention of any cryptoassets that may be seized as a result of information obtained from that item.
(2) An application for an order under this paragraph may be made, by a person mentioned in paragraph 10Z7AC(6), at the same time as an application for an order under paragraph 10Z7AC is made by that person.
(3) The court, sheriff or justice may make an order under this paragraph if satisfied that there are reasonable grounds for suspecting that the cryptoassets that may be seized are terrorist cryptoassets.
(4) An order under this paragraph authorises detention of the cryptoassets for the same period of time as the order under paragraph 10Z7AC authorises detention in respect of the cryptoasset-related item to which those cryptoassets relate.
Initial detention of cryptoassets
10Z7AF (1) Cryptoassets seized under paragraph 10Z7AD may be detained for an initial period of 48 hours.
(2) Sub-paragraph (1) authorises the detention of cryptoassets only for so long as an authorised officer continues to have reasonable grounds for suspicion in relation to those cryptoassets as described in paragraph 10Z7AD(1).
(3) In calculating a period of 48 hours for the purposes of this paragraph, no account is to be taken of—
(a) any Saturday or Sunday,
(b) Christmas Day,
(c) Good Friday,
(d) any day that is a bank holiday under the Banking and Financial Dealings Act 1971 in the part of the United Kingdom within which the property is seized, or
(e) any day prescribed by virtue of section 8(2) of the Criminal Procedure (Scotland) Act 1995 as a court holiday in a sheriff court in the sheriff court district within which the property is seized.
(4) This paragraph is subject to paragraph 10Z7AE.
Further detention of cryptoassets
10Z7AG (1) The period for which cryptoassets seized under paragraph 10Z7AD may be detained may be extended by an order made—
(a) in England and Wales or Northern Ireland, by a magistrates’ court;
(b) in Scotland, by the sheriff.
(2) An order under sub-paragraph (1) may not authorise the detention of any cryptoassets—
(a) beyond the end of the period of 6 months beginning with the date of the order, and
(b) in the case of any further order under this paragraph, beyond the end of the period of 2 years beginning with the date of the first order; but this is subject to sub-paragraph (4).
(3) A justice of the peace may also exercise the power of a magistrates’ court to make the first order under sub-paragraph (1).
(4) The court or sheriff may make an order for the period of 2 years in sub-paragraph (2)(b) to be extended to a period of up to 3 years beginning with the date of the first order.
(5) An application to a magistrates’ court, a justice of the peace or the sheriff to make the first order under sub-paragraph (1) extending a particular period of detention—
(a) may be made and heard without notice of the application or hearing having been given to any of the persons affected by the application or to the legal representatives of such a person, and
(b) may be heard and determined in private in the absence of persons so affected and of their legal representatives.
(6) An application for an order under sub-paragraph (1) or (4) may be made—
(a) in relation to England and Wales and Northern Ireland, by the Commissioners for His Majesty’s Revenue and Customs or an authorised officer;
(b) in relation to Scotland, by a procurator fiscal.
(7) The court, sheriff or justice may make an order under sub-paragraph (1) if satisfied, in relation to the cryptoassets to be further detained, that condition 1, condition 2 or condition 3 is met.
(8) Condition 1 is that there are reasonable grounds for suspecting that the cryptoassets are intended to be used for the purposes of terrorism and that either—
(a) their continued detention is justified while their intended use is further investigated or consideration is given to bringing (in the United Kingdom or elsewhere) proceedings against any person for an offence with which the cryptoassets are connected, or
(b) proceedings against any person for an offence with which the cryptoassets are connected have been started and have not been concluded.
(9) Condition 2 is that there are reasonable grounds for suspecting that the cryptoassets consist of resources of an organisation which is a proscribed organisation and that either—
(a) their continued detention is justified while investigation is made into whether or not they consist of such resources or consideration is given to bringing (in the United Kingdom or elsewhere) proceedings against any person for an offence with which the cryptoassets are connected, or
(b) proceedings against any person for an offence with which the cryptoassets are connected have been started and have not been concluded.
(10) Condition 3 is that there are reasonable grounds for suspecting that the cryptoassets are property earmarked as terrorist property and that either—
(a) their continued detention is justified while their derivation is further investigated or consideration is given to bringing (in the United Kingdom or elsewhere) proceedings against any person for an offence with which the cryptoassets are connected, or
(b) proceedings against any person for an offence with which the cryptoassets are connected have been started and have not been concluded.
(11) The court or sheriff may make an order under sub-paragraph (4) if satisfied that a request for assistance is outstanding in relation to the cryptoassets to be further detained.
(12) A “request for assistance” in sub-paragraph (11) means a request for assistance in obtaining evidence (including information in any form or article) in connection with the property to be further detained, made —
(a) by a judicial authority in the United Kingdom under section 7 of the Crime (International Co-operation) Act 2003, or
(b) by an authorised officer, to an authority exercising equivalent functions in a foreign country.
(13) An order under sub-paragraph (1) must provide for notice to be given to persons affected by the order.
Safekeeping of cryptoasset-related items and cryptoassets
10Z7AH (1) An authorised officer must arrange for any item of property seized under paragraph 10Z7AA to be safely stored throughout the period during which it is detained under this Part.
(2) An authorised officer must arrange for any cryptoassets seized under paragraph 10Z7AD to be safely stored throughout the period during which they are detained under this Part.
Release of cryptoasset-related items and cryptoassets
10Z7AI (1) This paragraph applies while any cryptoasset or other item of property is detained under this Part.
(2) A magistrates’ court or (in Scotland) the sheriff may, subject to sub-paragraph (9), direct the release of the whole or any part of the property if the following condition is met.
(3) The condition is that the court or sheriff is satisfied, on an application by the person from whom the property was seized, that the conditions for the detention of the property in this Part are no longer met in relation to the property to be released.
(4) A person within sub-paragraph (5) may, subject to sub-paragraph (9) and after notifying the magistrates’ court, sheriff or justice under whose order property is being detained, release the whole or any part of the property if satisfied that the detention of the property to be released is no longer justified.
(5) The following persons are within this sub-paragraph—
(a) in relation to England and Wales and Northern Ireland, an authorised officer;
(b) in relation to Scotland, a procurator fiscal.
(6) If any cryptoasset-related item which has been released is not claimed within the period of a year beginning with the date on which it was released, an authorised officer may—
(a) retain the item and deal with it as they see fit,
(b) dispose of the item, or
(c) destroy the item.
(7) The powers in sub-paragraph (6) may be exercised only—
(a) where the authorised officer has taken reasonable steps to notify—
(i) the person from whom the item was seized, and
(ii) any other persons who the authorised officer has reasonable grounds to believe have an interest in the item,
that the item has been released, and
(b) with the approval of a senior officer.
(8) Any proceeds of a disposal of the item are to be paid—
(a) into the Consolidated Fund if—
(i) the item was directed to be released by a magistrates’ court, or
(ii) a magistrates’ court or justice was notified under sub-paragraph (4) of the release;
(b) into the Scottish Consolidated Fund if—
(i) the item was directed to be released by the sheriff, or
(ii) the sheriff was notified under sub-paragraph (4) of the release.
(9) If (in the United Kingdom or elsewhere) proceedings are started against any person for an offence with which the property is connected, the property is not to be released under this paragraph (and so is to continue to be detained) until the proceedings are concluded.
Part 4BB
Terrorist cryptoassets: crypto wallet freezing orders
Interpretation
10Z7B (1) In this Part—
(a) “cryptoasset exchange provider” means a firm or sole practitioner who by way of business provides one or more of the following services, including where the firm or sole practitioner does so as creator or issuer of any of the cryptoassets involved—
(i) exchanging, or arranging or making arrangements with a view to the exchange of, cryptoassets for money or money for cryptoassets,
(ii) exchanging, or arranging or making arrangements with a view to the exchange of, one cryptoasset for another, or
(iii) operating a machine which utilises automated processes to exchange cryptoassets for money or money for cryptoassets;
(b) “custodian wallet provider” means a firm or sole practitioner who by way of business provides services to safeguard, or to safeguard and administer—
(i) cryptoassets on behalf of its customers, or
(ii) private cryptographic keys on behalf of its customers in order to hold, store and transfer cryptoassets;
(c) “cryptoasset service provider” includes cryptoasset exchange provider and custodian wallet provider.
(2) In the definition of “cryptoasset exchange provider” in sub-paragraph (1)—
(a) “cryptoasset” includes a right to, or interest in, a cryptoasset;
(b) “money” means—
(i) money in sterling,
(ii) money in any other currency, or
(iii) money in any other medium of exchange,
but does not include a cryptoasset.
(3) The Secretary of State may by regulations made by statutory instrument amend the definitions in sub-paragraphs (1) and (2).
(4) Regulations under sub-paragraph (3)—
(a) may make different provision for different purposes;
(b) may make consequential, supplementary, incidental, transitional, transitory or saving provision.
(5) A statutory instrument containing regulations under sub-paragraph (3) may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.
(6) For the purposes of this Part—
(a) a crypto wallet freezing order is an order that, subject to any exclusions (see paragraph 10Z7BD), prohibits each person by or for whom the crypto wallet to which the order applies is administered from—
(i) making withdrawals or payments from the crypto wallet, or
(ii) using the crypto wallet in any other way;
(b) a crypto wallet is administered by or for a person if the person is the person to whom services are being provided by a cryptoasset service provider in relation to that crypto wallet.
(7) In this Part—
“enforcement officer” means—
(a) a constable, or
(b) a counter-terrorism financial investigator;
“relevant court” means—
(a) in England and Wales and Northern Ireland, a magistrates’ court, and
(b) in Scotland, the sheriff;
“senior officer” means a police officer of at least the rank of superintendent;
“UK-connected cryptoasset service provider” means a cryptoasset service provider which—
(a) is acting in the course of business carried on by it in the United Kingdom,
(b) has terms and conditions with the persons to whom it provides services which provide for a legal dispute to be litigated in the courts of a part of the United Kingdom,
(c) holds, in the United Kingdom, any data relating to the persons to whom it provides services, or
(d) meets the condition in sub-paragraph (8).
(8) The condition in this sub-paragraph is that—
(a) the cryptoasset service provider has its registered office, or if it does not have one, its head office in the United Kingdom, and
(b) the day-to-day management of the provider’s business is the responsibility of that office or another establishment maintained by it in the United Kingdom.
Application for crypto wallet freezing order
10Z7BA (1) This paragraph applies if an enforcement officer has reasonable grounds for suspecting that cryptoassets held in a crypto wallet administered by a UK-connected cryptoasset service provider are terrorist cryptoassets.
(2) Where this paragraph applies the enforcement officer may apply to the relevant court for a crypto wallet freezing order in relation to the crypto wallet in which the cryptoassets are held.
(3) But—
(a) an enforcement officer may not apply for a crypto wallet freezing order unless the officer is a senior officer or is authorised to do so by a senior officer, and
(b) the senior officer must consult the Treasury before making the application for the order or (as the case may be) authorising the application to be made, unless in the circumstances it is not reasonably practicable to do so.
(4) An application for a crypto wallet freezing order may be made without notice if the circumstances of the case are such that notice of the application would prejudice the taking of any steps under this Schedule to forfeit cryptoassets that are terrorist cryptoassets.
(5) An application for a crypto wallet freezing order under this paragraph may be combined with an application for an account freezing order under paragraph 10Q where a single entity—
(a) is both a relevant financial institution for the purposes of paragraph 10Q and a cryptoasset service provider for the purposes of this Part, and
(b) operates or administers, for the same person, both an account holding money and a crypto wallet.
Making of crypto wallet freezing order
10Z7BB (1) This paragraph applies where an application for a crypto wallet freezing order is made under paragraph 10Z7BA in relation to a crypto wallet.
(2) The relevant court may make the order if satisfied that there are reasonable grounds for suspecting that some or all of the cryptoassets held in the crypto wallet are terrorist cryptoassets.
(3) A crypto wallet freezing order ceases to have effect at the end of the period specified in the order (which may be varied under paragraph 10Z7BC) unless it ceases to have effect at an earlier or later time in accordance with this Part or Part 4BC or 4BD.
(4) The period specified by the relevant court for the purposes of sub-paragraph (3) (whether when the order is first made or on a variation under paragraph 10Z7BC) may not exceed the period of 2 years, beginning with the day on which the crypto wallet freezing order is (or was) made; but this is subject to sub-paragraph (5).
(5) The relevant court may make an order for the period of 2 years in sub-paragraph (4) to be extended to a period of up to 3 years beginning with the day on which the crypto wallet freezing order is (or was) made.
(6) The relevant court may make an order under sub-paragraph (5) if satisfied that a request for assistance is outstanding in relation to some or all of the cryptoassets held in the crypto wallet.
(7) A “request for assistance” in sub-paragraph (6) means a request for assistance in obtaining evidence (including information in any form or article) in connection with some or all of the cryptoassets held in the crypto wallet, made—
(a) by a judicial authority in the United Kingdom under section 7 of the Crime (International Co-operation) Act 2003, or
(b) by an enforcement officer, to an authority exercising equivalent functions in a foreign country.
(8) A crypto wallet freezing order must provide for notice to be given to persons affected by the order.
Variation and setting aside of crypto wallet freezing order
10Z7BC (1) The relevant court may at any time vary or set aside a crypto wallet freezing order on an application made by—
(a) an enforcement officer, or
(b) any person affected by the order.
(2) But an enforcement officer may not make an application under sub-paragraph (1) unless the officer is a senior officer or is authorised to do so by a senior officer.
(3) Before varying or setting aside a crypto wallet freezing order the court must (as well as giving the parties to the proceedings an opportunity to be heard) give such an opportunity to any person who may be affected by its decision.
(4) In relation to Scotland, the references in this paragraph to setting aside an order are to be read as references to recalling it.
Exclusions
10Z7BD (1) The power to vary a crypto wallet freezing order includes (amongst other things) power to make exclusions from the prohibition on making withdrawals or payments from the crypto wallet to which the order applies.
(2) Exclusions from the prohibition may also be made when the order is made.
(3) An exclusion may (amongst other things) make provision for the purpose of enabling a person by or for whom the crypto wallet is administered—
(a) to meet the person’s reasonable living expenses, or
(b) to carry on any trade, business, profession or occupation.
(4) An exclusion may be made subject to conditions.
(5) Where a magistrates’ court exercises the power to make an exclusion for the purpose of enabling a person to meet legal expenses that the person has incurred, or may incur, in respect of proceedings under this Schedule, it must ensure that the exclusion—
(a) is limited to reasonable legal expenses that the person has reasonably incurred or that the person reasonably incurs,
(b) specifies the total amount that may be released for legal expenses in pursuance of the exclusion, and
(c) is made subject to the same conditions as would be the required conditions (see section 286A of the Proceeds of Crime Act 2002) if the order had been made under section 245A of that Act (in addition to any conditions imposed under sub-paragraph (4)).
(6) A magistrates’ court, in deciding whether to make an exclusion for the purpose of enabling a person to meet legal expenses in respect of proceedings under this Schedule—
(a) must have regard to the desirability of the person being represented in any proceedings under this Schedule in which the person is a participant, and
(b) must disregard the possibility that legal representation of the person in any such proceedings might, were an exclusion not made—
(i) be made available under arrangements made for the purposes of Part 1 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012, or
(ii) be funded by the Department of Justice in Northern Ireland.
(7) The sheriff’s power to make exclusions may not be exercised for the purpose of enabling any person to meet any legal expenses in respect of proceedings under this Schedule.
(8) The power to make exclusions must, subject to sub-paragraph (6), be exercised with a view to ensuring, so far as practicable, that there is not undue prejudice to the taking of any steps under this Schedule to forfeit cryptoassets that are terrorist cryptoassets.
Restriction on proceedings and remedies
10Z7BE (1) If a court in which proceedings are pending in respect of a crypto wallet administered by a UK-connected cryptoasset service provider is satisfied that a crypto wallet freezing order has been applied for or made in respect of the crypto wallet, it may either stay the proceedings or allow them to continue on any terms it thinks fit.
(2) Before exercising the power conferred by sub-paragraph (1), the court must (as well as giving the parties to any of the proceedings concerned an opportunity to be heard) give such an opportunity to any person who may be affected by the court’s decision.
(3) In relation to Scotland, the reference in sub-paragraph (1) to staying the proceedings is to be read as a reference to sisting the proceedings.
Part 4BC
Forfeiture of terrorist cryptoassets
Interpretation
10Z7C (1) In this Part—
“cryptoasset service provider” has the same meaning as in Part 4BB (see paragraph 10Z7B(1));
“crypto wallet freezing order” has the same meaning as in Part 4BB (see paragraph 10Z7B(6));
“senior officer” means—
(a) a senior police officer;
(b) an officer of Revenue and Customs of a rank designated by the Commissioners for His Majesty’s Revenue and Customs as equivalent to that of a senior police officer;
(c) an immigration officer of a rank designated by the Secretary of State as equivalent to that of a senior police officer;
“senior police officer” means a police officer of at least the rank of superintendent.
(2) Paragraph 10Z7B(6)(b) (administration of crypto wallets) applies in relation to this Part as it applies in relation to Part 4BB.
Forfeiture
10Z7CA (1) This paragraph applies—
(a) while any cryptoassets are detained in pursuance of an order under paragraph 10Z7AE or 10Z7AG, or
(b) while a crypto wallet freezing order made under paragraph 10Z7BB has effect.
(2) An application for the forfeiture of some or all of the cryptoassets that are detained or held in the crypto wallet that is subject to the crypto wallet freezing order may be made—
(a) to a magistrates’ court by the Commissioners for His Majesty’s Revenue and Customs or an authorised officer, or
(b) to the sheriff by the Scottish Ministers.
(3) The court or sheriff may order the forfeiture of some or all of the cryptoassets if satisfied that the cryptoassets are terrorist cryptoassets.
(4) An order under sub-paragraph (3) made by a magistrates’ court may provide for payment under paragraph 10Z7CJ of reasonable legal expenses that a person has reasonably incurred, or may reasonably incur, in respect of—
(a) the proceedings in which the order is made, or
(b) any related proceedings under this Part.
(5) A sum in respect of a relevant item of expenditure is not payable under paragraph 10Z7CJ in pursuance of provision under sub-paragraph (4) unless—
(a) the person who applied for the order under sub-paragraph (3) agrees to its payment, or
(b) the court has assessed the amount allowed in respect of that item and the sum is paid in respect of the assessed amount.
(6) For the purposes of sub-paragraph (5)—
(a) a “relevant item of expenditure” is an item of expenditure to which regulations under section 286B of the Proceeds of Crime Act 2002 would apply if the order under sub-paragraph (3) had instead been a recovery order made under section 266 of that Act;
(b) an amount is “allowed” in respect of a relevant item of expenditure if it would have been allowed by those regulations;
(c) if the person who applied for the order under sub-paragraph (3) was an authorised officer, that person may not agree to the payment of a sum unless the person is a senior officer or is authorised to do so by a senior officer.
(7) Sub-paragraph (3) ceases to apply on the transfer of an application made under this paragraph in accordance with paragraph 10Z7CE.
Forfeiture: supplementary
10Z7CB (1) Sub-paragraph (2) applies where an application is made under paragraph 10Z7CA for the forfeiture of any cryptoassets detained in pursuance of an order under paragraph 10Z7AE or 10Z7AG.
(2) The cryptoassets are to continue to be detained in pursuance of the order (and may not be released under any power conferred by this Schedule) until any proceedings in pursuance of the application (including any proceedings on appeal) are concluded.
This is subject to Part 4BD (conversion to money)
(3) Where an application is made under paragraph 10Z7CA in relation to cryptoassets held in a crypto wallet that is subject to a crypto wallet freezing order—
(a) sub-paragraphs (4) and (5) apply, and
(b) the crypto wallet freezing order is to continue to have effect until the time referred to in sub-paragraph (4)(b) or (5).
(4) Where the cryptoassets are ordered to be forfeited under paragraph 10Z7CA(3) or 10Z7CE(3)—
(a) the cryptoasset service provider that administers the crypto wallet must transfer the cryptoassets into a crypto wallet nominated by an authorised officer, and
(b) immediately after the transfer has been made, the freezing order ceases to have effect.
(5) Where the application is determined or otherwise disposed of other than by the making of an order under paragraph 10Z7CA(3) or 10Z7CE(3), the crypto wallet freezing order ceases to have effect immediately after that determination or other disposal.
(6) Sub-paragraphs (4)(b) and (5) are subject to paragraph 10Z7CF and Part 4BD.
(7) The Secretary of State may by regulations made by statutory instrument amend this paragraph to make provision about the forfeiture of cryptoassets held in a crypto wallet that is subject to a crypto wallet freezing order.
(8) Regulations under sub-paragraph (7) may in particular make provision about—
(a) the process for the forfeiture of cryptoassets;
(b) the realisation of forfeited cryptoassets;
(c) the application of the proceeds of such realisation.
(9) Regulations under sub-paragraph (7) may—
(a) make different provision for different purposes;
(b) make consequential, supplementary, incidental, transitional, transitory or saving provision, including provision which makes consequential amendments to this Part.
(10) A statutory instrument containing regulations under sub-paragraph (7) may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.
Associated and joint property
10Z7CC (1) Paragraphs 10Z7CD and 10Z7CE apply if—
(a) an application is made under paragraph 10Z7CA in respect of cryptoassets,
(b) the court or sheriff is satisfied that some or all of the cryptoassets are terrorist cryptoassets, and
(c) there exists property that is associated with the cryptoassets in relation to which the court or sheriff is satisfied as mentioned in paragraph (b).
(2) Paragraphs 10Z7CD and 10Z7CE also apply in England and Wales and Northern Ireland if—
(a) an application is made under paragraph 10Z7CA in respect of cryptoassets,
(b) the court is satisfied that some or all of the cryptoassets are earmarked as terrorist property, and
(c) the cryptoassets in relation to which the court is satisfied as mentioned in paragraph (b) belong to joint tenants and one of the tenants is an excepted joint owner.
(3) In this paragraph and paragraphs 10Z7CD and 10Z7CE, “associated property” means property of any of the following descriptions that is not itself the forfeitable property—
(a) any interest in the forfeitable property;
(b) any other interest in the property in which the forfeitable property subsists;
(c) if the forfeitable property is part of a larger property, but not a separate part, the remainder of that property.
References to property being associated with forfeitable property are to be read accordingly.
(4) In this paragraph and paragraphs 10Z7CD and 10Z7CE, the “forfeitable property” means the cryptoassets in relation to which the court or sheriff is satisfied as mentioned in sub-paragraph (1)(b) or (2)(b) (as the case may be).
(5) For the purposes of this paragraph and paragraphs 10Z7CD and 10Z7CE—
(a) an excepted joint owner is a joint tenant who obtained the property in circumstances in which it would not (as against them) be earmarked, and
(b) references to the excepted joint owner’s share of property are to so much of the property as would have been theirs if the joint tenancy had been severed.
Agreements about associated and joint property
10Z7CD (1) Where—
(a) this paragraph applies, and
(b) the person who applied for the order under paragraph 10Z7CA (on the one hand) and the person who holds the associated property or who is the excepted joint owner (on the other hand) agree,
the magistrates’ court or sheriff may, instead of making an order under paragraph 10Z7CA(3), make an order requiring the person who holds the associated property or who is the excepted joint owner to make a payment to a person identified in the order.
(2) The amount of the payment is (subject to sub-paragraph (3)) to be the amount which the persons referred to in sub-paragraph (1)(b) agree represents—
(a) in a case where this paragraph applies by virtue of paragraph 10Z7CC(1), the value of the forfeitable property;
(b) in a case where this paragraph applies by virtue of paragraph 10Z7CC(2), the value of the forfeitable property less the value of the excepted joint owner’s share.
(3) The amount of the payment may be reduced if the person who applied for the order under paragraph 10Z7CA agrees that the other party to the agreement has suffered loss as a result of—
(a) the seizure of the forfeitable property under paragraph 10Z7AD and its subsequent detention, or
(b) the making of a crypto wallet freezing order under paragraph 10Z7BB.
(4) The reduction that is permissible by virtue of sub-paragraph (3) is such amount as the parties to the agreement agree is reasonable, having regard to the loss suffered and any other relevant circumstances.
(5) An order under sub-paragraph (1) may, so far as required for giving effect to the agreement, include provision for vesting, creating or extinguishing any interest in property.
(6) An order under sub-paragraph (1) made by a magistrates’ court may provide for payment under sub-paragraph (11) of reasonable legal expenses that a person has reasonably incurred, or may reasonably incur, in respect of—
(a) the proceedings in which the order is made, or
(b) any related proceedings under this Part.
(7) A sum in respect of a relevant item of expenditure is not payable under sub-paragraph (11) in pursuance of provision under sub-paragraph (6) unless—
(a) the person who applied for the order under paragraph 10Z7CA agrees to its payment, or
(b) the court has assessed the amount allowed in respect of that item and the sum is paid in respect of the assessed amount.
(8) For the purposes of sub-paragraph (7)—
(a) a “relevant item of expenditure” is an item of expenditure to which regulations under section 286B of the Proceeds of Crime Act 2002 would apply if the order under sub-paragraph (1) had instead been a recovery order made under section 266 of that Act;
(b) an amount is “allowed” in respect of a relevant item of expenditure if it would have been allowed by those regulations.
(9) If there is more than one item of associated property or more than one excepted joint owner, the total amount to be paid under sub-paragraph (1), and the part of that amount which is to be provided by each person who holds any such associated property or who is an excepted joint owner, is to be agreed between both (or all) of them and the person who applied for the order under paragraph 10Z7CA.
(10) If the person who applied for the order under paragraph 10Z7CA was an authorised officer, that person may enter into an agreement for the purposes of any provision of this paragraph only if the person is a senior officer or is authorised to do so by a senior officer.
(11) An amount received under an order under sub-paragraph (1) must be applied as follows—
(a) first, it must be applied in making any payment of legal expenses which, after giving effect to sub-paragraph (7), are payable under this sub-paragraph in pursuance of provision under sub-paragraph (6);
(b) second, it must be applied in payment or reimbursement of any reasonable costs incurred in storing or insuring the forfeitable property and any associated property whilst detained under this Schedule;
(c) third, it must be paid—
(i) if the order was made by a magistrates’ court, into the Consolidated Fund;
(ii) if the order was made by the sheriff, into the Scottish Consolidated Fund.
Associated and joint property: default of agreement
10Z7CE (1) Where this paragraph applies and there is no agreement under paragraph 10Z7CD, the magistrates’ court or sheriff may transfer the application made under paragraph 10Z7CA to the appropriate court.
(2) The “appropriate court” is—
(a) the High Court, where the application under paragraph 10Z7CA was made to a magistrates’ court;
(b) the Court of Session, where the application under paragraph 10Z7CA was made to the sheriff.
(3) Where (under sub-paragraph (1)) an application made under paragraph 10Z7CA is transferred to the appropriate court, the appropriate court may order the forfeiture of the property to which the application relates, or any part of that property, if satisfied that what is to be forfeited—
(a) is within subsection (1)(a) or (b) of section 1, or
(b) is property earmarked as terrorist property.
(4) An order under sub-paragraph (3) made by the High Court may include provision of the type that may be included in an order under paragraph 10Z7CA(3) made by a magistrates’ court by virtue of paragraph 10Z7CA(4).
(5) If provision is included in an order of the High Court by virtue of sub-paragraph (4) of this paragraph, paragraph 10Z7CA(5) and (6) apply with the necessary modifications.
(6) The appropriate court may, as well as making an order under sub-paragraph (3), make an order—
(a) providing for the forfeiture of the associated property or (as the case may be) for the excepted joint owner‘s interest to be extinguished, or
(b) providing for the excepted joint owner‘s interest to be severed.
(7) Where (under sub-paragraph (1)) the magistrates’ court or sheriff decides not to transfer an application made under paragraph 10Z7CA to the appropriate court, the magistrates’ court or sheriff may, as well as making an order under paragraph 10Z7CA(3), make an order—
(a) providing for the forfeiture of the associated property or (as the case may be) for the excepted joint owner‘s interest to be extinguished, or
(b) providing for the excepted joint owner‘s interest to be severed.
(8) An order under sub-paragraph (6) or (7) may be made only if the appropriate court, the magistrates’ court or the sheriff (as the case may be) thinks it just and equitable to do so.
(9) An order under sub-paragraph (6) or (7) must provide for the payment of an amount to the person who holds the associated property or who is an excepted joint owner.
(10) In making an order under sub-paragraph (6) or (7), and including provision in it by virtue of sub-paragraph (9), the appropriate court, the magistrates’ court or the sheriff (as the case may be) must have regard to—
(a) the rights of any person who holds the associated property or who is an excepted joint owner and the value to that person of that property or (as the case may be) of that person’s share (including any value that cannot be assessed in terms of money), and
(b) the interest of the person who applied for the order under paragraph 10Z7CA in realising the value of the forfeitable property.
(11) If the appropriate court, the magistrates’ court or the sheriff (as the case may be) is satisfied that—
(a) the person who holds the associated property or who is an excepted joint owner has suffered loss as a result of—
(i) the seizure of the forfeitable property under paragraph 10Z7AD and its subsequent detention, or
(ii) the making of the crypto wallet freezing order under paragraph 10Z7BB, and
(b) the circumstances are exceptional,
an order under sub-paragraph (6) or (7) may require the payment of compensation to that person.
(12) The amount of compensation to be paid by virtue of sub-paragraph (11) is the amount the appropriate court, the magistrates’ court or the sheriff (as the case may be) thinks reasonable, having regard to the loss suffered and any other relevant circumstances.
(13) Compensation to be paid by virtue of sub-paragraph (11) is to be paid in the same way that compensation is to be paid under paragraph 10Z7CM.
Continuation of crypto wallet freezing order pending appeal
10Z7CF (1) This paragraph applies where, on an application under paragraph 10Z7CA in relation to a crypto wallet to which a crypto wallet freezing order applies—
(a) the magistrates’ court or sheriff decides—
(i) to make an order under paragraph 10Z7CA(3) in relation to some but not all of the cryptoassets to which the application related, or
(ii) not to make an order under paragraph 10Z7CA(3), or
(b) if the application is transferred in accordance with paragraph 10Z7CE(1), the High Court or Court of Session decides—
(i) to make an order under paragraph 10Z7CE(3) in relation to some but not all of the cryptoassets to which the application related, or
(ii) not to make an order under paragraph 10Z7CE(3).
(2) The person who made the application under paragraph 10Z7CA may apply without notice to the court or sheriff that made the decision referred to in sub-paragraph (1) for an order that the crypto wallet freezing order is to continue to have effect.
(3) Where the court or sheriff makes an order under sub-paragraph (2) the crypto wallet freezing order is to continue to have effect until—
(a) the end of the period of 48 hours starting with the making of the order under sub-paragraph (2), or
(b) if within that period of 48 hours an appeal is brought (whether under paragraph 10Z7CG or otherwise) against the decision referred to in sub-paragraph (1), the time when the appeal is determined or otherwise disposed of.
(4) Sub-paragraph (3) of paragraph 10Z7AF applies for the purposes of sub-paragraph (3) as it applies for the purposes of that paragraph.
Paragraphs 10Z7CA to 10Z7CE: appeals
10Z7CG (1) Any party to proceedings for an order for the forfeiture of cryptoassets under paragraph 10Z7CA may appeal against—
(a) the making of an order under paragraph 10Z7CA;
(b) the making of an order under paragraph 10Z7CE(7);
(c) a decision not to make an order under paragraph 10Z7CA unless the reason that no order was made is that an order was instead made under paragraph 10Z7CD;
(d) a decision not to make an order under paragraph 10Z7CE(7).
Paragraphs (c) and (d) do not apply if the application for the order under paragraph 10Z7CA was transferred in accordance with paragraph 10Z7CE(1).
(2) Where an order under paragraph 10Z7CD is made by a magistrates’ court, any party to the proceedings for the order (including any party to the proceedings under paragraph 10Z7CA that preceded the making of the order) may appeal against a decision to include, or not to include, provision in the order under paragraph 10Z7CD(6).
(3) An appeal under this paragraph lies—
(a) in relation to England and Wales, to the Crown Court;
(b) in relation to Scotland, to the Sheriff Appeal Court;
(c) in relation to Northern Ireland, to a county court.
(4) An appeal under this paragraph must be made before the end of the period of 30 days starting with the day on which the court or sheriff makes the order or decision.
(5) Sub-paragraph (4) is subject to paragraph 10Z7CH.
(6) The court hearing the appeal may make any order it thinks appropriate.
(7) If the court upholds an appeal against an order forfeiting any cryptoasset or other item of property, it may, subject to sub-paragraph (8), order the release of the whole or any part of the property.
(8) If (in the United Kingdom or elsewhere) proceedings are started against any person for an offence with which the property is connected, the property is not to be released under this paragraph (and so is to continue to be detained) until the proceedings are concluded.
Extended time for appealing in certain cases where deproscription order made
10Z7CH (1) This paragraph applies where—
(a) a successful application for an order under paragraph 10Z7CA relies (wholly or partly) on the fact that an organisation is proscribed,
(b) an application under section 4 of the Terrorism Act 2000 for a deproscription order in respect of the organisation is refused by the Secretary of State,
(c) the property forfeited by the order under paragraph 10Z7CA was seized under this Schedule on or after the date of the refusal of that application,
(d) an appeal against that refusal is allowed under section 5 of the Terrorism Act 2000,
(e) a deproscription order is made accordingly, and
(f) if the order is made in reliance on section 123(5) of the Terrorism Act 2000, a resolution is passed by each House of Parliament under section 123(5)(b) of that Act.
(2) Where this paragraph applies, an appeal under paragraph 10Z7CG against the making of an order under paragraph 10Z7CA, and against the making (in addition) of any order under paragraph 10Z7CE(7), may be brought at any time before the end of the period of 30 days beginning with the date on which the deproscription order comes into force.
(3) In this paragraph a “deproscription order” means an order under section 3(3)(b) or (8) of the Terrorism Act 2000.
Realisation or destruction of forfeited cryptoassets etc
10Z7CI (1) This paragraph applies where any cryptoasset or other item of property is forfeited under this Part.
(2) An authorised officer must—
(a) realise the property, or
(b) make arrangements for its realisation.
This is subject to sub-paragraphs (3) to (5).
(3) The property is not to be realised—
(a) before the end of the period within which an appeal may be made (whether under paragraph 10Z7CG or otherwise), or
(b) if an appeal is made within that period, before the appeal is determined or otherwise disposed of.
(4) The realisation of property under sub-paragraph (2) must be carried out, so far as practicable, in the manner best calculated to maximise the amount obtained for the property.
(5) Where an authorised officer is satisfied that—
(a) it is not reasonably practicable to realise any cryptoasset, or
(b) there are reasonable grounds to believe that the realisation of any cryptoasset would be contrary to the public interest,
the authorised officer may destroy the cryptoasset.
(6) But—
(a) the authorised officer may destroy the cryptoasset only if the officer is a senior officer or is authorised to do so by a senior officer, and
(b) the cryptoasset is not to be destroyed—
(i) before the end of the period within which an appeal may be made (whether under paragraph 10Z7CG or otherwise), or
(ii) if an appeal is made within that period, before the appeal is determined or otherwise disposed of.
(7) The question of whether the realisation of the cryptoasset would be contrary to the public interest is to be determined with particular reference to how likely it is that the entry of the cryptoasset into general circulation would facilitate criminal conduct by any person.
Proceeds of realisation
10Z7CJ (1) This paragraph applies where any cryptoasset or other item of property is realised under paragraph 10Z7CI.
(2) The proceeds of the realisation must be applied as follows—
(a) first, they must be applied in making any payment required to be made by virtue of paragraph 10Z7CE(9);
(b) second, they must be applied in making any payment of legal expenses which, after giving effect to paragraph 10Z7CA(5) (including as applied by paragraph 10Z7CE(5)), are payable under this sub-paragraph in pursuance of provision under paragraph 10Z7CA(4) or, as the case may be, 10Z7CE(4);
(c) third, they must be applied in payment or reimbursement of any reasonable costs incurred in storing or insuring the property whilst detained under this Schedule and in realising the property;
(d) fourth, they must be paid—
(i) if the property was forfeited by a magistrates’ court or the High Court, into the Consolidated Fund;
(ii) if the property was forfeited by the sheriff or the Court of Session, into the Scottish Consolidated Fund.
(3) If what is realised under paragraph 10Z7CI represents part only of an item of property, the reference in sub-paragraph (2)(c) to costs incurred in storing or insuring the property is to be read as a reference to costs incurred in storing or insuring the whole of the property.
Victims etc: detained cryptoassets
10Z7CK (1) A person who claims that any cryptoassets detained under this Schedule belong to the person may apply for some or all of the cryptoassets to be released.
(2) An application under sub-paragraph (1) is to be made—
(a) in England and Wales or Northern Ireland, to a magistrates’ court;
(b) in Scotland, to the sheriff.
(3) The application may be made in the course of proceedings under paragraph 10Z7AG or 10Z7CA or at any other time.
(4) The court or sheriff may, subject to sub-paragraph (8), order the cryptoassets to which the application relates to be released to the applicant if it appears to the court or sheriff that—
(a) the applicant was deprived of the cryptoassets to which the application relates, or of property which they represent, by criminal conduct,
(b) the cryptoassets the applicant was deprived of were not, immediately before the applicant was deprived of them, property obtained by or in return for criminal conduct and nor did they then represent such property, and
(c) the cryptoassets belong to the applicant.
(5) If sub-paragraph (6) applies, the court or sheriff may, subject to sub-paragraph (8), order the cryptoassets to which the application relates to be released to the applicant or to the person from whom they were seized.
(6) This sub-paragraph applies where—
(a) the applicant is not the person from whom the cryptoassets to which the application relates were seized,
(b) it appears to the court or sheriff that those cryptoassets belong to the applicant,
(c) the court or sheriff is satisfied that the release condition is met in relation to those cryptoassets, and
(d) no objection to the making of an order under sub-paragraph (5) has been made by the person from whom those cryptoassets were seized.
(7) The release condition is met—
(a) if the conditions in Part 4BA for the detention of the cryptoassets are no longer met, or
(b) in relation to cryptoassets which are subject to an application for forfeiture under paragraph 10Z7CA, if the court or sheriff decides not to make an order under that paragraph in relation to the cryptoassets.
(8) If (in the United Kingdom or elsewhere) proceedings are started against any person for an offence with which the cryptoassets are connected, the cryptoassets are not to be released under this paragraph (and so are to continue to be detained) until the proceedings are concluded.
Victims etc: crypto wallet freezing orders
10Z7CL (1) A person who claims that any cryptoassets held in a crypto wallet in respect of which a crypto wallet freezing order has been made belong to the person may apply for some or all of the cryptoassets to be released.
(2) An application under sub-paragraph (1) is to be made—
(a) in England and Wales or Northern Ireland, to a magistrates’ court;
(b) in Scotland, to the sheriff.
(3) The application may be made in the course of proceedings under paragraph 10Z7BB or 10Z7CA or at any other time.
(4) The court or sheriff may, subject to sub-paragraph (8), order the cryptoassets to which the application relates to be released to the applicant if it appears to the court or sheriff that—
(a) the applicant was deprived of the cryptoassets to which the application relates, or of property which they represent, by criminal conduct,
(b) the cryptoassets the applicant was deprived of were not, immediately before the applicant was deprived of them, property obtained by or in return for criminal conduct and nor did they then represent such property, and
(c) the cryptoassets belong to the applicant.
(5) If sub-paragraph (6) applies, the court or sheriff may, subject to sub-paragraph (8), order the cryptoassets to which the application relates to be released to the applicant.
(6) This sub-paragraph applies where—
(a) the applicant is not the person from whom the cryptoassets to which the application relates were seized,
(b) it appears to the court or sheriff that those cryptoassets belong to the applicant,
(c) the court or sheriff is satisfied that the release condition is met in relation to those cryptoassets, and
(d) no objection to the making of an order under sub-paragraph (5) has been made by the person from whom those cryptoassets were seized.
(7) The release condition is met—
(a) if the conditions for the making of the crypto wallet freezing order are no longer met in relation to the cryptoassets to which the application relates, or
(b) in relation to cryptoassets held in a crypto wallet subject to a crypto wallet freezing order which are subject to an application for forfeiture under paragraph 10Z7CA, if the court or sheriff decides not to make an order under that paragraph in relation to the cryptoassets.
(8) Cryptoassets are not to be released under this paragraph—
(a) if an application for their forfeiture under paragraph 10Z7CA is made, until any proceedings in pursuance of the application (including any proceedings on appeal) are concluded;
(b) if (in the United Kingdom or elsewhere) proceedings are started against any person for an offence with which the cryptoassets are connected, until the proceedings are concluded.
(9) In relation to cryptoassets held in a crypto wallet that is subject to a crypto wallet freezing order, references in this paragraph to a person from whom cryptoassets were seized include a reference to a person by or for whom the crypto wallet was administered immediately before the crypto wallet freezing order was made.
Compensation
10Z7CM (1) This paragraph applies if no order is made under paragraph 10Z7CA, 10Z7CD or 10Z7CE in respect of cryptoassets detained under this Schedule or held in a crypto wallet that is subject to a crypto wallet freezing order under paragraph 10Z7BB.
(2) Where this paragraph applies, the following may make an application to the relevant court for compensation—
(a) a person to whom the cryptoassets belong or from whom they were seized;
(b) a person by or for whom a crypto wallet to which the crypto wallet freezing order applies is administered.
(3) If the relevant court is satisfied that the applicant has suffered loss as a result of the detention of the cryptoassets or the making of the crypto wallet freezing order and that the circumstances are exceptional, the relevant court may order compensation to be paid to the applicant.
(4) The amount of compensation to be paid is the amount the relevant court thinks reasonable, having regard to the loss suffered and any other relevant circumstances.
(5) If the cryptoassets were seized, or the crypto wallet freezing order was applied for, by an officer of Revenue and Customs, the compensation is to be paid by the Commissioners for His Majesty’s Revenue and Customs.
(6) If the cryptoassets were seized, or the crypto wallet freezing order was applied for, by a constable, the compensation is to be paid as follows—
(a) in the case of a constable of a police force in England and Wales, it is to be paid out of the police fund from which the expenses of the police force are met;
(b) in the case of a constable of the Police Service of Scotland, it is to be paid by the Scottish Police Authority;
(c) in the case of a police officer within the meaning of the Police (Northern Ireland) Act 2000, it is to be paid out of money provided by the Chief Constable of the Police Service of Northern Ireland.
(7) If the cryptoassets were seized, or the crypto wallet freezing order was applied for, by a counter-terrorism financial investigator, the compensation is to be paid as follows—
(a) in the case of a counter-terrorism financial investigator who was—
(i) a member of the civilian staff of a police force (including the metropolitan police force), within the meaning of Part 1 of the Police Reform and Social Responsibility Act 2011, or
(ii) a member of staff of the City of London police force,
it is to be paid out of the police fund from which the expenses of the police force are met;
(b) in the case of a counter-terrorism financial investigator who was a member of staff of the Police Service of Northern Ireland, it is to be paid out of money provided by the Chief Constable of the Police Service of Northern Ireland.
(8) If the cryptoassets were seized, or the crypto wallet freezing order was applied for, by an immigration officer, the compensation is to be paid by the Secretary of State.
(9) If an order under paragraph 10Z7BB, 10Z7CA, 10Z7CD or 10Z7CE is made in respect of some of the cryptoassets detained or held, this paragraph has effect in relation to the remainder.
(10) This paragraph does not apply if the relevant court makes an order under paragraph 10Z7CK or 10Z7CL.
(11) In this paragraph “relevant court” means—
(a) in England and Wales and Northern Ireland, a magistrates’ court;
(b) in Scotland, the sheriff.
Part 4BD
Conversion of cryptoassets
Interpretation
10Z7D (1) In this Part—
“converted cryptoassets” is to be read in accordance with paragraphs 10Z7DC and 10Z7DD;
“crypto wallet freezing order” has the same meaning as in Part 4BB (see paragraph 10Z7B(6));
“relevant court” means—
(a) in England and Wales and Northern Ireland, a magistrates’ court;
(b) in Scotland, the sheriff;
“relevant financial institution” has the same meaning as in Part 4B (see paragraph 10Q);
“UK-connected cryptoasset service provider” has the same meaning as in Part 4BB (see paragraph 10Z7B(7)).
(2) Paragraph 10Z7B(6)(b) (administration of crypto wallets) applies in relation to this Part as it applies in relation to Part 4BB.
(3) In this Part references to the conversion of cryptoassets into money are references to the conversion of cryptoassets into—
(a) cash, or
(b) money held in an account maintained with a relevant financial institution.
(4) For the purposes of Parts 2 to 4, converted cryptoassets detained under this Part are not to be treated as cash detained under this Schedule.
Detained cryptoassets: conversion
10Z7DA (1) Sub-paragraph (2) applies while any cryptoassets are detained in pursuance of an order under paragraph 10Z7AE or 10Z7AG (including where cryptoassets are subject to forfeiture proceedings).
(2) A person within sub-paragraph (3) may apply to the relevant court for an order requiring all of the cryptoassets detained pursuant to the order to be converted into money.
(3) The following persons are within this sub-paragraph—
(a) an authorised officer;
(b) a person from whom the cryptoassets were seized.
(4) In deciding whether to make an order under this paragraph, the court must have regard to whether the cryptoassets (as a whole) are likely to suffer a significant loss in value during the period before they are released or forfeited (including the period during which an appeal against an order for forfeiture may be made).
(5) Before making an order under this paragraph the court must give an opportunity to be heard to—
(a) the parties to the proceedings, and
(b) any other person who may be affected by its decision.
(6) As soon as practicable after an order is made under this paragraph, an authorised officer must convert the cryptoassets, or arrange for the cryptoassets to be converted, into money.
(7) The conversion of cryptoassets under sub-paragraph (6) must be carried out, so far as practicable, in the manner best calculated to maximise the amount of money obtained for the cryptoassets.
(8) At the first opportunity after the cryptoassets are converted, the authorised officer must arrange for the amount of money obtained for the cryptoassets to be paid into an interest-bearing account and held there.
(9) Interest accruing on the amount is to be added to it on its forfeiture or release.
(10) Where cryptoassets are converted into money in accordance with an order made under this paragraph—
(a) the cryptoassets are no longer to be treated as being detained in pursuance of an order under paragraph 10Z7AE or 10Z7AG, and
(b) any application made under paragraph 10Z7CA(2) in relation to the cryptoassets which has not yet been determined or otherwise disposed of (including under paragraph 10Z7CD or 10Z7CE) is to be treated as if it were an application made under paragraph 10Z7DG(2) in relation to the converted cryptoassets.
(11) An order made under this paragraph must provide for notice to be given to persons affected by the order.
(12) No appeal may be made against an order made under this paragraph.
Frozen crypto wallet: conversion
10Z7DB (1) This paragraph applies while a crypto wallet freezing order under paragraph 10Z7BB has effect (including where cryptoassets held in a crypto wallet that is subject to a crypto wallet freezing order are subject to forfeiture proceedings).
(2) A person within sub-paragraph (3) may apply to the relevant court for an order requiring all of the cryptoassets held in the crypto wallet to be converted into money.
(3) The following persons are within this sub-paragraph—
(a) an authorised officer;
(b) a person by or for whom the crypto wallet is administered.
(4) In deciding whether to make an order under this paragraph, the court must have regard to whether the cryptoassets (as a whole) are likely to suffer a significant loss in value during the period before—
(a) the crypto wallet freezing order ceases to have effect, or
(b) the cryptoassets are forfeited (including the period during which an appeal against an order for forfeiture may be made).
(5) Before making an order under this paragraph the court must give an opportunity to be heard to—
(a) the parties to the proceedings, and
(b) any other person who may be affected by its decision.
(6) As soon as practicable after an order is made under this paragraph, the UK-connected cryptoasset service provider that administers the crypto wallet must convert the cryptoassets, or arrange for the cryptoassets to be converted, into money.
(7) The conversion of cryptoassets under sub-paragraph (6) must be carried out, so far as practicable, in the manner best calculated to maximise the amount of money obtained for the cryptoassets.
(8) At the first opportunity after the cryptoassets are converted, the UK-connected cryptoasset service provider must arrange for the amount of money obtained for the cryptoassets to be paid into an interest-bearing account nominated by an authorised officer and held there.
(9) But—
(a) the UK-connected cryptoasset service provider may deduct any reasonable expenses incurred by the provider in connection with the conversion of the cryptoassets, and
(b) the amount to be treated as the proceeds of the conversion of the cryptoassets is to be reduced accordingly.
(10) Interest accruing on the amount obtained for the cryptoassets is to be added to it on its forfeiture or release.
(11) Where cryptoassets are converted in accordance with an order made under this paragraph—
(a) the crypto wallet freezing order ceases to have effect,
(b) any application made under paragraph 10Z7CA(2) in relation to the cryptoassets which has not yet been determined or otherwise disposed of (including under paragraph 10Z7CD or 10Z7CE) is to be treated as if it were an application made under paragraph 10Z7DG(2) in relation to the converted cryptoassets, and
(c) any application made under paragraph 10Z7CF(2) in relation to the crypto wallet which has not yet been determined or otherwise disposed of may not be proceeded with.
(12) An order made under this paragraph must provide for notice to be given to persons affected by the order.
(13) No appeal may be made against an order made under this paragraph.
Conversion: existing forfeiture proceedings
10Z7DC (1) Where—
(a) cryptoassets are forfeited under paragraph 10Z7CA or 10Z7CE, and
(b) before the cryptoassets are realised or destroyed in accordance with paragraph 10Z7CI, an order is made under paragraph 10Z7DA requiring the cryptoassets to be converted into money,
paragraph 10Z7DJ(1) applies in relation to the converted cryptoassets as if they had been detained under paragraph 10Z7DD and forfeited under paragraph 10Z7DG (and accordingly paragraph 10Z7CI ceases to apply).
(2) Where—
(a) cryptoassets are forfeited under paragraph 10Z7CA or 10Z7CE, and
(b) before the cryptoassets are realised or destroyed in accordance with paragraph 10Z7CI, an order is made under paragraph 10Z7DB requiring the cryptoassets to be converted into money,
paragraph 10Z7DJ(2) applies in relation to the converted cryptoassets as if they had been detained under paragraph 10Z7DE and forfeited under paragraph 10Z7DG (and accordingly paragraph 10Z7CI ceases to apply).
(3) Where—
(a) an appeal may be made under paragraph 10Z7CG(1) or (2) in relation to the determination of an application under paragraph 10Z7CA(2) for the forfeiture of cryptoassets (including where paragraph 10Z7CD or 10Z7CE applies), and
(b) an order is made under paragraph 10Z7DA or 10Z7DB requiring the cryptoassets to be converted into money,
the appeal may instead be made under paragraph 10Z7DH (within the time allowed by paragraph 10Z7CG(4)) as if it were an appeal against the determination of an application under paragraph 10Z7DG.
(4) Where—
(a) an appeal is made under paragraph 10Z7CG(1) or (2) in relation to the determination of an application under paragraph 10Z7CA(2) for the forfeiture of cryptoassets (including where paragraph 10Z7CD or 10Z7CE applies), and
(b) before the appeal is determined or otherwise disposed of, an order is made under paragraph 10Z7DA or 10Z7DB requiring the cryptoassets to be converted into money,
the appeal is to be treated as if it had been made under paragraph 10Z7DH(1) in relation to the determination of an application under paragraph 10Z7DG for the forfeiture of the converted cryptoassets.
Detained cryptoassets: detention of proceeds of conversion
10Z7DD (1) This paragraph applies where cryptoassets are converted into money in accordance with an order under paragraph 10Z7DA.
(2) The proceeds of the conversion (the “converted cryptoassets”) may be detained initially until the end of the period that the cryptoassets could, immediately before the conversion, have been detained under Part 4BA (ignoring the possibility of any extension of that period).
(3) The period for which the converted cryptoassets may be detained may be extended by an order made by the relevant court.
(4) An order under sub-paragraph (3) may not authorise the detention of the converted cryptoassets beyond the end of the period of 2 years beginning with the relevant date; but this is subject to sub-paragraph (5).
(5) The relevant court may make an order for the period of 2 years in sub-paragraph (4) to be extended to a period of up to 3 years beginning with the relevant date.
(6) In sub-paragraphs (4) and (5) “the relevant date” means the date on which the first order under paragraph 10Z7AE or 10Z7AG (as the case may be) was made in relation to the cryptoassets.
(7) An application for an order under sub-paragraph (3) or (5) may be made—
(a) in relation to England and Wales and Northern Ireland, by the Commissioners for His Majesty’s Revenue and Customs or an authorised officer;
(b) in relation to Scotland, by a procurator fiscal.
(8) The relevant court may make an order under sub-paragraph (3) only if satisfied that there are reasonable grounds for suspecting that the converted cryptoassets to be further detained—
(a) are within subsection (1)(a) or (b) of section 1, or
(b) are property earmarked as terrorist property.
(9) The relevant court may make an order under sub-paragraph (5) only if satisfied that a request for assistance is outstanding in relation to the cryptoassets mentioned in sub-paragraph (1).
(10) A “request for assistance” in sub-paragraph (9) means a request for assistance in obtaining evidence (including information in any form or article) in connection with the cryptoassets, made—
(a) by a judicial authority in the United Kingdom under section 7 of the Crime (International Co-operation) Act 2003, or
(b) by an authorised officer, to an authority exercising equivalent functions in a foreign country.
Frozen crypto wallets: detention of proceeds of conversion
10Z7DE (1) This paragraph applies where cryptoassets held in a crypto wallet subject to a crypto wallet freezing order are converted into money in accordance with an order under paragraph 10Z7DB.
(2) The proceeds of the conversion (the “converted cryptoassets”) may be detained initially until the end of the period that the crypto wallet freezing order was, immediately before the conversion, due to have effect under Part 4BB (ignoring the possibility of any extension of that period).
(3) The period for which the converted cryptoassets may be detained may be extended by an order made by the relevant court.
(4) An order under sub-paragraph (3) may not authorise the detention of the converted cryptoassets beyond the end of the period of 2 years beginning with the day on which the crypto wallet freezing order was made; but this is subject to sub-paragraph (5).
(5) The relevant court may make an order for the period of 2 years in sub-paragraph (4) to be extended to a period of up to 3 years beginning with the day on which the crypto wallet freezing order was made.
(6) An application for an order under sub-paragraph (3) or (5) may be made—
(a) in relation to England and Wales and Northern Ireland, by the Commissioners for His Majesty’s Revenue and Customs or an authorised officer;
(b) in relation to Scotland, by a procurator fiscal.
(7) The relevant court may make an order under sub-paragraph (3) only if satisfied that there are reasonable grounds for suspecting that the converted cryptoassets to be further detained—
(a) are within subsection (1)(a) or (b) of section 1, or
(b) are property earmarked as terrorist property.
(8) The relevant court may make an order under sub-paragraph (5) only if satisfied that a request for assistance is outstanding in relation to the cryptoassets mentioned in sub-paragraph (1).
(9) A “request for assistance” in sub-paragraph (8) means a request for assistance in obtaining evidence (including information in any form or article) in connection with the cryptoassets, made—
(a) by a judicial authority in the United Kingdom under section 7 of the Crime (International Co-operation) Act 2003, or
(b) by an authorised officer, to an authority exercising equivalent functions in a foreign country.
Release of detained converted cryptoassets
10Z7DF (1) This paragraph applies while any converted cryptoassets are detained under paragraph 10Z7DD or 10Z7DE.
(2) The relevant court may, subject to sub-paragraph (7), direct the release of the whole or any part of the converted cryptoassets if the following condition is met.
(3) The condition is that, on an application by the relevant person, the court is not satisfied that there are reasonable grounds for suspecting that the converted cryptoassets to be released—
(a) are within subsection (1)(a) or (b) of section 1, or
(b) are property earmarked as terrorist property.
(4) In sub-paragraph (3) “the relevant person” means—
(a) in the case of converted cryptoassets detained under paragraph 10Z7DD, the person from whom the cryptoassets mentioned in sub-paragraph (1) of that paragraph were seized, and
(b) in the case of converted cryptoassets detained under paragraph 10Z7DE, any person affected by the crypto wallet freezing order mentioned in sub-paragraph (1) of that paragraph.
(5) A person within sub-paragraph (6) may, subject to sub-paragraph (7) and after notifying the magistrates’ court or sheriff under whose order converted cryptoassets are being detained, release the whole or any part of the converted cryptoassets if satisfied that the detention is no longer justified.
(6) The following persons are within this sub-paragraph—
(a) in relation to England and Wales or Northern Ireland, an authorised officer;
(b) in relation to Scotland, a procurator fiscal.
(7) Converted cryptoassets are not to be released under this paragraph (and so are to continue to be detained)—
(a) if an application for their forfeiture under paragraph 10Z7DG is made, until any proceedings in pursuance of the application (including any proceedings on appeal) are concluded;
(b) if (in the United Kingdom or elsewhere) proceedings are started against any person for an offence with which the converted cryptoassets are connected, until the proceedings are concluded.
Forfeiture
10Z7DG (1) This paragraph applies while any converted cryptoassets are detained under paragraph 10Z7DD or 10Z7DE.
(2) An application for the forfeiture of some or all of the converted cryptoassets may be made—
(a) to a magistrates’ court by, the Commissioners for His Majesty’s Revenue and Customs or an authorised officer;
(b) to the sheriff, by the Scottish Ministers.
(3) The court or sheriff may order the forfeiture of some or all of the converted cryptoassets if satisfied that the converted cryptoassets to be forfeited—
(a) are within subsection (1)(a) or (b) of section 1, or
(b) are property earmarked as terrorist property.
(4) But in the case of property which belongs to joint tenants, one of whom is an excepted joint owner, the order may not apply to so much of it as the court thinks is attributable to the excepted joint owner’s share.
(5) Where an application for forfeiture is made under this paragraph, the converted cryptoassets are to continue to be detained under paragraph 10Z7DD or 10Z7DE (and may not be released under any power conferred by this Part) until any proceedings in pursuance of the application (including any proceedings on appeal) are concluded.
(6) For the purposes of this paragraph—
(a) an excepted joint owner is a joint tenant who obtained the property in circumstances in which it would not (as against them) be earmarked, and
(b) references to the excepted joint owner’s share of property are to so much of the property as would have been theirs if the joint tenancy had been severed.
Forfeiture: appeals
10Z7DH (1) Any party to proceedings for an order for the forfeiture of converted cryptoassets under paragraph 10Z7DG who is aggrieved by an order under that paragraph or by the decision of the court not to make such an order may appeal—
(a) from an order or decision of a magistrates’ court in England and Wales, to the Crown Court;
(b) from an order or decision of the sheriff, to the Sheriff Appeal Court;
(c) from an order or decision of a magistrates’ court in Northern Ireland, to a county court.
(2) An appeal under sub-paragraph (1) must be made before the end of the period of 30 days starting with the day on which the court makes the order or decision.
(3) The court hearing the appeal may make any order it thinks appropriate.
(4) If the court upholds an appeal against an order forfeiting the converted cryptoassets, it may, subject to sub-paragraph (5), order the release of some or all of the converted cryptoassets.
(5) If (in the United Kingdom or elsewhere) proceedings are started against any person for an offence with which the converted cryptoassets are connected, the converted cryptoassets are not to be released under this paragraph (and so are to continue to be detained) until the proceedings are concluded.
Extended time for appealing in certain cases where deproscription order made
10Z7DI (1) This paragraph applies where—
(a) a successful application for an order under paragraph 10Z7DG relies (wholly or partly) on the fact that an organisation is proscribed,
(b) an application under section 4 of the Terrorism Act 2000 for a deproscription order in respect of the organisation is refused by the Secretary of State,
(c) the converted cryptoassets forfeited by the order under paragraph 10Z7DG were converted from cryptoassets which were seized under this Schedule on or after the date of the refusal of that application,
(d) an appeal against that refusal is allowed under section 5 of the Terrorism Act 2000,
(e) a deproscription order is made accordingly, and
(f) if the order is made in reliance on section 123(5) of the Terrorism Act 2000, a resolution is passed by each House of Parliament under section 123(5)(b) of that Act.
(2) Where this paragraph applies, an appeal under paragraph 10Z7DH against the making of an order under paragraph 10Z7DG may be brought at any time before the end of the period of 30 days beginning with the date on which the deproscription order comes into force.
(3) In this paragraph a “deproscription order” means an order under section 3(3)(b) or (8) of the Terrorism Act 2000.
Application of forfeited converted cryptoassets
10Z7DJ (1) Converted cryptoassets detained under paragraph 10Z7DD and forfeited under paragraph 10Z7DG, and any accrued interest on them, must be applied as follows—
(a) first, they must be applied in making any payment of reasonable expenses incurred by an authorised officer in connection with the safe storage of the cryptoassets mentioned in paragraph 10Z7DD(1) during the period the cryptoassets were detained under Part 4BA;
(b) second, they must be applied in making any payment of reasonable expenses incurred by an authorised officer in connection with the conversion of those cryptoassets under paragraph 10Z7DA(6);
(c) third, they must be applied in making any payment of reasonable expenses incurred by an authorised officer in connection with the detention of the converted cryptoassets under this Part;
(d) fourth, they must be paid—
(i) if forfeited by a magistrates’ court in England and Wales or Northern Ireland, into the Consolidated Fund, and
(ii) if forfeited by the sheriff, into the Scottish Consolidated Fund.
(2) Converted cryptoassets detained under paragraph 10Z7DE and forfeited under paragraph 10Z7DG, and any accrued interest on them, must be applied as follows—
(a) first, they must be applied in making any payment of reasonable expenses incurred by an authorised officer in connection with the detention of the converted cryptoassets under this Part;
(b) second, they must be paid—
(i) if forfeited by a magistrates’ court in England and Wales or Northern Ireland, into the Consolidated Fund, and
(ii) if forfeited by the sheriff, into the Scottish Consolidated Fund.
(3) But converted cryptoassets are not to be applied or paid under sub-paragraph (1) or (2)—
(a) before the end of the period within which an appeal under paragraph 10Z7DH may be made, or
(b) if a person appeals under that paragraph, before the appeal is determined or otherwise disposed of.
Victims etc
10Z7DK (1) This paragraph applies where converted cryptoassets are detained under this Part.
(2) Where this paragraph applies, a person (“P”) who claims that the relevant cryptoassets belonged to P immediately before—
(a) the relevant cryptoassets were seized, or
(b) the crypto wallet freezing order was made in relation to the crypto wallet in which the relevant cryptoassets were held,
may apply to the relevant court for some or all of the converted cryptoassets to be released to P.
(3) The application may be made in the course of proceedings under paragraph 10Z7DD, 10Z7DE or 10Z7DG or at any other time.
(4) The relevant court may, subject to sub-paragraph (9), order the converted cryptoassets to which the application relates to be released to the applicant if it appears to the relevant court that the condition in sub-paragraph (5) is met.
(5) The condition in this sub-paragraph is that—
(a) the applicant was deprived of the relevant cryptoassets, or of property which they represent, by criminal conduct,
(b) the relevant cryptoassets the applicant was deprived of were not, immediately before the applicant was deprived of them, property obtained by or in return for criminal conduct and nor did they then represent such property, and
(c) the relevant cryptoassets belonged to the applicant immediately before—
(i) the relevant cryptoassets were seized, or
(ii) the crypto wallet freezing order was made in relation to the crypto wallet in which the relevant cryptoassets were held.
(6) If sub-paragraph (7) applies, the relevant court may, subject to sub-paragraph (9), order the converted cryptoassets to which the application relates to be released to the applicant or to the person from whom the relevant cryptoassets were seized.
(7) This sub-paragraph applies where—
(a) the applicant is not the person from whom the relevant cryptoassets were seized,
(b) it appears to the relevant court that the relevant cryptoassets belonged to the applicant immediately before—
(i) the relevant cryptoassets were seized, or
(ii) the crypto wallet freezing order was made in relation to the crypto wallet in which the relevant cryptoassets were held,
(c) the relevant court is satisfied that the release condition is met in relation to the converted cryptoassets, and
(d) no objection to the making of an order under sub-paragraph (6) has been made by the person from whom the relevant cryptoassets were seized.
(8) The release condition is met—
(a) if the conditions in this Part for the detention of the converted cryptoassets are no longer met, or
(b) in relation to converted cryptoassets which are subject to an application for forfeiture under paragraph 10Z7DG, if the court or sheriff decides not to make an order under that paragraph in relation to the converted cryptoassets.
(9) If (in the United Kingdom or elsewhere) proceedings are started against any person for an offence with which the converted cryptoassets are connected, the converted cryptoassets are not to be released under this paragraph (and so are to continue to be detained) until the proceedings are concluded.
(10) Where sub-paragraph (2)(b) applies, references in this paragraph to a person from whom relevant cryptoassets were seized include a reference to a person by or for whom the crypto wallet mentioned in that provision was administered immediately before the crypto wallet freezing order was made in relation to the crypto wallet.
(11) In this paragraph “the relevant cryptoassets” means—
(a) in relation to converted cryptoassets detained under paragraph 10Z7DD, some or all of the cryptoassets mentioned in sub-paragraph (1) of that paragraph, and
(b) in relation to converted cryptoassets detained under paragraph 10Z7DE, some or all of the cryptoassets mentioned in sub-paragraph (1) of that paragraph.
Compensation
10Z7DL (1) This paragraph applies if no order is made under paragraph 10Z7DG in respect of converted cryptoassets detained under this Part.
(2) Where this paragraph applies, the following may make an application to the relevant court for compensation—
(a) a person to whom the relevant cryptoassets belonged immediately before they were seized;
(b) a person from whom the relevant cryptoassets were seized;
(c) a person by or for whom the crypto wallet mentioned in paragraph 10Z7DE(1) was administered immediately before the crypto wallet freezing order was made in relation to the crypto wallet.
(3) If the relevant court is satisfied that—
(a) the applicant has suffered loss as a result of—
(i) the conversion of the relevant cryptoassets into money, or
(ii) the detention of the converted cryptoassets, and
(b) the circumstances are exceptional,
the relevant court may order compensation to be paid to the applicant.
(4) The amount of compensation to be paid is the amount the relevant court thinks reasonable, having regard to the loss suffered and any other relevant circumstances.
(5) If the relevant cryptoassets were seized, or the relevant crypto wallet freezing order was applied for, by an officer of Revenue and Customs, the compensation is to be paid by the Commissioners for His Majesty’s Revenue and Customs.
(6) If the relevant cryptoassets were seized, or the relevant crypto wallet freezing order was applied for, by a constable, the compensation is to be paid as follows—
(a) in the case of a constable of a police force in England and Wales, it is to be paid out of the police fund from which the expenses of the police force are met;
(b) in the case of a constable of the Police Service of Scotland, it is to be paid by the Scottish Police Authority;
(c) in the case of a police officer within the meaning of the Police (Northern Ireland) Act 2000, it is to be paid out of money provided by the Chief Constable of the Police Service of Northern Ireland.
(7) If the relevant cryptoassets were seized, or the relevant crypto wallet freezing order was applied for, by a counter-terrorism financial investigator, the compensation is to be paid as follows—
(a) in the case of a counter-terrorism financial investigator who was—
(i) a member of the civilian staff of a police force (including the metropolitan police force), within the meaning of Part 1 of the Police Reform and Social Responsibility Act 2011, or
(ii) a member of staff of the City of London police force,
it is to be paid out of the police fund from which the expenses of the police force are met;
(b) in the case of a counter-terrorism financial investigator who was a member of staff of the Police Service of Northern Ireland, it is to be paid out of money provided by the Chief Constable of the Police Service of Northern Ireland.
(8) If the relevant cryptoassets were seized, or the relevant crypto wallet freezing order was applied for, by an immigration officer, the compensation is to be paid by the Secretary of State.
(9) This paragraph does not apply if the relevant court makes an order under paragraph 10Z7DK.
(10) In this paragraph—
“the relevant cryptoassets” means—
(a) in relation to converted cryptoassets detained under paragraph 10Z7DD, the cryptoassets mentioned in sub-paragraph (1) of that paragraph;
(b) in relation to converted cryptoassets detained under paragraph 10Z7DE, the cryptoassets mentioned in sub-paragraph (1) of that paragraph;
“the relevant crypto wallet freezing order”, in relation to converted cryptoassets detained under paragraph 10Z7DE, means the crypto wallet freezing order mentioned in sub-paragraph (1) of that paragraph.”
3 In Part 1, in paragraph 1(1) (terrorist cash), for “and 4B” substitute “to 4BD”.
4 In Part 4B (forfeiture of terrorist money held in bank and building society accounts), after paragraph 10Z6 insert—
“Victims etc
10Z6A (1) A person who claims that money in respect of which an account freezing order has been made belongs to them may apply to the relevant court for the money to be released.
(2) The application may be made in the course of proceedings under paragraph 10S or 10Z2 or at any other time.
(3) The court may, subject to sub-paragraph (7), order the money to which the application relates to be released to the applicant if it appears to the court that—
(a) the applicant was deprived of the money to which the application relates, or of property which it represents, by criminal conduct,
(b) the money the applicant was deprived of was not, immediately before the applicant was deprived of it, property obtained by or in return for criminal conduct and nor did it then represent such property, and
(c) the money belongs to the applicant.
(4) If sub-paragraph (5) applies, the court may, subject to sub-paragraph (7), order the money to which the application relates to be released to the applicant.
(5) This sub-paragraph applies where—
(a) the applicant is not the person from whom the money to which the application relates was seized,
(b) it appears to the court that the money belongs to the applicant,
(c) the court is satisfied that the release condition is met in relation to the money, and
(d) no objection to the making of an order under sub-paragraph (4) has been made by the person from whom the money was seized.
(6) The release condition is met—
(a) in relation to money held in a frozen account, if the conditions for making an order under paragraph 10S in relation to the money are no longer met, or
(b) in relation to money held in a frozen account which is subject to an application for forfeiture under paragraph 10Z2, if the court or sheriff decides not to make an order under that paragraph in relation to the money.
(7) Money is not to be released under this paragraph—
(a) if an account forfeiture notice under paragraph 10W is given in respect of the money, until any proceedings in pursuance of the notice (including any proceedings on appeal) are concluded;
(b) if an application for its forfeiture under paragraph 10Z2, is made, until any proceedings in pursuance of the application (including any proceedings on appeal) are concluded;
(c) if (in the United Kingdom or elsewhere) proceedings are started against any person for an offence with which the cash is connected, until the proceedings are concluded.
(8) In relation to money held in an account that is subject to an account freezing order, references in this paragraph to a person from whom money was seized include a reference to a person by or for whom the account was operated immediately before the account freezing order was made.”
5 In Part 6, in paragraph 19(1), at the appropriate places insert—
““cryptoasset” has the meaning given by paragraph 10Z7A(1);”;
““crypto wallet” has the meaning given by paragraph 10Z7A(1);”;
““justice of the peace”, in relation to Northern Ireland, means lay magistrate;”;
““terrorist cryptoasset” has the meaning given by paragraph 10Z7A(1);”.
Part 2
Amendments to the Terrorism Act 2000
6 The Terrorism Act 2000 is amended as follows.
7 In Schedule 6 (financial information)—
(a) in paragraph 6(1) (meaning of financial institution)—
(i) omit the “and” after paragraph (ha), and
(ii) after paragraph (i) insert—
(b) after sub-paragraph (1AA) insert—
“(1AB) For the purposes of sub-paragraph (1)(j), “cryptoasset exchange provider” means a firm or sole practitioner who by way of business provides one or more of the following services, including where the firm or sole practitioner does so as creator or issuer of any of the cryptoassets involved—
(a) exchanging or arranging or making arrangements with a view to the exchange of, cryptoassets for money or money for cryptoassets,
(b) exchanging, or arranging or making arrangements with a view to the exchange of, one cryptoasset for another, or
(c) operating a machine which utilises automated processes to exchange cryptoassets for money or money for cryptoassets.
(1AC) For the purposes of sub-paragraph (1)(k), “custodian wallet provider” means a firm or sole practitioner who by way of business provides services to safeguard, or to safeguard and administer—
(a) cryptoassets on behalf of its customers, or
(b) private cryptographic keys on behalf of its customers in order to hold, store and transfer cryptoassets.
(1AD) For the purposes of sub-paragraphs (1AB) and (1AC), “cryptoasset” means a cryptographically secured digital representation of value or contractual rights that uses a form of distributed ledger technology and can be transferred, stored or traded electronically.
(1AE) For the purposes of sub-paragraph (1AB)—
(a) “cryptoasset” includes a right to, or interest in, the cryptoasset;
(b) “money” means—
(i) money in sterling,
(ii) money in any other currency, or
(iii) money in any other medium of exchange,
but does not include a cryptoasset.
(1AF) The Secretary of State may by regulations amend the definitions in sub-paragraphs (1AB) to (1AE).”
8 In section 123 (orders and regulations), after subsection (6ZE) insert—
“(6ZF) Regulations under paragraph 6(1AF) of Schedule 6 may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.”’—(Tom Tugendhat.)
Part 1 of this Schedule amends the Anti-terrorism, Crime and Security Act 2001 to make provision for a civil recovery regime in relation to terrorist cryptoassets. Part 2 of this Schedule amends the Terrorism Act 2000 to make provision about financial institutions and cryptoassets.
Brought up, read the First and Second time, and added to the Bill.
Bill, as amended, to be reported.
Economic Crime and Corporate Transparency Bill
Tuesday 24th January 2023
(1 year, 10 months ago)
Commons ChamberRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 24 January 2023 - large print - (24 Jan 2023)
18:20 - The House divided: - Ayes: 232 / Noes: 296 - Question accordingly negatived.
18:37 - The House divided: - Ayes: 234 / Noes: 291 - Question accordingly negatived.
18:51 - The House divided: - Ayes: 233 / Noes: 290 - Question accordingly negatived.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
I beg to move, That the clause be read a Second time.
Madam Deputy Speaker (Dame Rosie Winterton)
With this it will be convenient to discuss the following:
Government new clause 9—Disqualification on summary conviction: GB.
Government new clause 10—Disqualification for persistent breaches of companies legislation: NI.
Government new clause 11—Disqualification on summary conviction: NI.
Government new clause 12—A limited partnership’s registered office: consequential amendments.
Government new clause 13—Removal of limited partnership from index of names.
Government new clause 15—Reports on the implementation and operation of Parts 1 to 3.
New clause 16—Reporting requirement (objectives)—
“(1) The Secretary of State must publish an annual report assessing whether the powers available to the Secretary of State and the registrar are sufficient to enable the registrar to achieve its objectives under section 1081A of the Companies Act 2006 (inserted by section 1 of this Act).
(2) Each report must make a recommendation as to whether further legislation should be brought forward in response to the report.
(3) Each report must provide a breakdown of the registrar’s annual expenditure.
(4) Each report must contain the details of the steps the Registrar has taken to promote the registrar’s objectives under this Act; and
(5) Each report must provide annual data on the number of companies that have been struck-off by the registrar, the number and amount of fines the registrar has issued, and the number of criminal convictions made, and of cases of suspected unlawful activity identified by the registrar as a result of the registrar’s powers as set out in this Act.
(6) Each report must provide annual data on the number of cases referred by the registrar to law enforcement bodies and anti-money laundering supervisors.
(7) Each report must provide annual data on the total number of company incorporations to the registrar, and the number of company incorporations by authorised corporate service providers to the registrar.
(8) Each report must detail all instances in which exemption powers have been used by the Secretary of State, as introduced by this Act.
(9) The first report must be published within one year of this Act being passed.
(10) A further report must be published at least once a year.
(11) The Secretary of State must lay a copy of each report before Parliament.”
This new clause creates an obligation on the Secretary of State to submit an annual report to Parliament on progress of the reforms in this Bill, data on the register, breaches, use of exemption powers by the Secretary of State and penalties imposed.
New clause 17—Checks on persons with significant control status—
“(1) The Companies Act 2006 is amended as follows.
(2) After section 790LP (Offence of failing to comply with sections 790LI to 790LN) insert—
‘790LQ Duty to check person of significant control status
(1) This section applies when a registrable person’s identity is verified under section 1110A(1) and a risk assessment carried out under section 1062A(1A) has identified a matter of concern in relation to the registrable person.
(2) The registrar must take steps to ensure that the registrable person whose identity is being verified is a person with significant control over the company.
790LR Duty of registrar to cross-check identity of person with significant control
(1) This section applies where—
(a) the registrar has received—
(i) the information required by subsection (6) of section 853G (Duty to deliver shareholder information: certain traded companies), or
(ii) relevant membership information as required by subsection (2) of section 49 (Membership information: one-off confirmation statement) of the Economic Crime and Corporate Transparency Act 2023; and
(b) the risk assessment carried out under section 1062A(1A) has identified a matter of concern in relation to any of the information in paragraph (a).
(2) The registrar must carry out a further assessment to establish whether the people notified to the registrar as persons with significant control of the company are not people notified to the registrar as holding at least 5% shares of the company, and that the reason for the discrepancy is that the company is involved in economic crime.
(3) If following the assessment required by subsection (2) the registrar considers that there is a real risk that the people notified to the registrar as persons with significant control of the company are not people notified to the registrar as holding at least 5% shares of the company, the registrar must carry out the check required by subsection (4).
(4) If this subsection applies, the registrar must take steps to ascertain whether the people notified to the registrar as persons with significant control of the company are people notified to the registrar as holding at least 5% shares of the company.’”
This new clause creates a duty on the registrar to check whether the person declared as the “person of significant control” (PSC) does indeed have significant control of a company, by cross checking company records, on a risk-based approach.
New clause 18—Disclosure of control of 5% or more of shares in a public company—
“(1) This section applies to shareholdings in public companies as defined by section 4 of the Companies Act 2006.
(2) A person who controls 5% or more of the shares in a public company must declare this fact to the registrar.
(3) The duty in subsection (2) applies whether the person controls the shares directly or indirectly.
(4) The registrar may impose a penalty on any person who fails to comply with the duty in subsection (5).
(5) Subsection (6) applies where—
(a) a person has made declaration under subsection (2), and
(b) the registrar has identified a matter of concern under subsection 1062A(1A) of the Companies Act 2006 in relation to the person or the declaration.
(6) The registrar must—
(a) verify the identity of the person, and
(b) verify the number of shares the person claims to control.”
This new clause requires any person holding 5% or more shares in a public company to declare this fact, and empowers the registrar to penalise non-compliance.
New clause 19—Risk-based examination of accounts of dissolved companies—
“(1) The Companies Act 2006 is amended as follows.
(2) After section 1062A (analysis of information for the purposes of crime prevention and detection) insert—
‘1026B Risk-based examination of accounts of dissolved companies
(1A) In a case where the registrar’s risk assessment under section 1062A(1A) has identified a matter of concern in relation to a dissolved company, the registrar must examine the accounts of the dissolved company with a view to establishing whether any economic crime has been committed.
(1B) The registrar must share details of any evidence gathered under subsection (1A) with the relevant law enforcement agencies.’”
This new clause creates new duties for the registrar to examine the accounts of dissolved companies with a view to establish whether an economic crime has been committed, using a risk-based approach.
New clause 20—Fees and penalties—
“(1) Section 1063 (Fees payable to registrar) of the Companies Act 2006 is amended in accordance with subsections (2) to (4).
(2) Before subsection (1) insert—
‘(A1) The registrar must charge a fee of £100 for the incorporation of a company.
(B1) The Secretary of State must once a year amend the fee in subsection (A1) to reflect inflation.’
(3) In subsection (1)—
(a) after ‘fees’ insert ‘other than the fee in subsection (A1)’,
(b) in paragraph (a) after ‘functions’ insert ‘other than the incorporation of a company’.
(4) In subsection (5), in paragraphs (a) and (b) after ‘regulations’ insert ‘or subsection (A1)’.
(5) The Secretary of State must lay before Parliament a report examining the case for fees paid under section 1063 of the Companies Act 2003 being paid into a fund established for the purposes of tackling economic crime.
(6) The report must also examine the case for penalties received by the registrar under section 1132A of that Act being paid into the same fund.
(7) The report must be laid before Parliament within six months of this Act being passed.”
This new clause raises the fee to incorporate a company to £100 (amended annually for inflation), and requires the Secretary of State to report on the case for these fees, along with penalties received by the registrar, to be paid into a fund to be used for tackling economic crime.
New clause 22—Person convicted under National Minimum Wage Act not to be appointed as director—
“(1) The Company Directors Disqualification Act 1986 is amended as follows.
(2) After Clause 5A (Disqualification for certain convictions abroad) insert—
‘5B Person convicted under National Minimum Wage Act not to be appointed as director
(1) A person may not be appointed a director of a company if the person is convicted of a criminal offence under section 31 of the National Minimum Wage Act 1998 on or after the day on which section 32(2) of the Economic Crime and Corporate Transparency Act 2022 comes fully into force.
(2) It is an offence for such a person to act as director of a company or directly or indirectly to take part in or be concerned in the promotion, formation or management of a company, without the leave of the High Court.
(3) An appointment made in contravention of this section is void.’”
This new clause would disqualify any individual convicted of an offence for a serious breach of the National Minimum Wage Act 1998, such as a deliberate refusal to pay National Minimum Wage, from serving as a company director.
New clause 24—Application for administrative restoration to the register—
“In section 1024 of the Companies Act 2006 (application for administrative restoration to the register), for subsection (3) substitute—
‘(3) An application under this section may only be made by a former director, former member, former creditor or former liquidator of the company.’”
This new clause would make it possible for a creditor or liquidator to apply to restore a company administratively.
New clause 34—Report on the authorisation of foreign corporate service providers—
“(1) Within six months of the day on which this Act is passed, the Secretary of State must publish a report on the authorisation of foreign corporate service providers.
(2) The report in subsection (1) must include but is not limited to—
(a) the number of authorised corporate service providers with a head office based in a territory outside the United Kingdom,
(b) the number of foreign corporate service providers authorised as set out in section 1098I(1) of the Companies Act 2006, and
(c) the number of foreign corporate service providers identified in subsection (2)(b) by territory.”
This new clause creates an obligation for the Secretary of State to publish a report into the number of Authorised Corporate Service Providers with a head office based outside the United Kingdom and the number of foreign corporate service providers authorised by the regulations set out in new section 1098I(1) of the Companies Act 2006.
New clause 35—Supervisory functions of registrar—
“(1) The Companies Act 2006 is amended as follows.
(2) After section 1081A (inserted by section 1 of this Act) insert—
‘1081B Supervisory functions of registrar
(1) The registrar must carry out supervisory duties, and must uphold standards and compliance with money laundering and terrorist financing legislation.
(2) The Secretary of State must ensure that the registrar has adequate resources to enable them to carry out this new role.’”
This new clause seeks to make the Registrar an AML supervisor in their own right.
New clause 36—Integrity of the register—
“(1) The registrar must ensure that information set out in the register prior to the provisions of this Act coming into force is accurate, up to date, and meets the requirements set out in the Act.
(2) The duty under subsection (1) includes ensuring that each entry lists the unique identification number of the Director of a company.
(3) The registrar will also make an annual report to Parliament on the status of its work to update existing company registrations.
(4) The report under subsection (3) must include—
(a) information on how many existing company registrations the registrar has evaluated to check the accuracy of the information provided, and
(b) details of how many existing company registrations have still to be evaluated by the Registrar to check the accuracy of the information provided.”
This new clause seeks to ensure that existing company registrations contain accurate, up to date information. It also imposes a requirement for the Registrar to update Parliament on the progress of updating the register.
New clause 37—Prevention of continued trading for companies repeatedly declared insolvent—
“(1) A company may not be registered under the Companies Act 2006 if, in the opinion of the registrar, it is substantially similar to a company which has been subject to winding up procedures under the Insolvency Act 1986 on more than three occasions in the preceding five years.
(2) For the purposes of subsection (1), ‘substantially similar’ can include, but may not be limited to, a company having the same or similar—
(a) name;
(b) registered office;
(c) proposed officers; or
(d) principal business activities
as another company.”
This new clause seeks to prevent companies from repeatedly becoming insolvent and then continuing to carry on the same business activities through a new company (the practice of “phoenixing”).
New clause 38—Bar on directors in breach of duties receiving public funds—
“(1) A company with a director or directors which are in breach of the general duties outlined in Chapter 2 of the Companies Act 2006, or who have been found to have committed statutory breaches of employment law or avoided taxation, may not receive Government provided funds or financial support, unless subsection (2) applies.
(2) A company whose director or directors meet the criteria outlined in subsection (1) may receive Government provided funds or financial support if such funds or support are provided solely and specifically for the direct benefit of the company’s employees.”
This new clause seeks to prevent directors who fail to comply with their duties as a company director or with employment law provisions and/or tax obligations from being able to access funds in instances where these funds are for the benefit of the company and not the company’s employees.
Amendment 104, in clause 1, page 2, line 13, at end insert—
“Objective 5
Objective 5 is to act proactively by—
(a) making full use of the information, intelligence and powers available to the registrar in order to identify issues of concern, and
(b) sharing information about any issues of concern with relevant public bodies and law enforcement agencies.
(4) In this section, an ‘issue of concern’ includes—
(a) inaccurate information,
(b) information that might create a false or misleading impression to members of the public,
(c) an unlawful activity.”
This amendment would insert a fifth objective requiring the registrar to act proactively.
Government amendments 1 to 9.
Amendment 108, in clause 62, page 46, line 41, at end insert
“and that the individual has signed a confirmation statement stating whether they already have a unique ID on the register.”
This amendment would add a requirement on ACSPs to confirm the individual they’re verifying has signed a confirmation statement stating whether they already have a unique ID on the register.
Amendment 101, page 46, line 41, at end insert—
“(2A) No verification statement may be made by an authorised corporate service provider until—
(a) the Treasury has laid before Parliament a report confirming that the Treasury’s reform of the UK’s anti-money laundering supervisory regime, as set out in the document entitled ‘Review of the UK’s AML/CFT regulatory and supervisory regime’ published by the Treasury in June 2022, has been completed and implemented; and
(b) the registrar has put in place a risk-based approach to review the work of authorised corporate service providers which includes spot checks of providers’ data to ensure providers are properly and accurately carrying out processes to verify identification documents and other data submitted by authorised corporate service providers.”
This amendment would ensure that Corporate Service Providers are not authorised to carry out ID verification until the consultation on anti-money laundering supervision announced by the Government is completed and implemented.
Amendment 103, in clause 63, page 52, leave out from line 20 to line 4 on page 53, and insert—
“1098H Duty to provide information
(1) The registrar must carry out a risk assessment in relation to any authorised corporate service provider to establish whether the verification of identity by the authorised corporate service provider is likely to give rise to a risk of economic crime.
(2) If the risk assessment identifies a real risk of economic crime, the registrar may—
(a) require an authorised corporate service provider to provide information to the registrar; or
(b) require a person who ceases to be an authorised corporate service provider by virtue of section 1098F—
(i) to notify the registrar;
(ii) to provide the registrar with such information relating to the circumstances by virtue of which the person so ceased as may be requested by the registrar.
(3) The registrar may require information to be provided on request, on the occurrence of an event or at regular intervals.
(4) The circumstances that may be specified under section 1098F(2) or 1098G(1) (ceasing to be an authorised corporate service provider and suspension) include failure to comply with a requirement under subsection (1)(a).
(5) A person who fails to comply with a requirement to provide information under this section commits an offence.
(6) An offence under this section is punishable on summary conviction by—
(a) in England and Wales a fine;
(b) in Scotland and Northern Ireland a fine not exceeding level 5 on the standard scale and, for continued contravention, a daily default fine not exceeding one-tenth of level 5 on the standard scale.”
This amendment creates an obligation on the registrar to carry out a risk assessment to establish whether the identity checks carried out by authorised corporate service providers are accurate and valid.
Government amendment 10.
Amendment 105, in clause 66, page 55, line 14, leave out “power” and insert “a duty”.
This amendment would ensure that all directors would be issued with a unique director identifier to be used for all their directorships regardless of whether they or an ACSP form the company.
Amendment 106, page 55, line 18, at end insert—
“(iii) To link the unique identifier to the person and to any other entries they have on the register under the same name or a different name.”
This amendment would allow the registrar to link all unique identifiers to any other entries the person has on the register whether under the same name or a different name.
Government amendments 11 and 12.
Amendment 102, in clause 89, page 68, line 37, at end insert—
“(1A) As part of the risk-based approach under subsection (1), the registrar must carry out a risk assessment to identify where the information it holds might give rise to a matter of concern.
(1B) Where the assessment identifies a matter of concern, the registrar must—
(a) carry out whatever further analysis it considers necessary; and
(b) share any evidence of unlawful activity it identifies with the relevant law enforcement agency.
(1C) For the purposes of this section, a ‘matter of concern’ includes—
(a) inaccurate information;
(b) information that might create a false or misleading impression; or
(c) evidence of economic crime.”
This amendment requires the registrar to carry out a risk assessment of the information it holds, and act on any matters of concern identified.
Government amendments 13 to 38.
Amendment 107, in clause 136, page 123, line 28, at end insert
“and,
(d) be published on the registrar’s website and remain published on the registrar’s website for a minimum of 20 years from the date on which it was first published.”
This amendment would require the limited partnership dissolution notice to be published on the registrar’s website and remain published for a minimum of 20 years.
Government amendments 39 to 43, 52 and 53.
Amendment 109, in schedule 2, page 172, line 40, at end insert—
“167GA Unique identification number for directors
(1) On receipt of notification of a person becoming a director, the registrar must allocate that director a unique identification number, unless such a number has already been allocated to that person.
(2) Any information supplied to the registrar under or by virtue of this Act about a person who has been allocated a unique identification number under subsection (1) must include that number.
(3) The Registrar should ensure existing registrations allocate a unique identification number to Directors.”
Government amendment 54.
Amendment 111, page 174, line 38, at end insert—
“167KA Limit on number of directorships held
(1) Where notice has been given to the registrar that a person (P) has become a director, the registrar may determine that P may not hold that directorship.
(2) The registrar may make a determination under subsection (1) if the registrar considers that P holds an excessive number of directorships.
(3) The factors that the registrar may take into account in making a determination under subsection (1) are the experience, expertise and circumstances of P, as well as the nature of the industry/company they are operating within and the time commitment their role as a director requires.
(4) If the registrar makes a determination under subsection (1), P may not hold office as a director of the company.”
Amendment 110, page 174, line 41, after “167G,” insert “167GA”.
This amendment would provide for penalties to apply to anyone failing to provide their unique identification number to the registrar.
Government amendments 55 and 56.
New clause 26—Beneficial owners in overseas territories—
“(1) The Sanctions and Anti-Money Laundering Act 2018 is amended as follows.
(2) In section 51, after subsection (5) insert—
‘(5A) The Secretary of State must ensure that the Order in Council under subsection (2) above comes into effect on date no later than 30 June 2023.’”
This new clause would amend the Sanctions and Anti-Money Laundering Act 2018 to ensure that an Order in Council requiring open registers of beneficial ownership in the British Overseas Territories comes into force no later than 30 June 2023.
Government amendments 50 and 51.
Kevin Hollinrake
It is a pleasure to speak to the Government’s amendments to the Economic Crime and Corporate Transparency Bill. I know that all hon. Members agree with its core ambition to bear down on the kleptocrats, criminals and terrorists who abuse our open economy and, critically, to strengthen the UK’s reputation as a place where legitimate business can thrive.
Catherine West (Hornsey and Wood Green) (Lab)
I want to say at the beginning of proceedings how fantastic it is to have a Minister who deeply cares about the topic—we are expecting significant movement on amendments. On the UK’s reputation, Transparency International and other non-governmental organisations do important work in this area, including finding out about companies such as the Azerbaijani kleptocrats’ laundromat that had a slush fund of £2.9 billion, and its malign influence particularly on the Ukrainian war. Does he agree that it is not a moment too soon for the Government to tackle such issues?
Kevin Hollinrake
The hon. Lady gives me a significant reputation to live up to. She is right, however, that some of the things that we have seen, not least with regard to the Ukraine war, have been the catalyst for much of this overdue legislation. We are keen to bring forward exactly the measures she refers to.
The Bill contains a very considerable package of measures to deliver on our ambition. It includes the largest reform of the UK’s company registration framework in 170 years. Crucially, it provides transparency, exactly as the hon. Lady says, and affords and enables scrutiny. There are significant penalties—indeed, criminal penalties—for those, both individuals and their advisers, who seek to avoid that scrutiny. It also provides significant new powers for law enforcement and the private sector to protect the UK from fraud, international money laundering, illicit Russian finance and terrorist financing.
It is for this reason that I want to record my sincere thanks to all the right hon. and hon. Members who served on the Public Bill Committee. We had very constructive, frank and open debate—which I think should be welcomed on both sides and from both different perspectives—and really diligent scrutiny of the Bill. Their work has very much helped us to ensure that this legislation does not fall short of its important aims, and indeed has been improved as a result.
Layla Moran (Oxford West and Abingdon) (LD)
May I echo the voices of those saying how delightful it is to see the Minister at the Dispatch Box? I shall not say more than that.
On a similar matter, the Minister may be aware of the revelations this morning from openDemocracy about the UK Government helping the head of the Wagner group circumvent sanctions already imposed on it to sue a British journalist working for Bellingcat. Is he aware of this story, has an investigation been done into this story, and would he take this opportunity to condemn what would seem to be very egregious in that—how shall I put it—these are sanctions we have imposed, yet we are somehow not imposing them in practice? This is not right.
Kevin Hollinrake
I think it would be wrong to make any representations on any particular case, but seeking to enable somebody to avoid sanctions is entirely unacceptable, clearly. I am sure that those allegations will be looked into very carefully. We should definitely make sure that those are properly reviewed before we come to any firm conclusions, but in essence I agree with the principle behind the hon. Member’s statement.
Kevin Hollinrake
I will make a little progress, if I may. I appreciate that there are a large number of Government amendments, hence the need to make some progress. I would like to reassure the House that they are intended to ensure that the measures in the Bill will work as intended, and in most cases they reflect issues raised in Committee.
I will briefly summarise our amendments relating to parts 1 to 3 of the Bill. First, and importantly, our new clause 15 requires the Government to publish an annual report on the implementation and operation of parts 1 to 3, which includes reforms to Companies House.
Kevin Hollinrake
I will give way to the right hon. Member on that point, because her many speeches in Parliament have led to some of the changes we have made.
Dame Margaret Hodge
I am very grateful that the Government have listened to our representations on accountability. I would simply say to the Minister that there is also a new clause down on this issue—new clause 16, put together by Back Benchers from across the House and members of the all-party parliamentary groups—which has more detail. Would he be willing to incorporate the detail of that amendment into his new clause? At the moment, his new clause 15 seems a little vague, and we would just like to button it down a bit better.
Kevin Hollinrake
Again, we discussed this at length in Committee. The right hon. Member’s perspective is that we should be very prescriptive about how the registrar—Companies House—should operate and set out specific things it should do. We would prefer those at Companies House to do what they think is right. They are the experts at making sure the register is accurate, and we have given them the resources to do it, which is crucial. I think it is wrong to specify exactly how the registrar should do its job. We are parliamentarians, not experts in registers and Companies House.
Dame Margaret Hodge
I am extremely grateful to the Minister for giving way again. This is not telling Companies House what to do; it is the information that Parliament would want to hear. I think that, in discussions with him, he actually suggested we set out in greater detail the sorts of areas we wanted to cover, and that is what we have attempted to do in our new clause. It is not a question of instructing Companies House; it is a question of enabling Parliament to really hold Companies House to account on the breadth of issues for which it will be responsible.
Kevin Hollinrake
I am happy to respond to the right hon. Member’s new clause later when we have debated it. I have read it, and it sets out some interesting ways of doing this. I absolutely agree with the principle of Parliament holding Companies House to account, which is why we want it to report annually on the implementation and operation of this legislation. That is how I think we should do it. I think we want the same thing, and I am happy to have an ongoing discussion with her. Many of the things she has listed in her new clause are already reported on by Companies House, so I think it is important that we do not overly prescribe how Companies House should operate, in my view.
Liam Byrne
Let me echo the wide welcome that the Minister has received at the Dispatch Box. Has he had a chance to reflect on how the report that parliamentarians need actually stretches beyond the compass of Companies House to the business of tackling economic crime more generally? After this morning’s revelations, for example, it was said that a junior official in the Office of Financial Sanctions Implementation was the individual who signed off the new flexibility for one of Putin’s warmongers to fly over London lawyers in an attempt to silence English journalists in English courts. That is surely a matter of concern to the Minister and to all parliamentarians, and that is the kind of issue that could be surfaced in a more wide-ranging and forensic report, if he were able to publish it.
Kevin Hollinrake
Again, I think it would be wrong to comment on individual cases, but I take the right hon. Member’s point. In general terms, the UK sanctions regulations permit the OFSI to license reasonable legal fees. That is clearly something on which officials make decisions, rather than Ministers—I think it is important to say that—and the merits of any case are for the appropriate court to judge. However, he has certainly campaigned extensively for making sure that people cannot close down the raising of understandable concerns. In essence, I absolutely support that and the work on SLAPPs—strategic lawsuits against public participation—to which my hon. Friend the Member for Isle of Wight (Bob Seely) referred in introducing his ten-minute rule Bill earlier. So that is work in progress, rather than anything that relates specifically to this legislation.
We are taking a power to expand the registrar’s data-sharing ability. That will future-proof the legislation and provide scope to expand the data-sharing gateway, if needed. We are also strengthening the range of sanctions for non-compliance with the register of overseas entities. Our new clause 8 will mean that a director can be disqualified if they breach an obligation under part 1 of the Economic Crime (Transparency and Enforcement) Act 2022, ensuring a consistent approach to tackling non-compliance between that Act and the Companies Act 2006. Following discussions in Committee, we are also removing the power to exempt certain individuals from identity verification requirements, having concluded that it is not essential.
As well as those important amendments, we are making improvements to the limited partnership reforms. We will ensure that a limited partnership’s dissolution and deregistration is transparent and properly drawn to the attention of the public. There will be a legal requirement for these to be published on the Companies House website as well as in the Gazette. Again, this was discussed by Opposition Members in Committee.
Peter Dowd (Bootle) (Lab)
I understand that every year there are about 1,200 disqualifications of unfit directors. Does the Minister have any indication of how that number may expand? We have the qualitative element. How about the quantitative element?
Kevin Hollinrake
I did not quite hear the hon. Member’s whole point. Is it about the quality and quantity of information in Companies House?
Peter Dowd
No. There are about 1,200 disqualifications a year. How many more does the Minister believe may arise from this new legislation?
Kevin Hollinrake
We do not have the data to be able to say. It obviously depends on numerous factors. As I say, we are keen to give Companies House the resources it needs, which it currently does not have, to undertake this work. In many ways, this will prove a deterrent against people registering a company for nefarious purposes, rather than necessarily lead to many more disqualifications. It is the transparency element and the scrutiny that is the ultimate deterrent against using these corporate vehicles for the wrong purpose.
Partners of limited partnerships will also have to notify the registrar about a dissolution within 14 days of becoming aware, ensuring that the register can be kept up to date and accurate. New clause 12 clarifies the interactions of the limited partnership reforms with regulation of UK investment funds. That will ensure that the measures work as intended.
Amendments 30, 31 and 32 give the Northern Ireland Department for the Economy and Scottish Ministers powers to petition the courts to wind up a limited partnership registered in their jurisdictions, ensuring a cohesive approach across the devolved nations.
Liz Saville Roberts (Dwyfor Meirionnydd) (PC)
I join others in welcoming the Minister to his place.
Two of my constituents have lost their entire life savings as a result of Harewood Associates, a property investment company that went into administration having offered unregulated loan notes to the public. I therefore commend new clause 19. But in the meantime, I would appreciate it if the Minister could advise me on what course of action I might take to pursue that case further.
Kevin Hollinrake
It sounds like a matter for the Financial Conduct Authority, which does not directly relate to my portfolio, but that would be my first call as a constituency Member of Parliament. The case the right hon. Lady raises sounds very distressing for her constituents. If I can help in any way I will of course be happy to do so.
Mary Robinson (Cheadle) (Con)
I congratulate my hon. Friend on bringing this Bill forward and welcome him to his place. He knows of my concern that whistleblowing is not mentioned in the Bill, yet whistleblowers are key to exposing the type of crime we are talking about. In the implementation of the Bill, will he reconsider the role of whistleblowers and recognise how important their role is in this space? Will he also look at examples of good practice from around the world because existing whistleblowing laws—I know he agrees—are not fit for purpose?
Kevin Hollinrake
That may not be part of this Bill, but it is part of my portfolio, I am pleased to say. My hon. Friend and I have worked together to further the cause of whistleblowers on many occasions. I am keen to bring that forward quickly. We have work under way now that will lead to a review. I am keen to complete that work quickly and come up with some firm recommendations. I am also keen to look at international examples of best practice. She is keen to have an office for the whistleblower, for example. It is right to look at other jurisdictions to see how that is working elsewhere, which can inform our work. I am keen to make significant changes as quickly as possible.
I shall draw my comments to a close and listen to the rest of the debate. I am interested to hear about the amendments tabled by Members on both sides of the House. I am sure today’s debate will be as well considered and beneficial as those on the Bill thus far. I hope Members on both sides of the House will continue to support the measures in parts 1, 2 and 3, so that we can deliver these much-anticipated and much-needed reforms. They will help to protect our constituents and the country, and ensure that the UK remains a great place for legitimate businesses to thrive.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
It is a pleasure to follow the Minister and to speak to our amendments.
The Labour party has supported this important Bill’s passage in a cross-party spirit through Second Reading and Committee. I pay particular tribute to my right hon. Friends the Members for Barking (Dame Margaret Hodge) and for Member for Birmingham, Hodge Hill (Liam Byrne) for their contributions during our proceedings. May I add my words of support? The Minister has a long track record on these issues and a reputation through the all-party group on anti-corruption and responsible tax and other campaigns, which I hope bodes well for further progress and amendments to the Bill. However, it was frustrating that in Committee the Government did not accept a number of amendments tabled by the Opposition and other Members that would have significantly strengthened the Bill even further. The Minister did agree to keep some issues under review, which we will pick up on today.
This long overdue second economic crime Bill is an opportunity to finally end Britain’s role as a global hub for dirty money, and to support honest businesses to trade and flourish, with better standards and more transparency, helping to level the playing field for businesses and co-operatives. I echo the Minister’s words on the importance of that in tackling terrorism, economic crime and illicit finance, and in cleaning up our economy in the way we all want to see.
The amendments we have tabled seek to ensure that the Bill goes further in areas including reporting and parliamentary scrutiny, strengthening the objectives of the registrar to see a more proactive role in preventing and detecting economic crime, and tightening up the authorisation and supervision of corporate service providers. Amendments scheduled for tomorrow include provisions on the failure to prevent economic crime and director liability.
Margaret Ferrier (Rutherglen and Hamilton West) (Ind)
Is the hon. Lady aware that many stakeholders strongly feel that the Bill’s powers require further development to be effective? Does she agree that a statutory review process set out in the Bill would be good practice and should be implemented?
Seema Malhotra
I thank the hon. Lady for her comments. She is alluding to a theme that goes through the Bill: we cannot expect this to suddenly be the answer to everything, so we have to keep it under review and to have the mechanisms for that review, including effective information coming to Parliament.
The Minister has just spoken to the Government’s amendments. We are pleased to see that there have been some concessions following Committee. The Government have tabled about 25 amendments that remove powers to exempt directors from identity verification requirements. That is a huge concession by the Government to a central question asked by us in Committee about the completeness of the legislation, the extent of the Secretary of State’s powers and the challenge required for parliamentary oversight. The extent of these powers risked riding a coach and horses through the defences against economic crime that we are seeking to build through the legislation. But even after those amendments, a number of Henry VIII powers are left unchecked. I am sure that will be debated in the other place.
The next welcome concession is Government new clause 15, which imposes a duty on the Secretary of State to prepare and lay before Parliament reports about the implementation and operation of parts 1 to 3. That significant step, however, is surprisingly weak as regards setting any expectations of what Parliament would expect to see in the report. That is why my hon. Friend the Member for Aberavon (Stephen Kinnock) and I tabled new clause 16, which has cross-party support and is similar to amendments tabled by colleagues in Committee. Under our amendment, the purpose of the report would be clearer and stronger. We would have an annual report with an assessment as to whether the powers available to the Secretary of State and the registrar were sufficient to enable the registrar to achieve her objectives under proposed new section 1081A of the Companies Act 2006, which is inserted by clause 1.
Catherine West
My hon. Friend is making an excellent speech and pushing for even better legislation. Does she agree that that particular proposal would lead to a change in culture, which is what we really need? That annual reporting system would lift the game and improve the culture of the way business is done in this regard.
Seema Malhotra
My hon. Friend is absolutely right. The amendment would do two things. It would change the culture of how Parliament operates and plays a role in tackling economic crime. It would also shift the culture based on our expectations of business, how business should behave and how directors should be held to account, as well as shift the culture in Companies House and the work of the registrar. For all those reasons, it is an important area for development.
Seema Malhotra
Before returning to our new clause 16, I will briefly take an intervention from my right hon. Friend.
Liam Byrne
My hon. Friend is making a brilliant speech. Does she agree that it is vital that we have a much more wide-ranging report on the nature of economic crime? We know that 10 different agencies are responsible for policing economic crime, and we learned in Committee that the Bill’s provisions would not have stopped an individual such as Alisher Usmanov from buying a multimillion-pound London mansion only to be sanctioned a little later on. These are exactly the crimes that need to be brought to the House’s attention so that we can keep economic crime legislation up to date and not have to wait for 170-year cycles before we make substantial reform.
Seema Malhotra
My right hon. Friend is right about keeping our legislation up to date. He says that with great authority. We must recognise that those who seek to perpetuate economic crime are always innovating, and unless we are aware and informed, we will not move our legislation and processes on with that. There is also a vital point about the information that comes to the House. Today, we are debating reporting and information. There will be further debate tomorrow about the appropriateness of the structures through which that information is assessed.
New clause 16 seeks to specify further some of the information that should be brought forward and, crucially, calls for a detailing of instances—or maybe even numbers, depending on the reasons—in which exemption powers under the Bill are used by the Secretary of State. The Minister will be aware of the concerns that we raised in Committee about the need for Parliament to have transparency even on the number of uses of exemption powers under the Bill.
Dame Margaret Hodge
My hon. Friend is making an excellent contribution to the debate. The point is that the Government’s new clause 15 simply reflects reporting on the process of implementation—[Interruption.] That is how I read it, and that is how the Minister spoke to it. If I am wrong, I am happy to be corrected. Through new clause 16, we are trying to hold the whole of Companies House’s works to account and ensure that it delivers what we have in mind in being at the front end of fighting economic crime through the data that it collects.
Seema Malhotra
My right hon. Friend is absolutely right. We should be ambitious for the registrar and for Companies House in tackling economic crime and being a beacon around the world for how a nation should do that. She makes an important point about where the new clause goes further than the Government’s proposal. Along with the report and the data in it, importantly, there would be recommendations about whether further legislation should be brought forward in response to that report and the information in it. That is extremely important, because that is where Parliament will have to make choices about whether it chooses to take further action.
Issues of concern that the report may draw attention to, and which we could encourage the registrar to look at, could include investigations of unusual patterns of directorships and companies registered at one address. All of that would also enable Parliament to hold Companies House to account for its performance. We are willing to work with the Minister to strengthen the Government’s new clause so that it becomes more purposeful and effective—and, in doing so, collectively achieve the outcomes that we intend for the Bill.
I turn to further amendments tabled by Labour Front-Bench Members. New clause 22 seeks to disqualify any individual convicted of a serious breach of the National Minimum Wage Act 1998, such as a deliberate refusal to pay the national minimum wage, from serving as a company director in future. In Committee, the Minister stated that it was
“right to identify the scale and nature of the problem before we legislate”.––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 3 November 2022; c. 240.]
He said that he was “keen to do so.” He also said:
“There have been 16 people convicted under the National Minimum Wage Act 1998. I want to do some further research on that to see what has happened to those people and their director qualification or disqualification. That might inform debate more clearly.”–[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 3 November 2022; c. 233.]
Since then, we have not heard a satisfactory answer to the central question: should an individual convicted of an offence for a serious breach of the National Minimum Wage Act 1998, such as a deliberate refusal to pay the national minimum wage, be prevented from serving as a company director?
Mr Jonathan Djanogly (Huntingdon) (Con)
Is not the point that if someone is convicted of a criminal offence, the court automatically has the power to disqualify them, and that by not being prescriptive in legislation, we ensure that the judge in a particular case has more leeway than perhaps the hon. Lady would give him?
Seema Malhotra
I thank the hon. Member for his intervention. Perhaps he is missing some of our argument around the central question, because it does not happen in all cases. We have not received any further information on the work and research that the Minister started during Committee on what happens with those directors, which he committed to follow up.
In our view, new clause 22 would strengthen the Bill. We are talking about people whom we hope to have trust in to undertake their responsibilities as a director. The Bill introduces a substantial amount of regulation about who can and cannot serve as a company director as a result of criminal or potentially criminal practices, so this feels like the right place for consideration of such a measure. I would be grateful for the Minister’s response. I am happy to give him forewarning that, subject to his response, we may well press the new clause to a vote.
New clause 24 calls for a creditor or liquidator to be able to apply to restore a company to the register administratively. Currently, if creditors, former creditors or liquidators wish to apply to restore a company, that is done through the court in what is often a complex and costly procedure that may well take 12 to 18 months or longer. In Committee, the Minister said that there ought to be a basis for a “less cumbersome” process for creditors and particularly for liquidators. We agree. Currently, when companies are struck off the register—that happens on average to about 400,000 companies a year—little is done to check whether fraud has occurred. As a side issue, the Minister may helpfully confirm whether directors of companies that have been struck off will also be subject to verification checks so that we do not have a period through which they may escape ID verification as Companies House looks to undergo those checks with existing directors.
The key issue is that unscrupulous directors can misappropriate the strike-off process to avoid scrutiny and rack up debts or sell company assets ahead of the company dissolution, absconding with the proceeds. The Minister said he appreciated the case for widening access to the less cumbersome process of administrative restoration, and he undertook to consider the matter further. If he does not agree to our new clause 24, I would be grateful if he would commit to bringing forward proposals during the passage of the Bill. This is a window of opportunity that we should not miss.
On new clause 34, the processes set out in the Bill rely on effective ID verification of company directors. There has been a debate as to whether that should be done in-house. The Government have chosen to use a model whereby authorised corporate service providers are trusted to undertake ID verification on behalf of Companies House and effectively certify that through a confirmation statement. The debate is ongoing on how that introduces risk into the process. Indeed, if the registrar can do only part of the verification and we need to use authorised corporate service providers, that only works if the ACSPs are known, trusted and effectively regulated.
New clause 34 seeks transparency reporting on the involvement of foreign corporate service providers in the two main routes by which they may be authorised to conduct ID checks and to incorporate a company in the UK that is registered with Companies House. Such a company being registered could have an office address in the UK; a postal address in the UK, with all the risks we debated in Committee; or an address abroad as an overseas company. The directors of the company registered in Companies House by the foreign corporate service provider may be living abroad and may never come to the UK. New clause 34 seeks to create an obligation for the Secretary of State to publish a report, first, into the number of authorised corporate service providers with a head office based outside the UK, by which we mean where the authorised UK subsidiary supervised by His Majesty’s Revenue and Customs is beneficially owned by a company that is outside the UK; and secondly, on the number of foreign corporate service providers authorised by regulations set out in proposed new section 1098I(1) of the Companies Act 2006, which is amended by clause 63.
Clause 63 enables the Secretary of State, by regulations, to authorise a person abroad to become a foreign authorised corporate service provider
“even if the person is not a relevant person as defined by regulation 8(1) of the Money Laundering Regulations”.
For example, they could be a lawyer or an art dealer. They would therefore not be supervised. Proposed new section 1098I(2) specifies that a
“‘relevant regulatory regime’ means a regime that, in the opinion”—
I stress, in the opinion—
“of the Secretary of State, has similar objectives to the regulatory regime under the Money Laundering Regulations”.
However, it does not specify any transparency on how that conclusion is reached. Clause 63 is a risk for a backdoor route to the authorisation of foreign corporate service providers—
Seema Malhotra
It is a risk—the Minister is shaking his head, so I am going to repeat it—for a backdoor route to the authorisation of foreign corporate service providers in a high-risk territory that falls outside money laundering regulations.
Seema Malhotra
I will just complete my point and then bring the Minister in if he wishes to intervene. I would be grateful if he could confirm why that is in the Bill in that way, and the extent of the safeguards that are in place. He will, I am sure, be mindful of the need for trust and confidence, and for transparency on who our corporate service providers are and for whom they are undertaking ID verifications, which we are then expected to trust. Subject to the Minister’s response, we intend to press this transparency reporting new clause 34 to a Division.
Kevin Hollinrake
I am grateful to the hon. Lady for giving way. It is not a backdoor to try to get around the legislation. I cannot think why she would think we would write 309 pages of legislation and then create a purposeful backdoor. On the reason for the measure, imagine an international free trade agreement, not with a high-risk jurisdiction—why would we do that?—but where the international partner had an anti-money laundering regime that we felt was equivalent to our own. We might consider it in that context. In no way, shape or form is this about creating a backdoor, and we would very much expect this sort of thing to be in the annual report to Parliament on the implementation and operation of the Bill.
Seema Malhotra
I am grateful to the Minister for his intervention, and for setting out the context and the Government’s intention behind clause 63. However, there is a difference between the intention behind the clause and how it could be used. I think it would be worth while for the Government to seek further legal advice on how the clause could be used, because legislation is not just about how Ministers intend to use powers today, but about how they could be used tomorrow. With the succession of Secretaries of State that we have had, some of whom may perhaps be—how shall I put this? Well, I shall not go any further, because I think the House understands. There are those who have been in such a position and whose judgment may be questioned a little more than that of others in this House.
Dame Margaret Hodge
Does my hon. Friend agree there can be absolutely no objection to that approach? In the Minister’s opening remarks, he said that the reforms will give Companies House much more proactive capability. If the Minister sees that, and if we want that, what on earth is the objection to putting it in legislation so that Companies House knows darn well that that is what we expect of it?
Seema Malhotra
The Minister has heard what my right hon. Friend says. If that is what Parliament wishes and intends, we should have the courage to put it in the Bill. The amendments tabled by my right hon. Friend and by the hon. Member for Barrow and Furness and others—including new clauses 17 and 19 and amendments 102 and 103—are important, and we support what they are calling for. Separately, we strongly encourage the Minister to look at amendment 101.
Catherine West
Does my hon. Friend believe that this afternoon’s debate has covered the important area of phoenix companies and consumer protection? There is clearly a role for the registrar in detecting fraud and ongoing recidivism.
Seema Malhotra
That is part of what we seek, but there is further to go. I know that amendments tabled by other colleagues also draw on the issue of phoenixing and the importance of preventing it. Checks on directors of companies that have been struck off and measures addressing the ease of administrative restoration are tools that we could employ to tackle phoenixing and protect customers along with other businesses and creditors.
Amendments 105 and 106 draw on a wider theme, which is that what we want in the Bill is duties, not powers. We want to see a clear outcomes focus. We want to legislate for things to be done, not for the potential for the registrar to do things—a very important distinction. First, amendment 105 specifies that it should be a duty, not a power, for the registrar to allocate a unique identifier to a director. Secondly, amendment 106 states that the registrar should ensure that the same unique identifier is used for that person in
“any other entries they have on the register under the same name or a different name.”
Thirdly, through amendment 108, we want to reduce the risk to the integrity of the register by tightening up the arrangements for the confirmation statement. A proposed director must confirm in writing either that they already have a unique director ID with the register under the same or a different name and state what it is, or that they do not yet have a unique ID. If an individual chooses to go by a different name, or may have dual citizenship and use a different passport for ID, or may even have a fake birth certificate suggesting a different date of birth, how will the registrar know? This is a protection for the system in the event that an individual is subsequently found to have lied about their identity.
I suspect that, broadly, we are in the same place when it comes to what is intended to happen through this legislation, but it would be helpful if the Minister could confirm that by answering a couple of questions. First, does he expect the registrar, under the arrangements that he has proposed, to issue a unique ID to each new director and to existing directors on the database, and should we understand that, for all intents and purposes, the power will operate in practical terms as if it were a duty? Secondly, in a search on the Companies House website, will clicking on a director’s name bring up all their directorships, linked internally by the unique ID, even if they go by different names in different companies? Perhaps the Minister would like to intervene in response to those two points.
Seema Malhotra
I thank the Minister for his confirmation. The legislation is not as tight as we would like it to be, but if he puts his intentions on record, that does take us a step further.
Amendment 107 would require a limited partnership dissolution notice to be published on the registrar’s website and to remain published for a minimum of 20 years. The Minister has previously said that he would like to explore with Companies House the feasibility and costs associated with introducing that requirement. I should be grateful if he confirmed that he has concluded those discussions, and tell us what decision he has reached.
New clause 20, which we support, concerns resourcing. It would raise Companies House fees to £100 to help to properly fund the fight against crime. The current fee of just £12 makes this country the sixth cheapest place in the world in which to set up a company. The Treasury Select Committee recommended a fee of £100. Will the Minister tell us what his plans are? Having a plan to resource Companies House is fundamental to achieving the goals of the Bill.
I thank Scottish National party Members for their amendments, whose arguments are similar to ours. In particular, we support new clause 36 and amendment 109, which deal with reporting and unique IDs—although we think that some minor changes might be made to new clause 36—and would also support any attempt to push them to a vote.
New clause 26, which is being debated today but will be subject to a decision tomorrow, would amend provisions in the Sanctions and Anti-Money Laundering Act 2018 to require the introduction of open registers of beneficial ownership in each of the UK’s overseas territories. There should be no double standards in the legal requirements for transparency of beneficial ownership across different parts of the UK, including the overseas territories. We have witnessed too many scandals involving money being laundered through territories for whose administration the UK is ultimately responsible to accept the idea that we must simply leave them to their own devices. According to the spin that the Government chose to put on the wording of the 2018 Act, its obligation had been met simply by the publication of a draft Order in Council, regardless of when, or even whether, such an order might actually come into force. The result is that we are here yet again, nearly five years later, still discussing how to ensure the implementation of registers to the same standards across all the UK’s territories. Surely it should not have been beyond the wit of Ministers, even in this Government, to have sorted this out by now. [Interruption.] With the exception of the Minister who is present today.
Dame Margaret Hodge
My hon. Friend is raising a really important point, which has been put into some question by a judgment of the European Court of Justice by an action relating to a shell company in Luxembourg. I know that this is not entirely in the Minister’s control but it is particularly important because, although the Crown dependencies agreed in 2018 or 2019 to publish registers of beneficial ownership, we never passed the legislation because we got their agreement verbally. I am really concerned that they will now go back on that in the light of that judgment. It will be interesting to hear the Minister’s views on that.
Seema Malhotra
I thank my right hon. Friend for her intervention and for the discussions that we had on this matter prior to the Report stage.
In summary, this legislation is essential, but as we have heard from across the House today, there are still areas in which it must go further if we are to catch up after years of being on the back foot on economic crime due to years of inaction. These are thoughtful and purposeful amendments that will improve the Bill, and I look forward to the Minister’s response.
Harriett Baldwin (West Worcestershire) (Con)
I rise to speak to new clause 20 and the amendments tabled in the name of my right hon. Friend the Member for South Northamptonshire (Dame Andrea Leadsom). I very much welcome the progress that has been made in today’s legislation and the fact that this Minister is the person responsible for taking it through, given that he used to be one of my colleagues on the Treasury Committee and is a signatory to the report on economic crime that we put out last year.
It is clear from the work that we have all done on economic crime how important the reform of Companies House is to achieving this. We have all heard horror stories of people who have stolen other people’s identities and successfully set up businesses at Companies House, and of people who have shut down one business then immediately started up another one with a different name. Clearly the reform of Companies House, as taken forward by this important piece of legislation, will make economic crime much more difficult in the United Kingdom, which is something that everyone should welcome. In the report on economic crime that the Treasury Committee put out last year, we called for resources to be put into this important work. Clearly it cannot be done without those resources, and it will be interesting to hear from the Minister today about his discussions with Companies House and his estimate of the resources required.
New clause 20 proposes a fee for new businesses of £100 rising with inflation, which would give Companies House more resources to undertake this important work and, importantly, keep its budget increasing along with inflation. I acknowledge that we do not want to set a fee at a level that could act as a deterrent to anyone starting up a small business, but the work that we did last year in the Committee suggested that the current levels of fees, benchmarked against international comparators, were very low. It was clear that we needed more resources to enable us to understand the identity of those who are establishing businesses in this country, so we pulled a number out of thin air.
I acknowledge that the figure of £100 was pulled out of thin air, although I think we probably also got evidence recommending it, but I think it is a reasonable and plausible amount at which to start these discussions. I know that the Minister is as keen as those of us who have signed this amendment to see a fee established that will ensure that the regime at Companies House has sufficient resources to manage the budget. We know that software upgrades cost money and, as we all experience rising economic crime in this country, it is important that we do everything we can to ensure that Companies House has the resources to undertake this important work.
Kevin Hollinrake
My hon. Friend is making some valid points, as I would expect from the Chair of the Treasury Committee.
The Treasury Committee’s report does not say that we should adopt a fee of £100, but that
“A fee of £100 would not deter genuine entrepreneurs”.
I agree, but, as my hon. Friend says, the figure has been pulled out of thin air. It depends on what principle we follow, and the Government’s position is that Companies House needs to set out exactly what resources it needs to be able to perform its obligation to implement the objectives, from which we can decide how much money we need to raise. We will then look at the fees charged by Companies House. Members on both sides of the House have mentioned the incorporation fee, but an annual fee might raise more money. More work is needed with Companies House to consider this in the round before we come to a settled position. I would therefore rather not specify £100 in the Bill, for all those reasons.
Harriett Baldwin
I think I heard the Minister acknowledge that Companies House needs more resources, and that those resources should be raised not through a one-off fee when setting up a business but through ongoing registration fees. I also think I heard him say that he rather likes our proposal to increase the fees every year to reflect inflation. I think he substantially agrees with the thesis of new clause 20, so this is a great opportunity for him to endorse it so that Companies House is able to start budgeting right away.
I heard the Minister make the valid point that he wants to ensure the budget is worked from the bottom up, and that an arbitrary number should not be put into legislation. I have sympathy for his point of view, but I want him to understand the urgency of the matter. I want him to appreciate that we have waited long enough for this Bill, and that the Treasury Committee will therefore not allow this measure to be kicked into the long grass. We will continue to scrutinise progress, and we expect that progress to be urgent and rapid.
Dame Margaret Hodge
At this point in the cycle, I cannot believe there is not a resource budget. Even within the constraints of the Bill, there should be a budget because the negotiations will be starting. It would be interesting if the Minister could reveal that figure.
My second point, with which the Minister might agree, is that we so under-resource the enforcement of existing anti-money laundering regulations in this country that, even if this figure of £100, which the Treasury Committee and other Committee came up with, proved too much, which I doubt, setting up an economic crime fighting fund would mean that other enforcement agencies, such as the National Crime Agency and the Serious Fraud Office, could use those resources to provide better defences against economic crime.
Harriett Baldwin
The right hon. Lady makes some excellent points. Once the Minister does this work, it may well turn out that £100 is a good starting point. Other things are budgeted for, and I understand the budget for the work that is under way is £20 million for the financial year just ended. A further £63 million is expected to be needed up to 2024-25 and was allocated in the last spending review.
Forgive me if I am cynical about the budgets for public sector computer procurement projects, as they sometimes come in somewhat over budget. I urge the Minister in his response to new clause 20 to make sure that he can move swiftly to change the amount that it costs to set up a business, while making sure that it remains competitive in terms of economic parameters. It is not every day that Back Benchers say to Ministers, “Here’s some more money for you. We think this is going make the UK much safer and a centre that is less vulnerable to economic crime.” That is the purpose behind our support for this new clause.
Mr Djanogly
Is the point not also that if we raise the fees, rather than their falling to the general taxpayer, those who use the service would actually be paying?
Harriett Baldwin
That is my point—my hon. Friend has made it much better than I was. This is an offer to the Minister for a significant increase in the budget of one of the agencies for which he is responsible, Companies House, and it would be feasible without putting any further burden on the hard-pressed taxpayer. That is why I support the new clause and why I am looking forward to the Minister accepting the principle of it. I acknowledge that we may be talking about plus or minus a few quid around that £100, but that is a good starting point.
Alison Thewliss (Glasgow Central) (SNP)
I am glad to rise on this auspicious day to discuss this auspicious Bill. Today is auspicious not just because we have this Bill back in the House today, but because it is my mum’s 70th birthday. I am sure all Members from across the House would like to wish her many happy returns. [Hon. Members: “Hear, hear!”] Thank you.
The Bill presents a significant opportunity for the Government, and for all of us, in tackling economic crime across these islands. We have tabled many different amendments during the Bill’s various stages, including yet more today, but we very much encourage the Government to look at these amendments in good faith. As Ministers and anybody looking at the amendment paper will see, they are very much cross-party amendments. There is a lot more we agree with in the amendments to this Bill than I have seen in respect of just about any other Bill that has come before this House. The Government would do well to reflect on quite how cross-party the amendments are—there is very little to choose between us.
I pay tribute to the right hon. Member for Barking (Dame Margaret Hodge) for the important work she has done in her all-party group, which has been significant in bringing so much cross-party agreement together on the direction of travel here. I hope very much that the Minister will be listening to her, as we all will be, when she speaks later, because the amount of work that has gone into considering what would make the Bill stronger is significant; it is not a light job that has been done there. The Bill would be strengthened all the more if these amendments were accepted.
Clive Efford (Eltham) (Lab)
I pay tribute to the Minister for the work he has done on this issue when he was one of us on the Back Benches. When the hon. Lady was speaking about the cross-party nature of the amendments, I could not help but think that if the situation were slightly different, the Minister’s name would be on those amendments.
Alison Thewliss
Yes. I have remarked in Committee, as the Minister will well remember, on the number of occasions when he agrees with himself, but not as a Minister. It is a curious situation and I will return to that when we get to the part of the Bill with which he is most associated.
As the Minister said, and as we all acknowledge, there is a lot here that we can agree on. It is unfortunate that more of the amendments have not been taken on board, because gaps remain in the Bill. We are all concerned that there will not be another opportunity to look at these issues again in this detail; unfortunately, parliamentary time does not work like that, so getting it right this time is important. We could get it right today or tomorrow, or if the Lords come forward with some useful amendments—as little as I like to give credit to the unelected peers along the hall, if amendments are tabled there, I would encourage the Government to accept them and make sure that they are acknowledged.
SNP Members have tabled a number of amendments, where we seek to create a unique identifier for directors; to put a limit on the number of directorships an individual can hold; to prevent directors in breach of their duties from taking public funds; and to prevent the practice of phoenixing, which causes so much harm to many of our constituents. It is not often talked about in the same bracket as economic crime generally, but phoenixing causes huge distress. My hon. Friend the Member for Paisley and Renfrewshire North (Gavin Newlands) will certainly return to this point in his remarks later.
Government new clause 8, on persistent breaches of companies legislation and the disqualification of company directors, is very important, because we have seen numerous reports in the press of people who repeatedly breach the law. There are huge issues of enforcement, and I intend to address those too. The Bill should include consequences for people who breach the rules.
I wonder what the House and the Minister think about a compliance case raised earlier today by Tortoise. It mentioned Balshore Investments Ltd Gibraltar, which in 2017 listed itself at Companies House as a person of significant control of a different company, Crowd2Fund. Its name was then removed in 2020, and that removal was backdated to 2016. In 2022 two directors, named on the register as Nadjat Al Zahawi and Hareth Nadhim Al Zahawi, were named as PSCs of Crowd2Fund.
Graham Barrow has told Tortoise that the retrospective changing of directors means that Balshore’s filings
“leave a huge gap of six years when, despite Balshore owning 40 per cent of Crowd2Fund, no declaration of the underlying owners of Balshore has been made, as required by UK law”.
This is a very interesting and topical case. I wonder what the consequences might be for, and what might befall, those who fail to comply with company law in this way under the new legislation.
Government new clause 15 is important in ensuring that this House is accountable on the measures within the Bill. I think that is fine as far as it goes, but Labour’s new clause 16 would go much further. It is important that the Minister looks at these measures and asks, “What does the House need to know?” Yes, there will be reports, but there is a good deal more detail in new clause 16, and I think it is important to look at that and think, “Actually, this is what the House might find useful and interesting to look at as regards the effectiveness of the Bill.”
Liam Byrne
Does the hon. Member agree that waivers for warlords is exactly the kind of information that the House would be interested in, to understand how effectively we are prosecuting economic crime and how well our sanctions are actually biting?
Alison Thewliss
The right hon. Member makes an incredibly important point. The case reported in the press today shows people getting around the rules that we set up for very important reasons—the House should be aware of these things. This information should not have to be squirreled out by investigative journalists—as wonderful and well informed as they are. It should come to the House as a right. It should not have to be exposed. It is something we should know as elected Members in this Parliament.
On new clause 17, on PSC status and verification, it is incredibly important that there are cross-checks on identity and that we understand who those people are. One of the big holes in the system now is the lack of cross-checking and ensuring that the rules are being followed. We must ask Companies House to be more inquisitive of the information it receives, and I think new clause 17, tabled by the hon. Member for Barrow and Furness (Simon Fell), would have that effect. It is very important that Companies House has a risk-based approach to looking at organisations and ensures that what is there is actually factual.
Moving to new clause 19, on the accounts of dissolved companies, Graham Barrow, who is the expert on many things to do with Companies House and to whom we are all very grateful, pointed out in evidence to the Bill Committee that there is such thing as a burner company, whereby a company is set up without there being a real intention of it becoming a real, live company out there trading in the world. It is set up and then disposed of, without the obligation to file any accounts, because that is done within the timescale.
New clause 19 would go some way to dealing with those burner companies. If somebody is setting up and dissolving companies—on and off, on and off all the time—it can be difficult under the current system to know that that is happening. If there is a means of examining the accounts—if those accounts exist— of dissolved companies, it might be easier to track them and establish whether any economic crime is involved within them.
As Graham Barrow often points out, companies are being set up in their hundreds every day by organisations that do not really exist—organisations with suspicious names and suspicious addresses. Hundreds of them are registered to one tiny shop or a post office box somewhere. That has to be stamped out. This is the opportunity to do so. We do not know what those companies are for, why they exist, what they will be used for, and whether it will be our constituents who will lose out as a result.
Peter Dowd
I thank the hon. Lady for giving way and wish many happy returns to her mother.
The hon. Lady may recall the passage of the Criminal Finances Act 2017, during which we talked about enforcement and regulatory agencies having the resources to do their job, and us giving them the resources, and the finances, to do it. Does she agree that, following the Economic Crime (Transparency and Enforcement) Act 2022, and the Criminal Finances Act, this Bill, yet again, does not give those agencies the resources, capacity and wherewithal to do the job properly?
Alison Thewliss
I agree. The hon. Gentleman is anticipating my moving on to new clause 20, which talks to some of those issues in great detail, and a very good amendment it is, too. We have talked about whether the fee of £100 is arbitrary, a finger in the wind. But it is a figure that we can put in the Bill to say, “Let’s start here”. It gives Companies House the resource with which it can do work.
It was pointed out by some of those who gave evidence to the Bill Committee that, if we are seeking to clamp down on those hundreds of companies being set up every day at £12 a pop, we need to replace that money with legitimate money; £100 would go some way to dealing with that gap and that discrepancy. We need to ensure that that money goes to increasing the staff at Companies House, and the capacity, ability and expertise of the people Companies House hires, because much of this is becoming incredibly technical. It is important that it has the resource to do that. All the agencies involved need that money, but Companies House, as the front door to a lot of this stuff, needs to be properly resourced to be able to do that.
I note that the Minister talked about not wanting to put in legislation the sum of money that that fee would require, but that is not quite how other parts of the system work. I have sat on Statutory Instrument Committees that set the value of passport fees. I understand that the House sets the value of visa fees. Therefore, within the immigration system, the House decides what that fee is and sets that fee. Yet it is not deciding to do so for companies.
I do not know whether the Minister intends the matter of setting a fee —at £100, or whatever it might be—to come before an SI Committee at some point, but that is not what the Bill says he is going to do. It is important to recognise that, in one area of government, the Government are setting a fee and deciding how much people should pay for things and that other parts of the system should have cost recovery. The visa fee goes way above cost recovery; the passport fee perhaps less so. We are talking about £75.50 for a passport, compared with £12 to register a company and £1,538 for a visa. Those things are not quite the same. The company fee could bear being significantly higher than the £12 it is at the moment, and there is a place in legislation where we could set that because that is what the Government do in other areas of legislation.
New clause 22 tabled by the Official Opposition—entitled “Person convicted under the Minimum Wage Act not to be appointed as director”—is laudable in its aims because the people flouting the rules should not get to be company directors. Being a company director is a privilege, not a right. For those people who have been convicted of not complying with the legislation, it is perfectly reasonable that they could be disqualified for a serious breach of the National Minimum Wage Act 1998. It is reasonable to disqualify them.
On the issue of trust and company service providers, there is more that the Bill should and must do. It is unfortunate that the consultation on the Office for Professional Body AML Supervision is still ongoing, I understand, or certainly not concluded, because that should form part of this Bill. It has been widely acknowledged that OPBAS is not effective and is not working as the Government intended, but the Government do not yet know what they are going to do, how they will fix OPBAS, whether it will require further legislation in this House, whether it will involve stripping OPBAS of its AML supervision responsibilities and duties and, if it does, where those responsibilities will lie.
Our suggestion in new clause 35 is to make Companies House the AML supervisor in its own right. I have asked various questions on why the Government do not believe that Companies House should be an anti-money laundering supervisor. It seems to us on the SNP Benches that, if Companies House is the front door for every company registered in the United Kingdom, it should be liable for anti-money laundering regulations. If we are asking banks and other institutions to look at that, why not the Government agency responsible for the registration of every company on these islands?
That would give Companies House more duties and stop the flow of guff companies, terrible information and people who seek to defraud our constituents at the front door. It seems bizarre to me that the Government would not want to shut the front door firmly in the face of the crooks and the people who want to do that. There is also more that could be done, as mentioned in some of the Labour amendments, on the duty and powers of Companies House. We think Companies House should have powers, and not only powers, but duties—it should have to do those things.
I do not see why there is ambiguity in this legislation. If the Government are saying Companies House should do it, they should make Companies House do it, rather than leaving it up to interpretation or somebody’s decision further down the line. They should make Companies House do it. We all know that, if we are not forced to do a thing, we might not do a thing. We might not do the dishes, or the laundry, but if we are forced to, we certainly will. There is more that can be done to shut the door and tighten the regulations.
Through our amendments, we also seek to tighten the integrity of the register. That includes new clause 36 and our amendment 109. They reflect Labour’s amendment 103 and some of the other amendments that speak to the importance of identification numbers and the integrity of the register itself.
Much of the evidence we heard in the Bill Committee, as well as at various APPG events and other online events, indicates that the register as it stands is full of absolute guff. It has had—[Interruption.] The Minister waves the legislation, but the difficulty is that he is not intending to fix all that guff. He is allowing that guff to live on the register forever, because there is not enough in the Bill about the retrospective action Companies House has to take, looking through all the hundreds and thousands of companies that, over many years, have been allowed to filter on to the register unheeded.
Graham Barrow’s Twitter account is full every single day of companies being registered with information that is absolute rubbish. We must have a means of putting a duty and an obligation on Companies House to go back through the register, to clear it out and to say, “There’s no point having that stuff on there, because it is in effect meaningless and it’s gumming up the system for those who want to use the register in legitimate ways.”
We must be able to keep a check on Companies House: that is why new clause 36 says that it should seek to ensure that registrations contain accurate, up-to-date information and that it comes back to update Parliament on its progress updating that register. We cannot expect these things to happen overnight, because it is a big register and there is an awful lot on it, but we must ensure that it is accurate. If it is not, there are very real consequences for our constituents, as Graham Barrow pointed out. People have found themselves being defrauded when their names, their addresses or both have been used inaccurately. Those people have been chased or pursued by criminals and all kinds of things have happened to them because of fraudulent information on the Companies House register.
Someone may not even find out that their name has been used fraudulently. If they have a name such as James Smith, they may never find out. There are only three Alison Thewlisses on the register, but they are all me. There should be one identification—I should not be on the register as three people—and that is why we seek a unique identifier to track people throughout their lives. If someone’s name has been registered and used without their knowledge, with an address that is not theirs—a mailbox perhaps—they may not find out about it but may end up being liable for the actions of the fraudsters, so a lot more can be done on that.
We are also seeking through amendment 111 to limit the number of directorships that people can have. People may have multiple directorships, but is the director of 300 companies really able to do that job properly? Probably not. Those are probably not real companies and that person is probably not acting as a proper director. Again, on the Companies House register, many people are registered for hundreds of companies. As a red flag in the system, that should stand out to Companies House, which should be able to ask, “Is this person a real director?” and do more investigation. Our amendment would encourage that.
I am quite pleased to see that Government amendments 30 and 32 would give Scottish Ministers the power to present a petition to wind up Scottish limited partnerships, which have been comprehensively abused for several years now. That has been a real problem, and giving Scottish Ministers the power to do something about it is important. Although they are called “Scottish limited partnerships”, they have in practice very little to do with the Scottish Government, who can do little about them at the moment, so that is an important power. I am grateful to Michael Clancy of the Law Society of Scotland, who I hope is correct in his belief that that is a practical and useful measure. Will the Minister outline whether he has had any further discussions with Scottish Ministers, and how he thinks the power would work in practice?
I am prepared to leave my remarks at that—I appreciate that other Members want to get in and discuss other things—but I will leave the Minister with a quote from a Bill Committee evidence session on 25 October. Bill Browder, who has been a great champion of corporate transparency and standing against corruption internationally, told the Committee:
“You can write as many great laws as you want—there is some good stuff in this law, and good stuff in the previous laws—but if no one is going to enforce it, then you are never going to change the risk-reward and people are going to carry on doing stuff. All this will continue, and I will sit here 10 years from now making the same allegations about how this is a centre of money laundering.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 69, Q144.]
Nobody wants to be sitting here in 10 years—well, certainly not those of us on the SNP Benches—seeing money laundering going on unabated. We want the Government to take the opportunity that the Bill presents to close loopholes. To get that right, and get it right now, they should take the advice and knowledge that Members from across the House, and external organisations, have brought to the Bill. If the Government make the amendments and fix the Bill, they will have cross-party support for it.
Mr Deputy Speaker (Mr Nigel Evans)
Before I call Dame Andrea Leadsom, I remind everybody that a number of cases are still before the courts, and we do not know all the cases that there are. Even though the sub judice rule does not apply when we are legislating, Mr Speaker has urged caution for those live cases. If Members could do us a favour and look up cases that they intend to mention, that would be really useful.
Dame Andrea Leadsom (South Northamptonshire) (Con)
It is a pleasure to follow the hon. Member for Glasgow Central (Alison Thewliss). I agree with much of what she said, particularly about this House wishing her mum a very happy 70th birthday.
I also pay tribute to the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake). I find it amazing that he has only recently become a Minister, as he has been such a stalwart and incredibly diligent in promoting better performance by the banking and business sectors. It is great to see him in his rightful place at the Dispatch Box.
I rise to speak to new clause 20, in the name of my hon. Friend the Member for Barrow and Furness (Simon Fell), and to the two amendments I tabled that, very annoyingly, have not been selected, which are to do with phoenixing. I agree in general terms with the thrust of the debate: for reform of Companies House to be effective, it needs to be required to do new things. It is not enough to facilitate things; it needs to be given new duties and therefore the resources to be able to fulfil those duties. I can tell the House that in the brief time I spent as the Secretary of State for Business, Energy and Industrial Strategy, I had discussions with the excellent team of civil servants who are looking at company law reform, corporate governance and the Insolvency Service, and it is true to say, I am afraid, that they were not invited to go and talk to Ministers terribly often. They were definitely a bit of a Cinderella out there in BEIS, and this incredibly important area needs much more focus.
Dame Margaret Hodge
I welcome the Minister to his place. I enjoyed working with him for a number of years on the Back Benches. We have co-operated well, and I look forward to that co-operation continuing now that he is a Minister. I am pleased to be working closely with his successor at the all-party parliamentary group on fair business banking, the hon. Member for Barrow and Furness (Simon Fell), who has tabled a number of the amendments put forward by the APPG.
I join others in welcoming the Bill. I welcome the fact that we are having this debate. This could be legislation that fundamentally transforms the landscape that has enabled economic crime to flourish in the UK. It could be the moment when we, in Britain, through the decisions that we make here in Parliament, give a message loud and clear to the world that there will be zero tolerance of money laundering fraud and other economic crime in our country. It could be the moment when, by acting against economic crime, we lay the foundations that would enable our financial sector, and with it our economy, to flourish and grow. As I have often said, we will never achieve sustained economic growth on the back of dirty money, but we could achieve it as a trusted jurisdiction that openly and firmly rejects illicit finance. It could be all of those things.
The Bill before us is welcome; it enables us to have these debates and to legislate, but in its current form it fails in too many ways. First, as it currently stands, I fear that it cannot achieve its stated purpose. Omissions and loopholes mean that there is a real danger that we could be setting up a new Companies House that will fail. One library filled with dud information will simply replace another. Secondly, in my view and that of the all-party parliamentary group on anti-corruption and responsible tax, which we will certainly make clear in tomorrow’s debates on new clauses, the Bill is too cautious and unambitious in its scope. It fails seriously to tackle the challenge that we in Britain face because of the exponential growth of economic crime. It is worth the House remembering what that is. Every year, economic crime costs this country somewhere in the region of £300 billion. That is a conservative estimate—in fact, I think it is a gross underestimate. That is 14.5% of GDP.
To look at just the fraud element of that, reported fraud affects one in 11 adults. I have been a victim of fraud that I have never reported, and we all know that there are victims of fraud who do not report it. One in 11 adults are affected, so this is a massive issue. That figure of £300 billion is double what we spend on the NHS. We are talking about mega sums that get lost in the UK economy every year and impact on all sorts of things: the quality of our public services, the raising of taxes, the economy as a whole and the reputation of the UK. There is an endless impact, and we have to tackle it.
I ask the Minister, as we did in Committee, to put aside the natural instinct to resist amendments tabled by Back Benchers. Our purpose is simply to strengthen the Bill, so that when it is passed, it can support our shared mission across the House to eradicate money laundering, fraud and other economic crime. I urge him and the Government to support our amendments, and I hope that Members in the other place will reflect on our debates today and in Committee when they consider the Bill in detail over the coming weeks.
I welcome the new clause that the Minister has tabled in relation to the accountability of Companies House. However, if he were to accept new clause 16, tabled by my hon. Friend the Member for Feltham and Heston (Seema Malhotra), it would improve what he wants to do and the information that we in Parliament expect to receive about the performance of Companies House.
I warmly support all the new clauses tabled by members of the all-party group. As the right hon. Member for South Northamptonshire (Dame Andrea Leadsom) said, those measures would strengthen the duties of Companies House, which is really important; giving powers is one thing, but duties really matter. Those duties would ensure that we can validate the information contained in Companies House and that it has the integrity it needs to fulfil the purpose for which it is intended.
I look forward to tomorrow’s debate on important issues such as the reforms to corporate criminal liability, the strengthening of support for whistleblowers, tackling the growing problems associated with SLAPPs and introducing new powers that could help us to seize as well as freeze the assets that the Government control from people they have sanctioned.
I will focus my comments today on two sets of amendments that we in the all-party group are convinced are necessary to ensure that the reforms work and that the appropriate resources are in place to properly fund the reforms. Otherwise, our legislation is in danger of simply gathering dust on the shelves of the Library.
Kevin Hollinrake
I am always interested in what the right hon. Lady has to say. We have shown that we are willing to engage with her suggested amendments, although we perhaps draft them in a different way, and the debate we had in Committee has been useful and fruitful for both sides.
On the question of duties, which my right hon. Friend the Member for South Northamptonshire (Dame Andrea Leadsom) also referred to, I point Members to clause 1. It is very clear that the registrar
“must… seek to promote the following objectives.”
The first is to ensure that documents are delivered to the registrar. The second is to ensure that the documents delivered are accurate. The third is to ensure that those documents do not create a “false or misleading impression”, and the fourth is to minimise the extent to which companies and others carry out unlawful activities. That is a duty—the registrar must do those things—so Members’ concerns should be assuaged by that clause.
Dame Margaret Hodge
It is an important clause—I agree with the Minister on that—but equally, if we introduce a duty to ensure that persons with significant control of companies are who they say they are, it will strengthen the Bill. It will not undermine or contradict any of its clauses; it will simply strengthen it. With all my experience in this House as both a Minister and a Back Bencher, I know that if we are not very specific about what we place in legislation, we come back to it in subsequent years and regret that lack of determination. We see that particularly in our attempts to fight economic crime; so many times we think we have achieved something, then we come back and find it has not worked.
I turn to the first set of amendments that we in the all-party parliamentary group think are necessary, many of which have been tabled by the hon. Member for Barrow and Furness. We have tabled several amendments to create new duties on Companies House, rather than giving it powers, the most critical of which is about corporate service providers. If the Minister does not accept that, I predict that we will end up creating another database that is infected with falsehoods and errors, and will simply reinforce in people’s minds across the globe the growing acceptance that the UK is the best place to hide and launder dirty money.
Peter Dowd
The disease of not listening troubles me. I am not saying that the Government are not listening, but they are not listening enough. On my right hon. Friend’s point, there are still thousands of properties in London and across the country that have unknown offshore owners and we do not know where the money comes from. Will the Bill, or its previous incarnations, do anything to resolve that issue? I am not convinced that it will.
Dame Margaret Hodge
My hon. Friend makes an important point, because we legislated last year to create a register of properties that are owned through corporations in foreign jurisdictions, but I understand that Companies House is having real difficulty in establishing it, because it is very difficult for it to assess the real beneficial owners of trusts and companies incorporated somewhere such as the British Virgin Islands. That is why the amendments tabled by the Labour Front Bench to ensure that company service providers are located here so that we have better control and supervision are hugely important.
Last week, as I am sure the Minister saw, Danske Bank agreed to forfeit $2 billion in the US courts as part of an agreement to resolve the criminal liabilities facing it. On top of that, civil litigation has led to a fine of more than $400 million and individual employees could yet be charged by the US courts. That is massive. It is worth reflecting on the words used in that court verdict, including that
“Danske Bank, the largest bank in Denmark, deliberately disregarded U.S. law of which it is well aware, facilitated the laundering of criminal and suspicious proceeds through the United States, and placed the U.S. financial network at risk, all in the name of its bottom line.”
The judgment also says that it
“lied and deceived U.S. banks to pump billions of dollars of suspicious and criminal funds through the U.S. financial system… If you want to use the U.S. financial system, you must play by the rules. If you don’t, we will hold you accountable.”
Kevin Hollinrake
The right hon. Member is raising a very important case, which she rightly says I have referred to on many occasions, and I welcome that fine. One of the things I know she will be debating tomorrow is corporate criminal liability, which I think would have a profound effect on companies willing to turn a blind eye to that, as Danske Bank did.
May I raise a couple of points about what the right hon. Member said earlier? It is always the Government’s position on this Bill that any overseas company service provider needs a UK branch and needs to be regulated by a money laundering supervisor. That is not something we were asked to do, but something we very much wanted to do.
On the point made by the hon. Member for Bootle (Peter Dowd), which the right hon. Member mentioned, about the register of overseas entities, the onus is on the entity itself to register the person who is the enterprise’s beneficial owner. If it does not do so—and it has to be done by the end of this month—it cannot sell or lease the property, and there are sanctions available such as fines, or potentially criminal prosecutions can be taken forward. That is the method of making sure we have such information.
Dame Margaret Hodge
On the last point, the Minister is right that such companies cannot sell or lease the property, but I think it is probably almost impossible to verify whether the data they provide is accurate, because it is based on the incorporation of an entity in a foreign jurisdiction. That is the problem, and as I understand it from discussions I have had with those at Companies House, it is a problem it is currently facing.
I think the Minister and I would both wholeheartedly endorse the words of the court in the United States—I hope he would; I am sure he would—but let us start by recognising the truth. UK limited liability partnerships and companies were the preferred vehicle for all those clients, most of whom were not Latvian at all but were called non-resident clients—the Russian kleptocrats, drug smugglers, people smugglers and all those sorts of people—who used the Latvian branch of Danske Bank. It was UK company formation agents who worked closely with that Danske Bank branch in setting up those shell British registered companies.
To give one example in today’s context, it was a UK registered company, registered by a UK company service provider that set up Lantana Trade with an address in Harrow, and that company then set up a bank account in the Latvian branch of Danske Bank. According to the whistleblower in the Danske Bank case, the real beneficial owner of that company, which of course has now been dissolved—surprise, surprise—was Igor Putin, Putin’s cousin. The real purpose of setting up that company was to launder money stolen from Russian citizens out of Russia, and our company service providers facilitated that.
We know from an analysis of the FinCEN files submitted to various Committees by the people we have mentioned before—Simon Bowers and Richard Brooks, two very good investigative journalists—that the UK stood out in the FinCEN files as the jurisdiction where there was the largest concentration of companies about which suspicious activity reports had been filed. Over 3,000—3,267—shell companies revealed in the FinCEN files were UK companies. We know that just four of the largest company formation agents in the UK were associated with over half of those 3,267 companies, and they were named in those leaks. We also know that an address in Potters Bar was used by over 1,000 companies featured in that body of leaks. So again, company service providers facilitated the creation of companies that then appeared in that massive FinCEN leak.
My final example comes from a story last week in The Guardian and concerns the infamous Mr Usmanov, the Putin ally whose wealth is said to amount to £14 billion—I have seen different figures in different publications. He claims to have divested himself of most of his UK assets before he was sanctioned on 3 March last year, seven days after Russia invaded Ukraine, but ever more evidence is emerging suggesting that while he has created companies and trusts, using our company service providers to do so, with nominee owners, nominee trustees, nominee shareholders, nominee directors, he remains the real beneficial owner and controller of his assets.
This concerns not just his homes—Beechwood house in Highgate, said to be worth over £80 million, or the 16th century Sutton Place estate in Surrey—but his investment in Everton football club, now bottom of the league. He claims to have sold his interest in the club to his friend and long-time colleague Farhad Moshiri. Our professionals helped to structure these transfers of assets; our company service providers were involved. Yet when Everton was interviewing potential managers after 2016—after he claims to have sold his interests, but before he was sanctioned—Usmanov was always there. According to The Guardian, one candidate to become Everton manager said Usmanov stated during the interview that he owned the club, and another candidate said Usmanov left him with the impression the club belonged to the tycoon. Even Frank Lampard said that when he attended his interview
“Mr Usmanov was on Zoom call with Mr Moshiri”.
I have chosen just three examples, but there are too many bad apples among our company service providers, the people we are proposing to entrust with providing verified, reliable data for the new Companies House register.
We also know that, as colleagues have mentioned, the current system for supervision is broken. The Treasury commissioned a report that found that 81% of the bodies responsible for the legal and accountancy sectors were not supervising their members effectively on anti money-laundering regulations.
Catherine West
My right hon. Friend is making an excellent speech. Does she agree that the US model is worth looking at? Law enforcement agencies that are successful get a percentage of the proceeds of their success back to recycle to employ more people to do more enforcement. It is a virtuous circle, whereas our rather hands-off approach is perhaps less effective.
Dame Margaret Hodge
My hon. Friend is absolutely right and I will refer to that a little later in my contribution.
There is another report on HMRC’s supervision of company service providers. It looked at 672 of the company service providers and only 95—14%—were found to be compliant with checking that AML regulations were enforced by their members. More than half—352—were non-compliant, but only a third of those 352 were ever deemed to be non-compliant and were pursued through the courts; they received an average fine of £8,000.
This litany of ills demonstrates why we need to sort out the supervision of company service providers before we enact the legislation, and that is why our amendments in the name of the hon. Member for Barrow and Furness are so important. We need to be certain that the company service providers have been properly checked and supervised before we let them loose on verifying data for the new register.
The Treasury is already reviewing the supervision mechanism. I saw just recently that consultation on that review will start in the second quarter of 2023. What I am saying to the Minister is: where there is a political will, there is a political way. There is absolutely no reason why the review should not be completed and implemented concurrently with implementation of the legislation contained in the Bill. By putting that in the Bill, we would make certain—with my greatest love for every civil servant in the country—that that gets enacted. If we do not do that, we will end up with another dud register. We are giving him and the Government a pragmatic and practical suggestion that will simply make the Bill work as it is intended.
Nigel Mills (Amber Valley) (Con)
We have wrestled with a similar issue on tax agents, where it has become clear that people are filing tax returns on behalf of their clients when they are neither competent nor perhaps have the right ethics to hold that power. However, it becomes hard to sort that out once they are existing in the system and filing returns. Does the right hon. Member agree that it would be much better to get only the right people authorised in the first place and that, by doing that up front, we would not have to come back afterwards to try to kick off people who have a heavy investment in carrying on?
Dame Margaret Hodge
The hon. Member makes a valid point, as he always does. That is a parallel argument for ensuring proper supervision and regulation and then checking and disciplining people in a professional capacity so that we get rid of the bad apples right across the piece. I was thinking about lawyers, because I think that only one case has been taken by the Solicitors Regulation Authority against one firm of solicitors on implementation of AML regulation. It is pathetic how little has been done in that context.
I turn briefly to the resourcing of the regulatory enforcement agencies and new clause 20. Our failure properly to resource these agencies is a disgrace. We should all share blame for where we are to date. In the USA, Biden sees economic crime as a security issue. As we now know from Russian activity in relation to the invasion of Ukraine, it is a security issue, and yet, if we look at our records, expenditure in the USA is going up by 31%, whereas here in the UK it has been cut by 4%. That is absolutely crazy. The Americans are much more aggressive and assertive in pursuing economic crime in both the civil and criminal courts. There is the Danske bank case, and there is the HSBC case that involved the Mexican drug cartel—the Minister will know about that. In America, in 2012, HSBC was fined $1.4 billion. In Britain, by 2021—nine years later—we managed a fine of only £64 million. Let us also look at the case of Standard Chartered—a UK bank. There again, the USA fined it $842 million. What we did in the UK? A fine of £102 million.
Let us look at the implementation of the Bribery Act 2010—legislation that we all think is working quite well—with a “failure to prevent” duty in it. In the UK, we have seen 99 criminal convictions since its introduction. In America, where there is a similar legislative framework, 236 criminal convictions—more than twice as many—have been completed.
Despite our timid approach to pursuing economic crime, and despite our pathetic response, it still pays to pursue it. In the five years between 2016 and 2021, the enforcement agencies brought in £3.9 billion to Treasury coffers. So it is not just a good thing for all those other arguments we have given; it also helps to support the public finances.
It is pointless passing laws and then failing to agree appropriate funding that would enable the Government to put those laws into practice. Our amendments aim to do just that, at—I stress this fact, which I think the hon. Member for West Worcestershire (Harriett Baldwin) mentioned—no cost to the taxpayer. We are doing it through raising the fees, which do not appear on the public sector borrowing requirement. We are not doing it by demanding any bit of public sector funding towards that cost.
It is absurdly low, whatever Members feel, to pay £12 to set up a company. To put that into context—this is a figure I used in Committee, but I will share it with the House—it costs £1,220 to get a visa for a skilled farm worker. We have just got the priorities completely, crazily wrong. If we look at the cost of incorporating a company across the world, even in those jurisdictions that are not the best, the British Virgin Islands charges £1,000 to set up a company and Jersey charges £425 to set up a company. In America, it varies from $570 to $1,400. Luxembourg—not my favourite jurisdiction—charges €1,100. It is only Greece and Slovenia who charge less than the UK.
We propose £100. That is a figure slightly imagined rather than grounded in fact, but it is the figure the Treasury Committee chose and the figure that the House of Lords’ Committee on fraud put forward, so we thought it was a better one. I do not accept that it is a barrier to any business, whether it is run by women or men. I just do not accept that argument at all. If you are setting up a business and you do not have £100, you have to question, whatever the nature of the business, the motivations for establishing it.
Liam Byrne
Does my right hon. Friend agree that if the Minister does not agree with new clause 20, he is in effect asking for powers without giving the House any confidence that we can actually summon the resources to implement those powers if we so grant them?
Dame Margaret Hodge
Absolutely. The Minister always assures us that he will be on top of it, but he will not be there forever, much as he might like to be. We therefore have to embed these issues in legislation, otherwise we will never to the position where funding for the enforcement of economic crime will be a priority for a Government of any colour. That is why setting it here is really important. I have to say to the Minister that I just do not believe that the figures are not around. I think that by this stage in the cycle, he will have figures that demonstrate how much is required. If we have more duties, it may go up. That is not a bad thing, because if it goes up it means we will be more effective at policing the system, and therefore preventing and detecting.
Dame Margaret Hodge
I will give way to the hon. Member for Amber Valley (Nigel Mills) and then I will give way to the Minister.
Nigel Mills
I am not sure I should pull rank on the Minister, but I am grateful to the right hon. Lady. Does she agree that it is not just the set-up fee we need to get at the right level, but the ongoing annual registration fee? Ensuring companies have the correct records on an ongoing basis is as important as having them on day one. There is probably a lot more money to be raised for Companies House with an annual fee, rather than a one-off at the start.
Dame Margaret Hodge
If that has been proposed, it has not been proposed in the Bill. I am not hostile to that; it is a perfectly good suggestion. At the moment, all we have is a fee which we are trying to tie to inflation so it does not get caught up in annual arguments over priorities in the Budget. However, if there is a proposal, it would have been nice to see it. If there is a proposal to fund it in a different way, that would be great.
Kevin Hollinrake
My hon. Friend the Member for Amber Valley (Nigel Mills) has made absolutely the right point: as I said earlier, there are annual fees as well as incorporation fees, and we should look at both elements.
On the question of specifying a fee in the Bill, as the right hon. Member for Barking (Dame Margaret Hodge) says, we do not even know yet what duties will be required of the registrar, because the Bill has not yet passed through both Houses. The registrar may end up having more duties that will cost more to perform, so it is impossible to say right now what resources she will need. As the right hon. Lady says, we may discover further down the line that more will be required, so why would we set out the fee in the Bill rather than in regulations, where we can vary it more easily?
Dame Margaret Hodge
My simple response to the Minister is to invite him to share with us the current budget estimate for Companies House, if the Bill is enacted in its present form, and to tell us what that will mean. I just cannot believe that the information is not in the mix somewhere, but the Minister is not choosing to share it with us Back Benchers at this point.
Dame Margaret Hodge
Well, an estimate must be available, because we know where we are in the cycle. We know that somewhere or other this is being discussed. If the estimate changes, there is nothing to stop us changing the new clause at a later date.
More importantly, if 100 quid is too much, if the registrar does not need that much, or if the Minister wants to change the law and move from charging a fee on incorporation to charging an annual fee, I can see the logic of that, but presumably he would still have to come back to the House to put that in legislation—
Dame Margaret Hodge
Okay. But if the fee is too much, I still suggest that the Minister looks at subsections (5), (6) and (7) of new clause 20. We hope that he will set up an economic crime fund. Any surplus that results from raising the fee to 100 quid could then be well used by the NCA, the Serious Fraud Office or another agency with access to the fund. Our new clause would ensure that the money is ringfenced for use against economic crime, rather than being taken away by the Treasury and used for other purposes.
We also suggest that the Minister comes back to us on the issue of penalties to fund the fight against economic crime. Since 1984, all forfeiture proceeds in the USA have gone to an assets forfeiture fund. Just think what it will do with the $2 billion it has got out of the Danske Bank criminal settlement! We do not have that system in the UK: at the moment, something like 40% of the current fines and penalties go towards fighting economic crime. That is too little: it should be 100%.
There are precedents. The Information Commissioner has announced a new arrangement with the Department for Digital, Culture, Media and Sport whereby it can retain the money that it accesses through penalties to support its arguments and its work against the big tech companies. The Gambling Commission accepts contributions to compensate victims or payments to charity, rather than imposing a fine: that is another ringfencing hypothecation. Ofwat’s penalties levied against Southern Water were used to reimburse customers.
I have spoken for too long, Mr Deputy Speaker, but I have focused on two of the issues that I consider most critical among today’s group of amendments. That is not to say that the others do not matter—they do—but these are practical, common-sense proposals that are supported by the all-party group, and I know from conversations with Members that they command wide support across the Chamber. There is no badge of honour for Ministers in the Government if they fail to listen to their Back Benchers.
More importantly, we have to make this reform work. If we ignore these proposals, we will risk consigning much of the reform to the dustbin. The fight against economic crime is utterly vital. We all know that this is a once-in-a-generation opportunity. We know what the problems are, and we know that the solutions are multifaceted and complex. For heaven’s sake, let us work together and do what we can to make these reforms effective, efficient and fit for purpose. In that spirit, I will wait for the Minister to cheer me up by saying that he will accept these amendments from by Back Benchers of all political parties.
Simon Fell (Barrow and Furness) (Con)
I rise to speak to new clauses 17, 18, 19, 101, 102 and 103 in my name, and to support new clause 20 in the name of my friend the right hon. Member for Barking (Dame Margaret Hodge). I am grateful to her and to members of the all-party groups on anti-corruption and responsible tax and on fair business banking for their support. I should say that I do not plan to press any of those new clauses to a vote today.
The Bill is the second part of a package designed to prevent the abuse of the UK’s corporate structures and to tackle economic crime. It is a good Bill which will go a long way towards achieving its aims, and I certainly welcome the Government new clauses and amendments, but we have to go beyond “good”. Those who seek to exploit our open economy and our corporate structures to enrich themselves—whether organised criminal gangs, fraudsters, kleptocrats or even terrorists—are better than “good”. They are singularly motivated to find opportunities to enrich themselves and their clients, and to abuse our systems in doing so. They are good at it because it is a profitable endeavour for them, and because it is unfortunately too easy for them to exploit the systems in which we operate.
Liam Byrne
I wholeheartedly agree with the content, sentiment, analysis and explanation that the hon. Member for Barrow and Furness (Simon Fell) gave the House. Like him, and like my right hon. Friend the Member for Barking (Dame Margaret Hodge), I very much welcome the Bill coming to the House and to its Report stage. The Bill is overdue, but it is also underpowered. It is therefore open to improvement, which is why I hope the Minister will be listening so carefully to the debate on these amendments.
Mr Jonathan Djanogly (Huntingdon) (Con)
This is a first-rate piece of legislation, which is both timely and important in the ongoing fight against economic crime. I join many others in the House in saying that it is good to see presenting the Bill a Minister who has long engaged with these issues. There have been many excellent and important contributions during the debate.
Much of the Bill, particularly part 1, develops themes that were debated during the Companies Act 2006. That Act itself was formulated on the basis of many years of consultation. It was the right hon. Member for Barking (Dame Margaret Hodge) who took the Bill through the House. I think it was the longest Bill ever—it may still be the longest Act ever. I had the pleasure of being the shadow Department of Trade and Industry Minister at the time. We proceeded on the Bill mainly in a spirit of co-operation, as I recall, so, it is very appropriate that today, some 17 years later, we are not only co-signing amendments to develop this workstream further, but talking almost one after the other, just like old times. Today, once again, the right hon. Lady made a very important contribution. I say “workstream” because this is an area, like so many, where development of the law is required because of changes that have taken place through technology and practice, both of criminals and regulatory gaps or inaction.
For instance, in 2006, paper registers maintained by companies were the norm, particularly for small companies. People simply did not think of identification verification in the way that is now commonly accepted. Therefore, moves in the Bill, for instance to require directors and those delivering documents to have their IDs verified and to provide for registers to be held centrally, are not only better to stop fraud, but more transparent and accessible and, frankly, are now the contemporary norm.
The general mood at the time of the 2006 Act was, I would say, broadly deregulatory, which is fundamentally why the then Conservative Opposition were able to work very well with the then Labour Government on that Act. It must be said that that was well before 42% of all UK crime was fraud related, as it is now. Of course, there will always be a trade-off between absolute ease of doing business and upping levels of regulatory checks, but for the most part this Bill has got it right in improving protections against fraud while measuring the mood of business.
Gavin Newlands (Paisley and Renfrewshire North) (SNP)
I rise to speak to new clauses 37 and 38. May I start by informally correcting the record? The Hansard report of the Committee stage noted that I had said, “The Bill is excellent”, and indeed, the Minister jumped on that—unsurprisingly, given those comments—when he responded to my contribution. Perhaps characteristically, I had mumbled, “The intent of the Bill is excellent.” And it is no doubt excellent in places, but as it stands, it is a good Bill that could be made excellent with further provisions.
The Minister has—certainly from an Opposition point of view—gone through what amounts to an extended honeymoon period, given the acclaim with which he has been addressed by Members from across the Chamber. Like those who are more expert in the general area addressed by the Bill, and its provisions, I absolutely do not doubt the Minister’s intent, but in the end, he will be measured by the final Act and its implementation.
I accept that the Government have made a big concession on directorate exceptions, but many of the areas to which Opposition parties sought to draw the Government’s attention in Committee remain unchanged or not strong enough—the Minister himself campaigned on some of them just a few weeks prior to the Bill. In the end, 69 pages were added to what is now quite a hefty Bill, but some areas of Companies House policy remain largely unaddressed. The one I will focus on—and the subject of new clause 37—is phoenixing.
The right hon. Member for South Northamptonshire (Dame Andrea Leadsom), who is no longer in her place, described phoenixing for us, so I do not have to. I am sad to see that her amendment 112, which I sponsored, has not made the final agenda, but new clause 37 is, in many ways, wider than her amendment. My hon. Friend the Member for Glasgow Central (Alison Thewliss) made the point about how serious phoenixing is to all our constituents. As laudable and important as the aims of the Bill are, many of the issues that it addresses do not impact day to day on the vast majority of our constituents, whereas issues such as phoenixing do.
As I have said, I accept the laudable intentions behind the Bill, which contains provisions on unique identifiers and so on that would help to block some of the more obvious means of phoenixing—as we discussed when we took oral evidence and throughout our line-by-line scrutiny—but my view, and that of many others, is that we are missing a golden opportunity to fully address phoenixing and tighten up all parts of the regulation relating to Companies House. The genesis of new clauses 37 and 38 is, as I mentioned in Committee, a specific director and company that, unfortunately, harmed hundreds of my constituents and thousands across Scotland and the UK.
New clause 37 would stop those who have burned through multiple limited companies, leaving a trail of destruction in their wake with little or no recourse for the authorities. It would deal with the worst of those culprits by specifying those who are
“subject to winding up procedures under the Insolvency Act 1986 on more than three occasions in the preceding five years”,
so we have gone for the particular egregious end of phoenixing. It would not prevent those who have no nefarious or ill intent but find that their company is unsuccessful, even on more than occasion. It would not apply automatically to any individual who hits the three winding-ups limit. It would only allow the registrar to act if there were grounds to do so.
Around 10 years ago a company called Home Energy and Lifestyle Management Systems, controlled and operated by a man called Robert Skillen, went door-to-door in my constituency offering solar panels and home insulation as part of the now scrapped UK Government green deal scheme. Hundreds of my constituents and thousands across the UK are still paying the price to the tune of thousands of pounds each. Skillen was able to wind up HELMS, move on to his latest venture with millions in his back pocket and face no consequences whatsoever for his personal actions. There are thousands of individuals like him with a long track record of extracting maximum value from scams via limited companies and then setting up shop for a new crack at the very same thing, having defrauded thousands of people. Skillen even had the cheek to set up a company to assist those who had been defrauded by his previous company to receive compensation, from which he would receive a cut. It is extraordinary.
That type of individual is currently beyond the reach of the law, so hopefully provisions such as the new clause would assist with that. Mr Skillen was fined £200,000 by the Information Commissioner’s Office and £10,500 by the then Department of Energy and Climate Change, but the fact is that he only paid £10,000 of that £200,000 before winding the company up. That led the ICO to lobby the Government to enable it to fine individuals such as Mr Skillen up to half a million pounds. In respect of cases such as Mr Skillen and many others who make sharp practice look easy and do so without any care or remorse, the new clause would act as a deterrent to the manipulation of company registration for personal gain and prevent those who have used multiple company identities for malfeasance or sinister purposes from continuing that pattern of behaviour ad nauseam.
I stress that the point of the new clause is not to prevent those who have genuinely unsuccessful businesses from starting afresh. The registrar should be able to separate those cases from those of people with evil intent. Companies House already has the ability to disqualify directors, and the new clause would simply allow it to consider slightly wider grounds on which such a disqualification could rest. It would help put an end to the cases that every Member of this House will no doubt have encountered in their constituencies of companies taking payment for goods and services, shutting up shop with the cash pocketed and popping up again under a different name, but carrying out exactly the same work.
As it stands, there is no prohibition on being a director of a new company while another director is subject to insolvency procedures, as far as I am aware, unless the Minister can tell us differently. I have looked through the Bill and there are no provisions within the current Bill that would change that situation. In Committee, the Minister said, in responding to the new clause we were discussing at the time, that he was
“keen to look at not just phoenixing but other types of situation where people deliberately take risks like that that have devastating consequences for consumers and businesses in our constituencies.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 29 November 2022; c. 601.]
Moreover, he said:
“There is a wider issue…Certainly, a piece of work is needed to look at this in detail.” ––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 29 November 2022; c. 602.]
Can he tell us what work that is? When might it be brought forward? If it is not dealt with in the Economic Crime and Corporate Transparency Bill, then where? I hope that Members in the other place will give phoenixing the attention that it demands.
Alison Thewliss
My hon. Friend is making a good case on the impact of phoenixing on individuals and our constituents. Is he aware also of cases where companies have employed subcontractors, they have done all the work and then the company goes bust before they have been paid? Does he agree that it is important that the Bill tackles that kind of practice, too, which can put those subcontractors at risk of going bust?
Gavin Newlands
I absolutely agree with my hon. Friend. Subcontractors also come to us with these issues. As well as the customer or consumer, there are currently no protections for those subcontractors at the end of the day. New clause 37 would go some way to addressing that.
I will deal with new clause 38 in short order. It proposes to turn off the tap of public funding to those who have failed to discharge their duties to their company’s staff under the Companies Act 2006. I mentioned Mr Skillen; a local constituent got in touch to tell me that he is back in business. The company that he is currently a director of is in receipt of public funds. Mr Skillen is a director of four limited companies, each one coming after winding up a firm. Those companies are interlinked via control and ownership structures. Through that, Government loan funding was applied for and granted just before Mr Skillen became a director and owner of a large chunk of the new enterprise.
Kevin Hollinrake
It is always a pleasure to follow the hon. Member for Paisley and Renfrewshire North (Gavin Newlands), who referenced many of our debates in Committee. I thank hon. Members on both sides of the House for their kind words about my role in the Department and in taking forward this legislation. Let me first say that any reports of the death of my ambition in this area have been greatly exaggerated.
I will aim to respond to as many points as possible in the time allocated by my hon. Friends the Whips. Today we have seen broad agreement across the House on the importance of accountability to Parliament on the implementation of the reforms. I thank the hon. Member for Feltham and Heston (Seema Malhotra) for new clause 16 on this topic, and for her work in Committee. As she might understand, I feel that the new clause would duplicate the Government’s new clause 15, which would require the Government to produce for Parliament an annual report on the implementation operations of parts 1 to 3 until 2030.
I believe that the Government’s amendment is broader and capable of providing more information to assist parliamentary scrutiny. I welcome the suggestion in some areas of reporting that may be of interest. However, I do not believe that setting a prescriptive list of those in advance is the best way of achieving our intent. I fully subscribe to the view that no one goes to work to do a bad job, and I have every confidence that the registrar, given the requirements on her to oversee the integrity and accuracy of the register, will do that well and will ensure that those measures are reported to Parliament. I therefore respectfully ask the hon. Lady for Feltham and Heston not to press her amendment.
Seema Malhotra
I thank the Minister for giving way. Would he commit to a meeting with the right hon. Member for Barking (Dame Margaret Hodge) and me on this issue? It is not the case that my new clause duplicates the Government’s new clause. The new clauses are very complimentary and there is more to be done to make sure that we get this right.
Kevin Hollinrake
I am always happy to have a meeting with the hon. Lady—we met only last week to discuss her amendments and the Government amendments. Some of the things in her new clause are already reported to Parliament, such as the number of businesses struck off the register. It is important that we do not duplicate in this legislation things that are already being done, but I am always happy to have a meeting with her.
Seema Malhotra
The Minister has made the point today and in Committee about this data being collected and reported elsewhere, but that should make it easier to have a more comprehensive report, so that all the information on economic crime is in one place. Perhaps that is something we can pick up in the meeting that he has kindly agreed to.
Kevin Hollinrake
I am happy to have a meeting with the hon. Lady to discuss the different things that she thinks should be reported. Clearly, the annual report should be comprehensive and cover many of the matters that she raises.
Much has been made about creating duties and obligations for Companies House. As my hon. Friend the Member for Huntingdon (Mr Djanogly) said, we should not assume that these things will happen by right. Oversight by Ministers, Parliament, public and press is needed to ensure that these measures are properly implemented. Companies House is an Executive agency of my Department, and I can commit that it will be obliged by the Government to deliver on the policy intent and resourced to do so, which I will talk about in a second. Government new clause 15 is not just about process; it will ensure that Parliament is provided with reassurance on the further work that will be required after Royal Assent, such as the laying of secondary legislation or the development of IT.
Alison Thewliss
The Minister talks about the need for secondary legislation. Does he have an idea of the timescale for that coming before the House, so that we know how long it will be before things actually happen?
Kevin Hollinrake
I cannot give a fixed timescale for the regulations, but clearly the quicker we get the Bill to Royal Assent, the better. I am sure that the hon. Lady will assist with that; she has been very co-operative in the past, despite the lengthy debates we have had about various matters.
The Opposition’s new clause 16 would require the report to set out the number of fines issued by the registrar. Companies House not only already does that but goes much further, publishing annual data on the fines issued by the registrar broken down by type of company. For example, in the last financial year, 171 penalties of £1,500 were issued to companies registered in England and Wales for filing their accounts up to three months late.
I can reassure Members that it is the Government’s policy to issue unique identifiers to all individuals who will be required to verify their identity. That includes new and existing directors of companies, as well as anyone filing information with Companies House. These unique identifiers will mean that Companies House can link an individual’s verified identity across multiple data points, roles and company associations, to enable users of the register to search for an individual and find all relevant records.
Alison Thewliss
I made the point earlier about my name appearing in three places on the register, with three different addresses where I have lived at different points of my life. How will Companies House tell me that my entries have been consolidated, and how will it contact me?
Kevin Hollinrake
As the hon. Lady knows, the unique identifier will not be public, because we think that could increase the chances of fraud. It is already possible to search the Companies House database to a certain extent; for example, if she searches my name, my previous directorships all link together. We intend to improve the database by linking the hon. Lady’s name, year and month of birth, address and any other companies she may be associated with. That will link those records, to give a holistic overview of her company associations.
Seema Malhotra
Of course, the Minister will not want accounts to be inadvertently linked where there may be two people with the same name and, possibly, date of birth. Has he had any discussions with Companies House about writing to current directors to ask them to confirm whether they are on the register with any past addresses, to speed up the linking with the unique ID at the back end?
Kevin Hollinrake
That is an operational matter for Companies House; it is not for me as the Minister. The registrar clearly has a responsibility to ensure the integrity of the database, and how she seeks to do that will be up to her.
Amendment 101 is clearly key. The Government are committed to ensuring that the checks carried out by ACSPs are robust. ACSPs will be required to carry out checks to at least the same standard as the registrar, who will be able to query any suspicious information. The registrar will establish a robust scrutiny process with AML supervisors for onboarding ACSPs. If necessary, she can suspend or de-authorise an ACSP to exclude it from forming companies. The vast majority of accountants, lawyers and other agents who make filings on behalf of companies operate to high standards. It would be disproportionate to block them all from making such filings while the Treasury works through the reform of the supervisory regime—something that we all clearly want it to get right.
New clause 34 requires the Government to report on the number of foreign corporate service providers that have been registered at Companies House. Clause 63 gives the Secretary of State the power to permit the authorisation of foreign corporate service providers subject to equivalent AML regimes abroad. That is obviously in the context of a potential trade deal that is not currently on the table.
On amendment 104, tabled by the hon. Member for Feltham and Heston, I cannot agree with this fifth objective for the registrar. The Bill already places a legal duty on the registrar to seek to promote the objectives, which inherently demands proactivity. Tentative use of her powers would result in the registrar being in danger of failing to satisfy the duty.
On the accuracy of existing data, I thank the hon. Member for Glasgow Central (Alison Thewliss), whose new clause 36 would have the registrar ensure the accuracy and veracity of all register information prior to the commencement of the Bill’s reforms. Clearly, that constitutes many millions of pieces of information, with many thousands being added every day—the analogy of painting the Forth bridge springs to mind. If we were to do what she asks and the registrar were to fulfil the requirements of the new clause, it is unlikely that the beneficial reforms of the Bill would ever be realised, because of the duty it would place on the registrar.
Kevin Hollinrake
I have been told that I need to make progress, but I thank the right hon. Lady—my former partner in fighting economic crime—for her amendment on Companies House fees, which is clearly key. It is critical that the registrar is sufficiently funded to carry out her duties.
The right hon. Member for Birmingham, Hodge Hill (Liam Byrne) is wrong to say that the Bill does not provide extra resources to Companies House to implement the measures, because clause 90 sets out exactly what areas will be taken into account when fees are set. The Bill gives the Government more flexibility to increase the fees and charges by broadening the range of functions that can be funded through those fees. The Government are reviewing funding arrangements in the context of the reforms and are committed to ensuring that Companies House is fully resourced to perform its new role and functions. As I said earlier, Companies House levies a range of fees, not just the up-front charge on incorporation, and I confirm that we are exploring a range of options about how fees will evolve.
New clause 22, on the national minimum wage, tabled by the hon. Member for Feltham and Heston, seeks to ban those convicted under the National Minimum Wage Act 1998 from being appointed as directors. The national minimum wage enforcement team at HMRC, whose resources have been doubled over the last six years, as have the penalties for non-compliance, already refers appropriate cases to the Insolvency Service, which, as part of its normal remit, considers director disqualifications where appropriate. Indeed, three people were disqualified in 2021 for such transgressions.
I thank my hon. Friend the Member for Barrow and Furness (Simon Fell) for his new clause 18, which would require a person who controls more than 5% of the shares in a public company to disclose that information to the registrar. I very much note his concerns about shareholder transparency. However, we must balance transparency concerns and the benefits of having additional information against imposing undue burdens on businesses.
Dame Margaret Hodge
Will the Minister accept any of the amendments or new clauses brought forward by Back Benchers today?
Kevin Hollinrake
As the right hon. Lady knows, new clause 15, which we tabled today, is based on some of the debate we had and the ideas she brought forward in Committee. So I say to her that she should keep bringing forward the ideas, and we will certainly consider them.
The Companies Act already requires traded companies to maintain up-to-date lists of their shareholders and report any changes in shareholders above 5% on an annual basis.
New clause 37—and indeed amendment 112—on phoenixing, which was debated by the hon. Member for Paisley and Renfrewshire North (Gavin Newlands), requires the registrar to block the registration of companies that share common characteristics with more than three companies wound up in the preceding five-year period. Successive companies being wound up in this manner is known as phoenixing. We feel there are provisions that will be implemented through this Bill that will provide safeguards against such behaviour. Suitable coverage is already provided by the existing rules, and there are new powers in the Bill that give the registrar of companies a power to compel people to provide information in the context of the examination of information on the register, and to interrogate and share that data with other authorities.
Kevin Hollinrake
I am sorry, but I must conclude. I do apologise.
To conclude there, I thank all the Members who have spoken in today’s debate for their insights, and I am sorry if I have not spoken to their points directly. I call on the House to support the Government amendments, and I hope that the explanations I have given provide reassurance that their amendments are not needed to make the Bill and the implementation of the reforms effective.
Question put and agreed to.
New clause 8 accordingly read a Second time, and added to the Bill.
New Clause 9
Disqualification on summary conviction: GB
“(1) Section 5 of the Company Directors Disqualification Act 1986 (disqualification on summary conviction) is amended as follows.
(2) In subsection (1), for the words from ‘provision of the companies legislation’ to ‘the registrar of companies’ substitute ‘of the relevant provisions of the companies legislation’.
(3) For subsection (3) substitute—
‘(3) Those circumstances are that, during the 5 years ending with the date of the conviction, there have been no fewer than 3 relevant findings of guilt in relation to the person.
(3A) For these purposes, there is a relevant finding of guilt in relation to the person if —
(a) the person is convicted of an offence counting for the purposes of this section (including the offence of which the person is convicted as mentioned in subsection (2) and any other offence of which the person is convicted on the same occasion),
(b) a financial penalty of the kind mentioned in section 3(3)(aa) is imposed on the person, or
(c) a default order within the meaning of section 3(3)(b) is made against the person.’
(4) In subsection (4), omit paragraph (b) and the ‘and’ before it.
(5) For subsection (4A) substitute—
‘(4A) In this section “relevant provisions of the companies legislation” has the meaning given by section 3(3B).’”—(Kevin Hollinrake.)
This new clause replicates the effect of the amendments made by clauses 41(3) and 102(3) (which are left out by Amendments 7 and 15). The restructuring of the material is in consequence of NC8.
Brought up, read the First and Second time, and added to the Bill.
New Clause 10
Disqualification for persistent breaches of companies legislation: NI
“(1) The Company Directors Disqualification (Northern Ireland) Order 2002 (S.I. 2002/3150 (N.I. 4)) is amended as follows.
(2) In Article 6 (disqualification for persistent breaches of companies legislation)—
(a) in paragraph (1), for the words from ‘provisions of the companies legislation’ to the end substitute ‘relevant provisions of the companies legislation (see paragraph (3ZA))’;
(b) in paragraph (2), for ‘such provisions as are mentioned in paragraph (1)’ substitute ‘relevant provisions of the companies legislation’;
(c) in paragraph (3), after sub-paragraph (a) (but before the ‘or’ at the end of that sub-paragraph) insert—
‘(aa) a financial penalty is imposed on the person by the registrar in respect of such an offence by virtue of regulations under—
section 1132A of the Companies Act 2006, or
section 39 of the Economic Crime (Transparency and Enforcement) Act 2022,’;
(d) after paragraph (3) insert—
‘(3ZA) In this Article “relevant provisions of the companies legislation” means—
(a) any provision of the companies legislation requiring any return, account or other document to be filed with, delivered or sent, or notice of any matter to be given, to the registrar,
(b) sections 167M and 167N of the Companies Act 2006 (prohibitions on acting as director where identity not verified or where there has been a failure to notify a directorship), and
(c) sections 790LM and 790LN of the Companies Act 2006 (persons with significant control: ongoing duties in relation to identity verification).’;
(e) for paragraph (3A) substitute—
‘(3A) In this Article “the companies legislation” means—
(a) the Companies Acts,
(b) Parts 1A to 7 of the Insolvency (Northern Ireland) Order 1989 (company insolvency and winding up), and
(c) Part 1 of the Economic Crime (Transparency and Enforcement) Act 2022 (registration of overseas entities).’
(3) In Article 25A (application of Order to registered societies), in paragraph (2)(c), for ‘Articles 6(1) and 8(1)’ substitute ‘Article 6(3ZA)(a)’.
(4) In Article 25B (application of Order to credit unions), in paragraph (3)(b), for ‘Articles 6(1) and 8(1) references’ substitute ‘Article 6(3ZA)(a) the reference’.”—(Kevin Hollinrake.)
This new clause replicates the effect of the amendments made by clauses 42(2) and 103(2) (which are left out by Amendments 8 and 16) and contains changes to ensure that a person can be disqualified for breaches of obligations under Part 1 of the Economic Crime (Transparency and Enforcement) Act 2022 etc.
Brought up, read the First and Second time, and added to the Bill.
New Clause 11
Disqualification on summary conviction: NI
“(1) Article 8 of the Company Directors Disqualification (Northern Ireland) Order 2002 (S.I. 2002/3150 (N.I. 4)) (disqualification on summary conviction) is amended as follows.
(2) In paragraph (1), for the words from ‘provision of the companies legislation’ to ‘the registrar’ substitute ‘of the relevant provisions of the companies legislation’.
(3) For paragraph (3) substitute—
‘(3) Those circumstances are that, during the 5 years ending with the date of the conviction, there have been no fewer than 3 relevant findings of guilt in relation to the person.
(3A) For these purposes, there is a relevant finding of guilt in relation to the person if —
(a) the person is convicted of an offence counting for the purposes of this Article (including the offence of which the person is convicted as mentioned in paragraph (2) and any other offence of which the person is convicted on the same occasion),
(b) a financial penalty of the kind mentioned in Article 6(3)(aa) is imposed on the person, or
(c) a default order within the meaning of Article 6(3)(b) is made against the person.’
(4) Omit paragraph (4).
(5) For paragraph (4A) substitute—
‘(4A) In this Article “relevant provisions of the companies legislation” has the meaning given by Article 6(3ZA).’”—(Kevin Hollinrake.)
This new clause replicates the effect of the amendments made by clauses 42(3) and 103(3) (which are left out by Amendments 8 and 16). The restructuring of the material is in consequence of NC10.
Brought up, read the First and Second time, and added to the Bill.
New Clause 12
A limited partnership’s registered office: consequential amendments
“(1) Regulation 2 of the Alternative Investment Fund Managers Regulations 2013 (S.I. 2013/1773) (interpretation) is amended as follows.
(2) In paragraph (1)—
(a) at the end of paragraph (a) of the definition of ‘EEA AIF’ insert ‘(but see paragraph (1A) if the AIF is a limited partnership)’;
(b) at the end of the definition of ‘Gibraltar AIF’ insert ‘(but see paragraph (1A) if the AIF is a limited partnership)’;
(c) at the end of paragraph (b) of the definition of ‘UK AIF’ insert ‘(but see paragraph (1A) if the AIF is a limited partnership)’;
(d) at the appropriate places insert—
‘“established”: a reference to the place where an AIF is established (however expressed) is, in relation to an AIF that is a limited partnership, a reference to—
(a) the country in which the AIF is authorised or registered, or
(b) if the AIF is not authorised or registered, the country in which it has its principal place of business;’;
‘“limited partnership” means a limited partnership registered under the Limited Partnerships Act 1907;’.
(3) After paragraph (1) insert—
‘(1A) In the application of the definition of “EEA AIF”, “Gibraltar AIF” and “UK AIF” to an AIF that is a limited partnership, a reference to the AIF’s registered office is to be read as a reference to its principal place of business.’”—(Kevin Hollinrake.)
This new clause would mean that whether or not a limited partnership is an EEA AIF, Gibraltar AIF, UK AIF or established in the UK does not change solely because it complies with the new requirement introduced by clause 112 of the Bill to have a registered office in the UK.
Brought up, read the First and Second time, and added to the Bill.
New Clause 13
Removal of limited partnership from index of names
“After section 26 of the Limited Partnerships Act 1907 (inserted by section 138 of this Act) insert—
‘26A Removal of limited partnership from index of names
(1) The registrar must remove a limited partnership from the index of names as soon as reasonably practicable if the registrar—
(a) becomes aware that the limited partnership is dissolved (whether on the receipt of a notice under section 18, the publication of a dissolution notice under section 19(6) or otherwise), or
(b) publishes a deregistration notice under section 26 in respect of the limited partnership.
(2) If the registrar removes a limited partnership from the index of names, the registrar must include a note in the register of limited partnerships stating either—
(a) that the limited partnership has been removed from the index of names because of its dissolution, or
(b) that the limited partnership has been removed from the index of names because of its deregistration under section 26.
(3) The registrar must also publish a notice of the removal in the Gazette if the limited partnership is removed from the index of names other than following the publication of a dissolution notice under section 19 or a deregistration notice under section 26.
(4) Notes included in the register of limited partnerships in accordance with subsection (2) are part of the register of limited partnerships.
(5) A note may be removed if it no longer serves any useful purpose.
(6) In this section “the index of names” means the index kept by the registrar under section 1099 of the Companies Act 2006.’”—(Kevin Hollinrake.)
This new clause requires the registrar to remove a limited partnership from the index of names as soon as practicable following dissolution or deregistration. The registrar must place a note in the register when a limited partnership is so removed and publish a notice in the Gazette in certain circumstances.
Brought up, read the First and Second time, and added to the Bill.
New Clause 15
Reports on the implementation and operation of Parts 1 to 3
“(1) The Secretary of State must—
(a) prepare reports on the implementation and operation of Parts 1 to 3, and
(b) lay a copy of each report before Parliament.
(2) The first report must be laid within the period of 6 months beginning with the day on which this Act is passed.
(3) Each subsequent report must be laid within the period of 12 months beginning with the day on which the previous report was laid.
(4) But the duty to prepare and lay reports under subsection (1) ceases with the laying of the first report on or after 1 January 2030.” —(Kevin Hollinrake.)
This new clause imposes a duty on the Secretary of State to prepare and lay before Parliament reports about the implementation and operation of Parts 1 to 3.
Brought up, read the First and Second time, and added to the Bill.
New Clause 22
Person convicted under National Minimum Wage Act not to be appointed as director
‘(1) The Company Directors Disqualification Act 1986 is amended as follows.
(2) After Clause 5A (Disqualification for certain convictions abroad) insert—
“5B Person convicted under National Minimum Wage Act not to be appointed as director
(1) A person may not be appointed a director of a company if the person is convicted of a criminal offence under section 31 of the National Minimum Wage Act 1998 on or after the day on which section 32(2) of the Economic Crime and Corporate Transparency Act 2022 comes fully into force.
(2) It is an offence for such a person to act as director of a company or directly or indirectly to take part in or be concerned in the promotion, formation or management of a company, without the leave of the High Court.
(3) An appointment made in contravention of this section is void.”’—(Seema Malhotra.)
This new clause would disqualify any individual convicted of an offence for a serious breach of the National Minimum Wage Act 1998, such as a deliberate refusal to pay National Minimum Wage, from serving as a company director.
Brought up, and read the First time.
Question put, That the clause be read a Second time.
Economic Crime and Corporate Transparency Bill
Wednesday 25th January 2023
(1 year, 10 months ago)
Commons ChamberRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 25 January 2023 - large print - (25 Jan 2023)
17:11 - The House divided: - Ayes: 220 / Noes: 290 - Question accordingly negatived.
17:27 - The House divided: - Ayes: 222 / Noes: 289 - Question accordingly negatived.
17:40 - The House divided: - Ayes: 221 / Noes: 289 - Question accordingly negatived.
The Minister for Security (Tom Tugendhat)
I beg to move, That the clause be read a Second time.
Mr Deputy Speaker (Sir Roger Gale)
With this it will be convenient to discuss the following:
New clause 1—Disclosure of information in the public interest likely to be relevant to the investigation of economic crime—
‘(1) It is a defence to an action based on the disclosure or publication of information for the defendant to show that—
(a) the disclosure or publication complained of was likely to be relevant to the investigation of an economic crime, and
(b) the defendant reasonably believed that the disclosure or publication complained of was likely to be relevant to the investigation of an economic crime.
(2) Subject to subsection (3), in determining whether the defendant has shown the matters mentioned in subsection (1), the court must have regard to all the circumstances of the case.
(3) In determining whether it was reasonable for the defendant to believe that the disclosure or publication complained of was likely to be relevant to the investigation of an economic crime, the court must make such allowance for editorial judgement as it considers appropriate.
(4) For the avoidance of doubt, the defence under this section may be relied upon irrespective of whether the statement complained of is a statement of fact or a statement of opinion.”
New clause 2—Economic crime: power to strike out statement of case for abuse of process—
The court may strike out the whole or part of any statement of case which can be reasonably understood as having the purpose of concealing, or preventing disclosure or publication of, any information likely to be relevant to the investigation of an economic crime.”
New clause 3—Home Office review of the Tier 1 (Investor) visa scheme: publication—
Within a day of the passage of this Act, the Secretary of State must publish in full the findings of the Home Office review of the Tier 1 (Investor) visa scheme which relate to economic crime.”
New clause 4—Offence of failure to prevent fraud, false accounting or money laundering—
‘(1) A relevant commercial organisation (“C”) is guilty of an offence under this section where—
(a) a person (“A”) associated with C commits a fraud, false accounting or an act of money laundering, or aids and abets a fraud, false accounting or act of money laundering, intending—
(i) to confer a business advantage on C, or
(ii) to confer a benefit on a person to whom A provides services on behalf of C, and
(b) fails to prevent the activity set out in paragraph (a).
(2) C does not commit an offence where C can prove that the conduct detailed in subsection (1)(a) was intended to cause harm to C.
(3) It is a defence for C to prove that, at the relevant time, C had in place procedures that were reasonable in all the circumstances and which were designed to prevent persons associated with C from undertaking the conduct detailed in subsection (1)(a).
(4) For the purposes of this section “relevant commercial organisation” means—
(a) for the offence as it relates to false accounting and fraud, “relevant commercial organisations” are defined as—
(i) a body which is incorporated under the law of any part of the United Kingdom and which carries on a business (whether there or elsewhere),
(ii) any other body corporate (wherever incorporated) which carries on a business, or part of a business, in any part of the United Kingdom,
(iii) a partnership which is formed under the law of any part of the United Kingdom and which carries on a business (whether there or elsewhere), or
(iv) any other partnership (wherever formed) which carries on a business, or part of a business, in any part of the United Kingdom, and
(v) for the purposes of this section, a trade or profession is a business;
(b) for the offence as it relates to money laundering, “relevant commercial organisations” are defined as—
(i) credit institutions;
(ii) financial institutions;
(iii) auditors, insolvency practitioners, external accountants and tax advisers;
(iv) independent legal professionals;
(v) trust or company service providers;
(vi) estate agents and letting agents;
(vii) high value dealers;
(viii) casinos;
(ix) art market participants;
(x) cryptoasset exchange providers;
(xi) custodian wallet providers.”
This new clause introduces a new criminal corporate offence for failure to prevent fraud, false accounting and money laundering, by aligning it with other corporate criminal offences.
New clause 5—Identification doctrine—
‘(1) A body corporate commits an offence of fraud, money laundering, false accounting, bribery and tax evasion where the offence is committed with the consent, connivance or neglect of a senior manager.
(2) An individual is a “senior manager” of an entity if the individual—
(a) plays a significant role in—
(i) the making of decisions about how the entity’s relevant activities are to be managed or organised, or
(ii) the managing or organising of the entity’s relevant activities, or
(b) is the Chief Executive or Chief Financial Officer of the body corporate.
(3) A body corporate also commits an offence if, acting within the scope of their authority—
(a) one or more senior managers engage in conduct, whether by act or omission, such that, if it had been the conduct of only one representative, that representative would have been a party to the offence; and
(b) the senior manager who is responsible for the aspect of the organization’s activities that is relevant to the offence — or the senior managers collectively — fail to take all reasonable steps to prevent that offence being committed.”
This new clause reforms the “identification doctrine”, so that a body corporate commits an economic crime offence where the offence is committed with the consent, connivance or neglect of a senior manager or senior managers.
New clause 6—Failure to prevent fraud, false accounting or money laundering: individual liability—
‘(1) A person (“S”) commits an offence if—
(a) at a time when S is a senior manager or corporate officer of a corporate body (“C”), S—
(i) takes, or agrees to the taking of, a decision by or on behalf of the corporate body as to the way in which the business of the corporate body is conducted, and
(ii) fails to take any steps that S could take to prevent such a decision being taken;
(b) at the time of the decision, S is aware of a risk that the implementation of the decision may lead to the commission of an offence of money laundering, fraud, false accounting, bribery or tax evasion; and
(c) the implementation of the decision causes C to commit such an offence.
(2) For the purposes of this section—
(a) an individual is a “senior manager” of a corporate body if the individual plays a significant role in—
(i) the making of decisions about how the entity’s relevant activities are to be managed or organised, or
(ii) the actual managing or organising of the entity’s relevant activities;
(b) “officer”, in relation to a body corporate, means—
(i) a director, manager, associate, secretary or other similar officer, or
(ii) a person purporting to act in any such capacity;
(c) in paragraph (b)(i) “director”, in relation to a body corporate whose affairs are managed by its members, means a member of the body corporate.
(3) A person guilty of an offence under this section is liable—
(a) on summary conviction—
(i) in England and Wales, to imprisonment for a term not exceeding 12 months (or 6 months, if the offence was committed before the commencement of section 154(1) of the Criminal Justice Act 2003) or a fine, or both;
(ii) in Scotland, to imprisonment for a term not exceeding 12 months or a fine not exceeding the statutory maximum, or both;
(iii) in Northern Ireland, to imprisonment for a term not exceeding 6 months or a fine not exceeding the statutory maximum, or both;
(b) on conviction on indictment, to imprisonment for a term not exceeding 7 years or a fine, or both.”
This new clause introduces direct criminal liability for corporate officers who take a decision, or fail to take a decision, that knowingly results in an offence being committed.
New clause 7—Whistleblowing: economic crime—
‘(1) Whistleblowing is defined for the purposes of this section as any disclosure of information suggesting that, in the reasonable opinion of the whistleblower, an economic crime—
(a) has occurred,
(b) is occurring, or
(c) is likely to occur.
(2) The Secretary of State must, within twelve months of the date of Royal Assent to this Act, set up an office to receive reports of whistleblowing as defined in subsection (1) to be known as the Office for Whistleblowers.
(3) The Office for Whistleblowers must—
(a) protect whistleblowers from detriment resulting from their whistleblowing,
(b) ensure that disclosures by whistleblowers are investigated, and
(c) escalate information and evidence of wrongdoing outside of its remit to another appropriate authority.
(4) The objectives of the Office for Whistleblowers are—
(a) to encourage and support whistleblowers to make whistleblowing reports,
(b) to provide an independent, confidential and safe environment for making and receiving whistleblowing information,
(c) to provide information and advice on whistleblowing, and
(d) to act on evidence of detriment to the whistleblower in line with guidance set out by the Secretary of State in regulations.
(5) The Office for Whistleblowers must report annually to Parliament on the exercise of its duties, objectives and functions.”
New clause 21—Civil recovery: costs of proceedings—
After section 313 of the Proceeds of Crime Act 2002 insert—
“313A Costs orders
(1) This section applies to proceedings brought by an enforcement authority under part 5 of the Proceeds of Crime Act 2002 where the property in respect of which the proceedings have been brought has been obtained through economic crime.
(2) The court may not make an order that any costs of proceedings relating to a case to which this section applies (including appeal proceedings) are payable by an enforcement authority to a respondent or a specified responsible officer in respect of the involvement of the respondent or the officer in those proceedings, unless—
(a) the authority acted unreasonably in making or opposing the application to which the proceedings relate, or in supporting or opposing the making of the order to which the proceedings relate, or
(b) the authority acted dishonestly or improperly in the course of the proceedings.”
This new clause extends the cap on adverse costs introduced by the first Economic Crime Act (Transparency and Enforcement) 2022 for Unexplained Wealth Orders, to all civil recovery orders.
New clause 23—Review of measures to prevent proceeds of economic crime entering the UK economy—
Within six months of the passage of this Act, the Secretary of State must lay before Parliament the report of a review of what further regulatory measures could be taken to prevent the circulation in the UK economy of the proceeds of economic crime controlled by individuals or entities subject to sanctions.”
This new clause creates an obligation for the Secretary of State to report to Parliament on the merits of further regulatory measures for preventing the circulation in the economy of the proceeds of economic crime controlled by individuals or entities subject to sanctions.
New clause 25—Report into effectiveness of Act in addressing economic crime involving sanctioned individuals—
‘(1) The Secretary of State must, within six months of this Act being passed, lay before Parliament a report of a review into the effectiveness of the measures in this Act in addressing economic crime involving designated persons.
(2) The report must consider the case for further legislation to make provision for the seizing of assets of a designated person where there is evidence that the designated person has been involved in economic crime.
(3) In this section, “designated persons” has the meaning given in section 9 of the Sanctions and Anti-Money Laundering Act 2018.”
New clause 27—Compensation for Victims of Economic Crime—
‘(1) The Secretary of State must, no later than 90 days from the date on which this Act comes into force, publish and lay before Parliament a strategy for the potential establishment of a fund for the compensation of victims of economic crime.
(2) The strategy may include provisions on the management and disposal of any assets realised by the government, or any body with law enforcement responsibilities in relation to economic crime, under relevant UK legislation.”
This new clause would require the Secretary of State to prepare and publish a strategy on the potential establishment of a fund to provide compensation to victims of economic crime.
New clause 30—Assets of Iranian officials obtained through economic crime—
Within six months of the passage of this Act, the Secretary of State must lay before Parliament the report of a review of regulatory measures to prevent the circulation in the UK economy of assets of Iranian officials which have been obtained through economic crime.”
New clause 31—Fund for the purposes of tackling economic crime—
In the Companies Act 2006, after Part 29 insert—
Part 29A
Economic Crime
993A Fund for the purposes of tackling economic crime
‘(1) The Secretary of State must by regulations establish a fund for the purposes of tackling economic crime.
(2) The regulations must specify the purposes for which the fund may be used, including funding the activities of law enforcement agencies in tackling economic crime.””
New clause 32—Review of definition of cryptoassets—
Within 18 months of the passage of this Act, the Secretary of State must lay before Parliament the report of a review of the adequacy of the definitions of cryptoassets contained in this Act.”
New clause 33—Economic Crime Committee of Parliament—
‘(1) The Secretary of State must by regulations establish a body to be known as the Economic Crime Committee of Parliament (in this section referred to as “the ECC”).
(2) The ECC will consist of nine members who are to be drawn both from the members of the House of Commons and from the members of the House of Lords.
(3) Each member of the ECC is to be appointed by the House of Parliament from which the member is to be drawn.
(4) The ECC will have the power to meet confidentially.
(5) The ECC may examine or otherwise oversee any regulatory, enforcement or supervision agencies involved in work related, but not limited to—
(a) tax avoidance and evasion by corporations;
(b) illicit finance;
(c) anti-money laundering supervision;
(d) tackling fraud;
(e) kleptocracy and corruption; and
(f) whistleblower protection.”
This new clause would oblige the Secretary of State to establish an Economic Crime Committee of parliament to examine and oversee regulatory, enforcement and supervisory action against economic crime.
New clause 39—Duty to report on economic crime resourcing and performance—
‘(1) The Director General of the National Crime Agency must—
(a) prepare a report on the resourcing and staffing of its work to counter economic crime, and its performance tackling economic crime, and
(b) send it to the Secretary of State as soon as practicable after this section comes into force.
(2) The Director General must prepare and send to the Secretary of State further reports on these topics annually.
(3) Each report must include, in particular—
(a) a report of the total annual budget and number of staff allocated to economic crime for each unit within the National Crime Agency,
(b) a report of the number of investigations, arrests, prosecutions and convictions relating to economic crime for each unit within the National Crime Agency, and
(c) a report of other relevant data including, but not limited to, cases per year broken down by both type and outcome; number of restraint or confiscation orders obtained; and value of assets confiscated.
(4) Reporting under subsection (3) must provide a breakdown between domestic economic crime and international economic crime. Reporting on international economic crime under subsections (3)(b) and (3)(c) must provide a breakdown by the income classification of the countries affected.
(5) The Director General must publish every report under this section—
(a) as soon as practicable after they send it to the Secretary of State, and
(b) in such manner as they consider appropriate.”
Section 6 of the Crime and Courts Act 2006 currently places a duty on the Director General of the National Crime Agency to make arrangements for publishing information about the exercise of NCA functions and other matters relating to the NCA, and publish information in accordance with those arrangements. This new clause inserts a new section that places a specific duty on the Director General to prepare an annual report on the NCA’s resourcing and performance relating to economic crime. The section stipulates the minimum information that the Director General must include in the report.
New clause 40—Report into options for corporate liability for economic crime—
‘(1) The Secretary of State must produce a report on corporate criminal liability for economic crime offences.
(2) The report must consider the merits of different models for corporate liability in respect of economic crime, including but not limited to—
(a) the respondeat superior model; and
(b) the failure to prevent model, insofar as it has not already been introduced by the enactment of this Act.
(3) The report must be laid before Parliament within six months of this Act being passed.
(4) In this section—
“the respondeat superior model” means a model for corporate criminal liability in which an entity is guilty of an offence if an employee or agent commits an economic crime offence—
(a) in the course of their employment or agency, or
(b) with an intent to benefit that entity;
“the failure to prevent model” means a model for corporate criminal liability in which an entity is guilty of an offence if a person associated with that entity commits an economic crime offence, intending—
(a) to confer a business advantage on that entity, or
(b) to confer a benefit on a person or other entity to whom the associated person provides services on behalf of the entity with which it is associated, except that the entity shall not be liable where the conduct was intended to cause harm to that entity,
unless the entity can prove that it had in place such prevention procedures as were reasonable in the circumstances, or that it was reasonable not to have any such procedures in place;
a person is “associated with” an entity if they are a person who performs services for or on behalf of that entity, including in, but not limited to, the capacity of an employee, agent or subsidiary.”
Government amendments 44 to 49, 57 and 58 to 100.
Tom Tugendhat
It is a pleasure to see you in your place, Mr Deputy Speaker, and it is the first time I have had the privilege of speaking under your chairmanship on these matters. It is also a pleasure to see so many of the usual faces on this matter. Many of us have gone over these questions in Committee and, actually, in the many years beforehand in various different ways, so it is an enormous privilege to be here. It is particularly a privilege to be speaking after the Minister my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) did such a brilliant job yesterday. I am only picking up where he left off, so I am afraid the second act will not be nearly as compelling as the first.
All those who participated in the Bill Committee gave enormous insights into various different perceptions of how we should be thinking about economic crime and corporate transparency. We have had many interesting debates, and I thank enormously those who have taken part in the various different ways. The fact that we have a two-day debate on Report speaks pretty clearly about the significant size and complexity of this Bill.
Yesterday, we debated parts 1 to 3, which cover Companies House reform and corporate transparency. Today, we turn our attention to parts 4 to 6. The clauses in part 4 create new powers that allow law enforcement to more quickly and easily seize and recover cryptoassets. The creation of the civil forfeiture power for cryptoassets will mitigate the risk posed by those who cannot be criminally prosecuted, but who use their funds to further criminality or for terrorist purposes. This did not prove to be particularly contentious in Committee.
In part 5 of the Bill, we are making it easier for businesses to share information more effectively with each other and with law enforcement to prevent and detect economic crime. We are also creating new exemptions to reduce unnecessary reporting by businesses carrying out transactions on behalf of their customers. We are also giving frontline legal services regulators enhanced enforcement powers to support them as they uphold the economic crime agenda within their regulated community.
I will briefly summarise the amendments we have tabled relating to parts 4, 5 and 6 of the Bill. Many of them address the debate that took place in Committee and will ensure that the Bill works as intended. I should acknowledge that the amendments are perhaps slightly greater in number than we would have liked. The vast majority—amendments 51 and 57 to 100—are minor technical or consequential amendments to ensure that the detail of the cryptoasset measures will work effectively and can be used as soon as possible. That reflects the technical detail of the subject area and the need to make the changes work for each of the jurisdictions of England and Wales, Scotland and Northern Ireland that are covered by the Proceeds of Crime Act 2002.
I now turn to the more substantive Government amendments. New clause 14 allows the Solicitors Regulation Authority to proactively request information from its regulated community for the purpose of monitoring compliance with the economic crime regime. It will enable the SRA to monitor and detect breaches of the rules and legislation related to economic crime, including offences related to money laundering, terrorist financing and sanctions.
Government amendments 44 to 47 to clauses 171 and 172 concern information orders. They seek to clarify the cases in which the information order power can be used and to provide clarity to operational partners about how they should be used. They will ensure that the power can be used only for the criminal intelligence functions of the National Crime Agency, and that when assessing a request for information from a foreign intelligence unit, the NCA must be satisfied that the information would support the FIU’s intelligence function.
Bob Seely (Isle of Wight) (Con)
On the SRA, will the Bill address the strategic lawsuits against public participation that we have been discussing for the last couple of days, or does it purely concern money laundering and other offences unrelated to SLAPPs?
Tom Tugendhat
The Bill is concerned only with economic crime and corporate transparency, and the regulations will cover only that. Many Ministers, including the Lord Chancellor, have spoken about SLAPPs—I will touch on them later—but the reality is that they require a separate jurisdiction and a separate Bill.
Government amendments 48 and 49 concern information sharing. In Committee, Opposition Members rightly pointed out that our proposed definition of large accountancy firms did not include insolvency practitioners, auditors and tax advisers. I thank them for that. These amendments will rectify that omission by expanding the scope of the indirect information sharing clauses to include those sectors.
In addition to the Government amendments, several other amendments on a broad range of topics will be debated today. As in Committee, I look forward to what I anticipate will be a lively but extremely well-considered debate. The contributions of all hon. Members who participated in earlier debates have helped to shape the Bill into an effective tool to tackle illicit finance and ensure that the UK is a great place to do legitimate business.
I know that there are places where hon. Members would like the Bill to go further and do more. Indeed, I am as keen as many of them to solve some of the outstanding problems that we all wish to address, but we need to ensure that those ambitions are delivered in the most effective way and that we use the appropriate legislative vehicles to ensure that they have the desired outcome. Limiting the scope to just economic crime can, in several cases, create more problems than it solves, and I assure right hon. and hon. Members that I have strenuously tested what can be effectively delivered within the scope of the Bill.
Dame Margaret Hodge (Barking) (Lab)
Will the Minister expand on that interesting point? How would any of the amendments on SLAPPs, a duty to prevent or seizing assets limit what could be done in future?
Tom Tugendhat
The question is at what stage do we bring a Bill forward—do we wait for it to be perfect or do we bring forward what we can get at a certain point? The right hon. Lady raises some interesting points. She knows my views on SLAPPS; indeed, in a former incarnation, I may have expressed them extremely clearly. She knows that we share views on asset seizures too. I should point out, however, that no common law jurisdiction has successfully solved the question of asset seizures, although many of us have tried and, indeed, some of us are in conversation with others to try to work out ways of doing it—forfeiture and seizure are not quite the same thing.
Mr Jonathan Djanogly (Huntingdon) (Con)
Will my right hon. Friend give way?
Tom Tugendhat
I will give way; I should have known that I was lining that up.
Mr Djanogly
Yes, because my right hon. Friend touched on asset seizures and tempted me. Of course, Canada has enacted an Act of Parliament that provides for freezing orders to be translated into seizing orders at the request of the Attorney General of Canada.
Tom Tugendhat
My hon. Friend is absolutely right, but he is also no doubt aware that there is much discussion in the Canadian legal community about whether those orders will be challenged in different ways and how exactly they will work. There is still a serious debate about the nature of translating from forfeiture to seizure.
Mr Djanogly
My right hon. Friend is generous in giving way again. All this law is new: our unexplained wealth orders were new, and they have been questioned in the courts, so that is not the question. The question is whether we have the guts to stand up and move on this issue, as the whole western world wants to see.
Tom Tugendhat
My hon. Friend is absolutely right, but I note that some hon. Members cheering would also cheer the provisions of the European convention on human rights that guarantee the right to private property and many of the areas that cause the difficulties that the UK has and Canada does not.
I do not deny that there is an enormous question for debate here and that many hon. Members would like to move quickly to seizure on many areas, but sadly, that may take a bit longer. One thing on which we all agree is that the UK’s place as a rule-of-law jurisdiction and as a home for justice, not just to ourselves but to many others around the world, is essential to our prosperity and to liberties around the world. It is therefore important to ensure that we correctly transfer from forfeiture to seizure, and recognise the rights and limits that we should respect.
Liam Byrne (Birmingham, Hodge Hill) (Lab)
I salute the Minister’s leadership on much of this agenda when he was a brilliant Chair of the Foreign Affairs Committee. He will not, however, want to go down in history as the Minister for mañana. In his responses to the hon. Member for Huntingdon (Mr Djanogly), he has said that the timing is not right and we must wait for future Bills. Can he put our minds at rest and give us a sense of when we might expect a Bill to come forward to address the concerns of the hon. Member for Huntingdon?
Tom Tugendhat
The right hon. Gentleman is extremely kind about my former work and, typically, slightly less so about my current employ. He can be assured that, no doubt, it will be temporary, as it is for all occupants.
That matter has seized my attention and has been of some interest to me in further discussions in different areas. I will not put a time on it, because it is not my ministerial responsibility; the right hon. Gentleman will know from his time in Government that talking across other Ministers’ briefs does not always help to advance the case. I assure him, however, that it has come up frequently in conversation with an intent to bring something forward. As I said, the Lord Chancellor has spoken about it to highlight that it is an area where various elements of change are necessary, so I look forward to hearing the proposals as they come forward. I certainly do not think that the matter can wait. We have sadly seen SLAPPs used against such inspiring examples as Eliot Higgins and Catherine Belton, who have stood up for justice in this country and around the world.
Tom Tugendhat
I will not, because I am going to close.
Despite all the areas that we could have gone into, and would like to go into at a different time, the Bill is closely focused on economic crime and corporate transparency for the purpose of passing a series of measures that are essential to ensure that we keep our country safe and our economic jurisdictions clean.
Stephen Kinnock (Aberavon) (Lab)
We on the Opposition Benches have been clear that the Bill is long overdue. It has been painful to witness London becoming the world’s laundromat for dirty money with the National Crime Agency calculating that £100 billion of illicit finance flows through the UK every single year. Add to that the Government’s abject failure to properly scrutinise the issuing of golden visas to Russian oligarchs—seven now-sanctioned Russians were awarded such visas even after the invasion of Crimea in 2014—and we see a pattern emerging of Ministers failing to treat economic crime with the seriousness it deserves.
This legislation, which is finally wending its way towards the statute book five years after it was promised—and, let us face it, was only brought forward in response to Putin’s invasion—is a step in the right direction that we on these Benches support. However, it still falls short in a number of areas, as I will cover in my remarks.
Layla Moran (Oxford West and Abingdon) (LD)
On golden visas, I think the hon. Member will agree that the response we have had so far is unpalatable. I look forward to speaking to new clause 3, which I hope we will be able to divide on later, so that we can get to the bottom of that.
Does the hon. Member agree that the whole point of sanctions is that they are actually adhered to and that the Government do not in any way allow them and their effect to be diluted? There is the case of current Conservative party treasurer Mohamed Mansour, who owns a company called Unatrac that sells Caterpillar equipment to Russia in contravention, it would seem, of one of the sanctions we have set. Is he aware of that case, and what would he urge the Government to do about it?
Stephen Kinnock
I thank the hon. Lady for her intervention. The new clause on golden visas that she mentioned is spot-on, and we are very happy to support it. I am afraid there are a number of examples of the role Russian money is playing in the Conservative party, including the one she mentioned. I do think that that has acted as a constraint on the kind of action the Government could and should have been taking for many years now, and I really hope Ministers will start to wake up to that reality.
The public need to know that the Government and parliamentarians are taking this issue very seriously indeed, and I am proud of the way that Labour Front Benchers—including my hon. Friend the Member for Feltham and Heston (Seema Malhotra), who is alongside me on the Front Bench—and others have sought to work constructively with the Government to improve this legislation. Members of the Bill Committee considered the Government’s proposals in great detail during 19 sittings, covering hundreds of pages of legislation and amendments. Both the quality and the tone of the debates were of the highest standard, reflecting not just the widespread interest in these issues across the House, but the depth of knowledge and expertise in a wide range of areas. In that regard, I must pay tribute to my right hon. Friends the Members for Barking (Dame Margaret Hodge) and for Birmingham, Hodge Hill (Liam Byrne). The Committee benefited greatly from their thoughtful and well-informed contributions, which I have no doubt will be shared more widely in this debate.
It is therefore profoundly disappointing that, in Committee, there was little in the way of movement from the Government, even in areas where they struggled to find fault with our amendments and new clauses. While I welcome the constructive tone that both Ministers brought to our debates in Committee, the disappointing fact remains that every single effort by Opposition parties to strengthen the Bill met with resistance from Ministers, and every Opposition amendment pressed to a vote was defeated. As a result, the Committee stage amounted to little more than a litany of missed opportunities, forcing us to return to these arguments once again in this debate, and no doubt we will have to do so during the Bill’s remaining stages.
That point is illustrated by the first amendment on today’s selection list, Government new clause 14 on information-sharing powers. The new clause seeks to expand access to information relevant to economic crime enforcement efforts, but focuses only on the Law Society and
“any other approved regulators specified by the Lord Chancellor”.
Put simply, local authorities need these powers, too. Tackling economic crime is a huge challenge for councils due to the lack of licence they have to act on their own intelligence about crime in their local areas.
Councils want to play their part in cracking down on illicit wealth as it manifests itself in their areas. For instance, I have heard at first hand from Westminster City Council how it is battling a growing number of shop fronts—so-called American candy stores—on Oxford Street in particular, that are being used to channel illicit finance, but the process for taking meaningful action against these illegal practices is simply too slow, and as a result it is a gift to the criminals. Disappointingly, following opposition from Ministers to amendments we tabled in Committee that sought to expand powers for local authorities to enforce economic crime laws, there are still no specific provisions to enhance the ability of councils to act.
Moving on to the many important amendments tabled by Front and Back Benchers on both sides of the House, my right hon. Friend the Member for Birmingham, Hodge Hill again raises the issue of strategic lawsuits against public participation—or, as they are commonly known, SLAPPs. This has, of course, been a deeply troubling issue for a very long time. SLAPPs are defined as
“a recognisable and pernicious form of litigation which seeks to silence, intimidate, and harass opponents”,
and they
“are designed to silence criticism and investigation conducted in the public interest.”
Those are not my words, but the Government’s own definition. Others refer to this practice as lawfare.
We have in the past seen this practice used by the lawyers of Russian oligarchs against investigative journalists seeking to uncover corruption, but we now know that these tactics have also been used by not one, but two Conservative party chairmen in recent years. In March 2019, I wrote to the right hon. Member for Great Yarmouth (Brandon Lewis) when he was chair of the Conservative party with my concerns regarding the origins of a £1.8 million donation from Ehud Sheleg, who was then the treasurer of the Conservative party, to the Conservative party. I was sent a reply by the right hon. Member threatening to sue me for libel. He might even have got away with it had one of Mr Sheleg’s donations not later been flagged by Barclays bank to the National Crime Agency because, in its view, it originated not from Mr Sheleg’s bank account, but from the bank account of his father-in-law, a former pro-Putin Russian politician. That is lawfare in action.
But there is more—this time from representatives of the current Conservative chair. Members may have heard his name, as he has been in the news quite a bit recently. In July 2022, Dan Neidle, a former head of tax at Clifford Chance who now runs Tax Policy Associates, accused the then Chancellor of the Exchequer of providing unsatisfactory answers about his tax affairs. What happened next? Mr Neidle received a letter from the law firm Osborne Clarke, representing the right hon. Member for Stratford-on-Avon (Nadhim Zahawi), demanding that he withdraw his claims. That was a truly audacious approach and move, one might say, given what we now know about the former Chancellor’s tax returns. The bottom line is that we have a Government who claim to be committed to tackling SLAPPs, while Ministers are actively using the practice to their own benefit. It is little wonder that legislative progress has been somewhat sluggish, and that the speed of action on the part of the Government does not reflect the urgency and gravity of the issue.
New clauses 1 and 2, in the name of my right hon. Friend the Member for Birmingham, Hodge Hill, would provide a much-needed shot in the arm to efforts to resolve the endemic use of SLAPPs in British courtrooms. New clause 21, tabled by my right hon. Friend the Member for Barking with cross-party support, addresses the related issue of costs orders, which clearly form part of the legal architecture that is all too easily exploited by criminals to exert a chilling effect on critics and journalists reporting in the public interest. New clause 7, tabled by the hon. Member for Cheadle (Mary Robinson), would incorporate much-needed protections for whistleblowers into the Bill. All of those Back-Bench amendments have the wholehearted 100% support of the Opposition.
After months of consultation on SLAPPs, the Ministry of Justice published a response, which confirmed that
“the Government intends to pursue legislative reform at the earliest opportunity.”
That was back in July last year. If there has been any meaningful progress since that time, it has not been apparent to me, to my right hon. and hon. Friends or to any other Members who have signed these new clauses, so I ask the Minister: how much longer will it take for the Government to act decisively on this issue?
In new clause 3, as has been mentioned, the hon. Member for Oxford West and Abingdon (Layla Moran) raises the important issue of the tier 1 investor—or golden visa—scheme, which was closed down last year amid much ignominy arising from its extensive use by Russian oligarchs and other kleptocrats. In April last year, I wrote to the then Home Secretary to call for the publication of the Government’s internal review of the scheme without delay. In that letter I said:
“It is simply not enough that the scheme is now closed and a small number of oligarchs sanctioned; politicians and the public alike must be able to understand the findings of the report and learn the lessons.”
Here we are more than nine months later, and that argument still holds true. It is deeply regrettable that the Home Secretary is refusing to publish the report in full.
New clauses 4, 5 and 6 on corporate criminal liability point to another of the Government’s missed opportunities. There is a well-established and proud tradition of groundbreaking UK law on holding company executives to account for misdeeds committed in their names, or in the names of corporations they are responsible for running. A precedent was set by the Bribery Act 2010, which was passed by the last Labour Government. The Government built on that example in the Criminal Finances Act 2017 by introducing new corporate criminal offences related to failures to prevent the facilitation of tax evasion both in the UK and overseas. Extending those “failure to prevent” offences to a wider range of economic crimes is the logical and natural next step. New clause 40 provides a starting point for reforming the law in that area, and would require the Secretary of State to publish a report, setting out the various options by which a new offence might be introduced. New clauses 4 to 6 would go further still, by taking forward specific proposals within the Bill. The Opposition are more than happy to support those measures, and I pay tribute to the right hon. and learned Member for South Swindon (Sir Robert Buckland) and the hon. Member for Bromley and Chislehurst (Sir Robert Neill) for their leadership on this important issue.
Even as we support these reforms, it is important to remind ourselves that new laws will not necessarily be game changers in themselves. These laws, like any others, will be only as useful as the willingness and ability of this or any future Government to enforce them. Legislation without implementation is not worth the paper it is written on—[Interruption.] The Under-Secretary of State for Business, Energy and Industrial Strategy, the hon. Member for Thirsk and Malton (Kevin Hollinrake) is nodding, because we heard that from him frequently in Committee.
John Penrose (Weston-super-Mare) (Con)
I thank the shadow Minister for giving way—I have an enormous amount of time for an awful lot of what he does and says. I want to challenge him a little on whether these potential changes about the duty to prevent might be more effective and game changing than he is describing, because not only should they reduce the burden of criminality, which is reducing our economic performance and our productivity as a nation, but they could be quite deregulatory. They sweep away a raft of largely ineffective and deeply costly measures, and replace them with something that is simpler and easier to comply with, but more effective at the same time.
Stephen Kinnock
The hon. Gentleman speaks with great knowledge on this issue, and he is right that we need a streamlined, simple approach that clearly places responsibility and liability where they need to be. That is smart regulation. Over-complicating regulation is precisely where the lawyers, fixers and those who so often facilitate this illicit activity find their niche, and how they exploit it is their leverage. Let us make this a game-changing Bill, along the lines that he suggests, and let us hope that the Government’s scale of ambition matches his and that of other hon. Members across the Chamber.
As far as the record of this Government goes, the evidence is hardly encouraging, with just 168 prosecutions and five convictions brought against companies by the Serious Fraud Office between 2016 and 2021, and increasing reliance on US-style deferred prosecution agreements that fall well short of providing full accountability for corporate criminal behaviour. I pay tribute to the work of my right hon. Friend the Member for Islington South and Finsbury (Emily Thornberry), who has set out detailed plans to reverse the SFO’s loss of senior staff and expertise, transform the agency’s approach to prosecutions, and allow more of the proceeds of successful cases to be retained by the SFO, as part of a renewed crackdown on corporate malfeasance under the next Labour Government. Labour’s blueprint is there, and Labour Members would be delighted to see the Government adopt it when addressing this issue.
Other new clauses tabled by Back-Bench Members address additional areas that the Government could and should address, but that unfortunately they have not addressed in the Bill. New clause 23, tabled by the hon. Member for Huntingdon (Mr Djanogly) is one example. Its call for a review of the need for further regulations
“to prevent the circulation in the UK economy of the proceeds of economic crime controlled by individuals or entities subject to sanctions”
is welcome, as is new clause 25, tabled by the right hon. Member for Stevenage (Stephen McPartland). If I were to raise any slight criticism, it would be that the new clauses fall a little short of what is needed, but Labour supports them nevertheless. Specifically, both new clauses fail to mention the enormous and central role that is played not just by the UK, but by individual Crown dependencies and overseas territories in enabling—and all too often actively facilitating—global flows of illicit finance, and the ill-gotten assets of kleptocrats and crooks.
Liam Byrne
I am grateful to my hon. Friend for making such a brilliant speech. Among the greatest victims of economic crime right now are the people of Ukraine. One virtue of his own proposal and the amendment tabled by the hon. Member for Huntingdon (Mr Djanogly) is that they propose a shift not just to freezing assets, but to seizing assets and recycling them into the reconstruction of Ukraine. Surely we should legislate for that work now and crack on with it forthwith.
Stephen Kinnock
As always, I agree absolutely with my right hon. Friend’s views on the matter. That cannot be beyond the wit of this place or the Government. I know there are legal complications around property and international law, but those are not insuperable. We cannot allow them to be insuperable because, with every day that passes, the people of Ukraine are suffering, and the barbaric acts of Vladimir Putin and his regime are not being held to account in a way that would contribute to the massive reconstruction effort that will be required for Ukraine. It is absolutely right that the person guilty of the crime should pay for the crime and that has to be the fundamental basis of our approach. We need urgency on this in the G20, the G7, and the United Nations. We need Ministers to get a grip of this issue so that we can do justice and deliver for the people of Ukraine, which we must do with great urgency.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
New clause 27 is interesting. It is about setting up a fund for compensation of victims of economic crime. We have heard estimates that economic crime costs UK citizens £200 billion to £300 billion a year. How much will this cost and who will pay for it?
Stephen Kinnock
The Minister tempts me to write Labour’s manifesto right here at the Dispatch Box. It is an issue of principle: how will we ensure that victims of economic crime are compensated? Clearly, we cannot finalise in the Chamber today the quantum of that amount, but we did raise that in Committee and are open to discussing it with the Government. We hope that they will be open to having that discussion in the fullness of time.
Kevin Hollinrake
Will the hon. Member confirm that he is expecting the taxpayer to contribute to the fund? Is that what the new clause would effectively lead to?
Stephen Kinnock
No. This is based on a fund that is generated through fines and through accountability for those committing the crimes. It is along the lines of what I said about Ukraine: the people who commit the crime, rather than the victims, should be paying for the crime. How will we address that question now? If the Government think that the current system is absolutely fine and that there is justice and equity in the system, the Minister should come to the Dispatch Box and say that. However, if he thinks that there is a clear, principled and moral argument in favour of ensuring that the people who commit a crime should be made to pay for it, and that that should contribute to the compensation, we can have that conversation.
Liam Byrne
Is my hon. Friend scandalised as I am that at the moment only 40% of fines from economic criminals are recycled back into the business of tackling economic crime, whereas in the United States it is 100%?
Stephen Kinnock
That is precisely the point. There is an opportunity to generate revenue that could be deployed to address the causes of the problem. It is a win-win. We have criminals. We need to crack down on those criminals. We need to ensure that the agencies are given the resources to do that. It is the criminals who should be paying for that process. That seems logical to me.
Dame Margaret Hodge
Further to that point, does my hon. Friend agree, and I hope that the Government agree, that if they were more assertive in pursuing the people who enable economic crime and those who commit economic crime, more fines could be generated, which they could ringfence for a fund to be used in part to compensate victims of crime? It need not be a burden on the taxpayer and it could be a just way of ensuring that the victims of economic crime do not suffer inappropriately.
Stephen Kinnock
Again, my right hon. Friend has hit the nail on the head. We need a war chest and that should be built up on the basis of moneys paid by criminals. That war chest should also be looked at and used, where possible, to support the compensation of innocent victims of economic crime. The new clause is a two-pronged attack on the issue. The opportunity is there because the better we get at going after these criminals, the more we will have coming into the war chest.
Mr Barry Sheerman (Huddersfield) (Lab/Co-op)
I am convinced by my hon. Friend’s argument, but one thing worries me. Having the resources would be good, but having the determination to deliver on the policy is more important. I have had a long-running campaign over the years to improve the efficacy of the Serious Fraud Office. We need a fundamental change in our attitude to how we deliver these policies.
Stephen Kinnock
My hon. Friend is absolutely right. As I mentioned earlier, my right hon. Friend the Member for Islington South and Finsbury has set out a clear and detailed blueprint for how we need to boost the institutional capacity, human resources capacity, financial capacity and firepower of the SFO. The blueprint is right there. I very much hope that the Government will look at it and perhaps even adopt it. Of course, if they do not, we will soon have a Labour Government who will.
The Opposition’s new clauses on victims intend to go much further than victims of economic crime in the UK alone. It is our hope—in government, it will be our intention—to work with our allies and partners internationally to provide robust mechanisms for the seizure of proceeds of corruption, kleptocracy and other crimes under international law, and to use such assets to provide funds for the reconstruction and other forms of financial redress to victims—in Ukraine, for instance—of the criminal acts of dictators such as Vladimir Putin.
For months, we have had nothing but warm words from the Government on such proposals. We know that there have been international discussions, including with our G7 partners and our allies in Ukraine, but we need more than warm words and vague promises of jam tomorrow. While Ministers stall on this issue, we are increasingly at risk of being left behind by our allies in the US, Canada and elsewhere, who are already taking the actions that we want to see in the UK. New clause 27 would therefore direct the Secretary of State to publish a strategy for using the proceeds of crime to compensate victims, and to do so within 90 days of the Bill receiving Royal Assent.
We welcome the Bill, but it is a great shame that the Government are failing to take more substantive action in the crucial areas that I mentioned. The Bill is a step in the right direction, but, as it stands, it lacks ambition and is therefore a missed opportunity. I hope that Conservative Members will support our amendments today, so that we can finally begin to clean up our country’s reputation as the go-to destination for dictators, oligarchs, kleptocrats and gangsters, and for their dirty money.
Sir Robert Buckland (South Swindon) (Con)
I draw hon. Members’ attention to my entry in the Register of Members’ Financial Interests.
This issue has been a concern of mine not just for months but for many years. Anybody who has even a passing acquaintance with the issue at hand will know that its history is somewhat tortuous. A series of options were set out comprehensively in a Law Commission report published in June last year, which I commend to hon. Members. However, there is much that predates that. Indeed, much that has happened in the last few months in this place—in both Houses—reinforces the thrust of the argument that I seek to advance by way of new clauses 4 to 6, which stand in my name and those of many other right hon. and hon. Members, from all parties in the House, to whom I am extremely grateful.
In 2015, my party’s manifesto rightly committed the Government to make it illegal for companies to fail to put in place measures to prevent economic crime. It would be unfair to say that nothing happened. We had the Criminal Finances Act 2017, which created a new offence of failing to prevent tax evasion. That was a development on the failing to prevent bribery offence contrary to section 7 of the Bribery Act 2010, which opened the door to the development of the principle across a range of criminality in this space.
Subsequent to that, the Ministry of Justice launched a call for evidence in early 2017 on corporate liability reform for economic crime. However, it is right to say that progress on that was exceedingly slow. It was not until November 2020, when I was serving as Secretary of State, that it was agreed across Government that the Law Commission would be given the task of examining the issue and producing a report. It was right to acknowledge at that stage that there were a number of potential models that could be deployed here, and it was important for an independent body such as the Law Commission to look at different jurisdictions, as of course it did. It looked in particular at the United States, Canada and Australia: common law jurisdictions that have long been wrestling with the same challenges that we face. To differing effect, they have brought in and deployed their own particular regimes. More on that slightly later.
What is clear is that there is very much consensus in this place on the need for reform of corporate criminal liability. The Treasury Committee’s report of February last year urged the Government
“to act quickly in bringing forward any legislation flowing from the Law Commission’s review.”
In June, the Foreign Affairs Committee talked about
“reform of outdated and ineffective corporate criminal liability laws”,
and, in October, the Justice Committee spoke in similar terms. Finally, a report from the House of Lords Fraud Act 2006 and Digital Fraud Committee in November said:
“Reform of corporate criminal liability will be essential in order to maximise the impact of the Fraud Act and other legal tools going forward…to hold corporates across all sectors to account and to inspire behaviour change.”
Liam Byrne
The right hon. and learned Member is making a brilliant speech, and the proposals he is stewarding are incredibly important. Did he hear the independent reviewer of terrorism legislation’s evidence to the Bill Committee, when he said very clearly that economic crime is a national security issue? That is exactly the argument the Minister for Security made when he was Chair of the Foreign Affairs Committee—[Interruption.] I am told he still makes that argument today. That underlines why the right hon. and learned Member’s proposals are so important, not least because we have become the country of choice for corporate structures set up to launder billions of illegal money.
Sir Robert Buckland
I am grateful to the right hon. Gentleman. Jonathan Hall, the independent reviewer of terrorism legislation, was absolutely right. Indeed, his evidence echoed the Government’s own statement in pursuance of the action plan. The action plan says that it covers criminal activity that
“poses a risk to the UK’s prosperity, national security and reputation.”
That is the point. The policy direction the Government have adopted in recent legislation—most notably in legislation to protect industry from takeovers from parts of the world that we regard as a potential threat to this country—increasingly includes economic security as part of the wider national security agenda, and that is absolutely right.
This debate is happening in the context of a world where the old order is changing and giving way to forces that we cannot control and that we should rightly be suspicious about. Therefore, although we want a vigorous, lively, free market economy in this country, we need to be ever more vigilant about ensuring that its boundaries are policed effectively. I will say more about the prosecution of these offences, because it is, shall we say, a vexed question, and there are right hon. and hon. Members here who have direct experience from their work of the evidential challenges that prosecutors face day in, day out.
I do not want the Government to adopt new criminal offences only to find that their use becomes sporadic or ineffective. However, the offences I propose help to further drive a culture of compliance and lawfulness where corporates behave responsibly. There are examples of previous legislation that we can point to that have driven that culture forward positively. I think of the Health and Safety at Work etc. Act 1974, which the Under-Secretary of State has used as an example, and he was absolutely right to do so. As a result of the passage of that legislation, we saw a dramatic drop in the number of industrial accidents. Why? Because employers were enjoined to take the issue damn seriously. If they did not, there would be liability at the end of it.
Mr Djanogly
Has my right hon. and learned Friend also considered the Bribery Act, where a similar set of procedures was forced on corporates, with dramatic results?
Sir Robert Buckland
My hon. Friend is absolutely right. Of course, he was a Minister in the Ministry of Justice when the Bribery Act was brought into force at the end of the 2005 Parliament, and he has direct experience of this issue. He is absolutely right that the Bribery Act has been of huge value. In fact, under the regime of deferred prosecution agreements that the Government brought in in the early part of the last decade, of the 11 DPAs that have been made by the Serious Fraud Office with corporates, nine were for “failure to prevent offences”—failure to prevent bribery—and just three were for the offence of fraud. That accounts for 90% of the £1.7 billion in revenue that the SFO has brought in through DPAs. It is clear that that has been an important step change in the way we deal with wrongdoing or indeed the threat of wrongdoing.
For people who think this is some sort of academic exercise, I draw their attention to the LIBOR scandal and the forex rate rigging scenario. There was no bringing to account of anyone involved—there was impunity. That is not good for the rule of law or the economic wellbeing of this country.If we want people to invest in the United Kingdom—we do and we have excelled in direct foreign investment over generations—then they need to have the confidence that if there is a problem, there is redress of grievance, accountability and a way of recouping the loss or making sure their investment is safe. That is what I believe the new clauses go to.
We have been careful in the test we wish to apply to the “failure to prevent” offences that form the subject of new clauses 4 and 6. It was tempting to follow the recommendation in the report by the House of Lords’ Fraud Act 2006 and Digital Fraud Committee, chaired by my noble Friend Baroness Morgan of Cotes, to apply the wider test contained within the Criminal Finances Act 2017 relating to failing to prevent tax evasion. That would not require an intention by the corporate or the individual to confer a benefit on the company or a benefit on a person to whom the suspect—the defendant— is providing services on behalf of the company. I have sought not to go that far, but to replicate the Bribery Act test, which is the intention to confer a benefit. It is important that when we seek to draft legislation, we are as mindful as possible of not widening it to an extent that could in many ways create further unfairness. We have an obligation to ensure that balance is maintained.
I have set out three separate offences in the provisions: fraud, money laundering and false accounting. I think fraud and false accounting are probably self-explanatory, but the Government might have a bit of a question about money laundering. They might be thinking about the 2017 money laundering regulations, and regulation 92 in particular, where there is already a corporate offence where, with the consent or connivance of an officer of the company, an offence is committed or an offence is attributable to neglect on their part. What I would say gently to the Minister is that I do not think that cuts it. It still leaves significant evidential and prosecutorial challenges. The Financial Conduct Authority has, I think, used it vanishingly rarely. Therefore, I urge him very strongly to look carefully—I hope he will accept the thrust of my argument, even if he cannot accept the detail of my new clauses today—at bringing forward provision that covers money laundering as well as fraud. That would be my strong exhortation to him today.
Dame Margaret Hodge
I want to add to the excellent speech that the right hon. and learned Gentleman is making and to thank him for it. In the Barclays case, there was an attempt to prosecute both Barclays bank and individual directors of Barclays bank. There was an unsuccessful appeal against Mr Justice Jay’s decision, in which the SFO argued that the dual rulings would allow directors to “insulate themselves from liability” and make such alleged offences “impossible to prosecute”. Later, Ms Osofsky, who runs the SFO, said she felt herself completely hamstrung by the directing mind principle. She told parliamentarians in evidence that
“I can go after main street but I can’t go after Wall Street.”
In other words, she could prosecute small companies, but not corporates with layers of control.
Sir Robert Buckland
The right hon. Lady leads me to the thrust of my argument on new clause 5, which is the identification doctrine itself. She deals with the precise point of the doctrine. In the Barclays case, Mr Justice Jay at first instance was widely seen as having defined it by a narrow interpretation—I do not criticise the learned trial judge, but many people saw it that way—but the decision was upheld on appeal. With a real-life set of facts, a trial judge made a ruling that had quite important consequences for the law.
John Penrose
I congratulate my right hon. and learned Friend on making a powerful speech in favour of his new clauses, several of which I have signed. Before he moves on, may I press him on the point about this being a slightly rum affair? I think that was the phrase he just used. It is rum because we have two options set out by the Law Commission—as well as many other analyses—neither of which are being taken into the Bill. There are two good options, and they are being completely ignored. Also, at least one of the two Ministers on the Front Bench has repeatedly—and rightly, in my view and that of many other people—been a dedicated advocate of precisely the ideas my right hon. and learned Friend is putting forward in his new clauses, yet they are still not in the Bill. How much more rum can it get?
Sir Robert Buckland
I was going to spare the blushes of the Minister for Security, my right hon. Friend the Member for Tonbridge and Malling (Tom Tugendhat) and the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake), but my hon. Friend has said it for me, and he is right. They know that what I am saying does not just have force, but that they agree with it. That will no doubt carry great weight—
Tom Tugendhat
What I am enormously enjoying in this Session is the way in which Bills are being picked up and put down by different Ministers. When they are on the Front Bench, they do one thing; when they are on the Back Benches, they say another—sadly, that is the nature of our current political system. It is taking a little while, I admit, for many of us to realise quite how long it can take to get things through in government. Those who have been in government for many years are sharing their knowledge very generously.
Sir Robert Buckland
Well, my right hon. Friend must speak for himself. I will tell the House a story: I remember when the present Secretary of State for Defence, my right hon. Friend the Member for Wyre and Preston North (Mr Wallace), held the office of Minister for Security, which my right hon. Friend the Member for Tonbridge and Malling now enjoys. We used to have cross-governmental committee meetings—this was during the Government of my right hon. Friend the Member for Maidenhead (Mrs May)—and I remember having a very fierce argument with a very senior permanent secretary at the Treasury about this very issue. I will not name them, because that would be wrong, but they told me that there was concern about the proliferation of criminal offences in this area because somehow it would add more of a regulatory burden to business. I disagreed hotly with that civil servant then, and I disagree hotly now.
The Minister for Security now has a great opportunity. It is a great privilege as a Minister to get on with a job that others would have wished to finish. We have passed the parcel to him, and he can open it and enjoy the gifts within.
John Penrose
My right hon. and learned Friend is being very generous with his time. May I say very gently that the anecdote that he told just now and the intervention that the Minister for Security has just made both come under the category of explanations, rather than justifications, for where we now find ourselves? The Bill is here, now. What has been said explains why we are here, but they do not justify why this stuff is not in the Bill.
Sir Robert Buckland
Well, I am trying to be the diplomat and the reasonable interlocutor here. My hon. Friend is playing the bad cop with the Minister, and I am trying to play the good cop. I know that the Minister will eventually yield to that persistent approach; I hope that it will be done in a way that is neither oppressive nor unreliable.
Liam Byrne
I am incredibly grateful to the right hon. and learned Gentleman for his generosity in giving way. We appear to have an overload of rumness here.
Liam Byrne
Yes. It is unusual for unity to break out on both sides of the House and on the Front and Back Benches. Given that ubiquity of unity, what, in the right hon. and learned Gentleman’s analysis, is the problem that is preventing these proposals from becoming the law of the land?
Sir Robert Buckland
I think that there are two things: time and capacity. I do not criticise officials. I have never believed in doing so: it is a bad Minister who blames their officials, just as a bad workman blames his tools. Officials have a lot of work to do under immense pressure, and obviously they want to get it right. I want to get it right, too—we all do—but the Bill might be our last chance to do so in this Parliament. My goodness me, if we cannot get it right here, the Government are really going to have to get it right in the other place.
Let me deal further with the identification doctrine. Opposition new clause 40, which is very well worded, alludes to the US concept of respondeat superior. In effect, it is a wrap-all approach to vicarious liability that captures the acts or omissions of even very junior members of a corporate, which can lead to that corporate being liable. In some ways that has proved advantageous to prosecutors in the US: they have been able to identify more junior officials in corporates and, in effect, get them to co-operate with the authorities, which has opened up evidence that might not otherwise have been available.
The Law Commission looked at that approach. It also looked at what I might call the corporate culture approach in Australian Commonwealth law, and at Canadian legislation on the acts and mental states of senior managers. The Law Commission said—rightly, I think—that neither the US approach nor the Australian approach would be right for our jurisdiction.
The wording of my new clause 5 reflects the Law Commission’s recommendations in two ways. First, as the Law Commission’s report sets out, it would allow conduct to be
“attributed to a corporation if a member of its senior management engaged in, consented to or connived in the offence.”
Senior management is defined as
“any person who plays a significant role in the making of decisions about how the whole or a substantial part of the organisation’s activities are to be managed or organised, or the actual managing or organising of the whole or a substantial part of those activities.”
We have taken the Canadian approach.
Sir Geoffrey Cox (Torridge and West Devon) (Con)
I draw the House’s attention to my entry in the Register of Members’ Financial Interests.
I am intrigued by and have a great deal of sympathy with my right hon. and learned Friend’s amendments. As he knows, we discussed the issue when we served as Law Officers together. In the light of the Law Commission recommendation from which he has just quoted, I wonder why his new clause 5 includes the
“neglect of a senior manager.”
It seems conceptually a rather odd proposition that a fraud could be committed by neglect. The Law Commission did not go that far. Why has my right hon. and learned Friend included that provision?
Sir Robert Buckland
That is a fair question. What I seek is to tease out from the Government the juxtaposition with the money laundering regulations. My right hon. and learned Friend will remember my making mention of regulation 92 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, which uses the word “neglect”. To be frank, I think that there is a problem with that, but it is important for us to tease out from Ministers a way to find a wording that is comprehensive.
Sir Geoffrey Cox
I have enormous sympathy with my right hon. and learned Friend, who is doing the House a service by bringing these amendments to its and the Government’s attention. However, is it not reasonable—Opposition new clause 40 has this purpose in mind as well—that there should be quite a detailed consultation within the financial services industry and among any other commercial organisations that might be affected? New clause 5’s use of the word “neglect” creates an extraordinarily broad possibility for the application of the criminal offence.
I know what my right hon. and learned Friend is doing, and I applaud it. However, it seems to me that it is reasonable to require of the Government that they get it right, but, as the right hon. Member for Birmingham, Hodge Hill (Liam Byrne) said, that must not become an excuse simply to say “mañana” and kick this into the long grass.
Sir Robert Buckland
I am always grateful to my right hon. and learned Friend; I greatly enjoyed our time working together as Law Officers, and I yield to no one in my respect for him. He is right to make that point. I think I couched my remarks in a way that was faithful to the Law Commission’s options, which say that the Government do not necessarily have to do it all—there is a choice here, potentially. On a wider basis, I think that the identification doctrine needs to be looked at. There could be an opportunity for further refinement, perhaps in the other place, and for provision to be made that refers specifically to the offences that I list in new clause 5.
Let me take my right hon. and learned Friend’s point in the spirit in which he made it, and build on it. New clause 5 includes the specification in Law Commission’s option 2B that an
“organisation’s chief executive officer and chief financial officer would always be considered to be members of its senior management.”
We have sought to be faithful to option 2B.
Dame Margaret Hodge
I am sorry to interrupt the right hon. and learned Gentleman’s excellent speech again, but does he share my view that we are past the stage of consultation? There has been a lot of consultation on the issue, from 2015 to 2017 and up until the Law Commission’s proposals in 2022. Choices now have to be made. The opportunity must be grasped to legislate on this issue, on which there is such wide consensus and such strong feelings.
Sir Robert Buckland
If not now, when? I entirely agree.
I had not quite finished outlining the Law Commission’s point correctly refuting, or at least addressing, the perception of any problems with a knock-on effect on civil law liability. It sets out the case very well, giving two basic reasons why it does not think that there will be extensive consequences.
First, the Law Commission rightly says that in civil law, vicarious liability or liability for negligence will very often apply to civil disputes between companies and third parties even if the identification doctrine test threshold is not met, so those very important parts of civil liability will not be undermined.
Alison Thewliss (Glasgow Central) (SNP)
It is a pleasure to follow the expertise of the right hon. and learned Member for South Swindon (Sir Robert Buckland), who outlined in great detail the significance and importance of the new clauses. Yet again, the House has the opportunity to get it right, and to get it right now, today, rather than at some point or when parliamentary time allows or after consultation or in due course. Why not do it today?
I have heard no arguments from Ministers in Committee, on Second Reading or here this afternoon to excuse why it cannot be done today, now, with the new clauses that have been so diligently and expertly proposed by right hon. and hon. Members. As I said yesterday, these are cross-party new clauses. They are the most widely supported new clauses I have seen, and there is no reason why the Government cannot accept not only the proposals from this side of the House but the diligent work of their own Back Benchers on the new clauses. It makes absolute sense.
I support the Government amendments before us, both the correcting ones and those that allow Scottish Ministers and their responsibilities to be added to the Bill. It is good that they have been brought forward now, although I am slightly wary that that happened at such a late stage and that the problem had been missed. Regardless, I am happy to see them today. I also support the amendments on information sharing between agencies, which make sense.
I am, however, concerned that the Government will not accept the “failure to prevent” amendment. As I said in Committee, when the hon. Member for Thirsk and Malton (Kevin Hollinrake) was a Back Bencher he was very supportive of the “failure to prevent” provisions, right up until 13 October 2022, when he said:
“Of all the measures we have talked about today, this would have the biggest effect in terms of cutting down on economic crime, because lots of our financial organisations are complicit when it suits their interests to be so.”—[Official Report, 13 October 2022; Vol. 720, c. 310.]
There is nothing in the Bill that would change that situation, but the new clause would. As I pointed out in Committee, now he is not just the hon. Member for Thirsk and Malton but the Under-Secretary of State for Business, Energy and Industrial Strategy. He has argued for a “failure to prevent” economic crime offence not just on 13 October last year, but on 7 July 2022, on 1, 22 and 28 February 2022, on 2 December 2021, on 9 November 2021, on 22 September 2021, on 18 May 2021, on 9 November 2020, on 25 February 2020, on 19 July 2019, on 23 April 2019, on 18 December 2018 and on 9 October 2018. Given that the hon. Gentleman has spent his parliamentary career arguing for this, it beggars belief that now he is a Minister with the power to implement it, he is not actually doing so.
Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)
These are very important points. Given their importance, should the Minister not put down his phone and listen to what my hon. Friend is saying?
Alison Thewliss
One Minister is on his phone and the other—the hon. Member for Thirsk and Malton—is sitting at the back of the Chamber having a gab. This is not ideal, but perhaps the Minister has already heard what I have to say and does not want to hear it again.
“O, wad some Power the giftie gie us
To see oursels as others see us!”
Alison Thewliss
It is not, and it certainly will not be the last. It could be if the Minister accepted the amendments, but he is not going to do that, and he will keep hearing this speech until he does: that is the truth of the matter.
As other Members have said, there is a precedent for a “failure to prevent” measure. It is in the Health and Safety at Work etc. Act 1974 and the Bribery Act 2010, so the concept already exists, and there is no reason why it cannot be applied today. Even if the Government are saying, “We want to extend it to other areas”, that should not limit us today, when the Bill gives us the opportunity.
I also support new clauses 4, 5 and 6. The right hon. and learned Member for South Swindon made an important point about what senior managers have to do, which is also relevant to the Online Safety Bill. I rather like the definition of an offence committed with
“the consent, connivance or neglect of a senior manager.”
All those things contribute to economic crime. This is, if you will, a sin of omission, and we should take the opportunity to tighten up these loopholes. It is one thing to know about something that is happening, it is another thing to look the other way, and it is another thing not to do your job properly and allow that something to happen. This would cover all those eventualities.
New clause 7, in the name of the hon. Member for Cheadle (Mary Robinson) deals with whistleblowing. It is an excellent new clause which would enhance the Bill and offer protection to the very people who flag up these economic crimes. Whenever I think about whistleblowing, I remember a little cartoon that I saw many years ago showing a man sitting at a computer terminal in an office with a sign above his head saying, “Congratulations Frank, whistleblower of the month.” I understand that the cartoonist was Bill Proud. Every time I think about that, I think about the lack of protection offered to whistleblowers, and how much more the Government could be doing to ensure that those who do speak up are protected.
The organisation Protect says that it has offered advice on whistleblowing to 2,500 people a year, and that of those who have contacted it about their experiences, 65% have suffered some kind of detriment as a result of their whistleblowing. There is no incentive for many people to speak out when they see something wrong. They feel that they will lose their job or their promotion and will have to work somewhere else, and also that this might follow them around if they are seeking references for a new job. There is a real problem here, and the Government could, if they wished, deal with it in the Bill: it would make sense for them to do so.
I also support the cost cap suggested in new clause 21. Bill Browder spoke about this issue very powerfully during the Public Bill Committee evidence sessions. The balance is completely skewed to the side of the criminals and away from the Government, and away from the prosecutors and the agencies who want to take on these crimes but simply cannot afford to do so. Bill Browder said:
“What I have learned is that the law enforcement agencies effectively refuse to open criminal cases unless they are 100% sure that they can win without any tough fight on the other side.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 65.]
And what we have learned, even just this week, is that the other side can afford anything that allows them to support their case. Indeed, that was made clear in the exchanges on the urgent question on the Wagner Group earlier today. The other side are very well set up financially: they can afford the very best lawyers, while the prosecutors sit there with nothing in their armoury to take on these oligarchs and kleptocrats. That is not acceptable, and a cost cap such as the one suggested in new clause 21 would go some way to addressing it.
Bill Browder has also talked powerfully about the Magnitsky case. He produced a load of evidence about money that been stolen and laundered, being put through various accounts. He had traced all the money, some of which had ended up in the United Kingdom. When he presented the case to prosecutors, to the National Crime Agency and to various other agencies, they all refused to take it on. A crime has been committed, and we know who committed it and where the money ended up, but prosecutors here do nothing about it because it would cost them money that they might never see again. As a result, crimes go unprosecuted in the United Kingdom. It is unacceptable that, by failing to take on new clause 21 and other such measures that would cap costs, the Government are allowing this to continue.
I would support further measures on sanctions. Further to the urgent question, monitoring of sanctions and their effectiveness needs to be a lot tighter. Any sensible sanctions scheme would not have waivers for warlords.
I very much support the new clauses on the proceeds of crime and compensation for victims, for the people of Ukraine and indeed for the people of Iran, as has been suggested by the hon. Member for Oxford West and Abingdon (Layla Moran). Those measures are important. There are schemes such as the financial services compensation scheme, but in many cases that does not fully compensate, or compensate at all, those victims of economic crime. Appropriate compensation should be given, given the real and devastating effect that financial crime can have on our constituents. People who feel that they have been duped will carry that around for a long time, so compensation is important, and there is real need for finance both to fight the war in Ukraine and to rebuild that country thereafter.
Mr David Davis (Haltemprice and Howden) (Con)
I am going to be brief and speak simply to new clauses 1 and 2, which stand in the name of the right hon. Member for Birmingham, Hodge Hill (Liam Byrne), in my name and in the names of a number of other long-standing defenders of justice in Britain. The new clauses, in effect, make SLAPPs near impossible where they are used to protect economic crime. The provisions are far too narrow, by the way, but that is what the Bill demands. I will leave it to him to explain the mechanism, but I want to talk for a couple of minutes about how important this is and how we got to where we are today.
The issue dates back to about 2000, or perhaps a bit earlier, when London had become liberalised and the Putin oligarchs and others, including some Chinese people, were looking for places to hide their ill-gotten gains and behaviour. London was a wonderful target for that. There were vast flows of money in which they could hide the billions they were stealing from the Russian people and others.
At the time, there was pretty slapdash corporate admin—we were talking about that yesterday in respect of Companies House—and, I say this quite brutally, the complete feebleness of the British establishment, by which I mean everybody: both parties; and the agencies tasked with controlling this, the Serious Fraud Office, which has been a waste of space, and the NCA, which has not been good enough. It was created to tackle this but has not been good enough. All those things were happening. I say to the hon. Member for Aberavon (Stephen Kinnock) on the Opposition Front Bench that it goes wider than the Conservative party. It starts with Blair/Brown and goes on to Cameron/ Osborne. All of them made mistakes. The golden visa that the hon. Gentleman talked about was created just as we were rushing into the collapse of western financial capitalism under the previous Government. We were too soft—
Stephen Kinnock
The right hon. Gentleman makes a valid point. I agree that the creation of the scheme was under the new Labour Administration, but the point I made in my speech was that a number of those golden visas were given after the Russian invasion of Crimea in 2014. He is right that successive Governments are guilty of naivety and complacency, but there is a point in 2014 when we really needed a different approach.
Mr Davis
There is no doubt that the more recent you are, the more salient the case. Frankly, I can remember being ashamed of a British Prime Minister hosting Putin at the Olympics only a few years after Litvinenko was murdered in our country in the most cruel and overt act of state terrorism. Neither Government dealt with that. Cameron’s action was grotesque in the extreme, but neither Government dealt with it. Similarly, both Governments kowtowed to China after Tibet and all the rest of it. That has been done too many times. It is the entire system, not just one Government or another.
London is a fabulously attractive place for the Russians or the Chinese. If you want to be somewhere else than Russia, this is the place to be. We have facilitated that at every turn. Here comes the issue to which SLAPPs relate. We have a legal system that is probably the most brilliant in the world in delivering fair outcomes and good justice, but it is also phenomenally expensive, which means it is one-sided in its operation between an oligarch and an ordinary citizen, journalist or whoever they may be.
In conjunction with that are the things that flow from it, such as the behaviour of solicitors, to some of whom my hon. Friend the Member for Isle of Wight (Bob Seely), who is not in his place, gave a fair old pasting yesterday, but one that was deserved. The private investigators industry, unregulated, undertakes crimes to gather information for use as weapons against other people. Our courts—not uniquely, but outstandingly—allow that information to be used. In each individual case that might be the right decision, but the collective effect of that is to suck criminally based information into our system and therefore engender and help the industry.
All that is why new clause 1 and 2 are vital. That all had the effect of creating a vast, possibly unintentional institutional cover-up for criminal activity: money laundering, fraud and concealment of evil actions abroad. Let us bear in mind that some of the oligarchs we are talking about are murderers. The system murders people. It is evil activity. That is why new clauses 1 and 2 are incredibly important.
What the right hon. Member for Birmingham, Hodge Hill is proposing in new clauses 1 and 2 is a second best option. We already heard the best option in earlier interventions: a freestanding Bill immediately, because this is happening now. There are court cases going on as I stand here in which people are having their lives destroyed by SLAPPs. The next best is to have it in the Bill of Rights, but we know that that is way down the timetable, for all sorts of reasons. We may not see it before the next election, in which case we will have lost two more years.
The new clauses amount to a way of dealing with this criminal—or near criminal—activity in a way that is not susceptible to a finely turned piece of law. I listened with fascination to my right hon. and learned Friend the Member for South Swindon (Sir Robert Buckland) on that point. Getting that right is difficult; getting this right is not, because the greatest enemy of evil is a free press. In our country in the last couple of decades we have allowed our free press to become gagged and crippled. If we can take that gag away and remove those bonds, we will suddenly expose all the things that we need to deal with. We will see the weaknesses I talked about—the SFO and the NCA—and put them right, one by one. That is why we should support new clauses 1 and 2. I talked before about the weaknesses of the SFO and the NCA. We will see those weaknesses and we will put them right, one by one. That is why we should support this measure today.
Dame Margaret Hodge
I shall be very brief, because I took a lot of time in the House yesterday. I strongly support many of the new clauses being moved by Back Benchers across the Chamber today. If I can just say something about politics, this heartens me and shows that there are ways in which we can work together to pursue the national interest across the political divide. It breathes a bit of confidence and life back into the political process that we have all chosen to join in our careers, so I commend those individual Back Benchers who have put themselves forward and who are speaking today.
The proposals from the hon. Member for Cheadle (Mary Robinson) on strengthening the support for whistleblowing are hugely important. Whistleblowers are an essential part of our armoury in the fight against money laundering and fraud, and we know that, despite all the legal rights, they are not protected. People lose their jobs, their families get destroyed and they are left penniless. Therefore, the establishment of a capability that will do nothing other than protect and promote whistleblowers in the crucial work they do is really important, and I hope that it will be adopted.
The importance of legislating to tackle the abuse of our legal system by oligarchs and others, which the right hon. Member for Haltemprice and Howden (Mr Davis) has just talked about so eloquently, is also really important. I want to be blunt about this and say to those on the Government Front Bench that, if they do not accept this new clause, they will not get a Bill during this Parliament. I bet that is right, so for heaven’s sake let us use this opportunity to get this bit of legislation in. It does not cover everything we would like it to cover, but it will have an impact. It will also give us the experience to see whether we have got the legislation right. I am sure that all the lawyers who helped to draft these new clauses put their best brains into them, but if they have not got them right, we will be able to learn those lessons when we come to extend these measures beyond economic crime.
The right hon. and learned Member for South Swindon (Sir Robert Buckland) made an excellent contribution on the reform of criminal corporate liability, and I want to say something about that. It is not that we want to suddenly bang up a whole load of lawyers, accountants, companies, service providers and all those people who we know are the ones that facilitate or collude with much of the economic crime that takes place. Only the best preventive mechanism that we can think of will force a change of behaviour, and we are not doing that on the back of hope; we are doing it on the back of reality. We know from the Bribery Act 2010 and from the regulations on tax evasion and on health and safety at work that putting this sort of liability on individuals and corporations is the only way to transform behaviour. Last week’s amendment to the Online Safety Bill by the Conservative rebels showed the mood of the House, and I would urge Ministers to think about that. The mood of the House is to use this effective tool to try to transform behaviour in all spheres of life, whether in relation to online harms or to economic crime.
I hope that we will hear from the hon. Member for Huntingdon (Mr Djanogly) soon on the issue of “freeze not seize”. I know he is going to make a number of propositions, and I hope he will not mind if I say something about this. We have been working with an extensive group of lawyers to see whether we can move to a position where we do not just freeze the assets but seize them in order to repurpose them and, particularly in the current context, use them to support the reconstruction of Ukraine. We have finally got a chink in the armour in that regard, but let me say something else first. The lawyers we have talked to work with non-governmental organisations in this field, and the advice they give is always going to be slightly different from the advice that comes from the lawyers working in the Government service. I think we bring a new perspective, and I urge Ministers to listen to what we have to say. The chink is worth examining at this stage, even if we do not go for the further propositions, to show that we mean it when we say that we want to seize this money.
Tom Tugendhat
If the right hon. Lady can come up with a way to seize assets and use them for the purposes we have been discussing—notably for the reconstruction of Ukraine, but for other purposes, too—I am all ears. I have had long conversations with the representatives of Governments around the world, and I am yet to hear an idea that works. If she has one, I am happy to hear it.
Dame Margaret Hodge
This is not our idea. It comes from a recent seminar we held with lawyers who support the Royal United Services Institute and Spotlight on Corruption. I will leave it to the hon. Member for Huntingdon to expand on it, but I think it is a very interesting chink that we can exploit, although it is not the total answer.
A draft Bill is being prepared by another group of lawyers, but I do not think we can add it to this Economic Crime and Corporate Transparency Bill. I am sceptical that we will find a chance to introduce the draft Bill in this Parliament, but I assure the Minister that we will pursue it after this Bill has passed. I just hope the Government examine the chink we have identified and run with it.
New clause 21 on cost caps, which stands in my name, is part of the way in which we could better fund the enforcement agencies in their fight against economic crime while also preventing economic criminals from exploiting our legal system. At the moment, we have a “loser pays” law, which has two consequences. First, when our enforcement agencies embark on litigation and lose, there is a massive cost to the public purse. We saw that with the unexplained wealth order against Kazakhstan’s Nazarbayeva family. Subsequent investigative journalism suggested that the family told mistruths to the court, but that has never been rectified. Nevertheless, the costs vary from £1.5 million to £2 million.
The SFO took a similar case against Serco involving prisoners who were—I have forgotten the word.
Dame Margaret Hodge
I thank the Minister. I am having a senior moment.
The SFO had clearly prepared the case badly, but there was a discovery point that got the litigation thrown out of court, and a huge sum was claimed in costs. The cost to the public purse is enormous.
Kit Malthouse (North West Hampshire) (Con)
I understand the right hon. Lady’s point about the cost to the police and other authorities of failed investigations but, in my experience, much of the problem stems from the division of the spoils in those cases that succeed in securing the proceeds of crime. As she will know, the money is divided between the Treasury, the Home Office and the police.
When I was at City Hall, we tried to cut a better deal in which the police would effectively recover the full cost of a prosecution, and any profit would then be split, so that pursuing such prosecutions would be costless to the police. Tim Godwin was then deputy commissioner of the Metropolitan police, and his view was that the police would then have a strong case to invest even more in this line of investigation, and they would therefore have more success and there would be more money to go around for everyone. It is not necessarily the case that legislation will solve the problem. It is more to do with the deal between the police and the Government.
Dame Margaret Hodge
Indeed, and we considered an amendment in yesterday’s debate to address that specific issue, so that any funds arising from a confiscation order, or other such order, could be enjoyed by the enforcement agencies themselves, which would provide an additional incentive. We discussed last week’s Danske Bank settlement of criminal issues in the United States, from which the enforcement agencies received $2 billion. Just imagine the amount of enforcement activity that could be funded from that fee. We are timid in that regard, so I completely concur with the right hon. Gentleman on that.
The other argument in relation to cost caps is that the fear of facing huge costs if one fails in a case provides a disincentive to the enforcement agents to pursue as vigorously as one would like economic crime prosecutions. The Minister has said to me previously that there is no evidence to back that up, but I just do not buy that. A proper analysis of how people in the NCA, the Serious Fraud Office and other agencies think before they decide to pursue a prosecution would very quickly reveal that there is a disincentive. It is for those two reasons that we considered cost caps. The US is our model. Each party bears its own costs, which is much more effective. We heard figures yesterday—I will not repeat them because I have to get on—that the US gets much more money in and it does not cost as much to its enforcement agencies.
Those are the things that I wanted to cover. I hope that, in summing up, the Minister will please give us some concessions. I urge him to reflect on the degree of unanimity across the House and on the very senior figures on his own Back Benches who have chosen to work, in particular, with members of the two all-party groups to reach consensus. We do argue these things out. We come to a view after an extensive debate on a subject; it is never an open and shut case. Back Benchers are in a better position at present than those on the Front Bench, so I ask the Minister to listen to us because we may just be right and it would be good if there was a concession on something.
Mary Robinson (Cheadle) (Con)
I rise to speak to new clause 7, which is in my name, and the names of Members across the House. It would require the Secretary of State to set up an office for whistleblowers within 12 months of the Bill receiving Royal Assent, and as chair of the all-party group for whistleblowers, I wish to register my interest.
The office for whistleblowers would be an independent body, which reports to Parliament and would have three main duties: to protect whistleblowers from detriment resulting from their disclosures; to ensure that these disclosures are investigated; and to escalate information and evidence of wrongdoing that is outside its remit to the appropriate authority, including regulators or, if appropriate, the police.
I thank the right hon. Member for Barking (Dame Margaret Hodge), who introduced this new clause at Committee stage and spoke to it robustly and with the knowledge and passion of someone who has been pursuing this for many years.
Despite a complete lack of reference in the Bill, whistleblowers and whistleblowing have a pivotal role in the fight against economic crime. Indeed, when this proposal was debated at Committee, the right hon. Member for Barking referenced her time as Chair of the Public Accounts Committee and noted that all the work that the Committee did on economic crime came from whistleblowers, and yet, in a Bill that seeks to tackle economic crime, whistleblowers are not referenced.
One statistic that has been shared many times when debating this subject in Parliament is that 43% of economic crime is detected and exposed through whistleblowers. However, in his response to the Committee debate, the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) noted that he believed that about 100% of economic crime detection could be attributed to whistleblowing. Once again, that appears to be confirmation that, if we want to know where an economic crime is being committed, it is most likely to be a whistleblower who exposes it.
The objectives of the office I propose in this new clause would be to encourage support and advise whistleblowers, providing a safe place to share information and acting on evidence of detriment to the whistleblower. We simply must protect whistleblowers who speak out, risking retaliation, as we have heard, harassment and losing their job—or, in the case of serious organised crime, possibly a much worse outcome. The office will enhance protections of those who whistleblow, while at the same time incentivising such disclosures by providing a safe space to share information.
There is evidence that an office for whistleblowers does incentivise disclosures. In 2020, the International Bar Association measured countries with whistleblowing legislation against a list of 20 best practices. The UK met just five of the 20. Meanwhile, the United States, where an Office of the Whistleblower sits within the Securities and Exchange Commission, met 16 of the best practices. That office received 12,300 disclosures in 2022, nearly double that of 2020, and, as its chief stated:
“The significant increase in the number of whistleblower tips and awards since the program’s inception shows that the program, with its enhanced confidentiality protections, is effectively incentivizing whistleblowers to make the often difficult decision to come forward with information”.
This is a cross-party, cross-departmental issue. Whistleblowers are to be thanked for, among many things, uncovering waste in our public services, highlighting poor or dangerous medical practices and conduct, and revealing the laundering, funnelling and theft of vast amounts of public and private money. When people steal from the public purse, it is society that suffers and our constituents who pay the price. According to law firm Pinsent Masons, His Majesty’s Revenue and Customs received nearly 14,000 tip-offs regarding misuse of the covid furlough scheme. In just one case, £27.4 million of taxpayer money had been falsely claimed by a fraudster who, despite never having been to the UK, registered four companies in London and claimed furlough for more than 2,700 non-existent employees. Some £26.5 million of public money was recovered as a result, in a case that also reinforces the importance of Companies House reform.
We have heard details of the Danske Bank money laundering scheme in previous debates, so I will not delve into the details again, but in that case we know that criminals took advantage of UK limited liability partnerships. That is why the reforms at Companies House and to limited partnerships are needed. However, once again, it was a whistleblower who brought that $230 billion economic crime to light, halting the stream of illegal Russian money laundering. Without him, it might never have been uncovered and might have continued for years.
That was before Putin’s illegal invasion of Ukraine, but we know that illicit finance helped to fund the war and will continue to fund it, unless it is stopped. I welcome the swift action the Government have taken to tackle the scourge of financial crime, first by passing the Economic Crime (Transparency and Enforcement) Act 2022, then by introducing the Bill we are debating today. However, while the Government have introduced measures that will go far in preventing economic crime, as it stands, neither piece of legislation supports those very people who are key to its detection.
Having spoken to many dozens of whistleblowers over the years, I know that someone who reports wrongdoing can risk jeopardising their reputation, their career, their mental health, their wellbeing and that of their family. It is not a decision made lightly. Whistle-blowers who expose economic crime must balance the risk to themselves in the name of doing what is right. That should not be the case.
Layla Moran
I rise to speak to the Liberal Democrat new clauses tabled in my name, with a particular focus on new clauses 3, 30, 31 and 39. Before I come to those new clauses, I put on the record my support and thanks for the many varied new clauses that we have been discussing, including those tabled by the hon. Member for Cheadle (Mary Robinson), the right hon. Members for Barking (Dame Margaret Hodge) and for Birmingham, Hodge Hill (Liam Byrne), the right hon. and learned Member for South Swindon (Sir Robert Buckland) and many others.
In their breadth and depth, those new clauses reflect my own somewhat conflicted feelings about where we are with the Bill. On the one hand, it is very clear that we are much further on than a year ago, which is surely a good thing. That has come off the back of strong cross-party working, and I echo what the right hon. Member for Barking said earlier about that restoring faith in the democratic process. If only our constituents could see that we do work together and that it results in positive things.
However, it is also fair to say that we still have much to do. I know that those are not just my thoughts, because they have also been expressed by the former Chair of the Foreign Affairs Committee, the right hon. Member for Tonbridge and Malling (Tom Tugendhat), who is now the Minister for Security. Indeed, in a sense, he and others are the great hope—the men on the inside who we hope are going to push much of what we want to see. I hope that they are hearing yet again in this debate, and in the hopefully very brief Third Reading debate later, just how much further we want to go. Notwithstanding that positive movement in the right direction, I am worried that we have started to back-pedal in some areas.
One of those areas is golden visas, which new clause 3 would address. Let us look at them in some detail. Tier 1 investor visas were the “blind eye turned” route straight into the UK that was used and abused by so many of Putin’s cronies, not to mention kleptocrats from other regimes. They were a golden ticket—quite literally—to come to the UK and launder money with barely any scrutiny or transparency. Recognising that, the then Conservative Home Secretary instituted and launched a review, and the promise was that the findings would be published. For a long time, I—and others, I am sure—had been tabling and asking questions of the Home Office to show that we had not forgotten and that the delay was inexcusable.
So imagine my delight when, the week before last, Members saw a written ministerial statement in the name of the Home Secretary entitled “The Tier 1 (Investor) route: Review of operation between 30 June 2008 and 6 April 2015”. My heart leapt for joy. Finally, five years on, were we going to get the answers that we sought to questions such as: to what extent had Putin’s cronies managed to embed themselves into the UK economy or even into the upper echelons of British society, and I include in that politics? How many of the golden visas issued went to Putin’s cronies or their family members? What other countries were these visa holders from? Crucially, where are these people now? How many of them are still in the UK? How many of them have acquired citizenship, and what have the Government done about that?
Given that we waited five years, and given that the Government and successive Ministers had promised from the Dispatch Box that we would get some or all of those answers, we were entitled to a substantive response. When the review was published, my heart sank, because instead of what they had promised, the Government published what they termed a “summary” of the recommendations—not even the actual recommendations themselves, but a summary. Furthermore, the summary frankly told us nothing that we did not already know. It is galling that we still do not know how many people have exploited this system. The statement did not even give us a number or a rough ballpark figure for golden visa holders who had been identified as a risk. The Government admitted that they had identified a “small minority”, but given that 6,000 visa holders were being reviewed—a figure that, by the way, we already knew before the publication of the statement—what is the figure for that small minority? Is it in the tens, hundreds or thousands? I think that anything under 3,000 would still qualify, so what is it?
We know that 10 oligarchs who were sanctioned held golden visas. In March, Liberal Democrat colleagues in the other place found out it was eight—presumably the difference is that we have sanctioned more people since then, so the number of people on the list who are sanctioned increases, and I can understand that, although confirmation would be helpful. That shows the Government can be specific when they want to be, so why can they not be specific on this? The statement does not say very much about how many acquired British citizenship, what nationality they were or what will happen to them now, beyond very broad generalities.
Furthermore, the bit that worries me most is that in the words of the Home Office, this written statement was its “final response”. Following my point of order that you, Madam Deputy Speaker, graciously answered in the House on the day of the statement’s publication, I wrote again to the Home Office to ask, “When are you going to do this? Why have you done this?” It said that was its substantive response, and
“we will not be commenting further”.
I sincerely hope, especially given the comments that the Minister has made in the past, that he will do the House the courtesy of giving us an answer or explanation for what on earth happened here. I seem to remember—it might even have been in the first week after his being appointed, and we were all very excited about that—that he confirmed from the Dispatch Box that the information would be released, and then it was in written statements later that the tone and the words changed. What happened? We deserve to know the answers.
I am afraid to say that from where I sit, the whole thing stinks. It undermines much of the good work we are doing here to try to get transparency. Sunlight is the best disinfectant. After years of the Government saying that they would do this, for them to back-pedal stinks of a cover-up. I am not accusing the Minister of doing that, but I think we can legitimately suggest that it could be perceived that way, and that undermines everything else we are doing. I sincerely hope, should we be allowed to divide on the new clause, that Members will come with us through the Lobby and do what the Government said they would do in the first place.
Alison Thewliss
The hon. Lady is making some excellent points about the golden visas. Does she find the lack of curiosity from the Government about these golden visa holders and what they have been up to as remarkable as I do, when compared with some of the difficulties that our constituents have in asking for something as simple as a visitor visa to have their granny come over and visit from Iran?
Layla Moran
I thank the hon. Lady for her point, which is well made. The thing is that the Government were curious, and they did this review, which is sitting there. That is clear—the one thing that the written statement confirmed was that a review had been done and recommendations had come from it, but all we got was a summary of the recommendations. What I take from that is that they were curious and they found out, but now they do not want to tell us. What on earth happened? It is not a good look.
To move on from golden visas, we desperately need to see more action in a number of other areas to ensure that we properly tackle economic crime, particularly by kleptocrats. It is right that we focus on Russians, but it is worth saying that the Bill will apply to many other flavours of kleptocrats and bad people. As other hon. Members have said, this could be our last chance for many years to get this right, so we should consider how else it might apply. Last year, for example, Hong Kong Watch highlighted concerns about the dirty money that Hong Kong officials had gained through corruption and that has now been spent by the families of officials in the UK, including on property. I raised those concerns at the time and I will continue to press Ministers on them.
I tabled new clause 30, about Iran, to show how important it is to focus not on a single country, but anywhere there are human rights abuses. Anoosheh Ashoori made the point that
“there are a large number of children and relatives of the regime that, like the Russian oligarchs, like living the high life here and have assets here.”
Why are we not pursuing them? The new clause asks the Government to use existing legislation to do an audit and report back to Parliament. We should apply the Bill to as many places as it can be effective.
All that takes resourcing—a familiar refrain in the House—which is addressed by new clause 31. Frankly, resourcing is a lacuna in this Bill and its predecessor. I was encouraged by the number of amendments on establishing an economic crime fighting fund, which shows that it is clearly the shared will of hon. Members on both sides of the House that we put the resourcing and money behind this legislation to ensure that it is done properly. The Liberal Democrats wholeheartedly share that commitment. I say to the Minister that that money would not be frittered away; it would be an investment, because if we fund the agencies properly, they will start to bring the money back in. We know the exorbitant amount that we think we are losing to economic crime, so any investment in getting some of that money back would surely be good.
In conclusion, I urge Ministers to take note of the willingness of hon. Members on both sides of the House to act, and to take heart from it. There is much more to be done. I hope that the Bill is the next chapter, but not the last, in the House’s fight against economic crime in this country. I sincerely hope that Ministers will continue to work with us in our common aim of bringing about transparency and light to tackle this once and for all, so that we are never again left in this embarrassing position.
Mr Djanogly
I rise to speak to new clause 23, in my name and those of the right hon. Member for Barking (Dame Margaret Hodge) and 17 other hon. Members on both sides of the House, for whose support I am grateful. This comprehensive Bill is significant in its scope and its intention to counter fraud, which is wholly welcome, but new clause 23 speaks to its lack of focus on the proceeds of economic crime, which are the proceeds resulting from acts committed in the UK and overseas.
Such proceeds have circulated in the national economy, largely unimpeded, for too long, and a host of existing limitations and issues, such as the lack of proper financing for related law enforcement bodies, which has been much discussed over the last two days, have a compounding negative effect. Unfortunately, those limitations are all too frequently at the expense of and to the detriment of hard-working and honest taxpayers in all our constituencies—not least mine—and those who often stand to benefit are the criminals and those sanctioned for reasons related to foreign affairs. Tackling that issue is the primary motivation behind the new clause.
More broadly, like-minded countries are increasingly focusing on this area, including our fellow parliamentarians in Canada. In June last year, they made technical yet significant changes to their economic sanctions legislation, including the Sergei Magnitsky law regime. Effectively, those changes allow existing sanctions for freezing assets to be converted into orders for the seizure of those assets. Similar measures are being considered by the European Commission, in other European capitals such as Tallinn, and in the United States. Unless our regulatory measures vis-à-vis the proceeds of economic crime are reviewed and strengthened, the UK risks falling behind, which I believe would be both morally and politically unpalatable.
Madam Deputy Speaker (Dame Rosie Winterton)
I have now to announce the result of today’s deferred Divisions.
On the draft Environmental Targets (Biodiversity) (England) Regulations 2022, the Ayes were 302 and the Noes were 166, so the Ayes have it.
On the draft Environmental Targets (Woodland and Trees Outside Woodland) (England) Regulations 2022, the Ayes were 302, the Noes were 166, so the Ayes have it.
On the draft Environmental Targets (Water) (England) Regulations 2022, the Ayes were 300, the Noes were 170, so the Ayes have it.
On the draft Environmental Targets (Fine Particulate Matter) (England) Regulations 2022, the Ayes were 301 and the Noes were 170, so the Ayes have it.
On the draft Environmental Targets (Residual Waste) (England) Regulations 2022, the Ayes were 301 and the Noes were 170, so the Ayes have it.
[The Division list is published at the end of today’s debates.]
Liam Byrne
It is a pleasure to speak to new clauses 1 and 2 in my name and those of many others, and it is a pleasure to follow so many excellent contributions to the debate. I hope it has become clear that there is a wide and deep cross-party consensus about the need to take this overdue Bill and repower it with not only good laws but proper resourcing so that we can begin to ensure that economic criminals in this country are put under rather more pressure.
A lot is in a name, and the Bill’s name is the Economic Crime and Corporate Transparency Bill. As the hon. Member for Cheadle (Mary Robinson) pointed out, what is crucial to ensuring the corporate transparency we need to police economic crime is information. Much of that information comes from whistleblowers and, crucially, from courageous journalists who are prepared to take tremendous risks and go to tremendous lengths to pursue the truth, publish the truth and hold the guilty to account.
The challenge we have is that we know we cannot police economic crime without such transparency, but that old advice to journalists to follow the money in pursuit of the truth is becoming almost impossible because our courts—English courts, London courts, which were sanctuaries for justice for 1,000 years—are becoming the strike point of choice for oligarchs around the world to intimidate, to cow and to deter journalists from publishing the truth with the threat of sky-high legal costs. My friend the right hon. Member for Haltemprice and Howden (Mr Davis), who is not in his place, and I, together with the hon. Member for Isle of Wight (Bob Seely), have been pushing this argument for almost a year. Yesterday, the hon. Member for Isle of Wight presented to the House a first-class private Member’s Bill, which I was proud to sign. I commend the Minister for the work that he did when he was Chair of the Foreign Affairs Committee on ensuring that the cancer of strategic legal action against public participants is something that we know about and are collectively determined to act on.
Within the sub judice rules and exemptions that govern the debate, I can talk about some of the evidence that we now have on the record. There are now so many cases that it has become clear that there is a playbook for oligarchs. It is a playbook that all of them know and all of them follow. It is a playbook that is now predictable, and it is a playbook that we must draw to a close. We could draw it to a close this afternoon by agreeing to the amendments that we have tabled with cross-party support.
The first step in the playbook is to target the individual. Do not target the company, because companies are strong and individuals are weak. That is exactly why Arron Banks went for Carole Cadwalladr. He did not want to go for The Guardian or the Scott Trust; he wanted to go for an individual journalist. That is exactly why Prigozhin, as we now learn, decided to target Eliot Higgins and not Bellingcat, because of course an individual is always more vulnerable than a corporate organisation. In most of these cases, we see an oligarch taking aim fair and square at an individual and not the corporate organisation behind them to maximise the power of intimidation.
Secondly, having identified the individual, the task is to maximise the intimidation. Let us look at what Tom Burgis had to go through when he was writing his book about the Eurasian Natural Resources Corporation. The bad guys whom he was trying to expose actually went to the lengths of tapping his phone and bugging him. They must have done—that was the only way in which their investigators could turn up to a secret meeting that he was having with former Government officials in a car park. Those are the lengths that these people will go to.
Thirdly, there is the business of exaggerating the claims: taking some aside in a bit of written material and exaggerating it ridiculously to try to multiply legal costs. We saw that in particular with Mr Abramovich in his case against Catherine Belton and HarperCollins. It was a ridiculously exaggerated claim. Of course, the objective for Mr Abramovich was not to win his case. All he sought to do was maximise the legal costs for HarperCollins and Catherine Belton.
We see that now in a case in the Royal Courts of Justice, which I will not name but which I sat through a couple of weeks ago. That case is so thin. It entails an oligarch basically trying to claim that a number of emails that have been sent are in effect tantamount to a publication. Even though he is unable to name and specify the harm that has been done, he is seeking to bring a case for defamation. It is the flimsiest of cases anyone could imagine, yet hundreds of thousands of pounds have now been racked up in legal costs in an attempt to intimidate someone out of telling the truth.
Step four is to co-ordinate with others, which we saw in particular with Mr Abramovich, who decided to round up a number of his old mates to try to bring some kind of collective action—not just in this country, by the way, but in other countries such as Australia. That was a way to double the legal costs and maximise the pain against Catherine Belton and HarperCollins.
Then we have the attempts to rack up costs even though the grounds may be as flimsy as anything. Forensic News, for example, is being sued by Walter Soriano. Forensic News has a total of 12 subscribers in this country, yet Walter Soriano has been allowed to prosecute the case because of those 12 subscribers. Why could he possibly be doing that? Is it, as the right hon. Member for Haltemprice and Howden described, because our legal costs are so high that the pain can be maximised by bringing a case here?
We see the same in the case referred to by my right hon. Friend the Member for Barking (Dame Margaret Hodge) of the former rulers of Kazakhstan, who have brought a SLAPPs case against the Bureau of Investigative Journalism and openDemocracy. That was because openDemocracy had the temerity to expose the $8 billion siphoned off through Jusan Technologies, which is somehow now claiming that its economic interests in the UK have been damaged and therefore it is entitled to bring a case in the Royal Courts of Justice. As a result, openDemocracy and the Bureau of Investigative Journalism are forking out thousands of pounds to defend themselves against this onslaught.
The situation we now have in this country is so appalling that, as we heard in the urgent question this afternoon, we have the spectacle of a Russian warlord being licensed by His Majesty’s Treasury to fly his lawyers to London to polish a case to sue an English journalist in an English court in order to undermine the sanctions this country has imposed on him. That is how ridiculous, corroded and broken our system has become. An exemption was licensed by a servant of the Crown to spend thousands of pounds flying lawyers to service the needs of the head of the Wagner Group in St Petersburg and to refine a lawfare case in an English court.
Layla Moran
The right hon. Member is making his point powerfully. Does he not agree that they are laughing at us, surely? We impose sanctions, yet this still happens. We are talking about the head of the Wagner Group—a group that is operational in many countries across the world. Are we seriously meant to believe that he had no access to money in any other jurisdiction anywhere else in the world—that he had to access his British pounds in order to instruct lawyers to do exactly as the right hon. Member has described? The whole thing is farcical, is it not?
Liam Byrne
The hon. Lady is absolutely right. Here we are, licensing a warlord to draw down funds and move them into the NatWest bank account of a London law firm to prosecute a case that undermines the sanctions we imposed on that warlord in the first place.
Let us briefly go through the timeline of the case because it is so important and illustrative of just how broken the system has become.
Clive Efford (Eltham) (Lab)
I commend my right hon. Friend for the work he has done consistently over a long period on this issue. It is important to highlight the scale of the problem in London. Is it not true that there are more SLAPP cases being taken in the London courts than there are in Europe and America put together? Does that not illustrate the scale of the problem and the urgency with which we need to deal with it?
Liam Byrne
My hon. Friend is absolutely right. I said earlier that London is now the preferred strike point for oligarchs in intimidating journalists. When the Foreign Policy Centre, whose work I must commend, surveyed investigative journalists, it found that three quarters of them had suffered some kind of legal attack to silence them. The UK legal system accounted for more of those legal actions than the United States and Europe put together. That is how bad this has now become. That is how rotten our system has now become. That is why it is so outrageous that the head of the Wagner Group was given the licences. Let us be clear about this guy. This is someone who has been running mercenary operations in Sudan, Mozambique, Syria, Central African Republic, Libya and Mali—and, of course, his forces have now been redeployed to the theatres in Ukraine.
It was in August 2020 that Eliot Higgins and Bellingcat began running a series of stories that exposed the barbarities of the Wagner Group in Africa, including offences such as the murder of CNN journalists. It took the British Government and the Foreign Office until 31 December 2020 to put sanctions on Prigozhin, even though, by the way, he had been sanctioned much earlier in the Unites States for the quiet sin of running troll farms intervening in the American presidential campaign. None the less, we got around to it at the back end of 2020. In the citation for sanctions, the Foreign, Commonwealth and Development Office wrote that Prigozhin was providing
“a deniable military capability for the Russian state”.
That feels quite a big sin to me, running a deniable military capability for the Russian state. That sounds like a pretty good reason for sanctions. That sounds like a pretty good reason for not offering carve-outs to sanctions to undermine them in British courts.
When Mr Prigozhin found out about the sanctions he was not very happy, so he sought to undermine them by suing Bellingcat, or Eliot Higgins in an English court. He had a choice and in fact a debate: “Do we do it in a Russian court, a Dutch court or an English court?” The conclusion was to go for Eliot Higgins in an English court. To prosecute the case, he had to fly the lawyers out to St Petersburg, so the Treasury licensed £4,788.04 to help make that happen: over £3,500 for business class flights, £320 for accommodation at the Grand Hotel Europe Belmond, £150 for subsistence—that’ll buy a pretty good dinner—£200 for PCR testing and £400 for express visas. That is what servants of the Crown, under the supervision of Ministers of the Crown, signed off.
The discussions went a bit like this. “What are the objectives here, Mr Prigozhin? Well, we think that, rather than seeking damages, what we really need is to get Mr Higgins for defamation because that is how we undermine all those irritating articles” that led to the sanctions against Mr Prigozhin. Literally, we enabled the enablers. We enabled the cash flow of a Russian warlord to prosecute an English journalist in an English court. And that is why we have to act. No one in this House today thinks that this is okay. The Minister for Security does not think that it is okay. All of us here think it has to stop, but if it is to stop, we have to take aim at the original sin: the fact that it is courts in this country that are being used by oligarchs around the world to silence journalists.
Our new clause, which has drawn cross-party support today, is very simple. It would not stop all strategic legal actions against public participants, but it would stop anybody attempting to silence journalists who are trying to reveal economic crimes. It is within scope; I am grateful to the Clerks for their work helping to refine it and make it good. I know that the Minister will say, as he said in Committee, that this is not the right Bill for it, or that it would not solve all the problems, but that is an argument for making the perfect the enemy of the good.
We have heard the Lord Chancellor talking about his ambition to change the law, but we have also heard that he seeks to do so through the Bill of Rights. The dogs in the street know that the Bill of Rights Bill is dead. It is not coming back to this House any time soon, yet today—this week, next week, next month—journalists and indeed ex-Members of this House are in court, having to pay legal bills because we allow oligarchs to abuse our courts. Let us at least make progress now.
I say to the Minister: please do not be the Minister for mañana. Please be the Minister who did not make the perfect the enemy of the good. Please be the Minister who seeks to do what he can with what we have, where we are, today. We could use this Bill to make progress. Why do we not seize that opportunity with both hands?
I am very grateful for the concerted campaign by Members across this House. I will end by saluting the courage, fortitude and determination of so many good journalists in this country. Oliver Bullough, who wrote the brilliant books “Moneyland” and “Butler to the World”, makes an excellent argument in his openDemocracy article today. He says that journalists going into the business of tackling economic crime have an uphill struggle as it is, with a lot of barriers in their way. They have a pretty difficult job, and the knowledge that the British Government are on the side of the bad guys does not make that job any easier. It is time that we put the force of the state and the force of the Crown behind the good guys for once—and that means agreeing to our new clause today.
Ms Marie Rimmer (St Helens South and Whiston) (Lab)
It is a great pleasure to follow my right hon. Friend the Member for Birmingham, Hodge Hill (Liam Byrne). I applaud his commitment and thoroughness in the work that he has done.
I rise to support new clauses 1, 2, 4, 5, 6, 7 and 21. Economic crime is usually committed in the shadows, yet its impact is as clear as day: there are the American candy stores down Oxford Street, there are thousands of empty flats in London and—closer to my home—in Liverpool and Manchester, and we know how dirty money laundered here has financed the Russian invasion of Ukraine.
The crimes that the Bill aims to prevent are so often shrouded in secrecy. The Bill is necessary, as we can all agree, but the Government need to do it right. They need to accommodate sensible amendments—notably those investigated and researched by groups such as the all-party parliamentary group on anti-corruption and responsible tax, which my right hon. Friend the Member for Barking (Dame Margaret Hodge) has led tirelessly. Indeed, the Minister—the hon. Member for Thirsk and Malton (Kevin Hollinrake)—co-signed the manifesto on which many of today’s amendments are based, so I would expect him to support them. I urge him to do so.
New clauses 1 and 2 are crucial to getting a grip on the London laundromat. Journalists are the fourth estate in our society. They investigate and shed light on the secrecy that surrounds economic crime, yet only this week it was reported that journalist Eliot Higgins was hounded by a British law firm that was given permission by the Government to work on behalf of the murderous and barbaric Wagner Group. My right hon. Friend the Member for Birmingham, Hodge Hill has clearly outlined what has come out today and what he has been researching.
Wealthy oligarchs cannot be allowed to use English courts to threaten journalists with huge legal costs. If these wealthy individuals are able to abuse their wealth and power, no light will be shed on the secret world of economic crime.
Tom Tugendhat
My apologies, Madam Deputy Speaker. For some reason I was under the impression that the hon. Member for Aberavon (Stephen Kinnock) would be speaking first.
Madam Deputy Speaker
Order. I think I should explain, for the benefit of Hansard, that the shadow Minister will be coming back on Third Reading. It is customary to go straight to the Minister, given that he moved the motion for the lead new clause.
Tom Tugendhat
I thought that we were to have the joy and the privilege of hearing from the hon. Member for Aberavon, who can never say too much in this Chamber, or indeed anywhere else—which is lucky, because he very rarely says too little.
It is a huge pleasure to have been here this afternoon. Members in all parts of the House have made extremely powerful points, but I will touch on just a few of them, because many have been covered at length and in detail on numerous other occasions. If Members will forgive me, I will deal straight away with a few of the matters that I think require immediate attention.
I thank my right hon. and learned Friend the Member for South Swindon (Sir Robert Buckland) for tabling new clause 6 and for the way in which he has approached the area of corporate criminal liability, in which he and I agree that reform is required. That is why the Government commissioned a review by the Law Commission, which my right hon. and learned Friend cited and which showed a definite need to clamp down on economic crime conducted by commercial organisations. We have been working closely across Government and with prosecutors in carefully considering its recommendations and how improvements can best be made. It is vital that any reform can be used by law enforcement agencies, does not duplicate what already exists and avoids placing unnecessary burdens on legitimate businesses, but we must also operate within the constraints of the Bill.
I share my right hon. and learned Friend’s passion for change. I am immensely grateful for his thoughtful input, and I greatly value my engagement with him, and with other Members, on this issue. I can assure him that the Government intend to address the need for a “failure to prevent” offence in the other place, and I would welcome further discussion with him about the most effective way in which that can be done.
Sir Robert Buckland
I am extremely grateful for what my right hon. Friend has said, but may I gently press him on the issues of “failure to prevent”, fraud, money laundering and false accounting offences—I accept that they may well have to be separate—and a further discussion on the identification doctrine? If so, I will not need to press my new clauses to a vote.
Tom Tugendhat
My right hon. and learned Friend is certainly more learned than me, and I will certainly be listening to his views. There are a number of areas that I am sure we will be able to discuss, and I am sure we will reach a conclusion that is acceptable to all sides.
Dame Margaret Hodge
I am grateful for the assurance that an amendment will be introduced in another place, but may I also have an assurance that it will cover both corporations and individual directors?
Tom Tugendhat
The right hon. Lady knows very well that I would find it impossible not to listen to her. I look forward to seeing how we can return to this issue. The Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake), will no doubt wish to have a strong input as well, so I shall say no more at this stage.
Let me now touch on the question of whistleblowers, and pay enormous tribute to my hon. Friend the Member for Cheadle (Mary Robinson), who has been a friend of many of us for a number of years since she was first elected and who has championed, consistently and clearly, the need for an office for whistleblowers. She is absolutely right: what the country needs is an office for whistleblowers, and what we need to do is ensure that we have the updates to the legislation that she so correctly highlighted. The establishment of such an office would, however, be a significant undertaking. It would have major financial applications owing to its size, it would require significant staffing, and, as matters stand, it might duplicate the role of regulators without the same level of sector expertise. I know that my hon. Friend had the opportunity to meet my hon. Friend the Under-Secretary of State earlier this week to discuss her new clause and plans for the review, which I understand will be set out soon, I hope that the meeting was constructive.
Mary Robinson
I have indeed had a meeting with the Under-Secretary to discuss this. There is a long way to go on it and I am steadfast about setting up the office for whistleblowers. However, the conversations have been constructive, I am grateful to Ministers and I will not be pressing my new clause to a vote.
Tom Tugendhat
I am grateful to my hon. Friend for that and to the Under-Secretary for having had those conversations. He knows my support for her interest in this important matter.
Clearly, many amendments have been tabled today. The last point I wish to make before we move on to Third Reading is that the Government listened an awful lot on this Bill. Many of us, including myself and the Under-Secretary, who have been taking it through this place, have been listening extremely carefully, for many reasons. One of those reasons is that we picked this up, as many people do, a long way down its process of drafting and through its progress through this House. No doubt there are areas where all of us could tweak, adjust, test and push, but we think that the Bill offers major progress on the situation where we began; I am delighted that that point was shared across this House. So although there are areas where we could have further discussion—I am sure the other place will have criticisms and comment, and we will have improvements and additions—we feel that this Bill, as it stands, is a vast improvement on where we are. Although there is progress to be made, and there always will be, we believe that the Bill marks a useful point of progress for our country in fighting economic crime.
Question put and agreed to.
New clause 14 accordingly read a Second time, and added to the Bill.
New Clause 3
Home Office review of the Tier 1 (Investor) visa scheme: publication
“Home Office review of the Tier 1 (Investor) visa scheme: publication
Within a day of the passage of this Act, the Secretary of State must publish in full the findings of the Home Office review of the Tier 1 (Investor) visa scheme which relate to economic crime.” —(Layla Moran.)
Brought up, and read the First time.
Question put, That the clause be read a Second time.
Tom Tugendhat
I beg to move, That the Bill be now read the Third time.
I will briefly thank a few people on my behalf and on behalf of the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake). I must thank my noble friend Lord Callanan, the Minister for Business, Energy and Corporate Responsibility, who continues to do so much to support the Bill and has been a great help. I also thank the Home Office Minister, Lord Sharpe of Epsom, who is a fantastic asset to our Department.
I thank my right hon. Friend the Member for East Hampshire (Damian Hinds) and my hon. Friend the Member for Sutton and Cheam (Paul Scully), who helped so much to prepare the Bill. Furthermore, I thank my hon. Friend the Member for Watford (Dean Russell), who ably shepherded the Bill through its early parliamentary stages, and the Lord Commissioner of His Majesty’s Treasury, my hon. Friend the Member for North Cornwall (Scott Mann), and his team for their excellent assistance, particularly when he courageously stood in and answered on behalf of the Department in a brief moment of surprise—mostly to him. I also thank the Home Secretary and the Secretary of State for Business, Energy and Industrial Strategy for their contributions.
Sir Robert Neill (Bromley and Chislehurst) (Con)
I thank the Minister for his positive response to the amendments tabled by my right hon. and learned Friend the Member for South Swindon (Sir Robert Buckland) and others in relation to the reform of corporate criminal responsibility. That is welcome. Will he take on board the importance of including in that the reform of the identification principle, which is a major bar to corporate prosecutions? The Justice Committee has called for that more than once in its recent reports, and it is supported by the current and previous Directors of Public Prosecutions and the current and previous Directors of the Serious Fraud Office.
Tom Tugendhat
I thank my hon. Friend the Chair of the Justice Committee. As he knows, this is an area of great interest and for further discussion, which we are indeed looking at taking forward.
I finish by saying an enormous thank you to the Bill team, who are in the Box today—Tom Ball and the rest of the clan—who have done a fantastic job on Burns night, of all times. Because it is a time for us to find that we are no longer wee and tim’rous beasties, but are instead going to look for that fair trojan of the human race, the “puddin’-race”—forgive me—I look forward very much to being freed of the Dispatch Box and skipping off to the whisky and the haggis. On that, Mr Deputy Speaker, thank you.
Mr Deputy Speaker (Mr Nigel Evans)
Lucky Minister. I call the shadow Minister.
Stephen Kinnock
Like the Minister, I am keen to thank colleagues who have done so much and made so many valued contributions both to this Bill throughout its progress and in the debate today. I would very much like to thank the Bill team for the excellent work they have done, as always supporting us through our work and on many occasions helping to shed light where there was more or less total confusion, so we really appreciate that. I also thank our own staff. My hon. Friend the Member for Feltham and Heston (Seema Malhotra) and I are very fortunate to have wonderful teams supporting us—particularly colleagues such as Joe Bishop, Danny Hathaway and Joe Jervis—who have done so much in our teams to help us to get to this point.
It is worth just casting our minds back to October, when the Prime Minister stood on the steps of Downing Street and stated that he wanted a Government of “integrity, accountability and professionalism”. Well, we are almost 100 days into his tenure, so we are bound to take stock of how that is going, and I think it is fair to say that progress has been somewhat mixed. His Home Secretary has committed multiple breaches of the ministerial code, his chairman has just been exposed for tax avoidance on a massive scale and his claims—
Mr Deputy Speaker
Order. Mr Kinnock, you are going really wide of the mark on Third Reading. Please could you focus on the Bill that is having its Third Reading?
Stephen Kinnock
Thank you very much, Mr Deputy Speaker. I was just about to make the point that the Home Secretary has talked of learning the lessons from the golden visas issue, but she still has not published the full report. Of course, we have seen many oligarchs getting those visas since the invasion of Crimea, so I would contend that that is directly relevant to the debate we are having today.
That is the key point. It is about striving for integrity, professionalism and accountability. Of course the Bill offers an outstanding opportunity to deliver the change we all want to see. As we have said on many occasions, it is a step in the right direction and we are supporting it on Third Reading, but of course it still does not go far enough on SLAPPs, golden visas, information sharing, corporate transparency, corporate criminal liability, compensating victims or, indeed, structures for enforcement.
That final point is critical. We can have all the laws we want, but if we do not enforce them—whether we are talking about economic crime or anything else—they are pointless. These were points that Bill Browder made forcefully during the evidence that he gave to our Committee and, on cryptocurrency, that the expert Aidan Larkin made in a recent meeting with me. So we need to ensure that the agencies and institutions that should be fighting the illicit finance we all want to combat are given the resources they need, and are given the political support and licence to operate they have to have if they are going to be able to deliver on what we want them to deliver.
In conclusion, the fact is that we have left the back door open and allowed our country to become a kind of fixer for the world’s dictators, kleptocrats and gangsters. We cannot go around the world preaching about the rule of law and transparency until we get our own house in order. We should not have to wait for the next “Panama Papers” or the illegal invasion of another country to force us into taking action. I said at the outset of the debate that the Opposition have approached this Bill in a spirit of constructive engagement. That has not changed and it will not change. However, we have not so far seen from Ministers sufficient openness to input from Opposition Members, or even from many of their own Back Benchers, but we welcome the remarks that the Minister made in his winding-up speech. We look forward to the progress that we wish to see being made in the other place as rapidly as possible. It is not too late, there is still time, and I genuinely hope that the remaining stages of the Bill will see the gaps filled, the loopholes closed, and the opportunities seized.
Alison Thewliss
I thank everybody who has contributed to the Bill. It has been a cross-party and worthwhile effort, and everybody who has been part of it has felt that. I hope the Government do their bit and take that cross-party effort in the spirit in which we meant it. We want to improve the Bill and for it to do everything it can do right now, rather than waiting for some distant point in the future when we come back and say, “We’ve still got these problems and this Bill, which could have addressed them, has not.” We have been there before. We had the Sanctions and Anti-Money Laundering Bill, and other Bills while I have been in this House could have addressed or fixed these problems, yet we are here again today still not fixing all the problems. Who knows when parliamentary time will allow us to pass this way again.
I thank the experts who have given so much evidence to us individually and as parliamentarians in Committee and other places. In particular I thank Helena Wood of the Royal United Services Institute, Duncan Hames of Transparency International, Bill Browder, Oliver Bullough and Graham Barrow, the expert on Companies House. He has had his own health issues but has continued to campaign on Companies House. We wish him well and a speedy recovery, and all the best with his treatment.
I also thank my hon. Friend the Member for Paisley and Renfrewshire North (Gavin Newlands). He came on board with this Bill and was very supportive and helpful throughout its passage, raising the issue of phoenixing, which is of concern to many of our constituents. I encourage the Government to look at how they can fix phoenixing, and ensure that our constituents and companies based in our constituencies do not fall victim to companies that seek to abuse the system in such a way. I give great thanks to the right hon. Member for Barking (Dame Margaret Hodge) who has been such a tremendous champion for all these issues over a long period. Her expertise, her contribution, and the way that she convenes people within this place has been incredibly important for this agenda, and I cannot thank her enough for that work.
I thank the Clerks and the Bill team for all they have done to help support us throughout the passage of the Bill. Putting together all the amendments is not easy, and under pressures of time they have been incredibly helpful in putting them together for us. I also thank Mhairi Love in my own office, and Sarah Callaghan in the SNP research office. Again, they have been incredibly helpful in putting together research on all these areas, and putting up with me when I go down a big rabbit hole of all the things about economic crime that live in my head most of the time. They have been very helpful indeed over the course of things.
I want to make an announcement, Mr Deputy Speaker, before everybody departs—[Interruption.] I am not going to the Government Benches; the Minister is welcome over here any time. I am not sure that his constituents would expect him to be an SNP Member, but any time he feels the need that is fine. As it is Burns Night, there is haggis in the canteen, and I encourage everybody to partake and get their honest, sonsie faces over to the canteen before it goes. I am looking forward to mine. Not related in any way to the Bill, the Ayrshire Fiddlers—not that kind of fiddlers—are in Strangers Bar, and Members should go and see them because they are very good indeed. Crucially for this Bill they are playing the fiddle and they are not on the fiddle, so please go and give them your support.
I finish with some lines from our national bard:
“O, wad some power the giftie gie us
To see oursels as others see us!
It wad frae monie a blunder free us,
An’ foolish notion.”
I ask Ministers to reflect on how others will see the Bill and make amendments to it in the other place to make it befitting of the commitment that we all have to seeing economic crime removed.
Mr Deputy Speaker (Mr Nigel Evans)
Happy Burns Night, everyone.
Question put and agreed to.
Bill accordingly read the Third time and passed.
Economic Crime and Corporate Transparency Bill
Monday 30th January 2023
(1 year, 9 months ago)
Lords ChamberRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Amendment Paper: Consideration of Bill Amendments as at 25 January 2023 - large print - (25 Jan 2023)
Economic Crime and Corporate Transparency Bill
Monday 27th March 2023
(1 year, 8 months ago)
Grand CommitteeRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 96-I(a) Amendment for Grand Committee (Supplementary to the Marshalled List) - (27 Mar 2023)
Lord Johnson of Lainston
Member’s explanatory statement
Objective 2 currently focuses on the accuracy and completeness of documents delivered to the registrar. The amendment would expand it to refer to the accuracy and completeness of the register more generally. This would, for example, be relevant not only to the acceptance of documents for registration but also to their removal.
The Minister of State, Department for Business and Trade (Lord Johnson of Lainston) (Con)
My Lords, I draw the Committee’s attention to my interests as set out in the register, including as a director and person with significant control of AMP Ventures Ltd and as a person with significant control and shareholder of several other companies. I do not believe that any of these is prejudicial to my role in today’s debate. If anything, they increase my passion for the important objectives of this Bill: strengthening the UK’s business environment for the law-abiding majority while closing the doors to rogue actors.
This Bill will deliver significant reforms to the role of Companies House, making the biggest change to our system of registering companies in over 170 years. It makes significant amendments to the Companies Act 2006, the largest single Act on the statute book. It will affect the more than 500,000 companies established every year in the UK and the 5 million companies currently on the register, which have grown from 3.5 million since the last major company transparency reforms in 2015. That is quite a significant amount and no doubt bears the attention deserved in this debate.
It is therefore vital that these reforms are designed and implemented properly, both so that law enforcement can undertake its responsibilities effectively and to ensure that they benefit business and that any burdens are proportionate. I am confident that the Bill will achieve this balance and set a sensible framework that works for the benefit of businesses while bearing down on those who seek to abuse our open economy.
If noble Lords will allow, I will express my gratitude to Members in the other place, who greatly contributed to the scrutiny and improvement of this Bill as it passed through their House, not least the honourable Members for Feltham and Heston, for Aberavon and for Glasgow Central, the right honourable Member for Barking and my honourable friends the Members for Barrow and Furness and for Weston-super-Mare.
I am also grateful to Members of this House for their invaluable contributions at Second Reading and for the further views that many of them have provided since to me and my noble friend Lord Sharpe. I see that several of them will speak to amendments today. I am also grateful for the constructive engagement of Members on the Opposition Front Bench throughout and look forward to continuing to work with them. It strikes me that all the amendments proposed today and all the work we have done across this House have the same intentions. That is important. We are working together to create a better company system in this country. My thanks also go to my noble friend Lord Callanan for all his past work on these reforms as the previous Minister for this Bill, to Minister Hollinrake, my colleague at the Department for Business and Trade, and to the Security Minister for bringing this Bill through the other place so effectively.
I very much look forward to the constructive debate that we will have over the coming weeks. I am sure that all noble Lords are as keen as I am to get this important legislation on to the statute book, including delivering the long-awaited reforms to Companies House that we will discuss today. As I set out at Second Reading, I hope that all noble Lords are fully aware of the opportunity before us to make a hugely meaningful difference to businesses, law enforcement and our citizens. I trust that we can count on the continued support of the House to deliver this.
I am delighted to be starting Committee by talking to government Amendments 1, 3 and 56, which amend Clauses 1 and 81. I will start with Amendments 1 and 3. The new registrar objectives introduced by Clause 1 are a key aspect of this Bill. They are designed to empower the registrar and the activities of Companies House, acting as a clear and purposeful signal of the manner in which new and existing powers under the Companies Act will be exercised. They will embolden Companies House to be the proactive gatekeeper that many have long wished it to become.
Government amendments 1 and 3 are designed to expand the scope and reach of one of the objectives. Amendment 1 should be warmly welcomed by those who have criticised Companies House as merely the repository of an accumulation of inaccurate, misleading and potentially fraudulent information. While powers in the Bill allow the registrar to revisit and, where appropriate, remove information that ought never to have found its way on to the register that she holds, this amendment will make it absolutely clear that she must endeavour to address that historical legacy.
Amendment 3 recognises and addresses the fact that the registrar is the custodian of registers other than the register of companies. Objective 2 already puts a duty on the registrar to seek to promote the accuracy of information that is already on, or delivered with a view to being put on, the register and to seek to ensure that the register contains everything that it ought to contain. This amendment makes it explicitly clear that this applies to all the registers that she keeps, such as the register of persons of significant control and the register of overseas entities.
Government amendment 56 expands on the registrar’s new ability, introduced by Clause 81, to require information to be provided to her in order for her to determine certain matters. Importantly, it will allow the registrar to require information to determine not only whether the documents delivered to her meet the “proper delivery” requirements in respect of such things as content, form, authentication and manner of delivery but whether the underlying trigger event for the filing has really happened. For example, this amendment will ensure that the registrar can compel the production of information to determine whether a form sent in to report the appointment of a director was genuinely triggered by a real appointment and was not simply a fraudulent attempt to dupe the registrar into recording an appointment that never happened. I beg to move Amendment 1 and hope that noble Lords will support Amendments 3 and 56.
The Deputy Chairman of Committees (Lord Geddes) (Con)
My Lords, before opening this debate, I advise the Grand Committee that, if Amendment 1 is agreed to, I will not be able to call Amendment 2, due to pre-emption.
Lord Leigh of Hurley (Con)
My Lords, I again welcome this Bill, as I set out at Second Reading. My noble friend is right: it has all-party support and is sorely needed. Likewise, it is reassuring to see the large number of amendments tabled by the Government, reflecting, no doubt, the views that your Lordships expressed at Second Reading and possibly some of those from the other House earlier.
My noble friend says that the aim is to improve the system through the legislation and I believe that my Amendment 2, supported by Amendments 55, 57 and 58, goes some way to help that. Likewise, I declare a conflict of interest, in that I am a shareholder and a director of a number of small private companies. One large company might be in the book, but they are mostly SMEs. Therefore, my relationship with Companies House is, like that of every director of every company, important. In my day-to-day activity as an investment banker, I frequently look to accounts in Companies House for information. It is an invaluable tool; compared to arrangements in other countries, particularly the United States, it is a real asset for information flow about businesses.
My amendment seeks to ensure accuracy, specifically in respect of tagging. As I explained at Second Reading, this is key. Company accounts used to be provided on paper or on a PDF, which is essentially paper form, and they are now filed using digital formats that tag each item with a label so that it can be recognised by downstream processing systems. Unfortunately, as I read it, there is no requirement in the Bill for internal consistencies, so tagging errors will not be picked up. That is needed to ensure that none of the data is self-contradictory and that it matches other data in the previous year’s accounts or tags internally to the document. I note that my noble friend’s amendment is a sweep-all amendment, covering wider matters, but the amendment that I am proposing is specific.
Perhaps it will help if I give an example. Imagine that an oligarch is a director of a company and his name, quite correctly, appears on the accounts, but the name has not been tagged or has been tagged as something other than his correct name. When a smart fraud detection mechanism is used by way of a search, that name will not emerge. Accountants will argue that the accounts are complete as the name is there, but if that name has not been tagged correctly, the filing will be of no use electronically, and therefore it is essential that the accounts are consistent internally. At the moment, the registrar can refuse to accept accounts only where they are inconsistent with outside information, so my amendment seeks to close what I see as that loophole.
I welcome the amendment to this clause tabled by the noble Lord, Lord Coaker, but I do not believe it covers my point. Likewise, I particularly welcome my noble friend Lord Agnew’s amendment, which sets the tone but, again, does not cover this point.
Lord Agnew of Oulton (Con)
My Lords, I have tabled Amendment 63 to Clause 90. I refer to my interests as set out in the register. I am a director of several companies and a person with significant control of an LLP, so I have had a lot of interaction with Companies House over the years.
My amendment might sound rather anodyne, but the amendments I have tabled to the Bill are the first building blocks of the transformational change that will be needed in Companies House once this Bill has been passed. We are taking an organisation that ever since its creation has simply been a passive receiver of data and has never had any cultural inclination to challenge it. This Bill changes that, which we welcome, and I am most grateful to my noble friend the Minister for all his positive engagement so far. What I am asking for here is a direct and specific requirement for the registrar to construct a process that will enable her essentially to triage the cases that are coming through the system. As my noble friend the Minister said, there are 5 million companies on the register and some 300,000 to 400,000 new companies are created annually.
When the Bill is passed we will have a problem with what I call stock and flow—in other words, a huge cleaning-up operation of the 5 million companies that are already there will be needed, and that will take some time. We also need to ensure, as quickly as possible after the Bill has passed, that the new registrations coming through are of the highest standard possible. Essentially, I am asking for the registrar to be required to make a risk assessment of new companies being created. One example that is well known in the financial word is that of Danske Bank in Denmark, which was the largest ever anti-money laundering fraud case in Europe, worth some €200 billion. Much of that started here through our LLP and LP structures. It would not have been difficult to have seen that there were trends among a lot of the LLPs that were being created. Many of them were coming from the same registration agent and with similar, often the same, addresses. That would have been a serious red flag that could have been investigated.
I am trying not to the rewrite the past but to set the tone for the future. It will not be realistic for the registrar to go into enormous detail on every registration, but if she builds a triaging system at the beginning, with a series of red flags, in aggregate the ones with the most red flags will be the ones that need priority. When I was the Minister for Grants, I discovered that we were doling out £30 billion a year in grants, but we had no system to assess the validity of the people receiving the grants. We put in place one very simple piece of software called Quantexa which shows immediately all the connections of the person making the grant to other people who are not necessarily good actors in the system. It cost £1 or £2 a go, or maybe £5 a go, but it had a dramatic impact very quickly. It is those sorts of tools that Companies House in its new format will need to use. I am not specifying an app, but I am most anxious that the Minister considers my amendment and includes it as one of his own.
Lord Clement-Jones (LD)
My Lords, I thank the noble Lord, Lord Johnson, for his introduction today, and I acknowledge the work of the noble Lord, Lord Callanan, on the previous Bill and in the run-up to today. I am very sorry that my noble friend Lord Fox is unable to be here to help kick off proceedings. I am merely his understudy today—but he will, I am assured, be back with a vengeance after Easter.
Lord Coaker (Lab)
My Lords, I start by thanking the Minister and his colleagues for their approach to the Bill and for his remarks at the beginning, which were very welcome. We all have an interest in trying to ensure that the Bill works, so I thank the Minister for his comments about that—and I can reciprocate with regard to how the Government have approached this in trying to enhance and improve the Bill. I appreciate what the Minister said about the amendments in this group, and all the various amendments that have been introduced, as we have heard, in a positive way, in seeking to improve the Bill.
I do not intend to speak at great length about the various amendments. I start by thanking the noble Lord, Lord Leigh, for his support of my Amendment 4 and by saying that I very much agree with much of what the noble Lord, Lord Agnew, said on his Amendment 63. Essentially, what we are saying here is that the Bill has a lot within it that we appreciate, accept and think are important steps forward—but alongside that, most of us want to see the Bill having some teeth and the Government explaining to us how the various details are laid out, how the measures will be enforced and how we will see the change of culture that we have just heard about.
I will speak specifically to my Amendment 4. Noble Lords will see that, in essence, we are probing what the Government’s intentions are. Clause 1 has four objectives for the registrar. The amendment in my name and those of my noble friends Lord Ponsonby and Lady Blake seeks to understand whether anything could be gained by inserting a new objective 5. No doubt the Minister will say that objective 4 means the same, which may be why the amendment in the name of the noble Lord, Lord Agnew, is not needed. We are suggesting that there needs to be a more proactive statement in the Bill about what the Government are seeking in terms of the information that the registrar collects and how it is then assessed to see whether it should be shared more widely, particularly with the various enforcement bodies.
The objective I am proposing—I will not read it all out—includes in paragraph (b)
“sharing information about any issues of concern regarding companies with relevant public bodies and law enforcement agencies.”
Why would the Government not put that in the Bill? I suspect they will say that objective 4 deals with that, but I think there is a difference between acting proactively and what the Government have in objective 4, which is
“to minimise the extent to which companies and others … carry out unlawful activities”.
I suggest that is not quite strong enough. It is not about minimising the extent; it is about wherever information comes to light with the registrar that something untoward is happening. Surely there should be an obligation on the registrar to share that with the relevant law enforcement bodies. Minimising the extent is not sufficient; we do not do that with any other law—we do not minimise the extent to which violence takes place, for example. That may be the aim, but overall the intention of the law is to stop it. So I suggest that objective 4 could be strengthened.
On Amendment 63 in the name of the noble Lord, Lord Agnew, the noble Lord can and did speak for himself, but in his proposed new subsection (1B)(b) he is getting at that very point in stating that the registrar must
“share any evidence of unlawful activity it identifies with the relevant law enforcement agency”.
That is exactly the same point I am trying to address in my amendment. It is not about minimising the extent to which it takes place; it is saying that the information should always be shared. Can the Minister outline the Government’s thinking? Is their objective with the registrar that all information that may be of concern should be shared with the relevant law enforcement agencies?
Without wishing to be pedantic about this, can I ask: what is the relevant law enforcement agency with which the registrar should share the information? There is the Serious Fraud Office; there is the City of London Police; there are local police forces; there is HMRC and all sorts of other enforcement bodies. The Government will have given thought to this, but can the Minister explain to the Committee where that information should go and who is responsible for enforcing it? Is there any report back to the registrar? Once the information has been shared, is it then just a matter for the law enforcement body, or does the registrar have an obligation to see where that has got to and what has happened to it? We all know that an issue that frustrates people is not knowing what happens when things are reported and where they have got to. Alongside that, given the significant numbers that the Minister quoted of those that have to register, what are the resource implications for those other bodies in taking that up?
My final point may seem a bit obscure. I am not a great expert on this, but I know from one limited case that I had some experience of that one of the problems was a lack of forensic accountants and the ability to understand what was going on within various company accounts. I was told it was a skill area that is never really talked about. I wonder whether the Government, given their intentions, have given any thought to how they ensure that the necessary skill base is there within police forces and the Serious Fraud Office for crimes that are referred to them to be properly understood and investigated. I am sure that some people are experts in company law and all this, but the problem is that when people say “Follow the money”, sometimes it is pretty difficult to do that. I wonder whether the Minister might say something about how he sees that.
In general, we welcome the Bill and the government amendments before us. I think the amendments that the noble Lords, Lord Leigh and Lord Agnew, have tabled make some very important points. I hope that my Amendment 4 also helps the Government explain to the Committee what their intentions are. If the Bill is to mean anything, it has to be properly enforced.
Lord Browne of Ladyton (Lab)
I had not intended to speak on this group, but my noble friend Lord Coaker has drawn my attention to the active verbs in the subsections of Clause 1. I am at a loss to understand why they are used. Why is objective 3
“to minimise the risk of records kept by the registrar creating a false or misleading impression to members of the public”
and not “to prevent companies and others carrying out unlawful activities or facilitating the carrying out of unlawful activities”? It seems odd that the objective is not the complete protection of people who may be duped or defrauded or have their money stolen from them by the devices created here. I appreciate that one cannot guarantee perfection, but it seems to me that by legislating in this fashion we recognise that there will be an element of that, since the objective we set the registrar is only to minimise, not to prevent it altogether.
Lord Macpherson of Earl’s Court (CB)
My Lords, I support the amendment in the name of the noble Lord, Lord Agnew. I declare my interest as chairman of C Hoare and Co. I apologise for not being here at Second Reading. I had a good excuse: a very bad dose of flu.
I have two brief points. First, legislation on its own does not change an institution—I worked in the Treasury for 30 years and saw many institutions come and go—but it can be really helpful in supporting the leadership of that institution to change its character and the way in which it works. I believe the amendment in the name of the noble Lord, Lord Agnew, would support the leadership in bringing that about.
My second point draws on my experience of seeing through a lot of reform to financial services regulation. I think it is fair to say that the lesson of the 2000s was that tick-box regulation really does not take you very far; a proportionate, risk-based approach is the answer. I believe that the amendment in the name of the noble Lord, Lord Agnew, very much goes with the flow of better regulation.
Lord Johnson of Lainston (Con)
I really thank noble Lords for their contributions. Not for the first time in this House I am surrounded by people who know far more than I do about the subject, with business gurus such as my noble friend Lord Leigh, who gave us the benefit of his many decades of wisdom. It is extremely helpful. As I say, everything that has been said today is mirrored in the emphasis of the Government’s broad objectives, so we are working collaboratively here. I hope your Lordships do not mind me going through each different point—I hope I can answer them all.
Lord Clement-Jones (LD)
I just interrupt the Minister before he goes much further. I have been listening very carefully to what he has to say, but he seemed to imply that a risk-based approach could lead to box-ticking. Surely, a risk-based approach is the very antithesis of box-ticking.
Lord Johnson of Lainston (Con)
I appreciate that intervention. Our view is that if we legislate specifically for a risk-based approach, on top of what we believe is already a risk-based approach, we are not achieving our goals. The concern from the Government’s point of view—and mine, as someone who has registered companies with Companies House—is that you end up box-checking. The Bill is designed to ensure that the registrar is responsible for ensuring the integrity of the register and minimising criminal activity. In my view, those are the core functions of the registrar and the activity of Companies House, so we already have what one would describe as a risk-based approach built in. We feel very comfortable that this ambition, which is what this is all about, is well built into the legislation and will be the core function of the registrar—this is the essence of it—and we believe this to be well represented. Clearly, the ambition of the registrar will be to take a risk-based approach to her activities. We may be arguing over the same point, but I take it very seriously and am happy to consider it with more thought. As I said, this has been drafted effectively to encompass the concepts and points raised by noble Lords.
I believe I have covered most of the points raised. My last point was raised by the noble Lord, Lord Clement-Jones: we are trying to create the registrar as a proactive gatekeeper. That is at the core of the Bill’s ambition. We welcome input on how we can ensure this is done more specifically.
Lord Agnew of Oulton (Con)
My Lords, if my noble friend wants my amendment not to be moved, would it be possible for the registrar to write to us to explain her philosophy and how she is going to make this huge change to delivering a risk-based approach? I am very reassured by his comments, but having been in the trenches of government for 12 years, I just know that the reality is a long way from wise words in a process such as this. A simple letter to us saying, “This is my philosophy, what I am doing and how I am training people to cope with this enormous change”, would be very reassuring.
Lord Johnson of Lainston (Con)
I thank my noble friend for that comment, and I entirely agree that it would be extremely useful to have such a letter from the registrar. I take very seriously the comments about a cultural change at Companies House. We should be aware of where we are coming from. Not to repeat or labour the point, but Companies House is today simply a repository for information; it could practically be a static website. Having said that, in the conversations that I have had with Companies House, I have been very impressed by the tone of the officials I have spoken to there in terms of their determination to crack down on criminal activity around companies and Companies House. They currently make referrals to law enforcement agencies; they are not blind to the issues that present themselves, but they do not have the powers to do what we want them to do.
This Bill gives the registrar and her agents the concomitant powers to execute exactly on this mission that we wish. They talk boldly of a cultural change in Companies House, which we expect, as well as a technological change and a significant resource improvement—and under other amendments we will discuss the resourcing of Companies House. I feel confident that we are going to see a magnitudinous alteration in the relationship between the number of companies and number of directors performing their functions appropriately and providing relevant information to boost the economy, as soon as, or soon after, this Act is enabled—if I have got my terminology right.
Lord Coaker (Lab)
I would be grateful for a clarification. Can the Minister say something about the language being used? My noble friend Lord Browne also picked up on this point. It is not that it is wrong, but why in Clause 1 do objectives 3 and 4, for example, talk about minimising risks or the extent? What I suggest in my amendment is acting proactively to prevent. It is about that sense of purpose and that cultural change, whereby the registrar actively seeks out unlawful activity and actively seeks to inform law enforcement to do something about it. It is not a clash of view but, in talking about cultural change, would not a language change help the Government in delivering what they want?
Lord Johnson of Lainston (Con)
I thank the noble Lord for his comments. I do not want noble Lords at any point to think that I am being defensive in any way, as we are having a collaborative debate around the objectives of trying to improve company law and registration of companies and the integrity of the information stored at Companies House.
Objective 1 is pretty clear in referring to
“any person who is required to deliver a document to the registrar does so”,
and objective 2 is very clear and specific in saying
“to ensure that documents delivered to the registrar are complete and contain accurate information”.
They are unambiguous points—that is very clear. There is no question about there being some grey area around that. But with regard to objective 3 and
“creating a false or misleading impression to members of the public”,
clearly that is relatively subjective statement. It is clear that we have made efforts in this Bill to ensure that company names, for example, cannot be used to be misleading, and additional powers have been placed with the Secretary of State to ensure that companies have to change their names—but there is an element of subjectivity around a company name. To some extent, it is not totally prescriptive. Objective 4 then says,
“to minimise the extent to which companies and others … carry out unlawful activities, or … facilitate the carrying out by others of unlawful activities”.
These are complicated areas, in which, as the noble Lord, Lord Coaker, said, issues around forensic accounting, and so on, have been raised. Nothing is necessarily as straightforward as it seems. The principle here is to try to reduce the crime clearly to zero—so if the registrar reduced levels of criminal activity to a certain percentage, which they felt were somehow in a target range and then stopped their work, we would consider that to be entirely inappropriate. At the same time, they have a very clear objective, which is to minimise financial misconduct and criminality. That flexibility enables the registrar to perform her functions appropriately.
Lord Garnier (Con)
I do not want to prolong this debate because, although it is fascinating, it is something that can be dealt with in the period between now and Report. Perhaps my noble friend could, with his officials, run through the dictionary to find a slightly punchier verb. We all know what “minimise” means—to reduce to a minimum. I take the point that the noble Lord, Lord Coaker, is making. A slightly more aggressive approach to criminal activity or people’s misconduct in using the Companies House system is probably required. It is just a tweak in the language; we are not going to World War III over this—it is just a question of going back, having a look at a dictionary and seeing if they can find a slightly more aggressive word.
Lord Faulks (Non-Afl)
So that the Minister does not have to answer questions seriatim, as it were, I endorse that. I am not sure that I have heard persuasive objections to the amendment tabled by the noble Lord, Lord Coaker. I understand what he says about risk-based, but sharing information with relevant public bodies and law enforcement agencies surely does not tie the registrar’s hand in any way. It must be remembered that while we can all applaud what has happened in Companies House and the change in culture that will follow, this is really a second attempt to tie things up. We should not forget that there was the first economic crime Bill, before the Minister came to his post, where much was promised, so this is the final word on it and the time to crystallise where we are on those things. Objective 5 is another step. If the Minister is saying that Companies House is coming a long way and it is further step to ask it to do this, that is an answer, but I do not think it is an answer that satisfies the Committee.
Lord Johnson of Lainston (Con)
I appreciate my noble friend’s comments. I do not believe that I suggested at any point that this was not baked into the cake of what Companies House is expected to deliver. I would be delighted to have further dialogue with Members around this but, in my humble opinion, the entire Bill is designed to ensure that the registrar takes a risk-based approach to ensuring the integrity of the information at Companies House. I am very comfortable on that, and the Government are very clear on it. We are wary of having duplicative statements in the Bill because that causes more complications when we are trying to create the enforcement regime and the integrity regime that we want to bring to bear.
On the key clauses and the language therein, I am certainly happy to consult my dictionary as noble Lords suggest. I am sorry that I was unable to bring one with me. It would be unusual for us to be quite so prescriptive in part 3 of the four objectives. I am delighted to have further conversations if noble Lords feel that that would be more helpful in setting the right cultural change at Companies House, but I am wary of being too prescriptive. I hope this is not misunderstood by Members of this Committee, but we want to avoid a box-ticking exercise because that is exactly what criminals like, as they can then navigate the system. We want to allow the registrar and her officers to use their judgment because that will lead to far better outcomes when it comes to achieving the mission that all of us are embarking on together.
Lord Browne of Ladyton (Lab)
On a plain reading of this clause, the registrar is being required to promote these objectives, but in objective 4 she is being required not to prevent but
“to minimise the extent to which”
crimes can be committed. What is the problem about setting an objective that she is to prevent, and Parliament is telling her that is the objective we want her to have but recognising of course that perfection is very seldom found in these situations? Why do we set an objective that is less than what we really want? There is no question that Parliament wants these crimes prevented, not minimised.
Lord Johnson of Lainston (Con)
I appreciate the noble Lord’s comment. We have discussed this at some length. I am personally very comfortable defining further the usage of “minimise”, but the intention is very clear. This is not about “minimising” criminal activity to a so-called acceptable percentage; it is ultimately to eradicate it entirely. I am sure there are good reasons why this language has been used, in order to enable an element of flexibility and facilitation for this Bill to operate effectively. I am sure noble Lords will sympathise with me when it comes to legal drafting of text, but the assurances around this Bill are that it should do exactly what we want it to do. I ask noble Lords not to press their amendments and I commend Amendment 1.
Lord Johnson of Lainston
“(2) In Objective 2 the reference to “the register” includes any records kept by the registrar under any enactment.”Member’s explanatory statement
This amendment ensures that Objective 2 as amended applies not only in relation to the register of companies but also in relation to any other registers and documents kept by the registrar under legislation.
“(2A) After subsection 1, insert—“(1A) The memorandum must also state—(a) the nationality of the each subscriber, and(b) the country in which each subscriber is ordinarily resident.””Member’s explanatory statement
The amendment would require a memorandum of association on the formation of a company to include the nationality and country of ordinary residence of each initial shareholder alongside their name.
Lord Ponsonby of Shulbrede (Lab)
My Lords, this is a wide-ranging group of amendments which focuses mostly on the amount of information given about subscribers, founding shareholders and limited companies when registering a company and ongoing shareholders. The amendments in the names of the noble Lords, Lord Vaux and Lord Agnew, are aimed at making it transparent whether subscribers and shareholders are holding shares on their own behalf or on behalf of others.
Currently, information about subscribers is very limited. The amendment in my noble friend’s name, and other Back-Bench amendments, are aimed at helping provide more information. The amendment would require the nationality and country of residence of subscribers. There has been a huge increase in the number of shell companies with directors based abroad. This is one step we can take to increase transparency and fight against the UK’s reputation for tolerating dirty money. The theme of this group as a whole is increasing transparency; there are various specific amendments with that aim in mind. I beg to move.
Lord Johnson of Lainston (Con)
I am grateful to the noble Lord for accommodating this intervention. I thought it would aid noble Lords in having a productive debate if I set out up front the intention of the government amendments in this group, given that it contains a significant number and, as I understand it, the amendments in the name of the noble Lord, Lord Vaux of Harrowden, seek to build on them.
The government amendments seek to further strengthen transparency of shareholder data on the company register. I hope they will reassure noble Lords that the Government take this topic very seriously. A core purpose of the register of companies is to provide details of company ownership. However, users of the register have reported some problems with the way in which company ownership data is recorded. That is why the Bill contains measures to increase the usefulness of the information held on the shareholders, subscribers and guarantors—also known as members—of companies.
The Government appreciate the concerns expressed during the passage of the Bill by expert witnesses and parliamentarians about member information. However, I stress that we are also mindful of stakeholder concerns about imposing disproportionate burdens on businesses. The 2019 corporate transparency and register reform consultation proposed that non-traded companies, such as companies that are not listed on any regulated market, be required to collect the usual residential address and date of birth of their members. Consultation responses were mixed, and the Government concluded that the case had not adequately been made for the collection of the information, given the potential burden on businesses.
The Government consider that the approach taken with these amendments balances competing stakeholder concerns proportionately. The amendments will help to ensure that the policy intent of provisions in the Bill and the Companies Act 2006 are met without imposing undue burdens on business before further consultation is carried out.
Amendment 31 inserts a new clause into the Bill, which will amend the Companies Act 2006 to create an express requirement that old information must be retained where it changes. So, if a member’s name, address or shareholding changes, that old information must be retained for as long as the Companies Act 2006 allows. That is currently implied by other sections of the Companies Act 2006, but the law is unclear. For example, Section 121 states that an “entry” relating to a former member of a company may be removed from the register after the expiration of 10 years from the date on which he ceased to be a member. The retention of old information should already be current practice as it is in a company’s own interests to retain such information for audit purposes. Retrospective disputes relating to votes, dividends, and tax could all hinge on who owned shares at a point in time.
The new clause inserted into the Bill by Amendment 31 will also amend the Companies Act 2006 to provide powers to companies to ensure that member information is provided and kept up to date. The amendments also provide duties for members to provide their information and keep it up to date. There are offences for companies and members failing to comply with the new requirements without a reasonable excuse. That will ensure that the requirements are taken seriously by both companies and members and will enable more effective enforcement activity.
Amendments 6, 31, 34, 59 and 66 restructure existing provisions in the Bill that in turn amend the Companies Act 2006. They also provide powers to strengthen the regime by regulations. The powers allow regulations to require more information to be provided and to ensure that any new personal information is protected as appropriate. That would allow the Government to act swiftly to require more information to be provided if it is deemed proportionate to do so—again, following further consultation. Equally, law enforcement agencies may identify additional types of information that the registrar could require the collection of, which would help them in the prevention and detection of crime.
If new information is later required, it may not be appropriate for it to be made available for public inspection or disclosed except in specified circumstances—for example, if regulations later require a person’s personal email address to be provided, as that could have unintended consequences with spam mail and so on. These amendments ensure that personal information can be protected where appropriate, applying the principles from similar provisions in the Companies Act 2006 and this Bill to these measures.
I want to highlight that the power in new Section 113C could be used to limit any additional information requirements to companies that are not traded on any listed market, as those companies are already subject to similar disclosure requirements. That would reduce the burden on business, in line with the proposals in the 2019 consultation.
These amendments set up the framework for the policy intent to be met and leave the heavy lifting to regulations, once consultation has been carried out. The Government consider that to be an appropriate balance, as all regulations will be subject to the affirmative resolution procedure such that Parliament will have its say when those regulations are made.
The Government intends to remove Clauses 2, 4, 46 and 47 from the Bill because the provisions of those clauses are amended and/ or incorporated into the new clauses that I have described. Amendments 35 to 38, 60 to 62 and 67 allow the provisions to be sequenced more coherently and make consequential drafting tweaks.
I hope that noble Lords will support the amendments, and I look forward to the rest of this debate.
Lord Vaux of Harrowden (CB)
My Lords, I shall speak to Amendments 7, 8, 32 and 33 in my name. Before I start, I hope the Committee will not mind if I point out that my name is pronounced “Vawks”. It is astonishing how many different pronunciations of a four-letter word it is possible to come up with. I should also remind the Committee of my interest in the register as a non-practising chartered accountant.
I thank the Minister for arranging to meet me to discuss the various amendments that I have tabled and for his engagement so far. Like, I think, everyone in the Room, I support everything that the Government are trying to achieve with this Bill. My amendments to the Companies House section try to make it more effective in achieving the Government’s stated aim, which the Minister explained at Second Reading is to
“bear down even further on kleptocrats, criminals and terrorists who abuse our open economy, and it will strengthen the UK’s reputation as a place where legitimate business can thrive, while ensuring that dirty money has no place to hide”.
He went on to say that:
“The use of anonymous or fraudulent shell companies and partnerships provides criminals with a veneer of legitimacy and undermines the UK’s reputation as a sound place to do business.”
I think we all agree with that, but the Bill remains weak in improving transparency.
At Second Reading the noble Lord also said that the Bill would be
“helping to ensure that we know the real people acting for, and benefiting from, companies.”
The Bill makes some improvements in that respect, but it is pretty thin gruel and is not likely to make any real practical difference unless it is strengthened. That is what I am trying to do with these amendments, which I have tabled as amendments to the government amendments.
Lord Leigh of Hurley (Con)
As a fellow chartered accountant, can I ask the noble Lord how his amendment would work in respect of trust? Does it mean that trustees are disclosed or that beneficiaries are disclosed? Clearly, one would want to have beneficiaries disclosed, and I am not sure that this achieves that.
Lord Vaux of Harrowden (CB)
The noble Lord is quite right. What we are really trying to get to here is the ultimate beneficial owner, which is a problem that sits throughout this and the overseas property register. Neither of them really gets to that point. The wording requires refinement, but that is what I was trying to get to—that the ultimate beneficial owner, the directing mind behind the shareholding, is disclosed.
Lord Faulks (Non-Afl)
Does the noble Lord think this goes far enough? I chaired the Joint Committee on the Draft Registration of Overseas Entities Bill, and one of our recommendations was that there should be improved verification procedures for Companies House. We also thought it was well worth considering ensuring that regulated professionals acting should also provide statements, which would concentrate the minds of those advising who are responsible for providing this information.
Lord Vaux of Harrowden (CB)
I made exactly the same argument during the passage of what we used to call ECB 1—the first economic crime Bill. I entirely agree, and noble Lords will see that I have a number of later amendments dealing with those issues of the verification statements and the authorised corporate service providers being named publicly as opposed to—as is proposed at the moment—not being named on the register. That is really important. I agree that this probably does not go far enough. I am mindful of the Minister’s comments about not making this overly burdensome—if we do, it will not work—but we need to find a way to make sure that we understand who owns the shares.
Lord Wallace of Saltaire (LD)
My Lords, I am here as an international policy wonk, and I am very conscious that, in economic crime, a great deal goes on cross-border and outside the jurisdiction of the UK. I have therefore tabled two later amendments: one concerns the Crown dependencies and the overseas territories and the other concerns the levels of international co-operation that will be desirable and necessary if we are to crack some of these problems.
I strongly support what the noble Lord, Lord Faulks, has said about the requirements for those agents—or enablers, if you like—in setting up what are very often cascades of companies that disappear outside the jurisdiction of the United Kingdom to our various overseas territories or beyond. The question, therefore, is how we ensure the maximum amount of transparency and make the risk of crime as minimal as possible by putting heavily on those who are engaged in setting up these trust companies and further arrangements the responsibility of declaring clearly that these are legitimate and sound.
Lord Macdonald of River Glaven (CB)
My Lords, I apologise for not being able to be present at Second Reading. In support of the noble Lords, Lord Faulks and Lord Vaux, I simply say that I really could not count the number of criminal cases in which I have been involved where it is precisely the concealment of beneficial ownership that is the driving force of the strategy behind the crime. This happens repeatedly. Anything that can be done to strengthen the Bill in this area—I am particularly attracted by the suggestions of the noble Lord, Lord Vaux—should be entertained seriously by the Government.
Lord Cromwell (CB)
My Lords, if we achieve nothing else today, it will be getting the name of the noble Lord, Lord Vaux, right in future—you take what victories you can. One amends government amendments at one’s peril, as I am sure the noble Lord recognises, but this Bill is about transparency, so I speak in support of his Amendments 7 and 32. Amendment 7 is about who a person is really subscribing for and Amendment 32 is about who they are really holding for. Those surely play directly into the objectives that we were discussing a few minutes ago regarding complete and accurate records and not giving a misleading impression. They could be tied to objective 4 as well. These are not onerous requirements. I note the challenges put down by the noble Lord, Lord Leigh, and others, but they are not onerous; they are a basic feature of transparency. I therefore hope that the Minister will get behind these two amendments.
Lord Agnew of Oulton (Con)
My Lords, I will speak to my amendment. The noble Lord, Lord Vaux, has done a lot of the heavy lifting, so I will not repeat all his arguments. I take some comfort that he makes me look moderate in my requests for further transparency—that is not how I am normally referred to by noble friends and Ministers. The title of the Bill specifies “Corporate Transparency” and, as the noble Lord, Lord Cromwell, has just said, it is not an onerous requirement to state whether the shares are owned by the individual or somebody else. The suggestion by the noble Lord, Lord Vaux, of a simple affirmation statement is even more powerful, so that the enabler who is setting up the entity simply has to answer “yes” or “no” to whether the shares are for the beneficial ownership of the name on the share register. My noble friend now has a choice of routes down which he could go if he is minded to take on board either of our amendments.
Lord Clement-Jones (LD)
My Lords, I think I need to say very little given the barrage we have heard. These Benches firmly support the amendments of the noble Lord, Lord Vaux, and congratulate him on putting up with the mispronunciation of his name on such a consistent basis. I expect that the noble Lord, Lord Faulks, has exactly the same problem, so there is a commonality across the Benches here. The noble Lord, Lord Agnew, talked about “heavy lifting” and others have talked about “very light requirements”. Those who have argued for the amendments have made a very strong case, not least my noble friend Lord Wallace of Saltaire on the implications for overseas territories and revealing beneficiaries there. Transparency is the essence of what we are trying to achieve here.
I think we all agree that one of the core competencies of Companies House needs to be expertise in verifying the identity of applicants, whether subscribers or members, and so on. Identity verification, which we will discuss throughout Part 1, will be a vital tool in the policing of the sector if it is to be successful and should be a core competence of what we might call the new model of Companies House. There is some doubt about how far this is being, in a sense, outsourced to others. These amendments make it absolutely clear, particularly as regards nominees, that it should be the applicant and Companies House which make sure that we know who we are dealing with here. It has several distinct advantages and, as everyone has emphasised in this debate, is not an onerous requirement.
Lord Johnson of Lainston (Con)
I thank noble Lords for their amendments. The Government appreciate their intent but consider that we already have the powers we need in the Bill to address the substance of these concerns. Following on from comments from my noble friend Lord Faulks and the noble Lord, Lord Clement-Jones, we are not discussing the verification of corporate providers. I think there is a significant amount of discussion to be had on that a bit later.
I totally agree about the importance of the transparency of the records and understanding who the beneficial owners of companies are—that is the whole point of much of the work we are undertaking today. On the comments of the noble Lord, Lord Vaux, about the ownership level of 25%, in a private company you have to have your identity verified if you are a director, own 25% or more of the company or are a person with significant control. To clarify, the 25% level does not denote a person with significant control. Somebody who has one share can be a person with significant control, and it is the company’s duty to report who they are. It is extremely important to make that clear in this discussion.
I was not in this great House for the previous piece of legislation, the debate on which has resulted in this new piece of legislation, but I am very aware of the importance of understanding who stands behind the companies—as has rightly been said, to quote myself, the people acting for and benefiting from companies. The 25% level does not denote a person with significant control, and companies suffer significant penalties—the penalty regime, which I am happy to share with noble Lords, is substantial and at the very core of this process.
Lord Vaux of Harrowden (CB)
The noble Lord is quite right: there is the question of being able to influence or control the company other than through shareholdings, but he referred to penalties and so on. How many times has anyone been penalised for failing to provide information about being a person with significant control when they did not hold 25%?
Lord Johnson of Lainston (Con)
That is exactly the sort of question that should be asked; I look forward to returning to this Committee with the answer, as I unfortunately do not have it at my fingertips. However, I know that Companies House continues to do a great deal of investigation into these matters, even before this Act has come into place.
The noble Lord, Lord Vaux, also raised an important point in saying that it is too easy and cheap to create a company and that the 1855 principles around the corporate veil are a privilege. At the time, they were considered a great risk to the economy, abrogating people of their personal responsibilities and liabilities to the debts of their businesses. It caused great debate, as noble Lords may remember—looking around the Room, not all noble Lords will, but some may. It is important to understand that it comes with privileges and obligations.
Having done a great deal of investigation into this Act, of the 4.8 million companies on the register, I would have thought that many should not be limited companies; it is not necessary for a sole trader or a small partnership to have a company, so I have a degree of sympathy for upgrading the entire concept of what a limited company is and what sort of information should be provided. It may be important, philosophically, to look at it in that way, rather than simply saying, “Here are a very large number of companies; if we impose undue obligations on them, that will be unfair or overly burdensome to businesses.” It is not unreasonable to look at the picture in the round.
Having said that, we undertook a variety of consultations and feel that the way this Bill has been drafted gives us the security to understand who the beneficiaries of companies are and the requirements of companies to record that information and link those individuals across the information processes and systems in Companies House to ensure that we have integrity of data. To require all shareholders to verify their identity would be unnecessarily burdensome for many thousands of companies and, potentially, millions of small shareholders who are simply passive holders of a business.
I would not like my comments to be taken in the wrong way—perhaps in the way that “minimise” has been taken—but we are making a significant change to the way that companies are established in this country and to the sorts of information levels that we require from businesses to ensure the integrity of data at Companies House, in what both individual directors, persons with significant control or corporate service providers and companies have to provide. It is very important that we do not lose sight of the fact that this country is one of the easiest places to do business in the world. Our wealth comes from our entrepreneurial nature and the importance of having a company structure, system and process that does not place unnecessary burdens where they will not necessarily add value.
I am, however, very open to further conversations to ensure that the philosophy presented here matches our ambition, which is to ensure that we understand who benefits from companies and who is behind them.
Lord Vaux of Harrowden (CB)
The noble Lord has explained the onerous nature of verifying the identity of every shareholder, which I accepted in part when I spoke. We will come back to that issue on Amendments 39 and 43. However, he has not talked about whether and why a shareholder making a simple statement as to whether they are holding the shares on their own behalf—and if they are not, on whose behalf they are—is particularly onerous. I am afraid that I do not see why it should be.
Lord Johnson of Lainston (Con)
The company is obliged to register if there is a person with significant control or someone with more than 25%. If it is not truthful in that registration, it will be committing an offence.
Lord Vaux of Harrowden (CB)
But that is different from any shareholder having to make the positive statement: “I am”—or “I am not”—“holding the shares on my own behalf”. It is very different from, “I’ve got 25% and therefore I have to make some disclosures”. Why is it a problem for an individual shareholder to say, “I’m holding these shares on my own behalf”, or “I’m holding them on behalf of somebody else”? I am sorry, but I really do not see why that is difficult or onerous. It is a very different thing from the 25% threshold that the Minister just mentioned.
Lord Johnson of Lainston (Con)
I appreciate the noble Lord’s intervention. I expect some of this comes down to nominee companies and the roles that they perform on shareholder registers, but I am happy to look in more detail at this point. We had the good fortune to have a conversation about this some days ago and came to the conclusion that it was certainly worth further investigation to ensure that anyone who puts information on to the Companies House website has to ascertain whether they are acting on behalf of other people. However, I believe, and very much hope, that the answer will lie in the depths of the legislation.
My noble friend Lord Agnew’s amendment is very similar. I hope I have covered this point, particularly in relation to the PSC framework already in place.
I turn to Amendment 5, and thank the noble Lord, Lord Ponsonby, for his helpful replacement of the noble Lord, Lord Coaker, in speaking to it. The amendment would require a memorandum of association to include the nationality and country of ordinary residence of each subscriber. A memorandum of association is a memorandum stating that the subscribers wish to form a company, and they agree to become members of that company. Their names are then entered into the company’s register of members.
This amendment, if I may be so bold, would not require the same information to be provided by persons who later become members. Frankly, it is considered that that would create inconsistency between the information requirements of members who were subscribers and other members. The Government consider that any new information requirements should be consistent between the two.
The Government appreciate the intent behind the amendment, but we consider that this would be better addressed by consulting stakeholders about what additional information, if any, it would be proportionate to require every company to provide about all its members, rather than just subscribers who are individuals. To reinforce that point, we would look to consult stakeholders about what additional information it would be proportionate to require.
This Bill, and government amendments to it, provide the powers to require additional information to be provided via regulations. This discussion can happen on an ongoing basis, and we welcome that. The government amendments that I outlined earlier signal our willingness to review the position on this issue, albeit having first consulted stakeholders, given the potential burdens involved. I know we all agree about the importance of keeping the legislation sensible so that it does not impinge on our entrepreneurial spirit and the creation of companies in this country. That is absolutely right, and noble Lords would expect the Government to consult in ensuring that we get the right information registered in the right way. I hope this reassures the noble Lord and that he will withdraw his amendment.
Lord Ponsonby of Shulbrede (Lab)
My Lords, I thank all noble Lords who have spoken in this relatively short but important debate. I make it clear to the Minister that I do not think anyone contributing to this discussion was questioning the underlying philosophy of the Bill. Indeed, we were trying to enhance its underlying philosophy, which is to provide greater transparency about who the ultimate beneficial owners of all these companies are.
The Minister’s response to the various amendments was about disproportionality. He said that they would put disproportional burdens on smaller companies, that personal information may be made available, and that people should be protected from spam, promoters and so on. I do not think anyone is questioning that. Various amendments put forward by various noble Lords try to increase transparency and to stop people being able to hide behind layers and layers of nominee companies.
I was drawn to what the noble Lord, Lord Vaux, said: “Having to lie in public is very different from just keeping quiet”. That is a very sound principle to operate on. He also made the point that identifying shareholders should be the same as identifying directors or people with significant control. That is a second principle behind his amendments.
Lord Johnson of Lainston
“Information about subscribers
(1) The Companies Act 2006 is amended as follows.(2) In section 9 (registration documents)—(a) after subsection (3) insert—“(3A) The application must contain—(a) a statement of the required information about each of the subscribers to the memorandum of association (see section 9A),(b) a statement that none of the subscribers to the memorandum of association is disqualified under the directors disqualification legislation (see section 159A(2)),(c) if any of them would be so disqualified but for the permission of a court to act, a statement to that effect, in respect of each of them, specifying—(i) the subscriber’s name,(ii) the court by which permission was given, and(iii) the date on which permission was given, and(d) if any of them would be disqualified under the directors disqualification legislation by virtue of section 11A of the Company Directors Disqualification Act 1986 or Article 15A of the Company Directors Disqualification (Northern Ireland) Order 2002 (designated persons under sanctions legislation) but for the authority of a licence of the kind mentioned in that section or Article, a statement to that effect, in respect of each of them, specifying—(i) the subscriber’s name, and(ii) the date on which it was issued and by whom it was issued.”;(b) after subsection (6) insert—“(7) In subsection (3A)(c) “permission of a court to act” means permission of a court under a provision mentioned in column 2 of the table in section 159A(2).”.(3) After section 9 insert—“9A Required information about the subscribers(1) The required information about a subscriber who is an individual is—(a) name;(b) a service address.(2) The required information about a subscriber that is a body corporate, or a firm that is a legal person under the law by which it is governed, is—(a) corporate or firm name;(b) a service address.(3) In subsection (1) “name” means the individual’s forename and surname.(4) Where a subscriber is a peer or an individual usually known by a title, that title may be stated in the application for the registration of the company instead of the subscriber’s forename and surname.(5) The Secretary of State may by regulations—(a) amend this section so as to change the required information about a subscriber; (b) repeal subsection (4).(5) Regulations under this section are subject to affirmative resolution procedure.”.(4) In subsection 10 (statement of capital and initial shareholdings), omit subsection (3).(5) In subsection 11 (statement of guarantee), omit subsection (2).”Member’s explanatory statement
This expands the information that an application for the formation of a company must include about the subscribers and confers a power to amend that information (similar powers currently exist in sections 10(3) and 11(2) of the Companies Act 2006). The clause also incorporates material from Clauses 2 and 4.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment is consequential on the amendments to Clause 40 that appear in the Minister’s name.
Lord Johnson of Lainston (Con)
My Lords, I begin by apologising for my lack of fluidity in the procedures of Committee stage—I have not taken such a complex and important Bill through before, so I am grateful for noble Lords’ indulgence and apologise for any confusion caused.
I speak now to the set of government amendments in this group: Amendments 9 to 12, 25 to 30, 40 and 41. These will replace existing Clauses 36 and 38. They create a completely new type of sanctions measure in the Sanctions and Anti-Money Laundering Act 2018 called “director disqualification sanctions”. It will be unlawful for a designated person subject to this new measure to act as a director of a company. These amendments improve and extend the existing clauses, which prohibit individuals who are subject to the asset freeze sanctions measure from acting as directors of companies. Instead of automatically applying director disqualification status to individuals who are subject to an asset freeze only, this amendment allows Ministers to apply the new measure on a case-by-case basis using the existing designation procedure within the Sanctions and Anti-Money Laundering Act 2018. That will ensure that the measure can be better targeted at those designated persons who are acting, or could act, as directors. It provides the Foreign, Commonwealth and Development Office with flexibility as to when to apply it and does not limit it in applying it only to people subject to an asset freeze. That is standard practice for our other designation-based sanctions measures, such as asset freezes and travel bans.
It will be for the Foreign Secretary to decide when and how to deploy the measure, alongside the full suite of other sanctions measures. For instance, this measure could be applied on its own or alongside an asset freeze, travel ban or other measures. While other countries may be able to prevent designated persons from acting as company directors through the effect of other prohibitions, we will be the first country to introduce this as a specific type of sanctions measure.
The amendment will utilise the procedures set out in the Company Directors Disqualification Act 1986 to disqualify the designated person from directorship of UK companies. An individual subject to this new measure will commit an offence if they act as a director of a company or take part in the management, formation or promotion of a company.
As with existing sanctions measures, the relevant authority will be able to issue a licence to an individual to allow them to undertake activity that is otherwise prohibited. This may be necessary, for instance, where the individual needs to continue to act as a director for a short period of time in order to wind down the company. Additionally, the Secretary of State can by regulations create exceptions to provide more general carve-outs from the sanction.
Information about individuals who are subject to this new sanction, and any relevant licences, will be published on the director disqualification register maintained by Companies House, as well as on the UK sanctions list. This will ensure that the use of the sanction is transparent. It will also make the information more easily accessible. Members of the public will be able to find all the relevant information on the existing register, and will not have to search unfamiliar sources to access information on disqualified directors.
Introducing this new director disqualification sanctions measure will be an important addition to the UK’s sanctions armoury. I beg to move Amendment 9 and very much hope that noble Lords will support the other government amendments in this group.
Lord Agnew of Oulton (Con)
My Lords, I shall speak to my amendment on designated persons. The Minister is already dealing with this issue in some of his own amendments, but I stress that mine would be a slight tweak to the system that would have enormous power over the very few people who would be impacted. Last year only 1,200 people were designated for the Russian activities—across the whole world, not just by us—so we are talking about low numbers of thousands of people relative to the 5 million on the register. We also know that some of these bad actors got wind of their designation before it happened and were able to reorganise their financial affairs, so the horse had well and truly bolted by the time we rumbled into action. This slight amendment would give much more transparency into what these people were doing and allow the enforcement agencies to act accordingly.
Lord Wallace of Saltaire (LD)
My Lords, I note that these various amendments cover England and Wales, Scotland and Northern Ireland, but the UK financial system very much includes Jersey and Guernsey for a great many company formations and associated company forms. I wonder whether at this stage the Minister could explain whether or not the disqualification of persons from being directors within the UK will in time apply to the Crown dependencies, or whether one will still be able to act as a director for companies formed in the Crowd dependencies while disqualified within the UK.
Lord Johnson of Lainston (Con)
I appreciate the noble Lord’s comment about the Crown dependencies. I am happy to confirm that this debate develops the specific answer to his question. My assumption would be that they fall under the register of overseas entities and the requirements placed around them, but I will confirm that. The noble Lord makes a very valid point. It would be peculiar if we did not include the Crown dependencies of Jersey and Guernsey in our legislation. My assumption is that they are well covered, and I hope that is the case.
I thank my noble friend Lord Agnew of Oulton for his Amendment 24. I assure him that I do not think it is necessary to achieve his intentions. Provisions in the Bill already allow Companies House proactively to share data more widely for purposes connected with its functions. Data sharing will also be permitted to assist public authorities with exercising their own functions. This will include government bodies such as OFSI, which is part of His Majesty’s Treasury, the National Crime Agency and so on. Examples of data sharing could be for the purpose of confirming the accuracy of data provided to the registrar to ensure the register is kept up to date or for passing on intelligence to law enforcement agencies to minimise criminal activity.
Companies House will operate a risk-based approach targeting its efforts primarily in those areas where information and intelligence gleaned through new data-sharing powers and through Companies House’s own systems and processes suggest that particular scrutiny is warranted. The Government believe that this amendment, while well intentioned, is overly prescriptive and would lead to Companies House having to share potentially irrelevant and unnecessary information with OFSI and NCA. This would be an inefficient use of government resources and could lead to more serious intelligence that needs to be shared being missed. Although Companies House already works very closely with government departments, including HM Treasury’s OFSI and law enforcement agencies, this Bill will strengthen these existing relationships through enhanced data-sharing provisions.
This amendment seeks to impose a duty on the registrar only with regard to material information, which it leaves undefined. The imposition of such a vague duty could lead to confused and ineffective results and underlines the importance of the registrar being able to share data using a risk-based approach. Furthermore, information about individuals who are subject to this new sanction and any relevant licences will be published on the director disqualification register maintained by Companies House as well as on the UK sanctions list to ensure that the use of the sanctions measure is transparent. Discussions about implementing the new sanctions measure, including data sharing between Companies House, the Department for Business and Trade and the Foreign, Commonwealth and Development Office, are already under way to ensure that the new measure is effective. For the reasons set out above, I ask my noble friend not to move his amendment.
Lord Johnson of Lainston
“(7) Where any of the persons named as directors would be disqualified under the directors disqualification legislation by virtue of section 11A of the Company Directors Disqualification Act 1986 or Article 15A of the Company Directors Disqualification (Northern Ireland) Order 2002 (designated persons under sanctions legislation) but for the authority of a licence of the kind mentioned in that section or Article, the statement must also include a statement to that effect, in respect of each of them, specifying—(a) the person’s name, and(b) the date on which the licence was issued and by whom it was issued.”Member’s explanatory statement
This amendment is consequential on new clauses (Power to impose director disqualification sanctions), (Disqualification of persons designated under sanctions legislation: GB) and (Disqualification of persons designated under sanctions legislation: NI)(which are inserted after Clauses 36 and 38).
Lord Johnson of Lainston
(c) if any of them would be so disqualified by virtue of section 11A of the Company Directors Disqualification Act 1986 or Article 15A of the Company Directors Disqualification (Northern Ireland) Order 2002 (designated persons under sanctions legislation) but for the authority of a licence of the kind mentioned in that section or Article, a statement to that effect, in respect of each of them, specifying—(i) the person’s name, and(ii) the date on which the licence was issued and by whom it was issued.”Member’s explanatory statement
This amendment is consequential on new Clauses (Power to impose director disqualification sanctions), (Disqualification of persons designated under sanctions legislation: GB) and (Disqualification of persons designated under sanctions legislation: NI)(which are inserted after Clauses 36 and 38).
Member’s explanatory statement
This amendment is consequential on the amendments to Clause 40 that appear in the Minister’s name.
Baroness Blake of Leeds
Member’s explanatory statement
This amendment, along with other amendments, would require that, when a when a company is ordered to change its name under the provisions of this Bill (including in cases where the name is considered misleading or it may facilitate criminal activity), the company must comply with the order with between 28 and 90 days.
Baroness Blake of Leeds (Lab)
My Lords, Amendment 13 is tabled in my name and those of my noble friends Lord Coaker and Lord Ponsonby. I thank the Minister and his team for all the briefings we have had and for their openness and support in getting us this far, and all noble Lords in the Room for all the information we are gleaning on almost every group that comes before us.
Lord Johnson of Lainston (Con)
I greatly thank the noble Baroness, Lady Blake, for speaking in this debate and for tabling Amendment 13, to which I will now respond. All these amendments are concerned with directions issued to a company by the Secretary of State requiring it to change its name under provisions already in the Companies Act 2006 and added to that Act by virtue of the Bill.
I am very sympathetic to some of the background comments relating to this amendment, but we feel that it is better to allow an element of flexibility around the time it takes a company to change its name. There is already a 28-day target point, and it is right that the Secretary of State has the opportunity to extend that.
Noble Lords in the Committee who have been involved in company management will know that sometimes, in order to have a formal resolution, there are certain requirements of notice periods for boards, which can be 30 days. For the businesses I have been involved in, that tended to be common practice; you can have a special resolution, but it is more important that the change happens and that we do not necessarily set arbitrary timelines, which could cause other issues at a later date.
I am very comfortable with having a further discussion with the noble Baroness and her colleagues about this in case something has been missed in the debate. Ultimately, I believe that we have set the right level of activity requirements and that allowing the Secretary of State to have the flexibility would be more appropriate given the ambitions we are trying to achieve.
The second element of the amendments—I am not sure whether they were spoken to, but they were certainly proposed so it is worth covering them briefly because they are part of the debate—is the requirement for the Secretary of State to publish details of any directions. Directions are issued to companies by the Secretary of State rather than the registrar so they do not form part of the company register, which is a record of information provided to the registrar by companies and material issued to companies by the registrar. We do not believe it would be appropriate to depart from that principle. However, to repeat commitments made at earlier stages of the Bill, we would be happy to examine on a case-by-case basis the appropriateness of annotating the register where name change directions have been issued. I therefore ask the noble Baroness to withdraw her amendment.
Baroness Blake of Leeds (Lab)
I thank the Minister. I was indeed referring to all the amendments in the group. I note his offer of further conversations to make sure that we have absolutely nailed down the clarification that we are seeking and beg leave to withdraw the amendment.
Baroness Blake of Leeds
“(2A) An address is not an “appropriate address” if—(a) it is not a place where the business of the company is regularly carried out,(b) the registrar, following appropriate investigation, has reasonable grounds to suspect that the company does not have permission to use the address, or(c) it is a PO Box address.(2B) The Secretary of State may by regulations make provision—(a) for exceptions to subsection (2A), and(b) for the registrar to exercise discretion to disapply subsection (2A) in exceptional cases.”Member’s explanatory statement
This amendment seeks to clarify the Bill’s definition of an “appropriate address” for a company’s registration.
Baroness Blake of Leeds (Lab)
My Lords, Amendment 23 is tabled in the name of my noble friend Lord Coaker, which my noble friend Lord Ponsonby and I have signed in support. The amendment does not form part of a group. It seeks to clarify the Bill’s definition of an appropriate address for company registration. It is aimed in particular at trying to stop the terrible practice—which is widespread, as we heard at Second Reading—of companies using false addresses. Although Clause 28 defines an appropriate address, our amendment goes further in defining what is not an appropriate address, including a Post Office box.
In terms of public awareness of the debate that we are having as the Bill goes through, the use of false addresses is one of the most publicly well-known issues with Companies House, and we really should be putting all our efforts in to try to prevent it. People trying to prove that companies are registering falsely at their address often have to go to far greater lengths to prove that they are the proper residents of the said address than the person setting up the company. I hope that this amendment provides an opportunity to talk about the use of false addresses and, therefore, the impact that it has on the public. It is one of the most visible parts of the current failure of Companies House. As things stand, Companies House does not do any detailed check on an address where a company is registered, particularly if it uses the basic criteria laid down by Companies House.
I am sure that I am not alone in having listened to many of the different programmes in the media, particularly on the radio but on other outlets as well, which have had this vexed issue as their subject. You hear about the absolute distress caused to people, who are completely innocent in the process, who come home and find letters sent to their address and many other factors which lead them to understand that someone has falsely set up a company using their name or address—and on this occasion we are talking about their address. The most important issue to recognise here is that this can take years to disentangle, and it can cause distress and untold misery, and we have a collective responsibility, with the passage of this Bill, to make sure that Companies House does all the work that it can to help.
The important issue to bear in mind is that the onus should be on the businesses to prove that they are legitimate rather than it being on individuals to prove it is a scam and their innocence. I hope that other noble Lords will comment on this amendment, and I hope that collectively we can work together to make sure that innocent members of the public are given the full protection possible by the new legislation. I beg to move.
Lord Leigh of Hurley (Con)
I take up the noble Baroness’s invitation to comment on this amendment, although I have just received a text from my mother who says that, having been called a business guru by the Minister, I should keep quiet and not say any more. However, this is a very important issue on which I spoke at some length at Second Reading, and quoted an article in the Times highlighting the problem. The noble Baroness is quite right that it blights people’s houses when they find it to be a registered office, which they had not intended it to be and, of course, the information does not go to the right person.
Nevertheless, I am very concerned by this amendment as worded, because it says:
“An address is not an “appropriate address” if … it is not a place where the business of the company is regularly carried out”.
I assume that paragraphs (a), (b) and (c) in the amendment would be separated by an “or”, because many companies choose as their registered office their solicitor or accountant, with good reason, particularly in these days of working from home, start-ups and virtual companies, where they do not have a single office space but move around the place. The main place of business may be an apartment where they happen to live, so it is convenient and sensible to choose a solicitor’s or accountant’s office as their base. Indeed, when I worked as a chartered account in a large accountancy firm some 35 years ago, that was very common.
Sadly, I do not think the amendment as worded achieves what the noble Baroness seeks, but neither does the Bill: with the greatest respect to the Minister,
“would be expected to come to the attention of a person acting on behalf of the company”
is a bit convoluted for what we know we want to achieve. Although I cannot support this amendment at this time, I very much hope that before the next stage, we might come up with some wording that achieves where we all want to go.
Lord Vaux of Harrowden (CB)
My Lords, I have two very short points on this. First, I agree with the noble Lord, Lord Leigh of Hurley. I do not think paragraph (a) in the amendment works: the registered address does not have to be the place of business, it often is not and there are often perfectly good reasons for that; but paragraph (b) is incredibly important, concerning this use of people’s addresses for, effectively, fraudulent purposes. Often, the first thing the person whose address it is knows about it is a letter from HMRC with a massive VAT demand: this is particularly used for VAT fraud. It is really important that Companies House works closely—a point discussed on a previous group—with other agencies, particularly HMRC, to make sure that this sort of thing is knocked on the head.
Lord Thomas of Gresford (LD)
My Lords, the Companies Act says at Section 9(5) that an application
“must contain a statement of the intended address of the company’s registered office”.
That is all on registration. That opens up the sort of abuses that we have heard from the noble Baroness and the two noble Lords who have already spoken. I tend to agree with the two noble Lords, having been a solicitor myself, that it is perfectly responsible for a solicitor’s or accountant’s office to be used as a registered office, but nevertheless, the way in which the Government have attacked it does not cover the whole ground. It is very sensible, in addition to the way the Government have put it, to define an appropriate office in the negative sense. That would not include the solicitor’s or accountant’s office, for the reasons given.
Lord Clement-Jones (LD)
My Lords, I have very little to add to what my noble friend said. This is clearly a bit of a curate’s egg and Amendment 23 is a good start, but there are objections to it, which were very well set out by the noble Lords, Lord Leigh and Lord Vaux. As my noble friend said, it is quite usual to use professional offices as a registered office. I hope the Minister will acknowledge that new subsection (2) in Clause 29(3) is not as good as it should be and that he will take on board some of the points made about Amendment 23. Then, we would be in a much better place.
Lord Johnson of Lainston (Con)
I thank the noble Lords, Lord Vaux and Lord Leigh, the noble Baroness, Lady Blake, and the noble Lords, Lord Thomas and Lord Clement-Jones, for their contribution to the debate on this issue.
The Government’s view is that Clause 29 already introduces a revised Section 86 to the Companies Act 2006 in an effort to introduce a definition of what constitutes an acceptable and effective address for a company’s registered office. The amendment seeks to define the opposite: what would not represent an appropriate address. I hope your Lordships will agree with the following argument for why that is unnecessary.
I begin with the suggestion that PO box addresses be explicitly forbidden. We do not believe there is a need for this. A PO box address cannot be an address at which deliveries can be acknowledged, nor an address to which a sender can be assured that what is sent will find its way to the hands of a company representative. It is therefore clearly not an appropriate address—we very much agree with the noble Baroness on that.
I turn to the “reasonable suspicion” element of the amendment. Where the registrar has reasonable grounds to suspect that the company does not have permission to use an address, she will almost inevitably conclude that the conditions that I have just mentioned will not be capable of being met and, again, she will be within her rights to reject or force the company to change it as appropriate.
The other element of the amendment would prevent companies having their registered office address anywhere other than their main place of business. There are, frankly, many reasons why a company may choose to separate the two, so this could be problematic for many companies. That includes, for example, particularly small enterprises that carry out businesses from home but choose to register the company at the premises of their accountant in order to protect their residential address details, which I think we would agree is perfectly reasonable. We have been at pains elsewhere in the Bill to introduce measures to extend, where appropriate, the ability to suppress addresses that the public have access to which might jeopardise the safety or security of individuals. There are elements of the amendment that we believe would run contrary to those aims.
I hope the Committee will be reassured that new Section 86 will be an effective means by which to monitor and police the accuracy of company address information and that the noble Baroness will feel able to withdraw her amendment. As a final point, I personally have great sympathy with the ambitions of the amendment to make sure that the right address is being provided for the company register, but I hope I have laid out the reasons why the processes that the Government have put in the legislation should be sufficient to ensure that real addresses are given and other protections are employed.
Lord Faulks (Non-Afl)
Personally, I am convinced by what the Minister has said about the substitute for Section 86. I just have one query. It creates an offence whereby a person is guilty on summary conviction. The offence appears to be committed by a company and
“every officer of the company who is in default.”
Could the Minister help with who the statute envisages will be an officer of the company who is in default?
Lord Johnson of Lainston (Con)
I appreciate that comment. I will come back to the noble Lord with more detail, if that is possible.
Baroness Blake of Leeds (Lab)
I thank noble Lords for their comments, and I thank the Minister for his explanation. We will of course take those comments away and consider them, but at the moment I feel that there is still room to explore this issue and perhaps come up with another form of wording to take forward at a future stage. As I said earlier, the emphasis on reflecting the fact that the onus is on a business to prove that it is legitimate will need to run through all this. With those comments, and in anticipation of future discussions, I beg leave to withdraw the amendment.
Lord Johnson of Lainston
“Power to impose director disqualification sanctions
(1) The Sanctions and Anti-Money Laundering Act 2018 is amended as follows.(2) In section 1 (power to make sanctions regulations), in subsection (5), after paragraph (a) insert—“(ab) impose director disqualification sanctions (see section 3A);”.(3) After section 3 insert—“3A Director disqualification sanctions(1) For the purposes of section 1(5)(ab) regulations “impose director disqualification sanctions” if they provide for designated persons (see section 9) to be persons subject to director disqualification sanctions for the purposes of—(a) section 11A of the Company Directors Disqualification Act 1986, and(b) Article 15A of the Company Directors Disqualification (Northern Ireland) Order 2002.(2) As to the effect of such provision, see—(a) section 11A of the Company Directors Disqualification Act 1986, and(b) Article 15A of the Company Directors Disqualification (Northern Ireland) Order 2002.”(4) In section 9 (“designated persons”)—(a) in subsection (1), for “3 and 4” substitute “3 to 4”;(b) in subsection (3), after “3,” insert “3A,”.(5) In section 15 (exceptions and licences), after subsection (3) insert—“(3A) Where regulations provide for designated persons to be persons subject to director disqualification sanctions for the purposes of section 11A of the Company Directors Disqualification Act 1986 and Article 15A of the Company Directors Disqualification (Northern Ireland) Order 2002, the regulations may—(a) create exceptions from subsection (1) of that section or paragraph (1) of that Article;(b) confer power on an appropriate Minister to issue a licence to authorise a designated person to do anything that would otherwise be prohibited by subsection (1) of that section or paragraph (1) of that Article.(3B) Regulations may, as respects any licences provided for under subsection (3A), make any provision mentioned (in relation to licences) in subsection (3).””Member’s explanatory statement
This Clause would allow an appropriate Minister to designate a person as subject to “director disqualification sanctions” for the purposes of section 11A of the Company Directors Disqualification Act 1986 and Article 15A of the Company Directors Disqualification (Northern Ireland) Order 2002.
“Disqualification of persons designated under sanctions legislation: GB
(1) The Company Directors Disqualification Act 1986 is amended as follows.(2) After section 11 insert—“11A Designated persons under sanctions legislation(1) It is an offence for a person who is subject to director disqualification sanctions to act as a director of a company or directly or indirectly to take part in or be concerned in the promotion, formation or management of a company (but see subsection (2)).(2) Subsection (1) does not apply—(a) to the extent that an exception from subsection (1) has been created by virtue of section 15(3A) of the Sanctions and Anti-Money Laundering Act 2018, or(b) to anything done under the authority of a licence issued by virtue of section 15(3A) of that Act.(3) It is a defence for a person charged with an offence under this section to prove that they did not know and could not reasonably have been expected to know that they were subject to director disqualification sanctions at the time at which they engaged in that conduct.(4) In this section “person who is subject to director disqualification sanctions” means a person who under regulations under section 1 of the Sanctions and Anti-Money Laundering Act 2018 is a person subject to director disqualification sanctions for the purposes of this section (see section 3A of that Act).”(3) In section 13 (criminal penalties), after “section 11” insert “or 11A ”.(4) In section 14 (offences by body corporate), for subsection (1) substitute—“(1) Where—(a) a body corporate is—(i) guilty of an offence of acting in contravention of a disqualification order or disqualification undertaking or in contravention of section 12A or 12B, or(ii) guilty of an offence under section 11A, and(b) it is proved that the offence occurred with the consent or connivance of, or was attributable to any neglect on the part of any director, manager, secretary or other similar officer of the body corporate, or any person who was purporting to act in any such capacity,the person, as well as the body corporate, is guilty of the offence and liable to be proceeded against and punished accordingly.”(5) In section 15 (personal liability for company’s debts where person acts while disqualified)—(a) in subsection (1)(a), after “section 11” insert “, 11A”;(b) omit the “or” at the end of subsection (1)(a);(c) after subsection (1)(b) insert “, or(c) as a person who is involved in the management of the company, they act or are willing to act on instructions given in contravention of section 11A or Article 15A of the Company Directors Disqualification (Northern Ireland) Order 2002.”;(d) after subsection (1) insert—“(1A) A person who is subject to director disqualification sanctions (within the meaning of section 11A) and is involved in the management of a company is not personally responsible under subsection (1)(a) for all of the relevant debts of a company if the person proves that they did not know and could not reasonably have been expected to know that they were subject to director disqualification sanctions at the time at which they were so involved.”;(e) in subsection (3)(b), after “(b)” insert “or (c)”.(6) In section 18 (register of disqualification orders and undertakings), in subsection (2A), after paragraph (c) insert—“(d) persons who are subject to director disqualification sanctions within the meaning of section 11A;(e) any licences issued by virtue of section 15(3A) of the Sanctions and Anti-Money Laundering Act 2018.” (7) In section 21 (interaction with Insolvency Act), in subsection (4), after “section 11” insert “, 11A”.”Member’s explanatory statement
This Clause provides that any person who has been designated as being subject to director disqualification sanctions will be committing an offence if they act as a director etc. in GB, unless they have been issued with a licence or unless an exception applies.
Lord Johnson of Lainston
“Disqualification of persons designated under sanctions legislation: NI
(1) The Company Directors Disqualification (Northern Ireland) Order 2002 (S.I. 2002/3150 (N.I. 4)) is amended as follows.(2) After Article 15 insert—“15A Designated persons under sanctions legislation(1) It is an offence for a person who is subject to director disqualification sanctions to act as a director of a company or directly or indirectly to take part in or be concerned in the promotion, formation or management of a company (but see paragraph (2)).(2) Paragraph (1) does not apply—(a) to the extent that an exception from paragraph (1) has been created by virtue of section 15(3A) of the Sanctions and Anti-Money Laundering Act 2018, or(b) to anything done under the authority of a licence issued by virtue of section 15(3A) of that Act.(3) It is a defence for a person charged with an offence under this Article to prove that they did not know and could not reasonably have been expected to know that they were subject to director disqualification sanctions at the time at which they engaged in that conduct.(4) In this Article “person who is subject to director disqualification sanctions” means a person who under regulations under section 1 of the Sanctions and Anti-Money Laundering Act 2018 is a person subject to director disqualification sanctions for the purposes of this Article (see section 3A of that Act).”(3) In Article 18 (criminal penalties)—(a) omit “15,”;(b) for “and” substitute “; and any person guilty of an offence under this Article or Article 15 or 15A”.(4) In Article 19 (personal liability for company’s debts where person acts while disqualified)— (a) in paragraph (1)(a), after “Article 15” insert “, 15A”;(b) omit the “or” at the end of paragraph (1)(a);(c) after paragraph (1)(b) insert “, or(c) as a person who is involved in the management of the company, they act or are willing to act on instructions given in contravention of Article 15A or section 11A of the Company Directors Disqualification Act 1986.”;(d) after paragraph (1) insert—“(1A) A person who is subject to director disqualification sanctions (within the meaning of Article 15A) and is involved in the management of a company is not personally responsible under paragraph (1)(a) for all of the relevant debts of a company if the person proves that they did not know and could not reasonably have been expected to know that they were subject to director disqualification sanctions at the time at which they were so involved.”;(e) in paragraph (3)(b), after “(1)(b)” insert “or (c)”.”Member’s explanatory statement
This Clause provides that any person who has been designated as being subject to director disqualification sanctions will be committing an offence if they act as a director etc. in NI, unless they have been issued with a licence or unless an exception applies.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment is consequential on new Clauses (Power to impose director disqualification sanctions), (Disqualification of persons designated under sanctions legislation: GB) and (Disqualification of persons designated under sanctions legislation: NI)(which are inserted after Clauses 36 and 38).
“P is subject to director disqualification sanctions within the meaning of section 11A of the Company Directors Disqualification Act 1986. | Section 15(3A) of the Sanctions and Anti- Money Laundering Act 2018 (exceptions and licences).” |
This amendment is consequential on new clauses (Power to impose director disqualification sanctions) and (Disqualification of persons designated under sanctions legislation: GB) (which are inserted after Clause 36).
“P is subject to director disqualification sanctions within the meaning of Article 15A of the Company Directors Disqualification (Northern Ireland) Order 2002. | Section 15(3A) of the Sanctions and Anti- Money Laundering Act 2018 (exceptions and licences).” |
This amendment is consequential on new Clauses (Power to impose director disqualification sanctions) and (Disqualification of persons designated under sanctions legislation: NI) (which are inserted after Clauses 36 and 38)
Lord Johnson of Lainston
“Register of members: information to be included and powers to obtain it
(1) The Companies Act 2006 is amended as follows.(2) In section 112 (the members of a company), at the end insert—“(4) Where an individual’s name is entered in a company’s register of members but is not in the form required by section 113A, that does not affect the person becoming a member of the company by virtue of subsection (2).”(3) For the italic heading “General” at the beginning of Chapter 2 of Part 8 substitute “Duty to keep register”.(4) In section 113 (register of members)—(a) for subsection (2) substitute—“(2) There must be entered in the register, in respect of each person who is a member—(a) the required information (see sections 113A and 113B), and(b) the date on which the person was registered as a member.(2A) Where a person ceases to be a member there must be entered in the register the date at which the person’s membership ceased.”;(b) in subsection (3), omit “, with the names and addresses of the members,”;(c) in subsection (5), after “show a single” insert “service”;(d) in subsection (6), omit “, with the names and addresses of the members,”;(e) after subsection (6) insert—“(6A) Where any of the information required to be entered in a company’s register of members changes—(a) that does not relieve the company from the obligation to include the old information in the register if it has not already done so,(b) the old information must be retained in the register until its removal is authorised by section 121 or by court order under section 125, and(c) a note must be included in the register recording the date on which the information changed and the date on which the change was entered in the register.”;(f) in subsection (7), after “If” insert “, without reasonable excuse,”.(5) After section 113 insert—“113A Required information about members: individuals(1) The required information about a member who is an individual is—(a) name;(b) a service address. (2) In this section “name” means forename and surname.(3) Where a member is a peer or an individual usually known by a title—(a) any requirement imposed by section 113D or 113E, or by a notice under section 113F, to provide their name may be satisfied by providing their title instead;(b) the title may be entered in the register of members instead of their forename and surname (and references in any enactment to the name of a person entered in a company’s register of members are to be construed accordingly).113B Required information about members: corporate members and firmsThe required information about a member that is a body corporate, or a firm that is a legal person under the law by which it is governed, is—(a) corporate or firm name;(b) a service address.113C Power to amend the required information(1) The Secretary of State may by regulations—(a) make provision changing the required information about a member for the purposes of this Chapter;(b) repeal section 113A(3).(2) The provision that may be made in regulations under subsection (1)(a) includes provision amending this Chapter.(3) The consequential provision that may be made in regulations under subsection (1)(a) by virtue of section 1292(1) also includes provision amending section 51 of the Economic Crime and Corporate Transparency Act 2023.(4) Regulations under subsection (1) are subject to affirmative resolution procedure.113D Duty on new members to notify required information(1) A person who becomes a member of a company must provide the company with the required information about the member (see sections 113A and 113B).(2) Subsection (1) does not apply if or to the extent that—(a) the person has already provided the information to the company, or(b) the person becomes a member of the company on its incorporation and the information is contained in the application for the registration of the company.(3) A person must comply with this section within the period of two months beginning with the date on which the person became a member.113E Duty on member to notify changes to required information(1) A person who is a member of a company must give notice to the company of any change in the required information about the member (see sections 113A and 113B).(2) The notice must specify the date on which the change occurred.(3) A person must comply with this section within the period of two months beginning with the date on which the change occurred.113F Power for company to require information from members(1) A company may, for the purposes of ensuring that its register of members includes the information that it is required to include, require a member or former member of the company to provide any of the required information about the member or former member (see sections 113A and 113B). (2) The notice must require the recipient to comply with it within the period of one month beginning with the date on which the notice is given.113G Failure to comply with section 113D , 113E or 113F(1) A person who, without reasonable excuse, fails to comply with section 113D or 113E commits an offence.(2) A person who, without reasonable excuse, fails to comply with a notice under section 113F commits an offence.(3) Where an offence under subsection (1) or (2) is committed by a firm, the offence is also committed by every officer of the firm who is in default.(4) A person guilty of an offence under this section is liable—(a) on conviction on indictment, to imprisonment for a term not exceeding two years or a fine (or both);(b) on summary conviction—(i) in England and Wales, to imprisonment for a term not exceeding the general limit in a magistrates’ court or a fine (or both);(ii) in Scotland, to imprisonment for a term not exceeding 12 months or a fine not exceeding the statutory maximum (or both) and, for continued contravention, a daily default fine not exceeding one-fifth of the statutory maximum;(iii) in Northern Ireland, to imprisonment for a term not exceeding 6 months or a fine not exceeding the statutory maximum (or both) and, for continued contravention, a daily default fine not exceeding one-fifth of the statutory maximum.113H Basic false statement offences in connection with sections 113D to 113F(1) A person commits an offence if, in purported compliance with section 113D or 113E and without reasonable excuse, the person makes a statement that is misleading, false or deceptive in a material particular.(2) A person commits an offence if, in purported compliance with a notice under section 113F and without reasonable excuse, the person makes a statement that is misleading, false or deceptive in a material particular.(3) Where an offence under subsection (1) or (2) is committed by a firm, the offence is also committed by every officer of the firm who is in default.(4) A person guilty of an offence under this section is liable—(a) on summary conviction in England and Wales, to a fine;(b) on summary conviction in Scotland, to a fine not exceeding level 5 on the standard scale;(c) on summary conviction in Northern Ireland, to a fine not exceeding level 5 on the standard scale.113I Aggravated false statement offences in connection with sections 113D to 113F(1) A person commits an offence if, in purported compliance with section 113D or 113E, the person makes a statement that the person knows to be misleading, false or deceptive in a material particular.(2) A person commits an offence if, in purported compliance with a notice under section 113F, the person makes a statement that the person knows to be misleading, false or deceptive in a material particular. (3) Where an offence under subsection (1) or (2) is committed by a firm, the offence is also committed by every officer of the firm who is in default.(4) A person guilty of an offence under this section is liable—(a) on conviction on indictment, to imprisonment for a term not exceeding two years or a fine (or both);(b) on summary conviction—(i) in England and Wales, to imprisonment for a term not exceeding the general limit in a magistrates’ court or a fine (or both);(ii) in Scotland, to imprisonment for a term not exceeding 12 months or a fine not exceeding the statutory maximum (or both) and, for continued contravention, a daily default fine not exceeding one-fifth of the statutory maximum;(iii) in Northern Ireland, to imprisonment for a term not exceeding 6 months or a fine not exceeding the statutory maximum (or both) and, for continued contravention, a daily default fine not exceeding one-fifth of the statutory maximum.Duty to keep index of members”.(6) Section 115 (index of members)—(a) is moved to after the italic heading “Duty to keep index of members” inserted by subsection (5) of this section, and(b) is renumbered section 113J.(7) In that section as renumbered—(a) in subsection (1), for “names of the members of the company” substitute “names or titles of the members of the company (to be known as “the index of members’ names”)”;(b) for subsection (3) substitute—“(3) The index must include the same details of a person’s name or title as are entered in the register of members.”(8) Before section 114 insert—“Inspection etc of register and index of members”.(9) Before section 121 insert—“Removal of entries from register of members”.(10) In section 123 (single member companies)—(a) in subsection (1), omit “, with the name and address of the sole member,”;(b) in subsection (2), omit “, with the name and address of the sole member”;(c) in subsection (3), omit “, with the name and address of the person who was formerly the sole member”.(11) In section 771 (procedure on transfer being lodged), after subsection (1) insert—“(1A) The company may not register the transfer under subsection (1)(a) unless satisfied that it has the information that it is required to enter in its register of members in relation to the transferee.””Member’s explanatory statement
This Clause confers a power to amend the information that must be kept in a company’s register of members. It also creates an express duty for companies to retain old information about members (eg former address information).
Lord Johnson of Lainston
“(1) The Secretary of State may by regulations—(a) require a company to refrain from using, or refrain from disclosing, individual membership information except in circumstances specified in the regulations;(b) confer power on the registrar, on application, to make an order requiring a company to refrain from using, or refrain from disclosing, individual membership information except in circumstances specified in the regulations.”Member’s explanatory statement
This allows the Secretary of State to make regulations requiring a company to refrain from using or disclosing membership information, whether or not a member applies for protection.
Member’s explanatory statement
This is consequential on the other amendment to Clause 49 that appears in the Minister’s name.
Lord Johnson of Lainston
Member’s explanatory statement
This severs the link between the operation of Clause 51 and the commencement of Clause 46. The appointed day could be later than the commencement of Clause 46, allowing a company more time to obtain the information it has to provide to the registrar.
Member’s explanatory statement
This amendment is consequential on the amendment to Clause 51, page 35, line 16, which is tabled in the Minister’s name.
““the appointed day” means such day as the Secretary of State may by regulations appoint for the purposes of this section;”Member’s explanatory statement
This amendment is consequential on the amendment to Clause 51, page 35, line 16, which is tabled in the Minister’s name.
Lord Agnew of Oulton
“Disclosure of control of 5% or more of shares in a private or public company
(1) A person who controls 5% or more of the shares in a company must declare that fact to the registrar.(2) The duty in subsection (1) applies whether the person controls the shares directly or indirectly.(3) The registrar may impose a penalty on any person who fails to comply with the duty in subsection (1).(4) Subsection (5) applies where—(a) a person has made a declaration under subsection (1), and(b) the registrar has identified a matter of concern under subsection 1062A(1A) of the Companies Act 2006 in relation to the person or the declaration.(5) The registrar must—(a) verify the identity of the person, and(b) verify the number of shares the person claims to control.”Member’s explanatory statement
This creates a duty of disclosure on shareholders holding more than 5% of shares in a company. Non-compliance may incur a penalty. The registrar must verify the declarant’s identity, and the number of shares they control by cross referencing against other documents, such as company records. The reference to 1062A(1A) relates to the amendment tabled by Lord Agnew to Clause 90, page 69, line 27.
Lord Agnew of Oulton (Con)
My Lords, this amendment builds on my opening comments in relation to Amendment 44 and goes to the core of the Bill and transparency. It asks that shareholders with more than a 5% shareholding are disclosed on the register. I am conscious of burdens that that might impose on businesses, but the reality is that it is a maximum of 20 entities per company and, in reality, it would be far less than that. Any business in operation maintains its own cap table—the “cap” is the capitalisation of the company—so my proposal is that that is made available on public records. I do not see why we cannot have this. I am sure that my noble friend will ask me to withdraw the amendment, and I simply ask him to explain how we are going to have a comparable level of transparency if this sort of mechanism is not available. So much of the trouble is lurking in the undergrowth in my experience. This is a one-off opportunity to surface this sort of information to help us track bad actors.
Amendment 43 has a similar theme about persons of significant control. It is part of the replumbing of Companies House, which needs to carry out some analysis of the identity of people who are claiming significant control to make sure they are people whose identity, and the connections they have to other entities, is known and on the register. I return to my earlier comment that, if my noble friend does not want to do this, what is the strategy for this kind of understanding of the behaviour of these sorts of organisations? If we are not going to have the amendment that I am proposing, what is the alternative? What are the mechanisms that are going to give us some reassurance that we have control and understanding of the people on the Companies House register? I beg to move.
Lord Leigh of Hurley (Con)
When my noble friend the Minister replies to this debate, I wonder whether he would consider accepting the amendment in due course with a de minimis size qualification. This would be quite onerous for a large number of private companies, such as family businesses, where ownership changes quite regularly, and small businesses that have enough to do without worrying about perfectly innocent share transfers. For larger companies—public companies in particular—this may not be too onerous. I remind the House of my comments at Second Reading that the Quoted Companies Alliance had calculated that the average public company accounts now comprise 95,000 words—no one is keen to add any more words to that. I would certainly not wish to see this apply to private and SME businesses.
Baroness Bowles of Berkhamsted (LD)
My Lords, I support these amendments. I have listened to what the noble Lord, Lord Leigh, has said and will perhaps think about that. I should declare my interest as a director of the London Stock Exchange. At 5% ownership, there are significant things that can be done: if it is a public company, at 5% you can apply to the court to prevent it going private. That is a significant power, and we ought to know that it is applied properly. I guess the court would find out if you were not who you said you were; nevertheless, you might be masquerading as such and could still have influence—you could call general meetings and propose resolutions. These are all events that could have a significant effect on companies of all sizes. I tend to feel, therefore, that other shareholders need to know that things have been properly verified.
I have sympathy for the SME angle and will think about it further. However, just because you are small does not mean that you do not need to know some of these things, including who might have an exercisable right which you know has been verified. I would probably follow suit in the decision on persons with significant control: if you are going to exempt SMEs, they should be exempted for both; if they are going to be included, they should be included in both. I am still veering towards including them, simply because it is a substantial power. There are plenty of private SMEs in which people have significant sums invested, and I do not really see that they should be protected any less from not having full awareness of who really holds these powers to do things or of whether they are sheltering a nominee.
At the moment, my tendency is to support both of these amendments as they stand, with the caveat that I will go away and think a bit about whether this would be too onerous for SMEs. We have to remember, however, that the “M”s of SMEs can be quite big.
Lord Faulks (Non-Afl)
I am not wholly convinced that what you would be required to do under this amendment is very onerous. I remember looking at this when we were examining the desirability of transparency in relation to ownership of shares. Presuming bad actors—although this is, I hope, infrequently the case—it is very easy for someone to, as it were, redistribute their shares to smaller packages if they wanted to conceal their identity. I am not saying that that is what people do most of the time, but it would be more difficult if there were an obligation to disclose of the sort contained in this amendment.
Lord Vaux of Harrowden (CB)
My Lords, very quickly, I will not repeat what we said on an earlier group, but these two amendments cover very much the same sort of areas of transparency. I ask the Minister—probably as a matter of relative urgency, given the discussions we have had—whether he could facilitate a meeting of the various interested parties so that we can try to thrash out where we want to start to coalesce around these issues, as that would be helpful.
Lord Cromwell (CB)
I declare that I am a shareholder in an SME. We need to be aware that there are various classes of shares. You could be a 5% shareholder in terms of owning the company, but an 80% shareholder in the voting shares. Whatever the outcome of these discussions, we need to be very clear which type of shares we are talking about.
Lord Trevethin and Oaksey (CB)
I was going to make a similar point. Obviously, there are a number of different classes of shares; as it stands, the amendment is, with respect, a little unclear as to how it would operate in relation to voting shares, non-voting shares, preference shares, class A shares, class B shares and so forth. That would need to be tightened up.
On the amendment creating a dangerously onerous regime, it occurred to me that a further aspect of its onerousness relates to what the registrar is required to do pursuant to this amendment. It currently states that the registrar must
“verify the number of shares the person claims to control.”
If taken literally, that might require the registrar to look quite carefully at what is being said about the slightly tricky concept of control, which is not quite the same as ownership. That might need to be reconsidered in due course, or perhaps watered down or removed.
Lord Clement-Jones (LD)
Noble Lords, including my noble friend Lady Bowles, have usefully teased out some of the principles that we need to adopt and the fact that we are not quite there in terms of trying to find a relatively simple formula that is not unduly onerous. They also point out that the current provisions are not adequate. Indeed, it is quite interesting that we have two separate groups here, in coming to government Amendment 42. This whole area of persons with significant control and what the noble Lord, Lord Agnew, set out in terms of shareholders holding more than 5% of shares demonstrate that we need a greater level of transparency.
I very much hope that the Minister will come back in the spirit in which these proceedings have been conducted and say, “Yes, we think there is more to be done and that it is possible to get over the SME issue that has been raised by a number of noble Lords. However, we think in principle that it is desirable to go down this sort of route that has been suggested.” I hope that we will get a positive reply from the Minister and an undertaking to take this forward in the way that the noble Lord, Lord Vaux, suggested.
Lord Ponsonby of Shulbrede (Lab)
My Lords, I echo what the noble Lord, Lord Clement-Jones, said. When the noble Lord, Lord Agnew, moved Amendment 39, which places a duty to register on those owning 5% or more of shares, and he spoke to his Amendment 43, which creates an obligation for the registrar to examine the statements attesting to the identity of the person, by his tone he made it crystal clear that that was not the last word on the subject. In fact, he threw down a challenge to the Minister in introducing that group and saying, “If not this, then what? What will be the strategy to combat the bad actors?”
As he said, the problems lie in the undergrowth. There are shareholders with smaller shareholdings, and maybe there are multiple companies owning small shareholdings; there are many ways of hiding things and many who will facilitate those who want to hide their wealth. The whole theme of this group is a challenge to the Minister; it is not about the detail of the amendments themselves. I look forward to what he has to say.
Lord Johnson of Lainston (Con)
I thank the noble Lord, Lord Ponsonby, for that summation. I am very grateful to noble Lords for the powerful reason which they bring to bear on these amendments. The Government are delighted to have more discussions around how we ensure that we have full knowledge of people who have control of companies and of companies’ beneficiaries. I believe that the Bill as it stands gives us that level of security. The Government would be reluctant to set arbitrary levels in terms of that above a certain percentage one should have additional registration information, but I am happy to have a discussion around those principles, if that is helpful.
If people do not have confidence in Companies House, we will not have achieved part of our goal, which is to give people a sense of that the data has integrity and is true. The whole point about this exercise is to make sure that people put the right data in so that we know who the people are who are behind businesses and people can trust that information. I am very sympathetic to this discussion, which is extremely important.
To balance this, I say that this is about helping businesses function better in a lawful environment. One can go to the ultimate degree in terms of requirements for information and verification that do not necessitate greater degrees of security but cause significant burdens for businesses. This is not simply about satisfying our desire for excess information simply for the sake it; it must be linked to whether this is going to help us achieve our basic goals, which is to understand who owns these businesses, who is behind them and who is benefiting from them. With that in mind, I am open to having further discussions, as my colleagues would be.
Lord Agnew of Oulton (Con)
I thank the Minister for his offer to have an ongoing conversation about this, because that is how you achieve the best results in these things. This very formal and rigid process of trying to look at individual clauses in isolation does not solve the problem. We have had several clauses this afternoon that all mesh together with one objective, which is to improve transparency. I take my noble friend Lord Leigh’s point about creating a bureaucratic system that impacts adversely on thousands of decent people, particularly small businesses. However, the transaction of changing car ownership in this country, where you have an asset worth a few thousand pounds, it is a very simple process. You fill in a change of ownership form, you send it to the DVLA, and the job is done—so to the point made by my noble friend Lord Faulks, I do not believe that we have to create a bureaucratic system to get transparency.
I remind noble Lords of the downside of not having this information. A case study was given to me by Members in the other place. The awful ammonium nitrate explosion in Beirut a couple of years ago killed and wounded hundreds of people. It was eventually uncovered that the company that owned the warehouse was a British-registered company, Savaro Ltd, but it was almost impossible to find out who the shareholders of that company were and to get to grips with who were the people who caused that terrible accident.
There is a lot more to this issue. As someone who has created a lot of small businesses in my career, I do not want a heavy hand on this, but light-touch regulation done well is the answer. I urge my noble friend to have an open conversation with Members here as a way of solving the problem in a business sense, not in this very formal way.
Lord Johnson of Lainston (Con)
I appreciate my noble friend’s summation. Again, I hope that the Government have demonstrated today that the principles of the Bill conform to the expectations and desires of this Committee. Clearly, there are details that require further discussion, and that debate will help propagate the ambitions and values that we are trying to inject into the Bill. I am grateful for the comments but, in this instance, I ask my noble friend to withdraw his amendment, given that we will have further discussions to try to ascertain the right levels and what burdens we should impose on business to achieve our outcomes.
Lord Johnson of Lainston
“(f) if the person would be disqualified under the directors disqualification legislation by virtue of section 11A of the Company Directors Disqualification Act 1986 or Article 15A of the Company Directors Disqualification (Northern Ireland) Order 2002 (designated persons under sanctions legislation) but for the authority of a licence of the kind mentioned in that section or Article, a statement to that effect specifying—(i) the date on which the licence was issued, and(ii) by whom it was issued.”Member’s explanatory statement
This amendment is consequential on new Clauses (Power to impose director disqualification sanctions), (Disqualification of persons designated under sanctions legislation: GB) and (Disqualification of persons designated under sanctions legislation: NI) (which are inserted after Clauses 36 and 38).
Member’s explanatory statement
This amendment is consequential on the amendments to Clause 40 that appear in the Minister’s name.
Lord Johnson of Lainston
“False statements about persons with significant control
(1) Schedule 1B to the Companies Act 2006 (enforcement of disclosure requirements in relation to persons with significant control) is amended as follows.(2) In paragraph 13, in sub-paragraph (1), omit paragraph (b) and the “or” before it.(3) In paragraph 14, in sub-paragraph (1), omit paragraph (b) and the “or” before it.(4) After paragraph 14 insert—“False statements: basic offence14A_(1) A person commits an offence if, in purported compliance with a notice under section 790D or 790E or in purported compliance with a duty imposed by section 790G or 790H, and without reasonable excuse, the person makes a statement that is misleading, false or deceptive in a material particular.(2) Where the person is a legal entity, an offence is also committed by every officer of the entity who is in default.(3) A person guilty of an offence under this paragraph is liable on summary conviction—(a) in England and Wales, to a fine;(b) in Scotland, to a fine not exceeding level 5 on the standard scale;(c) in Northern Ireland, to a fine not exceeding level 5 on the standard scale.False statements: aggravated offence14B_(1) A person commits an offence if, in purported compliance with a notice under section 790D or 790E or in purported compliance with a duty imposed by section 790G or 790H, the person makes a statement that the person knows is misleading, false or deceptive in a material particular.(2) Where the person is a legal entity, an offence is also committed by every officer of the entity who is in default.(3) A person guilty of an offence under this paragraph is liable—(a) on conviction on indictment, to imprisonment for a term not exceeding two years or a fine (or both);(b) on summary conviction— (i) in England and Wales, to imprisonment for a term not exceeding the general limit in a magistrates’ court or to a fine (or both);(ii) in Scotland, to imprisonment for a term not exceeding twelve months or to a fine not exceeding the statutory maximum (or both);(iii) in Northern Ireland, to imprisonment for a term not exceeding six months or to a fine not exceeding the statutory maximum (or both).””Member’s explanatory statement
This is about the provision of false or misleading information about persons with significant control. The current offences require the prosecution to prove knowledge or recklessness in all cases. The amendment replaces that with a strict liability offence (not dependent on knowledge) and an aggravated offence (where there is knowledge).
Lord Johnson of Lainston (Con)
My Lords, I apologise if I have not followed the procedure correctly, but I am grateful to our Deputy Chairman of Committees for her guidance in getting us to the right place.
The purpose of Amendment 42 is to align the drafting of the false statement offences in the Companies Act with the equivalent offences in Section 15 of the Economic Crime (Transparency and Enforcement) Act 2022 and the amendments made by Clause 161 of the Bill. This will ensure the same approach to misconduct by a UK company or an overseas entity.
The current offences require the prosecution to prove knowledge or recklessness in all cases. The amendment replaces those offences with a strict liability offence not dependent on knowledge, and an aggravated offence where there is knowledge. The amendment also removes the need for the prosecution to prove recklessness in any case.
The amendment inserts new paragraph 14A into Schedule 1B to the Companies Act 2006. New paragraph 14A introduces a basic offence, where a person makes a statement that is misleading, false or deceptive in a material particular without a reasonable excuse.
The amendment also inserts new paragraph 14B into Schedule 1B to the Companies Act 2006. New paragraph 14B introduces an aggravated offence, where a person makes a statement that the person knows to be misleading, false or deceptive in a material particular. The penalties are more severe to reflect the knowledge of misconduct. If any of the three offences is committed by a legal entity, the offences are still also committed by every officer of the entity who is in default. I believe the noble Lord, Lord Faulks, raised that point. I am not sure whether there was confusion about whether it related to this part rather than an earlier part, but I would be delighted to clarify that point later.
The penalty for the basic offence is a fine. The penalty for the aggravated offence is up to two years’ imprisonment, or a fine, or both. The level of fines and prison sentences a person will be liable for are the same as for the equivalent offences in Clause 161 of the Bill. This amendment ensures that equivalent offences can be prosecuted in the same way, with the same penalties applied for non-compliance, whether the misconduct relates to an overseas or a UK entity. I beg to move.
Lord Thomas of Gresford (LD)
My Lords, I do not really understand this provision. The purpose is to create a basic offence of strict liability—that is what the Minister and the Explanatory Notes say—but the wording that inserts the basic false statement offence says:
“A person commits an offence if, in purported compliance with a notice … or in purported compliance with a duty imposed… and without reasonable excuse, the person makes a statement that is misleading, false or deceptive in a material particular.”
It is the words “without reasonable excuse” that bother me. I do not see how a strict liability offence can have an excuse. Last week it was well-publicised that someone in the other place said, “Yes, I misled, but I had a reasonable excuse because no one told me. Indeed, I was advised that there was nothing wrong.”
What is meant by a reasonable excuse? How can it be, as put forward, a strict liability offence in circumstances like that? This of course goes to officers who are in default, which is another contradiction within that proposed new paragraph. I ask the Minister to take this proposed new clause back to those advising him and ask whether it is correctly drafted. I do not think it is.
Lord Faulks (Non-Afl)
Further to what the noble Lord, Lord Thomas, has said, the use of the phrase “false statements” rather than “inaccurate statements” is quite significant. A false statement carries with it the connotation of a deliberate inaccuracy, whereas simply getting something wrong is rather different. I agree with him that without reasonable excuse the prosecution would have to prove the absence of a reasonable excuse, which is contrary to the concept of a strict liability offence.
Lord Trevethin and Oaksey (CB)
I agree with what the noble Lords say. It occurs to me that the intention of calling this a strict liability offence but including the concept of “reasonable excuse” might be to impose a burden on the person who is responsible for filing the misleading statement to demonstrate a reasonable excuse—shifting the presumption, as it were. That might work. It would not quite be a strict liability offence, but it would make it relatively easier to prosecute the matter where a false statement was filed, and it would cater for the rare case—like the person trying to persuade a committee in the other place a few days ago—where the person filing the statement was entirely blameless because they had acted honestly and reasonably in reliance on information supplied by someone else. In that rare case, where the person who had made an error and filed a false statement but was entirely blameless could demonstrate that, it seems right that they should avoid a conviction.
To echo a point made in relation to a different amendment by the noble Lord, Lord Faulks, I am slightly troubled by the further subsection that talks about an offence being committed by
“every officer of the entity who is in default”.
At the moment I am not certain what that is getting at, and I simply seek clarification.
Lord Thomas of Gresford (LD)
My Lords, to add to the point that has been made, if the burden of proof is going to be changed so the defendant has to prove his innocence, it is essential that the clause be carefully drafted to make that clear. Otherwise a judge who is trying to direct a jury really does not know how to do it.
Baroness Bowles of Berkhamsted (LD)
I am struggling, as are others, with the wording in subsection (2) about
“every officer of the entity who is in default”
because I do not know what “default” means. In most of these circumstances, this may be something that is filled in by the company secretary and they do not necessarily get the approval of everybody who might end up being in default. I would like to know more about that.
In his introduction, the Minister said this was bringing the Bill into line with what was in the Economic Crime (Transparency and Enforcement) Act 2022. I am afraid I have been rather busy on other Bills so maybe I have not read everything that I should have about this one. I did the last economic crime Bill but I am not sure what is being referenced there, will the Minister elaborate on what this is being brought into line with because I am a bit confused? If what is said here is exactly the same as what has been said in that Act then we also have a mistake there that we need to correct if its wording is as ambiguous as this.
Lord Clement-Jones (LD)
My Lords, all this is well above my legal pay grade, but the Minister has no doubt heard all the voices; clearly, there are flaws in this new clause. I suggest that he listen to those voices, take advice and not move this amendment and that we should come back to this at a later stage. As the Minister can see, there is considerable appetite around the Room for a proactive approach to the new Companies Act powers and duties, the registrar and so on. However, there are genuine concerns that have been expressed, so I suggest that the Minister takes this away and considers it pretty carefully, given the opinions that have been vouchsafed this afternoon.
Lord Browne of Ladyton (Lab)
My Lords, I am fully in favour of this matter being taken away and simplified, if it can be. I just take advantage of this opportunity to do something I probably do not do very often, which is to support the existence of the words “reasonable excuse” as a defence in this strict liability clause. It is a long time since I practised law, but I am certain that there are lots of regulatory and other offences out there that have this defence of reasonable excuse. I am absolutely certain that the statutory provision that makes it a strict liability offence to carry an offensive weapon allows, in its drafting, a defence if you are doing it with reasonable excuse. I do not think that these two things are inconsistent, but this is not clear.
Lord Ponsonby of Shulbrede (Lab)
This has been an interesting debate—and a very lawyer-heavy debate —on the juxtaposition of “strict liability” with “reasonable excuse”. I can claim some knowledge here as a sitting magistrate in that I deal with those sorts of things quite regularly, frequently with respect to knife crime and traffic matters. It is a conundrum; it is worth examining further and I hope the Minister will take it further.
The noble Lord, Lord Clement-Jones described this as above his legal pay grade. Talking as a magistrate, I am an unpaid legal practitioner. Nevertheless, the Minister should take up the invitation of members of the Committee to look at this further. I can see that it is open to confusion, and I also take the point made by the noble Baroness, Lady Bowles, about putting other officers in default. I hope that the Minister will take these comments in the spirit in which they were made and that there may be further opportunity for discussion on the points raised.
Lord Johnson of Lainston (Con)
I greatly appreciate the input from noble Lords. Knowing my record over the last hour, I will probably vote against this in any event.
I shall just explain this in my own words, if noble Lords will tolerate my lack of legal expertise. The point was that, until this amendment, you had to prove—I welcome interventions from noble Lords if they feel that I am straying into their legal territory—either dishonesty or recklessness, rather than simply misfiling, in order for there to be a prosecution, which set a very high bar for prosecution. As I understand it, a number of important prosecutions—which is the whole principle for us being here—failed because they were unable to prove that exceptionally high bar.
This therefore makes it an offence to misfile which, as has been rightly pointed out, is a statutory event. However, it would seem to be unreasonable that, if you accidentally put your address down as “46B” when it should be “46C”, you then receive a two-year prison sentence or indeed a significant fine. It is right in this instance that “reasonable excuse” is brought to bear.
Lord Vaux of Harrowden (CB)
Unfortunately, I do not think that is a “reasonable excuse”; that would not be a “material particular”.
Lord Johnson of Lainston (Con)
I am delighted that the noble Lord pointed that out; that is certainly true. I think noble Lords understand the direction of travel in the intent of this amendment. It is important; it is not simply tidying up. There are some elements of making sure that penalties relating to overseas entities relate to companies registered in the United Kingdom, but, following consultation with department officials, it seems to me that this is a very important part of the Bill. I do not support dropping it at this stage, but I am very comfortable having further conversations about it. I would be grateful if the Committee gave me a few moments to consult my team on the specifics about how to proceed. I want to make sure that we have a sensible and reasoned debate but that I do not get the process wrong regarding amendments to the Bill.
Lord Faulks (Non-Afl)
I do not get the impression that the Committee is against the idea; there is simply a lack of clarity as it is currently formulated as to what constitutes “false” and a “reasonable excuse”, and what is inaccurate. I think the Committee is generally in favour of this provision and understands why it is there; we are just not quite sure that this captures it, as currently drafted.
Lord Clement-Jones (LD)
My Lords, the procedure in Grand Committee is quite clear: there has to be unanimity for an amendment to proceed.
Lord Ponsonby of Shulbrede (Lab)
We are not against the Minister’s amendment; we just think it needs clarity. The Labour Party would not object if the Committee agreed the amendment. If appropriate, we will come back to it at a later stage.
Lord Clement-Jones (LD)
The appropriate procedure would be for the Minister to withdraw it, and then move an amendment on Report. We would be very happy if the Minister came back on Report.
Lord Johnson of Lainston (Con)
At this stage, I believe it would be appropriate to consider further the amendment.
Lord Clement-Jones (LD)
May I just clarify for the Minister that it would be very unfortunate if he pressed his amendment? If he pressed it and lost it in Committee, I do not think he could bring back exactly the same amendment on Report. That is the rule: he would have to bring back something different on Report, even if all the officials and legal advice said that it was a perfectly sound clause—he may well get advice on that. I suggest that he withdraws it so that we do not have to vote against it.
The Deputy Chairman of Committees (Baroness Garden of Frognal) (LD)
My Lords, I advise that, if the amendment is voted against, it is negatived.
Lord Johnson of Lainston (Con)
My Lords, I am extremely grateful to noble Lords for their input. I hope they felt, over the last few hours of very productive debate, that the intentions of this Government and the speakers in this debate are entirely aligned: to try to create the right structure for Companies House and the right penalties and compliance regime. Given that, and my gratitude to the Committee for the constructive discussion, I beg leave to withdraw this amendment, with the understanding that we may easily return with something identical on Report, having followed a good degree of debate and discussion on that point.
Economic Crime and Corporate Transparency Bill
Tuesday 18th April 2023
(1 year, 7 months ago)
Grand CommitteeRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 96-III Third marshalled list for Grand Committee - (18 Apr 2023)
Lord Leigh of Hurley
“(6) Electronic documents delivered to the registrar under this section must comply as to accuracy, completeness and consistency with the registrar’s requirements.”Member’s explanatory statement
This amendment creates an obligation for documents delivered to satisfy the registrar’s requirements as to digital formatting.
Lord Leigh of Hurley (Con)
My Lords, I confess that these amendments essentially offer me another bite of the cherry because they are almost exactly the same as amendments that appeared last time in respect of non-micro accounts, but for completeness I had to put them in here again to cover micro-companies. That was fortuitous because, given that the Minister so eloquently batted away my amendments last time, this gives me another opportunity to make pretty much the same case.
Completeness is defined in Sections 444 onwards of the Companies Act—for example, the balance sheet that was signed by the directors—but the Act and this Bill say nothing about tagging that information. It says that the registrar can require an electronic format, but the legislation does not really tell us what completeness means; in particular, electronic completeness and the area I highlighted, which is inconsistencies within the accounts. For example, an oligarch is a director of a company and his name quite correctly appears on the accounts, but that name has not been tagged or it has been tagged as something other than the director’s name so when one searches for that name, it will not be found; so not tagged means it is not complete or tagged wrongly means that it is not self-consistent. It is no good accountants arguing that the accounts are complete because the director has been named because if the name has not been tagged, it will not be found. I hope that before Report there will be some focus on this issue for micro- and other accounts to ensure that full advantage is taken of electronic filing so that searches can be made easier and the registrar has the responsibility to make sure that the accounts are correct.
I am minded to speak on my noble friend Lord Sarfraz’s intention to oppose the Question that Clause 54 stand part, which is in this group. I am aware that he is not in his place, but, first, having thought about this for some time and prepared some notes on it and, secondly, to avoid it becoming an issue down the line, I want to make the point that I do not think micro-companies should be excluded. They were not excluded, I think, until about 2013. Micro-company accounts can cover revenues in millions of pounds. There could be a temptation to form a number of micro-companies which in aggregate are quite substantial, so I urge the Minister to allow Clause 54 to stand part. I beg to move.
Lord Naseby (Con)
My Lords, I apologise for not taking part at Second Reading due to other parliamentary commitments. I have a couple of small questions, but one of them is quite important.
First, if we are dealing with micro-companies, they are not likely to have substantial staff. There must be some safeguard so that the authorities do not change the requirements for reporting and leave these poor micro-entities with perhaps two or three months to totally amend their software. That has happened in certain other areas, so there must be some requirement that, while it is quite right that the registrar’s requests should be met, there must be some safeguards and those having to do the returns must be given adequate time to do them.
Secondly, I have one small point in relation to new Section 443A(2) inserted by Clause 54. At the end, it says, “(and any directors’ report”). I assume the directors’ report refers to the accounts, but that is not totally clear.
Lord Vaux of Harrowden (CB)
My Lords, in the light of what we have just heard, I want to touch on the micro-company side of things. Micro-companies may be small but they are not unimportant. They are probably the single biggest sort of company used for VAT fraud, for example. There has been a lot of publicity recently about some poor chap in Cardiff. Several hundred companies were registered at his address, then he started receiving large bills from HMRC. It is precisely this sort of company that is used for that; we should not be too generous to these companies in relation to reporting requirements.
Lord Browne of Ladyton (Lab)
My Lords, I rise to speak to the amendments in the name of the noble Lord, Lord Leigh of Hurley, together with the notice given by the noble Lord, Lord Sarfraz, that he intends to oppose the Question that Clause 54 stand part of the Bill; I suspect that in his absence this will not be part of the process but I will cover the issues that are raised.
I will confine myself to a few observations. First, no one wishes to stifle micro-enterprises with too onerous a set of reporting duties but, in a Bill that has the word “transparency” in its very name, it is surely important that micro-entities are not exempted from such a reporting duty. That small businesses are not merely the flywheel but the very motor of the UK economy is well known and constantly rehearsed. I have no need to go through all that but flourishing surely cannot come at the price of opacity when that opacity will be exploited in the way in which the noble Lord, Lord Vaux, suggests it has been in the past and we know is a problem.
The amendments from the noble Lord, Lord Leigh, do not merely serve as a symbolic recognition of this fact but serve a useful practical purpose, which I will turn to. It is the stated aim of the Government for Companies House to be a fully digital organisation by 2025. The amendments under discussion ensure that electronic documents submitted to the registrar not only conform with its standard electronic format but ensure that they meet standards of accuracy, completeness and consistency. Surely, each of these measures is desirable and, taken together, they are more desirable still.
If the Government are not minded to accept the noble Lord’s amendments, it would be useful to know which of these requirements they regard as superfluous. It would also be helpful to know how the Government feel that these amendments fail to assist Companies House in meeting its own target of becoming fully digital in the next two years, which seems a very challenging target.
Lord Agnew of Oulton (Con)
My Lords, I just want to come in on the point made by the noble Lord, Lord Vaux, on micro-accounts. It was actually 11,000 companies that were registered to this poor man’s residential address in Wales. It all relates to a new loophole, which has been discovered by foreign traders selling on the internet. Up until Brexit, they were essentially avoiding VAT because there was no real mechanism for HMRC to recover it all around the world but, when we left the European Union, we brought in our own regulations. There is a loophole that if, as in this case, you are a Chinese trader and you register a company in the UK, you do not have to pay VAT through the platform on which you are selling the goods.
HRMC is completely floored by this. In its letter to Meg Hillier, it said simply that it had not recognised any fraud so far. Let us get real. Part of the problem is that it is not getting the data. If it could scrape all the data off those 11,000 company accounts, it would very quickly see the pattern.
Lord Fox (LD)
There appears to be a chorus of agreement, so I will not add terribly to its length. This is just to thank the noble Lord, Lord Leigh, from whose knowledge of this area we benefit. We should be in a position to listen.
We had a meeting with officials yesterday, and my read-out is that the reason for the government resistance to the previous versions of these amendments referred to by the noble Lord, Lord Leigh, was, in a sense, practical. The accounts are signed off by the board and auditors, and something needs to be done thereafter to tag them. The departmental team seemed worried that something might go wrong in that tagging process, so we should not go down this route.
Having prepared more than 20 company accounts—I concede that they were largely for large businesses—this always happens. The board signs off a set of accounts and then prepares to communicate it in a number of different media. The accounts are put in an annual report, a Stock Exchange announcement system and a website. In each case, there is a process to make sure that the read-across is performed correctly. I suggest that the practical constraint that somebody might do something wrong does not outweigh the benefit of mandating this tagging process across the board.
I agree with the noble Lord, Lord Leigh, and others that micro-companies should still be included in this process.
Lord Ponsonby of Shulbrede (Lab)
My Lords, I think the consensus continues. I thank the noble Lord, Lord Leigh, for introducing this group. As he said, this set of amendments really repeats those spoken to earlier, but in this case concerns micro-entities. He made the points about either accidentally or deliberately tagging wrongly, and that not seeming a substantial argument against increasing its use. As the noble Lord, Lord Fox, said, companies are well used to producing and presenting accounts in different media and ensuring that they are presented consistently across them. This tool should extend their use.
I also agree with the noble Lord, Lord Leigh, and others that the Clause 54 stand part debate in the name of the noble Lord, Lord Sarfraz, is not appropriate for the Bill. As others have said, micro-companies are not actually that small. Some numbers have been presented, but the figure I have is that 1.3 million micro-entity accounts were filed in 2019-20, the largest proportion of accounts filed with Companies House. The figures I have are of a turnover of less than £632,000 on a balance sheet of £316,000 with 10 or fewer employees. Over the years, I have been involved in a number of businesses of that sort of size, but they can and do sometimes grow into much larger businesses. There needs to be consistent tracking of these companies to see where they have come from and make predictions about where they might go, so I agree with the point on that made by the noble Lord, Lord Leigh.
Other noble Lords agreed with this point, so I hope that the Minister will resist the argument that Clause 54 should not stand part, if the noble Lord, Lord Sarfraz, chooses to speak to it, and is sympathetic to the amendments from the noble Lord, Lord Leigh.
The Minister of State, Department for Business and Trade (Lord Johnson of Lainston) (Con)
My Lords, I draw attention to my interests as set out in the register of interests, including as a director and person with significant control at AMP Ventures and as a shareholder of several other businesses and companies. I do not believe I have any personal conflicts represented today.
I also thank all Members of the Committee who participated in our useful and instructive discussions over the past month or so. I am sorry that the Easter break we enjoyed sort of broke our continual discussions, but I hope that we will reinstigate them in the near future. I am fully available over the next few days, particularly before the next series of Committee amendments and over this process, to make sure that the House collaborates together to reform Companies House for the first time in nearly 100 years, and that we bring to bear the crucial reforms that will enable us to have a transparent business environment that allows businesses to flourish and the data that they provide to Companies House to be used more effectively to create greater wealth and private enterprise in this country. I hope that, in my actions, noble Lords see my desire to collaborate very closely with all your Lordships to ensure that we all reach the same end.
Baroness Bowles of Berkhamsted (LD)
Regarding the position of micro-entities, I spent a great deal of my time as a micro-entity in a partnership. I did not avail myself of limited liability provisions but, when people do avail themselves of the privilege of limited liability, they must recognise that there is an extra public interest requirement upon them because they have been freed from the prospect of personal ruin. Nowadays, we tend to forget about that balance—that bargain—and I just put in a plea that that is not forgotten. There is a bit of a quid pro quo for limited liability when it comes to transparency because you have to protect the public from otherwise unscrupulous people who just willy-nilly go easily bankrupt.
Lord Johnson of Lainston (Con)
I am grateful to the noble Baroness for her intervention. In discussions about the Bill, that philosophy has been raised. I may have mentioned on our previous day in Committee—I certainly mentioned it in private—that, given the very large number of companies registered in this country, one has to ask whether they are all necessary for the function that they purport to perform. Many individuals may be better off as sole traders or in other forms of partnership that do not need to go through these registration processes.
I am also aware of the privileges that limited liability offers, as a result of which there is a fair exchange in terms of the amount of information to be released. I absolutely agree with these principles that we have discussed. However, in this specific instance, it is absolutely right to have a thorough and deep consultation to make sure that through our actions we are not prohibiting people from running legitimate businesses and at the same time compromising their personal privacy or security. That is a sensible debate to have. The point, which is not necessarily specific to this amendment, is about the information that we collect. The Government are absolutely committed to ensuring that we collect the right amount of information so that we can increase fundamental corporate transparency and reduce abuse of the system.
Lord Leigh of Hurley (Con)
I thank my noble friend for his reply and repetition of some of the remarks he was kind enough to make at our last meeting. He has prompted me to remind the Committee, for the record, of my commercial interests, as noted on the register, which include directorships and shareholdings of micro-entities. I will read Clause 73 again more carefully, and we might return to this on Report if I am not satisfied with that explanation.
On the micro-entity point, the noble Lord, Lord Ponsonby, is right. Those bands are correct, but it is two out of three: one could have a small balance sheet and a small number of employees but a huge turnover and be under the net. I was going to make the same point as that raised by the noble Baroness, Lady Bowles of Berkhamsted: that is the bargain that a proprietor of a limited company makes with the public. You are protected by limited liability, but there must be disclosure. In fact, as I understand it, the information has to be prepared and disclosed to HMRC in pretty much the same format, so there is no extra burden in submitting it to Companies House. With that, I beg leave to withdraw my amendment.
Lord Vaux of Harrowden
Member’s explanatory statement
This amendment is intended to ensure that the identity of the authorised corporate service provider who makes the verification statement is included in the verification statement and on the register.
Lord Vaux of Harrowden (CB)
My Lords, in moving this amendment I will speak also to my Amendment 54. Given that these amendments relate to authorised corporate service providers, some of which will be regulated by accountancy bodies, I should remind the Committee that I am a non-practising member of the Institute of Chartered Accountants in England and Wales.
I thank the Minister for his opening comments and his generosity in his willingness to meet with us. In particular, I thank him for arranging a meeting yesterday with the officials. I also thank the officials very much for their generosity with their time yesterday, as that meeting rather overran.
This group relates to the role of authorised corporate service providers, or ACSPs. This is an important subject because the Bill, to a very large extent, effectively outsources much of the verification work to these ACSPs. To be authorised to carry out verification, they must be regulated in accordance with the money laundering regulations. At the moment, that is the only qualification required. The Secretary of State may add other requirements by regulation. I would be grateful if the Minister told us what plans the Government have in that respect.
These ACSPs are the very same people or entities that have been responsible for much of the company creation of the past. I think we can all agree that our system has not exactly been a beacon of transparency or probity. It is not for nothing that London became the preferred location for Russian oligarchs and kleptocrats and became known as the London laundromat or Londonistan—something, frankly, that we should all be ashamed of. That is why we had last year’s emergency legislation, the Economic Crime (Transparency and Enforcement) Act, which introduced the overseas entities register, which is why we now have this Bill to try to clean that up.
Many—probably most—of these ACSPs are honest and diligent, but it must be the case that too many have not historically been as honest or diligent as they should or could have been. They have allowed, or dare I say enabled, the creation of the London laundromat. At best, a blind eye has been turned; at worst, there has been a more active enabling of the bad actors. Transparency International’s evidence to the Committee on this Bill in the other place stated:
“Investigations by civil society organizations and journalists have demonstrated that time and again UK TCSPs”—
trust and corporate service providers, which will now become these ACSPs—
“have been responsible for building and maintaining secretive networks built from thousands of shell companies, used to launder billions of pounds in illicit funds over the years”.
So I and, I believe, many others have many concerns about the level of reliance the Bill has on the ACSPs for the verification of the identity of directors and, in particular, the identity of persons with significant control. As I said, these ACSPs will include the very same people who have historically advised on how best to disguise ownership and control, and who have created the structures to do that.
If we are to rely on these ACSPs, as the Bill intends, we need to ensure that they carry out their roles properly and that they are incentivised to do the right thing, rather than remaining enablers for the kleptocrats, criminals and terrorists the Minister referred to at Second Reading. Just relying on the fact that they are regulated under the money laundering regulations, which is what the Bill currently proposes, is not enough. It has not worked until now and I can see no reason why that will change unless we strengthen the rules. The whole money laundering regime is hugely overdue for reform, which is the subject of Amendment 49 from the noble Lord, Lord Agnew.
The Bill provides for two ways in which the verification of the identity of directors and PSCs can be carried out. Either the identity can be verified by the registrar or a verification statement made by an ACSP can be delivered to the registrar. How that verification is carried out and the records that must be kept in either case will be set out in regulations to be made by the Secretary of State. We do not yet know what those will be. Perhaps the Minister can provide some information as to what he expects those regulations to contain. Amendment 50 in the next group, in the name of the noble Lord, Lord Coaker, makes some useful suggestions in that respect.
Lord Ponsonby of Shulbrede (Lab)
My Lords, I will speak to the amendments in this group in my name and those of my noble friends. In opening, I agree with everything that was said by the noble Lord, Lord Vaux. It was a compelling speech and I will listen to the Minister’s response to it with great interest. In fact, I will go further: in these amendments are the types of issues that may well be voted on, on Report. Of course, this is not up to me, but I can talk with confidence about my party’s point of view.
Amendment 48A in my name would provide an extra layer of protection when it comes to unique IDs. It would ensure that a proposed director would sign a document to state whether or not they had a unique ID, even under a different name. In the event of an individual giving fraudulent details, this provides another piece of evidence so that even if names, details or passports had changed, there would be a way of retrieving the identity of the original person.
Amendment 50B was provided to me by Westminster City Council. It would strengthen the Bill to ensure that third-party agents provide an annual risk assessment and summary of fees charged, which will help the registrar identify questionable practices. The purpose of this is to raise a red flag if fees are either too high or too low. This may help the people who need to pursue enforcement procedures in identifying businesses that are not set up for the purposes they are claiming. That would help enforcement agencies based in local authorities, and others.
Amendment 51A would allow the Secretary of State to create, in essence, a dodgy business list. It requires the identification of a legally liable individual, so that local authorities and HMRC know who to pursue for taxes, business rates, et cetera. Westminster City Council, for example, would like to see included things such as the American candy stores, vape stores, souvenir shops and car washes that are likely to be involved in fraudulent businesses.
Amendment 52 centres on the ability of ACSPs, foreign ACSPs in particular, to undertake identity verification procedures on behalf of the registrar. Using ACSPs will work only if they are effectively regulated and trusted. This amendment would first ask the Secretary of State to list the number of foreign corporate service providers, as the regulations allow for service providers outside the UK to undertake verification checks and to incorporate a company in the UK.
Secondly, Clause 64 creates the ability of the Secretary of State to allow someone to register as a foreign ACSP, even if the person is not a relevant person as defined by Regulation 8(1) of the money laundering regulations. This mechanism is allowed if the Secretary of State believes that the regulatory regime governing the person in their own territory has similar objectives to the regulatory regime under the money laundering regulations.
This amendment would ask the Government to list the number of foreign ACSPs approved through this mechanism and in which countries they are based. It is absolutely right that the Government are specific about which regulatory regimes they believe meet the standard of our own regime. Additionally, we believe that the language is woolly when it says that similar objectives do not take into account the effectiveness of that regulatory regime.
My amendments, together with the others in this group, try to enhance the role of the ACSPs to use this tool to crack down on businesses, both large and small, involved in illegal behaviour—to stop people taking advantage of the opportunities available in our country through Companies House and the facilities available in the City of London. I hope that the Minister will consider these amendments in a positive light and seek to enhance the protections we can get for our businesses, which we have an opportunity to do in this Bill.
Lord Agnew of Oulton (Con)
My Lords, I support the comments made by the noble Lord, Lord Ponsonby. I will deal with my own suggestions in a bit more detail in a moment but I want to shake the Government out of any sense of complacency in this area. We have a once in a five or 10-year opportunity to sort these problems out easily, as the noble Lord, Lord Vaux, said, without imposing unnecessary costs on organisations. I support the amendment.
Lord Cromwell (CB)
My Lords, I rise to speak to Amendment 50A in my name, to which the noble Lord, Lord Fox, and the noble Baroness, Lady Bowles, have kindly added their names. I also thank the noble Lord, Lord Vaux, for his supportive comments a few moments ago. Before I turn to my amendment, I should like to add my support, as others have, for the noble Lord’s Amendments 48 and 54 in this group.
Like the noble Lord, I do not understand why there is any objection to the name of the firm paid to register a company being included by that firm as part of registration. Any product typically has the manufacturer’s name on it; indeed, in some cases, it is a form of advertising. The identification of the firm would enable more efficient contact between the registrar and that firm, and would make visible patterns of registration, which are so important in risk-based analysis of likely fraud and, therefore, the necessary enforcement.
Amendment 50A would mean that any authorised corporate service provider registering companies would be required to make transparent to the registrar their client risk assessment processes; to identify annually in a simple electronic format how many times specific SIC codes have been used and that they are content that these codes are appropriately applied; and to disclose further details of specific company risk assessments to the registrar or other relevant bodies on request. Finally, the registrar would publish annually an aggregated summary of the SIC information.
Before proceeding further, I will say a word about the SIC codes themselves. These codes are in need of an update. I am sure that the registrar is aware of this and will get to it in good time but I am mindful that we cannot remedy everything in one giant leap. The codes are not perfect, but they are the right place to start in categorising companies’ activities. We have been urged by the Minister, in his letter to many of us of 12 April, to give practical assistance to the registrar in a way that is most efficient and flexible.
Lord Garnier (Con)
My Lords, I agree with the arguments presented by the noble Lords, Lord Cromwell and Lord Vaux, in respect of their amendments. I have a great deal of sympathy for the thrust of what they had to say. I hope I have not interrupted my noble friend Lord Agnew, who spoke a moment ago. It may well be that I am getting ahead of him by expressing my support for his Amendment 51.
It seems to me that what we are about today is not placing burdens on business. We are not anti business, we are pro honest business, we are pro clean business, and we are pro having a registrar who has the powers to ensure that what is done within our economy is necessarily cleaner than it might have been in the past.
I see no problem at all in requiring ACSPs to be identified. I see no real burden on businesses in requiring them to comply with the terms of these amendments. We need to grasp this opportunity, as my noble friend Lord Agnew said a moment ago, because these Bills come along very infrequently and these so-called burdens on business are brushed aside as matters which are far too burdensome; whereas, as the noble Lord, Lord Cromwell, pointed out, although I could not possibly do it myself, it took him 15 minutes to design a spreadsheet. If it took the noble Lord 15 minutes, I am sure there are people half our age who could do it in seven and a half minutes. It strikes me that there are people all across the business economy of this country who are just laughing at the sloth of Parliament in dealing with these matters.
My noble friend Lord Faulks and I sat on a committee dealing with the predecessor Bill to this one. We were told that things were going to happen with great speed. It was not until last year that my noble friend’s committee was able to see some of the benefits of the work that he did.
Now, we are waiting further and being told by a Conservative Government that we must not overdo the burdens on business. Frankly, business is big enough and ugly enough to look after itself. Our job is to make sure that the legislation is apt to do the job that we require of it: ensuring that we have a clean, honest business environment where financial crime is not just inhibited but publicly and expressly disapproved of. Whether we bite on these particular amendments or do it in some other way—I hope that the Government will come up with something that appeals to them between now and Report—I expect us, as one of the leading economies in the world, to be able to construct a system that does not allow bad actors to get away with doing bad things because we do not have the sense of purpose or initiative to deal with them.
Lord Agnew of Oulton (Con)
My Lords, I apologise; I should have dealt with my amendments when I stood up originally. I will deal with the three that I think are relevant now: Amendments 49, 51 and 63.
I want to stress to noble Lords just how broken the system is at the moment. The ACSPs are not being supervised adequately. A 2021 review found that 81% of professional body supervisors were not supervising their members effectively; just to add to the confusion, there are more than 20 supervising bodies. Half of these supervisors were found not to be ensuring that their members take timely action to improve their money laundering procedures. A third of those procedures still do not have an effective separation between advocacy and regulatory functions.
Let me drop into some details here. Essentially, HMRC marks its own homework on this once a year. In its report last year, it owned up to at least six problems. Regulation 58 of the MLR—the money laundering regulations—requires HMRC to carry out fit and proper testing. This year’s assessment revealed HMRC’s failure to keep pace with the requirement to register a business within 45 days, with its performance worsening over the year, down from 78% in 2021 to 70% in 2021-22. In practice, this means that more businesses—in fact, nearly a third of them—are operating outside the scope of the supervision for longer than in previous years.
There is an issue with recruitment and staff training; I will quote from its report in a minute. There also continue to be delays in publishing sectoral guidance for businesses under supervision. The volume of face-to-face visits in its investigations has collapsed. Yes, we have had Covid, but we are beyond Covid now. There were 1,265 face-to-face visits in 2018-19 but last year, in 2021-22, that was down to 289. Lastly, HMRC has censuring and injunction powers that it is not using. These things just are not happening.
Just read the report that it has written, which I think is a master of the English language. It states:
“The AMLS team largely has effective managers”.
What is that saying? It also states:
“However, it is clear that performance is not consistent across the team, which has made it harder at times to make improvements to supervision”.
Those are its own words. It goes on to announce a case study, which happens to be on TCSPs. It had a concentrated week—one week—in which it suddenly found that it could issue 12 warnings and one penalty. Also, 23 compliant businesses were identified as needing regulation and 14 cases were identified as requiring further investigation—and that is in just one week.
Let us look at who is keeping an eye on HMRC: the Treasury. Every year, it produces a supervision report entitled Anti-money Laundering and Countering the Financing of Terrorism. In it, the Treasury says that, despite some improvements, improvement is required in several areas. It stated:
“Many PBSs had not implemented a risk-based approach that effectively prioritised their AML supervisory and enforcement work”
and highlighted
“Gaps and inconsistencies in many PBSs’ approaches to information sharing”
and
“Gaps in most PBSs’ enforcement frameworks”.
It continued by saying that
“the prioritisation of supervisory activity in high-risk areas, such as Trust and Company Service Provider … supervision”
is weak, so on and on we go. I know that my noble friend the Minister will pour balm on my words and say that everything will be all right, but this is a once-in-a-decade opportunity to deal with these things.
The noble Lord, Lord Vaux, touched on some of the bad things coming out of this. I will give a couple of examples. In 2020, TCSPs played a crucial role in something called the FinCEN files. There was one example of a single formation agent setting up 385 companies. An analysis of these companies showed that just nine of them were linked to $4 billion-worth of missing income.
We then come to the Pandora papers, which came out only two years ago. Owners of more than 1,500 UK companies were using 716 offshore firms, including individuals accused of corruption. Offshore companies could be traced to a variety of jurisdictions. Most of these—678 of the 716—were registered in the BVI. All these companies were set up by just 14 offshore TCSPs, five of them owned by Russian citizens.
On and on we go, which is why my amendment tries to say, “Stop. Do not let this legislation take effect until we have cleaned up this sector”. I would be keen to hear from my noble friend the Minister why the Government are taking such a complacent approach to this. It is really not difficult or expensive. As the noble Lord, Lord Vaux, said, we are a laughing stock around the world, being called Londonistan, Londongrad or whatever else anyone chooses to use. We have this huge conduit of these offshore entities, which are feeding all this stuff in because they all want to use English law. We are a wonderful place for them, but they have to play by the rules as well. It is a whole ecosystem and this Bill is the opportunity to clean it up. I beg to move.
Baroness Bowles of Berkhamsted (LD)
My Lords, I agree with an awful lot of what the noble Lord, Lord Agnew, said—in fact, with all of it. He laid out in some detail the fact that anyone could be one of these verification agencies, because there are 20 supervisors of all kinds of businesses where there could potentially be money laundering. It might be an accountant, a company formation agent or an estate agent. All kinds of people could become an authorised corporate service provider.
It is then quite important to be able to do the analysis to find out whether some are shadier than others, and whether there is a connection between businesses discovered to be less than spick and span and, perhaps, the precise identity—or maybe just the nature—of the type of verification agent. What on earth is the reason for keeping this secret? Who wants to keep it secret? Maybe it is HMRC, because it does not want us to know how bad it is, following on from the disclosure of the noble Lord, Lord Agnew. That is about the only explanation I can come up with, because it is such a vital piece of information. It makes me suspicious as to why it has to be secret. The other side of that is: who will be privy to the information? Presumably it will be Companies House. Will special checks be going on that it does not want us to know about? It is hard to imagine a reason, so the mood of the Committee on this is quite clear.
Most of the rest follows: I have added my name to some of these amendments but could have added it to them all. I would be curious to know the likelihood of the types of organisations that will be verifying identities getting penalties for when they get it wrong. If landlords get it wrong and rent out to illegal immigrants there are quite severe penalties, so what are the penalties for people who have a quick flick of the passport, think that is okay and register the company? If we do not know who they are, what are the penalties? Do they face penalties similar to those that landlords face, for example, when they have to do checks? It is very important. Most of us have had PEP checks, unfortunately. We have probably been to all kinds of places and had all kinds of documents looked through. I cannot say that it has been really thorough, even within banks. How thorough will this be and what happens when it is got wrong?
Lord Browne of Ladyton (Lab)
My Lords, I had not intended to speak on this group of amendments, but I rise just to say that I agree with everything that noble Lords have said thus far. My enthusiasm peaked when the noble Lord, Lord Agnew, spoke. What we have done in this debate is create the environment in which we are making these really important changes.
I have just one complicated question, with subcategories, for the Minister. I approach this question on the basis that if an ACSP is unwilling to have its name associated with its professional work and assessment, it seems to me that that should be a disqualification from it being appointed an ACSP. I ask the Minister: were ACSPs consulted at the consultation stage, before this legislation was drafted? Did the ACSP cohort ask for this level of anonymity which the Government are gifting it? I just cannot believe that, if they think they are doing a good job, they will not want their name associated with it—all the more for those abroad. If the City of London, our Companies Act and our registration are to be all the things that the Government wish for, it will be a sterling mark for those abroad that they are able to facilitate access to that environment because they are accredited by the Government of the United Kingdom, and the Secretary of State specifically, to do this work.
Why are we in this situation, where this really important part of the gateway into the system of limited liability is in the hands of individuals and businesses which the Government seem to think want nobody to know they are doing the work? It is incredible. I repeat: if an ACSP or somebody who wishes it, says, “I will do this only if you do not associate my name with the work publicly”, you should say to them, “Well, goodbye. You’re not doing it at all”.
Lord Faulks (Non-Afl)
The noble Lord has anticipated the point that I wanted to make, but I will make it very briefly. I am puzzled why we are so keen to protect anonymity. What is the respectable argument in favour of anonymity? Can the Minister help us with that? A solicitor, for example, will append their name to a document, identifying litigation or other contexts, and many other professionals have similar obligations. Why are we affording these particular people some special allowance? It simply does not make sense.
As the noble and learned Lord, Lord Garnier, said, for some time, those of us involved in the register of overseas entities were anxious that there should be improved verification. I gather that there has been some movement in that direction. I ask the Minister to consider having regard to the weight of opinion that there should be a similar movement in this area.
Lord Naseby (Con)
My Lords, I will be very brief. First, having chaired three public companies, I totally agree with my noble friend Lord Agnew’s Amendments 49 and 51, with the exception of subsection (1) of the proposed new clause in Amendment 51. I wonder about it being every three years; that basically means once a Parliament, and I wonder whether every two years would be more appropriate.
Secondly, I ask my noble friend: is there a difference between “foreign” and “worldwide”? Are they coterminous, or not? That is important.
Finally, proposed new paragraph (d) in Amendment 50A says that any authorised corporate service provider registering companies must
“disclose promptly on request from the registrar, or other relevant authorities including local authorities”.
Anyone who has been in local government or the chair of a major committee would like that to be a little more specific; otherwise, it opens the door to arbitration and legal matters as to whether the person making the representations is “relevant”.
Baroness Bennett of Manor Castle (GP)
My Lords, I have added my name to Amendment 54 and those of the noble Lord, Lord Vaux, and the noble Baroness, Lady Bowles. I will be fairly brief, as this is an extremely unusual situation in that I agree with everything that has been said from all sides of the Committee. I will simply set out a couple of extra points.
I pick up particularly the points from the noble Lord, Lord Vaux, that journalists, campaigners and groups such as Transparency International have frequently and very bravely—at considerable financial and other risk to themselves—helped to uncover the situation that we have with the London laundromat, the centre of global corruption or whatever you call it. Many labels have been applied. These amendments, particularly Amendment 54, open this up so that people such as those can see and examine what is happening. We can see that the regulators have failed utterly to provide the sorts of checks that they should, and transparency at least enables NGOs, campaigners and others to do what should be the regulators’ work for them.
I would like to see Companies House not relying on any independent certification practices but doing its own checks. However, I acknowledge that the practical reality of that would require an enormous institutional set-up. You might ask who would pay for that. I say that, if you are going to benefit from being a limited liability company, the costs should cover it fully—but I can see that that is not going to happen. As it is not, the best possible thing is at least to make sure that these authorised corporate service providers are open to scrutiny from others.
We must not forget that we are asking those that have been the enablers of corruption, fraud and sheer robbery to become the enforcers. That is what we are doing now—asking the poachers to become gamekeepers, in more traditional terms. That carries a high level of risk. Your Lordships’ Committee has a huge responsibility to do everything we can to make sure that we have full oversight of that.
I will comment briefly on Amendment 51A in the names of the noble Lord, Lord Coaker, and others. It takes a risk-based approach in looking at the many industries we have that have huge problems. Some are identified here; the situation with car washes is a clear one. A recent study by Nottingham Trent University showed that only 11% of workers in hand car washes were getting payslips, which is the most basic arrangement to enable you to see what is going on. Not even that is happening there.
We have a huge problem in many sectors of our society. Just a couple of weeks ago, Farmers Weekly exposed huge levels of fraud and, as a result, significant public health risks in our food sector. We know what has happened in the building sector, where local councils, without the resources, have stepped away as we move to self-certification. We have huge problems with standards in that sector. These problems are there and many of them go back to the financial sector. These amendments are crucial to deal with problems right across our economy.
Finally, it sometimes seems like this is all financial, that it is not really related to people’s lives and that it is somehow a victimless crime. The reality is that we are robbing poor people around the world by enabling London to be a centre in which corrupt money is placed. In our own society, we are enabling whole sectors of our economy to be consumed by businesses built on fraud, corruption and the exploitation of workers. I have forgotten which, but a noble Lord opposite said that that makes it difficult or impossible for honest businesspeople to set up, run and thrive.
Lord Leigh of Hurley (Con)
My Lords, I will not join the complete love-in but I will focus on the amendment tabled by the noble Lord, Lord Cromwell, in particular on his provision that covers the point about SIC codes and the requirement that those are accurate. I will echo and perhaps take further his remarks about the problems that exist with SIC codes.
I appreciate that it would not be in the Minister’s remit to answer on this during our debate, but perhaps he might take time to write to us afterwards to comment on SIC codes. As he knows, they came into operation in 1948, when there was a very different business environment. They have been refreshed since then but the last refresh was in 2007 and a huge amount has happened since then. The Ron Kalifa report commented that about 50% of fintech companies do not have an appropriate SIC code. Many companies fall into a number of SIC codes, but a company can choose only four. In fact, out of the 5.3 million companies at Companies House, 3.9 million have chosen only one code, which says to me that they are just not taking it seriously.
Companies are not taking it seriously because they do not see SIC codes as particularly relevant or helpful to them. They often just repeat the previous year’s one, or indeed the one of incorporation, which an accountant may have chosen almost at random. As a result, many companies are choosing the SIC codes starting with “Other”, such as 82990 for other business services. In some areas, one-third of companies are going just for “Other”.
The reason this is important is that a whole lot of government decisions are made on understanding what businesses do and how many are in a particular sector. During Covid, it was apparent from the events industry that large numbers of events companies had not properly registered their business within the SIC codes, so the Government were not able to assess the needs of those companies. Likewise, for searches helping businesses to market to other businesses, unless they know what those other businesses, particularly conglomerates, undertake it is difficult for such businesses to make progress.
Private enterprise has come up with its own version of SIC codes: rating agencies and others, such as The Data City, have created their own codes that they apply to businesses. I very much hope that this might be an area of focus in the near future, so that we can enhance the existing SIC codes and give effect to the amendment tabled the noble Lord, Lord Cromwell. Then we can see what businesses actually do here in the UK.
Lord Fox (LD)
My Lords, speaking to the Minister before the Committee commenced, I predicted that this group would be crucial, certainly to what we will be discussing in today’s set of amendments. Your Lordships have demonstrated that through the detail and the concern expressed on identity verification and more general issues. I am sure the Minister will have picked up that right across the Room, this is not a political issue. It is a practical issue about how this Bill, when it becomes an Act, will work—or, indeed, whether it will.
It is worth emphasising that authorised corporate service providers can and do provide legitimate services for businesses. We know that and that they are important. However, research by very many civil society organisations, not least Transparency International, has shown that in many cases those providers are at the spearhead of the abuse that happens in our society and have been the key enabler of the money laundering that we have seen across this country. They have built shell organisations of thousands of companies to be able to do that process, which is why, taken separately and together, these amendments all have something which I hope the Minister will be able to take away and discuss with your Lordships, with his colleagues and with the team. We have had some excellent speeches here.
Lord Johnson of Lainston (Con)
I thank the noble Lord, Lord Vaux of Harrowden, for his Amendments 48 and 54, my noble friend Lord Agnew of Oulton for his Amendments 49 and 51, the noble Lords, Lord Cromwell and Lord Fox, and the noble Baroness, Lady Bowles, for their Amendment 50A, the noble Lords, Lord Coaker and Lord Ponsonby, and the noble Baroness, Lady Blake, for their Amendments 50B and 51A and the noble Lord, Lord Coaker, for his Amendment 52. I hope I have that right. I will try to cover everything in order this time. These amendments all relate to authorised corporate service providers, known as ACSPs. I am grateful for all the contributions to the debate.
I will cover one point made by my noble friend Lord Naseby on the difference between “foreign” and “worldwide”. Foreign is if you are headquartered abroad; worldwide is if you operate in a large number of jurisdictions. I hope that clarifies that point.
I will start with Amendment 48. The question asked was why not? Why not publish the name of the authorised corporate service provider against its verification? One noble Lord suggested that it would be good advertising for the authorised corporate service provider to attach itself. I am sure that many of them will be delighted to attach themselves to noble Lords’ names when they receive the unique identification number. We have to hope that is the case.
I asked that question myself: why not? Why would it not be sensible to have the name of the verifier next to the entry? I would like to have further discussions with noble Lords about how this can be achieved. The Government do not believe that putting this into primary legislation will be helpful, given the complexities around administering this process.
There are also some specific areas where identities need to be kept discreet so there may be complexities around the process of identifying the ACSP in the sense that there would not be a verified identity to—
Lord Johnson of Lainston (Con)
If noble Lords will allow me to continue with my train of thought before intervening, the difficulty I have is in finding too many justifications as to why it would not be sensible for us to have a full consultation on and review of why we do not want to put the name of an ACSP next to the identity that it has verified.
I welcome the input from the Committee and our discussions on this issue but it is not necessarily as simple as accepting this clear amendment. It is important for the Government to make sure that we have not missed anything but, in principle, having a further discussion around this matter and seeing whether there is a way to ensure that the corporate providers can be clearly identified, with the verification of the individuals in Companies House, seems to be something that we should look at very closely.
I have had private conversations with a number of the speakers in today’s Committee proceedings in which I have been clear about what I am trying to achieve, which is exactly this: an increase in transparency; making sure that bad actors are clearly identified; and making sure that patterns of poor behaviour can be measured and assessed effectively. However, I hope that noble Lords will respect my position on the Bill and the amendments that we are discussing, including my reluctance to support this amendment and the other associated amendments in a specific sense. I would want to make sure that we did this right but noble Lords have my commitment to look deeply into the possibility of ensuring that the proposals that have been discussed today are brought to bear in how we manage the verification and listing of ACSPs.
Lord Vaux of Harrowden (CB)
I am grateful to the Minister for his qualified support. I would be interested to understand why the Government decided to go along with this recommendation for the overseas entities register and are resisting it, at least to some extent, for the domestic Companies House. I am not sure that I understand why the two things should be different at all.
Lord Johnson of Lainston (Con)
I am always grateful to the noble Lord, Lord Vaux, for his interventions. As I said, we are looking forward to having a full discussion about this issue in our proceedings over the next few weeks. From my personal point of view, it is right that there is a higher degree of transparency and it is absolutely right that we should look closely at trying to ensure that the identity of the verifier is also linked to the verification of the identity.
Lord Garnier (Con)
I was interested in the intervention from the noble Lord, Lord Vaux. I have been listening carefully to what my noble friend the Minister has been saying. When we have these further discussions, either in Committee or elsewhere, could he kindly come with a few reasons to support the arguments that he is currently putting forward? I do not get the impression that the cogs are quite meeting here. I know that the Minister is under some constraint because this Bill has been pushed here from the other place by the Secretary of State, but I would be interested in getting to grips with the underlying rationality that supports the words that the Minister is uttering. I do not intend to be rude—I hope that I am not coming across as such; it is probably my fault for being obtuse—but I am missing bits that might encourage me to think that we are moving forward.
Lord Johnson of Lainston (Con)
I thank my noble and learned friend for his intervention, as always. I am sorry if my words have not been clear enough. I hope that, over the next few weeks as the Bill proceeds through the House, we will have conversations that will allow us to come to a sensible conclusion on this issue. In trying to justify why we should not publish the name of an ACSP against the verified identity, we will of course provide reasons. The point is that we should have a sensible, legitimate discussion about this. It is not for me at this Dispatch Box to come up with a variety of reasons or excuses because this is an important point that we want to look into with great seriousness.
Lord Cromwell (CB)
I can perhaps come partially to the aid of the Minister by pointing out, and I do not want to be partisan, that if for some reason that we are all looking forward to hearing about it is felt that companies which are registering—these ACSPs—are right to be shy about having their name attached, I point out that Amendment 50A requires those companies simply to notify the registrar of how many companies they have registered and the codes that they have used. That will throw up the sorts of patterns that the crime agencies are very interested in. For example, if registering body X has registered 3,000 companies in a year or 300 companies under a particular code which is of interest, that will emerge very quickly from the data, even if it is not necessary for some reason to attach the name of the company to the companies it has registered, which I think, in line with my noble friend Lord Vaux’s amendment, it should be, but I appreciate that we are going to discuss that later. I want to draw to the Minister’s attention that the statistics that will enable those who are interested to focus on what companies are being registered by whom in what sectors would still emerge without having to attach the name of the registration body to the company.
Lord Johnson of Lainston (Con)
I thank the noble Lord for his intervention. I would like to clarify my point, which is that this is a very relevant point raised by a number of noble Lords in the Committee. I have been doing a great deal of investigation into this point over the past few weeks and have great sympathy with the sentiments expressed about making sure that the bodies that verify identity can be tracked in some way, in public as much as in private, because I feel that to be very important.
However, there may be technical points that I have overlooked, so I am reluctant to commit today to accepting an amendment, as noble Lords can imagine. It would be inappropriate for me to do so, but I hope noble Lords can hear from my clear words the commitment that we make to see whether the principle around this amendment could be made possible as we look into how the Bill will develop over the forthcoming period, so I greatly thank the noble Lord, Lord Vaux, for his amendment, and I look forward to having discussions over the next few weeks to see how we can find a way to try to implement the philosophy of the principles.
Lord Browne of Ladyton (Lab)
I rise to press the Minister to answer my question about the consultation and what ACSPs asked for in relation to this. I am confident that the Minister will have that discussion and include everyone in it. It is very clear what his inclination is, but I will add one testing question, which I think is important. If an ACSP wished to have its identity associated with its professional, accurate and helpful work and to have that association with the business that is being registered known publicly, would the Companies Act, as amended, facilitate that? Would it be allowed to do that? Would it be allowed to publicise who it is or are we forcing anonymity on everyone who does this work and not allowing their name to be associated with sterling, world-class work?
Lord Johnson of Lainston (Con)
I thank the noble Lord for that point. I am intrigued about whether or not that is true. That is why I think it is important that we look into this in detail to ensure that it can be done properly and that we are making legislation that improves accountability and transparency. Without repeating myself, I hope noble Lords feel comfortable that we have made a significant and serious commitment to see what we can do about this point, and I will take a personal interest in this.
I will move on to the point about standard industrial classification, which has just been raised, and Amendment 50A, put forward so well by the noble Lord, Lord Cromwell. I greatly thank him for his amendment and, again, agree with the intention to increase transparency.
Baroness Bowles of Berkhamsted (LD)
On that same point, following on from what the Minister said about the vast majority of these organisations being good, trustworthy and so on, is it that the risk of one mistake being associated with them, because their name would be available, means that people would not want to do it? I asked this associated question: what is the consequence or penalty for getting an identification verification wrong? I made the parallel with the rental side of things, where landlords are expected to be able to know whether they are looking at forged documents and that kind of thing. Are we trying to protect the reputations of organisations in case they make the odd mistake but it blows them out of the water? I am still grasping for reasons but I wondered whether that was part of the response. It is the inverse of what the Minister was referencing.
Lord Johnson of Lainston (Con)
I appreciate the noble Baroness’s intervention. I do not have an answer to the question as to whether there was concern over reputational damage but I personally do not see that as a particularly significant reason to withhold one’s identity. If you are an auditor of a corporate account, your name is public. As I am sure we have found with some auditors relating to some national political parties, their embarrassment will be palpable but at least it will be public for us all to see.
To answer the noble Baroness’s other point on penalties, just so she is aware, it is an offence falsely to confirm the identity of an individual. I am unable to make comparisons with the private landlord sector but it is very clear that falsely identifying an individual would be a serious offence. That is part of the legislation we are providing for.
On Amendment 50A, I consider that the measures included in and added to the Bill provide a significant amount of transparency. I will come on to discuss that in a moment. To look at the process that allows an individual to become an authorised corporate service provider, they have to be supervised under the money laundering regulations. They are already required under those regulations to take appropriate steps to identify and assess the risk that their customers would have on their business. Although I understand the noble Lord’s intention, I do not think that this is the right place to consider publishing information about risk assessment processes. In our view, it is beyond the role of the registrar to gather and store this information, or to question it.
The right place to consider the quality of risk assessments is through money laundering supervision. Supervisors are already empowered to compel this information and take enforcement action against firms found to be non-compliant. I have well heard the comments around the money laundering process and whether the supervision regime is adequate. A review is being undertaken at the moment, which is raised in one of the amendments we are about to cover. It makes sense to include discussion of how ACSPs are monitored in that review.
I turn to the suggestions from the noble Lord, Lord Cromwell, around standard industrial classification, or SIC, codes and the publication of this information. SIC codes allow Companies House to track what a business does and are used primarily to indicate emerging trends and the strength of the UK economy. I support the noble Lord’s intention to have clear information about the activities that companies are undertaking. Through the Bill, the Government are extending the requirement to provide a SIC code to limited partnerships. As my noble friend Lord Leigh rightly pointed out, such provision is already obligatory for companies. Companies House already runs reports on how SIC codes are being used and will be capable of filtering these to show only the SIC codes of companies that were registered by ACSPs, for example. I therefore consider that requiring ACSPs to provide this information as well would be duplicative.
I also consider it disproportionate to require ACSPs to provide annual reports to the registrar on the SIC codes associated with the companies that they have registered. It is possible that thousands of ACSPs will be registered and it would not be possible for these reports to be regularly monitored. This is a concern in terms of the cost and burden to Companies House.
Furthermore—this is a very relevant point for me that has been made; it does not negate the necessity to assess the process of SICs but it is important in the context of this debate—a company’s SIC code can and often does change. There is a great deal of—I do not necessarily know the right word—greyness about how people classify their business activities. In my investment career, I looked at a tank company that was classified as a consumer discretionary and I saw a military defence business that had a lingerie subsidiary. I am still trying to work out whether that was related to distracting the enemy but the point is that, in many cases, it is very difficult to be absolutely certain about the occupation or classification of a business.
On noble Lords’ comments about companies obfuscating their actions, this amendment does not necessarily provide a solution. It is not necessarily the role of ACSPs or Companies House to determine the specific validity of every claim made; that would be extremely difficult, particularly where there are grey areas around activities. That change may or may not be presented by an ACSP; it would be unreasonable to expect an ACSP to be responsible for monitoring this.
I am therefore not clear what benefits this amendment would bring and request that the noble Lord does not press it, but I am happy to have a further discussion about SIC codes if they fall within the Department for Business and Trade, which they probably do. At the same time, I am happy to have further discussions with noble Lords about the review of money laundering processes and the supervision environment.
Lord Cromwell (CB)
I very much look forward to those discussions and certainly do not want the reporting burden here to be the straw that breaks the camel’s back. However, is the Minister saying that, if we have a problem with companies misallocating their codes, it is up to the company or the registration body to determine the code? If the registration body is deliberately miscoding companies, we have a problem. If companies are foolishly misqualifying themselves, we have a different type of problem. Either way, we have a problem, but the Minister seems to be saying that there is no problem in either case. Could he just confirm that situation?
Lord Johnson of Lainston (Con)
I appreciate the noble Lord’s intervention. As far as I am aware—I am comfortable to be corrected, as I am surrounded by so many experts in this area—it is the company that classifies itself, rather than the ACSP. If that is not correct, I will certainly come back to noble Lords. I repeat that we are happy to look at the issue of industry classification, which is very important in understanding the growth of the economy, new industry classifications and how businesses are performing, at the very least—separate from the opportunity it will give Companies House to assess high-risk areas.
I understand Amendment 50B in the name of the noble Lord, Lord Coaker, but I cannot support it. Information on the money laundering and terrorist financing risks associated with the TCSP—trust or company service provider—sector is already published in the national risk assessment of money laundering and terrorist financing. Risk assessment undertaken by firms on their clients can be shared with money laundering supervisors who are responsible for reviewing them as part of their supervision of TCSP policies, controls and procedures.
With respect to the proposal to provide information about the fees that they charge, I remind noble Lords that ACSPs are themselves businesses or consultants which are a part of a market economy. In our view, it would not be reasonable to expect ACSPs to disclose this information. There is nothing in the Bill which would oblige an individual to have their identity verified by an ACSP. Individuals will be at liberty to decide whether to pay any fee that an ACSP decides to charge, or to use the service that will be provided by Companies House. I am confident that, if a prospective customer considers an ACSP’s fees too high, we can trust them to vote with their feet.
Amendment 51A, also in the name of the noble Lord, Lord Coaker, is well intentioned. To some extent, we have already covered this, but I will go through these points to make sure that we are complete. I do not agree that the amendment would add value. There are over 600 SIC codes which are used to inform economic trends. Trying to adapt their usage for the purpose of fighting economic crime is unlikely to be successful. I am unclear as to how the Government would determine which SIC codes would be classified as “high risk” or how they could be applied fairly. Perfectly legitimate lower-risk businesses would almost certainly be inappropriately labelled high-risk. I hope that I have covered the other points relating to standard industrial classification codes.
I am grateful to the noble Lord, Lord Vaux, and the noble Baronesses, Lady Bowles and Lady Bennett, for Amendment 54. As I said, I hope that I have covered the points raised in enough detail to satisfy noble Lords present today that there will be a significant amount of work and inquiry in relation to that amendment.
Amendment 49, in the name of the noble Lord, Lord Agnew of Oulton, is about blocking the use of ACSPs until HMT’s supervisory reforms have taken place. It would be disproportionate to block all ACSPs from carrying out identity checks while the Treasury works through its reforms to the supervisory regime, which, as I said, I hope will conclude around the summer of this year. It would have a disproportionate effect on the thousands of high street accountants and solicitors, and their business clients, who operate entirely legitimately. I remind the noble Lord that ACSPs will be required to carry out checks to at least the same standard as the registrar and that she will keep an audit trail of their activity and will be able to query any activity that she thinks suspicious. She will be able to share information with the ACSP’s supervisor and suspend or deauthorise an ACSP, preventing it from conducting identity verification.
A delay in allowing ACSPs to carry out identity checks could also impact other areas of reform; for example, limited partnerships will be required to make certain filings via an ACSP and may wish to have their identity checks done simultaneously by an ACSP. The Bill already provides in Clause 65for secondary legislation to be made which would allow spot checks to be carried out by the registrar under Section 1098H. I am confident that, if any rogue agents slip through the net, they will soon be spotted by Companies House, which will have the powers to take appropriate action. In all honesty, I see no merit in delaying ACSPs making identity checks and beginning this important process of bringing transparency and clarity to the register at Companies House.
Lord Wallace of Saltaire (LD)
Does the Minister think that there is a case for there being some form of regulation of ACSPs, or does he think that that is not needed?
Lord Johnson of Lainston (Con)
I am very grateful for the noble Lord’s intervention, as with all interventions today. The ACSPs are already supervised by the money laundering supervisory authority. Should there be a discussion over some type of more effective oversight of ACSPs, in the view of this Committee? We will no doubt discuss that in the future. But as it stands, they are regulated and if any noble Lord is involved with such a business—if they have a financial services business or have been involved in financial services—they will know the strength of the regulator and the fear in which decent, law-abiding firms hold their regulator when it comes to enacting the necessary practices to perform their duties and tasks.
The final amendment that I have in my notes is Amendment 52, tabled by the noble Lords, Lord Coaker and Lord Ponsonby, and the noble Baroness, Lady Blake. It would require a report on foreign ACSPs to be made one year after this Act is passed. I do not consider this amendment to be necessary, the main reason being that colleagues in the other place have already agreed to the addition of Clause 187, requiring the Secretary of State to prepare reports on the implementation and operation of Parts 1 to 3 of the Bill and to lay a copy of them before Parliament within six months of the Act being passed and every 12 months thereafter. Since authorised corporate service providers are provided for in Part 1, they should already be captured.
For the reasons given, therefore, I do not support these amendments. I ask the noble Lord, Lord Vaux, to withdraw Amendment 48.
Lord Leigh of Hurley (Con)
Captivated as I was by the Minister’s mellifluous tones, I am not quite clear if he is saying that he is prepared to write to us about proposals for SIC codes or to meet us or both. I totally accept that it is within the scope of the Bill and certainly within the scope of the purpose of the Bill, but it is an extra exercise, an extra burden. None the less, I wonder whether he feels it is something he could take on.
Lord Johnson of Lainston (Con)
I am grateful to my noble friend for raising this point, and I hope I have not overpromised. Personally, I am very keen to make sure that every part of the Bill is discussed and I am very happy to ensure that the comments we have raised in this debate today are passed on to the right office, which in this case is the Office for National Statistics, which falls under the Treasury rather than the Department for Business and Trade. I am sure it will welcome involving itself in this discussion.
I would like to make a correction: the consultation on the money laundering oversight regime will begin in the summer, not conclude in the summer. I apologise for that.
Lord Fox (LD)
I do not want the Minister to leave this process with the concept that we are entirely satisfied with his answer on the regulation of ACSPs because of the multiplicity of those regulators and, frankly, the variability of those regulators, never mind the absence of any structure or template, which the amendment proposed by the noble Lord, Lord Agnew, suggests. I hope the Minister can continue to keep that in his list of things to think about at the end of this session.
Lord Johnson of Lainston (Con)
I am grateful to the noble Lord for that comment.
Lord Cromwell (CB)
Will the Minister clarify something? I am sorry that I hesitated, but I am sort of in shock. Has the Minister just told us that he is not going to have consultations with us about so many of these points, but we are going to be talking with the Office for National Statistics about them?
Lord Johnson of Lainston (Con)
I hope that the noble Lord did not misunderstand my point. I think I referenced the fact that I assumed that SICs would fall under the Department for Business and Trade, but it turns out that that is not the case. I was mistaken in my knowledge of departmental structures and it turns out that they are under the Office for National Statistics, which is under the Treasury, so it would be wrong for me to suggest too much consultation on account of the fact that that is not my department. However, I have committed to making sure that we have further discussions around this. It is clearly very important, and if we are to make the function of SICs work properly, they need to be seen as effective and useful, so I am very comfortable to commit to ensure that a suitable discussion is held around that. I would be delighted to make sure that the relevant officials are brought before noble Lords to have a further discussion around how that can possibly be effected, but clearly I cannot commit another department to a specific activity.
Lord Cromwell (CB)
Will the Minister be joining those discussions or is he absenting himself from them?
Lord Johnson of Lainston (Con)
I thank the noble Lord for the point. I very much look forward to those discussions. I would have to be dragged away from such discussions, unless it turns out that it would be inappropriate that I should attend any part of them.
Lord Cromwell (CB)
I cannot promise to drag the Minister anywhere, but I, too, look forward to those discussions.
Lord Agnew of Oulton (Con)
The Minister very comprehensively dismissed my amendments, but earlier in the debate he committed to thinking much more carefully about bringing much more transparency to the regime that oversees ACSPs. I just want to make sure that is the case. I also want to offer a couple more anecdotes about why I believe this is so important.
The former chief executive of HMRC Sir Jonathan Thompson questioned the role of HMRC in regulating these people. He did not understand, or was not prepared to accept, that anti-money laundering duties were part of the core activities of HMRC. I gave earlier examples of the failings of oversight by HMRC. The Financial Action Task Force review stated that there were “significant weaknesses” among all supervisors, and specifically recommended that HMRC should consider
“how to ensure appropriate intensity of supervision”.
My point is that Companies House is going to be relying on what I believe to be a broken regulator at the moment. I am not suggesting that we create a new regulator, but that is why the risk assessment in Amendment 51 is so important. Who is minding the minders? At the moment, nobody seems to be. It is all moving at a glacially slow pace, and we keep being told that everything is okay, but I do not think that everything is okay. I accept that the protocol is that I do not move my amendment, but I would like a slightly stronger commitment from my noble friend that he really is going to kick the tyres on this and lift a few drain covers, if I can mangle my metaphors.
Lord Johnson of Lainston (Con)
I appreciate my noble friend’s mixed metaphors. I hope I have been clear that the process of making sure that the ACSPs operate in an environment that is trusted and clear is at the root of much of the activity we are discussing today. I will certainly make myself available for further inquiry but, as I hope I have made clear, ACSPs are regulated by the money laundering supervisory authorities and a review of that important process will begin in the summer.
Lord Vaux of Harrowden (CB)
My Lords, I thank all noble Lords who have spoken in this fairly long debate for their support. Once again, consensus seems to have broken out in the Committee, which must be a good thing.
The noble Lord, Lord Agnew, dramatically set out the scale of this problem. We all stand around it. Like him and the noble Lord, Lord Fox, I must confess that I thought the Minister was rather complacent in his views on the efficacy of the anti-money laundering regulations as they stand. The Treasury review is welcome; it has been hanging around and talked about for quite a long time now. The fact that it is only starting in the summer is somewhat alarming. We need to fix what is a broken system. In talking to the Institute of Chartered Accountants, it surprised me by telling me that the vast majority of accountancy firms are not regulated by it. This is not consistent and really does not work well; it is an area that we have to improve.
At the outset of today’s debate, the Minister said that he is open to constructive and practical suggestions for improvement. We are all grateful for that. In this group, we have a number of simple suggestions that would add little or no burden on either the registrar or business and could make a genuine practical difference. The Minister was quite right when he said that the vast majority of ACSPs are diligent and honest, and that it is an important industry. It is worth repeating that. I am sure that that vast majority would like to see the poor minority driven out of the business so that it stops giving it a bad name.
I am disappointed that the Minister cannot accept some or all of these amendments today, I must say, but I am grateful for his confirmation that he will consider them seriously. I look forward to the promised discussions that he has agreed to have. On that basis, for now—although I am absolutely certain that we will come back to this issue on Report—I beg leave to withdraw my amendment.
“(2A) The Secretary of State must by regulations make provision for the evidence required to verify an individual’s identity for the purposes of subsection (2)(a) to include—(a) an identity document with a photograph of the individual’s face, and(b) an identity document issued by a recognised official authority.(2B) In subsection (2A)(b), “recognised official authority” includes—(a) a department or agency of UK government;(b) a department or agency of any of the devolved nations;(c) a department or agency of the government of another country.”
Lord Ponsonby of Shulbrede (Lab)
My Lords, this will be a much briefer group. The purpose of Amendment 50 is to ensure that
“an identity document with a photograph of the individual’s face, and … an identity document issued by a recognised official authority”
form part of the registrar’s identity verification procedure. The amendment would specifically allow for two separate documents to be used to identify people rather than just limiting it to, for example, a passport or a driving licence.
An identity verification procedure that involves photographic ID is explicitly committed to on page 43 of the corporate transparency White Paper and reflects international best practice guidelines. What reasoning do the Government have for weakening this aspect of the verification process? They clearly believe that, in the case of voting in local elections, there should be photographic ID. Why not make it explicitly part of the process here? I beg to move.
Lord Vaux of Harrowden (CB)
In our debate on the previous group, I asked the Minister what regulation the Government were intending on ID verification. The Bill allows the Secretary of State to create regulations on what the ID verification process will be. The Minister did not answer that question then, so this seems like a convenient moment for him to do so.
Lord Fox (LD)
The noble Lord just said exactly what I was going to say. If it is not this, what is the process to identify people and what documentation is required? It will be interesting to hear the Minister’s response to the challenge from the noble Lord, Lord Ponsonby: if it is good enough for voters in local elections, why is it not good enough for multi-million-pound companies?
Lord Faulks (Non-Afl)
I support this amendment. There is a slight irony because the Labour Party is against the provision on which it relies to support this amendment. That cheap debating point notwithstanding, this amendment seems quite useful and I cannot see an obvious reason why we should not have it.
Lord Garnier (Con)
To add further irrelevance—no, just irrelevance; I apologise to my noble friend—I am pleased that the noble Lord, Lord Ponsonby, and the Labour Party have moved this amendment. When we debated identity cards in the dim and distant days when Tony Blair was Prime Minister, one of the great things that was stressed by the then Labour Government was that there should be a photograph of the person in question, but they did not say that it should be of the person’s face. This enabled cheeky Members of the Opposition to tease—I cannot remember whether the noble Lord, Lord Coaker, was a Home Office Minister at the time—
Lord Garnier (Con)
We had a great deal of fun working out which part of the identified person’s anatomy should form the main part of the photograph. I am happy to say that the noble Lord, Lord Ponsonby, has obviously learned from that hideous experience. This seems an altogether better set of proposals.
Lord Johnson of Lainston (Con)
I thank the noble Lords, Lord Coaker and Lord Ponsonby, and the noble Baroness, Lady Blake, for Amendment 50. As has been discussed, it seeks to require that the new identity verification process includes the use of photographic ID issued by a recognised authority. Although I welcome our shared ambition to ensure that identity verification will be a robust process, I am concerned about noble Lords’ proposed approach to limit the acceptable documents in primary legislation. Under Clause 64 of the Bill, the procedure for identity verification, including what evidence will be required, will be set out in secondary legislation.
I apologise, as always, for not answering noble Lords’ questions. The noble Lord, Lord Vaux, raised how I dodged his question the first time. I hope I am not dodging it a second time but I would be delighted to write to noble Lords with some further information on the specific detail that is required for identity verification. Let me be very clear: we assume that it will include a photograph. However, I will come on to explain why that may not necessarily be the case in every instance.
Setting this out in secondary legislation will allow for flexibility and ensure that the technical detail of the identity verification process can be adapted to meet evolving industry standards and technological developments. Parliament will have the opportunity to scrutinise these regulations via the affirmative procedure. I assure noble Lords that, for the majority of individuals, photographic ID will be used. The primary identity verification route will be via the so-called “selfie verification” method, which will involve the person providing documents such as a passport or driving licence. The person undergoing identity verification will take a photograph or scan of their face—my noble and learned friend Lord Garnier may be pleased by this specificity—and the identifying document. The two will be compared using likeness-matching technology, and the identity verified.
However, I am concerned that the proposed amendment would exclude individuals who do not have photographic ID. Restricting the acceptable documents could inadvertently discriminate against a number of people and raises equality concerns. For example, would it be fair for the law to prevent individuals setting up a company simply because they do not have a passport or a driving licence? Should an individual who has owned the freehold of their home for decades via a company now be forced to apply for photographic ID despite there being no other statutory requirement to have one? This is why, for individuals who cannot provide such documentation, there will be alternative options available. I assure the Committee that these will be robust and proportionate.
Most importantly, all providers will conduct checks in line with the cross-government identity proofing framework—the GPG 45—which will be comparable to verification checks conducted elsewhere in government. Under the GPG 45 framework, a combination of non-photographic documents, including government, financial and social history documents, can be accepted to achieve a good-level assurance of identity. ID documentation from an authoritative source such as the financial sector or local authorities is also recognised under the cross-government identity proofing framework and is routinely used to build a picture of identity.
For the reasons I have set out, I hope that noble Lords will understand the philosophy of my approach and agree that requiring in primary legislation that an individual provide official photographic ID to verify their identity would be unnecessarily restrictive and potentially unfair. I am afraid that I must therefore ask the noble Lord to withdraw his amendment.
Lord Ponsonby of Shulbrede (Lab)
My Lords, I thank the Minister for that serious answer to the amendment that I have just moved. I am also grateful that he has said that the Government’s intention is to harmonise the identity-checking methods across a number of different parts of the government process, if I can put it like that. I acknowledge that the technology for identifying individuals is evolving and that photography itself is not the end of the story; that part of the identification process is evolving as well. I will reflect on the Minister’s answer to that point. I need to look at other pieces of legislation and see whether the way in which identity is going to be checked is explicitly put on the face of the Bill in other Bills. Nevertheless, as I have said, I thank the Minister for the serious way in which he has answered the points that I have raised. I beg leave to withdraw my amendment.
Lord Vaux of Harrowden
Member’s explanatory statement
Clause 67(3) would make any statements of a person’s unique identifier (or that they have not been allocated one) unavailable for public inspection. This amendment would reverse that so that the numbers are available for public inspection.
Lord Vaux of Harrowden (CB)
My Lords, I rise to move Amendment 53; I hope to be fairly brief. It is related, in a way, to Amendment 48A in the name of the noble Lord, Lord Coaker, which we spoke about earlier. In effect, it attacks the issue of unique identifiers from the opposite direction.
Clause 67(3) ensures that the unique identifiers allocated to companies and others, including ACSPs, are not available on the public register. I was rather surprised to find this. My amendment is really a probing amendment to find out the rationale for hiding unique identifiers and discuss whether that is the right thing to do. It seems to me that the unique identifier would be a helpful tool to assist civil society organisations, journalists, analysts and, indeed, AML regulators to discover trends and connections in the information held on companies on the register.
One person can easily have a number of versions of their name—A Jones, Andrew Jones, AJ Jones and so on. It is not necessarily dishonest. I have two names myself: my title and my real name. I hope that that is not dishonest. My amendment would make it much easier to search using the unique identifier and would avoid the problems of potentially having multiple names or versions of names and people being missed off. It would allow an AML regulator quickly to search for all situations where a particular ACSP has acted, or a journalist to identify ACSPs that act regularly for companies in particular industries, and to be sure that they have caught all the instances.
When I met the Minister previously, for which I thank him again, he explained that the unique identifier is used as the login for the relevant entity. If that is the case, I understand why it should not be public, but I strongly question whether that is sensible. Very few organisations would use a number such as a unique identifier for login purposes; it would go against commonly accepted security practices. The Government do not do it in other systems, as far as I am aware. Would it not make more sense for the unique identifier to be public, and therefore useful, to allow the greatest transparency that I have described and to have a more secure method of logging into Companies House accounts? I beg to move.
Baroness Bowles of Berkhamsted (LD)
I will speak briefly on this amendment because key to it is: what is the purpose of the unique identifier? Perhaps like the noble Lord, Lord Vaux, I thought that it was like the resource identifier that you use for searching. I know that if you search on my name, you do not find all my directorships. I keep amending my name to try to make sure that they are all the same, but you still cannot find them in Companies House, so I was thinking that it was a better way than names of finding out all the companies that people were involved in, and so on.
I can see that, if it is more of a login approach, that might be different, but that then begs the question: is there not a better way of identifying companies and individuals that works on the searches? If you are searching to see whether somebody is doing something in a different company, or how many directorships they have, simply going by name means that too often there are minor variations, and it will not flag up what you are looking for. Like the noble Lord, Lord Vaux, I am curious about what the purpose of this identifier is, and therefore why it is confidential.
Lord Johnson of Lainston (Con)
I thank the noble Lord, Lord Vaux, for his Amendment 53. Unique identifiers are unique codes allocated on an individual basis. The Bill will allow unique identifiers to support the effective operation of identity verification, such as allowing Companies House to link an individual’s verified identity across multiple roles and companies. I like to look at it as operating as a username. That is important; it is not a public but a private number that the individual will have allocated to them.
I reassure the noble Baroness, Lady Bowles of Berkhamsted, and the noble Lord, Lord Vaux of Harrowden, that this amendment is not necessary to achieve the objectives that they have described—although I am concerned about the noble Baroness’s difficulty in tracing herself in the records of Companies House. This will be a good test as to whether the systems work. Companies House will be making changes to how members of the public view the register so that, although the unique identifiers themselves will not be public, it will be possible to see accurately connections between individuals and entities. That is the central point of the reforms being made to Companies House. This includes how many companies for which an individual is a director or person with significant control.
From my own experience of using the Companies House database, I come up under the various different forms of my name: D Johnson, Dominic Johnson, DRA Johnson or whatever it may be. It works in that instance, but it is absolutely right for noble Lords to be concerned about whether the system will work. We have undertaken to make sure that it does. It is the cornerstone of our activities and everything that the Bill points towards.
Regulations made under Section 1082 will govern the use of unique identifiers. We intend to prevent individuals from having more than one unique identifier, as the name denotes, and anyone submitting a statement with an incorrect unique identifier will commit a false filing offence. Furthermore, the primary purpose of a unique identifier is to allow its owner to communicate securely and privately with Companies House; as I said, it should be looked upon as a username. Unique identifiers can be considered personal data so making them public could expose the registrar to data protection breach risks, in the same way that it would be inappropriate to publish individuals’ national insurance numbers.
Lord Vaux of Harrowden (CB)
I thank the Minister for that helpful answer. I am somewhat reassured; the “behind the scenes” use of the unique identifier to make sure of the connections between different names—and, now, all the names to be displayed if you are searching for one person—will be important. We will see how well it works in practice. From what I understand from what the Minister said, the Secretary of State will have the power to make changes to this by regulation if it does not work properly. On that basis, I beg leave to withdraw my amendment.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment enables the registrar to require a person to provide information not only to determine whether the document is properly delivered but more generally to determine whether it is a document that must be registered.
Lord Johnson of Lainston
“(1A) The Secretary of State may by regulations make provision requiring the registrar— (a) not to make available for public inspection any information on the register relating to an individual;(b) to refrain from disclosing information on the register relating to an individual except in specified circumstances.”Member’s explanatory statement
This allows the Secretary of State to make regulations requiring the registrar to refrain from using or disclosing information relating to an individual irrespective of whether the individual makes an application.
Member’s explanatory statement
This is consequential on the amendment to Clause 89, page 68, line 31 that appears in the Minister’s name.
Member’s explanatory statement
This is consequential on the amendment to Clause 89, page 68, line 31 that appears in the Minister’s name.
Member’s explanatory statement
This is consequential on the amendment to Clause 89, page 68, line 31 that appears in the Minister’s name.
Lord Coaker
“Reporting requirements
(1) The Secretary of State must publish an annual report assessing whether the powers available to the Secretary of State and the registrar are sufficient to enable the registrar to achieve its objectives under section 1081A of the Companies Act 2006 (inserted by section 1 of this Act).(2) Each report must—(a) make a recommendation as to whether further legislation should be brought forward in response to the report, (b) provide a breakdown of the registrar’s annual expenditure,(c) provide a recommendation as to whether charges for fees for the incorporation of a company should be amended,(d) contain the details of the steps the registrar has taken to promote the registrar’s objectives under this Act,(e) provide annual data on the number of companies that have been struck off by the registrar, the number of companies that have been required to change names by the registrar, the number of fines and the average and total amount of fines the registrar has issued, the number of criminal convictions made, and of cases of suspected unlawful activity identified by the registrar as a result of the registrar’s powers as set out in this Act,(f) provide annual data on the number of cases referred by the registrar to law enforcement bodies and anti-money laundering supervisors,(g) provide annual data on the total number of company incorporations to the registrar, and the number of company incorporations by authorised corporate service providers to the registrar, and(h) detail all instances in which exemption powers have been used by the Secretary of State, as introduced by this Act.(3) The first report must be published within one year of this Act being passed.(4) A further report must be published at least once a year.(5) The Secretary of State must lay a copy of each report before each House of Parliament.”
Lord Coaker (Lab)
My Lords, it is a pleasure to address the Committee for the first time this afternoon. The theme of the discussions earlier was transparency. The noble Lord, Lord Vaux, made an outstanding speech about why transparency is important. Other noble Lords talked about this being a once-in-a-lifetime opportunity for this Parliament to progress in a way that perhaps we have been slow to do, which has led to many of the things that the noble Lord, Lord Agnew, pointed out in his remarks about the exploitation of the economic and business laxness in London and beyond that has led to things that all of us deplore. The Bill gives us a real opportunity to tackle that. The Minister’s response is crucial for us to determine what we may wish to push the Government on on Report.
We have now moved from transparency to reporting, how the Bill will be implemented and how effective it will be, hence Amendment 64 in my name and those of my noble friends Lord Ponsonby and Lady Blake. I also support Amendment 72 in the names of the noble Lords, Lord Agnew and Lord Cromwell, the noble and learned Lord, Lord Garnier, and the noble Baroness, Lady Bowles, which is virtually the same.
I know that the Minister’s notes will tell him that there is no need to worry about this because he can just get up and tell Coaker that it is irrelevant, that there is no need for this because the Government proved that they are a listening Government in the House of Commons and introduced Clause 187, which, as noble Lords will have seen, talks about reports on the implementation of the operation of Parts 1 to 3. Indeed, I had not realised that the noble Lord, Lord Johnson, is as radical as he is, but the clause includes some of the amendments that I and other noble Lords tabled. I refer to the Minister’s radicalness because subsection (3) of the proposed new clause inserted by Amendment 64, states:
“The first report must be published within one year of this Act being passed”.
However, if we read what the Minister has put before us, it states
“The first report must be laid within the period of 6 months beginning with the day on which this Act is passed”.
It is good to see the Government moving further than they were pushed to do. The Minister no doubt has that in his notes.
However, the serious point is that it is good see Clause 187 in the Bill because it takes on board many of the points raised in the amendments about the effectiveness of the way in which the Bill will operate. The Bill says many things that we all agree with, but the concern is whether it will be enforced and will work in the way that the Government and, indeed, all of us wish it to. Hence Amendment 64 seeks to explore what the Government mean. Clause 187 states:
“The Secretary of State … must prepare reports”,
but through my proposed new clause, which would be placed after Clause 91, I am saying to the Government what such a report should include. I do not see why we would not report on the effective implementation of the Bill.
Let us look at why I am saying in Amendment 64, with the requirement to report on the way in which the four objectives laid out in Clause 1 are actually met. We had a debate earlier on in Committee about how effective those objectives are and whether the Bill would meet them. It is particularly important that these objectives are reported on—not just in some general report that the Government lay before us but in a specific report, given the fact that, in Committee, we have debated long and hard about why on earth the registrar of companies would have as an objective “to minimise the risk” rather than prevent it. We also debated why objective 4 says “minimise the extent” rather than “prevent it happening”. Given the concerns raised in this Committee about the loose language that the Government have employed in the very first clause of the Bill to determine the objectives of the registrar, it is especially important that we have laid before Parliament a full and frank report on how effective the registrar has been in achieving the four objectives in Clause 1.
Through the reporting requirements in my amendment, I have sought to say that these are the sorts of things that the Government should include. It starts with proposed new subsection (1). It would be interesting to hear what the Government think about it. Is this what is going to be included? That is the question around each of the various points that I have set down. Are they what the Government are going to report on or not? Are they what the Government are going to include in determining the Bill’s effectiveness? Is that what the Government are going to do? I would have thought that assessing whether the objectives have been achieved was an absolutely fundamental part of this. Is that what the Government will report on: whether the objectives have been achieved?
Is further legislation needed? All sorts of regulations are included in the Bill but, again in previous debates, noble Lords referred to this Bill as a once-in-a-lifetime opportunity. I think that the noble and learned Lord, Lord Garnier, mentioned that; if it was not him it may have been the noble Lord, Lord Leigh of Hurley, but a noble Lord certainly said it. He is quite right—indeed it is. However, perhaps the Bill will identify gaps that the regulatory powers in this legislation could seek to avoid.
On the breakdown of annual expenditure, we are going to have a discussion when we come on to the next clause and beyond about fees, where they should go and how they should be used. That will give us an opportunity to look at annual expenditure, where the charges for fees should be amended. The Government have a regulation-making power but perhaps the report could give the Government some information about that.
Again, I go back to the steps that the registrar takes to promote the objectives. Proposed new subsection (2)(e), to be inserted by my Amendment 64, refers to
“annual data on the number of companies”.
How will we know what is going to happen? We do not want bald statements; we want factual information so that we can base any decisions that we make on evidence.
Proposed new subsection (2)(f) is particularly important. It would require each report to
“provide annual data on the number of cases referred by the registrar to law enforcement bodies and anti-money laundering supervisors”.
It is crucial that the Bill has some teeth, is seen to be implemented and is seen to operate in a way that deters those who may wish to operate in a way that undermines the vast majority of good business. Is that the sort of thing that the Government are thinking of?
A whole range of points have been raised there. These are the sorts of things that should be reported on. These are the sorts of things that the Government need to reflect on and allow Parliament to reflect on to see how effective the Bill, when it becomes an Act, is in achieving the things that we all want it to achieve. As I said, in a later clause, the Government say that they will report. This amendment probes what the Government actually mean by that and what they seek to include. It would be helpful to the Committee for us to hear a bit more about what the Government think they are going to use as a way of determining whether the Bill is successful in the way that they want. I beg to move.
Lord Agnew of Oulton (Con)
My Lords, I do not want to speak for too long because the noble Lord, Lord Coaker, has covered it clearly and our amendments are very similar. Indeed, in a spirit of collaboration, I would be delighted to give ground and for my noble friend to accept amendment moved by the noble Lord, Lord Coaker, rather than my amendment.
There is a serious point to this. My noble friend will know that in business what gets measured gets done. Unless we are specific in the requirements of this annual report to Parliament, it will be fudged if the story is not a good one. Earlier, I read to the Committee some extracts from the internal HMRC report. It absolutely hates putting bad news out there and will use every bit of the English language to obfuscate as much as possible. Having a simple list of requirements that we expect to hear every year will reduce that—it is really that simple.
Lord Cromwell (CB)
My Lords, as my name, among others, is attached to Amendment 72, I express my sympathy with it. In the previous day of debate, a great deal was said by the Minister and others about the importance of the guiding objectives to be given to the registrar. I suggest that much of the Bill and, in particular, the majority of the amendments that have been tabled are attempts to give practical effect to those objectives. I am sure the Minister welcomes the engagement of us all in seeking to achieve that, as he said.
I would expect the registrar and the Secretary of State to welcome an annual report reviewing the adequacy of the powers and progress, including, importantly, quantitative measures, as the noble Lord, Lord Agnew, outlined. Such reporting is a crucial part of reporting and being accountable to Parliament. Given that we are looking at a major overhaul of Companies House in the Bill, it is essential that we have proper reporting on progress. There are a number of probing amendments in this vein, including the amendment in the name of the noble Lord, Lord Coaker, and I hope that the Government will take the opportunity to blend them into a practical outcome.
Lord Garnier (Con)
My Lords, I, too, have put my name to my noble friend’s Amendment 72. He is quite right: in business, what gets measured gets done. That is also true of politics: one has only to set down a requirement and have it followed up and measured to see an improvement in the performance of a government department or a public authority such as Companies House. I entirely agree with the thoughts put forward by my noble friend and the noble Lord, Lord Cromwell, in support of this amendment, and by the noble Lord, Lord Coaker, in addressing his amendment.
For my own part, I do not necessarily think that we need to see the terms of these amendments set out in legislation, but we do need a public recognition that the elements that the noble Lord, Lord Coaker, and my noble friend Lord Agnew spoke about are publicly recognised as goals and things that will be measured and reported on annually.
Nowadays, annual reports are made not only by company chairmen. The Lord Chief Justice makes an annual report, as do various other public figures dotted about our constitution, so we should not run shy of requiring that. Indeed, Clause 187 makes clear that the Secretary of State will make a report. The main thing to do is to get the information out there regularly and publicly so that the public know what is being done in their name.
Baroness Bowles of Berkhamsted (LD)
My Lords, I support what others have said. If we take these amendments as essentially saying that Clause 187 needs to be amplified, I, like the noble Lord, Lord Agnew, do not see the reason for sunsetting in 2030. It is not that far away given that, although this might commence immediately on Royal Assent, there are quite a lot of regulations and other things—and I do not know what the timescale of those will be—before everything is up and running.
As I see it, Clause 187 is about monitoring progress, getting everything up and running and seeing that it is okay, then just saying “that is fine”, but I think there is a case for ongoing monitoring to see what is changing and whether there is a need for any further update. The annual report seems to be a vehicle for that and, like others, I say that that is a good reason for it to continue, rather than being sunsetted, and if need be, perhaps to list a few more things that it will cover. Clause 187 could stay silent on that as it is quite broad, talking about
“the implementation and operation of Parts 1 to 3”.
If you took away the sunset clause, I could probably be quite satisfied.
Baroness Altmann (Con)
I briefly thank my noble friend for Clause 187. It is a valid attempt to achieve some of the aims of these amendments, although I wholeheartedly agree that the sunset clause is puzzling. I ask my noble friend to bear in mind that the expertise being offered by this Committee and Amendment 65 in the name of the noble Lord, Lord Coaker, as well as the amendment tabled by my noble friend Lord Agnew, are attempting to assist the Government in achieving the objectives that we all wish to see by injecting the difference between theory and practice. The Government want these measures to succeed. The Committee is trying to suggest that there are, in practice, a number of measures identified in each of these amendments—which, of course, could be combined—to guide those overseeing or producing the reports about what the important elements will be if we want to make this work well.
Lord Faulks (Non-Afl)
My Lords, in terms of timing, it is important to bear in mind that the genesis of much of this legislation can be found as long ago as 2015. It has taken a long time for anything to happen in response to what was then identified as a major threat—the corruption which has permeated our society. Eventually we got the Criminal Finances Act, then there were many promises of legislation, which did not materialise, then we had the Sanctions and Anti-Money Laundering Act, which dealt with some aspects of this, and then it took the invasion of Ukraine before we had the last piece of legislation. Now, eight years after the initiative of 2015, we have this legislation, which may or may not be the final chance. So, with respect, keeping the Government up to the mark with an annual report and not having a sunset clause is something we should learn from the very chronology that I have just described.
Lord Vaux of Harrowden (CB)
My Lords, I intended to sign Amendment 72, but I was beaten in the stampede to support it, which must in itself say something about the quality of the amendment. Amendment 64 in the name of the noble Lord, Lord Coaker, is very similar. Like others, I think that both include important elements and it would be great to try to combine the best of both when we get to Report.
I shall not repeat what has already been said, but it does seem that adding this level of transparency into the system must help in ensuring that we have got this right. During the debates on ECB 1, the previous economic crime Bill, the noble Lord, Lord Callanan said:
“When we introduced the provisions on PSCs—persons with significant control—in relation to UK companies, we had to make some iterative changes to that, as it became evident over time that aspects were not working as effectively as we had hoped”.—[Official Report, 14/3/22; col. 44.]
The best way to see if things are not working as effectively as we had hoped is transparency and reporting, so I hope the Minister can accept this very simple and sensible amendment to promote that level of transparency.
With permission, I will make one addition to the list of items to report on set out in the amendment. Given the importance of the ACSPs to the process, as we discussed in the previous group, I think it would be useful to include some statistics on the number of ACSPs that have approved, both UK and foreign, who they are regulated by and the number which are suspended. With that addition, I add my support to these amendments.
Lord Johnson of Lainston (Con)
As always, I offer my thanks to noble Lords for their participation and to the noble Lords, Lord Coaker and Lord Ponsonby, and the noble Baroness, Lady Blake, for their Amendment 64. I also thank my noble friend Lord Agnew, my noble and learned friend Lord Garnier and the noble Lord, Lord Cromwell, as well as the noble Baroness, Lady Bowles, for their Amendment 72—if I have got that correct. These amendments address reporting requirements in similar ways and are very relevant and important.
I agree that it is important that Parliament is informed about the implementation and delivery of these reforms. That is why the other place agreed to add an amendment to this effect on Report, which noble Lords have discussed. Companies House already reports on many of the items set out in these new amendments and, in many cases, actually goes much further, either through its annual report or via quarterly and annual statistical releases. Legislating to duplicate this, given the new reporting duty at Clause 187, seems unnecessary.
It is important that any report is holistic and of use to Parliament and the wider public. It should provide the necessary context to facilitate an informed view of performance, which would be difficult based solely on the raw data that these amendments propose. However, I agree that some of the new items of data identified in these amendments could be of interest. The noble Lord, Lord Vaux, raised some specific points, which I believe are already covered in part in some of the quarterly filings. In any event, if they are not, they are certainly worthy of discussion. I am happy to explore with Companies House officials how they might incorporate these into their reporting without the need for this statutory requirement.
It may be worth returning to some of the comments from the noble Lord, Lord Coaker, to cover some of the key points raised. Under Amendment 72, each report must
“provide annual data on … the number of cases referred by the registrar to law enforcement bodies and anti-money-laundering supervisors”.
As I understand it, this is already enabled via the Commons amendment and is expected to be included. Also in Amendment 72, each report must provide annual data on
“the total number of company incorporations to the registrar, and the number of company incorporations by authorised corporate service providers to the registrar”.
These incorporations are published quarterly via the statistical release. The amendment says that each report must
“detail all instances in which exemption powers have been used by the Secretary of State”—
which is also covered by the government amendment—and
“confirm that the registrar has sufficient financial resources to meet its objectives”.
The registrar’s resources will continue to come from fees, which will be set according to how much activity Ministers want to be undertaken. Also, each report must
“provide annual data on … the number of companies that have been struck off by the registrar”
and
“the number and value of fines”.
Removals from the register are already reported on quarterly. The number and value of late-filing penalties are published in annual management information tables.
That just gives the Committee reassurance that there is already a great deal of detail published, and we will be looking to publish more. I look forward to a discussion with noble Lords on specific areas that we can cover; I am sure that my officials are looking forward to those discussions. This is all about the sort of data we provide that allows us to run an effective and transparent company system in this country. But I am very reluctant to legislate specifically, according to these amendments, given what I have said and our commitment to making sure that we are publishing useful information.
I will cover the comments from some of your Lordships relating to the supposed sunsetting of requirements to report. As I understand it—I may have misunderstood, but I hope I have not—the purpose of the clauses on six-month and annual reporting relates to the implementation of changes in Companies House that will bring it up to the standards at which we wish to see it operating. At that point, the reports will be included in annual and/or regular reports. It is not that reporting ends, but that it becomes commonplace to report on the data rather than necessarily on the changes that we are instigating to Companies House. I am happy to clarify that further, if my description was not accurate enough.
Baroness Bowles of Berkhamsted (LD)
Clause 187 says
“on the implementation and operation”.
Therefore, I hoped there would be ongoing commentary and reporting on the operation. I accept that the sunset clause implies that it is about transient stuff, but if the operation—it must be the ongoing operation because it might break down; we do not know—is included in other reports, I would be satisfied. If it is not, I suggest that we need to keep Clause 187 going.
Lord Johnson of Lainston (Con)
I appreciate the noble Baroness’s point. As I said, the sunsetting effectively becomes business as usual, which is provided for to enable Companies House to report according to the criteria that have been established. I am happy to discuss what data it is useful to provide. That is a very important and relevant point. My assumption is that it will evolve over time to some extent, but we can be pretty comfortable that a great deal of information is already provided. It might be useful for us to assess that and then engage in further discussions with officials. We are very open-minded on the data provided. I am reluctant to legislate for this, since we are trying to make data useful rather than simply a legislative process.
Lord Agnew of Oulton (Con)
Is the Minister suggesting that he will clarify the noble Baroness’s point? The wording in Clause 187(1) it quite specific in saying “operation”. Is he saying that he wants this to drop away as part of the sunset clause, but that another report will endure and he will discuss it with us to ensure that it is fit for purpose for the longer term?
Lord Johnson of Lainston (Con)
I believe we will have further discussions on that point, yes.
Baroness Bowles of Berkhamsted (LD)
When the Minister replied to me he used the word “data” rather than “operation”. There is a difference between data and operation. This might not be something that he can instantly resolve, but the ongoing concern is about not just the data but the operation of Companies House. Those are two different things.
Lord Johnson of Lainston (Con)
I thank the noble Baroness for that point. There are two separate components to that, one of which is the data and/or requirements tabled in these amendments, which are relevant to understanding the activities of Companies House and ensuring that we have a comprehensive assessment of what they are. The second point is that there is the assumption that, over the next six or seven years, Companies House will have reached its operational capability to deliver on providing the relevant data, so we have a good deal of time to assess whether that has been achieved. There is a potential for Companies House to achieve its ambitions before 2030, at which point it would settle into business as usual reporting.
Lord Coaker (Lab)
My Lords, I thank the Minister for his response, which in some ways was helpful in trying to clarify some of the things the Government would expect to be included in any report. Amendments 64 and 72 are clearly very close; we will need to discuss with others whether we need to push the Government further on Report as to what they mean. There was, if I am honest about it, some ambivalence in the Minister’s response to the sunset clause and Clause 187(1)(a). We will have to reflect on that. There will obviously be further discussions with officials about what “and operation” means. We will have to see, on that basis, what we might or might not wish to do on Report.
However, in the interests of time, we have had a reasonable debate on this. Following discussions with others, we will see whether we need to return to it. I take the point that what gets measured gets done. I think that is what we all want to see: an effective Bill that works. We may need to see whether further clarification is needed in the Bill for it to achieve that. With those remarks, I beg leave to withdraw the amendment.
Lord Coaker
“Fees and penalties
(1) Section 1063 (fees payable to registrar) of the Companies Act 2006 is amended in accordance with subsections (2) to (4).(2) Before subsection (1) insert—“(A1) The registrar must charge a fee of at least £100 for the incorporation of a company.(B1) The Secretary of State must once a year amend the fee in subsection (A1) to reflect inflation.”(3) In subsection (1)—(a) after “fees” insert “other than the fee in subsection (A1)”;(b) in paragraph (a), after “functions” insert “other than the incorporation of a company”.(4) In subsection (5), in paragraphs (a) and (b) after “regulations” insert “or subsection (A1)”.(5) The Secretary of State must lay before each House of Parliament a report examining the case for fees paid under section 1063 of the Companies Act 2006 being paid into a fund established for the purposes of tackling economic crime.(6) The report must also examine the case for penalties received by the registrar under section 1132A of that Act (power to make provision for financial penalties) being paid into the same fund.(7) The report must be laid before each House of Parliament within six months of this Act being passed.”
Lord Coaker (Lab)
My Lords, I will be reasonably brief on Amendment 65, which is tabled in my name and those of my noble friends Lord Ponsonby and Lady Blake. Amendments 69 to 71 have some, if not many, similarities and, like Amendment 106E in the name of the noble Baroness, Lady Altmann, seek to do the same thing. I shall make a few introductory remarks.
I know the Government are resisting putting an amount in the Bill and are saying that they are going to do this by regulation, but I think it is important for Parliament to make a statement about what it thinks is a reasonable fee. As I understand it, the resolution is under the negative procedure. If it is not in the Bill and the Government propose £40 or £50, it may be that we do not think that is enough, but we will not have any way of changing that or dealing with that.
The research that I have had done shows that the current fee is £12, while the eurozone average is €300, and that £12 is the sixth-lowest incorporation fee in the world, so somewhere along the line, we have got this badly wrong. I do not think that £100, as my amendment suggests, is going to deter businesses or could be seen as anti-business. It is a reasonable fee in line with that charged in many other economies in the world. There would also be the opportunity to raise the fee in line with inflation and with various other changes made to the Companies Act.
Alongside this, Amendment 70, tabled by the noble Lord, Lord Agnew, Lord Cromwell and others, is about the establishment of an economic crime fund rather than reporting on the need for one and is something that we will need to reflect on from our position. However, I take the point that if there is a fee as laid out in Bill, it just goes into the Consolidated Fund to disappear without trace, whereas amendments in this group suggest not just reporting on it to see whether it is needed but establishing an economic crime fund which could then be used; in other words, it becomes a hypothecated fee. The Treasury will always say that it hates hypothecated taxes, that they go against the grain and are something that on principle it does not do. However, the Explanatory Memorandum shows examples of where the Treasury has agreed to the hypothecation of tax. A very effective argument is: as the principle of hypothecation has been accepted by the Treasury in the instances laid out in the Explanatory Memorandum, why should it not be accepted here?
I will not repeat all that has been said but the fundamental point is to create a framework within which economic crime can be investigated effectively and the law enforced effectively. That is essentially what this is all about. The Government will agree with that and say that that is their intention. The purpose of my amendment and the other amendments in this group is to give the Government the tools with which that can be achieved and the resources by which that can be done. In later amendments there is real concern about the effectiveness of the various bodies we already have to tackle economic crime; that concern will no doubt come up again on Report. This Bill will quite rightly say that more needs to be done. How is that going to be achieved? The fee suggested in my amendment and the establishment of an economic crime fund as suggested in Amendment 70 can be used to ensure that we have the resources to tackle the level of crime that we know is out there. It is something this Bill needs to address. It is a real priority. I beg to move.
Lord Agnew of Oulton (Con)
My Lords, to build on the comments made by the noble Lord, Lord Coaker, again, this is a wonderful opportunity to do something that will put our enforcement agencies on to a much sounder footing in future. They are very underresourced. For example, we know that 40% of crime in this country is economic crime yet we deploy only about 1% of our crime-fighting resources to combat it. By ring-fencing this, it gives us a chance to solve that problem.
There is currently a scheme called the asset recovery incentivisation scheme—ARIS—where the money goes to the Treasury and the Treasury hands some of it back. However, the amounts that come back have decreased by 34% in the past five years, at a time when we are seeing escalating volumes of economic crime.
I put in my explanatory statement examples of the hypothecation that the Treasury has agreed over the past few years. As noble Lords can see, there are several of them; some of them are very recent. I want to head off the excuse from the Treasury that “We never do it”, because it does do it, and does it regularly. I suggest that this is as good an opportunity as any to do it. I very much hope that my noble friend the Minister will consider this issue carefully over the next few weeks because, if we do not have the resources in our crime-fighting agencies, we will not be able to stamp out a lot of this. Back in 1984, the US introduced a scheme in which all forfeiture proceeds go back into an assets forfeiture fund. I very much hope that we can do something similar.
Lord Cromwell (CB)
My Lords, I have added my name to Amendments 69 to 71, which the noble Lord, Lord Agnew, has just described so powerfully. Those of us who participated in what we call ECB 1 will remember that there was a great deal of discussion and many points made around the fact that passing legislation is pointless if you do not resource the enforcement bodies that must then carry it out. Reading that debate back, this was covered in detail; I am simply making the point baldly again.
I have three further points to make. The fund would appear to need no new money. It would be funded and administered through the fines and incorporation fees. There may well be pushback on the hypothecation of funds in principle, but, as the noble Lord, Lord Agnew, just highlighted, his explanatory statement illustrates that there are plenty of precedents for such a fund. I would also suggest that, for the crime-fighting agencies—if I can call them that—being able to access this money swiftly and flexibly, rather than having to fight up hill and down dale with the Treasury in trying to extract the money from it, would be a great leap forward. After all, it will be they who will have achieved these funds through successful prosecutions.
Let me add one small but important qualification. We are going to need transparent processes and procedures, including audit, for how these funds are used and by whom. However, with that small and rather pedantic caveat, I lend my support to those three amendments.
Baroness Altmann (Con)
My Lords, I rise to speak to my Amendment 106E. In a way, it is an attempt to combine and perhaps strengthen the other amendments in this group: those in the names of the noble Lord, Lord Coaker—he explained them excellently—the noble Lord, Lord Ponsonby, and the noble Baroness, Lady Blake; and those in the name of my noble friend Lord Agnew, supported by the noble Lord, Lord Cromwell, the noble and learned Lord, Lord Garnier, and the noble Baroness, Lady Bowles.
I welcome the new duties and powers for Companies House. We all know that, as the Government themselves have recognised, there is a severe and growing threat in the area of economic crime. With the pressure on public funding and the fiscal constraints that we know are being and will continue to be faced, funds have to be found for the transformational changes needed to keep pace with the growing and severe threat.
Lord Browne of Ladyton (Lab)
My Lords, a packet of 20 Lambert & Butler or Marlboro cigarettes costs £12.65. That is how out of proportion the fee for setting up a limited company has become. It may well be that government taxation and inflation have influenced the price of cigarettes and that it does not reflect their real value, but that is the reality of the world that we live in. If you have £13 in your pocket, you can buy a pack of cigarettes or you can float a limited company.
This has got totally out of proportion. Businesses that have this limited liability have become a driver of our economy but a significant proportion of them have become a serious problem for our country. Not only has our international reputation been trashed by the people who abuse this, with us being trusted less as a centre of probity and good practice, but, if we accept the Government’s apparently accepted assessment of what this costs us annually, they are taking £350 billion out the economy on a regular basis. They are doing that in a series of economic activities in which they take the money but we count it as GDP. That is utterly ridiculous. Then, after the money goes out of the country—quite often as cryptocurrency—it comes back in and we count it as inward investment. They have distorted the reality of the economy of our country in a significant way and they have stolen significant amounts of money that could have been put to other purposes.
I support these amendments because these two issues need to be addressed. First, the process of setting up a limited company needs to force people to think more about what they are doing. It needs a quality about it and part of that has to be in the fee. The people whom we charge now with not only collecting this data but being the gatekeeper and inhibitor of crime—that is what we are asking Companies House to do—have to be resourced. That resource should come substantially from those people who wish to exercise the privilege of having limited liability in their companies because it is in their interests to have the ability to do that and not be characterised with the rest of these cheats and robbers. The way in which they conduct their business is being protected, and money is not being taken from them by fraud and the other activities that are manifestly going on. It is in their interest for this system to work properly; they should pay the appropriate fee so that that work can be done.
More importantly—this is the real issue that this amendment addresses—the measure of the ambition that we have, that Parliament has and that the Government say they have to interdict all this behaviour has an enormous prize at the end of it: £350 billion. This was described to me as relatively low-hanging fruit in my recent correspondence with one of your Lordships. We know how to interdict this behaviour, keep this money in our country and stop it from being stolen from our common resources in this way.
The measure of the Government’s priority for this is that it should have figured in Rishi Sunak’s five priorities. This is such an extraordinary series of things to be happening in our community, with such a dreadful effect. Economic crime—fraud is part of it, as 41% of crime against a person in our country now is fraud—is having an effect on almost every family in our country. If we do not know people in our families who have been defrauded, or if we have not been defrauded ourselves, we will live in constant fear of it. Every text we open or every email we get that we do not recognise immediately causes our heart to beat a bit faster, as it may have infected our electronic communications. We are all affected by this. There is a great delivery to be had for the people of this country, the way in which we trust each other and the way we live, but there is also a lot of money at the end of this.
A significant proportion of the money going out comes from the Government’s own coffers and we are not protecting ourselves against its loss. If they have an alternative way to convince us that this can be done differently than is proposed in these amendments, now is the time to tell the House of Lords. Like the House of Commons, the House of Lords is going to coalesce around these sorts of amendments—the difference being that support for them here will mean your Lordships’ House winning the day when it comes to counting the votes. We all collectively want the Government to bring these types of amendments and solutions to the House for approval, in their own words.
Can the Minister explain to us how we are going to move out of being a country that basically sells to people, for the price of a pack of cigarettes, this ability to do something that a lot of people are using for crime? Where is the money going to come from to ensure that the work that is needed is done in regulation, enforcement and prosecution but mostly by inhibiting this from happening in the first place? I am much less interested in prosecuting people who have done this than I am in stopping them doing it. We can stop them and give ourselves a resilience but we are going to have to invest a significant amount of money; the Government should see that money as a priority because the prize at the end of it is so significant. If there is no alternative, then this is the best way to do it and I would support and vote for it, but the Government have it in their gift to tell us how they will do it otherwise, if they can convince us that we can trust them to put their money where their mouth is.
Lord Garnier (Con)
My Lords, I have added my name in support of Amendments 69 to 71. I agree with what my noble friend Lady Altmann said in support of her own amendment and very largely agree with what the noble Lord, Lord Coaker, said from the Opposition Front Bench—supported, it is fair to say, by his noble friend, the noble Lord, Lord Browne.
These amendments are important not for what they say intrinsically but for what they say about us—as a Parliament and as people who make policy then implement it. The cigarette packet analogy is very telling: it is ridiculous that it costs the same to buy a packet of cigarettes as it does to register a company. That clearly has to change and I do not think that the Government believe that £12.50, or whatever the cost is, is the right price to register a company. There may well have to be a sliding scale, reflecting small and larger companies, but suffice to say that the current level of fees is ridiculous and the current level of fines could well be ridiculous.
Having signed these amendments, however, I do not want to be seen as a false friend. I take the point that putting on the face of primary legislation the fee, or the fine, makes lifting it higher annually—or whatever the relevant time is—much more difficult because the primary legislation will have to be amended. You might get a Bill like this—okay, we have had two in a year; we are all smiling but these two years are very unusual—but the next time we get to amend the level of the fine in primary legislation could be a long way off. I suggest that we use these amendments to prompt the Government to set realistic fees and fines, and to place those in a form of legislation that can be amended readily and quickly. That would presumably be under regulations, which is not an unusual state of affairs. The purpose behind these amendments, as I say, is to provoke or promote the Government into thinking about the levels of these fines and fees.
In relation to the question of hypothecation or whether the fines should go into the Consolidated Fund, again, I am going to demonstrate that I am a false friend to some extent because hypothecating fines or fees can sometimes create another form of sclerosis. It also creates an inability to be flexible in how one spends public money.
Our arguments in support of these amendments demonstrate what this Committee thinks—here, I agree with the noble Lord, Lord Browne: if this proposal was put to a vote on Report, it would win. I do not think that the Government need have any false hope about that; I suspect it would win. Of course, it would be overturned back in the other place but we would be saying to the Government, “We want real and meaningful action”. This Committee leaves it to the Government to come up with a scheme that avoids having a vote and meets the real nature of the problem that we face.
Baroness Bowles of Berkhamsted (LD)
My Lords, I signed the amendments in the name of the noble Lord, Lord Agnew. I am generally in favour of what has been said already regarding the need to increase the funding for Companies House. I was a member of the fraud committee. When we were looking at Companies House, we were astonished that we still had this ridiculously small registration fee. We thought that Companies House needed more to upgrade in the way now envisaged in this Bill; we did recommend an increase.
We were also taken to some extent with the notion of hypothecation of funds. One might say that nobody likes that idea because they think that they are getting perverse incentives and things are going wrong from that perspective, as the noble and learned Lord, Lord Garnier, elaborated. However, the fact is that our prosecutors are underresourced. When recommending these hypothecations, some us may feel that it is a last resort. Well, that is what it is; there is no other way to get the sort of money that will allow adequate prosecutions into the system.
From my point of view, it does not matter how you get the money in. We have to accept that we need better-funded regulators and better-funded prosecutors in general. It is no coincidence that, whenever there is any kind of scandal, as happens a lot in financial services—about which I know rather more—it is always in the United States that they manage to prosecute them. That is because they have this hypothecation of fines, they have lots of money and they can pin them down. We cannot do that for all kinds of reasons. We cannot keep on being the poor, weak cousins where you will never be for the high jump, you will never be prosecuted and we are still the financial laundromat.
Hypothecation may not be ideal; the Treasury would lose the money, of course, so it would still come from the public purse. Well, why not put it there adequately from the public purse in the first place? I do not see the raising of Companies House fees to £100 as money for legal enforcement; I see it as raising money so that Companies House can be much better and much more advanced and do all the things it needs to do, perhaps more quickly, because a lot of expenditure will be required on technology. It is ridiculous to have this £10; it could be £100, and we could deal with the issue of getting decent enforcement separately.
Lord Faulks (Non-Afl)
My Lords, to take up the noble Baroness’s final point on technology, in the very helpful session we had yesterday—unfortunately the Minister could not be there—we were provided with some written information about the use of technology that was going to develop. I asked about artificial intelligence. Either in the course of answering these amendments or generally, could the Minister assist us as to how, with this increasing amount of information that Companies House will now have, artificial intelligence will allow it and the prosecuting authorities to have a great deal more information to put two and two together, which will assist with this legislation’s overall objectives?
Lord Vaux of Harrowden (CB)
My Lords, this discussion about how we fight economic crime would be an awful lot easier and better informed if we had seen the Government’s national fraud strategy, which I believe was supposed to be with us at the back end of last year. Perhaps the Minister might like to find out when we might finally see it.
Lord Johnson of Lainston (Con)
My Lords, I thank your Lordships, as always, for this very passionate debate. I am struck, after however many pleasant hours we have been together debating in Committee, by the convinced passion and determination of Peers on all sides. An Economic Crime and Corporate Transparency Bill might be considered a dry, technical matter for specific and weighty thought, but the reality is that this is an emotive subject. It is important for all noble Lords to know the Government’s shared passion for stamping out illegal activity and economic crime in this country. From my point of view, it is extremely costly to the economy to enable financial crime to be enacted in the UK. It is not invisible, and every crime has a victim. I hope all noble Lords understand that my personal passion and that of the Government are allied in trying to make a Bill that is practical, will achieve its goals and will allow businesses to flourish.
I would also like to apologise. The noble Lord, Lord Faulks, mentioned the meeting which many officials here attended yesterday. I was unable to attend that meeting, for which I sent my apologies. That was the only morning that I have been away in the past six months. I hope all noble Lords will feel comfortable in contacting me directly to arrange further formal or informal meetings.
I now turn to the amendments. I thank the noble Lords, Lord Coaker and Lord Ponsonby, and the noble Baroness, Lady Blake, for their Amendment 65 on fees and penalties. I also thank my noble friend Lord Agnew, my noble and learned friend Lord Garnier, the noble Lord, Lord Cromwell, and the noble Baroness, Baroness Bowles, for their Amendments 69, 70, 71, which address the economic crime fund and the retention of fees by economic crime enforcement agencies. I also thank my noble friend Lady Altmann for her Amendment 106E on fees and an economic crime fund.
I shall attend initially to the fees and penalties element. The level of Companies House fees has been the subject of much speculation, and I know from our conversations and the amendments in this group that noble Lords have a significant interest in this. At no point do the Government believe, or could anyone in all seriousness believe, that £12 is a reasonable amount for setting up a company. People have suggested that if a commercial organisation cannot afford whatever arbitrary figure one may wish to pick—it could be £50, £100, £150 or £500—for the creation of a limited liability company, it should question whether a limited liability company is the right structure in which to operate.
However, it is very important that fees are set via regulations and that the Government have flexibly over the right level of fee, which has not yet been established. I was grateful to my noble and learned friend Lord Garnier for confirming his view that that is the most appropriate way to set fees. The fee will be determined following an analysis and appraisal of the volume of investigation and enforcement activity to be undertaken, the associated cost base, the timelines for recruitment and systems development and other factors which we have raised in this important debate. We are currently finalising our modelling but are increasingly confident that we can fully fund the reforms, including creating around 400 new roles at Companies House, while keeping fees low. Current estimates from Companies House suggest fees of no more than around £50.
I draw noble Lords’ attention to the annual administration fee. There is an establishment fee for setting up a company and then there is an annual fee, which is currently £13—it is more expensive to register your firm annually than it is to set it up in the first place. I am not entirely sure how we reached those figures, but we are not looking to enshrine a minimum level of fee in primary legislation because to do so would severely restrict flexibility which may be required at a future date. Fees will continue to be reviewed on a regular basis to ensure that they are providing the level of funding that Companies House needs. Companies House is able to retain incorporation fee income under current arrangements between it and HM Treasury, with the arrangement reviewed periodically. That is important. The current intention is that the fees will be used to pay for Companies House, so a raised fee is absolutely right. It is estimated to be used for the functioning of Companies House.
Lord Agnew of Oulton (Con)
Will my noble friend clarify the annual filing fee? He mentioned that the one-off fee will go up to around £50. Can he give us any sense about the second fee? I think it is more important because it is regular income. I think the stock of new companies will drop because of this legislation. It will stop very small actors, as we have discussed—the plumber, the painter or whatever—and bad actors will not come in, so annual new registrations will drop, but that is why the filing fee is very important. Will the Minister give the Committee some indication?
Lord Johnson of Lainston (Con)
I thank my noble friend. We do not have an estimate for the annual registration fee so I would not like to speculate on it, but clearly it would be raised to a level commensurate with the £50 initial fee. The Government set the fee levels, as is appropriate under legislation, but they will come from the recommendation from Companies House. We will look very closely to ensure that it has enough income to perform the functions that we want it to perform. I do not think it is anything more complicated than that.
I have had many enjoyable debates about what the fee should be. To some extent, we can enjoy those debates but they are slightly speculative. What is important is that the Government have the flexibility to ensure that the right level of fee is charged and to change that if necessary. I do not think that anyone in this Committee would disagree fundamentally with that principle. Setting a minimum fee level does not seem reasonable, given the flexibility that we wish to retain.
Baroness Altmann (Con)
Can my noble friend explain to the Committee what advantage the Government believe would flow from having low fees for incorporation? There seems to be an idea that we need to raise it to £50 only, as though there is some benefit in having a low fee—I am not sure in what terms, given that the EU average is €300, the US cost is between $570 and $1,400 and the BVI charge £1,000. In the Government’s view, why would there be an objection to going with the Treasury Select Committee recommendation, for example, of at least £100? It would not mean that they could not charge more. It seems to be the general view of the Committee that £100 would not be an unreasonable minimum, at least, for this incorporation fee. The annual fee can always be set in a different way.
Lord Johnson of Lainston (Con)
I appreciate my noble friend’s intervention. It is probably a good thing that we will be cheaper than the EU when it comes to registering a company; we could call it a Brexit dividend. Without being facetious, this is about giving the Government flexibility to ensure that they charge the right amount. I have no personal view on whether it should be £75, £100 or £125; we can have this debate all evening, and I have great sympathy with it. The point is that I do not believe that anyone in this Committee is suggesting a significant change in the volume of cost for either establishing a business or registering it, so it is absolutely right that we should consult widely and make sure both that the right amount is charged and that we have the flexibility to change it one way or the other, if appropriate.
Lord Fox (LD)
This has turned into something of a Dutch auction. We have lost sight of the purpose of this group of amendments, which is to look through the telescope from the other end. This is about enforcement: how much money will be needed by the enforcement authorities to enforce the Act? Does the Minister agree that the current level of enforcement with the current legislation is inadequate? If so, what will change to fund the organisations to create adequate enforcement? If it will not happen through the measures being discussed in this group of amendments, how will it? That point was made by various noble Lords in the Committee. It is the nub of the answer that we are seeking from the Minister.
Lord Johnson of Lainston (Con)
I am grateful for the noble Lord’s intervention. If I may, I will come to my conclusion before answering those important points. The Government need to continue setting fees via regulations. I would personally be very reluctant to try to set any minimum floor. The assumption will be that the right amount of fees will be set and they will be higher than currently charged. Estimates from Companies House suggest around £50. We are happy to have discussions about that as we go forward but I ask the noble Lord to withdraw his amendment.
Lord Browne of Ladyton (Lab)
Has any thought been given to the possibility—I know that the Government like this sort of structure—of having an independent fee review body that looks at all this and makes recommendations? The Government could still set the fee but there would be an independent group of experts looking at the objectives that we have set ourselves. Is it too late to put some provision like that into this piece of legislation? I know that the Government like reviews.
Lord Johnson of Lainston (Con)
I am grateful to the noble Lord, Lord Browne, for suggesting the creation of another authority but, in this instance, I would be reluctant to do that. As I said, I have noted his comments very carefully, and I will be happy to have further discussions with noble Lords around this issue. I am sure it will be a matter of debate, but the important point is that I do not believe that we should be setting minimum costs by legislation. It would be completely impractical and would remove the flexibility and purpose.
I now come to the economic crime fund and economic crime enforcement agencies Amendments 69 and 71 tabled by the noble Lord, Lord Agnew, and the economic crime fund Amendment 106E tabled by my noble friend Lady Altmann, which are very relevant. As we have discussed—and I take this view personally—we can have as many rules and regulations as we want, but if they are not enforced properly, they will have no value. That is why when noble Lords come to me with new ideas—there is an ever-bubbling font of new ideas—for new regulations, strictures and penalties that could be imposed upon businesses to reduce economic crime, I sometimes push back. I say that it is not necessarily about introducing new regulations and rules but about making sure we have the resources, focus and capabilities successfully to prosecute existing crimes.
That is at the core of my next comment: the Government are committed to ensuring that law enforcement agencies have the funding they need. The combination of the 2021 spending review settlement and private sector contributions through the new economic crime levy will provide funding of £400 million over the spending review period. The levy applies to the AML-regulated sector and will fund new or uplifted activity to tackle money laundering, starting from 2023-24. I believe that the levy is expected, or targeted, to raise £100 million. I am not sure whether that figure is confirmed; I will come back to noble Lords if it is wildly inaccurate.
In addition to this, a proportion of assets recovered under the Proceeds of Crime Act 2002 are already reinvested in economic crime capability. Under the asset recovery incentivisation scheme mentioned already by the noble and learned Lord, Lord Garnier, and some other noble Lords, receipts that are paid into the Home Office are split 50:50 between central government and operational partners, based on their relative contribution to delivering receipts.
Proceeds from fines issued by Companies House are placed into the Consolidated Fund, which is used for financing the expenditure of government departments on important public services. The proposed amendments would see the incorporation fees, all fees paid under regulations made under Section 1063 of the Companies Act and all penalties paid under regulations made under Section 1132A of that Act being surrendered into an economic crime fund. This would be contrary to the fundamental principle that the fees are paid for the benefit of incorporated status and would fall foul of long-established Treasury rules preventing fees being used to fund activities that may be completely unconnected. I am happy to be corrected, but I do not believe that this is pushing back against the concept of hypothecation. The point is simply that these are fees to be paid for a service, and it would not be appropriate for them to be directed to another function.
This would also encompass almost the entirety of Companies House’s income, leaving it with no resources, and it would require funding from elsewhere, primarily from the taxpayer, so going completely against what many noble Lords, this Government and I want, which is to use the fees to pay for the functioning of Companies House. The fees would then go into a fund, so we would have to pay for Companies House on top of that. I am sure that is quite clear. The Government do not believe it is appropriate to place the burden of funding Companies House on the taxpayer, and this would be contrary to the fundamental principle that the fees are paid for the benefit of incorporated status.
I would like to attend now to some comments made by the noble Lord, Lord Browne.
Lord Wallace of Saltaire (LD)
My Lords, I do not know whether the Minister is familiar with the Home Office practice on this. The Home Office has a very clear practice of full-cost charging for visas for entry to this country. I think it now costs £2,000 to £3,000, for example, for the spouse of a British citizen returning to this country to get settled status in Britain. If some parts of government are now insisting on full recovery of costs, perhaps this is a model that could be applied here as well.
Lord Johnson of Lainston (Con)
I thank the noble Lord; that is exactly what I am saying. The whole point about the fees is that they are charged in order to pay for Companies House; that is precisely the same principle. Unless I have misunderstood the intervention, this goes directly against the amendment that introduces a fund that has to be paid for by the fees levied on people who are setting up companies or annually registering.
I want to attend to a point made by the noble Lord, Lord Browne. He said—rightly—that the whole point of this legislation is not to profit or make money from it but to stop the bad practice happening in the first place. The fines and penalties to be issued by Companies House are designed to drive a change in behaviour, not be a revenue-raising tool. I was grateful to my noble and learned friend Lord Garnier for raising the point around how these fines could or should be used. It is possible to suggest that the same situation happens with speed cameras. The theory there is that we want to reduce speed on the roads, not raise revenue—at least, that is my personal opinion.
Lord Johnson of Lainston (Con)
I do not have an interest to declare there, I might add. Using fines to fund other activities results in the perverse scenario of that funding being dependent on behaviour that we are actively trying to stop. I strongly believe that, in many ways, the principles we are talking about are negated by a well-intentioned concept: trying to make sure that there is enough money so that our law enforcement agencies are properly funded in order to achieve their ambitions.
Given the limitations that I have set out—this goes to the point about providing a report—I am not convinced that there would be merit in providing a report on the prospect of a fund or, indeed, providing for a fund. I hope that noble Lords understand my conclusion here.
Lord Agnew of Oulton (Con)
I am sorry to intervene but I just want to say something. The Minister agreed with all of us that the crime-fighting agencies need to be properly funded but he did not explain how that will happen because he does not accept that we should hypothecate. He gave some good examples of other situations where it was about not the hypothecation but the use of revenue for activities that were not part of the original source and funding litigation. In June last year, the Information Commissioner announced a new arrangement with DCMS in which it could keep some of its civil monetary penalties to fund it to take on large technology companies. All I am trying to do is ensure that we will have the resources to take on these bad actors.
The Minister and my noble and learned friend Lord Garnier mentioned ARIS. As I said earlier, the funding has declined by 35% in five years—that is without inflation—yet the problem is getting worse. I do not expect the Minister to come back to us on this tonight but I am looking for some reassurance around how we are going to fund these things properly because we are not doing so at the moment. Everybody seems to be in denial and the Minister has offered me no assurances that we are going to deal with this.
Lord Johnson of Lainston (Con)
I greatly appreciate my noble friend’s intervention. I hope that I have made clear to the Committee the importance that this Government place on fighting economic crime.
If I may—I am not sure of the protocol—I wish to question my noble friend’s intervention. He said that the asset recovery incentivisation scheme has seen a considerable drop in the monies deployed to law enforcement over the recent period. However, I have a figure here: since 2006-07, just under £1.3 billion—that is based on nominal values and not adjusted for inflation—has been returned to Proceeds of Crime Act agencies to fund further asset recovery capability and work that protects the public from harm. In 2021-22, £354 million was recovered under the Proceeds of Crime Act, of which £298 million was paid into the ARIS pot. So I certainly will research the figures given to me by my noble friend.
The point is that we are looking to provide funding of £400 million over the spending review in order to focus on fighting economic crime. I am happy to have further debates around this issue but I hope that I have made my point in relation to these amendments, minimum fee levels and creating a fund out of the fees, which would be completely contrary to the ambitions that we have set in our legislation around Companies House.
Lord Coaker (Lab)
My Lords, I have to say that there is a bit of work to be done on this group of amendments before Report. The Minister certainly failed to convince me and I am sure he failed to convince many, if not everyone, on the Committee. There is a real problem here. There is a problem with raising the fee and what it should be. The Government say that it is a matter for us and then came up with the figure of £50, which I think is inadequate. There we go; there clearly needs to be discussion about that on Report. I take the point that a number of noble Lords have made that the fee is not just to fight economic crime but for the additional responsibilities that Companies House will have. That is very clear.
Lord Agnew of Oulton (Con)
I will just wrap up my amendments. I am afraid that I agree with both the noble Lords, Lord Coaker and Lord Fox, that there does not seem to be a strategy for fighting economic crime. I ask the Minister to think about this and come back to us. It could be something as simple as increasing the filing fee beyond whatever we think is the right figure by another £10. At 2 million filing fees a year, we would then have the start of a fund to fight economic crime. It could be something as simple as that, but I urge the Minister to give us something to get our teeth into. On that basis, I will not move my amendment.
Lord Johnson of Lainston
“(1) The Secretary of State may by regulations—(a) require a company to refrain from using, or refrain from disclosing, relevant PSC particulars except in circumstances specified in the regulations;(b) confer power on the registrar, on application, to make an order requiring a company to refrain from using, or refrain from disclosing, relevant PSC particulars except in circumstances specified in the regulations.”Member’s explanatory statement
This brings the drafting of the amendments made by Clause 89 into line with the drafting of the amendment to Clause 49, page 33, line 19 that appears in the Minister’s name.
Member’s explanatory statement
This is consequential on the amendment to Clause 94, page 72, line 40 that appears in the Minister’s name.
Economic Crime and Corporate Transparency Bill
Thursday 20th April 2023
(1 year, 7 months ago)
Grand CommitteeRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 96-III(a) Amendments for Grand Committee (Supplementary to the Third Marshalled List) - (20 Apr 2023)
Lord Wallace of Saltaire
“Overseas companies: international co-operation
Within six months of the day on which this Act is passed, the Secretary of State must report to Parliament on what arrangements with foreign states and international organisations have been agreed to verify information about overseas companies within the scope of this Act, and the identity of their directors.”Member’s explanatory statement
Verification of information about companies and directors based overseas will require co-operation with foreign governments and with organisations responsible for monitoring cross-border finance, trade and crime. This amendment seeks to probe that the government is putting such arrangements in place, and will report them to Parliament.
Lord Wallace of Saltaire (LD)
My Lords, this amendment is to ask for much more information from the Government on the international implications of the Bill, which is a way of asking whether the Bill is serious in terms of enforcement. Most serious economic crime—indeed, all serious economic crime nowadays—is cross-border: the money is taken out of your bank account and rapidly moved to another jurisdiction. One of the huge problems we all face in a globalised economy is that policing is bounded by sovereign borders and criminals are not. Therefore, Governments are forced to co-operate across them.
One of the questions I hope we will pursue on these amendments and the ones that follow on the overseas territories is how Whitehall ensures that the various parts of it that deal with the various parts of our international efforts to combat different forms of crime—terrorist financing, drug smuggling, people smuggling, et cetera—co-ordinate, and which are the lead departments for what. Reference has already been made to HMRC and the Treasury. I note that, in Washington, the US State Department has now established a State Department-led but cross-department anti-corruption board to deal with these necessarily cross-border problems. I hope the Minister will be able to tell us—if not now then perhaps, as I asked at Second Reading, in a briefing in the context of the Bill—how Whitehall will make the necessary changes to ensure that different departments work together coherently in coping with these very complex problems.
It might help if I remark briefly on how I became involved in some of these problems of international crime. In 1989 I was director of research at Chatham House, the international affairs think tank. I was approached by a chief inspector who was then head of the strategy unit at the Metropolitan Police to ask if we could run a seminar on the international dimensions of policing, now that it seemed likely that the Berlin Wall might come down. As it happened, I was then attached briefly to an institute in Germany, in Bavaria, and when I asked it whether I could get any briefing on the subject, which I knew nothing about, I found myself very rapidly being taken to the Bundesnachrichtendienst headquarters and given a very thorough intelligence briefing on how the German Government were approaching the likely explosion of cross-border crime that would accompany the end of that very hard border that had kept a lot of crime away from western Europe.
Since then, we have had 30 years of globalisation, the communications revolution, digitisation and international banking deregulation, which have made cross-border economic crime far easier, far faster and far harder to keep up with. It is no accident that the Financial Action Task Force, one of the main mechanisms for international intergovernmental co-operation in combating money laundering, was also founded in 1989 by the G7; it saw what was coming. Perhaps the Minister can consider whether we could have a briefing on this to be told more about how effective the Financial Action Task Force is.
When I looked rapidly for an update on the FATF, I was a little worried to find that there is rather more up-to-date information on Wikipedia than there is in statements from GOV.UK, which tend to be from 2015, 2018 or 2019. The Wikipedia comments say that the FATF is now pretty good at setting standards and maintaining a blacklist and a grey list of countries that do not observe basic international standards. Some of your Lordships will have seen the article in the Financial Times yesterday about the Government of Panama hoping that it may finally be about to be taken off the grey list, which has clearly damaged its position as an international financial centre. But apart from reporting and setting standards, the FATF does very little in terms of enforcement. The question of enforcement, verification and the exchange of information is extremely relevant to whether the Bill is really going to make a difference to our pursuit of economic crime.
I followed the development of international police co-operation in the 1990s, partly because, when I came here, I became chair of the sub-committee of the European Union Committee that dealt with justice and home affairs, and thus followed quite closely the development of Europol, the Schengen Information System and those other forms of European police co-operation. I was struck by the extent to which progress was driven not by any commitment to some fantasy of a European superstate but by the demands of police forces and intelligence agencies in different countries. They needed to share information—in good, constant time if possible—and share activities and operations, as they now do. Of course, we have now left Europol and the Schengen Information System, which has denied the British authorities access to one of the closest ways in which we used to share information on transborder economic crime. I am not very well informed about the other mechanisms, apart from the OECD’s various activities on beneficial ownership and the FATF, which we find useful.
As the noble Baroness, Lady Blake, may remind us, David Lammy, the shadow Secretary of State for Foreign Affairs, proposed some weeks ago that there should be a transatlantic anti-corruption council to bring together more closely the various agencies, authorities and law enforcement bodies concerned with these areas. I am not aware that the British Government are actively engaged in all this, so my amendment asks the Government to tell us what the current situation is, what their strategy is and how this intrinsic element of any serious approach to economic crime will be treated. If they are unable to do that, they cannot be very serious about the enforcement of action against economic crime, which is not, after all, primarily a domestic matter. I beg to move.
Baroness Blake of Leeds (Lab)
I will respond to the comments made by the noble Lord, Lord Wallace, in moving his Amendment 68. I was very struck, looking back at the comments from Second Reading. He very forcibly talked about the international dimension and how important it is, and the fact that the international dimension in the Bill generally is thin; I think those were the words he used. I think we all knew that we would require amendments to look at this area. I am keen to understand from the Minister what actually is being proposed.
We talk a great deal about collecting data, but one of the rules of thumb I have always worked with is that data is of use only if it is open and transparent, there is a responsibility for the data to be analysed and, where things are held up as being untoward, appropriate action is taken.
I do not want to draw out the debate, but this could be an opportunity for the Minister to give us an update about the progress made since the Government launched the register of overseas entities on 1 August. What is the Government’s assessment of the success of the register and of the beneficial ownership registration being set at 25%? Do we know whether many companies are avoiding this by spreading out shares throughout a family? We know that there were significant concerns about nominee arrangements being used to disguise true beneficial owners. What is the Government’s assessment of this, now that the register has been introduced, and will they use the regulation-making powers in the existing economic crime Act to address this?
I anticipate a full response to the issues raised by the noble Lord, Lord Wallace. I would like to understand and am seeking reassurance that the Government are putting arrangements in place. As we have heard, the scale of the co-operation is quite significant. It needs constant review, and it needs to relate to finance, trade and crime. I look forward to the Minister’s response.
The Minister of State, Department for Business and Trade (Lord Johnson of Lainston) (Con)
I thank noble Lords very much. It is a great pleasure to be here again to continue this valuable and important inquiry into how to make our company structures more transparent, fairer and more effective for our long-term business needs.
I thank the noble Lord, Lord Wallace of Saltaire, for this amendment. Over the next few hours, I hope to cover many of the points raised and clarify further points from our discussions earlier this week. Specifically on this amendment, I hope it will be of some reassurance to noble Lords that Companies House already has excellent relationships with overseas counterparts—it is important to emphasise that. It works closely with authorities in the Crown dependencies and overseas territories on the implementation of the register of overseas entities.
The noble Baroness, Lady Blake, asked about the progress of the register of overseas entities in relation to UK companies and, specifically, property ownership. We have come a long way: I think we are now 75% to 80% registered. Some overseas entities have not fulfilled our requirements, and I am happy to send a note to Peers about that. This changes regularly but it is a minority, which is important. I am pleased about that, and we are grateful for the collaboration of the Crown dependencies and overseas territories.
As a government Minister it is important that I say that, if you listened only to this debate and did not have any experience of the outside world, you may be forgiven for thinking that every single authorised corporate service provider, Crown dependency and overseas entity was somehow engaged in and designed for criminal undertakings, which we all know is not the case. It is important that I state that many of these measures and the discussions we are having are about a very small minority of bad actors and that the overall industry is worth while and valuable. The principles around high-quality corporate service provision, Crown dependencies managing their own affairs and how companies are structured are very much to be celebrated and embedded. What we are doing here is making sure that there is transparency and legitimacy. I want to make sure that is on the record.
Earlier today I met a former regulator from one of our Crown dependencies, who was surprised at the tone that some noble Lords are taking in the debate, given what he had done with his own regulator in his Crown dependency. He felt that it had set the standard—a higher standard, maybe, than some other Crown dependencies. He felt that they had lessons to teach us in the United Kingdom. We ought to be aware of this. I do not want to belabour the point, but it is important to get the tone right and make sure that the messages are clear.
Lord Fox (LD)
I took it as an implicit, or rather an explicit, criticism of His Majesty’s Opposition, us and others who have spoken to amendments to the Bill that we somehow regard the whole industry as corrupt. I would take the Minister to task and suggest that he reads Hansard for the previous session, where I made it clear that that is not our view—and I know it is not the view of His Majesty’s Opposition. The fact is that we are speaking about bad actors because the whole purpose of the Bill is to deal with them. It can be taken on faith, but perhaps we have to say it every time, that we consider bad actors to be a minority of players in this sector, but they are the purpose for which the Bill has been brought forward.
Lord Johnson of Lainston (Con)
I greatly appreciate the comments from the noble Lord, Lord Fox; I am so glad that he said that. I do not mind if some friction is sometimes required in order to make sure that the messages are heard loud and clear. I am glad that the noble Lord has reaffirmed his position, that of his party and that of the main opposition party. We all agree on this, but it is important because I was picked up on it today. It sounds as if we are at war with a legitimate sector and the legitimate concept of how to structure companies, which are at the very core of our capitalist system and have created so much wealth for us. I am glad that we are united on this point.
I was asked by the noble Baroness, Lady Blake, about the number of entities that have registered with the register of overseas entities. I have a figure of 27,000, which represents a high level of compliance. I hope that figure satisfies her request, but I would be happy to publish further figures or to answer her in writing on that.
Lord Coaker (Lab)
I will just reinforce the point that the noble Lord, Lord Fox, made. To be honest, I do not think the Minister was implying that we were condemning the whole of business, but the noble Lord, Lord Fox, made an important point. The Committee is trying to say that, overall, we all support the Bill but we want to ensure that it is effective, understandable and enforced. In challenging the Government, we seek not to undermine business but to improve what most of us regard as a reasonable Bill.
The only other point I make to the Minister is that—I think we all accept this—public opinion is frustrated about what it sees as a lack of action in respect of certain bad business practices, such as the laundering of money. Lots of fraud and economic crime takes place but is not seen as a priority by the state—irrespective of whether you mean Labour, the Liberal Democrats, the Conservatives, the Scottish nationalists or whoever—which does not take this seriously. I suggest to the Government that, if I were a government Minister, I would parade much more powerfully than the Government have done that we are trying to ensure that public anger is assuaged by the fact that we are no longer prepared to see Russian money used in the way it has been nor to see bad practice, which means, frankly, that good business is undermined.
This is the point made by the noble Lord, Lord Fox. Good businesses, which represent the majority of the country, want something done about bad business because it undermines them. This is a really important point; I think it is the point that the Minister was trying to make. This is a good Bill but it needs to be improved. From what he has said to us, I think the Minister will take on board many of the comments that have been—and will be—made and change the Bill. But it is also about saying, “Of course the majority of business is good, but there is bad practice out there and it needs sorting out”. Good business wants that to happen as much as members of this Committee do.
Lord Wallace of Saltaire (LD)
My Lords, as I said in moving this amendment, our concern is around the Bill, when it becomes an Act, having the resources and the international co-operation structure to make it effective.
The Minister talked about exchanging information, but there is also the question of enforcement. If we are trying to enforce on someone who is based in the UAE, Panama or Singapore—let alone Hong Kong—these things are not easy. We all recognise that since 1989 a number of mistakes have been made. This Government—and this country under different parties in government—made a succession of mistakes in our handling of Russian money as it came into the country. Many of those mistakes have now been corrected, but we have to admit that we did not handle this very well and we now find ourselves in a situation in which other financial centres are extremely difficult to investigate. One looks at the Wirecard scandal, for example. One of the world’s major accounting firms failed to discover that a substantial chunk of the assets that Wirecard was declaring, which were alleged to be in Singapore and Malaysia, did not exist.
Clearly, the need for active exchanges between Governments, central banks and others is vital in this situation. That is what we are trying to ensure happens. Yes, it is a small number of companies, but it is not a small amount of money. That, therefore, has to concern us if the Bill is to be a useful reform and a worthwhile Act.
I remind the Minister that that the FATF grey list at the moment includes the Cayman Islands and Gibraltar, as well as the United Arab Emirates, Turkey and a number of other countries with which we have close ties. I am conscious that 100,000 British citizens now live in the United Arab Emirates, many of whom are actively engaged in the international financial industry. That has to be a matter of concern to us. Not very long ago, some in the House were talking about the activities of UAE intelligence services with regard to UAE nationals on British soil. There are a great many difficult issues that we have to cope with here. We also understand that this situation is not static. The communications revolution has already made the transfer of money around the world much faster than it was 10 to 20 years ago, and we need to keep up with that.
I should have mentioned another OECD initiative that is related to economic crime, on base erosion and profit shifting. It is concerned with tax evasion, which I include as part of economic crime. That is another area in which Governments are beginning to co-operate. It is very difficult to gain co-operation. The entire British Government are not always as keen on co-operation as some parts are, because some departments naturally have different interests from those of others. I raised the question of Whitehall co-ordination and where its leadership sits, and it probably needs to change, as it just has in America, because the nature of the problems we face is also changing.
I withdraw my amendment, but I hope that these conversations will continue. I express our shared concern that legitimate international finance will prosper and that aspects of international finance that are illegitimate will be carefully monitored and prevented.
Lord Agnew of Oulton
“Publication of information about trustees
In section 22(1) of the Economic Crime (Transparency and Enforcement) Act 2022 (material unavailable for inspection), omit paragraph (c).”Member’s explanatory statement
This amendment would enable Companies House to publish the names of parties to trusts which own Overseas entities in the Register of Overseas Entities. Currently Companies House collects this information but does not publish it.
Lord Agnew of Oulton (Con)
My Lords, I probably ought to start by checking with my noble friend the Minister and his officials that his own amendment, Amendment 76H, does not solve the problem that I am seeking to solve. That will be a very quick answer from my noble friend if it does. It is Amendment 76H—I am slightly flummoxed by section numbers, clauses and subsections.
I will explain to the Committee why the amendment is important. Companies House now collects the information that I am keen for us to have more visibility of, but it does not publish it. I am asking simply that we allow for the information being collected to be published. The register of overseas entities that has just been created is working. I agree with all the comments made a few moments ago about most people involved in business being honest, but this Bill focuses on bad people.
Lord Faulks (Non-Afl)
My Lords, I support the amendment. I have benefited, as I dare say have a number of other noble Lords, from the briefing from Transparency International explaining why the amendment is so important and very much consistent with the theme and title of the Bill.
I too will probe a little what the Minister said about the register of overseas entities. I think he said there were 27,000 on it at the last count—I am sure the figure changes regularly—and that is encouraging. The move for a register of overseas entities was, I fear, prompted mostly by the fact that on large wastes of central London and other parts of the United Kingdom were properties whose ownership was very unclear. In reality, they were often owned by what we now seem to be calling “bad actors”—at least, we did not know who they were, whether they were bad or good actors. That information should now be much more available than it was.
I think the Committee would be most interested to know whether, with the information that is now obtained, there has been any follow-up. In the evidence we were given about the register of overseas entities, it was explained, for example, that it should enable some link-up with pursuing people under the unexplained wealth order provisions, because there would be more information—you could identify who owned a property and why, if they were a fairly low-grade official in a Russian company, for example, they now owned a property in Belgravia worth several million pounds. Similarly, how is the information assisting in sanctions and the like, and with anti-money laundering?
Generally, there is a lot of information that should be available to the various agencies as a result of the register, rather than simply ticking a box. There may be a theme in the debate that we have been having. Yes, we are enthusiastic about the increased information that is in Companies House and the increased information that will flow from the identity of those on the register, but what we really want to know is whether it will be translated into valuable information that will fulfil the aim behind this legislation.
Lord Vaux of Harrowden (CB)
My Lords, I support the amendment in the name of the noble Lord, Lord Agnew. To follow up on what has just been said, at the date of Second Reading, approximately half of the expected 32,000 companies that were going to register had done so. I gather that this figure is now 27,000, which is a good step forward. At that time, when it was a rather smaller number, I think 4,000 of those companies suggested that they were owned by trusts, which shows the scale of this issue.
I think it was the noble Lord, Lord Leigh of Hurley, on the first day in Committee, who was sceptical about whether my amendments identified the ultimate beneficial owners of trusts. He was right to be sceptical; I do not think they did. But that ultimate beneficial ownership and control is what we are trying to get to with this process. Trusts are probably the most common method used for hiding the ultimate true ownership. As I say, 4,000 out of the 16,000 companies that had filed at the time of Second Reading—a quarter—were owned by trusts, and we could no longer see where they went.
It seems very perverse that this information is hidden. I am keen to hear from the Minister a convincing explanation of why the Government feel that it should be hidden. Like the noble Lord, Lord Agnew, I see that the Minister has tabled Amendment 76H, which will extend the information required on trusts. That is very much to be welcomed. I am not at all clear—I do not think that the noble Lord, Lord Agnew, is either—on whether that information is intended to be transparent or hidden. Clearly, it should be public.
To be honest, there seem to be a lot of areas where information is hidden. We have had a number of discussions already in Committee about that. We need to step back and apply a simple principle that there should be maximum transparency, and that we should hide information only where there is genuinely a strong privacy issue. At the moment, it feels very much as if the balance is tipped too far towards privacy and too far away from transparency.
Lord Garnier (Con)
My Lords, I entirely agree with what the noble Lord has just said. Trusts are and have been frequently discussed in this Bill and its predecessors as one of the most effective ways of hiding information that ought to be made public. Clearly, some matters are properly to be kept confidential, but much of the material covered by the law of trusts ought, in the public interest, to be disclosed.
I happily support the amendment that my noble friend Lord Agnew moved a moment ago. Like him, I want to know whether the Government’s Amendment 76H renders his amendment redundant. I do not think it does, because it seems to me that there is a difference between the publication of information about trustees, which is what my noble friend talks about, and the registration of information about trusts in the Government’s proposed new clause. We can register as much as we like, but if you cannot open the box and see what is inside and has been registered, it is a pretty futile exercise. Public opinion, public policy and an assessment of the public interest suggest to me—for the reasons already given by the noble Lord, Lord Vaux, and my noble friend Lord Faulks—that the Government, if they want to maintain the difference between registration and publication, are behind the curve.
We learned a lot in my noble friend’s committee in 2019 about the huge amounts of real estate, particularly within London and a couple of its boroughs, which are owned by people, companies and trusts of which we know nothing. Many of these houses and properties were unoccupied; they were merely the physical dumping grounds for money. Obviously, they had to be paid for.
The committee on which the noble Lord, Lord Faulks, and I served was not able to discover, but sought to encourage the then Government to expose, the route by which criminal funds were laundered into London by money launderers. Any number of blocks of flats and very expensive houses, all year round, 24 hours a day, never have a single light on. You can go down smart squares in Kensington or Westminster and see places that look utterly unoccupied—because they are. They are dumps for dosh. We need to make sure that this new law is effective at exposing and, if not exposing, inhibiting before it gets here, the translation of laundered money from dodgy jurisdictions into ours. It is as simple as that. I hope the Minister is able to persuade the Committee that my noble friend’s amendment is redundant, because the Government’s amendment comprehensively and effectively does what we would like.
Lord Wallace of Saltaire (LD)
I will just add to this. As it happens, the other week my wife and I were going around the Nine Elms development, Battersea Power Station, et cetera, with an eye to when we downsize. We were told that, until then, over 40% of the apartments had been sold to people living abroad. That partly explained why it was so very quiet there; not many people were present in the complex. That raises all sorts of large questions about housing practices in London, which we need not touch on at the moment.
I want to pick up on the point made by the noble Lord, Lord Agnew, about how one establishes the ultimate beneficiary when one company is owned by another company, which is owned by a trust in another jurisdiction. That is part of what my amendment was trying to get at, as a key element before one can even begin to enforce is accurate information from regulators in other jurisdictions and territories, and how we do our best to ensure that the information we are receiving is accurate. That requires active diplomacy and co-operation between the financial parts of different Governments. We are looking for some assurance from the Minister that that is part of what is intended when the Bill becomes an Act and that we will know which parts of Whitehall will be pursuing it.
On the first day in Committee, there were some references to the role of HMRC. We have been told that Companies House will not be concerned with regulation or enforcement, but we need to know a little more about which parts of our government machine will take the lead on ensuring that we begin to unpick the cascade of trusts and companies referred to by the noble Lord, Lord Agnew, and will tell us who, in effect, the beneficial owners are.
Lord Fox (LD)
I will speak very briefly in this interesting debate. The noble Lord, Lord Faulks, referred to a theme. I agree and would characterise that theme as what Companies House knows and what is published. That publishing process turns information into actionable information, rather than just stuff in a box. We have had some useful meetings with the department and I thank them for that, but on a number of occasions the department talked about what Companies House knows; here, however, we are talking about the balance between what it knows and what is published. We are pushing much harder for more to be published. This is not prurient; it is about the point at which information becomes actionable and useful in order to do the things that your Lordships have spoken about.
I am sure that there will be issues around privacy and all sorts of things, but those can be dealt with by special process. We should not use the fact that some can legitimately require privacy to prevent all the rest of the data being published. We are asking the Minister to reassure us that his amendment does this. My sense is that it probably does not, and therefore it would be as well if he could acknowledge and address this difference between what Companies House knows and what is published, particularly in this case but there are other areas too.
Baroness Blake of Leeds (Lab)
To follow on from those comments, my comment will be very much in the same vein. We need to bring this part of the conversation into the general understanding that if we are to be successful, there has to be a root and branch reform of Companies House and the way in which it works. We need a massive cultural shift. Moving away from being a passive receiver of information to a dynamic analyser of data will be quite a step. It speaks to the need for resource to make sure that everything we are doing can be delivered. I emphasise the comments that have been made: of course we want this to succeed, but I am sure that everyone will understand our calling for more information and calling out opportunities to improve what is before us. Significant improvements can be made as we move forward.
Following on from what the noble Lord, Lord Agnew, said, we need to make sure that we do not follow the law of unintended consequences by introducing new measures and then creating new loopholes which will let bad actors fall through the net. We need to triple-check everything proposed through these measures to ensure that that cannot happen. As we have all said throughout this debate, the best way is to make sure that the data is transparent and can be viewed and seen. There have to be ways to introduce safeguards so that sensitive matters can be protected as and when they occur. It cannot be outside the bounds of possibility to make these improvements and move forward in a way that gives greater protection to all those involved.
Lord Johnson of Lainston (Con)
I thank the noble Baroness, Lady Blake, for those well-expressed sentiments. I hope the Committee knows my passion for these important reforms. I apologise for not declaring my interests at the beginning of this debate, as I should have. We have had so many different meetings it is easy to forget. It is important that I declare them because I do own companies, I have set companies up and I have been a participant in LLP structures and so on—although I do not believe I am now; please refer to my entry in the register. There is no conflict in my mind; if anything, I hope that gives me quite a good perspective on how these structures can be used for good but also by bad actors.
On the importance of eradicating corruption in our economy, there is, potentially, no greater value that a person can engage in than allocating capital to the highest point of return. That may sound a bit cynical and clear-cut but the point is that the effective functioning of our economy is what gives us the goods, services and quality of life that allow us to exist in harmony and happiness. Corruption, which we are trying to eradicate, is extremely invidious in allowing us to have successful economic growth and, in many cases, it is invisible. It is also assumed to be victimless, which is not the case: it is highly corrosive to our economy and every crime has a victim, even if they are not immediate or apparent.
Our determination to eradicate corruption and economic crime is at the core of our agenda to make our economy work better to provide better lives for our citizens. The noble Lord, Lord Coaker, raised a good point when he said that the public demand this. That is absolutely right. If one believes, as I do, in business and capitalism, and the power of capitalism to do good, if it is being distorted, that destroys our foundation and means that we do not have the true legitimacy to carry on effectively legitimate affairs, because they are conflated with illegitimate affairs.
I am completely dedicated to this mission and am grateful to all noble Peers. I am very glad that we have put on record our group support, if I can call it that, for an industry that, as we have discussed, is incredibly valuable and performs enormously important functions for companies that work in it. It is important; I am happy to state that.
Given this opportunity, I will go back over some of the statistics. The noble Lord, Lord Faulks, raised the issue of compliance. This has been well flagged; there was an assumption, perhaps, that the compliance rate is low. It has taken time for these overseas entities to register themselves. The population of entities in scope is around 32,000 but it is assumed that some of them—perhaps as much as 10%; let us say around 2,500—are dormant, defunct, in the process of being wound up or just part of the general churn of overseas entities. We now have 28,000 entities that have complied with our requirements; that is a high level if one assumes that, as I said, 2,500 or so are probably part of natural churn. So we are already looking at a non-compliance rate of maybe 1,500 to 2,000 companies out of 30,000—I know that I am making estimates; I would be happy to write to the Committee with specific numbers.
Lord Vaux of Harrowden (CB)
The Minister might be coming on to this but, when he says “compliance”, that means an entity has made a filing; it does not necessarily mean that the filing itself is compliant. The statistics that would be interesting for us are those on what the beneficial holdings behind these entities look like. Are they trusts? Are they opaque companies? It would be helpful to know that. Also, what has Companies House done—and what is it doing—to follow up on those that seem to be unduly opaque?
Lord Johnson of Lainston (Con)
I appreciate that intervention. As I said, I would be happy to write with specific information as I do not have details on all 28,000 registered businesses.
The point I want to make, which is important, is that a very large number of overseas entities have registered and, we assume, sent in information that can be confirmed and will lead to them being compliant. That is quite a high number; it allows us to focus. That is the point. The question was about what happens to the 1,500 to 2,000 or so companies that have not registered. Well, they cannot transact; they cannot participate in transactions in this country. Their assets are untransactable, which, in my view, negates the value of those assets to a significant degree. In effect, they are compelled to register and comply if they want to get their money out; that is important. Clearly, the next phase is to do the work on the companies that have registered to ensure that the information we have is accurate. We then have to make sure of why those companies that have not registered have not done so. Sometimes, there are perfectly legitimate reasons why that would be the case but, on the whole, we have made significant process.
Following our discussion earlier in Committee and the sensible points from the noble Lord, Lord Wallace—I have been glad to discuss them with my colleagues—let me say that compliance and law enforcement are at the crux of this issue. There is no point in bringing in any of this legislation—not even a single line of it—if it will not be enforced and overseen properly. My view has often been that sometimes we may not need new legislation but we need to enforce properly the legislation that we have, where a great deal of our effort will be far more effective.
Lord Faulks (Non-Afl)
I am grateful to the Minister for his clarification about the level of compliance. If will press him on one point. Last week we were provided with a useful series of notes that made this point, among others:
“Public registers allow multiple eyes to interrogate data, including the absence of data, to inform a risk-based approach to investigation and enforcement”.
I think that what the Committee would like to know is this: now that there is this compliance, who are those “multiple eyes” and what are they doing with the information that was thought necessary to eradicate some of the kleptocracy that has clearly been identified?
Lord Johnson of Lainston (Con)
I greatly appreciate the noble Lord, Lord Faulks, flagging so well the sentence that I was about to deliver. I would like to investigate further, personally as a Minister and for the benefit of this Committee, a more detailed assessment of the crime-fighting efforts that we will employ around this.
I have some good information to impart to the Committee, which to some extent answers the questions. I have particularly looked into the comments by the noble Lord, Lord Wallace, about the UAE and so on. We have signed an anti-corruption pledge or framework with the UAE in the last few years. We have in the Foreign, Commonwealth and Development Office—
Lord Johnson of Lainston (Con)
Can I just finish this particular flow of information, because I will cease to remember it if I do not get it out? I believe we have 12 Foreign Office crime experts located around the world. One of them is in the UAE, for example, and we work very hard with those countries that sit on the so-called grey list. It is important to note this. I am aware, as a Minister and a consumer, that the value and brand of a jurisdiction are extremely important. It is not effective for companies to operate easily in jurisdictions that have been classified as at risk or on the grey list.
There is clearly a hierarchy of regulatory power or brand, with the UK at the very top. When dealing with international companies, I personally always look at where a company is registered. If it is registered in the UK, we hope that the brand will grow to be even more enhanced; if it is registered in a jurisdiction about which you have doubts or that has been highlighted as at risk, it makes a significant difference to how you treat that information and the brand of that business.
Lord Agnew of Oulton (Con)
Given my noble friend the Minister’s commitment to give us some data on the whole disclosure exercise that has happened following the first economic crime Act, he mentioned that there has been a high level of compliance. We are all delighted with that, but my worry—to the point made earlier by the noble Lord, Lord Vaux—is what that actually means.
Transparency International estimates that there are at least 7,000 entities on which no light at all will be shed. In my example, JTC (Suisse) SA is a registered overseas entity. We now have that information but it means absolutely nothing, because beneath it is a cascade of other entities that we seem to have no visibility on. When the Minister puts together his reporting suite, can he let us know how many are essentially just a number or a name on a piece of paper?
Perhaps I should have raised this earlier, but in our very useful briefing with officials on Monday they explained that the ROE was set up specifically for property, and therefore a lot of the enforcement was around property assets. Property—real estate—is of course a much easier concept to deal with than the rest of the things we are talking about in commerce. A piece of paper or digital ownership of a share is much harder. I am interested to know what enforcement will happen for those much more invisible assets.
Lord Johnson of Lainston (Con)
I am constantly grateful to my noble friend Lord Agnew for his interventions and thoughtful input. I am pleased to say that we have to look forward—unfortunately not today, but maybe next week—to the section on crypto assets and similar assets. I believe that we have made great headway; this is technical and complex, and we welcome interventions and input from this Committee and anyone else that will allow us to more effectively police that area. I am very much on my noble friend’s side on this. It was certainly worth him mentioning that the register of overseas entities relates to property, which is true. I cannot comment on the specific case that he raises, but the assumption is that the data will be checked and verified. The whole point is that a registered overseas entity has to conform to our people with significant control regime and so on. That will allow us to make that assessment. I will confirm to the Committee what we are going to do in terms of reporting against that data.
As I say, there was a discussion earlier in the week about the budgetary allocations for economic crime fighting. It is very important that we show this House, and the nation at large, how much money the Government are putting into this area and how seriously we take it. I am proud of our record and want to put together a strong case to show your Lordships what we are doing. Can more resources be allocated to anything? All of us here have experience, if we have been in government, and of course it is possible. But the fact is that if I look magnitudinously over the last few years at the attention placed on this subject and the money put into it, it is a completely different story from, say, 2010—and for good reasons. It has become crucially apparent that the world has changed, and we need to react to that.
Lord Vaux of Harrowden (CB)
The noble Lord is right that it is sometimes necessary to protect the privacy of individuals. I do not think anyone in the Room would argue otherwise, but it is true that trusts can be and are used to hide real beneficial ownership. The noble Lord will correct me if I am wrong—I apologise for not having the Act in front of me—but I recall that a process within the Act allows entities to apply for their information not to be on the public register. That should cover the privacy issue. The default should be that the information is on the register. If the entity has applied for the information not to be and Companies House has accepted its reason as valid, that is fine, but the default should surely be that the information is public.
Lord Johnson of Lainston (Con)
I appreciate the noble Lord making that comment, which I will come on to but, if the Committee does not mind, I would like to correct some of my statistics. Slightly fewer than 28,000 of our overseas entities have registered, although it is very nearly that. My officials want me to be accurate, so that I never mislead this august Committee. I should also be specific about the PSC regime relating to registered overseas entities. As noble Lords know, but were kind enough not to pick me up on, they have a separate regulatory regime, which is similar to it but not actually called that. I apologise and hope that has been corrected.
Baroness Blake of Leeds (Lab)
It would be helpful if we were regularly updated on the number of overseas entities that have registered, with a running total. Otherwise, we keep having to come back and it is not clear where we are in the process.
Lord Vaux of Harrowden (CB)
I would also be grateful if the Minister could answer the question about whether there is a process for privacy.
Lord Johnson of Lainston (Con)
I am just coming on to that. The noble Baroness, Lady Blake, is right to ask for there to be a running total, because a further 717 overseas entities have complied in the recent period since my own figures were updated—so it would be quite useful to see how that is going. I would also like to separate the comments of the noble Lord, Lord Vaux, about the ability to keep some information private from the presumption of this Bill, which is the presumption for privacy for trusts rather than it being the exception.
This matter was well debated in the other place during the passage of the Bill—I am sure that some of your Lordships have had the opportunity to read that debate—but the question was what level of information should be published. Let us remember that all this information is collected by Companies House, so it is on record. In terms of crime fighting, it will be fully available to Companies House for the processes that all companies are obliged to undergo. It is perfectly reasonable to have a debate about what level of transparency there should be when it comes to publishing information. As I said before an intervention, it may also be appropriate for there to be a presumption of privacy for small, micro-entity information, given that some of those very small businesses are in effect people’s private wealth.
We should not conflate the work that we are trying to do here on Companies House, corporate transparency and reducing crime with some of the powerful principles around privacy, investment, family and protection, which are not irrelevant. It is important that we have a debate about this. The Government have committed actively to explore levels of information that should be published. The Treasury is very specific on my mandate in this discussion. I am not mandated to commit to any level of transparency above and beyond what we are already doing, which is a significant change, yet, at the same time, I can, and am keen to, commit to further debate about the level of transparency.
Lord Garnier (Con)
My noble friend’s own Amendment 76H is in a different group to this one, but it is likely that we will debate it later today. By then, he may not have had time to take further advice about the default position that we would like to see; that is, everything should be made open unless there is a good reason for it not to be. I was struck by the expression that he used a moment ago, particularly when dealing with micro-companies, that the default position should be one of confidentiality—“secrecy” is an emotive word—in favour of the micro-company and its owners as opposed to the other way around.
We are looking for a general rule, a general default position, that there should be openness unless there is a very good reason for there not to be—and, as my noble friend pointed out, there will be occasions when there is a very good reason not to have an open-source register. Is my noble friend in a position, even if he is not able to do so later this afternoon when government Amendment 76H comes to be debated, to amend or clarify the Government’s position? Can he assure us that Report will be the occasion when this further debate will be held? To say that there will be opportunities for a debate about the default position does not pin it down to a particular date or time. My noble friend will know, and the usual channels will know, that time is precious and Governments can often find an excuse, based on inconvenience, not to allow a debate that is required to take place.
Lord Johnson of Lainston (Con)
I thank my noble and learned friend for that point. Going back to the comment the noble Baroness, Lady Blake, made about the statistics on registered entities, I understand that there is a website that tracks this, which the Committee can log on to each day to see progress. We will send that link around to encourage your Lordships to look at it, but at the same time we will make sure that we provide more information about the statistics.
I cannot commit to a debate on trust transparency at this stage, but what I can commit to is that the Government are exploring this topic, which I think is separate to some of the discussions we are having. I would like to clarify my own point, which the noble Lord raised, about micro-entities and the assumption of publishing. I believe that the assumption is that the information would be published. My point was that I think it is perfectly reasonable to have differing views over this on account of areas such as privacy, if I can have a personal view as a Minister. I am very happy to have a debate about whether there is a discussion to be had around privacy for micro-entities publishing all their information, given how personal that can be. I think it is perfectly legitimate for trusts, in many instances, to be considered private affairs, so long as the authorities themselves have the transparency of information that they need.
Lord Cromwell (CB)
To pick up on the noble and learned Lord’s point about consultation, I am sure we have all welcomed the multiple times that the Minister has referred to further discussion and further consultation about topics raised today and on the previous day of debate. I think we would welcome the chance to get our diaries out fairly soon and see when those discussions could actually take place.
The other separate and more pedantic point I wanted to make is that I think the Minister said—I agree with him largely on privacy, by the way—that the trusts are repositories of assets and do not transact business, although I am ready to be corrected. I am not sure that that is a fair representation. I think that many trusts own companies and the trustees run the companies and businesses that are held, as it were, in a holding group.
Lord Johnson of Lainston (Con)
I am not surprised that the noble Lord and a Member of this Committee has corrected me on that specific point; my tone may have been misunderstood. However, I hope he understood what I was trying to get at when I differentiated trusts from corporate entities or corporations themselves. They do business, and they must be regulated. If I could differentiate my language again, between a debate and a discussion, I am very keen to have a discussion with Members of this Committee about this matter, so we can certainly get diaries out and find a time over the coming weeks to look into this in more detail. It is a very important debate to have, and I would welcome as many participants in the industry as possible to join us in that discussion.
Given what I have said and the fact that this is being actively explored by the Government, please do not think that this discussion is somehow being shut down. As I say, this policy area is controlled by the Treasury, and it is very specific about that. I am comfortable that we will have the powers in this Bill to have the flexibility to ensure that we can, when the decision is taken, provide the right amount of transparency around trusts. As a result, I ask the noble Lord to withdraw his amendment.
Lord Agnew of Oulton (Con)
My Lords, with very deep reluctance, I will withdraw it, but I want to leave on the record that the self-proclaimed “very good” Amendment 76H could be truly excellent if the Government added the simple two-line sentence that I have offered in my amendment. I suggest that there are rarely times in legislation where so much can be achieved with so little and so quickly.
Baroness Blake of Leeds
“Beneficial owners in overseas territories
In section 51 of the Sanctions and Anti-Money Laundering Act 2018 (public registers of beneficial ownership of companies registered in British Overseas Territories), after subsection (5) insert—“(5A) The Secretary of State must take all reasonable steps to ensure that an Order in Council of a kind mentioned in subsection (2) comes into force on a date no later than 30 June 2023.””Member’s explanatory statement
This new Clause would amend the Sanctions and Anti-Money Laundering Act 2018 to ensure that an Order in Council requiring open registers of beneficial ownership in the British Overseas Territories, for the purposes of the detection, investigation or prevention of money laundering, comes into force no later than 30 June 2023.
Baroness Blake of Leeds (Lab)
My Lords, included in this group is Amendment 108, which I am sure the noble Lord, Lord Wallace, will refer to. Amendment 73A is straightforward. It seeks to amend provisions in the Sanctions and Anti-Money Laundering Act 2018 to require the introduction of open registers of beneficial ownership in each of the British Overseas Territories for the purposes of detection, investigation or prevention of money laundering, and for those to come into force no later than 30 June 2023.
Lord Wallace of Saltaire (LD)
My Lords, I support this amendment. I will speak to my Amendment 108, and first make a couple of preliminary observations.
The Minister referred to “eradicating” corruption—a wonderful aim. I do not recall any economy or political system that has entirely eradicated corruption, but minimising corruption is a necessary part of any market economy. I grew up within Barclays Bank. They moved us every five years; they moved their local staff because it was a way of minimising corruption—stopping my parents getting too close to their clients. That was the sort of petty corruption that unavoidably crept into the British financial system.
Now that we have an entirely different financial system the opportunities for corruption are very different. What we are trying to do here is minimise levels of corruption in a globalised economy and financial system. I say to the Minister: even if we were to succeed in eradicating corruption entirely in this country, which would require some quite astonishing changes in our culture, we would still import corruption from abroad, as we have painfully discovered in the past 30 years. The best that we can do is to hope to mitigate and minimise.
On trusts, secrecy is often an aid to tax avoidance or tax evasion. We all know that the boundary between avoidance and evasion is very delicate, managed by large numbers of well-paid accountants and lawyers based in London, the Crown dependencies and elsewhere, and that tax evasion is an economic crime.
I have been concerned by extent clauses in a number of Bills since I entered this House. I have been increasingly puzzled by the way in which such clauses are used, partly because they normally come at the end of a Bill by which time everyone is exhausted and does not want to discuss them. I note that, in the National Security Bill—the last Bill that I dealt with—Jersey and Guernsey were included in the extent clause, but the Isle of Man was not. Moreover, the sovereign base areas of Cyprus were included in the extent of the Bill but not most of the other overseas territories; I was unable to discover why the other overseas territories in which we have military bases, such as the Falklands, Tristan da Cunha and Ascension Island, were not included. The Minister then was unable to answer that question.
This is an area of quite astonishing ambiguity—deliberate ambiguity, in a sense. The Crown dependencies and the overseas territories are not part of the United Kingdom, but they are not foreign. They are governed under British law, but they do not immediately implement all changes in British law, as my noble friend remarked. That is very convenient but, occasionally, it leaves room for ambiguity, which can be exploited.
I remind the Minister that there have been substantial problems in some overseas territories; for example, the Turks and Caicos Islands and the BVI. There are, of course, enormous temptations in territories with a small population and a huge amount of money going through. We have seen that in the past in the Channel Islands—we very much hope that things are much better there now—and more recently in some of the Caribbean territories. So we must be careful and well aware that, if this Bill is to become a successful Act with enforcement, our close financial connections with the overseas territories and Crown dependencies must form part of what we address and part of what we make sure they follow.
In one of our briefings, we were told:
“We are comfortable with the journey that the overseas territories are on, but they are not yet there.”
We are concerned that they should get there, and in good time. We are all conscious that the overwhelming majority of properties owned by overseas entities are registered in the overseas territories, primarily the BVI. So why are they not in the extent clause, given that some Crown dependencies and overseas territories have been included in the extent clauses of other Bills passed in this Parliament? How are the Government going to ensure that the commitments made that the territories will follow changes in British legislation are carried through? How will we ensure that we follow up on that? I say that with a degree of embittered experience: I recall several occasions over the past 15 years on which Ministers from different Governments promised that changes in British law would be followed within a limited period by the overseas territories, only for us to discover three or four years later that those changes had not been implemented by some of them.
This is an important area; I know that the Minister will recognise how important an area it is. The personal, financial, accountancy and legal links between Britain, the Crown dependencies and the overseas territories are extremely close, intricate and fairly opaque. We therefore need, again, some reassurance that this Bill, when it becomes an Act with the hope that it will be enforced effectively, will be enforced throughout those British territories that are not part of the United Kingdom.
Baroness Bennett of Manor Castle (GP)
My Lords, it is a pleasure to follow the noble Lord, Lord Wallace of Saltaire, and to speak chiefly to Amendment 108, to which I attached my name. I entirely agree with everything he said, and indeed with the introduction to the group. I will just add a couple of points.
My first point is about the cost. A few years ago, Transparency International calculated that the economic damage resulting from corporate secrecy in the UK’s overseas territories alone significantly exceeded the UK aid budget. These are crimes that have real victims and real costs. We must not forget that. The fact is that one hand is operating one way and the other another way, unless we take some action.
The Atlantic Council is not necessarily an organisation with which I am always 100% in agreement, but it produced an article in January entitled “Authoritarian kleptocrats are thriving on the West’s failures. Can they be stopped?” It recommended that the UK should
“address the close connections between the City of London and British Overseas Territories and Crown Dependencies”.
A further recommendation was that the UK should:
“Reduce regulatory mismatches between the primary UK jurisdictions and the Crown Dependencies.”
There is a real hole here. We can drive a cart and horses through the gaps between what is happening here and what is happening in the Crown dependencies and overseas territories. To extend the metaphor a little, for which I apologise, we might be slamming the stable door, but we are leaving the barn door open unless we address this issue.
In thinking about how these two amendments are connected, and to join them up, let us be really charitable about the capacities of these overseas territories and Crown dependencies. The population of the 14 overseas territories is 270,000 people; that of the Crown dependencies is rather less. Let us be charitable when we think of the size of their Administrations and their capacities, and think about the extreme inequality of arms between the kleptocrats and their enablers and those organisations. Even if those territories and dependencies want to do something, with the best will in the world, how can they conceivably have the capacity to do it? We have a responsibility, given the UK Government’s role, for this economic crime Bill to include this coverage. This is protection, support and assistance, as well as something that protects the whole world.
Lord Faulks (Non-Afl)
My Lords, I have great sympathy for these amendments. I congratulate the noble Lord, Lord Wallace, on his tenacity on this issue, which I have noticed on a number of different Bills. He is quite right that this issue tends to come up at the fag end of debates, so it can be overlooked. It is very important.
I have one point to make about this. There is, of course, a distinction between the Crown dependencies and the overseas territories. I speak as a former Minister with responsibility for the Crown dependencies. Their position is such that, before legislation that includes them is brought forward—certainly before it is passed—there is a well-established convention whereby the Government consult the Crown dependencies before including them in legislation, certainly by way of an amendment. I ask the Minister whether any such consultations have taken place. If not, why not? This is clearly important, and it is a long-standing issue that the Crown dependencies will no doubt have strong views about, but we need to know them before legislating.
My second point is slightly different—the Minister is quite understandably looking elsewhere at this point. I was rather disappointed by his response on the question of trusts that we would not have a debate on them now. I gently remind him that the Joint Committee on the Draft Registration of Overseas Entities Bill, which I had the privilege of chairing, reported in 2019. It emphasised the importance of trusts as a potential vehicle for fraud. The committee’s report set that out between paragraphs 76 and 79 and said that the matter needed looking at as a matter of urgency. The committee was given assurances that it would be; it was not. It took the invasion of Ukraine before the register came in. Here we have the second and final chance to look at economic crime, which would include the use of trusts as a vehicle for fraud. In those circumstances, it is very disappointing to hear from the Minister that we will not have a debate on that now.
Lord Agnew of Oulton (Con)
My Lords, I support the amendments and want to make a couple of points. First, it is not a very ambitious request that we are making of these territories: simply that they have proper anti-money laundering processes in place. If we link it to my own amendment, which I have withdrawn, we are now in a position where we have no knowledge of the ultimate owner of many of those assets and no reassurance that there is any anti-money laundering going on.
Secondly, we need to remember that it is our reputation being damaged by these territories which are not stepping up to the plate, because they are using the principles of English law and that is how they are making a very good living out of it. I again ask my noble friend the Minister what is happening to move this along. It has been sitting around for a long time and it is damaging the reputation of this country.
Lord Garnier (Con)
My Lords, I have an interest to declare in that I am presently instructed by the Government of the Isle of Man in a legal matter. Under the new rules of the House, that is declared specifically in my entry in the register—I have just been checking. It is not a very exciting piece of work: I am required to report to the Isle of Man Government on the state of their legal services sector—I know that many of you will be very jealous of that exciting piece of work. One thing that the Isle of Man is particularly keen to have recognised is that it is an independent jurisdiction. Yes, the United Kingdom and the Isle of Man share through the Lord of Mann—namely, the sovereign—a head of state. Yes, it shares many of the legal traditions and concepts that we recognise in this jurisdiction, but it is a separate jurisdiction. It has its own parliament; indeed, its parliament is probably older than this one: the Tynwald. I have received instructions, not recently but in the past, from states within the Channel Islands and from British Overseas Territories. They are all fiercely proud of their independence as separate jurisdictions. I fully understand the points and the thrust of the arguments made by noble Lords who have spoken ahead of me, but we need to be careful about how we approach extending the ambit of this legislation.
To look as though we are retaining some sort of colonial mastership over those fiercely proud and independent jurisdictions is not a good look. It does not matter whether you are in the BVI, the Cayman Islands, Guernsey, Jersey or the Isle of Man; we just need to tread politely, quietly and with consensus. I accept that noble Lords have said that this has been going on for far too long and it is time that the UK Government got their act together and started to do something about it. Of course, that would be the ideal, but, often, the best is the enemy of the good. I want the Minister to know that although this is a forum in which he might seem, from time to time, on his own, he is not. No matter of which party we are or whether we do not belong to any party at all, we are trying to achieve workable legislation which is not only comprehensive and comprehensible but carries the respect of the people against whom it might bite, because law which is not respected is law which does not have any value or purpose.
If my noble friend the Minister sometimes thinks that he is the only man standing at the gate as the barbarian hordes—the noble barbarian hordes—assail him, would he please accept from me that he has our personal friendship and our professional respect? I am sure that this sentiment covers the whole of the Committee. We know the difficult job that he is doing so please, when we come to discuss this amendment, will he accept from me that I understand it is not easy to tell the Channel Islands, the Isle of Man or the British Overseas Territories that they must do what this Parliament says?
There will therefore be many discussions, it seems to me, between his department, the FCDO and the Treasury with their counterparts in these various jurisdictions. If we can bring them with us, as opposed to clobbering them with unilateral legislation, we will achieve a much longer lasting result—albeit that I entirely accept the purpose of the amendments from the noble Lord, Lord Wallace, and the noble Baroness, Lady Bennett of Manor Castle. Here at least, going with and coming alongside, as opposed to hitting head-on, is the way to go forward.
Lord Fox (LD)
I was going to take the benefit of what I hope will be some free consultancy, when it would otherwise be highly expensive, to ask a genuine question. Were His Majesty’s Government not to take the noble and learned Lord’s advice but wished to exert their will over these territories, is the means by which that is done through an order of the Privy Council or are there other ways of doing it? If the answer is yes—I see another noble Lord nodding—what are the precedents for that in recent times?
Lord Garnier (Con)
The noble Lord saw my noble friend Lord Faulks nodding. The fact that we went to the same school, the same college at Oxford and the same Inn of Court has absolutely no bearing on this, save to say that he will answer that question in a moment. I am sure he would wish to catch the Committee’s eye. That having been said, I want to finish on this rather wishy-washy point. I sympathise with what has been said in support of these amendments, but we need to take a step back and have a reality check to see how this would be received by the people against whom it will bite.
Lord Faulks (Non-Afl)
I will, then, as I usually accept that invitation. As I understand the position, an Order in Council is the mechanism. The convention and the arrangement with the Crown dependencies that I spoke of is not the same with the overseas territories, although the points made about consulting them very much apply.
Lord Wallace of Saltaire (LD)
If I may respond to the noble and learned Lord, Lord Garnier, since I have been involved in discussion on this on a number of previous Bills, we are normally assured by the Government as a Bill goes past that there are ongoing consultations with the CDs and the OTs, and that they have been assured that the key proposals will be incorporated into their domestic law within a limited period. As I said, there have been a number of occasions when that has not happened in some territories. It has often been the weakest territories concerned and, after all, this Government have spent a good deal of money on taking over the government of the Turks and Caicos—having to intervene where things have failed. This is rather like saying, “On most occasions, we do not expect most banks or overseas territories to be involved in any form of corruption, but sometimes some will be tempted”. Some may be overcome and that is what we are trying to guard against.
Lord Garnier (Con)
The noble Lord is right, and it has not been an easy history, but these small jurisdictions have a choice. I am well aware of the criminal cases currently going on in the Turks and Caicos, and the need for direct rule there. But I have seen too many occasions—not a vast number, but too many none the less—when these small jurisdictions are prepared to be seduced by China rather than maintain their relationship with the United Kingdom. We need to be careful that we do not force these smaller jurisdictions into the arms of the Chinese, when it would be much better for their well-being and ours if we were to maintain them within our own family. I will leave it there.
Baroness Blake of Leeds (Lab)
With apologies, as I am not sure whether this is an appropriate time to raise this, but given that our amendment refers to the Sanctions and Anti-Money Laundering Act, perhaps the Minister can explain what sensitive negotiations and discussions, as the noble and learned Lord, Lord Garnier, mentioned, have taken place and the reasons for the disappointing progress. It would be helpful to have a better understanding of why we have not been able to progress.
Lord Johnson of Lainston (Con)
I greatly appreciate the noble Baroness’s comment. I would be delighted to go through this in as much detail as I can. I am very aware, as a Minister in the department and someone guiding this legislation through, as a Peer in this House and as a member of the public, of the issues the Crown dependencies and overseas territories have when it comes to reputational issues surrounding financial probity. It has been well reported and widely discussed. I am very happy to comment on that and to come back to the Committee with more information on the specific work we are doing.
If noble Lords allow me to go through my notes, I should be able to answer some of the questions. I am very grateful to the Committee for the complimentary clerking advice we received from my noble and learned friend Lord Garnier and the noble Lord, Lord Faulks, although, since they both seem to have been educated in exactly the same way, I am not quite sure why they did not both have the same answer. That might be something to revisit.
I thank the noble Lords, Lord Coaker and Lord Wallace, who I have named in my brief, for their amendments; of course, the noble Baroness, Lady Blake, spoke to her part. Before I respond to the amendments, it will be useful for me to set out the long-standing constitutional relationship that exists between the UK Government and the Crown dependencies and overseas territories, although I do not want to repeat the very helpful comments made by noble Lords, particularly my noble and learned friend Lord Garnier.
The Crown dependencies and overseas territories are not part of the UK. It may seem obvious to state that, but it is very important. They are separate jurisdictions with their own democratically elected Governments responsible for their domestic affairs, including in these areas. The noble Lord, Lord Wallace, raised the National Security Bill, which I am advised would be more relevant since we are responsible for the national security of the Crown dependencies and overseas territories, or at least many of them—I am receiving reassuring nods. It would have been appropriate, in that instance, for there to have been some mention of them in the legislation. I will explain why there is no mention of the Crown dependencies and overseas territories in this Bill.
I make very clear my sympathy with the principles expressed in this debate. I cannot remember the exact phrase that the noble Baroness, Lady Bennett, used because the metaphor was very mixed, but it was something about there being no point shutting the stable door if we leave the barn door open. I very much agree with that principle; it would seem peculiar to go to all these lengths to make our system right if there were a backdoor through a Crown dependency or overseas territory, but I do not believe that will be the case. I assure the Committee that anything that happens in the UK has to have the additional level in terms of the equivalent regulatory framework to the PSC register, whatever the framework is so called, and so on.
We have a great deal of protection around us, but we should be aware of the fact that the Crown dependencies and dependent territories make their own laws in these areas. There is a well-established constitutional convention that the UK does not legislate for the Crown dependencies on domestic matters or otherwise intervene without their consent, except in very limited circumstances. I am sure that the noble Lord, Lord Faulks, would be comfortable talking to this, but it really is in very limited circumstances. We should be aware of that and very respectful of it, since we do far better collaborating in a more powerful way to ensure that our frameworks are meshed together so that we learn from and support each other rather than being heavy-handed, even in this specific and practical sense. Furthermore, the UK Government also recognise the long-established practice that the UK does not legislate on domestic responsibilities for the overseas territories without first consulting them, other than in exceptional circumstances.
I am grateful for the thrust of these amendments. On Amendment 73A, tabled by the noble Lord, Lord Coaker, I am aware that beneficial ownership registers in British Overseas Territories and Crown dependencies have long attracted significant interest from across the House, as I said earlier, and in general from the public. But it is worth mentioning that, when these types of amendment were tabled to Bills several years ago, we were in a very different place. The point is that all inhabited overseas territories and the Crown dependencies have now committed to introduce publicly accessible registers of company beneficial ownership.
Lord Wallace of Saltaire (LD)
I will simply comment on the capacity question, which the Minister raised. There is a clear distinction between our Crown dependencies and some of our smaller overseas territories. The Crown dependencies have a lot of qualified people, and I am well aware that, in recent years, they have increased their staff capacity to cope with the rising amount of international financial business they have been dealing with. One regrets that, in some of the smaller and, I have to say, weaker overseas territories, there is not enough capacity and trained staff. They are further away from the United Kingdom. There are reputational questions and costs if and when a major scandal breaks out, as in the Turks and Caicos Islands, to the UK’s standing in the world because they are under our protection, they follow UK law and they have the reputation of having UK law.
I am conscious that this is part of a wider problem in the global financial system. The argument has been made to me in the past by people from these territories: “After all, if people do not come here as their offshore financial centre, they’ll go to somewhere dodgier and smaller, perhaps in the Pacific rather than the Caribbean.” We are all conscious of there always being that set of issues, but the UK and its associated territories need to ensure that, in managing a complicated global financial system, our overall contribution is one of which we continue to be proud and that all those territories for which we are responsible maintain higher standards. That is what this is really about.
We recognise how much has been done and how well Crown dependencies have improved the quality of their oversight in recent years, but some territories will simply not have enough people who are prepared to live there for 12 months a year to deal with the quantity and complexity of the financial movements through them. That has to be a matter for our long-term concern. I would love to hear more about the Open Ownership charity that is involved in helping them with this, because we clearly have to assist them to develop their capacity to cope with an increasingly complicated, and often dodgy, set of offerings from countries with which we have to deal but which do not have the same standards as us.
Baroness Blake of Leeds (Lab)
I thank all noble Lords who have contributed to this group of amendments. We have uncovered some important areas, but the overarching consideration, as we know and as has been mentioned, is the damage to our reputation if this matter is not addressed.
I take some comfort from the Minister’s offer to meet us to talk this through in more detail, but I remain concerned about the very real question of progress. If the necessary progress has not been made across the piece by the end of the year, I would like to know exactly what the Government are intending.
Given the sensitivity about relationships and the different stages that places are at, which has been highlighted so well, it would be useful to know whether there is an established framework around support and approach to make sure there is consistency in achieving this. This is not a terribly ambitious request; it should be straightforward. I look forward to our further discussions and, with those comments, beg leave to withdraw my amendment.
Lord Leigh of Hurley
“Requirement to notify registrar of change of auditor
(1) The Companies Act 2006 is amended as follows.(2) In section 485 (appointment of auditors of private company), at the end insert— “(6) Following the appointment of a new auditor or auditors of the company, the company must give notice to the registrar within 10 working days of the date of change, along with the name and address of the auditor or auditors.”(3) In section 489 (appointment of auditors of public company), at the end insert—“(6) Following the appointment of a new auditor or auditors of the company, the company must give notice to the registrar within 10 working days of the date of change, along with the name and address of the auditor or auditors.””Member’s explanatory statement
This new Clause introduces a requirement for private and public companies to notify Companies House within 10 working days of the appointment of a new auditor or auditors, and provide the registrar with associated details.
Lord Leigh of Hurley (Con)
My Lords, for this amendment, I will add to my previous disclosures that I am a member of the Institute of Chartered Accountants in England and Wales. By qualification, 40 years ago, I rummaged around companies Acts hoping never again to see them. Sadly, here I am again, but hey ho. In fact, I rummaged around Sections 516 and 517 of the Companies Act 2006, as amended by the Deregulation Act 2015. This imposes an obligation on a company to tell Companies House if there has been a change of auditor, but not an obligation about the details of that change.
Lord Fox (LD)
Perhaps the noble Lord, Lord Leigh, can confirm this at the end of the debate, but it is not clear to me whether losing your auditor before you appoint another would be reportable within the subject of his amendment. That is a key diagnostic, which he did not mention, of trouble afoot within an organisation. One of the benefits that we would have seen if the fourth member of the Vaux/Fox/Faulks/Foulkes group—the noble Lord, Lord Foulkes—had been here is that he would have emphasised very fully that had we seen the loss of an auditor in a particular case, we would have known that there was trouble. So, there is another element to the argument made by the noble Lord, Lord Leigh, that, in a sense, this is a very good diagnostic.
Lord Ponsonby of Shulbrede (Lab)
My Lords, I agree with everything that has been said. I too was going to allude to the case of the SNP and to make the point about auditors resigning before they are replaced. That is obviously a warning sign. I am intrigued to hear the Minister’s response. It seems such a practical suggestion. I will leave it at that, because the ball is in his court.
Lord Johnson of Lainston (Con)
I thank my noble friend and guru Lord Leigh for his Amendment 73AA, and the noble Lords, Lord Fox and Lord Ponsonby, for their contributions. I assure my noble friend that this amendment is not necessary. The Government hear his comments loud and clear but, as with all outings at this Dispatch Box as a Minister, I am unable to give the purity of the answer that we might all prefer to hear.
However, I will say that the Government are taking forward reforms to audit and corporate governance regulation separately following the publication last year of our response to the White Paper consultation on restoring trust in audit and corporate governance. The White Paper considered the information that must be provided to Companies House when an auditor leaves office, so this covers the point about the auditor leaving office rather than necessarily the appointment of a new one; that is a core point that has been raised and heard. The Institute of Chartered Accountants in England and Wales—many noble Lords in this Room have declared an interest as being a member of that august body so they will know this already, although I am not—has raised with my officials the lack of up-to-date information on the Companies House register about the appointment of new auditors.
The Government are therefore already considering how the public record might be improved in respect of appointments of auditors, including possibly via a combination of notifying the appointment when it is made, as well as updating the register if needed as part of the annual confirmation statement. We covered the point about the auditor stepping down or leaving office. This could work in much the same way that it does for the identities of company directors, which I believe will satisfy this Committee. There are already secondary legislative powers in the Companies Act 2006 on the content of the confirmation statement, and amendments to this framework are already being considered as part of the implementation of the Government’s White Paper proposals on restoring trust in audit and corporate governance.
I hope that satisfies the Committee and I therefore ask my noble friend kindly to withdraw his amendment.
Lord Leigh of Hurley (Con)
I thank my noble friend. I am not surprised by his response, although one would have thought that a Bill on corporate transparency might stretch itself this far. In answer to what we might call the Vaux-Fox syndicate, when an auditor resigns, the company has to notify the Registrar of Companies of that within 14 days. I think it is a criminal offence not to do so, for both the company and the officer. That is pretty tight; it is just what is in the notice and making sure we are aware of what is going on thereafter. However, given the reassurances from my noble friend that the Government are beavering away day and night on the audit reform, I beg leave to withdraw my amendment.
Lord Johnson of Lainston
(b) in subsection (8), at the appropriate place insert—““disqualified under the directors disqualification legislation”—(a) in relation to a statement about a person delivered to the registrar for England and Wales or Scotland, means that the person falls within any of the entries in the first column of Part 1 of the table in section 159A of the Companies Act 2006;(b) in relation to a statement about a person delivered to the registrar for Northern Ireland, means that the person falls within any of the entries in the first column of Part 2 of that table.””Member’s explanatory statement
This amendment removes a requirement to make a statement in circumstances that can in fact never exist and is otherwise consequential on the amendments to page 94 and page 96, line 20, which are tabled in the Minister’s name.
Lord Johnson of Lainston (Con)
My Lords, I will speak first to government Amendments 73B to 73E, 73G to 73J, 73N, 74A and 74B—I hope I have read them out in the correct order—on the application of disqualification provisions to general partners and registered officers. I believe these amendments are very uncontentious but stand ready to be corrected by noble Lords in this Committee.
These amendments clarify certain parts of the Bill concerning disqualified officers in limited partnerships. They ensure that the restrictions introduced by the Bill on disqualified persons in relation to companies, which noble Lords will recall were debated and agreed on the first day in Committee, will apply correctly and coherently in the context of limited partnerships.
Specifically, Amendments 73B, 73C and 73G adapt the definition of a disqualified person, as inserted by the Bill under the Companies Act 2006, to general partners and registered officers. This will determine how a disqualification under the directors disqualification legislation affects the ability to be a general partner, or a registered officer of a corporate general partner in a limited partnership, and prevents disqualified persons being registered as such by the registrar. If I can summarise them correctly, they basically mean that if you are disqualified as a company director you cannot be a general partner of a limited company, and vice versa—which obviously makes great sense, because for some reason that was not necessarily the case.
Amendments 73B, 73D to 73F, 73N, 74A and 74B remove triggers or references concerning situations that cannot, in fact, exist and replace them with clearer text. This is because the Bill currently provides for general partners and registered officers to retain their management role if they are disqualified but have a court’s permission to act. However, unlike the position for companies, the law does not currently allow the courts to disqualify a person from acting in the capacity of a general partner or registered officer. Consequently, no court is allowed to grant permissions to act in such a capacity despite disqualification. If you cannot be disqualified, you cannot be permitted to act if disqualified, if that is the correct summary.
We do, however, intend to make changes related to this in secondary legislation so that people can be disqualified from acting as a general partner of a limited partnership and so that a court can grant permissions for disqualified general partners to act in limited partnerships where appropriate. We have discussed this and, historically, there are cases in which permissions for disqualified general partners and persons are required to facilitate necessary corporate transactions.
Section 7A of the Limited Partnerships Act 1907 and the powers in Clauses 149 and 150 allow regulations to be made to apply provisions concerning companies, including the director disqualification legislation, to limited partnerships. This includes allowing disqualified individuals to be disqualified from acting as a general partner and be given permission to act in a limited partnership. However, until these regulations are made, it is essential that the primary legislation reflects the current state of the law and is clear. These amendments, I hope the Committee will agree, achieve that. They are needed as they will remove provisions relating to court permissions, which, as I stated earlier, cannot be applied. Amendments 73B, 73E, 73H and 73J will also ensure that this change is reflected in the statements that must be delivered to the registrar in relation to the status of a general partner and a registered officer.
Finally, Amendments 73H and 73J ensure that the meaning of “disqualified” is properly applied in respect to the general partners’ ongoing duty to take any steps necessary to ensure that a disqualified general partner is removed from the partnership. This group of amendments is therefore necessary to ensure clarity regarding the definition of disqualified, and the obligations on individuals in relation to disqualified general partners and registered officers. They will make the legislation clearer and stop bad actors partaking in the management of limited partnerships.
Amendments 76A to 76G concern extending the application of the company director disqualification legislation to other entities in Northern Ireland. Currently, Clause 150 of the Bill gives the Secretary of State the power to amend the Company Directors Disqualification (Northern Ireland) Order 2002 in relation to relevant entities in Northern Ireland. On reflection, because this power will be used to amend a piece of Northern Irish legislation in a devolved area, these amendments extend the power to amend the order to the Department for the Economy in Northern Ireland. They also require the Secretary of State to obtain consent from the department before making any amendments. The amendments tabled will not result in a change in policy or in the intended use of these regulations.
I therefore believe that these are reasonable amendments. They will enable the continuation of collaborative working across the devolved nations while upholding the balance of devolved law. I believe that they are uncontentious; I have had the opportunity to discuss them broadly with noble Lords here. I very much hope that we can move on this and that noble Lords will support the various amendments I have proposed so that we can continue in our work debating other issues.
Lord Fox (LD)
My Lords, I have just a couple of questions for the Minister. First, can he confirm that, in seeking to define a disqualification more clearly and explicitly—I think that is what he said—the intention is not to change that definition but merely to codify it? Secondly, in what circumstances does the Minister envisage a disqualified director being allowed, in essence, to be reinstated? In what circumstances do the Government think that might be necessary, so to speak?
Lord Johnson of Lainston (Con)
The concept of disqualification does not change. As I am sure noble Lords are aware, these amendments simply bring historical legislation in line and tidy up some points in the Bill that apply to the provision on directors acting as qualified directors when they have been disqualified but cannot actually be disqualified under the original legislation. There is not enough coherence in what happens between limited partnerships and companies. If an individual, whatever you wish to call them—a general partner, a director or so on—is disqualified, they should not be able to be a corporate person in another corporate entity, however you wish to describe it; I think we all agree with that. These amendments clearly bring consistency here. There are no changes to any expectations; this is just good practice and, as I say, tidies up important areas of consistency.
On when a director or limited general partner would be enabled to continue in operation, this would relate specifically to discharging vital duties to ensure that a company could be wound up or, if necessary, some form of share sale or transfer could be authorised. This measure is necessary to ensure that. As I understand it, the Secretary of State directs exceptions to disqualification; I will correct that if I am mistaken. It happens in exceptional circumstances; the cause is normally that specific things need to be done to release assets, make payments, et cetera. A good example is that, if a board was disqualified for good reason but there were suppliers that needed to be paid, it would not be unreasonable for one of the disqualified directors to be able to pay the suppliers. It is specific, the idea being that, once you have disqualified a director, they are disqualified although, according to this amendment, they may be enabled to perform specific functions. That is logical and common sense.
I believe that concludes my proposal.
Lord Johnson of Lainston
“(3) A general partner in a limited partnership is “disqualified under the directors disqualification legislation” if— (a) where the limited partnership is registered in England and Wales or Scotland, the general partner falls within any of the entries in the first column of Part 1 of the table in section 159A of the Companies Act 2006;(b) where the limited partnership is registered in Northern Ireland, the general partner falls within any of the entries in the first column of Part 2 of that table.”Member’s explanatory statement
This amendment makes it clear that only the first column of the table in section 159A of the Companies Act 2006 is relevant to determining whether a general partner is disqualified under the directors disqualification legislation. This is because a disqualified general partner cannot be given permission to act.
Lord Johnson of Lainston
“(a) who is one of the general partner’s managing officers,(b) who is not disqualified under the directors disqualification legislation (see subsection (8)), and(c) whose identity is verified (within the meaning of section 1110A of the Companies Act 2006).”Member’s explanatory statement
This amendment is consequential on the amendment to page 93, line 36, which is tabled in the Minister’s name. That amendment introduces a new definition of “disqualified under the directors disqualification legislation” that applies for the purpose of section 8A of the LPA 1907.
(b) be accompanied by a statement by the individual who is the proposed registered officer confirming that the individual—(i) is one of the general partner’s managing officers,(ii) is not disqualified under the directors disqualification legislation (see subsection (8)), and(iii) is an individual whose identity is verified (within the meaning of section 1110A of the Companies Act 2006).”Member’s explanatory statement
This amendment removes a requirement to make a statement in circumstances that can in fact never exist and is otherwise consequential on the amendment to page 93, line 36, which is tabled in the Minister’s name.
Member’s explanatory statement
This amendment is consequential on the amendment to page 96, line 20, which is tabled in the Minister’s name.
“(1A) The registered officer of a general partner in a limited partnership is “disqualified under the directors disqualification legislation” if—(a) where the limited partnership is registered in England and Wales or Scotland, the registered officer falls within any of the entries in the first column of Part 1 of the table in section 159A of the Companies Act 2006;(b) where the limited partnership is registered in Northern Ireland, the registered officer falls within any of the entries in the first column of Part 2 of that table.”Member’s explanatory statement
This amendment makes it clear that only the first column of the table in section 159A of the Companies Act 2006 is relevant to determining whether a registered officer is disqualified under the directors disqualification legislation. This is because a disqualified registered officer cannot be given permission to act.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment removes a requirement to make a statement in circumstances that can in fact never exist.
Member’s explanatory statement
This amendment removes a requirement to make a statement in circumstances that can in fact never exist.
Lord Johnson of Lainston
“Power to make provision about winding up
After section 29 of the Limited Partnerships Act 1907 (inserted by section 130 of this Act) insert—
“29A Power to make provision about winding up(1) The Secretary of State may by regulations make provision in relation to the winding up of a limited partnership under section 28 or 29 that corresponds or is similar to any provision of the Insolvency Act 1986 or the Insolvency (Northern Ireland) Order 1989 (including any provision of that Act or Order that relates to the allocation of jurisdiction or distribution of business between courts in any part of the United Kingdom).(2) Before making regulations under subsection (1) the Secretary of State must—(a) obtain the consent of the Department for the Economy in Northern Ireland, so far as the regulations relate to limited partnerships registered in Northern Ireland; (b) obtain the consent of the Scottish Ministers, so far as the regulations relate to limited partnerships registered in Scotland.(3) The provision that may be made by regulations under subsection (1) by virtue of section 35(1) includes provision amending, repealing or revoking provision made by or under either of the following, whenever passed or made—(a) an Act;(b) Northern Ireland legislation.(4) Regulations under this section are subject to the affirmative resolution procedure.””Member’s explanatory statement
This amendment would mean that the Secretary of State can make provision corresponding or similar to any provision of the Insolvency Act 1986 or the Insolvency (Northern Ireland) Order 1989 to govern the winding up of limited partnerships under new section 28 or 29 of the Limited Partnerships Act 1907.
“Winding up of limited partnerships: concurrent proceedings
(1) The Limited Partnerships Act 1907 is amended as follows.(2) In section 6 (modifications of general law in case of limited partnerships), for subsection (3D) substitute—“(3D) Subsections (3A) and (3B) have effect subject to any order of a court as to the winding up of the affairs of the partnership and any award of sequestration of the partnership’s estate under the Bankruptcy (Scotland) Act 2016.”(3) After section 29A (inserted by section (Power to make provision about winding up) of this Act) insert—“29B Winding up of limited partnerships: concurrent proceedings(1) Where a petition under section 28 in respect of a limited partnership is pending, a general partner of the limited partnership who is or becomes aware of any of the circumstances mentioned in subsection (3) must notify the court to which the petition was presented.(2) Where an application under section 29 in respect of a limited partnership is pending—(a) a general partner of the limited partnership who is or becomes aware any of the circumstances mentioned in subsection (3) must notify the court to which the application was made, and(b) if the application was made by a person other than the Secretary of State, the applicant must notify the court to which the application was made if the applicant is or becomes aware of any of the circumstances mentioned in subsection (3).(3) The circumstances are that—(a) a petition for sequestration of the limited partnership’s estate under the Bankruptcy (Scotland) Act 2016 is before a sheriff,(b) an application to the Accountant in Bankruptcy for sequestration of the limited partnership’s estate under that Act is pending,(c) sequestration has been awarded by virtue of any such petition or application and the limited partnership’s estate is being sequestrated,(d) a trust deed in respect of the limited partnership’s estate has been sent to the Accountant in Bankruptcy for registration under that Act and the registration has not been refused,(e) a protected trust deed (within the meaning of that Act) is in force in respect of the limited partnership’s estate, (f) an application by the limited partnership for approval of a debt payment programme under the Debt Arrangement and Attachment (Scotland) Act 2002 is pending, or(g) such a programme has been approved under that Act and has not been completed.(4) A person is not required to notify the court of circumstances under subsection (1) or (2) if another person has notified the court of those circumstances.(5) If a person fails to comply with subsection (1) or (2) an offence is committed by—(a) the person, and(b) if the person is a legal entity, any of its managing officers who is in default.(6) A person guilty of an offence under this section is liable on summary conviction—(a) in England and Wales, to a fine;(b) in Scotland or Northern Ireland, to a fine not exceeding level 5 on the standard scale and, for continued contravention, a daily default fine not exceeding one-tenth of level 5 on the standard scale.(6) A managing officer is “in default” for the purposes of this section if they authorise or permit, participate in, or fail to take all reasonable steps to prevent, the contravention.(8) But a corporate managing officer does not commit an offence as a managing officer in default unless one of its managing officers is in default.(9) Where any such offence is committed by a corporate managing officer the managing officer in question also commits the offence (subject to subsection (8)).(10) For the purposes of this section a petition or application is “pending” if it has been presented or made and it has not fallen, been withdrawn or been determined.29C Power to amend circumstances for notification under section 29B(1) The Secretary of State or the Scottish Ministers may by regulations amend the list in section 29B (3).(2) Before making regulations under subsection (1) the Secretary of State must obtain the consent of the Scottish Ministers.(3) Regulations made by the Secretary of State under subsection (1) are subject to the affirmative resolution procedure.(4) Regulations made by the Scottish Ministers under subsection (1) are subject to the affirmative procedure (see Part 2 of the Interpretation and Legislative Reform (Scotland) Act 2010 (asp 10)).””Member’s explanatory statement
This amendment would mean that if a petition has been presented under new section 28, or a person has made an application under new section 29, a general partner or person who made the application under new section 29 must notify the relevant court about other concurrent proceedings.
“Sequestration of limited partnerships: concurrent winding up proceedings
(1) The Bankruptcy (Scotland) Act 2016 is amended as follows.(2) In section 17 (concurrent proceedings for sequestration or analogous remedy)—(a) in subsection (2)(b), after “awarded” insert “and the debtor’s estate is being sequestrated”;(b) in subsection (2)(c)— (i) omit “has been made”;(ii) after “estate” insert “is pending”;(c) in subsection (2)(d), after “application” insert “and the debtor’s estate is being sequestrated”;(d) in subsection (2)(g), after “under” insert “section 27 of the Limited Partnerships Act 1907,”;(e) after subsection (2)(g) insert—“(ga) such a petition has been granted,(gb) an application in respect of the debtor is before a court under section 28 of the Limited Partnerships Act 1907,(gc) such an application has been granted,”;(f) after subsection (7) insert—“(7A) For the purposes of subsection (2)(c), a debtor application is “pending” if it has been made and has not fallen, been withdrawn or been determined.”(3) In section 18 (powers in relation to concurrent proceedings)—(a) in subsection (1), for “(g)” substitute “(gc)”;(b) in subsection (2), for “or (g)” substitute “, (g), (ga), (gb) or (gc)”;(c) in subsection (8), for “(g)” substitute “(gc)”.”Member’s explanatory statement
This amendment would mean that, if a limited partnership is in the course of sequestration proceedings, the petitioner, debtor or creditor must notify the sheriff court or AiB if they become aware of winding up proceedings under new section 28 or 29 LPA 1907 in relation to the limited partnership.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment is consequential on the amendments to page 95, line 23 and page 95, line 39, which are both tabled in the Minister’s name.
Lord Agnew of Oulton
“Limited partnerships: registration of persons of significant control
(1) The Secretary of State must by regulations make provision about the registration of persons of significant control in relation to limited partnerships. (2) For the purposes of regulations under this section, “persons of significant control” may include persons with a right to—(a) 25% or more of the surplus assets on winding up,(b) a voting share of 25% or more,(c) appoint or remove the majority of managers,(d) exercise significant influence or control over the business, or(e) exercise significant influence or control over a firm which would be a person of significant control if it were an individual.(3) No regulations to which this section applies may be made unless a draft of the statutory instrument containing the regulations (whether or not together with other provisions) has been laid before, and approved by a resolution of, each House of Parliament.”Member’s explanatory statement
This amendment creates an obligation on the Secretary of State to make new provisions for Limited Partnerships to be brought into the PSC register. This is intended to improve transparency in relation to Limited Partnerships in line with companies.
Lord Agnew of Oulton (Con)
My Lords, I will treat Amendments 74 to 76 together because they all try to achieve the same thing: to ensure a similar level of transparency for limited partnerships, limited liability partnerships and Scottish limited partnerships as we are trying to achieve for companies.
I had a brief discussion with my noble friend the Minister before we started, and he felt that I was flawed in my approach. I absolutely recognise that he has a more formidable intellect than I have and has at his disposal a very accomplished drafting team. I may not have the amendments exactly right, so I would rather consider them more as probing amendments to understand why we cannot not have the same level of transparency for these entities as we have for companies.
One of the points my noble friend made was that you should not have to have a natural person as one of the partners. My answer is that, if you do not, you are back to my original Amendment 73, because you just cascade off into another miasma of entities where there is no transparency. I would be interested to hear from the Minister how we will sort out this problem if my amendments are not adequate.
I have an example of an LLP, Atlas Integrate Services LLP, that was incorporated in September 2018, where the person of significant control was two months old. My noble friend said he wished his own children were showing such entrepreneurial flair so early in their careers. This person was also married at two months but, more importantly, the incorporation document stated:
“This person holds the right, directly or indirectly, to appoint or remove a majority of the persons who are entitled to take part in the management of the LLP”.
Will the Bill get rid of that sort of behaviour? That is my concern at the moment. There are apparently some 4,000 beneficial owners across the database who are aged two or less. This is an issue, and perhaps the brave new world of the Bill will eliminate it. I would be grateful for reassurance that that will happen or to hear what the plan is.
Lord Coaker (Lab)
My Lords, I do not know whether the amendments from the noble Lord, Lord Agnew, are flawed but, if I followed them correctly, Amendments 75 and 76 in particular seek to put a human face on limited partnerships, so that at list one partner is a natural person and they are not all corporate entities.
Before I make a couple of general comments about that, can I ask the Minister a question? I could not make out from the various debates I have read about this whether the Government are saying that they will look at it in secondary legislation or that they are not going to do it. I will be corrected if I am wrong, but I thought I had read that the Government are intending to require this, but by secondary legislation.
I do not think it is adequate to require this by secondary legislation. What the noble Lord, Lord Agnew, alighted on goes to the point made earlier by the noble Lord, Lord Vaux, which has run through all the Committee—namely, who is the ultimate beneficiary? Who, in the end, gains from these various business practices? The most obvious way around that is to require a human face or somebody who is actually real.
The Minister, who is a businessman himself as well as a government Minister, said that he understands the importance of keeping public opinion on side. The public have lost trust in business from the many ways in which bad business is conducted. We had debates earlier about trusts and about privacy, and I think the Minister disappointed the Committee by saying that this was not the place for a debate about privacy and that that would be for a further debate.
The Minister is saying that the amendment from the noble Lord, Lord Agnew, is flawed because this will be dealt with through secondary legislation. My view is that it is of such symbolic importance that, somewhere along the line, the Bill requires a human face. I know that this is in respect to limited partnerships, but I think the noble Lord, Lord Agnew, has alighted on quite an important point. We continually go back to this: how do we get transparency, restore public confidence and hold bad businesses to account? How do we overcome the fact that large numbers of people, including me, think that trusts, corporate entities, limited partnerships, et cetera, are in some instances set up to hide what is actually going on? That is something that the amendment from the noble Lord, Lord Agnew, is trying to do. Ultimately, it makes a human face, somebody who is a Mr, Ms, Mrs or whatever, responsible for this aspect of business. They will be held to account.
I say to the noble Lord, Lord Agnew, that there is nothing flawed about making at least one partner in a limited partnership a natural person. It is a really important statement about how business ought to operate, which should be required not through secondary legislation but in the Bill, to show how the Government intend to ensure that we have proper business practice that is consistent with the will of Parliament. One of the ways of doing that is to ensure that, instead of some faceless bureaucracy somewhere, however it is dressed up legally, we actually have an individual who can be held to account.
Lord Fox (LD)
I will be very brief. I think that your Lordships need once again to thank the noble Lord, Lord Agnew, for his ability to get around the issues. This is a genuine issue around seeking to obfuscate the ownership of particular assets. The noble Lord seemed to have some confidence that the Minister will help us on this. The point here is that this is a genuine issue about which the Government should genuinely be concerned.
This extends beyond fraud. We were talking about trusts. One of the issues that came up after the Grenfell Tower disaster was that people found they could not know who owned the accommodation they were living in because of the protections that we have been discussing today. So they could not have a realistic conversation about whether their landlord would make their residence safe again. That is another issue, which is separate from this Bill, but it gives lie to the point that this is used to hide ownership for a variety of different reasons.
I look forward to the Minister achieving the optimism that the noble Lord, Lord Agnew, just expressed. I also thank the noble Lord for introducing the phrase “natural person”, which I have not come across before. Is that a legal definition of a human? That would be an interesting and useful thing to know for the future. With that, we on these Benches fully support these amendments.
Lord Johnson of Lainston (Con)
As always, I am grateful to noble Lords for their contributions to this debate. I have been reassured that, for the purposes of this debate, a “natural person” is a human. There was nodding behind me in the Box, which is reassuring.
Lord Johnson of Lainston (Con)
Do we have some artificial intelligence in the Civil Service Box? I think that we have natural persons’ intelligence. While I have this opportunity—I am sure that I say this on behalf of the Committee—I would like to say that the officials behind this Bill are extremely hard-working and focused; they have done everything they can to deliver a very complex piece of legislation. They have been very helpful to me and my colleagues personally and to the Ministers taking the Bill through the other place. I hope noble Lords feel that they have interacted with them appropriately. I know that they continue to stand ready to support us as we craft what I think is a magnitudinous piece of legislation that will have significant positive ramifications in the decades ahead.
I turn to the amendments presented by my noble friend Lord Agnew. I have taken advice on elements of them and their technical relevance to the Bill so, when the noble Lord, Lord Coaker, suggested that they were somehow not relevant, that was a private, legal and specific statement; it was not a philosophical one. They are very relevant to the Bill and at the core of much of what we are trying to establish: who is behind the companies and corporate entities?
The comment from the noble Lord, Lord Fox, about the ownership of property following the Grenfell Tower tragedy is a very good example. We hope that the reforms that we are making will ensure that we know who is behind corporate activity and ownership of property in this country. We have made huge strides in doing so and the Bill is very important. That is not to say that it cannot be improved but, where we feel we are including these principles, we do not suggest that noble Lords unnecessarily improve it further or confuse it. I rely to some extent on the draftsmen who advised me on this; I hope that the Committee sees this as well intentioned, in the way it is being presented.
I will first speak to Amendment 74. I commend my noble friend’s intention to increase the transparency of limited partnerships. I stress again that there is a difference between a limited partnership in Scotland, a limited partnership in England, Wales and Northern Ireland, a limited liability partnership across the United Kingdom and a limited company. They all operate slightly differently in the different jurisdictions. Please bear this in mind, as we have drafted this legislation to ensure that we have transparency across all the different concepts and principles in the right way.
I know that my noble friend Lord Agnew shares the same concerns that Dame Margaret Hodge has expressed previously. I have had the privilege of meeting her personally, as well as hearing her views, which have been extremely helpful in informing my knowledge base around this debate.
The proposed new clause would duplicate the Scottish Partnerships (Register of People with Significant Control) Regulations 2017. Scottish limited partnerships have legal personality, as noble Lords will know, which means that, among other things, they are able to own assets, enter into contracts and hold bank accounts. This results in a greater degree of opacity around Scottish limited partnerships, which is one of the features that the Bill is specifically designed to tackle.
However, as noble Lords will know, English, Welsh and Northern Irish limited partnerships are required to register with Companies House. While they are, they do not possess a legal personality separate from that of their partners. This means that it is the general partners themselves who transact on behalf of the partners. One of our senior officials likened it to a marriage, if that helps to clarify that point, in the sense that, if you are married and you own a home, the marriage does not own the home, nor does the couple; the partners—the husband and wife—own the property. I hope that that makes it clearer to some extent; it certainly did for me, although I will not go into my own home ownership percentages during this debate.
I stress that this Government completely agree with the principle that we should have greater transparency over who is managing and controlling a limited partnership. There is much in the Bill that will achieve exactly that. This is very important. I know that my noble friend Lord Agnew and the noble Lords, Lord Coaker and Lord Fox—indeed, all noble Lords in the Committee—take this extremely seriously. In fact, it is the core principle of the Bill, which includes, to go back to the specific moment, a range of measures that will make it mandatory for limited partnerships to submit a much greater range of information about their partners, including their current and former names, addresses and dates of birth.
The general partners of limited partnerships who have management responsibility—there is, of course, a difference—will be required to have their identities verified. Where a general partner is a corporate entity, it must name a managing officer with a verified identity who can be contacted about the limited partnership. That is very important as well and goes significantly further.
Lord Agnew of Oulton (Con)
Can my noble friend confirm that all the information he has just listed will be available for public inspection so that we do not get back into this cul-de-sac of my earlier concerns?
Lord Johnson of Lainston (Con)
I believe that I can confirm that but I will ensure that those facts are properly presented. It is clearly helpful for us to be specific on that.
Lord Coaker (Lab)
If somebody fails to comply properly with registering their PSC, that is a criminal offence, as I understand it. Can the Minister confirm that failing to register the PSC properly is a criminal offence? Secondly, what are the penalties for that offence?
Lord Johnson of Lainston (Con)
I am going through a slightly different point in this amendment, if the noble Lord will forgive me. I can confirm that it is a criminal offence. There is a published tariff that varies according to jurisdiction. If noble Lords do not mind, we will present that. I believe that there might be sections of the criminal tariffs in the Bill, but it is important as this is criminality. Perhaps one of the noble Lords in the Committee will be able to extract the tariff from the Bill but I will certainly write to noble Lords. They are significant penalties and fines; it is more than six months in prison in some jurisdictions. It depends on whether it is tried in Scotland and so on. I do not have all those details to hand but we will clarify that.
This is very serious. Criminality in the corporate world is an important element of what we are trying to prevent. As noble Lords know, we will discuss the “failure to prevent” principles in the next day of Committee. It changes significantly, as has been seen to be successful, in jurisdictions such as the United States of America. As the noble Lord has raised before in terms of public participation in our belief in a liberal, democratic, property-owning capitalist system, it is felt that, if we do not punish the perpetrators of financial crimes and it is felt that they are getting away with it, through either their being unable to easily prosecuted or their not being punished severely, it brings the system into disrepute and causes significant long-term philosophical and societal damage.
We look across the Atlantic at the United States and feel that it takes a different view. Financial crime is treated there as serious and significant crime, and commensurate penalties go with it. The case of Madoff was raised, where the initial tariff was a pretty significant landmark sentence—many hundreds of years, if I am not mistaken. It was certainly over 100 years or close to it, which obviously shows the principles by which that country approaches this point. While we are not operating under similar tariffs, it is important that we see criminal acts in financial crimes as significant. The tariffs around that need to reflect it, but I am happy to provide further information.
Perhaps I may finish this piece, because I hope it is relatively straightforward and that Committee members will be reassured by what we are doing. We will not support this amendment and I will ask the noble Lord to withdraw it, but the principles around making sure that we have transparency and identifiable actors in corporate structures are clearly made.
On the case of the two month-old married individual who was registered as a beneficial owner of the entity that my noble friend Lord Agnew cited, the point actually raised is that it has been recorded. It will certainly now be possible, if not essential—to some extent, with a situation as significant as that, it should have been possible—that Companies House now investigates that type of registered entry. I raise that in the sense that we are trying to ensure that the information is provided, which will set off alarm bells and allow for inquiry. We cannot prevent people from false entry. What we can do is to ensure that the penalties are there to discourage it, the investigative powers and data-scraping are sufficient to enable us to pursue it, and the data we have is clean and clear.
I do not have too long to go on these two amendments, if noble Lords will indulge me. I wish to stress to my noble friend Lord Agnew that this Government completely agree with the principle that we should have greater transparency over who is managing and controlling a limited partnership. There is much in this Bill which will achieve exactly that. The Bill includes a range of measures that will make it mandatory—I restate this—for limited partnerships to submit a much greater range of information about their partners, including their current and former names, addresses and dates of birth.
The general partners of limited partnerships will be required to have their identities verified. The PSC regulations apply to certain legal entities, including incorporated bodies such as companies and LLPs, and are about exposing who controls them. This can be otherwise unclear, given the corporate structure of those entities. While companies and partnerships share many similar characteristics, they are nevertheless fundamentally different. A limited partner, for example, does not have voting rights in the way that a shareholder does and, unlike an LLP, there is nothing in law which would force a limited partnership to have a written partnership agreement—I think this dates back to the 1880s—though many will have one.
As I have said, partnerships in England, Wales and Northern Ireland are registrable business relationships, not separate legal personalities. As such, they cannot be beneficially owned in the same way that companies and LLPs can. It would take a fundamental review of partnership legislation more broadly to apply beneficial ownership-style transparency measures to English and Welsh, and Northern Irish, limited partnerships in the way that my noble friend intends. For these reasons, I ask my noble friend to withdraw his amendment but I am very comfortable about discussions to ensure that he and any other members of the Committee are comfortable that what we are doing achieves these ends.
Amendments 75 and 76, also tabled by my noble friend Lord Agnew, would require limited partnerships and limited liability partnerships to have at least one partner who is a natural person. The Government consulted extensively on the reforms to these corporate structures. It was clearly found that corporate partners can be a legitimate and critical part of certain UK fund structures, allowing them to operate effectively. While I understand the intent of these amendments and share the desire to tackle opaque chains of corporate partners in partnerships, as with companies, having discussed the principles of these structures, it is difficult to suggest that now would be an appropriate time to make such a change.
Clause 144 already contains powers which will enable restrictions to be placed on corporate partners, as with corporate directors of companies. However, limited partnerships and limited liability partnerships have very different corporate structures to companies. Therefore we must have careful consideration and consultation is needed before any restrictions are made.
Lord Agnew of Oulton (Con)
I thank my noble friend the Minister for his comprehensive answer. He has been very reassuring.
I just want to re-emphasise the important points made by the noble Lords, Lord Coaker and Lord Fox, about the principle of accountability. If we go back to my slightly specious example of the two month-old child, we have the identity of that child so we have transparency but where is the accountability? That is what I am worried about. However, I accept that my noble friend is committed to both transparency and accountability and believes that this Bill, accompanied by the other partnerships Bill that he mentioned, will deliver them, so I beg leave to withdraw my amendment.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment is consequential on the amendment to page 95, line 23, which is tabled in the Minister’s name.
Member’s explanatory statement
This amendment is consequential on the amendment to page 95, line 39, which is tabled in the Minister’s name.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment is consequential on new section 29C of the Limited Partnerships Act 1907 which is inserted by new Clause (Winding up of limited partnerships: concurrent proceedings)(which is inserted after Clause 130 of the Bill).
Lord Johnson of Lainston
Member’s explanatory statement
This amendment allows the Department for the Economy to make regulations under new Article 25D of the Company Directors Disqualification (Northern Ireland) Order 2002.
“(2A) The Secretary of State must obtain the consent of the Department before making regulations under this Article.”Member’s explanatory statement
This amendment requires the Secretary of State to obtain the consent of the Department for the Economy before making regulations under new Article 25D of the Company Directors Disqualification (Northern Ireland) Order 2002.
Member’s explanatory statement
This amendment means that regulations made by the Department for the Economy under new Article 25D of the Company Directors Disqualification (Northern Ireland) Order 2002 cannot amend an Act of Parliament.
“(6A) The provision which may be made by regulations made by the Department by virtue of paragraph (5) includes provision amending provision made by or under Northern Ireland legislation, whenever passed or made.”Member’s explanatory statement
This amendment means that regulations made by the Department for the Economy under new Article 25D of the Company Directors Disqualification (Northern Ireland) Order 2002 can amend Northern Ireland legislation.
Member’s explanatory statement
This amendment is consequential on the amendment to page 136, line 10, which is tabled in the Minister’s name.
Member’s explanatory statement
This amendment is consequential on the amendment to page 136, line 10, which is tabled in the Minister’s name.
“(9) Regulations made by the Department under this Article are subject to negative resolution.”Member’s explanatory statement
This amendment is consequential on the amendment to page 136, line 10, which is tabled in the Minister’s name.
Lord Johnson of Lainston
“Registration of information about trusts
(1) Paragraph 8 of Schedule 1 to the Economic Crime (Transparency and Enforcement) Act 2022 (required information) is amended as follows.(2) In sub-paragraph (1), for paragraphs (d) to (f) substitute—“(d) the specified details of each beneficiary under the trust;(e) the specified details of each settlor or grantor and, in relation to any settlor or grantor that is a legal entity, the specified details of any person who at the time at which the trust is settled—(i) is a registrable beneficial owner in relation to that entity (if it is overseas entity), or(ii) would be a registrable beneficial owner in relation to the entity if that entity were an overseas entity;(f) the specified details of any interested person under the trust and the date on which they became an interested person.”(3) After sub-paragraph (1) insert—“(1A) In sub-paragraph (1)(d) to (f)“the specified details”—(a) in relation to a person who is an individual, means—(i) name, date of birth and nationality;(ii) usual residential address;(iii) a service address;(b) in relation to a person that is a legal entity, means— (i) name;(ii) principal office;(iii) a service address;(iv) the legal form of the entity and the law by which it is governed;(v) any public register in which it is entered and, if applicable, its registration number in that register.”(4) In sub-paragraph (2), for “sub-paragraph (1)(c)” substitute “sub-paragraphs (1)(c) and (1A)(a)”.”Member’s explanatory statement
This clause extends the information that must be provided in connection with the registration of overseas entities where a person is a beneficial owner by virtue of being a trustee.
Lord Johnson of Lainston (Con)
My Lords, I shall speak to government Amendments 76H, 77A, 77B, 77E, 77F, 77G, 77H, 77J, 77K and 77L, on the register of overseas entities provisions in Part 3 of the Bill—I am just checking that I read out the right amendments.
Lord Johnson of Lainston (Con)
I thank noble Lords; at this stage, I feel that we are operating as one team to make sure that we are creating good legislation, which is very important. I am grateful to all Members of the Committee for their helpful interventions and constructive collaboration as we come to the conclusion of the Companies House section of the Bill.
The register of overseas entities—“the register”—was created by the Economic Crime (Transparency and Enforcement) Act 2022, which I will refer to as “the 2022 Act”. This was expedited through Parliament as part of the government response to Russia’s invasion of Ukraine, as I am sure all noble Lords are aware. Overseas entities owning land in the UK must provide information about themselves and their beneficial owners to Companies House in order to retain their ability to freely transact with their land or property, which noble Lords have already discussed in some detail.
These requirements are retrospective. Overseas entities owning land in England and Wales from 1 January 1999, and in Scotland from 8 December 2014, must register with Companies House. A transitional period of six months was provided. The register went live on 1 August 2022 and the transitional period ended on 31 January 2023. At the time that the register opened, there were an estimated 32,000 overseas entities in scope, which noble Lords have discussed. Well over 27,000 entities are now registered. Given the emerging finding that a number of entities registered as proprietors may now be dissolved or struck off and the inherent challenge of contacting overseas entities, we think that this is a high compliance rate. Overseas entities seeking to acquire land or property since 5 September 2022 must provide an overseas entity ID number issued by Companies House or their application to any of the UK’s three land registries will be rejected.
I turn to the related amendments and shall speak first to government Amendments 76H, 77A, 77E, 77F, 77G, 77H, 77J and 77L, which require overseas entities that had to register on the register of overseas entities by 31 January 2023, in particular where there is a trust involved, to provide further information to the register of companies in order to counter avoidance. I believe that this amendment was raised earlier in Committee proceedings in relation to trust transparency, which, as I hope to explain, is not specifically accurate. However, noble Lords will be pleased with our efforts to ensure that we are always aware of ways in which companies can use loopholes to create avoidance and by how firm we are intending to be. As I have said, Amendment 76H is a very good amendment and I hope your Lordships share the Government’s view of that.
Overseas entities owning land in the UK are required to provide details about their beneficial owners to Companies House. Where a beneficial owner has this status because they are the trustee of a trust, the entity is required to also provide information about the trust. The kinds of arrangements that are used to hold property in the UK can be complex and difficult to penetrate, none more so than arrangements that include one or more trusts in the ownership chain.
The Government heard a lot of concern about trusts during the passage of the 2022 Act and have done so again during the passage of this Bill. The Government have listened, and this set of amendments is designed to address some of those concerns. The amendments are complex, as are the structures they seek to look through. They have been tabled to ensure that those entities that are associated with a trust cannot circumvent the requirements.
Where there have been changes to the beneficial owner of an overseas entity, to the beneficiaries of a trust, or to which trust owns the overseas entity between 28 February 2022, which is the date the Act was first published, and 31 January 2023, the end of the transitional period, these amendments require the entity to provide additional information. If changes have been made in a deliberate attempt to avoid transparency requirements, they will have been futile because under these amendments the overseas entity will be required to provide the information anyway.
Although information about trusts is not publicly available, it is a valuable and rich source of data for law enforcement agencies, including HMRC. These amendments will enhance the information held about trusts associated with overseas entities and prevent those seeking to disguise their involvement in property-owning arrangements from doing so. The amendments also make a number of consequential changes to the Act so that the new provisions can be properly inserted into the Act.
Amendment 77L provides a power for the Secretary of State to make regulations to exclude certain registrable beneficial owners from these anti-avoidance provisions. The purpose of providing this power is to ensure that the new provisions do not impose undue burdens on businesses. For example, many overseas entities holding UK land are in turn owned by large, legitimate pension funds which are trusts. It would be disproportionate to expect large pension funds to report every change in beneficiary for the relevant period, as I am sure we are all aware. The overseas entities in question will still be required to provide information about the pension fund trust and to update that information annually. The new requirements will strengthen the regime and demonstrate our intent to leave nowhere to hide.
Amendment 77A ensures that an overseas entity cannot remove itself from the live register without providing any scheduled annual update. This will help to prevent any attempt to circumvent the disclosure requirements by selling up and applying to remove the entity—I notice that the noble Lord, Lord Vaux, is nodding enthusiastically—from the register without providing the required information. This strengthens the updating requirements further and will increase the robustness of the register.
When an overseas entity is removed from the live register, the information relating to it will remain publicly visible, but there will no longer be a requirement to update it on an annual basis, as seems sensible. An entity can successfully apply for removal only if it has disposed of all its land and property assets in the United Kingdom. I hope that noble Lords will welcome and support these amendments.
Amendment 77K amends the power in Clause 166 of the Bill to provide a consent mechanism for devolved Administrations. We have included in Clause 166 a power to amend the Economic Crime (Transparency and Enforcement) Act 2022 in line with amendments made by Part 1 of the Bill to the Companies Act 2006, which relate to corresponding provisions in the 2022 Act. This power has been included to ensure that, as far as possible, we maintain consistency between the two Acts and in the way in which Companies House operates its registers.
When the 2022 Act was passed, it required legislative consent from the Scottish Parliament and the Northern Ireland Assembly because some of its provisions engaged areas of devolved competence. We have provided for Scottish Ministers or the Department of Finance in Northern Ireland to consent to any regulations made under this power that engage areas of devolved competence in Scotland and Northern Ireland respectively, as with the similar mechanisms in the amendments linked to winding-up of limited partnerships. This is a bespoke solution for this specific regulation-making power. I trust that noble Lords will support this amendment.
Lord Vaux of Harrowden (CB)
My Lords, I rise to speak to the three amendments in my name in this group, Amendments 77AA, 77C and 77D. I thank the noble Baroness, Lady Bowles, for her support for the latter two. This group addresses flaws in the original economic crime legislation, the Economic Crime (Transparency and Enforcement) Act, and makes improvements to it. That Act was rushed through as emergency business, so I welcome the Government making these improvements, and I hope that the noble Lord recognises that my amendments are trying to do the same thing.
The noble Lord has said several times now that his Amendment 76H is very good. I echo the words of the noble Lord, Lord Agnew, that it is very good but could be so much better if this information was made public by default—but we have already been there.
With these amendments, I acknowledge that I am revisiting discussions that we had during the passage of the Economic Crime (Transparency and Enforcement) Act, and I apologise to noble Lords who may feel a sense of déjà vu in that respect. Normally, I would not revisit things that we have already discussed, but I am relying on the very clear commitment from the noble Lord, Lord Callanan, who reassured us at the time that we would be able to use this Bill as an opportunity to revisit matters that would perhaps have been the subject of Divisions in less of an emergency situation than last time. I remind noble Lords that he specifically indicated a willingness to revisit the matter that my amendments in this group are trying to address. So, while it is unusual to come back to the same thing, that is why I feel justified in doing so.
Amendments 77C and 77D are aimed at removing an anomaly, or loophole, in the overseas entities register. Amendment 77AA, which is an amendment to the Minister’s Amendment 77A, follows on from the same issue. Currently, if the details on the overseas entities register are changed—for example, if there is a change in beneficial ownership—that needs to be updated on the register only annually. This means that a person could register an entity, filing all the necessary details, and could then change the ownership or other details the very next day, but they would not need to inform the registrar until the end of the year. In my view, that is an unacceptable length of time for a register to remain out of date and inaccurate. Properties could be bought and sold during that period, without anyone knowing who is really behind those transactions.
As a comparison, the PSC rules require an update within 14 days of the company becoming aware of a change. Amendment 77C aims to bring the overseas entities register into line with the PSC register and require an update within the same 14 days. This amendment is identical to one that I tried to put to the previous Bill.
This matters for two reasons. The whole point of the register is to ensure that we know who the beneficial owner of the property held by the overseas entity is. If the information can be up to a year out of date that means we do not know. More importantly, this could lead to the risk of an innocent party who buys a property from an overseas entity unwittingly enriching a criminal or sanctioned person. That cannot be desirable.
The argument against accepting this amendment that the noble Lord, Lord Callanan, made last time we debated it was that, if there was a 14-day updating duty, a person buying a property from an overseas entity could not know if the entity would be in breach of the updating requirement. Because of the way the Act works, that could mean that the innocent party might not be able to register ownership of the property that they acquired. That is obviously very serious and it is a valid concern, which is why I did not push the matter last time round.
However, the Act actually includes a solution, in that it is possible for an overseas entity to shorten the annual reporting period, so a purchaser of the property could make it a condition of the purchase that the entity shortens the period and files an update before the purchase goes ahead. That would solve the problem, but I acknowledge that that requires the purchaser to be well advised and puts the onus on the purchaser, which is not right.
This time round, I have tried to address that problem by tabling Amendment 77D, which would require that, before an overseas entity can enter into an agreement to buy or sell a UK property, it must update the register no more than 14 days before entering into such an agreement. That would both safeguard any innocent purchaser and, combined with Amendment 77C, ensure that the register is kept up to date in the same way as the PSC rules are. I hope that would solve the problem that the noble Lord, Lord Callanan, highlighted last time round so that we can bring the overseas entities register into line with the PSC register to ensure that it is kept up to date and is not up to 12 months out of date at any one time.
Amendment 77AA aims to close the same loophole when an overseas entity applies to be deregistered. I welcome the Minister’s Amendment 77A—he said that I was nodding enthusiastically and he was right—but although that amendment would require any outstanding updates to be made before an entity can be deregistered, the same loophole exists. If no update is pending, the information on the register could be a whole year out of date because there is no requirement to update the register for a year.
Amendment 77AA would simply add a requirement that an entity should make a statement that the information on the register is up to date and accurate before deregistration can be accepted. That seems an incredibly simple way of ensuring that the register is up to date before the deregistration can happen, which is important.
I hope the Minister will see these amendments as helpful and intended to improve the overseas entities register, to remove a loophole and to make it the same as the PSC rules. It is very hard to see why it should not be. I hope he feels able to accept them.
Lord Agnew of Oulton (Con)
I strongly support these very sensible proposals from the noble Lord, Lord Vaux, which really show why hereditary Peers still have such an important role in this House. It will be very interesting to hear from my noble friend the Minister why he might wish to dismiss these amendments, because they make such a lot of sense: if you are buying from one of these opaque entities, why should all the responsibility lie with the buyer, not the seller?
Lord Macpherson of Earl’s Court (CB)
My Lords, I will very briefly support the proposals. It makes sense to ensure that people who think that they are buying something legitimately are adequately informed. I like the series of amendments from the noble Lord, Lord Vaux, to solve the problem that was pointed out on a previous day.
The fact is that those of us involved with companies and so on regularly have to update the Companies House register very quickly indeed. Fortunately, because of modern technology, that is relatively easy to do. Similarly, we have to update our register of interests on a regular basis, so I see no reason why this should not apply in this important, specific case.
Lord Faulks (Non-Afl)
My Lords, the Joint Committee was certainly very concerned with the need to update when it provided its report in respect of the register of overseas entities. It particularly acknowledged that an event-driven update requirement was a much better way of securing the accuracy of the register. I entirely endorse what the noble Lord said.
Lord Fox (LD)
I thank the Minister for introducing his amendments. I broadly support them from these Benches. I note, not churlishly, that this again boosts what Companies House knows but not what it publishes. I make the point again that perhaps the default position should be the other way around.
I particularly welcome Amendment 77K. Consultation with the Scottish and Northern Ireland Governments is an important feature of what should happen.
My noble friend Lady Bowles of Berkhamsted co-signed two of the amendments and, were she here, I am sure that she would have something important to say in addition to what the noble Lord, Lord Vaux, said, but I do not. However, I have a memory of history which the Minister did not experience because he was not here at the time—namely, the process we went through to pass the precursor to this Bill.
The reason why many of us stayed our hands on this issue at the time was that the Government intended to put this through in two days: one day in the Commons and one day in the Lords. We went through all the processes in one day. The passing of amendments would have seriously jeopardised that process and none of us on opposition Benches, the Cross Benches or indeed the Government Benches wanted to do that. The Government made one or two changes to the Bill on their own account, but the promise was that, come this Bill, we would have the opportunity to revisit some of those issues.
To accommodate the point made by the noble Lord, Lord Vaux, the noble Lord, Lord Callanan, was pretty explicit about the opportunity we would have in this Bill to have the debate. That is why we are having this debate and why we all have some expectation that the Minister should be able to help us along these lines.
Lord Coaker (Lab)
My Lords, I will very briefly support the remarks made by the noble Lords, Lord Faulks and Lord Fox, and the amendments tabled by the noble Lord, Lord Vaux. I look forward to the Minister’s response.
I also broadly welcome the Minister’s amendments. I have just one question, on Amendment 77L, to which I am sure there is an easy answer. It says:
“In this Schedule ‘the relevant period’ means the period … beginning with 28 February 2022 … ending with 31 January 2023”.
How were those dates arrived at?
Lord Johnson of Lainston (Con)
I appreciate the input of all noble Lords in this Committee. That period comprises the implementation, when the Act came into force, and the compliance date. Effectively, the law announced that you had to be compliant by a certain date. There is a seven-month lead-in time and the Government are concerned that people used that time to avoid the date at which they have to declare. We are, in effect, backdating the transparency, which is very sensible. I hope the noble Lord supports that.
Lord Vaux of Harrowden (CB)
There are two elements to my amendments. One is that, if there is a change of beneficial ownership, it should be registered within 14 days, in the same way as the PSC works, because of the way that the Act works in relation to the ownership of property, the inability to dispose of property and, therefore, the risk to a potential buyer if they did not know that the company should have given an update. The second is based on the transaction. If there is to be a transaction, the information must be updated before then, which gets around the issue that the noble Lord, Lord Callanan, quite rightly raised last time. So there are two elements: one is the 14 days—we should keep the thing up to date at all times, regardless of whether there is a transaction—and the second is that we should update it if there is a transaction.
Lord Johnson of Lainston (Con)
I am grateful to the noble Lord for that further clarification. As I said, I am very aware of our desire to make sure that the register is clear and transparent, and to make sure that people, corporations, individuals and beneficiaries cannot move ownership and obfuscate the intention of transparency. What I will say is that there has to be a record of activity during the year. It is not a snapshot but a story in terms of beneficial ownership, so any beneficial ownership change has to be catalogued in that period of time.
Lord Vaux of Harrowden (CB)
That may be true, but Companies House is informed of it only at the end of the 12-month period. Therefore, the point remains that if you register a company on 1 January, change the beneficial ownership on 2 January and then do lots of transactions on 3 January, 4 January, 5 January or whatever, you can then tell Companies House that it has changed on 31 December. It could have changed multiple times in that period.
Lord Johnson of Lainston (Con)
I was coming on to make that point. I do not disagree with the philosophy of the noble Lord’s points; my point is that it is reasonable to look at this from every angle. I think that is right. We do not want to create hasty legislation, certainly not at the Dispatch Box, so I am very reluctant—as your Lordships can imagine—to support an amendment that would put me in that position. I am not unreluctant at all to try to intellectualise further how we make sure that there is a sufficient degree of transparency of overseas entities’ beneficial ownership, without putting at risk the necessary level of confidence that transactors have to have over the compliance of the transacting party. I mean no disrespect to the noble Lord by my phraseology, but it may sound like a good idea to bring these changes to bear, but I am advised that it is more complicated than it looks and it may not give us the security or transparency that we wish.
Lord Fox (LD)
I think we welcome the tone of the Minister’s comments to some extent. I wonder whether he expects to have completed the intellectual and practical investigation of this in time for Report, so as to bring forward amendments of the Government’s own making that address the issue he has signed up to intellectually. Or do the Government feel that there would be some other vehicle to deliver this?
Lord Johnson of Lainston (Con)
I thank the noble Lord, Lord Fox, for his question, which I am not able to answer as conclusively as he might wish. There may be alternative mechanisms to approach this if so desired, and if the Government believe it is the way forward and the House decides accordingly. I hope the Committee will forgive my language at the Dispatch Box and that they hear the tone of—
Lord Agnew of Oulton (Con)
I am sorry to interrupt my noble friend but, given that he is now embarking on an intellectual journey on this subject and that we are not sure when that journey may conclude, I want to add a couple of nuances. First, he is right to ask what the unintended consequences are of introducing a new step. I accept that that needs to be challenged but, to give a simple example, if you are buying a property and the conveyance has dragged on a while, I think the buyer is required to carry out further searches at the last minute to ensure that a new Tube line has not suddenly been announced under the building they are buying. There is a mechanism to do it.
The other area of interest to me goes back to the point I made earlier about the great things that have been achieved with the register of overseas entities, with its high level of compliance. None the less, Transparency International thinks that there may be up to 7,000 entities and that, although we might know their names, we do not know what they really are. The proposal of the noble Lord, Lord Vaux, would flush them out before the sale. I am sure that HMRC might be very interested in a lot of these organisations, so there would be a beneficial element which has not necessarily been thought about at the moment. I would like my noble friend to add to that to his contemplation.
Lord Faulks (Non-Afl)
To add further to the intellectual challenge, and in support of what the noble Lord, Lord Agnew, said, when you transfer land quite a lot of formalities have to be gone through, in terms of conveyancing and the like. We are just talking about another formality that needs to be complied with. I do not understand that to be particularly onerous and it is consistent with what is expected. An event-driven matter was what we raised in our report; I am not sure that it should come as a great surprise that we think this is a sensible idea.
Lord Johnson of Lainston (Con)
As I hope I have illustrated, my enthusiasm for intellectualisation is paramount, even after an enjoyable light afternoon of committee debate. If I may expand further on the difference with the legislation relating to overseas entities and other types of purchase, using my noble friend Lord Agnew’s concept about the bus route or discovering moments before one buys a house that they are going to build past it some terrible thing—I was going to say a high-speed rail line, but of course we are enthusiastic here about building high-speed rail lines in this country—that is not the same thing at all.
Here, we are talking about the concept of overseas entities and the whole principle around this is to ensure that non-compliant entities are unable to transact. That is the only way to make this process workable. It is not a question of caveat emptor or something that can be corrected later, or whatever. This will prevent a transaction from happening. If a noble Lord purchases something—we were hearing earlier about the noble Lord, Lord Wallace, going to Battersea Power Station to purchase himself a downsized retirement villa, which seemed to be an upgrading, certainly for the Johnson household—is it reasonable to have a situation in which you cannot be sure whether the party you are dealing with is compliant?
I can see the noble Lord, Lord Vaux, waiting to leap up from his seat to tell me how it is possible. If it is possible to find a solution to this principle, I would be happy to have a discussion, but I am extremely reluctant to make a decision at the Dispatch Box.
Lord Vaux of Harrowden (CB)
I do not think anyone disagrees with the Minister. I said as much when I introduced my amendments, as I am conscious that the way that the Bill works means that there is a risk to the purchaser. We need to make sure that does not happen, and I have attempted to deal with it with these amendments. If that does not work, I am open to discussions, but it would be helpful to hear the Minister confirm, as I think I understand it, that he is sympathetic to the concept of making sure that the register is updated on a timely basis. That is the core thrust of these two amendments—a way to get around that and solve the very problem that the Minister is talking about. Therefore, I am looking for confirmation that he is sympathetic to keeping the register updated, if it is possible to do that and if we can solve the property ownership problem and bring it into line with the PSC rules.
Lord Johnson of Lainston (Con)
As always, I am grateful to the noble Lord, Lord Vaux, for his comments. I just repeat the point that we have been involved in markets where there has been misregulation. If it is believed that you cannot, in effect, undertake a transaction with a registered overseas entity because it is not possible to confirm compliance, whether Companies House is able—
Lord Vaux of Harrowden (CB)
The Minister is just repeating what he said before. I am looking for something more. The thrust of these amendments is that the register should be updated more regularly than annually. It should be updated when the information changes. Is he sympathetic to that and will he accept something along those lines, as long as we can find a solution to the property ownership issue?
Lord Johnson of Lainston (Con)
I hope noble Lords will forgive me if I thought myself entitled to a small preamble to my answer. Simple yes or no answers at the Dispatch Box are rather blunt instruments for creating finely tuned legislation. Noble Lords would not respect that process if that was the case.
I hope I am not repeating but clarifying the point, for me and my officials as much as for the Committee. What is worrying the Government, and should worry us all in this Room, is the chilling effect of our regulation. We must make sure that we balance our intended ambitions with the need to ensure that business functions properly. That is what this is about. If it does not do that, it will counter the effect that noble Lords want. That is the concern.
I am coming to answer the noble Lord’s question, if he will indulge me for a few more minutes. The question of non-compliance, which is at the core of this legislation, is not the same as a caveat emptor, additional, post-purchase risk. It is totally different. If the concept of these amendments makes it difficult to be assured of the compliance of a registered overseas entity, it makes it very difficult to welcome them. If it is possible, I am open to having a discussion around ensuring a timely mechanism—I do not wish to commit to anything specific—for matters of key interest, which are more than recorded data but are relevant to the intentions that we will bring to bear in our Bill and can be managed appropriately. I am always open to discussions about how we can make that process more transparent, cleaner and easier to manage. With that very clear commitment, I ask the noble Lord to withdraw his amendment.
Lord Vaux of Harrowden (CB)
The Minister has not actually addressed Amendment 77AA, which is an amendment to his Amendment 77A. I apologise for amending his amendment again.
Lord Johnson of Lainston (Con)
If the noble Lord will allow me, I will turn to my notes on Amendment 77AA. I thank all noble Lords for their valued contributions during this debate, as I have done consistently. I know that the register of overseas entities remains an issue of keen interest to all of us—it is at the core of much of the well-placed description from the noble Lord, Lord Coaker, of public anger at what has happened over the past decades—not least the noble Lord, Lord Faulks, who I know was involved in the issues in the debate two years ago now, I believe, and others who led the pre-legislative scrutiny of the original draft legislation.
Lord Vaux of Harrowden (CB)
I am not sure that the Minister has done so because, as things stand, as I understand it, all his amendment requires is the information that is already required—that is, the annual statement. In other words, there are no statements that have not been made. Even if no pending statements are required, information can still be up to a year out of date. The whole point of this is to try to ensure that, at the point of deregistration, the information is fully up to date and has been completely updated before that happens. It is the same as when you sell a property. Even if there are no updates pending, that information could be up to a year out of date.
Lord Johnson of Lainston (Con)
I apologise to the noble Lord if I have got this wrong but, as I understand it, to be given approval to be removed from the register, an entity has to provide final information. If that is not correct, I will certainly return to the noble Lord. I am looking at my officials to see whether I have misinterpreted this but I am very grateful to noble Lords in assisting us in ensuring that we have drafted our legislation properly.
Lord Fox (LD)
Further clarification on that would be very helpful because I have lost track of where we are on that. However, I have another question for the Minister. He has on a number of occasions talked about the chilling effect. Could he enlighten us, perhaps in writing, as to how that is measured or assessed? If it is by anecdote, how many anecdotes are required to know that there is a chilling effect? If it is by objective determination, I would like to know what that objective determination is. If it is by consultation—the Minister has mentioned a number of times on a number of occasions that there has been detailed consultation but I have been unable to find any evidence of that—I think your Lordships would be pleased to be told where they can find the results of that consultation. All this would help us to understand a little bit how decisions are being made on what to put into and what not to put into the Bill.
Lord Johnson of Lainston (Con)
I am grateful to the noble Lord for that point. It inspires and helps us to come to good conclusions. We have consulted widely on a wide range of issues to ensure that we come to the right conclusions in this legislation. We also rely on the good counsel, great knowledge and intellectual capabilities of noble Lords in this Committee to help us draft, shape and form our legislation.
On the question of how we decided whether something may have a chilling effect, clearly that is a figure of speech—perhaps it has no place in such an intellectual crucible as this Room—but I reassure the noble Lord that if someone have a significant counterparty risk they will not be able to make a transaction. There are numerous organisations, companies, corporates and individuals that simply will not transact if they feel that there is no transaction security.
Lord Fox (LD)
I think I was minded to recognise that. What I was interested to receive was the input that the Minister is using to make that point—in other words, for the results of the consultations to which the Minister has referred to be shared more widely than simply the Minister’s circle and team. As far as I can tell, they have not been published. I am quite happy to keep them confidential if they need to be, but for us to empathise properly with the point that the Minister is making we need to be singing from the same hymn sheet.
Lord Johnson of Lainston (Con)
I appreciate that comment; I had not thought about that. We have not done a government impact assessment that could be published, such as the ones relating to the trade Bills that I have worked on, but if we can provide useful feedback on how we have come to some of our conclusions it would be helpful to do that. I would have thought that, in the lead-up to this, noble Lords would have made inquiries from some of the key sectors to gain good information from them, as we have.
I know for a fact that not every element, clause or amendment has been specifically consulted on because that would be impractical but, broadly speaking, we have received a great deal of information, as I understand it. My noble friend Lord Leigh’s amendment, on the publication of auditor changes, which we discussed earlier, came from our consultation with whatever august body of auditors it was that we discussed. As all noble Lords here know, I am comfortable being as open as possible. However, if I may, I will bring us to a conclusion because I would like to finish our last piece of business today, without a cost to democratic scrutiny.
I will attend to the comment from the noble Lord, Lord Vaux, about Amendment 77AA. I refute his point that this information can be a year old because that cannot be the case. The application for removal must contain information about the state of affairs at the date of the application. I do not mean to be pugnacious, but I believe that I am correct in saying that, in terms of removal from the register, the information that the noble Lord wishes to see—as we do—to prevent exactly the sorts of things that he is talking about will be there. I am very happy to double-confirm after the debate that, broadly speaking, I am right in my commitment. I would not like to give false promises, but the assumption—I have been reassured by officials during this debate—is that we are in line.
Lord Coaker (Lab)
May I just make one point about process? I think my noble friend Lord Ponsonby made this point earlier, and we have just heard it again. On quite a large number of occasions the Minister has said that he will write, provide reassurances, come back to Peers, and share letters, information, how various conclusions have been arrived at and what consultations there have been. I know that the Minister and his officials will do that but, to help move us to Report, I ask them to reflect on how to do all that in as short a period of time as possible to allow those of us who want to to consider what happened in Committee and the various conclusions. That is important so that we have a manageable Report and we deliver the sort of Bill that we want.
Lord Johnson of Lainston (Con)
I am grateful to the noble Lord for those points. As I have made clear, I hope noble Lords do not think that I am kicking the can down the road.
Lord Coaker (Lab)
I honestly do not think that the Minister is doing that; I was just trying to stress to him the importance of that process.
Lord Johnson of Lainston (Con)
Fair enough; I totally agree. Our officials are very much working on making sure that we have not missed anything. Please forgive us if we do, but I do not believe we will. My point about further discussion, as I say, is that I am convinced we are correct and there is no need for this amendment. I am convinced that we have the information that will be provided at the time of removal from the register—but I am always cautious to make sure that the exact specificity of my comments is backed up in facts. If that is not the case, I am very comfortable coming back to the Committee and being clear about it. With that in mind, I ask noble Lords not to press their amendments.
Lord Johnson of Lainston
“Applications for removal
(1) Section 10 of the Economic Crime (Transparency and Enforcement) Act 2022 (processing of application for removal) is amended as follows.(2) In subsection (2), after “land” insert “and there are no updates pending”.(3) In subsection (3), after “land” insert “or there is an update pending”.(4) After subsection (3) insert—“(3A) For the purposes of subsections (2) and (3) an update is pending if—(a) an update period for the entity has ended and the entity has not yet complied with the duty under section 7 in respect of that period, or(b) the entity is required to deliver information under Schedule 6 but has not yet done so.””Member’s explanatory statement
This requires the registrar to refuse an application for the deregistration of an overseas entity if it has not yet filed an update or certain other information that is due.
Lord Johnson of Lainston
“Verification of registrable beneficial owners and managing officers
(1) Section 16 of the Economic Crime (Transparency and Enforcement) Act 2022 (verification of registrable beneficial owners and managing officers) is amended as follows.(2) In subsection (2)—(a) after paragraph (a) insert— “(aa) about how the information is to be verified (including provision about the kinds or sources of evidence to be used);(ab) about the standard to which verification is to be carried out;”;(b) after paragraph (b) insert—“(ba) about the records that must be kept in connection with verification;”;(c) after paragraph (d)(inserted by section 156 of this Act) insert—“(e) about the information that must be provided to the registrar to enable the registrar to monitor compliance with any requirements imposed by the regulations.”(3) After subsection (2) insert—“(2A) Regulations under this section may create offences in relation to failures to comply with requirements imposed by virtue of subsection (2)(ba) or (e).(2B) The regulations must provide for any such offence to be punishable—(a) on summary conviction in England and Wales, by a fine;(b) on summary conviction in Scotland, by a fine not exceeding level 5 on the standard scale;(c) on summary conviction in Northern Ireland, by a fine not exceeding level 5 on the standard scale.””Member’s explanatory statement
This amendment makes it clear that regulations about verification can make provision about how it is carried out and the standard to which it is carried out. It also allows requirements imposed about the retention of records etc to be enforced by the creation of a summary-only offence.
Lord Johnson of Lainston
Member’s explanatory statement
This is consequential on Schedule (Overseas entities: further information for transitional cases), which is inserted before Schedule 6.
Member’s explanatory statement
This is consequential on Schedule (Overseas entities: further information for transitional cases), which is inserted before Schedule 6.
Member’s explanatory statement
This is consequential on Schedule (Overseas entities: further information for transitional cases), which is inserted before Schedule 6 to the Bill.
(b) any information required by paragraph 4(2)(c) of Schedule 6 (information about beneficiaries).” Member’s explanatory statement
This is consequential on Schedule (Overseas entities: further information for transitional cases), which is inserted before Schedule 6 to the Bill.
Lord Johnson of Lainston
“Overseas entities: further information for transitional cases
Schedule (Overseas entities: further information for transitional cases) (overseas entities: further information for transitional cases) amends the Economic Crime (Transparency and Enforcement) Act 2022 to impose further duties on overseas entities to deliver information to the registrar.”Member’s explanatory statement
This introduces Schedule (Overseas entities: further information for transitional cases).
Lord Johnson of Lainston
“(2) The Secretary of State must obtain the consent of the Scottish Ministers before making regulations under this section that contain provision that would be within the legislative competence of the Scottish Parliament if contained in an Act of that Parliament.(3) The Secretary of State must obtain the consent of the Department of Finance in Northern Ireland before making regulations under this section that contain provision that—(a) would be within the legislative competence of the Northern Ireland Assembly if contained in an Act of that Assembly, and(b) would not, if contained in a Bill in the Northern Ireland Assembly, result in the Bill requiring the consent of the Secretary of State under section 8 of the Northern Ireland Act 1998.”Member’s explanatory statement
This amendment requires the Secretary of State to obtain consent before making regulations under clause 166 that contain provision within the legislative competence of the Scottish Parliament or the Northern Ireland Assembly.
Lord Johnson of Lainston
“SCHEDULE 5A OVERSEAS ENTITIES: FURTHER INFORMATION FOR TRANSITIONAL CASES1_ The Economic Crime (Transparency and Enforcement) Act 2022 is amended as follows.2_ In section 16 (verification of registrable beneficial owners and managing officers), in subsection (1), after paragraph (c) insert—“(d) complies with the duty under Schedule 6 (duty to deliver further information about transitional period).”3_ After section 43 insert—“43A Duty to deliver further information for transitional casesSchedule 6 (duty to deliver further information for transitional cases) imposes further duties on overseas entities to deliver information.”4_ After Schedule 5 insert—“SCHEDULE 6 DUTY TO DELIVER FURTHER INFORMATION FOR TRANSITIONAL CASESApplication of this Schedule1_(1) This Schedule applies in relation to an overseas entity if—(a) the entity—(i) is registered as an overseas entity when this Schedule comes into force or has been so registered at any earlier time, and(ii) was registered as the proprietor of a relevant interest in land in England and Wales or Scotland at any time during the relevant period, or(b) the entity has committed an offence under paragraph 5 of Schedule 3 or paragraph 10 of Schedule 4 (duty to register as overseas entity in certain transitional cases).(2) For the purposes of sub-paragraph (1)—(a) an overseas entity is registered as the proprietor of a relevant interest in land in England and Wales if the entity is registered in the register of title kept under the Land Registration Act 2002 as the proprietor of a qualifying estate within the meaning of Schedule 4A to that Act;(b) an overseas entity is registered as the proprietor of a relevant interest in land in Scotland if the entity—(i) is entered, on or after 8 December 2014, as proprietor in the proprietorship section of the title sheet for a plot of land that is registered in the Land Register of Scotland,(ii) in relation to a lease that was recorded in the General Register of Sasines or registered in the Land Register of Scotland before that date is, by virtue of an assignation of the lease registered in the Land Register of Scotland on or after that date, the tenant under the lease, or(iii) is the tenant under a lease that was registered in the Land Register of Scotland on or after that date.(3) Expressions used in sub-paragraph (2)(b) are to be construed in accordance with section 9(11) and (12).(4) In this Schedule “the relevant period” means the period—(a) beginning with 28 February 2022; (b) ending with 31 January 2023.Duty to deliver statements and information2_(1) The overseas entity must deliver to the registrar—(a) any statements or information required by—paragraph 3 (changes in beneficial ownership of overseas entity),paragraph 4 (information about trusts and changes in beneficiaries under trusts),paragraph 5 (information about changes in trusts in which beneficial owners trustees),(b) a statement that the entity has complied with paragraph 8 of this Schedule (duty to take steps to obtain information), anything required by regulations under section 16 (verification of information) to be delivered to the registrar, and(d) the name and contact details of an individual who may be contacted about the statements and information.(2) If an overseas entity is registered as an overseas entity when this Schedule comes into force it must deliver the statements and information required by this Schedule—(a) at the same time as it delivers the statements and information required by section 7 on the first occasion after the end of the period of 3 months beginning with the day on which this Schedule comes into force, or(b) if it applies under section 9 for removal before then, at the same time as it delivers the statements and information required by that section.(3) If an overseas entity is not registered as an overseas entity when this Schedule comes into force it must deliver the statements and information required by this Schedule within the period of 3 months beginning when it comes into force.Information about changes in beneficial ownership3_(1) The overseas entity must deliver to the registrar the statement in row 1 of the following table or the statement and information listed in row 2.
Statement | Information | |
1 | A statement that the entity has no reasonable cause to believe that anyone became or ceased to be a registrable beneficial owner during the relevant period. | |
2 | A statement that the entity has reasonable cause to believe that at least one person became or ceased to be a registrable beneficial owner during the relevant period. | 1. The required information about each person who became or ceased to be a registrable beneficial owner during the relevant period, or so much of that information as the entity has been able to obtain. 2. The date on which each of them became or ceased to be a registrable beneficial owner if the entity has been able to obtain that information. |
Statement | Information | |
1 | A statement that the entity has no reasonable cause to believe that anyone became or ceased to be a beneficiary under the trust during the relevant period. | |
2 | A statement that the entity has reasonable cause to believe that at least one person became or ceased to be a beneficiary under the trust during the relevant period. | 1. The information specified in paragraph 8(1)(d) of Schedule 1 about each person who became or ceased to be a beneficiary under the trust during the relevant period, or so much of that information as the entity has been able to obtain. 2. The date on which each of them became or ceased to be a beneficiary under the trust, if the entity has been able to obtain that information. |
This requires overseas entities to deliver to the registrar further information about events occurring during the period beginning on 28 February 2022 and ending with 31 January 2023.
Economic Crime and Corporate Transparency Bill
Tuesday 25th April 2023
(1 year, 7 months ago)
Grand CommitteeRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 96-V Fifth marshalled list for Grand Committee - (25 Apr 2023)
Lord Sharpe of Epsom
Member’s explanatory statement
This amendment and the amendment in the name of Lord Sharpe of Epsom at page 207, line 11 amend inserted section 131ZB of the Proceeds of Crime Act 2002 (realisation of confiscated cryptoassets) to provide that only the sheriff may make an order under that section requiring confiscated cryptoassets to be realised.
The Parliamentary Under-Secretary of State, Home Office (Lord Sharpe of Epsom) (Con)
My Lords, we now move to the Home Office clauses of the Bill and the amendments associated with them. I reiterate the thanks previously expressed by my noble friend the Minister for Investment to everyone who has participated in the scrutiny of the Bill to date, not least noble Lords who either met us to discuss the Bill or spoke during the first few days in Committee. I also reiterate my thanks to my noble friend Lord Johnson of Lainston for shepherding the first three parts of the Bill through Committee. They comprise sizeable and vital measures to make our country, businesses and citizens safer.
The amendments in this group concern the confiscation and recovery of crypto assets. Amendments 77M, 77N, 77P to 77Y, 77YA to 77YF, 78A and 78B—there are a lot of them—make a series of small and technical changes to measures in the Bill to ensure that it works as effectively as possible. They include amendments to ensure that the measures will function effectively in the context of the Scottish courts and will mirror existing asset recovery powers so that immigration officers can utilise the crypto-asset forfeiture powers. These amendments provide greater clarity to existing measures in the Bill and remain wholly in line with the original policy’s intent. I hope that noble Lords will support these amendments and I beg to move.
Lord Fox (LD)
My Lords, I will speak to Amendment 78 in my name and also more generally. I thank the team sitting behind the Minister who met me last week to try to see through this. I was somewhat reassured by what they had to say, but a couple of points hinge around the words “UK-connected” in describing crypto assets.
What we know about crypto is that it is connected nowhere. A number of crypto concerns are now administered under UK financial administration, but a whole lot more are not. Clearly, if the authorities were able to seize a crypto wallet, that would perhaps offer a greater opportunity for confiscating assets than having to go through the courts with these crypto-asset services. This may have limited application in the real world, when we get there. I do not think it is a bad thing and it is not a problem, but I do not think we should raise our expectations particularly high when it comes to being able to confiscate these sorts of assets.
To some extent, that is what sits behind my modest amendment, which seeks to require the Secretary of State to review the adequacy of the definitions of crypto assets and, by definition, how they can be confiscated under the Bill. The Secretary of State would have to lay a report before Parliament within 18 months. Because everything is changing so quickly in this sphere, it does not seem unreasonable to ask the Government to come back to Parliament and tell us how it is going. It is quite clear that new crypto assets are popping up every day. Who would have thought of NFTs as being crypto assets at all even a couple of years ago? Are they included in this? I assume that they are.
New digital assets will emerge over the next 18 months and beyond and it is sensible for the Government to keep Parliament in touch with what they are trying to do to bring these assets to book when appropriate. We welcome the changes in so far as they go. I do not think we should get too excited about them, but we should ask that the Government and the Secretary of State keep Parliament in touch with the changes that are going on all the time.
Lord Ponsonby of Shulbrede (Lab)
My Lords, this is a slightly unusual debate, in that we have a lot of very specific amendments tabled by the Government. The noble Lord, Lord Fox, has opened the debate by talking about how fluid the situation is when dealing with cryptocurrency and crypto assets as a whole, and other amendments in subsequent groups will deal with particular aspects.
Just by chance, yesterday evening I bumped into a former magistrate colleague of mine, John Glen, previously the Economic Secretary to the Treasury, who told me about a speech that he gave on 4 April last year in which he set out the Government’s approach to crypto assets and the whole issue of trying to manage that approach in this fast-evolving world. I agree with the first point made by the noble Lord, Lord Fox. We all acknowledge that this is fast-moving and the Government are doing their best to position themselves to be at the centre of developments and well-connected worldwide, as the understanding of the practical input and use of crypto assets is properly assessed, while also trying to bear down on the criminal activity that is undoubtedly prevalent within these assets.
Having read John Glen’s speech, in which he outlined the Government’s detailed plan, I will just mention some of the key points that he made, and perhaps the Minister can then say something about the Government’s approach to dealing with this fluid situation. John Glen’s first point was about stablecoins, which are a way of trying to harness technologies such as blockchain for the benefit of government by, for example, tying the pound to some form of cryptocurrency. That was being looked into and it would be interesting to know how that is going.
Another element of the plan outlined in John Glen’s speech was to ask the Law Commission to look at decentralised autonomous organisations, which are basically the groups that will run these crypto assets and the like. If there is any progress report on the work of that task force, that would be very interesting.
John Glen also talked about a sandbox, to be run by the Bank of England and the FCA, which will look at ways to manage the evolutionary process of regulation. I absolutely understand that is a difficult thing to do. Finally, he announced with some fanfare that the Royal Mint will create its own non-fungible token, or NFT. I do not know how that is going, but I would be interested to hear what the Minister has to say about that—
Lord Ponsonby of Shulbrede (Lab)
Well, it is indeed a fast-moving world.
We support the amendments in this group, but I would be interested to hear if the Minister could say something about the wider strategy in trying to make sure that the British Government are part of the development of these technologies, while bearing down on sources of fraud and money laundering.
Baroness Altmann (Con)
My Lords, I rise to express my concerns. It is not that I do not support the amendments or the comments made by other noble Lords, but calling these things crypto assets in an economic crime Bill, when we know that their origin seems to have been organised crime finding a way to money launder its ill-gotten rewards I find deeply troubling. A number of leading bankers, with whom I agree, have suggested that these things have no value. I urge the Government to be very alert to the potential risk of trying to make cryptocurrency—I am not talking about blockchain technology—and these so-called assets, which actually do not exist, appear to be reasonable things for British citizens to put their money into.
Lord Agnew of Oulton (Con)
My Lords, I support the noble Lord, Lord Fox, in his amendment to make sure we have a review point quite soon after this Bill. I acknowledge my noble friend Lady Altmann’s point about the strange context to put this in, but given that we have this Bill on the table, it would be very easy to put in a reference point because the climate for this asset is moving enormously fast. Between November 2021 and November 2022, the value of bitcoin fell by $2 trillion, which is not far short of the UK’s total annual GDP, although it has recovered a little since then. This is a vast sum of theoretical money that is swilling around, and we do not yet really understand how to manage it, so I strongly support the noble Lord, Lord Fox.
Lord Sharpe of Epsom (Con)
My Lords, I thank noble Lords for the points that have been raised in this debate so far, and I specifically thank the noble Lord, Lord Fox, for tabling Amendment 78. I also thank him for his kind words about the detailed technical briefing that he received from officials on these provisions, and I am glad it proved valuable.
The proposed clause seeks to impose a duty on the Secretary of State to lay before Parliament a report reviewing the definitions of crypto assets contained in the Bill within 18 months of its passage. We believe this is unnecessary. The definitions in the Bill are in line with existing definitions in the Proceeds of Crime Act 2002 and the Terrorism Act 2000 and follow the approach recommended by the joint Treasury, Financial Conduct Authority and Bank of England Cryptoassets Taskforce: Final Report in 2018—I imagine that goes some way towards answering the questions asked by the noble Lord, Lord Ponsonby.
As to the issue of UK-connected firms raised by the noble Lord, Lord Fox, the provisions enable the seizure of crypto assets from wallets and firms. They were developed with partners and were based on operational insights and are valuable and necessary. These definitions will be reviewed whenever and as often as needed. There is general agreement that the world is moving at an incredibly fast pace, and therefore there is a provision in the Bill for the Secretary of State to amend the definitions of crypto assets in future through regulations which will be subject to debate in Parliament.
To go into a little more detail on future-proofing, the specific delegated powers allow the Secretary of State to amend definitions associated with crypto assets as part of these new crypto-asset confiscation and civil recovery regimes. The definitions in the confiscation and civil recovery provisions reflect those already in POCA, TACT and other linked legislation. Home Office officials will be working closely with law enforcement agencies to monitor the effectiveness of the crypto-asset powers post-implementation and, if necessary, the Government would look to update crypto-asset definitions. Noble Lords made very good points about the pace of change, and this legislation recognises that. The regulation- making power is intended for the express purpose of being able to respond dynamically to changes in technology or criminal behaviour rather than at arbitrary points in time.
The noble Lord, Lord Ponsonby, asked about stable- coins and decentralised finance. He mentioned emerging technologies in the crypto-asset ecosystem. This Bill caters for criminal abuse of these as far as is practically possible. For example, stablecoins are captured by our definition of crypto assets. However, the definitions have been developed in consultation with industry so as not to stifle legitimate innovation.
Having mentioned “legitimate innovation”, I heard what my noble friend Lady Altmann had to say on the subject and she made some very good points.
I hope this provides reassurance that the definitions of crypto assets will remain subject to review with the ability to be updated in a responsive way. The provision to amend the definitions of crypto assets would be used appropriately and afford Parliament the opportunity for scrutiny, so I ask the noble Lord not to move his amendment.
Lord Sharpe of Epsom
Member’s explanatory statement
See the amendment in the name of Lord Sharpe of Epsom at page 206, line 39.
Member’s explanatory statement
This amendment is consequential on the amendment in the name of Lord Sharpe of Epsom at page 206, line 39.
Member’s explanatory statement
This amendment and the amendments in the name of Lord Sharpe of Epsom at page 208, line 47, page 209, line 2 and page 209, line 8 amend inserted section 131AA of the Proceeds of Crime Act 2002 (destruction of seized cryptoassets) to provide that only the sheriff may make an order under that section.
Member’s explanatory statement
See the amendment in the name of Lord Sharpe of Epsom at page 208, line 30.
Member’s explanatory statement
See the amendment in the name of Lord Sharpe of Epsom at page 208, line 30.
Member’s explanatory statement
See the amendment in the name of Lord Sharpe of Epsom at page 208, line 30.
Member’s explanatory statement
This amendment is consequential on the amendment in the name of Lord Sharpe of Epsom at page 208, line 30.
Member’s explanatory statement
This amendment and the amendments in the name of Lord Sharpe of Epsom at page 209, line 30, page 209, line 38 and page 210, line 14 are consequential on the amendments in the name of Lord Sharpe of Epsom at page 206, line 39 and page 208, line 30.
“(4) In subsection (2), for “131A” substitute “131ZB(3), 131A(3) or 131AA(2)”Member’s explanatory statement
See the amendment in the name of Lord Sharpe of Epsom at page 209, line 27.
Member’s explanatory statement
See the amendment in the name of Lord Sharpe of Epsom at page 209, line 27.
Member’s explanatory statement
See the amendment in the name of Lord Sharpe of Epsom at page 209, line 27.
Lord Sharpe of Epsom
“RECOVERY OF CRYPTOASSETS: SEARCHES, SEIZURE AND DETENTION”Member’s explanatory statement
This amendment replaces the title of inserted Chapter 3C of Part 5 of the Proceeds of Crime Act 2002.
“RECOVERY OF CRYPTOASSETS: FREEZING ORDERS”Member’s explanatory statement
This amendment replaces the title of inserted Chapter 3D of Part 5 of the Proceeds of Crime Act 2002.
Member’s explanatory statement
This amendment and the amendment in the name of Lord Sharpe of Epsom at page 263, line 36 clarify that references in sections 303Z51 and 303Z17A of the Proceeds of Crime Act 2002 (freezing orders) to a freezing order are to a current freezing order.
Member’s explanatory statement
See the amendment in the name of Lord Sharpe of Epsom at page 245, line 3.
“13A_ In section 453C of the Proceeds of Crime Act 2002 (obstruction offence in relation to immigration officers), in subsection (3), after paragraph (g) insert—“(ga) section 303Z21 (powers to search for cryptoasset-related items) as applied by section 24 of the UK Borders Act 2007 (exercise of civil recovery powers by immigration officers);(gb) section 303Z26 as so applied (powers to seize cryptoasset-related items);(gc) section 303Z27 as so applied (powers to detain cryptoasset-related items);”.”Member’s explanatory statement
This amendment consequentially amends section 453C of the Proceeds of Crime Act 2002 (obstruction offence in relation to immigration officers) to provide that the offence in that section applies in relation to an immigration officer who is acting in exercise of certain cryptoasset-related powers in inserted Chapter 3C of Part 5 of that Act.
“Amendments to the UK Borders Act 2007
16_(1) Section 24 of the UK Borders Act 2007 (exercise of civil recovery powers by immigration officers) is amended as follows.(2) In subsection (1), for “3B” substitute “3F”. (3) In subsection (2)(a), for “Chapter 3B” substitute “Chapters 3B to 3F”. (4) In subsection (2)(c), after “303Z2(4))” insert “, Chapter 3C (see section 303Z20(4)), Chapter 3D (see section 303Z36(8)) and Chapter 3E (see section 303Z41(9))”.(5) In subsection (2)(d), after “303G” insert “(including as section 303G is applied by section 303Z25)”.(6) In subsection (2)(e), after “303I” insert “(including as sections 303H and 303I are applied by section 303Z25)”.(7) In subsection (2)(f)—(a) in the opening words, for “or 303L(1)” substitute “, 303L(1), 303Z28(1) or (4), 303Z32(1) or (4) or 303Z57(3) or (5)”;(b) in sub-paragraph (ii), for “or (as the case may be) 303O” substitute “, 303O, 303Z41 or (as the case may be) 303Z60”.(8) In subsection (2)(g), for “or 303Z14” substitute “, 303Z14, 303Z41 or 303Z60”.(9) In subsection (2)(h), for “or 303Z18” substitute “, 303Z18, 303Z52 or 303Z64”.”Member’s explanatory statement
This amendment amends section 24 of the UK Borders Act 2007 (exercise of civil recovery powers by immigration officers) to provide that immigration officers may exercise certain cryptoasset-related powers in inserted Chapters 3C to 3F of Part 5 of the Proceeds of Crime Act 2002.
Lord Sharpe of Epsom
Member’s explanatory statement
This amendment and the amendment in the name of Lord Sharpe of Epsom at page 310, line 41 clarify that references in paragraphs 10Z7CL and 10Z6A of Schedule 1 to the Anti-terrorism, Crime and Security Act 2001 (forfeiture of terrorist property) to a freezing order are to a current freezing order.
Member’s explanatory statement
See the amendment in the name of Lord Sharpe of Epsom at page 295, line 27.
Lord Sharpe of Epsom
“Money laundering: offences of failing to disclose
(1) The Proceeds of Crime Act 2002 is amended as follows.(2) In section 330 (failure to disclose: regulated sector)— (a) subsection (7A) is moved to after subsection (7B) and is renumbered subsection (7C);(b) after that subsection as moved and renumbered, insert— “(7D) Nor does a person commit an offence under this section if—(a) the information or other matter mentioned in subsection (3) consists of or includes information that was obtained only in consequence of the carrying out of a status check under section 40 of the Immigration Act 2014 or an immigration check under section 40A of that Act or both, and(b) but for the information so obtained the person would not have reasonable grounds for knowing or suspecting that another person is engaged in money laundering.”(3) In section 331 (failure to disclose: nominated officers in the regulated sector), after subsection (6A) insert—“(6B) Nor does a person commit an offence under this section if—(a) the information or other matter disclosed to the person under section 330 consists of or includes information that was obtained only in consequence of the carrying out of a status check under section 40 of the Immigration Act 2014 or an immigration check under section 40A of that Act or both, and(b) but for the information so obtained the person would not have reasonable grounds for knowing or suspecting that another person is engaged in money laundering.””Member’s explanatory statement
This creates a defence for people who fail to report money laundering if their knowledge or suspicion is based on information supplied under a status or immigration check. The defence applies where, but for that information, the person would not have reasonable grounds to know or suspect money laundering.
Lord Sharpe of Epsom (Con)
My Lords, I will speak first to the government amendments in this group. The first of these is Amendment 78C. This is intended to avoid unnecessary burdens on business from having to submit the same information for immigration purposes and under the SARs regime. The new clause creates a defence for people who fail to report money laundering if their knowledge or suspicion of money laundering arises solely as a result of an immigration check carried out using data supplied by the Home Office.
Under the Immigration Act 2014, banks and building societies are required to check whether their existing account holders or applicants for a current account are disqualified persons. Should banks match any of their existing customers against the disqualified persons list—the DPL—they will be required to notify the Home Office. At the same time, a match against the DPL could also trigger a requirement under the Proceeds of Crime Act 2002 to submit a suspicious activity report, known as a SAR, to the NCA. This would require banks and building societies to report the same information twice, placing a financial and administrative burden on both them and the NCA.
By creating a defence against the offence of failing to report in Section 330 or Section 331 of POCA when the suspicion is solely the result of an immigration check using information provided by the Home Office, we will essentially remove the requirement for banks and building societies to submit a SAR under those circumstances. This will help mitigate the burden of such reports and the potential for dual reporting in the case of existing accounts. This amendment modifies existing POCA obligations and provides certainty on reporting requirements; failure to provide this certainty risks reporters taking a risk-averse approach to reporting and continuing to overreport.
I turn to Amendments 78D and 78G, tabled by the Government. These amendments ensure that applications for information orders can be made only where an authorised NCA officer reasonably believes that the foreign Financial Intelligence Unit—FIU—is requesting the information for strategic or operational intelligence analysis.
These amendments seek to address concerns from stakeholders that information orders could be used for purposes beyond those for which they are intended—specifically, that they may otherwise be used by foreign FIUs to circumvent existing intelligence and information-sharing procedures, under mutual legal assistance processes, by using the information shared through the information order as evidence in legal proceedings. Although information-sharing between international FIUs is crucial to combating economic crime and terrorist financing at an international level, a foreign partner should use existing mutual legal assistance processes if they wish to request evidentiary material from the UK. This is because the mutual legal assistance process is tightly regulated and has appropriate procedures and safeguards in place for sharing information of this kind. This amendment is essential to ensure that the information order measures in the Bill work as intended and that applications made for the orders are proportionate and justified.
Amendment 78E amends Section 339ZH of the Proceeds of Crime Act to remove the extension of the definition of money laundering to include predicate offences. The inclusion of these offences in the definition of money laundering would have broadened the scope of the clause beyond its intended purposes. We will rely on the existing definition of money laundering in Section 340 of the Proceeds of Crime Act 2002; this will ensure there is a consistent definition of money laundering across the Act. The exclusion of predicate offences from the definition does not affect law enforcement’s ability to investigate or pursue cases of money laundering. It is for these reasons that I ask the Committee to support this government amendment.
Amendments 78F and 78H are small amendments to Section 339ZL of the Proceeds of Crime Act 2002 and Section 22F of the Terrorism Act 2000, allowing certain preliminary steps in relation to making a code of practice under these provisions, such as consultation on the draft code of practice, to be carried out prior to Royal Assent. This amendment will also bring the duty to issue a code into force on Royal Assent, ensuring that we avoid any unnecessary delays in laying a code of practice and operationalising the powers.
I hope that those explanations have provided further clarity on why these government amendments are needed, and I ask the Committee to support them. I beg to move.
Lord Agnew of Oulton (Con)
My Lords, I speak in favour of my own amendment, which is part of this group—Amendment 86, which is about asking for prioritisation of SARs reporting. Just to set the scene for noble Lords, according to the UK Financial Intelligence Unit, the praetorian guard of the NCA in this respect, there were 901,000 SAR reports in 2021-22, 70% of which related to banks. That is a number far in excess of what institutions can meaningfully deal with, so huge opportunities are being missed.
The Home Office itself has just produced its own report, called Transparency Data: Accounting Officer Memorandum: Suspicious Activity Reports (SARs) Reform Programme, published on 24 February, just a few weeks ago. It accepts that there are at least four problems in our management of the SAR regime:
“Inconsistent levels of compliance reporting in some parts of the regulated sector … Insufficient human resource capacity within the UKFIU which limits their ability to analyse financial intelligence or engage with partners to improve the quality of SARs … Under-utilisation of SARs by law enforcement … Legacy IT systems which cause inefficiency and ineffectiveness throughout the regime”.
That is in the words of the Home Office, from literally only a few weeks ago. What is so frustrating is that the Government have been talking about this for at least four years. In April 2019, a strategic outline business case for the programme was reviewed by the Home Office. An economic crime plan was produced in July 2019 and then the full business case was subsequently reviewed and approved by the Home Office in April 2021. Yet we still do not seem to have a lot of action.
All my amendment is trying to do is to push the machine to get on with this. Of course, the Minister will ask me not to press the amendment, but I would ask him whether, in so doing, he can give us a date—maybe not today but in writing to the Committee—by when all this stuff will start to happen, because we are missing huge opportunities to identify economic crime. My simple proposal is to triage the SARs, so that the shortage of resource, which no doubt will remain for a while, can at least be concentrated on areas of greatest risk to our system.
Lord Vaux of Harrowden (CB)
First, the noble Lord, Lord Agnew, makes a very interesting point and I should like to hear the Minister’s views on it. I should also be interested to hear how many of the 900,000-odd SARs are acted on and followed up each year. That would be an interesting statistic to understand.
I wish to ask about Amendment 78E, which I do not fully understand. It would remove the reference being inserted into the Proceeds of Crime Act to predicate offences. I am not sure why we should take it out. It would be interesting to understand from the Minister why it was in the Bill in the first place and why the Government have now changed their mind and are taking it out. As I understand it, a predicate offence is the offence that creates the finances that are then laundered. It must in many cases be quite hard to untie those two things. I should have thought that it must be useful to any crime agency looking into these things to understand the full chain, from the original offence to the laundering of the funds. Clause 172 is talking only about information orders, not about creating new offences or anything else, so I am unclear why we would want to remove the predicate offence from the information order and would like to understand it a little more.
Baroness Altmann (Con)
My Lords, I support my noble friend’s amendment. I understand that the Government may have concerns about accepting it, but he made a very powerful case for trying to find a way to deal with an underresourced investigation procedure, perhaps by prioritising by frequency of the same company or individual under suspicion for their activity, the amounts of money available or certain countries that may be involved. There must be a way of prioritising the investigation of suspicious activity reporting, because I am certainly aware that some such activity is raised in what most people might consider relatively minor cases—but, of course, the banks need to take the issue seriously and report if they have suspicions. I would welcome the Minister’s comments and thoughts on the proposals of my noble friend Lord Agnew, but I also thank the Government for their amendments.
Lord Fox (LD)
My Lords, I thank the Minister for a clear exposition of the government amendments. I do not think I can find anything to get upset about over them—disappointingly, as I always like to get upset about the Government.
I should like to add a little, perhaps over-philosophically, on the amendment of the noble Lord, Lord Agnew. There is actionable information and there is noise, and 900,000 submissions sounds like noise, not actionable information. The noble Lord set out manfully how to try to make that noise actionable, but my sense is that you have to go back to what a SAR is. My understanding —I am looking at the noble Lord, Lord Leigh, as I consider him the expert on these things—is that they are a self-reported classification. I wonder how this would help because, clearly, the risk register would drive behaviour and people would self-report under a different classification. I wonder whether, overall—perhaps the Minister can help here—how much SARs ever help in dealing with the proceeds of crime. In other words, when is this information useful, how is it useful and in what circumstances do the Government feel it is essential to know it? Starting from that position, we might have a better idea of how we sift the noise to make it more valuable, because it strikes me that the noble Lord, Lord Agnew, absolutely hits on the problem. I am not 100% convinced he hits on the solution, but we need a solution, so some dialogue between the noble Lord, the Government and others to come up with a plan would be very helpful.
Lord Ponsonby of Shulbrede (Lab)
My Lords, I support the comments that have already been made. As the noble Lord, Lord Agnew, has said, he is really asking the Government to triage the SARs, for some way of managing the overwhelming amount of data which is reported. The only little glimpse of this I have in my other role as a magistrate is that we deal with proceeds of crime applications at magistrates’ court level, and it is not that unusual—I have dealt with it myself—where you are talking about potentially billions of pounds. But we are just seeing one very small snapshot of that in the particular application that we see in the magistrates’ courts. I am very well aware that these are immensely complicated situations to deal with, but just from listening to the speech of the noble Lord, Lord Agnew, I think he is, as he said, really just pushing the Government to try and get on with their own plan. It would be very useful for this Committee to hear what the Government are planning to do and to come up with a timetable to try and impact on this problem. Other than that, I support the amendments.
Lord Sharpe of Epsom (Con)
My Lords, I once again thank noble Lords who have spoken in this debate. I have listened with considerable interest to the points that have been raised. I am particularly grateful to the noble Lord, Lord Fox, for going against his natural instinct and supporting the Government.
I thank my noble friend Lord Agnew of Oulton for his Amendment 86, which would create a requirement for risk rating for submissions of suspicious activity reports, known as SARs. As my noble friend acknowledges, SARs intelligence is a critical tool in our ability to identify, disrupt and recover the hundreds of millions of pounds which underpin the most serious and organised crime in the UK. However, it is often not possible for reporters of SARs to assess the level of risk related to a SAR, or the underlying offence associated with the report, when it is submitted to the National Crime Agency. That is because the reporter may not have a complete picture of information on which to make such a rating. This could lead to potentially inaccurate information being submitted to the NCA if this were a requirement, as well as additional burdens on reporters that would distract resources from tackling economic crime.
Furthermore, the NCA already has procedures in place to enable reporters to alert specific concerns. It has issued an online guidance of glossary codes to reporters, which can be included in their reports and which allow them to label a SAR with a specific concern. These glossary codes can, for example, relate to suspicions of vulnerable children, human trafficking, or firearms offences, and enable the National Crime Agency to triage the reports so they can be allocated appropriately.
In addition, the SARs reform programme is delivering major reforms to the legacy SARs IT, to enable better analysis and exploitation of SARs intelligence to deliver law enforcement outcomes to disrupt criminals. As my noble friend has gone into more detail on this subject, I will answer in more detail generally about resource allocation and what have you.
We are increasing capacity within law enforcement to analyse and act on SARs intelligence. This will include 75 additional officers in the NCA, which will almost double capacity. Some 45 of these officers are already in post, and the milestone for recruiting the remaining 30 is the end of this financial year 2022-23. The programme has also provided more than 20 new financial investigators in the regional organised crime units dedicated to SARs analysis. These new staff are already delivering operational results from SARs intelligence, including the recovery of criminal assets—£380,000 to date this year, with approximately another £1 million frozen; I will come back on to some numbers in a second—and also identification and arrest of previously unknown organised crime group members.
In terms of the IT systems, a new SARs digital service, including data analytics, which will replace legacy IT implemented more than 20 years ago, is on its way. The first elements of the new SARs IT systems, which are for bulk reporter submission, were delivered in early 2021, to enable organisations to submit large volumes of SARs—bulk reporters—to begin testing the new systems. To ensure consistency of service, de-risk delivery and ensure the protection of the public, the end-to-end SARs digital service will be delivered in stages. The new SARs online portal and bulk submission system is shortly due to go live. This will be followed by further releases, which will replace the current SARs IT used by the UK Financial Intelligence Unit, law enforcement agencies and other government departments. My noble friend was quite right to bring up the subject, and I hope that provides some clarity as to what is being planned.
The noble Lord, Lord Vaux, asked about the additional number of SARs. The NCA received and processed 573,085 SARs in 2019-20. The number of SARs submitted increases significantly every year. Action taken as a result of these SARs saw £191,637,824 denied to criminals in 2019-20, which is an increase of about 46% on the previous year’s figure. SARs are analysed by the NCA for priority risks and then actioned accordingly. The majority of the reports are also made available to more than 75 law enforcement agencies and used in a variety of ways. This was recognised in the Financial Action Task Force’s mutual evaluation of the UK in 2018. We recognise that we could do more and are committed to the SARs reform programme, which aims to improve our ability to analyse SARs and for law enforcement to take action on them when appropriate.
The noble Lord, Lord Vaux, also asked why Amendment 78E is being tabled now. The original draft used a definition of money laundering based on a global standard from FATF—the Financial Action Task Force. The new definition ensures that the definition of money laundering is consistent with the rest of POCA. A predicate offence in the context of money laundering is an offence that leads to proceeds of crime being generated which then become the subject of a money laundering offence. The inclusion of these offences in the definition of money laundering in this clause would effectively include any criminal activity, thereby broadening the scope of the clause beyond its intended purpose. The exclusion of predicate offences from the definition does not affect law enforcement’s ability to investigate or pursue cases of money laundering.
I believe that I have answered all the specific questions. Once again, I thank all noble Lords who participated in this short debate. I ask my noble friend Lord Agnew not to press his amendment.
Lord Sharpe of Epsom
“(b) an authorised NCA officer has reasonable grounds to believe that the request was made only for the purpose of assisting the foreign FIU to conduct one or both of the following—” Member’s explanatory statement
This amendment amends inserted section 339ZH(6B)(b) of the Proceeds of Crime Act 2002 (information orders: foreign FIUs and money laundering) to ensure that information orders can only be granted where an authorised NCA officer reasonably believes that the foreign FIU is requesting the information for the purpose of conducting operational or strategic analysis.
Member’s explanatory statement
This amendment removes inserted subsection (6C) of section 339ZH of the Proceeds of Crime Act 2002. That subsection would have extended the definition of “money laundering”, for the purposes of subsections (6A) and (6B) of that section, to include predicate offences in respect of money laundering.
“(2A) A requirement in paragraph (a), (b) or (c) of subsection (2) may be satisfied by the carrying out of the action required by the paragraph in question before this section comes into force.”Member’s explanatory statement
This amendment amends inserted section 339ZL of the Proceeds of Crime Act 2002 (code of practice about certain information orders) to provide that certain preliminary steps in relation to the making of a code of practice under that section (for example, publishing a draft) may be carried out before that section comes into force.
Lord Sharpe of Epsom
“(b) an authorised NCA officer has reasonable grounds to believe that the request was made only for the purpose of assisting the foreign FIU to conduct one or both of the following—”Member’s explanatory statement
This amendment amends inserted section 22B(6B) of the Terrorism Act 2000 (information orders: foreign FIUs and terrorist financing) to ensure that information orders can only be granted where an authorised NCA officer reasonably believes that the foreign FIU is requesting the information for the purpose of conducting operational or strategic analysis.
“(2A) A requirement in paragraph (a), (b) or (c) of subsection (2) may be satisfied by the carrying out of the action required by the paragraph in question before this section comes into force.”Member’s explanatory statement
This amendment amends inserted section 22F of the Terrorism Act 2000 (code of practice about certain information orders) to provide that certain preliminary steps in relation to the making of a code of practice under that section (for example, publishing a draft) may be carried out before that section comes into force.
Lord Agnew of Oulton
“HMRC anti-money laundering function
After section 5 of the Commissioners for Revenue and Customs Act 2005 (Commissioners’ initial functions), insert—“5A Commissioners’ anti-money laundering functions (1) The Commissioners are responsible for anti-money laundering supervision.(2) The Commissioners must treat the function in subsection (1) as a priority equal to the functions in section 5.””Member’s explanatory statement
This amendment introduces a priority for HMRC to exercise its AML supervisory role. Having such a duty would ensure that HMRC fills an enforcement gap by generating more action against the promoters of aggressive tax avoidance schemes and the enablers of economic crimes in order to deter wrongdoing.
Lord Agnew of Oulton (Con)
My Lords, my Amendment 79 asks that HMRC be given a specific requirement to prioritise the exercise of its AML supervisory role. The reason I ask is the criticism that the Government have raised against HMRC. The Financial Action Task Force observed that tax issues
“carried too much weight compared to other”
money laundering risk factors. It is concerning that HMRC has a repeated tendency to view AML risks from a more narrow tax perspective instead of considering a broader set of AML risks, despite being identified as a weakness. That is not my diagnosis but the Government’s diagnosis of the problem.
I raised several specific issues in our previous days in Committee, but they are absolutely relevant to support this amendment. The most recent assessment of HMRC’s effectiveness in this area showed that it was failing to keep pace with the requirement to register a business within 45 days, with performance worsening over the year from 78% in 2020-21 to only 70.71% in 2021-22. In practice, this means that more businesses—nearly one-third—are operating outside the scope of its supervision for longer periods than in previous years.
The next point is that the self-assessment highlights issues in the ECS recruitment process and delays in appointing staff, which have resulted in existing staff members being asked to fill in with training duties. That goes back to my earlier point on the last amendment about the lack of qualified resource. HMRC discloses that there continues to be delays in publishing guidance for businesses under its supervision on the steps required to meet their regulatory obligations as well as on responding to specific money laundering risks.
Fourthly, the volume of face-to-face visits conducted by HMRC has slowed down—there has been a downward tendency in the number of on-site visits. There were 1,265 in 2018-19, and in the year 2021-22 that had slumped to 289—for most people, Covid was behind us, so I am not sure that that is an entirely legitimate explanation.
The next point is that HMRC has not yet used civil powers it has at its disposal to issue censuring statements for failing to comply with the MLR, or injunction powers to prevent a future breach. Again, I am sure that is happening because it simply does not have the resources available.
Lastly, an increase shows signs that HMRC is ramping up its enforcement as a supervisor, but the penalty amounts being recovered are reducing. A total of £44.8 million in fines were issued between 2018-19 and 2021-22 have now been revised down to just £8.6 million. Again, I am sure that this all goes back to resource and specifically to focus.
As I said in my opening comments—I know this from my experience of being an HMRC oversight Minister for Brexit border readiness—there is a huge cultural focus on tax collection in HMRC. There is nothing wrong with that, but this is a first cousin and it is HMRC’s responsibility to look after this stuff, and, frankly, it is not doing the job properly. My amendment would simply put some focus on that in the Bill. Again, I know from my experience as a Minister for five years that officials respond to these kinds of controls in the way they manage the resources in their department. I hope my noble friend the Minister will listen. I beg to move.
Lord Leigh of Hurley (Con)
My Lords, I will make a disclosure further to my subsequent disclosure of being a member of the Institute of Chartered Accountants in England and Wales; I am also a member of the Chartered Institute of Taxation, also by examination, which means that in theory I am capable of giving tax advice but, sadly, not in respect of anything after 1985. None the less, I feel that I should disclose that when discussing this issue.
It is customary to congratulate a noble friend on the introduction of an amendment, and I very much congratulate my noble friend on the introduction of this amendment. He speaks with great knowledge of the inside track of what is going on in the Treasury, and he is the one person who stood up against potential fraud taking place. As such, I hope that my noble friend the Minister, the noble Lord, Lord Sharpe of Epsom, will listen to my noble friend’s words. I appreciate that this has been thrust upon the Minister and it is not normal Home Office territory; it is not even the Business and Trade territory of my noble friend Lord Johnson of Lainston but Treasury territory.
However, this amendment is particularly important. It seeks to amend the HMRC Act of 2005. The problem with the Act as it stands is that it does not make stopping tax avoidance or even evasion a big enough priority for HMRC, and as a result HMRC views it as part of a sort of cost-benefit analysis rather than as a deterrent. This is particularly worrying with regards to VAT, where VAT avoidance can distort competition. As a result, the EU Commission used to occupy an oversight function with regard to the application of VAT and would always take action where a member state did something with VAT that distorted competition. For example, Italy tried to give an amnesty to companies which had not paid VAT in order to save money in Italy, but the Commission stepped in and stopped that. However, now it has lost that oversight, so the question is: who polices HMRC with regard to the application of VAT?
Noble Lords will recall that we discussed at Second Reading the case of 11,000 Chinese businesses that registered themselves at the flat of a Mr Dylan Davies in Wales, who was subsequently pursued by HMRC and the bailiffs for unpaid VAT. When we discussed the issue, we referred to it from a Companies House perspective, which had not picked up that 11,000 companies were registered in a two-bedroom flat in Wales. Actually, HMRC should have picked up on that; had this amendment been in place, maybe it would have done so. There is a history of HMRC not seeking to pursue fraud, never mind money laundering, so the very least we can do is make sure that it has a duty to detect money laundering where it sees it. I am indebted to Richard Allen of RAVAS, who has pretty much run a one-man campaign against VAT fraud and highlighted these sorts of issues. There are clearly other issues in the 2005 Act, but this is an opportunity to plug one very important hole.
Lord Vaux of Harrowden (CB)
My Lords, I will briefly support this amendment. As I said on a previous group, I was surprised to discover that the vast majority of small accountancy firms are not regulated by the Institute of Chartered Accountants in England and Wales, of which I am a member—fortunately, I am not also a member of the Chartered Institute of Taxation.
That majority of small firms are the ones doing the verification under the overseas entity register and will be the authorised corporate service providers. They are, or will be, regulated by HMRC for anti-money laundering purposes, and that is the qualification they need to be able to do the verification. If HMRC is not carrying out this role seriously—which it is not—then all the safeguards built into this Bill on verification become meaningless. It is incredibly important that HMRC’s resolve in terms of its responsibilities as an AML regulator is sufficiently stiffened to mean something for all these ACSPs and the due diligence verifiers in the overseas entity register. Without that, this Bill loses an awful lot of teeth.
Lord Fox (LD)
My Lords, it is true that the Minister is being asked to take on Treasury functions—having first talked about cryptocurrency, we are now dealing with this issue—and I look forward to his response. I, too, support the noble Lord, Lord Agnew, who has been consistent in his theme that, without due, proper and improved enforcement, the Bill that we are spending all these hours debating will have very little effect on the outside world. This is one element of the enforcement story.
The noble Lord’s point is bang on: where there is a finite resource—which, of course, there always is—HMRC will target what it believes benefits the country most. As the noble Lord pointed out, that tends to be tax generation rather than AML functions. For this Bill to be successful, something needs to change to refocus the Treasury on AML issues, as we have heard. If that is not to be the noble Lord’s amendment, what will it be?
Lord Ponsonby of Shulbrede (Lab)
My Lords, I agree with all the points that have been made by noble Lords. When on the previous group the Minister read out the figures recovered, they were derisory compared to the amount of dirty money that it is speculated is washing around the systems for which we are responsible. The whole thing is extremely important. The noble Lord, Lord Agnew, speaks with great authority on this matter. He is an insider and, as the noble Lords, Lord Fox and Lord Vaux, said, this is a way of getting proper enforcement into the Bill so it has proper teeth and so that HMRC can reprioritise not just tax generation but its work against money laundering. We support the amendment.
Lord Sharpe of Epsom (Con)
My Lords, once again I thank all noble Lords who have spoken, and I particularly thank my noble friend Lord Agnew for his amendment. While the Government agree whole- heartedly on the critical role that supervision must play in tackling economic crime, we cannot support the proposed new clause. HMRC already has an anti-money laundering supervisory function, and it takes its responsibilities very seriously. HMRC supervises nine sectors and is already the default supervisor for trust or company service providers when they are not already subject to supervision by the Financial Conduct Authority or one of the 22 professional body supervisors. The proposed amendment would duplicate these provisions and to that extent it is unnecessary. Furthermore, it could make HMRC responsible for all anti-money laundering supervision, potentially cutting across existing regulatory relationships, such as that between the major banks and the FCA. HMRC takes its money laundering supervisory responsibilities very seriously.
My noble friend raised a number of issues regarding face-to-face compliance and so on. He said that the number of face-to-face compliance visits dropped from 1,265 in 2018-19 to just 289 in 2021-22, but these figures are misleading because the overall number of interventions was greater, with the total number increasing from 1,396 in 2018-19 to 3,725 in 2021-22. Although these figures include a mass-targeted exercise checking for business risk assessments and other key documents in 2021-22, the total would still have increased from 1,396 to 2,329 without that. A range of factors caused the variation in face-to-face intervention levels from 2018-19 levels including, as my noble friend noted, pandemic issues, the impact of recruiting and training —I will come on to that in a second—with a large number of new officers and differing resource levels needed to support different types of interventions. In 2022-23, HMRC carried out more than 3,000 interventions, of which more than 900 were face-to-face. It also issued more than 750 penalties to non-compliant businesses and refused more than 400 applications to register. HMRC’s anti-money laundering function is carried out by its fraud investigation service and works alongside other teams in this section and across government and law enforcement to maximise its impact.
My noble friend asked whether it is true that HMRC is failing to meet a legal requirement to register businesses within 45 days of application, with a reduction from 78% to 70% meaning that nearly one-third are operating outside the scope of supervision. Nearly one-third of applicants are outside the scope of supervision while their applications are being determined. Businesses are under supervisory scrutiny during the application process, and HMRC’s risk-based approach means that businesses from the highest risk sectors are prioritised. The highest-risk sectors are money services businesses and TCSPs, which cannot begin carrying out relevant activity until HMRC has determined that they are fit and proper. There are some cases where it is not possible to process an application within 45 days, for example, if waiting for important information from an overseas agency. However, there have been particular challenges that caused delays that HMRC regrets, including issues with its computer system, but I understand that significant progress has been made recently and that HMRC is now much closer to achieving the 45-day turnaround for all but the most tricky cases.
The Government are clear that further reform of the anti-money laundering supervision system is needed, but the best scale and type of reform to improve effectiveness and solve the problems that have been identified is not yet clear. His Majesty’s Treasury will issue a formal consultation on the possible options by the end of June 2023. Implementation timelines will depend on the outcome of this consultation.
My noble friend Lord Agnew and the noble Lord, Lord Vaux, asked about HMRC’s performance as a supervisor. A senior manager independent of the supervision team carries out a robust annual assessment of HMRC’s supervision against OPBAS standards. The process currently under way to deliver the next self-assessment has also involved an assurance team from HMRC’s customer compliance group to add a further layer of scrutiny and independence to the process. This assessment must necessarily highlight any problems and areas where HMRC can improve its supervision. Those issues include needing to recruit and train large numbers of new officers—again, to address the question from my noble friend—and some inconsistencies in performance across the unit. However, the 2021-22 assessment judged that HMRC is effective and compliant in its obligations under the money laundering regulations and as set out in the OPBAS sourcebook, driving up performance despite the pandemic. The assessment also highlighted numerous strengths, including well-structured risk assessments, use of multiple supervisory tools in a risk-based approach and a robust registration process. On recruitment, HMRC’s supervision team is larger than it has ever been now, totalling more than 400 staff.
All this will ensure that the risks and implications of each option are fully understood before the Government commit to any particular model of supervision. Pre-empting this through an amendment of this type risks generating exactly the type of confusion over responsibilities that I think my noble friend seeks to avoid. I therefore hope that he is able to withdraw his amendment.
Lord Vaux of Harrowden (CB)
I have to say that I am becoming increasingly concerned as we go through this process that, every time we raise concerns about things, we are told that everything is fine. That is what we are being told now—that HMRC is doing a really good job of the ML regulation. The truth is that we have massive quantities of money laundering going through the UK market, and in many cases that is enabled by people who are regulated by the HMRC—a lot of the small entities particularly. So there is a problem, and we keep being told that it is not that serious. It worries me substantially that we are not really taking this seriously or trying to solve the serious problem that this country has. We have become a laughing stock and are known as the “London laundromat”. It is embarrassing.
Can I ask a supplementary question? As I mentioned before, the ACSPs are going to be performing the verification processes, which are not actually going to be covered by the anti-money laundering regulations. The people doing it have to be registered with an anti-money laundering regulator, but the regulators themselves do not actually have any process set out for ensuring that the verification processes put in this Bill are covered. How do we bridge that gap?
Lord Sharpe of Epsom (Con)
I have to say to the noble Lord that I did not anywhere say that the Government say that everything is under control and perfectly fine. As the noble Lord will be aware, the anti-money laundering regulations themselves are due to be looked at.
The second part of his question relates to why HMRC does not supervise the TCSPs properly, allegedly —but it does.
Lord Vaux of Harrowden (CB)
I am looking forward to when this Bill goes through and becomes an Act as to the verification processes being put in place by the Bill by the ACSPs.
Lord Sharpe of Epsom (Con)
Ah, the noble Lord said ACSPs—my apologies. I misheard an acronym. In that case, I shall have to write on that, because I do not know the answer.
Lord Thomas of Gresford
“Strategic lawsuits against public participation
(1) It is an offence for a person or entity without reasonable excuse to threaten civil litigation against another person or entity with intent to suppress the publication of any information likely to be relevant to the investigation of an economic crime.(2) A person guilty of an offence under this section is liable— (a) on summary conviction in England and Wales, to a fine;(b) on summary conviction in Scotland or Northern Ireland, to a fine not exceeding the statutory maximum;(c) on conviction on indictment, to imprisonment for a term not exceeding two years or a fine (or both).”Member’s explanatory statement
This amendment introduces a new criminal offence to deal with groundless threats in pursuance of SLAPPS in order to suppress investigations into economic crimes.
Lord Thomas of Gresford (LD)
My Lords, I will speak to my Amendment 80, in my name and those of the noble Lords, Lord Cromwell and Lord Agnew, and the right reverend Prelate the Bishop of St Albans, for whose support I am most grateful.
I will give a little background to set the amendment in context. In the 2021-22 Session, I drafted and introduced a Private Member’s Bill on the issue of SLAPPs, based on the Ontario model, as endorsed by the Supreme Court of Canada. Obviously, I had modified that model to suit the procedures of the civil justice system in England and Wales. Through the noble Lord, Lord Wolfson of Tredegar, I met with the Under-Secretary of State in the MoJ, James Cartlidge MP, and his officials, and had a very positive meeting with them.
My draft Bill was basically acceptable in principle, but there was one matter, they told me, it did not deal with: the scourge of pre-action threatening letters, designed to inhibit and intimidate journalistic or academic investigation. However, I was told that the Government were proposing a consultation on the issue, and indeed there was a call for evidence on 17 March 2022. It was wide-ranging; there were 48 questions asked of respondents. As it happens, not one referred to the issue of threatening letters prior to proceedings. However, one respondent suggested that any pre-action letter should require a statement of truth, so that any false allegations in the letter could be treated as a contempt of court.
The consultation finished in May of last year, and the MoJ published a full response in July. Dominic Raab said in the foreword:
“Strategic Lawsuits Against Public Protection, or SLAPPs, are a growing threat to freedom of speech and a free press – fundamental liberties that are the lifeblood of our democracy. Typically used by the super-rich, SLAPPs stifle legitimate reporting and debate”.
This is the point that I want to draw to your Lordships’ attention—he continued:
“They are at their most pernicious before cases ever reach a courtroom, with seemingly endless legal letters that threaten our journalists, academics, and campaigners with sky-high costs and damages”.
At the Second Reading of this Bill, the noble Lord, Lord Sharpe of Epsom, said:
“The Government are committed to tackling SLAPPs”
—I am sure that is right—
“but as the first country to pursue national legislation on such a complex issue”
—he ignored all the states of the United States, Canada and Australia, where such legislation exists, but never mind about that—
“it is right that we take the necessary time to consider this carefully and make sure we get it right. We will introduce primary legislation to tackle SLAPPs—this is where I am going to upset all noble Lords—as soon as parliamentary time allows”.
Now, I have to admit, I was upset. He continued:
“We are in the process of ensuring that we have anti-SLAPPs legislation which properly and comprehensively addresses the problem”.—[Official Report, 8/2/23; col. 1317]
So when will parliamentary time allow? Certainly not in this Session: it is highly unlikely that it will feature in a programme running up to a general election. So we are looking at years before this legislation can come to pass, although I guarantee that a Liberal Democrat-led Administration would deal with the matter as a priority.
I come to the substance of my amendment. I take the view that the endless stream of threatening letters—the “most pernicious” element, as Mr Raab described it, and really he should know—can be dealt with in the context of this Bill by criminalising their use in the investigation of the crimes set out in Schedule 9. I appreciate that may not cover the whole gamut of strategic litigation, and that a wider Bill will be necessary in due course, but investigative journalism is very much involved in turning over the stones of fraud, money laundering, bribery and the rest, and it is certainly in that area that SLAPPs have most frequently been used.
So the new offence that I propose could not be simpler:
“It is an offence for a person or entity without reasonable excuse to threaten civil litigation against another person or entity with intent to suppress the publication of any information likely to be relevant to the investigation of an economic crime”.
I think that is fairly understandable. The prosecution would have to prove a threat; a solicitor’s letter will speak for itself, and it will be for the jury to decide and judge its contents. Evidence will be necessary, of course, to prove intent, but that raises no more problems than in any other case in which intent has to be proved. Again, it will be a matter for a jury. An evidential burden would be placed on the defendant to raise a reasonable excuse for the prosecution to disprove, and the ultimate burden of proof of guilt would, of course, rest with the prosecution.
I believe that an offence of this nature, simply stated, would immediately result in a change of culture among those reputation lawyers who profited from this type of litigation. Their collective response to the consultation to which I referred was, “Nothing happening here, guv. Threatening? Oh, it’s just the rough and tumble of ordinary litigation”. No longer would the young Turk in the office be able to dash out on his laptop ill-considered threats. He would know that he will have a responsibility to interrogate his client thoroughly before committing his firm to intimidating conduct which would land both him and his senior partners in the dock, with all the reputational consequences for themselves. Further, it would be a great relief to threatened investigative journalists if, instead of having to consult their lawyers at considerable expense, they could make a complaint to the police and allow the criminal law to take its course. We can make this change now and let the great stew of reform of the civil procedure system which is slowly cooking in the MoJ follow “when parliamentary time allows”.
I conclude by strongly supporting the other amendments in this group for the same reasons. These are creating the means to tackle the SLAPPs problem of imbalance, as described in paragraph 15 of the Government’s response to the consultation. This is how the Government put it:
“the extreme power imbalance and inequality of arms between, on the one hand, media organisations, advocacy groups, academics, and journalists and, on the other, Claimant corporations or wealthy individuals who typically bring these cases”.
This group of amendments is designed to do something now—action, as the noble Lord, Lord Agnew, called for on an earlier amendment. I beg to move.
Baroness Stowell of Beeston (Con)
My Lords, I am grateful to my noble and learned friend Lord Garnier for allowing me to speak before him. I shall speak to the three amendments I have tabled in my name. I should declare that I chair the Communications and Digital Select Committee, and I have tabled those three amendments with the full authority of the committee, because they follow the work that we have done over the past year or so inquiring into the practice of SLAPPs. We have also been in correspondence with the Solicitors Regulation Authority, and that correspondence is available on the committee’s website.
My amendments are Amendments 87, 88 and 89. I am very grateful to the noble Lord, Lord Cromwell, for signing all three of them and to my noble friend Lord Faulks and the right reverend Prelate the Bishop of St Albans for signing Amendments 87 and 88. I add, in a personal capacity, that I support the other amendments in this group, both that from the noble Lord, Lord Thomas, and the noble Lord, Lord Cromwell.
At Second Reading, we heard a comprehensive description of the impact of SLAPPs against journalists and public bodies, and the noble Lord, Lord Thomas, has given us a taste of that in his opening remarks, so I will not go over any of that again.
In very simple terms, looking at our different amendments, the noble Lord, Lord Thomas, is tackling this from the perspective of the rich and powerful who abuse the legal system; the noble Lord, Lord Cromwell, is seeking to introduce provisions that support journalists or public bodies in mounting a defence against that action; and, in my amendments, I am trying to deter and prevent solicitors from supporting anybody, normally the rich and powerful, in bringing forward this action in the first place.
In Amendments 87 and 88, I am trying to make it explicit that solicitors cannot accept clients who want to abuse the legal system and avoid and suppress information that could be relevant to economic crime, by giving the regulator clear power to fine and sanction solicitors who breach that rule. They also make it clear that dirty money cannot be accepted for fees when the purpose of the action could prevent someone being subject to the justice system.
To unpack that a little further and focus on those two amendments, at the moment the SRA can fine traditional law firms and solicitors up to £25,000—we know how small a sum that is for some of the very large and powerful legal firms involved. Strangely, the regulator can fine different types of law firms—what are known as alternative business structures—up to £250 million, but this applies only to that kind of category of firm. There is an odd discrepancy. The Solicitors Regulation Authority recently criticised the inadequacy of the £25,000 limit and called for it to be addressed.
My amendments are very much in line with the aims of the Bill, which already removes the regulator’s fining cap for a narrow set of economic crime transgressions but does not specify that this will be applicable to SLAPP cases relating to economic crime. The SRA has said that the Bill’s tests are tightly drawn and the numbers of relevant cases that will fall within them are limited. My Amendments 87 and 88 make it clear that measures to remove the fining cap for professional misconduct also apply specifically to cases that involve an abuse of the legal process to suppress legitimate reporting on economic crime. Not all SLAPPs are about economic crime but, importantly, the regulator says that around half of its current SLAPP investigations are linked to economic crime. Amendments 87 and 88 therefore provide a sensible and proportionate change that supports the spirit of the Bill and government policy to tackle SLAPPs.
Amendment 89 is about closing loopholes that allow the rich and powerful to abuse our legal system and use criminal funds to pay for it. Throughout our scrutiny of SLAPPs as a committee, I have learned that payment for legal advice is not subject to the same type of money laundering regulation checks as other legal services. The Proceeds of Crime Act apparently does not prevent lawyers accepting dirty money to pursue SLAPP cases or require them to report suspicious activity. We have held evidence sessions on this matter and our witnesses described it as a significant issue. Addressing this is complex because—I say this in a Committee of very distinguished lawyers—everyone should have a right to use our justice system and lawyers will need to be able to represent criminals without prejudicing confidentiality. I understand the argument that I expect lawyers to make on the need for criminals to be able to seek proper support and for questions not necessarily to be asked about money.
Lord Cromwell (CB)
My Lords, I, too, support all the amendments in this group, two of which are in my name. I am very grateful to noble Lords who have added their names to my amendments and I have added my name to their amendments, so we are all onside together, I hope.
There are many good actors in our financial and legal systems, and I hope we can take that as a given. However, the need for this Bill and the general welcome it has received from all sides reflects the need to address the dark areas where reform is essential to meet modern challenges. One such is Companies House, which we discussed at length on previous days. Today, we have had money laundering and another, which we have now reached, is the use of SLAPPs—the use of UK legal processes and law firms to harass those who seek to publish public interest information relating to economic crime.
The problem with legislating to prevent SLAPPs, other than the Government’s refusal to do so, has been definitional. Everyone has the right to defend themselves and their reputation, and lawyers have a role in seeing off scurrilous attacks. However, it is widely acknowledged that, increasingly, some actors weaponise the law not to seek redress for unfounded slurs by a legal remedy but to use UK law firms to bludgeon into silence those investigating economic crime and thereby ensure that economic crime remains concealed.
As a senior former Law Lord, who, sadly, is unable to be here today, said to me only yesterday, the legal profession cannot simply be asked to regulate itself. The Government have very limited resources to do so, so we must protect investigative journalists who fulfil the vital function of bringing economic crime into the light.
Acting against SLAPPs belongs in this Bill. In previous days of debate and again today there have been references to the “London laundromat” and similar terms. In some ways, you could argue that the UK has become a market leader in economic crime. It is possible to go on kleptocracy tours, where you drive around London and buildings are pointed out to you—breathtakingly expensive properties derived from unexplained wealth. In April 2022, the National Crime Agency reported that the scale of money laundering in the UK was in excess of £100 billion per year. SLAPPs are an inseparable part of this dark side of our financial industry.
In the same month as the National Crime Agency published its report on money laundering, the Foreign Policy Centre and ARTICLE 19 published the tellingly entitled, London Calling. They have made it clear to me—I do not want to up the ante on the noble Baroness, Lady Stowell—that at least 70% of the SLAPP cases reported to them have a direct connection to economic crime.
It is simply too easy for those with vast resources to deploy UK law firms to impede and suppress economic crime investigations. This is not some nicety or obscure point of technical legal finesse; it has embedded itself in our legal system. It intimidates the weak and it takes over victims’ lives, often for years. Those willing to provide SLAPP services do not just operate against UK targets. Daphne Galizia, a Maltese journalist investigating corruption, was hit with no fewer than 47 libel cases as part of a direct, grinding intimidation strategy led by a UK law firm. As a tragic footnote to her story, when she persisted in exposing corruption, someone decided the intimidation was not working and she was simply murdered.
I will not weary the Committee with further examples. The real point to note here is that, exactly because SLAPPs are so effective, most economic crime information of this sort never sees the light of day. Editors simply cannot take on the costs and risks of resisting such attacks, and newspapers are muzzled in reporting economic crime. In short, the Bill is a welcome opportunity to tackle the ills of economic crime, but one that comes along only very occasionally, as others said in the preceding days.
I have done my best to explain why this Bill is the correct legislation to put into law protection from SLAPPs and thereby remove the stain they place on the reputation of our legal profession, the damage they do to the UK’s rule of law and their use in distorting UK markets. But I should not need to labour these points, for the following two reasons. First, there has been vigorous and repeated cross-party support in both Houses for dealing with SLAPPs. Secondly, as the noble Lord, Lord Thomas, highlighted for us, the Government have repeatedly and specifically declared not only that they are very concerned about this issue but that they intend to legislate to deal with it. However, these declarations have always ended the same way: with promises to act “in due course” or “when parliamentary time allows”. I am sorry, but there is absolutely no sign of it on even the furthest horizon, and the electoral horizon is now getting very close. I hope the noble Minister will take a more engaged approach.
I thank noble Lords for their patience and I now turn to the amendments. The amendment of the noble Lord, Lord Thomas of Gresford, tackles the issue of SLAPPs head on, making it an offence to use threats in this way. The key point of this amendment is that it defines an offence to which the court can apply its judgment, and its existence should discourage the use of SLAPPs. The noble Lord, Lord Thomas, put this across brilliantly. Will the court get it right every time? As in any other area of law, perhaps not, but this amendment would be a great practical step forward.
I turn to the three amendments in the name of the noble Baroness, Lady Stowell of Beeston, which she again put across so well. The use of SLAPPs, as she highlighted, needs action on several fronts to reduce or remove the incentives and dismantle the enabling environment. These amendments would enable the regulatory authorities to act more effectively to punish and deter UK firms from engaging in SLAPPs, first by imposing more meaningful fines on those conniving in the suppression of information on economic crime, and secondly by closing a loophole whereby, almost incredibly, a publication seeking to expose economic crime can face a heavily resourced attack using UK lawyers paid with the proceeds of crime. This is an abhorrent oversight that needs to be ended.
I turn to the two amendments in my name, Amendments 105 and 106. I will take these together as I have already been speaking for some time. Amendment 105 enables a public interest defence for someone investigating economic crime and attacked with a SLAPP. The defence is that their disclosure is relevant to the investigation of economic crime and publication is in the public interest. It provides a basis for a defence but is not a carte blanche for journalists; the court will need to be convinced. I hope the Minister will recognise its value as a basic protection for those exposing economic crime.
Amendment 106 needs a bit more unpacking. It enables the court to strike out all or part of a case that is being used to prevent disclosure or publication of information relevant to the investigation of an economic crime. Now, some may challenge the need for such a provision, saying that the courts can already strike out abusive cases, but while in theory a lawsuit filed for an improper purpose can be considered an abuse of the court's process and therefore disposed of pre-trial, in practice the courts have been highly reluctant to make any such inference.
I hope that the Committee will allow me to summarise why this is the case. Under the Civil Procedure Rules, there are currently two ways to dispose of a claim pre-trial: by filing a motion to strike under CPR 3.4 or a motion for summary judgment under CPR 24.4. Of these two motions, only the motion to strike explicitly provides for disposal of claims that represent an abuse of the court’s process. The associated practice direction explains that an abuse of process includes claims that are
“vexatious, scurrilous or obviously ill-founded”,
but there is no established legal definition for vexatious or scurrilous.
There is some case law that suggests that the improper use of the court process could be considered vexatious and therefore abusive. Does this help? Sadly, not really, because it is very doubtful that CPR 3.4 ever could be used in this way, for two reasons. First, improper purpose has been interpreted by the courts in an extremely narrow way. For example, filing a lawsuit with the sole purpose of financially ruining the target, which is a typical SLAPP tactic, is not considered improper by the court. Secondly, and more broadly, courts are universally and perhaps understandably reluctant to infer an improper purpose on the part of the filer where doing so would lead to the dismissal of the case. The Committee will therefore not be surprised to learn that I am not aware of any SLAPP case which has been filtered out on this basis.
So where else can we turn? Frivolous cases—that is, those that are entirely meritless—can be disposed of pre-trial using the aforementioned Civil Procedure Rules. However, the hurdle for such motions is insurmountably high. A motion to strike requires that a claim discloses no reasonable ground for bringing a claim. A motion for summary judgment requires the defendant to show that the claimant has no real prospect of success. The burden lies on the defendant to meet that threshold. So given the ambiguities inherent in defamation and privacy law, it is therefore exceptionally rare for such motions to ever succeed. I apologise for trying noble Lords’ patience with this explanation, but I hope I have gone some way to outline why in practice existing mechanisms to deal with abusive lawsuits are inadequate to deal with SLAPPs.
Lord Garnier (Con)
My Lords, I begin by confessing to having been at the media law Bar for the past 45 years or so, so I know a little bit, but not a huge amount, about the subject we have been discussing. I want to salute the enthusiasm of the noble Lords, Lord Thomas of Gresford and Lord Cromwell, and my noble friend Lady Stowell of Beeston. As I said at Second Reading, this is a subject that needs to be discussed. It needs a through and very comprehensive debate.
The Long Title of the Bill is:
“A Bill to make provision about economic crime and corporate transparency; to make further provision about companies, limited partnerships and other kinds of corporate entity; and to make provision about the registration of overseas entities”.
Having read that, I go on to admire the ingenuity of the drafter of these amendments to fit them into the Long Title because, whereas there is a debate to be had, and it must be had, about SLAPPs, I question whether this Bill is the appropriate vehicle for that debate. That is a procedural issue.
My second point is that when I began at the defamation Bar in the mid-1970s, the economics of the media world were entirely different. Print media were riding high. They were selling millions of copies. The Sun was selling nearly 10 million copies a day. The Daily Mail, owned by Associated Newspapers, was selling a huge number of copies a day. Social media and online media had not been invented.
I used to be instructed by newspaper groups to go to the Queen’s Bench Masters’ corridor, acting for defendant newspapers, to run up legitimate legal arguments—they were not made up—which were there to starve the claimant, in those days called the plaintiff, out of the claim. The newspapers knew very well that they had a case to answer, but they had more money, so the police officer, schoolteacher or nurse who had allegedly been defamed in the local or national newspaper, unless they had an immensely rich backer, was never going to be able to withstand the onslaught of daily interlocutory applications made against them. Sometimes the master would accede to some of the applications that we made, and sometimes they did not, but the newspaper did not care because it had the cash. The individual—the claimant or plaintiff—did care, and sometimes was frightened off by the prospect of having to spend vast sums of money to recover his or her reputation in court.
The boot is now on the other foot. The print media is impoverished and no longer as rich as it used to be; the regional press is decimated, the local press more or less non-existent, and the national press is under some considerable strain. If you want to make money in the media world, you do not do it by publishing printed newspapers—you do it through the broadcast or online media. What we are now seeing is that those who are in the legitimate, perfectly lawful and praiseworthy business of writing as journalists, and those who publish written journalism in hard copy as publishing companies, are finding it increasingly difficult to withstand the economic might of those who disagree with what they have to say in their newspapers. Do not get me wrong: I entirely sympathise with people such as Catherine Belton, who was sued by various Russians—a range of very rich people. But one would get the impression from listening to the noble Lords who have spoken so far that the courts are weak and feeble arbitrators of the disputes that are before them.
For the last 45 years, I have seen cases struck out—I like the American expression, to strike, that the noble Lord, Lord Cromwell, used a moment ago. For the last 45 years, and long before that, before I was out of nappies, Queen’s Bench judges in the High Court in the High Court in London—and I dare say in Edinburgh and Belfast as well—have been striking out cases that were abusive, vexatious or frivolous. What the courts have to deal with is not just the law but the evidence. Just because a worthy defendant complains that they are the victim in a SLAPP case, the court cannot simply take the allegation on the face of it—it has to look at the evidence. By and large, evidence is something that you get to at trial, albeit it that evidence is occasionally tested at the interlocutory stages of an action.
While saluting the enthusiasm of the noble Lords who have spoken in favour of these amendments and who have ingeniously used this Bill to run the argument, I urge the Committee to be cautious, because the number of SLAPP cases is remarkably small compared to the number of writs issued each year. It is important that this Committee does not mislead the public about the extent of the problem. Legitimate claims have repeatedly been incorrectly described as SLAPPs by the media—but of course the media has an interest in calling them SLAPPs, for the economic reason that I have described.
In the recent case of Banks v Cadwalladr, decided by Mrs Justice Steyn only last year, she said:
“Ms Cadwalladr has repeatedly labelled this claim a SLAPP suit, that is a strategic lawsuit against public participation, designed to silence and intimidate her. I have set out a summary of my conclusions in paragraph 416 below. Although, for the reasons I have given, Mr Banks’s claim has failed, his attempt to seek vindication through these proceedings was, in my judgment, legitimate. In circumstances where Ms Cadwalladr has no defence of truth, and her defence of public interest has succeeded only in part, it is neither fair nor apt to describe this as a SLAPP suit”.
Despite this, Mr Banks’s claim continues to be referred to as a SLAPP by large sections of the media. Of even greater concern is the reference by some journalists to individuals taking out what they call SLAPP orders—whatever they might be—echoing the media’s disingenuous campaign against privacy rights, including by pejoratively referring to privacy injunctions or agreed confidentiality clauses as gagging orders.
I do not want to be misunderstood. SLAPPs are a problem, but their prevalence is wildly overstated, and it seems to me—after 45 years of jogging around this racecourse—that solicitors are unlikely to be complicit in many of them. I rather suspect that more solicitors are dealt with by the Law Society, the SRA or the police for stealing client money than for running SLAPP cases.
Let us please just settle down a bit and not get overexcited by the one, two or three Russian oligarchs who have made an allegation that they have been defamed and who, on the evidence, have sometimes been proven right and sometimes wrong. The essential point is that a dispassionate judge, dispassionately looking at the evidence, will make a dispassionate ruling on what he or she has found, as Mrs Justice Steyn did in the Banks case, and the world goes on.
Being sued is indeed expensive and annoying, and it enables lawyers to be instructed and charge fees—I am afraid that is part of the way we do things in this country—but to suggest that SLAPPs are a plague and a menace just on the say-so of one, two or three cases, of which a number of us may or may not disapprove, does not prove the case. There is much work to be done to look into the question of SLAPPs and much debate to be had, but this Bill is not the place to have that debate. I applaud the noble Lord, Lord Thomas, and other noble Lords who have brought forward these amendments because the matter needs to be discussed, but it is not properly discussed within the confines of this Bill.
Baroness Wheatcroft (CB)
My Lords, the noble and learned Lord, Lord Garnier, speaks as a lawyer. I speak as a journalist, with a long career in newspapers. I declare my interest as chair of the oversight committee at the Financial Times. I assure the noble and learned Lord that the very presence of the possibility of SLAPPs weighs very much on the minds of journalists. As he explained, newspapers no longer have the sort of money that might have funded the types of cases that he described and indeed worked on, but now there are some very important cases that they do need to pursue, and for that reason I very much support all the amendments in this group.
I will give just one example: the case of Wirecard, which was company fraud on a massive scale that cost a lot of people a lot of money. One brave journalist on the Financial Times had pursued the case for a long time, against huge opposition from the company and those around it who were making money from it. His editor was prepared to allow him to continue to pursue the case, at which point the German company hired a well-known London law firm which threatened all sorts of litigation and also criminal proceedings. It accused him, without any base, of having been interested in manipulating the share price of Wirecard in order to make a great deal of money. At that point, the Financial Times was risking a great deal of money and a huge hit to its reputation. The law firm bombarded the company and the journalist with letters threatening all sorts of things, but the Financial Times decided to stick with it. In the end, as we all know, that was the right decision and some people were able to salvage some honest money that would otherwise have been lost to an almighty fraud.
Lord Garnier (Con)
Before the next contribution, I apologise to the Committee but I must be in two places at once. I hope the Committee will forgive me for not being here when other speeches are made and the Minister winds up. If that is thought to be very rude, I shall sit here, and there we are, but if I may, would it be—
Lord Garnier (Con)
It is unprecedented and very rude of me, but there seems to be rather a lot going on at the moment.
Lord Cromwell (CB)
I will take 30 seconds to respond to a couple of the noble and learned Lord’s comments while the rest of the Committee decide whether they are happy. Apart from trying to remove from my mind the image that the noble and learned Lord planted earlier of him in his nappies and thanking him for his kind words, I say that he is exactly the kind of critical friend that we need to get this right. However, to suggest that it does not belong in this Bill, which is about economic crime and transparency, which SLAPPs directly impinge on, is disingenuously playing with words. SLAPPs are embedded in our system and directly relate to economic crime and transparency.
On his reference to there being very few cases, I made the point earlier that most cases never see the light of day because people are intimidated. That is exactly the point here. Our courts need defined tests to examine potential SLAPPs and sometimes say “That is not a SLAPP”, and sometimes say, “That is a SLAPP”. Some egregious cases will get that treatment. As my colleague to my left said, it is the threat of the sheer cost of getting to trial, along with all the other intimidatory tactics, such as of truckloads of documents turning up at your house on a Friday night, that we need to dissuade law firms pursuing.
Lord Lipsey (Lab)
My Lords, I hate to intrude on disputes between lawyers, even though the lawyers in this case seem to be on different sides. Like the noble Baroness, Lady Wheatcroft, I will intervene briefly as a journalist. At times, I was deputy editor and had charge of all the libel cases that came before us. In truth, there was an inequality of armaments. We had wonderful lawyers in-house, Mr Murdoch’s very deep pockets and an evidential base which would normally have been compiled by a journalist working to good standards. Many of the people wanting to sue us were not in that position at all; they took offence at something, whether it was right or wrong, but if the paper took a hard line, then they would go away.
We need to emphasise that the world has changed. Not only—and this is a perfectly valid point—are newspapers poor, but there are a number of extremely unscrupulous, very rich people, be they Russian oligarchs or any kind of oligarch, who are prepared to try anything they can to get a journalist or, even better, to stop the journalist publishing. I admire the courage of the FT in going ahead with the case the noble Baroness, Lady Wheatcroft, mentioned. I do not think many editors would have been so brave. This is the modern world. I am always disappointed when I find that legal firms are willing to go along with this kind of stuff.
There are not many laughs in the committee chaired by the noble Baroness, Lady Stowell—not because of her, as she is an admirable chair, but because the subjects of the committee do not lead to a lot of laughs. However, I laughed out loud when I found that the maximum fine that can be applied by the Solicitors Regulation Authority is £25,000; that does not buy you a coffee with a decent KC any more. It is a different world with the people who are operating in it now.
I shall conclude as the noble Lord did. We have heard that it will take years before anything happens. It will not be this year because we are in recession, nor next year because there is a general election coming up; so it will go on, and those who are against making the change will continue their lobbying. We now have an opportunity, by the ingenious use of this Bill by the noble Baroness, Lady Stowell, to force action now. We should seize it.
Lord Agnew of Oulton (Con)
I support Amendment 80, tabled by the noble Lord, Lord Thomas, and the amendments tabled by my noble friend Lady Stowell and the noble Lord, Lord Cromwell. I think there is a strong consensus—I will come to my noble and learned friend Lord Garnier’s point in a moment—that we should not just keep kicking this can down the road.
To give the Committee a little perspective, we are dragging our feet relative to the rest of the civilised world. The EU took steps a year ago to propose an anti-SLAPP directive and 34 US states already have anti-SLAPP laws in place. The need for reform is urgent. The figures put forward by the Foreign Policy Centre and members of the UK Anti-SLAPP Coalition show that SLAPPs are on the rise and that the UK is the number one originator of abusive legal actions. In fact, the UK has been identified as the legal source of SLAPPs. It is almost as frequent a source as all European Union countries and the US combined. That is the reality.
On journalists, obviously I defer to the noble Baroness, Lady Wheatcroft, who has been in the hot seat herself. They play an important role in transparency and in shining a light on bad behaviour. We have heard before in this debate and in other committees about the Azerbaijani laundromat, which was investigated by the NCA only following the light that journalists shone on it.
I think my noble and learned friend Lord Garnier is misled in that the vast majority of these cases never get to court. They are invisible, other than to the person who has been subjected to that action. I can speak with some passion on this because it happened to me only a year or so ago by an organisation that had received billions of pounds of public money. The implication in the letter I received was essentially a SLAPP, so I had to take a view. No lawyer ever heard about that, let alone a judge. That is happening on a far more regular basis than people are prepared to accept.
We come to the last part, which the noble Lord, Lord Thomas, and others have talked about—that there is not enough room in the legislative calendar to get this done. But here we are: we have an economic crime Bill on the books, whose drafting work has been done by very clever people—at least as clever as parliamentary draftspeople. Surely, they and the Peers in this place can get together to get the right clauses and then we will have done it. I get so frustrated about this. The Government seem so feckless in not getting on with it. What is the excuse? It is crystal clear to any thinking person that we need to have some legislation on the statute book to contain this.
Of course, there must be safeguards against reckless accusations that damage the reputations of decent people and the right to recover costs where that happens. But, as we heard from the noble Lord, Lord Lipsey, and the noble Baroness, Lady Wheatcroft, the reality is that there is an asymmetric warfare going on today which is completely different from anything that existed probably 20 years ago.
Here we have the chance for a clause that is well drafted—although I am a non-legal person—by the noble Lord, Lord Thomas, with supporting clauses from my noble friend Lady Stowell and the noble Lord, Lord Cromwell. Why will the Government not sit down and have a proper, grown-up conversation about doing this? As the noble Lord, Lord Cromwell, said, please do not just fob us off with, “No, we’re not going to do it. Withdraw your amendment”. I am prepared to have a fight about this on Report and to lead a Division in the House, because I am sick of it. It is time for this Government to wake up from their complacency and always looking to delay until we do not exist any more. I strongly support these amendments and I hope the Minister will have a credible answer to the question of why they are not getting on with it.
Lord Thomas of Cwmgiedd (CB)
My Lords, I will make one or two brief observations, because almost everything that could be said has been said.
First, it is important to distinguish between the threat of litigation and the use of litigation. If you look at the threat of litigation, the arguments so powerfully put forward by the noble and learned Lord, Lord Garnier, go away. Going back more than 30 years, the late Captain Robert Maxwell MC was the past master in the use of threats. It was the courage of Bronwen Maddox of the Financial Times and her then editor that exposed him. She did not have to undergo an examination of what had happened because he died at almost exactly the same time. When people say, “This is very difficult. We need more time”, I say that we have had 30-plus years to deal with it.
Secondly, the problem of the use of litigation is, in a sense, a separate issue. As the amendment in the name of the noble Lord, Lord Thomas of Gresford, makes clear, it is important that this is looked at separately. Most urgent is dealing with the threat. I very much hope that the Bill will also deal with use, but that involves different considerations because, by that stage, you will have involved a court and the balance between the actions of the court and the regulator is more difficult.
However, saying “This is all very difficult” is no excuse for delay. This is damaging to the UK, and things have got worse in 30 years for two reasons. First, most lawyers jealously guarded their reputation, but I am afraid that a number now take the view that any publicity is good publicity and they do not guard their reputations as carefully as they once did. That is not true of many, but a few take that view. Secondly, the cost of litigation has escalated out of all proportion to the position 30 years ago.
In response to, “This is all too difficult. We need more time”, I say that we have had 30 years. Even for the Ministry of Justice, that is a very long time. At times I felt that it could be said of the Ministry of Justice what was said of Philip II of Spain: if death came from Spain, we would all be immortal. Let us therefore hope that the ministry will engage with this and get on with the matter.
I want to make one final observation. There is always this very real problem of lawyers using funds. However, the fact that it is a real problem means that we should investigate it and not just put it in the “Too difficult” box. I am afraid that the Ministry of Justice has too many large “Too difficult” boxes as an excuse for inaction, and the time for inaction has ended. I am very glad that the noble Lord, Lord Agnew, has taken the view that this is something on which we must make progress.
Baroness Bennett of Manor Castle (GP)
My Lords, it is a pleasure to rise to take part in this debate, which has been rich, full and powerful. I will seek not to repeat anything that has been said but simply to make a couple of points.
First, I offer the Green group’s support, showing that we have the broadest possible political support in your Lordships’ House for this approach. I also want to address the use by the noble and learned Lord, Lord Garnier, of “ingenious”. These amendments are not ingenious—they are obvious, reflecting an obvious step. It is interesting that a number of Members of your Lordships’ House, operating so far as I am aware entirely independently, have collectively brought together a group of amendments that forms a quite complete package. I am happy to accept that we can work on the detail, and I very much join others in wishing that the Government will work on the detail, but the package is there, approaching this issue from different angles.
I bring up a point made by the noble Lord, Lord Agnew, in the previous group, which reflected on the failures of HMRC to deal with money laundering. That is just one element of the way in which our institutions that are supposed to be taking on economic crime are simply not up to the task or resourced for it. I join the media crew here as a former newspaper editor, which is the perspective I come from. In many of the worst cases, as the noble Baroness, Lady Wheatcroft, outlined earlier, it is not law enforcement or HMRC that uncover situations that bring gross abuses and crimes to public notice but journalists and NGOs bravely stepping out to expose what is happening. The Government are not capable of doing that, and we desperately need the fourth estate to take those actions. It fills a gaping hole which otherwise will not be filled, and crimes will not be exposed if the media and NGOs are not in a position to do this.
I think the noble Lord, Lord Cromwell, referred to an important report from the Foreign Policy Centre and Article 19. Last night an event in the Houses of Parliament looked at an updated report that they had prepared called London Calling—a very timely event. To look at some of the contents of the report, it says that the UK is
“a leading jurisdiction for domestic and trans-national SLAPP cases”.
A 2020 study by the Foreign Policy Centre found that 63 journalists working on financial crime and corruption in 41 countries identified the UK as the leading international jurisdiction for legal threats. I also make the point—it was made by others, but it needs to be driven home—that this report notes that the use or threat of SLAPPs “rarely make the public record”. So, although the noble and learned Lord, Lord Garnier, says this is just a handful, it is the tip of an iceberg of people using the UK legal system for criminal purposes. It is not exposed, but we know that it is there.
I will make two final points. The world knows that that issue is there. If we think about the geopolitical state of the world now, this is broader even than the financial impacts. I note one estimate of the cost of worldwide economic crime: $274 billion. There is the financial cost, but also the impact in a world where the rule of law is under consistent attack, where we see not just individual oligarchs or kleptocrats but entire nation states attacking the rule of law. The UK is putting itself in a far weaker position by being the home where the kleptocrats, oligarchs and those states are able to use the law as a weapon.
Finally, we have mostly referred to the traditional mainstream media. Looking at the range of organisations involved in the initial launch of the Foreign Policy Centre and Article 19 report, on the panel were Tortoise Media, Open Democracy and English Pen. This concerns some very small, brave organisations with very few financial resources; it is not just the old legacy media, which still have some financial resources left. We have people stepping up to the plate. We think about London, but we have also seen a real rise of quality regional media in places such as Manchester, Liverpool and Sheffield, where local media is stepping up and doing investigative journalism. They have almost no resources to be able to take on the threats; they need legal protection, so this needs to happen at all levels. Your Lordships’ House has come up with a package that takes us a long way towards where we need to be. We must get there now. As many others have said, we cannot wait.
Baroness Altmann (Con)
My Lords, I add my support to my noble friend Lady Stowell’s Amendments 87, 88 and 89 and congratulate her and her committee on their work. I also support Amendment 80 from the noble Lord, Lord Thomas, and Amendments 105 and 106 from the noble Lord, Lord Cromwell. As I said at Second Reading, this is a vital issue that must be covered in this Bill. In this group, we are discussing threats and lawsuits whose intention is to silence, intimidate or censor critics such as investigative journalists. So often, as the noble Baroness, Lady Wheatcroft, explained so well, they stem from economic crime.
This issue is not just about actual lawsuits. As others have said, often the matter will start with a threatening letter or even a phone call, which is enough to stop journalists or investigators from pursuing inquiries. That is why so few SLAPPs have come to court. I respectfully disagree with my noble and learned friend Lord Garnier on whether the few cases are any indication of whether this legislation and these amendments are required. These threats and vexatious potential lawsuits threaten not just journalists, campaigners, authors or academics but everyone’s rights in this country. They limit the rights of the public to have matters exposed, such as bribe-taking, poisoning water supplies with toxic chemicals, or general economic wrongdoing, which falls squarely within the remit of this Bill. Our courts are supposed to be there to protect ordinary people and small companies without large resources against those with more power, money and influence. Without these amendments, that protection will be fundamentally weakened when we have an opportunity to strengthen it.
I am not a lawyer, but Amendment 80 seems sensible to me. I believe that the Law Society supports judiciary-led gatekeeping. Amendments 87, 88 and 89 from my noble friend Lady Stowell seek to remove the incentives to issue these kinds of threats by introducing properly meaningful fines and intend that payments should not be able to come from the proceeds of economic crime. Again, that seems eminently sensible. I will listen carefully to my noble and learned friend but, equally, I urge him to listen carefully to the powerful arguments across all sides of this Committee and either accept these amendments or introduce his own.
Lord Vaux of Harrowden (CB)
My Lords, I am not sure whether I can speak to this, being neither a journalist nor a lawyer. I am very sympathetic to what these amendments are trying to do. It must be right to try to prevent the abuse going on. However, I confess to feeling some niggling doubts. Journalists do not get everything right, and there are those who are not above embellishment or exaggeration. The balance of power is not only one way. A small company or individual may well find themselves up against a large media organisation, for example. Whatever we do, we must not make it harder or more expensive for innocent parties to defend themselves from unfair reporting, pre-emptively if necessary.
There is a balance to be found, and I am not yet convinced that these amendments quite reach it. That said, I agree that there is a problem with the current situation. It is being abused, and we need action sooner rather than later. So let us have the discussion and get something into the Bill. If not now, when?
Baroness Stowell of Beeston (Con)
I shall just add briefly a comment before we get to the wind-ups, in response to something that my noble and learned friend Lord Garnier said when he urged us not to overstate the problem of SLAPPs. I just wanted to make two brief points.
One has been made by many people already, which is that in fact, when it comes to SLAPPs we do not really know the scale of this problem, because so many of these cases never make it to a court of law. I wanted to make a second point in response to what my noble and learned friend said about not seeking to overstate the problem, and his questioning my and others’ ingenuity in bringing forward amendments in the Bill. My understanding of the reason for the Bill is that economic crime is a real problem. So, if we are legislating because that is the real problem, and we are aware that some of the most significant perpetrators of economic crime have ways of preventing the evidence that would lead them to be potentially subject to the justice system because they operate in that kind of market, as it were, surely we ought to seek to close that gap. Whether or not the number of them that might qualify under that heading is large or small, there is a gap. As I say, the objective here is tackling economic crime, and our amendments are only about economic crime.
I understand very much that the broader question of SLAPPs will have to be returned to, because the whole issue of SLAPPs cannot be addressed in an economic crime Bill. However, my amendments and others in this group are trying to make sure, in the context of economic crime, that those who may be the most significant perpetrators of it on a large scale have nowhere to hide.
Lord Fox (LD)
My Lords, this has been a fantastic debate and I will not add any pearls of wisdom and substance, but I would just like to just say something about process in response to the noble Lord, Lord Agnew. In the event that the Government are unable to satisfy what I think is the strong view of your Lordships that something needs to be done, I think we can pledge that the noble Lord, Lord Thomas, and I will work well within our own group to make sure that the comments of the noble Lord, Lord Agnew, about pushing this further on Report will certainly have some legs from our point of view.
Lord Cromwell (CB)
I will just add a word, first to the noble Baroness, Lady Stowell. The fact is that most SLAPPs are related to economic crime, and I think she was being a little modest perhaps in that area. This would certainly be a very good start—half a loaf is better than no loaf, and all those sorts of aphorisms. Colleagues who have spoken around the House have left me feeling quite optimistic, much more than I expected, I have to say, but then a pessimist says that things could not be any worse, and an optimist assures you that they can.
I am heartened in particular by the comments from some of the far heavier-weighted legal minds than mine—I am neither a journalist nor a lawyer—and by their willingness to grip this. There are definitional and other issues involved here, but if I may quote my colleague, they are difficult but doable. We ought to take that to heart.
My question is whether the Minister will rise to the challenge of working with us. This is not a question of us putting something up to be shot down; it is an offer to work together, drawing on the resources of this House, to put this right in the Bill, which, as we have exhaustively explained, is its natural home.
Baroness Blake of Leeds (Lab)
I thank everyone for the extraordinary debate that we have had on this issue today. I continue in the vein of looking for optimism in the outcomes of some of the discussions that we have had. I pay particular tribute to Members of this House who have joined Members of the other place in relentlessly pursuing this issue, to the extent that there is now a far greater understanding—not only in Parliament but in the wider country and the communities particularly affected—about the issue of SLAPPs, which perhaps a year or two ago was not understood at all.
To start by going back to the very basics, SLAPPs are, as we know, strategic lawsuits against public participation, abuses of the legal system, generally by the super-rich—and, it is important to remember, they are intended to harass, intimidate and financially and psychologically exhaust one’s opponent. I am not sure that that element has quite come through, although everyone is fully aware of it. We have talked today about this practice being embedded in the system and its close relationship to the scourge of economic crime. In other debates that we have had on the Bill so far, we have highlighted the real extent of economic crime facing this country. All of us have an obligation and commitment to come together to work out how we are going to deal with it.
As we have heard, the use of SLAPPs has been linked to Russian oligarchs. That is inevitable, given what has happened over the past year, particularly with regard to looking at ways to prevent journalists from reporting on their links to economic crime, with particular reference to the war in Ukraine. As we have seen, SLAPPs are not only used by those committing economic crime, but the amendments proposed here narrow the definition to those concerned with suppressing information on economic crime. The wider point which we need to take on board is about the serious concerns that SLAPPs are now being used to suppress democracy globally. It is important to put it as far as this.
I am sorry that the noble and learned Lord, Lord Garnier, has had to go, but I would like to say to him that his attempt to reassure us on the numbers has not had that effect at all. It has been clearly stated that the small numbers that reach court highlight and emphasise the problem that we have.
I shall go on to ask the Minister to comment on the view coming from the other place that SLAPPs are under a separate jurisdiction and therefore should be under a separate Bill. We have heard some great arguments as to why we should look at these amendments seriously and incorporate them into this Bill.
I thank all noble Lords who have spoken to their amendments and clearly given us a full understanding of the purpose behind them and how they will contribute to the overall objective. From our position on these Benches, we look forward to engaging in full and detailed conversations as to how, as I suspect will be necessary, we present further amendments on Report. We support the principle of the Government bringing forward effective legislation and will continue to call out this issue wherever it occurs, whether on this estate or elsewhere, when anyone in a position of influence puts undue pressure on someone to make sure that important matters do not see the light of day.
I want to highlight some of the reasons why feelings are running so high. We need to understand and remember the severe power imbalance between the claimant and the defendant. In this context, journalists and media outlets are put at a disadvantage from the outset, as we have heard today. Defending a legal case can, as we know, be prohibitively expensive and a huge drain on resource. As we need to emphasise every time we speak about this, SLAPPs can create significant financial jeopardy for journalists and media outlets, with legal costs starting to accrue long before cases get anywhere near reaching court.
Putting ourselves in the place of those who have been subjected to this, I think that the process of defending a legal case in this sphere can feel like punishment: a fear of devastating financial impact, potential loss of savings, their homes, pensions and livelihoods if a case goes to court. The effort in putting a case together involves massive distraction from the work that people are trying to do. As others have said—it is a serious charge but one we should take seriously—this is having the impact of undermining the basis of democracy.
We have talked about how libel laws in the UK are weighted, but we also need to emphasise the issue of libel tourism. It remains an issue in the UK. The bar to bring a case here is problematically low, and the use of privacy and data protection laws is increasing. We need to consider that SLAPPs in the UK are often pursued against individuals rather than the organisation they work for, which undermines the resources available to mount an adequate defence.
One of the themes running through all our discussions on the Bill is the reputational damage to London and, therefore, the country. London’s obvious position as a global hub for the super-rich has compounded the problem. We must make sure that clients cannot use threats of legal action to clean up their image and remove unfavourable information from the public domain. There has been insufficient recognition by the UK Government and official bodies of the connection between protecting media freedom and countering corruption.
Returning to the personal, I suggest that other factors include the psychological impact of intimidation and harassment on those subject to legal challenges. That has not been sufficiently recognised, and such things lead to a massive impact on mental health.
Will the amendments before us today tackle those issues? I think that is a subject for further discussion, but the main question that has been put repeatedly from across the Committee today is whether the Government are serious about measures to end these practices. We had some optimism in July last year when there seemed to be a commitment that legislative reform measures would come forward, but where are they? Are they being moved forward? Will the Government follow through by supporting the measures proposed in amendments to the Bill?
We have heard that this is a serious issue. It is urgent for so many reasons that we have discussed today. My last question for the Minister is: will the Government take this opportunity to act, recognising how urgent the situation is, and meet with us to discuss ways that we can move this important matter forward?
The Parliamentary Under-Secretary of State, Ministry of Justice (Lord Bellamy) (Con)
My Lords, I warmly thank all noble Lords who have spoken in this debate and who have spoken to me directly on this issue. I also thank noble Lords for the enormous amount of thought and consideration that has been put into this issue by those who have spoken. There is significant strength of feeling across the Committee on this important issue. I begin by providing an assurance that the Government share those concerns and that it is clear to the Government that we should take legislative action against SLAPPs. As the Government have set out, for many reasons that have been mentioned in this debate, we are firmly committed to legislating effectively, comprehensively and without undue delay on this issue.
Noble Lords will not necessarily be entirely happy when I say that we do not think this Bill is the correct vehicle for tackling this issue. There are essentially two reasons for that. One is that here we are dealing with economic crime. I take my noble and learned friend Lord Garnier’s technical point about the scope of the Bill, but the major issue here is that, even if we were to put in an amendment to this Bill, it would still be too narrow because we are not covering matters that are not economic crime, such as freedom of expression, political interference, national security and so forth. The Government’s preference would be to handle the entire landscape of SLAPPs in one place, and that is not this Bill.
Lord Agnew of Oulton (Con)
The Minister talks about introducing some SLAPPs legislation “without undue delay”, but there is no possibility of a timetable to introduce that. We are only 15 or so months away from a general election, and the legislative timetable is jammed solid already. There is no fixed slot for it to come in. I utterly reject the idea that the Government want the perfect to be the enemy of the good: “We are going to do everything in one Bill”. Why not do this bit now, which will take very little parliamentary time? As the noble Lord, Lord Cromwell, said, it will deal with probably 80% of the problem, because we know that shutting down debate on economic crime is probably our biggest problem. When in 10 or 15 years’ time—this point was made by the noble and learned Lord, Lord Thomas—the Government finally find the perfect moment, although some of us will be dead by then, they could then repeal the relevant clauses of this Bill and do it all in one bit. But I utterly reject the pathetic excuse that this is not the right moment. I ask my noble and learned friend to be a little more straightforward in his commitment.
Lord Bellamy (Con)
My Lords, I entirely understand the frustrations felt by my noble friend Lord Agnew and others. It is not to be ruled out that we could find an appropriate legislative vehicle for this matter before the next general election. That is not to be ruled out. However, I cannot today go further than to say that this issue will be brought forward by the Government when parliamentary time allows. That is normally a long-grass phrase—kicking it into the long grass. I regard it today, and say it today, as a short-grass phrase because I am not at the moment giving up on having legislation relatively soon, but I can give absolutely no commitment on that matter.
Lord Thomas of Cwmgiedd (CB)
I ask the noble and learned Lord, as a little test of this commitment, is there is a draft Bill? If there is one, his assurance is really wonderful but, without one, is it not just a phrase for the long grass?
Lord Bellamy (Con)
I can tell your Lordships that the Government have not been idle in preparing possible drafts to deal with this matter, and I am very happy to keep in close contact with noble Lords between now and Report on progress and to discuss as widely as we need to how we should approach this matter.
Lord Cromwell (CB)
What the Minister is saying is potentially helpful. His initial statement was almost verbatim what we got at Second Reading and in previous Bills. I could almost set it to music now, I have heard it so many times, but we seem to be getting somewhere. Will he clarify whether he is happy to continue discussions with us about these Bills, which, apparently, the non-idle Government have been working on or about a possible amendment to this Bill? Will he clarify which one we are addressing here?
Lord Bellamy (Con)
It is the former. The second point here is that the Government are not happy, for reasons that I shall now, I hope, go into a little detail about, about the actual amendments being proposed here. I preface that by saying that we should not overlook the fact that there is one enormous conceptual issue behind all this, which is the question of access to justice. This is probably the first time that anyone has ever legislated against someone bringing something to court, which is something that we need to stop and think about. Where is the balance? If I may say so, reference has been made to the rule of law, and it is somewhat ironic to say that we must uphold the rule of law by penalising someone who seeks access to justice. That is a very difficult area, and we need to find a balance. The Government would like to explore further how that balance is to be found because, in the Government’s respectful view, it is not yet found in the amendments before the Committee today.
Lord Cromwell (CB)
I think that we are actually in agreement on that, and I hope that I made it clear earlier that what we need to do is to work together to get this right with critical friends, including the noble and learned Lord, Lord Garnier, who will bring a forensic examination of whether the work is right, but I go back to an earlier comment that this is difficult. Yes it is, but it is not impossible.
Lord Bellamy (Con)
I entirely accept that it is not impossible and, to take the phrase of a noble Lord earlier, that it is actually doable. I think that it was the noble Lord, Lord Cromwell, who used that phrase.
Baroness Bennett of Manor Castle (GP)
My Lords, I was hoping that someone with a great deal more legal knowledge than me would rise to speak, but I feel that I need to challenge the Minister’s comment that this proposal is unprecedented. Other noble Lords will be able to say more, but we have a process of law about vexatious litigants who are unable to bring cases. There is a whole set of rules there, and there are rules in the family courts that eventually stop cases being brought. So it is not the case that this is something that has been miraculously conjured out of the air that does not exist in any form whatever in the legal framework.
Lord Bellamy (Con)
My Lords, on that last point I had primarily in mind the amendments that seek to criminalise bringing cases before the courts, which is the subject of some of the amendments.
Lord Fox (LD)
I am sorry. I appreciate the access that the Minister is giving us. I am really following up the point that the noble and learned Lord, Lord Thomas, made. The Government are not being inactive. Can the Minister tell us how many people are in the dedicated team that is currently pursuing this issue? It is complicated, as he pointed out, and Government do want to get more depth on this, so how many people are now working on this, and when does he think they might actually come up with something that could then go into a draft Bill? In a sense, what is the timetable and what is the amount of horsepower that is going into that timetable?
Lord Bellamy (Con)
I am afraid I cannot give the noble Lord a timetable. I cannot tell him how many people are working on it, but I can tell him that important work is being done. I am not in a position, and I very much regret that, to go further than that today, but I am prepared to keep in close touch with your Lordships between now and Report to share progress and thoughts on whether there is a legislative vehicle that can conveniently—and soon—be introduced.
Lord Cromwell (CB)
I am sorry. I will press the Minister a little more on that. When will we first hear from him on that update on progress?
Lord Bellamy (Con)
Can I write to the noble Lord, Lord Cromwell, on that point?
Baroness Blake of Leeds (Lab)
Can I ask that we are all included in the correspondence?
Lord Bellamy (Con)
Absolutely. I will write to everybody after this debate and try to elaborate a little on what I have said. I hope noble Lords understand that in terms of my boss, I recently had a change of personnel, and it takes a little while to allow the dust to settle, if I may put it like that.
The only other thing I would respectfully draw noble Lords’ attention to, and I fully accept there is a certain amount of controversy as to how big this problem is, is that the Solicitors Regulation Authority issued a warning notice on 28 November 2022, which led to that authority undertaking investigations in relation to SLAPP complaints, so we are not without a regulatory instrument to at least hold the line until we are able to legislate. That, as far as one can tell, has had a salutary effect on the practical consequences of SLAPPs. It is not the case that nothing has been done.
Lord Thomas of Gresford (LD)
My Lords, the Minister said that the amendment which I have put forward criminalises access to justice. It does not do that; it criminalises a threat of litigation that is unwarranted and known to be unwarranted without reasonable excuse. It is perfectly simple, but I would be very unhappy to leave this Room today with the thought that the Minister has in mind that my amendment is criminalising access to justice.
Lord Bellamy (Con)
My Lords, perhaps I expressed myself a little loosely. Let me put it like this: in the Government’s view, this is not an area where we should introduce the criminal law, whether it is in relation to pre-litigation or in any other respect in terms of litigation. One is faced with a very basic question of when is something that is a robust and justifiable approach to litigation in a pre-action letter a threat. That is not straightforward, in the Government’s view. The Government’s view is that this is not a matter where the criminal law should intrude.
Baroness Stowell of Beeston (Con)
My Lords, I am sorry to interrupt my noble and learned friend, but his reference to the Solicitors Regulation Authority prompts me to ask him a couple of questions. He makes reference to access to justice and to the Government being nervous about legislating in a way that would call that into question. As I said at the start, the amendments that I have tabled, Amendments 87, 88 and 89, are directed at the Solicitors Regulation Authority. As my noble and learned friend has already said, it issued a notice recently to reinforce the fact that this kind of activity is unacceptable.
My amendments seek to codify that yet further and give it the power, which it does not feel it has sufficiently clearly in law, to act when a solicitor is conducting themselves in a way that could be supporting somebody trying to prevent proper inquiry into what could be economic crime. I am struggling because I understand the argument my noble and learned friend is making about parliamentary time and the Government wanting to legislate for this in the round, but I also know as a former business manager that it is very difficult for any individual government department to be confident, even if it wants and hopes to be able to legislate in the way he is indicating that he and his department do, because the timetable is not in its control.
There is frustration in this context because we know that this is about only economic crime and that we are proposing amendments that would tackle only economic crime, as the noble Lord, Lord Cromwell, has said several times—maybe this is a bigger issue than even the SRA is telling me. This would make a difference none the less. In my humble view—I am not a lawyer—I do not think we are proposing anything that would limit people’s access to justice. When my noble and learned friend goes back to his department, even if he cannot make any kind of commitment at the Dispatch Box today, which I understand, could he at least have a conversation with others that is a bit more open-minded than his colleagues seem to have been on this matter up to this point?
Lord Bellamy (Con)
I thank my noble friend for that intervention. I can certainly have that conversation. I do not want to give the impression that the Government are close-minded. We are very prepared to legislate and have said that we are willing; the question is finding the right vehicle. I will deal with my noble friend’s amendments in a moment. When I said a moment ago that there are issues around access to justice, I meant no more than that. We have to be very careful in talking about approaching a court and whether that is in some way unprofessional, subject to sanctions or otherwise criticisable.
As far as the Government can see—if I may think aloud—there are probably two essential mechanisms to deal with this, one of which is in part reflected in some of these amendments, although the Government would not entirely agree with how it is put. One is an early disposal mechanism and the other, critically, is a cost protection measure so that people are not exposed to costs. As has been said many times, the risk of having to pay the costs is the real imbalance. Those are two general thoughts that, I hope, illustrate that the Government are not closing their mind to this. We are thinking about it and hope to come forward with a comprehensive, balanced solution, but today I cannot say exactly when.
With that background, I will deal with the specific amendments, which the Government are sympathetic to but cannot accept. On Amendment 80 from the noble Lord, Lord Thomas, as I have already said, new criminal offences should be created with care. That is especially true when targeting professionals with responsibility for assisting persons to achieve access to justice. There is a risk of inadvertently undermining access to justice in that way and the Government’s view, as I have said, is that a criminal approach in this area is not correct and would in any case create quite a lot of difficulties around proof beyond reasonable doubt, the concept of reasonable excuse, et cetera. Criminal offences need to be clear and we are very reluctant to see a new criminal offence created. That is our position on Amendment 80—it is too far-reaching. On that basis, I ask the noble Lord, Lord Thomas, in due course to withdraw it.
Baroness Stowell of Beeston (Con)
Briefly, I urge my noble friend to look at the correspondence I have had with the SRA specifically about the Bill. The SRA makes it clear that what I am proposing by way of these amendments would give greater clarity to the fact that SLAPP cases which relate to economic crime would also not be subject to the current cap but would benefit from that cap being lifted, which the Government are seeking to do. To put it another way, my amendments are trying to make sure that the intention of what is already in the Bill is achieved in the way that the SRA is asking for.
Lord Bellamy (Con)
Indeed. I respectfully suggest to my noble friend that she may have copied the letter to which she refers to the Home Office and the Ministry of Justice recently.
Baroness Stowell of Beeston (Con)
It was also copied to the Minister’s office.
Lord Bellamy (Con)
Indeed. I suggest that I meet with my noble friend and we go through it with a fine-toothed comb. I am happy to meet with anybody else who wants to go through particular amendments with a fine-toothed comb and see where we are, because there is no point in arguing about things where we are ad idem.
The same point arises on Amendment 89, which relates to POCA—I pronounce it “poker”, but others pronounce it “pocker”—and Section 327 of that Act. Amendment 89 aims to stop corrupt claimants using their criminal property to pay their legal fees. Our view on Section 327 of POCA is that that is already effectively covered because it makes it a criminal offence for anyone to convert, conceal or transfer criminal property, so the payment for legal services using criminal property is already a crime. I am led to believe that the Solicitors Regulation Authority will shortly publish new guidance on the application of POCA in relation to solicitors’ responsibilities in that respect. So our position on our amendment is that it is already covered, but again, let us discuss this in detail so that we can get it right. Formally speaking, for those reasons I ask my noble friend in due course not to press her amendment today.
I am grateful to the noble Lord, Lord Cromwell, for his Amendments 105 and 106, and for the care and attention that he has devoted to this. Again, the Government’s position is that these amendments do not quite cut the mustard, if I may put it that way.
As drafted, Amendment 105, which seeks to create a new defence, would cut across several other areas of jurisprudence. There is a common law public interest defence for a breach of confidence, and a very careful balancing, in Section 4 of the Defamation Act 2013, as to when you can have a public interest defence in defamation cases. This kind of provision should not be rushed through without a careful examination of its side effects on other legislation and potential unintended consequences. Neither does the amendment quite attack what the Government would suggest is the main problem, which is not whether you have a defence but whether you have the money to fight it in the first place. You need some cost protection to be built into the SLAPPs framework.
The same point applies to Amendment 106 on the power to strike out. There are already powers to strike out, and the noble Lord makes it clear that we need to clarify those powers—but one cannot get away from the fact that, typically speaking, a strike-out application is very expensive and complicated, because you are trying to throttle a case at the beginning and the court is having to go through a great deal of work to get there. In the end, a strike-out will probably not be effective in achieving what the noble Lord seeks to achieve. We share the objective, but we are not sure that this is the right way to do it.
While we are sympathetic to the sentiment behind the amendments, from a technical point of view, the Government do not think that they are quite right. Unscrupulous claimants could exploit all this by ensuring that the process remains very complicated, long and burdensome. That is the Government’s position on these amendments. I repeat that I am very happy to engage so far as I can in a dialogue with noble Lords to see whether we can make further progress on the technicalities of this issue and look for a proper legislative vehicle in which to carry it forward.
Baroness Bennett of Manor Castle (GP)
I do not believe the Minister addressed the point that I and a number of other noble Lords raised about the international dimension of this, and the UK’s position in the international framework. Noble Lords may have seen that the noble Baroness, Lady Kennedy of The Shaws, was joined in this Committee by some guests, one of whom was Sebastien Lai, the son of Jimmy Lai, who was a victim of what has been labelled lawfare by the Chinese state in Hong Kong. We are also seeing British institutions being used as a weapon for that lawfare. Does the Minister acknowledge that there is a true international reputational issue and that the whole rule of law across the world is under attack?
Reflecting on what the Minister said, I think we heard something of a hint about the Government’s thinking that cost protection could be one way of addressing this issue. That fails to address the point made by the Labour Front Bench and others that, even if there is cost protection, an enormous amount of time, energy and stress goes into a case. Even if you are able to take away the financial threat, you are taken away from doing other journalism if you have to spend months engaging in a case.
Lord Bellamy (Con)
I thank the noble Baroness. I am perfectly prepared to accept that there is an international aspect. The Solicitors Regulation Authority is on the case, it has issued its warning notice—fired its warning shot—and that is having an effect, so it is not as if the position is not being tackled. The question is about legislation, and the need to get it right from a rule of law and an access to justice point of view. There is a conflict here, as the noble Lord, Lord Vaux and the noble and learned Lord, Lord Garnier, pointed out. One has some misgivings about this because, as was also said earlier, journalists are not always right, and one must bear that in mind. If you have ever been on the receiving end of the tabloid press as a defendant, you will know that they still have not inconsiderable power if you have no money to defend yourself.
Lord Cromwell (CB)
If I may say so, one of the formative experiences of my childhood was being on the receiving end of tabloid journalism, and it is something I will never forget. That does not alter my commitment to getting this right.
I am encouraged by the Minister saying that my amendments do not quite cut the mustard—“do not quite” is a pretty good score in my book. I agree with him that early access will be a key feature of the right answer here, and cost protection, depending on what form it takes, is potentially helpful. He constantly prays in aid access to justice is a big issue, and I agree that the definitional issue of a SLAPP is very important. However, in the conversations he has promised to have, I would want him to make a distinction between harassment and denying the right to justice. Denying the right to justice, the ability to go to court if you wish, is not what I am about—I am about where people have no intention of going to court if they can possibly avoid it but are simply harassing people who want to bring economic crimes into the light. The Minister has given us a hint that there is a government Bill in draft here. I am taking that in good faith; I hope that faith will be well placed and that we will see it soon.
Lord Bellamy (Con)
Again, I thank the noble Lord for his remarks. The key problem is to distinguish access to justice from harassment. It is quite difficult, but it can be done. That is my answer to that question. On where the Government are, as I said before, we are working on drafts, but I cannot go any further than that until I know whether there is a legislative vehicle and which it can be. I am sorry not to be able to commit the Government at the Dispatch Box today any further than that but, as I said, I am hoping—and I can only express as a hope—that this is a short-grass and not a long-grass issue.
Baroness Bennett of Manor Castle (GP)
My Lords, I apologise to the Committee, I perhaps should have declared my position as co-chair of the All-Party Parliamentary Group on Hong Kong in my last intervention.
Lord Thomas of Gresford (LD)
My Lords, I am grateful to Minister for his response and look forward to discussing these issues with him. I am grateful to all noble Lords who have spoken, and in particular to the noble Baroness, Lady Stowell. I commend her and her committee for the work they have done in investigation and taking evidence on this issue. I admire the guts and determination of the noble Lord, Lord Cromwell, and the fury of the noble Lord, Lord Agnew, on this issue.
I do not want to speak for too long: we have had a very long debate. The only dissenting voice was that of the noble and learned Lord, Lord Garnier. Your Lordships may recall that I said that, when the results of the consultation were looked at, the claimants’ lawyers were saying, “There’s nothing to see here, guv. It’s all the ordinary rough and tumble of litigation in this country”. The noble and learned Lord, Lord Garnier, referred to his experiences in the bear garden. I remember the bear gardens—I remember appearing in a bear garden for the leader of the Opposition in the Singapore Parliament; it was not an easy position. He was suing the Straits Times for libel, and the application to strike out was made on the grounds that he had no reputation in this country. When he died, some years later, he had obituaries in the Times, the Telegraph and the Guardian.
I know the games that these media lawyers play. They do not face up to some of the realities that we in the criminal courts perhaps have to face from time to time. But I have the highest regard for the noble and learned Lord, Lord Garnier, in his professional capacity, so nothing that I say should be taken as derogatory to him—otherwise, subject to professional privilege, I might find myself in court.
Lord Bellamy (Con)
Just to clarify, as I said, the Government’s position is that it is not appropriate to introduce a criminal offence in relation to access to justice. It is not a question of just having another offence. Access to justice is a very important area, and we are on a slippery and possibly Orwellian slope if we start saying that it is criminal for someone to go to the law on some point. It is a very difficult area—that was all I said.
Lord Thomas of Gresford (LD)
So, according to the Minister, it is not criminal for a person to threaten litigation, with all the expense and worry that that involves and the way that it crimps the investigation of crime. He is saying that it is not unlawful and should not be criminal. There are criminal offences that cover conduct far less morally bankrupt than that, which is what I hope we shall discuss with the Minister before Report. For the moment, I beg leave to withdraw my amendment.
Lord Etherton
“(a) constitutes the offences of fraud, false accounting, money laundering or offences under any binding sanctions regime, whether at common law or in primary or secondary legislation,”Member’s explanatory statement
This amendment provides for a shorter and more focused definition of “economic crime” than is presently to be found in Clause 180(1)(a) and Schedule 9.
Lord Etherton (CB)
I preface my remarks by emphasising that what I say about this amendment and the other amendments in this group is not intended in any way to qualify or undermine the broad objectives of the legislation. They are intended to make the legislation better.
I will focus for the moment on Amendment 81, which addresses the definition of economic crime to be found in Clause 180. The amendment has the support of the Law Society and the Bar Council. In the current wording of the Bill, the definition relates to only three matters. The first is the disclosure obligations under Clauses 175 to 178; the second is that by virtue of Clause 181(2C) it applies to the Law Society’s powers to impose a fine in cases relating to economic crime; the third circumstance is that it applies to the new legal services regulatory objective in Clause 183 of promoting the prevention and detection of economic crime.
Under the current definition in Clause 180, economic crime is defined by reference to a long list of offences, common law and statutory, extending over two and a half pages in Schedule 9. The definition of economic crime would be further extended under the Government’s proposal to add a new Schedule 10, which is directed to the failure to prevent fraud. As we heard in the last debate, although I think it is right to say that none of the amendments relating to SLAPPs is tied to any definition of economic crime in the existing Bill, SLAPPs would have to be in some way connected to some definition, and that may be wider than one would otherwise contemplate economic crime to comprise.
The definition of economic crime in Clause 180, by reference to Schedule 9, and its extended meaning by reference to the proposed Schedule 10, raises the fundamental question of what this Bill is actually about. Under Schedule 9, for example, it includes theft, and under the proposed Schedule 10 it includes false statements by company directors.
The Government’s intention, however, as I understood it, is that the Bill is directed to a specific type of criminal activity—fraud, false accounting, money laundering and the breaches of sanctions. Those are the activities which Amendment 81 sets out. Those elements were identified in a meeting which I had with Dame Margaret Hodge, who has played a significant role in the promotion of this type of legislation. Those activities—fraud, false accounting, money laundering and the breach of sanctions—chime with the Bill’s three key objectives, mentioned at the very beginning of the Explanatory Notes, which are focused on the abuse of corporate structures. That is what the Bill is about: the abuse of corporate structures to launder money, hide assets obtained unlawfully and prevent restitution of such assets by making them irrecoverable. To include theft under Schedule 9 goes far outside that type of activity, as it would embrace, for example, a straightforward theft of any object in any circumstances, which has no economic significance other than the loss of value to the owner of the object.
Further, Section 19 of the Theft Act 1968, mentioned in Schedule 10, as I have said, makes it an offence for any officer of a company or unincorporated association knowingly to make a false or deceptive written account with intent to deceive members or creditors. This is a very broad offence, and again not necessarily related to the objectives of the Bill, as they are explained in the Explanatory Notes, and as I understand them to be. I suggest, therefore, that the Government should focus on the real objective of the Bill and define economic crime accordingly and consistently, rather than by reference to a long list of common-law and statutory offences, which are diffuse and wide-ranging.
That brings me to my next point, which concerns good legislation and proper drafting. To define economic crime by reference to a wide range of offences over two and a half pages is not good drafting.
It complicates rather than simplifies the law. It also gives rise to potential difficulties if any legislation mentioned is repealed and re-enacted in the same or a different way. Of course, in these circumstances there is provision by way of regulation for the Secretary of State to add to or detract from Schedule 9, but there has to be an alteration. By defining the constituent elements of economic crime, as is done in Amendment 81, there is a clear steer as to the objectives of the Bill, and any change in legislative offences will not require an alteration to the Bill. Schedule 9 and proposed Schedule 10 would cease to be relevant. Amendments 82, 83 and 84 are all consequential on Amendment 81.
I now move to the next substantive amendment to Clause 183, which introduces a new regulatory objective into the Legal Services Act. Amendment 90 is signed by my noble friends Lord Verdirame and Lord Pannick and the noble and learned Lord, Lord Goldsmith. Unfortunately, none of them is able to be here today. I am very grateful to them for their support. This amendment also has the support of the Law Society and the Bar Council. Currently, the provisions in Clause 183 relating to the new regulatory objective are far too wide in the following respects. First, it is not confined to the conduct of the lawyer but is expressed as general enforcement of the law relating to economic crime. It turns the regulator of legal services into a general enforcer of the law. Secondly, Clause 183 is not confined to legal activity as defined by Section 10 of the Legal Services Act 2007. In broad terms, legal activity is defined in the 2007 Act to mean the conduct of litigation, advocacy and legal advice and assistance.
Thirdly, the clause does not focus on what is critical, namely the misconduct of the lawyer in this context, which is facilitation or collusion by that lawyer in economic crime. Facilitation or collusion by lawyers in economic crime are the principal areas of misconduct in relation to lawyers mentioned to me in my meeting with Dame Margaret Hodge. Fourthly, it does not make clear that the proposed legislation on economic crime does not trump legal professional privilege where that applies or to the “professional principles”, which will remain one of the regulatory objectives under Section 1 of the 2007 Act.
Just addressing this last point, in any legal proceedings legal professional privilege precludes the usual obligation to disclose and permit the inspection of all relevant documents. The privilege, which is the privilege of the client, not their lawyer, is a fundamental common-law constitutional right on which the proper administration of justice rests. There are two aspects to the right—first, legal advice privilege, which applies to communications made confidentially for the purpose of seeking or giving legal advice, whether or not litigation is contemplated or pending and, secondly, litigation privilege, which applies to communications which come into existence for the purpose of litigation.
Lord Thomas of Cwmgiedd (CB)
In supporting what the noble and learned Lord has said, I underline the importance of legal professional privilege; I recall it in many cases but one in particular, where a judge remarked that the worst thing he had ever done was to open up this subject in a particular case. We deal with this at our peril.
Lord Fox (LD)
My Lords, it is with more than a little trepidation that I will speak on this group of amendments, with two noble and learned Lords sat behind me. In his opening observations, the noble and learned Lord, Lord Etherton, got the SLAPPs argument a bit back to front. My noble friend Lord Thomas worded the SLAPPs amendment in the way that he did so as not to include the non-economic crime aspects of SLAPPs. That was exactly to avoid the issue that I think the noble and learned Lord highlighted in saying that SLAPPs would drag other criminal definitions into the Bill. My noble friend’s careful wording was designed specifically to avoid that, but no matter.
More generally, there is a functionality in Schedule 9 which, if taken away, we will lose: the ability to put offences in and take them out using regulation. That is included in Clause 83 on page 165. If the noble and learned Lord is successful in his campaign, he needs to consider putting that back in, because in future we do not want to have to use primary legislation to achieve that objective. That is something to look at.
On the final amendment to Clause 183, Amendment 90 —with the names of the four riders of the apocalypse on it—again I take the noble and learned Lords’ points about client privilege. I have one question for the noble and learned Lord, Lord Etherton. If a solicitor is taken on and starts through their client privilege to find things that they do not like, I assume that they would be encouraged to walk away from that client. Not having been in that situation, I would like to understand what the professional advice is. Do they carry on and sit behind privilege or is a solicitor essentially encouraged to walk away from a client when they begin to uncover things through that privilege that they find to be illegal or immoral?
There is another debate to be had at the beginning of the next sitting, where we talk about failure to prevent. It is quite clear that the point raised here cuts into the failure to prevent debate. I encourage both noble and learned Lords to be present for that because their point here is absolutely relevant to the failure to prevent debate, and we have to have those two debates almost together. I hope that they will be able to make time on Thursday to join in that debate.
Baroness Blake of Leeds (Lab)
I do not have an enormous amount to add but I thank the noble and learned Lord, Lord Etherton, for his comments and for the full explanation of the amendments before us in this group.
I will add a concern about the removal of the schedule naming the offences. Perhaps we will need to have a better understanding of why that would be an advantage, but I remain to be convinced on that point. On Amendment 90, I do not have much to add to the comments made by the noble Lord, Lord Fox, which lead to a need for greater clarification before we can move on from this.
Lord Bellamy (Con)
Once again, I am grateful to noble Lords who have spoken in the debate. I will first take Amendments 81 to 84, tabled by the noble and learned Lord, Lord Etherton.
Whereas our lengthy debate earlier in the day was directed at expanding the Bill, this is directed at narrowing it. It may not be a total surprise if I say that the Government are not very happy about proposals to narrow the scope of the Bill. As was said, these amendments arise, apparently, with the support of the Law Society and the Bar Council. The Government met the Law Society and the Bar Council on a number of occasions and the question of the definition of economic crime was gone into in some detail, and one is a little surprised to see that this matter is being persisted in.
The list of the offences in Schedule 9 is very close to the list of offences in the Crime and Courts Act 2013, which applies to deferred prosecutions in various cases, which are often relevant in financial matters, and, although not exactly the same, they are based on that definition.
The other introductory comment that I would, if I may, make is that, while the overwhelming bulk of the legal profession upholds the highest standards, much of this Bill would have been unnecessary were that true of all legal professionals. It is against that background that the Government are reluctant to run the risk of introducing loopholes into the Bill by reducing the scope of Schedule 9.
The first point to note is that the definition of economic crime in Clause 180 and Schedule 9 applies right across the Bill and includes the information-sharing measures in Clauses 175 and 176. Those measures, for example, entitle bank A, when it receives from bank B a large sum of money, to ask bank B whether it is a proper transaction, so there is information-sharing between financial institutions. Clause 176 enables a financial institution to notify a platform, for example, that it has concerns about particular transactions or clients. These are pretty essential powers in the Bill, and the definition of economic crime applies to those powers as well. In the Government’s view, it would not be desirable to have two definitions of economic crime across the Bill as a whole.
The definition applies to other legal services measures in Part 5 of the Bill, which amend the Solicitors Regulation Authority fining limit and information provisions. So for consistency and ease of understanding, the Government’s position is that it is sensible to have a single definition of economic crime through the Bill, and not reduce that definition at this stage. Just to make an illustration, there was some suggestion that introducing the word “theft” would go a bit too far. It may in a certain situation be quite difficult to say whether something was fraud or theft—it might well be both—but it is not the sort of argument that the Government feel that one should get into. Having worked with the Law Society of England and Wales and the Bar Council on these matters, the Government have clarified in the Explanatory Notes which offences are likely to be most relevant to the financial sector. They have not excluded them, but they have indicated that fraud, money laundering, terrorist financing, bribery, and any offences under regulations made in relation to money laundering are likely to be the ones that the profession should concern itself with most in practice. But it is important that regulators should not be unduly constrained in the ambit of the definition of economic crime in this Bill.
I can reassure noble Lords that all the existing safeguards that apply to regulators under public law principles, including what is proportionate and fair, continue to apply. Section 3 of the Legal Services Act provides that the Legal Services Board must have regard to the principles of transparency, accountability, proportionate action and consistency and target only those cases where action is required. The new objective in relation to economic crime fits within that framework. One is to an extent tilting at windmills here to try to reduce the scope of this major piece of legislation designed to tackle the very serious problems that noble Lords have now debated at length. On that basis, I shall ask the noble Lord in due course to withdraw his Amendment 81 and not press his other amendments.
I turn to Amendment 90, which affects the regulatory objective. The essential aspect of the amendment is that the objective is too wide and that we should spell out that it is all subject to legal professional privilege. Those are the essential points that were made.
I will take the point about legal professional privilege first. The Government entirely accept and agree with the noble and learned Lord that legal professional privilege is a fundamental principle of English law. It protects the confidentiality of communication between a lawyer and client in terms of legal advice, and ensures complete fairness in legal proceedings in terms of litigation privilege, for example. However, the Government are not able to accept the amendment for the following reasons.
Lord Etherton (CB)
Perhaps I should first take the opportunity to answer the question of the noble Lord, Lord Fox. I think the answer is that if somebody goes to a solicitor for advice on a potential course of action, it may be clear that it is unlawful, in which case legal professional principles would require the solicitor not to act for that client in relation to that. But there may be gradations of arguability about whether it is lawful or not; I gave the example of things going up and down, and he would be perfectly entitled to advise on those degrees of legality and prospects of success in litigation. My point was simply that that should not render the solicitor in any way concerned about committing any breach of a regulatory duty. That is the way it would work, and it would be the same for a barrister.
Turning to the Minister’s comments, I am afraid he has not really addressed the point that I made, which is that, in paragraph 2, the Explanatory Notes say that the Bill has three key objectives. That is the Government’s definition of what it is about:
“a. Prevent organised criminals, fraudsters, kleptocrats and terrorists from using companies and other corporate entities to abuse the UK’s open economy. This Bill will reform the powers of the Registrar of Companies and the legal framework for limited partnerships in order to safeguard businesses”.
Then it deals with strengthening
“the UK’s broader response to economic crime”
by seizure of crypto assets and so on. The extension of the definition of economic crime to matters such as I mentioned, for example representations of directors or theft, is way outside that. It is nothing to do with London as the place where people launder money, for example, and I do not accept that there may be some difficulty in distinguishing fraud and theft. A fraud may involve a theft, but fraud is quite clear as to what it is.
Amendment 81 is not an attempt to narrow the definition, except in relation to what I understand to be the essential elements: fraud, false accounting, money laundering and offences under any binding sanctions regime. If it is something more than that, then that ought to appear in the Explanatory Notes or be clearly stated by the Minister at the Dispatch Box. It should be made clear. You could combine a statement such as that—the broad objectives—together with various bits of legislation, but actually the advantage of expressing it in these generic ways is that it would make it far simpler and easier to understand, and would not require changes to the Act when there are legislative changes, with regard to the various offences currently listed in Schedule 9.
Having said that, I have made perfectly clear what the primary objections are to the new regulatory offence, which does not concentrate on the actual personal collusion or facilitation by the solicitor but could cover, for example, information that the solicitor receives in the course of advice from the client about some third party—because it is that wide, I say it would be an abuse of the legal regulation to leave it in that way rather than confine it to a personal involvement.
But I have made those points. I have listened to the Minister and certainly, so far as today is concerned, I beg leave to withdraw the amendments.
Economic Crime and Corporate Transparency
Thursday 27th April 2023
(1 year, 6 months ago)
Grand CommitteeRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 96-V Fifth marshalled list for Grand Committee - (25 Apr 2023)
Lord Sharpe of Epsom
“Failure to prevent fraudFailure to prevent fraud
(1) A relevant body which is a large organisation is guilty of an offence if, in a financial year of the body (“the year of the fraud offence”), a person who is associated with the body (“the associate”) commits a fraud offence intending to benefit (whether directly or indirectly)—(a) the relevant body, or(b) any person to whom, or to whose subsidiary, the associate provides services on behalf of the relevant body.(2) But the relevant body is not guilty of an offence under subsection (1)(b) if the body itself was, or was intended to be, a victim of the fraud offence.(3) It is a defence for the relevant body to prove that, at the time the fraud offence was committed—(a) the body had in place such prevention procedures as it was reasonable in all the circumstances to expect the body to have in place, or(b) it was not reasonable in all the circumstances to expect the body to have any prevention procedures in place.(4) In subsection (3) “prevention procedures” means procedures designed to prevent persons associated with the body from committing fraud offences as mentioned in subsection (1).(5) A “fraud offence” is an act which constitutes—(a) an offence listed in Schedule (Failure to prevent fraud: fraud offences) (a “listed offence”), or(b) aiding, abetting, counselling or procuring the commission of a listed offence.(6) For the purposes of this section a person is associated with a relevant body if—(a) the person is an employee, agent or subsidiary of the relevant body, or(b) the person otherwise performs services for or on behalf of the body. (7) Whether or not a particular person performs services for or on behalf of a relevant body is to be determined by reference to all the relevant circumstances and not merely by reference to the nature of the relationship between that person and the body. (8) Where a relevant body is liable to be proceeded against for an offence under subsection (1) in a particular part of the United Kingdom, proceedings against the body for the offence may be taken in any place in the United Kingdom.(9) Where by virtue of subsection (8) proceedings against a relevant body for an offence are to be taken in Scotland—(a) the body may be prosecuted, tried and punished in a sheriff court district determined by the Lord Advocate, as if the offence had been committed in that district, and(b) the offence is, for all purposes incidental to or consequential on the trial or punishment, deemed to have been committed in that district.(10) A relevant body guilty of an offence under this section is liable—(a) on conviction on indictment, to a fine;(b) on summary conviction in England and Wales, to a fine;(c) on summary conviction in Scotland or Northern Ireland, to a fine not exceeding the statutory maximum.(11) In this section—“relevant body” means a body corporate or a partnership (wherever incorporated or formed);“sheriff court district” is to be read in accordance with the Criminal Procedure (Scotland) Act 1995 (see section 307(1) of that Act).(12) In this section “financial year”—(a) in relation to a UK company, has the meaning given by the Companies Act 2006 (see section 390 of that Act);(b) in relation to a relevant body that is not a UK company means—(i) any period in respect of which a profit and loss account of the relevant body is required to be made up (by its constitution or by the law under which it is established), whether that period is a year or not, or(ii) if the body is not required by its constitution or the law under which it is established to draw up a profit and loss account, a calendar year.”Member’s explanatory statement
This clause together with new clauses (Fraud offences: supplementary) to (Failure to prevent fraud: miscellaneous), Lord Sharpe of Epsom’s amendments at page 173 lines 21, 33, 36 and 37 and page 315 line 20 and new Schedule (Failure to prevent fraud: fraud offences) provide for a new offence of failure to prevent fraud.
The Parliamentary Under-Secretary of State, Home Office (Lord Sharpe of Epsom) (Con)
My Lords, in moving government Amendment 84A, I will also speak to other government amendments in this group, which create a failure to prevent fraud offence. I first thank the many noble Lords in Committee today for their continued engagement on these amendments and corporate criminal liability more generally. These conversations have been robust but constructive, and I am sure that we will have a lively debate today.
Let me start by reiterating the Government’s commitment to reform of corporate criminal liability— CCL—and to tackling fraud. That is why, in 2017, the Ministry of Justice issued a call for evidence; then, in November 2020, the Government commissioned the Law Commission to explore further this area. The Law Commission report was published in June last year. The Government have been reviewing the report and its extensive consultation and working with relevant stakeholders, including prosecuting agencies, to explore options for reform. My ministerial colleagues and I are of course also grateful for the extremely helpful insight and input from various noble Lords in this House and Members in the other place.
The tabling of these amendments to introduce a new failure to prevent fraud offence is a major and tangible demonstration of action. This offence will crack down on fraudulent practices by corporations. It is one part of the Government’s wider fraud strategy, due for publication shortly. Under the new offence, a large organisation will be liable to prosecution where fraud was committed by an employee, for the organisation’s benefit, and the organisation did not have reasonable fraud prevention procedures in place. The new offence will help to protect victims and cut crime by driving a culture change towards improved fraud prevention procedures in organisations and by holding organisations to account through prosecutions if they profit from the fraudulent actions of their employees. We are giving law enforcement and prosecutors the powers they have asked for to tackle organisations that defraud consumers, other businesses, investors and the taxpayer.
The offence has been designed to drive change and facilitate prosecutions without duplicating existing regulation or placing unnecessary burden on legitimate business. It will therefore apply only to large organisations, to avoid disproportionate burdens on small and medium-sized enterprises. A strong UK economy must be an environment that supports people to open and grow businesses. Of course, we encourage small organisations to take steps to prevent fraud and learn from the guidance that the Government publish. There are also existing powers to prosecute them and their employees if they commit fraud, but we need to keep the burden on business in check. The new offence covers fraud and false accounting, while keeping money laundering responsibilities contained under the existing regulatory regime. This ensures that the offence is targeted, focused on offences most likely to be committed by corporations and where prevention can have the most impact, and not duplicative of existing regimes.
The amendments include a statutory duty to publish guidance to set out what would be considered reasonable fraud prevention procedures, making the expectations on business clear. There have been cross-party calls for this measure, both in this House and the other place. I look forward to debating the detail today, but I trust that your Lordships will overall welcome and support these amendments, to ensure that we tackle fraud in corporate bodies. I beg to move.
Amendment 84AA
Member’s explanatory statement
This amendment, along with consequential amendments to Amendment 84C, would extend the Government’s failure to prevent offence to all relevant organisations regardless of size. Instead of allowing the Government to amend or remove the applicability to large organisations, these amendments would apply the offence to all organisations by default, with the Government able to restrict it to large organisations by affirmative resolution.
Lord Fox (LD)
My Lords, I rise to speak to the amendments in my name. As the Minister has set out, amendments were brought forward in the other place on Report by Sir Robert Buckland and Sir Bob Neill. The Government undertook to produce their own amendments, which they have indeed done. We should recognise that these amendments, on failure to prevent fraud, are a positive move forward, but they are overdue. Without sounding too churlish, had this offence been in place at the time of the financial crisis, the authorities could have had effective prosecutions during, for example, the Libor and Euribor scandals. So, good news, but there are some qualifications, as set out in my amendments.
The government amendments have a considerably reduced scope in limiting it to large businesses, which was certainly not the intention of the Buckland/Neill process in the other place. As we have heard, there is an exemption for small and medium-sized businesses, but it does not address the fact that SMEs are just as much, if not more, at risk of fraud as big companies. It is just as important to encourage them to have the right procedures in place as it is large companies.
Hence my Amendments 84CA, 84CB and 84CC. Together, they seek to amend the Government’s amendments, extending their failure to prevent offence to all relevant organisations regardless of size. Instead of allowing the Government to amend or remove the applicability to large organisations, these amendments would apply the offence to all organisations by default. However, the Government would be able to restrict it to large organisations by a subsequent affirmative resolution, if experience required them to do so.
The Minister said that small and medium-sized enterprises had been excluded to avoid a disproportionate burden on them. It would be useful for him to explain on what basis that assessment has been made and what evidence there is to support that. We have not seen it, so it would be very useful to know. In my view and that of others, the carve-out for SMEs is short-sighted and unnecessary. The Law Commission did not accept arguments for thresholds to apply to failure to prevent offences in its June 2022 options paper and the House of Lords rejected exemptions for SMEs when scrutinising the Bribery Act 2010. SMEs are not excluded from AML or the National Security and Investment Act, so why have the Government taken this view in this case?
There is also concern that this amendment is limited to offences that take place in the UK or have UK victims. If the offence takes place abroad, in cases where a UK company has failed to prevent fraud and there are no UK victims, UK enforcement agencies would have no grounds to pursue the corporate body. This lack of extraterritoriality is not present in already existing FTP, bribery and tax evasion offences. It is unclear why the Government are creating such inconsistencies in the corporate criminal liability framework. Why have they made this carve-out? There is a lot of expertise waiting to speak on this group, so I will stand aside, except to say that I strongly support Amendments 96, 97, 98, 99, 100 and 101.
Lord Garnier (Con)
My Lords, I thank my noble friend Lord Sharpe for the courtesy he has shown to me and other noble Lords in holding meetings, along with his officials, to explain the Government’s case on failure to prevent and the adjustment of the law of corporate liability. It has been very helpful to have some understanding of where they are coming from and where they intend to go. It is fair to say that he was more forthcoming in those meetings than he was in providing an explanation for the SME carve-out this afternoon. I thank not only him but the noble Lord, Lord Fox, for tabling his amendments, which I support, and for his mention of the amendments I have tabled.
The amendments that I have tabled are exactly the same, almost to the semicolon, as amendments that I have tabled not only in this Parliament, since the 2019 general election, to Bills dealing with economic and financial crime, but also to Bills that I spoke to when a Member of the other place. I have taken an interest in how we deal with economic crime since I became the Solicitor-General in 2010. I appreciate that that was a long time ago and that my noble friend the Minister probably did not have a particular interest in the subject all that time ago. None the less, I appreciate that many will find what I have to say unoriginal, not least because I have said it so many times before but also because it aligns with what others on all sides of the House and in both Houses have been advocating for some little while.
I will first deal with the SME carve-out, which is provided for in one of the government amendments. I suppose it is fair to say that half a loaf is better than no loaf and that a bird in the hand is better than two in the bush. However, after nearly 15 years, following the banking crash of 2008-09, the subject of economic crime and corporate misfeasance has been if not on the top of everyone’s agenda every day then certainly close to it. For the Government to come up with a carve-out in the way that they have—bear in mind that we are only talking about failure to prevent fraud at the moment—is disappointing.
What we are here required to understand by Amendment 84C, proposed by the Government, is that if a company or business has a turnover of less than £36 million, has a balance sheet total of less than £18 million and has fewer than 250 employees, it should not be caught by the failure to prevent fraud.
Lord Garnier (Con)
My noble friend Lord Leigh is entirely right: you have to pick two of this lucky trio and you are away.
One only has to think briefly about start-up businesses and the pressures that they come under when they may have very few employees and a turnover of much less than the Government indicate to realise that the danger of an associated person committing an act of fraud is not predicated on the size of the company. It is also possible to say that there will be people who will so construct their corporate affairs that each bit of their corporate existence is by some happenstance just below or well below the Amendment 84C cut-offs.
In any event—I have bored my noble friend the Minister with my feeble sense of humour on a number of occasions—there is no similar cut-off for failure to prevent bribery under the Bribery Act 2010 and no equivalent cut-off under the Criminal Finances Act 2017. Although my noble friend tells me that, after much consultation and because they do not wish to impose unnecessary burdens on business, the Government have come up with these numbers, as I think the noble Lord, Lord Fox, indicated, I have yet to hear a reason why they have landed on those figures or why as a matter of principle they have chosen to have a carve-out at all.
Here comes my feeble joke, so stand by. A burglar of five foot four should be prosecuted just as vigorously as a burglar of six foot six. There is no carve-out for small people committing crimes and there should be no carve-out for small businesses that fail to prevent crimes. When the prosecuting authorities—I look with respect at the noble Lord, Lord Macdonald of River Glaven—come to consider whether it is in the public interest, assuming that there is evidence, to initiate the prosecution, no doubt one of the factors that they will take into account is whether it is in the public interest to pursue that prosecution, bearing in mind the small size of the company and the mitigating steps that it took to do its best to avoid an associated person committing a criminal offence.
Lord Browne of Ladyton (Lab)
My Lords, I associate myself entirely with the remarks of appreciation and thanks made by the noble and learned Lord, Lord Garnier, to the Minister and his team for their engagement on all aspects on the Bill—to the extent that I have been engaged in them, but I think I speak for everyone when I say that.
To summarise in a blunter way what the noble and learned Lord, Lord Garnier, was saying, I suspect that if we in this Committee voted on this issue, and indeed on all the amendments tabled by members of the Committee, the Minister would find himself in a minority of two. My sense—to the degree to which I can be relied upon to have the ear of Parliament—is that, when this comes back on Report, it will not be difficult to persuade a substantial majority in your Lordships’ House to vote for these. There is also a strong echo of support coming from the other House; anyone who has read the Commons Report stage from 25 January will know that there is overwhelming support there for this trend, if not the specifics.
I intend to restrict my remarks to the two halves of the loaf described by the noble and learned Lord, Lord Garnier, but I support all the other amendments. I do not need to go through them, although I may have something to say before I sit down about the amendments from the Select Committee that I had the pleasure to serve on, since for personal reasons I may need to leave the Committee earlier than I would have hoped.
As we have heard, the new clauses are welcome in so far as they impose a duty to prevent fraud in large organisations. Helpfully, the main amendment and consequential amendments from the noble Lord, Lord Fox, would invert the Government’s approach whereby we can amend to remove the applicability to large organisations. I have to say that the existence of that provision suggests that the Government think they may need to do that. Instead, the amendments would extend the Government’s failure to prevent offences to all relevant organisations regardless of size.
If the Bill is to fashion the real cultural change that has been promised, that approach is surely better calculated to achieve a sweeping change, analogous to that achieved by the Health and Safety at Work etc. Act, which has been referred to in debates. It is not just about imposing these measures on the companies and associates themselves, but ensuring that this becomes part of public, business and, in particular, corporate consciousness, empowering individuals to identify and report crime—particularly fraud and money laundering, which are the main crimes being committed in the economic crime environment—they feel is taking place.
In support of the remarks of the noble Lord, Lord Fox, about the vulnerability of SMEs to crime, I shall refer to a couple of headline statistics that could be useful for context. For example, the US-based Association of Certified Fraud Examiners found that private companies and small businesses have the most fraud simply because of the lack of internal controls, which we see as a regulatory burden, but they do not need to be as they would help these businesses to protect themselves from fraud. Fraud was proportionally significantly greater in these businesses than it was in larger companies.
On 25 January, on the second day of Report in the other place, John Penrose’s argument in his intervention on Stephen Kinnock is an interesting one, in that it fundamentally challenges the Government’s assumption about a duty to prevent imposing an unreasonable and unbearable burden upon small businesses. It suggests instead that a simple duty to prevent could not only reduce the burden of criminality but
“sweep away a raft of largely ineffective and deeply costly measures, and replace them with something that is simpler”
and “more effective” for small businesses.
In a statement on 11 April, Spotlight on Corruption stated:
“The carve out for SMEs is … desperately short-sighted and entirely unnecessary … By including this exemption, the government has deprived the corporate sector as a whole of the full benefit of this offence. SMEs are known to be at a high risk of fraud, and encouraging them to have appropriate anti-fraud procedures would not only help prevent fraud, but also better protect them from becoming victims of fraud”.
As Robert Buckland reminded the Minister on 25 January, the 2015 Conservative manifesto
“rightly committed the Government to make it illegal for companies to fail to put in place measures to prevent economic crime”.—[Official Report, Commons, Economic Crime and Corporate Transparency Public Bill Committee, 25/1/23; cols. 1057-61.]
In what respect does that commitment not find an echo in calls to ensure that this failure to prevent is in operation throughout the economy, rather than just in companies that sit above what appears to be an arbitrarily drawn threshold?
The Government’s attempt to draw a false dichotomy between corporates and smaller companies fails to appreciate that all these sectors are inextricably linked. There is no Chinese wall between corporates and small businesses. In terms of fraud and money laundering, money is directed to where its origins and purpose will get the smallest amount of scrutiny. It would be extremely easy for companies to restructure themselves to ensure that they could limbo under the bar of meeting the test of being a large organisation and ensure that they avoid being subject to this duty to prevent. There is certainly no shortage of people out there who seem willing to enable them to restructure their businesses in ways that achieve this objective, directing them to where the origins and purposes will receive the smallest amount of scrutiny.
Lord Etherton (CB)
My Lords, I hope that noble Lords will permit me to speak now, because I may not be able to stay for the whole of the debate on this group. I apologise to those who still have to speak to their amendments. I will comment on two aspects of these amendments. The first is the carve-out for organisations that are not large.
The original legislation that provided for a prevention of crime scenario was the Bribery Act 2010. I was the chairman of the Law Commission when that project began, under pressure from the OECD on the Government because of this country’s poor rating on bribery. As at least two noble Lords have pointed out, there was no carve-out for small organisations. I am satisfied in my own mind that, had we created such a carve-out, it would not have satisfied the OECD. It is important that there be consistency in the law. If there is to be a change from the position on bribery to the position here on fraud, there must be a good reason to do so. To produce inconsistency in broadly comparable situations seems bad law. That is the only thing I wanted to say about that.
As a member of what I am afraid the noble and learned Lord, Lord Garnier, would describe as the legal establishment, I urge some caution in changing the principles of vicarious liability in relation to criminal responsibility for companies. Again, the question of consistency is important; if this is to move forward, we must look at the ramifications across the whole of criminal law, and there has to be a very good reason why this area is selected for different treatment. I know that this is anathema to so many people here, but it would be a good subject for the Law Commission to look at. Of course, it would not be able to do so by Report. However, if the proposal has merit, it warrants a much wider investigation for its impact elsewhere.
Lord Agnew of Oulton (Con)
My Lords, first, I congratulate the Government on bringing forward an amendment—it is at least a start. My noble friend the Minister said that he enjoys a lively debate and was looking forward to another one today, so I do not want to disappoint him. I speak as an SME; cut me in half, and that is what I am, and have been all my life. Indeed, my interest in SMEs long predates my noble and learned friend Lord Garnier’s interest in bribery, as I set up my first business in 1978.
My point is that I absolutely understand how SMEs think, so it is not credible to say, “Oh, we must protect them”. For a start, the way in which the categories are set excludes probably 90% of businesses in this country. I cannot work it out exactly, but it is the vast majority of commercial activity, so that makes a nonsense, frankly, of what is being suggested. On the fair application of law, to respond to my noble and learned friend Lord Garnier, a 5 foot 3 inch burglar can do just as much damage as a 6 foot 6 one. There is no logic to that—and I speak not as a lawyer but as a simple businessman.
More profoundly, unless we bring about this culture change, we are not going to get the SME community to think about fraud. If you are a victim of fraud and have the mechanisms in place to detect it because of other people doing it to you, you are far less likely to have it committed against you. All we are doing is creating an artificial bubble for people who are victims. I keep banging on about this figure, but 40% of crime in this country is now economic crime, of which fraud is a large part. So as for the idea that we are protecting SMEs in any way—we are not.
Perhaps the most important element is the professional enabler—the accountant and solicitor. We heard from the noble and learned Lord, Lord Thomas, the other day that the behaviour of the legal profession is not perhaps as pristine as it was 20 years ago. If it can take short cuts because someone looks like a juicy client, then the temptation exists. Only 100 of the 10,000 law firms in this country would have to comply with this carve-out—so that is nonsense, too. Then we come to public procurement. I was procurement Minister, and we have had a great success in government in the last few years, doubling the amount of money going from public procurement to SMEs from £20 billion to nearly £40 billion. If this provision comes in, it will have a kind of freezing effect on government. I know what officials are like—they are very cautious people and, if they feel they are taking a risk by contracting with SMEs because they, in turn, are not doing proper fraud checks, it will be another reason not to use them. So there is that perverse impact.
If we go a bit further, large corporations will find ways round this. They can create separate subsidiaries and they can use all the things we have been talking about, such as different ownership in different jurisdictions, so this will not solve the problem. The point has also been made about inconsistency: bribery has not had a carve-out for SMEs, so why should this? I ask my noble friend to put a cold towel round his head and those of his officials and come up with a credible explanation.
Lord Vaux of Harrowden (CB)
My Lords, I, too, welcome the government amendment. It is a step in the right direction, but I think the Minister will hear fairly similar arguments from all of us as to why it does not go far enough—I will be doing the same thing. In simple terms, the offence that the amendment creates is that the company becomes liable if an employee of the company commits a fraud offence with the intention to benefit the company. I am struggling to understand why, if the employee of a smaller company with, say 25 or even 200 employees, commits fraud intended to benefit the company, that company should not be guilty.
At the risk of introducing a new question at this point in the debate, which I am quite pleased to be able to do, I do not understand how this works for groups of companies. Are the numbers calculated on the basis of consolidated figures or, as the noble Lord, Lord Agnew, suggested, could you just create a subsidiary specifically for the purpose of carrying out the fraud? If it is not on a consolidated basis, it cannot make sense at all.
I have worked for both large and small companies in my career and the reality is that it is much more likely that the directors of a small company will know what their employees are up to than those with a big company. They do not necessarily need burdensome processes to know what has happened. They are in the same office, they are walking the same floor and they are hearing the phone calls. In any event, it should be the responsibility of any company to have in place reasonable procedures to ensure that its employees do not commit fraud on its behalf. Frankly, that should be a basic minimum to be allowed to be in business. Because of the defences that are included, all that is required is to have in place
“such prevention procedures as it was reasonable in all the circumstances to expect”,
or to have no such procedures in place if that would be reasonable. Whether those procedures are considered reasonable in all the circumstances will be driven in part by the size and activity of the company. The Government have also given themselves power to provide guidance as do what would be reasonable and they could easily tailor that for smaller companies, so we really do not need to remove them from scope. In the absence of compelling reasons from the Minister, I would be minded to support the amendments of the noble Lord, Lord Fox.
The other element that seems to be missing from the government amendment is any personal liability of the company management. Without this, those who turn a blind eye to fraud can hide behind the limited liability of the company. If someone has been involved in the decision-making process that led to the failure to take reasonable steps to prevent fraud from being carried out on behalf of the company, they should personally be on the hook. Personal liability concentrates minds wonderfully. Finally, as we have heard, the amendment does not deal with the identity doctrine, which the amendment of the noble and learned Lord, Lord Garnier, tries to. Again, why not?
At Second Reading, the Minister, the noble Lord, Lord Johnson, said that this Bill
“will bear down even further on kleptocrats, criminals and terrorists who abuse our open economy, and it will strengthen the UK’s reputation as a place where legitimate business can thrive, while ensuring that dirty money has no place to hide … The Bill will ensure that law enforcement and the private sector have the tools needed to help tackle economic crime, including fraud and money laundering”.—[Official Report, 8/2/23; col. 1250.]
As currently drafted, it does not achieve those aims. The UK, sadly, does not have a reputation as a place where
“dirty money has no place to hide”—
depressingly, the opposite is true. If we want to make a real difference and repair our damaged reputation, we must take genuinely robust steps.
Throughout our debates in Committee, the Government have resisted a whole range of sensible suggestions that would strengthen our fight against economic crime. Here we are again, with a set of amendments from the Government that are just too weak. The suggestions of the noble Lord, Lord Fox, the noble and learned Lord, Lord Garnier, and others would not create a disproportionate burden on businesses but would strengthen our reputation. I am becoming baffled and rather depressed by the Government’s continued reluctance to take genuinely strong action to reduce the levels of economic crime and, without genuinely compelling reasons from the Minister, I will support the noble Lords’ amendments. We have heard many times in our debates that this is a once in a decade opportunity to tackle this. We really have to take it.
Baroness Morgan of Cotes (Con)
My Lords, I will have more to say shortly on Amendments 91 and 94, but I will make some brief points on the Government’s proposed offence. I also take this opportunity to thank the noble Lord, Lord Browne—in case he is not here later—for his support not only for the committee but for Amendment 94.
Like others, I welcome the Government’s proposed offence. As we have heard, it is a long-overdue step in the right direction. My noble and learned friend Lord Garnier set out quite how long he and others have been calling for such an amendment. In looking at this, I was drawn to the fact sheet on the failure to prevent offence published by the Government on GOV.UK, which rightly says:
“Fraud is the most common offence in this country, amounting to 41% of all crime”
in England
“in the year ending September 2022”.
That is absolutely right, but the trouble with this amendment—to introduce a new point, which is quite good, rather than repeating and supporting what everybody else has said—is that, as we found in the inquiry, the 41% referred to in the fact sheet would not, on the whole, be caught by it. That is because the government amendment requires the company whose employee has committed the fraud to have benefited from it. As we will discuss later, the vast majority of frauds are not committed in a way that benefits the company, which often is the platform used to perpetrate a fraud on innocent victims.
My noble friend the Minister mentioned the forthcoming fraud strategy, which I am sure he will be as relieved as the rest of us finally to see, not least because we will all stop asking him when it will be published. I understand that “imminently” really does mean quite imminently, but we are all dependent on the Downing Street grid. However, it is important that we see it before Report, because it will be difficult for the Government to resolve these issues in a way that will keep both Houses happy—as we have heard, the House of Commons wants to see change on this—without seeing that strategy, which will provide part of an answer as to how this country will tackle fraud.
I have talked about why the drafting of this proposed offence is insufficient in requiring an employee or associated person to benefit the company. We have heard much from noble Lords about the small companies exemption. I support the queries raised about why that has been introduced. When listening to my noble and learned friend Lord Garnier, it occurred to me that part of the problem, and perhaps the reason why the Government think it is acceptable to have this exemption and others do not, is that, as we found in the inquiry, there is a total lack of research into who is committing these frauds—the types of companies involved and how big they are—who is benefiting and the size of those companies. The Government need to commission far more research into this whole area.
As we have heard, this offence is about driving cultural change. That is needed in companies of all sizes, not just the very largest. I was struck by my noble friend Lord Agnew’s comment about the significant number of law firms that would be exempted if this exemption were to take place. Speaking as a former solicitor, I think that he is absolutely right. Most solicitors’ firms are tiny; we know that they and others can be enablers of fraud and other economic crime, so to exempt them makes absolutely no sense.
I add my support to calls for, if not reform of the identification doctrine, at least commissioning to look seriously at how this might be changed. The trouble with this offence is partly that in proposing it many years after it was first called for, the Government are late in solving this problem and therefore late in realising just how much corporates have changed. The lack of a directing mind in corporate bodies is much harder to discern in the 21st century than it would have been in the 19th century.
Lord Thomas of Cwmgiedd (CB)
May I just briefly make four points? First, as regards exempting small companies, as a director of one or two small companies that are charities, I can see no reason at all why we should exempt them. Your accountant always goes through what measures you have in place to prevent fraud, and it is extraordinarily difficult to understand what the costs are.
Secondly, from the way in which the Bill is drafted, it plainly means a single body corporate. There is a whole host of good reasons why you would structure your corporate activities over a host of different companies. It is critical that, if you are to have a limit, it must include all associated companies. You can see a good illustration of the way this is done in the provisions of the Building Safety Act 2022 that deal with remediation in relation to cladding. The Government dealt with it there because so many SPVs—special purpose vehicles—are used in the property industry, and you simply cannot permit them to be treated separately. Certainly, there are extremely good reasons sometimes to structure your partnerships as a whole lot of separate partnerships, partly to limit your liability for negligence. However, it should not apply in relation to fraud.
Thirdly, dealing with two out of three tests is not sensible. Looking at the way in which you suggest fines be imposed on companies, if you are to go down this route, the variety of the ways in which companies operate is so enormous that if you are to have an exemption, you should catch as many as possible. Again, if you do not have a structure that brings in everyone, the position is more complex.
Lastly, I will say something about the reform of the doctrine of corporate responsibility. Of course, I agree with my noble and learned friend, and former colleague, Lord Etherton that we need to be very careful. However, we are trying to tackle economic crime, and there is therefore a special case to be made for dealing with that. If we say that we have to wait until we have the whole of the criminal law sorted out, although one or two people in this Room may see it in their lifetime—I see that the Minister has a young team behind him—the law moves with incredible slowness in reforming criminal justice, and if we do not go through with this in this Bill, I doubt whether even the young members of the team will see any change, not merely during their time at the Home Office but in their lifetimes. We ought to move now.
Lord Macdonald of River Glaven (CB)
My Lords, against the extraordinarily high rate of fraud offending, we have to set the fact that fraud is the most under-prosecuted offence within this jurisdiction. There is no doubt about that, and no doubt that people in the country understand it, are aware of it and are extremely angry about it, particularly victims of this crime. I would hazard a guess that virtually everybody present knows at least one person who has been the victim of a fraud that has not been prosecuted; I know several. That is a lot of people who are not getting justice—on both sides of the transaction, I might say. I therefore welcome this amendment but I am disappointed that SMEs have been carved out, largely because, on the Government’s own figures, no less than 99.9% of businesses in the UK are SMEs. That is a significant statistic when we are considering the size of this carve-out and the impact it is likely to have on the Government’s objectives.
Some comparisons have been made with the Bribery Act 2010, specifically Section 7, and the “failure to prevent” offence in that legislation. Similar arguments about SMEs were made during the debates that led to that legislation, including the claim that if SMEs were included within it then that would impact on their ability to export. I am sure these are the sorts of arguments the Government have in mind when excluding SMEs from this legislation—that somehow it would be too burdensome for SMEs, some of which, to most of us, are very large companies indeed. So it is germane that in 2015, the government survey of SMEs and the impact of the Bribery Act on them found that nine out of 10 had no concerns or problems whatever with the Act, and that 89% felt it had had no impact on their ability to export.
As the Committee has heard, when your Lordships’ House undertook post-legislative scrutiny of the Bribery Act, it concluded that there was no need for any statutory exemption for SMEs from the Act. The Law Commission similarly received submissions arguing that SMEs should be excluded from corporate liability reform. It disagreed and did not recommend any statutory exemption for SMEs. Furthermore, government research on SME adoption of preventive procedures in relation to the Bribery Act found that the average cost for an SME was £2,730, with medium-sized enterprises spending an average of £4,610. These are tiny figures that could not conceivably justify exclusion of SMEs from this legislation on the basis that it would be too burdensome for them. Points have already been made about the extent to which the Government are encouraging the placing of public procurement contracts with SMEs, and that is also highly significant.
Since the noble and learned Lord, Lord Garnier, has raised the question of prosecutorial discretion—it seems only yesterday that he was Solicitor-General, but that may be a sign of my age as much as his— I say in support of him that the amendment as drafted places a great deal of discretion at the disposal of prosecutors. The defence set out under new subsection (3)(b) is:
“It is a defence for the relevant body to prove that, at the time the fraud offence was committed … it was not reasonable in all the circumstances to expect the body to have any prevention procedures in place”.
That is a potential carve-out that would deal with any problem or concern the Government have that the amendment’s impact might be disproportionate on SMEs. For all the reasons I have set out, I do not believe that it would be. I believe the real effect would be to leave whole swathes of business activity completely unaffected by this legislation so that, in effect, fraud would continue—disgracefully, in my view—to be an under-prosecuted offence.
Lord Cromwell (CB)
The noble and learned Lord, Lord Garnier, referred earlier to making feeble jokes. Anyone who was here on Tuesday heard my feeble joke for this year, so the Committee will be relieved to know that I am not going to make any more.
I agree with all the previous speakers that the idea of creating a legal cliff edge, with whole, untouched schools of fish swimming in the sea below the cliff, is both problematic and fundamentally pointless. I agree with the noble Lord, Lord Agnew, and the noble Baroness, Lady Morgan, about enablers; we will be coming to that issue later, and it is a real concern. To me, it is rather like saying that SMEs do not need to worry about health and safety or do not need cyber security, and only the big firms do. Both those assertions are patently nonsense, but that seems to be the flavour of what we are faced with here with this cliff edge. I hope the Committee enjoyed my analogy about the fish.
Lord Sandhurst (Con)
I apologise for not speaking to the Bill at Second Reading. I was unable to take part because I could not commit to be at both the start and the finish that day. I hope noble Lords will forgive me. I declare my interest as a member of last year’s Select Committee, chaired so ably by my noble friend Lady Morgan, who is sitting beside me.
I shall speak to all the amendments in this group, which are directed globally at the failure to prevent fraud. Some of what I will say now will be relevant to what I will say in respect of Amendments 91 and 94, when I shall be much briefer. It is much easier to get the whole thing over at this point.
Amendment 84A is a start, but I am afraid it is an inadequate start. I wonder, with all respect, whether the Government actually read carefully and understood our committee’s substantial report. The committee heard a welter of evidence from everyone across the whole gamut. It was absolutely plain to us that a vast amount of fraud is happening and nothing is being done.
Lord Leigh of Hurley (Con)
I find some of these amendments tricky, really. Clearly, we are all keen to prevent fraud but I frequently wear the hat of the SME company. I should make the further declaration that I am the director of a number of SMEs and an investor in many more—not many successful ones but, none the less, I put my money in and hope. I have read the Law Commission’s options paper and the briefing papers from the APPG on Anti-Corruption and Responsible Tax, and I have had the pleasure of innumerable discussions with the very persuasive Margaret Hodge and her extremely capable team. Congratulations to them; they have got the Government to move to the much-promised amendments from the other place, the debate on which I read carefully. Clearly, we all want to beef up failure to prevent and the amendments go a long way to doing that.
I broadly support the principle of excluding small companies and I shall explain a bit more about why. However, I agree that the terms here are a bit odd. Needless to say, I am a bit worried about a company with 250 employees turning over only £36 million—it is more bust than small. I suspect, however, that these are EU figures, translated from the euro; I do not how they were arrived at but they may need some polish. They are definitely more “M” than “S”, and thought might be given to restricting ourselves to “S” rather than “M”. Needless to say, one looks at one’s business to see whether one is within scope —and, of course, I was reminded that the problem is with the balance sheet qualification. Ordinarily, I never thought that it would apply but, as fellow members of the Institute of Chartered Accountants in England and Wales will recall, the recent brilliant accounting standards brought in require one to capitalise leases in the balance sheet, meaning that companies’ assets are, frankly, grossly inflated. This definition refers only to gross assets, not net assets, so you will capture many more companies than you thought you might if you stick to that definition. I urge another look at the actual definition, if this route is taken.
It is certainly possible for large companies to develop procedures and systems, but smaller ones are, frankly, stretched with other matters, such as, essentially, how to pay the next payroll and survive. It is not reasonable to expect many of them to stop working, sit down and have a cup of tea and dream up preventive procedures. Of course, business owners do not want to see fraud because, at the end of the day, they will be the main losers. However, I can see lawyers advising on the purchase of massive amounts of belts and braces, given the penalties, which could be a massive distraction from the incredibly challenging job of trying to run a business and make a profit, which is difficult enough. I suggest that we see how large companies cope with the Bill, what it means in practice, what “preventive measures” —the guidance is yet to come—actually means, and then give ourselves the power to bring in small companies if we feel it is appropriate at a later stage, once we see what happens in practice.
I also have some concerns about Amendment 101, on the senior manager responsibilities. Of course, I strongly support measures which are likely to reduce economic crime. However, I note that an assessment produced by the Law Commission on individual criminal liability concluded that
“in principle, directors etc, should not be personally criminally liable on the basis of neglect if the offence is one which requires proof of a particular mental state. Liability for directors on the basis of neglect should be restricted to offences of strict liability or negligence”.
We have some way to go to make me feel comfortable that those are right.
There are other outstanding issues concerning senior manager liability, specifically how this would be monitored and enforced. The legal obligations on senior managers at the moment affect the UK’s competitiveness, particularly when trying to recruit talent at senior levels. So I would be reticent to encourage the introduction of significant legislative change without a broad assessment, which I would welcome, of the likely impact. That means consulting with industry and an official impact assessment that considers international comparisons of the effect, particularly on recruiting senior staff. Therefore, I would welcome some more consultation and consideration of the consequences of this reform.
On the proposed changes to the “identification doctrine”, clearly, amending it is essential to tackle the most egregious intentional behaviour; I get that. Here, of course, it is easier to see that in a small company—the Victorian brothers example—the directors could be guilty of this behaviour and, in an overzealous environment of trying to score wins, they could be prosecuted first, quickly and more easily. However, where you have a company consisting of tens of thousands or even hundreds of thousands of people, can we be certain that the act of a few rogue managers or even one manager a long way down the reporting structure should rightly lead to the sort of punishments suggested in some of these amendments?
That does not sit easily with me, and again, I still want to be convinced that we are in sync with our major international competitors. Let us not forget that while FDI into the UK has historically been very high, it is not now. The UK stock market is out of fashion, and countries all around the world are seeking to attract our businesses to set up offshore. Any legislation we bring in has to be very mindful of that.
Baroness Bowles of Berkhamsted (LD)
My Lords, I think it falls to me to start the winding-up speeches, but noble Lords will be pleased to know that I will not try to repeat everything that everybody else has said. I declare my interest as a director of both a large company and small companies; I set up my own first business in 1981, so I have spent most of my life as a business owner.
In this group I support the amendments mainly led by the noble and learned Lord, Lord Garnier. I hate to break with the gentle congratulations that have been given to the Government for at least doing something, but having such a weak amendment could well be counterproductive. The Government could think that they have done something when, as has already been exposed by many colleagues, it does very little. It will exempt most companies and it probably will not touch where action is needed most.
Lord Coaker (Lab)
My Lords, I thank the Minister for his introduction. Various contributions that have been made show that we should see the Government’s amendments as a starting point, but they have considerable work to do. I have decided that I shall not make the speech I was going to make because that is such an important point.
I support the amendments tabled by the noble Lord, Lord Fox, and the noble and learned Lord, Lord Garnier. I looked again at the report that the noble Baroness, Lady Morgan, brought forward last November, and I have been struck by the point made by the noble Baroness, the noble Lord, Lord Sandhurst, and the noble Baroness, Lady Bowles, about cultural change and how important it is that that is taken forward.
I have two specific questions for the Minister that have not been mentioned in the debate so far. First, I think the Committee’s plea to the Minister is that the Government have an opportunity now to make a real difference through the Bill. As the noble and learned Lord, Lord Thomas, and the noble Lord, Lord Vaux, asked, are we going to miss that opportunity? Are we going to think in a few months’ time, after it has passed, that we had a legislative vehicle by which some of these issues could have been sorted out but this was the Government’s position?
I have been a Member of the other place as well, as have other Members of the Committee, and I know that a Government have not only to look at the votes but to reflect on what is being said. You can tell from the discussions that we all have with our colleagues in the other place that there is a mood for change. To an extent, that has been brought about by what the Government have done but it simply does not go far enough. If the Government set their face against this, whip the votes in the other place and say, “We’re just going to drive this through. We don’t care what the reports have said or what the arguments are. This is where we are”, this will have been a real missed opportunity.
Politically I differ from the noble Lord, Lord Sharpe, but his approach should give this Committee hope. In other Bills that we have debated, change has been brought about by speeches made in Committees such as this one, and indeed by votes lost in the other Chamber.
The Government have to move on some of this—they simply do. I agree that the SME carve-out is flawed and should not be there, and the Government need to move on that; they cannot just set their face against it and say, “Everybody else is wrong and we’re right”. Usually, if everybody is telling you that you are wrong, you are wrong, frankly, whether you are in government or in a family. The Government are being told, in report after report and in interview after interview, by virtually everyone without exception—there may be one—that they have to change. The question is really not whether the amendments are flawed or inadequate or whether a sentence needs changing here or there; government lawyers can sort that out. In Committee the Minister will read out his brief, but between Committee and Report, will the Government at least try to adapt and change and listen to some of the points being made? That is the fundamental question, and that is why I decided that I would not repeat what has been said.
Lord Leigh of Hurley (Con)
Before the noble Lord sits down, will he clarify Labour’s position from the Dispatch Box: that it would be happy with one clause that requires prevention procedures to apply to an extremely large, multinational financial services company, for example, and to a local sweet shop which was incorporated? The noble Lord says that everyone agrees. According to the soundings I have taken from small business organisations, they would not be happy with that.
Lord Coaker (Lab)
I said everyone on the Committee —with the possible exception of the noble Lord. I was talking about how people feel about the Bill as drafted, with the carve-out for small and medium-sized enterprises. The noble Lord was referring to something that might include not the small but the medium, and that is a matter for debate, but the general view of the Committee was that the Government’s current carve-out is not acceptable. Where you put the threshold—whether you apply to a little sweet shop at the end of the road with a turnover of a few thousand pounds the same regulation you apply to a multinational company—could be sorted out in regulations, and if we saw them, we could suggest that they take into account the small sweet shop to which the noble Lord referred.
Lord Sharpe of Epsom (Con)
My Lords, I thank all noble Lords—too numerous to mention—who have participated in this debate, and I shall try to address all the points put to me, but I apologise if I do not name everybody individually.
I feel I should declare an interest: I have owned and been a director of small businesses, not all of them successful—like my noble friend, Lord Leigh—and to my noble and learned friend Lord Garnier, I declare an interest as a tall man.
I will start with the amendments linked specifically to failure to prevent offences. I welcome the broad support today for the government amendments, which would, I emphasise, cover all sectors, and that includes telecoms companies. I hope that they deliver most of what the other amendments intend. However, I have noted that concerns remain. Obviously, I listened to the debate very carefully, including on the scope and reach of the new offence.
Before I turn specifically to the amendments, I reassure my noble friend Lady Morgan that the fraud strategy really is imminent. She is absolutely right: I am really keen to see it. I say to my noble friend Lord Leigh that his point about accounting principles was very interesting, but the design of the definition of large companies comes from the Companies Act 2006.
I note the wider offence lists put forward in Amendments 96, 97, 98 and 99, tabled in the names of my noble and learned friend, Lord Garnier, my noble friend Lord Agnew, the noble Lord, Lord Faulks, and the noble Baroness, Lady Bennett of Manor Castle. In particular, noble Lords seek to ensure that money laundering is covered by the new failure to prevent offence. The Government have consulted with law enforcement and prosecutors, and we are satisfied that all the priority offences have been included.
We have carefully examined the wider offence list and determined that they are not appropriate to include because they would duplicate existing regimes, cause repetition with other existing offences, are too broad or relate to preparatory offences. It is also worth noting that the Law Commission report published in June 2022 agrees with this. It highlighted that Part 2 of Schedule 17 to the Crime and Courts Act 2013, as Amendment 98 suggests, while a good starting point for considerations, would be too broad.
I turn to the proposed failure to prevent money laundering offence, as in Amendment 99, tabled by my noble and learned friend Lord Garnier. The UK already has a strong anti-money laundering regime which requires regulated sectors to implement a comprehensive set of measures to prevent money laundering. Corporations and individuals can face serious civil and criminal penalties if they fail to do so.
A failure to prevent money laundering offence would duplicate the systems, controls and penalties of the existing regime. Furthermore, it would extend anti-money laundering obligations to organisations with very low risk, which would be disproportionate. Any necessary anti-money laundering measures can be implemented through the existing regime. The Law Commission agreed with this point, noting that any offences to cover breaches of money laundering would create additional positive duties on organisations which would overlap with the duties under the anti-money laundering regime.
The Government’s review of the UK’s anti-money laundering regime, published in June 2022, concluded that existing regulatory requirements allow for businesses to take a risk-based approach to their obligations, meaning their compliance activities can be targeted at areas of highest risk of money laundering and terrorist financing. The review also committed the Government to further analysis and public consultation to identify the best path for reform of the anti-money laundering supervisory regime. Further improvements to the UK’s anti-money laundering framework are therefore best targeted by strengthening and improving the existing regime, rather than by the creation of a new parallel regime. The Government have already committed to undertake further consultation on the anti-money laundering supervisory regime and continue to review the anti-money laundering framework.
Amendment 99 in the name of my noble and learned friend Lord Garnier also proposes a failure to prevent sanctions evasion offence. The UK can already impose a range of criminal and civil penalties against corporations and individuals for breaches of UK sanctions. Powers were strengthened last year when we moved civil penalties for financial sanctions on to a strict liability basis. Introducing a failure to prevent offence would duplicate the existing regime. On the scope of the offences, government Amendment 84B contains a power in secondary legislation to update the list when required.
I turn to Amendments 84AA, 84CA, 84CB and 84CC, on the threshold for the new offence, tabled by the noble Lord, Lord Fox. I thank him for talking me through his concerns last week and I note that most other noble Lords have supported its intention. I will endeavour to set out the Government’s position on this. Our analysis shows that small businesses would be disproportionately affected by the costs of complying with a failure to prevent fraud offence. The total cost to small and medium-sized enterprises would amount to billions of pounds in year one and hundreds of millions in each subsequent year. This would significantly increase the cost of the measure, which is £98.5 million per annum with the threshold included. An affirmative power—
Lord Vaux of Harrowden (CB)
If the Government have done some analysis on that, could they share it with us? That would be very helpful.
Lord Sharpe of Epsom (Con)
I am happy to investigate whether that is possible. If it is, I will do so.
An affirmative power to add a threshold in future, as proposed by the noble Lord’s amendments, would have limited impact on this burden, with the highest costs already borne should the offence apply to smaller organisations in year one. It is also important that we consider the cumulative compliance cost for SMEs across multiple government regulations, rather than seeing these fraud measures in isolation. Excluding SMEs from the new offence does not mean they can get away with fraud; powers already exist to prosecute small companies, their owners and their employees for criminal acts. It is currently easier to hold these companies to account than larger organisations with complex structures.
The Government’s proposed failure to prevent fraud offence will strengthen powers to tackle fraud by large organisations, ensuring that companies with the biggest customer bases which risk causing the most harm take extra steps to prevent fraud.
We will keep the threshold under review and can amend it through secondary legislation, if required. I know that some noble Lords argue that this power should be used the other way. However, given the potentially chilling impact on small businesses, I hope that noble Lords will agree that it is better to understand the impact on large companies once the measures are implemented, as my noble friend Lord Leigh has highlighted—as well as any trickle-down effect on smaller companies—before applying it more widely. The regulation-making power in the Government’s Amendment 84C enables this approach. The Government therefore firmly consider that the proposed failure to prevent fraud offence strikes an appropriate balance between the crime prevention benefits and the burden placed on business.
Lord Browne of Ladyton (Lab)
I apologise to the Minister; I should have intervened slightly earlier. If the Minister has data on the likely cost of the extension of the provisions in the Government’s amendment to small and medium-sized enterprises, I think that all Members of the Committee would like to see it, including how it could be disaggregated. To make a proportionate decision, surely it would need to be accompanied by the Government’s estimate of the loss to small and medium-sized enterprises caused by fraud. Given the scale of fraud in this country, it must be significant. Personally, I would like to have the opportunity to compare what this is likely to cost against what fraud already costs small and medium-sized enterprises.
Lord Sharpe of Epsom (Con)
The noble Lord makes a good point. As I have said, I will endeavour to find some more figures and share them more broadly. I do not know whether it will take into account the precise analysis that the noble Lord seeks, but the fraud strategy is imminent and it would be strange to publish a strategy without saying what the strategy is there to address. Once again, I am piling all my faith into the fraud strategy—possibly misplaced faith, who knows?
Lord Agnew of Oulton (Con)
Can my noble friend confirm the figure the noble Lord, Lord Macdonald, put forward: that about 99% of businesses will be excluded? That was the figure that I found, but I would like to hear that from the Minister, as well as whether he thinks that is proportionate in the carve-out.
Lord Sharpe of Epsom (Con)
I am afraid that I cannot confirm that. I do not know, but I will find out.
I will go back to Amendment 100 and talk about the identification doctrine. As noble Lords are aware, prosecuting corporates for serious crimes is challenging, largely as a result of the identification doctrine. This principle dictates that the acts and minds of the individuals who represent the directing mind and will are treated as the acts and minds of the corporate itself. In practice, it can be difficult to determine the “directing mind and will” of a corporation. Large and sometimes opaque governance structures make it challenging to identify a senior manager in charge of specific operations. This means that the current law applies unfairly to smaller business. As set out at Second Reading, the Government are fully committed to addressing this problem and to bringing forward legislative reform to achieve it. However, as noble Lords are aware through the amendments that they have tabled, whereas the identification doctrine currently applies to all crimes, the scope of this Bill can permit reform only for economic crime offences. I am as frustrated about that as other noble Lords.
While this amendment would improve the law for economic crimes, it would not remedy the current issues faced by prosecutors for all other sectors of criminal law. However—and I take a partial deep breath here for my noble and learned friend Lord Garnier—given our shared overall ambitions for reform, I would welcome further conversations ahead of Report on this subject. My officials are working through the list of offences with practitioners to determine whether the offences can be reformed without impacting the wider criminal law. My noble and learned friend will also be aware that we are committed to introducing reforms that can be effectively used by prosecuting agencies over a broad range of business. I am sure that he will also agree that is vital that any unintended consequences or risks be identified and understood. I hope that noble Lords are satisfied that the Government are absolutely committed to reform in this area, but that we want to ensure that any reform can be effectively utilised.
Turning to Amendment 101—
Lord Macdonald of River Glaven (CB)
Before the Minister moves to another area, the figure I gave that SMEs account for 99.9% of all companies and business organisations in the UK comes from government statistics—namely, business population estimates for 2022.
Lord Sharpe of Epsom (Con)
I thank the noble Lord for that information; I will come back on that.
Lord Sharpe of Epsom (Con)
Absolutely; I shall get my abacus out. I turn to Amendment 101 on senior managers’ liability for failing to prevent economic crime, also tabled by my noble and learned friend Lord Garnier.
I agree that it is important that individuals, particularly the most senior ones, do not go unpunished for their involvement in committing economic crimes. Prosecutors already have a range of powers at their disposal to pursue decision-makers who enable or commit criminal offences in a corporate setting. This includes the power to prosecute individuals for substantive offending. For example, last year an individual was jailed for 12 years following a Serious Fraud Office investigation into a £226 million fraud.
Additional powers also exist which enable senior managers and directors to be prosecuted where they consent or connive in fraud, theft, money laundering or bribery. A director or manager who is convicted on the basis of their consent, connivance or neglect can be dealt with accordingly by the courts, including being sentenced to imprisonment. Also, under the Serious Crime Act 2007, a person, including a senior manager, is liable for encouraging or assisting the commission of a criminal offence. That includes fraud, false accounting or money laundering—the offences captured by the amendment tabled by my noble and learned friend Lord Garnier. The individual found to be encouraging or assisting the commission of the offence can be prosecuted in the same way as if they commit the offence itself.
This amendment seeks to extend liability for senior managers on a lower basis for culpability than is normally provided for. It would allow a senior manager who takes a decision to be imprisoned for taking that decision, even if the offence is the action of a rogue employee. That would place a disproportionate burden on corporations and their senior management, which is likely to deter legitimate business from seeing the UK as a fair and safe place to conduct business. This amendment is therefore not appropriate.
The noble Lord, Lord Coaker, asked about extraterritoriality. Our approach is focused on cutting crime in the UK and protecting UK victims. As he noted, the powers have sufficient extraterritorial extent to do this, even if the perpetrators or the organisation is based outside the UK. Other countries can take steps to prosecute fraud under their own law. As for the precise mechanics of how it would work, it would be on a case-by-case basis, so it is pointless to speculate.
The noble Lord also asked for more detail about guidance. As he knows, we intend to publish guidance setting out reasonable prevention procedures before the offence of failure to prevent fraud comes into force. It will give organisations clarity about what they need to do. It is important that we engage and consult the right stakeholders in this process and that we engage further with the organisations this will impact. Once the Bill has received Royal Assent, we will start engaging with law enforcement, prosecutors, relevant government departments, public sector organisations, trade associations for businesses, other organisations in scope and other experts to draft the guidance.
We anticipate that the guidance will follow similar themes to those seen in many regulatory regimes—albeit that in this case they are not requirements—and to guidance for existing failure to prevent offences. This includes regular risk assessments to establish the level and type of fraud risks to be addressed; establishing fraud controls and due diligence processes designed to prevent fraud or spot it in the early stages before the offence is carried out; leadership and training to ensure that employees implement controls and create a culture within the organisation that does not accept fraudulent practices as a route to boosting performance and profits; and monitoring and review to ensure that procedures remain effective. I am happy to hold further discussions on this subject at the noble Lord’s convenience.
Lord Sandhurst (Con)
I was waiting to hear the tenor of my noble friend’s response. He opened by saying that a relevant body includes a telecoms company. That is not my point. A telecoms company is obviously likely to be a relevant body. My complaint is that those within scope include only associated persons and not the fraudster who actually makes money indirectly or directly by paying charges to the telecoms company. That target is missed altogether by this Bill and the Online Safety Bill. Is it the intention that telecoms companies will continue to have no responsibility at all for spoof calls and so on?
Lord Sharpe of Epsom (Con)
We will come on to this in more detail on a later group. Perhaps we should leave the detail of this debate until the third group, which we will get to at some point.
Lord Vaux of Harrowden (CB)
The Minister referred earlier to questions about groups of companies and the fact that an employee of a subsidiary would still be an associate of a holding company. That does not address the question that I was asking. Are the thresholds in Amendment 84C on an individual entity basis or a consolidated basis? There is a big difference between the two. A group could happily have a small subsidiary and say, “An employee of that did it, so we are off the hook”.
Lord Sharpe of Epsom (Con)
I appreciate the point that the noble Lord was making and apologise for not addressing it more directly. I will refrain from answering that now and will write. I think I know how it is done, but I am not an accountant and I do not want to say something that he will pick apart. If he will indulge me, I will write on that subject with greater clarity to make sure that I am not making a mistake.
I thank all noble Lords for their participation in this debate and for their patience as I have taken them through a fairly long speech on the Government’s positions on these issues. We agree that reform is needed and, as we have made clear, the Government’s amendments represent a major step in delivering it. I hope that further explanation has reassured noble Lords on why we have presented the amendments with the scope and reach that they contain, and that the Government are committed to reform of the identification doctrine. I therefore very much hope that noble Lords will support the government amendments and not seek to move their own.
Lord Leigh of Hurley (Con)
I appreciate that my noble friend is at the Home Office, but none the less can he give us a commitment that the Government will look again at the definitions used in the Government’s clause for SMEs? I appreciate that they come from the Companies Act 2006, which themselves were cut and pasted from EU regs, but now that we are out of the EU we are free to choose definitions that suit our circumstances and our institutes’ accounting standards.
Lord Fox (LD)
My Lords, I think I was right at the very beginning not to speak for long on this set of amendments. Your Lordships filled in for me very adequately and expertly.
The Minister came back with a couple of points that I want to refer to. He explained that aspects of the amendments from the noble and learned Lord, Lord Garnier, were not necessary because there would be duplication. It would be helpful for us to understand that duplication. Perhaps between now and Report he could provide a list of all the prosecutions that have happened with the existing legislation, proving that the new legislation would not be necessary, so that we can understand that his point is correct.
He also talked about the chilling effect on small companies. This legislation is designed to chill fraud. Taking up the challenge set by the noble Lord, Lord Leigh, about his perfectly innocent sweet shop, legislation that excludes that sweet shop will also exclude all the other small companies that are perpetrating fraud. The skill is in the proportionate application of this legislation. To pick up the point made by the noble Lord, Lord Coaker, it is also about the proportionate advice that is being given. Not all companies are getting the same level of advice on how they should approach this legislation. There is no one-size-fits-all approach, as my noble friend Lady Bowles said.
Lord Sharpe of Epsom
“Fraud offences: supplementary
(1) The Secretary of State may by regulations amend Schedule (Failure to prevent fraud: fraud offences) by—(a) removing an offence from the list in the Schedule, or(b) adding an offence to that list.(2) The power in subsection (1) is exercisable by the Scottish Ministers (and not by the Secretary of State) so far as it may be used to make provision that would be within the legislative competence of the Scottish Parliament if contained in an Act of that Parliament.(3) The power in subsection (1) is exercisable by the Department of Justice in Northern Ireland (and not by the Secretary of State) so far as it may be used to make provision that—(a) would be within the legislative competence of the Northern Ireland Assembly if contained in an Act of that Assembly, and(b) would not, if contained in a Bill for an Act of the Northern Ireland Assembly, result in the Bill requiring the consent of the Secretary of State.(4) An offence added under subsection (1)(b) must be—(a) an offence of dishonesty,(b) an offence that is otherwise of a similar character to those listed (on the passing of this Act) in paragraphs 1 to 6 of Schedule (Failure to prevent fraud: fraud offences), or(c) a relevant money laundering offence.(5) The Secretary of State may from time to time by regulations restate Schedule (Failure to prevent fraud: fraud offences) as amended by virtue of subsections (1) to (3) (without changing the effect of the Schedule).(6) For the purposes of section (Failure to prevent fraud) (1), where a fraud offence is found to have been committed over a period of 2 or more days, or at some time during a period of 2 or more days, and that period of days straddles the beginning of a financial year of the relevant body in question, the fraud offence must be taken to have been committed on the last of those days.(7) In this section “relevant money laundering offence” means an offence under any of the following sections of the Proceeds of Crime Act 2002—(a) section 327 (concealing etc);(b) section 328 (arrangements);(c) section 329 (acquisition, use and possession).” Member’s explanatory statement
See the explanatory statement for new clause (Failure to prevent fraud).
Lord Sharpe of Epsom
“Section (Failure to prevent fraud): large organisations
For the purposes of section (Failure to prevent fraud) (1) a relevant body is a “large organisation” only if the body satisfied two or more of the following conditions in the financial year of the body (“year P”) that precedes the year of the fraud offence—
Turnover Balance sheet total Number of employees | More than £36 million More than £18 million More than 250. |
See the explanatory statement for new clause (Failure to prevent fraud).
Lord Sharpe of Epsom
“Offences under section (Failure to prevent fraud) committed by partnerships
(1) Proceedings for an offence under section (Failure to prevent fraud) alleged to have been committed by a partnership must be brought in the name of the partnership (and not in that of any of the partners).(2) For the purposes of such proceedings—(a) rules of court relating to the service of documents have effect as if the partnership were a body corporate, and(b) the following provisions apply as they apply in relation to a body corporate—(i) section 33 of the Criminal Justice Act 1925 and Schedule 3 to the Magistrates’ Courts Act 1980;(ii) section 18 of the Criminal Justice Act (Northern Ireland) 1945 (c. 15 (N.I.)) and Schedule 4 to the Magistrates’ Courts (Northern Ireland) Order 1981 (S.I. 1981/1675 (N.I. 26));(iii) sections 34(2), 66(6AA) and 72D(2) of the Criminal Procedure (Scotland) Act 1995.(3) A fine imposed on the partnership on its conviction for an offence under section (Failure to prevent fraud) is to be paid out of the partnership assets.”Member’s explanatory statement
This amendment supplements new clause (Failure to prevent fraud).
“Guidance about preventing fraud offences
(1) The Secretary of State must issue guidance about procedures that relevant bodies can put in place to prevent persons associated with them from committing fraud offences as mentioned in section (Failure to prevent fraud) (1).(2) The Secretary of State may from time to time revise the whole or any part of the guidance issued under this section.(3) The Secretary of State must publish—(a) any guidance issued under this section;(b) any revision of that guidance.(4) Before issuing or revising guidance under this section the Secretary of State must consult—(a) the Scottish Ministers, and(b) the Department of Justice in Northern Ireland.(5) The requirement to consult those persons may be satisfied by consultation carried out before this section comes into force.”Member’s explanatory statement
This amendment supplements new clause (Failure to prevent fraud).
“Failure to prevent fraud: minor definitions
(1) This section applies for the purposes of sections (Failure to prevent fraud) to (Guidance about preventing fraud offences). (2) References to a person “associated with” a relevant body are to be interpreted in accordance with section (Failure to prevent fraud)(6).(3) “Financial year” has the meaning given by section (Failure to prevent fraud) (12).(4) “Fraud offence” has the meaning given by section (Failure to prevent fraud) (5).(5) “Modify” includes amend or repeal (and references to modifications are to be interpreted accordingly).(6) “Partnership” means—(a) a partnership within the meaning of the Partnership Act 1890;(b) a limited partnership registered under the Limited Partnerships Act 1907;(c) a firm or other entity of a similar character to one within paragraph (a) or (b) formed under the law of a country or territory outside the United Kingdom.(7) “Relevant body” has the meaning given by section (Failure to prevent fraud) (11).(8) “Subsidiary” has the same meaning as in section 1159 of the Companies Act 2006.(9) “UK company” means a company formed and registered under the Companies Act 2006.”Member’s explanatory statement
This amendment sets out definitions for the purposes of new clauses (Failure to prevent fraud) to (Guidance about preventing fraud offences).
“Failure to prevent fraud: miscellaneous
(1) In section 61(1) of the Serious Organised Crime and Police Act 2005 (offences to which certain investigatory powers apply), at the end insert—“(k) an offence under section (Failure to prevent fraud) of the Economic Crime and Corporate Transparency Act 2023 (failure to prevent fraud offences).”(2) In Schedule 1 to the Serious Crime Act 2007 (offences which are serious offences for purposes of serious crime prevention orders)—(a) in Part 1 (serious offences in England and Wales), in paragraph 7, after sub-paragraph (2) insert—“(2A) An offence under section (Failure to prevent fraud) of the Economic Crime and Corporate Transparency Act 2023 (failure to prevent fraud offences).”;(b) in Part 1A (serious offences in Scotland), in paragraph 16J, after sub- paragraph (1) insert—“(1A) An offence under section (Failure to prevent fraud) of the Economic Crime and Corporate Transparency Act 2023 (failure to prevent fraud offences).”;(c) in Part 2 (serious offences in Northern Ireland), in paragraph 23, after sub-paragraph (2) insert—“(2A) An offence under section (Failure to prevent fraud) of the Economic Crime and Corporate Transparency Act 2023 (failure to prevent fraud offences).”(3) In Part 2 of Schedule 17 to the Crime and Courts Act 2013 (offences in relation to which a deferred prosecution agreement may be entered into), after paragraph 27A insert—“27B An offence under section (Failure to prevent fraud) of the Economic Crime and Corporate Transparency Act 2023 (failure to prevent fraud offences).””Member’s explanatory statement
This new clause makes consequential amendments of other legislation in consequence of new clause (Failure to prevent fraud).
Lord Alton of Liverpool
“Duty to disclose funds and economic resources
After section 16 of the Sanctions and Anti-Money Laundering Act 2018, insert—
“16A Duty to disclose funds and economic resources(1) Any regulations made under section 1 must, for the purposes of preventing an offence under those regulations, make provision requiring designated persons—(a) to report to the Treasury or another competent authority, within three months after such regulations are made or within three months from the date of designation, whichever is the latest, the funds or economic resources that—(i) are currently held, owned or controlled by them within the United Kingdom, and(ii) were held, owned or controlled by them within the United Kingdom six months prior to the date of designation, and(b) to cooperate with the Treasury or other competent authority in any verification of such information.(2) A failure to comply with a requirement in subsection (1) may be considered as participation in activities the object or effect of which is (whether directly or indirectly) to circumvent such requirement.(3) Where a designated person has been convicted of an offence by virtue of subsection (2), a court proceeding under section 6, 92 or 156 of the Proceeds of Crime Act 2002 (confiscation orders) must consider such person as benefitting by the value of any assets concealed through such criminal conduct.(4) Assets concealed as a result of a failure to comply with a requirement in subsection (1) constitute recoverable property for purposes of Part 5 of the Proceeds of Crime Act 2002.(5) Regulations under subsection (1) may also be made in relation to a person who is subject to an International Criminal Court warrant for an offence that would constitute an economic crime in the United Kingdom.””Member’s explanatory statement
This amendment says that sanctions regulations must, for the purposes of preventing an offence under those regulations, require designated persons to disclose all assets they own or control in the UK. Failure to disclose such assets is defined as a form of sanctions evasion, which is already criminalized under UK law, and which could result in asset recovery under the Proceeds of Crime Act.
Lord Alton of Liverpool (CB)
My Lords, I apologise for not being able to speak at Second Reading, but I was overseas—I had been invited to speak at the National Assembly in Seoul—and, relevant to this amendment, among the subjects which we discussed was the hacking of cryptocurrency, cybercrime, human rights violations and the failure to apply proper sanctions. North Korea—I declare a non-financial interest as the co-chair of the All-Party Parliamentary Group for North Korea—has produced the original playbook for many of the evasive actions that have been taken by other authoritarian regimes in the world.
In moving Amendment 85, I will try to explain its genesis and why we need to strengthen the sanctions regime. Although it stands alone on the Marshalled List, it is not unconnected to the important issues raised in Committee thus far, especially in relation to amendments debated on Tuesday on anti-money laundering measures and strategic lawsuits against public participation, or SLAPPs. On Tuesday, the noble Lord, Lord Ponsonby, was right to say that the House is fortunate to have the insights and collective wisdom of noble Lords in ensuring that the Bill has what he called “proper teeth”. Amendment 85, which bears the names also of the noble Lords, Lord Coaker and Lord Fox, and my noble friend Lord Stevens of Birmingham, enjoys support from across the House. Significantly, it also enjoys support from all sides in another place. It is designed to give the sanctions regime proper teeth and to deal with dirty money.
I should say that I have skin in the game as someone sanctioned by authoritarian regimes—a distinction I share with the right honourable Sir Iain Duncan Smith MP. He suggested that I meet Dame Margaret Hodge MP, former chair of the House of Commons Public Accounts Committee, who served on the Standing Committee in another place on this Bill. She and Margot Mollat from her office have been tireless in their efforts to build a non-partisan alliance championing greater accountability and countering malign forces which manipulate and enjoy our British freedoms while collaborating in the denial of those same freedoms to millions of people elsewhere.
Subsequently, I met Helen Taylor, senior legal researcher at Spotlight on Corruption, and her colleagues, and Maria Nizzero, a research fellow at the Royal United Services Institute’s Centre for Financial Crime and Security Studies. I draw attention to her important paper, How to Seize a Billion: Exploring Mechanisms to Recover the Proceeds of Kleptocracy, recently published in the New Law Journal. I have also previously met Bill Browder, author of Red Notice, and Evgenia Kara-Murza, the wife of Vladimir Kara-Murza, a British citizen and champion of democracy in Russia who only last week was sentenced to 25 years in jail on so-called charges of treason. In a book published last year, I also detailed our state’s failures to hold to account those responsible for international crimes—notably genocide—and the way in which we persist in doing business as usual with the actors who perpetrate many of those crimes.
Yesterday, I was grateful to the Minister for providing the opportunity to discuss Amendment 85 with him and to explore some of the issues that inevitably arise—everything from proportionality, touched on in the previous group, and capacity for enforcement to European Union requirements on mandatory disclosure. He was accompanied by the able Corrie Monaghan from the Bill team. I was glad to learn from her about the continuing work going on across departments to address the issues raised in the amendment and the Government’s willingness to consider what more might be done. I know that the Minister will try to plug some gaps through Amendment 91A and bring clarity, although I think he himself would say that it does not specifically do anything new.
My Amendment 85 seeks to go further than that by requiring disclosure and enabling asset recovery under the Proceeds of Crime Act where there has been deliberate concealment rather than disclosure. This Committee is well aware that Russia’s illegal and tragic invasion of Ukraine on 24 February last year exposed the uncomfortable reality that our country has been welcoming Russian money and at times facilitating the concealment of illicit funds, earning us the infamous nickname of “Londongrad”. The Minister knows that; I recognise and applaud the Government’s introduction of two welcome pieces of legislation aimed at combating economic crime and enforcing transparency. Their swift legislative action in the form of the Economic Crime (Transparency and Enforcement) Act and this Economic Crime and Corporate Transparency Bill are a good beginning but, as the noble Lord, Lord Coaker, said on the previous group, we must go further.
Amendment 85 would allow the seizure of assets when deliberate attempts had been made to escape the enforcement of sanctions. I should add that, in addition to these important legislative efforts, the Government have imposed sanctions on nearly 1,500 individuals, including 120 oligarchs with a net worth of over £140 billion. However, to put that in perspective, the Office of Financial Sanctions Implementation—OFSI—reports that, in total, just £18 billion of assets associated with Russia’s regime have been frozen since the beginning of the war—compare that with the net worth of £140 billion.
In the meantime, the oligarchs have found increasingly sophisticated ways to weaken our sanctions response: moving assets just before sanctions hit; exploiting loopholes to put assets out of reach; and concealing assets to hinder the enforcement of sanctions. Oligarchs such as Abramovich, for example, were able to bypass the sanctions by handing over their wealth and companies to family members just a few weeks before the sanctions hit. Just before the war began, Abramovich restructured at least $4 billion of his personal wealth and transferred it to his children, who are now the owners of trusts, luxury yachts, private jets and mansions—all out of reach of UK sanctions. Had Amendment 85 been in place, these funds, which by contrast amount to more than the UK’s present commitment in military aid to Ukraine, would not have escaped freezing orders and could potentially have been seized.
I give the Committee another example. Mikhail Fridman’s personal assistant, Nigina Zairova, took control of several entities previously owned by that sanctioned oligarch, including a £65 million mansion in Highgate. She was belatedly sanctioned, but the costs of constantly being one step behind are clear. Recent investigations by Transparency International UK found that luxury homes worth £700 million previously linked to sanctioned oligarchs were not flagged as restricted on the UK property register. I would love to hear from the Minister, when he comes to reply, what is being done about that and what the current position is when it comes to properties on that register.
This is not just about the war in Ukraine. The Minister and I share a passion for and love of Hong Kong. I am a patron of Hong Kong Watch. At an event last night, I pointed out that at least five Hong Kong officials and six legislators who are complicit in the ongoing human rights crackdown currently own property in the UK. I strongly welcomed the Magnitsky sanctions—named for Bill Browder’s lawyer, Sergei Magnitsky, who was tortured to death in pre-trial detention in 2009—but the failure to use targeted sanctions against those responsible for the destruction of Hong Kong’s freedom underlines the case for parliamentary accountability and oversight of the sanctions regime. I find it extraordinary that no Select Committee of either House, or Joint Committee of both Houses, even meeting in camera is able to discuss the nature of the Magnitsky sanctions, including why they are so random and often arbitrary—some are included, and some are not.
Indeed, we even provide red-carpet treatment for officials such as Christopher Hui, who met not just one but three United Kingdom Ministers last week, while his regime has denied Hong Kong BNOs access to more than £2.2 billion of pension savings. A letter signed by 110 parliamentarians, including the noble Baroness, Lady Bennett, who is co-chair of the All-Party Parliamentary Group on Hong Kong, of which I am an officer, urged the Government to undertake an audit of UK assets of Hong Kong and Chinese officials linked to human rights violations. No response has been received and no action has been taken. I hope that, with his customary diligence and commitment, which I applaud, the Minister will attend to that and help us to get a response.
Assets are clearly slipping through the cracks of our sanctions regime, but we do not currently have any legislative tools to seize assets that remain concealed. Amendment 85 proposes a minor but significant change to our current legislation that would put us on the front foot in pursuing sanctioned assets. The amendment has what the noble Lord, Lord Ponsonby, described on Tuesday as “teeth”, and would help us seize concealed assets by expanding the scope of sanctions evasion—evasion is, of course, already a criminal offence in the UK. By extending the definition of what constitutes evasion, we can increase the pressure on those who seek to conceal their assets here.
Baroness Bennett of Manor Castle (GP)
My Lords, it is a great pleasure to follow that powerful, comprehensive and, I think, highly persuasive speech from the noble Lord, Lord Alton. I will be extremely brief but, given there was not space to attach my name to this amendment, I wanted to briefly offer Green support. I hardly need to declare my position as co-chair of the All-Party Parliamentary Group on Hong Kong, as the noble Lord, Lord Alton, has already done that, but I will do so for the record.
I just want to make two points. I am perhaps slightly less optimistic than the noble Lord, Lord Alton, who said that if we create this law, the sanctioned individuals will declare. However, this amendment would create a weapon to use against them when they do not. So I would perhaps frame that slightly differently. This really relates to the debate on the previous day in Committee when we talked about SLAPPs. We know the limitations—we have just been discussing the limitations of the resourcing and capacity of our enforcement vehicles. It will likely very often be NGOs and journalists who expose this, but if we bring in the anti-SLAPP rules and this rule, we will see the seizures actually happening and the Bill being effective.
Secondly, through this Bill we are aiming—as we aimed with the previous economic crime Bill—to close lots of loopholes. I assume, however, that not even the Minister will say that, once we have done all this, everything will be fixed and we will not have any future problems. As evidence for that, in August last year the register of overseas entities came in and yet the figures show that little more than half the relevant properties owned by overseas companies have been declared.
We in this Committee are looking at making a difference not just in theory but in practice, and that is what this amendment would do.
Lord Fox (LD)
My Lords, it is a great pleasure to support the noble Lord, Lord Alton, on this amendment. I have supported him on a number of amendments in other areas, and I have learned not to do too much research because however much you have done, he will have said it by the time you get the chance to say it.
The Government have recognised the importance of asset seizure. Back in the heady days of March 2022, the then Exchequer Secretary to the Treasury, James Cartlidge—he has of course moved on since then—said that the Government were looking at
“how we can go further to crack down on illicit money in British property, including considering temporary asset seizures beyond the freezing regime that we already have in place”.—[Official Report, Commons, 22/3/22; col. 147.]
However, that is not an easy task, and this is a bit more than closing a few loopholes. Many experts have flagged risks relating to seizing assets—I am sure that the Minister will remind us of that when we come to it—particularly without the necessary proof of criminality. For assets belonging to individual oligarchs, concerns have been raised over the rule of law, due process and property rights. In the case of state assets, objections include sovereign immunity—something that I think I mentioned in a previous debate—and the fear that other states may withdraw their reserves. This is a big issue, as the noble Lord, Lord Alton, mentioned. When we focus on the Russian sanctions, for example, we see that the UK has frozen billions of pounds of Russian assets under the sanctions following the invasion of Ukraine. The Office of Financial Sanctions Implementation—OFSI—has reported that £18 billion owned by individuals and entities associated with Russia’s regime has been frozen since the beginning of that war. Some estimates suggest that more than £40 billion could be frozen or immobilised if further sanctions were put in place.
However, assets frozen under sanctions are passive. Funds frozen under the UK sanctions regime cannot be retrieved or repurposed. In fact, these should be returned at the end of the war if sanctions are lifted. Meanwhile, as the noble Lord, Lord Alton, pointed out, the UK is asking the taxpayer to fund the war effort and, no doubt, the repair of Ukraine if and when we get to that point. So, there is quite a lot at stake.
Amendment 85 is a way of trying to do this and cut through the complication relatively simply and ingeniously —for which I claim no credit. It seeks to strengthen the UK sanctions regime and find a route that allows us to recover these frozen assets, which have been concealed in the past. As we have heard, the mechanism we propose would impose a duty on sanctioned persons proactively to disclose all their assets held in the UK and criminalise the failure to disclose such assets as a form of sanctions evasion.
If a sanctioned person fails to declare all their assets and further assets are uncovered by the authorities, they are guilty of a criminal offence—sanctions evasion. Those undisclosed assets may then be seized under the Proceeds of Crime Act 2002. This seizure would be subject to the same safeguards that courts currently uphold in criminal and civil recovery processes, following due process and ensuring that any deprivation of private property is not disproportionate to the public interest in seizing the proceeds of crime.
Given that sanctions evasion is already a criminal offence in the UK, this amendment would be a straightforward way rapidly to scale up assets that may be susceptible to seizure. Adding a requirement to disclose all assets held within six months prior to designation would also capture assets such as those set out by the noble Lord, Lord Alton. It is for these reasons that we support this amendment.
Lord Coaker (Lab)
My Lords, I rise briefly to support Amendment 85 from the noble Lord, Lord Alton, to which I have added my name, and to support the comments of the noble Lord, Lord Fox, and the noble Baroness, Lady Bennett.
As my noble friend Lord Ponsonby said, the question for the Government concerns giving teeth to the sanctions regime in respect to designated individuals. If it is not dealt with like this, what do the Government propose to do? There is clearly a gap, sanctioned individuals are finding ways around the law and we are not able to confiscate or seize the assets we want to seize. Criminalising a failure to disclose as a form of sanctions evasion, so that those assets can be seized, as referred to by the noble Lord, Lord Alton, is a very important step forward. Although this is just one amendment, Amendment 85 is really important.
As I said, if the Government do not believe that this amendment is appropriate, what are we going to do about the situations and individuals the noble Lord, Lord Alton, spoke about, and the huge sums of money, which are beyond the scope of the British state to collect from individuals? We all think we should be able to do something about that.
Just so the noble Lord does not feel on his own in being sanctioned, I am sanctioned as well, so we are in good company, as is the noble Lord, Lord Faulks. We could have a sanctions party here.
Lord Leigh of Hurley (Con)
I join the sanctions party. I rise to say that, as this amendment has the support of Cross-Bench, Lib Dem and Labour Peers, I add my support, even if I missed out on adding my name to those proposing it.
Baroness Altmann (Con)
I too add my support, as a further person in the sanctioned party. I congratulate the noble Lord, Lord Alton, on moving this amendment and on his excellent speech. I also congratulate him on all the work he does in some most important areas.
Lord Sharpe of Epsom (Con)
My Lords, I thank the noble Lord, Lord Alton of Liverpool, for his amendment and for his kind words. I echo the words of my noble friend Lady Altmann about his work in so many areas. I also thank the others who have spoken in this brief debate—the noble Baroness, Lady Bennett, the noble Lords, Lord Fox and Lord Coaker, and my noble friend Lord Leigh.
I reassure the noble Lord that the Government are sympathetic to using frozen funds to assist with Ukrainian reconstruction. Currently, government authorities have the powers to utilise various enforcement tools to investigate breaches of sanctions and, in criminal cases, to confiscate relevant assets. As has been noted, that has resulted in over £18 billion of Russian assets being frozen in the United Kingdom.
The Government are also considering lawful routes to making Russian assets available for Ukrainian reconstruction. We must ensure that any solution is legal, safe and robust, and we will continue to work with G7 partners to make progress.
Lord Faulks (Non-Afl)
Before the noble Lord sits down, during the passage of the first economic crime Bill, when the question of sanctions was discussed, much reference was made to the very lengthy Explanatory Notes which accompanied that Bill—the longest I have ever seen—particularly as regards the human rights implications of depriving people of their assets in the sort of way that the noble Lord, Lord Alton, envisages in his amendment, in particular A1P1 of the European convention and various other rights. Is it part of the Government’s position that the sort of suggestions made in this amendment are in fact stymied or may be frustrated by the provisions of the European convention and the Human Rights Act?
Lord Sharpe of Epsom (Con)
The noble Lord has strayed into an area with which I am not familiar. I shall have to write to him.
Lord Alton of Liverpool (CB)
My Lords, I think that the whole Committee would be interested to see the reply that the noble Lord receives from the Minister on that point.
I thank all noble Lords who participated in this short debate, including the noble Baroness, Lady Bennett, and the noble Lords, Lord Faulks and Lord Coaker, and thank the noble Lord, Lord Leigh, and the noble Baroness, Lady Altmann, for their brief but helpful interventions. I thank her especially for her personal remarks.
On Tuesday, some noble Lords will have seen sitting with me in the strangers’ area at the back of our proceedings a young man called Sebastian Lai. His father, Jimmy Lai, is incarcerated in a prison in Hong Kong. He had confiscated from him Apple Daily. He was a journalist, media owner and the leading voice for the pro-democracy movement in Hong Kong. Imagine how that family feel as their father, a British citizen, languishes in a jail in Hong Kong—likely, at the age of 75, to die there—knowing that some of those responsible for what has happened to him and who have brought about his incarceration in what is, and I use the word deliberately, a complete corruption of the once illustrious legal system in Hong Kong, have properties, portfolios and massive assets in the United Kingdom. It is high time that we took this issue even more seriously than we have hitherto.
I was not saying this for purely rhetorical reasons earlier—I mean it when I say that I know that the Minister is passionate about people such as Jimmy Lai and the terrible things that have happened in Hong Kong. I was pleased that he did not rule out the possibility that we might be able to overcome some of the issues, particularly around proportionality, which he raised and which we discussed yesterday—and maybe the need for other safeguards, perhaps to deal with the issue that the noble Lord just raised. I hope that, therefore, he will agree to a meeting with some of the legal team that I have met from Spotlight on Corruption, RUSI and the others to which I referred earlier. Sanctions must not just be about virtue signalling—they have to be real and have the teeth to which we have referred in today’s debate.
I am grateful that the noble Lord has not ruled out doing more, but I hope that what more we do will be truly effective and that we will pause and consider further action between now and Report. Perhaps a meeting could even be arranged in the margins of this Committee, where we can discuss this together, for those who are genuinely interested in finding a solution. Perhaps we could invite some of the Members from another place who are so interested in this issue, too. I know that the Committee has a lot of other business to attend to. On that basis, I beg leave to withdraw the amendment.
Lord Sharpe of Epsom
“20A_ An offence under section (Failure to prevent fraud) of this Act (failure to prevent fraud).” Member’s explanatory statement
This amendment is supplementary to new clause (Failure to prevent fraud). It adds the new offence of failure to prevent fraud to the list of offences that constitute “economic crime” for the purposes of clauses 175 to 178.
Lord Sharpe of Epsom
“SCHEDULE 10FAILURE TO PREVENT FRAUD: FRAUD OFFENCESCommon law offences
1_ Cheating the public revenue.2_ In Scotland, the following offences at common law—(a) fraud;(b) uttering;(c) embezzlement.Statutory offences
3_ An offence under any of the following provisions of the Theft Act 1968—(a) section 17 (false accounting);(b) section 19 (false statements by company directors etc).4_ An offence under any of the following provisions of the Theft Act (Northern Ireland) 1969—(a) section 17 (false accounting);(b) section 18 (false statements by company directors etc).5_ An offence under section 993 of the Companies Act 2006 (fraudulent trading).6_ An offence under any of the following provisions of the Fraud Act 2006—(a) section 1 (fraud);(b) section 9 (participating in fraudulent business carried on by sole trader);(c) section 11 (obtaining services dishonestly).”Member’s explanatory statement
This new Schedule sets out the list of “fraud offences” for the purposes of new clause (Failure to prevent fraud).
“Regulatory failure to prevent economic crime and failure to prevent facilitation of economic crime
(1) The Secretary of State may by regulations—(a) confer on any supervisory or regulatory bodies a duty to prevent economic crime and to prevent facilitation of economic crime within their supervisory or regulatory scope;(b) establish an offence of—(i) regulatory failure to prevent economic crime; and(ii) regulatory failure to prevent the facilitation of economic crime.(2) Regulations must be made within 18 months of the day on which this Act is passed conferring duties under subsection (1)(a) and creating offences under subsection (1)(b) in respect of—(a) OFCOM and other regulators of communication platforms including telecommunications;(b) financial services regulators;(c) the Financial Reporting Council in respect of auditors;(d) the Solicitors Regulation Authority and other relevant regulators of legal representatives;(e) the Institute of Chartered Accountants in England and Wales and other relevant regulators of accountants.(3) Regulations must be made in respect of any other regulator that notifies the Secretary of State that they wish to be bound by such duties, within 18 months of such notification.(4) Regulations under this section may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.”
Baroness Bowles of Berkhamsted (LD)
My Lords, the amendments in this group were inspired by the work of what we call in shorthand the Fraud Act review committee, chaired by the noble Baroness, Lady Morgan. Several members of the Committee were also on that Select Committee. At Second Reading, several of us spoke ahead of the noble Baroness and stole her thunder, so I am going to—
Baroness Bowles of Berkhamsted (LD)
In order not to do the same again, I will concentrate mainly on the mechanics of this first amendment, which is a regulatory failure to prevent amendment. Both amendments in the group are targeted at the same issue—that is, enablers or suppliers of services where the perpetrators, the fraudsters, as has already been explained in the earlier group by the noble Baroness, Lady Morgan, are not associated with the company. Largely, they will be customers, so they fall outside many of the provisions of the failure to prevent regime, as has already been discussed.
In the Select Committee, as well as recommending a failure to prevent criminal regime, we saw the benefit of regulators having powers to intervene, and we broadly favoured there being a comparable regulatory failure to prevent regime. We did not actually say that it was a recommendation because, at that stage, from the evidence that we had heard, we were led to believe—I think this is clear in the report—that the Online Safety Bill might provide a similar result. It is now clear that that is not the case, certainly not with regard to the telecoms operators, so I have tabled this amendment. My amendment has been put in what I call a “sunrise” form where the detail comes from the statutory instruments, which would enable the Government to do the right kind of consultation and specifically tailor the regimes. It could also be done in the light of deferring to whatever happens in all the relevant Bills presently going through, because there are aspects covered in the Financial Services and Markets Bill and the Online Safety Bill as well as this one.
The issue that we are aiming to cover is where the services provided by others are used for fraud, not in active participation by the service provider but in the passive sense, and they are not intervening even when they know that their services are being abused. Email, phone and text scams are the notable examples. While banks have been on the front line of defending against scams and are paying compensation where people have been tricked into transferring money—which is also now being legislated for—it is fair to say that we on the Select Committee were shocked by the complacency of the telecoms companies in particular. We were not convinced that enough, or indeed anything, was really being done. It seemed to be deliberate negligence; there is no other way to explain it.
My amendments would enable the Government to confer on regulators a duty and a power relating to failure to prevent and failure to prevent facilitation of fraud. I am sure that the Minister will say that regulators generally have powers concerning fraud in their sectors already; the Law Commission’s report referenced the case of sewage discharges and Southern Water. However, fraud is not generally stated in regulators’ headline duties. For example, it does not appear in the objectives or principles of the Financial Conduct Authority, which claimed in the instances of fraud around the RBS Global Restructuring Group to be powerless to intervene, although fraud was pretty clear, because business lending was outside the scope of the regulatory envelope.
Baroness Morgan of Cotes (Con)
My Lords, it is a pleasure to follow the noble Baroness, Lady Bowles, who, along with other noble Lords, made an excellent contribution to the work of the fraud inquiry, which I will return to in a moment. For the sake of good order, I declare again my interests, which are as a non-executive director of the Financial Services Compensation Scheme, chair of the Association of British Insurers and a non-executive director of Santander UK.
I will speak first to Amendment 91, which has just been so ably moved. I do not wish to duplicate or repeat but, exactly as the noble Baroness said, Amendments 91 and 94 are grouped together because they are about the services or channels being used for the commission and perpetration of fraud on victims. I entirely take her point that the ability of the regulators to have “failure to prevent” offences would be faster, while criminal sanctions and penalties for the offence potentially take time to bed in.
However, I will confine my remarks mainly to Amendment 94 so as not to detain the Committee too long. It was a huge pleasure to be asked to chair the House of Lords Fraud Act 2006 and Digital Fraud Committee inquiry last year. I thank all my fellow members of the committee and our truly excellent staff, who worked over and above—committee members are nodding—and made a significant contribution. I also thank all the witnesses and those who gave evidence.
It is a thick report—if you are suffering from any sort of insomnia, it might help, or it could work as a doorstop—but we took a deliberate decision to make it comprehensive, rather than just talk about certain areas. I have had very positive feedback from outside, with people saying that, for the first time, it brought together the problem of fraud, particularly digital fraud, and the way in which the whole chain works. That was exactly what we wanted to look at. It was deliberately called, Fighting Fraud: Breaking the Chain, because, as we have heard, there is a whole chain involved before we get to the fraudsters potentially realising their proceeds. On page 23, we set out the whole chain, starting with the inbound route, which includes phishing, smishing and fraudulent advertising; then the interaction, which includes number spoofing, social engineering and fraudulent websites; before you get to the cashing out, where the money moves, perhaps via mule accounts, to the fraudsters.
As we heard in the debate on a previous group—I will not repeat it—the reason we are talking about these amendments, apart from their being long overdue, is that we will not crack down on or stop the UK being the fraud capital of the world, which I am afraid it is at the moment, if we do not go right upstream and prevent the frauds happening in the first place, rather than just dealing with the consequences at the end. This has already happened in some ways, with the introduction of chip and PIN technology in cards a number of years ago, which cut down on the number of fraudulent transactions. It is possible to get ahead of these things, but it requires looking at the whole system.
There is an extremely good article in today’s Financial Times by the head of Demos, which generally asks: why do we, as a country and a Government, not prevent problems as opposed to just dealing with them as and when they occur? As we heard from the noble Lord, Lord Coaker, we have a real opportunity with these amendments and debates to prevent people becoming victims of fraud, rather than just dealing with it at the end.
We have heard that 41% of crime in England and Wales is fraud. Paragraph 4 of the report states:
“In the first half of 2022, it is estimated that over 40 million UK adults were targeted by scammers and data shows that a total of £609.8 million was lost to all types of fraud”.
Over 40 million adults were not necessarily defrauded but targeted, and the argument for this amendment and Amendment 91 is that, unless we deal with the contact by the fraudsters, we will not prevent fraud, and more people will become victims.
We have not yet talked enough in this debate, although it has been talked about before, about the impact on those who are defrauded—the victims. I know from when I chaired the Treasury Select Committee in the other House and from this inquiry that the testimony of victims is always incredibly powerful. Sometimes, as we heard in some evidence, because fraud does not “bang, bleed or shout” it is regarded as somehow a victimless crime. But for those to whom it has happened—not just elderly people, as it is commonly believed, but right the way through the age groups—there is a loss of trust when you are defrauded, particularly in your bank but also just generally in the messages that you receive; we know about scams whereby people pretend to be members of the family. After that, it is difficult to learn to trust again any information that you receive in WhatsApp messages, text messages or phone calls. So I appeal to the Minister and the Government: if, as we have heard, we do not take action on this and pass a comprehensive “failure to prevent” offence, that will be a missed opportunity not just for us and the country but potentially for 40 million or more people who will be targeted by scammers in future.
I turn to the amendment. The important difference between this and the government amendment in particular is that our draft—I thank the noble Lord, Lord Vaux, the noble Baroness, Lady Bowles, and my noble and learned friend Lord Garnier for adding their support—would not require the company to benefit from the fraud that had been committed or attempted to be committed. The company or channel would not have to be the victim of the fraud. We also cover having officer liability as well as the company.
My noble friend said he was going to return to the issue of telecoms companies in this part of our proceedings. The point is that telecoms companies and social media platforms are an important early part of the fraud chain. That is where people are first contacted and are then often taken off those platforms or services and put into further contact, which is where they pass on their details and ultimately get defrauded.
We have heard why Ofcom is going to be an important regulator. In March it published important research that said:
“Nearly 43 million UK adult internet users have encountered suspected scams online … Among those who had experienced an online scam or fraud, nearly a quarter (23%) first encountered it on social media—the second most common channel after email … Potential victims were most commonly contacted via a direct message, or a mass message posted to a group … A fifth were reached through online advertisements … while others were targeted through user-generated and influencer posts or videos”.
This area—of fraudsters using these channels to contact people—is only going to grow. My noble friend Lord Sandhurst has already asked about telecoms companies, which are responsible for many of the smishing texts. My suspicion is that the Online Safety Bill will not catch telecoms companies or emails. It potentially does not catch those internet service providers that host fraudulent websites. The position is unclear about intermediary sites such as Airbnb and Amazon, which people use in order to post, if not a fraudulent advertisement, then enough information to inveigle a potential victim into ultimately sharing their details.
I am not going to labour this point, but the need for cultural change is very real. In the report—and this is the reason why we are talking about these companies—we say:
“Until all fraud-enabling industries fear significant financial, legal and reputational risk for their failure to prevent fraud, they will not act. Companies continue to play their part in public-facing talking shops whilst at the same time relying on individually managed consumer awareness campaigns that shift the blame onto victims”.
I hope the Minister has a look at this report, although I know he is a busy person. Paragraphs 520 and 521 are relevant here. We say:
“Some sectors have less liability for fraud than others and are not held to account effectively for their role in facilitating this crime. We recognise that the role of failure to prevent offences is primarily to inspire behaviour change rather than criminal prosecutions”.
Behaviour change and cultural change are very important, and they are what noble Lords are saying today that they want to see.
Lord Vaux of Harrowden (CB)
My Lords, it is a pleasure to follow the noble Baroness, Lady Morgan, who so ably chaired the Fraud Act 2006 and Digital Fraud Committee of which I was also a member. She has given a lot of detail, so I will try to slash out bits of my speech that she has already covered and not repeat too much—I apologise if I fail slightly in that.
I think that we all know about the scale of fraud in this country. However, I think it is worth repeating what the noble Baroness, Lady Morgan, said about the impact that fraud has on the victims. This is not just a financial crime and “Oh, I’ve lost some money”. We heard stories about mental health issues, even suicide, arising from frauds. It is a really serious matter. Losing your life savings is serious but it goes way beyond that.
Yet we do not seem to have taken much action. We have heard several times about the 1% of law enforcement resources that are focused on it. The government response has been fragmented—we refer in our report to an “alphabet soup” of bodies dealing with it. Our report referred to this creating
“a permissive culture across Government and law enforcement agencies towards fraud and the criminals who perpetrate it”.
At the risk of sounding like a stuck record, we have been waiting for months for the national fraud strategy—I think I detect that the Minister is as frustrated as we are about the delay. I am pleased that it has moved from “shortly”, as he said on 15 November last year, to “genuinely imminent” today. We look forward to it. However, the delay does not inspire huge confidence in how seriously the Government are taking this.
The noble Baroness, Lady Morgan, described what we called the “fraud chain” in our report. It is sometimes known as the “kill chain”; we decided that that was not a particularly pleasant phrase, but it again conveys the seriousness of it. Some parts of the chain are, at last, taking action. In particular, the banking sector has taken a number of actions that have had a positive impact; the introduction of the confirmation of payee process is a good example. But why has that sector in particular taken action? I would argue it is because it has had, almost alone in the chain, a real financial incentive to do so with the voluntary reimbursement code. It has been on the hook for paying back and reimbursing, therefore it is trying to do something to stop it. The voluntary code is now becoming mandatory under the Financial Services and Markets Bill, which is welcome.
It is also interesting to see, in the financial services and banking area, some competitive elements creeping in. The TSB uses the fact that it now reimburses all APP fraud losses as a selling point, which is encouraging. On the other hand, those banks that did not sign up to the voluntary reimbursement code are often cited as being more likely to see greater fraud levels on their customers; with less incentive to take action, they have taken less action. Making the code mandatory will, I hope, force them to start to do so.
We have heard about the other players in the fraud chain, those who make it possible for the fraudster to carry out the fraud—the enablers, if you like. They have no such incentive to act at the moment and, as a result, they have not acted, or not in any meaningful way. These enablers are players such as social media companies, search engines, online dating companies, the telecoms industry, website hosting companies, email platforms, ISPs, online gaming platforms, intermediary platforms and those selling bulk SIM cards or SIM farms, which the fraudsters use—and many more. I am sure that, as this area moves and changes, as it does very rapidly, we will see fraudsters constantly jumping into new areas and doing new things. They will react; there will be plenty more that we have not thought about.
From speaking to a major UK fintech, I know that around half the frauds it sees start from platforms operated by Meta, and more than half arise on just four platforms. In a debate on protecting vulnerable people from fraud on 2 December 2021, the noble Baroness, Lady Williams of Trafford, answering for the Government, said:
“As for discussions with Facebook, I have lost count of the number of discussions that I have had. One thing that we said way back in the day was, ‘Look, if you don’t sort some of these problems out, we’re going to legislate to sort them out’—and this is where we are now”.—[Official Report, 2/12/21; col. 316GC.]
A year and half later, we are still there.
As we have heard, we were particularly unimpressed with the telecoms industry, which was at best depressingly complacent. Who in this Room has not received a fraudulent SMS message or phone call appearing to come from a UK number such as HMRC or Royal Mail? I guarantee that nobody in this Room has not. To be fair, some telecoms companies are now taking action. EE, for example, flags suspicious calls, which proves that it can be done. But most have not taken action. They are paid for all these calls and texts, as the noble Lord, Lord Sandhurst, has said but, because there is no come-back on them at all, they have taken little or no action to stop them. I have not been able to find reliable data as to what proportion of scams originate from telecoms companies; rough data seems to indicate that it is somewhere around 20% to 25%.
Amendment 94 aims to create an incentive for all players in the fraud chain to take action. Effectively, it creates an offence of failing to take reasonable steps to prevent the use of a company’s services for the purpose of committing fraud—by a third party; it does not have to be related to the company. The amendment is deliberately scoped widely, rather than industry by industry; it tries to make it so that anyone providing a service that could reasonably be expected to be used by fraudsters should have to take reasonable steps to detect and prevent that use. That does not seem particularly extreme. It creates a defence that the company had in place such procedures as it was reasonable, in all the circumstances, to expect to detect and prevent the use of its services for the purposes of committing fraud, or that it could not reasonably have known that they were being used for such purposes.
When we get to the discussion that we will no doubt have about this being disproportionate, I will disagree. Any court is going to look at a small company, and that is one of all the circumstances that it will take into account when deciding what would be reasonable for detecting and preventing fraud. It cannot be too much to ask that companies should have to put reasonable procedures in place. I think that it is a pretty low bar, but I am sure that we would all be very happy to discuss how the amendment might be tweaked or changed to ensure that it does not have a disproportionate impact on businesses. But it would be good to hear whether, first, the Minister agrees that there is genuinely a problem in this area and, secondly, whether he agrees conceptually that creating a real incentive for companies to take more care to ensure that their services are not being used by criminals is necessary.
The Online Safety Bill goes some way to achieving this in some respects—and I thank the Minister for arranging for me to meet officials yesterday, who were extremely helpful in getting me up to speed on what that Bill does. It does that especially in relation to fraudulent advertising, and that is very welcome, but it does not cover all the enabling industries, even the ones we know about now, let alone those in future. It does not cover telecoms, email providers or web-hosting companies, for example, and is more focused on the large players. It also does not cover all the activities. Previously I mentioned people selling SIM farms or other tools used by fraudsters. They would not be caught by it. It will not catch the SMS with a link to a fake Royal Mail site, for example.
What worries me is that the approach of using lots of different pieces of legislation to deal with this problem, such as the Online Safety Bill and the others that the noble Baroness, Lady Morgan, mentioned, leaves us in danger of creating a piecemeal approach, mirroring the alphabet soup of responsible bodies that I mentioned. This amendment would create an overarching obligation on any business to take reasonable steps to prevent the use of its services by fraudsters, whether on or offline.
Amendment 91, in the name of Baroness Bowles, attacks the problem from the point of view of regulators, conferring a duty on them, or giving them the option, to create a duty to prevent or facilitate crime regulation. It names a number of regulators, including Ofcom in respect of telecoms and other communications platforms. It mentions the ICAEW, so I should remind the Committee of my interest as a member of that body—I keep doing that, I am very boring. Personally, I think these two amendments would actually work quite well together. If Ofcom, for example, set out a code of conduct for telecoms companies to follow, that could work as the defence mentioned in Amendment 94.
However we do it, we must incentivise all enablers in the fraud chain to do the right thing. There is an excellent opportunity in this Bill to do it now. Further delay will lead to countless more innocent people losing their savings and being traumatised. I very much hope the Minister will be willing to approach this constructively, even if he does not like some of the specifics in the amendments. I support the noble Baroness’s suggestion about the analysis of how all these Bills work together, which would be very helpful.
Baroness Bennett of Manor Castle (GP)
My Lords, it is a pleasure to follow the noble Lord, Lord, Lord Vaux, and everyone who has contributed to this crucial debate. I feel I should begin with an apology for not taking part in the debate on the failure to prevent in the first group, but that is because I was in the debate on the Online Safety Bill, with an amendment to which I had attached my name. It is a grave pity that we are debating two such important and closely linked Bills on a Thursday, with the pressures that is putting on your Lordships’ House, but in this group we have seen that we are overcoming those challenges and doing a great job of scrutiny, as we should be doing.
I will be quite brief and again try not to go over any of the same ground as others, but something that struck me when I looked at the Online Safety Bill was that action against fraud and other crime was utterly missing from it. In fact, I considered tabling amendments, but the drafting job was, frankly, beyond the capabilities available to me. The way it has worked out fits very well with this Bill and draws on the capacity of people involved with this Bill, whereas the other Bill has been taken in a somewhat different direction. It is worth noting that this is a safety issue—the noble Baroness, Lady Morgan, and the noble Lord, Lord Vaux, referred to this. The noble Baroness said that it does not only affect older people, but it is worth noting that it is particularly an issue for them. If you are hit by a fraud when working in a system that you already found challenging and difficult to engage with, you lose confidence in your ability to operate in the world. We have a loneliness epidemic, with many people struggling to survive, with the Government stressing digital first, digital first. The impact on older people in particular is an earthquake through their lives, and that needs to be noted.
Lots of people talked about the scale of that problem, but I do not think anyone has mentioned that UK Finance, the trade association for the UK banking and financial sectors, said that financial fraud is now a national security threat. That ties in with the earlier amendment of the noble Lord, Lord Alton. In the first half of 2021, more than £750 million was stolen, and that was a 30% increase on the same period from the previous year, so we are looking at something that is escalating and absolutely demands action.
Lord Sandhurst (Con)
My Lords, I will speak with a particular focus on Amendment 91 but, in so doing, it should not be thought that I do not think that Amendment 94 is important; the two run together, as other noble Lords have said—we want them, so to speak, before and after, for reasons I shall explain. We need to do something now to prevent fraud. In this context, I make no apology for reminding my noble friend the Minister of what my noble friend Lady Morgan said about page 22 of our report and paragraph 520, which, helpfully, is in bold. I ask the Minister and his officials, in the words of the collect, to
“read, mark, learn, and inwardly digest”
what we have to say, and then act on it with both the regulatory and the criminal proposals.
We need the criminal offence but also need the flexibility that proper regulation will give and the culture change that it will bring by the regulators talking to and influencing how the different industries behave. We know that regulators can achieve much in advance and drive changes in behaviour; that is important because we know that prosecuting fraud is very difficult and too often ends in failure—and anyway the resources are not there to do it. We have to stop it happening in the first place. You have the criminal offence as a backup when someone who could have prevented it has not done so, but that is very much the last resort. Regulators are fleeter of foot and can move with more flexibility, and they can influence behaviour.
The sort of regulations we have in mind would mirror what is said in Amendment 94, particularly in subsection (3) regarding the statutory defence—“Do you have in place such procedures as it is reasonable in all the circumstances to expect?”, and so on. Our regulations would say that that was what you had to do. Then the regulator would know what was going on because it would have all the data and the picture of what was happening in the particular regulatory sphere in which it was operating. The regulator could say to a particular operator or someone in the industry, “Look, others are doing this but you’re not”, or it could say to the whole industry, “Look, there’s a new scam about and you have to take steps to stop it. We’re going to call you together. What are you going to do, what do you think you can do, and what technology is out there?”, and so on. That is not covered directly by the criminal offence—it is very much a longstop—but the sorts of fines and penalties that a regulator can impose, and the regulatory damage to the reputation of large organisations in particular, are important and have great influence, as we know. If a company is small or indeed a one-man band then the regulator would approach it differently, because of course it does not have the resources to look everywhere and man every pump.
We have to do something. I suggest that what is reasonable will take into account the size of the potential offending business; the measures that it has in place to prevent fraud that are proportionate to its size; those which it does not have in place but could have; the prevalence of the offence within that particular field of activity; and, if it is looking at regulatory enforcement, and indeed in terms of criminal offence, the regulatory compliance history of the company and what others in that area are doing by way of comparison. I need not go on in more detail.
As I said, the regulators have flexibility. They can influence behaviour. They can pick up the telephone to a company and say, “We’ve seen this is going on. Unless you do something, we’ll be down like a ton of bricks”, or they can act directly. Unless we have the package that these two amendments would give, we are not going to see any important change in outcomes.
That is all I need to say. Everything else has been covered. As I hope I have made plain, I see Amendments 94 and 91 running in tandem.
Lord Garnier (Con)
My Lords, I agree with my noble friend Lord Sandhurst that they run in tandem. I was not able to run quick enough to be able to sign Amendment 91 but I managed to get my bulk into the relevant Room in order to sign Amendment 94, and I am happy that I managed to do so.
Public opinion must influence policy-making. Whereas 300 or perhaps 250 years ago, anyone who thought about it probably thought it was not a good idea, and certainly not a humane thing to do, to send small children up chimneys or down mines, it took a little while for the legislation to change. I make that exaggerated point—well, it was not an exaggerated point; it was a very bad thing. [Laughter.] I was not alive 250 years ago. I make that point to illustrate that we in this Parliament are in danger of allowing the Government to drag their feet reluctantly and, worse, to appear as if they are being reluctant to do the modern equivalent of stopping children being sent up chimneys. The modern equivalent is that the public, and I as a citizen, disapprove of companies failing to conduct their business in such a way that crimes are not committed by associated people. However, we mitigate the difficulties that these new laws may pose for a company by putting in the defence of reasonable provision.
If you look at the guidance published in conjunction with the Bribery Act 2010—my noble friend Lord Sandhurst mentioned some of the sensible work that has been highlighted in my noble friend Lady Morgan’s report—you can see that it is all there. If your company is one that has no risk of committing bribery, you do not have to have anything other than the most minor provision to satisfy the defence provision under the Act—and ditto in the Criminal Finances Act. So it is even in the government amendments that we discussed earlier. For example, to go back to government Amendment 84A, which we discussed earlier, new subsection (3) says that:
“It is a defence for the relevant body to prove that, at the time the fraud offence was committed … (a) the body had in place such prevention procedures as it was reasonable in all the circumstances to expect the body to have in place, or … (b) it was not reasonable in all the circumstances to expect the body to have any prevention procedures in place”.
The Government accept quite a liberal and permissive defence regime there, so we do not need to be frightened or to frighten SMEs, or the people to whom my noble friend’s report is addressed, about people being overburdened by regimes which will cause them to be distracted from earning profits and getting on with the job that they are primarily there to do.
The noble Lord, Lord Macdonald of River Glaven, highlighted, thanks to Sue Hawley from Spotlight on Corruption, the very small cost involved in running a compliance regime. If you have a small company, with no risk of committing bribery or fraud or whatever else it may be, the chances are that you will spend very little, and you may have to spend it only once.
I come to Amendments 91 and 94 with a sense of desperation that we are now providing the Government with yet another opportunity not to do very much, and they ought to be doing a lot more. When it came to the passage of what became the Health and Safety at Work etc. Act 1974, I can assure noble Lords that the corporate world said, “Oh no, you mustn’t do this—it’s going to make us spend money, look at lawyers, put bolts on doors and put safety notices down chimneys and near machinery. It is all far too expensive—we can’t be doing all that”. I think of the Corporate Manslaughter and Corporate Homicide Act 2007; in the lead-up to that—I was in the shadow Cabinet of my party in those days—we had anxious discussions about the hideous nature of the impositions that would be put on the corporate world to make things safe so that people did not get killed at work and factories were safe places to go to work in. Here we are again having to worry about companies being asked to behave themselves and not to commit crimes or to prevent others committing crimes to their advantage. It seems absurd.
There have been two good non-legislative reports in the last short period. First, there is the one from my noble friend Lady Morgan, which she introduced us to. I urge my noble friend the Minister, if he has time to read nothing else, to look at page 22 and paragraphs 496 to 498 and 520 to 522. It will take him three minutes—he should look at it, read it, learn it, and inwardly digest it.
The other one was the Joint Committee chaired by my noble friend Lord Faulks, of which I was privileged to be a member, on the draft Registration of Overseas Entities Bill, which sat in 2019-20. We heard all the same evidence as I am sure my noble friend did in her committee, and we heard all the same complaints about the burdens and expense of compliance that will have been heard every time these sorts of things come along. Yet every time, all you have to do is go back and look at the simple, common-sense guidance attached to the Bribery Act 2010; you will see how that Act has come into force and been implemented and worked through, and no one now fusses at all.
Lord Coaker (Lab)
My Lords, given the time of day, I shall make a brief comment. I agree with Amendments 91 and 94. On Amendment 94, spoken to by the noble Baroness, Lady Morgan, I ask the Minister directly: why would he not ensure that this Economic Crime and Transparency Bill currently before Parliament did exactly what Amendment 94 suggests? It just does not seem logical. If the Minister and the Government do not do it, this will have been a missed opportunity, and we will come back to this issue and ask why we did not do it now. The amendment is reasonable and makes perfect sense and no doubt the Minister agrees with it, but it needs the Government to say, “We’re going to do it”. If it is flawed then the government lawyers can sort it out, but it is a perfectly reasonable amendment and, in my view, the Government should have no difficulty in accepting it. With that brief comment, I will sit down.
Lord Sharpe of Epsom (Con)
My Lords, I thank the noble Baroness, Lady Bowles of Berkhamsted, and my noble friend Lady Morgan of Cotes for their amendments on failure to prevent economic crime, and all noble Lords who have spoken in this debate.
I hope that my comments during our debate earlier today will have provided some reassurance on the Government’s ambitions to take action in this area, including the introduction of a new offence of failure to prevent fraud. These amendments obviously cover some of the same ground so I will seek not to repeat myself too much on issues such as the scope and threshold of the Government’s amendments but to focus more on what I understand to be the wider thrust of Amendments 91 and 94.
Before I get on to that, I reassure the noble Lord, Lord Vaux, that the fraud strategy is a couple of hours closer. I remind noble Lords that there is an all-Peers drop-in session on 9 May to discuss the three Bills that are currently under way through Parliament: this Bill, the Online Safety Bill and the Financial Services and Markets Bill. That will bring some of the discussions together, as suggested by my noble friend Lady Morgan. I refute the allegation that the Government are not doing very much. Those three Bills themselves prove that we are indeed intent on fixing many or all of the problems that have been identified—the Government of course take these problems seriously.
I turn to the amendments in this group. The Government’s offence does not extend to services that facilitate fraud—that is, companies whose services are misused by third parties to carry out fraud. Examples include social media and telecoms companies whose services are used to promote fraudulent schemes, as has been pointed out, and banks and crypto exchanges, which fraudsters use to process the payments. If these companies or their employees commit fraud, they will be in scope, but not where their services are misused by others.
The Government agree that companies that facilitate fraud, even if they are not complicit in the offending, must do more to prevent and detect it. In doing so, they can protect their customers and the wider public from fraud, which, as has been discussed at length, causes significant damage to wider society and individuals —we must not forget them. However, we intend for this to be achieved by seeing through existing plans for regulatory and voluntary activity, rather than by creating a new offence which risks duplicating those existing approaches.
Amendment 91, tabled by the noble Baroness, Lady Bowles of Berkhamsted, proposes a regulatory duty to prevent economic crime, enforced by regulators. In relation to organisations that commit fraud, we can achieve a similar effect that incentivises organisations to put fraud controls in place through the Government’s approach: an offence enforced by law enforcement. Our approach allows all sectors to be in scope, not just regulated bodies, and is less resource-intensive for business and the public sector than establishing new regulatory approaches. In relation to the facilitation of fraud, I reassure the noble Baroness, Lady Bowles, that action is already under way to tackle this. I will address some of the sectors mentioned in today’s debate and Amendment 91, which I hope will provide some further reassurance.
The Online Safety Bill will require all in-scope tech companies, including social media companies, to take action to tackle fraud where it is facilitated through user-generated content or via search results. They must put in place systems and processes to prevent users encountering fraudulent content through their platforms and to swiftly remove any such content available through their platform. Without wishing to single out any particular company for attention, I reassure my noble friend Lady Morgan that Airbnb, which she referenced, would of course be in scope.
Additionally, there will be a duty on the largest social media and search engines requiring them to prevent fraudulent adverts appearing on their services. The Bill gives Ofcom, as regulator, robust enforcement powers, allowing it to impose significant financial penalties on services that do not fulfil its duties. Ofcom will publish codes of practice to set out further details on what platforms must do to meet their duties under the Online Safety Bill.
The “failure to prevent” offence operates in a similar way to the Online Safety Bill, by setting out reasonable steps to be taken, with the ability to fine companies that fail to fulfil their duties. Expanding the “failure to prevent fraud” offence in the ECCT Bill to cover facilitation of fraud would create duplication for tech companies, which would have to follow two parallel regimes in relation to facilitation of fraud, potentially creating confusion for businesses.
Noble Lords also raised the role of telecoms companies, including the content of messages passed over their networks. The telecoms industry is already extensively regulated by Ofcom, which is active in encouraging the industry to tackle scam calls and texts, including through regulation and guidance. This includes new measures that will take effect shortly to tackle the spoofing or disguising of UK telephone numbers from overseas. As it should be, the telecoms industry has been an active partner in the fight against scams, with broadband and mobile providers signing up to the Home Office’s Telecommunications Fraud Sector Charter and committing to work with the Government to reduce the use of their networks by criminals.
However, it is important to recognise that telecoms operators are not able to view the content of messages passing over their networks. While they employ sophisticated algorithms to identify and block hundreds of millions of fraudulent or scam messages and calls, the rapid evolution of threats creates challenges to pre-emptive action. This means that a facilitation offence could potentially have a disproportionate effect on the industry and the operation of telecommunications in the UK.
Amendment 91 also references the Financial Conduct Authority. The FCA is working closely with banks and other financial institutions to reduce the role they play in facilitating fraud and to identify further controls that can be put in place to protect the public from scams. In addition, the Payment Systems Regulator is introducing new requirements for financial institutions to reimburse fraud victims, which will create strong incentives to improve fraud controls, as noted by the noble Lord, Lord Vaux.
In respect of the Solicitors Regulation Authority, noble Lords will be aware from Tuesday’s debate that Clause 183 of the Bill already inserts a regulatory objective in the Legal Services Act 2007, focusing on promoting the prevention and detection of economic crime. This measure affirms the duties of the regulators, the Legal Services Board and the regulated communities to uphold the economic crime agenda.
The noble Lord, Lord Vaux, also referenced the Institute of Chartered Accountants in England and Wales. Amendment 91 also references that organisation and other relevant regulators of accountants. As I said, I am aware that several noble Lords have declared their association with that organisation.
As noble Lords will be aware, ICAEW is a professional and supervisory body for chartered accountants. Its work in areas regulated by law—for example, audit, anti-money laundering, local audit, investment business, insolvency and probate—is monitored by oversight bodies such as the Insolvency Service, the FCA, the Office for Professional Body Anti-Money Laundering Supervision, the Civil Aviation Authority and the Legal Services Board. ICAEW has been proactive in the industry fight against fraud, leading the sector in negotiating and delivering the Accountancy Fraud Sector Charter, published in 2021, and is an active member of the counter-fraud community, contributing to all levels of governance across the threat landscape. It is a co-signatory to the Economic Crime Plan and associated actions.
As I set out in our earlier debate, the offence introduced via the Government’s amendments covers fraud and false accounting, while keeping money-laundering responsibilities contained under the existing regulatory regime. That ensures that the offence is targeted, focused on offences most likely to be committed by corporations and where prevention can have the most impact and not duplicative of existing regimes.
I note the wider offence lists put forward under the noble Baroness’s amendment, but—as we debated at length earlier today—we are satisfied through discussions with law enforcement and prosecutors that all the priority offences have been included. There is a power in secondary legislation to update the list when required. We have also touched on the issue of the threshold in the government amendment that means it applies—at least initially—only to large organisations. As I set out earlier, this is to avoid disproportionate burdens on small and medium-sized enterprises and ensure our economy encourages people to open and grow businesses. Of course, we encourage small organisations to take steps to prevent fraud and there are, as I mentioned in an earlier group, existing powers to prosecute small organisations and their employees if they commit fraud, but we need to keep the total regulatory burden in check.
There have been cross-party calls for the Government’s failure to prevent fraud offence both in this House and in the other place, as well as across civil society. The Government have listened and introduced amendments. In addition to the legislative measures proposed, the Government continue to work closely with regulators and wider sectors to tackle fraud and set out the actions expected of industry. I am afraid that the Government therefore view these amendments as duplicative of measures already being taken forward—
Lord Vaux of Harrowden (CB)
I am a little confused, because we seem to be talking now about the previous amendments, where an associate of the body commits fraud with the intention to benefit the body, which is a very different thing to the amendments we are looking at at the moment. The situations we have been talking about—the scams, and so on—would not, as I think we established fairly clearly in debate on the first group, be covered by that. Will the Minister please address the issue of scams and what these amendments are trying to address, rather than the rather different offence that was created by the first group of amendments?
Lord Sharpe of Epsom (Con)
My Lords, I think I have already addressed that a little earlier when I was talking about the various codes that we are asking telecoms companies to sign up to via Ofcom. I am wrapping up now, so I am bringing it all together—or attempting to.
The Government therefore view these amendments as duplicative of measures already being taken forward and not achieving their intentions. I of course commit to read page 22, in answer to my noble friend, but I ask the noble Baroness, Lady Bowles, and my noble friend Lady Morgan not to press their amendments.
Baroness Morgan of Cotes (Con)
I thank my noble friend very much for what he said; I will read it very carefully. I wanted to wait for the end of his speech, but he mentioned a meeting that is being held on 9 May to bring together at least three pieces of legislation and, who knows, we might even have had the fraud strategy by that point and be able to talk about that. I suggest that he looks at that meeting the other way round and, as I suggested, go through the different types of fraud—they will not be exhaustive—and work out what the Government think the relevant legislation is tackling. Then we will be able to see what the gaps are. I think one of the gaps is exactly what the noble Lord, Lord Vaux, just said, which is where services are being used to perpetuate fraud that are definitely not caught by the Government’s proposed amendment. That would enable us to have a much better informed debate before and at Report about whether we will really use the opportunity of this Bill. I invite my mobile friend to say that he will ask officials to work that way round: looking at the frauds and then seeing what the Government have already proposed to tackle them.
Lord Sharpe of Epsom
My noble friend will be aware that this will be a cross-departmental meeting, and I have not seen the proposed agenda, but I will certainly take her comments back. I meant to say that the noble Lord, Lord Vaux, made reference to the technical meeting he had on the Online Safety Bill, and I obviously extend the offer of a similar meeting, if anyone else would like it.
Baroness Bowles of Berkhamsted (LD)
My Lords, I thank everybody who has spoken in this debate. I will not attempt to summate what everybody has said and will concentrate on responding to the Minister.
I have to say that I am not reassured. I do not believe that anything powerful is going on that will address the hole that has been elaborated on at great length in the report by the committee, never mind by what other noble Lords and I have said today. All we seem to have are amendments from the Government which do not catch this and do not catch a lot else either, so they do not matter. We do not have anything that deals with third-party use other than, if I heard correctly—like the noble Baroness, Lady Morgan, I will have to read through everything the Minister said in Hansard—the fact that the Government are speaking to the telecoms companies and trying to come up with some kind of voluntary agreements. Well, good luck; we found them less than enthusiastic. There are things they can do to stop spoofing; they can update their systems and some of their codes sooner rather than later, but they think they can get away with it by waving their hands and saying, “It’s technically difficult”. There are some people, myself included, who have technical degrees and can see through the rot. Frankly, the Government should not put up with back-pedalling. Yes, it will cost them money, but they have to spend that money to help protect the 40 million-plus people who are not just being sent a text, a scam, a spoof or a phish every now and then but are incessantly getting them. It needs technical intervention to help. Until there is a stick as well as the carrot of discussions, that will not happen.
I will of course withdraw my amendment for now, but we must return to this subject on Report, as well as to the inadequacies of the other “failure to prevent” offences. They should be the central theme of what we are doing now; we cannot just put up with a fig leaf and say, “It’s been done”. We need a lot more than a fig leaf. I beg leave to withdraw the amendment.
Economic Crime and Corporate Transparency Bill
Tuesday 9th May 2023
(1 year, 6 months ago)
Grand CommitteeRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 96-VII Seventh marshalled list for Grand Committee - (9 May 2023)
“Sanctions enforcement: monetary penalties
(1) In section 143 of the Policing and Crime Act 2017 (interpretation), in subsection (4) (meaning of “financial sanctions legislation”), in paragraph (f)—(a) the words from “contains” to the end become sub-paragraph (i);(b) at the end of that sub-paragraph insert—“;(ii) makes supplemental provision (within the meaning of section 1(6) of that Act) in connection with any prohibition or requirement mentioned in sub-paragraph (i).”(2) The Sanctions and Anti-Money Laundering Act 2018 is amended as follows.(3) In section 17 (enforcement), in subsection (9), in paragraph (a), after “(2)” insert “or makes supplemental provision in connection with any such prohibition or requirement”.(4) After section 17 insert—“17A Enforcement: monetary penalties(1) The provision that may be made by virtue of section 17(2) (enforcement of prohibitions or requirements) includes provision authorising a prescribed person to impose a monetary penalty on another person if satisfied, to the prescribed standard of proof, that the other person has breached a prohibition, or failed to comply with a requirement, that is imposed by or under regulations.(2) Regulations authorising the Treasury to impose a monetary penalty in respect of a breach or failure for which the Treasury could impose a monetary penalty under Part 8 of the Policing and Crime Act 2017 may not be made unless the regulations also make provision of the kind mentioned in section 17(9) to disapply Part 8 of that Act in respect of that breach or failure.(3) Regulations authorising the imposition of a monetary penalty may make provision that, in determining for the purposes of the regulations whether a person has breached a prohibition, or failed to comply with a requirement, any requirement relating to the person’s knowledge or intention is to be ignored. (4) Regulations authorising the imposition of a monetary penalty must provide that—(a) a person is not liable to such a penalty in respect of conduct amounting to an offence if—(i) proceedings have been brought against the person for that offence in respect of that conduct and the proceedings are ongoing, or(ii) the person has been convicted of that offence in respect of that conduct, and(b) no proceedings may be brought against a person in respect of conduct amounting to an offence if the person has been given such a penalty under the regulations in respect of that conduct.(5) Where regulations authorising the imposition of a monetary penalty authorise a prescribed person to determine the amount of the penalty, the regulations must provide for a maximum penalty.(6) The maximum penalty may be a prescribed sum of any amount or may be calculated in accordance with the regulations.(7) In this section—“conduct” means an act or omission;“regulations” mean regulations under section 1.””Member’s explanatory statement
This clause makes it clear that Treasury can impose monetary penalties under the Policing and Crime Act 2017 for breaches of provisions that are supplemental to financial sanctions and that regulations made under section 1 of SAMLA 2018 can include provision conferring power to impose monetary penalties.
The Minister of State, Foreign, Commonwealth and Development Office (Lord Goldsmith of Richmond Park) (Con)
My Lords, I rise to move Amendment 91A in the name of my noble friend Lord Sharpe of Epsom.
The Government take the enforcement of their sanctions regimes seriously. Ensuring that we have a firm basis for enforcement action is especially important given the unprecedented sanctions measures that we have implemented in response to Putin’s illegal invasion of Ukraine last year.
There are various methods to enforce UK sanctions, one of which is the imposition of civil monetary penalties, also known as CMPs, which are fines levied by the Government for breaches of sanctions. CMPs do not require a criminal prosecution and involve far less cost to the justice system than criminal prosecutions. To date, the Office of Financial Sanctions Implementation, which is known as OFSI and is part of His Majesty’s Treasury, has levied nine CMPs totalling more than £20 million since it was set up in 2016. The UK Government’s ability to impose CMPs is likely to factor in the calculations of those seeking to breach sanctions for financial gain.
This amendment is part of the Government’s work to strengthen enforcement across our UK sanctions regimes. The new clause will amend the Sanctions and Anti-Money Laundering Act 2018—SAMLA—to provide express provision in relation to the imposition of CMPs. New Section 17A of SAMLA clarifies and reinforces the broad enforcement powers contained in Section 17 of SAMLA, that:
“Regulations may make provision … for the enforcement of any prohibitions or requirements imposed by regulations”.
The amendment also strengthens the basis for CMPs to be imposed by the Treasury under the Policing and Crime Act 2017 for offences that are supplemental to financial sanctions. Again, this is a clarificatory amendment. While criminal and civil enforcement options are already in place, this measure provides clarity on the Treasury’s power to impose a CMP for such offences. The amendment also provides for the Policing and Crime Act 2017 to be disapplied where the Treasury has the power under both sanctions regulations and the Policing and Crime Act to impose CMPs in respect of prohibitions or requirements.
Of course, putting these powers on a firmer footing is worth while only if we invest the necessary resources to make use of them. In the recent Integrated Review Refresh, the Prime Minister announced a new £50 million economic deterrence initiative which will improve our sanctions implementation and enforcement. This will maximise the impact of our trade, transport and financial sanctions, including by cracking down on sanctions evasion. It will also be used to prepare the Government for future scenarios where the UK may need to deter or respond to hostile acts.
I hope that noble Lords will support this amendment. I beg to move.
Lord Alton of Liverpool (CB)
My Lords, there has been a change of Minister since we discussed this matter last week when we had a curtain-raiser on Amendment 85, which I moved in Grand Committee. It is always good to see the noble Lord, Lord Goldsmith, in his place; indeed, he had to answer the debate initiated in this Room last week by the right reverend Prelate the Bishop of St Albans. He also had to answer the question about how sanctions can be used to deter autocrats and flag British values against the values of authoritarian regimes; we discussed that issue at some length. As one would expect, the noble Lord gave a competent and welcome reply.
I notice, however, that the Minister’s noble friend Lord Johnson is sitting alongside him—
Lord Alton of Liverpool (CB)
Oh, is he not? I am sorry; I had better put my spectacles back on.
Lord Alton of Liverpool (CB)
I apologise to the noble Lord, Lord Evans. It seems that the noble Lord, Lord Johnson, is still travelling back from Hong Kong, but I can see that the noble Lord, Lord Sharpe of Epsom, is sitting in his place. He dealt with our debate last week; no one in this Committee knows more about Hong Kong than he does, having worked there. He will recall the discussions that we had not just on that occasion but on other occasions as well.
The matter was very much on my mind when reading the reports about the visit of the noble Lord, Lord Johnson. I wondered how the imprisonment of more than 1,000 legislators and lawmakers in Hong Kong has been dealt with during that visit, not least the position of Jimmy Lai, who is a British citizen. Indeed, in this very Room, sitting at the back of our proceedings just a couple of weeks ago was Sebastian Lai, his son. I know from our subsequent discussion that he felt deeply that not enough had been done by the United Kingdom in raising the case of his imprisoned father, who might well die in prison. I hope again as I press the Minister, as I did last week, that he will be able to tell us what the response has been from James Cleverly, the Foreign Secretary, and the Prime Minister, to the requests that have been made. Mr Sebastian Lai, who is also a British citizen, and his international legal team should have the opportunity to discuss his case, the role of assets and why no one in Hong Kong has been sanctioned, whereas British parliamentarians have been sanctioned. Despite the sanctioning of the former leader of the Conservative Party Sir Iain Duncan Smith and colleagues such as the noble Baroness, Lady Kennedy of The Shaws, we nevertheless continue business as usual by promoting closer and deeper business links, as the noble Lord, Lord Johnson, has been doing in Hong Kong. How does that link to the need for us to assess the assets that are held in this country by people who have been responsible for the incarceration of pro-democracy legislators and activists, more than 1,000 of whom are currently in jails in Hong Kong?
The main purpose of the amendment that I moved last week and of Amendment 91A before us today is to concentrate on the sanctions regime that has been imposed as a result of the war in Ukraine. I pay tribute to the Government for what they have tried to do, often in exacting circumstances, after the war erupted, but when I went to see the noble Lord, Lord Sharpe, and a member of his Bill team to discuss this last week, he was very straightforward in saying that there is nothing new in Amendment 91A and that it entrenches the current situation. It could be said to be sending a signal, but legislation is about more than semaphore and sending signals. Will the Minister say what is new in this amendment that is not already on the statute book?
Britain’s sanctions regime is broken, which is why some of the players who have been involved in the appalling events in Ukraine have been getting away with murder. Brave people have been laying down their lives defending not just their own country but our shared values of democracy and freedom. From the outset, we must recognise that our sanctions have always been held back by murky layers of financial secrecy in this country, which is why we need more than what is in Amendment 91A and why I hope that the noble Lord, Lord Sharp of Epsom, in particular, will continue to engage with those who spoke in favour of the amendment that I moved last week—they included the noble Lords, Lord Coaker and Lord Leigh, my noble friend Lord Fox and the noble Baroness, Lady Altmann. I therefore hope that Amendment 85 in its fullness, or something like it, will be put in place of Amendment 91A when the Bill comes back on Report.
It feels like every week we get a new story about this oligarch putting his wealth “in the hands of his young children” or that oligarch shrouding his UK assets behind so many shell companies and opaque trusts that we simply cannot track them down. I mentioned Roman Abramovich as a particularly high-profile example. The so-called oligarch files which were leaked earlier this year revealed how he was allegedly able rapidly to move at least $4 billion of his wealth away from law enforcement by transferring the beneficial ownership of several secretive trusts to his children just before he was slapped with sanctions by the Government.
We do not need to take a much closer look at the network of professional enablers who make this type of wrongdoing possible to see what is involved. There are accountants, lawyers and bankers who wilfully subvert our sanctions regime in exchange for tainted roubles. This is all absolutely legal. We have built a financial services sector in which people have been able to play an interminable game of cat and mouse with law enforcement, where the official owner of a given asset—if we can identify who that is in the first place—can change with little more than a stroke of the pen and no questions asked. Now we are finding that those same people—oligarchs, kleptocrats, call them what you will —know the rules of this game and its loopholes better than we do.
Accepting that our existing sanctions policy is not fit for purpose is important, but right now we can and should find a way to make sure that what sanctioned Russian assets we have managed to identify and freeze are taken away from these oligarchs and put towards Ukrainian reconstruction efforts. As it stands, if the war in Ukraine were to end tomorrow, we would have little choice but to hand back £18 billion of frozen assets to their dubious owners, with no questions asked. This is the distinction between freezing and seizing. We simply cannot allow that to happen. Ukrainian schools, hospitals and homes need to be rebuilt in their thousands and scores of unexploded bombs and mines need to be cleared to do so.
The question for us is whether this amendment goes anywhere at all towards achieving that. The cost of rebuilding the country could top £1 trillion, according to recent estimates. Ukraine’s death toll is 60,000 and rising, with millions more people displaced. Under international law, Russia has to pay for the damage that it has caused, yet so far it is the British taxpayer who has forked out £2.3 billion in military support and another £220 million in humanitarian aid. Secrecy and inertia are enabling this—two main reasons why our sanctions regime is not working and why we need to do more than what is contained in this amendment.
I have sympathy with the Government. The sanctions regime relating to Russia was hastily constructed, as I suggested at the outset of my remarks, in the wake of a conflict that has shocked the world. The seizure of assets that belong to individuals is certainly a complex issue. The rule of law, due process and property rights should all be considered, as I discussed with the noble Lord, Lord Sharpe. This is exactly why the Government must not miss the opportunity in this Bill to make a difference, without violating any of these principles.
Our allies have already put wheels in motion. The European Union is looking to seize €300 billion of frozen Russian central bank reserves and €19 billion in oligarch assets that it holds, while Canada has made good progress on a law to allow the seizure of frozen assets. What study have we made of what is happening elsewhere in the world? Should we not emulate those pieces of legislation and ensure that we act in concert? If the Minister thinks that I am asking the UK Government to go it alone on these things, I can assure him that he is mistaken. I recognise that we have to do this with others, but others seem to be ahead of the game. As it currently stands, I do not feel that this amendment is the way we should proceed. I look forward to hearing what the Minister has to say in response.
Lord Fox (LD)
My Lords, it is always a pleasure to follow the noble Lord, Lord Alton. Briefly, I am trying to get a sense of the proportion of this amendment. The noble Lord set a high expectation bar, whereas the Minister seemed to set a low one. I think that I heard the Minister say that it clarifies something that already exists, which sounds a little like fiddling around the margins, so it would be helpful if he could explain what this does that we cannot do already and how many cases will be brought as a result of having this power that are currently impossible to prosecute. In other words, what is this actually for, how many people do we expect it to be applied to and what sort of scale of penalty does he envision would be applied? Without that context, we will all leave the Room feeling that it really is fiddling around the margins. If he could give us a sense of scope and scale, he may be able to send us away with a slightly stronger feeling about this otherwise modest amendment.
Baroness Blake of Leeds (Lab)
I will add some brief comments. I thank noble Lords for their contributions. I would like to understand whether this is adequate in terms of the opportunity that we now have. We know that if we miss this opportunity now, the risk is that it will not come round again for a long time. As we have heard, the situation is desperate and there have been enormous failings. I ask the Minister who will monitor the success of this and, assuming that the amendment is agreed, whether we will have an opportunity in future to understand whether it is having the desired impact.
The point has been well made: looking at other countries and other collections of companies around the globe that are grappling with this issue, are we missing a trick? Is there more that we could do at this stage? Context is everything. We have heard about the gaps that exist and the fact that too many people are getting away with not fully complying with the sanctions. We as a country need to take that very seriously. I would appreciate the Minister’s response to those questions, for clarification.
Lord Goldsmith of Richmond Park (Con)
I thank noble Lords for their contributions to this short exchange. I will start by addressing some of the points raised by the noble Lord, Lord Alton, who, as I have said many times—we seem to find ourselves in the same debates—is an indefatigable champion for human rights and has shone the light so often on abuses in China, Hong Kong and beyond. It is worth putting that on the record again. I am afraid that I cannot tell him what was raised in discussions between the Foreign Secretary, the Prime Minister and representatives of the CCPIT. I do not have that record, but I will try to uncover an answer for him in due course; I know that my colleagues will have taken a note of his question.
The noble Lord and the noble Lord, Lord Fox, are right to point to the scale of this amendment. A new package is not being introduced; that is not what this amendment is about. That is not to say that changes are not required or that no more can be done with the tools that have been assembled by the Government, not least through SAMLA, but this amendment is just a tidying-up exercise; it is about removing ambiguity. It will not answer the calls that we have heard from speakers in this debate, but it is not designed to. We have the tools that we need. As I mentioned, we now have SAMLA and the ability to tailor a specific sanctions regime using secondary legislation. The noble Lord, Lord Alton, is right that we should focus on using those tools to the maximum effect. There are plenty of places, organisations and people who perhaps ought to be on the sharp end of that sanctions regime. I cannot go into detail—I do not think that any Minister can or would—about any potential future sanctions, not least because doing so and highlighting them now would reduce their impact, but we are always looking to update the—
Lord Alton of Liverpool (CB)
I am grateful to the Minister. Will he look again at a proposal that a number of us have put before the House at various times for some degree of parliamentary oversight of the so-called Magnitsky sanctions? At the moment, they are opaque. Often, they seem very random and arbitrary: some are chosen and some are not. There may be good reasons for that. I recognise that we cannot sit in an open committee and discuss these things but, in camera, there is no reason at all why a Joint Committee of both Houses or one of our senior Select Committees, such as the House of Lords International Relations and Defence Committee, which is charged with looking at issues of genocide, for instance, should not be able to look at the details of sanctions and how and why they are imposed. I do not expect a straightforward reply from the Minister now, but will he give an assurance that he will look again at the way in which this regime is determined?
Lord Goldsmith of Richmond Park (Con)
The noble Lord makes an important point. I cannot answer it, because it is not an area over which I have any direct responsibility, as he can probably tell. However, it would be beneficial somehow to design a mechanism which would allow greater oversight. I do not know what that would look like, because there are risks associated with it. If the targets of any particular sanctions regime became aware in advance, we know what would happen. It is not an easy problem to solve, but in principle what the noble Lord has just said makes a lot of sense. If there is a way of doing so and injecting a bit more transparency—but not too much, for all the obvious reasons—I would certainly support that.
It is also worth saying that sanctions are just one tool that we have. For example, in relation to Hong Kong, as noble Lords know, we opened the doors of this country to a very large number from Hong Kong who were looking for safety and a home, where their fundamental rights would be respected. We created a bespoke immigration channel and suspended the UK- Hong Kong extradition treaty indefinitely. We extended the arms embargo that has applied to mainland China since 1989 to include Hong Kong—and so on. This is one tool in our arsenal; it is not the only tool.
I make one further point in relation to something raised by the noble Lord, Lord Alton, on the distinction between freezing and seizing. While I cannot provide him with a detailed answer—that is going to have to come from another Minister—I can tell him that the Government are sympathetic to proposals to use frozen funds to assist in the reconstruction of Ukraine following the bombardment that it has received from Vladimir Putin. The Government are actively looking at options continually to improve transparency around those assets that are held by—
Baroness Kramer (LD)
Just for clarification, the Minister said that there was an intention to use frozen funds for the reconstruction of Ukraine. I fully support that idea, but is it legal without a seizure?
Lord Goldsmith of Richmond Park (Con)
I have said that there are “proposals”. It is something that has been proposed, but I am not sure that I can use the word “intention”. If there is a way in which those frozen assets can be used to rebuild Ukraine, it is something that the UK Government will look very seriously at—but it is not something that the UK alone will be doing.
Lord Fox (LD)
To make the necessary legislation, the Government would need a Bill in which to do it, and this would seem to be the Bill that is tailor made to have those discussions. Could the Minister encourage colleagues to use this Bill as the medium by which the seizure process may be made legal?
Lord Goldsmith of Richmond Park (Con)
I thank the noble Lord, but I do not know what the legislative mechanism would look like to make that possible. I am afraid that it is something that I am going to have to—
Baroness Altmann (Con)
I thank my noble friend for giving way. I realise that he is in a somewhat difficult position, but I add my encouragement to him to discuss with colleagues the possible amendments that we have laid—
Baroness Altmann (Con)
Yes, Amendment 85 would allow seizure of assets with a view, one hopes, eventually to being able to use them to reconstruct Ukraine in this case, but for other purposes as well. It would be an ideal way to pave the way for this to happen.
Lord Goldsmith of Richmond Park (Con)
The noble Baroness makes a similar point. It is not for me to determine the legislative or other route for achieving the possibility of using those frozen assets. It is something that I know that the Government are looking at and are sympathetic to, but I cannot go into any further details, because it is not an area where I have any particular expertise or authority. But I know that the Government are looking closely at the possibilities of doing so and recognise that there is a huge value in doing so, if we can.
Lord Alton of Liverpool (CB)
My Lords, I shall not intervene again on this, but I am extremely grateful to the Minister. To return to the point that the Minister’s noble friend Lady Altmann has just made, to those who took part in the debate on Amendment 85 last week, which would do some of things that he has just described, it was suggested that we might have a chance to meet the noble Lord, Lord Sharpe, again before Report. It would be helpful if the Minister could at least in principle assure us that such a meeting will take place with those who participated in that debate last week. Other noble Lords and noble Baronesses, such as the noble Baroness, Lady Kramer, could be invited as well—those who are interested and are Members of the Committee—to see whether we can build on Amendment 85 to do some of the things that I was very pleased to hear the Minister just say that the Government are keen to do.
Lord Goldsmith of Richmond Park (Con)
As the noble Lord knows, I have not had an opportunity to consult my noble friend Lord Sharpe, but I am delighted to volunteer him for such a meeting—I am sure he will be very happy.
I will move on briefly to the question about who will monitor—I am so sorry; I cannot remember who made the point. The answer is that a government department is responsible for that, so if it is a financial sanction, HMT will be responsible for ensuring that it is working and successful, and if it is transport, it will be the Department for Transport, and so on.
This is a small but important change to ensure that we have a firm basis for enforcement action. It will provide greater clarity and reinforce those enforcement powers by making them explicit, removing ambiguity. The amendment should also demonstrate that the UK Government take their sanctions enforcement responsibilities seriously, and we will continue to intensify our enforcement of those sanctions. I hope that noble Lords will support it.
Baroness Kramer
“Whistleblowing: economic crime
(1) Whistleblowing is defined for the purposes of this section as any disclosure of information suggesting that, in the reasonable opinion of the whistleblower, an economic crime—(a) has occurred,(b) is occurring, or(c) is likely to occur.(2) The Secretary of State must by regulations made by statutory instrument, within the period of 12 months beginning with the day on which this Act is passed, set up a body corporate, to be known as the Office for Whistleblowers, to receive reports of whistleblowing as defined in subsection (1). (3) Regulations under subsection (2) may not be made unless a draft of the statutory instrument containing them has been laid before, and approved by, each House of Parliament.(4) The Office for Whistleblowers must—(a) protect whistleblowers from detriment resulting from their whistleblowing,(b) ensure that disclosures by whistleblowers are investigated, and(c) escalate information and evidence of wrongdoing outside of its remit to such other appropriate authority as the regulations may provide or otherwise as the Office may determine.(5) The objectives of the Office for Whistleblowers are—(a) to encourage and support whistleblowers to make whistleblowing reports,(b) to provide an independent, confidential and safe environment for making and receiving whistleblowing information,(c) to provide information and advice on whistleblowing, and(d) to act on evidence of detriment to the whistleblower according to such guidance as may be set out by the Secretary of State in the regulations.(6) The Office for Whistleblowers must report annually to Parliament on the exercise of its duties, objectives and functions.”Member’s explanatory statement
This amendment would require the Secretary of State to set up an Office for Whistleblowers to receive reports of whistleblowing in relation to economic crime.
Baroness Kramer (LD)
My Lords, I understand that the noble Earl, Lord Minto, will reply for the Government on this amendment, which gives me the opportunity to welcome him to his role on the Government Front Bench. We shall look forward to hearing him—indeed, I hope to hear very positive responses from the noble Earl. This is also my opportunity to thank the noble Baroness, Lady Altmann, and the right reverend Prelate the Bishop of St Albans, who join me in proposing Amendment 92. I hope that we will hear from both of them.
My amendment is similar to amendments that I brought before your Lordships’ House in previous Bills in that it sets up an office of the whistleblower in relation to economic crime, which must support whistleblowers, protect them from detriment and ensure that disclosures are investigated and acted on. I will not go into a lot of detail because I have done so often in this House and we are under pressure of time today. However, whistleblowing legislation in the UK is badly out of date. The Public Interest Disclosure Act 1998 provides for confidential disclosure by whistleblowers who are “workers”, which is quite a difficult term. It means employees but not all—it may include some contractors—and there are many people you would think of as being workers who do not count. That group of workers can make disclosures to prescribed people, in this case primarily the financial regulator.
However, of course, most whistleblowers have spoken out long before they make a formal report, having already alerted colleagues and management to wrongdoing. Some firms have decent internal whistleblowing reporting systems, but many do not; for many, it is a system on paper and not a system in fact. Indeed, in many cases, the information disclosed by a whistleblower, even if anonymous, exposes their identity because of the few people who would have access to that particular knowledge.
The consequence is that many whistleblowers are subject to retaliation. Many lose their careers, or, if they are outside contractors or clients, their businesses. If they are workers, they can challenge in an employment tribunal. However, I tell your Lordships now—the Minister can confirm it if he wishes to look—that that will cost them their savings and all they can borrow from their friends; it costs something between £44,000 to £100,000 to be able to bring a case, and of course there is no legal aid. It will drag on for years; we have had cases going on for seven years, finding steadily in favour of the whistleblower but constantly appealed by the institution or employer on the other side.
In the end, most whistleblowers settle and sign non- disclosure agreements. People break down and their careers shudder to a halt as they are informally and very effectively blacklisted. Of course, there is no formal blacklisting, but word of mouth through an industry essentially bars most of them from any future opportunity.
Baroness Altmann (Con)
My Lords, I support Amendment 92, so ably and powerfully moved by the noble Baroness, Lady Kramer. I have added my name to it because, as I have personally seen, this issue is potentially beneficial yet in practice harmful in the financial services sector. It is very often a career-ending move if somebody decides to blow the whistle on fraudulent practice or wrongdoing in their place of work. I had a friend in the City who ended up blowing the whistle but only because she had already decided she was going to retire. She knew that it would be the end of her career and she did not wish to go to the expense of a tribunal, but it was the early warning that the authorities needed to discover that wrongdoing was going on. The problem we have is that those who are inside are best placed to identify the wrongdoing before it becomes more widely known and before more people are perhaps damaged by whatever the wrongdoing is, yet, as the noble Baroness, Lady Kramer, described, there is inadequate protection to recognise the benefits of having a canary in the coal mine being able to identify directly that something is amiss.
Therefore, I hope that we would be able to accept that having an independent office that can oversee and provide a safe space for individuals to notify their concerns, presumably having raised them internally first, could be very helpful in fighting economic crime and fraud. Normally, you would suggest that somebody raises a concern internally, but they might feel that that could be detrimental—there have been threats to people’s lives when they have blown the whistle, so it is not just a financial matter.
I warmly welcome my noble friend to his place. I look forward to hearing his answer and thank him for his engagement with me so far. I look forward to speaking to him on this issue and perhaps others as we proceed with the Bill. I hope that he will be able to accept that there are reasons why the Public Interest Disclosure Act is inadequate and why putting an amendment of this nature in this Bill makes enormous sense. I hope that we will therefore be better able to uncover criminal offences, fraud and deliberate cover-ups that it is in the public interest to expose rather than waiting for after-the-fact things to emerge having caused much more damage.
The Lord Bishop of St Albans
My Lords, I think I can be quite brief thanks to the noble Baroness, Lady Kramer, as I have been able to ditch most of what I was going to say because she has already made it so clear. I was persuaded to put my name to this amendment simply because I met a woman in one of my churches on a Sunday after worship who is currently in precisely this situation, and her whole life has basically fallen apart.
She came across something that it was clear to her was wrongdoing; she agonised for weeks and tried to take advice, which was difficult to get because of confidentiality. Eventually she decided that she needed to blow a whistle. She was immediately suspended, taken through a disciplinary process and dismissed. She is now trying to decide whether she can afford to take this through the courts. Her view is that she would probably have to sell her house to do so. It really is a David and Goliath situation.
As has been said, often the best people to spot what is going on are not necessarily the auditors—they try their best, but it is difficult for them; we see constantly how they do not always manage to spot what is going on and get an accurate picture—but those on the inside. Since the whole of our financial services sector, which is one of our great achievements and a fantastic part of our life, relies ultimately on trust—our greatest currency in this country—the integrity issue absolutely kicks in. In a world in which trust is at a low ebb, this is terribly important.
The reason people give for not wanting to be a whistleblower is the cost. A public consultation conducted by the European Commission revealed that the most common reason for not wanting to come forward with allegations of wrongdoing was simply the fear of legal consequences, which 80% of individual respondents reported as their primary reason. After that came fear of financial consequences at 78% and fear of what it would do to your reputation at 45%. As the noble Baroness, Lady Kramer, said, an informal blackballing goes on behind the scenes. The woman I mentioned is now fairly clear that, even if she wins this case, it is very unlikely that she will ever get another job in the financial sector. These are legitimate fears. A 2021 survey conducted by the charity Protect found that over 60% of whistleblowers reported experiencing negative consequences such as being dismissed, victimised or subject to harassment or bullying.
I hope that His Majesty’s Government will look closely at this or at somehow strengthening how we can support whistleblowers, for the long-term prospering of financial services in this country. I look forward to hearing the Minister’s response to this amendment.
Lord Cromwell (CB)
I support Amendment 92 in the name of the noble Baroness, Lady Kramer. I have for a long time supported the better treatment of whistleblowers, who are treated appallingly badly. It is a difficult task, because many organisations—no matter how big their policy on whistleblowing—immediately close ranks against the whistleblower, who often starts out as someone trying to help and not even feeling that they are a whistleblower.
I will illustrate this briefly with two points. When I asked an Oral Question on whistleblowing some time ago, one of our esteemed colleagues, who is no longer with us, was sitting near me and said, “What are you asking about? Whistleblowers? Do you mean snitches?” In my Question, I was going to name someone in the financial services world whose solicitor contacted me minutes before I stood up to say that they had changed their mind and asked me not to name them, because they were so frightened of what would happen to them as a result. That makes a strong case—as do the powerful speeches that we have heard—for having a body such as an office for whistleblowers.
I was on an interesting call a little while ago with people interested in whistleblowing in America. It struck me how interested the investors were. One of them said, “I’ve put several million into this company; I want to hear from whistleblowers and know what’s going on with my money”. You do not hear that often enough. Investors have a direct interest in whistle- blowers delivering proper information about what is going on.
To help bolster even further my emphatic support for this amendment, I have a couple of questions for the noble Baroness, Lady Kramer. First, how would the office do what it is required to under subsections (4)(a) and (4)(b) of the proposed new clause? Secondly, can she clarify—the noble Baroness, Lady Altmann, touched on this—when the office for whistleblowers would come into play? Is it from the beginning or at the end, as a last recourse? How would it interact with the employer? I am not quite clear about how that would work. Fear not: I am entirely in support, but it would help me to have some clarity on those points.
Lord Agnew of Oulton (Con)
My Lords, I support the amendment tabled by the noble Baroness, Lady Kramer. I welcome our new Minister to the hot seat. I will not speak for long because we have heard the main arguments but, for me, as a businessman, whistle- blowing is an extremely cost-effective way of uncovering bad practice at scale. We have so many examples, such as the Post Office Horizon scandal and the Danske Bank laundromat, one of the largest recent financial crimes in Europe, involving some $230 billion of illegal Russian money, which came alive because of whistle- blowing through UK limited partnerships.
We know that the system is not working. Only about 4% of whistleblowers who take cases at the moment end up being successful. They take huge risks, as we heard from the right reverend Prelate. As usual, we are falling behind in the world league of effectiveness. The US National Defense Authorization Act creates a new whistleblowing programme and establishes a private right of action for whistleblowers who have experienced retaliation.
I ask my noble friend the Minister why we are so timid about this. I accept that he is newly in post, but I would like some evaluation of why we are told that a new office for whistleblowers would be expensive. I do not believe that it would be expensive; it would save money because it would create one focal point for all those with legitimate claims to go to, in addition to the money that would be recovered from economic crime. As we also know, we are awash with economic crime, so why not take this simple step towards dealing with it?
Baroness Blake of Leeds (Lab)
I add my thanks to everyone who has put so much effort and work into this issue over a significant amount of time. I thank everyone for their contributions, which have given powerful testimony of those who have suffered. We should note the fact that so many noble Lords in this Committee alone personally know people to whom this has happened.
I confirm that we support this amendment and I look forward to the Minister’s comments about the request for creating an office for whistleblowers. As has been said throughout the debate, it is clear that facilitating whistleblowing would go a significant way to tackling economic crime, whether fraud, money laundering or other crimes. I thank the noble Baroness, Lady Kramer, in particular for her comments about the importance of the earliest possible notice of wrong- doing, which is a key point in this discussion.
I emphasise that the stakes remain too high for an informed insider wanting to blow the whistle. This amendment would be a good starting point. I am not convinced that it will solve all the problems, but we need to see some progress. Too many people are suffering and we need to recognise those individuals as well as the impact on the businesses involved. As the noble Baroness, Lady Altmann, said, the sad truth is that too many people wait until they are leaving a company—either moving on to another or, in the case she mentioned, retiring—before finding the courage to stand up.
I understand there is going to be a review, but surely we have an opportunity now, with this Bill, to make some bold change. I thank the charity, Protect, for its briefing under Speak Up, Stop Harm, which has some very important information that we should all consider. To reference the debate that took place in the Commons, there was strong cross-party support, encouraging support and advice for whistleblowers. I am concerned that the government line remains that taking these important steps is too expensive. I really cannot understand that line of argument. Surely, we should regard this as an investment and not a cost. Tom Tugendhat MP promised more discussion on these matters as part of the debate. Can the Minister inform us where this has got to?
We support the creation of an office to give encouragement and support making reports. We want an ability to provide advice and, most particularly, to act on evidence of detriment to whistleblowers where we know that it occurs. The point in the amendment about making an annual report to Parliament is also important. One area on which I think it would be possible to move is to bring forward the requirement for all organisations to have a proper policy in place as a vital and effective route to preventing crime, which would mean that the courts could use evidence of this as good practice.
As I am sure all noble Lords have seen, 65% of callers to Protect’s confidential advice line say that they have suffered for speaking out, which of course is in direct contravention to the Public Interest Disclosure Act and, therefore, as amended, the Employment Rights Act. This is a very serious issue, which should be picked up and dealt with immediately.
On furlough payments, 41% of clients who contacted the advice line who suspected that fraud was taking place were ignored; 90% attempted to raise concerns with their employer before going to the helpline but, unfortunately, many small organisations still have nowhere to go. It is a matter of how these changes could support businesses that want to do the right thing but do not have the wherewithal to do it.
I look forward to the Minister’s responses to all the points that have been made today. Let us treat this issue with the seriousness that it deserves, as it is an important way in which we can help those who have received information that they want to act on. In the spirit of the Bill itself, it is a vital and effective route to preventing crime.
Lord Browne of Ladyton (Lab)
I support the amendment and commend the noble Baroness for tabling it, as well as those who support it. I do not intend to go over anything that anybody else has said about whistleblowing, but I agree with them. I am not in any sense an expert on whistleblowing, but I am speaking because I think I have anticipated in two areas what the Government’s response will be. First, I think that we are all conscious that a review of whistleblowing has been instructed. However, I cannot find in any commentary about it or any of the announcements from the Government whether the possibility of that review recommending the setting up of an office of whistleblower is part of its remit. It does not seem to be—and that brings me to the point that I really want to make.
Some of us contributed to the debate on the Private Member’s Bill on the protection of whistleblowing in the name of the noble Baroness, Lady Kramer on 2 December—I think its formal title is the Protection for Whistleblowing Bill—and because Part 2 of that Bill related to the setting up of an office of the whistle- blower, we have had the benefit of the noble Lord, Lord Callanan, telling us what the Government’s position is. I expect to hear that the Government’s position is that the existing framework provides 80 prescribed persons to whom people can legally blow whistles, many of whom are regulators, that the very diversity of that framework does not need this overarching body because it would not be able to deal with the complexity underneath it, and that should a new body have such a function,
“it would require significant staffing resources, with diverse expertise across a range of sectors, to enable it to carry out these functions effectively”.—[Official Report, 2/12/22; col. 2044.]
In other words, it is not necessary.
That can be said, and that framework exists, but to test whether that is right, I ask the Minister in response to tell us just how effective the framework is. What do these existing regulators and others actually do? What does the data show of their effectiveness? How attractive are they to whistleblowers? How many successful processes have there been—how much criminal or other wrong activity has been uncovered by them, say in the last five years or so—and just how effective have those processes been?
I spoke in that debate on 2 December and I spent quite a bit of time looking for that data, but it does not seem to exist anywhere—there does not seem to be any data that shows how successful the existing framework is. Does the Minister have the data on the number of cases that pass through the current regulatory system, as well as the data on the impact of that? If that data shows what I suspect it does—but only from anecdotal evidence because there is no empirical evidence—then this process is ripe for complete restructuring.
For all the reasons shared with your Lordships’ Committee by the noble Baroness, Lady Kramer, so competently and in such an informed way, the obvious restructuring is to follow the success of the United States of America, where the creation of an office for whistleblowing has dramatically improved the effectiveness of whistleblowing to an extraordinary degree.
It seems that the fundamental problem—this is part of the problem we have got ourselves into with economic crime—is that the infrastructure we have in any part, either to prevent, detect or prosecute it, is just not of the scale of what is going on in our country. We need something that concentrates some very special resources in a way that makes whistleblowers comfortable to deal with them, protected by the state when they blow the whistle, and where the information they give is properly acted on so that it has the results that we need. I hope that when, as I expect, the Minister pushes back on this amendment, he will be able to tell us where that is in the existing framework. If it is not there, we need an office for the whistleblower, and when we get it is just a question of time.
This is an opportunity we have now. Most of us in your Lordships’ Committee have experience of just how difficult it is to get opportunities for legislation that makes this sort of fundamental change. We should grasp this one when we have it. If we have to build upon it beyond economic crime later on, so be it, but we should do it now.
The Minister of State, Department for Business and Trade (The Earl of Minto) (Con)
My Lords, I first draw attention to my interest as set out in the register, as a non-executive chairman of Not Another Bill Limited. Secondly, I want to thank noble Lords for their warm welcome to the hot seat, which is much appreciated.
I am pleased to be able to represent the Department for Business and Trade in my new role as Minister of State. I thank all noble Lords for their inputs into the debates so far and express my pleasure at being able to speak today on this amendment. I also thank my ministerial colleague and noble friend Lord Johnson of Lainston, who is indeed in Hong Kong, for his support in preparation for today’s debate.
Moving on to the Bill itself, I thank the noble Baroness, Lady Kramer, for raising the important matter of whistleblowing. As a former co-chair of the All-Party Parliamentary Group for Whistleblowing, she has continuously highlighted the important role that whistleblowing plays in shining a light on wrongdoing. The Government have a significant interest in ensuring that our whistleblowing framework is robust. An effective whistleblowing framework is a vital part of the UK’s ability to tackle corruption and all forms of economic crime and illicit finance. As these acts are by their very nature often covert, those working for an organisation can be a key source of intelligence for authorities.
My concern with this amendment, however, is two-fold. First, these reforms risk duplicating elements of the existing framework, leading to a confused landscape, and potentially at considerable cost. As I understand it, this position was explained by my noble friend, Lord Callanan, during Second Reading of the noble Baroness’s Protection for Whistleblowing Bill in December last year. So I will not go into detail here but, just to recap, the Government are concerned about how such an office would interact with the role of regulators. As has been mentioned, a new body could also come at a considerable cost, as it would require significant staffing resources, with diverse expertise across sectors, to enable it to carry out these functions effectively.
Secondly, it would be premature to make legislative change ahead of the review of the whistleblowing framework, which everybody has mentioned. The review, which the Government launched on 27 March this year, will examine the effectiveness of the whistleblowing framework in meeting its intended objectives—that is, to enable workers to come forward to speak up about wrongdoing and to protect those who do so against detriment and dismissal.
The noble Baronesses, Lady Kramer and Lady Altmann, asked whether the review will consider the merits of establishing an office for the whistleblower. The review will consider evidence related to the effectiveness of the whistleblowing framework in meeting its intended objectives. This is to enable workers to come forward to speak up about wrongdoing, and to protect those who do so against detriment and dismissal. As the right reverend Prelate explained, proper protection is needed against terrible misery and personal risk.
The review will consider a number of topics that are central to the whistleblowing framework. These include: how workers are defined for whistleblowing protections; the availability of information and guidance for whistleblowing purposes; and how employers and prescribed persons respond to whistleblowing disclosures, including best practice. The research for the review will conclude in autumn 2023. The full terms of reference for the review are published on GOV.UK.
There have been a number of very specific questions. I think that I have written down all those on data so, if it is all right with noble Lords, I shall respond swiftly in writing to some of the specific questions that were asked. There is no doubt that there is a lot of data behind this amendment; it is important that proper answers are provided.
Lord Browne of Ladyton (Lab)
I thank the Minister for giving way. On 2 December, I asked the noble Lord, Lord Callanan, whether he could provide the data on the performance of regulators and other prescribed persons in relation to whistleblowing, specifically asking the same question that I asked the Minister. He did not answer it then and he has not written to me. Does this data exist? I suspect that it does not.
The Earl of Minto (Con)
I do not know whether it exists; if it does, I shall find out and let the noble Lord know. I think it must exist, but we will have to see. The other important issue was the expense of going to a tribunal, which is a very serious issue. My understanding is that the review will certainly take that into consideration.
Not long after taking office, my ministerial colleague the parliamentary Under-Secretary of State, Kevin Hollinrake MP, committed during the Public Bill Committee in the other place to get this review moving. We have followed up on this commitment and continued to deliver on whistleblowing policy. On 17 October last year, the Government laid before Parliament the most recent update to the prescribed persons order. This came into force in December and is a significant improvement to the framework, adding six new bodies and all Members of the Scottish Parliament to the list of bodies and individuals that a worker can blow the whistle to. I hope that demonstrates to noble Lords that the Government are very serious about whistle- blowing.
I welcome the continued constructive engagement on this topic, and I know that Minister Hollinrake has valued the discussions to date with parliamentarians and organisations representing whistleblowers in preparing for this review. However, this amendment could create a confused landscape for whistleblowing, potentially at considerable cost. It would also pre-empt the ongoing review of the existing framework. I therefore respectfully ask the noble Baroness, Lady Kramer, to withdraw it.
Baroness Kramer (LD)
My Lords, I thank all noble Lords who have spoken in this superb debate. I thank the noble Baroness, Lady Altmann, and the right reverend Prelate the Bishop of St Albans for giving those personal examples. They bring home to people the experience that we are trying to deal with, so that people can relate to them and ask “Would I be brave enough? Would I let this happen to me and my family?” and understand why whistleblower protection is so important.
There were some specific questions. First, if ever I have seen a red herring, this question of cost must be it. In the United States, the Office of the Whistleblower has turned into a profit centre for the US Treasury, because the number of cases it can drive through and the consequences of remuneration, fines and compensation have meant that it not only covers its costs but can return substantial amounts to the Treasury. The Minister is most welcome to get the latest figures on those. I do not have them in front of me, but he will be able to access them very easily. So cost is not the issue.
We are often told that we will need an enormous, monstrous octopus of an office. That is not what we are talking about. We need a place where people can go and know that their disclosure is absolutely safe. As other noble Lords have said, including the noble Lord, Lord Cromwell, people want to know that there is genuine follow-up on the issue. He asked how the language of my amendment on investigation would work. It would work by acting through the regulators. I have had many a conversation with regulators and, interestingly, they are all desperate for something like the Office of the Whistleblower, because dealing with whistleblowing is completely outside their standard remit—how they structure themselves and hire their personnel. This creates that exchange with the Office of the Whistleblower as a director of the information to the regulator. That dynamic gives us the assurance that there will be action. The office can chivvy if action does not follow.
The noble Lord, Lord Cromwell, also asked how the office of the whistleblower would protect individuals from detriment. This is a very abbreviated amendment because it has to come within the scope of the Bill. My Private Member’s Bill deals with the issue in far greater detail, but the logic of it is basically that, when the office determines that a whistleblower has received detriment, it will be able to order the employer—although this applies to all whistleblowers, so it is a broader picture—to provide compensation. However, if that employer or company decided that the compensation was inappropriate, it could take the office of the whistle- blower to the First-tier Tribunal. But in that case, facing each other, you would have the institution of the office of the whistleblower and the institution of the employer or organisation on the other side. You would not have the David and Goliath situation of a poor, lonely whistleblower who has already spent all their savings and is borrowing money to continue their case facing an employer which can afford to pay for the best counsel in the country and continue to drag out the entire process on appeal after appeal. So it changes that dynamic.
I refer noble Lords back to my Private Member’s Bill. I have always said that I am not precious about exactly how all this is done, but the core principles of it need to be seized and taken. I am sad that the Minister again uses the term “workers”, because there are so many people who blow the whistle, including contractors, suppliers and customers, and they are all often subject to retaliation and blacklisting—and that matters.
I think that I have covered most of the questions that were asked, but I would be glad to continue this conversation off-piste rather than take up more time in Committee today. This is an absolutely fundamental issue. One opportunity in this Bill is to echo how it has been done in the United States, where the Office of the Whistleblower is set within a financial services regulator structure, and this amendment would enable that to happen—or there is the alternative to going to a much broader office of the whistleblower. When you talk to the regulators dealing with education, the National Health Service, nuclear waste or whatever else, they will all say, “For goodness sake, can you take this burden of dealing with whistleblowers off my shoulders? I really need a professional and focused organisation sucking in this information and making sure that I get what I need to act as a regulator”. I can assure the Minister that, while none of them says it publicly, he will find that, privately, the regulators are very much in support of this kind of arrangement. I beg leave to withdraw the amendment.
Lord Coaker
“Unexplained Wealth Orders and Vulnerable Adults
(1) The Secretary of State must commission a report each year on Unexplained Wealth Orders where the wealth or property in question was obtained through economic crime.(2) The report must record all cases where Unexplained Wealth Orders have been used in the previous year and revealed cases where property or wealth has been taken from—(a) older people;(b) people living with disabilities;(c) people who use adult social care;(d) adults who lack mental capacity.(3) This first report must be laid before each House of Parliament one year after this Act is passed.(4) Thereafter it must be produced annually.”Member’s explanatory statement
This amendment probes current data kept by the government on property and wealth obtained through economic crime being taken from vulnerable adults.
Lord Coaker (Lab)
In the absence of my noble friend Lord Hunt, and with his apologies, I move Amendment 93 in his name. I shall leave the noble Lord, Lord Faulks, and the noble and learned Lord, Lord Garnier, to speak to their amendments, but I agree very much with the points made in Amendment 95.
This is one of those parts of the Bill that we are dealing with in Committee which seems like a very small part of a huge reform that the Government are undertaking with respect to economic crime. However, given that unexplained wealth and the proceeds of crime are an affront to us all, successive Governments—because under the last Labour Government I was involved in the passage of the Proceeds of Crime Act —have singularly failed to ensure that those who benefit from crime do not somehow evade their ill-gotten gains being taken back from them by the state. That is despite the Proceeds of Crime Act and the unexplained wealth orders—and the first part of the amendment would require a report from the Government on unexplained wealth orders.
Lord Young of Cookham (Con)
My Lords, I shall speak briefly to Amendments 93 and 95. Amendment 95, in the names of the noble Lord, Lord Faulks, and my noble and learned friend Lord Garnier—who, sadly, cannot be here—is closely related to Amendment 93 but has a key difference in that subsection (3) of the proposed new clause says that the annual report must detail how much money has been brought in and how much has been spent in securing it.
UWOs were introduced by the Criminal Finances Act 2017. At the time, I was Treasury spokesman in your Lordships’ House. I have no recollections of piloting this legislation through, but I have some memories of some of the statutory instruments that flowed from it. The background was that this had been tried in other countries with varying degrees of success. I do not think anyone can argue with the principle: an individual has at his or her disposal substantial sums of money for which there is no reasonable explanation—they may be an official working for, or who used to work for, some totalitarian Government, whose official salary in no way could support their standard of living. I see the case for UWOs but, as we just heard from the noble Lord, Lord Coaker, they have not been a stunning success.
When the Bill was going through, the noble Lord, Lord Faulks, tabled some amendments to give the SFO more powers but also to understand the ambition of the Home Office with that legislation. A Home Office assessment in 2017 predicted that there would be about 20 UWO applications per annum. We just heard from the noble Lord, Lord Coaker, that, to date, there have been nine applications against four individuals, with not a lot of money realised. In fact, in one case, the cost of failure against the Aliyev family was about £1.5 million. Since then, we have a cap on the costs that can be awarded against the SFO or the prosecuting authority, but I wonder whether that goes far enough and whether we should not provide that there should be no order for costs against the SFO unless the proceedings were brought maliciously or without any reasonable justification. That would place a burden on the person against whom the UWO was claimed to show, in effect, that the institution of proceedings was abusive.
Related to this, last year the register of overseas entities was introduced, following the invasion of Ukraine. A Joint Committee, chaired by the noble Lord, Lord Faulks, looked into the register of overseas entities and to what extent it could relate to the UWOs. Can my noble friend the Minister update us on that? The register should provide some valuable information in seeking an UWO, and a failure to provide relevant details, or the provision of inadequate details, would clearly be of immense value.
However, at the heart of the problem is something that the noble Lord, Lord Browne, referred to in a previous debate: the inequality of arms in the firepower available to each side. The targets, by definition, will be well resourced, and the SFO considerably less so. This is not the first time in our debates on this Bill that we have emphasised the importance of resources in the fight against economic crime.
My final point is this: we have had two Bills in quick succession on economic crime, and I think we can now expect a legislative silence in this area while Governments of whatever complexion concentrate on other issues. Hence the importance of a provision to keep the Government up to the mark in telling Parliament how they are using the valuable powers that Parliament gave them with the UWOs. That, in effect, is what these two amendments seek to do.
Lord Trevethin and Oaksey (CB)
My Lords, having spoken briefly to the noble and learned Lord, Lord Garnier, who regrets that he is not able to speak to his amendment, I think I know broadly what he would have said, and I agree with him. I shall try to articulate it briefly.
The point made by the noble Lord, Lord Cookham, about inequality of arms in this area, is critical. It is very strange and troubling that there have been so few applications of this nature since the jurisdiction came into existence, and the reason, unquestionably, is that the SFO, which is responsible for deciding whether to make these applications, is understandably very wary of the cost consequences of losing.
As the noble Lord, Lord Young, said, by definition, the respondents to these applications will be well resourced. They will retain City firms whose partners charge £600, £700 or £800 an hour or more—and, in responding to the applications, which will tend to raise quite tricky points of fact and complex issues of foreign law, they will swiftly run up legal bills that extend to hundreds of thousands, even millions, of pounds. If the principle that the loser pays applies to these applications without qualification, the cost consequences of losing, from the point of view of the regulator or prosecutor, will be a considerable deterrent to making applications, even when there is obviously a good reason to do so.
The points that I am considering in these short remarks may come into focus later on this afternoon when we discuss another amendment. The reason for me making them now is that it seems to me that the information that would be yielded by the amendment in the names of the noble Lord, Lord Faulks, and the noble and learned Lord, Lord Garnier, would be of great value both to Parliament and to those who make decisions in this area in deciding how the regime needs to be restructured so that applications are made when they should be made.
Lord Fox (LD)
My Lords, I will speak briefly because we have heard some excellent speeches from the noble Lords opposite.
I just want to say, observationally, that we have debated a number of different groups where inequality of arms has been at the centre. When we talked about SLAPPs, we talked about inequality of resources. We have just talked about whistleblowing, where it is the same issue, and here we are again. In a sense, the Government are in different places with different elements of this. We need to have some sort of integrated response on how all people can be equal before the law because they can afford to do it—in other words, they can afford not to win, which is the issue here. We have our law enforcement agencies, we have perfectly innocent people going about their businesses trying to blow a whistle, and we have people who are trying to report issues publicly but are being SLAPPed. All of these important elements are being blocked through the inequality in access to the courts.
To refer back to this group of amendments, it seems to me that, if this amendment is not the answer, there must be some other answer. I look forward to the response from the noble Lord, Lord Sharpe, because it is quite clear that unexplained wealth orders have failed to deliver on whatever promise they may have had. Perhaps the Minister can explain how many of them there have been and what exactly the barrier has been, as well as what the cost per prosecution would be; that is an interesting point of view.
In the end, this is about inequality of arms. The first point here is that the Government must recognise that this is an issue; they then have to settle down and find ways of working with people who understand the law in order to eliminate that inequality. Otherwise, most of what we are talking about here will not happen.
Lord Leigh of Hurley (Con)
My Lords, I am prompted to rise by the words of the noble Lord, Lord Trevethin and Oaksey. I think he was referring to Amendment 106C, which we will come on to later this afternoon and which would extend the costs cap beyond UWOs. In the certainty that my noble friend the Minister will seek to ensure that Amendment 106C is agreed to, let me simply say that the amendment we are debating now, in the names of the noble Lord, Lord Faulks, and my noble and learned friend Lord Garnier, would be complementary and extremely helpful to Amendment 106C.
The Parliamentary Under-Secretary of State, Home Office (Lord Sharpe of Epsom) (Con)
My Lords, I thank noble Lords for proposing their amendments. I thank the noble Lord, Lord Coaker, for moving Amendment 93 on behalf of the noble Lord, Lord Hunt of Kings Heath. I also thank the noble Lord, Lord Faulks, for Amendment 95, which was spoken to by my noble friend Lord Young. Both amendments relate to reports connected with unexplained wealth orders, henceforth known as UWOs.
I turn first to Amendment 93, which would require the Government to lay annual reports on UWOs where the property has been obtained through economic crime and taken from vulnerable adults. Economic crimes not only result in financial gain for criminals but leave a trail of suffering. They inflict financial and personal loss, including on the most vulnerable members of our society, which this amendment importantly recognises.
Lord Fox (LD)
The Minister set out some interesting statistics. It is clear that UWOs have been accountable for a very small proportion of the total amount of money recovered. The Minister referred to them as a powerful tool. Is he satisfied that UWOs are reaching their potential, in which case we would conclude that they are relatively insignificant compared to the other tools in the hands of enforcement, or are UWOs failing to meet their potential and not as powerful as they could be? Clearly, they are not generating very much money compared to all the other tools available to the enforcement agencies.
Lord Sharpe of Epsom (Con)
I am not sure that the question is entirely valid with regard to generating money. The fact is that, since their introduction in 2017, four of these have been issued in relation to assets with a combined value of £143 million. In October 2020, property worth an estimated £10 million was recovered, following the use of a UWO, as I have already said. As for whether the scheme is succeeding or failing, it is not for me to say. I am unable to do so, because I do not have access to the operational decision-making that goes into issuing them, and so on. These are operational matters.
Lord Fox (LD)
I accept that it is not for the Minister to say; who does say whether they are succeeding or failing?
Lord Sharpe of Epsom (Con)
I have already said that we will publish a number of reports on this on 1 September, so I would hope for some more clarity then, but I shall endeavour to find out more information and report back to the noble Lord.
Lord Leigh of Hurley (Con)
I share the disappointment expressed by other noble Lords. When UWOs first came out, I was very pleased to see them. They are a classic accountancy tool to establish what is going on in respect of an individual who may have accumulated wealth in an unexplained way. It is incredibly disappointing to learn that so few have been issued with, frankly, teeny sums of money, given the nature of the world that we are discussing. Can my noble friend take back our concerns to his colleagues and, in particular, ask whether targets could be set for the coming year on the number of UWOs that might be issued and the amount of funds that they might realise?
Lord Sharpe of Epsom (Con)
I am certainly happy to take my noble friend’s concerns back but, as regards targets, that would invite me to stray into operational matters, which I will not do.
Lord Coaker (Lab)
I thank the Minister for his reply, although I also share that disappointment. I should have thought that the focus of the noble Lord, Lord Young, speaking on behalf of the noble Lord, Lord Faulks, and the noble and learned Lord, Lord Garnier—as I am speaking on behalf of my noble friend Lord Hunt—was to ask the Government to bring a report, even if that is not the appropriate way of doing it, and say to them that the operation of UWOs is simply not working as they expected. It is perfectly reasonable for a Minister of the Crown, while of course not interfering with the operational independence of the police or any other law enforcement agency, to look at the legislation and see whether it is working as the Government expected. Clearly, it is not, so it would be a perfectly reasonable response to say that nine applications, four cases and the odd bit since is simply not what anybody would have thought acceptable or thought would happen.
This happens with legislation; even if we had the Government of our dreams, laws would be passed that did not function or operate in the way we would want—but that is the purpose of Committees such as this. This is where, to be frank, Ministers listen to what is said and respond that they will take the matter back and that it is unacceptable, rather than come off saying that it is one tool in the box of government in dealing with the issue.
The Minister had a pop at me. I was only using the facts that are available in a government document called Fact Sheet: Unexplained Wealth Order Reforms. If the facts I am giving the Minister are wrong then, frankly, the Government should have updated the facts, because this is what all of us use in these debates. I have not made it up—I have read the Government’s material. The Minister then turns around and says that the noble Lord, Lord Coaker, has not got it right, because the up-to-date figures are X, Y and Z against POCA. It might have been helpful to have the key facts.
Again, I read out,
“the Proceeds of Crime Act 2002 is a complex and technical Act and reform requires careful consideration and consultation”.
Then the Minister had a go at me and laid out four Acts of Parliament that have been done since. Why were they not included in the key facts? It would have been helpful to everyone to understand the way in which it had been reformed to see whether it is now working and functioning as the Government want it to. I do not have five floors of civil servants providing me with a brief that says there are four pieces of legislation which have updated and improved it. The serious point is that, when I and other members of the Committee depend on the government document setting out the key facts in relation to what we are discussing, it should be up to date. That is the only point I want to make.
I do not know whether the figure that I was going to use is out of date. A number of members of the Committee made the point to the Minister that, if it is hundreds of millions that have been recovered over a number of year, that is peanuts. The reason I say it is peanuts—the Minister will correct me if I have got this wrong—is that Fact Sheet: Unexplained Wealth Order Reforms says under the heading “Key Facts”
“Serious and organised crimes … for example”—
and lays out various things—
“are estimated to cost the UK economy £37 billion per year”.
That is not my figure. The key facts document published by His Majesty’s Government says it is £37 billion a year. I should have thought that the response to what are clearly probing amendments about reports would be, “It is £37 billion a year, we are getting a few hundred million there, we are getting £100 million there, £50 million there”. Why are we not making more of a dent into what we all, including the Minister, regard as simply and utterly unacceptable? The Minister will think it is unacceptable that we have that.
Of course, I shall not move the amendments, but I hope the Minister will take back the bureaucratic point about ensuring that the key facts documents that we use in our deliberations are updated. I hope that he will also talk about the point that unexplained wealth orders were brought in as a way for the Government to address the problem, which the noble Lord, Lord Young, and others mentioned, that huge sums of money surround individuals who have no legal way of explaining how on earth they got them.
I shall raise one other point, because it drove me mad when I was a Member of Parliament and before that a local councillor. On estate after estate, on housing area after housing area, it drove people who went to work mad to look down the road and see somebody who did not go to work driving a Ferrari, or something like that. At an individual level, that is exactly what all of us feel more generally about what is happening nationally and internationally, where people are playing the system. The vast majority of law-abiding business men and women and businesses conform to the law, pay their taxes and do their best—but £37 billion a year is lost to fraud. In answer to the noble Lords, Lord Fox and Lord Young, and me, the Minister talked about getting £10 million here and £100 million there. I am pleased that we got that, but it is peanuts compared to the amount of money that we are talking about. I hope the Minister can take that back—
Lord Sharpe of Epsom (Con)
As the noble Lord has drawn on the key facts document, it is important for me to provide a bit of clarification. It was published on 4 March 2022 for the previous Bill, not this Bill. Those numbers were correct at the time of publication. On UWOs, they have been applied for—I have said how many times—and two of the applications have been made since the Government reformed the UWO regime last week, which I should have said while I was answering noble Lords. Perhaps that provides a bit more clarity. On the key facts, the three floors of civil servants are in the clear.
Lord Coaker (Lab)
On the various facts that the Minister has brought forward, I just went to the latest fact sheets. For example, I have an overarching fact sheet for the Economic Crime and Corporate Transparency Bill. It was updated on 11 April 2023. If that one can be updated, this one can. Are we going to play at dates? All I do is go to the latest available fact sheet. I have another one here, which I shall use in our next debate—and I hope that that was updated on 11 April 2023. So the fact sheet that I cited was from 4 March 2022; I understand what the Minister said. However, these are the latest facts that I have used. What is a member of the Committee supposed to use, if they cannot use a fact sheet and cannot find the latest one? One assumes that it is the right fact sheet. It does not say, “Fact sheet: unexplained wealth order reforms as per a particular Bill”. Oh, I correct myself—it says that at the top. But the truth of this is that what all of us seek to do is to use facts, and all I did was to use the most up-to-date fact sheet. I hope that the one dated 11 April 2023 is the latest one and there is not one from 4 May 2023, which the Minister would be able to correct me about again.
I beg leave to withdraw the amendment.
“Home Office review of the Tier 1 (Investor) visa scheme: publication
Within a day of the day on which this Act is passed, the Secretary of State must publish in full the findings of the Home Office review of the Tier 1 (Investor) visa scheme which relate to economic crime.”Member’s explanatory statement
This amendment would require the Home Office to publish findings of their review of the Tier 1 (Investor) visa scheme.
Lord Fox (LD)
My Lords, this is a mixed set of amendments. I do not think that we will debate the philosophy of what a fact is, although we may come back to that in a few minutes. I rise to move Amendment 102 on behalf of my noble friend Lord Wallace and to speak to both an amendment in my name and a series of amendments in the name of the noble Lord, Lord Coaker.
Amendment 102 refers to tier 1 investor visas, otherwise known as golden visas. As I am sure the Minister will jump up and tell me, the scheme was closed relatively recently, but that is not the point of this amendment. We know that the scheme allowed individuals with a high net worth into the UK through the investment of large sums. We also know that, during its operation, it became increasingly clear that there was abuse, or the possibility of abuse. Visa beneficiaries under the scheme largely came from Russia, former USSR states and China, more so than from any other third country. It must have been clear to the Home Office and others that the sources of the wealth of many of these applicants were dubious at best.
The scheme was closed in February 2022. When it closed, the Government promised a review into so-called golden visas, because they were clearly an issue and something that needed to be reviewed so that we could find out what went wrong and ensure that future decisions did not make similar mistakes. It was, therefore, an object of some despair when, instead of publishing the findings of the review in full, the Home Secretary published a Written Statement in January this year with a summary of the review’s findings. The Statement told us what we already knew, in fact, but not much more. The scheme had been used by individuals who were, to quote the Statement,
“at high risk of having obtained wealth through corruption or other illicit financial activity, and/or being engaged in serious and organised crime”.
It also told us that this concerned a
“small minority of individuals”
who had obtained visas under the tier 1 investor route but gave no indication of the actual figures on where a risk had been identified. More than 6,000 visa holders were reviewed. What is a “small minority” of 6,000? How many were at risk?
We also know that 10 oligarchs who had been sanctioned as part of the response to Russian aggression in Ukraine used this scheme. How many more applicants with ties to Putin have been given visas that allowed them to embed themselves in the UK economy and UK society? Are any still in the UK? If so, have they gone through the process of acquiring citizenship? The Statement answered none of these questions.
This amendment would require the findings of the review, where they relate to economic crime, to be published in full. It is a review of a scheme that, according to the Home Office, attracted a disproportionate number of applicants from the countries identified as being particularly relevant to cross-border money-laundering risks faced and posed by the UK. As I said, the scheme benefited Russian and Chinese oligarchs above all. Key questions remain unanswered. Parliament needs to know what went wrong so that we can hold the Government to account in future. We are entitled to know more about what the Home Office conducted in this review and the impetus that it gave to various other elements of what we are seeing now. In other words, has anything learned from the review seen its way into the legislation that we are now talking about? If not, why not?
The refusal to publish either this report or the fuller details of Russian penetration into British politics, which the ISC recommended should be published, makes it difficult not to conclude that the Conservative Government have some significant and embarrassing issues to hide, most probably around donations to the party. If the Minister has nothing to hide, I am sure that he will be able to announce the publication of these reports.
As I said, I also want to speak to Amendment 104 in my name, which has, to some extent, a similar motive to the three amendments proposed by the noble Lord, Lord Coaker. Without putting words in the noble Lord’s mouth, I suspect that, like me, he is an enforcement sceptic. He is sceptical not about the need for enforcement but that sufficient enforcement will support the legislation we have spent all this time debating. My amendment is one way of trying to expose the resources and the effect that they are having. I am sure that the Minister will step forward and tell us that the NCA publishes an annual plan but Amendment 104, particularly subsection (3) of its proposed new clause, sets out a rather different set of things that we would need to know but which are not currently included in the annual plan published by the NCA.
I am quite happy to support other ways of doing this, which the noble Lord, Lord Coaker, is probing, but, at the heart of this, Parliament needs to know how effective enforcement is and that the primary agency running the enforcement process has the resources it needs in order to meet the challenges that it faces. Those challenges are getting bigger, harder and more sophisticated every day. This is one way of exposing whether the resources are sufficient and what Parliament needs to worry about in future in terms of delivering support to agencies so that they can actually enforce these things. I beg to move.
Baroness Bennett of Manor Castle (GP)
My Lords, I have attached my name to Amendment 102 in the name of the noble Lord, Lord Wallace of Saltaire. I begin by quoting the noble Lord, Lord Evans of Weardale, who chairs of the Committee on Standards in Public Life. Speaking in this Room last year, he said that
“we have clearly, as a matter of policy, turned a blind eye to the perpetrators of corruption overseas using London for business or leisure purposes”.—[Official Report, 13/10/22; col. GC 156.]
The golden visa scheme was clearly a significant part of that issue, as highlighted by the noble Lord.
I begin by paying great tribute to the noble Lord, Lord Wallace of Saltaire, who has been an absolute terrier—no, that sounds too small. A bulldog is better.
Baroness Bennett of Manor Castle (GP)
We will not get into that one. The noble Lord, Lord Wallace, has been an absolute bulldog in pursuing this issue over a number of years. The reason why I chose to attach my name to this amendment is that I worked with the noble Lord on this issue, during my modest role in what became the Financial Services Act 2021. As the noble Lord, Lord Fox, outlined so clearly, we must be able to diagnose the illness fully if we are to find the medicine we need to deal with it. At the moment, we are not being allowed to see that diagnosis; we are getting a very rough, top-line kind of summary.
As the noble Lord, Lord Fox, said, we know that more than half of the visas issued—some 6,000—were being reviewed in 2022 for possible national security risks. Being told about a small minority does not get us anywhere near where we need to go. We are looking at this particularly in the context of the Russian attack on Ukraine and the current geopolitical situation. More than 200 Russian millionaires bought their way into the UK in the seven years after the scheme was supposedly tightened, before it was finally closed. We have to look at that with respect to security issues as well; we are talking about economic crime here but economic crime and security are surely interrelated. We need to know about those issues.
This amendment deals only with the review relating to economic crime. I am sure that that is because the Bill Office said that anything broader would be out of scope—I have no doubt about that—but it is worth putting on the record that, to learn lessons for the future, we need to assess the impact of the scheme much more broadly. I do not know whether the Home Office report looked at this—I cannot see it—but it would be interesting to see what impact it has had on our current housing crisis and on house prices; surely it has had an impact.
It is also worth highlighting the broader impact of entrenching wealth-based and racialised inequality in the UK. Take the contrast between the 250 family members and dependents of the Russian millionaires who came in versus the fact that so many British people are unable to live in their own country with their foreign spouse or partner because they do not earn enough money to be able to do so. That contrast is really shocking; we should be looking at the impacts of that on our society. These golden visas were a disaster. We can only understand that disaster and seek to deal with its effects if we are open about the Government’s own report.
Lord Coaker (Lab)
My Lords, I support much of what the noble Baroness, Lady Bennett, and the noble Lord, Lord Fox, have said. In speaking to my amendments in this group, I start by welcoming the publication of the fraud strategy last week. I know that the Minister has been pushing for it to be published as speedily as possible; its publication is helpful to the Committee.
The fundamental question behind much of what I am going to say is this: how will the fraud strategy published last week answer some of the problems that have been raised—indeed, that I will raise? My Amendments 106B, 106EA and 106EB are clearly probing amendments but they have at their heart the question posed by the noble Lord, Lord Fox: how will the Government bring together all this legislation, statutory instruments, enforcement papers, reforms of Companies House and so on? How is all of that in the landscape of government being brought together, co-ordinated and made effective? It is not an easy question to answer but, looking at all these things, they seem cluttered, to say the least. Even with this Bill, things are cluttered. Some sort of review or report to Parliament to try to do something about that would be helpful. Does the fraud strategy do that? How will the strategy report to Parliament to see whether it has been successful or not?
Lord Faulks (Non-Afl)
I want briefly to add to that. I am sure that the Serious Fraud Office is full of capable and conscientious men and women who go about their jobs with enthusiasm. However, they are often pitted against rather formidable adversaries in terms of lawyers and the resources that are available to those lawyers to defend people who are the potential targets of the Serious Fraud Office.
It may be that one of the problems with the Serious Fraud Office is the career structure. The American equivalent often engages lawyers with very considerable abilities who are at a relatively stage in their practice. They may not be paid particularly well when they do it, but it is a feather in their cap. In other words, the Serious Fraud Office’s equivalent in America often has extremely high-quality lawyers. I wonder whether thought has been given to restructuring our whole approach to those who prosecute these matters so that we can somehow incentivise the very best people to get engaged in this business to render the playing field a lot more level than it currently is.
Lord Agnew of Oulton (Con)
My Lords, I rise to support the amendments tabled by the noble Lord, Lord Coaker, in particular Amendment 106B. He is becoming quite an expert on an area that has troubled me for 18 months or so.
The figure of £37 billion used in Amendment 95 is only a small part of the story. The National Audit Office talks about a separate £30 billion bottom-end estimate of losses to fraud in the public sector, so this is a huge issue; that is why I have tried to put as much effort into it as I can. The noble Lord, Lord Coaker, made the point that it is a hotchpotch landscape. There are 22 economic crime-fighting agencies scattered across the whole landscape. They do not join up or talk to each other. They have different remits and different legislation to use to effect any kind of outcome.
A report of the kind that the noble Lord suggests would bring real clarity to this. It would explain to people what is going on. It would not cost very much; indeed, as usual, it would save money because there is, I am sure, a great deal of duplication going on in the system. I urge my noble friend the Minister not to respond today, because it is so hard to respond on the hoof to these sorts of things, but to take this away and write to us to explain what is against the logic of a single reporting point once a year for all the agencies involved in economic crime.
Lord Browne of Ladyton (Lab)
My Lords, I am pleased to follow the noble Lord, Lord Agnew, in this part of our debates on the Bill because I recently corresponded with him about many of these issues. It was prompted by the publication on 30 March 2023 of the National Audit Office’s report, Tackling Fraud and Corruption Against Government. He helpfully drew my attention to some aspects of that and persuaded me that there is an opportunity in this Bill to take advantage of a degree of cross-party co-operation and leadership in an area of public policy, the like of which I have never seen in 25 years in the other place and your Lordships’ House.
The degree of informed cross-party leadership in the House of Commons is unique, in my experience. I do not think that I have ever seen so many well-informed people who have spent years working in this area leading together, in an utterly non-partisan way, the revision and improvement of a piece of legislation. It has been an utter pleasure to be able to contribute a small amount to your Lordships’ Committee and to listen to genuine experts in this Committee talking both about their experience and how it can be brought to bear to improve the Bill. I have no doubt that the Minister welcomes the fact that there is such support for the Government’s ambition.
However, my sense is that the government machinery resists being helped too much in relation to this legislation. I was an enthusiastic amateur in relation to the first part of the Bill because I have no expertise in the workings of the Companies Act. There were a number of people in the Committee who were able to inform me about how the process worked. The whole point of those debates on Companies House was to change culture; the whole point of this legislation seems to me to be to change culture in all aspects and areas that it touches in relation to economic crime. The culture that we want is one of transparency and accountability, which is why it is called the Economic Crime and Corporate Transparency Bill. It seems utterly ridiculous that the visa report is in the hands of the Home Secretary, who now has responsibility for a large part of the Government’s policy given the changes in government structure that took place not so long ago. She is holding on to an important report—a review of how we got into the position where this well-intentioned visa process became a machinery of deep corruption in our society at high levels because the money for corrupt purposes was moving quite significantly up the ladder of those who make decisions into the policy world.
What justification can there be, when the Home Office substantially has responsibility for a large part of this Economic Crime and Corporate Transparency Bill, which is designed fundamentally to change our approach, for one of the principal Ministers in charge of this area of law to be sitting on this report without explanation? There is no explanation. We are entitled to conclude that there must be something that she does not want the light of transparency to reveal. The noble Lord, Lord Fox, has already suggested what that could be—it probably is that.
Lord Leigh of Hurley (Con)
My Lords, I rise briefly to urge the Minister to not allow the concept of a tier 1 investor visa scheme to be rubbished. This country has benefited enormously from foreign direct investment. I have seen a large number of UK small and medium-sized businesses benefiting from individuals coming to and living in the UK and putting money into and running the businesses, and those businesses flourishing thereafter. It is an important part of what we offer overseas investors, if done correctly.
I am a little disappointed that the noble Lord, Lord Fox, seemed to imply—and probably stated it; I may have missed it—that the reason that this information has not been published is that the Home Secretary is worried about disclosure of people who may have made donations to the Conservative Party. I do not think that is in the spirit of the debate; I do not think it is correct. The noble Lord laughs, but it is particularly surprising from the Lib Dems, which took money from Michael Brown, to make allegations like that, and it is a shame because I think there is great consensus in the Committee about the purpose and merits of the Bill.
Lord Sharpe of Epsom (Con)
My Lords, I thank all noble Lords, who have made some extremely thought-provoking points in this debate. I will do my best to address them all.
Scrutinising the activity of government is obviously a key function of Parliament, and of course the Government are entirely supportive of it. I reassure the noble Lord, Lord Browne, that this particular part of the government machinery is always grateful for any help that is offered and will receive it in that spirit. However, the amendments in this group are unnecessary, as they are duplicative of existing reporting arrangements and scrutiny structures.
On investor visas, I take my noble friend Lord Leigh’s points. If done in the right way, they are potentially an important engine of economic growth—that should be acknowledged. Of course, we should not forget that they were introduced by a Labour Government and maintained during the coalition years. However, on Amendment 102, tabled by the noble Lord, Lord Wallace of Saltaire, and moved by the noble Lord, Lord Fox, I am aware that there are concerns about how the now-closed tier 1 investor route operated—in particular, that it was used by those relying on funds that had been illegitimately acquired and those who may have posed a wider risk to the UK’s national security.
It was because of those concerns that the Government committed in the first place to the review of the visas issued under the route between 2008 and 2015. As has been acknowledged, the Home Secretary made a Written Ministerial Statement on 12 January setting out the findings of that review. This included that the review had identified a minority of individuals connected to the tier 1 investor visa route who were potentially at high risk of having obtained wealth through corruption or other illicit financial activity or being engaged in serious and organised crime. The Statement of 12 January represents the Government’s substantive response to the commitment to undertake a review and publish its findings, including its findings in respect of economic crime.
Obviously, there was a delay; we are aware that considerable time elapsed between the commissioning of the review and the setting out of those findings. However, delay is regrettable but not unreasonable when issues of national security are at stake. Let me expand on that a little, if I may. It would have been preferable had the review been able to include more information about specific individuals but we have had to act sensibly and responsibly with regard to the UK’s national security; this includes striking the right balance between setting out the review’s broad findings and observing the constraints on disclosing sensitive details, which must be withheld, at the request of our operational partners, to protect our border and the vital work of our law enforcement agencies.
The noble Lord, Lord Fox, raised the subject of party-political donations. Without getting into a slanging match on this subject, I think it is worth restating that UK electoral law already sets out a stringent regime of spending and donation controls that prioritise transparency and safeguard the integrity of our elections. All political parties recognise that third-party campaigners and candidates must record their election spending and report it to either the Electoral Commission or their local returning officer. This information is all publicly available. The measures in the Elections Act 2022 also updated the political finance regulatory framework by increasing transparency and fairness and strengthening the controls against ineligible foreign spending on electoral campaigning. That is a fairly comprehensive transparency regime concerning the funding of political parties.
The House has considered similar amendments to other legislation, most recently during the passage of the National Security Bill. As before, the Government’s view is that this amendment is not necessary. The Government have set out the key findings of the review of the operation of this route and have acted to close it. I therefore ask the noble Lord, Lord Fox, to withdraw the amendment.
Baroness Bennett of Manor Castle (GP)
My Lords, the Minister suggested that it was the inability to identify individuals that meant that some aspects of the report could not be released. I think that everyone understands the retraction of names where necessary, but surely that would not prevent the release of absolute figures rather than a summary of the figures.
Lord Sharpe of Epsom (Con)
As I said, it was also to do with the disclosure of sensitive details related to operational partners—the sorts of things that protect our border and the work of law enforcement agencies.
I thank the noble Lord, Lord Fox, for tabling Amendment 104, to which I will now speak. The impact of fraud and economic crime affects the whole of our society. The cost of fraud to the UK runs into the billions and is assessed by the National Crime Agency to be the most common crime type in England and Wales. We take this threat type seriously and have delivered a strengthened approach to reduce its impact. Obviously, as I referenced, the fraud strategy is one part of that; I will come back to it in a moment. The NCA currently leads the national response to serious and organised crime, including economic crime. As predicted, the NCA’s director-general is accountable to the Home Secretary and, through the Home Secretary, to Parliament.
The agency already publishes an annual plan and an annual report. The annual plan sets out how it intends to exercise its functions in co-ordinating the operational response to serious and organised crime, having regard to the Home Secretary’s strategic priorities and the director-general’s operational priorities. The annual report details its performance over the previous financial year, including efforts to tackle economic crime. The NCA also reports annually on the impact of suspicious activity reports in tackling economic crime and, as I set out earlier in response to Amendments 93 and 95 in the previous group, in respect of UWOs. Given this current reporting and the potential for duplication, the Government do not believe that this amendment is required at this time, so I ask the noble Lord, Lord Fox, not to press it.
I thank the noble Lord, Lord Coaker, for his Amendment 106B. Before I get into the amendment itself, let me say that I take the noble Lord’s points about the diversity of response to the sorts of crime that are being discussed. Of course, that partly reflects the diversity of the crimes being investigated, as he will be aware. The fact is that this is a fast-moving, rapidly evolving space; there is no doubt that the operational response to it reflects that particular set of circumstances.
Lord Coaker (Lab)
Does that committee do an annual report? How often does it meet?
Lord Sharpe of Epsom (Con)
I do not know. I will find out and write to the noble Lord. For now, I hope he will accept that it is not the role of the Government to set up parliamentary committees and so will not seek to press his amendment.
I turn now to Amendment 106EB concerning the Serious Fraud Office. Once again, I thank the noble Lord, Lord Coaker, for tabling this amendment, which would require the Government to lay in Parliament an annual report on the Serious Fraud Office. The effectiveness of the agencies tasked with fighting economic crime, including the SFO, is of critical importance and of interest to both Houses. That is why the SFO annual report and accounts—these set out much of the information in which the noble Lord is interested—are routinely laid in Parliament.
The law officers of England and Wales superintend the SFO. They oversee the performance of the SFO, including steps that they can take to improve that performance. Through the superintendence process, the law officers identified the need to expand the SFO’s pre-investigation powers, a change that appears in Clause 185 of this Bill. The law officers take steps to ensure transparency, including participating in Attorney-General’s Questions in the other place; publishing summaries of minutes from SFO ministerial strategic boards online; and addressing issues promptly through Written Ministerial Statements.
This is complemented by the work of HM Crown Prosecution Service Inspectorate, which inspects the SFO and publishes its findings alongside a set of recommendations. HMCPSI recently published an inspection of the SFO’s case progression—that is, the organisation’s ability to deliver its cases efficiently and effectively. Given our previous discussions, the tone of the debate and the views expressed, I understand that the intention of this amendment is to probe the Government on the resourcing of the SFO.
The noble Lord, Lord Faulks, made a very interesting point; he may have noticed that I wrote my note on the wrong page when I referred to it earlier. I am coming back to it now; it is an interesting idea and I will definitely take it back. There is a process in place to recruit a new director-general of the SFO. I would imagine that acute matters, human resources and future resources are a part of the remit for that person but the noble Lord certainly makes an interesting point. To go back to a conversation during a debate that the Lord, Lord Browne, and I had last week, my personal point of view is that it is about time we all sat down and started to think about recruitment in law enforcement more generally.
Lord Agnew of Oulton (Con)
Given that my noble friend the Minister is going to take the comments made by the noble Lord, Lord Faulks, on recruitment back, I encourage him to look at the report by Andrew Cayley KC, Chief Inspector of the Crown Prosecution Service, who has also done a report recently. Some of the problems in the SFO are case workers not being paid enough, churn and so on, which led to the collapse of the case against G4S. There is big piece of work there that we could be doing stuff with.
Lord Coaker (Lab)
What is the Government’s view on whether the SFO is working?
Lord Sharpe of Epsom (Con)
Those are good questions; I will come on to them.
Funding and resourcing is a subject that is covered in the fraud strategy. I will not go over the details. At the most recent spending review, the SFO received an uplift to its core budget that is supporting its operations. In addition, the SFO continues to have access to reserve funding to fund specific high-cost cases if needed. This enables the SFO to obtain additional funding for any case that exceeds 4% of the core vote funding for the year.
My noble friend Lord Agnew and the noble Lord, Lord Coaker, referred to the G4S case. Obviously, it is always disappointing when a case has to be brought to an end before it is concluded but, like other agencies, the SFO is right to end an investigation or prosecution when it is no longer in the public interest. The SFO has acknowledged that there were disclosure challenges in the case that was closed earlier this year, R v Morris, Preston and Jardine. The SFO has made good progress on implementing the disclosure changes recommended by Sir David Calvert-Smith and Brian Altman KC in their independent reviews, published last year. The Crown Prosecution Service Inspectorate, the agency that inspects the SFO, has been asked to expedite a planned review of SFO disclosure, which will provide further independent assurance of the SFO’s processes.
Further to that, in Economic Crime Plan 2, which was published on 30 March, the Government set out their intention to explore reforms to the disclosure system to ensure that it supports a fair criminal justice system because cases that are lost on procedural grounds are, as noble Lords have noted, a loss to victims, taxpayers and, of course, society.
The noble Lord, Lord Coaker, just asked me whether the Government have faith in the Serious Fraud Office. The answer is yes.
Lord Sharpe of Epsom (Con)
I would say that it is the same thing; perhaps we can debate that as well.
The Serious Fraud Office investigates and prosecutes the most complex cases of fraud, bribery and corruption. That is a very challenging remit. It has delivered some outstanding outcomes. For example, last year, it secured the conviction of Glencore for bribery and corruption in five countries, with the company ordered to pay £280 million—the highest ever ordered in a corporate criminal conviction in the UK—as well as eight convictions for five cases of fraud and bribery worth more than £500 million. It consistently recovers some of the largest amounts of proceeds of crime, despite being a fraction of the size of many other national agencies.
It is also important to note the SFO’s role in fighting economic crime globally. In the last financial year, the SFO took steps to assist overseas jurisdictions in their investigations by working on more than 60 incoming money-laundering requests. I think that the statistics answer the question—yes, we have faith, and yes, it is working. I hope that my explanations have provided some reassurance. I therefore ask the noble Lord not to press his amendment.
I turn to the final amendment in this group, Amendment 106EA, again tabled by the noble Lord, Lord Coaker. I come to this amendment last as it seeks to bring into one amendment much of what the other amendments in this group also attempt. I will not repeat myself too much here, especially considering how long I have gone on so far. The amendment would require the Government to issue a report on the performance of agencies and departments in tackling economic crime. However, I can assure noble Lords that this is already being done. As I have mentioned, the Government, regulators and law enforcement already regularly give evidence to parliamentary committees. The National Crime Agency is required under the Crime and Courts Act to publish an annual report and lay it before Parliament, further adding to the available scrutiny of operational bodies. The Government already conduct a range of threat and risk assessments to develop our understanding of economic crime. The NCA’s national strategic assessment assesses the economic crime threats facing the UK on an annual basis. As required under the money-laundering regulations, the UK also conducts periodic national risk assessments of money laundering and terrorist financing, which provide an overview of the risks and likelihood of an activity occurring. We have already discussed in detail the establishment of a fund to tackle economic crime so I will not repeat that debate again.
Regarding the amendment’s calls for a strategy on tackling economic crime, this March, the Government published Economic Crime Plan 2. Through 43 actions, it sets out how the public and private sectors will work together to transform the UK’s response to economic crime. Obviously, the fraud strategy is a part of that overarching economic crime strategy.
As regards the quality of the data in the fraud strategy, which was referenced by the noble Lord, Lord Browne, I have just had a quick flick through and it is more recent than six years. I should also reassure the noble Lord that one of the commitments in the fraud strategy is to improve the quality and collection of data, so this can be regarded as a baseline.
There are numerous ways in which the Government report on their performance with regard to tackling economic crime. This amendment is duplicative of them and therefore unnecessary. I ask the noble Lord to withdraw his amendment.
Lord Fox (LD)
My Lords, we are indebted to the noble Lord, Lord Coaker, for his amendments because they have inspired an interesting debate. The Minister has made a spirited defence of the Government’s position on this issue, but the very fact that these questions are being asked—and by a lot of people, not just the people in this Room—indicates that there is a lot of work for the Government to do in order to placate, explain or perhaps improve what is going on out there. The key element, which was highlighted earlier, is the alphabet soup of different agencies all interlinking in what is going on. The Minister has made a big effort in trying to calm nerves but I do not think that those nerves are calmed. Although the amendments will undoubtedly be not be moved, there is work to do; hopefully, the Minister has got that message from the nature of this debate.
I refer back to Amendment 102. Clearly, it ruffled some feathers. I note that in 2022 it was the Conservative Government who saw fit to withdraw this scheme because they felt that there were serious issues. We know that of the 6,000 such issues, a minority were problematic, but we still do not know exactly how many. I want to address the point made by the noble Lord, Lord Leigh that there is some use to encourage inward investment. This scheme clearly went off the rails, but by publishing the report properly, we would know how to encourage it without causing the issues that the Government clearly felt were sufficient to close the scheme. I am comfortable that I was not overstating the problem. The problem was there and the Government identified it, but now we have an issue in that we do not know the full scope of the problem.
In his response on party finance, the Minister referred to national security. The fact that there are issues is well covered. The Minister should know—I am sure that he does—that amendments to the National Security Bill that sought to enhance the scrutiny of the source of political donations have been thrown out by the Commons, so some of the things that the Minister said are not strictly there. There is still an issue between this House and the Commons when it comes to the National Security Bill and party funding, and it remains ongoing. I think that was the issue that my noble friend was anxious to state.
On the subject of the report and the reference to party funding, I remind noble Lords that I said that it makes it difficult not to conclude that there are embarrassing issues to hide because the report was not published. If there is no problem, as I am sure noble Lords believe, there is no reason not to publish the report. It is the non-publishing of the report that causes suspicion. That is the point that I was trying to make.
With that, I beg leave to withdraw Amendment 102.
Lord Oates
“International Anti-Corruption Court
(1) Within six months of the passing of this Act, the Secretary of State must seek to begin negotiations with international partners to establish an International Anti-Corruption Court (IACC).(2) It is to be the objective of the Secretary of State in the negotiations to secure that the IACC has the following purposes—(a) to hear cases of international economic corruption, and(b) to sentence persons to appropriate punishment for international economic corruption.(3) The Secretary of State must lay a report before each House of Parliament within a year of the passing of this Act on the progress of the negotiations.(4) In this section “international economic corruption” means offences which if committed in the United Kingdom would constitute an offence mentioned in paragraph 15 of Schedule 9.”
Lord Oates (LD)
My Lords, on behalf of the noble Lord, Lord Hain, who cannot be in the Committee today, I rise to move Amendment 103 in his name, my name and those of the noble Baronesses, Lady Wheatcroft and Lady Altmann. In doing so, I pay tribute to his tireless efforts in exposing corruption, particularly the key role he played in bringing the kleptocracy of former South African president Jacob Zuma to the world’s attention.
This amendment would require the UK Government to begin negotiations for the establishment of an international anti-corruption court, or IACC, within six months of the passing of this Bill. International corruption is estimated to cost $2 trillion, or 5% of global GDP, every year. In a 2021 report, the UN High-level Panel on International Financial Accountability, Transparency and Integrity calculated that as much as 2.7% of global GDP is laundered by criminals through illicit global financial flows. While these opaque transactions occur in all countries, they have a much heavier impact on low and middle-income countries. The Washington-based organisation Global Financial Integrity found in its most recent report that from 2004 to 2013 developing and emerging economies lost $7.8 trillion in illicit financial flows—around 10 times more than the entire sum of foreign aid, including aid from the UK, that they received over the same period. Illicit outflows are increasing rapidly at an average rate of 6.5% per year, nearly twice as fast as global GDP.
A substantial proportion of that corruption comprises theft by a nation’s leaders of state funds for their own use—in other words, kleptocracy. Putting an end to that kleptocracy and recovering assets stolen by corrupt leaders would enable millions of the poorest in our world to be adequately housed, clothed and fed by helping prevent national treasuries being looted to line the pockets of corrupt politicians and their business cronies.
That so many kleptocrats succeed is not because of a lack of domestic laws; there are 189 parties to the UN Convention against Corruption. Most of them have complied with their obligations under the convention to have appropriate domestic anti-corruption legislation, but to facilitate their criminal activities kleptocrats have gutted their domestic criminal justice systems and taken control of the prosecuting authorities, police and, frequently, courts. There is no better current illustration than President Putin, who with his oligarch accomplices has looted the country.
Another prime example, whom I have mentioned already, is former South African President Jacob Zuma, who with his business cronies the Gupta brothers looted on an industrial scale and deliberately disabled police and prosecutors, so much so that the country was estimated to have lost fully one-fifth of its GDP during his infamous state-captured decade. Across the border in Zimbabwe, the ZANU-PF regime is mired in corruption, which has robbed the Zimbabwean people of what should be a bright economic future. Instead of serving the people, regime leaders, aided by corrupt businesspeople and a prosecutorial and judicial system entirely captured by the ruling party, loot the country at will. Just last week, opposition politician Jacob Ngarivhume was sentenced to four years’ imprisonment simply for calling for peaceful protests against corruption in July 2020.
Few of these kleptocrats keep their ill-gotten gains at home. Billions of dollars of stolen assets are laundered in a number of countries, including China, Hong Kong, Dubai, Singapore, Monaco, Switzerland, some states of the United States, UK overseas territories and, shamefully, London. Recently, the Al Jazeera documentary “Gold Mafia” secretly filmed Zimbabwe officials and business contacts conspiring to launder illicit funds. Those filmed included at least three British citizens—Uebert Angel, Rikki Doolan and Kamlesh Pattni—who made clear on camera their willingness to act corruptly. I know that the Minister cannot comment on those individual cases, but I hope that the National Crime Agency is investigating the activities of these individuals and others named in the documentary and the sources of their wealth, and that the authorities will not hesitate to freeze their funds while these investigations are being pursued.
However, while British authorities can act on crimes committed under UK jurisdiction, there is no international mechanism to prosecute kleptocrats and to seize and return their illicit funds. This gaping vacuum can be filled only by establishing an international anti-corruption court that can hold corrupt leaders and their co-conspirators accountable.
If some of the countries where laundered funds are held would join such a court, the stolen assets could be frozen and then, through orders of restitution, be repatriated to the countries from which they were stolen. If the risk of those funds being misused if returned to a corrupted state are too high, they could be repurposed and repatriated only at a time when they would reach the real victims: the millions in need in those countries.
The envisioned court would have jurisdiction over crimes committed by nationals of an IACC member state and crimes committed on the territory of an IACC member state. It would enforce existing national anti-corruption legislation and would be a complementary new international counterpart to these laws against kleptocrats and their collaborators.
The IACC would be a court of last instance, meaning that it would acquire jurisdiction only in cases in which the appropriate domestic authorities are unable or unwilling to investigate or prosecute the corruption. For the IACC to succeed, it would not be necessary for the countries governed by kleptocrats to join the court—it goes without saying that they would not. The IACC could be established by treaty and quickly become effective if it consisted initially of even a relatively small number of representative states, so long as they included some financial centres and other attractive destinations where kleptocrats frequently launder, hide and spend their stolen assets.
In this way, the IACC would have the potential to prosecute, punish and recover illicit assets from kleptocrats who rule or are very powerful in the countries that might not initially join the court. Most importantly, the threat of criminal prosecution at the IACC would deter other potential crimes of grand corruption by leaders who may otherwise be tempted to emulate the example of the kleptocrats.
The cost of the IACC would constitute a small fraction of the amount of illicit assets that it could seize and return to their originally intended purpose for the public good. In addition to orders of restitution, it could levy funds on those found guilty, which could be used to defray some of the cost of its prosecutions and proceedings.
If the court demonstrates during its early years that it can work effectively and efficiently, many other countries are likely to join it. In the aftermath of kleptocratic government, some developing countries may not have the human and financial resources to fight kleptocracy, so could approach the IACC to come to their assistance. A senior United States federal judge, Mark Wolf, is leading a campaign to establish such a court. Together with others, including the renowned South African jurist Richard Goldstone, he launched a civil society called Integrity Initiatives International. Its main project is to establish the IACC, and it has convened a number of the world’s top international lawyers to begin drafting a treaty for the court. None of its supporters see the court as a panacea that will end the kleptocracy any more than the International Criminal Court has ended illegal or genocidal activity by political leaders. However, it would be one of many tools, domestic and international, that are absolutely essential to combat and, I hope, ultimately defeat kleptocracy.
Almost 300 leading figures from across the world, including 45 former presidents and Prime Ministers and 32 Nobel laureates, have signed a declaration calling for the creation of the IACC. Three Governments—the Netherlands, Canada and Ecuador—have made the establishment of the court an element in their official foreign policy. In January this year, Nigeria became the fourth country to publicly state its commitment to working with other states towards the establishment of the court. Recently, the President of Moldova, Maia Sandu, also committed to joining the emerging coalition of states for the IACC. Additional countries from each region of the world have also expressed their interest in the idea.
The United Kingdom and our legal profession have always led in establishing and participating in international courts of last resort. This started with the ground-breaking Nuremberg trials and went on to include the International Court of Justice and, of course, the International Criminal Court.
The Government’s Integrated Review Refresh, published earlier this year, committed the UK to championing global efforts to ensure that revenues and assets lost to illicit finance are identified and recovered so that low and middle-income countries can self-finance their own development. This commitment was reiterated by the Minister for Development and Africa in his Chatham House speech on 27 April when he said that
“we will bear down on money-laundering and the flows of dirty money which deprive countries of their legitimate tax receipts and represent money stolen particularly from Africa and African people”.
We must live up to these commitments. I therefore urge the Government to accept our amendment and ensure that the UK becomes one of the early and leading supporters of the establishment of the IACC, lending the UK’s weight and expertise to finding the fastest route to the creation of the court and the most effective framework for its operation.
I beg to move.
Baroness Bennett of Manor Castle (GP)
My Lords, I rise with great pleasure to follow the noble Lord, Lord Oates, who made a powerful, persuasive and rich speech. I echo him in paying to the noble Lord, Lord Hain, for all the work he has done in this area.
The noble Lord, Lord Oates, rightly acknowledged that the international anti-corruption court, which I absolutely back—backing for it is clearly growing by the day—is one of many tools that we need to tackle economic crime. My Amendment 106A seeks to put another tool in the toolkit. At the moment, it is perhaps in a prototype stage and is earlier in development than the international anti-corruption court, but it is growing fast and has significant international backing.
I am proposing that the Government should provide leadership in supporting UN General Assembly Resolution 77/244, which was passed on 30 December last year with leadership from Nigeria and the Africa group. It calls on the Secretary-General to prepare a report on how
“to strengthen the inclusiveness and effectiveness of international tax co-operation”.
This has been seen as a step towards a UN convention on the issue and the establishment of international bodies to enforce it. I hope that some noble Lords who are taking part in this debate or who read Hansard later will be interested in joining me in pushing this forward as an issue on which Britain can and should be a leader. Due to the limited scope of the Bill, I have had to cut down somewhat what the General Assembly resolution says, but there are still steps that we can take forward here; I will be very interested to hear the Government’s response to this UN General Assembly resolution.
Following on from what the noble Lord, Lord Oates, said, it is clear that chasing economic crime money, particularly tax evasion, is what is known in the jargon as a wicked problem. The aims of the evaders are simple; their reach is global and the ability to act is measured in seconds. Money can be shifted in less than a click of my fingers. However, national states have very complex goals in development, rights and the rule of law, and their powers are individually restricted within their own borders. Their legal framework is limited in resources, as we discussed in our debate on the previous group, and frequently takes a lot of time to move into action.
It is worth looking at what Attiya Waris, the UN independent expert on the effects of foreign debt, told the UN General Assembly last year:
“The shortcomings of the international and national tax systems require international cooperation and assistance. They cannot be addressed unilaterally”.
The idea of a UN convention got virtually no coverage or attention in the UK but, internationally, there is a great deal of work going on. That was reflected in a letter sent in March to the UN Secretary-General by scores of civil society organisations—including some that will be familiar to noble Lords, such as Action Aid, the Tax Justice Network and World Economy, Ecology and Development.
Baroness Wheatcroft (CB)
My Lords, I shall speak to Amendment 103. Thanks to the comprehensive introduction from the noble Lord, Lord Oates, I can be relatively brief.
The International Criminal Court in the Hague was established in 2003. Later this month, it will take evidence from representatives of some of the victims of war crimes in Darfur. That is typical of the essential work that the International Criminal Court can do. It is no wonder that there are now calls for Putin to be indicted to this court. Few today would question the need for such an organisation, and now it seems clear that there is a need for an international anti-corruption court.
The noble Lord, Lord Oates, made the case very positively. Kleptocrats are financial war criminals, inflicting huge damage on their countries but, like the dictators who commit genocide and other war crimes, they have impunity to act as they wish in their home countries. They control the police, the prosecutors and the courts. The damage that their greed inflicts on their countries is huge, but those countries are rarely able to bring them to justice. That is why this new court is so essential.
The Panama papers and Pandora papers provided appalling glimpses into the scale of the corruption in which senior officials in many jurisdictions have been involved. The proceeds are scattered around the world. The international anti-corruption court would provide a mechanism for prosecuting those individuals and retrieving those funds.
The United Nations has demonstrated its ineffectiveness in this area. The General Assembly adopted the UN Convention against Corruption in 2003. Getting on for 200 countries have signed it but, sadly, those signatories include most of the worst offenders on Transparency International’s corruption index. Too many countries treat the convention with contempt because their leaders and senior officials preside over corruption-rife regimes. That is why we need this court, and why I put my name to this amendment. It could be set up relatively quickly and could be hugely effective. Its very existence would deter corruption. If the Government want to fight corruption, why would they not support this project?
Lord Faulks (Non-Afl)
My Lords, of course, I echo the concern that has been expressed in the speeches so far about international corruption on an enormous scale.
In our debates, we have very much focused on what happens here in the United Kingdom. In our attack on the Government, it is worth bearing in mind that, in 2016, this Government hosted an international corruption summit; it was hosted by the then Prime Minister David Cameron, so many Prime Ministers ago. It was partly as a result of that that we had the then Criminal Finances Bill and there was an impetus—a very slow one, sadly—to set up a register of overseas entities. It was felt that, at least in this country, we should do all we could not to allow our properties and companies to be infected by corruption. Indeed, this Bill seeks to improve what has already been achieved although, in many ways, it has not gone far enough.
I respectfully submit that what is contained in this amendment is pretty aspirational stuff. There is nothing wrong with being aspirational. The International Criminal Court—I have been to conferences there—has had some success, but it must be remembered that Russia is not a party to the ICC and nor is the United States. It is one thing to say that it is relatively easy to set up a court, but you must have the proper means to enforce it and you have to invest huge sums of money in infrastructure. There has to be a degree of realism about this. Surely we should sort out matters at home as best we can first of all; that in itself will contribute to reducing international corruption. Putting on the statute book an obligation to set up an international court of this sort, which is what this amendment suggests, is premature at this stage, although one can do nothing but applaud the sentiments that lie behind it.
Lord Ponsonby of Shulbrede (Lab)
My Lords, this has been a very interesting debate; it is the first debate in which we have spoken on a more international level. As we heard in our earlier debates, a large proportion of the quantity of money involved in fraud—well over 90%; probably 99%—has an international element; that is at the core of so much of the fraud with which we are dealing.
I congratulate the noble Lord, Lord Oates, on the way in which he introduced this group. I found his introduction rich and compelling. He set out things very fully. The other noble Lords who have spoken have talked about the aspirational nature of this amendment. I do not think that that is a criticism. It is good to hear about the other countries that are already taking a lead in trying to get the IACC set up.
From the Labour Party’s point of view, I have looked at what David Lammy has said on this matter. He has spoken about working internationally—I know that my noble friend Lord Hain led the work on that when he was a Foreign Office Minister—and promised that an incoming Labour Government would fight against dirty money in the UK by creating a transatlantic anti-corruption council alongside the US, EU and other allies. That is a different model from the one proposed in these amendments.
I do not want to stand here as an opposition spokesman saying that we are against what the noble Lord, Lord Oates, and the noble Baroness, Lady Bennett, are proposing but there are other potential models for bearing down on corruption. I listened with some interest to what the noble Lord, Lord Faulks, said about the practicalities of doing this and using legislation such as this to do everything we can on a domestic level, and internationally where we already have direct interest, to bear down on this huge level of corruption. Nevertheless, I thank the noble Lord for introducing this amendment.
Lord Sharpe of Epsom (Con)
My Lords, I thank the noble Lord, Lord Hain, and the noble Baroness, Lady Bennett, for their amendments in this group. I also thank all noble Lords for speaking in this debate.
I turn first to Amendment 103, which was tabled by the noble Lord, Lord Hain, but spoken to by the noble Lord, Lord Oates. If I may, I associate myself with the remarks of the noble Lord, Lord Ponsonby: the noble Lord, Lord Oates, made an incredibly powerful and eloquent case in moving this amendment 103, which also spoken to by the noble Baronesses, Lady Bennett and Lady Wheatcroft. Ensuring that those who are responsible for the most egregious acts of corruption are held to account is obviously vital. There should be no tolerance towards those who steal from the public to satisfy personal greed. The Government wholeheartedly endorse the premise that this amendment seeks to advance. The international community can and must do more to deter and punish acts of corruption.
The Government are taking robust action to ensure that the UK leads by example. That is why, in March, we published the second public-private economic crime plan, to which I referred in our debate on the previous group of amendments, which outlines ambitious actions to prevent the UK’s open economy being exploited by criminals and corrupt actors. The Government are also developing a new UK anti-corruption strategy to build on the progress made by the previous strategy and outline a refreshed approach to tackling corruption and illicit finance both in the UK and internationally.
The recently published fraud strategy also sets out the Government’s commitment to raise the priority of fraud on the international stage. We will drive forward global action through developing stronger relationships with international partners, culminating in a global fraud summit chaired by the Home Secretary and held in the UK next year. The summit will bring together leaders from Governments, law enforcement and the private sector to announce the ambition to deliver a comprehensive and co-ordinated approach to tackling fraud over the next five years.
The Government have consistently invested in efforts to bring those responsible for corruption to justice. The international corruption unit in the National Crime Agency is a specialist capability that investigates corruption cases with UK links.
Baroness Bennett of Manor Castle (GP)
On the summit, the problem with ideas such as that put forward by the noble Lord, Lord Ponsonby, about a transatlantic council or similar, is that it would be focused on global north countries. Can the Minister assure me that there will be full representation of global south countries at the summit he just outlined and that the UK will provide resources to ensure that some of the least developed countries, which are some of the biggest victims of this, are also able to participate in that summit?
Lord Sharpe of Epsom (Con)
I cannot provide that reassurance; I do not know who will be involved, but I will endeavour to find out and will write.
I shall return to where I was in my speech. In addition, the UK leads and hosts the International Anti-Corruption Coordination Centre—the IACCC—which brings together specialist law enforcement officers from multiple agencies around the world to tackle allegations of corruption. The IACCC has helped to secure convictions in high-profile money laundering cases, including in Malaysia and Angola. In 2022 alone, the IACCC identified more than £380 million of stolen and hidden assets.
I forgot to mention part of my previous paragraph. Since 2006, 30 people and companies have been convicted of corruption offences and more than £1.1 billion of stolen assets have been frozen, confiscated or returned to developing countries. That is in relation to the international corruption unit in the NCA.
Lord Browne of Ladyton (Lab)
I am conscious that I did not contribute to the debate on this, but is it too late to get the word “anti-corruption” into the communique for the pending G7, which takes place between 17 and 23 May in Hiroshima? That word is nowhere in the Foreign Ministers’ communique on 19 April after they met, I think, in Japan. The communique covers almost everything in which one can imagine we would be interested in involving those countries that share our values, but that is not there.
Lord Sharpe of Epsom (Con)
The noble Lord will not be surprised to know that I do not know, but I will ask.
The Government will endeavour to update your Lordships’ House on their plans for progressing international action on corruption in due course. I hope the noble Lord, Lord Hain, and the noble Lord, Lord Oates, on his behalf are reassured by the Government’s commitment to combatting corruption. We look forward to further discussions on this subject and to setting out our plans in further detail at an appropriate time. I therefore ask the noble Lord to withdraw his amendment.
Turning to Amendment 106A, tabled by the noble Baroness, Lady Bennett, the Government care deeply about tackling tax evasion and avoidance. My ministerial colleagues continue to work closely with the various sub-committees that sit within the UN’s Economic and Social Council. However, standard-setting powers on tax currently sit within the Organisation for Economic Co-operation and Development’s inclusive framework and global forum, and the UK believes that this is the mechanism best placed to deliver consensus-based reforms aimed at tax avoidance and evasion.
The inclusive framework and the global forum have wide and diverse memberships of more than 140 and 160 countries respectively. Furthermore, the OECD holds strong technical expertise in matters of international tax avoidance and evasion, and a potential UN convention on global tax evasion as envisaged by this amendment would duplicate and be likely to hinder the OECD’s work. This would delay the co-ordinated global response and effort to address tax evasion and avoidance and combat harmful tax practices, as well as creating divergence in international tax standards.
Having said that, the UK will engage constructively with the upcoming report by the UN Secretary-General. We want to find ways to improve international co-operation, as I have said, but to do that we want to ensure that this captures the full range of existing mechanisms for international tax co-operation and considers creatively how they could be improved better to meet developing countries’ needs. We have submitted evidence to the UN Secretary-General demonstrating these points.
Having said all that, obviously I ask the noble Baroness not to move her amendment.
Lord Oates (LD)
My Lords, I thank all noble Lords who have spoken in this debate; I particularly thank the noble Baronesses, Lady Wheatcroft and Lady Bennett, for their support. I am sympathetic to the amendment tabled by the noble Baroness, Lady Bennett. I am grateful to the Minister and the noble Lord, Lord Ponsonby, for their thoughtful responses. I am disappointed by the Minister’s conclusion, obviously, but I hope that, as he suggested, we can continue those discussions going forward.
I want to reassure the noble Lord, Lord Faulks, that my purpose was not to come as a critic of the Government. Indeed, I highlighted commitments made by the Government in the Integrated Review Refresh and I commend the Minister for Development and Africa on his real focus. He understands how important this is. Overseas development assistance is nothing compared to getting this right.
I am not sure that I share his views on the International Criminal Court and other international criminal tribunals. One of the great proponents of this international anti-corruption court is retired Justice Richard Goldstone. He was the chairman of the international criminal tribunal on the former Yugoslavia, which convicted a number of key figures including Ratko Mladić and Radovan Karadžić. It does have impact. We should be aware that, even for the non-signatories of the ICC, it has consequences. It has consequences for President Putin that he has been indicted, such as consequences on whether he can travel to BRIC countries that are signatories to that court.
On the charge of being aspirational, I plead entirely guilty. You cannot get real change in the world unless you are aspirational. Of course, as I said in my opening speech, this amendment is not a panacea; it is one tool. One of the most important things, as the noble Lord, Lord Faulks, said in his remarks, are the enforcement powers that we have in the UK, which, in my view, we are not using as much as we should be. I hope that, through this Bill and other means, we will do much more on enforcement.
As we have heard in the previous debate and amendments, this is really about the mechanisms to enforce lots of things; it is not about the laws. There are loads of laws on this stuff generally; it is about enforcement mechanisms. The international court would be another enforcement mechanism but, of course, we need enforcement mechanisms at home.
With that, I thank everybody who has taken part in the debate and I beg leave to withdraw the amendment.
The Deputy Chairman of Committees (Lord Lexden) (Con)
Lord Cromwell, are Amendments 105 and 106 not moved?
Lord Cromwell (CB)
My Lords, we had a vigorous debate on Amendments 105 and 106, which attracted a lot of cross-party support. I certainly intend to return on Report and look forward to working with the relevant Minister and other Members of this House to improve on them. We had a certain amount of talk about dogs earlier on this afternoon. I should advise the Committee that my wife tells me that I am a terrier in human form. So, in not moving my amendment, I say to the Minister, very gently and in a friendly way, the words of that old Roman mosaic: “Cave canem—beware of the dog”.
The Deputy Chairman of Committees (Lord Lexden) (Con)
After the human terrier, we continue.
Lord Agnew of Oulton
“Civil recovery: costs of proceedings
After section 313 of the Proceeds of Crime Act 2002 insert—“313A Costs orders(1) This section applies to proceedings brought by an enforcement authority under Part 5 of the Proceeds of Crime Act 2002 where the property in respect of which the proceedings have been brought has been obtained through economic crime.(2) The court may not make an order that any costs of proceedings relating to a case to which this section applies (including appeal proceedings) are payable by an enforcement authority to a respondent or a specified responsible officer in respect of the involvement of the respondent or the officer in those proceedings, unless—(a) the authority acted unreasonably in making or opposing the application to which the proceedings relate, or in supporting or opposing the making of the order to which the proceedings relate, or(b) the authority acted dishonestly or improperly in the course of the proceedings.””Member’s explanatory statement
This amendment extends the costs cap for civil asset recovery cases beyond Unexplained Wealth Orders. It aims to create a consistent enforcement landscape that does not hinder law enforcement agencies' ability to recover the proceeds of crime. It retains safeguards on costs for improper action taken by prosecuting authorities.
Lord Agnew of Oulton (Con)
My Lords, this amendment would help to protect enforcement bodies from the serious risk of high adverse costs when undertaking recovery action against deep-pocketed suspects who can afford the very best legal representation. This risk creates a huge downward pressure on law enforcement activity. The Government introduced a new costs order in March last year for the use of unexplained wealth orders; we have talked about those a lot. It ensured that costs would not be awarded unless the law enforcement authority had acted unreasonably, dishonestly or improperly.
UWOs are just one tool for recovering assets in the UK’s recovery regime and, as we have discussed this evening, are arguably less important in the eyes of law enforcement than other recovery tools. Extending the costs orders introduced in the ECA 2022 would significantly increase the appetite for undertaking recovery cases and inevitably lead to more asset recovery. Even the Law Commission in a recent report recommended that in confiscation hearings following a criminal trial, if the prosecution is unsuccessful but can argue that their application was reasonable, each side bears its own costs. Given that this is a Law Commission recommendation for criminal confiscation and that limited liability for costs has been introduced for UWOs, we are proposing to extend this limited liability to all cases of civil criminal asset recovery.
Civil society and civil servants at the NCA and the SFO have all reported that adverse costs can play an important role in cutting agencies’ appetite to pursue costs. In fact, no cases seem to have been undertaken against Russians in the UK since the outbreak of the Ukrainian invasion. Evidence I have heard from law enforcement bodies suggests that there is a significant caseload of potentially high-risk cases in the pipeline which bring significant cost risks. This includes more than 60 cases being reviewed by one prosecution authority with close to £1 billion in assets frozen by an enforcement body.
Tackling kleptocrats and politically exposed persons will involve going against the very best and most expensive lawyers, unpicking complex corporate vehicles and reams of evidence. Cost exposure poses a real hurdle to the use of civil recovery. In addition, as we have heard so often during this series of Grand Committees, this is not a party-political issue. Indeed, it has been raised previously by Conservative MP Nigel Mills, who sought an amendment during the passage of the Criminal Finances Act 2017, which we heard about briefly from the noble Lord, Lord Faulks, so that the costs could be awarded on an indemnity basis.
In the six years or so that have elapsed since then, we have had the huge move in principle by the Government to allow this capping to take effect for UWOs. Given that that Rubicon has been crossed, I simply do not understand why the Government are reluctant to extend it. We hear so often in the rebuttal of our amendments that it is not the right time, there is no room in the legislative calendar, the cost is too great and the principles are not there, but this is a situation where none of those issues exists. The Government accept that the principle can apply in some forms of recovery. All I ask for in this amendment is that we broaden the scope of the cost capping, which will dramatically improve our ability to go after some of these bad actors. I beg to move.
Lord Leigh of Hurley (Con)
My Lords, I will speak to this amendment, which I have signed. Once again, I find myself agreeing with every word that my noble friend Lord Agnew has said, so I will be very brief.
The extension of a new cost regime to all of Part 5 of POCA in the case of economic crime would encourage law enforcement bodies to act ambitiously but also reasonably in bringing civil recovery cases, and it has the potential to ensure that significantly more stolen assets and proceeds of fraud and corruption can be recovered and returned to the victims—as we would all want—but also reinvested back into law enforcement agencies themselves, which is the major problem, through the asset recovery incentivisation scheme. That would help them enhance their capacities and give them the confidence to go after cases which they are not doing at the moment.
A number of us had the honour to be briefed by Bill Browder on the Bill. Of the many subjects that we discussed, this was the one amendment that he felt would be helpful and useful for us to pass. What greater man is there than Bill Browder to suggest to us that we adopt a particular route? If the man can create a Magnitsky Act which has been adopted by pretty much every civilised country in the world, perhaps we can just take one clause in this Bill to enhance our fight against economic crime.
Baroness Bowles of Berkhamsted (LD)
My Lords, I, too, added my name to this amendment, which is supported by these Benches. This issue gets us back to David versus Goliath, which we have mentioned in previous groups. Unfortunately, the culprits are Goliath, and our prosecutors are left having to face culprits with far deeper pockets than theirs. There are alternatives, such as creating larger budgets for prosecutors, that have already been dismissed.
Maybe within asset recovery there is some glimmer of attracting a better recompense, but that is not a perverse incentive because if the prosecuting authorities took actions improperly and overreached themselves, the safeguarding clause in this amendment would come into operation. In the way the amendment is drafted, there are not perverse incentives but good incentives to bring more actions that are presently not brought simply because they are unaffordable. It makes us a bit of a laughing stock that we have very strong laws in parts but cannot enforce them.
Everything else has been said. I commend this amendment and await with interest to see what excuses the Government come up with not to accept it when the precedent and the need are there and the amendment contains a safeguard and therefore it could be put into operation very effectively and swiftly.
Lord Trevethin and Oaksey (CB)
My Lords, I will say a few brief words in support of this amendment and place it in its proper legal context. When it was mentioned at Second Reading, the Government’s response was simply to say that the principle that the loser pays the costs of unsuccessful litigation or an unsuccessful application was regarded as a valuable principle and that they did not see sufficient reason to move away from it in this field. It is a salutary principle and it operates in civil litigation for the most part, but there are exceptions. There are already statutory precedents for a regime of the type that this amendment seeks to create, namely a regime in which the enforcement agency will not invariably have to pay the costs if an application is unsuccessful.
I will say a few words about a different, but quite closely related, area of law in which a regime of the type that this amendment contemplates has been created by the judges. In the field of professional discipline and professional regulation, there has been for some time a well-established principle that the regulator will not automatically have to pay costs merely because the application or prosecution that it has commenced has proved to be unsuccessful. It is known as the Baxendale-Walker principle and works perfectly well in practice.
I shall explain shortly how it works in practice. The proceedings are initiated and the respondent, being a professional person, is expected to engage properly and conscientiously with the regulator and to respond candidly, or with a reasonable degree of candour, to the points being made against him or it. If the regulator then continues unreasonably with the prosecution or disciplinary action and fails, it will be made to pay the costs of the matter. However, if the regulator at all times acts reasonably, the presumption will be that it will not be made to pay the costs of the matter.
The reason why the law has created that regime is precisely the reason that is contemplated by this amendment—namely, that it is strongly in the public interest that regulators and enforcement agencies should not be deterred from bringing proper proceedings by the risk of paying exorbitant costs bills to respondents who manage to successfully resist the application in question.
I think I have said enough to convey the point. I really do not understand why the Government are so reluctant to consider introducing a regime of this sort more widely across the field of economic crime. It already exists in relation to certain types of economic crime, and it works well in the field that I have mentioned. I would be very interested to hear the Minister’s response.
Lord Ponsonby of Shulbrede (Lab)
My Lords, I support this amendment. As the noble Lord, Lord Agnew, said when he introduced it, cost exposure for prosecuting authorities can pose a real hurdle to their pursuing those prosecutions. As he also said, the Rubicon has been crossed in allowing cost capping, which the Government did in March 2022. This amendment has real legs—if I can use that phrase—and I hope the noble Lord presses the matter further, perhaps at later stages of the Bill.
I too was at the briefing with Bill Browder. I am currently reading his second book, having read his first, and it is compelling reading. He is a very brave man. I also agree with the comments made by the noble Baroness, Lady Bowles. I think she said: the precedent and the need are there, and the solution is here. I agree with those sentiments.
Finally, I thank the noble Lord, Lord Trevethin and Oaksey, who set out, interestingly, that some judges in the civil courts have developed their own law on this matter regarding the enforcement agencies not necessarily having to bear all their costs. He gave an interesting example of a further precedent, if you like. I too will be interested to hear the Minister’s response to that. The matter will be considered very carefully with regard to the later stages of the Bill.
Lord Sharpe of Epsom (Con)
My Lords, I thank my noble friend Lord Agnew for tabling this amendment and all noble Lords for the points they have raised in this debate. Again, I reassure the Committee that the Government take economic crime very seriously and are taking the necessary steps to ensure that enforcement agencies can tackle illicit financial activities while upholding the fundamental principles that govern our entire civil justice system.
In civil legal proceedings the loser generally pays the legal costs of the winning party, as has been acknowledged. The “loser pays” principle is a fundamental pillar on which the whole basis of civil litigation operates. It helps to ensure that only stronger cases are brought and that the winning party is able to recover reasonable costs of vindicating their case, save for in exceptional circumstances, to ensure access to justice for individuals with very limited resources. While important, civil recovery proceedings brought by enforcement agencies are not so exceptional as to warrant undermining the “loser pays” principle.
Several noble Lords have raised with me, and during this debate, the changes made to the unexplained wealth order regime by the Economic Crime (Transparency and Enforcement) Act 2022. These amended provisions in the Proceeds of Crime Act—POCA—introduce “costs protection” for enforcement agencies in cases of UWOs, unless they act unreasonably. This aimed to remove barriers to the use of UWO powers by relevant law enforcement teams. This was done on the basis that they were exceptional and likely to be low in volume in comparison to other types of civil recovery and, furthermore, that the relevant cost rules would be positioned as a novel and unique proposal, thereby maintaining the overall integrity of the “loser pays” principle in all other civil recovery proceedings. In the last five years, agencies with civil recovery powers—the Crown Prosecution Service, the National Crime Agency, the Serious Fraud Office, the Financial Conduct Authority and HM Revenue and Customs—have not paid any adverse costs for civil recovery proceedings.
There is also no guarantee that the introduction of further costs protection would lead to enforcement agencies pursuing more cases, as they report that each case must be assessed on its own merits considering numerous factors independent of costs liability, including gathering sufficient evidence to pursue a case and internal resourcing capability.
It is also worth bearing in mind that the Civil Procedure Rules, which guide the courts in procedural matters—I think this goes some way to answering the points raised by the noble Lord, Lord Oates—
Baroness Bowles of Berkhamsted (LD)
As I interpret what the Minister has said, if the regulator is taking the costs risk into account, that means it will take into account the question: am I up against a really wealthy opponent? Therefore, we will not have equal justice. You are saying that if the person from whom you are trying to recover the asset is particularly wealthy, they will be able to string out the process and do more appeals. That increases your costs risk and, therefore, the wealthy will not be pursued as much as the less wealthy. That is a very bad precedent and another reason why the amendment in the name of the noble Lord, Lord Agnew, is surely needed.
Lord Sharpe of Epsom (Con)
The noble Baroness makes an interesting point. I was talking about unexplained wealth orders in respect of the Economic Crime (Transparency and Enforcement) Act 2022. To go over that again, it aimed to remove barriers to the use of UWO powers by relevant law enforcement teams, but it was done on the basis that these were exceptional and likely to be very low in volume in comparison to other types of civil recovery. I do not think that is inconsistent with the argument about this amendment.
Going back to the procedural rules, which guide the courts in procedural matters, these enable judges to use their discretion to limit legal costs in certain circumstances. In appropriate cases, they may be used by agencies when pursuing asset recovery cases and are therefore a more suitable way of limiting costs liability in the few circumstances where this may be needed rather than through wholesale reform of the loser pays principle in civil recovery.
The amendment would overturn the very basis on which the entirety of civil costs and funding is built. It would negatively affect every other category of civil litigation, all for minimal, if any, financial savings in a very limited number of cases—
Lord Agnew of Oulton (Con)
Could my noble friend explain why this overturns precedence, while the Act last year on unexplained wealth orders does not? That is why I am so confused.
Lord Sharpe of Epsom (Con)
My Lords, I think I have already explained it, but I will endeavour to do so in greater detail in writing, if that is acceptable.
In a very limited number of cases, law enforcement would be involved. If parties in civil litigation do not fear having to pay adverse costs, it risks encouraging spurious and unmeritorious claims. On this basis—and I will write—I ask my noble friend to withdraw his amendment.
Lord Agnew of Oulton (Con)
I thank my noble friend the Minister for his explanation. I am afraid that I do not accept it, but I understand the convention that I need to withdraw my amendment. However, I will need to bring this back on Report; it is fundamental to our attempts to get a grip of economic crime in the system. I ask the Minister to reflect not only on my comments but those of other Peers who have supported the amendment and, indeed, the noble Lord, Lord Trevethin and Oaksey, who has come up with yet another example that I was not familiar with.
I was clear in my amendment that there is absolute protection against overreach by government agencies that are seen to act unscrupulously, so I do not accept that there is a risk. We know that we are not going to fund these agencies properly. Common sense tells us that they have to do a very careful risk analysis of any case they take on. If they think they have less than an 80% chance of winning it, they will not do it. I know that from my own experience as a Minister. Time and time again, early on in my career as the Academies Minister when I was trying to root out fraud there, I was told that the risks were too high and that we did not have the budget if we lost the case. It is not complicated.
I urge my noble friend the Minister to reconsider. My noble friend Lord Leigh was right—when we heard from Bill Browder a few weeks ago, he was adamant that, if there is one thing this Bill should do, it is to bring in this costs cap so that we can weaponise the agencies to go after economic crime. I beg leave to withdraw my amendment.
Economic Crime and Corporate Transparency Bill
Thursday 11th May 2023
(1 year, 6 months ago)
Grand CommitteeRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 96-VII Seventh marshalled list for Grand Committee - (9 May 2023)
Lord Coaker
“Compensation for victims of economic crime
(1) The Secretary of State must, within the period of 180 days beginning with the day on which this Act is passed, publish and lay before Parliament a strategy for the potential establishment of a fund for the compensation of victims of economic crime.(2) Any such fund must comprise the proceeds of property recovered under the Proceeds of Crime Act 2002 in relation to economic crime.”Member’s explanatory statement
This new Clause would require the Secretary of State to prepare and publish a strategy on the potential establishment of a fund to provide compensation to victims of economic crime within 180 days of this Act being passed.
Lord Coaker (Lab)
Good afternoon, everyone. I want to make just a few remarks on my Amendment 106D, which is obviously a probing amendment seeking some information on the Government’s thinking with respect to compensation for victims of economic crime. The proposed new clause to be inserted by this amendment would require the Government to prepare and publish a wide-ranging strategy on efforts to ensure that the necessary financial compensation is made available to victims of economic crime, wherever they may be. This could and should be applied to victims of international crimes, of which the war in Ukraine is without doubt an example, but it could also be applied more broadly as a means of providing a measure of justice to the victims of any other kleptocratic regime around the world. As I say, the proposed new clause would provide a mechanism for compensating victims of economic crime in the UK, including thousands of British victims of online scams every year. That briefly sets out the purpose of my Amendment 106D.
I thought it might also be helpful to the Committee for me to read into the record from the Government’s Fraud Strategy. As the Minister will know, it is dated May 2023; it does not state the day so I do not know whether there is a later version but that is where we are. I want to do so in case the Committee has not had an opportunity to read the report. I have not read all of it—I have just dipped into it for the purposes of this amendment—but it is quite staggering when you read the statistics. I will quote the report; I hope that the Committee will bear with me because it is important for those who read our proceedings, as many people do, to see the facts as laid out by the Government.
The report—the Government’s own words—states:
“In the year ending December 2022, 1 in 15 adults were victims of fraud. 18% of those victimised became victims more than once. The sums of money involved are staggering. The total cost to society of fraud against individuals in England and Wales was estimated to be at least £6.8 billion in 2019-20. This includes the money lost by victims, the cost of caring for victims, and the costs of recovery, investigation and prosecution of fraudsters”.
It continues:
“In the year ending March 2021, Action Fraud received victim reports totalling a loss of £2.35 billion … There is also considerable cost to business and enterprise. UK Finance, the trade body for the banking and finance industry, reported that in 2021 its members lost over £1.3 billion to fraud”.
The figures just go on. Clearly, this is a huge problem, as all of us recognise.
Can the Minister outline something for us? Among all the points made in the strategy, I could not find anything concrete and specific with regard to compensation. It would be helpful if the Minister could spell out the current arrangements on compensation for victims of fraud. Given the scale of the problem, which the Government have helpfully just published in their Fraud Strategy, what are their proposals in respect of compensating individuals? I know from speaking to Members of the Committee here and many people, including friends and family, that the cost to individuals is immense. It is not just a financial cost but an emotional one; I know that the Minister understands that. It is important for us to know the answers to these questions.
The other point is what the current rules on compensation are, how much someone could expect to get back, what the Government propose to improve that situation, and the perennial question we keep coming back to: how that will be made real.
I found paragraph 7, on page 4 of the strategy, particularly interesting. The Government say:
“We will ensure victims of fraud are reimbursed and supported”.
Again, we go back to previous questions: does that mean under the current reimbursement regime, or are the Government proposing a new one? How will people be “supported”?
I think the noble Lord, Lord Agnew, will be particularly interested in the next sentence, the first part of which says:
“We will … Change the law so that more victims of fraud will get their money back”.
Where in the Bill before us is this change to the law so that more victims of fraud will get their money back? It may well be in here. I am not trying to trip anyone up; I just could not find it myself. It would be helpful if the Minister could point out where it is. If it is not in the Bill, where will that change in the law be put, when is it coming and what change do the Government propose?
The second part says that the Government will:
“Overhaul and streamline fraud communications so that people know how to protect themselves from fraud and how to report it”.
Again, how will the Government “overhaul” and “streamline” those communications? Added to that, how do people know what their rights are and—a question we keep coming back to—how does an individual citizen take on a bank, financial institution or whoever to assert the rights that the Government say they will give them to get compensation back for the money they have lost through fraud? Those are really important questions.
I will stop there. I could go on and on repeating the same thing in different words, but I think the Minister gets the nub of what I am saying, and I think the Committee would be interested to hear the Government’s views, as well as those of other Members of the Committee. With that, I beg to move Amendment 106D.
The Lord Bishop of St Albans
I am sorry I have been unable to engage more fully and consistently with this Bill, but this amendment prompted me to come here when I had a few minutes. I was recently speaking to someone I met at a social gathering. In the course of the evening, we were talking about a whole range of things, and he was talking about the fact that he had been defrauded of some money and how it is now materially affecting his retirement. His comment was: “I feel so embarrassed, because I’ve always tended to think it was simple people who didn’t understand financial matters who were likely to lose money. I’m highly literate, I’ve done all the right things, but I’ve been defrauded”. This is having a big effect.
Also, as we are becoming increasingly cashless and more and more transactions are online—it looks like that will be the trajectory for quite some while—there is far more potential for these sorts of frauds. For example, I note that fraud on lost and stolen cards had increased by 30% by 2022 and card ID theft, where a criminal opens or takes over a card account, had almost doubled in the previous year. In other words, this crime is getting worse.
It is in everybody’s interests that we encourage people to use what is, for most of us, a great convenience being able to pay with our cards—but we need to make sure that people have confidence. The statistic that the noble Lord, Lord Coaker, gave us—that one in 15 adults has been a victim—is particularly interesting. In other words, it is now widely assumed among groups of ordinary people chatting that this is a very real problem. There is a good side to that—hopefully, we are being far more cautious and savvy—but, nevertheless, that will not encourage people to invest and use some of the financial services that we might hope they will as they plan their retirements.
I just want to add my words of encouragement and ask the Government whether they can give us some idea about whether this amendment, or something similar, might be a way forward. It would give people confidence if they knew that there was clear and simple way to find redress when they were a victim of fraud. Also, could this be built on in some way, not least because the proceeds of property recovered under this future Act could then be directed towards compensation?
Lord Fox (LD)
My Lords, I thank the noble Lord, Lord Coaker, and the right reverend Prelate the Bishop of St Albans for their words. I am not going to try to add to the issue of individuals; instead, I note that we should remember that this also involves businesses. The Home Office survey said that one-fifth of businesses have been hit by fraud. Such fraud can be existential to those businesses—at the very least, it is a tax on growth because money that is stolen is not reinvested in that business—so this matters.
In earlier debates, we have talked about the other side of this: stemming the cause of fraud. We have talked about the failure to report as well as the facilitation issue. The Government seem much more interested in picking up on the failure to report side than on the facilitation side. I ask the Minister to go back and find a middle way between what was being proposed by the noble Baroness, Lady Morgan, and her committee and what we have now, which is nothing—that is, to find some sort of code of conduct with teeth that starts to address the facilitation issue. It is through facilitation that this fraud is happening, in many cases. At the same time as addressing questions about compensation, we must go back and find effective ways of preventing this happening.
With noble Lords’ indulgence, I will slightly broaden the scope of my speech because, over the course of the last day or so—since we debated this issue—the United States has repatriated seized assets to Ukraine. Can the Minister ask his officials to have a look at how that was achieved? Which international laws were used to facilitate that repatriation? In previous Committee debates, we have discussed freezing and seizing, so it would be very useful for your Lordships to know more about this before we get to Report; it is an issue that we remained concerned about. Although I realise that the United States is a different legal domain, it sits in the same international climate of law. Therefore, it would very much help our deliberations if the Minister was able to talk to the department’s officials and get some sort of readback as to how this seizure and repatriation to Ukraine was achieved.
Otherwise, Amendment 106D is a good way of trying to find out where the Government sit on compensation, although I would open it up to include business compensation as well. Perhaps there are also issues around the insurance industry that the Government should be thinking about.
The Parliamentary Under-Secretary of State for Migration and Borders (Lord Sharpe of Epsom) (Con)
My Lords, I thank the noble Lord, Lord Coaker, for this amendment. Of course, the Government take the compensation of victims of economic crime very seriously, as it is crucial for limiting the harm of these ruthless crimes.
The noble Lord referred to the fraud strategy. I will come back to that in a second. Of course, the object of that exercise, as well as going after stolen money, is to prevent it happening in the first place. So this has to be considered in the round. These are obviously anti-crime measures, as well as enforcement and mitigation measures.
I completely agree with the noble Lord, Lord Fox: fraud is an attack on growth and we should bear in that in mind. Fraud and the reimbursement of fraud, as we know, costs the banks many billions a year already under the existing arrangements, which I will come back to. Clearly, somebody has to pay for that and it is not easy for society to bear, never mind the banks themselves.
Asset recovery powers under the Proceeds of Crime Act 2002 already provide the court with the ability to prioritise the payment of compensation orders to victims. We have had extensive conversations on all manner of asset seizures and reimbursements, including on the Ukraine question, to which the noble Lord, Lord Fox, just referred. I have absolutely no doubt that those conversations will continue. We are looking at the situation that he described, which developed, as I understand it, overnight. I do not know the details—we will find out.
The Government are legislating, through the Financial Service and Markets Bill, to remove any regulatory barriers to the Payment Systems Regulator making reimbursement mandatory for victims defrauded through the faster payments system. We are therefore already taking active steps to improve compensation routes and consider that there are already means of redress available.
Having said that, I also point to the fraud strategy, which the noble Lord, Lord Coaker, referred to. There is only one relatively small paragraph on this but if he goes to page 24, he will see that the City of London Police
“are also working with the private sector on a limited pilot to explore whether civil debt recovery and other powers can recover more of victims’ money. As this pilot develops, we will review whether there are further civil enforcement powers that could be applied to fraud”.
I will come back to that in more detail, obviously, but clearly it is very much at the pilot stage at the moment. That is explicit in the text. But the interests of victims are being actively considered via the fraud strategy. Again, there is more to be said on that, which I will do shortly.
As I have said before in Grand Committee, victims’ interests are at the heart of the new powers introduced by Part 4 of the Bill, which will allow applications for stolen crypto assets or funds in accounts to be released to victims at any stage of civil forfeiture proceedings. This will ameliorate the negative impacts of criminal conduct, including economic crime.
More widely, and I have referred to this from the Dispatch Box in the Chamber, victims need to have the confidence and trust to come forward to report fraud and to know that their case will be dealt with. That is why we are providing £30 million to the City of London Police to upgrade Action Fraud, which, as noble Lords will know, has not been widely applauded in this House. The new service will use the latest technology to drastically improve reporting and support for victims and provide far greater intelligence to policing, which will allow greater prevention and disruption at scale. The upgrade is already happening. It will be fully operational in 2024 and we are implementing consistent support for victims across England and Wales by expanding the National Economic Crime Victim Care Unit, to which I have also referred.
Where there are overseas victims in bribery, corruption and economic crime cases, the Serious Fraud Office, Crown Prosecution Service and National Crime Agency compensation principles have committed law enforcement bodies to ensuring that compensation is considered in every relevant case, and to using whatever available legal mechanisms to secure it where appropriate.
The Government are also fully committed to utilising suitable means to return the proceeds of corruption to their prior legitimate owner and/or to compensate victims, in line with international obligations under the UN Convention against Corruption. This is set out in detail in the Government’s Framework for Transparent and Accountable Asset Return.
Of course, the private sector also has responsibility for the protection of its customers, and we are increasing that further. Victims of unauthorised fraud, where payment has been taken without the victim’s permission, are already reimbursed by payment service providers. The contingent reimbursement model code has improved the reimbursement by payment service providers of victims of authorised fraud where a fraudster has manipulated the victim into approving the payment.
On the subject of PSPs, the right reverend Prelate made a good point about consumers becoming more savvy. I recently read in a briefing—I cannot remember whether it comes from the Fraud Strategy or some other current initiative—about the level of information sharing by PSPs, which will enable potential victims to identify the platforms that tend to be the most used. If they can be appropriately savvy when looking at those platforms and, perhaps, a little more suspicious and questioning, that will help enormously in stopping this happening in the first instance. I will come back with more detail on that, because I cannot quite remember under which regime that sits.
On the contingent reimbursement model, in 2021, £583 million was lost to APP scams. According to UK Finance data, the faster payment system was used in 97% of APP scams by volume in 2021. Under the contingent reimbursement model code, which is the voluntary scam reimbursement code signed by several major banks, the level of reimbursement is just over 50% of total APP scam losses for those signatory firms. Following PSR action, we expect that consumers will be reimbursed more consistently and comprehensively.
I realise that there is a lot more work to do on this. Clearly, the picture is fast evolving, as I am sure all noble Lords would acknowledge. There is clear intent on the part of the Government to make sure that victims are front and centre in the current regimes and all future planning. With that, I hope that the noble Lord, Lord Coaker, feels reassured and able to withdraw his amendment.
Lord Coaker (Lab)
I thank the Minister for that response. I am somewhat reassured, because I believe he has his own personal commitment to this. However, as with many amendments that we have discussed here, you get the feeling that it needs a bit of a boost a surge of urgency.
There is clearly a lot of good will and a lot of good government policy. There is nothing in particular wrong with the Fraud Strategy, which has some really good stuff in it, but the example that the Minister gave from page 24, which was perfectly reasonable, is a pilot. It does not say, “We will change the law”, but “we will review” what the pilot tells us, whereas, if you go back to the much stronger commitment at the beginning of the Fraud Strategy, it gives you some expectation that something will happen. It does not say, “We will review” but “We will ensure”—which is the sort of language that people want to hear—that
“victims of fraud are reimbursed and supported”.
It does not say, “We will review the law” but
“We will … Change the law so that more victims of fraud will get their money back”.
I get what the Minister said—that it is a pilot and a review, which is good—but a pilot and a review is not the same as what is promised in paragraph 7 on page 4 of the Fraud Strategy. We are talking about colossal sums of money and, as the right reverend Prelate the Bishop of St Albans pointed out to us, people are embarrassed; large numbers do not know what their rights are under the current law and cannot get their money back. That is the reality. The simple question for the Government, who I am sure want to improve it—there is no doubt about that—is: what five practical things will it mean? We cannot change the past, but we could do something about the future.
I also take the Minister’s point that this is about prevention, too. I absolutely accept that; we need double authentication and so on. I thank the right reverend Prelate the Bishop of St Albans for his support and helpful comments in this short but important debate. I also thank the noble Lord, Lord Fox, for reminding us that businesses and enterprises are also subject to fraudulent activity and that this is about them too. That was an important point to make.
To conclude, I thank the Minister for his response but ask him to speak to his department about how we get that surge of energy into the Bill and make what the Fraud Strategy says a reality so that we make a real difference. With that, I beg leave to withdraw my amendment.
Baroness Kramer
“Register of beneficial ownership: freeports
Each Freeport Governance Body required—(a) to undertake reasonable efforts to verify the beneficial owner of businesses operating within the Freeport tax site, and(b) to make this information available to the Commissioners for His Majesty’s Revenue and Customs, law enforcement agencies and other public bodiesmust also register this information with the registrar for public inspection.”Member’s explanatory statement
This amendment would require governing bodies of freeports to make the information they are required to collect about beneficial ownership of companies operating within the freeport available to the public.
Baroness Kramer (LD)
My Lords, I have two amendments in this group. The first addresses freeports. I think even the Government recognise that freeports are catnip to criminals and money launderers. We discussed the issue pretty extensively in relation to the National Insurance Contributions Bill, the piece of legislation prior to this which gave an opportunity to discuss freeports. The Government made it clear that they were very conscious that there were potential issues of criminality around freeports that we had to take exceedingly seriously. I am glad of that, but I have still been waiting for replies to help me understand what kinds of actions will be taken to minimise that risk.
Since that period of discussion, we know that at least one of the major freeports will be under the Dubai Ports World regime, which already has ownership of major docks in London. Its various purchases of port facilities around the world have typically been very controversial. Of course, the most recent controversy in the UK occurred when Dubai ports summarily fired 800 British-based sailors, I think by Zoom, to replace them with much cheaper agency staff. The law has since been changed to ensure that there cannot be a repetition of this kind of behaviour.
I would make the point that the kind of people who are attracted to freeports tend to be those who absolutely push the law to the limit, even when they do not go beyond it. We have so many examples from around the world where the players in various different freeports have gone well beyond it. Again, I do not want to spend time on this because we did so on the National Insurance Contributions Bill, but because there are no customs declarations, customs inspections or tax-related declarations in freeports, the normal mechanisms that provide data and direct monitoring and enforcement agencies are simply not available.
My understanding from what we have been told by the Government and which we have certainly read is that the entities that own freeports are to make a reasonable effort to identify the beneficial owners of facilities within their port complex and, in effect, make a register of that to pass on to enforcement agencies. Nowhere is that in statute, so the first two paragraphs of this amendment would put that into primary legislation.
More important is the third part of the amendment, which is that that register should be available “for public inspection”. In all the debates and discussions on Companies House and the British regime for cleaning up business in every kind of way, going back to George Osborne, we have heard that transparency is important: that the sunlight of a public register enables not just enforcement agencies to see what is happening within the complex world of foreign ownership but civic groups, people with an interest and a much wider population—a phrase I sometimes use in relation to whistleblowing is a citizens’ army—to look in and therefore be much more effective in countering abuse and misuse.
As I asked in the national insurance contributions debate: why is the register that is going to be put together for freeports not to be made public? If I understood the answer that I got, it was, “Oh, this will all be dealt with when we get to Companies House legislation”. Well, here we are: that economic crime Bill 2, with Companies House at the heart of it, but I cannot see anything that deals with making that register of beneficial owners in freeports public, nor can I understand that anyone going to Companies House and searching through the information would in any easy way be able to extract from that whether the various declarations of beneficial ownership were from companies that were engaged in freeports in any way—it did not seem that that was a required part of any of the discussion. I would really like the Government to bring us up to date on this and, because they recognise that there are real risks both of criminality and of money laundering, to have some answers. I hope that they have re-examined their determination not to make public the register that will be held and will explain to us why. We are dealing with Companies House legislation, so the answer cannot be, “Just wait for that”.
Baroness Bennett of Manor Castle (GP)
My Lords, I apologise to the noble Baroness, Lady Kramer, because I would certainly have attached my name to these two amendments had I been able to get my head sufficiently above the parapet in the face of the barrage of legislation that your Lordships’ House currently faces. They are terribly important amendments, as was highlighted yesterday in the other place in Prime Minister’s Questions, when the Prime Minister in response to a question about what is happening on Teesside said:
“Contracts at the site will be a commercial matter for the companies involved”.—[Official Report, Commons, 10/5/23; col. 334.]
There is great public concern about what is happening on Teesside, and it is at the moment extremely opaque.
I shall concentrate mostly on freeports, because, as the noble Baroness said, investment zones are such a “fluffy” area that is very hard to grasp on to it. As to what we know about freeports and what is happening, a lot of the questions are being asked by the independent media and the civil society organisations referred to by the noble Baroness. I would point anyone who is interested to an excellent, 44-page report from the Byelines Network that was put out by local journalists from around the country in areas directly affected. It does a great job of examining some of the issues, but butting up again and again against commercial confidentiality and lack of recording. One of those reports notes that in 2020, the Royal United Services Institute Centre for Financial Crime and Security Studies submitted evidence to the International Trade Committee saying that
“there is evidence of criminal activity taking place in multiple freeports around the world. It often involves trade in counterfeit goods, drug trafficking, smuggling of untaxed goods or trade-based money laundering”.
If we were to think of something that is essential to the purposes of the economic crime Bill now before us, shining the light, opening the doors and being able to see what is happening would clearly be it. What we are talking about with freeports are huge concessions from the Government. As the noble Baroness, Lady Kramer, said, they include freedom from all kinds of usual customs controls, but also stamp duty land tax relief, enhanced structures and building allowance, enhanced capital allowances, employer national insurance contributions relief, and business rates relief and retention. Those are huge concessions. Surely it would only be absolutely fair and reasonable to demand full transparency about who is responsible and who is making those decisions.
It is very evident that there is great public concern. This is one way that the Bill or some other mechanism—I directly put the question, “If not this Bill, where else?”, to the Minister—will make sure of what will happen if we create these structures. The reason why people are so suspicious about this seems to go back to an uncredited blog from 2010 on the website of a right-wing lobbying group, the TaxPayers’ Alliance, which raised the idea of charter cities. People are very suspicious. Surely the Government would want to dispel some of those suspicions by ensuring that there is absolute transparency and openness.
Lord Agnew of Oulton (Con)
My Lords, I rise because I hope that I might be able to provide some help to my noble friend the Minister, as this is obviously not his area of expertise; this is at the Companies House end.
Right at the beginning of Committee, I tabled Amendment 44. Its explanatory statement says:
“This amendment mandates companies to disclose whether their shareholders are acting as nominees. Nominee shareholders protect the identity of the beneficiary of the shareholding. This measure will help mitigate the risk of abuse through nominee shareholders. Failure to comply would incur a penalty”.
Last night, I met the Minister, my noble friend Lord Johnson, who indicated to me that the Government were sympathetic to this approach. I do not want to put words into his mouth, as he is not here now, but I suggest to the Minister, my noble friend Lord Sharpe, that he talks to my noble friend Lord Johnson to see whether there is any way that we could look at this; that would deal with the specific concern raised by the noble Baroness, Lady Kramer, in relation to freeports.
Lord Coaker (Lab)
I was not going to say very much but I have been provoked by what the noble Baroness, Lady Bennett, and the noble Lord, Lord Agnew, have said.
I very much support the thrust of what the noble Baroness, Lady Kramer, said. One wonders why transparency is such a difficult notion for the Government. I suspect that the Minister will send up smoke by saying that we are all in favour of freeports, that they are a great way of generating employment, and so on. It is certainly what I would say if I were him—that freeports are a great thing for creating jobs and that we should not stand in the way of free enterprise, which is developing enterprise zones in some of the most difficult and challenging areas in the country. However, this is not about that—it is about transparency and knowing how this is funded—so I hope that the Minister does not send up smoke. The issue is transparency; the noble Baroness, Lady Kramer, was right to point that out.
I will not repeat the list from the noble Baroness, Lady Bennett, of concessions and allowances made to ensure that businesses can operate—perhaps in an area that they would not operate in—as that is something for the Minister to discuss.
On what the noble Lord, Lord Agnew, said, has the Minister had discussions with the noble Lord, Lord Johnson? Is it right that the Government are considering some concessions? Is that what the Minister is going to tell us—that he is going to go away and talk to the noble Lord, Lord Johnson, about what we have just been informed about? Is there hope for this amendment or will the Minister just reject it? Is it something that we will hear more about as we go to Report? Will we get a government amendment on transparency around this issue, if not from the Minister then from the noble Lord, Lord Johnson?
With those questions, I will listen to the Minister with care.
Lord Sharpe of Epsom (Con)
I thank the four noble Lords who have spoken in this debate. I also thank the noble Baroness, Lady Kramer, for her Amendments 106EC and 106ED. Amendment 106EC would require an overseas entity to apply for registration in the register of overseas entities if it is operating in a freeport. Amendment 106ED would require an overseas entity to apply for registration in the register of overseas entities if it is operating in an investment zone tax site. I thank the noble Lord, Lord Coaker, for his eloquent support for freeports.
Lord Coaker (Lab)
Can I clarify that I was saying what I thought the Minister would say, not what I think?
Lord Sharpe of Epsom (Con)
It was spot on so I suspect that the noble Lord has nobbled my notes at some point.
The economic merits of and progress in delivering freeports and investment zones remain at the heart of the Government’s levelling-up agenda, and good progress is being made. However, that is not quite within the scope of this Bill, so I will focus on the core points raised in relation to corporate transparency and illicit finance. I will endeavour to answer the questions asked of me while noting, as my noble friend Lord Agnew has, that this is not necessarily my specialist subject.
Turning first to Amendment 106EC, I am assured that, throughout the bidding prospectus and subsequent business case processes, freeports were required to set out how they will manage the risk of illicit activity. I will go into this in some detail because it is important and, as I am not a specialist in this subject, I asked for extra detail. These plans were approved by officials in the Border Force, HMRC, the NCA and other relevant crime prevention bodies, including the Home Office, the police, the Department for Transport and DLUHC.
At business case stages, freeports are required to commit to further requirements to mitigate risk. That includes commitments to the OECD’s code of conduct for clean free trade zones and they were required to establish robust local governance structures in place to monitor risk and ensure effective co-operation between relevant bodies with remits to prevent illicit activity. In most cases, that included most of the bodies I have already referenced—the police, NCA, and so on. Those plans were approved by officials who have responsibility for security and preventing illicit activity across government, and they are also required to carry out an annual audit of security each year to ensure that these structures remain effective and the risk mitigations remain robust and relevant. These audits will be reviewed by the Government annually.
Freeport status in no way undermines or weakens existing port security arrangements. Special customs status, which has been noted, builds on, rather than radically departs from, facilitations available elsewhere in the UK, and is available only on specific customs sites within the wider freeport footprint. These are secure sites administered by a specially authorised customs site operator—CSO. CSOs are required to obtain AEO or equivalent authorisation from HMRC, an international gold standard for safety and security, and remain subject to robust ongoing oversight from HMRC. Freeport customs sites therefore uphold the UK’s high standards on security and preventing illicit activity and should not be conflated with some entirely different international free trade zones.
I hope I have been clear that the Government require each freeport governance body to undertake reasonable efforts to verify the beneficial ownership of businesses operating within the freeport tax site. As I have said, freeports uphold the UK’s high standards on security, safety, workers’ rights, data protection, biosecurity, tax avoidance and evasion, and the environment. They are subject to the same legislation and regulation to protect them as the rest of the country. To impose additional requirements on businesses investing in freeport tax sites would directly undermine the objective of freeports: to facilitate investment and regenerate some of the most deprived areas of the UK. The Government therefore do not think it is proportionate to impose this additional cost and administrative burden on freeports compared to elsewhere in the UK, which would also risk acting as a disadvantage for bringing in investment.
I turn to investment zones. The Chancellor announced in the Autumn Statement that the investment zones programme was being refocused to catalyse the development of clusters in areas in need of levelling up in order to boost productivity, growth and jobs. At the Spring Budget, the Government announced eight areas in England that it had identified to co-develop an investment zone proposal with the Government, with a view to agreeing proposals by the end of the year, subject to requirements being met. The Government will work with these places to co-develop proposals, ensuring that the same high standards that are required for freeport tax sites are met for any investment zone tax sites designated.
Given the early stages of policy development on investment zones, it is too early to set out the governance arrangements in any detail. However, I am clear that businesses within investment zone tax sites will need to comply with the same laws and high standards regarding transparency as any other business investing in the UK. I am also afraid that both amendments would duplicate existing requirements on UK-registered businesses. If a business in either a freeport or an investment zone, once established, is a UK-registered company, it is already bound by the requirements to report its people with significant control to Companies House. This information is publicly available on the Companies House register.
It would also partially duplicate the requirements of the register of overseas entities. Any overseas entity owning, buying or leasing land or property in a freeport or an investment zone, once established, would be required to give information about their beneficial owners to Companies House. This information is also available to the public and would help law enforcement track down those abusing freeports for money laundering or other nefarious purposes. In both cases, all information held by Companies House is available to law enforcement, even information which is not publicly available; for example, the information about trusts.
I also draw noble Lords’ attention to the far-reaching impact of the amendments, which refer to “businesses operating” in free ports and zones. A “business” goes beyond companies and similar corporate entities and includes, for example, sole traders; “operating” is also an imprecise term. Let us imagine a truck of goods arriving at a freeport: the amendment would require the freeport governance board to determine the beneficial ownership of the haulage company owning the truck as well as the beneficial ownership of every business whose goods are being carried on that truck. One company may own the truck and another the trailer, both are caught. Under this scenario, even the delivery driver bringing sandwiches to the businesses located in the zone would be impacted by the amendment. I am sure that was not the noble Baroness’s intention and she will say that it could be improved at the drafting stage, but it is worth pointing that out.
Baroness Kramer (LD)
My Lords, I suspect your Lordships will guess that I am not terribly happy. I will be perfectly happy if the Government go away and clean up my drafting; I do not pretend to be at all expert at it. The kind of niggles that the Minister identified could, I am sure, be dealt with extremely efficiently and quickly by his team.
The Minister raised an issue that we have heard about before: the cost of having a transparent register. However, if all this data is being gathered anyway, the cost of putting it into a public format is de minimis. We are not asking for the collection of all kinds of additional information; we are asking for transparency on the information that the Government keep saying they are definitely going to collect anyway. It is the public’s ability to view it that matters.
Can the Minister help me with one issue? He said that, actually, one can see all this just by going to Companies House. That is not the feedback I have had from officials, although I accept that my understanding could have been wrong. They said that, when you look at the register in Companies House, you will never know where to begin because you have to have a name to start with in order to track down the company; of course, you do not know the name. If the Minister can help me through that process, that would be extremely helpful. Will he also publish his advice? Civil society groups all over the world are keen to be able to carry out these activities but, so far as I can gather, they are currently completely befuddled. They do not know about the access that the Minister implied is present so, if he could do that, I would be grateful. Further, if he looks at this issue and finds out that, actually, this does not work and outsiders cannot get a look at the system, will he go back and look at providing transparency?
I base this point on policies from the Minister’s own Government—at least, from George Osborne’s time as Chancellor—in that transparency is thought to be absolutely crucial as a key pillar of cleaning up the complex, difficult world of financial services, which always has such potential for corruption because of the amount of money that is available in abusing the system. I beg leave to withdraw the amendment.
Lord Sharpe of Epsom
Member’s explanatory statement
This amendment is consequential on new clause (Fraud offences: supplementary) and ensures that the requirement that regulations under the Bill must be made by statutory instrument only applies to regulations made by the Secretary of State.
Lord Sharpe of Epsom (Con)
My Lords, these government amendments concern commencement and cut across several clauses. Amendments 106F, 106H and 107A are consequential on the regulation-making powers introduced by the new clause headed, “Fraud offences: supplementary”, which is one of the Government’s new clauses introducing a failure to prevent fraud offence. Amendments 106G and 107B, and the proposed new clauses to be inserted by Amendments 109 and 110, replace Clause 191 with a new commencement clause and a separate transitional provision clause. The clauses are being separated into two to make the commencement provisions easier to follow and avoid having one long and complex commencement provision.
They include a number of small, technical changes to ensure that the commencement provisions in the Bill work as effectively as possible and bring the devolution aspects of the commencement powers into line with previous similar legislation. They also bring into force, on Royal Assent, procedures in the Bill about the codes of practice which will govern the strengthened information order powers. This will ensure that those powers can quickly start to be used. Certain money laundering reporting measures are also being commenced on Royal Assent: the exemption for “exiting and paying away” and the new defence against failure to report, which we debated earlier in Committee. That will give certainty to businesses about their reporting duties as soon as the Bill is passed.
I hope noble Lords will support these amendments. I beg to move.
Lord Fox (LD)
My Lords, I will speak very briefly—I am sure the Minister will be glad to know that. I am intrigued by Amendment 109 because it complicates the process of bringing the Bill into being quite a lot. There are a lot of moving parts set out in Amendments 109 and 110 for the Bill to start to be effective. The simple question is: from start to finish—from Royal Assent to when everything is working and all parts are moving—what is the Government’s estimate as to long it will take to fulfil all the steps set out in these amendments?
Baroness Blake of Leeds (Lab)
I too will speak very briefly. I note the comments about consultation with devolved authorities. Given concerns about the extent of consultation in other areas, can the Minister reassure us that it is adequate, and deemed adequate by the devolved authorities? That is a clear theme running through some of the legislation.
We have discussed—we will revisit it, I am sure—the issue of failure to prevent and the specific mention of large organisations. We understand that keeping it to large organisations will not capture a broad enough spectrum of the businesses that we are covering. Having said that, I recognise that this is a tidying-up exercise. With further amendments we might revisit some of the issues at a future stage, but I would be grateful if the Minister could respond to those comments.
Lord Sharpe of Epsom (Con)
I thank noble Lords for their brief comments. In answer to the noble Lord, Lord Fox, about when the powers in the Bill will be brought into force, obviously I speak with authority only for the Home Office measures in the Bill. Certain measures in the Bill that are necessary to issue codes of practice will come into force on the day of Royal Assent, as will some of the money laundering reporting measures that we discussed previously in Committee. It is our intention for some of the remaining measures to be brought into force in autumn. This is subject to obtaining Royal Assent before summer.
The operalisation of these powers is a priority for the Government and our law enforcement partners. That is why we have taken steps to provide pre-commencement consultation for a number of measures in the Bill, to facilitate it coming into force as early as practically possible.
Some of the Companies House reforms will require consequential changes, including secondary legislation and guidance. Certain reforms, such as identity verification, will also require system development following Royal Assent. Some changes will be implemented almost immediately but others will take longer. We cannot commit to precise dates at present but work on implementing the measures is already under way at Companies House. Companies House is an executive agency of the Department for Business and Trade and there are various governance mechanisms to hold the agency to account on those reforms.
As I mentioned previously, these amendments are technical. They are designed to ensure that the Bill is effective and to make changes following amendments debated previously in Committee.
Before I wind up, I thank all noble Lords for their participation in the Committee, in particular the Front Benches. It has been a lively, extremely interesting and well-informed Committee. It will certainly improve the Bill over the course of its passage through Parliament. I thank my officials for the constructive spirit in which they have engaged with all interested Peers. From a personal point of view, I also thank them for guiding me through some fairly tricky questions. I hope that noble Lords are satisfied with the amendments.
Lord Sharpe of Epsom (Con)
My profuse apologies to the noble Baroness, Lady Blake. I am assured that all discussions have taken place with the devolved Administrations and that they are all content with it.
Lord Sharpe of Epsom
“(2A) For regulations made under this Act by the Scottish Ministers, see section 27 of the Interpretation and Legislative Reform (Scotland) Act 2010 (asp 10) (Scottish statutory instruments).(2B) Any power of the Department of Justice in Northern Ireland to make regulations under this Act is exercisable by statutory rule for the purposes of the Statutory Rules (Northern Ireland) Order 1979 (S.I. 1979/1573 (N.I. 12)).”Member’s explanatory statement
This amendment is about the classification of certain instruments made by the Scottish Ministers or the Department of Justice in Northern Ireland.
“(ea) regulations made by the Secretary of State under section (Fraud offences: supplementary) (1);(eb) regulations under section (Section (Failure to prevent fraud): large organisations) (5) or (6);”Member’s explanatory statement
This amendment provides for regulations under the specified powers to be subject to affirmative procedure.
“(4A) But subsection (4) does not apply to a statutory instrument that only contains regulations appointing the appointed day for the purposes of section 51.”Member’s explanatory statement
This amendment ensures that the regulation-making power to specify an appointed day for the purposes of Clause 51 is not subject to any procedural requirements since it is similar to a commencement power.
“(4A) Regulations made by the Scottish Ministers under section (Fraud offences: supplementary) (1) are subject to the affirmative procedure (see section 29 of the Interpretation and Legislative Reform (Scotland) Act 2010 (asp 10)).(4B) Regulations made by the Department of Justice in Northern Ireland under section (Fraud offences: supplementary) (1) may not be made unless a draft of the regulations has been laid before, and approved by a resolution of, the Northern Ireland Assembly.”Member’s explanatory statement
This amendment is consequential on new clause (Fraud offences: supplementary), which confers new powers to make regulations on the Scottish Ministers and the Northern Ireland Department.
Member’s explanatory statement
This amendment is consequential on the amendments in the name of Lord Sharpe of Epsom that leave out Clause 191 and insert new Clauses in relation to commencement and transitional provision.
Lord Sharpe of Epsom
“Commencement
(1) Except as provided by subsections (2) to (5), this Act comes into force on such day as the Secretary of State may by regulations made by statutory instrument appoint.(2) The following come into force on the day on which this Act is passed—(a) this Part;(b) any provision of, or amendment made by, Parts 1 to 5 so far as it confers a power to make regulations or relates to the exercise of the power;(c) paragraph 1 of Schedule 7 so far as it inserts section 303Z25 into the Proceeds of Crime Act 2002;(d) paragraph 16 of Schedule 7 so far as it relates to that section;(e) section 168 so far as it relates to the provisions mentioned in paragraphs (c) and (d);(f) section 170;(g) section (Money laundering: offences of failing to disclose);(h) section 172(12) and (13);(i) section 173(13) and (14).(3) Section 187 comes into force at the end of the period of 2 months beginning with the day on which this Act is passed.(4) The following come into force (so far as not brought into force by subsection (2)(b)) on such day as the Scottish Ministers may by regulations appoint after consulting the Secretary of State—(a) Part 2 of Schedule 6, and(b) section 167 so far as it relates to that Part.(5) The following come into force (so far as not brought into force by subsection (2)(b)) on such day as the Department of Justice in Northern Ireland may by order appoint after consulting the Secretary of State—(a) Part 3 of Schedule 6, and(b) section 167 so far as it relates to that Part.(6) No regulations may be made under subsection (1) bringing into force any of the following provisions, so far as they extend to Scotland, unless the Secretary of State has consulted the Scottish Ministers—(a) Schedule 7, and(b) section 168 so far as it relates to that Schedule.(7) No regulations may be made under subsection (1) bringing into force any of the following provisions, so far as they extend to Northern Ireland, unless the Secretary of State has consulted the Department of Justice in Northern Ireland—(a) Schedule 7, other than paragraphs 6(7), 10 and 11, and(b) section 168 so far as it relates to that Schedule, other than paragraphs 6(7), 10 and 11.(8) No regulations may be made under subsection (1) bringing into force section (Failure to prevent fraud) unless the Secretary of State has published guidance under section (Guidance about preventing fraud offences)(3).(9) Regulations under subsection (1) or (4), and orders subsection (5), may appoint different days for—(a) different purposes, and (b) where regulations under subsection (1) appoint a day for the coming into force of any provision of Schedule 7 or 8, different areas.(10) A power of the Department of Justice in Northern Ireland to make an order under subsection (5) is exercisable by statutory rule for the purposes of the Statutory Rules (Northern Ireland) Order 1979 (S.I. 1979/1573 (N.I. 12)).”Member’s explanatory statement
This amendment leaves out Clause 191 and inserts a replacement commencement Clause that provides for additional provisions to come into force at Royal Assent and for consultation requirements to apply in relation to certain cryptoasset provisions. See also the new transitional provision Clause to be inserted after Clause 191.
Lord Sharpe of Epsom
“Transitional provision
(1) The Secretary of State may by regulations made by statutory instrument make transitional or saving provision in connection with the coming into force of any provision of this Act, other than a provision mentioned in section (Commencement) (4) or (5).(2) The Scottish Ministers may by regulations make transitional or saving provision in connection with the coming into force of a provision mentioned in section (Commencement) (4). (3) The Department of Justice in Northern Ireland may by order make transitional or saving provision in connection with the coming into force of a provision mentioned in section (Commencement) (5).(4) The power to make regulations under subsection (1) or (2), and the power to make orders under subsection (3), includes power to make different provision for—(a) different purposes, and(b) where regulations under subsection (1) make provision in connection with the coming into force of any provision of Schedule 7 or 8, different areas.(5) Transitional provision and savings made under subsections (1) to (3) are additional, and without prejudice, to those made by or under any other provision of this Act.(6) A power of the Department of Justice in Northern Ireland to make an order under subsection (3) is exercisable by statutory rule for the purposes of the Statutory Rules (Northern Ireland) Order 1979 (S.I. 1979/1573 (N.I. 12)).”Member’s explanatory statement
This new Clause contains the powers to make transitional provision that were previously in Clause 191. It also includes additional powers for the Scottish Ministers and the Department of Justice in Northern Ireland to make transitional provision and savings in connection with the coming into force of certain cryptoasset provisions.
Economic Crime and Corporate Transparency Bill
Tuesday 20th June 2023
(1 year, 5 months ago)
Lords ChamberRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL 138-I(a) Amendments for Report (Supplementary to Marshalled List) - (20 Jun 2023)
17:50 - Division on Amendment 16 - Ayes: 218 / Noes: 175 - Amendment 16 agreed.
19:14 - Division on Amendment 72 - Ayes: 172 / Noes: 153 - Amendment 72 agreed.
19:29 - Division on Amendment 73A - Ayes: 171 / Noes: 151 - Amendment 73A agreed.
Lord Johnson of Lainston
Member’s explanatory statement
This brings the wording of objective 3 into line with objectives 1 and 2.
The Minister of State, Department for Business and Trade (Lord Johnson of Lainston) (Con)
My Lords, before we begin proceedings, I draw your Lordships’ attention to my interests as set out in the register of interests, including as a director and person with significant control of AMP Ventures Ltd, a person with significant control of Cigarkeep and as a shareholder of several other companies, including a previous shareholder and person of significant control of Somerset Capital Management. As I have set out before, I believe these interests serve only to increase my enthusiasm for this Bill to ensure that the UK remains the best place to start and grow a business while driving dirty money out of the UK. It is at the absolute core of this Government’s mission that we help legitimate business thrive.
I express my gratitude for the vast amount of engagement that has taken place since we concluded Committee in May, and the constructive way in which your Lordships have worked with me, my noble friend Lord Sharpe, my noble and learned friend Lord Bellamy, and all our exceptionally hard-working officials to ensure this Bill reaches its full potential. I am pleased that the Opposition Front Benches remain supportive of the intentions of the Bill and that they desire to ensure it works effectively. I am particularly grateful for the focus they have brought to bear on the drafting of the new objectives for the Registrar of Companies and for the constructive dialogue they have had with the registrar and me in recent weeks. I also give particular thanks to my noble friends Lord Agnew of Oulton and Lord Leigh of Hurley and the noble Lord, Lord Vaux of Harrowden, for their scrutiny of the Bill and their amendments on shareholder transparency, authorised corporate service providers and the register of overseas entities, which we will debate shortly.
Before I turn to the government amendments in this group, I briefly remind the House of the key principles of this Bill. It builds on last year’s Economic Crime (Transparency and Enforcement) Act, which contained key measures to help crack down on dirty money, including from Russia and other foreign elites abusing our open economy. That Act introduced reforms to the UK’s sanctions framework and to unexplained wealth orders and it provided for the introduction of the register of overseas entities.
Forming a key part of the wider government approach to tackling economic crime and sitting alongside the recently published economic crime plan, this Bill will further tackle economic crime, including fraud and money laundering, by delivering greater protections for consumers and businesses, boosting the UK’s defences, and allowing legitimate businesses to thrive.
I direct noble Lords to read the economic crime plan, if they have not already done so, as it contains a significant set of actions. Soon after the plan came out, our Home Office colleagues supplemented it with the launch of the new fraud strategy and in the coming months the Treasury will consult on the future of the anti-money laundering supervisory framework. These are relevant points because they fit within the debate today. My own department will conclude its review of the whistleblowing framework. This is a lot of activity and rightly so, because economic crime is a growing issue and affects people of all backgrounds and businesses large and small.
This Bill will make an immediate difference to real people. For example, we have discussed the problems of fraudsters creating companies using an individual’s or business’s personal details or address without their consent, including to obscure ownership and control of a company. Innocent citizens have been left seriously distressed by huge volumes of post for fake companies arriving through their letterbox and finding to their horror that their credit reference scores have suffered because they have been appointed a director of a debt-ridden company without their knowledge. The Bill introduces safeguards to put an end to these issues.
Elsewhere, the Bill provides vital new powers to underpin our law enforcement agencies; for example, over crypto assets, and to address corporate criminal liability. The powers supplement the £400 million package the Government have allocated to tackle economic crime over the spending review period, including support for the National Economic Crime Centre, reform of suspicious activity reporting and upgrading the Action Fraud service.
The Bill also supports our national security by making it harder for kleptocrats, criminals and terrorists to engage in money laundering, corruption, terrorism financing, illegal arms movements and ransomware payments. We have continuously sought to improve the Bill as it has progressed through Parliament. As noble Lords will know, the Government have tabled a number of significant amendments to be considered at Lords Report stage, including on strategic lawsuits against public participation, corporate criminal liability, the role of authorised corporate service providers and the transparency of information on trusts on the register of overseas entities. We believe these present a significant, meaningful package of measures that demonstrates that we have listened carefully to the concerns of this House.
Yet, throughout the passage of this Bill, it has also been essential to hold uppermost in our minds the fact that the vast majority of businesses are entirely law-abiding, and that the 350 or so pages of the Bill as it now stands and the dozens of secondary regulations which will follow it represent a lot for the business community to grapple with. The reforms in this Bill will touch every company in the country—nearly 5 million of them. The Government have worked very hard to ensure that, despite the length of the Bill, the burdens it will place on businesses are slight. As the FSB has tweeted today:
“The Economic Crime Bill must work for small businesses”.
The estimated net direct cost to the business community of the package of reforms to Companies House is less than £20 million a year. Indeed, these reforms will underpin systems changes that will improve the user experience for company directors. Elsewhere, the Home Office measures in Part 5 will reduce the reporting burdens on businesses, enabling the private sector to work with law enforcement more efficiently and effectively.
I am therefore extremely pleased that we have been able to maintain the support of the business community as the Bill has progressed. Indeed, the Institute of Directors very recently said:
“The UK is rightly seen as a country which champions high standards of business conduct. The IoD welcomes this legislation as a measure that will help maintain the integrity of the UK business system”.
However, that support cannot be taken for granted. As we reach the concluding phases of the Bill’s passage, I hope that noble Lords will work with the Government to ensure that what emerges is an Act which works for the law-abiding majority at a time when so many businesses and businesspeople are under strain. We are doing a great deal, and we need to bed it in and monitor how this will affect businesses before going significantly further.
Turning to the reforms in Parts 1, 2 and 3, which we will debate today and which are the responsibility of my department, I say that noble Lords will know that these measures will fundamentally change the role of Companies House, transforming it from a passive recipient of the data it receives to a proactive gatekeeper that upholds the integrity of the companies register—the most significant reform to the UK’s framework for registering companies in some 170 years. This, of course, means significant changes for Companies House as an organisation—to its systems, processes and culture. Investment in new capabilities is already under way, with a £63 million allocation to Companies House across the spending review period and the creation of some 400 new roles to ensure delivery of the registrar’s new objectives. Furthermore, through additional investment of up to £20 million of allocated spending on economic crime, new anti-money laundering intelligence teams are being created at both Companies House and its close partner the Insolvency Service to tackle the misuse of UK companies, corporate entities and property.
Having met with the registrar, Louise Smyth, several times in recent weeks—I express my gratitude to her and her team for their time; I am sure noble Lord will join me in doing so—I am convinced that she is well aware of both the challenges and opportunities this brings. These are transformative changes that will require a step change in the capabilities and practices of Companies House staff and its systems and users.
I hope that noble Lords who joined our session with the registrar and her team a fortnight ago share my conviction that the registrar and her team will rise to these challenges. Those who attended heard how, even before the reforms reach the statute book, Companies House is breaking new ground with HMRC, the National Crime Agency and others to maximise the power of its data to tackle criminality. The amendments we are about to debate get to the core of these changes.
I turn first to the government amendments in this group, starting with Amendments 1 and 2. The Bill introduces a wholly new set of objectives for the registrar. These are: to ensure that any person who is required to deliver a document to the registrar does so and that the requirements for proper delivery are complied with; to ensure that documents delivered to the registrar are complete and contain accurate information; to ensure that records kept by the registrar do not create a false or misleading impression to members of the public; and to prevent companies and others carrying out unlawful activities or facilitating others carrying out unlawful activities. These objectives were warmly welcomed across the House, as were the amendments tabled in Committee to broaden and strengthen the scope of those objectives.
However, in the interesting and lively debate we had on the subject in Grand Committee, it was apparent that a number of noble Lords felt we could have been more ambitious in the tone the registrar’s objectives set. Mindful of the need to strike a balance between that which is sensibly aspirational and what is simply unachievable, we have looked closely at the drafting once more.
I recall that the language of “ensuring” found your Lordships’ favour in the context of the first two objectives, concerning compliance and accuracy respectively. I trust, therefore, that the House will similarly support our amendment to replicate that language in objective 3, which is concerned with the risk of register records creating a false or misleading impression to members of the public. Instead of tasking the registrar “to minimise that risk”, the intention is that she will now have the more stretching objective “to ensure” that it does not happen. Furthermore, we understand the strength of feeling on the wording of the fourth objective and recognise that noble Lords wanted an alternative to “minimising” the extent of companies’ and others’ unlawful activities.
We have been cautious here for good reason, not wishing to subject the registrar to either unrealistic expectations or the risk of unnecessary legal challenge. However, following dialogue with the registrar, we have resolved to replace the wording
“minimise the extent to which”
with “prevent” in objective 4. I know that the noble Lords, Lord Coaker and Lord Fox, in particular, felt strongly about that point. I hope these amendments will be welcomed as a further demonstration both that we have listened to the views of the House and of the commitment on the part of both the Government and the registrar to improve the quality of register information and work proactively in combating economic crime.
I turn to government Amendments 46 to 48, 51, 54 to 56, 64, and 80 to 82. Companies legislation contains various regulation-making powers allowing the Secretary of State to delegate duties and functions to the Registrar of Companies. For efficient administration, there are instances where it is appropriate for such powers to allow the Secretary of State to confer on the registrar discretion as to how she discharges her statutory duties.
We have identified various new delegated powers within the Bill where such discretion would be beneficial to efficient delivery. The common thread linking them is that they determine, at a high level, how various statutory mechanisms for applications, notifications and appeals to the registrar shall be established through secondary legislation. Although we strive to establish the parameters of such mechanisms as precisely as possible, operational experience shows that sometimes being overprescriptive can hinder efficient administrative delivery.
The primary legislation is not consistent. In some cases, it allows the registrar discretion on all aspects of processes, in other cases only some aspects, and in others, none. These amendments will give the Secretary of State the ability to delegate consistent discretions. These will cover matters such as who she gives notice to when she exercises her powers, periods allowed for certain objections and what material is required to substantiate applications and objections.
Briefly, on government Amendment 40, the Bill provides the registrar with new powers to examine and query applications for company incorporation and restoration and verify certain information. Although it is expected that this will significantly improve the integrity of the register, it is inevitable that criminals will try and, in some cases, succeed in finding ways to circumvent these checks and file under false, deceptive or misleading pretences.
Existing powers, further enhanced by the Bill, allow for the removal of false information from the register—for example, directors’ names and registered office addresses. However, the circumstances in which the registrar can, by her own action, remove a company itself from the register through the process of strike-off are limited. She must be satisfied that the company is no longer operating and is effectively defunct. Forming that judgment and seeing the process to a conclusion is a relatively lengthy process, involving various statutory notification obligations.
It will be immensely beneficial for the registrar to be able to act more quickly than current processes allow. This amendment will allow the registrar to act expeditiously where there is reasonable cause to believe that the incorporation or restoration of a previously struck-off company is based on a false premise. This will mean that she can act much more quickly to expunge potentially fraudulent companies from the register.
Finally, this group contains several minor and technical amendments to Parts 1 and 2 to correct drafting errors or ensure that the drafting works properly—namely, government Amendments 3, 4, 18 and 38. Amendments 3 and 18 correct cross-references in Clause 4 and Schedule 2. Amendment 4 changes the definition of “the registrar” in Clause 30 so that it does not refer to the Companies Act—which is itself not defined. Amendment 38 corrects a mistake in Section 1082(1) of the Companies Act 2006 by spelling out that the power conferred by that subsection is exercisable by regulations—that this was always the intention is clear from the subsequent subsections.
In combination, these amendments will further improve the registrar’s objectives and powers, enabling her to better fulfil her new role. I therefore hope that your Lordships will support these amendments and I beg to move.
Lord Leigh of Hurley (Con)
My Lords, there seems to be a gap, so I will happily fill it. I remind the House of my declaration of interests in the register, which discloses that I am a director of a number of private and public companies, and I am a person with significant control of rather a large number of private companies that should really be consolidated, but there you are. Now that Companies House has made it easier, perhaps I shall do that.
I thank the Minister for the discussions that he has held with me and others between Grand Committee and today. I congratulate him on most of these amendments. It really shows that he and his colleagues have listened, and it is really pleasing to know that our House has contributed to improving this Bill in such a dramatic way, with so many government amendments to the Bill at this stage. Nearly all of them—if not all of them—are going to be welcomed by this House.
There are a few points and comments that I would like to make. We do not have the consistency point that I wanted in the objectives, but the proposals that the Government are making on the objectives are tremendous and will make a big difference to the quality of the Bill. On Clause 40, perhaps the Minister could explain—now or later—that if we are going to have a power to strike off companies registered on a false basis, what about those companies that submit accounts on a false basis? The clause addresses when the companies are created; it does not deal with—I do not think it does, unless it is dealt with elsewhere—those regular company accounts. Perhaps I have misunderstood, and the Minister could clarify.
I turn to my noble friend Lord Agnew’s Amendment 49; he has not had a chance to speak to it, so it is perhaps not right for me to comment on it. There is obviously going to be extra work to do this risk assessment, and I would not want the registrar to be let off the hook by just doing a risk assessment, so perhaps he could clarify that that was not his intention by inserting that clause.
I welcome the discretion that the registrar is given throughout the clauses, especially Clauses 54 to 56. I think that giving the registrar much more discretion is a very good thing. As a result, I would suggest, in advance of my noble friend Lord Agnew’s words, that his idea of a review is a very good idea because, if the registrar is going to be given this discretion and so much is going to happen, it would be helpful for us to see what is happening. We all remember how disappointing the unexplained wealth order legislation is in practice in that nothing much has happened. It would be helpful for us to have an annual or regular update on the implementation of this Bill when it is enacted.
Lord Agnew of Oulton (Con)
My Lords, I thank my noble friend the Minister for all the engagement and patience he has shown over the last few weeks and months, not just with me but with a wide congregation. We now have something that is much better than when it began its journey through the House, so I thank the Minister for that.
I am very pleased with two particular changes in this batch of amendments from the Government. First, that key, vital objective has been added for the registrar, so that it is absolutely crystal clear culturally for the organisation Companies House to know what it has to do. Added to that, giving her more discretion on how she delivers on that is very sound because, of course, it will be a mobile battlefield and she will have to be more fleet of foot.
Lastly—and I have said this before, but I think it is important that it goes on the record—we should not underestimate the extent of the cultural change needed in Companies House to move from being, as my noble friend said, a passive recipient of data to something far more dynamic and intelligent. That is why this reporting to Parliament—albeit with a sunset clause up to 2030—is really important to keep driving the momentum of that change. Every single employee of Companies House will need to be thoroughly retrained in this new mission.
Baroness Bennett of Manor Castle (GP)
My Lords, I apologise for my croakiness; the hay fever is definitely winning. I join others in welcoming, in these government amendments, that we have seen significant change since Committee. It is worth highlighting a couple of comments from the Minister’s introduction. He said that the aim of the Bill to drive dirty money out of the UK; I hope we can all agree that that is essential. He also said that we had seen so many people abusing our open system; I think we have to acknowledge that we invited those people in, and that that is the situation we created. We are now trying to fix it.
In that light, I very much welcome the fact that the Minister said that we need to see how these changes bed in before going significantly further. I want to make sure that we acknowledge, and see on the record, the fact that the Government have acknowledged that this is not enough, and that a lot more will need to be done, in what is, after all, as described by UK Finance,
“the fraud capital of the world”.
Lord Fox (LD)
My Lords, there are political Bills, where the House divides on political issues and argues among itself, and there are Bills of practical importance, when the House can come together and pull in the same direction. We will not all agree about everything, but the motives behind what we are proposing have been similar. In this case, it is about helping to clear up and clean up a bad situation, and to do so in the best possible way. The Minister and his colleagues, the noble Lord, Lord Sharpe, and the noble and learned Lord, Lord Bellamy, must be congratulated on their openness and their listening ears. They have not just listened but acted on what they heard, and we should all be grateful that we have moved in this direction.
I am pleased that I can agree with the noble Lords, Lord Leigh of Hurley and Lord Agnew, in their characterisation of these changes, which are important. I think the change to the mission of Companies House is absolutely fundamental. It is vital that it is there, and it then plays to the point made by the noble Lord, Lord Agnew, about the culture change, as well as, I think, giving the flexibility and understanding that—again, as the noble Lord, Lord Agnew, said—this is going to be a mobile struggle that we have to move forward.
This group of amendments is followed by other groups which are other examples of where listening has turned into positive changes. From these Benches, we are really pleased that we are moving in this direction, and are grateful that we have done that. As we have heard, the Bill is improving as a result. So we are very supportive of these measures, and continue to be supportive of the other measures that we will hear about later.
Baroness Blake of Leeds (Lab)
My Lords, I add my thanks to the Ministers for their regular updates, and the access we have had to their officials. The ability to meet the team from Companies House was particularly helpful and instructive. I too believe that we have a better Bill before us.
Having said that, we must not forget the scale and severity of the consequences of actions of bad actors, particularly the exposure of the public to fraud, nor the victims, who have suffered so appallingly over many years. As we know, the Ukraine war has brought all these issues to a head, necessitating a swift response. I thank everyone involved for responding positively to some of the many proposals that we have put forward.
I will refer particularly to Amendment 2, with regard to the fourth objective. It would be wrong of me not to mention the fact that the noble Lord, Lord Coaker, as has been mentioned, was very forceful in his views that the objective surely must be to prevent unlawful activities rather than to minimise them, as was the earlier wording. I also welcome the change to the third objective, and the increase in the ability of the registrar to strike off companies and take swift action. Again, I think that running through this is the emphasis on the ability to act quickly with clarity.
I acknowledge the amendments in the name of the noble Lord, Lord Agnew, which would bring in a framework of intervention criteria to assist the registrar, and particularly Amendment 57, which recognises the sheer scale of the task ahead of Companies House and seeks full, regular scrutiny. I want to put on record our concern about the sheer scale of the task ahead of Companies House and make it plain that we must communicate to everyone involved that there is a fallback position and that it can come back if the resources are not adequate for the job it has in hand. The scale of change it has to go through, from being a receiver of information to a proactive partner, is quite significant.
I again thank the Ministers involved for their openness and for having moved on a number of our suggestions.
Lord Johnson of Lainston (Con)
I am extremely grateful to all noble Lords who participated in this debate. I shall answer their questions in order.
The financial guru, my noble friend Lord Leigh of Hurley, pointed to Amendment 40. He is right that it does not specifically mention submitting misleading information—this is related specifically to the filing of accounts—but I believe that the Companies Act enables the Secretary of State to issue a winding-up order if there are materially inaccurate filings in the accounts. I am happy to write to him specifically on that issue.
I am grateful to my noble friend Lord Agnew for his comments. I am extremely pleased to come back to the noble Baroness, Lady Blake, about the objectives. We had long and specific discussions about the difference between the words “minimise” and “prevent”. I think the House understood clearly from my approach that I was being carefully guided by our legal advisers. It is right that we should be, and it is also right that we found a word that would be suitable in how the noble Baroness saw the Bill being presented. We want to make sure that we get the language right. It is important that we have remained in our current function to ensure that there is flexibility for the registrar to perform her duties while at the same time sending the appropriate signal.
The noble Baroness, Lady Bennett, rightly commented on the need to continue to review the situation as we see it. I hope that the noble Baroness has been reassured by my attitude to the Bill as it has progressed through the stages in this House. My point was to ensure that we do not deluge businesses with unnecessary obligations at this stage before we know how this process will transpire. I am also very aware of the dangers of being too prescriptive. Technology changes and the activities of criminals change, and it is important that we assess the situation as it stands and work out how to ensure that we can confront those challenges as and when they arise.
I turn specifically to the amendment tabled by my noble friend Lord Agnew, Amendment 57. Reporting by Companies House is an extremely important element of its activities, and I agree that it is important that Parliament is informed about the implementation and delivery of the reforms that we are undertaking. That is why the Government brought forward an amendment in the other place to that effect, which is now Clause 187. I am aware of the comments made about the cultural and operational changes linked to Companies House’s new responsibilities. I hope that through meeting the registrar we felt a sense of reassurance that the head of investigations is extremely dedicated to his task. We believe that the amount of money we are applying to Companies House and the fees, which we will discuss later, will amply cover expenditure, and could be increased if necessary. It is up to Companies House to ensure that it presents to the Government its funding requirements to ensure that it can do its job and perform its tasks.
It might be helpful for me from the Dispatch Box to go through some of the points formally so there is a record of what we expect Companies House to report when it has finished reporting on what it is intending to do—the inputs—and then turn our attention to the outputs, which is the difference between what it is obliged to report to Parliament for the first three years of operation, I think, and what we then expect to be business as usual.
From the discussions with Companies House to date, I can commit that, subject to the successful implementation of the necessary information systems, early reports will cover items such as: the number of documents rejected for not being properly delivered or for a discrepancy; rejected incorporations and name changes; the number of documents removed from the register for being inaccurate, incomplete or fraudulent; and the number of times the querying power is used and the resulting actions taken by Companies House. We are also looking into how we might report on the number of times Companies House has shared data with other organisations and vice versa. I would be happy to explore with Companies House officials how they might incorporate some of the new items in this amendment into its reporting without the need for this statutory requirement, and of course we listen to all sides of the House about other areas where noble Lords feel it would be beneficial for Companies House to report.
Lord Johnson of Lainston
“Objective 4 is to prevent companies and others from—(a) carrying out unlawful activities, or(b) facilitating the carrying out by others of unlawful activities.”Member’s explanatory statement
At the moment the registrar’s fourth objective is to minimise the extent to which companies and others carry out unlawful activities etc. This amendment makes it an objective to prevent companies and others from carrying out unlawful activities etc.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment corrects a cross-reference in Clause 4 of the Bill.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment changes the definition of “the registrar” so it does not refer to the Companies Acts (which is itself not defined).
Lord Johnson of Lainston
Member’s explanatory statement
This amendment makes it clear that a person who is subject to director disqualification sanctions will be so subject both for the purposes of section 11A of the Company Directors Disqualification Act 1986 and for the purposes of Article 15A of the Company Directors Disqualification (Northern Ireland) Order 2002.
Lord Johnson of Lainston (Con)
My Lords, the amendments in this group relate to the new director disqualification sanctions measure introduced in Committee. This measure created a completely new type of sanction in the Sanctions and Anti-Money Laundering Act 2018 called director disqualification sanctions. It will be unlawful for a designated person subject to this new measure to act as a director of a company. I welcome the support this measure received from this House in Committee.
Government Amendments 5 to 11 address some technical drafting concerns raised by Northern Ireland officials. The amendments clarify that the definition of a
“person who is subject to director disqualification sanctions”
encompasses disqualification for the purposes of the Company Directors Disqualification Act 1986, which applies in England, Wales and Scotland, and the Company Directors Disqualification (Northern Ireland) Order 2002, which applies in Northern Ireland. This does not alter the legal consequences of the measure but simply clarifies that the definition relates to both Great Britain and Northern Ireland legislation.
The amendments also make clear that the Department for the Economy in Northern Ireland will now be required to maintain information about individuals subject to the new director disqualification sanction in the department’s register of disqualified directors. This mirrors the requirement for the Secretary of State to update the UK-wide director disqualification register, ensuring consistency between GB and NI legislation.
Lastly, these amendments clarify when a designated person, or a person acting on the instructions of a designated person, is responsible for the debts of a company. The current drafting does not address the liability of a third party who acts on the instructions of a designated person. These amendments therefore specify the circumstances in which a third party acting under instructions from a designated person may be liable and clarifies the defences that may relieve the designated person or the third party from personal liability.
The amendments mean that a person will not be responsible for debts incurred when they could not reasonably have known they were subject to director disqualification sanctions. And a third party who acts on instructions that were given by a person who they did not know was subject to director disqualification sanctions, or who they reasonably believed was acting under the authority of a licence, will similarly not be responsible. As a package, these amendments improve the coherence of the new director disqualification sanctions measure.
Government Amendments 52 and 53 amend Clause 101 of the Bill, which inserts new Section 1132A into the Companies Act 2006. Government Amendment 83 inserts into the Bill after Clause 169 a new clause which amends Section 39 of the Economic Crime (Transparency and Enforcement) Act 2022. Both new sections allow the Secretary of State to make regulations which confer power on the registrar to impose a financial penalty on a person if satisfied, beyond reasonable doubt, that the person has engaged in conduct amounting to an offence. These amendments align the drafting with the drafting of Clause 202 of this Bill, which inserts new Section 17A into the Sanctions and Anti-Money Laundering Act 2018. These amendments mean that regulations must provide that no financial penalty may be imposed on a person in respect of whom criminal proceedings are ongoing, or if a person has been convicted of an offence. At the moment, it is the other way around, so criminal proceedings cannot be continued once a penalty is imposed. This is clearly unhelpful, as without amendment, prosecutors’ discretion to prosecute could be infringed upon.
Government Amendment 50 relates to the setting of Companies House fees. It will allow the Secretary of State to take into account additional costs incurred, or likely to be incurred, in relation to the new disqualified directors sanction which the Bill is introducing. Specifically, this amendment will ensure the costs of delivering the licensing function for this sanction can be covered by Companies House fees. Without this amendment, the costs of this licensing regime would fall on the taxpayer. We have made great strides through this legislation to require those that benefit from incorporated status to contribute towards maintaining the integrity of the register and a healthy business environment. It therefore seems reasonable for this to extend to the funding of the licensing regime that enables sanctioned directors to remain compliant and continue lawfully to carry out certain activities within the limitations set out in the licence.
I hope noble Lords will support these amendments. I beg to move.
Lord Fox (LD)
My Lords, again this is a group of amendments with which we can thoroughly agree, which is a nice position to be in. Government Amendments 5 to 11 speak for themselves in the sense of tidying up the situation in Northern Ireland. The one amendment that is worth dwelling on a little bit is government Amendment 50, which gets to the point around resources and having sufficient resources for Companies House to be able to do what it needs to do.
There is a certain irony that, if the Companies House team is successful, there will be fewer companies on the register. So one of the things they will need to consider about fees is that they will be reducing the number of companies or the amount of income that will come per company. One of the issues in setting them is that, if estimates of 5% of companies being fraudulent are right, there will be 5% fewer companies paying the annual renewal. Some people, and some organisations, put that number much higher, so I suggest that the Government think about the success that Companies House will hopefully have in order to set a fee that does not become self-defeating if it removes companies.
The more companies the team removes from the register, the less money Companies House receives in annual renewal. That is the point I am making. I am assuming that this number will come quite soon after this Bill becomes an Act, and it would be useful for the Minister to update us on when we think the secondary legislation will come, because, clearly, Companies House and others will rely on this money for planning ahead. I am assuming the money goes to Companies House and not the Treasury, but perhaps the Minister could confirm that.
If the Minister could say a little around the operation of Amendment 50, that would be helpful—so that I understand it even if everybody else already does. He could say a little about how much money and how changeable it will be in the event that more money is needed to support the drive to remove criminality from our companies. I think that everything else is broadly very welcome.
Lord Ponsonby of Shulbrede (Lab)
My Lords, we agree with all the amendments in this group. This group is all government amendments which make minor changes to ensure that penalties align with previous legislation, that they are taken into account when setting fees and that penalties do not stop criminal proceedings, as the noble Lord explained introducing the amendments.
I take the point the noble Lord, Lord Fox, made about Amendment 50. I presume fees can be updated as the situation evolves regarding the number of companies on the register. Nevertheless, we support this group of amendments and look forward to the Minister’s response to the questions asked by the noble Lord, Lord Fox.
Lord Johnson of Lainston (Con)
As always, I am extremely grateful to noble Lords for their interventions and the points raised in debate.
I turn to government Amendment 50. It is not a technical point, but it would not, in my view, be a point of significant consequence. It is just to ensure that when the Secretary of State has a licensing regime for directors who have been disqualified but whom she may require to perform a director’s duties, such as winding up a business—it is practical to allow disqualified directors in some instances to perform certain functions—the cost for administering that process is met by the fees. I do not imagine that would be a significant component of the Companies House fees. This is a tidying-up point more than anything else. It just means that the taxpayer does not have to pay the bill. If I am wrong in my expectations, I will certainly correct that for the House, but I do not think that is the case. It is a technical point.
We have discussed at great length what we feel the Companies House fees should be. I do not think there is a single similar opinion; every noble Lord in this House has a different view on the exact amount to the nearest 50p it should cost to register a company and to reregister it or confirm the registration each year. The fact is that Companies House now has a licence to propose its budget, which must be agreed. That budget will be met through the fees charged to companies using its services.
The noble Lord, Lord Fox, raised a good point. It is anticipated that some companies will leave the register. I hope that there will not be a significant number of companies forced to leave the register because they are not legitimate companies, but it is right that this investigative power will encourage those companies that should not be on the register to leave. The quantum of the number of companies—I think there are nearly 5 million companies—at any reasonable fee rate, which the discussions established is between £50 and £100, would allow there to be ample funding for Companies House.
To answer the question the noble Lord, Lord Fox, asked about what happens to any excess money raised by fees, there is only one place excess money raised by anything in this great nation of ours goes: His Majesty’s Treasury. We would clearly wish to avoid that. We would rather make sure that the fees were set at the right level.
To end on a serious note, we are not looking to have a fee rate. This is why the Government have been careful not to hypothecate fees for Companies House activity with other activities. It is not right, in our view, to charge legitimate businesses excess amounts of money to cover other things unrelated to their Companies House registration. We have tried to set this in the right fashion. I think this will result in the right outcome. I hope very much that the House will support what are seen as largely technical amendments.
Lord Johnson of Lainston
(i) the instructions are given by a person whom they know at that time to be subject to director disqualification sanctions (within the meaning of section 11A),(ii) the giving of the instructions does not fall within any exception from section 11A(1) created by virtue of section 15(3A) of the Sanctions and Anti-Money Laundering Act 2018, and(iii) the instructions are not authorised,(but see subsection (3A)).”Member’s explanatory statement
This amendment ensures that a person who acts on instructions that were given by a person that they did not know was subject to director disqualification sanctions would not be responsible for all of the relevant debts, and is otherwise consequential on my amendment to page 27, line 16.
“(f) after subsection (3) insert—“(3A) But—(a) a person who is subject to director disqualification sanctions (within the meaning of section 11A) is not personally responsible under subsection (1)(a) for any relevant debts of the company incurred at a time when the person did not know and could not reasonably have been expected to know that they were subject to director disqualification sanctions;(b) a person is not personally responsible under subsection (1)(c) for any relevant debts of the company incurred at a time when the person reasonably believed that the instructions were authorised.”;(g) after subsection (5) insert—“(6) Subsection (7) applies where a person (“P”) at any time—(a) was involved in the management of a company, and(b) acted on instructions where—(i) the instructions were given by a person (“D”) whom P knew at that time to be subject to director disqualification sanctions (within the meaning of section 11A),(ii) the giving of the instructions did not fall within any exception from section 11A(1) created by virtue of section 15(3A) of the Sanctions and Anti-Money Laundering Act 2018, and(iii) the instructions were not authorised,unless P reasonably believed at that time that the instructions were authorised.(7) For the purposes of this section P is presumed, unless the contrary is shown, to have been willing at any time thereafter to act on any instructions given by D.(8) For the purposes of this section instructions are “authorised” if they are given under the authority of a licence issued by virtue of section 15(3A) of the Sanctions and Anti-Money Laundering Act 2018.”” Member’s explanatory statement
This amendment means that a person is not responsible for debts incurred when they didn’t know they were sanctioned, or they reasonably believed they were acting on instructions under a licence. A person who acts on instructions given by a sanctioned person is presumed to be willing to do so thereafter.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment makes it clear that a person who is subject to director disqualification sanctions will be so subject both for the purposes of section 11A of the Company Directors Disqualification Act 1986 and for the purposes of Article 15A of the Company Directors Disqualification (Northern Ireland) Order 2002.
(i) the instructions are given by a person whom they know at that time to be subject to director disqualification sanctions (within the meaning of Article 15A),(ii) the giving of the instructions does not fall within any exception from Article 15A(1) created by virtue of section 15(3A) of the Sanctions and Anti-Money Laundering Act 2018, and(iii) the instructions are not authorised,(but see paragraph (3A)).”Member’s explanatory statement
This amendment ensures that a person who acts on instructions that were given by a person that they did not know was subject to director disqualification sanctions would not be responsible for all of the relevant debts, and is otherwise consequential on my amendment to page 28, line 47.
“(f) after paragraph (3) insert—“(3A) But—(a) a person who is subject to director disqualification sanctions (within the meaning of Article 15A) is not personally responsible under paragraph (1)(a) for any relevant debts of the company incurred at a time when the person did not know and could not reasonably have been expected to know that they were subject to director disqualification sanctions;(b) a person is not personally responsible under paragraph (1)(c) for any relevant debts of the company incurred at a time when the person reasonably believed that the instructions were authorised.”;(g) in paragraph (5), in the closing words, after “given” insert “by”;(h) after paragraph (5) insert—“(6) Paragraph (7) applies where a person (“P”) at any time—(a) was involved in the management of a company, and(b) acted on instructions where—(i) the instructions were given by a person (“D”) whom P knew at that time to be subject to director disqualification sanctions (within the meaning of Article 15A), (ii) the giving of the instructions did not fall within any exception from Article 15A(1) created by virtue of section 15(3A) of the Sanctions and Anti-Money Laundering Act 2018, and (iii) the instructions were not authorised,unless P reasonably believed at that time that the instructions were authorised. (7) For the purposes of this Article P is presumed, unless the contrary is shown, to have been willing at any time thereafter to act on any instructions given by D.(8) For the purposes of this Article instructions are “authorised” if they are given under the authority of a licence issued by virtue of section 15(3A) of the Sanctions and Anti-Money Laundering Act 2018.””Member’s explanatory statement
This amendment means that a person is not responsible for debts incurred when they didn’t know they were sanctioned, or they reasonably believed they were acting on instructions under a licence. A person who acts on instructions given by a sanctioned person is presumed to be willing to do so thereafter.
“(5) In Article 22 (register of disqualification orders and undertakings), in paragraph (3), after sub-paragraph (c) insert—“(d) persons who are subject to director disqualification sanctions within the meaning of Article 15A;(e) any licences issued by virtue of section 15(3A) of the Sanctions and Anti-Money Laundering Act 2018 that authorise such a person to do anything that would otherwise be prohibited by Article 15A(1).””Member’s explanatory statement
This amendment ensures that the register of disqualification orders kept by the Department for the Economy in Northern Ireland includes details of persons who are subject to director disqualification sanctions and any licences that allow those persons to act in Northern Ireland.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment means that only non-traded companies are required to keep old information about their members (eg old addresses).
Lord Johnson of Lainston (Con)
My Lords, before we turn to the amendments tabled by my noble friend Lord Agnew of Oulton and the noble Lord, Lord Vaux of Harrowden, I shall briefly outline government Amendments 12, 13, 14 and 15 in this group. Clause 46(4) amends Section 113 of the Companies Act 2006, including by inserting new subsection (6A). This will require all companies to retain information about a member in their register of members where it changes, and to note the date on which the information changed and was entered into the register by the company. The requirements apply only prospectively, not retrospectively. The government amendments target the scope of this requirement, so it applies only to non-traded companies, to ensure that excessive burdens on traded companies with large numbers of shareholders are avoided.
However, these amendments do include a power for the Secretary of State to make regulations which allow for a full or partial reversal of this scope restriction, allowing this requirement to retain old information and note the dates of changes to also be applied in future to traded companies, should it be judged to be useful and proportionate. In considering all the amendments in this group, I remind noble Lords that the UK already has one of the most open and accessible shareholder registers in the world. Disclosure of shareholder information is far from a global norm. In fact, the UK is one of relatively few international countries to have any publicly available shareholder information for companies not listed on its stock exchange. Noble Lords will know that many countries do not even disclose major shareholders or beneficial owners publicly.
The UK led by example with its public register of PSCs. We were the first G20 nation to institute such a register, back in 2016, and we have been a strong voice ever since in promoting the importance of collecting and sharing beneficial ownership information. Numerous jurisdictions, including the EU, the US and Australia, have been influenced by our approach. But a responsible Government must weigh carefully the benefits of further transparency regulations, and the inevitable rules, forms and penalties that would follow, against the costs and impact. The Government support the publication of accurate and useful shareholder information and we are one of the most open countries in the world in this respect—but do we need to go further, and if so how far? What really are we seeking to achieve?
There are over 10 million shareholders of UK companies. At a time when this Government are looking to reduce regulatory constraints on business, even small cost changes to shareholder obligations could very quickly add up to a large drag on our economy. I ask noble Lords to reflect carefully on the value of the amendments we are about to discuss. I beg to move.
Lord Vaux of Harrowden (CB)
My Lords, I shall speak to the amendments in this group in my name, Amendments 16 and 17. I should remind the House of my interest in the register as a non-practising member of the Institute of Chartered Accountants in England and Wales. I also take the opportunity, since it is the first time I have spoken so far, to thank the various Ministers and their officials, and indeed the registrar and her staff, for their constructive engagement and the generosity they have shown with their time. The engagement process on the Bill has been exemplary. We are helped by the fact that this is generally agreed to be a fundamentally good Bill: we are all on the same side here, just trying to ensure that it is as good as it can be.
These two amendments are designed to improve the transparency of ownership of our companies, to ensure we know who really owns or controls them. I remind the House of the words of the Minister at Second Reading:
“The use of anonymous or fraudulent shell companies and partnerships provides criminals with a veneer of legitimacy and undermines the UK’s reputation as a sound place to do business”.—[Official Report, 8/2/23; col. 1250.]
I think we all agree with that.
One of the classic ways to hide the real ownership of a company is through the use of undisclosed nominee arrangements, where a shareholder is named on the register but is in fact holding the shares on behalf of another person. At present, while the company must try to identify any persons with significant control, or PSCs, according to the guidance, all it really needs to do is look at its shareholder register: if there is no shareholder with 25% or over, it can reasonably conclude that there is no person of significant control. For example, if a company has five shareholders, each with 20%, the company can reasonably conclude that there is no person with significant control that needs to be named or verified.
However, what if those five shareholders were in fact holding the shares on behalf of a single third party? That third party would then control 100%. There is an obligation under the PSC rules for that third party to tell the company, but a dishonest actor probably would not do so. The problem is that there is no obligation for the person who is acting as the nominee to disclose that fact, which makes it far too easy for a dishonest actor to hide their identity. The company has the right to ask the nominees, but, remember, the company in my example is controlled by the dishonest actor—so it will not do that. If it is asked, it can point to the fact that it has followed the guidance, having checked its register and not found anyone with a share of 25% of more. In fact, all the dishonest actor has to do to hide their ownership is find five willing people who are prepared to have their name on the shareholder register and hold the shares on behalf of the dishonest actor. There is no comeback for these nominees. They have no obligation to disclose.
Where does one find five such willing people? I suggest that noble Lords would find it interesting to google “nominee shareholders”. They will find pages and pages of businesses that will do this, with few questions asked, for around £200 to £300 a year. They advertise specifically that the nominee service is for the purpose of hiding the true identity of the shareholder. In passing, it is worth saying that many of the people offering such services are the same people who will be the authorised corporate service providers and will carry out the ID verification under this Bill. That introduces an interesting conflict, but I stress: under the current proposals, these people will be doing nothing wrong.
Amendment 16 aims to close this loophole by making it a requirement for shareholders to state, as well as their name and address, whether they are—or, importantly, are not—acting as a nominee. If they are acting as a nominee, they would have to provide the name and address of the person on whose behalf they are holding the shares. I said that it was important that they should state that they are not holding the shares on behalf of someone else; that is because they would then have to lie actively if they are a nominee but do not disclose it. I believe that there is a real difference between lying actively and just keeping quiet passively—that is, turning a blind eye, as has happened all too often in the past.
This simple step of making people declare whether they are a nominee should make it much more difficult for dishonest actors to find people willing to act as nominees. They will need to find someone who is willing actually to lie on the record rather than just to keep quiet. Having this information will make it much easier for companies to identify hidden PSCs. Knowing which shares are held by nominees will also assist Companies House and organisations such as Transparency International to focus their attention where the risk is greatest.
We have heard the Minister telling us that we have to be careful not to create too great a burden on legitimate businesses. I agree with him, but I do not think that this would do that. Shareholders already have to provide their name and address. I struggle to understand why it would add any material extra burden to have to make a simple declaration—perhaps even as simple as ticking a box—and to provide the details of the actual beneficial owner. I really do not see that as adding any significant additional effort. In any event, there are significant benefits that arise from a company structure; it really cannot be too much to ask that the beneficial owner of the shares is disclosed in return for having those benefits.
I turn now to my second amendment in this group, Amendment 17. The Bill introduces a welcome identity verification requirement for persons with significant control, but that applies only to shareholders who own 25% or more. I should say that I know the Minister will correct me on that point, because it also applies to those who might have below 25% of the shares but otherwise exert control. He would be right, but in practice the 25% level is the driver. As my previous example shows, it is quite easy to structure a company so that there is no apparent 25% shareholder. There is certainly a legitimate debate to be had over where the correct level to trigger identity verification should lie, but I do not hear many people arguing that it should be as high as 25%.
Amendment 17 would reduce the level to require identity verification from 25% to 5%. Why 5%? There are a number of precedents. For UK listed companies, 3% shareholdings must be disclosed, with an exemption for fund managers, who must disclose at 5%, so 5% is deemed of sufficient importance for all listed companies to disclose. The rules around entrepreneur relief, which gives a reduction in capital gains tax payable on a disposal, state:
“A company is your personal company if you hold at least 5% of the ordinary share capital and that holding gives you at least 5% of the voting rights in the company”.
So tax rules consider that 5% gives sufficient influence for the company to be treated as your personal company, and there is a high degree of consistency supporting a 5% level. As I say, though, there is potentially a debate to be had about that level.
Again, I am sure we will hear that we should not create an undue burden on innocent parties, so let us consider the impact of that. I understand that the average number of shareholders for UK companies is two, so for the average company the amendment would create no additional burden; they already have to verify the identity of their shareholders. It would apply only where a more complex shareholder structure has been created with a greater number of shareholders. Yes, it would create a little more work for them, but in fact it would only increase the maximum number of ID verifications required by a company from a maximum of four to a maximum of 20, which should be easily manageable. We are not talking about companies having to verify hundreds of IDs.
Both these amendments would make a significant difference to the transparency of the register, helping to ensure—to get back to the Minister’s words that I referred to earlier—that we make it more difficult for criminals to use anonymous or fraudulent shell companies. I will listen carefully to what he has to say in response, but I give notice that I intend to divide the House on at least Amendment 16 unless he is able to provide very strong assurances.
Lord Agnew of Oulton (Con)
My Lords, I support Amendments 16 and 17 from the noble Lord, Lord Vaux. I shall also speak to my Amendment 19.
I do not want to repeat everything that the noble Lord has said, but I received a letter from my noble friend the Minister yesterday on this subject that included the subheading, “Transparency over shareholders and nominees”, and one of the arguments that the Government are making is that this could cause a significant cost to the economy. We have just heard from the noble Lord, Lord Vaux, that that is, frankly, a fantasy; if the average number of shareholders per company is two—perhaps the Minister could confirm that, but it is certainly my instinctive understanding—then what is the cost?
In any case, that should be put against the cost to the economy of the fraud and economic crime that is happening at the moment at an increasing rate. We have endlessly reminded ourselves that 40% of all crime in this country is now economic crime. I know from my time in government that the loss to fraud in government alone each year—this is the bottom-end estimate by the NAO—is £30 billion, and a lot of that is facilitated through the holes in the Companies House structure. I urge the Minister to think hard about this because it is a great opportunity, at minimal cost to the economy or to business, to make a substantial change.
Lord Fox (LD)
I shall speak to Amendment 16, to which I have added my name, and I support the noble Lord, Lord Vaux, in his clear outline as to why this is an elegant solution. It is so because it would push the onus on to the supplier of the service and make them decide whether to lie or tell the truth. A lie detector, in a sense, for dishonest actors is a very good way of exposing this practice. It is not unreasonable to know who is behind a company; in fact, it is perfectly reasonable that we should.
Amendment 17 from the noble Lord, Lord Vaux, also contains an important point: at what point does the cut-off come? It will be interesting to hear what the Minister has to say about the continuum between 25% and 5%. The Government have chosen 25%, which is a very large number when you think about it. The numbers breakdown given by the noble Lord, Lord Vaux, is clear that it would not mean that a huge number of people had to be identified, even if his suggestion of 5% was adopted by the Government.
If the noble Lord chooses to move Amendment 16 then it is safe to say that we on these Benches will support it, and we will wait to hear what the Minister has to say on other matters.
Baroness Blake of Leeds (Lab)
I thank the Minister for his comments on the government amendments. We support Amendments 16, 17 and 19. They would significantly help improve the integrity of the register. This issue has been raised in amendments throughout the passage of the Bill. While we welcome many of the other changes that the Government have made and the manner in which they have collaborated with colleagues to make the Bill stronger, the issue of nominees represents a weak point in the Bill. We must know which bad companies and actors are acting fraudulently in order to fight fraud, corruption and economic crime.
A point that has repeatedly been made is that, as things stand, shareholder information is incomplete. It is difficult to identify the real owners of certain companies, which reduces the reliability of shareholder information published by Companies House, which we are all determined to improve. That undermines the corporate register as a whole.
As I said, we support Amendments 16, 17 and 19. I was struck by the comments of the noble Lord, Lord Agnew, about the cost of fraud to the economy, which we need to keep front of mind when we are told to be concerned about the cost of putting these measures in place. I confirm that, if the noble Lord, Lord Vaux, is minded to test the opinion of the House on Amendment 16, these Benches will support him.
Lord Johnson of Lainston (Con)
I thank the noble Lord, Lord Vaux of Harrowden, and my noble friend Lord Agnew of Oulton for their amendments. If noble Lords allow me to, I will just set the scene.
We have made some significant advances in understanding who is behind a company and who is running these organisations, which is at the core of these measures. By understanding who the people with significant control are, we will be able to crack down on crime and the dirty money going through the system. That is at the core of it, as far as we are concerned; any other changes around that are fundamentally peripheral.
On a comment made by the noble Lord, Lord Vaux, a nominee is obliged to declare if they acting on behalf of a person with significant control, as is the company collecting the data. If they are acting as a nominee in a collective way to achieve a threshold of 25% or above, or acting as a person of significant control, that nominee has to declare themselves a person of significant control. There is no additional benefit from changing the rules to see how people who stand as nominees are listed as such. It is important for me, for Companies House, for this Government, for the House and, frankly, to reduce crime with this Bill to understand who is behind the companies, and these measures do that.
My concern, if we try to track every move, is that we will bring into the criminal and penalties regime a large number of people who do not necessarily know that they have to register—for example, if they are a registered nominee on behalf of a very small shareholder. We are concerned that we may go too far at this stage. We need to see how the work that Companies House does develops before expanding the regime.
I stress that the work that we have done on PSCs is at the core of the Bill. Most of the government amendments reframe the existing PSC information gathering and disclosure rules to make them clearer and to work more effectively with a centrally held PSC register. This may be covered a little later, but it is worth noting that it is not necessarily for the company to hold the register of PSCs any more; the registrar will now hold this information centrally.
The amendments we are proposing make provision to require more information to be provided by UK companies concerning the transparency of their ownership, including full explanations to be given by companies which claim they are exempt from the PSC requirements, and for notifications to be made to the registrar where a company believes it has no PSC. That is a relatively unique point but it is certainly possible, and so the company has to then explain why it has none. Every company will have a person of significant control listed and registered de facto; if it does not, it will have to explain why that is the case.
My noble friend Lord Agnew rightly pointed out that the average number of shareholders is two—I think it is actually 2.2. If you look at the 4.8 million or so companies that are registered and add up the numbers of companies with one, two or three shareholders, from memory—no doubt my officials will correct me—you would account for 80% of all companies, at around 4.1 million or 4.2 million. Some 3.7 million companies are held by one shareholder, who will automatically be a person of significant control. If you have two shareholders, the assumption is that you will probably have two shareholders with significant control, and so on. You are looking at a relatively small number of shareholders in the 10 million or so shareholders of the 4.8 million or so companies who would not necessarily fall, specifically and immediately, without debate, into the PSC legislation.
I turn to Amendments 19 and 16, put forward by my noble friend Lord Agnew and the noble Lord, Lord Vaux. I have some specific text about the improvements we are going to make to the Bill, and I will read it out to make sure I get the wording right on what we believe we can take to Third Reading. I stress that we welcome greatly the work we have done in this area, and I hope the noble Lord, Lord Vaux, sees the spirit with which I have entered into the debate, particularly around the issue of classifying who is a nominee and who is not. The Government have great sympathy with the intention around that, and I will come on to talk about it in a moment.
As I say, these amendments are not ones that we would be keen to accept. I do not believe they achieve their intent, and they risk disproportionate burdens on legitimate actors and Companies House. The Government considers that further amendment is not warranted because the provisions in the person with significant control framework already require the whole process of disclosure of a PSC behind a nominee. To reaffirm, if a nominee does not declare that they are acting on behalf of a PSC, or becomes a PSC on account of their nominee holdings, then they are committing an offence. I believe the company is also required to collect the information, so there are a number of tiers around this structure.
I emphasise to noble Lords one more time how the existing requirements achieve what we in this House want to achieve. Where a company sees that it has a shareholder with over 25% of the shares or voting rights, or otherwise knows or has reasonable cause to believe the shareholder may fall under the definition of a PSC, the company is obliged to check with the shareholder whether they are in fact a PSC, and the shareholder is obliged, on pain of criminal sanction, to respond.
It is worth mentioning to the House that we talk at length about the 25% threshold but, as the House well knows, a person with significant control can own one share in a shareholding of a billion shares and would still be registered as the PSC if they controlled the business. This legislation is quite well crafted, if I may say so, to ensure that we catch the people who are exercising control over these businesses.
I repeat that the shareholder is obliged, on pain of criminal sanction, to respond. If the person responds to deny that they are a PSC, despite meeting the share-ownership voting rights threshold for qualification, the implication is that they are holding the shares as a nominee for a PSC. Under the Bill, shares held by a person as nominee for another are treated as held by that other and not by the nominee for the purposes of assessing who a company’s PSCs are. That is an important point, and I hope it gives noble Lords some reassurance.
The Bill gives companies the power to require third parties to provide information about the PSC they are holding the shares for. The nominee commits an offence if they fail to respond or give a false statement in response. Amendments I will bring forward at Third Reading will make it easier to prosecute these offences—I will come on to this momentarily. The Government’s position is that it would not be proportionate to require all shareholders to state whether they are nominees or to provide information about who they are holding the shares for. If a company had cause to believe a minority shareholder knew who its PSCs were, the company already has the power to require the shareholder to provide that information.
If noble Lords’ proposals became law, they would be difficult to enforce effectively, and it is unlikely that bad actors would comply with the new requirements. This measure would create a large and expensive haystack with few, if any, needles to find inside. It would therefore serve only to impose new undue burdens on the law-abiding majority, which the Government are actively seeking to avoid. As several noble Lords heard directly from Companies House executives earlier this month, gathering more and more information on shareholders would risk diverting its resources away from material intelligence work and more harmful cases and into more administrative work. An important point to emphasise is that we want Companies House to focus on running an effective companies register and on catching the criminals who are abusing our system.
I am sure that noble Lords who have greater experience than me in this House—looking around, I cannot see one with less experience sitting on the Benches—will know that, if we make too prescriptive legislative statements for these operational entities, they can easily become distracted by the minutiae to try to get to the nth degree and, because of the implementation of the legislative processes placed upon them, not necessarily focus on the core tasks. I repeat again my sympathy and empathy with noble Lords putting these amendments forward. However, I am extremely concerned that they would place undue burdens on individuals, and in particular on Companies House, which would then be distracted from its duties. At the same time, we believe that we have brought in a strong framework which will ensure that we deter crime while allowing legitimate businesses to function.
I appreciate noble Lords’ concerns that the current framework may not always lead to the disclosure of all PSCs, and that having further information about minority shareholders acting as nominees could in theory be useful to help flush out undeclared PSCs. However, the Government’s position is that there is no evidence that any additional benefit would outweigh the costs to all companies and that the totality of measures in the Bill, such as the registrar’s new objectives and powers, will serve better to deter non-compliance and flush out such persons.
I now come to the undertaking to bring forward amendments at Third Reading. The amendment in the name of the noble Lord, Lord Vaux, has stressed the importance of the transparency of ownership and control of companies. The Bill already makes great strides forward in this area, as I am sure the noble Lord knows. However, after further review of the PSC framework and the changes made to it by the Bill, the Government have identified a number of necessary improvements, and I undertake to bring forward amendments to address this at Third Reading.
The current legislation allows companies to maintain their own PSC registers and to then notify the registrar of changes to those locally held registers. The Bill changes that framework so that after it is brought into force the registrar will maintain a central PSC register for all companies. Most of the amendments will reframe the existing PSC information-gathering and disclosure rules to make them clearer and work more effectively with a centrally held PSC register.
The amendments will include provisions which will enable those persons thought to be PSCs to confirm that they are, and to confirm their details before those are published. The amendments will also make provision to require more information to be provided by UK companies concerning the transparency of their ownership, including for explanations to be given by companies which claim they are exempt from the PSC requirements, and for notifications to be made to the registrar where a company believes it has no PSC. The amendments will align the drafting of false statement offences relating to the PSCs of UK companies with other similar offences in the Bill.
I regret that these amendments could not be finalised for Report, but, given the strength of feeling that noble Lords have demonstrated today on ensuring that this legislation is as robust as possible, I trust they will welcome them. We of course stand ready to engage with noble Lords on these amendments ahead of Third Reading.
Finally, on Amendment 17, put forward by the noble Lord, Lord Vaux, my officials have analysed what the cost to businesses would be should identity verification requirements extend beyond directors, PSCs and filers. As I mentioned to noble Lords, the individuals—as in the numbers of companies covered—will be broadly covered, in my estimation, to the tune of about 80% of the number of people who are single shareholders or shareholders of companies containing one, two or three, and then of course all the other companies, in theory except in rare circumstances, would have PSCs associated with them. The verification process will be deep and significant, and will cover many millions of people who will be required to formalise their identity through these processes.
This analysis estimates that introducing identity verification for all shareholders in non-traded companies could have a net annual direct cost to business of up to around £150 million. I will say that again, so that noble Lords may hear it: we believe that these measures, if introduced, could have a net annual direct cost to business of up to around £150 million. The costs and methodology have been published on GOV.UK, and I am happy to share them directly with noble Lords, if that would be of use.
Lord Johnson of Lainston
Member’s explanatory statement
This is consequential on my amendment to Clause 46, page 35, line 29.
“(6B) Where any of the information required to be entered in a company’s register of members changes and, at the time of the change, it is a traded company, the company is not required to include or retain the old information in the register.(6C) The Secretary of State may by regulations—(a) amend subsection (6A) so as to provide for it to apply in relation to traded companies, and(b) repeal subsection (6B) in consequence.(6D) Regulations under subsection (6C) are subject to affirmative resolution procedure.”Member’s explanatory statement
This amendment means that traded companies are not required to keep old information about their members (eg old addresses). It also confers a regulation-making power to require them to keep old information in future.
“(g) after subsection (8) insert—“(9) In this section—“non-traded company” means a company that is not a traded company;“relevant market” has the meaning given by section 853E(6);“traded company” means a company any of whose shares are admitted to trading on a relevant market or on any other market which is outside the United Kingdom.””Member’s explanatory statement
This is consequential on my other amendments to Clause 46.
Lord Vaux of Harrowden
“113BA Required information about members: nomineesThe required information about a member includes a statement by the individual, or where the member is a body corporate, or a firm that is a legal person under the law by which it is governed, by an officer of that body corporate or firm, as to whether or not they are holding the shares on behalf of, or subject to the direction of, another person or persons, and if they are—(a) where any such person is an individual, the information required by section 113A in relation to that individual;(b) where any such person is a body corporate or firm that is a legal person under the law by which it is governed, the information required by section 113B in relation to that body corporate or firm.”Member’s explanatory statement
This amendment would require a person or firm holding shares as a nominee to declare whether or not that is the case, and to provide the details of the person or persons on whose behalf, or under whose control the shares are held. This would assist the company in identifying Persons of Significant Control, and would introduce an offence for a nominee who did not declare themselves as such.
Lord Vaux of Harrowden (CB)
My Lords, I thank the Minister for his response and for his undertakings to bring further amendments at Third Reading. I will make just a few comments. First, in terms of Amendment 17, which I do not intend to move, I find the concept that it is going to cost £150 million a year frankly unbelievable. A small number of companies—as the Minister pointed out—verifying up to a maximum of an additional 16 shareholders, and in most cases fewer, cannot possibly come to £150 million a year. I am afraid I find that unrealistic.
To move to Amendment 16, I want to correct something that the noble Lord was saying about nominees having to declare that they are nominees. That is not actually correct. What has to happen is that the company has to look at its shareholder base and see whether it has anybody who is a PSC—a person with significant control. If it has no shareholders over 25%, it can conclude that it does not have any. If there is a PSC behind that, the PSC has to declare it, but if that is a bad actor, they are hiding and will not declare it. The nominees need to declare they are nominees only if the company seeks out and asks them. We are talking about a situation where a bad actor controls the company—so guess what? It will not. There is nothing there at the moment that makes nominees have to disclose the fact that they are nominees. I think the idea that disclosing nominees would create too much noise for Companies House is ridiculous. It does the opposite. It identifies where the risk lies.
We have heard from the noble Lord, Lord Agnew, about requiring risk assessments and a risk-based approach. This allows us to see which companies are most at risk of having bad actors who are hiding behind nominees, by ensuring that they are disclosed. The point here is to make it more difficult for bad actors. You make it much more difficult for bad actors if people are unwilling to be nominees. At the moment, there is no downside, so there is a huge industry of people who are prepared to do it for almost nothing—there is no risk to them. If we put a risk on those people and make them have to lie actively and on the record to say that they are not a nominee when they are, you will get many fewer people who are prepared to do it. That will make life a lot more difficult for the bad actors, and the nominee industry will have to clean up its act. So I am afraid that I have not heard anything that changes my mind, so I wish to test the opinion of the House.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment corrects a cross-reference in Schedule 2 to the Bill.
Lord Johnson of Lainston
“Use or disclosure of profit and loss accounts for certain companies
(1) The Companies Act 2006 is amended as follows.(2) After section 468 insert—“468A Use or disclosure of profit and loss accounts for certain companies(1) The Secretary of State may by regulations make provision requiring the registrar, on application or otherwise—(a) not to make available for public inspection profit and loss accounts, or parts of them, delivered to the registrar under—section 443A (micro-entities), orsection 444 (other small companies);(b) to refrain from disclosing such accounts, or parts of them, except in specified circumstances.(2) Regulations under subsection (1) which provide for the making of an application may make provision as to—(a) who may make an application;(b) the grounds on which an application may be made;(c) the information to be included in and documents to accompany an application;(d) the notice to be given of an application and of its outcome;(e) how an application is to be determined;(f) the duration of, and procedures for revoking, any restrictions on the making of information available for public inspection or its disclosure.(3) Provision under subsection (2)(e) or (f) may in particular provide for a question to be referred to a person other than the registrar for the purposes of determining the application or revoking the restrictions.(4) The circumstances that may be specified under subsection (1)(b) by way of an exception to a restriction on disclosure include circumstances where the court has made an order, in accordance with the regulations, authorising disclosure.(5) Regulations under subsection (1)(b) may not require the registrar to refrain from disclosing information under section 1110F (general powers of disclosure by the registrar).(6) Regulations under this section may in particular confer a discretion on the registrar.(7) Regulations under this section are subject to affirmative resolution procedure.”(3) In section 1087 (material not available for public inspection), in subsection (1), after paragraph (bb) insert—“(bba) the following— (i) any application or other document delivered to the registrar under regulations under section 468A (regulations protecting profit and loss accounts for certain companies);(ii) any information which regulations under section 468A require not to be made available for public inspection;”.”Member’s explanatory statement
This allows the Secretary of State to make regulations requiring the registrar not to disclose profit and loss accounts for micro entities and other small entities. The regulations might cover all such accounts or only accounts relating to certain descriptions of company (see section 1292 of the Companies Act 2006).
Lord Johnson of Lainston (Con)
My Lords, government Amendment 20 will give the Secretary of State the ability to make regulations to specify what aspects of the profit and loss account delivered by companies that qualify as micro-entities or small companies might be withheld from public inspection. Such regulations would also set out the parameters and circumstances in which the information may be withheld.
Currently, Section 468 of the Companies Act gives us the power to specify the form and content of the profit and loss account that is to be delivered to Companies House. However, it does not provide us with the power to collect information and then withhold it from public inspection. Making the profit and loss accounts of micro-entities and other small companies available to the public benefits users of the register, such as credit agencies. It is a highly valuable data source and would aid the detection of economic crime.
We are of the firm belief that the Bill’s provisions requiring such accounts to be delivered to Companies House are important additions to transparency requirements. We know that the minimal requirements that currently exist make incorporating as a micro-entity, or as another small company, open to abuse by those who wish to present a false picture of a company’s financial position. However, I am mindful of the concerns raised by some noble Lords and stakeholders about the potentially negative impacts on privacy and competition for small business owners; they point to the risk that increased transparency might lay SMEs open to unwelcome commercial pressures.
We have also received some correspondence from small business owners who are concerned that publishing accounts will, in effect, reveal their personal salary. For example, the director of a small accountancy company from London wrote to us to complain that publishing their profit and loss account would let their neighbours and competitors know what they earn. The owners of a small company from Shoreham-by-Sea have written to us to express their discomfort with their earnings being viewed by clients and subcontractors, who might seek to gain commercial advantage with the information. The Federation of Small Businesses today tweeted:
“Requirements to declare profits and losses would leave small firms open to a high level of risk. … Commercially sensitive information could be used against them by competitors and suppliers”.
To recap, we are not looking not to collect this information; we are looking to ensure that there is a full review in terms of what level of information we publish.
Following Royal Assent to the Bill, and prior to exercising this power, the Government will consult further with business groups, credit lenders, the accountancy sector, enforcement agencies and others to understand what, if any, information should be withheld from the public register. The amendment therefore gives the right level of flexibility to enable the Government to formulate a balanced approach between the information required to be included on the public register and the privacy of small businesses. I beg to move.
Lord Leigh of Hurley (Con)
My Lords, we have discussed this concept of disclosure at earlier stages. Of course, if a person does not want anything disclosed, they could become a sole trader or a limited liability partnership or a partnership, in which case very little, if anything, needs to be disclosed. My question and concern is just to understand the approach that government will take to this. Is it the intention just to give a blanket exemption for, perhaps, companies in defence or companies with complicated IP or companies in sensitive sectors? Is it to respond to those who make the request generally in the affirmative or to ask further questions to determine why a company should be exempted from disclosure? If a company simply asks to be exempted because it does not want its competitors to know, will that open the floodgate to everybody to do the same? I am not sure that “because we don’t want our competitors to know” is a particularly good reason, to be honest. I am therefore a little nervous about this clause, particularly because it is a bit vague. It just talks about regulations, and Section 1292 of the Companies Act 2006 is just an empowering section on regulations. We are opening the door very wide, and I hope that the Minister, in due course, will be able to give us some very clear guidance on what the Government have in mind.
Lord Vaux of Harrowden (CB)
My Lords, may I very briefly support what the noble Lord, Lord Leigh, has just said? This amendment troubles me a little bit. The Companies House information is important for people who are dealing with those companies, be they suppliers or customers. When we were doing the inquiry into digital fraud for the committee on digital fraud, we met a range of fraud victims. For those where it was relevant, what was interesting was that every single one of the people whom we met, before they parted with their money, had gone to Companies House and had a look at the company. They took comfort from that and lost their money. The information there is important, and reducing the amount of information on it should be done only with real thought and consideration.
I get it that in certain circumstances it makes sense for companies to be able to apply that certain information should not be made available—there are plenty of situations where one could think that makes sense. However, this amendment goes a lot further than that. It gives the Government the power to make regulations to allow micro and small companies to make all or parts of their accounts public on application or otherwise. In theory, therefore, those regulations could simply say that no micro or small entity needs to publish anything. That would be going far too far, so it would be good to understand from the Minister what is actually intended here.
Lord Johnson of Lainston (Con)
I thank my noble friend Lord Leigh and the noble Lord, Lord Vaux, for their comments. It is absolutely right that we have this brief discussion about this point. Just to reaffirm, the intention of the amendment is not to suppress information or increase opacity. It is to give the opportunity to be discretionary in terms of what is published and what is not published. Section 468 of the Companies Act provides us with the power only to prescribe the format that small and micro entity accounts are received in but not to differentiate between what is received and what is included on the public register. The first point, therefore, is that it just gives flexibility, which, I think, noble Lords will agree is sensible.
The second point is that we have received a number of representations from small and micro-entities that are naturally concerned about the publishing of information that relates specifically to their own wealth. There is concern that they may be open to a higher degree of fraud and that they will receive undue commercial pressures as a result of, say, a landlord being able to see what their turnover is and so adjusting their rent upwards accordingly, and so on. The point is that I am speculating.
If noble Lords will allow me to say so, the intention of this amendment is to allow us the flexibility to consult broadly with all stakeholders—I listed clearly that these include credit lenders, enforcement agencies, small businesses, micro-entities and others—in order to work out what the right level of information is. It may be all of it, but this amendment certainly gives the Secretary of State, in some situations and for some specific cases, an opportunity not to publish this information, although it will still be retained by Companies House. That flexibility is absolutely right; it is right that this House allows the Secretary of State that level of flexibility. It is also right that this House will no doubt engage in a meaningful and useful debate on levels of transparency, but at least we now have flexibility.
Lord Johnson of Lainston
Member’s explanatory statement
This has the effect that the registrar is required to make verification statements available for public inspection. A “verification statement” is the statement that an authorised corporate service provider is required to make to confirm that it has verified an individual’s identity.
Lord Johnson of Lainston (Con)
My Lords, as we discussed in Committee, identity verification is at the heart of the reforms in this Bill. It is essential that the framework for this is robust and reliable, including the role of authorised corporate service providers. I am therefore grateful for noble Lords’ continued input to ensure that the Bill is as effective as possible in this area, making sure that we really know who is interacting with Companies House.
This group of amendments contains several measures to strengthen arrangements, including in response to sensible suggestions put forward by the noble Lord, Lord Vaux of Harrowden, and my noble friend Lord Agnew of Oulton. This is a significant package of measures from the Government to improve the Bill and address the concerns of the House. I very much hope that the House will therefore support these amendments.
I turn first to government Amendments 21 and 22. This group of amendments relates to the verification statements that authorised corporate service providers, known as ACSPs, must deliver to the registrar when they verify an individual’s identity. Amendment 21 will require that all verification statements are made publicly available on the register. This responds directly to concerns raised by Members of both this House and the other place—including the noble Lords, Lord Vaux and Lord Fox—by increasing the transparency of the verification checks carried out by ACSPs. The statements will be made public.
Amendment 22 requires ACSPs to specify their anti-money laundering supervisor—or supervisors if they have more than one—on the statement. It also enables the Secretary of State to make further provisions regarding the contents of the statements via regulations so that this can be adapted if there is ever a need for different information to be available in the public domain. These regulations will be subject to the affirmative procedure to ensure appropriate scrutiny. Our intention is to align ACSP verification statements with those required for overseas entities under Section 16(2) of the Economic Crime (Transparency and Enforcement) Act 2022. Given that this area was previously discussed in Committee, I very much hope that noble Lords will support these amendments.
I turn now to government Amendments 34, 35 and 37. Reflecting on contributions made by noble Lords in Committee, for which I express my gratitude, my officials have been scrutinising the ACSP framework and looking for ways to strengthen it. Amendment 34 therefore clarifies that regulations can be made that impose duties on ACSPs to provide information to the registrar where this relates to monitoring compliance with any requirements under any part of the Companies Act 2006. This includes the requirement to carry out identity checks to the correct standard. It removes any ambiguity in the original drafting, ensuring that the information that can be requested is not limited to information relating specifically to Clause 64 only.
This is important as it means that there is no uncertainty regarding the use of the power to make ACSPs provide information on the identity checks that they carry out, the detail of these checks being in Clause 63. Tightening up the wording in this manner therefore ensures that the registrar will have the right tools to monitor ACSP compliance—something that the Government take very seriously. We want only legitimate actors to perform these identity checks and make filings on behalf of others.
Lord Agnew of Oulton (Con)
My Lords, I thank the Minister for a very comprehensive set of government amendments. He has completely revolutionised the impact of the Bill in relation to ACSPs. I congratulate him and his staff on that. It is important to remind noble Lords about why this is so important. Around half of all company formations occur through the offices of an ACSP. Frankly, it has been a cowboy environment. At the moment, they are not even required to be approved under the fourth anti-money laundering directive. So at one stroke with this Bill we will see a much cleaner field and a proper alignment of interests in that it will be in their interest to behave with integrity if they are to remain in business. I will not go through the comprehensive package, but my noble friend should be congratulated. This is probably the single biggest improvement to the Bill in the Companies House section.
Lord Vaux of Harrowden (CB)
My Lords, I also thank the Minister for having listened to the points that were made in our previous debates about the importance of ACSPs’ verification statements being made publicly available and for making this comprehensive suite of amendments. Indeed, I think he has gone further than my original amendments on the subject and the Bill is considerably strengthened as a result. I am extremely grateful.
Perhaps I may add one quick word in support of Amendment 93 from the noble Lord, Lord Agnew. A very high number of the ACSPs are going to be authorised and regulated by HMRC, and it is an unfortunate truth that such regulation is not the principal function of HMRC. Accordingly, that regulation has been somewhat light-touch. I ask the Minister to reassure us that considering how HMRC carries out this role will be an important part of the forthcoming consultation on AML regulation? The only requirement to become an ACSP is to be regulated for AML, so we need to make sure that regulation is robust and that only genuine, suitable persons are therefore authorised.
Baroness Altmann (Con)
My Lords, I thank the Minister and congratulate him on this suite of amendments. I know that my noble friend is keen that this should be a really landmark Bill and that he has worked really hard to listen carefully and ensure that it is as robust as it can be. I know his dedication to this matter, and I thank him for it.
Lord Leigh of Hurley (Con)
Although my noble friend the Minister has described me in very flattering terms today, for which I am grateful, I will not add to the flattery, as his noble kinsman is no longer sitting next to me. I just want to add a note of caution, because it is on the record in Amendment 93 from my noble friend Lord Agnew, on the possibility of HMRC taking AML to be of equal priority to tax collecting, essentially. I declare an interest as chairman of the Finance Bill Sub-Committee of the Economic Affairs Committee that investigated R&D tax credits, which led to HMRC’s accounts being qualified given the level of uncertainty. I just want to put it on the record that we all want HMRC to focus on tax collection, with fraud focused on in other areas.
Lord Fox (LD)
The Minister will be blushing with the fulsome praise that he has received. I think he described it as a significant package of improvements and as major steps. The noble Lord, Lord Agnew, went further and described them as revolutionary changes. The Minister can be sure that he has hit an important nail very firmly on the head with this set of amendments. I think we all believe that this makes the Bill a much better Bill, and for that, we are very pleased.
Baroness Blake of Leeds (Lab)
I rise just to add our support for the amendments. I emphasise the concern that has been raised in Amendment 93 from the noble Lord, Lord Agnew, in terms of recognising the significant function that HMRC has. I listened to the noble Lord, Lord Leigh, with interest. I think there is some issue with looking at the two functions equally and making sure there is no conflict between them.
Lord Johnson of Lainston (Con)
I thank all noble Lords who have spoken during this debate, and I am grateful, personally, for the kindness they have shown to me as a new Minister on this Bill over the last few months. I am grateful for the high degree of collaboration and the sense of common purpose that all Members of this House have shown in trying to create a truly effective Bill to change—after 170 years—Companies House and what it can do for companies and to eradicate crime at the same time. I thank all noble Lords, my officials and the Government for the work we have done together.
However, we have not finished; we are only half way through. I thank my noble friend Lord Agnew for his Amendment 33. I appreciate the strength of feeling, but we would not wish to impose a duty on Companies House to carry out, as he has described, risk assessments. All ACSPs must be supervised for anti-money laundering purposes, and supervisors will already carry out risk assessments on them. I am aware of the concerns surrounding the supervisory regime, and I can confirm that the Treasury will publish a consultation on its structural reform. I believe this is to take place within the next month, which is very important and will be welcomed by this House and help inform further debate.
As I have just set out, the Government have tabled amendments to strengthen the ACSP regime, enabling Companies House to act if it has knowledge that a person is not fit and proper to carry out the functions of an ACSP, and to strengthen the registrar’s powers to request information. We are enabling the registrar to focus her attention on high-risk ACSPs rather than making it a duty to do so. A duty would reduce her operational flexibility—for example, inadvertently preventing her spot-checking the identity verification done by lower-risk ACSPs. We engaged with the registrar fruitfully on this subject only a few weeks ago. It is for these reasons that I urge my noble friend not to move his amendment.
I turn to Amendment 93. While the Government agree wholeheartedly on the crucial role that supervision must play in tackling economic crime, we are not keen to support this amendment. Under money laundering regulations, HMRC already has anti-money laundering supervisory functions and it takes them very seriously. HMRC is one of 25 supervisors of the money laundering regulations, alongside the Financial Conduct Authority, the Gambling Commission, and 22 accountancy and legal professional bodies. HMRC supervises around 30,000 businesses across nine sectors.
HMRC’s anti-money laundering supervisory function is resourced through the fees that it collects from the businesses it supervises, and these fees are solely for use by HMRC’s anti-money laundering supervisory function. HMRC attaches great importance to its anti-money laundering work, including its supervisory function. For example, in 2022-23, HMRC carried out over 3,200 anti-money laundering compliance interventions, including desk-based reviews and face-to-face visits. It also refused 439 applications to register from businesses considered inappropriate or unsuitable. The number of staff working on supervisory activity has more than doubled from 197 in 2018 to 397 in 2023; in 2022-23, they issued a total of 770 penalties, totalling £5.5 million. Specifically, £1.2 million of this amount came from trust or company service providers.
HMRC also works to help businesses understand the risk of money laundering. In 2022-23, its relevant web pages saw nearly 475,000 hits and it issued 850,000 alerts to businesses telling them about changes to law, inviting them to webinars or raising awareness of emerging risks.
The proposed amendment would duplicate the work that HMRC already does. It could make HMRC responsible for all anti-money laundering supervision, when Regulation 7 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 states that certain persons are subject to supervision by certain supervisors. For example, it states that
“the FCA is the supervisory authority for … credit and financial institutions”.
So it would not make sense to mandate that HMRC supervises them. HMRC would not necessarily have the expertise that it would need to supervise all sectors—for example, lawyers or large-scale financial institutions—and it would cut across existing regulatory relationships such as those between the banks and the FCA.
In conclusion, I urge noble Lords once more to support the government amendments that I outlined earlier, which address specific concerns raised during our debates. I believe they will deliver our shared ambition for a robust ACSP framework.
Lord Johnson of Lainston
“(2A) A verification statement must also specify the authorised corporate service provider’s supervisory authority or authorities for the purposes of the Money Laundering Regulations.(2B) The Secretary of State may by regulations make further provision about the contents of verification statements (including provision amending this section).”Member’s explanatory statement
This amendment requires a verification statement to specify the authorised corporate service provider’s supervisory authority or authorities. It also confers a regulation-making power to make further provision about the contents of verification statements.
Member’s explanatory statement
This amendment spells out that the power conferred by new section 1110A(4) is exercisable by regulations.
Member’s explanatory statement
This is consequential on my amendment to Clause 63, page 55, line 8
Member’s explanatory statement
This amendment requires a reverification statement to specify the authorised corporate service provider’s supervisory authority or authorities and to contain anything else required by regulations.
“(7) In this section—“Money Laundering Regulations” means the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (S.I. 2017/692);“supervisory authority” means an authority that is a supervisory authority under the Money Laundering Regulations (see regulation 7 of those Regulations).”Member’s explanatory statement
This is consequential on my amendments to Clause 63, page 54, line 34 and page 55, line 8.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment is consequential on my amendment to page 59, line 36.
Member’s explanatory statement
This amendment is consequential on my amendment to page 57, line 16.
(d) the registrar is not required by subsection (4A) to refuse the application.(4A) The registrar must refuse the application if it appears to the registrar that the applicant is not a fit and proper person to carry out the functions of an authorised corporate service provider.”Member’s explanatory statement
This amendment requires the registrar to refuse an application for authorisation as a corporate service provider if it appears that the applicant is not a fit and proper person to become an authorised corporate service provider.
Member’s explanatory statement
This is consequential on my amendment to Clause 69, page 64, line 10.
(b) provide for circumstances in which the registrar may suspend a person’s status as an authorised corporate service provider pending a decision by the registrar under regulations made by virtue of paragraph (a).(2A) The provision that can be made under subsection (2) includes provision as to—(a) procedure;(b) the period of a suspension;(c) the revocation of a suspension.”Member’s explanatory statement
This amendment and my amendment to leave out lines 1 to 13 on page 60 are intended to narrow the power to make regulations for suspension of an authorised corporate service provider’s status so that it is available only pending a decision as to termination of an authorised corporate service providers’ status.
Member’s explanatory statement
This would remove the power to make regulations for suspension of an authorised corporate service provider’s status. My amendment to page 59, line 36 introduces a narrower power to suspend.
Lord Johnson of Lainston
Member’s explanatory statement
This ensures that the registrar can obtain information about compliance with provisions such as new section 1110B of the Companies Act 2006 (see Clause 63), including from former authorised corporate service providers (including suspended providers).
Member’s explanatory statement
This is consequential on my amendment to page 60, lines 16 to 23.
Member’s explanatory statement
This is consequential on my amendment to page 60, lines 1 to 13.
Member’s explanatory statement
This is consequential on my amendment to page 60, lines 16 to 23.
Lord Johnson of Lainston
“(zi) after “may” insert “by regulations”;”Member’s explanatory statement
This amendment corrects a mistake in section 1082(1) of the Companies Act 2006 by spelling out that the power conferred by that subsection is exercisable by regulations (that this was always the intention is clear from the subsequent subsections).
Lord Johnson of Lainston
Member’s explanatory statement
This is consequential on my amendment to Clause 69, page 64, line 10.
Lord Johnson of Lainston
“Registrar’s power to strike off company registered on false basis
(1) The Companies Act 2006 is amended as follows.(2) After section 1002 insert—“Registrar’s power to strike off company registered on false basis1002A Power to strike off company registered on false basis(1) The registrar may strike a company’s name off the register if the registrar has reasonable cause to believe that—(a) any information contained in the application for the registration of the company, or in any application for restoration of the company to the register, is misleading, false or deceptive in a material particular, or(b) any statement made to the registrar in connection with such an application is misleading, false or deceptive in a material particular. (2) In subsection (1) the reference to an application includes any documents delivered to the registrar in connection with the application.(3) The registrar may not exercise the power in subsection (1) unless—(a) the registrar has published a notice in the Gazette that, at the end of the period of 28 days beginning with the date of the notice, the name of the company mentioned in the notice will, unless cause is shown to the contrary, be struck off the register and the company will be dissolved, and(b) the period mentioned in paragraph (a) has expired.(4) If the registrar exercises the power in subsection (1), the registrar must publish a notice in the Gazette of the company’s name having been struck off the register.(5) On the publication of the notice in the Gazette the company is dissolved.(6) However—(a) the liability (if any) of every director, managing officer or member of the company continues and may be enforced as if the company had not been dissolved, and(b) nothing in this section affects the power of the court to wind up a company the name of which has been struck off the register.”(3) In section 1024 (application for administrative restoration to the register), in subsection (1), for the words from “section” to the end substitute “—(a) section 1000 or 1001 (power of registrar to strike off defunct company), or(b) section 1002A (power of registrar to strike off company registered on false basis).”(4) In section 1025 (requirements for administrative restoration), for subsection (2) substitute—“(2) The first condition is that—(a) in the case of a company struck off the register under section 1000 or 1001, the company was carrying on business or in operation at the time of its striking off;(b) in the case of a company struck off the register under section 1002A, at the time of its striking off, the registrar did not have reasonable cause to believe the matter set out in section 1002A(1)(a) or (b).”(5) In section 1028A (administrative restoration of company with share warrants), in subsection (1), for “or 1001” substitute “, 1001 or 1002A”.(6) In section 1029 (application to court for restoration to the register), in subsection (1)(c)—(a) omit the “or” at the end of sub-paragraph (i);(b) after that sub-paragraph insert—“(ia) under section 1002A (power of registrar to strike off company registered on false basis), or”.(7) In section 1030 (timing for application to court for restoration to the register), in subsection (5)(a), after “company)” insert “or section 1002A (power of registrar to strike off company registered on false basis)”.(8) In section 1031 (decision on application for restoration by the court), in subsection (1)—(a) after paragraph (a) insert—“(aa) if the company was struck off the register under section 1002A (power of registrar to strike off company registered on false basis) and the court considers that, at the time of the striking off, the registrar did not have reasonable cause to believe the matter set out in section 1002A(1)(a) or (b);”; (b) in paragraph (c), for “other case” substitute “case (including a case falling within paragraph (a), (aa) or (b))”.”Member’s explanatory statement
This Clause amends the Companies Act 2006 to confer on the registrar a power to strike off a company where the company was registered on a false basis, and makes provision for restoration of such a company to the register.
Lord Johnson of Lainston
“(1A) In section 9 (registration documents), omit subsection (3).”Member’s explanatory statement
This is consequential on the other amendments made by Clause 69.
“(3) After section 1067 insert—“Who may deliver documents to the registrar1067A Delivery of documents: identity verification requirements etc(1) An individual may not deliver a document to the registrar on their own behalf unless—(a) their identity is verified (see section 1110A), and(b) the document is accompanied by a statement to that effect.(2) An individual (A) may not deliver a document to the registrar on behalf of another person (B) who is of a description specified in column 1 of the following table unless—(a) the individual is of a description specified in the corresponding entry in column 2, and(b) the document is accompanied by the statement specified in the corresponding entry in column 3.
1 | 2 | 3 | |
Description of person on whose behalf document delivered (B) | Description of individual who may deliver document on B’s behalf (A) | Accompanying statement | |
1 | Firm | Individual who is an officer or employee of the firm and whose identity is verified (see section 1110A). | Statement by A— (a) that A is an officer or employee of the firm, (b) that A is delivering the document on the firm’s behalf, and (c) that A’s identity is verified. |
2 | Firm | Individual who is an officer or employee of a corporate officer of the firm and whose identity is verified. | Statement by A— (a) that A is an officer or employee of a corporate officer of the firm, (b) that A is delivering the document on the firm’s behalf, and (c) that A’s identity is verified. |
3 | Firm | Individual who is an authorised corporate service provider (see section 1098A). | Statement by A— (a) that A is an authorised corporate service provider, and (b) that A is delivering the document on the firm’s behalf. |
4 | Firm | Individual who is an officer or employee of an authorised corporate service provider. | Statement by A (a) that A is an officer or employee of an authorised corporate service provider, and b) that A is delivering the document on the firm’s behalf. |
5 | Individual | Individual whose identity is verified. | Statement by A— (a) that A is delivering the document on B’s behalf, and (b) that A’s identity is verified. |
6 | Individual | Individual who is an authorised corporate service provider. | Statement by A— (a) that A is an authorised corporate service provider, and (b) that A is delivering the document on B’s behalf. |
7 | Individual | Individual who is an officer or employee of an authorised corporate service provider. | Statement by A— (a) that A is an officer or employee of an authorised corporate service provider, and (b) that A is delivering the document on B’s behalf. |
This changes the categories of people who may deliver documents on another’s behalf. Among other things, it means an individual whose identity is verified can only deliver documents on behalf of a firm if they are an officer or employee of the firm or one of its corporate officers.
Lord Johnson of Lainston
Member’s explanatory statement
This allows officers as well as employees or authorised corporate service providers to deliver documents on behalf of a disqualified person.
Member’s explanatory statement
This is consequential on my amendment to Clause 69, page 64, line 10. An employee delivering a document under new section 1067B(2)(b) must be acting in the course of their employment without the need for express provision to that effect.
Member’s explanatory statement
This amendment removes the requirement for a statement to include certain information that will be covered by the statement that a person must make under new section 1067A of the Companies Act 2006 (inserted by Clause 69) when delivering documents.
Lord Johnson of Lainston
“(4A) Regulations under this section may in particular confer a discretion on the registrar.” Member’s explanatory statement
This amendment enables any provision made by regulations under new section 1094A of the Companies Act 2006 to confer a discretion on the registrar.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment is consequential on my amendment to Clause 88, page 76, line 11.
“(8A) Regulations under this section may in particular confer a discretion on the registrar.”Member’s explanatory statement
This amendment enables any provision made by regulations under new section 1088 of the Companies Act 2006 to confer a discretion on the registrar.
Lord Johnson of Lainston
“(ba) any function of the Secretary of State under or in connection with regulations under section 1 of the Sanctions and Anti-Money Laundering Act 2018 that make provision in connection with licences of the kind mentioned in section 15(3A) of that Act;”Member’s explanatory statement
This enables fees set under the Companies Act 2006 to be set at a level to cover the Secretary of State’s costs in connection with licences for people who are subject to director disqualification sanctions under the Sanctions and Anti-Money Laundering Act 2018.
Lord Johnson of Lainston
“(1A) In section 243 (permitted disclosure by registrar), for subsection (6) substitute—“(6) Regulations under subsection (4) may in particular confer a discretion on the registrar.(6A) Provision under subsection (5)(d) may in particular provide for a question to be referred to a person other than the registrar for the purposes of determining the application.””Member’s explanatory statement
This amendment enables any provision made by regulations under section 243 of the Companies Act 2006 to confer a discretion on the registrar.
Lord Johnson of Lainston
(i) proceedings have been brought against the person for that offence in respect of that conduct and the proceedings are ongoing, or(ii) ”Member’s explanatory statement
This amendment and my other amendment to Clause 101 would mean that regulations must provide that no financial penalty may be imposed on a person in respect of whom criminal proceedings are ongoing; at the moment it is the other way around so that criminal proceedings cannot be continued once a penalty is imposed.
Member’s explanatory statement
See the explanatory statement to my other amendment to Clause 101.
Lord Johnson of Lainston
“(4C) Regulations under this section may in particular confer a discretion on the registrar.”Member’s explanatory statement
This amendment enables any provision made by regulations under section 1097A of the Companies Act 2006 to confer a discretion on the registrar.
Lord Johnson of Lainston
“(11A) Regulations under this section may in particular confer a discretion on the registrar.”Member’s explanatory statement
This amendment enables any provision made by regulations under section 1097B of the Companies Act 2006 to confer a discretion on the registrar.
Lord Johnson of Lainston
“(11A) Regulations under this section may in particular confer a discretion on the registrar.” Member’s explanatory statement
This amendment enables any provision made by regulations under section 1097C of the Companies Act 2006 to confer a discretion on the registrar.
Lord Johnson of Lainston
“(3) In this section “the Companies Acts” has the meaning given by section 2(1) of the Companies Act 2006.”Member’s explanatory statement
This amendment inserts a definition of “the Companies Acts” into the Limited Partnerships Act 1907.
Lord Johnson of Lainston (Con)
My Lords, the amendments in this group relate to Part 2, which includes a number of reforms to prevent the abuse of limited partnerships. These measures are incredibly significant and will enable fundamental change in the transparency of limited partnerships while maintaining their crucial position as legitimate vehicles for doing business. They are the biggest changes to the legal framework for limited partnerships since the Limited Partnerships Act 1907.
We must keep in mind that limited partnerships, including Scottish limited partnerships, facilitate legitimate and important commercial activity. They are used across the UK in a variety of sectors, particularly in the private equity and venture capital industry, as well for a variety of other purposes, such as oil and gas exploration and production and real estate.
The measures in the Bill were formulated after several rounds of consultation to deliver the right balance of more transparency without undermining the use of these structures by legitimate business. The British Private Equity and Venture Capital Association reports that, in 2021, £17.3 billion was invested into UK companies from private equity and venture capital, with nine in 10 investments directed at small to medium-sized enterprises. We do not want to disrupt this activity, nor the 2 million or so people who are employed by companies backed by private equity and venture capital who use these vehicles.
Before I turn to the government amendments, it may be helpful to clarify a few points about the structure and principles of limited partnerships. These are business associations made up of one or more general partners who are responsible for the management of the partnership, and one or more limited partners who cannot partake in management and whose liability is limited to the amount they invest. In the Bill, to achieve more clarity over limited partnerships and those who have influence and control over the partnership, the Government have rightly focused on creating more transparency over the partners, and specifically the general partners. The Bill already ensures that, in future, we will know the names, addresses and dates of birth of all partners in a limited partnership, and all of this information will need to be confirmed at least annually. It is important to have these points in mind before we turn to the amendments tabled by my noble friend Lord Agnew.
In the meantime, I have a handful of minor government amendments to Part 2, which concerns limited partnerships—Amendments 58, 59, 60 and 61. These are required, in the most part, to correct drafting errors, by adding missing definitions and removing ones which are not essential. Amendment 60 is a minor change to the information that has to be delivered by general partners of a limited partnership when they give their annual confirmation statement. It means that a notice changing a general partner’s registered officer must be delivered at the same time as a confirmation statement, if the registered officer is not ID verified. I beg to move.
Lord Agnew of Oulton (Con)
My Lords, I shall speak to my Amendments 63, 69 and 70. Again, I am grateful to my noble friend the Minister for his engagement and for his detailed letter to me recently to allay many of my concerns.
The Bill goes a long way to deal with the opacity of LLPs and LPs. It is very important that we regard them as similar in the level of transparency needed as we would consider for a company. We know there have been plenty of examples in the past where they have been used as a front for a lot of very bad activity.
I am not going to press my amendments today, and I thank my noble friend the Minister for his amendments. He has said to me that the Government plan to bring forward some work very soon after the Bill. I would be quite interested if he could just give us some sense of the timescale for this work. His brief said:
“Following Royal Assent, the Government intend to bring into force provisions to require a company director to be a natural person, with limited exemptions for corporate directors”.
If my noble friend could give us a timeline for that, I would be most grateful.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment removes the definition of a term that is no longer used in the section.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment means that notice changing a general partner’s registered officer must be delivered at the same time as a confirmation statement, if the registered officer is not ID verified.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment corrects a mistake. A statement under 8R(4) is not required to confirm that an individual is an individual whose identity is verified.
Member’s explanatory statement
This is consequential on my amendment to Clause 69, page 64, line 10.
Lord Johnson of Lainston
Member’s explanatory statement
This is consequential on my amendment to Clause 91, page 77, line 34.
Lord Johnson of Lainston
Member’s explanatory statement
This is consequential on my amendment to Clause 142, page 138, lines 18 to 25.
Member’s explanatory statement
Certain documents under the Limited Partnerships Act 1907 can only be delivered to the registrar by authorised corporate service providers or their employees. This amendment adds officers of authorised corporate service providers to those who are allowed to deliver those documents.
Member’s explanatory statement
This is consequential on my amendment to Clause 69, page 64, line 10. An employee delivering a document under new section 1067B(2)(b) must be acting in the course of their employment without the need for express provision to that effect.
Member’s explanatory statement
This amendment removes the requirement for a statement to include certain information that will be covered by the statement that a person must make under new section 1067A of the Companies Act 2006 (inserted by Clause 69) when delivering documents.
Lord Johnson of Lainston
“Information about changes in beneficiaries under trusts
(1) Schedule (Duty to deliver information about changes in beneficiaries) (duty to deliver information about changes in beneficiaries) imposes further duties on registered overseas entities to deliver information.(2) The amendments made by paragraph 2 of Schedule (Duty to deliver information about changes in beneficiaries) do not apply in relation to any statements or information delivered to the registrar under section 7 of the Economic Crime (Transparency and Enforcement) Act 2022 during the period of 3 months beginning when that paragraph comes fully into force.”Member’s explanatory statement
This introduces the new Schedule to which it refers and makes transitional provision.
Lord Johnson of Lainston (Con)
My Lords, as noble Lords well know, the Economic Crime (Transparency and Enforcement) Act 2022 created a new register of overseas entities, requiring overseas companies owning or buying property in the UK to give information about their beneficial owners to Companies House. The register launched successfully on 1 August 2022, and companies in scope that already owned property had until 31 January 2023 to apply for registration. As of 18 June, more than 28,000 entities out of some 30,000 had registered, which represents a very good rate of initial compliance. Since 1 February, all non-compliant companies have been restricted in their ability to sell, lease or raise finance over their land; this remains the case until they comply. Companies House is beginning the process of assessing cases for additional action. This second economic crime Bill we are debating today makes a number of changes to further strengthen the register.
I will speak first to Amendment 85, a fairly minor amendment that the Government have tabled to strengthen the register. Schedule 6, which was inserted into this Bill in Committee, sets out the anti-avoidance measures that we debated a few weeks ago. These measures require that beneficial owners must report every change in beneficiary for the relevant period to Companies House. The anti-avoidance measures are effectively time limited because they impose a requirement on overseas entities to make a one-off submission to Companies House as part of their annual update. The Government have decided that it is therefore appropriate to limit the time within which the power related to them can be exercised; this demonstrates the Government’s intention to use the power only for the purposes that I described during our previous debate. The measures include a power to exclude descriptions of beneficial owners from the requirement to comply with Schedule 6. As I set out in Committee, this power will be used to exclude structures such as large pension trusts, where this requirement would be disproportionately burdensome.
Furthermore, turning to Amendment 86, because regulations made using this power may engage issues of devolved competence in Scotland, we have inserted a mechanism to ensure that Scottish Ministers must be consulted before regulations are made, if those regulations would be within Scottish legislative competence. These minor changes to the power will have no impact on the effectiveness of the anti-avoidance measures. I hope noble Lords will agree that they are appropriate.
During the passage of this Bill many concerns have been expressed about the use of trusts. I note that my noble friend Lord Agnew of Oulton has tabled Amendment 89, which would require Companies House to publish information about trusts that is obtained for the register of overseas entities but that is not available for scrutiny. The Government have tabled a number of amendments that are intended to address concerns in this area.
Amendment 71 will strengthen the reporting requirements and close a potential gap in the information provided to Companies House. Overseas entities registered on the register of overseas entities are required to update annually the information that they have provided to Companies House. They must provide an update that includes all in-year changes to the entity’s beneficial owners. Where the entity is associated with a trust, only a snapshot of the trust information is currently required to be provided with the annual update. This leaves a small risk that a beneficiary determined not to be registered might use convoluted means to ensure that they are not a beneficiary at the time of the update but become so immediately afterwards.
We have discussed this issue at length, and I hope noble Lords are pleased with the amendment that we are bringing forward at this time. It will ensure that in-year changes to beneficiaries must be reported to Companies House in the same way as is required for beneficial owners. There is nowhere to hide. Information supplied to Companies House via this amendment will be required to be verified along with all the other information that is being provided.
The amendment also includes a power for the Secretary of State to make exceptions to the duty to provide the in-year beneficiary information. This power will be used to exempt structures such as large pension fund trusts, where it would be disproportionate to expect them to provide every change that occurs in a given period. A number of multinational corporations use trust structures for their pension funds. One example we are aware of, which is a British multinational, is a fund registered on the register of overseas entities with over 8,000 beneficiaries. There are numerous and regular changes to the beneficiaries in circumstances such as this and the Government consider it unreasonable to expect such structures to deliver the new information that will be required.
Before regulations under this power are made, the Secretary of State must consult the Scottish Ministers and Northern Ireland Department of Finance. This is because these issues may engage areas of devolved competence. A number of consequential amendments, Amendment 76, 77 and 84, are also required so that the new provisions work as intended.
I turn to government Amendment 78. We have listened to the strength of feeling among parliamentarians, on all sides and in both Houses, that information about trusts supplied to Companies House as part of the registration of an overseas entity should not be withheld from public inspection. I stress that all the information held by Companies House about trusts is available to HMRC and law enforcement bodies. While the Government remain of the view that, in most circumstances, it is appropriate to withhold information about trusts, good arguments have been made that more transparency is required. In particular, it would seem appropriate to allow certain people, such as investigative journalists, to access the information under certain circumstances.
That is why we are tabling an amendment to create a regulation-making power by which the Secretary of State can set out details of who may apply to access trust information, how to apply and the circumstances in which an application can be made. To achieve this, we will also need to widen the scope of the protection regime in Section 25 of the Economic Crime (Transparency and Enforcement) Act to allow for people who are involved in trust arrangements—settlors, beneficiaries et cetera—to make an application. This does not require an amendment to this Bill as it can be achieved via regulations using the Section 25 power.
The Government intend to use this new power to provide a mechanism for access that is as straightforward as possible. My officials will work with Transparency International and other stakeholders and prepare regulations as soon as possible. I am happy to commit to keeping interested Peers informed and involved. Minister Hollinrake and I will keep a close eye to ensure that the processes Companies House put in place off the back of these regulations are indeed straightforward.
There will be some information that will not be appropriate for release, such as the day of date of birth of a person or their usual residential address. These will remain protected. In addition, given that most trusts are family affairs, and many are set up for minors or other vulnerable people, there may be other reasons why a given piece of information may not be suitable for release.
Before regulations under this power are made, the Secretary of State must consult with the Scottish Ministers and the Northern Ireland Department of Finance. This is because these issues may engage areas of devolved competence.
Finally, this group contains minor and technical Amendments 87 and 88. I hope that these amendments, in addition to the mechanisms already in place on the register of overseas entities, will provide sufficient reassurance to noble Lords and I beg to move.
Lord Vaux of Harrowden (CB)
My Lords, I have submitted Amendments 72 and 73 in this group.
Amendment 72 is designed to close an anomaly that arose in part because of the rushed nature of the emergency first Economic Crime Act. Unlike any other corporate register that I can think of, the register of overseas entities is required to be updated only annually. In contrast, the register of persons with significant control of UK Companies must be updated within 14 days of the company becoming aware of the change. This does matter. It means that the register can be as much as a year out of date, with changes potentially made to who owns or controls the overseas entity in the meantime.
The purpose of the register is to ensure that we know who owns UK property, so this anomaly creates a very real gap. There is a risk, for example, that an innocent third party could unknowingly find themselves buying a property from a sanctioned individual, thus allowing that sanctioned individual to realise and export the value of the property. By the time the register is updated, perhaps many months later, the money will be long gone.
There was a rather technical reason why we could not close this anomaly at the time of the first Act. The main penalty for failing to update the register is that property transactions cannot be registered. That would create a risk for an innocent buyer, if the register had to be updated within 14 days, because the innocent buyer could not know whether or not the company was in breach, and therefore the innocent party might not be able to register the transaction.
Lord Agnew of Oulton (Con)
My Lords, I shall speak to my Amendment 73A, which I apologise is a late manuscript amendment, with two supporting amendments. This is not in any way a change of the wording of my original Amendment 89, but I apologise to my noble friend the Minister that this was tabled only at around lunchtime today as I was only alerted by the Public Bill Office very late last night.
To remind noble Lords what I am worried about, which this amendment seeks to deal with, the amendment requires Companies House to publish information about trusts obtained in the newly created register of overseas interests that is not available for scrutiny. Nearly half of all trusts now registered with Companies House are shown to own assets anonymously. That is the background, and we heard just now from the noble Lord, Lord Vaux, about the so-called lacuna which is being advertised brazenly by large firms of solicitors—I have seen the same briefing notes and these are not back-street operators. That is the picture today.
My noble friend the Minister has tried very hard to deal with this within the limitations of his department, let alone his own ability to influence what seems to be a very entrenched position across government. But the amendment that he is proposing simply does not cut the mustard because it talks about “may” use a power—not “will”, “can” or “does”, but “may”. The other concern is that it then talks about a consultation, but we know that consultations are the oldest trick in the book, frankly, for kicking cans down the road, so I do not get much reassurance from that.
I also have practical concerns also about how the—albeit improved—access to the register is likely to work in a practical way. We have seen with HMRC how badly it works at the moment, and it is very hard to get information. It seems that, under the new regime, we might be able to get information only one request at a time, which means that it will be impossible to get a full picture of what is going on, so you will not be able to carry out large-scale investigations to uncover wrongdoing.
I do not like to put forward a sour note, because I know how hard my noble friend has worked on this Bill and in his engagement with all noble Lords, particularly me, but I really feel that, as my noble and learned friend Lord Garnier said in Committee, we can register as much as we like, but if we cannot see what is inside then the whole thing is a futile exercise. I ask my noble friend the Minister to reconsider. I am afraid I am minded to divide the House on this, unless I hear something convincing.
Lord Wallace of Saltaire (LD)
My Lords, I am neither a lawyer nor a company formation specialist although, in a career as an international policy researcher, I have not only dealt with the Crown dependencies and some of the overseas territories but also spent some time in conferences with senior Swiss bankers, from which I benefited both from learning an enormous amount about their charm and discretion and from eating a number of wonderful meals.
In opening, the Minister said there will be nowhere to hide; the noble Lord, Lord Vaux, has said there will be always somewhere else to hide. At present we are engaged in doing our best to make it more difficult, and as difficult as possible, to hide who owns what, particularly when they are overseas, in the expectation that we will never succeed entirely in catching everyone because the cascade abilities of trusts in one place, partly owned by trusts in somewhere else, will always defeat us in some instances. We on these Benches will support Amendment 72 and Amendment 89 if it is pressed.
The statement that the Government will consult further on how to ensure that these measures can be used to maximise transparency is encouraging, but I share the limited scepticism expressed by the noble Lord, Lord Agnew, of how far that will take us when we are involved in this rather important Bill. We are in support of the maximum possible transparency. We know that the purpose of a great many overseas trusts is precisely to conceal, and we wish to extend that transparency as far as possible. Therefore, we on these Benches will support these amendments.
Lord Ponsonby of Shulbrede (Lab)
My Lords, we too will support the amendments if they are pressed by both noble Lords in due course.
The government amendments in this group are technical in nature and address the issues to do with overseas trusts, trust transparency and various anti-avoidance mechanisms.
I am glad to hear about the wonderful meals that the noble Lord, Lord Wallace, has had in Switzerland over the years, but I am sure that you learn a lot from those sorts of experiences about the sophistication of the types of arrangements which we are talking about.
As usual, the noble Lord, Lord Vaux, has done the House a favour, and we will support Amendment 72 if he presses it to a vote. He is proposing a practical solution to a current anomaly in the register, which he explained very fully. I know that the noble Lord, Lord Agnew, has been working tirelessly on the issues to which he just spoke, and if he indeed chooses to press his Amendment 73A to a vote, we will support him there as well.
Lord Johnson of Lainston (Con)
I thank noble Lords for their input to this important debate and, as always, I thank the noble Lord, Lord Vaux, and my noble friend Lord Agnew.
I will first attend to the matter of information transparency in respect of trusts on the register. It is important to clarify a few points. First, this information is being recorded at Companies House, so at no point are trusts or individuals able to conceal the information from law enforcement authorities or from the registrar, and that is an incredibly important point that noble Lords made. We are not discussing here about not collecting information or about not enforcing the collection of information—the liabilities and penalties that go with non-application of the information. We are talking about the publication of information, and it is important that we make that clear.
Secondly, we have listened carefully to all sides of this House and have introduced an additional amendment to enable interested or relevant parties to access the information held at Companies House on these trusts. This was not initially in the Bill either in the other place or here but, after very sensible discussions with myself—I hope noble Lords will agree that they were sensible—it is absolutely right that there is an opportunity for people to access the register. That is an important point again; I would not like this debate to be one-sided. This is not a situation where a Government are somehow trying to protect people or to allow them to obscure their assets or to commit crimes through opacity. This is about a workable system that allows our economy to function but at the same time provides essential safeguards that no Member of this House would like to see derogated. We have introduced a public interest access amendment, which will enable investigative journalists and other specific entities to access and make inquiries as to the beneficial ownership of trusts.
My noble friend Lord Agnew made an inquiry as to the use of the word “may” in giving permissions. As I understand it, that is simply the legal term that is used in these cases. I am happy to seek further advice around that but I do not think that necessarily changing one word would make the difference that my noble friend seeks. The important point is that we have made this commitment. This is a dramatic change from two months ago, when we started having these conversations. The Government as a whole, and many individuals within that Government, are extremely keen to see transparency brought to bear on this register and to enable people access to trust beneficiaries. There has been a fruitful and deep debate about it.
Lord Johnson of Lainston (Con)
My apologies, it is the register of overseas entities. I thank the noble Lord for the correction.
I can see where the noble Lord is coming from here, but I think we have to be quite careful. Perhaps I might be allowed to go through some specific points which may help this House come to a better conclusion, and then the final point is relatively brief.
It remains the case that the Government do not believe that these amendments will achieve their aim without causing additional burdens on both overseas entities and third parties, or without adding a further layer of risk and complexity for third parties transacting with the entity. Again, I stress my significant sympathy with the noble Lord for this amendment and with the people who support this amendment. Personally, I am extremely desirous of making sure that we have timely information that could be presented, but there are specific technical reasons why we would resist this. However, we would be delighted to have further conversations. It is important that the Government get the balance right between ensuring that we know who the beneficial owners of these entities are and continuing to provide a welcoming investment environment. I would not underestimate the need for a simple structure that enables people to use our systems as company structures in order to do business here and in the rest of the world.
In England and Wales, the Land Registry estimates that it receives around 3,000 applications each month affecting titles registered to overseas entities. Around two-thirds of these are registrations of leases, transfers or charges. Each of these transactions would trigger the proposed requirements. This is the point of having to register at each transaction. Even if the update is simply a statement confirming that there are no changes to report, the statement must be verified each time, filed at the right time and repeated if the completion date of the transaction changes. That is important to note, because anyone who has been involved in a property transaction knows that the transaction date can change regularly and I do not think it is necessarily proportionate for these entities, particularly when we have made it very clear—and this is thanks to the interventions of noble Lords on all sides of the House—that we are ensuring that the history of activity in these trusts is properly recorded, so there is, as I believe the noble Lord, Lord Fox, said, nowhere to hide. Also, 14 days is considered to be a challenging timeframe within which to require an update, especially given that it is required to be verified before submission to Companies House. Again, I sympathise with the concept, but the practicalities and mechanics of this are believed to be highly impractical.
As I have mentioned, some overseas entities would have to make many updates each year. Any noble Lords who have bought a property will know that completion dates can change, which can be very frustrating. Every time they change you would be required to provide the register with further information no more than 14 days before the new completion date and have that information verified. This would be burdensome.
My officials have also informed me that, in discussions on this amendment, while the Law Society understood the purpose of the amendment, it also highlighted how onerous it could be in least some situations. It expressed serious concerns about the drafting of the amendment relating to the provision of a statement no more than 14 days before the completion date of a transaction. The Law Society of Scotland, in discussion with my officials, also expressed reservations—so we have the Law Society and the Law Society of Scotland expressing significant reservations. I do not think any noble Lord in this House would want to go against the significant reservations of either the Law Society or the Law Society of Scotland, which have significant concerns about the potential negative impact on the Land Register of Scotland and people transacting with overseas entities.
I believe that this amendment would be disproportionate. We have made significant changes to how activities are reported, so that no one can hide in the accounts of these entities, which previously they could, by selling and buying during the process of the annual update. I ask the noble Lord, Lord Vaux, not to move his amendment.
I thank the noble Lord, Lord Vaux, for tabling Amendment 73. It relates to scenarios in which land is held by an overseas entity under a nominee arrangement. For example, a trust can instruct a law firm to act on its behalf as a nominee and the law firm therefore appears on the register in its capacity as the registered beneficial owner of the overseas entity holding the land. The overseas entity is required to provide information about its beneficial owners to Companies House. However, in this case, because the law firm nominee is not a trustee of the trust that has instructed it, no information about the trust is required to be provided.
We agree that this gap in the requirements should be closed. I thank the noble Lord for his input and, along with Transparency International, for bringing it to our attention. However, the drafting of the amendment is not quite right, so I cannot accept it today. Instead, the Government will undertake to table an amendment to address this gap at Third Reading. I trust this will satisfy the noble Lord. and respectfully ask him not to move his amendment.
Lord Vaux of Harrowden
“Updating the register of overseas entities
(1) The Economic Crime (Transparency and Enforcement) Act 2002 is amended as follows.(2) In section 7, after subsection (8) insert—“(8A) A registered overseas entity must, as soon as reasonably possible and in any event within 14 days of becoming aware of any change, deliver to the registrar details of any change to the information that has been previously provided to the registrar in accordance with section 4 or, if information has been previously delivered to the registrar under this section, any change to the latest information provided under this section, including the date such change occurred. (8B) A registered overseas entity must deliver to the registrar the information required in accordance with subsection (8A), or deliver to the registrar a statement that there has been no change to the information currently held on the register, no more than 14 days prior to the acquisition or disposal of any qualifying estate in the United Kingdom.(8C) For the purposes of this section, “qualifying estate” has the meaning given by paragraph 1 of Schedule 4A to the Land Registration Act 2002.”(3) In section 8, at the end of subsection (3) omit “(1)”.”Member’s explanatory statement
This amendment would require that changes be notified to the registrar within 14 days of becoming aware of such change, bringing the register into line with the rules that apply to Persons with Significant Control under the Companies Act 2006, and adds an obligation to update the register immediately prior to property transactions in order to protect innocent counterparties.
Lord Vaux of Harrowden (CB)
My Lords, I thank all noble Lords who have taken part in this short debate. I thank the Minister for engaging on the subject as he has done. He used the words “jaded” and “cynical” earlier, and I hope he does not think they apply. In most cases, our engagement on all this has been extremely constructive, and I thank him, in particular, for what he has just said on Amendment 73. We will wait with interest to see the amendment, but I am glad that the Government recognise that there is a real problem.
In respect of Amendment 72, the Minister made a few points. First, he suggested that it would introduce a further layer of cost and risk. As I said before, I fundamentally disagree with that. The costs are pretty small. All we are asking is that, in the same way the PSC register is updated, it is updated on a timely basis within 14 days of any change, and that it is updated 14 days before a transaction. Yes, there is a small cost there, but, in most cases, because the register is updated regularly anyway, all that would be required is a confirmation that it is up to date. There are lots of papers and documents and things that are brought into a property acquisition—the usual searches, et cetera—and this would just be another one. It would not add a significant cost, in my view. It would actually reduce the risk to the innocent party because the innocent party would now know who they were dealing with. If we do not do this, they will not know that, because it could have changed any time in the last 12 months. To be clear, we are not talking about trusts here; we are talking about overseas entities.
Another comment is that 14 days is too difficult. I do not understand that. It is apparently because it has to be verified. It is exactly the same requirement as it is for persons with significant control, who also will need to be verified. There is no difference. If it is too difficult for this, it must be too difficult for that, or, if it is okay for persons of significant control, it is okay for this. I reject the concept that it is too difficult.
The Minister mentioned significant reservations from the Law Society. I think that was the meeting that I was at. I know first hand that it had significant reservations about my initial drafting of the amendment, which is why, as I explained earlier, the amendment changed to meet those reservations. My understanding when I left that meeting was that, while it did not necessarily like this concept—to be honest, it would not, would it?—I think it was relatively comfortable that it now worked. We are getting into he-said-she-said territory here.
I did not hear anything that changed my view that we needed to change this anomaly. It is not acceptable that innocent parties can end up accidently enriching a sanctioned individual, for example. I would like to test the opinion of the House.
Lord Agnew of Oulton
Lord Agnew of Oulton (Con)
My Lords, I am most grateful to the Minister for his response to my opening comments on this amendment. However, I remain very concerned. I shall make four very quick points. I am very conscious that people want to get home; I was told we had to wrap things up by 7.30 pm, and we will not be far off that.
First, we already know how the register is working, as we have had real-life experience over the past year. Just to give noble Lords an idea of it at the moment so we know what needs to be improved, it is already possible to request information from HMRC if a trust is based outside the UK and the EEA. However, HMRC can provide this information only if it relates to very specific types of trust. Astonishingly, an overseas trust that owns an overseas company that holds UK land is not required to register with HMRC’s Trust Registration Service, so the information cannot be requested. We know that is happening now.
Then we can move beyond that. We talk about interested parties having access, and the Minister talks about widening that access, but we need to see how it has been working in reality. Transparency International has so far made six requests to HMRC for information under the Trust Registration Service. Every single one has been rejected. The reasons given were: “The trust is not required to register”; “The trust may not have registered”; “The details you have provided did not allow us to match a trust; “The trust may be registered but it is not covered by the data”; “The trust may be registered but is not recorded as having a controlling interest”; and “However we cannot confirm which specific reason or reasons apply”. That is how it works at the moment. I cannot see why the Government cannot improve that without a consultation.
I also reject the Minister’s comments on confidentiality and his assumption that this is about a completely open register for anybody to get any information. We repeatedly said at Second Reading and in Committee that there are many legitimate people who deserve confidentiality. The example I use is of a female popstar who buys a house. She does not want fans on her doorstep. There are people escaping bad experiences in other countries and so on. What the consultation should be about is transparency but what exceptions would exist for those who are legitimate in seeking them.
Let me sum up why I am so worried about a consultation. I take very seriously the commitments given to me by my noble friend, and I thank my noble friend the Chief Whip who took time to meet me a couple of hours ago and intervened to try to get some strong reassurances in the Bill. However, I say for those who have not been a Minister that the way consultations work in government is that if it is not primary legislation, there is a thing called a write-round. Round it goes to every department, but guess who sits at the top of the top trump game? It is our friends the Treasury. Having been a Treasury Minister for two years, I can offer the House three examples of why I do not think it will—
Lord Agnew of Oulton (Con)
Okay, I will not. I shall give one example, which is golden visas. Golden visas were known for five or more years to be a conduit for bad money into this country. Everybody knew that, but it took the Treasury five years to finally close that loophole. That is why I do not like the idea of a consultation. I would like to test the opinion of the House.
Lord Johnson of Lainston
“(ba) any application or other document delivered to the registrar under regulations under section 23(1A) (disclosure of protected trusts information);”Member’s explanatory statement
This means that applications or other documents delivered to the registrar under new section 23(1A)(inserted by my other amendment to Clause 162) are not to be made available for public inspection as part of the register of overseas entities.
Member’s explanatory statement
This is consequential on my amendment to Clause 69, page 64, line 10.
Lord Johnson of Lainston
Member’s explanatory statement
This is consequential on my amendment to insert a new Schedule before Schedule 6.
Member’s explanatory statement
This is consequential on my amendment to insert a new Schedule before Schedule 6.
(c) the disclosure is permitted by regulations under subsection (1A).(1A) The Secretary of State may by regulations make provision requiring the registrar, on application, to disclose relevant protected trusts information to a person (unless required to refrain from doing so by regulations under section 25).(1B) In subsection (1A) “relevant protected trusts information” means protected trusts information other than information as to—(a) the day of the month (but not the month or year) on which an individual was born, or(b) the usual residential address of an individual.(1C) The regulations may make provision as to—(a) who may make an application;(b) the grounds on which an application may be made; (c) the information to be included in and documents to accompany an application;(d) the notice to be given of an application and of its outcome;(e) how an application is to be determined.(1D) Provision under subsection (1C)(e) may in particular provide for a question to be referred to a person other than the registrar for the purposes of determining the application.(1E) The regulations may include provision authorising or requiring the registrar to impose conditions subject to which the information is disclosed (including conditions restricting its use or further disclosure).(1F) The regulations may create offences in relation to failures to comply with conditions imposed by virtue of subsection (1E).(1G) The regulations must provide for any such offence to be punishable—(a) on summary conviction in England and Wales, by a fine;(b) on summary conviction in Scotland, by a fine not exceeding level 5 on the standard scale;(c) on summary conviction in Northern Ireland, by a fine not exceeding level 5 on the standard scale.(1H) Regulations under this section may in particular confer a discretion on the registrar.(1I) Regulations under this section are subject to affirmative resolution procedure.”Member’s explanatory statement
This confers a regulation-making power on the Secretary of State to make provision requiring the registrar to disclose protected trusts information where an application is made by a person in accordance with the regulations.
Lord Johnson of Lainston
“24 Consultation about regulations under section 23(1) The Secretary of State must consult the Scottish Ministers before making regulations under section 23 that contain provision that would be within the legislative competence of the Scottish Parliament if contained in an Act of that Parliament.(2) The Secretary of State must consult the Department of Finance in Northern Ireland before making regulations under section 23 that contain provision that—(a) would be within the legislative competence of the Northern Ireland Assembly if contained in an Act of that Assembly, and(b) would not, if contained in a Bill for an Act of the Northern Ireland Assembly, result in the Bill requiring the consent of the Secretary of State under section 8 of the Northern Ireland Act 1998.””Member’s explanatory statement
This requires the Secretary of State to consult before making regulations about the disclosure of protected trusts information (see my amendment to Clause 162, page 152, line 16) if that provision would be within the legislative competence of the Scottish Parliament or Northern Ireland Assembly.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment is consequential on my amendment to page Clause 163, page 153, line 21.
“(7A) Regulations under this section may in particular confer a discretion on the registrar.”Member’s explanatory statement
This amendment enables any provision made by regulations under new section 25 of the Economic Crime (Transparency and Enforcement) Act 2022 to confer a discretion on the registrar.
Lord Johnson of Lainston
“(4A) Regulations under this section may in particular confer a discretion on the registrar.”Member’s explanatory statement
This amendment enables any provision made by regulations under new section 28A of the Economic Crime (Transparency and Enforcement) Act 2022 to confer a discretion on the registrar.
Lord Johnson of Lainston
“Financial penalties: interaction with offences
In section 39 of the Economic Crime (Transparency and Enforcement) Act 2022 (financial penalties), in subsection (4)—(a) for paragraph (a) (but not the “and” at the end) substitute—“(a) no financial penalty may be imposed under the regulations on a person in respect of conduct amounting to an offence if—(i) proceedings have been brought against the person for that offence in respect of that conduct and the proceedings are ongoing, or(ii) the person has been convicted of that offence in respect of that conduct,”;(b) in paragraph (b), omit “or continued”.”Member’s explanatory statement
This amendment provides that regulations must provide that no financial penalty may be imposed on a person in respect of whom criminal proceedings are ongoing; at the moment it is the other way around so that criminal proceedings cannot be continued once a penalty is imposed.
Lord Johnson of Lainston
“SCHEDULE 5A DUTY TO DELIVER INFORMATION ABOUT CHANGES IN BENEFICIARIES1_ The Economic Crime (Transparency and Enforcement) Act 2022 is amended as follows.2_(1) Section 7 (updating duty) is amended as follows.(2) In subsection (1)(a) and (b), for “statement and information mentioned” substitute “statements and information mentioned”.(3) In subsection (3)—(a) omit the “and” at the end of paragraph (a);(b) at the end of paragraph (b) insert “, and(c) the statement in row 1 of the table set out in subsection (4A), or the statement and information listed in row 2 of that table.”(4) In subsection (4)—(a) omit the “and” at the end of paragraph (a);(b) at the end of paragraph (b) insert “, and(c) in the case where the information provided under subsection (1)(b) includes information that a person who ceased to be a registrable beneficial owner was a trustee, the statement in row 1 of the table set out in subsection (4A), or the statement and information listed in row 2 of that table.”(5) After subsection (4) insert—“(4A) This is the table referred to in subsections (3)(c) and (4)(c)—
Statement | Information | |
1 | A statement that the entity has no reasonable cause to believe that anyone became or ceased to be a beneficiary under the trust at a time during the relevant period when the trustee was a registrable beneficial owner of the overseas entity. | |
2 | A statement that the entity has reasonable cause to believe that at least one person became or ceased to be a beneficiary under the trust at a time during the update period when the trustee was a registrable beneficial owner of the overseas entity. | 1. The information specified in paragraph 8(1)(d) of Schedule 1 about each such person, or so much of that information as the entity has been able to obtain. 2. The date on which that person became or ceased to be a beneficiary under the trust, if the entity has been able to obtain that information.” |
Statement | Information | |
1 | A statement that the entity has no reasonable cause to believe that anyone became or ceased to be a beneficiary under the trust at a time during the relevant period when the trustee was a registrable beneficial owner of the overseas entity. | |
2 | A statement that the entity has reasonable cause to believe that at least one person became or ceased to be a beneficiary under the trust at a time during the relevant period when the trustee was a registrable beneficial owner of the overseas entity. | 1. The information specified in paragraph 8(1)(d) of Schedule 1 about each such person, or so much of that information as the entity has been able to obtain. 2. The date on which that person became or ceased to be a beneficiary under the trust, if the entity has been able to obtain that information.” |
This requires an overseas entity that has a beneficial owner who is a trustee to provide information about changes in beneficiaries under the trust that take place during an update or other period (rather than just providing a snapshot of the beneficiaries at the end of the period).
Lord Johnson of Lainston
“(1A) No regulations may be made under sub-paragraph (1) after the end of the period of two years beginning with the day on which the Economic Crime and Corporate Transparency Act 2023 is passed.”Member’s explanatory statement
This provides that the power to make regulations under new paragraph 9 of Schedule 6 to the Economic Crime (Transparency and Enforcement) Act 2022 (exclusion of descriptions of registrable beneficial owner) cannot be used after the end of the period of two years beginning with the day on which the Bill receives royal assent.
“(1A) The Secretary of State must consult the Scottish Ministers before making regulations under sub-paragraph (1) that contain provision that would be within the legislative competence of the Scottish Parliament if contained in an Act of that Parliament.”Member’s explanatory statement
This requires the Secretary of State to consult before making regulations under new paragraph 9 of Schedule 6 to the Economic Crime (Transparency and Enforcement) Act 2022 (exclusion of descriptions of registrable beneficial owner) that contain provision that would be within the legislative competence of the Scottish Parliament.
Lord Johnson of Lainston
“““the Companies Acts” has the meaning given by section 2(1) of the Companies Act 2006;”Member’s explanatory statement
This amendment inserts a definition of “the Companies Acts” into the Economic Crime (Transparency and Enforcement) Act 2022.
Lord Johnson of Lainston
“(1A) In section 21 of the Land Registration etc. (Scotland) Act 2012 (application for registration of deed), the subsection (5) inserted by the Economic Crime (Transparency and Enforcement) Act 2022 is renumbered subsection (4A).”Member’s explanatory statement
This amendment renumbers a provision to avoid two subsections which were inserted into a section by different Acts at around the same time from having the same subsection number.
Economic Crime and Corporate Transparency Bill
Tuesday 27th June 2023
(1 year, 4 months ago)
Lords ChamberRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: HL Bill 138-II Second marshalled list for Report - (23 Jun 2023)
19:15 - Division on Amendment 110 - Ayes: 179 / Noes: 176 - Amendment 110 agreed.
19:35 - Division on Amendment 125A - Ayes: 176 / Noes: 160 - Amendment 125A agreed.
19:55 - Division on Amendment 129 - Ayes: 164 / Noes: 150 - Amendment 129 agreed.
Lord Sharpe of Epsom
That the Bill be further considered on Report.
The Parliamentary Under-Secretary of State, Home Office (Lord Sharpe of Epsom) (Con)
My Lords, I put on record my thanks to my noble friend Lord Johnson of Lainston, who took the Bill through its first day of Report last week, and my noble and learned friend Lord Bellamy for his work in the run-up to today’s debate. I extend my thanks to noble Lords for the constructive debate we have had so far on the Bill, both in Committee and in separate meetings. This collaboration has resulted in comprehensive and much-needed legislation—
The Deputy Speaker (Baroness Bull) (CB)
Would the Minister like to move that we move on to this item of business before he moves his first amendment?
Lord Sharpe of Epsom
“(10) The Secretary of State may not make regulations under subsection (7) unless the Secretary of State has—(a) consulted the Scottish Ministers and the Department of Justice, and(b) given a notice containing the relevant information to the Scottish Ministers and the Department of Justice.(11) Consultation under subsection (10)(a) must include consultation about any effects that the Secretary of State considers the regulations may have on—(a) a person in Scotland or Northern Ireland (as the case may be) applying for the forfeiture of cryptoassets held in a crypto wallet that is subject to a crypto wallet freezing order, and(b) a sheriff or court in Scotland or a court in Northern Ireland (as the case may be) considering such an application or making an order for such forfeiture. (12) In subsection (10)(b) “relevant information” means—(a) a description of—(i) the process undertaken in order to comply with subsection (10)(a) in relation to the Scottish Ministers or the Department of Justice (as the case may be), and(ii) any agreement, objection or other views expressed as part of that process by the Scottish Ministers or the Department of Justice (as the case may be), and(b) an explanation of whether and how such views have been taken into account in the regulations (including, in a case where the Secretary of State proposes to make the regulations despite an objection, an explanation of the reasons for doing so).”Member’s explanatory statement
This amendment provides for certain consultation requirements to apply before regulations may be made under inserted section 303Z42(7) of the Proceeds of Crime Act 2002 (forfeiture orders).
Lord Sharpe of Epsom (Con)
As I was saying, I put on record my thanks to my noble friend Lord Johnson of Lainston and my noble and learned friend Lord Bellamy, but I also extend my thanks to all noble Lords for the constructive debate we have had so far on the Bill, both in Committee and in separate meetings. It is nice to be able to say that more than once. This collaboration has resulted in comprehensive and much-needed legislation. As my noble friend Lord Johnson set out, the Government listened to the views of the House during the passage of the Bill and have moved to address many of its concerns in the amendments tabled for Report.
Baroness Altmann (Con)
My Lords, briefly, I congratulate the Government on bringing forward the amendments; they will enhance the operation of the Bill. However, while we debate what could cover so-called crypto assets, I want to put on record my concern that by calling them “assets” and by not banning them from conventional financial markets we are potentially encouraging economic actors and criminals who demand payment in these untraceable types of so-called money. There is a danger to both our financial system and society if we continue to try to suggest that they are, in any way, conventional media of exchange.
Lord Fox (LD)
My Lords, I reflect back the point made at the beginning by the Minister—in fact, made in triplicate—that this has been a co-operative approach. In fact, I was one of the people who raised the issue of crypto assets at the beginning. There was good consultation with the team involved, and the Government brought forward a number of amendments in Committee and on Report.
As the Minister acknowledged, the issue is going to have to be flexibility going forward, and the ability to make changes and to understand how criminals are using crypto assets and other assets to commit fraud will be very important. Having the ability to come back to Parliament and make those changes will be key to the success of this Bill. In that respect, anything that improves flexibility, as I think these amendments do, will be very helpful.
Lord Ponsonby of Shulbrede (Lab)
My Lords, I reiterate what the noble Baroness, Lady Altmann, and the noble Lord, Lord Fox, have said: there has been a co-operative approach to this Bill, which I think will make it a better Bill. I was going to make exactly the points that the noble Lord, Lord Fox, has just made about the need to build in a way of feeding back to Parliament, particularly given that crypto assets are a very turbulent technology; it is a very turbulent industry. We know about the criminality endemic within these types of so-called assets. The point has been made by the noble Lord, Lord Fox, that Parliament needs to find a way, through flexibility and feedback, to make sure that the appropriate regulations are kept in place.
Lord Sharpe of Epsom (Con)
My Lords, I thank all noble Lords for their brief points in this debate. Broadly speaking, I agree with all the points that have been made. It is important to maintain a high level of flexibility, because this is a very fast-moving space technologically as well as with regard to the use of these assets in the broader economy and for other purposes. I agree with everything that has been said. Obviously, these amendments allow us to maintain a high degree of flexibility, so I ask noble Lords to support them. There is not much point in saying anything else at this point.
Lord Sharpe of Epsom
(3) Provision made by virtue of sub-paragraph (2) may in particular refer to a list of countries published by the Financial Action Task Force as it has effect from time to time.”Member’s explanatory statement
This removes the power to make regulations about enhanced customer due diligence by reference to a list of high-risk countries published by the Treasury. Instead it allows regulations to refer to a list of countries published by the Financial Action Task Force (the regulations could also refer to that list subject to specified exceptions).
Lord Sharpe of Epsom
(a) in subsection (2), for the first “which” substitute “made during the period of 6 months beginning with the day on which the Economic Crime and Corporate Transparency Act 2023 is passed if the instrument”; (b) in subsection (9), for the words from “if” to the end substitute “if they only make provision prescribing high-risk countries by virtue of paragraph 4(2) of Schedule 2”.Member’s explanatory statement
This amendment means that regulations made within 6 months of royal assent are subject to the made affirmative procedure if all they do is make provision about countries in relation to which enhanced customer due diligence measures are required to be taken; regulations made after that period are subject to the draft affirmative procedure.
Lord Faulks
“Strategic lawsuits against public participation
(1) It is an offence for a person or entity without reasonable excuse to threaten civil litigation against another person or entity with intent to suppress the publication of any information likely to be relevant to the investigation of an economic crime.(2) A person guilty of an offence under this section is liable—(a) on summary conviction in England and Wales, to a fine;(b) on summary conviction in Scotland or Northern Ireland, to a fine not exceeding the statutory maximum;(c) on conviction on indictment, to imprisonment for a term not exceeding two years or a fine (or both).”Member’s explanatory statement
This amendment introduces a new criminal offence to deal with groundless threats in pursuance of SLAPPS in order to suppress investigations into economic crimes.
Lord Faulks (Non-Afl)
My Lords, we now come a group of amendments about strategic lawsuits against public participation, or SLAPPs. These were much debated at Second Reading and in Grand Committee. As noble Lords will be aware, SLAPPs is the rather ungainly acronym to describe the abusive threats of litigation and actual litigation by deep-pocketed individuals with the intention of preventing journalists or others from revealing the truth, very often about economic crime or, at the very least, economic activity which the claimant would much rather was not revealed at all, or certainly not to the general public. This is a worldwide problem which has received a variable response.
In a sense, there is nothing new about SLAPPs. Powerful men have often used litigation to try to silence their critics, but there have recently been some egregious examples. The difficulty always exists in separating out genuine complaints by powerful men or organisations and those which have been commenced for a collateral purpose. When SLAPPs were debated at Second Reading, it was thought that amendments to prevent or limit such lawsuits would be outside the scope of the Bill. I am glad to say that that has now proved not to be the case, although it is clear that the relevant amendments, either mine or the Government’s, are focused on economic crime as opposed to wider areas of criminal activity which might provoke a strategic lawsuit. The Government’s position at Second Reading appeared to be that they were sympathetic to the notion of legislation in this area. However, they thought that the whole issue needed separate and mature consideration and should not be part of any amendment to this Bill.
I am delighted that the Government have changed their mind and brought forward amendments in this group which we will debate. I understand that the new Lord Chancellor has had much to do with this, and I thank him and the Minister for tabling the amendments.
A number of noble Lords have spoken about SLAPPs, including the noble Lords, Lord Agnew and Lord Cromwell, who gave a graphic description of the mischief at which any change in the law should be directed. My difficulty with any potential amendment was always that the courts have powers already to strike out abusive proceedings, but they tend to be extremely cautious about doing so, on the basis that striking out is a somewhat draconian remedy. Courts tend to be persuaded that it is better to see how the evidence emerges before putting a case out of its misery, but that can be too late. Huge expenditure will have been incurred, often by relatively impecunious defendants. Sometimes they have no realistic alternative but to capitulate—delay is plainly the friend of those who use SLAPPs. The best chance, in my experience, of striking out a claim is when there is a clear point of law, but even then there can be appeals and further expense, which work in favour of an abusive claimant.
The government amendments are clearly aimed in the right direction, but I can already foresee a few difficulties. There will be significant arguments as to what does or does not constitute a SLAPP, for example. That issue of itself has a lot of litigation potential. I am also concerned about the process of making the relevant Civil Procedure Rules. This can be a lengthy process, and is always a carefully considered process. I have studied the recent minutes of the Civil Procedure Rule Committee, so as to inform myself as to how the committee approaches rule changes. I would be grateful if the Minister could explain to the House how this amendment will make its way into the rules and the likely timescale.
Those reservations apart, my view is that we should go further. As pointed out at Second Reading by the noble Lord, Lord Thomas of Gresford, who has put his name to this amendment, there is no obvious reason why there should not be a criminal offence in this area.
I invite the House to consider a client consulting his expensive lawyers. He wants to take every step he can through litigation to suppress and exhaust the funds of those who would expose him. He utters those words which lawyers tend to love: “I don’t mind how much it costs”. The advice that he will or should receive after the government amendments become law is that there is a risk that the courts might decide to stop the litigation if it is regarded as abusive. “But”, the litigant says, correctly, “It will surely still be a lengthy and expensive process before a court even gets to consider that option”. However, if the Government were to accept my amendment, then the advice he should receive is that he risks criminal prosecution if he, without reasonable excuse, threatens litigation with the intent to suppress the publication of any information likely to be relevant to the investigation of an economic crime. This potential offence gives room for a defence, of course, but its very existence should act as a considerable deterrent against the sort of behaviour we want to stop. If this amendment becomes law then the hypothetical client might think much more carefully before threatening or embarking upon abusive litigation.
This amendment is particularly relevant to journalists, who have a huge role in tackling economic crime. I declare my interest as chair of the Independent Press Standards Organisation. It is also of importance to anyone who wants to reveal economic crime. It is entirely consistent with the aims of the Bill. Let us bear in mind that the opportunity to legislate in this space is unlikely to present itself again, or at least not for some time. I beg to move.
Lord Thomas of Gresford (LD)
My Lords, I remind your Lordships that, at Second Reading of this Bill, on 8 February, I referred to a legal action brought by Yevgeny Prigozhin, founder of the Wagner Group, who has been somewhat in the news over the last weekend, against the journalist Eliot Higgins, who had investigated his activities. When his case was justly struck out last May, Prigozhin said that he brought court cases against journalists because
“in any issue there should be room for sport”.
The cost to Mr Higgins was in the region of £70,000, although he won his case. That is the sort of abuse of the English legal system that the current crop of so-called reputational lawyers have brought on behalf of Russian oligarchs and many other large co-operations that resent too close a look into their operations.
Lord Cromwell (CB)
My Lords, I start by sincerely thanking the noble and learned Lord, Lord Bellamy, and his team for meeting me and others to discuss SLAPPs and for the subsequent correspondence with me on areas of concern that remain, to some of which I will return briefly in a few moments.
As noble Lords will know, I have been rather tenacious in arguing for the inclusion of provisions against SLAPPs in the Bill, so I welcome government Amendments 102 and 103 before us today. They reflect positive listening by the Government, in particular the new Lord Chancellor, to a long campaign by Members of both Houses, as well as a coalition of non-governmental organisations. The amendments do not deliver everywhere —Scotland is excluded, I believe—nor do they cover everything that I and others have been seeking. I shall put these, as succinctly as I can, on the record.
My main concern, because it goes to the heart of SLAPP tactics, is the lack of sufficient provision in Amendment 102 for the courts to bring matters to a halt pending a decision on striking out under subsection (1) of the new clause inserted by the amendment. In his letter to me on this point, the Minister characterised such an approach as unfair and restrictive on the court, but as others have said, those using SLAPPs will do all they can to run up the costs of their opponent, not as a route to justice but as a tool of harassment. For example, in relation to new subsection (1)(b) in the amendment, deliberate pursuance of disclosure pending resolution of an anti-SLAPP motion can easily ratchet up costs.
To be effective in assessing cases and in preventing SLAPPs, to which Amendment 102 is directed, the court should be inclined to call a halt to the litigation process until it is decided whether the case should be struck out. I therefore ask the Minister whether he agrees that the courts, guided by the Civil Procedure Rules, should as a default position take the approach of putting a stop on proceedings pending a decision on striking out and allowing processes to proceed only where a very compelling reason exists for them to do so.
On Amendment 103, subsection (1)(d) of the new clause inserted by the amendment refers to harassment, expense and other harms which are
“beyond that ordinarily encountered in the course of properly conducted litigation”.
It is exactly the use of so-called “properly conducted litigation” that SLAPPers weaponise in order to intimidate their victims. While some amount of emotional and financial cost is inevitable in court proceedings, I do not accept that harassment should ever be part of properly conducted litigation. The phrasing of the amendment appears to suggest that it is acceptable. This creates a significant opportunity for the SLAPPer’s legal team to claim its harassment tactics are just part of the machismo and cut and thrust of legal process and, perhaps, as if a bit of harassment never really hurt anyone. That is the bully’s excuse.
It also leaves the courts struggling to make a subjective judgment about what is in the minds of the claimant and the defendant. In his helpful letter to me, the Minister stated that the courts are well versed in deciding such matters. However, I remind the House, as I elaborated at some length in Committee, that courts have always been very shy of inferring intention, and I am not aware of any instance where a court has struck out a case for improper purpose.
Even the recent case involving Charlotte Leslie and Mr Amersi was thrown out pursuant to CPR part 3.4 —namely, that the statement of case disclosed no reasonable grounds for bringing the claim. The court judgment was explicit that the court was not making a decision on whether the case constituted an abuse of process. The most the court judgment was willing to say was that there were several aspects of Amersi’s behaviour which gave “real cause for concern” that it was brought with an improper purpose. That illustrates how high a hurdle the test for improper purpose currently is.
The courts’ hands need to be strengthened here. Unless we enable the courts more effectively to label an action as an abuse of process, the current shyness about ever striking out a case on those grounds seems set to continue. I therefore ask the Government to reconsider my suggestion, which I have written to the Minister about, that the phrase about “properly conducted litigation” is removed and that the court, in considering the claimant’s behaviour, should decide if it could be reasonably understood as
“intended to cause the defendant … harassment”,
et cetera.
I have two other brief points. I understand that the intention of subsection (3) of the new clause inserted by Amendment 103 is to draw a wide definition of economic crime. However, in practice, it puts a potentially costly burden on the defendant to show that it is a SLAPP, and to require a subjective, and perhaps lengthy, assessment of intent by the court. Above all, it seems redundant, because subsection (1)(d) already establishes whether a case is a SLAPP. I therefore hope that the Minister will consider a revised drafting in order to encompass the purpose of having a wide definition of economic crime while not creating a new area of difficulty for the defendant.
Finally, subsection (4) of the new clause inserted by Amendment 103 covers factors for the court to take into account. It misses a typical SLAPP intimidatory tactic of bringing an action against individuals as well as their publishers. An example of the latter is the case brought in the UK against Swedish investigative journalists by a Swedish business. By bringing the claim in the UK, the claimant was able to sue not only the publication and its editor but the journalists as individuals. This would not have been possible in Sweden where, tellingly, the claimant decided not to sue. Individuals do not typically have legal insurance, and bringing individual action in this way is a classic intimidatory tactic. I therefore urge the Minister to include this as a factor for the court to take into account under subsection (4).
In conclusion, like the song by Messrs Jagger and Richards says,
“You can’t always get what you want
But if you try sometime …
You get what you need”,
these amendments give us a good chunk of what we need. By highlighting SLAPPs as unacceptable, they will make lawyers think harder about engaging in SLAPP tactics, as the noble Lord, Lord Faulks, highlighted. It is a great start, but there is more to do, as I and others have tried to outline today. I hope that these points will yet be reconsidered, either in the other place or in the wider legislation on this subject that the Government have promised. I look forward to the Minister’s response.
Lord Garnier (Con)
My Lords, I too declare an interest as a member of the Bar who has, over the past several decades, specialised in defamation.
I agree with quite a lot of what the noble Lord, Lord Cromwell, has just said in that, first, this is in essence economically driven; and that, secondly, the decision in Amersi v Leslie and others did not designate that particular claim as a SLAPP. None the less, there was plenty in the judgment of Mr Justice Nicklin to demonstrate that the judge was quite acute about the motivation behind the claim. Essentially, it was a claim that he considered to be bullying and designed to cause the defendants the most financial embarrassment possible; he saw through that.
Baroness Stowell of Beeston (Con)
My Lords, I am pleased to hear my noble and learned friend say that he has changed his position since we met in Grand Committee because I recall that, during those debates, he was strong in his view and mildly critical of those of us who had brought forward amendments.
I have two amendments in this group, Amendments 125H and 125J. I will speak to them but, before I do, I join my noble and learned friend Lord Garnier in welcoming the amendments tabled by my noble and learned friend the Minister. I am very pleased to see them; they go a long way to addressing the concerns that my committee—I declare my interest as chairman of the Communications and Digital Select Committee—has raised in our hearings on this topic over the past 12 months. As has been acknowledged, those amendments are confined to economic crime but that is because this is a Bill about economic crime, so I am happy to accept them as far as they go.
None the less, I want to highlight something that my amendments, the same amendments that I tabled in Committee, refer to—the power of deterrence with regard to the solicitors who represent those who bring forward these forms of legal action. I listened very carefully to my noble friend Lord Faulks introducing his amendment. Unlike my noble and learned friend Lord Garnier, I find his arguments quite compelling, but at this point I am pleased with what we have here. The importance of deterrence and the link between the Solicitors Regulation Authority’s new fining powers, the tactics employed by those who bring SLAPPs and the new dismissal mechanism are where I want to focus my comments.
As we have heard, the Government’s amendments bring much-needed legal clarity about the definition of a SLAPP case. The new strike-out clause includes a likelihood test but not a requirement for the case to be shown to have merit. That is a bit of a gap. It suggests that well-to-do law firms could still threaten journalists with a defamation case that has no merit and force the journalist to deal with huge legal costs. As we have already heard, as long as the lawyers toe the line and are not too aggressive in their tactics, they are unlikely to be thrown out under the early dismissal mechanism, but just because a case is not thrown out at the start, that does not mean everything is fine.
Most SLAPP cases never make it to a court, as we have heard. They succeed by intimidating critics into dropping their investigation at a very early stage. In these circumstances, the early dismissal test will not even come into play. One of the best defences probably lies with the solicitors’ regulator. The SRA needs to have confidence that these amendments tabled by my noble and learned friend the Minister will give it a sufficiently robust basis to penalise solicitors and law firms that pursue SLAPPs.
I understand that the SRA has powers to take action against individuals and law firms for misconduct or failing to comply with the rules. I would be grateful for clarification from my noble and learned friend the Minister that the SRA’s new unlimited fining powers, which are already in the Bill, could definitely be used to deter and punish law firms facilitating SLAPP cases, even if the case is not thrown out by the early dismissal test or does not make it to court. Let us not forget that the lawyers are making huge amounts of money from this. They know exactly what they are doing and can be very clever about getting away with it. We need confidence and assurances that the regulator will be able to take robust enforcement action, as we in Parliament need to be able to set a clear expectation of the regulators that they will be proactive in asking people to come forward with concerns, process complaints speedily and investigate high-risk firms to put them on notice.
Above all, the SRA needs to enforce the spirit of the law, not just the letter, by demonstrating zero tolerance for those profiting from flagrant abuses of our legal system. From my noble and learned friend the Minister, I am looking for clarity at the Dispatch Box that the fining powers that the SRA now has in the Bill and this new definition of SLAPPs empower it to act against law firms if it considers it appropriate to do so because they have breached its codes and so on. We are not looking for a situation in which it is possible for the SRA not to do what is properly expected of it just because it has not been spelled out in words of one syllable in the Bill.
In my view, it is really important for any regulator or regulated sector to understand that the members of it and those who are regulating it have a responsibility to uphold the reputation of that sector. That is done by the way in which they conduct their business. It is important that that is made very clear if the Government bring forward this definition of SLAPPs, as they have, to try to prevent further use of this aggressive and abusive form of legal action, which is doing so much to undermine the Government’s overall intention to reduce economic crime.
Lord Thomas of Cwmgiedd (CB)
My Lords, I am grateful to the Minister and I welcome the amendment he has put forward. I want to make three quick points.
First, it is clear that the will of the House is that something should be done quickly. The remedy should be speedy, inexpensive and flexible. This leads to my second point. The right course is to allow the rule committee to develop this, but the rules must be flexible and must allow for the development to be made judicially, rather than prescribed in rules. That, in my experience, has generally been the way forward; we have tried this in relation to other matters and know that it is impossible to lay down too many detailed things in rules. Thirdly, I hope that the Government will make available the necessary resources to the judiciary, so that this can be dealt with by a High Court or other senior judge. Speed, effectiveness and determination will show whether this is a means that will work or whether we will have to resort to that which was suggested by the first amendment that was debated.
Baroness Blake of Leeds (Lab)
My Lords, I add the thanks of our side to Ministers and their teams for the access that they have given us.
I will not say much more; we have had a full discussion and response to the concerns that were raised at Second Reading and in Committee. I believe that we are in a much better place than we were, as has been outlined by many of these contributions.
I have a few points to highlight. I honestly believe that providing the courts with powers to strike out SLAPPs would be a huge, ground-breaking step forward. We have to regard what is before us as a positive start. It is also positive that a robust threshold test has been introduced and that the profile of the defendant is not prescribed, which enables it to be used by anyone—journalists, whistleblowers, activists and academics—as we have heard.
We have to acknowledge the problems that other noble Lords have highlighted around the definition of what constitutes a SLAPP and where we will achieve that clarity. The proof will come as we move ahead, but I agree that we need to make sure of this in the rules and know when they will be available for us to consider. Perhaps the Minister can respond to this.
I want to press the Minister on an answer to when the Government expect to extend the use of protections against SLAPPs beyond the definition of economic crime as outlined. That would be very helpful for us all.
In conclusion, while limited, this is a promising framework. As I have said, the Government have committed to expanding the scope, and we all ask for this to be done speedily. I do not want to get into competing quotations from famous rock stars, but there are several we could follow. I hope that
“watch out, you might get what you’re after”,
from Talking Heads, is not one of them.
The Parliamentary Under-Secretary of State, Ministry of Justice (Lord Bellamy) (Con)
My Lords, I am very grateful to the House and to all noble Lords who have spoken in today’s debate and in earlier debates. If I may say so, I think we have collectively changed our minds, or developed our thoughts, in various respects as a result of a collective effort, for which the Government are grateful. I am particularly grateful to those noble Lords who have engaged outside the Chamber: the noble Lords, Lord Faulks, Lord Ponsonby and Lord Cromwell, the noble and learned Lord, Lord Thomas, the noble Baroness, Lady Stowell, and others, have all contributed most constructively to the debate. There is clearly a great deal of strength of feeling on the issue of SLAPPs. It is therefore with some optimism that I hope the amendments I am about to move formally will be accepted: Amendments 102, 103, 137, 141, 142 and 143.
I will first make a general remark. In civil litigation generally, parties are not necessarily evenly matched. One may have more private resources than the other; one may be legally aided while the other is not. That is a fact of life, but one relies on the rules of procedure and the good sense of the judge to see fair play, bearing also in mind the inherent power of the court to strike out a claim for abuse of process. But when we come to SLAPPS—short for strategic litigation against public participation, a rather unwieldy phrase—two additional factors come into play. This is probably common ground in this House. In addition to the possible imbalance of power between the parties, the two additional factors are, first, the right to free speech, which is essentially what this legislation protects, and secondly the public interest in full and frank disclosure of wrongdoing.
Effectively, to use the courts or the threat of litigation as a means of preventing free speech and possibly covering up wrongdoing is a particular kind of abuse of process. It may well be that the power to control such behaviour already exists under the inherent direct jurisdiction of the courts—as I think my noble and learned friend Lord Garnier may have observed earlier—but the Government wish to put that issue beyond doubt and to put a stop to SLAPP-type tactics. We cannot allow the misuse of our legal system to suppress public interest investigations and reports. On the other hand, we have to safeguard access to justice in the measures that we take, so there is a balance to be struck here. The Government respectfully suggest that this Bill finds that balance.
I will first take the definition of SLAPPs. What is a SLAPP claim? It has a number of components. First, it will be one where the complainant has acted, or intended to act, to restrain the defendant’s exercise of their right to freedom of speech. The defendant will typically be a journalist. Secondly, the exercise of that right is a matter relating to economic crime—this is necessarily limited at the moment to economic crime because of the scope of the Bill—and for a purpose related to the pursuit of the public interest in combating such economic crime. Lastly, the claimant will have misused the litigation to cause harm to the defendant, in the circumstances defined in the clause.
For such SLAPP claims there will be several protections. First, there is the early dismissal test. The claimant will have to establish that they are more likely than not to succeed at trial. Normally, if you try to strike something out, it is you who has to establish that, but if it is a SLAPP claim, the burden is reversed and the claimant must establish that they are more likely than not to succeed at trial. That is an important change in the onus.
Secondly, there is the costs protection of the defendant, who will not have to pay the costs, even if there is eventually an adverse outcome at trial. On pre-litigation tactics, raised on a number of occasions by the noble and learned Lord, Lord Thomas, and others—it is a very fair point—in the Government’s view the costs protection and the reversal of the burden of proof very largely draw the sting of those threats. The journalist can sit back and say, “Well, do your worst. I’m protected on costs and by the change of the onus”, so the teeth are drawn from the attempt to suppress the publication of wrongdoing.
In addition—I will come to this in a moment—there are the powers of the Solicitors Regulation Authority to pursue the solicitors through its disciplinary procedures. With those protections, there is a very substantial assault by this legislation on SLAPPs. The Government’s view is that the courts will have the necessary tools and guidance from Parliament to deal with SLAPP lawsuits aimed at stifling freedom of speech and preventing journalists exposing economic crime.
As to the points rightly raised by the noble Lord, Lord Cromwell, that we should have gone further and so forth, the Government’s view is that we can always improve the shining hour—of course we can—but here we have, to use the words of the noble Lord, a good chunk of what is necessary. The Government’s view is that, at the moment, these provisions go far enough. As far as Scotland is concerned, discussions are continuing with our Scottish counterparts—it is a separate legal jurisdiction—and the same is true in Northern Ireland, so those matters will be pursued in due course. But the Government ask the House to accept that the provisions of this Bill as framed cut the mustard, if I may use the expression.
Of course, SLAPPs are broader than just economic crime. In answer to the question of the noble Baroness, Lady Blake, and others, the Government will come forward with completing the jigsaw as soon as a suitable legislative vehicle appears. At the moment, we are engaged in what, in another context, is called horizon scanning, to see when we can find a legislative vehicle that will do the job. This is not something the Government are going to forget about, and nor would this House allow us to do so. As soon as we can do it, we will get on to it.
It is entirely true that we now need the Civil Procedure Rules to back this up. The Civil Procedure Rule Committee will no doubt proceed as fast as it can; it is well-versed in ensuring that there are appropriate rules to make sure that legislation can have its proper effect in the courts. I have no control over the timetable of the Civil Procedure Rule Committee, but the message from this House is to get on with this as fast as we can. Indeed, if I may quickly refer to the comments of the noble and learned Lord, Lord Thomas, of course we need, as he suggests, quick, cheap and flexible procedures. One would hope that those will be developed judicially by senior judges, and that this legislation will have the desired effect. The Government have every confidence in the ability of the courts to put into effect what is the clear will of Parliament.
I turn to Amendment 94, in the name of the noble Lord, Lord Faulks. With regret, the Government, although sympathetic to the amendment’s objectives, do not feel that it would be right to criminalise access to justice in the way proposed. As the noble and learned Lord, Lord Garnier, pointed out, we have got rid of criminal libel. We have a balance to strike here. It would be very strong to say that it is, or is potentially, a criminal offence to commence proceedings in the courts. The courts have to be open. In the Government’s view, the balance to be struck here is civil, not criminal. Creating a criminal offence with such a broad application to tackle what is, in essence, a civil matter would be inappropriate. We do not have the evidence to support such a development. It would be entirely inappropriate to create a criminal offence that would not be very clearly defined and would potentially prevent access to justice—apart from, of course, establishing the criminal instead of the civil standard, which we are essentially dealing with here.
The creation of a criminal offence would go far beyond the Government’s measures and, I think, would mark a departure from other jurisdictions, to which some reference has been made. I might be wrong, but I do not know of one that has made this kind of activity a criminal offence. In the light of those comments, I invite the noble Lord to withdraw the amendment.
Amendments 125H and 125J were tabled by my noble friend Lady Stowell. I thank her again for her constructive engagement on the Bill. These amendments seek to allow the Solicitors Regulation Authority to set its own fining limit for cases of professional misconduct relating to abusive litigation brought forward to suppress reporting on economic crime.
Clause 195 removes the statutory limit on the level of financial penalty that the Law Society, which delegates the matter to the SRA, may impose, and a similar provision applies to the Scottish Solicitors’ Discipline Tribunal. The intention that my noble friend expresses is shared by the Bill, but the Government’s view is that the current drafting of these clauses, which already captures disciplinary matters relating to economic crime, covers the matters to which my noble friend referred. If the SRA can demonstrate that an abusive litigation case breached a rule specifically for economic crime or
“purposes relating to the prevention or detection of economic crime”,
that should permit it to use its new fining powers, so my noble friend’s amendments are, in the Government’s view, unnecessary.
I assure my noble friend that the Government’s intention is that this measure allows the SRA to impose fines above £25,000 against solicitors and law firms that fail to comply with the rule by taking part in or facilitating abusive litigation, whether or not such cases reach court or are struck out, provided that the SRA can establish a link between this type of misconduct and the prevention or detection of economic crime. This legislation is directed not just to cases that come to court but to pre-action threats and actions to deal with attempts to intimidate.
Lord Faulks (Non-Afl)
My Lords, the Minister quite rightly emphasised that these amendments are concerned with two fundamental points: free speech and the public interest that exists to expose wrongdoing. He also said that the power, to be further elaborated by the rules, already exists. He is absolutely right to do so. In a way, the government amendments, which I welcome, tell the courts to do what they already can do. The question is whether they go far enough.
I have already indicated that I see a great deal of litigation potential in the definition of what SLAPPs may or may not be, notwithstanding the drafting. The Minister said that, with the comfort of these new rules, editors will be able to say to their journalists, “Well, we can go ahead. Sit back and do your worst”. I wonder how realistic that is, given that a journalist seeking after truth and attempting to expose wrongdoing will nevertheless expose him, her or their journal to a considerable hurdle before there is any chance of a striking out taking place. We hope the rules will come into effect in due course to encourage courts to take that view, but my experience, sadly, is that courts are reluctant to strike out claims on the basis that it is very difficult, without evidence, to come to a conclusion that something is an abusive process.
However, I accept that, for the moment, the view is taken that this amendment to create a criminal offence goes too far. I am afraid I do not accept the characterisation that it would “criminalise access to justice”; that was a most unfortunate phrase. In fact, it would create an offence that would help prevent the suppression of the publication of any information likely to be relevant to the investigation of economic crime. That is not criminalising access to justice; that was a most unfortunate characterisation.
However, I accept that the Government are with the spirit of the debate entered into in various stages on the Bill, and that they want to encourage the courts to intervene where necessary. I accept that, although it has expressed real concern, the House does not, for the moment, want to go as far as my amendment suggests. With some reluctance, but accepting the will of the Front Benches and of the Minister, I beg leave to withdraw my amendment.
Lord Etherton
“(a) constitutes the offences of fraud, false accounting, money laundering or offences under any binding sanctions regime, whether at common law or in primary or secondary legislation,”Member’s explanatory statement
This amendment provides for a shorter and more focused definition of “economic crime” than is presently to be found in Clause 187(1) and Schedule 10.
Lord Etherton (CB)
I tabled all the amendments in this group. I am very grateful to those who have added their names to them: the noble Lords, Lord Verdirame, Lord Pannick and Lord Anderson of Ipswich. I am also very grateful to the Minister, the noble and learned Lord, Lord Bellamy, for meeting me and senior representatives of the Law Society and of the Bar Council to discuss what is now Clause 197.
All these amendments relate to the new regulatory objective in Clause 197 that amends the Legal Services Act 2007 by inserting for the Legal Services Board a new objective:
“promoting the prevention and detection of economic crime”.
As I said in Committee, this proposed new regulatory objective is extraordinarily wide and imprecise. The meaning of the word “promoting” lacks any clarity or certainty. It raises legitimate concerns about a potential lack of proportionality and overregulation by regulators, and about a lack of evidential risk as to those sectors most likely to come into contact with economic crime—for example, advisers rather than advocates. And even in the area of advisers, it is hardly likely to involve experts in the environment or town planning.
As the MoJ’s impact assessment of the new regulatory objective makes clear, the front-line regulators of the legal profession are already implicitly under a duty to ensure that lawyers are not breaching economic crime rules. The provisions in Clause 197 are merely to make explicit what is already implicit, and it is important that the Legal Services Board and the front-line regulators understand that this is the case.
The definition of economic crime for the purposes of Clause 197 is provided in Clause 187(1) by mean of cross-reference to Schedule 10, which contains a long list of statutes. This provides no focus on what is really at issue and should be the concern of regulators. That is spelled out clearly in my Amendment 95—namely,
“the offences of fraud, false accounting, money laundering or offences under any binding sanctions regime, whether at common law or in primary or secondary legislation”.
This lack of focus could well promote overregulation and a lack of proportionality.
What is needed is a clear statement from the Minister, which I would very much welcome today, on the following. First, regulators must understand that this is not a new regulatory duty but one that states explicitly what is already implicit. Secondly, there should be a focus on the particular criminal activity which is relevant: fraud, false accounting, money laundering and offences under any binding sanctions regime. Thirdly, there is a need for evidence-based regulation according to evidence of risk in particular areas of work and practice, as I described, such as transactional work rather than contentious and court-based work, and areas of advisory work which might be relevant in which economic crime might well occur. Fourthly, there will also be a need for proportionality by regulators. Fifthly, the regulators must understand, as the Minister said before, that there is to be no interference with the principle of legal professional privilege. Finally, there is a need for consultation with the profession to ensure that the new objective successfully tackles economic crime in the proportionate and evidence-based way I have described.
I hope the Minister will be able to make those points clear to the profession to enable a proper regulatory framework to work. I beg to move.
Lord Bellamy (Con)
I thank the noble and learned Lord, Lord Etherton, for his engagement on this topic throughout the Bill and for his remarks today. I briefly reiterate that the definition of economic crime is deliberately widely drawn. It applies not only to the regulatory objective but to several other clauses of the Bill, including the information-sharing measures between various financial institutions at Clauses 182 and 183. The Government do not believe that restricting that definition would be right.
It is true that there is a long list of offences in Schedule 10, including the reference to theft. Sometimes it is difficult to distinguish between fraud and theft, but I am happy to acknowledge that typical forms of theft, including low-level theft such as shoplifting or street crime or similar activities, are most unlikely to be relevant to anything in the Bill. Therefore, the Government do not feel able to change the definition of economic crime specifically for the legal sector, and the regulators must be able to respond to circumstances as they develop.
I shall address in a little more detail some of the points raised by the noble and learned Lord, Lord Etherton, this afternoon. I hope to cover all those points one way or another. First, in relation to legal professional privilege, the regulatory objective already requires adherence to professional principles under the Legal Services Act. In the Government’s view, there is no need for a specific reference to legal professional privilege, but I can make it absolutely clear that the Government do not consider that the Bill makes any difference to the principle of legal professional privilege. It is in no way an assault or attack on that fundamental principle of English law. The protection of legal professional privilege, as developed in the courts, will continue to apply in this area, as in many other areas. That is the Government’s position, and I hope that it is clear
As to how the regulatory objective and the provisions of the Bill will operate in practice, and in response to the noble and learned Lord, Lord Etherton, who made various entirely fair points, the intention and purpose of the regulatory objective is to put the onus on legal services regulators to be active in promoting and upholding adherence to the economic crime regime. The new objective will put beyond doubt and clarify that securing compliance is explicitly part of the regulatory role. We expect regulators to use all the tools available to them, but their activity should be appropriately targeted and not in any sense just a box-ticking exercise. The objective does not directly place new duties on lawyers. It is directed to the legal services regulators, and existing safeguards remain.
All those regulators will still be bound by public law principles, which will ensure that any regulation of legal services is proportionate and fair. Proportionality is particularly important. Section 3 of the Legal Services Act already requires the Legal Services Board to have regard to the principle that regulatory activity should be transparent, accountable, proportionate, consistent and targeted only for cases where action is required. The new regulatory objective on economic crime fits within this framework and existing objectives, such as supporting the rule of law, promoting the public interest and improving access to justice.
It is understood and expected that the Legal Services Board will work closely with the professions in developing guidance to support the new objective. This will include a public consultation on any necessary policy statement or guidance to ensure that the regulatory objective is implemented in a targeted and proportionate way. This will allow the LSB to capture and analyse any concerns that professional bodies or others may have, or continue to have, in relation to the new objective.
Lord Etherton (CB)
I am extremely grateful to the Minister for all those assurances. They are extremely helpful, and I do think that they will assist in settling the concerns of many of those in the legal profession. On the basis of the assurances that he has given, I am very happy to indicate that I will withdraw my amendment.
Lord Sharpe of Epsom
Member’s explanatory statement
This amendment and my other amendments to clause 187 correct the definition of “economic crime” to include encouraging or assisting an offence under Part 2 of the Serious Crime Act, which replaced the common law offence of incitement in England and Wales and Northern Ireland.
Lord Sharpe of Epsom (Con)
My Lords, corporate criminal liability is a topic that many across the House care deeply about—
Lord Sharpe of Epsom
“(ba) constitutes an offence—(i) under Part 2 of the Serious Crime Act 2007 (England and Wales and Northern Ireland: encouraging or assisting crime) in relation to a listed offence, or(ii) under the law of Scotland of inciting the commission of a listed offence,”Member’s explanatory statement
See the explanatory statement to my first amendment to clause 187.
Lord Sharpe of Epsom
Member’s explanatory statement
This amendment is consequential on my other amendments to clause 187.
Lord Bellamy
“Power to strike out certain claimsStrategic litigation against public participation: requirement to make rules of court
(1) The power to make Civil Procedure Rules must be exercised so as to secure that Civil Procedure Rules include provision for ensuring that a claim may be struck out before trial where the court determines—(a) that the claim is a SLAPP claim (see section (Meaning of “SLAPP claim”), and (b) that the claimant has failed to show that it is more likely than not that the claim would succeed at trial.(2) Rules made in compliance with subsection (1) may include rules about how a determination under that subsection is to be made, including (in particular)—(a) rules for determining the nature and extent of the evidence that may or must be considered;(b) rules about the extent to which evidence may or must be tested;(c) rules permitting or requiring the court to determine matters of fact by way of presumptions.(3) Rules made in compliance with subsection (1) must include rules under which the court may make a determination under that subsection of its own motion.(4) The power to make Civil Procedure Rules must be exercised so as to secure that Civil Procedure Rules include provision for securing that, in respect of a SLAPP claim, a court may not order a defendant to pay the claimant’s costs except where, in the court’s view, misconduct of the defendant in relation to the claim justifies such an order.(5) The Lord Chancellor may by regulations provide for subsections (1) to (4) to apply in relation to any rules of court that may be specified in the regulations as those subsections apply in relation to Civil Procedure Rules.(6) In this section—“court” includes a tribunal;“rules of court” means rules relating to the practice and procedure of a court or tribunal.”Member’s explanatory statement
This new clause, new clause (Meaning of “SLAPP claim”) and my amendments at page 191, line 37, page 192 at line 33 and 192, line 38 provide for the making of rules of court with a view to preventing claimants from improperly using civil proceedings to restrain certain disclosures of information relating to economic crime.
Meaning of “SLAPP” claim
(1) For the purposes of section (Strategic litigation against public participation: requirement to make rules of court) a claim is a “SLAPP claim” if—(a) the claimant’s behaviour in relation to the matters complained of in the claim has, or is intended to have, the effect of restraining the defendant’s exercise of the right to freedom of speech,(b) any of the information that is or would be disclosed by the exercise of that right has to do with economic crime,(c) any part of that disclosure is or would be made for a purpose related to the public interest in combating economic crime, and(d) any of the behaviour of the claimant in relation to the matters complained of in the claim is intended to cause the defendant—(i) harassment, alarm or distress,(ii) expense, or(iii) any other harm or inconvenience,beyond that ordinarily encountered in the course of properly conducted litigation.(2) For the purposes of determining whether a claim meets the condition in subsection (1)(a) or (c), any limitation prescribed by law on the exercise of the right to freedom of speech (for example in relation to the making of defamatory statements) is to be ignored.(3) For the purposes of this section, information mentioned in subsection (1)(b) “has to do with economic crime” if— (a) it relates to behaviour or circumstances which the defendant reasonably believes (or, as the case requires, believed) to be evidence of the commission of an economic crime, or(b) the defendant has (or, as the case requires, had) reason to suspect that an economic crime may have occurred and believes (or, as the case requires, believed) that the disclosure of the information would facilitate an investigation into whether such a crime has (or had) occurred.(4) In determining whether any behaviour of the claimant falls within subsection (1)(d), the court may, in particular, take into account—(a) whether the behaviour is a disproportionate reaction to the matters complained of in the claim, including whether the costs incurred by the claimant are out of proportion to the remedy sought;(b) whether the defendant has access to fewer resources with which to defend the claim than another person against whom the claimant could have brought (but did not bring) proceedings in relation to the matters complained of in the claim;(c) any relevant failure, or anticipated failure, by the claimant to comply with a pre-action protocol, rule of court or practice direction, or to comply with or follow a rule or recommendation of a professional regulatory body.(5) For the purposes of subsection (4)(c) a failure, or anticipated failure, is “relevant” so far as it relates to—(a) the choice of jurisdiction,(b) the use of dilatory strategies,(c) the nature or amount of material sought on disclosure,(d) the way to respond to requests for comment or clarification,(e) the use of correspondence,(f) making or responding to offers to settle, or(g) the use of alternative dispute resolution procedures.(6) In this section—“court” has the same meaning as in section (Strategic litigation against public participation: requirement to make rules of court);“economic crime” has the meaning given by section 187(1);“the right to freedom of speech” means the right set out in Article 10 of the European Convention on Human Rights (freedom of expression) so far as it consists of a right to impart ideas, opinions or information by means of speech, writing or images (including in electronic form).(7) In the definition of “the right to freedom of speech” in subsection (6) “the European Convention on Human Rights” means the Convention for the Protection of Human Rights and Fundamental Freedoms agreed by the Council of Europe at Rome on 4 November 1950 as it has effect for the time being in relation to the United Kingdom.”Member’s explanatory statement
See the explanatory statement for new clause (Strategic litigation against public participation: requirement to make rules of court).
Lord Sharpe of Epsom
“Attributing criminal liability for economic crimes to certain bodiesAttributing criminal liability for economic crimes to certain bodies
(1) If a senior manager of a body corporate or partnership (“the organisation”) acting within the actual or apparent scope of their authority commits a relevant offence after this section comes into force, the organisation is also guilty of the offence.This is subject to subsection (3).(2) “Relevant offence” means an act which constitutes—(a) an offence listed in Schedule (Criminal liability of bodies: economic crimes) (“a listed offence”),(b) an attempt or conspiracy to commit a listed offence,(c) an offence—(i) under Part 2 of the Serious Crime Act 2007 (England and Wales and Northern Ireland: encouraging or assisting crime) in relation to a listed offence, or(ii) under the law of Scotland of inciting the commission of a listed offence, or(d) aiding, abetting, counselling or procuring the commission of a listed offence.(3) Where no act or omission forming part of the relevant offence took place in the United Kingdom, the organisation is not guilty of an offence under subsection (1) unless it would be guilty of the relevant offence had it carried out the acts that constituted that offence (in the location where the acts took place).(4) In this section—“body corporate” includes a body incorporated outside the United Kingdom, but does not include—(a) a corporation sole, or(b) a partnership that, whether or not a legal person, is not regarded as a body corporate under the law by which it is governed;“partnership” means—(a) a partnership within the meaning of the Partnership Act 1890;(b) a limited partnership registered under the Limited Partnerships Act 1907;(c) a firm or other entity of a similar character to one within paragraph (a) or (b) formed under the law of a country or territory outside the United Kingdom;“senior manager”, in relation to a body corporate or partnership, means an individual who plays a significant role in—(a) the making of decisions about how the whole or a substantial part of the activities of the body corporate or (as the case may be) partnership are to be managed or organised, or(b) the actual managing or organising of the whole or a substantial part of those activities.”Member’s explanatory statement
This amendment sets out circumstances in which liability for an offence committed by a senior manager may be attributed to a body corporate or partnership.
Lord Sharpe of Epsom (Con)
My Lords, my apologies again for my early start on this; my enthusiasm keeps getting the better of me today.
As I was saying, corporate criminal liability is a topic that many across the House care deeply about, and one where the Government are committed to making significant reforms. I thank noble Lords for the robust and constructive debate we had in Committee on this topic and for the ongoing engagement which many noble Lords have afforded me in the weeks leading up to this debate.
I reiterate the Government’s commitment to reforming corporate criminal liability and tackling fraud. Since this Bill was introduced, significant steps forward have been taken. I hope, with the further government amendments to which I will speak shortly, noble Lords will recognise that we have gone to great lengths to strengthen the Bill in this area. In addition, government action continues outside of this Bill. The recently published Fraud Strategy further demonstrates the ongoing work across government and with partners to take action to tackle fraud.
I will speak first to government Amendments 104, 105, 106, 109, 138, 139, 140, 144 and 145, which introduce new clauses to this Bill to reform the identification doctrine. As noble Lords will be aware, the identification doctrine is outdated and ineffective in the way in which it holds corporates to account, given the breadth of business we see in the 21st century. Companies have grown tenfold since the “directing mind and will” test was devised in the 1970s. As companies have grown, their operations and governance have become spread across different areas, making it incredibly difficult to pinpoint the directing mind of a company, particularly in a large organisation. Individuals with significant authority can escape corporate liability by asserting that the directing mind and will is elsewhere.
Meanwhile, there is an unfairness here. Smaller companies, perhaps with one or two directors, have much more easily identifiable directing minds, meaning that corporate liability is more easily attributable and a prosecution is more likely to be successful. It is this inequality in the law that we need to address. The government amendments place the identification doctrine on a statutory footing for economic crimes for the first time, providing legislative certainty that senior managers are within the scope of the rule.
Under these new measures a corporate will be held liable if a senior manager has committed an offence under the new schedule, or if they have encouraged or assisted an offence by another, or have attempted or conspired to commit an offence under the schedule. The corporate will be criminally prosecuted and, if convicted, will receive a fine, in addition to any sentences imposed for individuals who are separately prosecuted and found guilty of the same offence. The reform will apply to all corporate bodies and partnerships established in England and Wales, Scotland and Northern Ireland.
These amendments build on the extensive work and consultation conducted by the Law Commission in this area. Building on feedback from prosecuting bodies, business representatives and Members of both Houses, some tweaks have been made to the Law Commission’s proposal to ensure the reform is applicable to the widest set of cases. Under the Government’s reform, economic crime is defined according to a new schedule in the Bill—introduced via Amendment 109—which reflects existing Schedule 10 but without those offences that principally apply to a corporate body, such as failure to prevent bribery.
For the purpose of these amendments, “senior management” will be defined in accordance with the well-established definition provided for in the Corporate Manslaughter and Corporate Homicide Act 2007. This model considered the senior managers’ roles and responsibilities within the relevant organisation and the level of managerial influence they might exert, rather than their job title.
The clauses tabled by the Government also seek to capture instances where a senior manager commissions or encourages a lower-ranking employee to do their “dirty work” by making it clear that the corporate can also be held liable where the senior manager encourages or assists a listed offence in the schedule.
To be clear to the House, subsection (3) of the new clause introduced by Amendment 104 ensures that criminal liability will not attach to an organisation based and operating overseas for conduct carried out wholly overseas simply because the senior manager concerned was subject to the UK’s extraterritorial jurisdiction; for instance, because that manager is a British citizen. Domestic law does not generally apply to conduct carried out wholly overseas unless the offence has some connection with the UK. This is an important matter of international legal comity.
However, some offences, wherever they are committed, can be prosecuted against individuals or organisations who have certain close connections to the UK. Subsection (3) makes sure that any such test will still apply to organisations when the new identification doctrine applies. Extending the identification doctrine test to senior management better reflects how decision-making is often dispersed across multiple controlling minds, mitigating the ability to artificially transfer, remove or create titles to escape liability. This is a positive step to increasing lines of clear governance and accountability in corporations.
Looking forward, although these government amendments are a strong step to improving corporate criminal liability laws, they are not the final step. The Government have committed in the Economic Crime Plan 2 and the Fraud Strategy to introduce reform of the identification doctrine to apply to all criminal offences. This will take place when a suitable legislative vehicle arises.
I move on now to the government amendments on failure to prevent fraud. In Committee, the Government tabled amendments which introduced a new corporate offence of failure to prevent fraud. Under the new failure to prevent offence, a large organisation will be liable to prosecution where fraud was committed by an employee for the organisation’s benefit and the organisation did not have reasonable fraud prevention procedures in place. The new offence will help to protect victims and cut crime by driving a culture change towards improved fraud prevention procedures in organisations and by holding organisations to account through prosecutions if they profit from the fraudulent actions of their employees.
Following this, noble Lords have raised further points with me on where the Government clauses could be strengthened. I have listened to the points raised, and the Government have tabled further amendments on the definition of large organisations and the treatment of subsidiaries. I thank the noble Lord, Lord Vaux of Harrowden, for bringing this point to my attention.
As I have set out on many occasions, the failure to prevent fraud offence is designed to balance the fraud prevention benefits with minimising burdens on small business. Amendments 111, 112, 113, 114, 115, 116, 118, 119, 122, 123 and 124 will help prevent companies from avoiding responsibility by moving high-risk operations into subsidiaries that fall below the size threshold for the offence. They will also ensure that groups of companies with significant resources are incentivised to take steps to prevent fraud.
First, we have made a clarification to ensure that an assessment of whether an organisation meets the size criteria, and is therefore in scope of the offence, is made cumulatively across the parent company and its subsidiaries—that is, the group—rather than being based on each individual entity. We then have to consider where liability would attach within that group. The group itself is not a legal entity so cannot be liable. It may be more appropriate for the subsidiary or the parent to be accountable directly, depending on the circumstances. We have therefore clarified that whichever of the individual entities within a group was responsible for the fraud can be directly liable for a failure to prevent fraud, in the same way as any other entity in scope of the offence.
Additionally, we have clarified that an employee of a subsidiary can be an associated person of its parent or owning company. That makes it more feasible to attach liability to the parent company should the approach of targeting the specific subsidiary be inappropriate. A test would still have to be met that the fraud by the subsidiary employee intended to benefit the parent, and the parent would have the defence that it was reasonable to take no steps to prevent the fraud—for example, if the structure was such that the parent had no say over the activities of the subsidiary.
Finally, Amendment 120 ensures that the views of the Scottish and Northern Ireland Governments are taken into account before any future changes to the offence threshold based on organisation size.
I hope noble Lords will recognise that this is a hugely meaningful package of amendments. I recognise that a number of noble Lords will have hoped the Government would go further, particularly around the threshold in the failure to prevent fraud offence. However, I stress that we have already taken tremendous strides forward. The Government firmly believe that our reforms to the identification doctrine; the introduction of a failure to prevent fraud offence covering around 50% of economic activity; measures to prevent avoidance via subsidiaries; and our existing ability to identify and prosecute fraud more easily in smaller organisations will cumulatively have the desired effect of tackling and deterring economic crime, without unnecessarily imposing billions of pounds of burdens and bureaucracy on actual or potential small businesses. I hope noble Lords can recognise the great progress we have made, and I beg to move.
Lord Garnier (Con)
My Lords, I thank my noble friend the Minister for his opening remarks and for the advance that the Government have made on two fronts. The first is by clarifying the senior management officers within a company; in doing so, they have clarified the way in which the identification doctrine can be applied in modern Britain.
As I have said on previous occasions, I have an interest to declare. I will not specifically recite it again because I did so in Committee, at Second Reading and, I think, on the three or four previous pieces of legislation into which a failure to prevent amendment could have been inserted—but of course it was not the right Bill, the right vehicle or the right time, and in fact it was just not right. So here I am again.
I shall speak to my Amendments 110 and 125A, which at the appropriate time I will move to a Division unless the Government persuade me otherwise. I am not engaging here in party politics or even in a rebellion. I am doing nothing by surprise; anyone who has followed discussions on economic crime over the last 13 years will know precisely what I am going to say. Indeed, my noble friend the Minister is adept at moving from one corridor to the next to avoid having a yet further conversation with me about my favourite subject. He has also heard all my jokes before, but not every Member of our House has had that advantage so it may be that, unless the Government accept my amendment, my little Aunt Sally will have another canter around the course. However, I will take things in stages.
First, I thank the Government, as I hope I have done —and I mean it sincerely—for their Amendments 104 to 106 and 109—essentially, the modernisation of the identification principle, so far as it goes. We are now slowly catching up with the Americans; they did something similar to this in 1912, but this is the United Kingdom and we must not rush.
Lord Vaux of Harrowden (CB)
My Lords, I will briefly add my support to the amendments proposed by the noble and learned Lord, Lord Garnier, which try to strengthen the failure to prevent clauses the Government have proposed. I welcome those clauses and the changes the Government have added at this stage. In particular, I strongly support Amendment 110, to which I have added my name, which removes the restriction of this offence to large companies.
Let us be clear what this failure to prevent offence deals with. It does not cover, for example, the use of a company’s services by fraudsters, something I greatly regret. I am sure that—along with, I hope, the noble Baroness, Lady Morgan—we will come back to this in another Bill. It actually applies only to situations where somebody associated with the company, such as an employee, commits a fraud that is intended to benefit the company. Let me emphasise that: it applies only to frauds carried out by associates such as employees or agents, and only where those frauds are effectively committed on behalf of the company. It is pretty restricted.
When I was in business, frankly, it never occurred to me that such situations were not already caught by the law. Surely, it must be a fundamental principle that a company should take reasonable steps to prevent its employees committing fraud on its behalf. But the Government seem to take a different view. Having been dragged somewhat reluctantly into putting forward their own amendments to create this offence of failure to prevent, they have decided it should apply only to larger companies. As we have heard, they have set the threshold so that less than 1% will be covered.
The argument, as we have heard, is that the cost would be disproportionate. The Government have come up with some costings to support this. I am afraid I do not think I am the only person who simply does not find those costings credible. Any reputable company should, and I believe generally will, be doing this already. There are some things we should ensure that companies do anyway. A good example is that companies must ensure that health and safety rules are followed. It is not an excuse to say, “It wasn’t me; an employee caused the accident”. Nor is it an excuse to say, “My company is too small to follow health and safety rules”. We do not give small companies an exemption from health and safety, tax evasion or bribery legislation. Why would we do so, uniquely, for fraud—committed on the company’s behalf?
If the Government are genuinely worried about the cost, they can deal with that easily enough by issuing timely guidance that sets out what steps would be reasonable and the circumstances in which no additional procedures would be required, which is likely to be the case for most small enterprises. Amendment 125D makes some sensible suggestions in that regard.
Lord Leigh of Hurley (Con)
My Lords, my noble and learned friend Lord Garnier wonders why the noble Baroness, Lady Bennett of Manor Castle, supports his amendment. I have heard wags tell me that he is referred to as a Green Peer, on account of the number of times he recycles his gags. That might be a little unfair—I hear disapproval, but never mind.
I will speak to these amendments, having followed the Bill extremely closely. The noble Lord, Lord Vaux of Harrowden, is of course right to pinpoint what we are debating: fraud perpetrated to benefit a relevant body. However, the noble Lord actually said “on the company’s behalf”, and that is not right. I do not think it is necessarily to capture exclusively where a company seeks to benefit itself; it could also, quite rightly, seek to capture an employee who commits fraud to benefit himself or herself because of a bonus arrangement or other matters. So it is not just on a company’s behalf.
In Grand Committee and elsewhere, I have argued that there should be exemptions for small and medium-sized companies, in opposition to Amendment 110. I totally agree with my noble and learned friend Lord Garnier that the numbers proposed by the Government—any two of the following: a turnover of £36 million; a balance sheet of £18 million, which is undefined; and 250 employees, which is easy to define—are not appropriate. As he said, they capture only 0.5% of companies, but of course they capture the most important companies, which is where this legislation is perhaps intended to attack—it covers pretty much every FTSE and AIM company, which would perhaps have someone to put their mind to undertaking a fraud.
Although I have reservations about Amendment 110, curiously enough I support my noble and learned friend Lord Garnier’s Amendment 117, which is eminently sensible and deals with the issue. He has specified a turnover of more than £10 million, a balance sheet of more than £3 million, and more than 25 employees, which is sensible and fair. However, that applies only to fraud. His Amendment 125D does not have any SME exemption but simply says that the Secretary of State must issue guidance specifically for SMEs and particular micro-enterprises. He recognises that there is a difference for SMEs and micro-enterprises, and I think we should do so. I am nervous about this legislation: we just do not know what that regulation might be and do not understand what the guidance might be, how it might work and what effect it will have on SMEs and micro-enterprises.
I had a micro-enterprise at one point; I started a business. I refer your Lordships to the register of interests, which discloses that the business grew quite substantially, but it was originally micro by any definition. I do not know how many of your Lordships have started and run a micro-business, where everything revolves around survival and one’s entire life revolves around next week’s and next month’s wages, paying suppliers and creditors, and dealing with HMRC. There are so many pressures on micro-businesses, growing through to SME businesses, and we should think very carefully about putting another hurdle in place, however small, that makes an entrepreneur say, “You know what? Maybe I won’t bother. The Government are saying that I’ve got to take care about failure to prevent fraud. Really? Is that something I should worry about at this micro level? Have I not got enough to do to try to survive?”
I urge caution in adopting Amendment 110. If it is passed, I urge the House to adopt Amendment 117. I would be very careful about adopting Amendment 125 without clarification of exactly what will be in Amendment 125B.
Baroness Morgan of Cotes (Con)
My Lords, I will speak briefly to this group. I thank my noble friend the Minister for the steps that the Government have taken in relation to the failure to prevent fraud offence and the identification doctrine. These are significant steps, and he is right to say that they will obviously be followed up in future Bills.
It is worth remembering the scale of fraud in England and Wales in particular. Some 40% of crime is fraud against individuals, and clearly the scale of the cases against small, medium-sized and large businesses is also devastating. On Friday, we will debate the wider issues relating to fraud looked at by the committee on digital fraud, which I was privileged to chair. I am grateful that, from that committee and the work with my noble friend, the Fraud Strategy was published in early May.
I support my noble and learned friend Lord Garnier’s Amendment 110 and the associated Amendment 121, and have added my name to them. He and the noble Lord, Lord Vaux, set out clearly why these amendments are necessary. There is no SME exemption in the Bribery Act or in relation to tax evasion.
I want to take on one of the points raised by my noble friend Lord Leigh. He talked about the survival of SMEs, and he is of course right to do so. I have not set up a small business but I have set up a small charity, and many of the issues are similar. If that small business or small charity were the victim of fraud, it would be absolutely devastating. One of the arguments here is the burden on small businesses of having to set up fraud-prevention measures, but they have to do it anyway these days because they have to be very cautious about anyone attempting invoice fraud or utility fraud. If they have an employee, they have to make sure that they are making best use and correct use of the corporate credit card, for example.
Noble Lords rightly referred to Clause 192 and the guidance that the Government will publish. We already have an example of it, as the Government have published the outline of how it would look. If this amendment is passed, it would be perfectly within the rights of the Government to set out clearly how that guidance should be interpreted by small and medium-sized enterprises, which are quite used to reading extensive amounts of guidance. If we want to have a broader debate about red tape and regulation, that is perhaps for another day, but they are used to dealing with much guidance. If they are likely to be victims of fraud, they will take that guidance very seriously.
I support these amendments and I support my noble and learned friend’s Amendment 125A on expanding the failure to prevent offence to money laundering. If we are going to introduce the failure to prevent offence, which I thoroughly welcome, we might as well do it properly and expand it to money laundering, which is also a huge a problem and one that the Bill seeks to tackle as well.
Baroness Bowles of Berkhamsted (LD)
My Lords, my name is on several amendments relating to failure to prevent fraud, and I support what has been said already and what was said extensively in Grand Committee on both failure to prevent fraud and the identification doctrine. If the noble and learned Lord, Lord Garnier, moves his Amendments 110 and 125A, we on these Benches will support them.
I retabled my amendment on regulatory failure to prevent, which was well supported in Committee. I do not intend to move it but I have tabled it as a reminder that we have not yet covered the enablers, as the noble Lord, Lord Vaux, spoke about. This is probably the best route to do so, with regulators being perhaps best able to understand where actions could or could not have been taken. This recommendation was encompassed within the Fraud Act report.
We have, I suppose, gone a long way, and the Government have gone a long way within the remit covered by the Law Commission, which unfortunately included the harm aspect. As a lot of the crime that has come about through this enabling channel has been since that report was commissioned, this is unfinished business; we will necessarily have to come to this again. For now, we should strengthen the government proposals through Amendments 110 and 125A.
Baroness Blake of Leeds (Lab)
My Lords, I start by acknowledging the great progress that has been made on the failure to prevent process through the debates in the House of Commons. There was significant movement there, which we of course welcome.
I say at the outset that if the noble and learned Lord, Lord Garnier, is minded to divide the House on Amendments 110 and 125A, he will have the support of these Benches. There are very good reasons for that, as have been outlined in the debate today. The statistics, particularly the 0.5% figure, are startling. Surely, we all need to take this incredibly seriously if, as the noble Baroness, Lady Morgan, said, we are serious about tackling the wider fraud issues, which seem to be growing daily. The numbers of people we all know personally who are affected by this shows the sheer extent of the problem.
I will make the very strong point that the issue of costs and burdens on SMEs has been overemphasised. If these processes are tightened in the way proposed, those very businesses will themselves be protected by the action taken on other companies. In particular, I completely support the extension to the money laundering provision in Amendment 125A.
We have had a really good debate throughout our proceedings on these measures. It would be so disappointing if, at this final stage, we did not go the full distance we can at this point, recognising, as we know, that more will need to be done in the future. We have the opportunity now and we should seize it.
Lord Sharpe of Epsom (Con)
My Lords, I thank all noble Lords for their contributions to today’s debate on corporate criminal liability and for their continued engagement on this subject. These conversations have been robust and constructive and have helped the Government immensely in the development of the clauses —developed, I say to the noble Lord, Lord Vaux, without any reluctance at all.
I turn to Amendments 135 and 125G on senior manager liability, tabled by my noble and learned friend Lord Garnier. As he has noted, senior managers hold a higher level of responsibility than ordinary employees in conducting business because they take important decisions on the corporate policy, strategy and operation of the company. The extension of the identification doctrine to senior management in Amendment 104, which I spoke to previously, recognises this. To reflect the heightened responsibility of a senior manager in the actions of a corporation, powers are available already to prosecutors to hold a senior manager liable where a company conducts an economic crime offence.
Under the fraud, theft and bribery Acts and the money laundering regulations 2017, senior officers, including managers, are liable if they consent to or connive in fraud, theft, bribery or money laundering regulatory breaches. This extends as far as the senior manager knowingly turning a blind eye to offending, extending beyond the usual law on accessory liability for other crimes. If a senior manager is guilty of the offence and liable, they can be proceeded against and punished accordingly, including by imprisonment.
Additionally, in the regulatory space, the senior managers and certification regime is in place to improve good corporate behaviour and compliance in the sectors regulated by the Financial Conduct Authority and Prudential Regulation Authority, placing specific requirements on senior managers to encourage positive corporate behaviour.
Lord Garnier (Con)
My Lords, I thank my noble friend the Minister for his patience and tolerance in listening to my arguments over and over again—
Lord Fox (LD)
I am sorry, but it was the amendment of the noble Lord, Lord Sharpe, that was being moved.
Lord Garnier (Con)
We both seem to be making as many mistakes as each other.
Lord Sharpe of Epsom
“Power to amend list of economic crimes
(1) The Secretary of State may by regulations amend Schedule (Criminal liability of bodies: economic crimes) by—(a) removing an offence from the list in the Schedule, or(b) adding an offence to that list.(2) The power in subsection (1) is exercisable by the Scottish Ministers (and not by the Secretary of State) so far as it may be used to make provision that would be within the legislative competence of the Scottish Parliament if contained in an Act of that Parliament.(3) The power in subsection (1) is exercisable by the Department of Justice in Northern Ireland (and not by the Secretary of State) so far as it may be used to make provision that—(a) would be within the legislative competence of the Northern Ireland Assembly if contained in an Act of that Assembly, and(b) would not, if contained in a Bill for an Act of the Northern Ireland Assembly, result in the Bill requiring the consent of the Secretary of State.(4) The Secretary of State may from time to time by regulations restate Schedule (Criminal liability of bodies: economic crimes) as amended by virtue of subsection (1) to (3) (without changing the effect of the Schedule).”Member’s explanatory statement
See the explanatory statement for new Clause (Attributing criminal liability for economic crimes to certain bodies).
“Offences under section (Attributing criminal liability for economic crimes to certain bodies) committed by partnerships
(1) Proceedings for an offence alleged to have been committed by a partnership by virtue of section (Attributing criminal liability for economic crimes to certain bodies) must be brought in the name of the partnership (and not in that of any of the partners).(2) For the purposes of such proceedings—(a) rules of court relating to the service of documents have effect as if the partnership were a body corporate, and(b) the following provisions apply as they apply in relation to a body corporate—(i) section 33 of the Criminal Justice Act 1925 and Schedule 3 to the Magistrates’ Courts Act 1980;(ii) section 18 of the Criminal Justice Act (Northern Ireland) 1945 (c. 15 (N.I.)) and Schedule 4 to the Magistrates’ Courts (Northern Ireland) Order 1981 (S.I. 1981/1675 (N.I. 26));(iii) sections 34(2), 66(6AA) and 72D(2) of the Criminal Procedure (Scotland) Act 1995.(3) A fine imposed on the partnership on its conviction for an offence committed by virtue of section (Attributing criminal liability for economic crimes to certain bodies) is to be paid out of the partnership assets.(4) In this section “partnership” has the same meaning as in section (Attributing criminal liability for economic crimes to certain bodies).”Member’s explanatory statement
This amendment makes provision in relation to offences committed by partnerships by virtue of section (Attributing criminal liability for economic crimes of certain bodies).
Lord Alton of Liverpool
“Duty to disclose funds and economic resources
After section 16 of the Sanctions and Anti-Money Laundering Act 2018, insert—“16A Duty to disclose funds and economic resources(1) Any regulations made under section 1 (power to make sanctions regulations) must, for the purposes of preventing an offence under those regulations, make provision requiring designated persons—(a) to report to the Treasury or another competent authority, within three months after such regulations are made or within three months from the date of designation, whichever is the latest, the funds or economic resources that—(i) are currently held, owned or controlled by them within the United Kingdom, and(ii) were held, owned or controlled by them within the United Kingdom six months prior to the date of designation, and(b) to cooperate with the Treasury or other competent authority in any verification of such information.(2) A failure to comply with a requirement in subsection (1) may be considered as participation in activities the object or effect of which is (whether directly or indirectly) to circumvent such requirement.(3) Where a designated person has been convicted of an offence by virtue of subsection (2), a court proceeding under section 6, 92 or 156 of the Proceeds of Crime Act 2002 (confiscation orders) must consider such person as benefitting by the value of any assets concealed through such criminal conduct. (4) Assets concealed as a result of a failure to comply with a requirement in subsection (1) constitute recoverable property for the purposes of Part 5 of the Proceeds of Crime Act 2002 (civil recovery of the proceeds etc. of unlawful conduct).(5) A court may only make an order for the confiscation or forfeiture of concealed assets if, or to the extent that, it would not be just and equitable to require the designated person to pay the amount recoverable under subsection (3) or to forfeit the property recoverable under subsection (4).(6) Regulations under subsection (1) may also be made in relation to a person who is subject to an International Criminal Court warrant for an offence that would constitute an economic crime in the United Kingdom.””Member’s explanatory statement
This amendment says that sanctions regulations must, for the purposes of preventing an offence under those regulations, require designated persons to disclose all assets they own or control in the UK. Failure to disclose such assets is defined as a form of sanctions evasion, which is already criminalized under UK law, and which could result in asset recovery under the Proceeds of Crime Act.
Lord Alton of Liverpool (CB)
Amendment 107 enjoys all-party support, and its purpose is to insert a new clause imposing a duty to disclose funds and economic resources. In a nutshell, the amendment would require that sanctions regulations must, for the purposes of preventing an offence under those regulations, require designated persons to disclose all assets that they own or control in the United Kingdom. Failure to disclose such assets is defined as a form of sanctions evasion, which is already criminalised under UK law and which could result in asset recovery under the Proceeds of Crime Act.
The amendment is in line with the one debated in Grand Committee. One change has been made to reflect the Minister’s helpful view about proportionality— I am particularly grateful to the noble and learned Lord, Lord Garnier, and the noble Lord, Lord Faulks, for their helpful suggestion that the best way in which to ensure proportionality would be to incorporate the words “just and equitable”, as we have done in the revised amendment. In thanking the noble Lord and the noble and learned Lord, I thank also the co-sponsors, the noble Lords, Lord Leigh of Hurley, Lord Coaker and Lord Fox. Their input and wisdom have been invaluable. The Minister and his really excellent Bill team have engaged through meetings and in a flurry of emails and exchanges, which have been admirable, and I am grateful to them too. I hope that we can come to an amicable conclusion this evening.
The topicality and urgency of this amendment was underlined by the Statement made in another place yesterday, and repeated here last night, on the Ukraine Recovery Conference. We have all been shocked by the sheer scale of the destruction unleashed by Putin’s illegal war—the massive loss of life and the ruination of cities, towns and villages, and the destruction of the country’s agricultural base. In this lamentable context, we are right to plan for the future. The European Union has set aside a €50 billion recovery fund, and the United Kingdom has said that we will provide loans worth $3 billion over the next three years. Globally, some 500 businesses from 42 countries have pledged more than $5.2 trillion to back Ukraine’s recovery. However, as the Prime Minister made clear to that conference, Russia must pay for the destruction that it has inflicted. In that respect, the Foreign Secretary has said that the United Kingdom is working with allies to explore lawful routes to use frozen and immobilised Russian assets to fund Ukrainian reconstruction. It was to enable that to happen that the movers of this amendment raised this question in Grand Committee.
Lord Fox (LD)
My Lords, I am pleased to support the amendment in the name of my noble friend. If I do not speak at length, it is not because I do not think it a very important amendment but because I am trying to infect the rest of the House with some brevity—unsuccessfully, I suspect. This is an important amendment and we have seen movement in other regimes. We have seen movement in the United States; we are seeing movement in the European Union; and I think we have seen movement in the House of Commons on the Procurement Bill, to which we have started to see changes in attitude. I hope we will hear from the Minister shortly that the Government are prepared to move, in order that we can bank a step in the right direction along this path. I look forward to hearing what the Minister has to say, and I hope this amendment will not have to be pressed if we hear what we want to hear.
Lord Sharpe of Epsom (Con)
My Lords, I thank the noble Lord, Lord Alton of Liverpool, for this amendment, for his constructive engagement throughout the passage of the Bill through this House and, of course, for his typically thoughtful and powerful introduction. I also pay tribute to noble Lords from all sides of the House, and Members in the other place, for continuing to pursue this important issue and engage with the Government on a cross-party basis, not least the APPG on Anti-Corruption and Responsible Tax. I can reassure the noble Lord that the Government are supportive of mechanisms to deprive sanctioned individuals, where appropriate, of their assets, with a view to funding the recovery and reconstruction of Ukraine. More broadly, the Government want to drive further transparency on assets held by sanctioned persons in the UK.
On 19 June, the Government announced four new commitments which reaffirm that Russia must pay for the long-term reconstruction of Ukraine. This includes new legislation, laid the same day by the Foreign Secretary, to enable sanctions to remain in place until Russia pays compensation for damage caused. In this announcement the Government also confirmed that we will lay new legislation requiring persons and entities in the UK, or UK persons and entities overseas, who are designated under the Russia financial sanctions regime to disclose any assets they hold in the UK. The Government are firmly committed to bringing forward this secondary legislation, subject to the made affirmative procedure, and to introducing this measure before the end of 2023, subject to the usual parliamentary scheduling. This will strengthen transparency of assets and make it clear that the UK will not allow assets to be hidden in this country.
Sanctioned individuals who fail to disclose their assets could receive a financial penalty or have their assets confiscated. This demonstrates our continued commitment to penalising those who make deliberate attempts to conceal funds or economic resources. The new power builds on and strengthens the UK’s existing powers around transparency of designated persons’ assets. HMG already use the annual review of the Office of Financial Sanctions Implementation, known as OFSI, to collect and detail assets frozen under UK financial sanctions. Additionally, relevant firms such as banks, other financial institutions, law firms and estate agents have an ongoing obligation to report to OFSI if they know or reasonably suspect that a person is a designated person or has committed offences under financial sanctions regulations, where that information is received in the course of carrying on their business. Those firms must provide information about the nature and amount of any funds or economic resources held by them for the customer.
The designated person reporting measure will act as a dual verification tool by enabling the comparison of disclosures against existing reporting requirements that bite on relevant firms. This will tighten the net around those who are not reporting and are evading their reporting requirements.
On asset seizure, prosecutors and/or law enforcement agencies can currently apply to confiscate or permanently seize assets where someone has benefited from their offending, or the assets have links to criminality, by making use of powers under the Proceeds of Crime Act 2002. Importantly, the new measures will also give His Majesty’s Government the ability to impose fines. Overall, this designated person reporting measure will be focused on strengthening the UK’s compliance toolkit while giving options for penalising those who seek to hide their assets.
The noble Lord’s amendment includes a specific provision which would require the designated person also to report assets which were held six months prior to the designation. The Government are still fully developing the non-disclosure measure and I can assure the noble Lord that we are carefully considering this suggestion. Although not retrospective in terms of regulating or criminalising conduct that occurred before the measure came into force, requiring designated persons to provide a snapshot of their assets at a historical point in time is necessarily more onerous than a forward look requirement. The Government will need carefully to consider the design of the measure and the proportionality and additional value of so-called retrospective reporting to ensure that it is operationally deliverable and legally robust. This will include working with relevant law enforcement agencies to determine how such information would be used.
Before laying these regulations, the Government will complete their ongoing evaluation of possible operational or implementation challenges to help ensure the successful delivery of this measure. For example, investigating non-compliance will require significant resources from the enforcing agency. We want to ensure that it has all the capability, skills and resources to succeed.
I note the interest in and strength of feeling on this issue. The Government will continue to work collaboratively and constructively with interested parties in the lead-up to bringing forward the legislation, including on reporting assets which were held prior to a designation. We will continue to engage with the civil society organisations that have campaigned for this measure, and I would be happy to work with the noble Lord, Lord Alton, and other parliamentarians to keep them informed of progress ahead of it being formally introduced.
Again, I am grateful to the noble Lord for bringing this issue forward for debate and for the continued interest and engagement of many stakeholders. I hope that, given the reasons I have outlined and the action the Government are already taking, he will consider withdrawing his amendment.
Lord Alton of Liverpool (CB)
My Lords, I am extremely grateful to the noble Lord, Lord Sharpe, for the manner in which he has addressed this issue and the House this evening. He was right to pay tribute to the All-Party Parliamentary Group on Anti-Corruption and Responsible Tax; I would link with that the specific work of Dame Margaret Hodge MP, the Royal United Services Institute and many of those in civil society to which the Minister has referred. I was especially pleased to hear what he said about working collaboratively with those organisations that have been involved in taking this amendment forward.
I do not underestimate the importance of what the Minister has said to the House. He said that he will look at the outstanding issue of the six-month retrospective period; although he gave no guarantees or assurances on that front, at least we will be able to discuss and examine it further. However, he has agreed to introduce secondary legislation before the end of the year—not “at a time to be agreed” or some possibility of legislation coming in the next nine or 10 months, but by the end of this year. I welcome that very much. He also told the House that it would be done under the affirmative procedure, which will give us the chance to come back again. Significant progress has been made on this and I am very grateful to the Minister. I am very happy to withdraw the amendment.
Lord Sharpe of Epsom
“SCHEDULECRIMINAL LIABILITY OF BODIES: ECONOMIC CRIMESCommon law offences
1_ Cheating the public revenue.2_ Conspiracy to defraud.3_ In Scotland, the following offences at common law—(a) fraud;(b) uttering;(c) embezzlement;(d) theft.Statutory offences
4_ An offence under any of the following provisions of the Theft Act 1968—(a) section 1 (theft);(b) section 17 (false accounting);(c) section 19 (false statements by company directors etc);(d) section 20 (suppression etc of documents);(e) section 24A (dishonestly retaining a wrongful credit).5_ An offence under any of the following provisions of the Theft Act (Northern Ireland) 1969—(a) section 1 (theft);(b) section 17 (false accounting);(c) section 18 (false statements by company directors etc);(d) section 19 (suppression etc of documents);(e) section 23A (dishonestly retaining a wrongful credit).6_ An offence under any of the following provisions of the Customs and Excise Management Act 1979—(a) section 68 (offences in relation to exportation of prohibited or restricted goods);(b) section 167 (untrue declarations etc);(c) section 170 (fraudulent evasion of duty).7_ An offence under the Forgery and Counterfeiting Act 1981 (forgery, counterfeiting and kindred offences).8_ An offence under section 72 of the Value Added Tax Act 1994 (fraudulent evasion of VAT).9_ An offence under section 46A of the Criminal Law (Consolidation) (Scotland) Act 1995 (false monetary instruments).10_ An offence under any of the following sections of the Financial Services and Markets Act 2000—(a) section 23 (contravention of prohibition on carrying on regulated activity unless authorised or exempt); (b) section 25 (contravention of restrictions on financial promotion);(c) section 85 (prohibition on dealing etc in transferable securities without approved prospectus);(d) section 398 (misleading the FCA or PRA).11_ An offence under any of the following sections of the Terrorism Act 2000—(a) section 15 (fund-raising);(b) section 16 (use and possession);(c) section 17 (funding arrangements);(d) section 18 (money laundering);(e) section 63 (terrorist finance: jurisdiction).12_ An offence under any of the following sections of the Proceeds of Crime Act 2002—(a) section 327 (concealing etc criminal property);(b) section 328 (arrangements facilitating acquisition etc of criminal property);(c) section 329 (acquisition, use and possession of criminal property);(d) section 330 (failing to disclose knowledge or suspicion of money laundering);(e) section 333A (tipping off: regulated sector).13_ An offence under section 993 of the Companies Act 2006 (fraudulent trading).14_ An offence under any of the following sections of the Fraud Act 2006—(a) section 1 (fraud);(b) section 6 (possession etc of articles for use in frauds);(c) section 7 (making or supplying articles for use in frauds);(d) section 9 (participating in fraudulent business carried on by sole trader);(e) section 11 (obtaining services dishonestly).15_ An offence under any of the following sections of the Bribery Act 2010—(a) section 1 (bribing another person);(b) section 2 (being bribed);(c) section 6 (bribery of foreign public officials).16_ An offence under section 49 of the Criminal Justice and Licensing (Scotland) Act 2010 (possession, making or supplying articles for use in frauds).17_ An offence under any of the following sections of the Financial Services Act 2012—(a) section 89 (misleading statements);(b) section 90 (misleading impressions);(c) section 91 (misleading statements etc in relation to benchmarks).18_ An offence under regulation 86 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.19_ An offence under regulations made under section 49 of the Sanctions and Anti-Money Laundering Act 2018 (money laundering and terrorist financing etc).20_ (1) An offence under an instrument made under section 2(2) of the European Communities Act 1972 for the purpose of implementing, or otherwise in relation to, EU obligations created or arising by or under an EU financial sanctions Regulation.(2) An offence under an Act or under subordinate legislation where the offence was created for the purpose of implementing a UN financial sanctions Resolution. (3) An offence under paragraph 7 of Schedule 3 to the Anti-terrorism, Crime and Security Act 2001 (freezing orders).(4) An offence under paragraph 30 or 30A of Schedule 7 to the Counter-Terrorism Act 2008 where the offence relates to a requirement of the kind mentioned in paragraph 13 of that Schedule.(5) An offence under paragraph 31 of Schedule 7 to the Counter-Terrorism Act 2008.(6) An offence under regulations made under section 1 of the Sanctions and Anti-Money Laundering Act 2018 (sanctions regulations).(7) In this paragraph—“EU financial sanctions Regulation” and “UN financial sanctions Resolution” have the same meanings as in Part 8 of the Policing and Crime Act 2017 (see section 143 of that Act);“subordinate legislation” has the same meaning as in the Interpretation Act 1978.”Member’s explanatory statement
This amendment sets out the list of offences in relation to which liability may be attributed to the body in accordance with Clause (Attributing criminal liability for economic crimes to certain bodies)(1).
Lord Garnier
Member’s explanatory statement
This amendment, together with the amendment to leave out Clause 190, would remove the exemption for organisations that are not “large organisations” from the failure to prevent regime so that there are no exemptions, although the statutory defence will apply to all organisations.
Lord Garnier (Con)
My Lords, clearly, I have not persuaded the Government, but I hope that I have not treated their arguments with disrespect. We have had not a row but an honest disagreement. As with all sorts of disagreements, I invite the House to arbitrate and will press this amendment to a Division.
The Deputy Speaker (Baroness Barker) (LD)
I advise the House that, if Amendment 110 is agreed to, I cannot call Amendment 111 because of pre-emption.
The Deputy Speaker (Baroness Barker) (LD)
My Lords, I cannot call Amendment 111 because of pre-emption.
Amendments 112 to 116
Lord Sharpe of Epsom
Member’s explanatory statement
This amendment and my amendment at page 178, line 2 substitute the term “subsidiary undertaking” for “subsidiary”, for consistency with my amendment at page 178, line 3.
“(1A) A relevant body is also guilty of an offence under subsection (1) if—(a) an employee of the relevant body commits a fraud offence intending to benefit (whether directly or indirectly) the relevant body,(b) the fraud offence is committed in a financial year of a parent undertaking of which the relevant body is a subsidiary undertaking (“the year of the fraud offence”), and(c) the parent undertaking is a relevant body which is a large organisation.”Member’s explanatory statement
This amendment establishes that an offence of failure to prevent fraud may be committed by a subsidiary of a large organisation where an employee of the subsidiary commits a fraud offence, intending to benefit the subsidiary.
Member’s explanatory statement
This amendment omits unnecessary words.
Member’s explanatory statement
See the explanatory note for my amendment at page 177, line 28.
“(6A) For the purposes of this section a person is also associated with a relevant body if the person is an employee of a subsidiary undertaking of the relevant body; but for the purpose of determining whether an offence is committed by virtue of this subsection, subsection (1) has effect with the omission of paragraph (b) (and the “or” preceding it).”Member’s explanatory statement
This amendment establishes that an offence of failure to prevent fraud may be committed where an employee of a subsidiary of a large organisation commits a fraud offence, intending to benefit the large organisation.
Lord Sharpe of Epsom
“(1A) The reference in subsection (1) to a relevant body does not include a relevant body which is a parent undertaking (as to which see section (Large organisations: parent undertakings)).”Member’s explanatory statement
See the explanatory statement for new Clause (Large organisations: parent undertakings).
Member’s explanatory statement
This amendment enables new Clause (Large organisations: parent undertakings) to be modified for the purpose of altering the meaning of “large organisation”.
“(6A) Before making regulations under subsection (5) or (6) the Secretary of State must consult—(a) the Scottish Ministers, and(b) the Department of Justice in Northern Ireland.”Member’s explanatory statement
This amendment requires consultation to take place before the powers in subsections (5) and (6) are exercised.
Lord Sharpe of Epsom
“Large organisations: parent undertakings
(1) For the purposes of section 188(1) and (1A) a relevant body which is a parent undertaking is a “large organisation” only if the group headed by it satisfied two or more of the following conditions in the financial year of the body that precedes the year of the fraud offence—
Aggregate turnover | More than £36 million net (or £43.2 million gross) |
Aggregate balance sheet total | More than £18 million net (or £21.6 million gross) |
Aggregate number of employees | More than 250. |
This amendment and my amendment at page 179, line 35, enable certain parent undertakings to qualify as a “large organisation” for the purposes of the offence of failure to prevent fraud.
Lord Sharpe of Epsom
“(5A) “Parent undertaking” has the same meaning as in the Companies Acts (see section 1162 of the Companies Act 2006).”Member’s explanatory statement
This amendment is supplementary to new Clause (Large organisations: parent undertakings).
“(8) “Subsidiary undertaking” has the same meaning as in the Companies Acts (see section 1162 of the Companies Act 2006).” Member’s explanatory statement
This amendment is supplementary to new Clause (Large organisations: parent undertakings).
Lord Evans of Rainow (Con)
My Lords, I beg to move that we adjourn during pleasure—
“Update on the Fraud Strategy
The Government must publish, and lay before Parliament, an update by July 2024, and annually thereafter, on the progress and effectiveness of the implementation of the commitments made under Pillars 1, 2 and 3 of the Fraud Strategy published in May 2023, and the impact of the commitments, as it relates to the reduction of economic crime.”Member’s explanatory statement
This amendment requires the Government provide an update on the impact of the Fraud Strategy of May 2023 by July 2024 and then annually thereafter.
Baroness Bennett of Manor Castle (GP)
My Lords, I may be able to assist the House by moving Amendment 125—if no one yells at me, I will assume I am doing the right thing—in the name of the noble Lord, Lord Agnew, to which I have attached my name. I shall keep going. Noble Lords will see that this amendment calls for an update on the fraud strategy and for the Government to publish and lay before Parliament
“an update … by July 2024, and annually thereafter”.
We have debated at considerable length the fact that the UK is
“the fraud capital of the world”—
and there I am quoting the head of UK Finance. I attached my name to the amendment because, as I do not need to say to the House, the noble Lord, Lord Agnew, is absolutely our stalwart leader on these issues, so I beg to move.
Lord Agnew of Oulton (Con)
My Lords, I do not seek to press this amendment. I merely say that the fraud plan, which my noble friend the Minister worked so hard on, has produced a list of some 74 commitments. I certainly am not going to add to the agony of the House and list them; all I ask my noble friend to do is to ensure that there is a mechanism for his department to track the progress of all these commitments. In aggregate, they would entirely change the landscape, but if they are not pursued, we will not move forward.
Baroness Blake of Leeds (Lab)
Amendment 128 in the name of my noble friend Lord Coaker has a straightforward, clear ask: within a year of the Bill passing, the Secretary of State must publish a report on economic crime and investigation. It must include the performance of the framework for investigating crime, et cetera, and an assessment of the roles of the Serious Fraud Office in particular. Important elements mentioned in the amendment include the adequate resourcing of staff and the strategy for fees, which we have discussed elsewhere.
Lord Sharpe of Epsom (Con)
My Lords, I thank the noble Baroness, Lady Blake, for speaking to the amendment in the name of the noble Lord, Lord Coaker, and my noble friend Lord Agnew of Oulton for his amendment. These amendments seek to add further parliamentary scrutiny on economic crime matters.
However, I have been clear throughout the previous debates on this topic that it is the Government’s view that there is already more than sufficient external scrutiny in the areas outlined by the noble Lords. These amendments are therefore duplicative, and if accepted would lead to agencies and government departments being caught in resource-intensive reporting requirements that would have no real benefit to parliamentarians, detracting from their core roles of tackling economic crime. I have noted what my noble friend has said, and the Government are of course more than committed to doing the things he suggests.
Amendment 128 in the name of the noble Lord, Lord Coaker, would require the Government to issue a report on the performance of agencies and departments in tackling economic crime. I am aware of the strength of his feeling on the resourcing, performance and co-ordination of operational agencies. I hope that the sessions we have facilitated for him with Companies House and the Serious Fraud Office will have gone some way to reassuring him on this.
I can also reassure him and the House that the Government are ensuring that the response to economic crime has the necessary funding. The combination of 2021’s spending review settlement and private sector contributions through the new economic crime levy will provide funding of £400 million over the spending review period. The levy applies to the AML-regulated sector and will fund new or uplifted activity to tackle money laundering, starting from 2023-24.
In addition, a proportion of assets recovered under the Proceeds of Crime Act 2002 are already reinvested in economic crime capability. Under the asset recovery incentivisation scheme—ARIS—receipts paid into the Home Office are split 50:50 between central government and operational partners, based on their relative contribution to delivering receipts. In 2021-22 this resulted in £142 million being redistributed to POCA agencies. That should provide the necessary reassurance on resourcing and funding. Given what I hope to have shown is a significant amount of reporting, external scrutiny and indeed funding and resource, I ask the noble Baroness, on behalf of the noble Lord, Lord Coaker, not to press Amendment 128.
Baroness Bennett of Manor Castle (GP)
My Lords, I refer to a comment made by another Minister at the Dispatch Box that we will come back to economic crime and fraud again and again. I have no doubt about that. In the meantime, I beg leave to withdraw Amendment 125.
Lord Garnier
“Failure to prevent fraud and money laundering
(1) A relevant body is guilty of an offence if a person who is associated with the body (“the associate”) commits a fraud or money laundering offence intending to benefit (whether directly or indirectly)—(a) the relevant body, or(b) any person to whom, or to whose subsidiary, the associate provides services on behalf of the relevant body.(2) The relevant body is not guilty of an offence under subsection (1)(a) where the conduct underlying the offence was intended to cause harm to the body.(3) It is a defence for the relevant body to prove that, at the time the relevant offence was committed— (a) the body had in place such prevention procedures as it was reasonable in all the circumstances to expect the body to have in place, or(b) it was not reasonable in all the circumstances to expect the body to have any prevention procedures in place.(4) In subsection (3) “prevention procedures” means procedures designed to prevent persons associated with the body from committing fraud or money laundering offences as mentioned in subsection (1).(5) A “fraud or money laundering offence” is an act which constitutes—(a) an offence listed in Schedule 11 (failure to prevent fraud: fraud offences) (a “listed offence”), or(b) aiding, abetting, counselling or procuring the commission of a listed offence.(6) For the purposes of this section a person is associated with a relevant body if—(a) the person is an employee, agent or subsidiary of the relevant body, or(b) the person otherwise performs services for or on behalf of the body.(7) Whether or not a particular person performs services for or on behalf of a relevant body is to be determined by reference to all the relevant circumstances and not merely by reference to the nature of the relationship between that person and the body.(8) Where a relevant body is liable to be proceeded against for an offence under subsection (1) in a particular part of the United Kingdom, proceedings against the body for the offence may be taken in any place in the United Kingdom.(9) Where by virtue of subsection (8) proceedings against a relevant body for an offence are to be taken in Scotland—(a) the body may be prosecuted, tried and punished in a sheriff court district determined by the Lord Advocate, as if the offence had been committed in that district, and(b) the offence is, for all purposes incidental to or consequential on the trial or punishment, deemed to have been committed in that district.(10) A relevant body guilty of an offence under this section is liable—(a) on conviction on indictment, to a fine;(b) on summary conviction in England and Wales, to a fine;(c) on summary conviction in Scotland or Northern Ireland, to a fine not exceeding the statutory maximum.(11) In this section—“relevant body” means—(a) a body which is incorporated under the law of any part of the United Kingdom and which carries on a business (whether there or elsewhere),(b) any other body corporate (wherever incorporated) which carries on a business, or part of a business, in any part of the United Kingdom,(c) a partnership which is formed under the law of any part of the United Kingdom and which carries on a business (whether there or elsewhere), or(d) any other partnership (wherever formed) which carries on a business, or part of a business, in any part of the United Kingdom,and, for the purposes of this section, a trade or profession is a business;“sheriff court district” is to be read in accordance with the Criminal Procedure (Scotland) Act 1995 (see section 307(1) of that Act).(12) It is immaterial for the purposes of section (1) whether— (a) any relevant conduct of a relevant body, or(b) any conduct which constitutes part of a relevant fraud or money laundering offence,takes place in the United Kingdom or elsewhere.”
Lord Agnew of Oulton
“Civil recovery: costs of proceedings
After section 313 of the Proceeds of Crime Act 2002 insert—“313A Costs orders(1) This section applies to proceedings brought by an enforcement authority under Part 5 of the Proceeds of Crime Act 2002 where the property in respect of which the proceedings have been brought has been obtained through economic crime.(2) The court may not make an order that any costs of proceedings relating to a case to which this section applies (including appeal proceedings) are payable by an enforcement authority to a respondent or a specified responsible officer in respect of the involvement of the respondent or the officer in those proceedings, unless—(a) the authority acted unreasonably in making or opposing the application to which the proceedings relate, or in supporting or opposing the making of the order to which the proceedings relate,(b) the authority acted dishonestly or improperly in the course of the proceedings, or(c) it would not be in the interests of justice.””Member’s explanatory statement
This extends the cost cap for civil recovery cases beyond Unexplained Wealth Orders. Part 5 of the Proceeds of Crime Act permits the recovery of criminal assets where no conviction has been possible. For example, because the individuals avoided conviction by remaining remote from the commission of the crimes but were beneficiaries of them, or having fled the country. It retains safeguards on costs for improper action taken by prosecuting authorities.
Lord Agnew of Oulton (Con)
My Lords, I shall be very brief. First, I thank my noble and learned friend the Minister for his active engagement on this; he knows how strongly I feel about it.
We have a complete mishmash on the principles of cost capping at the moment. For example, cases taken in the magistrates’ courts have cost capping, as do cases taken by the SRA. However, we do not have cost capping for the most important of all: those large cases where the enforcement agencies are trying to take on big-time oligarchs.
The only other thing I would say is that we have heard about Bill Browder tonight. I have spoken to him a lot over the past few months. He said, “The one clause you must get through in this Bill is the one on cost capping”. I beseech the Government to listen to us on this and bring forward a clause on cost capping.
Lord Faulks (Non-Afl)
My Lords, I rise briefly to support the noble Lord. Two key themes emerged from our lengthy debates on the Bill. The first was that the scale of economic crime is a major threat to the prosperity of the country. The second was that there is a significant inequality of arms between the enforcement authorities and the perpetrators of economic crimes. I could weary the House at length but I will not do so. This is an attempt to redress that inequality and not provide a disincentive for the authorities to pursue the perpetrators of economic crime.
Lord Ponsonby of Shulbrede (Lab)
My Lords, if the noble Lord chooses to move to a vote, we will support him. This amendment would build on last year’s Bill, which introduced similar changes to unexplained wealth orders. It is a welcome development, and I hope that the noble Lord presses his amendment to a vote.
Lord Bellamy (Con)
My Lords, unfortunately, the Government are not able to accept this amendment, although we are sympathetic to the points made by my noble friend Lord Agnew. The amendment is designed to protect public authorities from having costs awarded against them if they fail to recover the proceeds of economic crime under the Proceeds of Crime Act.
First, the Government are not persuaded that public authorities that lose their case should be protected in this way. Secondly, this is a major breach of the general principle applied in civil litigation in the High Court that the loser pays.
Thirdly, it is a major interference with the discretion of the court on the question of costs. Fourthly, if such a change were to be contemplated, it should be a matter for the Civil Procedure Rules and not something inserted without detailed reflection on Report in your Lordships’ House. Fifthly, it would produce even more inconsistency than allegedly we have already. I do not accept that there is material inconsistency, but you would have one rule for some POCA cases and another rule for other POCA cases, because not all POCA cases are economic crime cases.
However, the Government are prepared actively to consider a consultation to properly consider this matter and the evidence with a view to ensuring that there is a correct balance of justice and the proper consideration of the pros and cons. That, very briefly, is the Government’s position.
I will briefly deal with one or two points. This is not like unexplained wealth orders, which have been mentioned. Those are an investigative procedure and not determinative of civil rights and obligations. In some respects, the UWO procedure is closer to a search warrant than to a recovery of money in civil litigation. It does not provide an analogy to the present case.
It is true that there are various costs regimes in various cases. It is probably not useful to weary your Lordships with particular decisions, but it is not without interest that in the case of Pfizer and Flynn, which involved the Competition and Markets Authority, the authority lost at first instance and was ordered to pay some of the costs. The Court of Appeal overturned that on the basis that it did not want to have the “chilling effect” of public authorities having to pay the costs when they lose litigation. However, the Supreme Court restored the original judgment and said, “This so-called chilling effect is only one factor”. In other words, it is not decisive. You must consider in that jurisdiction all the factors. The Government draw from that case that the so-called chilling effect is not necessarily decisive, and that one must have a regime that enables the court to balance all the relevant effects.
With all respect for the motives behind it and the concerns that have been expressed, this amendment is too blunt an instrument to be a proper exercise of primary legislation in an area which very much calls for balanced consideration under the Civil Procedure Rules. As I said at the outset, the Government are perfectly prepared actively to consider reform of the Civil Procedure Rules with that aim in mind.
I hope that I have persuaded your Lordships that this is not an occasion to make an exception to the well-established rule that has stood for hundreds of years, whether it applies to HMRC, the National Crime Agency or the FCA. If they make a complete Horlicks of a case, there is no reason to let them off the costs. That is the Government’s position.
Lord Agnew of Oulton (Con)
I thank my noble and learned friend the Minister for his answer. He has always been entirely consistent, and I respect that. We have a genuine difference of views. English law has plenty of exceptions to the landscape which my noble and learned friend has set out—for example, when local authorities bring cases following the Booth case, law enforcement bodies when they bring cases in the magistrates’ court, the Law Society when it brings disciplinary action, its prosecutions that fail following the Baxendale-Walker case, and the Competition and Markets Authority, where the Competition Appeal Tribunal can rule in its favour when it is unsuccessful in bringing a case.
There are plenty of examples. I am not seeking to make the perfect the enemy of the good. We can bring this in with this Bill. It would send a very powerful signal. I seek to test the opinion of the House.
Baroness Kramer
“Whistleblowing: economic crime
(1) Whistleblowing is defined for the purposes of this section as any disclosure of information suggesting that, in the reasonable opinion of the whistleblower, an economic crime—(a) has occurred,(b) is occurring, or(c) is likely to occur.(2) The Secretary of State must by regulations made by statutory instrument, within the period of 12 months beginning with the day on which this Act is passed, set up a body corporate, to be known as the Office for Whistleblowers, to receive reports of whistleblowing as defined in subsection (1).(3) Regulations under subsection (2) may not be made unless a draft of the statutory instrument containing them has been laid before, and approved by, each House of Parliament. (4) The Office for Whistleblowers must—(a) protect whistleblowers from detriment resulting from their whistleblowing,(b) ensure that disclosures by whistleblowers are investigated, and(c) escalate information and evidence of wrongdoing outside of its remit to such other appropriate authority as the regulations may provide or otherwise as the Office may determine.(5) The objectives of the Office for Whistleblowers are—(a) to encourage and support whistleblowers to make whistleblowing reports,(b) to provide an independent, confidential and safe environment for making and receiving whistleblowing information,(c) to provide information and advice on whistleblowing, and(d) to act on evidence of detriment to the whistleblower according to such guidance as may be set out by the Secretary of State in the regulations.(6) The Office for Whistleblowers must report annually to Parliament on the exercise of its duties, objectives and functions.”Member’s explanatory statement
This amendment would require the Secretary of State to set up an Office for Whistleblowers to receive reports of whistleblowing in relation to economic crime.
Baroness Kramer (LD)
My Lords, it has been a long day and I discussed this amendment to create an office for whistleblowers extensively in Committee, so I will not cover the detailed ground again. I had intended to bring this amendment back to give an opportunity to the noble Lord, Lord Browne of Ladyton, but, given the small number in the Chamber at this time, we mutually decided that he should save the information that he has gathered for a larger audience. The noble Lord has, in essence, uncovered information that demonstrates how few whistleblower reports are actually investigated by any of the regulators.
As we have discussed before, whistleblowers have two asks, the first of which is that they are not left to be victims of retaliation. This House has heard how often the careers and lives of whistleblowers are destroyed under the current framework. The only protection the FCA offers is confidentiality for the whistleblower reports it receives; it takes no action if whistleblowers are identified—as they often are, because they have raised concerns internally or because the information itself identifies them. The employment tribunal process, which is limited to employees, costly and often drawn out for years, is no real protection. Correcting this by creating an office for whistleblowers is at the heart of my amendment.
The other ask of any whistleblower is that their tip-off, especially when supported by extensive data, is followed up with an investigation. Many of us assume that this would be the norm, except where the tip is malicious or frivolous. Instead, it is the rare exception, as the noble Lord, Lord Browne, will detail when he next has the opportunity. Following a recent survey of whistleblowers, the FCA told us that it is intending to remedy the lack of follow-up. It admits that it followed up fully on only three cases last year. It also says that it will take time to build the capacity and protocols to make follow-up much more the norm.
This amendment would give the office for whistle- blowers the power to get regulators to follow up tips, rather than brush them in the bin, which has been the norm in virtually every area of public and private life. The House will be fairly shocked when it sees the data assembled by the noble Lord, Lord Browne.
Before I close, I again draw the House’s attention to the difference in performance between the UK and the US. I am not suggesting that the US has it all solved or that we should import the US system, which in many ways would not fit well. However, last year, the Securities and Exchange Commission alone received 783 tips from UK whistleblowers, typically because the UK regulator had decided on no action. My understanding is that, in the US, tips means that all those cases will be followed up intensely.
Last weekend, I was stopped in the street by a whistleblower who has received no action by the FCA. He told me that he has been invited to fly to the US— I believe he is there now—because the SEC’s initial investigation, based on his tip, is opening up one of the most significant cases of bank fraud in a decade. It should be an exception for a UK whistleblower to believe that the only place that they can go to get proper investigation is the United States; unfortunately, it is the rule in financial services. For that reason, among others, I beg to move.
Baroness Altmann (Con)
I do not wish to detain the House long. I congratulate the noble Baroness, Lady Kramer, on her amendment and her Private Member’s Bill trying to bring this matter to the House’s attention. She is absolutely right that it is really important, and I wish that we could put a measure of this nature into the Bill—whether this one exactly or something similar.
It should not be a career-ending decision to try to do the right thing. To try to alert the country to a major issue that may be going on within our corporate sector should not be something that one is frightened of. Sadly, at the moment, that is so.
I also congratulate the APPG on Anti-Corruption and Responsible Tax, which has done brilliant work in helping brief the House on the Bill. Finally, I thank my noble friend the Minister, who I know has tried so hard to make this a better Bill. I thank the noble Baroness, Lady Kramer. I fully support her amendment, but I am sad that it is not going to carry tonight.
Baroness Blake of Leeds (Lab)
I add my recognition to the noble Baroness, Lady Kramer, for the extraordinary attention to detail and persistence that she has shown in taking forward this very important issue. I know that the Minister will talk to us about the review that is coming in, but there still remain certain aspects that could be brought in immediately—for example, an expectation that every company at least has a policy on whistleblowing. We do not have to wait for a review to achieve that.
We have heard some extraordinary testimony through the debates on the Bill, and the real heartache and personal cost that have befallen people who have not had a good experience. As the noble Baroness, Lady Altmann, said, too many people wait until their job or career comes to an end before they give any details, if they do at all, on the issues that concern them.
This is an extraordinarily important issue. We need to make sure that the pressure is on. I ask the Minister to give us some reassurance about the review, what will happen when it is concluded, and what the mechanism will be to make sure that its findings are put into practice.
The Minister of State, Department for Business and Trade (Lord Johnson of Lainston) (Con)
Before I speak to the amendment in this group, I draw your Lordships’ attention to my interests as set out in the register.
I turn to Amendment 136. I personally thank the noble Baroness, Lady Kramer, for raising the very important matter of whistleblowing. I have been extremely grateful for the time that she spent with me ahead of this debate, and look forward to continuing being an important conduit for her into the Government, trying to seek a good resolution around the noblest of intentions. I am also grateful to my noble friend Lady Altmann and the noble Baroness, Lady Blake, as always, for their useful, contributory, collaborative comments.
This Government recognise how valuable it is that whistleblowers are prepared to shine a light on wrongdoing and believe that they should be able to do so without fear of recriminations. This entire process fits within the spirit of the ECCT Bill. I pay tribute to the courage displayed by individuals who blow the whistle on wrongdoing.
I appreciate that there is real strength of feeling on this topic, but the Government’s position is still that it is premature to make legislative change ahead of the review of the whistleblowing framework, which has been mentioned in this debate. The Government recognise that there are different proposals for an office for the whistleblower, and the roles and functions that such a body could have.
The office risks duplication and confusion within the established whistleblowing framework. It is not necessarily clear how the office would interact with the existing prescribed persons, many of whom have regulatory powers in specific sectors. It may duplicate their role and responsibilities. It is also not clear how the office would interact with the current approach to detriment protection for whistleblowers and the role of the employment tribunal, and how whistleblowers and employers would be affected.
Secondly, there is an issue around the costs associated with establishing and running a body. It is not clear how the body would be funded, and we should think very carefully before committing taxpayers’ money, even though this is clearly a very important cause that deserves significant amounts of attention.
Finally, I would not want the Government to take such a dramatic step before they have fully considered the effectiveness of our existing framework as well. As I am sure noble Lords would agree, it would be premature to make legislative change before the ongoing review of the whistleblowing framework has concluded and the Government have assessed the evidence.
It is worth pointing out that we were one of the first countries to introduce a whistleblowing framework, and our framework is well established. Internationally, we are regarded as a leader in whistleblowing policy and our framework has been used as a model for other jurisdictions, such as Australia and Ireland. The whistle- blowing framework recognises that workers are actually the first line of defence for employers to detect and take action where wrongdoing is taking place or has the potential to do so. Workers who believe that they have been dismissed or otherwise detrimentally treated for making a protected disclosure can make a claim to the employment tribunal, which can award unlimited compensation.
Baroness Kramer (LD)
My Lords, I thank both the noble Baroness, Lady Altmann, who is so active in this cause, and the noble Baroness, Lady Blake, for the statements they made. I thank the Minister too for reinforcing the steps that the Government are taking to review the whistleblowing framework. We have real hopes that that will achieve a lot of the goals that we have in mind.
I want to reassure the Minister on one point. A canard that is so often raised, and I have addressed it before, is the cost of an office of the whistleblower. Within the Securities and Exchange Commission, the Office of the Whistleblower is regarded not as a cost centre but as a profit centre. Its capacity to pursue wrongdoing has led to such a level of fines as a consequence that over the past 10 years it has passed back in excess of $7 billion to the US treasury. It is certainly an institution that more than pays for itself, because it brings wrongdoers to justice, leads to financial penalties and not only covers its own costs but contributes to taxpayers’ benefit, as it should.
However, I will of course, under these circumstances, at this late hour, and with many thanks, agree to treat this as additional pressure on the Government to further a sense of urgency for the review. I beg leave to withdraw the amendment.
The Deputy Speaker (Baroness Barker) (LD)
My Lords, I should inform the House that the numbers announced for the Division on Amendment 129 need to be corrected. This does not impact the outcome. The correct numbers were: Contents 164, Not-Contents 150.
Clause 204: Regulations
Amendments 137 to 140
Lord Evans of Rainow
Member’s explanatory statement
See the explanatory statement for new clause (Strategic litigation against public participation: requirement to make rules of court).
“(ea) regulations made by the Secretary of State under section (Power to amend list of economic crimes)(1);”Member’s explanatory statement
This amendment provides for regulations under new Clause (Power to amend list of economic crimes) made by the Secretary of State to be subject to the affirmative procedure.
Member’s explanatory statement
This amendment provides for regulations under new Clause (Power to amend list of economic crimes) made by the Scottish Ministers to be subject to the affirmative procedure.
Member’s explanatory statement
This amendment provides for regulations under new Clause (Power to amend list of economic crimes) made by the Northern Ireland Department to be subject to the affirmative procedure.
Lord Evans of Rainow
Member’s explanatory statement
See the explanatory statement for new clause (Strategic litigation against public participation: requirement to make rules of court).
“(1A) Sections (Strategic litigation against public participation: requirement to make rules of court) and (Meaning of “SLAPP” claim) extend to England and Wales only.”Member’s explanatory statement
See the explanatory statement for new clause (Strategic litigation against public participation: requirement to make rules of court).
Lord Evans of Rainow
Member’s explanatory statement
See the explanatory statement for new clause (Strategic litigation against public participation: requirement to make rules of court).
Member’s explanatory statement
This amendment and my other amendment to Clause 206 provide for new Clauses (Attributing liability for economic crimes), (Power to amend list of economic crimes) and (Offences under section (Attributing criminal liability for economic crimes to certain bodies) committed by partnerships) and new Schedule (Criminal liability of bodies: economic crimes) to come into force two months after Royal Assent.
(a) section (Attributing criminal liability for economic crimes to certain bodies) and Schedule (Criminal liability of bodies: economic crimes);(b) section (Power to amend list of economic crimes);(c) section (Offences under section (Attributing criminal liability for economic crimes to certain bodies) committed by partnerships);(d) section 201.”Member’s explanatory statement
See the explanatory statement for my other amendment to Clause 206.
Economic Crime and Corporate Transparency Bill
Tuesday 4th July 2023
(1 year, 4 months ago)
Lords ChamberRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: HL Bill 156-I Marshalled list for Third Reading - (3 Jul 2023)
Lord Johnson of Lainston
That the Bill now be read a third time.
The Minister of State, Department for Business and Trade (Lord Johnson of Lainston) (Con)
My Lords, following the expedited passage of the Economic Crime (Transparency and Enforcement) Act 2022, my noble friend Lord Callanan assured the devolved Governments that they would be closely engaged throughout the passage of this second Bill. Our officials have been sure to keep their counterparts in the devolved Administrations informed and we have met a number of times at ministerial level to discuss key issues.
As noble Lords will be aware, the Northern Ireland Civil Service is facing a number of challenges in the absence of the Northern Ireland Assembly and the subsequent lack of an Executive, one of which being that it is not possible to engage the legislative consent process for this or any other Bill. Given the importance of this Bill, the official level of support for its provisions and the desire to ensure a united response against economic crime, we will proceed to legislate for the whole of the UK without the formal legislative consent of the Northern Ireland Assembly. We have written to the Northern Ireland Permanent Secretaries to keep them informed.
However, I am pleased to confirm that on 20 June the Welsh Senedd voted to grant legislative consent to the Bill. Last week, on the Scottish Parliament’s last sitting day before the Summer Recess, the Scottish Parliament also voted to grant legislative consent to the Bill. I thank colleagues and officials in all three Administrations for the constructive way in which they have worked during the development and passage of this Bill to design measures that will be as effective as possible in tackling economic crime across all parts of the United Kingdom.
Amendment 1
Lord Johnson of Lainston
“Duty to deliver information about exemption from Part 21A
In section 853H of the Companies Act 2006 (duty to deliver information about exemption from Part 21A), after subsection (2) insert—“(2A) The statement under subsection (2) must specify— (a) whether the company falls within the description specified in section 790B(1)(a) or a description specified in regulations under section 790B(1)(b), and(b) if it falls within a description specified in regulations under section 790B(1)(b), what that description is.””Member’s explanatory statement
A company that is exempt from Part 21A of the Companies Act 2006 (information about persons with significant control) has to confirm that it is exempt in each confirmation statement. This new clause would require it to explain why. See the Minister's undertaking at report stage (20 June, col. 149)
Lord Johnson of Lainston (Con)
My Lords, I will now speak briefly to the government amendments, which deliver on the undertakings I made on Report, first in response to concerns raised about the robustness of the people with significant control—PSC—framework and secondly to close a gap in the register of overseas entities information requirements. I thank the noble Lord, Lord Vaux of Harrowden, in particular, for raising these issues. I also welcome the contributions of my noble friend Lord Agnew of Oulton and of the noble Lords, Lord Fox, Lord Ponsonby of Shulbrede, Lord Cromwell and Lord Clement-Jones.
The majority of the amendments fall into the former category of the PSC framework. I reassure noble Lords that, although the number of amendments is higher than we might have liked to table at Third Reading, the majority are minor consequential or tidying-up amendments, and a lot of the new material is in fact a refashioning of existing rules to make them work in the new context of a central register, rather than locally held PSC registers. These amendments improve this by requiring companies to collect additional and more useful information, and by improving the mechanisms through which companies collect the information and report it to Companies House.
Currently, companies must record various “additional matters” in the PSC register. The Bill as drafted removed the regulation-making power through which these additional matters are prescribed. Amendments 26 and 32 preserve those requirements in the context of a centrally held PSC register. Amendment 26 means that a company will notify the registrar if the company knows, or has cause to believe, that a person has become a PSC but the company has not yet had confirmation from them. Amendment 32 means that a company must give notice to the registrar if it knows or has cause to believe that the company has no PSC. This will provide a hook for the registrar to query the statement that a company has no PSC, if she has intelligence to suggest otherwise.
The Bill as drafted removed an important measure to ensure that personal information is protected appropriately. Amendments 14, 17, 20, 22 and 25 ensure that protection mechanisms remain in place, otherwise a person who is at serious risk of violence or intimidation could be reported as a PSC without ever knowing, meaning that they may not have had the opportunity to apply for their personal information not to be displayed publicly.
To improve accuracy and transparency, and to make it easier to monitor and prosecute non-compliance, Amendment 1 requires a company that is exempt from the PSC requirements to explain why it is exempt in each confirmation statement. Amendment 15 improves existing provisions of the Companies Act 2006 which require companies to investigate and obtain information about their PSCs.
Amendments 33 and 34 widen the scope of a regulation- making power in the Bill so that the power can amend relevant parts of the Companies Act 2006 and to make consequential amendments to other parts of the Act. This is to ensure that the legislation is coherent, by avoiding having similar provisions spread across primary and secondary legislation.
Amendment 39 creates a reasonable excuse defence relating to the offence of failing to comply with information notices. This aligns the drafting of the offences with other similar offences.
All other amendments are consequential. I hope that noble Lords will support these amendments.
I turn to Amendment 9. On Report, the noble Lord, Lord Vaux of Harrowden, tabled an amendment seeking to close a gap in the register of overseas entities’ information requirements relating to overseas entities acting as nominees. The Government agreed that this gap exists, and I thank the noble Lord and Transparency International for bringing it to our attention. The amendment tabled by the noble Lord was not quite right, but I hope that this amendment addresses his concerns. It amends Schedule 1 to the Economic Crime Transparency and Enforcement Act 2022 to ensure that, where there is a nominee relationship, this is declared. It then inserts a new definition of beneficial ownership into Schedule 2 to the 2022 Act: “registrable beneficial owners”. I hope that noble Lords will welcome this amendment and agree that it closes the gap that we discussed on Report. I beg to move.
Lord Vaux of Harrowden (CB)
My Lords, I thank the Minister for these amendments. As he said, I described at Report the loophole in the register of overseas entities that allows people to hide the true ownership of UK properties through nominee arrangements. As the Minister described, he tabled Amendment 9, as he undertook to do, which effectively closes that loophole. I am not sure what conclusion to take from the fact that my original 11-line amendment has turned into one that runs to three pages—it presumably says something about my amendment drafting skills—but I am most grateful.
The other amendments that the Minister tabled relate to the register of persons with significant control. These new amendments tighten the rules and will improve the ability to identify PSCs. In particular, I welcome the requirement for the information to be filed on a centrally held register, rather than locally held registers managed by the companies themselves. The requirement to explain why a company is exempt from the PSC requirements is also an important improvement.
I was slightly confused as to what happens if a company has become aware that it has a PSC but the PSC has not yet confirmed their status or information. Amendment 20 appears to deal with that situation; it requires the company to notify the registrar if it knows, or has cause to believe, that a person has become a registrable person but has not yet had confirmation. However, that seems to conflict with the explanatory statement to Amendment 17:
“This means that a company will only need to notify the registrar of a person with significant control if the person has confirmed their status and information about them”.
Amendment 20 says that the registrar must be notified of an unconfirmed PSC but Amendment 17, or at least the explanatory statement to it, seems to say exactly the opposite. Can the Minister please explain which is right and how the two work together? More importantly, can he reassure me that a PSC will not be able to avoid being notified to the registrar simply by failing to confirm their status or information.
I put on record that, while I welcome and support the amendments, I do not believe that they deal with the problem of nominee shareholders not having to declare themselves as such. The new amendments are not an alternative to the amendment that the House passed on Report that required shareholders to state whether or not they are acting as a nominee, and if so who for. I hope that the Government will continue to consider that amendment and look at it favourably in the other place, or at the very least meet with me and others to see whether we can find a workable compromise. It should not be possible for bad actors to hide behind nominees, and there should be consequences for those who act as nominees to conceal such bad actors.
I am extremely grateful to the Minister and his officials for their helpful and constructive engagement throughout this process; they have been extremely generous with their time. In particular, I thank them for having addressed a number of issues, including the one we have just talked about, throughout the progress of the Bill. The level of engagement from all Ministers involved has been exemplary—if only all Bills were managed so constructively. I also thank all noble Lords who have been so generous in their support of the various amendments that I have proposed. When the Bill started in this House, it was generally seen to be a good Bill, and I think that it emerges from this House in even better shape.
Lord Fox (LD)
My Lords, there are times when your Lordships’ House is confronted with so many Third Reading amendments that it can be somewhat irksome, but this is not one of those occasions. This is a useful and helpful response from the Minister and his team to the debate we had on Report, and for that I thank them.
I reinforce the point made by the noble Lord, Lord Vaux, that these amendments do not replace those that we passed on Report, which I similarly hope the Minister and his team will continue to consider as we go forward.
Transparency of ownership and the registration of overseas entities are important to this. The point we have made on a number of occasions about keeping the whole Bill under review and looking at how it works once it becomes an Act will be vital. It is clear that we cannot second-guess all the reactions we will get out there, so having the fluidity and agility to deal with that will be important.
Although it is slightly confusing, I will offer my thanks and congratulations at this point, so that I do not do so twice. First, I congratulate the Ministers on getting legislative consent so smoothly. For many of the Bills that I have been working on of late, legislative consent never seems to come. However, unlike many of those Bills, this is one where all the House agreed on its objectives, so all we were discussing were the ways in which we could achieve those objectives. In that regard, I thank the Ministers for the great amount of time and effort they have devoted to listening to, and having meetings with, Members across your Lordships’ House and for seeking ways of accommodating our helpful suggestions. Particular thanks are due to the noble Lords, Lord Johnson and Lord Sharpe, and the noble and learned Lord, Lord Bellamy, as well as the noble Lord, Lord Goldsmith, and the noble Earl, Lord Minto, who made appearances in Grand Committee.
Similarly, the whole Bill team, and organisations such as Companies House, have given up a lot of their time to speak with us, so thanks should be given to them. There have been many contributions from the Cross Benches and the Benches opposite. I will not single out anyone for praise, except to say that it has been a great pleasure working with everyone on the Bill; I felt that we were all pulling in the same direction.
I also thank the noble Lord, Lord Ponsonby, and the noble Baroness, Lady Blake, for their camaraderie on the Bill. I thank my noble friends Lady Bowles, Lady Kramer, Lord Clement-Jones, Lord Wallace of Saltaire, Lord Thomas of Gresford and Lord Oates on our Benches. Finally, thanks go to Sarah Pughe in our Whips Office, who has kept us all in order.
Baroness Blake of Leeds (Lab)
My Lords, I thank the Minister for his letter on the amendments tabled at Third Reading; it was very much appreciated. All of us involved fully understand the importance of transparency of ownership in Companies House and the register of overseas entities, issues we have revisited many times throughout consideration of the Bill.
Ensuring that complex, opaque structures cannot be built to hide economic wrongdoing is central to what we need this Bill to do. I appreciate the approaches taken in working with colleagues across the House to make sure that this important and complex Bill is as effective as possible at preventing economic crime and enforcing consequences for those who commit or facilitate it. However, as we have heard, other areas of the Bill need to be changed, as this House has agreed and as the noble Lord, Lord Vaux, noted, particularly through his own amendments. I hope that Ministers will also hear those points as the Bill heads back to our colleagues in the other place.
I thank all the officials, whose diligence, work, unfailing response and willingness to talk to us throughout has been exemplary. I thank the Ministers for their patience and commitment to working with all parties across the House, in particular the noble Lords, Lord Johnson and Lord Sharpe, and the noble and learned Lord, Lord Bellamy. We are very grateful for that commitment. I give special thanks to Clare Scally, who works in our office. Her tireless support and endless patience working through the various amendments is to be commended. She has kept us on the straight and narrow going through the various changes, which have been welcomed, in the main. I particularly thank my noble friends who have engaged in the debate, especially my noble friends Lord Ponsonby and Lord Coaker, who have given so much of their insight and expertise to help us move forward.
As we have heard today, there is no doubt that this Bill is in a better place than when we started. However, all of us, hand on heart, know that there is still much more to do, particularly in tackling the sheer scale of economic crime in this country. Many people who were not aware of that now are, and I believe that the demand for action will grow. I hope that our improvements to the Bill will have a swift impact on its legislative journey and really help the many victims who must remain at the heart of our considerations.
Lord Johnson of Lainston (Con)
My Lords, before I conclude, I would just like to cover the comments made by the noble Lord, Lord Vaux. If my memory is correct, Amendment 17 prevents the publication of a PSC whose identity has not been verified, so there is no conflict between the two. It is only right that people whose identity has not been verified is published. What is important about these additional amendments is that they ensure that you have to ascertain that you have no PSCs, or if the PSC has not been identified then the registrar is able to make further inquiries. They are not inconsistent and make a sound change to the Bill very much along the lines the noble Lord was recommending in the first place.
I thank the Opposition Front-Benchers, in particular the noble Lords, Lord Coaker and Lord Ponsonby of Shulbrede, the noble Baroness, Lady Blake of Leeds—a formidable Front Bench, if I may say—and the noble Lord, Lord Fox. I thank them for their engagement and constructive scrutiny of the Bill, as well as the enormous amount of time they dedicated to the various meetings ahead of each set of debates. It was a very valuable collaboration and I believe together in this House, we have formed a significant piece of legislation that all the peoples of the United Kingdom will benefit from.
I thank some of the other key contributors to this Bill. Many other noble Lords have been instrumental in the improvements made during its passage through this House, including the noble Lords, Lord Vaux of Harrowden and Lord Alton of Liverpool. The noble Lord, Lord Vaux, and I spent many hours working through this Bill, and if ever asked to point to the value of this great Chamber, it is exactly those constructive debates that I would point to. I am extremely grateful for his input and strong sense of collaboration.
Thanks must also go to my noble friends Lady Stowell of Beeston, Lady Morgan of Coates, Lord Leigh of Hurley—I have rightly described him as a “guru of finance”— Lord Sandhurst, and others for their input and constructive challenge. I also thank my noble friend Lord Agnew of Oulton, who has also engaged extremely constructively with me during this process, and my noble and learned friend Lord Garnier. Over recent months, we have had robust discussions and debates and I genuinely thank them for their engagement.
I must also thank the Whip, my noble friend Lord Evans of Rainow; the formidable team of Whips and officials; and my ministerial colleagues—my noble friends Lord Sharpe of Epsom and Lord Minto, and my noble and learned friend Lord Bellamy—who have all done an excellent job when representing this Bill in the House in all debates over the last few months. The Bill is significant both in size and scope, spanning several departments.
This brings me to all the officials working across multiple departments behind the scenes supporting the ministerial team as we engaged and debated with noble Lords on the detail of the Bill; I extend true personal thanks and the thanks of my noble friend Lord Sharpe. I thank Louise Smyth, the registrar of Companies House, who will be taking many of the actions we are passing through this House in order to make Companies House function more effectively. She and her entire team have engaged consistently throughout this process, and we wish her the greatest of success in implementing this dramatic programme.
I thank the analysis, company law and corporate transparency team in my own Department for Business and Trade, headed especially ably by the deputy director, Matt Ray, and his head of policy, Steve Webster. I thank the criminal finances and asset recovery unit in the Home Office, excellently led by Maria Hannan. I thank Paul Rowlands, Lucy Chisholm, the hard-working legal teams in both departments—I can certainly attest to that—and the expert drafters from the Office of the Parliamentary Counsel, particularly Diggory Bailey and Camilla Grundy. I thank my private office team, in particular, Emily Tranter and Simon Moore, who have supported me so much over these last few months. Finally, I thank the Bill team: Tom Ball, the Bill manager, and his fantastic team of Nicola Wallace, Anna Gray, Corrie Monaghan, Tim Holland, Sophie Curry, Monique Sidhu, Michael Tam and Carolin Grassmann. Everyone involved has demonstrated impressive levels of expertise, and I think I can speak for all Ministers when I say that we felt in safe hands. I am grateful for their proactive, patient and professional support throughout.
Finally, I thank the House authorities for managing the large number of amendments made in this House, and the parliamentary staff, the doorkeepers and clerks for their professionalism and continued support to the Bill and to your Lordships’ House.
To conclude, this Bill is a milestone piece of legislation, which will deliver major reforms to the framework for corporate criminal liability, improving the ability to hold corporations liable in their own right for economic crimes; the first serious reform of limited partnership law since 1907; the most significant changes to our system for setting up and maintaining companies since the 1850s; the first national legislation from any Government to take action against SLAPPs; and the legislative underpinning to tackle the new threats facing us in 21st century through action on crypto assets and improved data-sharing.
Economic crime affects every single one of us in different ways and at different scales. This Government are determined to tackle economic crime and drive out dirty money, protecting British citizens. We are ensuring that public agencies, law enforcement and the private sector have the tools needed to deliver greater protections for members of the public and businesses. As I have said on multiple occasions, the Government have been determined throughout that the Bill strikes the right balance in all areas between tackling criminality and avoiding undue burdens on the law-abiding majority. I remain keener than ever to get this important legislation on the statute books, and look forward to implementing the reforms that it contains when we reach Royal Assent. I beg to move.
Lord Johnson of Lainston
Member’s explanatory statement
This is consequential on my amendment to Schedule 2, page 222, line 31. See the Minister's undertaking at report stage (20 June, col. 149).
Member’s explanatory statement
This is consequential on my amendment to Schedule 2, page 225, line 17 inserting a new section 790LCB into the Companies Act 2006. See the Minister's undertaking at report stage (20 June, col. 149).
Member’s explanatory statement
This is consequential on my amendment to Schedule 2, page 225, line 17 inserting a new section 790LCB into the Companies Act 2006. See the Minister's undertaking at report stage (20 June, col. 149).
Lord Johnson of Lainston
Member’s explanatory statement
Clauses 68, 136 and 166 ensure that certain documents are withheld from public inspection. My amendments to those Clauses protect similar documents delivered under regulations under section 1067A(5)(a) and (6) of the CA 2006. My amendments are therefore consequential on those regulation-making powers, which were added at earlier stages.
Member’s explanatory statement
See the explanatory statement to my first amendment to Clause 68.
Lord Johnson of Lainston
Member’s explanatory statement
See the explanatory statement to my first amendment to Clause 68.
Member’s explanatory statement
See the explanatory statement to my first amendment to Clause 68.
Lord Johnson of Lainston
“Registrable beneficial owners: nominees
(1) The Economic Crime (Transparency and Enforcement) Act 2022 is amended as follows.(2) In Schedule 1 (required information)—(a) in paragraph 3(1), for paragraphs (e) and (f) substitute—“(e) whether the individual is a registrable beneficial owner by virtue of paragraph 2(1) of Schedule 2 or paragraph 2(2) of that Schedule;(f) if the individual is a registrable beneficial owner by virtue of paragraph 2(1) of Schedule 2—(i) a statement as to which of the conditions in paragraph 6 of that Schedule is met and why, and(ii) a statement as to whether that condition is met by virtue of the individual being a trustee;(fa) if the individual is a registrable beneficial owner by virtue of paragraph 2(2) of Schedule 2, a statement as to which of the conditions in paragraph 6A of that Schedule is met and why;”;(b) in paragraph 4, for sub-paragraph (f) substitute—“(f) whether the government or public authority is a registrable beneficial owner by virtue of paragraph 4(1) of Schedule 2 or paragraph 4(2) of that Schedule;(fa) if the government or public authority is a registrable beneficial owner by virtue of paragraph 4(1) of Schedule 2, a statement as to which of the conditions in paragraph 6 of that Schedule is met and why;(fb) if the government or public authority is a registrable beneficial owner by virtue of paragraph 4(2) of Schedule 2, a statement as to which of the conditions in paragraph 6A of that Schedule is met and why;”;(c) in paragraph 5(1), for paragraphs (g) and (h) substitute—“(g) whether the entity is a registrable beneficial owner by virtue of paragraph 3(1) of Schedule 2 or paragraph 3(2) of that Schedule;(h) if the entity is a registrable beneficial owner by virtue of paragraph 3(1) of Schedule 2—(i) a statement as to which of the conditions in paragraph 6 of that Schedule is met and why, and(ii) a statement as to whether that condition is met by virtue of the entity being a trustee;(ha) if the entity is a registrable beneficial owner by virtue of paragraph 3(2) of Schedule 2, a statement as to which of the conditions in paragraph 6A of that Schedule is met and why;”. (3) In Schedule 2 (registrable beneficial owners)—(a) in paragraph 2—(i) the existing text becomes sub-paragraph (1);(ii) in paragraph (a) of that sub-paragraph, for “(see Part 2)” substitute “by virtue of paragraph 6”;(iii) after that sub-paragraph insert—“(2) An individual is also a “registrable beneficial owner” in relation to an overseas entity if the individual is treated as a beneficial owner of the overseas entity by virtue of paragraph 6A.”;(b) in paragraph 3—(i) the existing text becomes sub-paragraph (1);(ii) in paragraph (a) of that sub-paragraph, for “(see Part 2)” substitute “by virtue of paragraph 6”;(iii) after that sub-paragraph insert—“(2) A legal entity other than a government or public authority is also a “registrable beneficial owner” in relation to an overseas entity if it is treated as a beneficial owner of the overseas entity by virtue of paragraph 6A.”;(c) in paragraph 4—(i) the existing text becomes sub-paragraph (1);(ii) in that sub-paragraph, for “(see Part 2)” substitute “by virtue of paragraph 6”;(iii) after that sub-paragraph insert—“(2) A government or public authority is also a “registrable beneficial owner” in relation to an overseas entity if it is treated as a beneficial owner of the overseas entity by virtue of paragraph 6A.”;(d) after paragraph 6 insert—“Persons treated as beneficial owners where entity holds land as nominee6A_ A person (“X”) is to be treated as a beneficial owner of an overseas entity (“Y”) if one or more of the following conditions are met.Y holds land in England or Wales as nominee for XCondition 1 is that Y—(a) is registered in the register of title kept under the Land Registration Act 2002 as the proprietor of a qualifying estate within the meaning of Schedule 4A to that Act,(b) became so registered in pursuance of an application made on or after 1 January 1999, and(c) holds the qualifying estate as nominee for—(i) X, or(ii) an entity of which X is a beneficial owner by virtue of paragraph 6.Y holds land in Scotland as nominee for XCondition 2 is that—(a) Y—(i) holds an interest in land by virtue of being entered, on or after 8 December 2014, as proprietor in the proprietorship section of the title sheet for a plot of land that is registered in the Land Register of Scotland,(ii) is, in relation to a lease that was recorded in the General Register of Sasines or registered in the Land Register of Scotland before that date, by virtue of an assignation of the lease registered in the Land Register of Scotland on or after that date, the tenant under the lease, or(iii) is the tenant under a lease that was registered in the Land Register of Scotland on or after that date, and(b) Y holds the interest in land referred to in paragraph (a)(i), (ii) or (iii) as nominee for— (i) X, or(ii) an entity of which X is a beneficial owner by virtue of paragraph 6.Y holds land in Northern Ireland as nominee for XCondition 3 is that Y—(a) is registered in the register kept under the Land Registration Act (Northern Ireland) 1970 (c. 18 (N.I.)) as the owner of a qualifying estate within the meaning of Schedule 8A to that Act,(b) became so registered on or after the day on which that Schedule came into force, and(c) holds the qualifying estate as nominee for—(i) X, or(ii) an entity of which X is a beneficial owner by virtue of paragraph 6.”;(e) in paragraph 8, for “paragraphs 2(b) and 3(c)” substitute “paragraphs 2(1)(b) and 3(1)(c)”.”Member’s explanatory statement
This amendment means that where an overseas entity holds certain interests in land as a nominee for another person that person is treated as a beneficial owner for the purposes of the register of overseas entity. It also deals with less direct relationships. See the Minister's undertaking at report stage (20 June, col. 187).
Lord Johnson of Lainston
Member’s explanatory statement
See the explanatory statement to my first amendment to Clause 68.
Member’s explanatory statement
See the explanatory statement to my first amendment to Clause 68.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment corrects a cross-reference.
Lord Johnson of Lainston
“9_ In section 790C (key terms), omit subsection (10).”Member’s explanatory statement
This is consequential on my other amendments to Schedule 2 and leaves out a definition that is no longer used. See the Minister's undertaking at report stage (20 June, col. 149).
“9A_ After section 790C insert—“790CA References to “confirmation” etc of informationFor the purposes of this Part a company has had confirmation of—(a) a person’s status as a registrable person or a registrable relevant legal entity in relation to the company,(b) the required particulars of a person (see section 790K),(c) any other information about a person,if the person has supplied that information to the company whether or not in pursuance of any duty imposed by this Part (and references to a company obtaining confirmation of information are to be read accordingly).””Member’s explanatory statement
This defines what is meant by “confirmation” for the purposes of my other amendments to Schedule 2, which mean that a company which knows of a person with significant control etc only has to notify the registrar if it has had confirmation from the person. See the Minister's undertaking at report stage (20 June, col. 149).
“10_ For sections 790D and 790E substitute—“790CB Duty to find out about persons with significant controlA company to which this Part applies must take reasonable steps to find out if there is anyone who is a registrable person or a registrable relevant legal entity in relation to the company and, if so, to identify them.790D Company’s duty to give notices to persons with significant control(1) A company to which this Part applies must give a notice to a person under this section if—(a) the company knows or has cause to believe that the person is a registrable person or a registrable relevant legal entity in relation to the company, but(b) the company has not had confirmation of the person’s status as a registrable person or registrable relevant legal entity or has not had confirmation of all of the required particulars of the person (see section 790K).(2) The notice must require the person—(a) to inform the company whether the person is a registrable person or a registrable relevant legal entity in relation to the company, and(b) if they are, to give the company all of the required particulars of the person (see section 790K).(3) The notice must require the person to whom it is given to comply with the notice by no later than the end of the period of one month beginning with the day on which it is given.(4) The company must give the notice—(a) as soon as reasonably practicable after the company becomes subject to the duty to give a notice under this section, and(b) in any event before the end of the period of 14 days beginning with the day on which the company becomes so subject.(5) A company is not required to give a notice under this section to a person if— (a) the application for the registration of the company contained a statement of initial significant control naming the person as someone who would, on the company’s incorporation, become a registrable person or a registrable relevant legal entity in relation to the company, and(b) the company has no cause to believe that at any time since its incorporation the person has ceased to be a registrable person or a registrable relevant legal entity in relation to the company.(6) The Secretary of State may by regulations make further provision about the giving of notices under this section, including provision about their form and content and the manner in which they must be given.(7) Regulations under subsection (6) are subject to negative resolution procedure.790DA Obtaining information from third parties(1) A company to which this Part applies may give a notice to a person under this section if it knows or has cause to believe that the person—(a) knows the identity of someone who falls within subsection (2), or(b) knows the identity of someone likely to have that knowledge.(2) The persons who fall within this subsection are—(a) a registrable person in relation to the company;(b) a relevant legal entity in relation to the company;(c) an entity which would be a relevant legal entity in relation to the company but for the fact that section 790C(6)(b) does not apply in respect of it.(3) A company must give a notice under subsection (1) to a person (“a third party”) if the company—(a) knows or has cause to believe that a person is a registrable person or a registrable relevant legal entity in relation to the company (“a suspected PSC”),(b) is under a duty to give the suspected PSC a notice under section 790D but does not have the information that it needs in order to contact them, and(c) knows or has cause to believe that the third party—(i) knows the identity of the suspected PSC, or(ii) knows the identity of someone likely to have that knowledge.(4) A notice under subsection (1) must require the person to whom it is given (“the recipient”)—(a) to inform the company whether the recipient knows the identity of any person who—(i) falls within subsection (2), or(ii) is likely to know the identity of anyone who falls within subsection (2), and(b) if the recipient does, to give the company any information within the recipient’s knowledge that would allow the company to contact each such person.(5) The notice must require the person to whom it is given to comply with the notice by no later than the end of the period of one month beginning with the day on which it is given.(6) A person to whom a notice under subsection (1) is given is not required by that notice to disclose any information in respect of which a claim to legal professional privilege (in Scotland, to confidentiality of communications) could be maintained in legal proceedings.(7) The Secretary of State may by regulations make further provision about the giving of notices under this section, including provision about their form and content and the manner in which they must be given. (8) Regulations under subsection (7) are subject to negative resolution procedure.(9) In this section a reference to knowing the identity of a person includes knowing information from which that person can be identified.790E Company’s duty to find out about changes in PSC information(1) This section applies if a company—(a) knows or has cause to believe that there has been a change in the required particulars of a registrable person or a registrable relevant legal entity in relation to the company (see section 790K), but(b) has not had confirmation that the change has occurred or has not had confirmation of all of the information that the company would need to include in a notice of the change under section 790LC(1) or 790LCA(1).(2) The company must give the person a notice requiring the person—(a) to inform the company whether the change has occurred, and(b) if it has, to give the company the information that the company would need to include in a notice of the change under section 790LC(1) or 790LCA (1).(3) The notice must require the person to whom it is given to comply with the notice by no later than the end of the period of one month beginning with the day on which it is given.(4) The company must give the notice—(a) as soon as reasonably practicable after the company becomes subject to the duty to give a notice under subsection (2), and(b) in any event before the end of the period of 14 days beginning with the day on which the company becomes so subject.(5) The Secretary of State may by regulations make further provision about the giving of notices under this section, including provision about their form and content and the manner in which they must be given.(6) Regulations under subsection (5) are subject to negative resolution procedure.790EA Company’s duty to find out about persons ceasing to be PSCs(1) This section applies if a company—(a) knows or has cause to believe that a person has ceased to be a registrable person or a registrable relevant legal entity in relation to the company, but(b) has not had confirmation that the person has ceased to be a registrable person or a registrable relevant legal entity in relation to the company or has not had confirmation of the date on which the person so ceased.(2) The company must give the person a notice requiring the person—(a) to inform the company whether the person has ceased to be a registrable person or a registrable relevant legal entity in relation to the company, and(b) if the person has, to inform the company of the date on which the person so ceased.(3) The notice must require the person to whom it is given to comply with the notice by no later than the end of the period of one month beginning with the day on which it is given.(4) The company must give the notice—(a) as soon as reasonably practicable after the company becomes subject to the duty under subsection (2), and (b) in any event before the end of the period of 14 days beginning with the day on which the company becomes so subject.(5) The Secretary of State may by regulations make further provision about the giving of notices under this section, including provision about their form and content and the manner in which they must be given.(6) Regulations under subsection (5) are subject to negative resolution procedure.790EB Company’s duty to notify failure to comply with notices(1) A company must notify the registrar if a person fails to comply with a notice given by the company under section 790D, 790DA, 790E or 790EA within the period specified in it.(2) The notice must be given within the period of 14 days beginning with end of the period specified in the notice under section 790D, 790DA, 790E or 790EA .790EC Company’s duty to notify of late compliance with notices(1) A company must notify the registrar if a person who has failed to comply with a notice given by the company under section 790D, 790DA, 790E or 790EA within the period specified in it subsequently complies.(2) The notice must be given within the period of 14 days beginning with the day on which the person complied with the notice under section 790D, 790DA, 790E or 790EA .”11_ In section 790F (failure by company to comply with information duties), for subsection (1) substitute—“(1) If a company fails, without reasonable excuse, to comply with a duty under section 790CB, 790D, 790DA(3), 790E, 790EA, 790EB or 790EC to take steps or give a notice, an offence is committed by—(a) the company, and(b) every officer of the company who is in default.”12_ For sections 790G and 790H substitute—“790G Duty to notify company on becoming PSC(1) This section applies to a person if—(a) the person knows that they are a registrable person or a registrable relevant legal entity in relation to a company,(b) the material in the register that is available for public inspection does not indicate the person’s status as a registrable person or registrable relevant legal entity in relation to the company, and(c) the person—(i) has not informed the company of the person’s status as a registrable person or registrable relevant legal entity in relation to the company, or(ii) has not given the company all of the required particulars of the person (see section 790K).(2) The person must—(a) inform the company of the person’s status as a registrable person or registrable relevant legal entity in relation to the company, and(b) give the company the required particulars (see section 790K).(3) The person must comply with the duty in subsection (2) before the end of the period of one month beginning with the day on which the conditions in subsection (1) are met.790H Duty to notify company of changes in PSC information(1) This section applies to a person if— (a) the person knows that they are a registrable person or a registrable relevant legal entity in relation to a company,(b) there has been a change in the required particulars of the person (see section 790K) and the person knows that to be the case, and(c) the person has not informed the company of the change or has not given the company all of the information that the company would need to include in a notice of the change under section 790LC(1) or 790LCA(1).(2) The person must—(a) inform the company of the change, and(b) give the company the information that the company would need to include in a notice of the change under section 790LC(1) or 790LCA(1).(3) The person must comply with the duty in subsection (2) before the end of the period of one month beginning with the day on which the conditions in subsection (1) are met.790HA Duty to notify company of ceasing to be a PSC(1) This section applies to a person if—(a) the person knows that they have ceased to be a registrable person or a registrable relevant legal entity in relation to a company,(b) the material in the register that is available for public inspection does not indicate the person as having ceased to be a registrable person or a registrable relevant legal entity in relation to a company, and(c) the person has not informed the company of having ceased to be a registrable person or a registrable relevant legal entity in relation to the company or has not informed the company of the date on which the person so ceased.(2) The person must inform the company—(a) that the person has ceased to be a registrable person or a registrable relevant legal entity in relation to the company, and(b) of the date on which the person so ceased.(3) The person must comply with the duty in subsection (2) before the end of the period of one month beginning with the day on which the conditions in subsection (1) are met.”12A_ In section 790I (enforcement of disclosure requirements), for the words from “a notice” to the end substitute “—(a) a notice under section 790D, 790DA, 790E or 790EA, or(b) a duty under section 790G, 790H or 790HA.”13_ In section 790J (power to make exemptions)—(a) in subsection (2)(a), for “790D(2) or 790E” substitute “ 790D, 790E or 790EA”;(b) in subsection (2)(c), for “790D(5)” substitute “790DA”;(c) in subsection (2)(d), for “and 790H” substitute “, 790H and 790HA”;(d) in subsection (2)(e) for “section 790M” substitute “any of sections 12A, 790LA, 790LBA, 790LC, 790LCA, 790LCB, 790LD, 790LDA”.”Member’s explanatory statement
This amendment changes provisions in Part 21A of the Companies Act 2006 that are aimed at ensuring that a company has information about persons with significant control. It is connected with the other amendments to that Part made by or proposed to be made by the Bill. See the Minister's undertaking at report stage (20 June, col. 149).
Member’s explanatory statement
This adjusts a heading in the material inserted into the Companies Act 2006, in consequence of my other amendments to Schedule 2. See the Minister's undertaking at report stage (20 June, col. 149).
“790LA Duty to notify registrar of confirmed persons with significant control(1) A company must give a notice to the registrar if it has had confirmation of—(a) a person’s status as a registrable person or a registrable relevant legal entity in relation to the company, and(b) the required particulars of the person (see section 790K).(2) A notice under subsection (1) must contain a statement of the required particulars.(3) A notice under subsection (1) must be given within the period of 14 days beginning with the day on which the company had confirmation as mentioned in that subsection.(4) A company is not required to give a notice under this section in relation to a person if—(a) the application for the registration of the company contained a statement of initial significant control naming the person as someone who would, on the company’s incorporation, become a registrable person or a registrable relevant legal entity in relation to the company, and(b) the company has no cause to believe that at any time since its incorporation the person has ceased to be a registrable person or a registrable relevant legal entity in relation to the company.(5) Nothing in section 126 (notice of trusts not receivable by registrar) affects the duty to give a notice under this section (or the receipt of that notice by the registrar).”Member’s explanatory statement
This means that a company will only need to notify the registrar of a person with significant control if the person has confirmed their status and information about them. See the Minister's undertaking at report stage (20 June, col. 149).
Member’s explanatory statement
This is consequential on my amendment to Schedule 2, page 224, lines 6 to 27. See the Minister's undertaking at report stage (20 June, col. 149).
Member’s explanatory statement
This is consequential on my amendment to Schedule 2, page 224, lines 6 to 27. See the Minister's undertaking at report stage (20 June, col. 149).
“790LBA Duty to notify registrar of unconfirmed persons with significant control(1) A company must give a notice to the registrar if—(a) it knows or has cause to believe that a person has become a registrable person or a registrable relevant legal entity in relation to the company, but(b) it has not yet had confirmation as mentioned in section 790LA (1).(2) The notice must state that fact.(3) A notice under subsection (1) must be given within the period of 14 days beginning with the day on which the company first knows or has cause to believe that the person has become a registrable person or a registrable relevant legal entity in relation to the company. (4) Nothing in this section requires a company, on its incorporation, to give a notice in relation to a person included in the statement of initial significant control under section 12A.”Member’s explanatory statement
This requires a company to notify the registrar if it knows or has cause to believe that someone has become a person with significant control but that fact, or the person’s required particulars, have not been confirmed. See the Minister's undertaking at report stage (20 June, col. 149).
“Duty to notify registrar of changes in required particulars”Member’s explanatory statement
This adds a new heading in the run of sections inserted into the Companies Act 2006, in consequence of my other amendments to Schedule 2. See the Minister's undertaking at report stage (20 June, col. 149).
(a) has had confirmation that there has been a change in the required particulars of a registrable person, or a registrable relevant legal entity, in relation to the company (see section 790K), and(a) has had confirmation of how the required particulars have changed and the date on which they changed.”Member’s explanatory statement
This means that a company only has to notify the registrar of a change in the required particulars of a person with significant control if the person has confirmed details of the change to the company. See the Minister's undertaking at report stage (20 June, col. 149).
“(3) A notice under subsection (1) must be given within the period of 14 days beginning with the day on which the company had confirmation as mentioned in that subsection.”Member’s explanatory statement
This is consequential on my amendment to Schedule 2, page 225, line 4. See the Minister's undertaking at report stage (20 June, col. 149).
“Duty to notify registrar of person ceasing to be person with significant control etc”Member’s explanatory statement
This adds a new heading in the run of sections inserted into the Companies Act 2006, in consequence of my other amendments to Schedule 2. See the Minister's undertaking at report stage (20 June, col. 149).
“790LCA Duty to notify of pre-incorporation changes in required particulars(1) A company must give a notice to the registrar if it—(a) has had confirmation that there was a pre-incorporation change in the required particulars of a proposed PSC (see section 790K), and(b) has had confirmation of how the required particulars have changed and the date on which they changed.(2) But a company is not required to give a notice under subsection (1) in respect of a person if it has given a notice under section 790LD in respect of the person.(3) A notice under subsection (1) must state—(a) the change in the required particulars, and(b) the date on which the change occurred. (4) A notice under subsection (1) must be given within the period of 14 days beginning with the day on which the company had confirmation as mentioned in that subsection.(5) In this section—“pre-incorporation change” means a change that occurred—(a) after the application for the registration of the company was delivered to the registrar, but(b) before the company was incorporated;“proposed PSC”, in relation to a company, means a person who was named in a statement under section 12A(1)(a) as a person who would, on the company’s incorporation, become a registrable person or registrable relevant legal entity in relation to the company.”Member’s explanatory statement
This moves material currently in new section 790LD of the Companies Act 2006 and means that a company will only need to notify the registrar of pre-incorporation changes in the particulars of a person with significant control if the changes have been confirmed by the person. See the Minister's undertaking at report stage (20 June, col. 149).
“790LCB Duty to notify registrar when person ceases to have significant control(1) A company must give a notice to the registrar if it—(a) has had confirmation that a person has ceased to be a registrable person or a registrable relevant legal entity in relation to it, and(b) has had confirmation of the date on which the person so ceased.(2) A notice under subsection (1) must state—(a) the person’s name and service address, and(b) the date on which the person ceased to be a registrable person or a registrable relevant legal entity in relation to the company.(3) A notice under subsection (1) must be given within the period of 14 days beginning with the day on which the company had confirmation as mentioned in that subsection.”Member’s explanatory statement
This is consequential on my amendment to Schedule 2, page 224, lines 6 to 27. See the Minister's undertaking at report stage (20 June, col. 149).
Member’s explanatory statement
This amendment is consequential on my amendment to Schedule 2, page 225, line 17 inserting a new 790LCA into the Companies Act 2006. See the Minister's undertaking at report stage (20 June, col. 149).
Member’s explanatory statement
This changes the language of new section 790LD(1) of the Companies Act 2006 to conform with the language of the other notification duties in relation to persons with significant control (as amended). See the Minister's undertaking at report stage (20 June, col. 149).
Member’s explanatory statement
This is consequential on my amendment to Schedule 2, page 225, line 17 inserting a new 790LCA into the Companies Act 2006. See the Minister's undertaking at report stage (20 June, col. 149).
Member’s explanatory statement
This is consequential on my amendment to Schedule 2, page 225, line 19. See the Minister's undertaking at report stage (20 June, col. 149).
Member’s explanatory statement
This is consequential on my amendment to Schedule 2, page 225, line 17 inserting a new 790LCA into the Companies Act 2006. See the Minister's undertaking at report stage (20 June, col. 149).
“790LDA Duty to notify registrar if company ceases to have persons with significant control(1) A company must give a notice to the registrar if it knows or has cause to believe that—(a) there has at some time been a person who is a registrable person or registrable relevant legal entity in relation to the company, and(b) there has ceased to be anyone who is a registrable person or registrable relevant legal entity in relation to the company.(2) A notice under subsection (1) must —(a) state that the company has that knowledge or cause to believe, and(b) specify the date on which the company first had that knowledge or cause to believe.(3) A notice under subsection (1) must be given within the period of 14 days beginning with the day on which the company first had the knowledge or cause to believe mentioned in that subsection.”Member’s explanatory statement
This imposes a duty on a company to notify the registrar if there ceases to be any persons with significant control in relation to the company. See the Minister's undertaking at report stage (20 June, col. 149).
(b) compliance with Chapter 2 by the company or any person to whom the company has given a notice under that Chapter (including provision requiring a company to provide the registrar with a copy of any such notice, whether on request or otherwise).”Member’s explanatory statement
This expands the regulation-making power to require a company to provide further information in relation to persons with significant control. See the Minister's undertaking at report stage (20 June, col. 149).
“(1A) The provision that may be made by regulations under subsection (1) includes provision amending this Part.(1B) The consequential provision that may be made by regulations under subsection (1) by virtue of section 1292(1) also includes provision amending any other provision of this Act.”Member’s explanatory statement
This would allow regulations under new section 790LE of the Companies Act 2006 (power to create further duties to notify information about persons with significant control) to amend the relevant Part of the Act and make consequential amendments to other parts of the Act. See the Minister's undertaking at report stage (20 June, col. 149).
Member’s explanatory statement
This is consequential on my amendment to Schedule 2, page 225, line 2 inserting a new section 790LBA into the Companies Act 2006. See the Minister's undertaking at report stage (20 June, col. 149).
Member’s explanatory statement
This is consequential on my amendments to Schedule 2, page 225, lines 17 and 41. See the Minister's undertaking at report stage (20 June, col. 149).
Member’s explanatory statement
This is consequential on my amendment to Schedule 2, page 225, line 2 inserting a new section 790LBA into the Companies Act 2006. See the Minister's undertaking at report stage (20 June, col. 149).
Member’s explanatory statement
This is consequential on my amendments to Schedule 2, page 225, lines 17 and 41. See the Minister's undertaking at report stage (20 June, col. 149).
“17A_(1) Schedule 1B (enforcement of disclosure requirements in relation to persons with significant control) is amended as follows.(2) In each of the following provisions, for “or 790E” substitute “, 790DA, 790E or 790EA”—(a) paragraph 1(1)(a) and (3)(a);(b) paragraph 8(3)(a);(c) paragraph 11(a) and (b);(d) paragraph 12(2)(b).(3) For paragraphs 13 and 14 substitute—“Offence of failing to comply with notices13_(1) A person to whom a notice under section 790D, 790DA, 790E or 790EA is addressed commits an offence if the person fails, without reasonable excuse, to comply with the notice.(2) Where the person is a legal entity, the offence is also committed by every officer of the entity who is in default.(3) A person guilty of an offence under this paragraph is liable—(a) on conviction on indictment, to imprisonment for a term not exceeding two years or a fine (or both);(b) on summary conviction—(i) in England and Wales, to imprisonment for a term not exceeding the general limit in a magistrates’ court or a fine (or both);(ii) in Scotland, to imprisonment for a term not exceeding 12 months or a fine not exceeding the statutory maximum (or both);(iii) in Northern Ireland, to imprisonment for a term not exceeding 6 months or a fine not exceeding the statutory maximum (or both).Offence of failing to provide information14_(1) A person commits an offence if the person fails, without reasonable excuse, to comply with a duty under section 790G, 790H or 790HA.(2) Where the person is a legal entity, the offence is also committed by every officer of the entity who is in default.(3) A person guilty of an offence under this paragraph is liable—(a) on conviction on indictment, to imprisonment for a term not exceeding two years or a fine (or both);(b) on summary conviction— (i) in England and Wales, to imprisonment for a term not exceeding the general limit in a magistrates’ court or a fine (or both);(ii) in Scotland, to imprisonment for a term not exceeding 12 months or a fine not exceeding the statutory maximum (or both);(iii) in Northern Ireland, to imprisonment for a term not exceeding 6 months or a fine not exceeding the statutory maximum (or both).False statements: basic offence14A_(1) A person commits an offence if, in purported compliance with a notice under section 790D, 790DA, 790E or 790EA or in purported compliance with a duty imposed by section 790G, 790H or 790HA , and without reasonable excuse, the person makes a statement that is misleading, false or deceptive in a material particular.(2) Where the person is a legal entity, the offence is also committed by every officer of the entity who is in default.(3) A person guilty of an offence under this paragraph is liable on summary conviction—(a) in England and Wales, to a fine;(b) in Scotland, to a fine not exceeding level 5 on the standard scale;(c) in Northern Ireland, to a fine not exceeding level 5 on the standard scale.False statements: aggravated offence14B_(1) A person commits an offence if, in purported compliance with a notice under section 790D, 790DA, 790E or 790EA or in purported compliance with a duty imposed by section 790G, 790H or 790HA, the person makes a statement that the person knows is misleading, false or deceptive in a material particular.(2) Where the person is a legal entity, the offence is also committed by every officer of the entity who is in default.(3) A person guilty of an offence under this paragraph is liable—(a) on conviction on indictment, to imprisonment for a term not exceeding two years or a fine (or both);(b) on summary conviction—(i) in England and Wales, to imprisonment for a term not exceeding the general limit in a magistrates’ court or to a fine (or both);(ii) in Scotland, to imprisonment for a term not exceeding twelve months or to a fine not exceeding the statutory maximum (or both);(iii) in Northern Ireland, to imprisonment for a term not exceeding six months or to a fine not exceeding the statutory maximum (or both).””Member’s explanatory statement
This introduces a reasonable excuse defence for offences relating to a failure to comply with duties relating to persons with significant control. It also replaces the offences relating to false or misleading information with a strict liability offence (not dependent on knowledge) and an aggravated offence (where there is knowledge). See the Minister's undertaking at report stage (20 June, col. 149).
Member’s explanatory statement
This is consequential on my amendments to Schedule 2, page 225, lines 2, 17 and 41. See the Minister's undertaking at report stage (20 June, col. 149).
Economic Crime and Corporate Transparency Bill
Monday 4th September 2023
(1 year, 2 months ago)
Commons ChamberRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Commons Consideration of Lords Amendments as at 4 September 2023 - (4 Sep 2023)
21:03 - The House divided: - Ayes: 295 / Noes: 205 - Question accordingly agreed to.
21:20 - The House divided: - Ayes: 297 / Noes: 209 - Question accordingly agreed to.
21:33 - The House divided: - Ayes: 294 / Noes: 206 - Question accordingly agreed to.
21:46 - The House divided: - Ayes: 291 / Noes: 209 - Question accordingly agreed to.
21:58 - The House divided: - Ayes: 292 / Noes: 206 - Question accordingly agreed to.
Mr Deputy Speaker (Mr Nigel Evans)
I must draw the House’s attention to the fact that financial privilege is engaged by Lords amendments 6, 7, 9 to 12, 14 to 21, 30, 32 to 34, 54, 68, 115, 117, 120, 124, 125, 173, 174 and 178 to 201. If those Lords amendments are agreed to, I will cause the customary entry waiving Commons financial privilege to be entered in the Journal.
After Clause 46
Register of members: information to be included and powers to obtain it
6.50 pm
The Parliamentary Under-Secretary of State for Business and Trade (Kevin Hollinrake)
I beg to move amendment (a) to Lords amendment 23.
Mr Deputy Speaker (Mr Nigel Evans)
With this it will be convenient to discuss:
Lords amendment 151, and Government amendment (a).
Lords amendment 153, and Government amendments (a) to (c).
Lords amendments 115 and 117, and Government motions to disagree.
Lords amendment 159, and Government motion to disagree.
Lords amendment 161, Government motion to disagree, and Government amendment (a) in lieu.
Lords amendments 1 to 22 and 24 to 55.
Lords amendment 56, Government motion to disagree, and Government amendments (a) to (c) in lieu.
Lords amendments 57 to 114, 116, 118 to 150, 152, 154 to 158, 160 and 162 to 229.
Kevin Hollinrake
It is a pleasure to bring this Bill back to the House. It is crucial in ensuring that we can bear down on kleptocrats, criminals and terrorists who abuse our open economy, while also strengthening the UK’s reputation as a place where legitimate business can thrive. I am pleased to say that the Bill is now in a better place and there is a great deal more of it than when it left for the other place back in January. When introduced, the Bill ran to some 239 pages; it is now closer to 400. That reflects the spirit of genuine collaboration across both Houses and the fact that the Government have listened and taken many sensible proposals on board. I take this opportunity to thank Members of both Houses for their collaborative and cross-party approach.
The Government made significant amendments to the Bill in the other place. It is now unquestionably a milestone piece of legislation that takes the UK’s fight against economic crime to an entirely new level. I will summarise a few key changes, starting with the game-changing reforms to corporate criminal liability. As the Minister for Security, my right hon. Friend the Member for Tonbridge and Malling (Tom Tugendhat), committed to, the Government tabled amendments to introduce a new failure to prevent offence, which will drive cultural change towards improved fraud prevention in organisations and, failing that, hold organisations to account with prosecutions if they profit from fraudulent actions.
Layla Moran (Oxford West and Abingdon) (LD)
I thank the Minister for giving way so soon. It is undoubtedly a positive thing that failure to prevent, or at least part of it, has now been included in the Bill, but does he have any sympathy for those warning that because this measure is targeting the larger firms, the small boutique firms—the one-man bands that are very aware of what they are doing and know how to get around the system—will still be allowed to freely operate? Would he consider supporting the Lords amendment that would close that particular loophole?
Kevin Hollinrake
I will speak in detail to the various amendments, including the non-Government amendments, one of which is on the threshold that the hon. Lady refers to. If I may, I will defer addressing that until later in my remarks.
The Government have also introduced reforms to the identification doctrine for economic crimes to make it easier to prosecute corporations in their own right for these offences. The House will know that this is the largest and most meaningful change to corporate criminal liability in decades. It will have a transformative effect on our ability to hold corporates to account for the actions of criminal individuals. I thank my right hon. and learned Friend the Member for South Swindon (Sir Robert Buckland) and my hon. Friend the Member for Bromley and Chislehurst (Sir Robert Neill) for all their work and engagement to further the cause for the reform of corporate criminal liability.
We have also made amendments to tackle strategic lawsuits against public participation, known as SLAPPs, that feature economic crimes. We believe that this is the first national legislation in the world to combat SLAPPs. The new clauses will enable an appropriate, fair and effective early dismissal procedure against SLAPP cases. I very much thank the right hon. Member for Birmingham, Hodge Hill (Liam Byrne) for his work in this area.
Members will also be pleased to hear that the Government have tabled amendments to improve the new statutory objectives for the registrar of companies, and I hope my hon. Friend the Member for Barrow and Furness (Simon Fell) and the hon. Member for Feltham and Heston (Seema Malhotra) in particular will welcome these improvements, given their previous amendments.
We also recognise the points made by several Members of this House, as well as in the other place, about the role of authorised corporate service providers in the identification process, and we have tightened the framework. Our amendments will improve the transparency of ACSPs, including by requiring verification statements made by ACSPs when they carry out ID verification on behalf of an individual to be made publicly available on the register.
Furthermore, we have tabled a number of important amendments to strengthen and increase the transparency of the register of overseas entities, which I trust the hon. Member for Aberavon (Stephen Kinnock) and the right hon. Member for Barking (Dame Margaret Hodge) will welcome, given the amendments they proposed in Committee. I must pay tribute to my ministerial colleagues Lord Sharpe of Epsom, Lord Johnson of Lainston and Lord Bellamy for all the work they have done to get this important Bill to where it is now.
Jim Shannon (Strangford) (DUP)
May I thank the Minister? He always brings his points of view to the Chamber with clarity and helpfulness, and that is appreciated by everyone, including me.
We as a party are of a mind to support the Government on this Bill tonight. I want to ask a question that is probably very specific. It relates to Northern Ireland, where criminal gangs—that is what they are; they masquerade as paramilitaries, but they are criminal gangs—delve into business and economic crime. I am seeking assurance from the Minister—I think he probably will respond positively, but at the same time I seek to get his response on the record. Will this Bill ensure that criminal gangs that use illicit money and launder money from across the whole of Europe and further afield will be accountable, by ensuring that we can catch them, detain them and put them in jail?
Kevin Hollinrake
I thank the hon. Gentleman for his work and his intervention. It is clear that fraud and money laundering are already criminal acts; what the Bill principally does is help to prevent fraud by requiring organisations to make sure that fraud is not happening within them in the first place. I think he has spoken to that in the past, as have I as a Back Bencher. I fully support it as the Minister concerned, and I absolutely believe that the Bill will have a major impact in clamping down on economic crime.
We must do more to tackle crime, but we must also ensure that the UK remains a great place to start and grow a business. As such, the Government strongly oppose putting additional burdens on legitimate business, unless there is a clear rationale for doing so. Any amendments made to strengthen the Bill have been carefully weighed up, and the Government are confident that we have struck the right balance in tackling economic crime and preserving the UK’s welcoming business environment.
Sir Jeremy Wright (Kenilworth and Southam) (Con)
I know that my hon. Friend will come on to make points about failure to prevent offences in relation to burdens on small businesses. May I tell him first that I welcome wholeheartedly the arrival of failure to prevent offences? Like my right hon. and learned Friend the Member for South Swindon (Sir Robert Buckland), I have argued for that when I was Attorney General and since, and I am glad to see it. In relation to failure to prevent and Lords amendment 151 in particular, the Minister will wish to argue that he is seeking to prevent excessive burdens on smaller organisations by limiting that offence to large organisations, but can he explain why subsection (4) of the new clause introduced by Lords amendment 151 does not do that job? It states:
“It is a defence for the relevant body to prove that, at the time the fraud offence was committed…the body had in place such prevention procedures as it was reasonable in all the circumstances to expect the body to have”.
Why would one of those circumstances not be the size and capacity of the organisation in question?
Kevin Hollinrake
I thank my right hon. and learned Friend for his point and his work in this area. I will come on to that amendment, if I may, later in my remarks. He makes a valid point, and we want to ensure there are no loopholes while at the same time maintaining the position that the Bill does not put new burdens on businesses that are not likely to have a systemic effect on economic crime.
Richard Fuller (North East Bedfordshire) (Con)
I interrupt my hon. Friend to pick up the intervention he received from my right hon. and learned Friend the Member for Kenilworth and Southam (Sir Jeremy Wright). I warn those on the Front Bench about what he just said. Leaving the burdens on business to the courts or whichever procedures to define is not a reasonable protection for small businesses. They need the protection that the Minister outlines, because in such circumstances people will go to the most conservative position they can. Although my right hon. and learned Friend suggested that that would provide significant and effective protection, it will not do so in practice as behaviour will change and burdens will increase. I think the Minister is getting the right balance on this.
Kevin Hollinrake
My hon. Friend makes the other point, and these measures are about the delicate balance that we want to strike, ensuring that the right provisions are in place to prevent fraud without putting undue burdens on business. I am pleased that those interventions reflected both those positions so that we can see the legislation holistically rather than just through the lens of failing to prevent fraud.
Kevin Hollinrake
If I may, I will make a little progress on that point.
We believe that the six non-Government amendments for debate would pose significant and disproportionate burdens on business, penalising reasonable companies and businesspeople with limited evidence that the burdens would be outweighed by any meaningful benefits. I will go into each amendment in detail, but I will begin by emphasising the Government’s position. We must insist that the balance achieved in the Bill through Government amendments made in the other place is maintained.
Dame Margaret Hodge
I am grateful to the Minister for saying that, because it was on that point that I wanted him to give way. Does he not think that any honest, upright business, whether large, small or micro, would aim within its own procedures to avoid fraud or money laundering?
Kevin Hollinrake
The vast majority of the business community is honest and upstanding—that is the point. What we are trying to ensure is that those businesses are not disproportionately affected by putting in controls, checks and balances. I speak as a businessperson who did have to implement failure to prevent bribery and tax evasion measures in our business, and I tell the right hon. Member that there were significant administrative burdens around that legislation, and I believe they would be more so for fraud. I will come to that point in more detail.
I turn to Lords amendment 23. The inclusion of lines 84 to 96 would require all UK companies to declare whether they are holding shares on behalf of or subject to the direction of another person or persons as a nominee, and if so to provide details of the person or persons. Fundamentally, that is not necessary. Provisions in the person with significant control framework, as strengthened through the Bill, already require the disclosure of a person of significant control behind a nominee on pain of criminal sanction for non-reporting. That achieves the same intent. A combination of measures already in the Bill, the material discrepancy reporting regime in the Money Laundering and Terrorist Financing Regulations 2022 and Companies House’s new intelligence hub will more effectively flush out undeclared PSCs and deter the provision of false information.
I am afraid that the proposed approach is something of a blunt instrument. It would apply to all shareholders, when we should be focusing on the transparency of individuals exerting significant influence as already provided for under the PSC framework. As such, we would risk burdening millions of companies and their shareholders with new information requirements for no useful purpose. The proposition may sound sensible, but nominee arrangements can be complex, including having multiple layers of nominees and large numbers of beneficiaries for entirely legitimate reasons. For example, pension funds that own shares in a company would be caught. Listed companies would be particularly impacted as their shares are often held by nominee arrangements for legitimate administrative reasons—for example, in stocks and shares individual savings accounts, by custodian banks and by corporate sponsored nominees.
Listed companies report similar information about those owning 3% or more of their shares to the Financial Conduct Authority, so the Lords amendment would partly duplicate existing arrangements. In summary, lines 84 to 96 of the amendment risk disproportionate burdens on legitimate actors and would most likely be ignored by illegitimate actors. Those acting as nominees on behalf of shady individuals behind the scenes are already adequately on the hook if found to have provided false information, as is the company itself.
The effect of inserting those lines into part 8 of the Companies Act 2006 would be to cut across a tenet of UK company law: those running a company—usually the directors—must know its legal owners and act in the interests of the legal owners of the company. Those legal owners are recorded on the register of members. Companies shall have regard to their members record and not, for example, to anyone holding any underlying beneficial interest in their shares.
Lords amendment 115 would introduce two new duties for overseas entities. It would first require event-driven updates on beneficial ownership information and, secondly, require overseas entities to update their record no more than 14 days before the completion of a land transaction rather than the existing requirement to do so annually. Although the amendments are well intentioned, they would significantly increase burdens on both overseas entities and third parties transacting with them, as well as introduce an element of risk in land transactions that the annual update prevents.
As my ministerial colleague Lord Johnson of Lainston explained in the other place, in the case of an overseas entity that owns large commercial premises split into units, the amendment could result in the entity needing to provide updates twice a month, which is a disproportionate burden. There are a number of other technical challenges and impracticalities with setting such a duty on these entities. The Government are not alone in those views. The Law Society of Scotland, the Law Society of England and Wales and the British Property Federation have all expressed their concerns. The Government therefore cannot support the amendment.
Lords amendment 117 would make information about trusts submitted to the register of overseas entities publicly available by removing it from the list of material listed as unavailable for public inspection. It is important to note that the information on trusts is already provided to the registrar when an overseas entity registers on the register. Furthermore, the registrar already discloses trust information to His Majesty’s Revenue and Customs, law enforcement and other persons with functions of a public nature if and when necessary and appropriate. This is not a loophole.
In the other place and in this House, including from the right hon. Member for Barking, the Government have heard and acknowledged that there is a case for broader transparency over trust arrangements beyond law enforcement agencies. The Government therefore added a regulation-making power in the law to allow third-party access to trust data in certain circumstances. That will enable individuals such as civil society organisations and investigative journalists to access such information under certain circumstances.
Liam Byrne (Birmingham, Hodge Hill) (Lab)
I am grateful to the Minister for his thanks for the progress we have made together on SLAPPs. Because of the amendment made on SLAPPs, we are now providing journalists and other truth-tellers with important protections when it comes to investigating economic crime. The Lords amendment is a complement to that. The truth is, there will never be enough enforcement resources for Companies House, HMRC and others, so we do need civil society to be able to bring the disinfectant of sunlight and undertake investigations. It is therefore vital that trust information is provided. Has he seen the new research published by Arun Advani, Andy Summers and their colleagues that shows that the current arrangements shield something like 152,000 properties from that transparency? If we genuinely want to be able to investigate where things are going wrong, where there is corruption, surely it is in the national interest for us to make that information more widely available.
Kevin Hollinrake
I thank the right hon. Member for his intervention. I have seen the report and the media release around it and we do not accept those numbers or the interpretation of beneficial ownership used in drafting the report. Nevertheless, we share his concerns and absolutely want to ensure that transparency will be greater than it is today.
The Government have every intention of exercising the power and intend to ensure that access can be granted in a straightforward way. Information currently held by Companies House was submitted by overseas entities in the expectation that it would not be available for public inspection. Making such information available for public inspection would come with a number of risks, including the possibility of legal challenge. Moreover, publishing the data by default would likely have significant unintended consequences, including potentially exposing information about vulnerable individuals and minors. It is therefore right that the Government take the time to consult properly on this important issue to address the benefits and risks of greater transparency and how this can be achieved.
Nick Smith (Blaenau Gwent) (Lab)
On transparency and trustees, the Minister says that he does not accept the estimate of 150,000 properties that ought to be looked at in more detail, as my right hon. Friend the Member for Birmingham, Hodge Hill (Liam Byrne), said. What is the Government’s estimate of the properties that need transparency?
Kevin Hollinrake
Around 3,000 entities have not properly registered at this point in time. Enforcement action is being taken on them: some 100,000 communications already have gone out to those particular entities, and a number of fines have been issued—about half a million pounds in fines so far. We do not accept those numbers. We are happy to have a conversation with whoever has concerns about the legislation so far. We do not want legislation that cannot be properly enforced and implemented. It is important that we compare like-for-like to ensure this legislation is fit for purpose.
Sir Chris Bryant (Rhondda) (Lab)
I may have misheard, but I think the Minister said that enforcement activity is going on against 100,000 companies—he will correct me when I sit down—and that there have been half a million pounds-worth of fines. That would be £5 a company, would it not?
Kevin Hollinrake
It would be if the hon. Gentleman’s numbers were right, but that is not what I said. Three thousand entities are not currently registered, to our knowledge. Many of those will have already ceased to exist or will have disposed of the property they owned. We are trying to find out the exact numbers. That is about the enforcement action. We have had 100,000 communications with those 3,000 entities, and half a million pounds of fines so far, but those fines can rise exponentially if they continue not to comply properly with the legislation.
Liam Byrne
The Minister has wisely equipped himself with an order-making power, which he referred to earlier. He told the House that he plans to undertake a consultation. It would be of comfort to some in the House—not to all—if he could tell us when he plans to launch that consultation and, in his own mind, when he would like the consultation to be implemented through the power with which he has equipped himself.
Kevin Hollinrake
We intend to launch the consultation by the end of the year, and we would like the regulations in place as soon as possible. It is quite clear that we want to do that. We all agree on the transparency—I agree with the right hon. Gentleman’s point that sunlight is the best disinfectant. I am absolutely keen to do it, but we must make sure we do it right. We do not want any unintended consequences. It is right that we consult widely with the different sectors to make sure that this legislation—and the regulations, when they come—are fit for purpose.
John Penrose (Weston-super-Mare) (Con)
When my hon. Friend does his consultation, will he reassure those of us who are anxious to maintain the distinction between significant control and general beneficiaries? If he is going to try—rightly—to protect minors for example, who he mentioned in his earlier remarks, will he focus on people who may be misusing trusts because they have control of them? That might be trustees—in some cases it could be beneficiaries if they have effective control of the trustees as well, but in many other cases it will not. Will he try to make sure that he makes that distinction? It is absolutely essential and reads directly across from the persons of significant control legislation that we have elsewhere in disclosing information about shareholdings as well.
Kevin Hollinrake
I thank my hon. Friend for all his work in this area. He makes the point very well. We need to ensure that when we bring forward these measures, they are properly considered and do not result in unintended consequences. He may want to raise those points as part of that consultation when we launch it.
The Government firmly believe that their own amendment and their commitment to consult better achieve the aim of improving trusts’ transparency, as intended by Lords amendment 117, while ensuring that we have time to analyse and stress test the risks in greater depth, including legal risks. We therefore do not support the amendment.
Lords amendment 151, in effect, removes the threshold, as right hon. and hon. Members have already raised, that the Government introduced as part of the failure to prevent offence, which exempts small and medium-sized entities. As I have set out, the Government are extremely mindful of the significant pressures that small companies are under, and do not want to place unnecessary and duplicative burdens on legitimate businesses.
Sir Robert Buckland (South Swindon) (Con)
I agree that we have made huge progress on the Bill, but why is the threshold on small businesses not present in the failure to prevent bribery and tax evasion offences? They are alike offences that have caused a regulatory burden to already exist. What difference will the Bill really make? Why are we not giving it the full fat treatment?
Kevin Hollinrake
I think there is a difference in the regulatory burden of failure to prevent fraud versus failure to prevent bribery and tax evasion. It is more complicated to do it, so it would have a much greater impact on SMEs than bribery and tax evasion. It is a balance of risk and benefits when making sure where those regulatory burdens sit.
Dame Margaret Hodge
I hear the Minister’s plea on behalf of SMEs, and I have sympathy that we do not want to overburden them with regulation, particularly small businesses. However, the threshold that the Government have chosen to set for exclusion from the failure to prevent fraud is extremely high. If I take just one example, law firms—he will know as well as I do that lawyers are among the key enablers of many schemes that lead to both fraud and money laundering—out of the 10,400 law firms in the UK, only 100 will be caught by the legislation as it is currently framed. Is he willing to negotiate with us on the Back Benches and members of the House of Lords to look again at the level at which he defines an SME in this legislation?
Kevin Hollinrake
The threshold is set at one of these three: 250 employees, £36 million turnover or £8 million in gross assets. We think that is the right level. We always listen to what the right hon. Lady has to say. The legal sector is covered by current money laundering regulations, as is the estate agent sector, for example. It is not right to say that they are not covered by money laundering regulations.
Liam Byrne
The Minister is being characteristically generous. I, too, respect what he is trying to do with the regulatory burden. I have taken a business from two people and a business plan and grown it into a multi-million pound organisation, so I respect what he is trying to do on regulation. However, does he not risk the growth of businesses with a turnover just below £36 million—perhaps £35 million—explicitly set up to be the conduits for bad behaviour? He will remember at the public Bill evidence sessions that representatives from the financial services community told us about the way in which money came into a bank and was split up between several different organisations and their bank accounts to blur what was really going on before the money went on to be laundered. Is there not a risk that clever people who are corrupt will just set up a whole hive of small businesses with a turnover below £35 million, to circumvent the safeguards that we are all trying to put in place?
Kevin Hollinrake
I do not accept that. It would be extraordinary if someone set up a business just for the purpose of keeping turnover below £36 million. Besides, it is already much easier to pinpoint fraud in small organisations than larger organisations. That is already the case. It is easier to take forward those kinds of prosecutions on that basis.
Sir Robert Buckland
My hon. Friend is being very generous. I have two points on that. First, I take the point that the Government amendments have already mitigated the issue about parent companies and the division into subsidiaries—that is welcome. But the threshold has been taken from modern day slavery legislation. What is the separate rationale for that threshold in the context of economic crimes? I have not heard any.
Secondly, money laundering is already a criminal offence under the Proceeds of Crime Act 2002, just like fraud, false accounting and theft. Why on earth are we conflating the regulations that are all about neglect, which are used by the FCA admittedly on some major cases, but not that often, with what is already a criminal offence? Why can we not just extend money laundering, which already is part of the regulatory burden of businesses in any event?
Kevin Hollinrake
I will come to the point about money laundering and broadening the sectors that money laundering regulation applies to, but, on SMEs, in my experience, in the work I did as a Back Bencher and in the work others have done, every case of fraud or money laundering I have seen has been by larger companies, not small companies. A number of cases the Serious Fraud Office has tried to take forward have been against larger companies, which is where the failure to prevent requirement comes in. It is much easier to take forward—
Kevin Hollinrake
I will just finish my point.
It is much easier to take that forward where the failure to prevent offence comes in, of course. The act of money laundering is a criminal offence—of course it is—and the act of fraud is a criminal offence. This is about a failure to prevent those activities and imposing that would, in our view, impose a significant regulatory burden on businesses.
Sir Robert Buckland
I am grateful. The Minister is right to cite the SFO, but he knows that the threshold the SFO applies is very high. It will only prosecute high-value, complex or novel cases. It does not deal with the warp and woof of fraud in this country. He is right to say that the majority of this fraud is committed by byzantine, large organisations, but I have to ask him again: what is the regulatory burden? We know that companies already have to face regulations anyway. We have failure to prevent offences. Why is it—I suspect it is the hand of the Treasury, with respect to him—that the Treasury is trying to hold things back on this offence?
Kevin Hollinrake
My right hon. and learned Friend says it is the Treasury. Actually, I am responsible for the business framework and I am concerned about putting £4 billion of regulatory burdens on businesses. That burden has been calculated in the same way that we calculated the burden for bribery, so I think it is a figure we can rely on. Our natural position is that we do not regulate businesses that would find it more difficult to deal with that regulation. That tends to be SMEs. They might find it more difficult to deal with regulation, rather than larger companies, where it is easier to put those controls in place.
We have heard arguments that the threshold means 99% of companies will not be in scope, but we do not think the number of companies is the right metric by which to assess the effect of the new offence. We believe economic activity is more appropriate. I can assure the House that 50% of economic activity would be covered by the organisations in scope of this new offence with the threshold in place. It is, of course, already easier for law enforcement to prosecute fraud in smaller organisations that fall below the threshold. Given those factors, the Government cannot support the amendment.
Lords amendment 158 seeks to introduce a failure to prevent money laundering offence. The UK already has a strong anti-money laundering regime which requires the regulatory sector to implement a comprehensive set of measures to prevent money laundering. Corporations and individuals can face serious penalties, ranging from fines to cancellations of registration and criminal prosecution if they fail to take those measures. The money laundering regulations and the money laundering offences in the Proceeds of Crime Act are directly linked and can be seen as part of the same regime. A failure to prevent money laundering offence would be hugely duplicative of the existing regime. In our conversations with industry, it has been very clear that that duplication would create a serious level of confusion and unnecessary burdens on businesses. We should be supporting legitimate businesses, rather than hampering them with overlapping regimes. The Government therefore do not support the amendment.
Lords amendment 160 would prevent enforcement authorities from having to pay legal costs in unsuccessful civil recovery proceedings, subject to certain intended safeguards. This type of amendment would be a significant departure from the loser pays principle and therefore not something we should rush into without careful consideration. The risk of paying substantial legal costs is just one of a multitude of factors that inform an operational decision to pursue an asset recovery case.
Several hon. Members and noble Lords have pointed to the similar changes made to the unexplained wealth order regime by the first economic crime Act, the Economic Crime (Transparency and Enforcement) Act 2022. The key difference is that UWOs are an investigatory tool that do not directly result in the permanent deprivation of assets, whereas civil recovery cases covered by the amendment could do so. There could, therefore, be a host of serious unintended consequences of such a change to the wider civil recovery regime, so the Government cannot support the amendment. However, we recognise the strength of feeling on the issue and the potential merits of reform. We have therefore tabled an amendment in lieu which imposes a statutory commitment to review the payment of costs in civil recovery cases in England and Wales by enforcement authorities, and to publish a report on its findings before Parliament within 12 months.
I hope the House is assured that the amendments the Government have laid are minor but sensible tweaks to the Bill. As I have set out, the Government have listened and made substantial important amendments to the Bill throughout its passage, significantly improving and strengthening the package where we recognise improvements could be made and where it makes sense for businesses. We must now, however, stand firm where we believe the amendments will not work or will place disproportionate burdens on businesses. I very much hope Members will support our position today and that the other place will note the Government’s movement on cost protection and reconsider its position on the six amendments when the Bill returns there. We must get on with implementing the vital measures in the Bill without further delay.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
It is a pleasure to speak in this debate on behalf of myself and my hon. Friend the Member for Aberavon (Stephen Kinnock). I thank the Minister for his opening remarks, and for the call last week with him and his officials. I thank the officials, pay tribute to their work on the Bill, and thank all those who have supported and taken part in the Bill’s proceedings.
We are in no doubt about the importance of the Bill. Britain has become a global hub for dirty money. The cost of economic crime now runs to as much as £350 billion, equivalent to our annual health and education budgets combined. Economic crime hits our constituents and our businesses. It hurts our public finances and it damages our reputation around the world. Action on economic crime was first promised in 2016, then 2018 and 2019. It matters because in the years from 2016 we saw a significant increase in economic crime, much of which could have been prevented if the Government had acted then. It took the invasion of Ukraine for the Government to step up. Strengthening the law has been urgently needed, which is why the Labour party has actively supported the Bill’s important passage through both Houses and sought to ensure that we leave no loopholes unchecked. Where the Government fail to act, we will.
We recognise that the Bill has made real progress in strengthening the law to tackle economic crime and its enablers. I particularly thank my right hon. Friends the Members for Barking (Dame Margaret Hodge) and for Birmingham, Hodge Hill (Liam Byrne), my hon. Friend the Member for Rhondda (Sir Chris Bryant), and the all-party parliamentary groups on anti-corruption and responsible tax and on fair business banking for their research and relentless campaigning for change. I also thank other Members who have made significant contributions to our debates, including some who are here: the hon. Member for Cheadle (Mary Robinson), the right hon. and learned Member for South Swindon (Sir Robert Buckland) and the right hon. and learned Member for Kenilworth and Southam (Sir Jeremy Wright). The Bill brings significant reform of Companies House, improving the accuracy and transparency of the register, with new powers for the registrar to become a more active gatekeeper over company creation.
Let me speak first to Government amendments which we support. I congratulate the Minister on the number of U-turns on areas that Labour argued for in Committee and on Report, including on closing loopholes around third party enablers and introducing a failure to prevent fraud offence. We welcome Government amendment 1, passed in the other place, which would expand the scope of objective 2 in clause 1, requiring Companies House to also take into account the accuracy of information already on the register before the Bill comes into effect. Government amendments 35 to 50, which all relate to the authorisation of corporate service providers, are vital amendments, especially amendment 35, which requires the registrar to publish the name of the authorised corporate service provider who has carried out ID verification. We welcome amendment 43, which requires the registrar to refuse the application for authorisation as a corporate service provider if it appears that the applicant is not a fit and proper person to become an ACSP.
Government amendments 146 to 150 introduce further provisions limiting SLAPPs that feature economic crime. I particularly thank my right hon. Friend the Member for Birmingham, Hodge Hill for his advocacy on this issue throughout the passage of the Bill and in Committee. SLAPPs are a form of abusive proceedings. It is for us to send a signal and to change the law in the public interest. I would, however, ask the Minister for clarity on the Government’s intention to cap costs via secondary legislation, set out in one of the Bill’s factsheets. It would be helpful if he could give us an idea of when the Government are considering doing that, and how quickly he expects it to happen.
Lords amendments 151 to 158 introduce an offence of failure to prevent fraud, which I know was a priority for the Minister as well before he took on his present role. This is a huge step forward, which also follows considerable pressure and work between the Government and both the Opposition and their own Back Benchers throughout the Bill’s passage. The amendments take us forward, but the evidence shows that we need to go further, which is why we will support Lord Garnier’s amendment 159.
Richard Fuller
The hon. Lady is making some excellent points on her side of the argument, but I think that the 0.5% figure misses the fact that that probably covers a substantially larger proportion of economic activity in the country.
What intrigues me is this. There is a balance to be struck here. I think the hon. Lady will go on to ask the Government not to press their amendment, or to else to oppose Lords amendment 159; but what, in practice, will this mean for smaller businesses if they are to be held to the responsibility to prevent fraud? Is it a certificate on the wall? Is it an annual process that they will need to go through? How much is it going to cost? Ultimately, who will give a guarantee to all the small business owners around the country who are worried about this new responsibility? How will they know that they have taken the actions under prevention procedures to ensure that they will not be subject to legal prosecution?
Seema Malhotra
I think that that will be covered in the points I am going to make, including around the steps that the Government need to take further.
Dame Margaret Hodge
On that point, there is discussion in the Bill about reasonable arrangements, which will be decided through secondary legislation. It will be necessary to ensure that the processes through which small and medium-sized enterprises show that they are preventing fraud and money laundering can be done in a way that is not burdensome on those businesses or a detriment to them. The same arguments took place over the bribery legislation, when there was concern about an attempt to have an SME exemption. That failed at that point, and all the research since that legislation was enacted shows there has been no detriment to SMEs or to their ability to export.
Seema Malhotra
I thank my right hon. Friend for her intervention. Indeed, she pre-empts some of the content of my speech, which is absolutely fine—we can reference it twice. She makes an important point about the Bribery Act 2010, which has also been referred to by the right hon. and learned Member for South Swindon.
The important point here is that it is for the Government to get this right, and I think we can all agree that there should not be disproportionate costs for small businesses. Lord Vaux, an experienced professional in these areas, also expressed concern over the credibility of the Government’s figures on the estimated costs for smaller businesses. Another important argument is that these policies can also protect SMEs, which are also the victims of fraud. We can sometimes lose sight of that. In 2022, 64% of UK businesses experienced fraud, corruption or other economic crime. That is much higher than the global average of 46%, and second only to South Africa. This is a matter of a cost to businesses as much as a cost for businesses, and what the extent of that would be in reality.
We have also looked at the safeguards—particularly since my conversation with the Minister last week—that are in place to avoid disproportionate costs for SMEs, which the Government can use to get the balance right. Spotlight on Corruption has noted:
“It is open to the government to make clear in guidance issued for the offence what reasonable procedures would be proportionate for SMEs, and in what circumstances it would be reasonable not to have them at all.”
The offence also contains a defence for companies to be able to argue, in the event of legal action, that its procedures were reasonable in all the circumstances or that it was not reasonable to expect the body to have any prevention procedures in place. That is important for informing the debate today and it is the reason that, after deliberations and listening to the Minister last week, we have decided that we should support the debate in the Lords and that we do not want to see the exemption for SMEs taken out of the Bill.
Amendment 159, on failure to prevent money laundering, was tabled by the noble Lord Garnier. It would expand the scope of the Government’s new offence of failure to prevent fraud so that the offence would also cover money laundering. The Government argue that this amendment is not needed as we already have an anti-money laundering supervisory regime, but I remind the Minister that a Treasury review into our anti-money laundering regulations published in June stated that
“significant weaknesses remain in the UK’s supervision regime.”
Hugely frustratingly, the Government have responded to that with yet another consultation.
In addition, since the most recent money laundering regulations were brought in, the UK has had only one corporate criminal conviction for money laundering, so it is pretty clear that the existing safeguards against money laundering are not enough. Here is a chance to take stronger action and to include in the new offence a failure to prevent money laundering, and the Government should take it. We will be supporting this amendment to stay part of the Bill.
Mr Deputy Speaker (Mr Nigel Evans)
This business is protected for up to three hours and I am expecting multiple votes at the end of the debate, which could go on until 9.50 pm. The votes would not eat into the next business, which could go on for two hours. I hope that Members will therefore reflect on whether their speeches could be briefer than they had perhaps anticipated, as that would be helpful to everyone concerned, including the staff of the House.
Mary Robinson (Cheadle) (Con)
It is a pleasure to rise in support of Lords amendments 146 and 147, which introduce the power to strike out SLAPPs claims in relation to instances of economic crime. SLAPPs—strategic litigation against public participation claims—are described as
“legal actions typically brought…with the intention of harassing, intimidating and financially or psychologically exhausting opponents via improper use of the legal system.”
In essence, people who have such a claim brought against them are threatened into silence. They are a tool of intimidation and censorship, often used by wealthy individuals such as Russian oligarchs or by corporations against individuals such as journalists who rarely have the financial means to fight back.
SLAPPs are not brought with the intention of participants having their day in court; they are based on the power of inequality of arms and are intended to stifle free speech, with the allegations never seeing the light of day. For the purposes of this Bill, SLAPPs claims are defined as one where the claimant’s behaviour in relation to the matters concerned has or intends to have the effect of restraining the defendant’s freedom of speech, and that any disclosures they seek to restrain have to do with economic crime or would be made in the public interest to fight economic crime.
These amendments seek to give people more protection when facing a SLAPP claim in relation to economic crime only. They will be able to use a new early dismissal mechanism and, where a case does proceed, they will have the umbrella of a new cost protection regime. This matters because costs can be prohibitive when fighting legal cases, and indeed the financial risks are intended to deter people from fighting back. However, we cannot let people who seek to silence and intimidate win.
We should be concerned that, in 2022, the Coalition Against SLAPPs in Europe found that the UK was the top European destination for cross-border litigation, with 15 of 62 known transnational cases over a decade being filed here. Who knows, there may be more. One of the reasons we are in this position is that the UK has no anti-SLAPP legislation, and I therefore welcome the measures that are being introduced here.
Although the Bill concentrates on economic crime only, I encourage Ministers to make it the first step in bringing a stop to SLAPPs altogether. SLAPPs are not just a threat to freedom of speech and freedom of expression, they seek to stop so many other disclosures that are in the public interest.
As chair of the all-party parliamentary group for whistleblowing, I am committed to protecting and empowering people who speak out. I have been pushing for legislative change to ensure that people feel able, safe and supported to make disclosures that are in the public interest. Whistleblowers, as my hon. Friend the Minister knows, are pivotal in the fight against economic crime and fraud, with almost half of all fraud detected by whistleblowers. Because economic crime is often well hidden and difficult to trace, discovering it requires insiders to speak out and share their knowledge.
Take, for example, the £178 billion Danske Bank money laundering scheme, which was exposed only as a result of a whistleblower who had worked in the bank’s trading unit and who raised concerns about breaches of anti-money laundering procedures in its Estonian branch. His internal reports ignored, he turned to the US Securities and Exchange Commission. Once allegations made the news headlines, Danske Bank itself ordered an investigation that confirmed the whistleblower’s claims.
Although a worker may seek protection at an employment tribunal, journalists, who are often the target of SLAPPs, are not recognised as whistleblowers under UK law, and they are therefore afforded no protection. Yet due to the investigative nature of their work, they are among the most likely to acquire inside information and evidence of wrongdoing. At the moment our whistleblowing legislation, the Public Interest Disclosure Act 1998, applies only to workers and is meant to protect them from unfair dismissal or detriment at work that may result from their whistleblowing. Whistleblowers such as journalists, who fall outside our current laws and are prey to SLAPPs, will find support with these amendments where their disclosure relates to economic crime.
Sir Chris Bryant
I completely agree with everything the hon. Lady has said about SLAPPs and the importance of journalists effectively acting as an additional regulator, but they need the information. Does she also support the amendments that would ensure trusts cannot be a means of hiding information from journalists and others who might want to be able to reveal it?
Mary Robinson
I am grateful to the hon. Gentleman for bringing that point forward. As we know, this is about investigative journalists who want to get in there and get the information. Transparency is in the name of the Bill, which may answer his question.
Sir Chris Bryant
The Government are insisting that we should keep the real ownership of trusts secret, and the problem journalists have is that there is not a proper exemption to enable them to find out the ownership that lies behind a trust.
Mary Robinson
I am grateful to the hon. Gentleman for that clarification. The important thing is that journalists do not find themselves called before the courts through SLAPPs and this type of litigation, and that is the point we are trying to make here. I am sure the Minister has heard the hon. Gentleman.
As has been said, SLAPPs are used to silence and cover up. To effectively root out economic crime, it is right that we address their use, but I think the Government can go further still by reforming the UK’s whistleblowing laws. In doing so, we could encourage more people to come forward with evidence of economic crime, secure in the knowledge that the system is on their side. We must have a system that recognises any person as a potential whistleblower, not just an employee, as our current legislation does. We must have a system that values whistleblowers, not one that ignores or punishes them. We must have a system that makes whistleblowers feel supported and valued.
I know the Government are currently reviewing the UK’s whistleblowing framework, and I will continue to push for the reform we need. Meanwhile, these amendments are an important step forward, and I am pleased to support them.
Alison Thewliss (Glasgow Central) (SNP)
I welcome the moves the Government have made on this Bill. It is important that they have done so, but they could still go much further.
I pay tribute to the work of the right hon. Member for Barking (Dame Margaret Hodge) on the all-party parliamentary group for whistleblowing, and to the organisations in this sector that do so much to bring light to what can be a very complex and detailed issue.
The Minister talks about the UK having a reputation for allowing legitimate businesses to thrive, but we are here this evening to challenge the other reputation that has built up over the years. The UK has now become a hub for dirty money, which is funnelled through the UK’s financial system by an army of enablers. This Bill is an opportunity to dam that flow and to stop this dirty money, but as the excellent “Catch me if you can: Gaps in the Register of Overseas Entities” report, published by the London School of Economics and CAGE Warwick, says,
“there is no point building a dam halfway across a river.”
Without closing the loopholes and the gaps, that is what this Government are doing.
The Minister has promised consultations and further things to come in the future. It is fine to dangle these things before us, but we all know that we are heading towards an election and the Government cannot promise to deliver on any of the consultations he hopes to bring forward. Whatever happens, there will be an election. This House is almost out of time, and we should take the opportunity tonight to do this Bill right.
I will run through the Lords amendments, given the time constraints you mentioned, Mr Deputy Speaker. The Lords amendment on nominee shareholders was tabled by Lord Vaux, and as other Members have said, there is an awful lot more we could do on that. It is not enough for the Government just to say, as they did in their letter to Members, that such a measure would most likely be ignored by illegitimate actors and would be difficult to enforce. That is not much of a reason not to legislate and not to try. There is a real issue with how complex structures have been brought about, and the Government need to grab hold of it. This Bill is an opportunity to close a loophole before it is further exploited.
Enforcement is a big part of this, and the Government do not enforce the current rules. Saying a measure would be difficult to enforce when they are not enforcing the rules to begin with does not give us great confidence. Between 2012 and 2022 only three fines were issued for false filing to Companies House. As of October 2022, only one fine of £210 has been issued for not filing the person with significant control of a Scottish limited partnership. If the Government do not enforce the rules they have brought forward, they cannot really ask for more rules. They need to get real about enforcement. They need to make sure the laws we pass this evening are effective.
Updates to the register of overseas entities are a significant gap in the system. As others have said, updates can take almost an entire year, in which time other things could happen. Event-driven updates would hold companies to account. If we think about it, there will be paperwork when companies make any change, so they might as well do the update at the same time. That would be logical.
Lords amendment 117 in the name of Lord Agnew, on the transparency of trust data on the register of overseas entities, makes a critical point. We must deal with trusts without further delay, without further consultation and without kicking the can further down the road. Here is the opportunity to do that. As Transparency International and the BBC showed in February, trusts are being used to hide the ownership of thousands of overseas entities under the current regime. They estimate that more than 7,000 overseas entities on the register, about a quarter of the total, are hiding the ownership of roughly 20,000 properties. Why would the Minister not want to close that loophole? Why would he not want to improve this system right now?
Kevin Hollinrake
Is the point not that in the 400 pages of legislation we have before us we are doing exactly that: closing these loopholes, making it easier for businesses and making it easier for Companies House to make sure that these entries are valid? We are also committed to increasing the fees at Companies House to make sure that the proper resources are in place for it. Indeed, we have increased the resources for enforcement at the National Crime Agency by 40% since 2019, with this now standing at just below £800 million a year.
Alison Thewliss
I thank the Minister for that point, but the number of incorporations is massive and the resource to Companies House is not keeping pace to check on each and every company that is going. I direct him to the tweet from Graham Barrow highlighting some of these issues, because there are so many companies and we need as many eyes as possible on this data. Companies House does not have the resource to do this and neither does law enforcement. Allowing those researchers who have the time, expertise and patience to tease out this data to do this and do it well is important. They must be allowed to do this.
Let me turn to the amendment on failure to prevent fraud, from Lord Garnier. I recall the Minister being keen on such an amendment beforehand and there is an awful lot more the Government could be doing on this. As other Members have said, if this can be done for bribery and tax evasion, there is no reason why doing it for fraud should present an additional burden. As the Minister himself pointed out, 99% of businesses are not in scope under what is being proposed here—again, that is ludicrous.
There is also an effect on small and medium-sized businesses to consider, because they also stand to lose money through fraud. They stand to be targeted by those who want to commit this fraud. So those businesses that are perhaps more exposed—those local businesses that do not have the power to stand up to those who would bully them to engage in such activity—are put at risk and should be better protected by this legislation, were they to be kept in line with it.
Richard Fuller
The hon. Lady has made a point, which the shadow spokesperson also made, about harms being done to small businesses by businesses that are committing fraud against them. But there is already a law against committing fraud, so why does the additional law about not taking any actions to prevent fraud help in those circumstances?
Alison Thewliss
Because such a law has helped in the case of the Health and Safety Executive. The Minister used to talk about how when the health and safety legislation came in, the number of deaths at work dropped dramatically, because the measure was a preventive one, whereby one had to prevent people from being injured and killed at work. This works the same way for bribery and tax evasion, so why would it not also work for fraud?
Alison Thewliss
I will not give way, as I am conscious of the amount of time for this debate. As I was saying, it is important that we recognise the significance of this to small businesses—this is there to help them, not hinder them.
I move on to the cost protection for civil recovery cases. Again, this is incredibly important, because the balance we have is not right. Those who can pay—the enablers, the lawyers, the sharp accountants—have a huge advantage over law enforcement agencies, which do not have significant resource and expertise to do this. As Bill Browder said when he gave evidence to the Bill Committee in October 2022:
“What has to happen here—this is plain as day—is that you have to get rid of this adverse costs issue in a civil case brought by the Government… If you make that point, it will change the whole dynamic—the whole risk-reward—for these people.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 66, Q140.]
On adverse costs, the Government are saying that they are sympathetic to this, and they are going to consult and do some other things later on, but by not putting this measure in this Bill, they are allowing this uneven playing field to continue and be perpetuated. Because the law enforcement agencies know that it is going to cost them an absolute fortune, which they do not have, these cases go unpunished and those who perpetrate all of this money laundering, with all this money washing through the UK financial system, will see this continue, because people can afford to get away with it. The Government should be deeply concerned about that.
Let me recommend to the Minister Bill Browder’s latest book—if he has not already read it. It exposes the capture of all of these enablers, from lawyers to everybody else; we need to be looking to close the door on that in this Bill. The Government have an important opportunity here. This important situation does not come along very often and we do not know when we will pass this way again. We have a Bill in front of us. The Government could go for accuracy and for transparency in the register. They could close the door, fix the loopholes and do all of these things that they must do. They could accept these Lords amendments tonight. They could fix this Bill and do it right, and we would not have to come back here to legislate again.
Sir Robert Buckland
It is a pleasure to follow the hon. Member for Glasgow Central (Alison Thewliss). She said that we might not pass this way again. Indeed, this has been a very long way for me and for many others in this House who have been making the case for a failure to prevent offence for many years, both in office and as Back Benchers. I am delighted that the Under-Secretary of State for Business and Trade, my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) is in his place, because he is a true believer as well.
I hoped that tonight could have been a Simeon moment—I could have sung my Nunc Dimittis and departed in peace—but no, I am afraid that, as a result of the welcome but somewhat limited amendments made by the Government in the Lords, I am reduced to the role of Moses; I can see the promised land but I am not, it seems, according to the Government, destined to get there. Therefore my exhortation to my good friend the Minister is, “You can be Joshua. You can knock the walls of Jericho down. You can go the extra mile and finish the job.”
We have heard a lot about this failure to prevent offence, and the word “fraud” has been bandied about as if we were dealing with fraud in general. May I, perhaps uncharacteristically for some hon. Members, draw the attention of the House to the Lords amendments themselves, because they are what we are considering?
I, like you, Madam Deputy Speaker, am a stickler for ensuring that we stick to the point, so I turn to page 46 of the bundle and, in particular, amendment 151, which is the proposed new clause “Failure to prevent fraud”. It ain’t any old fraud; it is fraud intending to benefit “the relevant body”. That is not a fraud in general, about loss to the taxpayer or the company—in fact, there is a specific defence on that basis that says if the fraud causes loss to the company, it is not a criminal offence—but a very targeted type of fraud that is about benefit to the company.
As a lawyer, Madam Deputy Speaker, you know that we have something called the criminal standard of proof. This is not any old regulatory device; this is a criminal offence. The threshold and standards that have to be applied by the police, the investigating authorities and the prosecutors are high. As my right hon. and learned Friend the Member for Kenilworth and Southam (Sir Jeremy Wright) said, the defence set out in clause 4, about reasonable prevention proceedings, is crucial. When I hear people talk about regulatory burden, I have to say, in all candour, that that is a misplaced understanding of what this rather limited offence will achieve.
Sir Robert Buckland
I will give way to my hon. Friend and then explain why he is wrong.
Richard Fuller
I thank my right hon. and learned Friend. He seems to have some mixed views on the point of regulatory burden, particularly on this measure. He makes the point about fraud being a crime, but this legislation is about actions to prevent fraud, as he knows. What do I tell the good, upstanding owners and managers of small businesses in my constituency that they are doing wrong about fraud today? How are they letting him down because they are not taking the actions to prevent fraud that he thinks they should be taking?
Sir Robert Buckland
Tell them that this offence is about fraud intended to benefit themselves, not about a fraud that causes them loss. This is a limited offence. It is the misunderstanding of the term “fraud” in the clause that is so important to the debate; we have to focus, laser-like, on that.
My hon. Friend the Member for North East Bedfordshire (Richard Fuller) is well experienced in business, over many years in financial services, and I bow to the expertise and experience that he has brought to the House, and indeed to ministerial office—all too briefly, which was a shame. He will understand the law of corporate liability in the United States—a vigorous free market economy, the biggest economy in the world, where people go to invest and grow businesses. I can tell him that corporate criminal liability in the United States is pretty draconian, because companies there are liable, even if their employees go off on a frolic of their own and defraud to their hearts’ content, yet corporate criminal liability there will bite upon United States entities. That is far more draconian that anything we have in this jurisdiction and far more onerous, potentially, when it comes to regulatory burden, yet my hon. Friend cannot argue with me that the United States is anything other than a vigorous free market economy.
Richard Fuller
I do not want to argue about that point, but the United States is also an incredibly litigious society. The main beneficiaries of much of this are the legal community, with which my right hon. and learned Friend will be particularly familiar. As a result of the clause applying to smaller businesses in my constituency, can he tell me specifically what they will need to do differently that they do not do today?
Sir Robert Buckland
They will have in place reasonable procedures to prevent people from acting on their behalf and unjustly benefiting their own companies and entities. Let us not forget it is a partnership offence as well. I do not see that as some sort of general exhortation to small and medium-sized businesses to suddenly put in place measures to prevent fraud in general—that is not what the offence says.
Sir Jeremy Wright
Does my right hon. and learned Friend agree that part of the answer to the point made by our hon. Friend the Member for North East Bedfordshire (Richard Fuller) is that the vast majority of businesses will not need to do anything differently, because what they do now is perfectly reasonable. If what they are doing is reasonable, they will be perfectly safe from this legislation. This legislation is intended to catch those who do not behave reasonably and those who behave dishonestly, which will be a tiny minority. We accept that the legislation will not lead to a huge number of prosecutions or convictions; it is supposed to lead to a change in behaviour where that is needed.
Sir Robert Buckland
Exactly, and that is the point. What the Government have done is set up a legislative Aunt Sally. I welcome their putting in place mitigating measures to deal with parent companies and subsidiaries—Lord Bellamy explained that very well indeed—but the threshold they have set is entirely unnecessary. It does not reflect what the Law Commission said in its report. When I was in office, I was delighted to ask the Law Commission to do the work on failure to prevent fraud. It did the work and, hey presto, it produced proposals that had nothing about thresholds in them, so where on earth has that come from?
I am sorry if I might have inadvertently upset my hon. Friend the Minister by mentioning His Majesty’s Treasury, but I detect the hand of my friends in Parliament Street. I know their view about failure to prevent fraud; they do not like the offence and never have done. They have always put up arguments against it. Perhaps it is their role to do that—I do not know—but I detect their hand in this. That is an unfortunate coda to what would have been a magnificent symphony, had my hon. Friend the Minister stuck to the line and done what I thought he was going to do.
To return to the point made by my hon. Friend the Member for North East Bedfordshire, I agree that the United States is a litigious society. We, in the United Kingdom, do not necessarily want to go down that road when it comes to civil litigation, but what the United States does well is prosecution of fraud. It regularly and rigorously enforces the criminal law of fraud, particularly in the jurisdiction of New York and in other major financial centres, which enhances the reputation of that jurisdiction as a safe place to do business.
Here is the argument that you, Mr Deputy Speaker, do not hear, in contradistinction to the argument about the regulatory burden. Where there is a criminal legal framework that is clear, certain and stable, that can only encourage investment into the United Kingdom, not discourage it. A jurisdiction with a robust and independent judiciary and a fine legal tradition, which rigorously polices the law of corporate criminal liability, is one that investors can have the greatest confidence about investing in. What on earth is happening here to undermine that very powerful argument?
Prosecutors, including the Crown Prosecution Service and the Serious Fraud Office, have made the case consistently that a “failure to prevent” offence of this nature would help them in the important work they do in bringing wrongdoers to book. We do not want to be a jurisdiction where it is too easy to commit fraud that benefits corporates. We do not want to be that sort of place—that is not a healthy place within which we should be operating. If we are truly committed to a vigorous free market economy, then, in the traditions of Adam Smith, we should be absolutely committed to its policing and its boundaries. I sound a bit evangelical about this—a bit biblical, a bit Old Testament—because it is important that we get this right at this last stage of the Bill.
That brings me to my noble Friend Lord Garnier’s amendment about money laundering. He made the argument very well and, having read his entry in Lords Hansard, I will adopt it. I am in danger of sounding like a broken record, but I make no apology for that. Money laundering is already a criminal offence. The regulatory argument does not cover the full gamut of what we are dealing with, and Lord Garnier’s amendment is a sensible reflection of the importance of ensuring we cover offences of money laundering. Remember again that this is about benefiting the company; it is not money laundering in general, but a targeted offence, with the same caveats and qualifications that I mentioned in the context of the “failing to prevent fraud” offence. So I say to my hon. Friend, “Repent!”. He should follow the true path and come back and finish the job. We can all then take equal pride in the work that he and others have done to make sure that this jurisdiction is a fairer and better place in which to do business.
Let me end on this note. I will not dwell too much on the rather milquetoast amendment about the capping of cost orders for proceedings for civil recovery. We know that it is a problem. We know that it is a disincentive to the bringing of civil proceedings under the Proceeds of Crime Act 2002. We should just get on with it. The particular rules and proposals about costs are well reflected in other parts of legal procedure and other types of proceedings, so this is nothing new. I think that it is time that we grasped the nettle rather than having yet another report.
Finally, Lord Agnew made a very powerful point: just a few words is all it takes to make a difference when it comes to trusts and the arguments that have been very cogently made about that by others. Only a few small steps need to be taken by my hon. Friend and His Majesty’s Government to allow us to reach that promised land. I urge him to take us there and then we can all celebrate in a land of milk and honey.
Dame Margaret Hodge
I shall start where that brilliant speech by the right hon. and learned Member for South Swindon (Sir Robert Buckland) ended. I would also say to the Minister, and also to the Minister for Security, the right hon. Member for Tonbridge and Malling (Tom Tugendhat) were he still in his place, that they have shown from their time as Back Benchers a real understanding of all the issues around economic crime. They knew what needed to be done. They helped to develop the agenda that would work through smart regulation, transparency, tough enforcement and proper accountability. When the Bill arrived in the House, it was, I hope the Minister will agree, a bit half-baked. I am not blaming the civil servants in the box, but it was a bit half-baked. It was full of loopholes and serious omissions. But in this year that we have been considering the legislation, it has gone through tremendous transformations, so I salute the Minister for what he has done, but urge him to go that step further. I thank the Labour Front-Bench team for their assiduous and detailed work on this, but I particularly salute the Back Benchers—Back Benchers from all parts of this House who have joined together to bring forward a set of pragmatic, practical amendments that really will make this Bill fit for purpose. I also thank those in the House of Lords who have worked across parties, with the Cross Benchers, to ensure that we have some serious amendments that will give us a good framework to start the eradication of the malignant infection that we have with dirty money.
I say to the Minister: do not undo that good work; do not emasculate what has happened and where we have got to; and do not give into the voices of enablers who want to make a fortune on the back of dirty money. I wonder, as the right hon. and learned Member for South Swindon has wondered, why on earth is the Minister not listening to what we are saying. Everybody in Parliament wants this. Everybody in the country wants this. Nobody supports dirty money. As I have said time and again, the country will not sustain economic prosperity and wealth on the back of dirty money. There is no future in that. I give the Minister another commitment, which I really regret having to say. I will not be here, but I want a future Labour Government to commit to never having a system that allows any political party to exist on the back of donations of dirty money. I say: do not let this opportunity go. Do not betray the principles and do not cave into the lobbying. The Government should look at the excellent amendments and please go forward.
I wish to focus on some new points. Lord Agnew’s excellent amendment in relation to trusts needs to be considered. The Minister said that he did not accept the research that was published today by really respected academics. These are people I have worked with over the years in whose work I have total and utter confidence. I challenge the Minister to bring them in and talk to them and then see if he comes to the view that what they are saying is not true. What they are saying is that we do not know the beneficial owner of 70% of the properties identified as owned by an overseas entity. And we do not know the beneficial owner of two thirds of that 70% because there is a trust that hides the real beneficial ownership. The Minister should have regard to what they say, as they are distinguished. I urge him to talk to them. I am happy to join in a meeting with them. In 87% of cases where information is either missing or inaccessible, it is because of Government choices in the design of the scheme. It is not because people are not obeying the law. It is because the Government have chosen to design the scheme in that way.
Dame Margaret Hodge
I am conscious of time, but I will give way to the Minister.
Kevin Hollinrake
When the LSE looked at beneficial ownership, I think that it included tenants of properties rather than the ownership of properties, and the register of overseas entities only deals with the ownership of those properties. There is definitely some disconnect between the Government’s position on this and the legislation and the interpretation that has been taken with this research from LSE.
Dame Margaret Hodge
I have met the key academics involved in this on a number of occasions, and I urge the Minister to do so as well. I think the differences are between the entities and the properties. We started asking for a register of properties that were owned by overseas entities in 2012, 2014 and 2016. It was absolutely ages ago. It was when David Cameron was Prime Minister. It was finally enacted last year, but it has been enacted badly. I have to say that it is the secrecy that matters. We can have transparency and we can protect vulnerable people. Transparency will enable all eyes—many, many more eyes—to interrogate the data and the Minister knows that to be true.
Let me put in this basic point. He and I own properties. We are not ashamed of showing the ownership of those properties. Why should we reveal the ownership of the properties in which we live, when rich people—often kleptocrats, often criminals, often money launderers—are able to use trusts as a mechanism to hide their ownership? That is a basic unfairness that the Minister should deal with. May I quote to him the words of one of the firms of lawyers that is exploiting the loophole? It is Payne Hicks Beach—Baroness Fiona Shackleton is a member of that firm. The firm says:
“On the face of it, the lacuna would seem to defeat the purpose of the legislation”—
this is lawyers saying this—
“so may be tightened up”—
hopefully tonight—
“in the future, but for the time being, using a nominee to hold UK property will continue to provide privacy as far as the ROE is concerned.”
Lawyers are exploiting that loophole, and we should stop it because—I hope that the Minster will agree with this—it is damaging our sanctions policy. Usmanov has been able to hide a lot of his wealth in property through trusts. Abramovich has done it, Fedotov has done it, and it is time that we brought it to a stop.
The other key issue is the failure to prevent. I will quote to the Minister what he said time and again. This is not about additional burdens on SMEs, or filling the courts with criminal cases; this is about trying to change the behaviour in our society, so that preventing fraud and money laundering becomes embedded in our culture, in the same way that preventing bribery has become embedded in business culture. The example that the Minister used when he was on the Back Benches is very potent. When we used to have a lot of accidents and deaths on construction sites, we reformed the health and safety at work legislation. We did not suddenly fill the courts with builders and construction people being taken to court, but overnight the number of accidents went down by over 90%. That is the principle that we are working on. That is the evidence that we want to use, and it is vital that we do it here.
Mr Deputy Speaker (Mr Nigel Evans)
Thank you for the way that you conducted your speech. I saw what you were doing, and thank you very much for helping.
Sir Robert Buckland
On a point of order, Mr Deputy Speaker, I seek your guidance on how I can put on the record that I refer hon. Members to my entry in the Register of Members’ Financial Interests.
Mr Deputy Speaker (Mr Nigel Evans)
I think you have already done it—thank you very much.
Richard Fuller
The Economic Crime and Corporate Transparency Bill is an important Bill that has cross-party support. I do not know whether it is appropriate to say that the right hon. Member for Barking (Dame Margaret Hodge) is in many ways its godmother, but she is certainly one of the key drivers of this important legislation. Whether it is perfect in her regard or nearly perfect in her regard, I would like to put on record that for all of us her efforts have been to the benefit of the country as a whole.
It is with some temerity that I wish to make a few points perhaps not in accordance with some of the comments made particularly by my right hon. and learned Friends the Members for Kenilworth and Southam (Sir Jeremy Wright) and for South Swindon (Sir Robert Buckland), who make the case for extending the failure to prevent fraud provisions to smaller businesses. I must say that they have not convinced me of the merits of their argument at this stage, and I think on balance I am with the Minister on this.
I am a Conservative and therefore change is perhaps always difficult for me, but I think particularly of what the implications may be for smaller businesses. I have not been persuaded by the other examples put forward of health and safety or bribery; I think there will be quite a chilling effect if the responsibilities for preventing fraud are extended to small business owners. I think it is appropriate and prudent that we build the measures, as the Minister has said, in his amendment (a) to Lords amendment 151. That is all I will say on Lords amendment 151,
However, I want to talk about another amendment that affects small businesses, which no other hon. Member has referred to in this debate: Lords amendment 30 regarding the disclosure of profit and loss accounts for certain companies, which the Bill will require of small businesses and microbusinesses that had previously been exempt. It potentially causes considerable concerns for owners of very small businesses if they are to have their profit and loss and their balance sheets publicly declared through Companies House reporting.
I ask hon. Members to imagine, if they will, that in a town or a community there are two or three competing laundries or plumbers, all of them maybe husband and wife, father and son or whatever—concentrating on what I want to say of a small business—or just sole proprietors, competing with each other in a small market. If their profit and loss statements were to be a matter of public knowledge, that would have very serious implications for local understanding of that person’s or that family’s personal wealth. It would have significant implications for local competition. The provisions that were in place in the Bill originally provided no protection for people in those circumstances. Yes, they will still provide the information, but surely it makes sense for companies in those circumstances not to have all their very specific financial information in the public domain.
I believe Lords amendment 30—the Minister might refer to this if he has time—seeks to provide a mechanism for a restriction on that disclosure of such personal information. The amendment lays out in proposed new subsections 468A(1) and (2) of the Companies Act 2006 that the Secretary of State
“may by regulations make provision requiring the registrar, on application or otherwise”,
and goes on further to say that regulations
“which provide for the making of an application may make provision”
as to who may make an application, the grounds on which an application can be made, the information to be included in it, the notice to be given, how an application is to be done and so on. My concern here is that Lords amendment 30, in seeking to correct the over-disclosure of public information, has put in its place quite a complicated application procedure.
Therefore, it would be helpful if the Minister could say what he has or what the Government have in mind about that application process. It would be ideal if that process were just a tick box. It would be ideal if that information could be communicated to accountants across this country who regularly have to file accounts on behalf of very small businesses, and it would be helpful if the Minister could advise that it is the Government’s intent that very small businesses in the circumstances I have outlined will not have very private personal financial information put in the public domain, although their information will still be required by Companies House and therefore placed under the protection that the Bill seeks to address.
Liam Byrne
I rise to endorse 100% the brilliant speech by my right hon. Friend the Member for Barking (Dame Margaret Hodge). Let me take this moment to pay tribute to her stalwart leadership of this agenda over a long time. Our country is a better and fairer place thanks to her extraordinary work.
The Minister is not too bad, either. I think that he has done a Herculean job over quite a long time, and he has sought to do the right thing with the Bill. Crucially, he took the time to reach out and listen to members of the Committee and Members across the House to ensure that we were up to speed with where he was going and what he was trying to achieve. The result is a better piece of legislation. However, it is not yet perfect, and we are here tonight to encourage him, having gone so far, just to go those final few yards and give us a Bill that will truly be a legacy to his work here in Parliament.
Mine is a starting point that we have not yet talked about in this debate: the terrible state of wealth inequality in this country. It is so bad because economic crime is so bad. Since 2010, the wealth of the top 1% in this country has multiplied by 31 times that of the rest of us. That is, in part, because of the problem of economic crime. It is a problem that our country is a global capital of money laundering and fraud reckoned to be worth some £350 billion a year—that is a mark of national shame. It is a problem that we potentially allow the ownership of more than 100,000 of our most prestigious and expensive properties by names we just do not know. It is a problem that, last year alone, nearly £7 billion of property was bought with what Transparency International calls “suspicious wealth”.
What unites us all in this debate—indeed, what unites us all in this House—is that we know that, if we want to be a country of free trade, we have to be a country of fair trade. But if we are to be a country of fair trade, we need to be a country of clean trade, and that is why the Bill, and getting it right, is so important. When we leave holes, gaps and spaces in our defences, dirty money floods through and pollutes both our economy and our democracy. We have already passed an Elections Act that did not put in place tough enough safeguards on the kind of money that could be used to elect people to this House. We risked an Elections Act too weak to protect our democracy from dirty money, and tonight we risk compounding the error by failing to ensure that we have an Economic Crime and Corporate Transparency Bill strong, tough and robust enough to stop our economy being polluted by dirty money.
The Bill is welcome, and the Minister has done a good job. He has taken forward many of the ideas that have been discussed for a long time on all sides of the House. I am particularly grateful to him for the way in which he has used the Bill, in the SLAPP clauses, to put in place protections for truth-tellers. We know that it is not yet job done and that there is further to go, but free speech will be freer because of the provisions in the Bill. We need now to work together to finish a job that is almost complete; we need to ensure that, for once and for all, we end the ludicrous secrecy around trusts; we need to strengthen the declarations of nominees so that we truly know who owns what; we need to ensure that failure to prevent fraud is something that bites on 100% of companies and does not provide carte blanche for 99% of companies to behave without that obligation; and we need to defend our law enforcers and equip them with the tools that they need to police the legislation that we plan on passing tonight and in the days and weeks to come.
I will underline three points very quickly, Mr Deputy Speaker. The first is about secrecy. The London School of Economics report from Andy Summers, Arun Advani and their colleagues is compelling reading, and I am interested in the Minister’s take on it. The report states that we are missing information about more than 70% of the 152,000 properties that are owned by trusts standing behind overseas entities, which means that
“even law enforcement agencies do not know the true identities of the beneficial owners.”
That is of real concern, especially when we know how many billions in wealth are owned in this country by people who are bad actors and who made their money by, frankly, stealing it from people abroad. If we have learned anything from tackling economic crime, passing tougher sanctions legislation and voting for new budgets for our law enforcers, we surely have to recognise the reality that we cannot have a situation where we do not know who owns what.
Mr Deputy Speaker (Mr Nigel Evans)
Again, thank you for your brevity, Liam Byrne.
Ms Marie Rimmer (St Helens South and Whiston) (Lab)
I would like to pay my respects to my hon. Friend the Member for Feltham and Heston (Seema Malhotra) for her excellent opening on our behalf, as well as to my right hon. Friend the Member for Barking (Dame Margaret Hodge) for her excellent knowledge and understanding. The time she has put in is just unbelievable. She spoke about Bill Browder—no one can read his work without realising just how serious this issue is. I also thank my right hon. Friend the Member for Birmingham, Hodge Hill (Liam Byrne), who covered it so aptly and brought it down to how dangerous and very serious this is for our democracy and our economic equality. What could happen, and what I think will happen, is frightening.
I want to focus on the importance of legislating on the failure to prevent fraud and money laundering, which are crimes committed in the shadows. Currently, there is a severe lack of provisions to prevent economic crime, which we know is the best, cheapest and most effective way to tackle our dirty money problem. These crimes are committed and witnessed by some of the most senior professionals at a company, and even if they are not participating but just happen to witness fraud, surely they must be under a legal duty to report it. Amendment 159 was introduced in the other place, and I pay my respects to the other place for its absolutely wonderful scrutiny of the Bill. I commend it to the Minister. He has spearheaded the Bill to where it is now, but he just needs to go that bit further.
We must have reasonable prevention mechanisms in place. The failure to prevent measures would work on multiple fronts. First and foremost, they would act as a deterrent, forcing companies to act and to take economic crime seriously if they know they would be held liable. Deterrence is proven to work. As a health and safety professional, I know that regulations to make companies and directors liable made tremendous inroads on health and safety. We may wonder why there were always so many disputes on construction sites, but it was because there was no health and safety. The workers had to fight for everything, and they could not do it without legislation. That is why we are here: to tackle things when they are not being tackled, and economic crime is not being tackled at the present time. That legislation resulted in a 90% drop in deaths and serious injuries on construction sites, which could have involved just building a few houses.
Secondly, regulatory factors such as the fines that exist are not sufficient to bring about the required change. After all, the fines could be a lot less than these companies are earning from economic crime, and they become a cost factored into doing business for those companies. This cannot be right, and it simply cannot continue. To our shame, Britain is the global hotbed of economic crime, at a cost of £350 billion a year. The people of Ukraine are feeling the impact of this unchecked economic crime, as some of the main benefactors have been Russian oligarchs, the Russian state and Putin himself. There are the Magnitsky sanctions, but it tells us a lot, does it not, when Putin kills his own people as a deterrent? When we look at the invasion of Ukraine, we cannot sit back and let this continue unchecked.
The Government amendments to cover this do not go far enough. Well-organised criminal entities would easily get around legislation that only touches the largest companies and the largest businesses. They take advantage of small and medium-sized businesses, as my right hon. Friend the Member for Birmingham, Hodge Hill said. That is exactly what they do—they do whatever it takes. They are cleverer than us, and they are doing it now. Well-organised criminals will get around it. As 64% of companies have experienced fraud, this would help those companies.
The Government legislation fails to make failure to prevent money laundering an offence. The justification for doing that is the money laundering regulations, yet there has been only one corporate conviction since they were introduced—that of NatWest in 2021. Clearly, the money laundering regulations are not good enough. The new legislation would make companies prove that they have the right procedures in place to prevent money laundering. This is the type of tough legislation we need to crack down on economic crime. For too long Britain has been the laundromat for foreign despots and dictators.
I heard a Member across the Floor talking about feeling the chill; what is more chilling than seeing what is going on and turning a blind eye, not washing the blood off our hands for the crimes against humanity committed for the very money being laundered around our country? I urge the Minister—I know where his heart is—not to throw away this wonderful opportunity to save so much. Democracy is at risk. It really is not acceptable. Please be brave enough—be brave enough and you will sleep at night.
Kevin Hollinrake
I thank all Members for their contributions. I will not reiterate all the points I made in my opening speech, which addressed many of the points raised in the debate but shall talk to a few of the points made.
My right hon. and learned Friend the Member for Kenilworth and Southam (Sir Jeremy Wright) made some points that were also reflected by my right hon. and learned Friend the Member for South Swindon (Sir Robert Buckland). My right hon. and learned Friend the Member for Kenilworth and Southam challenged me to explain why subsection (4)(a) of the proposed new clause in Lords amendment 151 does not prevent excessive burdens on SMEs. That measure says we must have in place “such prevention procedures” and there is a concern that many millions of SMEs across the country would have to put in place prevention procedures despite there probably being no chance of any fraud at that organisation. So there would be burdens that otherwise would not exist on those businesses.
Sir Jeremy Wright
The Minister is right, but subsection (4)(a) refers to
“such prevention procedures” as are
“reasonable in all the circumstances”,
so in very many cases that would be a very minimal requirement and probably only what companies that are behaving responsibly are doing already. Secondly, as I am sure the Minister is about to point out, subsection (4)(b) states that it might not be
“reasonable in all the circumstances to expect the body to have any prevention procedures in place.”
So if it was not considered reasonable to have any, it would be possible to rely on that defence if they did not.
Kevin Hollinrake
I think my right hon. and learned Friend will accept there will also be a requirement to analyse actuarily the business to see what risks there are, and any perceived risk would of course require those prevention procedures to be put in place. We have analysed this and tried to get some context around the costs to businesses and think it would be in the order of £4 billion, so there would be significant burdens. For that reason, we are not persuaded to change our threshold.
Let me correct myself to the hon. Member for Rhondda (Sir Chris Bryant). I was only out by a factor of 100 when I talked about the number of warning notices sent to overseas entities; 1,000 warning notices have been sent.
The hon. Member for Feltham and Heston (Seema Malhotra) talked about the introduction of SLAPPs, and we are clearly keen to do that at the earliest possible time. We have to work with the Civil Procedure Rule Committee to implement a new cost protection scheme for SLAPPs defendants and the early dismissal mechanism via secondary legislation as soon as possible. We cannot give a definite date, however.
I thank my hon. Friend the Member for Cheadle (Mary Robinson) for all the work she does with the all-party group on whistleblowing, which I was heavily engaged with as a Back Bencher. We have a review of whistleblowing that should conclude by the end of 2023. On extending SLAPPs to areas of our economy outside the economic sector, we are considering further legislative options. Clearly, in this proposed legislation it could only pertain to economic crime due to the extent of the Bill.
The hon. Member for Glasgow Central (Alison Thewliss) rightly talked about enforcement resources and also some of the limitations in the current regime, and that is exactly why we are legislating. The provisions we will make will increase the incorporation fee for Companies House. In addition to the £63 million we have put in to pump-prime this work—the extra people at Companies House will therefore be resourced, and there are already 400 people there to enforce the provisions of this legislation—we expect to increase incorporation fees to around £50 and also to extend the costs of annual returns to raise the money as necessary to make sure that the requirements of the Bill are fully implemented.
Alison Thewliss
Given the woefully low number of fines for false filing and the single one for not registering a person of significant control for Scottish limited partnerships, will we see that increase?
Kevin Hollinrake
That is exactly why we are legislating. These are the biggest reforms to Companies House in 170 years. We have to legislate first and ensure that the resources and the enforcement are in place. We are on the same page in this area.
Economic Crime and Corporate Transparency Bill
Monday 11th September 2023
(1 year, 2 months ago)
Lords ChamberRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: HL Bill 166-I Marshalled list for Consideration of Commons Amendments and Reasons - (8 Sep 2023)
17:04 - Division on Motion E1 - Ayes: 211 / Noes: 185 - Motion E1 agreed.
17:16 - Division on Motion H1 - Ayes: 218 / Noes: 186 - Motion H1 agreed.
Lord Johnson of Lainston
That this House do disagree with the Commons in their Amendment 23A and do propose Amendments 23B and 23C in lieu—
“12B After section 790I insert—
“Power to impose further duties
790IA Power to impose further duties involving nominee shareholders
(1) The Secretary of State may by regulations make further provision for the purpose of enabling a company to which this Part applies to find out about anyone who has become or ceased to be a person who is—
(a) a registrable person in relation to the company by virtue of shares being held by a nominee, or
(b) a registrable relevant legal entity in relation to the company by virtue of shares being held by a nominee.
(2) The regulations may, in particular—
(a) impose obligations on a company with a view to obtaining—
(i) information about whether a person has become or ceased to be a nominee shareholder;
(ii) if they have, information about: (A) the shareholding; (B) the nominee; (C) the person for whom the nominee holds or held the shares;
(iii) any other information required by the regulations;
(b) impose obligations on others (including nominees or former nominees) with a view to providing the company with—
(i) information of a kind described in paragraph (a)(i)
or (ii);
(ii) any other information required by the regulations.
(3) The regulations may, in particular, make provision similar or corresponding to any of the preceding provisions of this Chapter.
(4) The provision that may be made by regulations under subsection (1) includes provision amending this Chapter.
(5) Regulations under this section are subject to affirmative resolution procedure.””
The Minister of State, Department for Business and Trade (Lord Johnson of Lainston) (Con)
My Lords, I shall also speak to Motions B, C, D and D1. I thank noble Lords for their extraordinarily high level of constructive input over the last few days as we have come to this point. I believe that together, across the House, we have created a truly powerful piece of legislation that will have a meaningful impact on how Companies House operates, how we deal with financial crime and how we make our system safer and cleaner.
I should declare my interests. I have interests in limited companies and other companies, but I do not believe there is any conflict of interest in this process today.
Motion A relates to Lords Amendment 23, tabled on Report by the noble Lord, Lord Vaux of Harrowden, which would require members of all UK companies to declare whether they were holding shares on behalf of, or subject to the direction of, another person or persons as a nominee and, if so, to provide details of the person or persons. We have been in conversation over the last few days about that amendment. While we understand the intention to tackle what we perceive to be an industry of nominee service providers prone to acting unlawfully, I am afraid we do not believe that the amendment is the appropriate way to achieve that goal.
However, the Government, via Motion A, have therefore tabled Amendments 23B and 23C in lieu of Commons Amendment 23A. I hope that is making sense to the noble Lord. The new amendments allow the Secretary of State to make regulations to make further provision for the purpose of enabling a company to find out who its PSCs are—that is, people of significant control—in cases where shares are held by a nominee. That could include, among other things, imposing further obligations on companies to find out if they have nominee shareholders and, if so, for whom they are holding shares, or imposing further obligations on nominee shareholders to disclose their status and for whom they are holding shares.
It is important that we make it clear that the reason for tabling the new amendments rather than accepting the noble Lord’s revised amendment is that we are slightly wary of imposing disproportionate burdens on business. There are a vast variety of nominee types which we need to make sure we have taken into account when ensuring that we are getting the right information from the right types of nominees. As I have said to the noble lord—at this Dispatch Box, I believe—the commitment in principle to try better to understand the route between the nominee and the beneficiary is an important one. We want to do it in the right way, and these amendments would give the Secretary of State the powers to do that. I hope that the noble Lord can agree that that is the right approach to take and, assuming that is so, can support the Government in this new amendment and consider withdrawing his own.
I turn to Motion B.
Lord Agnew of Oulton (Con)
My Lords, I apologise to my noble friend the Minister. I had been told that I needed to address my Motion D1 while Motion A was under discussion. I am very happy to wait but those were the instructions I had from the Table. Would anyone like to clarify?
Lord Johnson of Lainston (Con)
I am told that I should continue, and we will hear from my noble friend at a later stage—which I welcome and look forward to greatly.
Motion B is a technical Motion that allows the power to modify who is able to file with Companies House on others’ behalf, to ensure it is consistent for all types of filings. I hope the House is assured that these amendments are minor but sensible modifications to the Bill.
Motion C relates to Lords Amendment 115, also tabled by the noble Lord, Lord Vaux, at Report. This will introduce two new duties for overseas entities, the first requiring event-driven updates on beneficial ownership information, and the second requiring overseas entities to update their records no more than 14 days before the completion of a land transaction. We believe that requiring event-driven updates for the Register of Overseas Entities will not work in principle. I would like to reassure noble Lords that we have done an enormous amount of highly collaborative work with the noble Lord, Lord Vaux, on this issue. We are concerned that this would create additional risk for purchasers of properties involved with overseas entities. However, as I hope I have made clear to noble Lords, we are extremely committed to working further on this subject. The Government commit to keeping under review the question of the update period for the Register of Overseas Entities. That is extremely important, and I personally commit to that on behalf of the Government. We will have more evidence at our disposal as the first set of annual updates comes through. If we felt it necessary to change the reporting requirements, and if there were not the risks that we feel may be presented by the noble Lord’s proposal, then we would look to consult on that. For that reason, we will not be supporting that amendment.
I turn to Motion D, which my noble friend Lord Agnew will then speak to. Again, I am very grateful to my noble friend for his extraordinarily high level of commitment to making sure that the Economic Crime and Corporate Transparency Bill is genuinely powerful legislation that will enable us to achieve the goals we wish to achieve. Ultimately, transparency is at the core of our ambition. However, we are concerned, in that his amendment would make information about trusts submitted to the Register of Overseas Entities publicly available by removing it from the list of material listed as unavailable for public inspection. I note that my noble friend has also tabled a further amendment.
However, it is important to come back to these points, because they are very relevant to our ambitions. We are resolute in saying that we will not unilaterally change the rules relating to these trusts, and I think Members of the House understand why. However, we have committed already to launching a full public consultation before the end of the year on how we can further improve the transparency of trust information. Following further discussion with my noble friend, I would like to make it clear that the public consultation to which we are committed is a separate exercise from the commitment to make regulations that I have discussed already. The consultation will look at the case for broader transparency regarding trusts. The Government’s ambition is to increase and improve transparency. We commit absolutely that we will undertake this consultation and that it will be launched before Christmas of this year and run for no more than 12 weeks. That is in line with discussions we had with my noble friend.
I reassure my noble friend that Ministers across departments are committed to meeting this deadline and acting swiftly on the consultation’s findings. I would be very happy to meet with my noble friend, and indeed any noble Lords, soon after the consultation closes to discuss how we can move forward at pace. We therefore oppose my noble friend’s amendment, but I hope he can take the commitments I have made today at the Dispatch Box as sufficient reassurance to persuade him to withdraw his amendment. I beg to move.
Lord Vaux of Harrowden
Moved by
Leave out from “House” to end and insert “do agree with the Commons in their Amendment 23A, and do propose Amendment 23D to Lords Amendment 23 in place of the words left out by Amendment 23A—
“113C Required information about members: nominees
If a member holds 5% or more of the share capital or voting rights of the company, the required information about a member includes a statement by the individual, or where the member is a body corporate, or a firm that is a legal person under the law by which it is governed, by an officer of that body corporate or firm, as to whether or not they are holding the shares on behalf of, or subject to the direction of, another person or persons, and if they are—
(a) where any such person is an individual, and the shares held on that person’s behalf or subject to their direction amount to 3% or more of the share capital or voting rights of the company, the information required by section 113A in relation to that individual;
(b) where any such person is a body corporate or firm that is a legal person under the law by which it is governed, and the shares held on that person’s behalf or subject to their direction amount to 3% or more of the share capital or voting rights of the company, the information required by section 113B in relation to that body corporate or firm; or
(c) a statement that the member is not holding shares on behalf of, or subject to the direction of, such person that amount to 3% or more of the share capital or voting rights of the company.””
Lord Vaux of Harrowden (CB)
My Lords, I hope that Motion A1 is clear. Before I start, I remind the House of my interest as a non-practising chartered accountant.
On Report, your Lordships agreed Amendment 23, which included a requirement that shareholders should have to state whether they are holding shares on someone else’s behalf and, if so, on whose behalf they are holding them. This requirement was rejected, as we have heard, by the other place. Motion A1 aims to reverse that, while trying to take on board some of the matters raised in debate in the other place. If I may, given that the debate we had in this House was now some months ago, I will briefly remind the House of the issue that that amendment was trying to resolve.
One of the easiest ways to hide the true identity of an owner of a company is to use a nominee—somebody whose name will appear on the register of members but who is in fact acting under the instruction of and for the benefit of the actual beneficial owner. A substantial industry has grown up to provide these nominee services. There are of course legitimate reasons for using a nominee, such as an asset manager holding and managing a range of shareholdings, but it is quite revealing to do a Google search of nominee shareholding services.
A near-endless list of such services appears, and these services are usually sold very clearly as being primarily about creating anonymity for the true shareholder. Let me quote from one of them:
“The beneficial owner may choose to appoint a Nominee Shareholder because they do not want to register the shares in their own name. A Nominee Shareholder is a great way to keep shareholder information away from public records”.
Another one states:
“In the United Kingdom, the purpose of using nominees is confidentiality. Because of the confidentiality requirements, owners are reluctant to associate themselves with beneficial ownership, and the practice of nominating shareholders will hide their association”.
Most nominee service providers market their services in the same vein. A few of them refer to the PSC—persons with significant control—rules or to anti-money laundering in the marketing literature, but they are very much in the minority. As I said, there are legitimate reasons for holding shares through a nominee, but not wanting to register the shares in their own name and keeping shareholder information away from public records are not legitimate reasons. In fact, that is precisely what this Bill is trying to stop.
The amendment originally passed by this House was intended to strengthen the Bill to prevent the misuse of nominees to hide the true ownership. I continue to believe that this is a very real issue and, as a result, I have tabled Motion Al, which tries to reintroduce the original amendment, but changed to reflect some of the reasons for rejecting it made in the other place—in particular, the question of undue burden that the Minister referred to a moment ago.
However, since I tabled my Motion A1, I am very pleased to say that the Government has tabled Amendment 23C within their Motion A. It shows that they now recognise that there is a genuine issue here and, in particular, that the enabling industry needs to be incentivised to clean up its act. I especially welcome the fact that proposed new subsection (2)(b) will specifically allow the Government to impose obligations directly on those who act as nominees. The real flaw in the current rules is that those enablers face no real risk at all when acting as they do. I hope that this specific mention in the Government’s Amendment 23C will cause the nominee industry to take note and clean up its act, in the knowledge that if it does not, it will face regulation.
While I would have preferred to have taken action now and introduced something in the Bill, the fact that the Government recognise the issue and are proposing a regulating power to deal with it is most welcome. I very much welcome the commitments made by the Minister a moment ago. I thank him and, given that and what he has just said, I will not press Motion A1. I thank him and his officials for their continuing very constructive engagement, which has been the case throughout the Bill. I look forward to seeing the proposed regulations before too long—he will know that I will not be dropping the issue until we see the regulations.
I shall also comment very briefly on Motion C, which moves an amendment passed in this House that aimed to fix an anomaly in the register of overseas entities, which is that it has to be updated only annually. First, I point out the reason given by the Commons:
“Because it would alter the financial arrangements made by the Commons, and the Commons do not offer any further Reason”.
That, frankly, is totally inadequate and nonsensical in this case. It has to be updated only annually. Other registers, such as the register of persons with significant control, have to be updated within 14 days of any change being identified. This anomaly means that the register of overseas entities can be up to a year out of date at any time. That introduces the risk that an innocent part might unknowingly find themselves entering into a transaction with a sanctioned person, for example.
Unfortunately, because of the way the register works in conjunction with the registration of property, this all becomes extremely complex. I thank the Law Society for its helpful and constructive engagement in many meetings over the Recess to try to find a solution to this. While we did find a possible way through, it was so convoluted as to be impractical—so I am not going to oppose the removal of this amendment, even if the issue it was trying to solve remains real.
The register of overseas entities is still in its early stage. While it has been successful up to a point, as I am sure we are going to hear from the noble Lord, Lord Agnew, there are still many properties the ownership of which is, at best, unclear. I am very pleased to hear the commitment the Minister made in his speech just now that they will keep this anomaly of annual updating under review. In the meantime, I caution any person who is buying or selling property from or to an overseas entity, or who is entering into a lease over a property with an overseas entity, to require it to be a condition of the transaction that the entity’s entry in the register is updated immediately prior to the transaction completing. Only by doing that can the innocent party know who they are actually transacting with. With that, I beg to move.
Lord Agnew of Oulton (Con)
My Lords, I shall speak in favour of my Motion D. I am grateful to my noble friend the Minister for his ongoing dialogue with me as we grind to the end of this Bill: he has been patient and courteous, as ever. My problem is that the Government continue to say one thing and then do something different. Just to remind noble Lords, the reason I pressed my original amendment was that a gaping hole had opened up in this newly created register of overseas interests. It is barely a year old and we have more than 50,000 properties owned by an entity whose beneficial owners are withheld from public view. That is approaching one-third of all entries. It is rapidly becoming the default advice from cute law firms to their overseas clients to use a trust structure that is opaque.
In rejecting my original Commons amendment, the Government claimed refuge behind the principle of financial privilege. This is bizarre, if not worse, but in a spirit of collaboration I will not use the word that I had planned to use. The costs to Companies House of publishing trust information are estimated on the back of an illusory envelope at between £600,000 and £2.8 million—a figure supported by absolutely no methodology—but under the Bill, Companies House funding is going to rise exponentially. The current filing fee of £13 will rise to anywhere between £60 and £90 if the guidance we have been given is followed. Taking the bottom-end number, £60 means an increase of £47 a year times 4 million companies, or £188 million a year, against this odd figure of £600,000 to £2.8 million. Even if the higher filing fees deterred some company creation or dissolution for non-viable entities, the additional cost, frankly, is a rounding error. Indeed, if the Government were to approach this logically and calculated that as a transparency cost, it would be around about 70p per registered company per year, or about 1.25%.
I give this example only because I continually worry that I get very clear assurances from the Minister but the actions taken by the Government are rather different. I accept through gritted teeth that we cannot debate that amendment as I was blocked from tabling it. This leaves us with a much watered-down proposal to try to hold the Government to account to get on with the consultation they say they need to ensure that there are no legal challenges. The Government have accepted that they need to start straightaway, in this calendar year, but they do not yet accept the principle of my proposed new subsection (2) that the consultation includes the principle of public access to protected data on a bulk basis.
This sounds arcane, but it is crucial because currently HMRC is not providing the information when requested, and it can be requested only on a case-by-case basis. As I have shown, there are already more than 50,000 hidden owners where the public are being denied the information, so doing it individually is simply not practical. I have consistently said that those with a bona fide need for confidentiality should have it, but this would be a very small proportion of the 50,000.
On the terms of the consultation, there are a couple of elephant traps that the Government should be aware of. A few years ago, when the consultation was issued to tighten up the non-dom loopholes, the lawyers’ excuse for not tightening them up was that anyone who declared non-dom status should have a reasonable expectation that it should last in perpetuity. That sounds pretty sinister to me, but apparently that argument has already been rolled out to civil servants on the issue of more transparency with trusts. I warn the Minister to be alert because, as I understand it, civil servants have already expressed their compliance with this idea. I hope that we as politicians are still running the country, not the civil servants.
We have heard from my noble friend the Minister and he has given commitments, which I very much appreciate. However, I hope he understands why I am extremely nervous: what he says and what the Government do are not always totally aligned. I will take his words exactly as he says them, though, and I ask him to keep a very careful eye on this process over the next few months. I think he has learned enough about me to know that, for all my many weaknesses, one thing I am is dogged. We will keep a careful eye on this. On that basis, I will withdraw my amendment.
Lord Eatwell (Lab)
My Lords, I strongly support the amendment from the noble Lord, Lord Agnew. I do this as a former chair of the Jersey Financial Services Commission. In Jersey we made a major effort to increase the transparency of trust information so that beneficial ownership could be accurately identified. One of the inhibitions for cleaning up, if you like, the register in Jersey was the behaviour of the Government in the United Kingdom, and their persistent obfuscation of the way in which trusts were to be treated.
The amendment from the noble Lord, Lord Agnew, contains exactly the process that needs to be dealt with in a consultation. I understand the assurances he may have received and that he may feel it appropriate to withdraw his amendment, but I hope he proves as dogged as we know him to be in pursuing this. I assure him of my continuing support.
Lord Faulks (Non-Afl)
My Lords, I also support what the noble Lord, Lord Agnew, has said and done. I am very sorry that the Government did not accept the amendment in relation to trusts. It was entirely in keeping with the purpose of the Bill, and more specifically with the purpose of the introduction of the register of overseas entities.
Some of us have been advancing the cause of this register—some would say banging on about it—for some considerable time. I had the privilege of chairing the Joint Committee on a draft Bill. We recommended legislation as soon as possible. Unfortunately, it took the invasion of Ukraine for the Government to incorporate the necessary legislation into the last economic crime Bill.
During the taking of evidence by the committee in 2019, the need to avoid trusts being used to avoid the identification of the true owner of property was specifically brought to our attention. It then became part of our recommendations that the legislation, when it came before your Lordships’ House, should cater for this obvious loophole. The Government ignored the recommendation then and have now resisted the amendment passed by your Lordships’ House.
If there is concern about minors and keeping them ignorant about their status as beneficiaries, this could have been catered for by an appropriate provision. Instead, the Government, against whom the former Lord Chancellor voted in the other place on this issue, have resorted to “financial privilege” as a means of blocking the amendment.
Trust lawyers are going to be very busy, as foreign owners will set about frustrating the purpose of the register and the aspirations that we all share for this and related legislation. I hope the Government bear that in mind.
Lord Garnier (Con)
My Lords, I had the privilege of being a member of the noble Lord’s committee. I agreed with what he had to say then, and I agree with what he has just said now.
Lord Fox (LD)
My Lords, in his opening dispatch the Minister praised those involved for the way in which the Bill has been modified and changed. The noble Lord, Lord Agnew, needs to take a lot of credit for how that modification has gone ahead, and the work that he has done and will have to continue to do in his role overseeing the Government’s response to this. I will not repeat anything that has already been said, other than to say that I agree.
The reason we are concerned about this issue is that the Government will rightfully say that they know who the names are in these trusts, but the issue we are talking about is the publication. It has been the role of civil society and journalists to uncover problems, and that has been very important in issues around this. If the Government can demonstrate that their commitment to enforcement, getting behind these trusts and exposing people who are using them to avoid issues is fully funded and fully backed by them, our relying on civil society—which we have had to do to date—would be less of an issue. That is why we support the quest by the noble Lord, Lord Agnew, on this, and will support him as he seeks to make sure that further steps are appropriate and that enforcement is at the heart of what we seek to achieve here.
Baroness Blake of Leeds (Lab)
My Lords, I start by thanking the Minister for the broader tidying up of the amendments in this group and by reflecting on the time, over several months, that we have been discussing these important issues. We must keep our eye on the scale of the issues that we are dealing with; they are immense, and they cost this country billions of pounds. We have a great deal to do to repair the UK’s reputation in the world, and I hope that we involved in this debate will all have our eyes on that prize.
I am pleased to say that we have seen some positive changes achieved through the passage of this Bill and a genuine appetite for change, as we experienced with our conversation with Companies House. We are going through an immense cultural change in the management of these affairs. As we know, it is the biggest shake-up for 170 years. I also pay tribute to everyone in the Chamber, and those who are not here today, for their diligence in the work that they have done, and to my colleagues in the other place, Dame Margaret Hodge and Seema Malhotra in particular. Months and months of work have gone into getting us to this place.
I am very grateful for the explanation that the noble Lord, Lord Vaux, gave. There is real recognition that there will be an ongoing need to scrutinise. I think we all accept the commitments in good faith, but we need to make it clear to Ministers and their officials that the interest is very live and that there will be close scrutiny as these matters roll up. Compromise has been reached on this—I accept that that is the reason we will not be taking the amendment to a vote—but we add our support to the ongoing scrutiny that will need to take place.
I also pay tribute to the noble Lord, Lord Agnew, for his persistence in this and his unique position having had experience in government, which has informed the approach he has taken and the concern that I think many would agree he has rightly raised. We are where we are—he has decided to accept the reassurances—but we also have an insight into those elephant traps that he referred to. I also reference the comments of my noble friend Lord Eatwell on the explicit need for vigilance.
With those comments, and thanking everyone for the spirit of compromise, I reassure everyone that we will look closely at this, and we very much hope that the measures being brought in today will be sufficient. We will look to those delegated powers that have been built in to make sure that, if change is necessary, it will indeed be made.
Lord Johnson of Lainston (Con)
I thank noble Lords for their contributions, including the noble Baroness, Lady Blake, for her extremely helpful and supportive comments about the overall debate. In her summation, she was right that we have, through a great degree of good faith among us all, come up with a very strong series of actions that will genuinely change the economic landscape in this country for the better.
I have had the privilege of working with my noble friend Lord Agnew for a number of months as we have come to today’s conclusion on these measures. I reiterate my personal commitment, and the commitment of this Government, to delivering on the thrust of his ambitions. On a process that came to light only recently—the issue of bulk data and its accessibility—I can commit that Companies House will do a review of how it can assess bulk data for the trusts’ information on the register of overseas entities once a consultation period has finished and it is deemed appropriate.
Ultimately, we are committed to greater transparency, and I am very grateful to my noble friend and noble Lords across the House for their understanding of our approach to how we can best achieve this without either endangering vulnerable minors or individuals or opening ourselves up to legal challenge which could derail many of the main principles of this part the Bill to which my noble friend is rightly keen to contribute.
Finally, I express my gratitude to the noble Lord, Lord Vaux, who, from the very beginning, has been a tireless collaborator in creating—with his input across the board in this section of the Bill—a truly powerful piece of legislation. It was my own personal pleasure and pride to work with him as we have come to this conclusion, and I am very grateful to him for his understanding, again, of how we believe that we can achieve our shared ambitions in what we think will be the right way.
We have made some clear further commitments today—to which I would be delighted to be held to account by my noble friend Lord Agnew and all noble Lords in the House today—to make the Economic Crime and Corporate Transparency Bill the most effective legislation it can be. I therefore invite the House to agree the government Motions in this group.
Lord Vaux of Harrowden (CB)
My Lords, I thank the Minister for his generous comments. I also thank noble Lords who have been so generous with their support throughout the passage of the Bill on these matters, which has allowed us to get to the point of achieving at least this compromise. With that, I beg leave to withdraw Motion A1.
Lord Johnson of Lainston
That this House do not insist on its Amendment 56 and do agree with the Commons in their Amendments 56A, 56B and 56C in lieu.
“Who may deliver documents to the registrar
1067A Delivery of documents: identity verification requirements etc
(1) An individual may not deliver a document to the registrar on their own behalf unless—
(a) their identity is verified (see section 1110A), and
(b) the document is accompanied by a statement to that effect.
(2) An individual (A) may not deliver a document to the registrar on behalf of another person (B) who is of a description specified in column 1 of the following table unless—
(a) the individual is of a description specified in the corresponding entry in column 2, and
(b) the document is accompanied by the statement specified in the corresponding entry in column 3.
1 | 2 | 3 | |
Description of person on whose behalf document delivered (B) | Description of individual who may deliver document on B’s behalf (A) | Accompanying statement | |
1 | Firm | Individual who is an officer or employee of the firm and whose identity is verified (see section 1110A). | Statement by A— (a) that A is an officer or employee of the firm, (b) that A is delivering the document on the firm’s behalf, and (c) that A’s identity is verified. |
2 | Firm | Individual who is an officer or employee of a corporate officer of the firm and whose identity is verified. | Statement by A— (a) that A is an officer or employee of a corporate officer of the firm, (b) that A is delivering the document on the firm’s behalf, and (c) that A’s identity is verified. |
1 | 2 | 3 | |
Description of person on whose behalf document delivered (B) | Description of individual who may deliver document on B’s behalf (A) | Accompanying statement | |
3 | Firm | Individual who is an authorised corporate service provider (see section 1098A). | Statement by A— (a) that A is an authorised corporate service provider, and (b) that A is delivering the document on the firm’s behalf. |
4 | Firm | Individual who is an officer or employee of an authorised corporate service provider. | Statement by A— (a) that A is an officer or employee of an authorised corporate service provider, and (b) that A is delivering the document on the firm’s behalf. |
5 | Individual | Individual whose identity is verified. | Statement by A— (a) that A is delivering the document on B’s behalf, and (b) that A’s identity is verified. |
6 | Individual | Individual who is an authorised corporate service provider. | Statement by A— (a) that A is an authorised corporate service provider, and (b) that A is delivering the document on B’s behalf. |
7 | Individual | Individual who is an officer or employee of an authorised corporate service provider. | Statement by A— (a) that A is an officer or employee of an authorised corporate service provider, and (b) that A is delivering the document on B’s behalf. |
(a) an individual who is an officer of one of those corporate officers, or
(b) if the officers of those corporate officers are all corporate officers, an individual who is an officer of any of the corporate officers’ corporate officers,
and so on until there is at least one individual who is an officer.
(4) The Secretary of State may by regulations—
(a) create exceptions to subsections (1) or (2) (which may be framed by reference to the person by whom or on whose behalf a document is delivered or by reference to descriptions of document or in any other way);
(b) amend this section for the purpose of changing the effect of the table in subsection (2).
(5) Regulations under subsection (4)(a)—
(a) may require any document delivered to the registrar in reliance on an exception to be accompanied by a statement; (b) may amend this section.
(6) The Secretary of State may by regulations make provision requiring a statement delivered to the registrar under subsection (2) to be accompanied by additional statements or additional information in connection with the subject-matter of the statement.
(7) Regulations under this section are subject to affirmative resolution procedure.
(8) In this section “corporate officer” means an officer that is not an individual.””
“(7) The Secretary of State may by regulations amend this section for the purposes of changing who may deliver a document to the registrar on behalf of a disqualified person.
(8) Regulations under subsection (7) are subject to the affirmative procedure.”
(a) amend this section for the purposes of changing who may deliver a document under a provision listed in subsection (4) to the registrar on behalf of another person;
(b) ”
Lord Johnson of Lainston
That this House do not insist on its Amendment 115, to which the Commons have disagreed for their Reason 115A.
Lord Johnson of Lainston
That this House do not insist on its Amendment 117, to which the Commons have disagreed for their Reason 117A.
Lord Sharpe of Epsom
That this House do agree with the Commons in their Amendment 151A.
The Parliamentary Under-Secretary of State, Home Office (Lord Sharpe of Epsom) (Con)
My Lords, I will speak also to Motions F, G, H and H1. We cannot agree to the proposed amendments for practical reasons, not least that the burdens they would place on business would not just be justified. It is for this reason, and not because of any intransigence or party-political reason, that we are unable to agree with the proposed Lords amendments. I will now talk specifically to the Motions in this group.
Motion E would reinsert the SME exemption for the failure to prevent fraud offence. I have of course noted Motion E1, tabled by my noble and learned friend Lord Garnier. I appreciate that he has moved closer to the Government’s position on this issue, creating his own threshold that would exclude microentities from the failure to prevent fraud offence. However, the Government remain extremely mindful of the pressures on companies of all sizes, including small and medium-sized enterprises, and therefore do not feel it is appropriate to place this new, unnecessary burden on more than 450,000 of them.
The analysis on this issue remains clear: even reducing the exemption threshold to only microentities would increase the one-off costs on businesses from around £500 million to £1.5 billion. Further, the annually recurrent costs would increase from £60 million to more than £192 million. Those costs would still be disproportionately shared by small business owners.
I know some noble Lords have expressed scepticism about the burdens, but the fact is that when a small business person hears that they may be liable to a new offence and significant fines if they are judged not to have taken action on something, they will worry. They will take time out of their business to scrutinise the guidance and, whatever it may say, there could be widespread overcompliance. Furthermore, they may well have to pay their accountant or lawyer to do it for them. While this burden is eye-watering in its own right, the issue cannot be taken in isolation. We must be aware of the cumulative compliance costs for SMEs across multiple government requirements or regulations. Furthermore, I can assure noble Lords that 50% of economic activity would be covered by the organisations in scope of this new offence with the Government’s threshold in place. It is of course already easier for law enforcement to attribute and prosecute fraud more easily in the smaller organisations that fall below the threshold.
I hope that noble Lords who feel strongly on this issue will be reassured that this is not the end of the debate. The Government have future-proofed the legislation by including a delegated power to allow them to raise, lower or remove the threshold altogether. Of course, as with all legislation, the Government will keep the threshold under review and will make changes if there is evidence to suggest that they are required. I therefore urge noble Lords to support government Motion E, rather than Motion E1.
I now turn to government Motion G, which disagrees with Lords Amendment 158. This was also tabled by my noble and learned friend Lord Garnier and seeks to introduce a failure to prevent money laundering offence. I am pleased that no amending Motions have been tabled for today, as I fear this amendment is entirely duplicative of existing regulations. Much like my noble and learned friend’s other amendment, it would therefore impose yet further unnecessary burdens on UK businesses. The UK already has a strong anti-money laundering regime in the form of the money laundering regulations, which require regulated sectors to implement a comprehensive set of measures to prevent money laundering. Corporations and individuals can face serious penalties, ranging from fines to cancellation of registration and criminal prosecution, if they fail to take those measures. What is more, those penalties will apply even if no actual money laundering has occurred. No knowledge of or intention to commit an offence has to be proved.
The money laundering regulations and the money laundering offences in the Proceeds of Crime Act are directly linked and can be seen as part of the same regime. A failure to prevent money laundering offence would therefore be highly duplicative of the existing regime. This is not just the view of the Government: in our conversations with industry, it has been very clear that duplication would create a serious level of confusion and unnecessary burdens on businesses. We should support legitimate businesses, rather than hamper them with overlapping regimes. I therefore hope that noble Lords will agree with the government Motion to disagree with the amendment from Report.
Lord Garnier
Leave out from leave out from “House” to end and insert “do disagree with the Commons in their Amendment 151A and do propose Amendments 151B and 151C in lieu—
“Section (Failure to prevent fraud): non-micro organisations
For the purposes of section (Failure to prevent fraud)(1) a relevant body is a “non-micro organisation” only if the body satisfied two or more of the following conditions in the financial year of the body (“year P”) that precedes the year of the fraud offence—
Turnover | More than £632,000 and less than £36 million |
Balance sheet total | More than £316,000 and less than £18 million |
Number of employees | More than 10 and less than 250. |
(3) In subsection (1) the “number of employees” means the average number of persons employed by the relevant body in year P, determined as follows—
(a) find for each month in year P the number of persons employed under contracts of service by the relevant body in that month
(whether throughout the month or not),
(b) add together the monthly totals, and (c) divide by the number of months in year P.
(4) In this section—
“balance sheet total”, in relation to a relevant body and a financial year—
(a) means the aggregate of the amounts shown as assets in its balance sheet at the end of the financial year, or
(b) where the body has no balance sheet for the financial year, has a corresponding meaning;
“turnover”—
(a) in relation to a UK company, has the same meaning as in Part 15 of the Companies Act 2006 (see section 474 of that Act);
(b) in relation to any other relevant body, has a corresponding meaning;
“year of the fraud offence” is to be interpreted in accordance with section (Failure to prevent fraud)(1).
(5) The Secretary of State may by regulations modify this section (other than this subsection and subsections (6) and (8)) for the purpose of altering the meaning of “non-micro organisation” in section (Failure to prevent fraud)(1).
(6) The Secretary of State may (whether or not the power in subsection (5) has been exercised) by regulations—
(a) omit the words “which is a non-micro organisation or” in section (Failure to prevent fraud)(1), and
(b) make any modifications of this section (other than this subsection) that the Secretary of State thinks appropriate in consequence of provision made under quotegraph (a).
(7) Before making regulations under subsection (5) or (6) the Secretary of State must consult—
(a) the Scottish Ministers, and
(b) the Department of Justice in Northern Ireland.
(8) Regulations under subsection (5) or (6) may make consequential amendments of section (Failure to prevent fraud: minor definitions).””
Lord Garnier (Con)
My Lords, I begin by referring to my interest as a barrister in private practice and informing the House that that practice includes economic and corporate crime.
I wish to acknowledge the genuine attempts of my noble friends on the Front Bench to understand my concerns, expressed over a good many years and, more particularly, during the passage of this Bill, not only in this Chamber and in Grand Committee but in meetings with them and their officials, most recently on Friday. My noble friend Lord Sharpe has had to bear the brunt of my concerns, but he has never dissembled nor lost his sense of humour, even when listening to my jokes. It is regrettable that he has not been permitted any discretion by Ministers in the other place and has had to stick to his instructions on a matter that has nothing to do with party politics or manifesto commitments.
I know that your Lordships are interested only in creating good, coherent and comprehensible criminal law that meets the needs of the modern economy and is in line with public opinion and morality. Thanks to the support of your Lordships’ House—I am grateful to noble Lords of all parties and none—the Bill we are dealing with was altered on Report to delete the SME exemption from the failure to prevent fraud offences regime, while money laundering was added to the failure to prevent regime introduced by the Government; by that, I mean the substantive money laundering offences under Part 7 of the Proceeds of Crime Act 2002, not to be confused with the due diligence requirements under the more recent money laundering regulations.
Last Monday, despite the powerful arguments of my right honourable and learned friends Sir Jeremy Wright and Sir Robert Buckland, the other place refused to extend the proposed new offence of failure to prevent fraud to 99.5% of the corporate economy and deleted money laundering from the failure to prevent regime. Having won the Division in the other place last week, the Government now seek to sustain that position in your Lordships’ House today. I accept that democratic politics is as much about arithmetic as it is about sound arguments; if a majority prefers to do something unsatisfactory, whether or not it has listened to the arguments and the evidence in support of them, that is what will happen. Even as they stand, these limited proposals are well overdue and have been in the making since 2010.
In the spirit of compromise, those of us who voted for the extension of failure to prevent to money laundering on Report have agreed not to press the money laundering extension today. We happen to think that it should be extended to money laundering—I happen to think also that there are other substantive offences, such as those listed in the deferred prosecution agreements schedule to the Crime and Courts Act 2013, that could be included—but, on the basis that the best is often the enemy of the good, and in an attempt to meet the Government a lot more than half way down the road, we will not take that matter further on this occasion. However, I invite the Government and the other place to reconsider the SME exemption, subject to a further concession to exempt micro-businesses; I hope that this will allay the fear, albeit unfounded, that extending the failure to prevent regime further than the Bill currently permits will stifle small businesses. Absent any agreement from my noble friend the Minister, I will seek leave to test the opinion of the House at the appropriate time.
On Report, I spoke in support of a number of amendments or proposed new clauses to the Bill—a Bill which has much to recommend it, even if it has been slow to arrive. The defects that I intended to correct related to the failure to prevent regime. No one needs reminding of this but that regime is not a new provision stealthily added to the criminal law in the past few months by an eccentric Back-Bench Peer. It was first introduced into our criminal law with cross-party support—indeed, without a vote—via the Bribery Act 2010, which began its passage through Parliament under Gordon Brown’s Labour Government and was enacted under David Cameron’s coalition Government. Failure to prevent bribery under Section 7 of the 2010 Act, supported by all three major parties, as well as the Cross Benches and others, is now a tried and tested criminal offence, with an easily understood and practical defence for companies and partnerships that I and many other practitioners have not found difficult to advise on or to apply in particular cases, whether we have been acting for the Serious Fraud Office or for defendant companies.
The objective of the 2010 Act was and is not to bring the full force of the criminal law to bear on well-run commercial organisations that experience an isolated incident of bribery on their behalf. Therefore, to achieve an appropriate balance, Section 7 provides a full defence. This is in recognition of the fact that no bribery prevention scheme will be capable of always preventing bribery. However, the defence was also included to encourage commercial organisations to put procedures in place to prevent bribery by persons associated with them. The failure to prevent bribery offence is in addition to, and does not displace, liability that might arise under Sections 1 and 6 of the Act for direct bribery here or of a foreign public official where the commercial organisation itself commits an offence.
That was well understood as the Act progressed through Parliament and I hope it is well understood now. So too are the special nature and parameters of the statutory defence of “adequate procedures”. Note that the defence requires “adequate procedures”, not perfect procedures. There is no practical difference between “adequate procedures” in the 2010 Act and “reasonable procedures” in the Criminal Finances Act 2017 and in this Bill. The law requires no more than a proportionate approach to the facts relevant to the company or partnership in question.
The alarmist suggestion that a failure to prevent fraud offences regime that does not include SMEs—that is, it does not exempt 99.5% of companies and partnerships—will impose unbearable cost burdens running into multiple billions of pounds on those organisations is absurd. There will be some cost but since the guidance under the 2010 Act has been available since 2011, it is well understood and can easily be adapted to the failure to prevent offences under this Bill. The Bribery Act guidance will easily translate to fraud offences and the sooner it is published, the better. The best estimates are that SME companies will need to spend between £2,000 and £4,000 to prepare themselves and some will need to spend nothing because of their low risk profile. These costs are a legitimate business expense but, to put this in proportion, Lesley O’Brien, a director of Freightlink Europe, said in June 2022 that it costs £20,000 per year to run one heavy-goods vehicle. No sensibly run business should be trading abroad without taking proportionate precautionary steps to avoid the risk of bribery or fraud committed by its associates.
In the guidance to the 2010 Act, published in 2011 by my noble friend Lord Clarke of Nottingham, the then Justice Secretary, he explained that “procedures” is used to embrace bribery prevention policies and the procedures that implement them. Policies articulate a commercial organisation’s anti-bribery stance, show how it will be maintained and help create an anti-bribery culture. They are therefore a necessary measure in the prevention of bribery but they will not achieve that objective unless they are properly implemented. Adequate bribery prevention procedures, I repeat, ought to be proportionate to the bribery risks that the organisation faces. The same applies to the prevention of fraud offences and, where the guidance refers to “bribery”, one could in the context of this Bill substitute “fraud”.
The guidance says:
“To a certain extent the level of risk will be linked to the size of the organisation and the nature and complexity of its business, but size will not be the only determining factor. Some small organisations can face quite significant risks, and will need more extensive procedures than their counterparts facing limited risks. However, small organisations are unlikely to need procedures that are as extensive as those of a large multi-national organisation. For example, a very small business may be able to rely heavily on periodic oral briefings to communicate its policies while a large one may need to rely on extensive written communication … The level of risk that organisations face will also vary with the type and nature of the persons associated with it. For example, a commercial organisation that properly assesses that there is no risk of bribery”—
substitute “fraud”—
“on the part of one of its associated persons will, accordingly, require nothing in the way of procedures to prevent bribery”—
substitute “fraud”—
“in the context of that relationship. By the same token the bribery”—
substitute “fraud”—
“risks associated with reliance on a third party agent representing a commercial organisation in negotiations with foreign public officials may be assessed as significant and accordingly require much more in the way of procedures to mitigate those risks. Organisations are likely to need to select procedures to cover a broad range of risks but any consideration by a court in an individual case of the adequacy or reasonableness of procedures is necessarily likely to focus on those procedures designed to prevent bribery or fraud on the part of the associated person committing the offence in question”.
Lord Faulks (Non-Afl)
My Lords, I will take this opportunity to speak to my Motion H1 in the same group, which proposes, as an amendment to Motion H, to
“leave out from ‘161’ to end and insert ‘, do disagree with the Commons in their Amendment 161A in lieu, and do propose”
the amendment listed at page 24 of the Marshalled List.
However, I should explain that there is a mistake in this amendment, which is no doubt my fault. There were various communications between me and the Public Bill Office on Friday afternoon, in order to get the amendment in the appropriate shape, and a “not” features in the wrong place. I will explain where the omission is and why I submit that it does not ultimately matter.
The intention behind this amendment, under “Civil recovery: costs of proceedings”, was to try to give some protection to the agencies in the case of adverse costs orders made against them. This amendment was passed by your Lordships’ House; it went back to the House of Commons last Monday and was rejected.
My amendment is a softening of the original amendment put down by the noble Lord, Lord Agnew, and me—softening because it had to be softened somewhat to comply with the rules. Proposed new subsection (2) should read:
“The court should not normally make an order that any costs of proceedings relating to a case to which this section applies … are payable by an enforcement authority to a respondent or a specified responsible officer in respect of the involvement of the respondent or the officer in those proceedings, unless it would be in the interests of justice”.
So the “not” should be inserted earlier and removed later on.
The amendment that was drawn to my attention today did not entirely reflect my intention. I have been in communication with the Public Bill Office as to whether it was possible to amend it. Although it is possible to table a manuscript amendment—see paragraph 8.172 of the Companion—it is inelegant and I am told that the better course is to explain the purpose of the amendment. Were the House to be in favour of the amendment, the matter can be amended at the House of Commons stage. That appears to be the position.
Now perhaps I can come on to the merits, as I see them, of the amendment. The Minister says that my amendment—which is really not much more than a nudge; it does not compel the court to do anything in relation to costs—is intended to prevent any disincentive being provided to the agencies, who may seek to recover the proceeds of crime, often against very well-resourced defendants. Unexplained wealth orders, brought in by the Criminal Finances Act, were to be a powerful weapon in seeking to obtain recovery, ultimately, from those whose wealth was not easily explicable. The agency tried on one occasion to do that and was unable to surmount the hurdle the court said was appropriate in these cases—and, indeed, which Parliament said was appropriate. The result was an order of £1.5 million-worth of costs against the agency.
Perhaps unsurprisingly, there has not been great enthusiasm to take up unexplained wealth orders on the part of the Serious Fraud Office. So your Lordships’ House, during the last economic crime Bill proceedings, very sensibly produced an amendment that, broadly speaking, reflected the amendment we are now discussing in relation to unexplained wealth orders, so as not to provide such a disincentive to the authorities seeking to obtain one of these orders. The rationale behind my amendment is precisely the same. The Minister says that this offends the “loser pays” principle. He is right that the starting point in most civil cases is that the loser pays—for very good reason. If A brings a claim against B that proves to be unjustified, and B has been put to expense thereby, why should B not recover his or her or its costs from A?
However, that rule is subject to many exceptions, as all those who are familiar with the law will know. For example, on some occasions the court orders each side to bear its own costs, having regard to the facts. Sometimes there will be no orders as to costs; sometimes there will be issue-based costs. There will be a variety of different orders to meet the justice of a particular case. Sometimes Parliament even specifically weights the cost in one particular direction. An egregious example is Section 40 of the Crime and Courts Act, which is a controversial issue but shows that Parliament is perfectly capable of deciding who should pay the costs in particular circumstances.
What will happen if this particular provision becomes part of our law? I suggest what will happen is that a judge looking at the end of a case will see that Parliament has decided that normally there should not be an order that the agency pays the costs. However, if the agency quite unreasonably, without proper evidence, seeks to pursue somebody for the proceeds of crime, there is of course the saving provision—“in the interests of justice”—which is part of our amendment. So a court is perfectly able, as it will always do, to look at the particular circumstances of the case and decide that, in this case, the agency has been inappropriately pursuing somebody, seeking a remedy when they should not have done. But this is a nudge towards the judge, and a very qualified exception to the “loser pays” principle.
It is, however, an important amendment. Those giving evidence towards the Bill Committee included Bill Browder, who may be well known to your Lordships for his particularly vigorous pursuit of justice in this particular area, and representatives of the Serious Fraud Office. I would be interested to know from the Minister what the approach of the agencies is to this. If he tells me firmly that they do not want this power, that is of course a powerful argument. It would be somewhat at odds with the evidence and the information I have, but I do not have a complete and total understanding of what their approach should be.
It seems to me that someone running the Serious Fraud Office or the NCA, when deciding whether or not to pursue somebody, would bear very much in mind their budget and the cost consequences of taking a particular course of action. If they knew that there was a degree of protection—and that is all this is, a degree of protection—provided in this, it would act as much less of a disincentive. If they thought that, should they fail to recover what they thought they were entitled to, there would be a very heavy hit on their budget, it might mean that they would not do so, which might be contrary to the interests of justice.
Lord Agnew of Oulton (Con)
My Lords, I rise briefly in support of my noble friend Lord Faulks on this amendment. I am particularly grateful to him; I was involved in the earlier amendments, but I realised that it needed a premier division lawyer rather than a second division entrepreneur to get this through.
In our discussion with Ministers, we were often told that the enforcement agencies did not want this; that seemed disingenuous to me. I now have some information. For example, law enforcement agents have shown a strong appetite for cost protection and civil recovery. The chief capability officer of the Serious Fraud Office told the economic crime Bill committee that the SFO would like to see this, while the head of the National Economic Crime Centre told the same committee that they found cost protection “an attractive proposal”. I do not think that is a searing insight. Spotlight on Corruption has identified 60 high-risk cases, with the potential of £1 billion of frozen assets, and the chilling effect is palpable among them.
I respectfully disagree with the Government on this. I am grateful to my noble friends the Ministers who have spoken several times to all of us, but I think they are on the wrong side of logic.
Baroness Noakes (Con)
My Lords, I have some very real concerns about the impacts of the new failure to prevent offence on small and medium-sized entities. If my noble and learned friend Lord Garnier’s Motion E1 is agreed to, I think it could be very significant. I believe that the other place was wise to restrict the offence to larger companies only. Setting the threshold at the micro-entity level would still leave very many small and medium-sized entities within the scope of the offence.
I did try to find out how many companies would be affected. My noble friend the Minister said 450,000 companies would be brought within the net of the offence. According to Companies House statistics, around 3.1 million active companies filed accounts last year. Of those, 1.6 million were for micro-entities, and would therefore be excluded, but 1.4 million were for small companies that took advantage of the audit exemption. That, very broadly, is the group of companies that would benefit from the changes made by the other place; it is obviously rather more than 450,000. Whatever the number, there will certainly be regulatory costs for those companies, whether 450,000 or 1.4 million. My noble friend the Minister has given his estimate of what those costs will be. I have never placed much faith in estimates made by Governments of the direct costs of regulatory burdens that Governments try to impose. I generally put a multiplier against them to arrive at a more realistic figure.
However, I believe the most important cost is the opportunity cost that is imposed by regulation. Every time a new regulation is imposed, the people who run small businesses have to spend time away from thinking about their core activities, which should be wealth-generating. Every moment spent thinking about whether they have reasonable prevention procedures in place, or implementing those procedures, is a moment spent not thinking about how to grow the business or how to make it more profitable. Large companies have specialists to cope with all this. Small businesses often have no one beyond the proprietor of the business itself, but they are the very people who are supposed to be spending their time growing their businesses, thereby helping the UK economy to grow—and my goodness me, do not we need growth in our economy?
The cumulative effect of incremental regulation on individual businesses is huge, as any small businessman will tell you, but the cumulative opportunity cost for those businesses of missing out on that growth, and the impact that will have on UK plc, simply cannot be ignored when we are looking at any form of legislation that imposes burdens on businesses. I urge noble Lords to accept the pragmatic solution that the other place has put forward.
Lord Hope of Craighead (CB)
My Lords, I am greatly assisted by the correction made by the noble Lord, Lord Faulks; I had great difficulty in understanding the amendment on first reading. Now that he has corrected it, I would like to say from the point of view of a Scots lawyer that there is nothing startling in the proposition that is made. We in Scotland are quite used to the normal routine that law enforcement agencies are not liable in costs for the proceedings that have been taken, probably for the reasons that the noble Lord has clearly expressed.
Lord Fox (LD)
My Lords, we have benefited from two extremely detailed and learned speeches proposing Motions E1 and H1. On Motion E1, I am exercised by the idea that there is an opportunity cost in checking whether you are preventing or causing fraud. That seems to be a strange discussion. The analogy made by the noble and learned Lord, Lord Garnier, with HSE and health and safety, is a good one: yes, it is a cost to make sure that you are doing something safely but it is a much wider benefit. The notion that 95% to 98% of the business community should be allowed not to consider their impact on fraud because that would get in the way of their growth is strange, because that growth would then be predicated on very shaky circumstances. I am not persuaded by the counterarguments, but I have been persuaded strongly by the noble and learned Lord.
Similarly, on the Motion from the noble Lord, Lord Faulks, causing agencies to be too tentative and restricted in how they go about prosecuting people is an important issue. It is clear from what we have heard from the outside world that this gets in the way of prosecutions. It also causes the prosecuting authorities to go for low-hanging fruit—that is, easier propositions—and avoid harder and often more severe prosecutions. That is a chilling effect which we should be worrying about when we look at this issue.
These two important amendments have been trimmed in the light of the rejection of the last set by the House of Commons. Noble Lords and Baronesses on these Benches will be happy to support them, if and when they are moved to a vote.
Lord Coaker (Lab)
My Lords, we have been pleased to support the legislation, which overall we think is very good, and we have said that to the noble Lord, Lord Sharpe. Indeed, the Government have listened, as have all the Ministers on the Bill, and made significant changes. Now we are left with just two amendments, put forward by the noble and learned Lord, Lord Garnier, and the noble Lord, Lord Faulks, which deal with two issues that remain outstanding but are of significant importance and deserve our support and consideration.
I want to reference one or two points made by the noble and learned Lord, Lord Garnier, because he made them particularly well. It is a proportionate and reasonable amendment to ask of the Government. There are all sorts of regulations and legislation—the noble and learned Lord referenced them—to which we say small businesses should be subject to, because we believe that it is the right thing to do and the right climate in which those businesses should operate. When it comes to the failure to prevent, the Government point out that 50% are covered by their legislation, which of course leaves 50% that are not.
Throughout the passage of the Bill, many of us have sought to ensure that the failure to prevent—which is a good step forward—applies, as far as possible, to as many businesses as it possibly can. The noble and learned Lord, Lord Garnier, asked why we would exclude many small businesses when they are not excluded from other legislation that may be seen as a burden. The argument is hollow and does not cut through. For that reason, and because the noble and learned Lord has put forward an amendment that takes into account what was said in the Commons, it deserves our support. Should he put it to a vote, as I think he suggested he would, we will support him.
Similarly, the noble Lord, Lord Faulks, notwithstanding the correction he made to the amendment, brings forward a very important point indeed. One of the great criticisms that is often made about dealing with fraud is that somehow law enforcement agencies are frightened of taking on the people who are committing fraud. I always thought it should be the other way around; the fraudster should be frightened of the law enforcement agency. Yet, for some bizarre reason, it is that way around—that cannot be right. It is not something that any of us want to be the case. Through his amendment, the noble Lord, Lord Faulks, has tried yet again to push the Government to do better and to do more than what is currently in the Bill. His amendment says to the Government, “Surely we should do better”. Indeed, the Treasury itself should be confident in the work of the law enforcement agencies. Some have suggested that those agencies should be indemnified against any costs they may incur.
I go back to two simple points. First is the point in the amendment from the noble and learned Lord, Lord Garnier: why should small businesses be excluded from this legislation, other than the micro-businesses to which he referred, when we do not exclude them from other legislation that we think is important? Small businesses adhere to that legislation in the same way as other businesses. Secondly, the amendment from the noble Lord, Lord Faulks, gives us an opportunity to turn the tables and ensure that, rather than the law enforcement agencies being frightened of costs they may incur in ensuring that fraudsters are brought to book, the fraudsters are frightened. That is why, if the noble and learned Lord, Lord Garnier, and the noble Lord, Lord Faulks, put their amendments to a vote, we will certainly support them.
Lord Sharpe of Epsom (Con)
My Lords, I thank all noble Lords who have spoken in this debate. I will respond relatively briefly; I think I have rehearsed the majority of the arguments widely and frequently, and there is not much point in saying more to some of them. However, the precise point I was trying to make in my opening remarks is, in essence, about proportionality. My noble friend Lady Noakes referred to that extremely eloquently.
My noble and learned friend Lord Garnier oftens points out that 99.5% of business is exempted, but I repeat that this is very much a judgment call because 50% of economic activity is captured. My noble friend Lady Noakes referred to the opportunity cost and the noble Lord, Lord Faulks, suggested that perhaps this is about businesses not checking whether they in some way have the right procedures in place to prevent fraud, but it is not about that. It is about many other factors that do not involve the business at hand, as my noble friend Lady Noakes referred to. Those other burdens are obviously partially financial, but not fully.
Lord Garnier (Con)
My Lords, I wish to press my Motion E1 and test the opinion of the House.
Lord Sharpe of Epsom
That this House do agree with the Commons in their Amendments 153A, 153B and 153C.
Lord Sharpe of Epsom
That this House do not insist on its Amendment 159, to which the Commons have disagreed for their Reason 159A.
Lord Sharpe of Epsom
That this House do not insist on its Amendment 161 and do agree with the Commons in their Amendment 161A in lieu—
“Report on costs orders for proceedings for civil recovery
Report on costs orders for proceedings for civil recovery
(1) The Secretary of State must assess whether it would be appropriate to restrict the court’s power to order that the costs of proceedings under Chapter 2 of Part 5 of the Proceeds of Crime Act 2002 are payable by an enforcement authority and, if so, how.
(2) In carrying out the assessment, the Secretary of State must consult such persons as the Secretary of State considers appropriate.
(3) The Secretary of State must publish and lay before Parliament a report on the outcome of the assessment by the end of the period of 12 months beginning with the day on which this Act is passed.
(4) In this section “the court” means the High Court in England and Wales.”
Lord Faulks
Leave out from “161” to end and insert “, do disagree with the Commons in their Amendment 161A in lieu, and do propose Amendment 161B in lieu—
“Civil recovery of proceeds of crime: costs of proceedings
Civil recovery: costs of proceedings
After section 313 of the Proceeds of Crime Act 2002 insert—
“313A Costs orders
(1) This section applies to proceedings brought by an enforcement authority under Part 5 of the Proceeds of Crime Act 2002 where the property in respect of which the proceedings have been brought has been obtained through economic crime.
(2) The court should normally make an order that any costs of proceedings relating to a case to which this section applies (including appeal proceedings) are payable by an enforcement authority to a respondent or a specified responsible officer in respect of the involvement of the respondent or the officer in those proceedings, unless it would not be in the interests of justice.”””
Economic Crime and Corporate Transparency Bill
Wednesday 13th September 2023
(1 year, 2 months ago)
Commons ChamberRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Manuscript Amendments, Commons Consideration of Lords Message as at 13 September 2023 - (13 Sep 2023)
14:51 - The House having divided: - Ayes: 276 / Noes: 210 - Question accordingly agreed to.
Mr Deputy Speaker (Mr Nigel Evans)
I must draw the House’s attention to the fact that financial privilege is engaged by Lords amendment 161B. If that Lords amendment is agreed to, I will cause the customary entry waiving Commons financial privilege to be entered in the Journal. Dame Margaret Hodge has tabled two manuscript amendments to Lords amendment 161B, which have been selected by Mr Speaker. Papers will be distributed as soon as possible.
The deferred Division has now resumed in the No Lobby and injury time has been added, but Members do not have long.
After Clause 46
Register of members: information to be included and powers to obtain it
The Parliamentary Under-Secretary of State for Business and Trade (Kevin Hollinrake)
I beg to move, That this House agrees with Lords amendments 23B and 23C.
Mr Deputy Speaker
With this it will be convenient to discuss the following:
Lords amendments 151B and 151C, Government motion to disagree, and Government motion to insist on amendment 151A.
Lords amendment 161B, Government motion to disagree, manuscript amendments (a) and (b), and Government motion to insist on amendment 161A.
Kevin Hollinrake
It is always a pleasure to speak with right hon. and hon. Members on the Economic Crime and Corporate Transparency Bill, which they will know is close to my heart and contains many vital measures for which I have long campaigned. The Bill will give us the powers we need to crack down on those who abuse our open economy, while ensuring that the vast majority of law-abiding businesses can grow and flourish.
I am grateful that both Houses have reached agreement on several issues, including those relating to the register of overseas entities and on removing the extension of the failure to prevent offence to money laundering. However, we are here today as agreement is still outstanding on a handful of remaining issues. I urge this House to accept the Government amendments, to settle those remaining topics and ensure that we can proceed to Royal Assent and implementation of these important reforms without delay.
I will now speak to those remaining topics. In the other place, the Government tabled two amendments on nominee shareholders—amendments 23B and 23C, in lieu of Commons amendment 23A, and in response to Lord Vaux’s amendment 23 on this topic from Report stage in the other place.
The Government’s amendments will allow the Secretary of State to make regulations to make further provision for the purpose of identifying persons with significant control in cases where shares are held by a nominee. This will allow the Government to work with relevant stakeholders to target the regulations in an effective and focused way that does not impose disproportionate burdens. Members of the other place agreed with the Government’s proposal and I trust that Members of this House will therefore agree with it today.
Lords amendments 151B and 151C would apply the exemption from the failure to prevent fraud offence to micro-entities only, rather than the Government’s position of excluding all small and medium-sized enterprises. The Government appreciate that Lord Garnier has moved closer to the Government’s position in agreeing to the principle of applying a threshold. However, our position remains that such an amendment would still incur significant costs to businesses. Reducing the exemption threshold to only micro-entities would increase one-off costs for businesses from around £500 million to £1.5 billion. The annual recurrent costs would increase from £60 million to over £192 million.
Sir Robert Buckland (South Swindon) (Con)
Where do those figures come from?
Kevin Hollinrake
We used very similar analysis to that used for the failure to prevent bribery and failure to prevent tax evasion offences. We have used a common methodology. I have not seen any figures that contradict our figures here, but in my view—having run a business and dealt with some of the failure to prevent bribery provisions—there is no doubt that there are significant costs. There may be external consultants to bring in, for example. Even if one is compliant, one might not know whether one is compliant, so there are definite associated costs to ensuring that reasonable efforts are made to prevent fraud, as it would be in this case.
Those costs would still be disproportionately shared by small business owners, when law enforcement can attribute and prosecute fraud more easily in these smaller organisations; and, as I have set out before, we must be mindful of the cumulative impact on SMEs across multiple Government requirements and regulations. In all the work I have done in the past from the Back Benches on failure to prevent, it was invariably the case that all cases involved larger businesses, not SMEs.
Large companies have the resources and specialist expertise to cope with additional burdens, whereas small businesses often have to dedicate a significant amount of time and resource, often paying for external professional advice to assess what new rules would mean for them. That is the case even where they subsequently assess that they already have adequate controls in place. That is time and resource that could otherwise have been used to grow and generate wealth for their businesses and jobs for their staff. The Government are extremely mindful of the pressures on companies of all sizes, including SMEs, and therefore do not feel it is appropriate to place this new unnecessary burden on over 450,000 businesses. I therefore urge Members of this House to support the Government motion to disagree with the Lords amendments, to ensure that we take a proportionate approach and do not impose unnecessary measures that would curb economic growth.
Turning to Lords amendment 161B, made by Lord Faulks, on cost protection for law enforcement in civil recovery cases, the Government remain of the view that the amendment would be a significant departure from the loser pays principle and therefore should not be rushed into without careful consideration. There is no clear evidence that such changes would help to achieve their intended aim of increasing the capacity of law enforcement to take on more civil recovery cases. There have been no adverse cost rulings against an enforcement authority carrying out this type of civil recovery in the past six years.
Costs are just one of many factors that determine whether law enforcement will take on a case. For example, the evidence available to pursue a case, particularly where evidence is required from overseas, often proves more vital to an operational decision. There are already a number of ways in which an enforcement agency’s liability to legal costs can be protected under the civil procedure rules in England and Wales. For instance, rule 44.2 gives the court discretion as to the payment of costs by either party, including whether they are payable to another party, the amount, and when they are payable. In addition, a cost-capping order can be applied for under rule 3.19 to limit any future costs that a party may recover under a later costs order. If we are to introduce further legislation, we must consider what gap this is trying to fill. We should also consider civil liberties and property rights that underpin our economy. We will potentially be handing huge powers to the state, which could be held over an individual.
Rushanara Ali (Bethnal Green and Bow) (Lab)
It is a great honour to speak for the Opposition on behalf of myself and my hon. Friend the Member for Aberavon (Stephen Kinnock). I pay tribute to my predecessor, my hon. Friend the Member for Feltham and Heston (Seema Malhotra). I am also grateful to my right hon. Friends the Members for Barking (Dame Margaret Hodge) and for Birmingham, Hodge Hill (Liam Byrne), my hon. Friend the Member for Rhondda (Sir Chris Bryant) and many others across the House who have played such an important role in getting the Bill to this point.
By the Government’s own definition:
“Economic crime refers to a broad category of activity involving money, finance or assets, the purpose of which is to unlawfully obtain a profit or advantage for the perpetrator or cause loss to others.”
It poses a threat to our country’s national security, our institutions and our economy, and causes serious harm to our citizens and society. Failure to act allows criminals to benefit from the proceeds of their crimes and to fund further criminality. In the most extreme cases, we have seen the funding of organised crime groups, terrorist activity, drug dealing and people trafficking.
Economic crime has many victims. For too long, the Government have turned a blind eye to corruption and dirty money, allowing Russian illicit finance to flood into our country and let Putin’s cronies stash ill-gotten gains and even recycle the proceeds of crime into luxury properties across our cities. More than two thirds of English and Welsh properties held by foreign shell companies do not report their true owners. Research by the London School of Economics and Warwick University shows that the register of overseas entities is not fully effective. For 71% of those properties, essential information about their beneficial owners remains missing or publicly inaccessible, despite the register of overseas entities. It is not enough, and we need more action.
After the Grenfell Tower fire disaster, which claimed 72 lives, we have learned more about freeholders hiding behind offshore trusts and labyrinthine company structures to make it impossible for leaseholders to uncover who is responsible for replacing dangerous flammable cladding. Hundreds of thousands of people across the country are living in fear of Grenfell-style fires in unsafe blocks, while some owners hide abroad under company structures that help them to dodge paying for replacement cladding by setting up companies and trusts in overseas territories, lacking transparency. Our Government and our citizens must be able to access information about who owns what, and where responsibility lies.
This legislation is long overdue. As far back as 2018, the then Security Minister, the right hon. Member for Wyre and Preston North (Mr Wallace), was reported to have said that the BBC hit series “McMafia” was
“very close to the truth”
and condemned the
“impunity with which some of these people operate and the brutality of it”.
He promised new powers to crack down on gangsters, criminals and corrupt members of the global elite, with the full force of Government to be used against them. While some steps have been taken, it took Russia’s invasion of Ukraine for the Government to step up and introduce further legislation. The Government have delayed legislation for too long, and in that time money has been lost, economic crime has persisted, and the UK economy has once again lost out. Shamefully, our city—our capital—has taken on the reputation of cleaning up much of the world’s dirty money.
The illegal Russian invasion of Ukraine has merely highlighted a shameful situation that campaigners have long decried. For years the UK has been awash with cash from kleptocrats and oppressive regimes. Transparency International UK has highlighted that £6.7 billion worth of property has been bought with the use of suspicious wealth. I recently visited Ukraine, where I witnessed the terrible impact of the Russian aggression on the civilian population, who are constantly living in fear of airstrikes. It is sickening to think that the people who are responsible for these atrocities today could be enjoying luxury apartments and houses in Belgravia and Mayfair, just a stone’s throw from this House. However, it is not just the Kremlin; as The Times has reported, more than £200 million-worth of UK property is owned by the children of notorious rulers and their henchmen from failed states and autocracies around the world. The cost of economic crime is as much as £350 billion.
There is much to do. Law enforcement must be backed up; we must have the transparency that justice demands, and send a clear signal that there cannot be dark corners where kleptocrats can stash their money. The Bill is a starting point, not an end point. We will be holding the Government’s feet to the fire to ensure that this legislation makes an actual difference. Crucially, tackling economic crime requires support for key institutions such as the National Crime Agency, His Majesty’s Revenue and the Customs Crown Prosecution Service. It is not enough just to introduce legislation; we need enforcement, and we need these institutions to be properly resourced and supported.
We have had the FinCEN files, the Panama papers and the Paradise papers, as well as numerous inquiries by Select Committees—including the Treasury Committee, on which I served for a number of years—but we have seen only incremental change, which is very frustrating for many Members on both sides of the House. Further action is needed to ensure transparency in respect of the ownership of UK property by overseas companies, and on compensation for victims of economic crime. There remain huge gaps. However, we welcome the changes that the Government have made in relation to strategic lawsuits against public participation, which have been worked on by a number of Members.
We support Lords amendments 151B and 151C, and welcome Lord Garnier’s focus on the failure to prevent fraud in non-micro entities. We also support Lords amendment 161B, tabled by Lord Faulks. As he has explained, subsection (2) should state that the court should not normally make an order
“that any costs of proceedings relating to a case to which this section applies”,
and so on. My right hon. Friend the Member for Barking has tabled an amendment to that Lords amendment, which has been accepted, and we accept the Lords amendment on that basis.
This Bill is almost over the line. It has been improved since Ministers first embarked on it. However, there is much more to be done. We hope we can ensure that enforcement takes place once it is on the statute book, so that dirty money can be exposed, illegal assets can be seized, and action is taken against those who are guilty of economic crime. We must not have further delay in pushing for transparency and action in tackling economic crime.
Sir Robert Neill (Bromley and Chislehurst) (Con)
This is an important Bill and there is much good in it, but I am afraid that a number of areas require further attention. Now is not the time for discursive speeches, but I regret to say that notwithstanding the good in the Bill, the Government have fallen into error in relation to the two Lords amendments that they seek to reverse.
Let me say first that while a measure to deal with “failure to prevent” offences is a good idea, this measure is too widely drawn. The Minister made a point about the burden of costs on small businesses, but the definition of a medium-sized business is significant: the risk is less to do with the size of a business than with where it does its business, and also its corporate structures. One of the important things we have learned from the United States is that “failure to prevent” offences are not simply about prosecuting, important though that is, but also about changing corporate behaviour. I did not hear a word about that in the Minister’s speech, and I think it might be better to reflect on it again.
Lord Garnier tabled an amendment to compromise on micro-entities; perhaps we should think again about a third tier, consisting of medium-sized as opposed to small entities. That would not be unreasonable, given that many medium-sized entities do significant work abroad where there is some risk, and given that the costs are tax-deductible from profit. I urge the Government to think again, because having done so much good in the Bill, it will be a shame if we weaken its enforcement by widening the net too much.
As for the cost caps, when the Minister said that no prosecutions had been brought yet, he did not add that that was because of their chilling effect. People will not risk bringing prosecutions if their budgets are going to be eroded after the event by costs being awarded against them. Only yesterday, in the House of Commons, I had the pleasure of meeting Bill Browder, who has set out very clearly why that has been the case for a number of years. The Serious Fraud Office tried to bring a prosecution a few years ago and got its fingers burned, and there have been few prosecutions since then. This is about behaviours rather than outcomes.
I have to say—with apologies to the Minister, whom I like and respect—that the Government have taken an unduly restrictive and literalist approach to these matters. It would be far better to find compromises—to think again, go back to the Lords, and see whether there is somewhere between Lord Garnier’s position and that of the Government. Perhaps that third tier of the medium-sized entity is a way around this. The Government are committed to a review of cost caps in 12 months’ time, but, as my right hon. and learned Friend the Member for South Swindon (Sir Robert Buckland) said the last time this came up, what is there to review? The evidence is there: cost caps are chilling. As the Minister will see if he reads the evidence given to the Cambridge economic crime summit—at which I had the pleasure of speaking last week—it is overwhelmingly clear that not a single one of the experts could understand the Government’s position on this, so I ask them please to think again about it as well.
Alison Thewliss (Glasgow Central) (SNP)
I strongly very much with what the hon. Member for Bromley and Chislehurst (Sir Robert Neill) said. Let us just agree with the Lords. Let us get on with this. Let us do this legislation, and do it properly.
Let me say first that it is important for us to have as much information as possible about those who own companies. It is clear from all the evidence that has come before us that the lack of such information causes people to find ways of hiding their money, and the UK has become a magnet for that. The Minister has suggested that there will be a significant cost to businesses, but businesses are already doing work on failure to prevent bribery. As Lord Garnier said on Monday, there is a clear read-across: it would be easy to add fraud to the current provisions. It would not be difficult, and it would bring about an economic benefit. The Minister also suggested that economic growth would be hampered in some way, but he himself has said that
“ a corporate offence of failure to prevent economic crime and money laundering would reduce the amount of money that is illegally shifted out of the UK into foreign jurisdictions and increase the amount of tax that is paid.”—[Official Report, 22 February 2020; Vol. 672, c. 220.]
Why does the Minister now disagree with himself? Why does he disagree with statements that he has made in the past? He knows that this is an important measure, and that this is an issue that we can deal with here today and it will be done. We will not have to come back to it, we will not have to keep debating it, and the Minister will be able to see that he has finished it off and done a good job.
On the issue of adverse costs, I agree with what Bill Browder said in his evidence to the Bill Committee. By not introducing such a measure, we are inhibiting law enforcement when it comes to economic crime. We know that those on the other side of the equation who want to hide their money have plenty of it to throw at the best lawyers and at the best accountants to make things look a particular way. If we are to be in this fight, we need to give the law enforcement agencies the resources that they require, and cost capping is a key element of that.
As I said the previous time we debated these matters, there is no need for a review. We need to get on with things. An election is coming, and we do not know when we will pass this way again. The Minister should accept the Lords amendments, and get on with the work.
Sir Robert Buckland (South Swindon) (Con)
I shall be brief. The hon. Member for Glasgow Central (Alison Thewliss) repeated her phrase of last week—and, indeed, we have passed this way again. I will resist the temptation to be too biblical today; I will simply reiterate to the my hon. Friend the Minister the points that I made last week. Lord Garnier has moved on the position in the Lords and offered an olive branch to the Government, in the sense that this is a different amendment. It rightly now affords what, in the opinion of many of us, will be greater protections for businesses. What is being ignored in this debate is the fact that businesses that take reasonable measures will not be the subject of a prosecution or investigation. Businesses that are not within this regime will not have that protection, so there is a cogent argument that failing to extend the “failure to prevent” offence to more businesses would leave them less well protected.
Kevin Hollinrake
I have listened carefully to my right hon. and learned Friend’s points. He said a few seconds ago that this would relate only to fraud that benefits the body concerned. Paragraph 1(b) of Lords amendment 151 also covers the body or an associate within that body providing services, so this is not just about the benefit to the organisation itself.
Sir Robert Buckland
I will take that qualification. I was seeking a short cut because time is brief. My hon. Friend is right to mention the agency point, but it is still a much narrower ambit of the offence than fraud in general. That is the point I would ask him to take away, because I am not persuaded. I think the amendments should remain within the body of the Bill as amended, and I will be voting accordingly.
Dame Margaret Hodge (Barking) (Lab)
Mr Deputy Speaker, I am conscious that we must vote in five minutes to remain in order, so I will simply say that economic crime is a national security issue and should not be a partisan issue in this House. I urge the Minister to set aside the party political views that he is expressing and to go with the consensus that has been built, not just in the House of Commons but in the House of Lords and in the non-governmental organisation sector outside.
Mr David Davis (Haltemprice and Howden) (Con)
The right hon. Lady is right. It is not just the parties but the different sides of the natural arguments over authority, libertarianism and civil rights that are not divided. I am a strong defender of the right to be presumed innocent, but there needs to be a rebalancing in this area, where the criminals we are up against are very sophisticated and will use smaller companies to get around this if they need to.
Dame Margaret Hodge
In the interest of trying to get to the vote on time I will close my speech, but I urge all Members to please support the amendments proposed by Conservatives in the House of Lords, which are eminently sensible, rational and pragmatic.
Kit Malthouse (North West Hampshire) (Con)
I am afraid that I am going to disappoint the right hon. Member for Barking (Dame Margaret Hodge) and speak very strongly against Lords amendments 151B and 151C, and I refer the House to my entry in the Register of Members' Financial Interests. I am surprised at Lord Garnier’s lack of any conception of what it is like to run a small business and the cumulative impact of Government regulation thereupon. The limits that are drawn here will draw in all manner of businesses, not least some eminent barristers who will fall foul of some of the numbers. Indeed, the average town-centre or city-centre pub will be covered by these regulations, such is their level of turnover and employees. It is worrying that I am perhaps the only small-business voice here and that there are not enough small-business people in the House to point out the problems with this issue.
As the Minister has said, hundreds of thousands of businesses will be drawn into the net. This is not necessarily about the compliance cost. The kind of regulation that comes with the prospect of a criminal offence has a chilling effect on small businesses. I speak as somebody who has owned one for nearly 30 years. When the Revenue, health and safety or trading standards show up with some new regulation, a whole industry cranks into place to terrify the owners of small businesses into some kind of compliance. Then along come the consultants, the accountants, the webinars and the newsletters telling us what we do and do not have to do. All of this distracts us from what we should be doing, which is trying to create employment and wealth and paying tax to the rest of the country.
The other issue is that this misunderstands the dynamic of businesses of this size. If a business of this size is going to engage in fraud, it is very possible—more than likely, actually—that the principal will be the instigator of that fraud. The idea that, alongside all the other offences, they should take steps to prevent themselves from perpetrating fraud seems ridiculous. Added to those general difficulties are the specific ones presented by the Heath Robinson-type calculation that every business will have to undertake every month: adding together how many employees there are and how many are employed in each month in year P, then taking away the number you first thought of and dividing it by the number of months. We are all going to have to do this every single month to work out whether we are above the threshold or not. Should we have the steps? Should we not have the steps? It all seems particularly nonsensical.
We know that a vast amount of this fraud takes place in larger companies, and they have the capacity and the wherewithal to deal with it. If my hon. Friends really think that senior barristers, whose turnover and assets will be more than the threshold, should be taking and showing procedural steps to avoid conducting fraud—do not forget that they are sole practitioners—then I am afraid we have gone through the looking glass of what Conservative Members think is appropriate.
Barry Gardiner (Brent North) (Lab)
In the interest of moving to the vote, I will not speak.
Mr Deputy Speaker
In which case we come to the Minister, with the leave of the House.
Kevin Hollinrake
I welcome the hon. Member for Bethnal Green and Bow (Rushanara Ali) to her place. We worked closely together on the Treasury Committee and it is a pleasure to work across the House with her today. I also pay tribute to her predecessor, the hon. Member for Feltham and Heston (Seema Malhotra) for her similar approach to the work we have done on this legislation. I thank all hon. and right hon. Members for their contributions to this debate and their support for the Government’s amendments made in the other place. I want to refer to a number of points that have been raised today.
The shadow Minister, the hon. Member for Bethnal Green and Bow, referred to the Government turning a blind eye to the issue of economic crime, but nothing could be further from the truth. Many of us have worked on this cross-party across the House from the Back Benches and now on the Front Benches, and this is the second piece of legislation we have brought forward on economic crime in the past 18 months. These are groundbreaking new measures. This Bill contains further reforms to the Register of Overseas Entities introduced in the previous legislation. Our legislation on strategic lawsuits against public participation—SLAPPs—is world leading, and we now have the “failure to prevent” offence, which I will speak to in a moment.
The hon. Lady also referred to the resources made available to our law enforcement agencies. We are continuing to invest in measures to tackle economic crime, and we have increased the budget of the National Crime Agency year on year since 2019. Its budget has now increased 40% from the figure in 2019 and stands at just over £700 million.
Together, the recent spending review settlement and private sector contributions through the new economic crime levy will provide £400 million of funding over the spending review period, and the levy is estimated to bring in £100 million per annum starting from this financial year, 2023-24. There will be a wide-ranging review by the end of 2027, providing transparency on how the levy is performing against its original purpose, including on how the money is spent. Existing efforts will move at pace to enhance and further drive forward the unit in what are inevitably complex and lengthy operations. In considering this legislation, we have often debated the extra resources that we are determined to deliver for Companies House and will pay for at least 400 more people. That is an incredibly important part of the Bill.
My hon. Friend the Member for Bromley and Chislehurst (Sir Robert Neill) stated very clearly that he feels the failure to prevent threshold is too widely drawn, and I understand his point. As I said in my opening speech, all the cases I have dealt with in this place—whether it be Lloyds HBOS Reading, HSBC, NatWest or others—have involved large organisations that turned a blind eye to fraud or let it happen on their watch. We believe it is right to strike a balance between the offence’s crime prevention benefits and the burden placed on business. There is a balance between risk and regulation, and we want to make sure that the regulations do not put excessive costs on business.
My right hon. and learned Friend the Member for South Swindon (Sir Robert Buckland) made similar points. He cast doubt on the figures I have in front of me on the costs of the burden on business, which we believe will be £1.5 billion of implementation costs and around £192 million of recurrent annual costs. I am happy to look at other costs and analyses, but those are the figures before me.
My right hon. and learned Friend makes an interesting point that the threshold will facilitate economic crime in certain companies, but the Lords amendment allows some companies to be outside the rules. I am not sure how he can draw a line to say that there will be economic crime in some companies and not in others. It is very difficult to draw a line, and we believe that drawing a line at larger companies is right.
Kit Malthouse
Lines matter. At a point in a business’s evolution, as my hon. Friend will know from building his own business, it crosses a line. It is perfectly possible, under the definitions in Lords amendment 151C, that a company that satisfies the financial criterion will decide to go from nine employees to 10 or 11, and suddenly it crosses into this world of pain—the compliance people show up, and the company needs a whole new process and procedure that comes with employing that single extra person, on top of all the other employment and safety regulation it is having to deal with. Setting these thresholds at a level at which companies can absorb the step up in responsibility, and without a disproportionate amount of cost, seems critical. Does he agree?
Kevin Hollinrake
I do agree. I listened closely to my right hon. Friend’s remarks. He said he might be the only small business owner currently in the Chamber, but he is talking to one. I have owned a business for 30 years, growing it from a small business to a larger one, and I absolutely agree that it is not just the legislation itself but its implementation and the requirement to implement prevention procedures. As he puts it, that would almost create a new industry of advisers to advise on what needs to be done, be they accountants or third parties. He is right to raise those concerns on behalf of small and medium-sized enterprises.
My hon. Friend the Member for Bromley and Chislehurst asked about setting the threshold at a different level, the small company threshold rather than the current micro company threshold. The small company threshold is 50 employers, £10.2 million of turnover and a £5.1 million balance sheet, according to Companies House, whereas we think a 250-employee threshold would be more appropriate. That is where we differ, but I am happy to continue that conversation.
Richard Fuller (North East Bedfordshire) (Con)
I want to ask a question that I do not think was addressed last time we debated Lords amendments, and that I do not think the Government have addressed today. What are the implications if there is an explicit threshold? What further thought have the Government given to the implications of putting in a threshold? Are they satisfied that some of the concerns raised by Opposition Members and Conservative Back Benchers have been taken into account?
Kevin Hollinrake
We are very clear that we believe we have the right threshold. Larger companies clearly have the capacity and the human resources and risk compliance departments to mitigate these kinds of risks, whereas small and medium-sized enterprises are rightly much more focused on driving their business forward, which is very important to the economic health of our country. I think we have it right. My hon. Friend made a similar point in our previous debate on this issue, and he makes it very strongly. The fact that both he and my right hon. Friend the Member for North West Hampshire (Kit Malthouse) have made that point today counterbalances some of the arguments on the other side for extending the threshold further.
The hon. Member for Glasgow Central (Alison Thewliss) spoke about my previous comments. I think I have been pretty consistent in everything I have said in the House, unless she can point to anything different I have said from the Back Benches—[Interruption.] The shadow Minister, the hon. Member for Stalybridge and Hyde (Jonathan Reynolds), laughs, but I have always been a champion of the “failure to prevent” offence. If Members look back to the original Bill, which I think was 260 pages long—it is now nearly 400 pages long—they will see that I have been very keen to make sure that we listen to hon. Members on things like the “failure to prevent” offence and the identification doctrine, which both now feature in the Bill. All the cases I dealt with on the Back Benches, and indeed the information I have seen as a Minister, show that the kind of fraud the law enforcement agencies have not been able to prosecute is happening in larger companies, not smaller companies.
We believe that these circumstances are different from unexplained wealth orders, for which we obviously put cost-capping measures in place. Of course, unexplained wealth orders are not a process for taking somebody’s assets from them; they are a process for freezing assets. Lords amendment 161B is entirely different. In my view, there is definitely a civil liberties issue in terms of the power of the state versus the power of the individual. This measure potentially delivers an imbalance of power between the state and the individual. I would be keen to have a conversation with the very learned Members in the Chamber, but they must understand that the state is powerful and well resourced compared with the individual. Obviously there are some individuals who are very well resourced, but we still operate on the presumption of innocence in this country, and we have to be very careful. That is why we want a review to look into this and report back to Parliament within 12 months.
We have communicated with the National Crime Agency to ask for evidence on where it feels these measures are needed. All law enforcement agencies want more power and more provision, of course, but I have seen no clear, significant evidence from the enforcement agencies that cost-capping orders would be needed in this situation.
I, too, have spoken to Bill Browder, and I have spoken to officials about whether this measure is needed in the UK regime. Members will be aware that Mr Browder principally looks at the parallels with the US situation, where adverse costs do not apply across the system. Members have talked about the chilling effect of such provisions, but there is potentially a chilling effect on the other side of the equation.
Yesterday I met a barrister who defends people against such actions, and he was very concerned about the imbalance of power that would result. I have not seen any significant evidence, and I am very interested in the evidence that my hon. Friend the Member for Bromley and Chislehurst gave to the Cambridge crime symposium, at which I have spoken in the past, on whether this is needed. However, I am not aware of anything the Justice Committee or the Law Commission has done in this area. It is important that we look at that kind of evidence before we implement these kinds of measures.
The right hon. Member for Barking (Dame Margaret Hodge) accuses me of being party political. I am surprised she takes that view. I have worked on a cross-party basis from the Back Benches and, as she knows, I do the same from the Front Bench, and I will continue to do so to make sure that we get this legislation right.
In conclusion, throughout the passage of the Bill, the Government have worked hard to get the balance right between tackling economic crime and ensuring that the UK remains a place where law-abiding businesses can flourish without unnecessary burdens. The motions tabled by the Government today achieve that balanced and proportionate approach, and I therefore urge Members on both sides of the House to support them.
Lords amendments 23B and 23C agreed to.
After Clause 180
Failure to prevent fraud
Motion made, and Question put,
That this House disagrees with the Lords in their Amendments 151B and 151C and insists on its Amendment 151A.—(Kevin Hollinrake.)
The House proceeded to a Division.
Mr Deputy Speaker (Mr Nigel Evans)
Will the Serjeant at Arms investigate the delay in the Aye Lobby?
Liam Byrne (Birmingham, Hodge Hill) (Lab)
On a point of order, Mr Deputy Speaker. The inexplicable delay in counting votes has now risked denying the House a vote on ensuring that this Bill to tackle economic crime is as strong as it could be. Will you therefore advise the House on what action we can now take to ensure that in the debates that lie ahead we can come back to this question and make sure we have the right provisions in place in statute and that this country is no longer a soft touch for economic crime?
Mr Deputy Speaker (Mr Nigel Evans)
I thank the right hon. Gentleman for his point of order. As he knows, we are now going to move on to the motion on amendment 161B, and if that is annulled there will be other opportunities, I am sure.
After Clause 187
Civil recovery: costs of proceedings
Resolved,
That this House disagrees with the Lords in their amendment 161B in lieu of Commons amendment 161A and insists on amendment 161A in lieu.—(Kevin Hollinrake.)
Motion made, and Question put forthwith (Standing Order No. 83H(2)), That a Committee be appointed to draw up Reasons to be assigned to the Lords for disagreeing with their amendments 151B, 151C and 161B.
That Kevin Hollinrake, Scott Mann, James Sunderland, Jane Stevenson, Rushanara Ali, Taiwo Owatemi and Alison Thewliss be members of the Committee;
That Kevin Hollinrake be the Chair of the Committee;
That three be the quorum of the Committee.
That the Committee do withdraw immediately.—(Kevin Hollinrake.)
Question agreed to.
Committee to withdraw immediately; reasons to be reported and communicated to the Lords.
Sir Robert Buckland (South Swindon) (Con)
On a point of order, Mr Deputy Speaker. May I seek your guidance about how I properly place on the record a reference to my entry in the Register of Members’ Financial Interests in the context of my speech in the debate about the Lords message on the Economic Crime and Corporate Transparency Bill?
Mr Deputy Speaker (Mr Nigel Evans)
I thank the right hon. and learned Member for his point of order. He has recognised that he made an omission and he has corrected it at the earliest opportunity. I thank him for doing so.
Economic Crime and Corporate Transparency Bill
Wednesday 18th October 2023
(1 year, 1 month ago)
Lords ChamberRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: HL Bill 172-I Marshalled list for Consideration of Commons Reasons - (17 Oct 2023)
16:31 - Division on Motion A1 - Ayes: 245 / Noes: 204 - Motion A1 agreed.
16:43 - Division on Motion B1 - Ayes: 245 / Noes: 209 - Motion B1 agreed.
Lord Sharpe of Epsom
That this House do agree with the Commons in their Amendment 151A and do not insist on its Amendments 151B and 151C in lieu to which the Commons have disagreed for their Reason 151D.
The Parliamentary Under-Secretary of State, Home Office (Lord Sharpe of Epsom) (Con)
My Lords, in moving Motion A I will also speak to Motions B and B1.
It is a great pleasure to bring this Bill before your Lordships’ House once more. I hope it is for the last time, as I know that Companies House and law enforcement agencies are keen to use the important changes made by it. Without it, we will not be able to fund the recruitment of hundreds of new staff at Companies House to deliver the transformation that we all agree is needed. We will not be able to tackle SLAPPs, fraudsters will continue to be able to take advantage of vulnerable victims via fake companies, and we will not be able to go after the assets of criminals as effectively as we might. I could go on.
The Government have listened carefully to noble Lords during the Bill’s passage and have already moved significantly. This is an extensive and comprehensive Bill, standing now at nearly 400 pages of drafting, and it is imperative that we see it become statute. Noble Lords will of course be aware that the end of the Session is fast approaching.
I start by discussing Motion A, which seeks to reinsert the SME exemption for the failure to prevent fraud offence. I am grateful that my noble and learned friend Lord Garnier has moved closer yet again to the Government’s position by exempting microentities and smaller organisations from the offence. However, I am afraid that the burdens that this would place on medium-sized enterprises are simply too great, and so the Government cannot and will not support any lowering of the SME threshold that we have introduced. The threshold proposed by my noble and learned friend Lord Garnier would cost medium-sized enterprises £300 million more in one-off costs and nearly £40 million more in annual recurring costs.
However, it is not just about these costs—although they fully justify the Government’s position in their own right. Undoubtedly, a chilling effect also occurs with the imposition of a criminal offence. I have spoken before about my experience of working in the City. I know from that experience that, when this type of new regulation shows up, a whole industry of lawyers, consultants and accountants cranks into action, telling businesses what they can and cannot do. All this distracts businesses from what they should be doing, which is creating jobs and growing their businesses, which benefits the whole economy. As Kit Malthouse, the Member for North West Hampshire, put it in the House of Commons, the SME threshold is
“a level at which companies can absorb the step up in responsibility, and without a disproportionate amount of cost”.—[Official Report, Commons, 13/9/23; col. 947.]
I therefore urge noble Lords to support the government Motion to reinsert the SME threshold, to ensure that we take a proportionate approach and do not impose unnecessary measures that will curb our economic growth.
I now move on to discuss government Motion B, focusing on the amendment tabled by the noble Lord, Lord Faulks, on cost protection in civil recovery cases. The Government remain of the view that this type of amendment will be a significant departure from the loser pays principle, and therefore not something that should be rushed into without careful consideration. However, that is not to say that this type of amendment is necessarily a bad idea, and I am grateful to the noble Lord for bringing it to our attention. With that being said, it would not be responsible for us to rush into making such a significant change at the tail-end of a Bill without full consideration by the Government and commensurate scrutiny by Parliament. That is why we previously added a statutory commitment in the Bill to review the payment of costs in civil recovery cases in England and Wales by enforcement authorities, and to publish a report on the findings and to lay it before Parliament within 12 months. I hope noble Lords will agree that this is the responsible approach to take and therefore support government Motion B.
In conclusion, I encourage noble Lords to agree with the Government’s position in these two areas. It is vital that we achieve Royal Assent without delay so that we can proceed to implement the important reforms in this Bill as quickly as possible. I beg to move.
Motion A1 (as an amendment to Motion A)
Lord Garnier
Leave out from “House” to end and insert “do insist on its disagreement with the Commons in their Amendment 151A, do not insist on its Amendments 151B and 151C, to which the Commons have disagreed for their Reason 151D, and do propose Amendments 151E and 151F in lieu—
“Section (Failure to prevent fraud): small organisations
(1) For the purposes of section (Failure to prevent fraud)(1) a relevant body is a “small organisation” only if the body satisfied two or more of the following conditions in the financial year of the body (“year P”) that precedes the year of the fraud offence—
Turnover | Not more than £10.2 million |
Balance sheet total | Not more than £5.1 million |
Number of employees | Not more than 50. |
(3) In subsection (1) the “number of employees” means the average number of persons employed by the relevant body in year P, determined as follows—
(a) find for each month in year P the number of persons employed under contracts of service by the relevant body in that month (whether throughout the month or not),
(b) add together the monthly totals, and
(c) divide by the number of months in year P.
(4) In this section—
“balance sheet total”, in relation to a relevant body and a financial year—
(a) means the aggregate of the amounts shown as assets in its balance sheet at the end of the financial year, or
(b) where the body has no balance sheet for the financial year, has a corresponding meaning;
“turnover”—
(a) in relation to a UK company, has the same meaning as in Part 15 of the Companies Act 2006 (see section 474 of that Act);
(b) in relation to any other relevant body, has a corresponding meaning;
“year of the fraud offence” is to be interpreted in accordance with section (Failure to prevent fraud)(1).
(5) The Secretary of State may by regulations modify this section (other than this subsection and subsections (6) and (8)) for the purpose of altering the meaning of “small organisation” in section (Failure to prevent fraud)(1).
(6) The Secretary of State may (whether or not the power in subsection (5) has been exercised) by regulations—
(a) omit the words “which is not a small organisation or” in section (Failure to prevent fraud)(1), and
(b) make any modifications of this section (other than this subsection) that the Secretary of State thinks appropriate in consequence of provision made under paragraph (a).
(7) Before making regulations under subsection (5) or (6) the Secretary of State must consult—
(a) the Scottish Ministers, and
(b) the Department of Justice in Northern Ireland.
(8) Regulations under subsection (5) or (6) may make consequential amendments of section (Failure to prevent fraud: minor definitions).””
Lord Garnier (Con)
My Lords, the cracked record is up and at it yet again, but I make no apology because, although I fully understand the timetabling difficulties that the Government face—namely, that they would like to see this Bill receive Royal Assent before the close of the Session—I think we all ought to agree that it is better that, if we are to give this Bill a route through to Royal Assent, it should be a good Bill.
Most of the Bill is good, but this particular provision in relation to failure to prevent fraud offences falls down. I will not make the same speech that I made on 11 September, nor the same speech that I made in July, nor the same speech that I made in the spring, nor the same speech that I have made probably half a dozen times since I came into this House and probably a dozen times when I was a Member of the other place. Suffice to say that nothing I have heard from the Government, and nothing I have heard from those representing the Government in the other place, has come anywhere near meeting the case that has to be met.
First, it seems to me as a matter of straightforward principle that the criminal law should be uniform. It should apply to all in exactly the same way, and any defence that is available to a criminal offence should also be the same and applied to all uniformly. Of course, it will be up to the prosecuting authorities to consider the evidence and whether it is in the public interest to bring a prosecution on the evidence available, but we should not leave this Bill in a position where there is a different failure to prevent fraud offence for most companies than there is for 0.5% of the corporate and partnership economy.
I add this. There should be a form of consistency between each of the Government’s Bills dealing with failure to prevent. The Bribery Act 2010 has a failure to prevent bribery offence. The Criminal Finances Act 2017 has a failure to prevent the facilitation of tax evasion offences. Neither of those two failure to prevent offences is limited in its scope, in so far as neither of those Acts of Parliament provide an exemption for anybody, still less for 99.5% of the corporate economy. For some extraordinary reason which is yet to be explained this Bill provides that only 0.5% of the corporate and partnership economy should remain liable for any failure to prevent fraud offences. I have yet to find an answer.
I read in Hansard the House of Commons debate of 11 September which overturned my successful amendment. My right honourable friend Mr Kit Malthouse said that, clearly, I do not understand anything since I have never run a business. Well, he is wrong about that, quite apart from being offensive, because I have run my own business as a self-employed barrister for nearly 50 years. Furthermore, I have been a head of a set of chambers, which is, if I may say so, quite a respectable business to run.
Lord Garnier (Con)
If one wants to learn anything from the speeches made in the House of Commons, I suggest that my noble friends on the Front Bench— and other noble Lords if they have a moment—read those of Sir Robert Buckland and Sir Jeremy Wright, two former law officers. They agree with my remarks of 11 September and find it puzzling that their own Government, a Government who are in favour of producing cogent and cohesive criminal law, have come up with this dog’s dinner.
I have done my best to be accommodating. It is not an accusation that is often levelled at me, but on this occasion, I think that it can be, justly. I have done my best to meet some of the Government’s less organised thinking. As I said at the outset, as a matter of principle. I cannot understand why there should be an exemption for anyone from the proposed criminal law, just as there is not under the Bribery Act and the Criminal Finances Act. However, to make life easier for the Government, on the last occasion I suggested that microbusinesses should be exempted from the failure to prevent fraud offences provision. I abandoned my provisions relating to the failure to prevent money laundering. The Government did not find that attractive, even though I tried to explain my abandoning of the principle on the basis that just as we have an age limit for criminal responsibility—10—we could perhaps also, by a rather clumsy analogy, exempt microbusinesses from criminal responsibility under the failure to prevent provision. That did not seem to go down very well with the Government—certainly not with Mr Kit Malthouse.
I have now moved a little further towards the Government. You may say, “Well, that’s a bit wet. If you’ve got any principles, why not stick to them?” Well, okay, accuse me of being wet, but I am doing my best to help the Government get out of an unnecessarily sticky hole. I have amended my proposal so that rather than microbusinesses being exempted, “small” businesses should be exempted—I define a small business on page 5 of the amendment paper, which states that, for the purposes of this provision,
“a relevant body is a ‘small organisation’ only if the body satisfied two or more of the following conditions in the financial year of the body … that precedes the year of the fraud offence”.
Those conditions are that the turnover of the business should be
“Not more than £10.2 million”,
the balance sheet should be
“Not more than £5.1 million”
and the number of employees should be “Not more than 50”.
In speaking against my own case, I rather wish that I had not put that down, but I have because I am trying to assist my noble friend on the Front Bench in getting his Bill enacted before the end of this Session.
I repeat that the criminal law should be uniform. Defences to the criminal law should be uniform. We should not have exemptions based on the size of the business. The Theft Act applies to all suspects—I am seeing whether my noble friend still enjoys my old joke about the six feet six burglar—regardless of whether they are six feet six or five feet six. We do not exempt people on the basis that they are small people or do not fit a particular height, so why are we doing it here? I have yet to find out. I am afraid that unless the Government move a little closer to me, I will invite your Lordships to join me in the Division Lobby.
Lord Faulks (Non-Afl)
My Lords, I shall speak to my Motion B1, as an amendment to Motion B, which is being debated within this group. It would
“leave out from ‘House’ to end and insert ‘do insist on its disagreement with the Commons in their Amendment 161A, do not insist on its Amendment 161B, to which the Commons have disagreed for their Reason 161C, and do propose Amendment 161D in lieu’”.
That is very clear.
We return to what has been described as a cost-capping amendment. Since this is not the first time that we have had the debate, I will try to be brief. This Bill has been a welcome, if late, addition to the government agencies in their fight to combat fraud. The scrutiny of the Bill through your Lordships’ House has been thorough and constructive. It has also been non-party political. I do not think that either the noble and learned Lord, Lord Garnier, or I would consider ourselves to be natural rebels.
All noble Lords have participated in this debate—and I very much include the Ministers in this—with a common purpose: to make this legislation as effective as it can be. Two themes emerged during the many debates. The first was the scale of the problem. The Government estimate, for example, that £100 billion was laundered through the United Kingdom last year, and yet under the Proceeds of Crime Act assets of only £345 million were recovered: that is 0.3%. The second theme was the frequent imbalance that exists between the resources available to enforcement agencies and those of the fraudsters, who may well employ expensive lawyers and have significant resources to enable them to do so. This modest amendment tries to do a little to restore that balance. I would have liked the enforcement agencies to have had complete protection against costs orders in the event that they lost a recovery claim, but in the course of ping-pong I have had to compromise somewhat, hence the form of the current amendment before your Lordships’ House.
The amendment does not prevent a judge from doing what is fair on costs in any particular case, but it is a nudge towards him or her to take into account the reasonableness of the agency bringing proceedings at all and the potential impact on its ability to carry out its functions if left with a substantial costs order. I struggle to understand the Government’s objection to this amendment and its predecessors; they seem, with respect, to be adopting a somewhat tender approach to fraudsters.
There is a clear precedent for this sort of amendment: when your Lordships’ House introduced a provision concerning the much-underused unexplained wealth orders. If it loses a case, the enforcement authority will have to pay costs only if it has acted unreasonably. As to the objection that it offends the “loser pays” principle, that is a misconceived argument. Judges regularly, in ordinary cases, make orders that each side bear their own costs, or make issue-based costs orders, or other orders which reflect the justice of the individual case. Parliament has legislated in ways that depart from this so-called principle: for example, QOCS—that is Qualified One-Way Costs Shifting—in personal injury litigation; or by Section 40 of the Crime and Courts Act; or in relation to unexplained wealth orders. This amendment is intended to reduce the possibility of an agency saying to itself, “We cannot afford the risk to the budget if we lose a case, even when we’ve got good evidence to bring it”.
Spotlight on Corruption suggests that a number of cases are in the pipeline which bear costs risks. These are said to include over 60 cases being reviewed by one agency, and close to £1 billion in assets frozen by an enforcement body.
Another advantage to this amendment is that those defendants or respondents to an application who defend these cases will know that, even if their legal strategy prevails, they may not recover their costs. This may mean that they are keener to reach a compromise.
The amendment has the support of all those bodies that are concerned with anti-corruption. Incidentally, it also has the support of Bill Browder, who regards it as one of the most significant potential improvements to the Bill. Let us please not kick this into touch and have yet another report, which is the Government’s suggestion. If necessary, I will move Motion B1 and test the opinion of the House.
Lord Agnew of Oulton (Con)
My Lords, I support both Motion A1 and Motion B1. I turn first to my noble and learned friend Lord Garnier’s Motion and offer three reasons why I believe the Minister is completely wrong.
First, the smallest SMEs include some of the most unscrupulous enablers. Take estate agents, for example: they are a conduit of bad money into this country from all over the world. The gaps that the Minister is proposing to leave in the Bill will ensure that this continues. I have seen one case, for which I had to sign an NDA, of an individual who spent £150 million buying property but is apparently allowed to take only $12,000 a year out of the country. How did he manage that? That is a perfectly good example and no doubt we will hear more like it.
Secondly, on this set of rules, I offer the Minister an example. We do not say to the manufacturers of small cars that they do not need seat belts and that for some reason they are exempted. That would be an absolute nonsense and the same applies here. He mentioned costs—£300 million and £40 million—but they are entirely specious. We have seen no proper analysis of these figures; they are just waved around as a convenient excuse not to do something.
My last reason is that these smaller businesses need to be most alert to fraud. A failure to prevent helps them to make sure that their own systems are able to face these risks. We know that 40% of crime in this country is economic crime, but we deploy less than 1% of our resources on dealing with it. Surely smaller businesses should be equipped to know when they are dealing with crooks. I will have to support my noble and learned friend Lord Garnier if the matter is put to a vote.
In relation to the Motion in the name of the noble Lord, Lord Faulks, we again pursued this relentlessly for six months. Bill Browder said to me on several occasions that, if this Bill is to go through, we must make sure that we have some cost capping in it. It is a war of very unequal proportions. We know that the agencies have small budgets and that they have to go cap in hand to the Treasury if they need more money, which is never given. They even have to return the costs they recover to the Treasury. All this is doing is sending a message to these bad actors that, if they take on this kind of behaviour, they will have significant risks. We have amended this on several occasions to give more discretion to the courts to ensure that, if an agency overreacts and behaves rapaciously or capriciously against individuals, those individuals are not penalised.
If we are serious about dealing with the tidal wave of economic crime that is coming to this country, the Minister will give us the assurance that this is being dealt with. If not, I will have to support the noble Lord, Lord Faulks, in his Division.
Lord Wolfson of Tredegar (Con)
My Lords, we have heard two different reasons for the proposed Motion from the noble Lord, Lord Faulks. He said that it was to give the courts a gentle nudge, but my noble friend Lord Agnew said that it would give fraudsters a significant warning that they might not get their costs. The same words cannot do both. The problem lies in the amendment being entirely unnecessary.
The previous version of the amendment said:
“The court should normally make an order that any costs of proceedings … are payable by an enforcement authority … unless it would not be in the interests of justice”.
We now have a list of factors—proposed new paragraphs (a) to (d)—but a court would always take those factors into account in its general discretion to make an appropriate costs order in a particular case.
My concern with this list is that it appears to be exhaustive and therefore does not include, for example, the result of the case or the effect on the successful party of not getting the legal costs which he has expended. I declare an interest as a lawyer, although not an expensive one in the category identified by the noble Lord. I therefore respectfully suggest that this amendment is entirely unnecessary. It reduces the discretion that we generally give the courts on matters of costs and omits factors that the courts should take into account in particular cases when considering costs. Therefore, I suggest that the House leaves this well alone and does not accept the amendment.
Lord Wallace of Saltaire (LD)
My Lords, I will talk a little about the role of the House as a revising Chamber and the legislative process. I am not an expert on the legalities of combating fraud, although I am well aware of the international dimensions of economic crime as someone who worked in the international sphere.
We have had a thorough committee process which was largely non-partisan; indeed, the way this House has treated the Bill has been almost entirely so. I have learned a great deal from a number of former Conservative Ministers and Cross-Benchers on the Bill, and I am interested to hear that two other former Conservative Ministers in the House of Commons supported the approach of these two Motions.
We are a revising Chamber, and the parliamentary process should be one in which reasoned amendments are taken into account by the Government and, where the Government are not entirely sure of their ground, compromises are made. The role of a Lords Minister is partly to act as a mediator between the reasoned arguments in this Chamber and the insistence of Cabinet Ministers that whatever they had thought of in the first place should absolutely go through unchanged. I have a strong memory of talking to Cabinet Ministers when I was a Lords Minister about why perhaps they might not wish to insist on their full original, because the reasoned arguments made in the Lords were sufficiently persuasive. That is the process that should be taken on. This is not an attempt to delay the Bill further: we are all committed to it going through. We are also committed to future-proofing it, so that it does not have to be amended, and to producing a Bill that commands as wide a consensus of support as possible.
I remind the Minister that we have not followed that for some Bills we have seen in recent Sessions. I am sure that he is well aware of the issue of party finance, which came up in the Elections Act and the National Security Act. He was sufficiently firm in resisting some of our arguments as to accuse me at one point of spreading rumours about a non-problem. I have now learned that the Leader of the Commons, Penny Mordaunt, has just written to the Security Minister to ask for the assistance of the intelligence agencies in investigating the origins of donations to political parties from foreign sources, so clearly there is now recognition within government that there is a real problem. There are other aspects of that Elections Act, particularly the insistence on a strategy statement from the Secretary of State, which the Government also appear to have had second thoughts on. Sadly, whoever become the next Government will have to introduce another elections Bill to put right some of the things that this House wished to amend but that the Government resisted.
Here we are with a Bill that has been improved and carefully scrutinised, and on which I, certainly, am persuaded by having listened at length and in succession to the arguments made by former Conservative Ministers wanting simply to improve the Bill to improve the fight against international fraud and economic crime.
Having been persuaded by that, I and the team on these Benches will recommend that Members of the Liberal Democrat group in the House support both the noble and learned Lord and the noble Lord in pressing their amendments, if they wish to do so, because we believe in a legislative process in which this House has a role to play, in carefully scrutinising and improving Bills, and making sure that when a Bill becomes an Act, it lasts for some time, because it commands a widespread consensus.
Lord Eatwell (Lab)
My Lords, I listened carefully to the case that the Minister advanced against these amendments. The core of that case seemed to be that the cost of a company actually responding to this legislation would make the company less efficient, and that it should be concentrating, as he said, on increasing its production and activities, and not be bothered with issues such as fraud, perhaps. What was peculiar about the Minister’s argument was that it was an argument which could be placed against any regulation whatever. It could be placed against the need, as has been commented already, to have seatbelts in cars. That increased the costs of production of the vehicle and, indeed, the cost of the vehicle. It could be argued that most financial regulation, which seeks to increase the stability and respectability of the financial system in this country, increases costs. Yes, it does, but the benefit far exceeds the cost.
If the Minister feels that the amendment of the noble and learned Lord, Lord Garnier, increases costs and damages production, why is he accepting it at all, even for larger companies? It seems to me that this is an empty argument. The Minister has not produced any data or argument for the cost-benefit trade-off on which he has rested his entire case. In fact, I think he has no case at all.
Lord Coaker (Lab)
My Lords, I start by echoing something that the noble Lord, Lord Wallace, said: overall, we all believe that this is a good Bill. It is a step forward, and we welcome the changes that the Government have made over a number of months to improve it, and that they have listened to the various points that have been made. It would be churlish not to say that to the Minister at the outset, but that does not alter the fact that the amendments tabled by the noble and learned Lord, Lord Garnier, and the noble Lord, Lord Faulks, seek to address two omissions where, even at this late stage, the Government could act to further improve the Bill. I say to both that should they choose to test the opinion of the House, we certainly will support them in the Lobbies to do that.
I will not repeat the arguments. It was interesting; sometimes, when you are constrained by time, the argument distils down to its essence. I think that what the noble and learned Lord, Lord Garnier, said, supported by the noble Lords, Lord Agnew, Lord Eatwell and Lord Wallace, really summed it up with respect to his amendment. As he said, the failure to prevent bribery offence applies to everyone; there is no opt-out or exemption. The Government do not think that that is too burdensome for anyone. As he also said, no company is too small to be exempted from the failure to prevent tax evasion offence. But on this particular emphasis, the failure to prevent fraud, the Government come forward and say: “We need to protect a certain number of businesses”.
The noble and learned Lord, Lord Garnier, has moved amendment after amendment to try to come closer to the Government’s position. As the noble Lords, Lord Agnew and Lord Eatwell, have just said, if you took that to its extreme, you would impose no costs on business at all, and they used the seatbelt argument. So we are very happy to support the amendment of the noble and learned Lord, Lord Garnier, should he choose to test the opinion of the House.
I shall pick out one aspect of the amendment of the noble Lord, Lord Faulks. It was a feature of all our debates and discussions that we wanted law enforcement to take tougher action against those who committed fraud. We believed that the state could and should take more action, that the amount of money lost with respect to fraud was enormous and that we need to do something about it. What I picked out from what the noble Lord said was about reducing the possibility of action not being taken by law enforcement agencies because they were frightened of the possibility of costs —not on the merits of the case that they might seek to pursue but simply because they were frightened that they may incur costs. As such, both amendments are simple but important ones that would do what this House, and I believe the public, expect Parliament to do, which is to give as much power as possible within the Bill to tackle the problem of fraud, which is what we all want.
Lord Sharpe of Epsom (Con)
My Lords, I thank all noble Lords who have contributed to this relatively short debate. Like my noble and learned friend Lord Garnier, I am in danger of sounding like a cracked record on this subject, so I will keep my remarks brief. I reassure my noble and learned friend that I still find his joke funny and I am glad he keeps making it. I thank him for being incredibly gracious although we continue to disagree on these matters. I have to say I do not believe the Bill is a dog’s dinner or that these arguments are dog’s-dinnery. We are not in a sticky hole on this; it is a difference of opinion, and I will make a couple of the arguments that I have rehearsed before in support of that.
I shall deal with my noble and learned friend’s amendment by first reminding him and the House that this may be a relatively small number of companies but, as I have said many times before from this Dispatch Box, they account for 50% of economic output in this country. The heart of the argument comes down to why there is a threshold for this offence but not for the offences of failing to prevent bribery or the criminal facilitation of tax evasion. As I have reminded the House on numerous occasions, the Law Commission has identified the disparity here: it is easier to prosecute smaller organisations under the current law, which this failure to prevent offence will address. The new offence is less necessary for smaller firms, where it is easier to prosecute individuals and businesses for the substantive fraud offence. The Government therefore believe it would be disproportionate to impose the same burden on them. The fact is that this is not an exemption from the law; the law applies in a different way to these smaller companies, as we have tried to explain on a number of occasions. I think I will leave that there.
On Motion B1 in the name of the noble Lord, Lord Faulks, I do not think that this represents a tender approach to fraudsters. As we have said and made the case on a number of occasions, fundamental changes are being proposed here, and the review that we have proposed seems like a fair way of assessing precisely the implications of making those changes.
I thank my noble friend Lord Wolfson for highlighting some of the complexities in this area in his particularly acute legal way, which I am not equipped to follow. However, I can perhaps answer the question about the difference in introducing the cost protection amendment for civil recovery compared with unexplained wealth orders. This issue has come up in previous debates as well. The fact is that the difference between the changes made to the unexplained wealth order regime by the first Economic Crime Act last year and what is proposed in this amendment is that unexplained wealth orders are an investigatory tool that do not directly result in the permanent deprivation of assets, whereas the civil recovery cases covered by the amendment could do so. There could therefore be a host of serious unintended consequences of such a change to the wider civil recovery regime, so the Government cannot support the amendment. A review is the appropriate way to look at this issue. As I tried to make clear in my opening remarks, that may well be a very good idea, but we would like to be convinced of that and to do the work before we actually accept it.
I thank the noble Lord, Lord Coaker, for generously accepting that we have made significant improvements to the Bill through its passage. I say to the noble Lord, Lord Wallace of Saltaire, that we have engaged extensively with all noble Lords in this House on the Bill. I thank him for his explanation of how he believes a revising Chamber should operate. The fact is that we are not sufficiently persuaded of the arguments against this, so there is a genuine difference of opinion. I do not think the noble Lord would mean to imply that this House should necessarily have a veto where there is such a difference of opinion. I think that is a fairly straightforward argument and a perfectly respectable one.
Throughout the passage of this Bill, the Government have worked hard to ensure the right balance between tackling economic crime and ensuring that the UK remains a place where law-abiding businesses can flourish without unnecessary burdens. The Motions tabled by the Government today achieve that balanced and proportionate approach. I therefore urge all noble Lords to support them.
Lord Garnier (Con)
My Lords, I will make one point in total agreement with my noble friend the Minister—we are not having a row, we are having an argument. He and I have a different view about the merits of our respective arguments. If the House listens to no other speeches, and if it wishes to forget mine, I urge noble Lords to remember what the noble Lord, Lord Eatwell, and my noble friend Lord Agnew said. From both sides of this House, they perfectly summed up the lacuna in the Government’s case.
I thank all noble Lords who have taken part in this short debate. Despite the fact that this is not an argument about party politics—it has nothing whatever to do with the Salisbury convention—I regret that I am insufficiently persuaded by my noble friend the Minister that he has quite got the point. I must therefore ask the House if it will join me in agreeing with my Motion by testing the opinion of the House.
Lord Sharpe of Epsom
That this House do agree with the Commons in their Amendment 161A in lieu and do not insist on its Amendment 161B in lieu to which the Commons have disagreed for their Reason 161C.
“Report on costs orders for proceedings for civil recovery
Report on costs orders for proceedings for civil recovery
(1) The Secretary of State must assess whether it would be appropriate to restrict the court’s power to order that the costs of proceedings under Chapter 2 of Part 5 of the Proceeds of Crime Act 2002 are payable by an enforcement authority and, if so, how.
(2) In carrying out the assessment, the Secretary of State must consult such persons as the Secretary of State considers appropriate.
(3) The Secretary of State must publish and lay before Parliament a report on the outcome of the assessment by the end of the period of 12 months beginning with the day on which this Act is passed.
(4) In this section “the court” means the High Court in England and Wales.”
Lord Faulks
Leave out from “House” to end and insert “do insist on its disagreement with the Commons in their Amendment 161A, do not insist on its Amendment 161B, to which the Commons have disagreed for their Reason 161C, and do propose Amendment 161D in lieu—
“Civil recovery of proceeds of crime: costs of proceedings
Civil recovery: costs of proceedings
After section 316 of the Proceeds of Crime Act 2002 insert—
“316A Costs orders
(1) This section applies to proceedings brought by an enforcement authority under Part 5 of the Proceeds of Crime Act 2002 where the property in respect of which the proceedings have been brought has been obtained through economic crime.
(2) When assessing what order to make in relation to the costs of proceedings, the court should take into account—
(a) the merits of the case,
(b) whether the enforcement authority acted reasonably in bringing proceedings,
(c) whether costs were reasonably incurred by any party to the proceedings, and
(d) the impact of any order on—
(i) the enforcement authority, and its ability to carry out its enforcement functions, and
(ii) any other party to the proceedings.”””
Lord Faulks (Non-Afl)
My Lords, I will not amplify what has already been said. I am grateful to all noble Lords, including the Minister, for engaging in this debate. He said that it was not a bad amendment, which was kind of him; I would say that it is an amendment that this House, for the reasons that I have already given, should welcome. It is an improvement to the Bill and I beg to test the opinion of the House.
Economic Crime and Corporate Transparency Bill
Wednesday 25th October 2023
(1 year ago)
Lords ChamberRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Commons Consideration of Lords Message as at 25 October 2023 - (25 Oct 2023)
Lord Sharpe of Epsom
That this House do agree with the Commons in their Amendment 151A and do not insist on its Amendments 151E and 151F in lieu.
The Parliamentary Under-Secretary of State, Home Office (Lord Sharpe of Epsom) (Con)
My Lords, with the leave of the House, in moving Motion A I will also speak to Motion B.
We are here again to discuss the Bill for what I am pleased to say is, I hope, the last time. As my ministerial colleague in the other place, Kevin Hollinrake, said earlier today, the House of Commons has expressed its strong will on these remaining issues three times now. I therefore hope that noble Lords will support the Government’s Motions this evening. I will keep my remarks brief.
I start with government Motion A on the failure to prevent fraud threshold. My noble and learned friend Lord Garnier’s amendment would have brought medium-sized organisations into scope by exempting only micro-entities and small organisations from the offence. The Government do not support any lowering of the SME threshold that we introduced, and I will briefly repeat the reasons why.
It is already an offence to perpetrate fraud. The objective of the new offence is to ensure that there is accountability where fraud occurs in large organisations, so there is simply no need to apply any such offence to smaller organisations, and it is more straightforward to use existing powers against smaller, less complex companies. Every time an offence like this is introduced, business owners end up distracted from running their businesses by the need to assess their compliance risks, which often involves taking professional advice. We assess that the revised threshold proposed by this amendment would cause medium-sized enterprises £300 million in one-off costs and nearly £40 million in annual recurring costs.
As my ministerial colleague flagged this morning, we have future-proofed this legislation by including a delegated power to allow the Government to raise, lower or remove the threshold altogether. As with all legislation, the Government will keep the threshold under review and will make changes if there is evidence to suggest that they are required. I therefore urge all noble Lords to follow the will of the other place and support the government Motion to reinsert the SME threshold.
I move to Motion B on the amendment tabled previously by the noble Lord, Lord Faulks, on cost protection in civil recovery cases. The Government remain of the view that this type of amendment would be a significant departure from a fundamental principle of justice—that of the loser pays—and therefore should not be rushed into without careful consideration. Furthermore, we have seen no clear evidence that this amendment would increase the number of cases taken on by law enforcement.
However, that is not to say that this type of amendment is necessarily a bad idea. That is why we have previously added a statutory commitment to the Bill to review the payment of costs in civil recovery cases in England and Wales by enforcement authorities and to publish a report on the findings and lay it before Parliament within 12 months.
Normally, with regard to civil cost reform in England and Wales, the Government would look to consult appropriate consultees, including the senior judiciary, the Law Society and the Bar Council. Enacting this reform now without a full review would not allow judges and relevant organisations, or their counterparts in Northern Ireland and Scotland, to comment on how it would be read and applied in practice. It would therefore be irresponsible for us to rush into making such a significant change at the end of the Bill without full consideration by Government and further scrutiny by Parliament. With that, I hope all noble Lords will agree that this is the responsible approach to take and therefore support the Government’s position.
In conclusion, I encourage all noble Lords to agree with the Government’s position on both areas. It is vital that we achieve Royal Assent without delay so that we can proceed to implement the important reforms in this Bill as quickly as possible. I beg to move.
Lord Fox (LD)
My Lords, I thank the noble Lord, Lord Sharpe, for his comments. It is good to see the noble Lord, Lord Johnson, here as well, because together, along with other colleagues, they have done a good job in bringing forward this important Bill, the objectives of which we all shared from the outset.
The debate we have had right across your Lordships’ House has not been party-political but about practicalities and aspirations for how this Bill will work when it finally gets Royal Assent. Thanks to this debate, there have been improvements as we have gone through the process. All noble Lords who have participated, not many of whom are here today, have added value to that process. That value has been recognised by Ministers, the ministerial team and indeed the departmental team in the way the Bill has changed during its progress through this House.
The noble Lord, Lord Sharpe, said that he hoped this would be the last time the Bill goes through this House, and I think he can see that it will be. But I hope it is not the last time we discuss its effects and what it seeks to achieve. Parts of the Bill are designed completely to overhaul the way Companies House operates. How that works, whether it works and the extent to which the abuses endemic in the system can be cracked down on will be a really important facet of the Bill.
Enforcement is very much within the remit of the noble Lord, Lord Sharpe, and the Bill’s effective enforcement is key to whether we succeed in bearing down on economic crime. All your Lordships support the enforcement agencies in their work, and in any opportunity we have to come back—whether through the secondary legislation opportunities provided in the Bill, or to review things going forward—enforcement will be vital to success.
I am happy that the noble Lord, Lord Sharpe, mentioned the two issues the noble and learned Lord, Lord Garnier, and the noble Lord, Lord Faulks, set out. The extent to which the extension of this measure to smaller and medium-sized companies can be reviewed is an important point; it was noted during debates many times and I am pleased that the Minister took the opportunity to reiterate the position. I hope that in due course, the review of whether the rules need to extend to smaller companies does indeed happen, and we are able to see whether it is necessary.
Cost protection is a wide and important issue when looking at this aspect of economic crime, as is whether enforcement can be cost-effectively delivered when large, wealthy concerns are in the crosshairs of the authorities. I welcome the review; we look forward to its results and to having the opportunity to debate it when the time comes. In the meantime, your Lordships can be satisfied that they have more than thoroughly scrutinised the Bill, which leaves this House in a better state than when it arrived.
Lord Coaker (Lab)
My Lords, the noble Lords, Lord Johnson and Lord Sharpe, have done an excellent job in improving the Bill; there are no two ways about that. It is probably incumbent on me at this point to remind noble Lords that the “failure to prevent” amendment was put into the Bill in your Lordships’ House, as were the protection from costs orders and the associated compromises. It would be remiss not to mention that.
Having said that, it is of course a little disappointing that the Government were not able to make further compromises, in particular the compromises that were moved in the other place by not only Dame Margaret Hodge but by two prominent Conservative Members of Parliament, Sir Robert Buckland and Sir Robert Neill. So there is clearly still concern around some of these issues, but it would be churlish not to recognise the progress that has been made and the fact that the Government are going to keep much of this under review. It will be interesting to see the results of that review in terms of how the legislation operates and whether it operates in the way the Government expect. It is important that Ministers keep on top of that to make sure that the legislation does what is expected of it. I have every confidence that the noble Lords, Lord Sharpe and Lord Johnson, will do that. I agree very much with the noble Lord, Lord Fox. Indeed, that has been a consistent refrain throughout the passage of the Bill, both in the other place and this place.
I will finish with this remark. The Bill is an important step forward, but the enforcement of it is everything. If laws that have been improved are not enforced, much of the debate and discussion we have had will not be as valuable as it should be. If the noble Lords, Lord Johnson and Lord Sharpe, can reinforce to their officials and the various agencies involved that enforcement is everything, as the noble Lord, Lord Fox, said, we will all be reassured.
I thank the noble Lords, Lord Sharpe and Lord Fox, and other noble Lords who have been involved in the Bill, including the officials. We have a piece of legislation that is much improved from where we started, and I look forward to its implementation.
Lord Sharpe of Epsom (Con)
I thank both noble Lords for their very generous remarks and I speak as well on behalf of my noble friend Lord Johnson of Lainston, who asked me to make that clear.
We agree that the Bill leaves the House in a better state. The noble Lords, Lord Fox and Lord Coaker, are right that the Bill makes major changes, and we agree that the enforcement agencies have a major part to play. One of the aspects of the Bill that we can now start to get on with is making sure that Companies House is appropriately resourced, as obviously it will have a major part to play in any future delivery of the aspects of the Bill that we have been discussing for more than 400 days, I believe.
We should take this opportunity to thank the enforcement agencies for their past and future efforts. We know that this is a complex area, and without them we would all be in a much worse place. But, for now, this Bill leaves this House in a much better state. I thank, as I know my noble friend Lord Johnson would, both noble Lords on the Opposition Benches, and others from all Benches, for their engagement. Throughout the passage of the Bill the Government have worked hard to ensure the right balance between tackling economic crime and ensuring that the UK remains a place where law-abiding businesses can flourish without unnecessary burdens. Having said that, I am quite sure we will return to some of these issues, as predicted—but, for now, I urge noble Lords to support the Government in their position.
Motion A agreed.
Motion B
Lord Sharpe of Epsom
That this House do agree with the Commons in their Amendment 161A in lieu and do not insist on its Amendment 161D in lieu.
Motion B agreed.
Economic Crime and Corporate Transparency Bill
Wednesday 25th October 2023
(1 year ago)
Commons ChamberRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Commons Consideration of Lords Message as at 25 October 2023 - (25 Oct 2023)
13:49 - The House divided: - Ayes: 208 / Noes: 274 - Question accordingly negatived.
14:04 - The House divided: - Ayes: 280 / Noes: 207 - Question accordingly agreed to.
14:19 - The House divided: - Ayes: 280 / Noes: 208 - Question accordingly agreed to.
The Parliamentary Under-Secretary of State for Business and Trade (Kevin Hollinrake)
I beg to move,
That this House insists on its amendment 151A and disagrees with the Lords in their amendments 151E and 151F.
Mr Speaker
With this it will be convenient to discuss amendment (a), and the following motion:
That this House insists on its Amendment 161A in lieu and disagrees with the Lords in their Amendment 161D in lieu.
Kevin Hollinrake
I am pleased to bring this important Bill back to the House this afternoon, for what I sincerely hope is the last time, given that this will be the third time we have debated and voted on similar issues. I urge Opposition Front-Bench Members and those in the other place not to risk the safe passage of this hugely significant, near-400 page Bill by continuing to press these amendments.
The Government have appreciated the input of right hon. and hon. Members from both sides of the House—including the right hon. Members for Barking (Dame Margaret Hodge) and for Birmingham, Hodge Hill (Liam Byrne), my right hon. and learned Friend the Member for South Swindon (Sir Robert Buckland) and my hon. Friend the Member for Bromley and Chislehurst (Sir Robert Neill)—to help change the Bill for the better. We are discussing failure to prevent, together with the identification of doctoring. The Government are taking world-leading measures—I think this is the first time that a major economy such as ours has implemented them—which we should be proud we are implementing through the Bill. Of course, if the elected Chamber expresses its strong will on these remaining issues for the third time, I very much hope that the other place will agree that now is the time for it to accept that position. I think we would all rather have what we have done than see all this good work being in vain by letting the legislation fall.
Let me discuss the two issues in turn. I will keep my remarks brief as the arguments remain the same as on the preceding two times we have discussed them. I will first address Lords amendments 151E and 151F on the “failure to prevent” threshold. I will also address amendment (a), tabled last night by the right hon. Member for Barking, on a Government review of the threshold. While my noble Friend Lord Garnier’s amendment has moved closer yet again to the Government’s position by exempting micro-entities and small organisations from the offence, I am afraid that the Government will not support the lowering of the threshold at this time. Let me repeat the reasons why. It is already an offence to perpetrate fraud. The objective of the new offence is to ensure that there is accountability where fraud occurs in large organisations. There is simply no need to apply any such offence to smaller organisations.
Every time such an offence is introduced, business owners end up distracted from running their businesses by taking time to reassess their compliance risks, which often involves taking professional advice. We assess that the revised threshold proposed by Lord Garnier would cost medium-sized enterprises £300 million in one-off costs and nearly £40 million in annual recurring costs. We should be making it easier for businesses to operate in the UK and only imposing additional regulatory burdens when absolutely necessary. The Government completely reject the notion of using such an offence simply to raise awareness among business owners of the seriousness of the problem of fraud. There would be other, more proportionate ways to do that if necessary.
In response to the amendment tabled by the right hon. Member for Barking, the Government have already future-proofed the Bill by including a delegated power to allow the Government to raise, lower or remove the threshold altogether. Of course, as with all legislation, the Government will keep the threshold under review. I make a personal commitment to do that and to make changes if evidence suggests that they are required. I do not think that a Government review is necessary for that to take place, so I ask the right hon. Member not to move her amendment. We must bear in mind that a review does not guarantee change anyway. What guarantees change is having the right people at the Dispatch Box making changes, whether those are people from her party or my party, and both parties are equally exercised by these concerns. I urge all right hon. and hon. Members to support the Government motion to disagree with the Lords amendments to ensure that we take a proportionate approach and do not impose unnecessary measures on legitimate businesses that would curb our economic growth.
I turn to Lords amendment 161D, tabled by Lord Faulks, on cost protection in civil recovery cases. The Government remain of the view that such an amendment would be a significant departure from a fundamental principle of justice—that the loser pays—and therefore not something that should be rushed into without careful consideration. Furthermore, as I set out when we last debated this issue, we have seen no clear evidence that the amendment would increase the number of cases taken on by law enforcement. However, that is not to say that such an amendment is necessarily a bad idea. That is why we previously added to the Bill a statutory commitment to review the payment of costs in civil recovery cases in England and Wales by enforcement authorities, to publish a report on the findings and to lay that before Parliament within 12 months.
With regard to civil costs reform in England and Wales, the Government would normally look to consult appropriate consultees, including the senior judiciary, the Law Society and the Bar Council. Enacting the reform now without a full review would not allow judges and relevant organisations, or indeed their counterparts in Northern Ireland and Scotland, to comment on how it would be read and applied in practice. We therefore feel it would be irresponsible for us to rush into making such a significant change at the end of a Bill’s passage without full consideration by Government and further scrutiny by Parliament. I very much hope that all right hon. and hon. Members will agree that that is the responsible approach to take and therefore support the Government’s position.
Jim Shannon (Strangford) (DUP)
The Minister said clearly that there has been consultation with Scotland and Northern Ireland. Will he indicate who those discussions have taken place with? Was it banks, or the Departments looking after matters in the absence of a functioning Northern Ireland Assembly? I am keen to know who does the work to ensure that there is accountability for everyone.
Kevin Hollinrake
That is a good point. There are clearly different legal jurisdictions in Northern Ireland and Scotland, with of course the Court of Session in Scotland. From a legal perspective, the counsel in those jurisdictions are the people who discuss this. In wider issues such as failure to prevent, banks and many other stakeholders have people who will consult during the process. I am happy to keep up the conversation with the hon. Gentleman.
Jim Shannon
The reason I asked the question is quite specific, although it might not necessarily relate to the issue directly. The Minister refers to banks. A number of local organisations and community groups back home, which are registered and constituted as community institutions, have had their bank accounts closed. Banks have closed their accounts down because they say they are non-profitable. Is it right that banks should be able to do that? I know the Minister understands the matter—
Mr Speaker
Order. Can I just help a little bit? The hon. Gentleman is very good, but his intervention is very long. Why does he not put down to speak? It might be easier. I have to get other people in as well.
Kevin Hollinrake
The hon. Gentleman raises a very important issue relating to the concerns about de-banking that we have across the economy. The Economic Secretary to the Treasury, my hon. Friend the Member for Arundel and South Downs (Andrew Griffith) is looking at it, as is the Treasury. In future, it is our intention to ensure that when banks close accounts they give a valid reason why, rather than closing them summarily. He is absolutely right to raise the point and I am very happy to engage with him on it, because it affects businesses as well as community groups.
To conclude, I encourage everyone to agree with the Government’s position on these two areas. It is vital that we achieve Royal Assent without delay, so we can proceed to implement the important reforms in the Bill as quickly as possible.
Rushanara Ali (Bethnal Green and Bow) (Lab)
It is an honour to speak on the Bill again. I was hoping that we could conclude the proceedings on the Bill as soon as possible and it is disappointing that the Government are yet to make further compromises. The Bill is welcome in principle, but it should not have taken the war on Ukraine to prompt the Government into action. I am grateful to my right hon. Friends the Members for Barking (Dame Margaret Hodge) and for Birmingham, Hodge Hill (Liam Byrne), and to Members across the House for working together to improve the Bill.
Economic crime poses a threat to our country’s national security, our institutions, our economy, and causes serious harm to our citizens and wider society. Conservative estimates place the cost of economic crime at £290 million a year, according to the National Crime Agency, and the failure to stop criminals benefiting from the proceeds of their crime can fund further criminality. That can include offences such as funding organised crime groups, terrorist activity, drug dealing and people trafficking—this is a very serious issue.
Economic crime, as the Minister knows, has many victims. For too long, the Government have turned a blind eye to corrupt and dirty money, allowing Russian illicit finance to flood into Britain. That lets Putin’s cronies stash ill-gotten gains and even recycle the proceeds of crime into luxury properties. That is well documented and has been highlighted by many Members across the House, as well as in Select Committees. According to analysis by Transparency International, properties to the tune of £6.7 billion have been bought through suspicious wealth. Of those, almost a quarter in value were
“bought by Russians accused of corruption or links to the Kremlin.”
Most are held via secretive offshore companies. That drives up property prices for ordinary people in our country. More than two-thirds of English and Welsh properties held by foreign shell companies do not report their true owners. Research by the London School of Economics and Warwick University shows that the Register of Overseas Entities is not fully effective. For 71% of such properties, essential information about their beneficial owners remains missing or publicly inaccessible, despite the register. That means we still cannot know whether sanctioned individuals, money launderers or other corrupt individuals are benefiting from those properties.
We must not sustain economic growth off the back of dirty money. The Government have already delayed the Bill and these actions for too long. In that time, money has been lost, economic crime has become ingrained and the UK economy has once again lost out. Given that the nature and necessity of the Bill has already been discussed at length, I will focus on addressing the two amendments.
During the passage of the Bill, helpful alterations have been made to ensure that it is robust. The Lords amendments before us today seek to address two omissions. We are very disappointed that the Government are not willing to compromise and not willing to heed the wise and expert input of the Lords. That is deeply disappointing, because a great deal could be achieved if the Minister and his Government took note, including from hon. and learned Members on their own side.
Rushanara Ali
If the Minister is brief, rather than talking the Bill out like he did last time, I will give way.
Kevin Hollinrake
I will be very brief. On the question of compromise, the hon. Lady will have noticed that there was no “failure to prevent” offence when the legislation was first tabled, nor was there an identification doctrine. There has been significant compromise on the Government side. Our preference, clearly, is to move forward in that spirit of compromise. We have achieved a great deal with the Bill, which has moved from under 300 pages to 400 pages. I do not think it is right to say that the Government have not compromised.
Rushanara Ali
When the Minister was a Back Bencher, he was a powerful advocate on the very issues we are discussing today. It is a shame he has been muzzled, but I appreciate that he is in a difficult position. I hope we can have some comprise, but clearly he has not managed to persuade senior members of his Government. I ask the Government to once again carefully consider these amendments, so that we can best tackle the problem of fraud and economic crime.
The Minister highlighted all the problems with the amendments, but I want to talk about their strengths. The noble Lord Garnier’s amendment on “failure to prevent” fraud, which exempts small and micro-enterprises, highlights that the criminal law should be uniform and apply to all in a similar way. This is not just a small insignificant amendment, but a change that would significantly alter law enforcement. For context, fraud is the most common crime in the UK, accounting for 41% of all crimes. Introducing a “failure to prevent” offence would help to deter companies from engaging in or facilitating fraud. To fully change corporate behaviour, we must ensure that the offence applies to all companies, regardless of size.
As has been stated on many occasions, since the “failure to prevent” bribery covers all companies, there is no reason why this measure should not also cover businesses of all sizes. It simply creates more discrepancies and confusion for businesses. The size of a business should not determine who is exempt. The Government have touted this exemption as a protection for small businesses against unnecessary red tape, but in reality this carve out deprives small and medium-size enterprises of the defence of having put in place reasonable anti-fraud procedures. Smaller companies will instead be covered only by the fraud offence itself, when large companies would be caught by the lighter “failure to prevent” fraud offence. The introduction of a new “failure to prevent” offence should apply to all, and the corresponding defence of putting in place reasonable defence procedures should be available to all. In effect, through this carve out, the Government are creating an uneven playing field that is biased against smaller companies. The Bill currently leaves large gaps for economic crime to not only persist but flourish, which I know is not the intention of the Minister. The amendment would have gone a long way to addressing those issues. I ask him once again to carefully consider the amendment, rather than reject it.
I want to turn to the amendment from the noble Lord Faulks, on cost protections in civil recovery cases. The amendment gives more discretion to court judges to alter the allocation of legal costs to ensure that extortionate legal fees are not a hindrance to justice. The spirit of the amendment is that it will help to prevent criminals benefiting from the proceeds of crimes, here or around the world. When it comes to cases where enforcement agencies are trying to prosecute high-level, large-scale economic crime, cost orders remain a serious barrier. I know that first-hand from evidence we received when I served on the Treasury Committee, where we conducted two inquiries on these issues. Our enforcement agencies need strong backing if they are to take on fraud, money laundering and other types of economic crime on the largest scale. Right now, the Government should be on the side of our agencies, rather than tying their hands behind their backs. The amendment would ensure that criminals, cronies and kleptocrats are not given cover by leaving the back door open for them to spend their way out of justice. That cannot be right. It would ensure that the size of their bank accounts and assets does not give them a guaranteed get out of jail free card just because they can afford to meet any expenses required to support their case. The Minister knows that this is a problem; he has heard evidence of it. He knows that it is a serious issue that needs to be addressed.
It has been disappointing to observe the Government’s lack of willingness to protect our law enforcement. It seems reasonable that a court could have discretion on how to allocate costs, especially when we know of previous cases, one of which resulted in a family’s seeking costs amounting to a staggering £1.5 million. That represents 40% of the National Crime Agency’s annual budget between 2015 and 2018.
The Bill is almost over the line, and I acknowledge that there have been some improvements, but we could do a great deal more. We have welcomed the Bill and we welcome the Lords amendments, so we are disappointed that the Government continue to fail to support them. We would be in a much better place if there were a compromise. The “failure to prevent” offence is a case in point. For years we have been calling for a replication of the successes of the Bribery Act 2010. Sadly, our capital city has been nicknamed “Londongrad”, and is now considered to be a capital where money laundering and fraud are rife. That means that we must do more to tackle these issues, but the Bill provides only part of the solution. The present circumstances require much more radical action than the timidity that we have witnessed both today and in the last Session.
It is saddening that the Government have missed such an important opportunity. We will continue to hold their feet to the fire, but given the lack of compromise, it will be for the next Government—the next Labour Government, I hope—to pick up the pieces and toughen up our response in order to end the corrosive impact of dirty money in our country.
Several hon. Members rose—
Madam Deputy Speaker (Dame Eleanor Laing)
Order. Before I call the next speaker, let me point out—it may not be obvious—that we only have until 1.51 pm to complete this business. I therefore appeal for brevity. I am not going to impose a time limit, because given that everyone present is a distinguished and experienced Member, we should not need one.
Dame Margaret Hodge (Barking) (Lab)
On a point of order, Madam Deputy Speaker. I just want to be clear about this. I assume that we can speak until 1.51 pm, and vote after that. Is that correct?
Madam Deputy Speaker
It is. Let me say for the purpose of clarity that the right hon. Lady is absolutely correct.
Sir Robert Neill (Bromley and Chislehurst) (Con)
There has been a great deal of improvement in the Bill, and much of its content is welcome. I recognise that, and I also recognise what the Minister has said, but I am sorry to say that the dead hand of the Treasury has yet again got in the way of our getting the Bill into the best possible state. Let us be blunt about it. The Government, regrettably, have not moved, which is why I support the amendment tabled by the right hon. Member for Barking (Dame Margaret Hodge) and my right hon. and learned Friend the Member for South Swindon (Sir Robert Buckland), which I have signed and which, I think, offers a sensible compromise. If it takes longer for the Treasury and other parts of the Government to be persuaded, well and good: let us have a proper review after 12 months. However, a serious issue has arisen, and I want to make two brief points about it.
Let me deal first with the point made in the other place by Lord Garnier about the inherent contradictions in a test of criminality based on the size of an organisation. I can see that there is a proportionality point to be made about very small enterprises, but there is good evidence—and anyone who practises in the field will know—that fraud and other illicit activity are often channelled through smaller companies, and the people in those companies are precisely the people over whom we do need to have a degree of control. Law enforcement is not, with respect, needless bureaucracy; it is fundamental to good business, and I think that that point is regrettably being missed.
Liam Byrne (Birmingham, Hodge Hill) (Lab)
It was a point underlined when we heard public evidence on the Bill. People explained to us how a number of different smaller companies might well be set up to become conduits for fraud.
Sir Robert Neill
That is a compelling point, and it accords with the evidence that the Justice Committee was given in relation to our inquiry into fraud in the justice system. The irony is that the Government’s current stance may well create a perverse incentive. That is certainly not what the Minister wants, and it is not what anyone in the House ought to want.
The point about cost caps is important as well, but I am particularly exercised about the “failure to prevent” offence. Everyone has argued for that, and we are nearly there. I hoped that the Government, being reasonable, would say, “Let us have a look at it; let us have a commitment in the Bill.” I accept that the Minister is an entirely honourable man, and I accept what he says, but I know from personal experience that Ministers do not stay forever. At the end of the day, we want an assurance that this provision will be written into the statute and there will be a review, because it is so important. I beg the Minister to reflect on that. Otherwise, those of us who want to be able to support the Government today will find ourselves in a position where we cannot do so, although there is so little between us. The ability to move just that little bit further would send a much better signal. As it is, the Lords passed these amendments last time with larger majorities than before, and they will be entitled to take note of that in the event that the Bill goes back to them again. I therefore hope that, even at the last minute, the Government will reflect.
Madam Deputy Speaker
I call Dame Margaret Hodge. I beg your pardon; I call Alison Thewliss.
Alison Thewliss (Glasgow Central) (SNP)
I knew that when you referred to us all as distinguished and experienced Members you did not mean me, Madam Deputy Speaker.
This is the third time we have been back here, and I think it incumbent on the Government to listen to the Lords. They have made it clear that they feel strongly about their very reasonable amendments, which shows how important they are and how we should be getting this right. There is no question that, as the Minister suggested, we are going to let the Bill fall today. I think that if he were worried about that he would accept the Lords amendments this afternoon, rather than allowing the process to go on and on. We did not need to be here at the last minute; he could have accepted many of the amendments at a much earlier stage, because fundamentally he agrees with them. We know that, because he said it on many occasions before he took ministerial office. I think that a great deal can be done if the Minister will make that compromise this afternoon.
The notion that 99.5% of businesses can be exempted from the “failure to prevent” offence is absolutely mad. Small businesses are both part of and victims of economic crime. Some figures from UK Finance arrived in our inboxes earlier today. According to its findings, criminals stole £580 million through unauthorised and authorised fraud in just the first half of 2023. UK Finance says that that is a 2% decrease, but it is still a significant amount of money. Businesses as well as individuals are losing out, and the Government should be paying more attention to that.
The Minister described “failure to prevent” as a distraction for business. I wonder if he also thinks, for consistency’s sake, that the “failure to prevent bribery” offence in the Bribery Act 2010 and the “failure to prevent tax evasion” offence in the Criminal Finances Act 2017 are distractions for business. If he thinks that “failure to prevent” economic crime is a distraction for business, he must surely think that those other offences are also an unnecessary bit of bureaucracy that businesses have to carry out. It does not make any sense.
I fully support the level playing field for cost protections. We must give our enforcement agencies both the tools and money to do their job. No enforcement agency should be thinking, “We cannot afford to take on this case. We cannot afford to prosecute these economic criminals.” The Government should be supporting law enforcement, allowing this Lords amendment to go through, and ensuring that we make the best possible legislation. There is no excuse for the Government not to do these things. The Government agree with them, and we in the House agree with them on a cross-party basis. The Government should get on with it, and not return the Bill to the Lords.
Sir Robert Buckland (South Swindon) (Con)
I will certainly remember your exhortation to brevity, Madam Deputy Speaker. As you know, that is something of a challenge for me at the best of times.
Sir Robert Buckland
I think my right hon. Friend may suffer from the same affliction, dare I say; but I will draw a veil of charity over that.
My hon. Friend—and my friend—the Minister has campaigned assiduously with us in the trenches on this issue for many years. I yield to none in my admiration for him, and I want to put on record how grateful I am that he is in this place, in that spot, doing the job that he is doing. We have come a long way. I well remember being on the Parliamentary Business and Legislation Committee giving authorisation for this Bill in the first place, and knowing then that it would require heavy amendment during its course.
It was inevitable that, in the light of the appalling incidents in Ukraine and the changed world situation, the Bill would develop and mature, and mature it has. The identification principle changes are truly radical and reflect a view long held by the Law Commission and others that we needed to update the Tesco v. Nattrass principle, which is now 50 years old. I salute the Minister and colleagues in the Lords for making sure that that has happened, but I must press him again about the basis upon which the Government make assertions, very much at the last minute, about the regulatory or administrative cost burdens on small and medium-sized businesses. I do not think that they are going to be as dramatically high as they assert. We have not had proper time to test the estimates, and I do not think that they stand up to scrutiny. They do not reflect the Government’s position on previous “failure to prevent” offences—namely, for tax evasion and bribery—and this begs a huge range of questions.
There is no doubt that my colleagues in the legal profession—I refer the House to my entry in the Register of Members’ Financial Interests on every occasion, and I do so now—will feast upon these threshold definitions. Worse than that, unscrupulous operators in the field will exploit these threshold definitions and find clever ways around the law. We know what that means. We will see shell companies and people of straw. We will see the same behaviour that we are rightly trying to eradicate because we want this country to be one of the best places in the world to invest.
This is chiefly an economic argument. Yes, there is a morality to it, but chiefly it is an economic argument. That is why, at the last minute as we come up to Prorogation, I remind my hon. Friend the Minister of the increased majorities in the other place for these amendments and in particular of the attempt we have made to compromise with the Government. At the last minute, I imposed myself upon the goodwill of the Clerks in order to get a further amendment in before the time limit. It was a manuscript amendment to increase the period of one year mentioned in the amendment to 18 months. It has not been selected for debate, but the important political point that we wish to make is that we are seeking at the last minute to come up with reasonable compromises.
I will give the Minister another idea. Bills normally come in with Royal Assent, which we imagine will happen either today or tomorrow with the Prorogation ceremony. Two months is the normal period for Bills to then come into force but he has the power to lay commencement orders to ensure that certain parts of this Bill do not come into force until a statutory instrument has been laid. He has that power, so why not use it in this case and accept the amendment tabled in the name of my right hon. Friend the Member for Barking (Dame Margaret Hodge)? He can see that we are commanding all the ingenuity that we have to come up with reasonable compromises that will allow the Bill to pass in the best possible order. I make a last-minute plea to him to accept these exhortations and not to oppose the amendment in the name of my hon. Friend the Member for Bromley and Chislehurst (Sir Robert Neill) and me. I can say no more to my hon. Friend the Minister, other than to thank him and ask him to go that extra yard.
Dame Margaret Hodge (Barking) (Lab)
This is another leg in a long journey. I want to focus on the amendment that stands in my name, which is supported by the right hon. and learned Member for South Swindon (Sir Robert Buckland) and the hon. Member for Bromley and Chislehurst (Sir Robert Neill).
May I place on the record my thanks to everybody across the House, some of whom are here today, for the way in which we have managed to work together as Members of Parliament and put our political affiliations behind us in trying to find a common-sense, pragmatic way to tackle a horrific problem and to improve the Bill that was laid before us almost a year ago? I also pay special tribute to Members of the House of Lords, who have again worked incredibly hard to improve the Bill in a practical way. In particular, I thank Lord Garnier, Lord Agnew, Lord Vaux and Lord Edward Faulks, all of whom have moved important amendments that have been supported by Members across the House, many of whom are members of the all-party parliamentary group on anti-corruption and responsible tax.
I draw to Members’ attention what happened to the amendment to the “failure to prevent” measures. When it was first considered by the House of Lords it was passed by a majority of three. When it was considered a second time, it was passed by a majority of 26. When it was considered a third time, last week, it was passed by a majority of 41. So the strength of feeling in the other place about the importance of the propositions in the Bill simply grew over time, as the argument was heard by more and more members of the House of Lords, and I bet that if it goes back again, it will get through again with an even greater majority. I say to the Minister that people are voting for this and it is not just a partisan issue; Cross-Benchers and members of the Conservative party are either voting or choosing to abstain. That is why we are securing those majorities in the House of Lords.
Our amendment is moved in the spirit of compromise. All we are saying in that amendment is that we would require the Secretary of State to carry out a review a year after Royal Assent, with a report to Parliament within 18 months of Royal Assent, where it would assess the impact of excluding so many businesses from having duties to prevent fraud. It would also look at the impact of that on the incidence of fraud and assess the potential merits of bringing more companies into scope.
I want to take Members back to when the Government promised to introduce a “failure to prevent” offence on the basis of new clauses introduced by the right hon. and learned Member for South Swindon and the hon. Member for Bromley and Chislehurst when we considered the Bill on Report. They were detailed new clauses to which we had given great thought. The Government agreed at that point to adopt our proposals on the basis that we would not seek to divide the House on the issue. We kept our side of the bargain but, sadly, the Government have failed to deliver on their commitment. So Lord Garnier tried valiantly three times to hold the Government to their word, and every time he put it to a vote he got a greater majority in favour of what he was proposing.
This measure was first championed when the Minister was a Back Bencher, as he is well aware. He was the individual on our all-party parliamentary group who argued the case for it with the greatest passion and commitment, so it is especially sad that the effectiveness of the new offence has been so undermined and weakened by the changes he has chosen to make or been forced to make by colleagues in his own Department or in the Treasury. He often argues that we were the first country to introduce a “failure to prevent” offence. I agree with that, but I would simply say to him we are also the jurisdiction of choice for dirty money, so surely we have a duty, more than any other jurisdiction, to lead on reforms and to clamp down on this evil matter.
The Government’s changes have substantially weakened the power of the new offence, and the Minister has to accept that. He has taken out the failure to prevent money laundering, and the offence now covers only fraud. He has excluded all medium-sized, small and micro-businesses. That means that his carveout has excluded 99.9% of all businesses. It has excluded two thirds of all the people employed in private enterprise. It has excluded half the turnover that flows through private enterprise. I say to the Minister that this is a missed opportunity by his Government that represents a failure to act firmly and decisively against the scourge of dirty money.
The Government’s own report, “National SME Fraud Segmentation”, found that medium-sized companies employing between 50 and 250 employees were significantly more likely to experience fraud than larger companies. The Metropolitan police and UK Finance have warned that SMEs are particularly vulnerable to fraud, and the procedures to prevent companies from committing fraud are exactly the same as the procedures to prevent companies from experiencing fraud. Why on earth and on what basis have the Government chosen to excuse them? I cannot understand the logic.
Kevin Hollinrake
The right hon. Lady is making very important points. However, the “failure to prevent” offence, as drafted, would not cover that situation, because it covers only situations where the benefit is to the corporation concerned or an officer within it. A situation in which a third party hijacked systems would not be covered, whatever the threshold.
Dame Margaret Hodge
That is an interesting point. The simple response is that, obviously, the drafting of the “failure to prevent” offence needs further improvement to ensure that it covers that sort of instance.
There were similar arguments about the burden on SMEs when we introduced the Bribery Act 2010. In 2015, a survey of SMEs found that nine out of 10 had no concerns or problems with the Act, and 90% also said that it did not affect their ability to export. Although fears are expressed before legislation is introduced, once it is on the statute book people find that it actually helps them. Under the terms of the Bill, SMEs already have an appropriate defence, as the Minister well knows: that they should only take actions that are reasonable in all circumstances. That test of reasonableness would protect microbusinesses and SMEs from having to engage in overly bureaucratic procedures.
Although the argument is overwhelming, the Minister does not agree. We had hoped that the Government would support and accept our amendment. If they were to do so, we would not put all these amendments to the vote. This means that the next Government—a Labour Government, we all hope—will seize the opportunity that the Minister has missed and grasp the issue. Labour will become the anti-corruption champions, saving our country and our economy.
This Bill arrived in a sorry state and we have improved it—I accept that—with the identification doctrine, clauses on strategic lawsuits against public participation, the improvement of accountability with an annual report to Parliament, and the reluctant acceptance that there may be an increase in fees for Companies House. But there are still large gaps. Trusts have not been covered, as they should be, and authorised corporate services providers could end up with a future dud register. Cost caps, which other hon. Members have alluded to, are not in there, the whistleblower regime is not in place, and asset seizure still has to be tackled.
We hear whispers that there is a third economic crime Bill. I am pleased about that, but if we had achieved more with this Bill, we might not have needed another one. After all the work that all of us have done to achieve cross-party consensus, and given the values that we all share, I would hope that the Minister would be bold enough to accept our tiny little compromise and put this Bill to bed so that the proposed legislation could be passed by the time we prorogue.
Liam Byrne
I rise to speak in favour of the amendment tabled by my right hon. Friend the Member for Barking (Dame Margaret Hodge), which gives me an opportunity to thank her for her extraordinary leadership on this agenda. Our country is safer and stronger for the work that she has helped lead in this House over a long period.
Like other right hon. and hon. Members, I am grateful to the Minister for ensuring that, by and large, we have approached this Bill in the spirit of compromise. My right hon. Friend is absolutely right to say that, unfortunately, the Bill arrived in this place in a sorry state. Of course, the best way to examine that is to look at the fantastic manifesto of the all-party parliamentary group on anti-corruption and responsible tax, which, of course, the Minister used to co-chair. When I look at that manifesto, which we launched together in Westminster Abbey not too long ago, I see that this Bill covers a fair number of its proposals, but not all of them. That is why something of a mystery still hangs over the Chamber today, and that mystery is that we know that the Minister probably wanted to go much further in this Bill. He has been collegiate enough not to explain to us, either in public or in private, just how his hands were tied and why he has pulled his punches on so many of the policy proposals, including those that we are debating this afternoon.
I want to underline why the “failure to prevent” clauses are so important and why the responsibility for failing to prevent fraud and money laundering should apply to all companies, not just 9% of UK plc. We know, as my right hon. Friend said, that unfortunately this country is now one of the two global centres for money laundering and fraud. That is a badge of shame. There are think-tanks in places such as Washington that now write reports about what they call the UK kleptocracy problem. That is because we have left our financial services and Companies House too weak to police what is a growing problem.
To underline how fast the risk to our country is growing, I asked the House of Commons Library to look at the amount of foreign direct investment that was coming into our country. Foreign direct investment comes into Britain through companies that are set up at a moment’s notice, from UK offshore accounts, from dictatorships and from countries that are only partially free, and the reality is that that money has grown fivefold since 2010. A quarter of a trillion pounds of foreign direct investment has come into Britain from UK offshore accounts, dictatorships and countries that are only partially free. Overwhelmingly, I am sure, that money is clean and good, but we all know in this House that some of it is not. We have a responsibility in this place to make sure that our regime for policing corrupt money is as strong as it possibly can be. This Bill, although it makes progress, still leaves weaknesses in the argument.
The Minister has based his arguments more recently on whether we are creating undue, over-burdensome costs to business. Like him, I was in business previously—I was in the wrong place at the wrong time—and was elected to this place in 2004. I know what it is like to grow a business from two people around a table to a multi-million pound enterprise that employs lots people. I know about the responsibilities on company directors, but we grant special privileges to company directors in this country and we grant special privileges to companies. That regime was introduced in 1855. When Viscount Palmerston moved that legislation through the House, he said that the Limited Liability Act 1855 was important, because it would act for the common good of the country. Yet, if we have a regime that does not ensure that directors have responsibilities that match those privileges, frankly, that common good is undermined.
As my right hon. Friend said, we already have a regime in this country that bestows some important responsibilities on directors, including the failure to prevent bribery and the failure to prevent tax evasion. Therefore, there are already important regulatory requirements on directors, which we as a House have judged to be essential to keep our economy clean. Asking those directors to take one more responsibility, which is to prevent fraud, is not a significant extra burden.
Dame Margaret Hodge
Does my right hon. Friend not agree that if we are to have a successful financial services sector, we will never get it on the back of dirty money? Therefore, it is ever more important that, in relation to both fraud and money laundering, we have a “failure to prevent” offence, which is not about banging up people in prison but about changing the behaviour of companies and those who work in them?
Liam Byrne
My right hon. Friend is absolutely right. This is a point of cross-party consensus. I know it is a point of cross-party consensus because it was the Minister who used to use precisely the same argument to argue for some of the changes that we see in the Bill.
We all know that our country does well, because, by and large, we have a reputation for clean trade around the world. When companies file and incorporate in this country, that is a credential that does them well around the world. That is a credential that we must do everything in this House to protect, which is why the amendment is so important. We cannot leave a weakness in our armour as crime and fraud multiplies.
The Minister said that the proposal would be a cost to British business that we could not withstand or sustain, but the truth is that, while it might be a cost to some British businesses, it would also be a saving to British business, to the British economy and to British taxpayers, because it is always cheaper and more effective to prevent fraud in the first place than to have to police it or to prosecute fraud after the event. When 64% of businesses—small businesses—in this country are victims of fraud, we can only imagine how widespread that cost of fraud has now become. That average is much higher than international averages and therefore there is an additional argument that we need to go that one step further to make sure that we are doing everything in our power to prevent fraud from arising in the first place.
All we ask in this amendment is for the Minister to face the facts. He should bring the facts together, put them in a report, assess them, analyse them and present some conclusions to the House. How can we have a situation where the Minister is essentially asking for the freedom to look away? That simply cannot be the basis of good policy. I am grateful to my new colleagues on the Business and Trade Committee who agreed yesterday that we will ask representatives of Companies House to come before us for hearings. Frankly, if the Minister is not prepared to put the facts around fraud in one place, I shall ask the Select Committee to do the job for him.
Kevin Hollinrake
With the leave of the House, I wish to thank Members who have contributed to the debate. We have much in common, despite the fact that some small differences still remain. As I said earlier, the Government have come a long way since the original tabling of the legislation. The number of pages have increased by more than 100, so the contents of the Bill now stand at nearly 400, which shows the importance of the legislation that we are debating.
I did not agree with the shadow Minister when she said that the Government have not been willing to compromise—that is not the case at all. The “failure to prevent” offence, particularly the identification doctrine, are key, world-leading measures. In my opening remarks, I made the commitment—and I make it again—that will we keep this matter under review, and that includes, in particular, the threshold. Even if there were a requirement for review in statute, there is no requirement on the Government to make changes following that review, so it is important to maintain the goodwill that we have experienced during the passage of the Bill.
Dame Margaret Hodge
Perhaps the Minister can tell me what he means when he says that he will keep this matter under review. What precisely does that mean?
Kevin Hollinrake
The way that we have legislated here, and the reason for doing so in that way, have always been informed by information that has come from third parties—from Spotlight on Corruption, Transparency International and others—that have been interested in the Bill. The right hon. Lady and I have worked together on this issue in the past in various all-party groups. Those are the kind of bodies that will inform progress as we implement this legislation, which again I say is world leading.
The shadow Minister talked about a level playing field and said that these measures move away from that. I could not disagree more. The key thing is that we do not have a level playing field now. In small companies, it is much easier to identify who is responsible for a fraud. That is why it is more difficult in large companies, which is why we are applying this to large companies. Fraud is fraud whatever the size of the company. This legislation does not allow smaller or medium-sized companies to facilitate fraud—if they are guilty of fraud, they are guilty of fraud and it is far easier to identify the people concerned.
Let me address the comments of my hon. Friend the Member for Bromley and Chislehurst (Sir Robert Neill) and thank him for all the work that he has done on this legislation and on the Justice Committee. I ask him not to doubt my motives; I have not been influenced by the Treasury at all. I am influenced by wanting to do the right thing in terms of both tackling economic crime and making sure that we do not put undue burdens on businesses. I can assure him that, for as long as I am in this role, we will keep this under review and make sure that the threshold is fit for purpose.
My hon. Friend talks about good business, but it is good business to make sure that we do not put undue burdens on business. I can promise him that, from my experience—while I was chief executive of my company—we implemented the rules on bribery and tax evasion, which were significant in our business. These would be significant measures for businesses. I say to him and to my right hon. and learned Friend the Member for South Swindon (Sir Robert Buckland) that they will have a real impact on businesses and significant costs of implementation. I do not think that they would be proportionate or needed within smaller enterprises, because of the ease of identifying the people responsible if fraud were facilitated in an organisation.
I appreciate the kind words of my right hon. and learned Friend and the work that he has done. I remember lobbying him on this issue when he was the Secretary of State for Justice—and a fine job he did. We have got much further this time than we did at that time, which shows our collegiate way of working all the way through the Bill’s passage.
The hon. Member for Glasgow Central (Alison Thewliss) has also done fantastic work in this area, and I appreciate all her efforts. She says that we do not agree. We have a right to disagree where we disagree, and we honestly disagree about whether this proposal is required. We do not want to put unnecessary burdens on businesses.
I completely understand the strength of feeling of the right hon. Member for Barking (Dame Margaret Hodge) on this matter. I, too, feel strongly about implementing the right measures to tackle economic crime while not putting undue burdens on businesses, so I say to her again, in the spirit of good will that we have operated under for many years, we will keep this under review. If the threshold needs to be changed, we can do that under secondary legislation.
I congratulate the right hon. Member for Birmingham, Hodge Hill (Liam Byrne) on his election as Chair of the Business and Trade Committee. I know that he will do a fine job. He is right that, in that spirit of good will, we have achieved much in the manifesto that we launched just over the road. Again, I hope that he does not doubt my motives in what we are doing to tackle economic crime without putting undue burdens on business.
I urge everyone to support the measures that we have in place already, and I ask those in the other place to respect the clear will of this House.
Question put, That the amendment be made.
Mr Deputy Speaker (Sir Roger Gale)
Order. Before we proceed to the next Division, I must inform the House that it has been drawn to my attention that the election for the Defence Committee Chairman in the Aye Lobby was due to be open until 2 pm. That, of course, was interrupted by the Division, and I understand that one or two tardy Members have yet to vote.
Mr Deputy Speaker
I could, but I won’t. Following the end of all the Divisions, and time having been allowed for the necessary facilities to be reinstated, the ballot will be open again for the time lost: a further 11 minutes. You have been warned.
Mr Deputy Speaker (Sir Roger Gale)
Order. There is no end to the variety and excitement that this House can offer. I am advised that the Order Paper, which we all know is gospel, says that the Defence Committee ballot should close not at 2 o’clock but at 2.30, so at least two Members—I know them both—will have another 41 minutes to vote after the next Division. Actually, it will be 45 minutes because, I am told, the facilities had to be cleared and will no doubt have to be reinstated. I suggest that Members who have not voted do so fairly quickly.
Motion made, and Question put,
That this House insists on its amendment 161A and disagrees with Lords amendment 161D.—(Kevin Hollinrake.)
Dr Liam Fox (North Somerset) (Con)
On a point of order, Mr Deputy Speaker. As you know, the House will later vote on the issue of the hon. Member for Wellingborough (Mr Bone) and the Independent Expert Panel’s report. Of course, we do not have a chance to debate the issue, the content, or the pros and cons of that report: we merely vote on it.
It is in that context that I wish to raise with you a report on the BBC this morning, entitled “Peter Bone: Abuse by MP left me broken, former aide says”, which contains a very extensive, one-sided attack on the hon. Member for Wellingborough. This is not in any way to judge the rights and wrongs of this matter, but merely to put the principles of natural justice first. It is an anonymous briefing against a named Member of Parliament on a day on which, as the BBC accepted, MPs would be voting on this issue.
What I would like to know from you, Mr Deputy Speaker, is whether this is an undue attempt to influence Members of Parliament on the day of a vote that should be our business in this House, and indeed, whether it is an attempt to manipulate Members of Parliament. This does not just relate to this case, but to any case that we may have to consider in the future. I would like to ask you to ask Mr Speaker, who has always defended the rights of this House, whether he will take legal advice on whether this particular report today constitutes contempt for the House.
Mr Deputy Speaker (Sir Roger Gale)
The right hon. Gentleman will be aware that I am not in a position to answer the specific question that he raises, but I do know that the director general of the British Broadcasting Corporation will be in this building later today, and if Mr Speaker chooses to ask to see him, I imagine that he will make himself available. I also know that Mr Speaker takes this very seriously indeed, and that legal advice is being sought.
Non-domestic Rating Bill (Programme) (No. 2)
Motion made, and Question put forthwith (Standing Order No. 83A(7)),
That the following provisions shall apply to the Non-Domestic Rating Bill for the purpose of supplementing the Order of 24 April 2023 (Non-Domestic Rating Bill: Programme):
Consideration of Lords Amendments
(1) Proceedings on consideration of Lords Amendments shall (so far as not previously concluded) be brought to a conclusion one hour after their commencement.
Subsequent stages
(2) Any further Message from the Lords may be considered forthwith without any Question being put.
(3) The proceedings on any further Message from the Lords shall (so far as not previously concluded) be brought to a conclusion one hour after their commencement.—(Julie Marson.)
Question agreed to.
Royal Assent
Thursday 26th October 2023
(1 year ago)
Lords ChamberRead Full debate Read Hansard Text Amendment Paper: HL Bill 170-I Marshalled list for Consideration of Commons Amendments and Reasons - (18 Sep 2023)