All 36 contributions to the Economic Crime and Corporate Transparency Act 2023 (Ministerial Extracts Only)

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Economic Crime and Corporate Transparency Bill

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2nd reading
Thursday 13th October 2022

(1 year, 7 months ago)

Commons Chamber
Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Watch Debate

This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.

In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.

This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here

This information is provided by Parallel Parliament and does not comprise part of the offical record

Suella Braverman Portrait The Secretary of State for the Home Department (Suella Braverman)
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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 Portrait Andy Slaughter (Hammersmith) (Lab)
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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 Portrait Suella Braverman
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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 Portrait Suella Braverman
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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 Portrait Stephen Doughty
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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 Portrait Suella Braverman
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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 Portrait Jim Shannon (Strangford) (DUP)
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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 Portrait Suella Braverman
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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 Portrait Catherine West (Hornsey and Wood Green) (Lab)
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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 Portrait Suella Braverman
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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 Portrait Layla Moran (Oxford West and Abingdon) (LD)
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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 Portrait Suella Braverman
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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—

Chris Bryant Portrait Chris Bryant (Rhondda) (Lab)
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The sale? You were selling them?

Suella Braverman Portrait Suella Braverman
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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 Portrait Chris Bryant
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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 Portrait Suella Braverman
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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 Portrait Chris Bryant
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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 Portrait Suella Braverman
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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 Portrait Kevin Hollinrake (Thirsk and Malton) (Con)
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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 Portrait Suella Braverman
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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.

Margaret Hodge Portrait Dame Margaret Hodge (Barking) (Lab)
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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 Portrait Suella Braverman
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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 Portrait Jim Shannon
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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 Portrait Suella Braverman
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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 Portrait Kevin Hollinrake
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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 Portrait Suella Braverman
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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 Portrait Yvette Cooper (Normanton, Pontefract and Castleford) (Lab)
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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 Portrait Suella Braverman
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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.

Catherine West Portrait Catherine West
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Will the Home Secretary give way?

Suella Braverman Portrait Suella Braverman
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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.

Chris Bryant Portrait Chris Bryant
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Will the Home Secretary give way on that point?

Suella Braverman Portrait Suella Braverman
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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 Portrait Catherine West
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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 Portrait Suella Braverman
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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 Portrait Chris Bryant
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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 Portrait Suella Braverman
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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 Portrait Suella Braverman
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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.

Kate Green Portrait Kate Green (Stretford and Urmston) (Lab)
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Will the Home Secretary give way?

Suella Braverman Portrait Suella Braverman
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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 Portrait Andy Slaughter
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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 Portrait Suella Braverman
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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.

Rosie Winterton Portrait Madam Deputy Speaker (Dame Rosie Winterton)
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I call the shadow Home Secretary, Yvette Cooper.

Yvette Cooper Portrait Yvette Cooper (Normanton, Pontefract and Castleford) (Lab)
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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 Portrait Yvette Cooper
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If the Home Secretary wants to respond to any of those points, I shall welcome her doing so.

Suella Braverman Portrait Suella Braverman
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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 Portrait Yvette Cooper
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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.

--- Later in debate ---
Dean Russell Portrait The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Dean Russell)
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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 Portrait Alison Thewliss
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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 Portrait Dean Russell
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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 Portrait Alison Thewliss
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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 Portrait Dean Russell
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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 Portrait John Penrose
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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 Portrait Dean Russell
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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.

Eleanor Laing Portrait Madam Deputy Speaker (Dame Eleanor Laing)
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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 Portrait Dean Russell
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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 Portrait Seema Malhotra
- Hansard - - - Excerpts

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.

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Dean Russell Portrait Dean Russell
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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.

Nigel Evans Portrait Mr Deputy Speaker (Mr Nigel Evans)
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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)

(Limited Text - Ministerial Extracts only)

Read Full debate
Committee stage
Tuesday 25th October 2022

(1 year, 7 months ago)

Public Bill Committees
Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 25 October 2022 - (25 Oct 2022)

This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.

In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.

This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here

This information is provided by Parallel Parliament and does not comprise part of the offical record

Alison Thewliss Portrait Alison Thewliss
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Q That is useful. Incorporation fees are ridiculously low at £12. The Treasury Committee recommended £100. Do you have a view on that?

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.

Jackie Doyle-Price Portrait The Minister of State, Department for Business, Energy and Industrial Strategy (Jackie Doyle-Price)
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Q I want to come back to the question that Dame Margaret Hodge asked you, Gurpreet. I hear your point that some of the obligations may deter private equity investment, but through the legislation, we are making the positive statement that we are determined to improve standards of regulation, with a view to tackling crime, and are saying that this country will be safe place in which to invest. To what extent will the Bill be a deterrent? Do you have any evidence or have you made any calcuations on that? If so, which other centres do you expect will benefit from our introducing this system of regulation?

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 Portrait Jackie Doyle-Price
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Q That is very helpful, but can I turn the question on its head? To what extent do you think these changes could make this country more attractive, given that we are making a very clear statement about the standards that we expect in these vehicles?

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 Portrait Liam Byrne (Birmingham, Hodge Hill) (Lab)
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Q Nick, can I check two things that you said, which I think reveal some significant flaws in the Bill? First, I think you said that the verification regime proposed for Companies House is weaker than that for the regulated anti-money laundering sector. Is that the case?

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.

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Alison Thewliss Portrait Alison Thewliss
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Q Finally, do you have any comments on the changes being made to the suspicious activity report regime in the Bill?

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 Portrait Jackie Doyle-Price
- Hansard - - - Excerpts

Q I want to come back to the issue of GDPR, if I may. The whole ethos sitting behind the GDPR legislation is to defend the subject that the information is about. As you just highlighted, that feels really incompatible with having information sharing for the purposes of combating crime. I just want a better feel from you of how much of a barrier that will be. Is it a barrier or is it tying our hands behind our back to use the issues in the Bill? How much more do we have to challenge the ethos behind GDPR for us to build a system that is fit for purpose?

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 Portrait Jackie Doyle-Price
- Hansard - - - Excerpts

Q That is very helpful. It feels to me that we have got to a position with GDPR where the practical implementation has gone beyond that safeguarding, actually, but we could tackle this by, perhaps, a much fuller statement and guidance about how we expect people to respect the protections but also the obligations that exist in terms of tackling crime.

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.

Margaret Hodge Portrait Dame Margaret Hodge
- Hansard - - - Excerpts

Q That has been really helpful on the information. I think that a slight amendment to what we are doing would help the GDPR issue.

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—

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Alison Thewliss Portrait Alison Thewliss
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That is okay. No problem.

Jackie Doyle-Price Portrait Jackie Doyle-Price
- Hansard - - - Excerpts

Q When we talk about things like cryptoassets, it is difficult for lay people like me—I am sure I am not alone—to envisage what exactly we are talking about. I recognise some of the operational sensitivities under which you are working, but would it be possible for you to give us an illustration of how cryptoassets have been used to disguise this activity?

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 Portrait Jackie Doyle-Price
- Hansard - - - Excerpts

Q It is really the complexity that is the barrier, is it not? The actual use of cryptoassets of itself brings an additional complexity, so it is clearly an ideal tool for those who are up to no good.

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 Portrait Liam Byrne
- Hansard - - - Excerpts

Q Is cyber-crime and cryptocurrency-based crime growing quickly?

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.

--- Later in debate ---
None Portrait The Chair
- Hansard -

Thank you. I will bring the Minister in next, which may be helpful.

Jackie Doyle-Price Portrait Jackie Doyle-Price
- Hansard - - - Excerpts

Q Thank you. Forgive me, but you are speaking very legally, which is obviously why you have been invited here. We want to try to make this live, and you obviously bring considerable counter-terrorism expertise. Can you give us some examples of how the Bill will enable law enforcement to go after and combat terrorism?

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 Portrait Jackie Doyle-Price
- Hansard - - - Excerpts

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 Portrait Jackie Doyle-Price
- Hansard - - - Excerpts

Q Exactly, and this is what we are talking about. Do you think that what we have in the Bill will stand the test of time, given that ultimately this kind of criminal activity is always trying to get one step ahead of the law? Can we be confident that what we are enacting here will be future-proof?

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.

Jackie Doyle-Price Portrait Jackie Doyle-Price
- Hansard - - - Excerpts

We will have a look at that. Thank you.

None Portrait The Chair
- Hansard -

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.

Economic Crime and Corporate Transparency Bill (Third sitting)

(Limited Text - Ministerial Extracts only)

Read Full debate
Committee stage
Thursday 27th October 2022

(1 year, 7 months ago)

Public Bill Committees
Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 27 October 2022 - (27 Oct 2022)

This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.

In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.

This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here

This information is provided by Parallel Parliament and does not comprise part of the offical record

None Portrait The Chair
- Hansard -

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.

Tom Tugendhat Portrait The Minister for Security (Tom Tugendhat)
- Hansard - - - Excerpts

Forgive me, Ms Wood; my hearing is not very good. Can you speak straight into a microphone?

Helena Wood: Yes.

Seema Malhotra Portrait Seema Malhotra (Feltham and Heston) (Lab/Co-op)
- Hansard - - - Excerpts

Q 170 Thank you very much for coming to give evidence today. I wanted to start by asking about the Bill’s reforms of information-sharing provisions—perhaps this is particularly to Ms Wood. In your view, do those provisions go far enough, and if not, do you have examples of where it is done better internationally? If information-sharing provisions are not improved, how much of a hindrance could it be to the effectiveness of the Bill?

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.

--- Later in debate ---
Margaret Hodge Portrait Dame Margaret Hodge (Barking) (Lab)
- Hansard - - - Excerpts

Q I hope the Committee will look at our amendments on information sharing, the funding of enforcement agencies, shareholder information, Companies House checks and AML supervision; we tabled them in a spirit of improving the situation. I agree with all that.

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 Portrait Tom Tugendhat
- Hansard - - - Excerpts

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 Portrait James Daly (Bury North) (Con)
- Hansard - - - Excerpts

Q I want to go back to information sharing. My understanding of the Bill—please tell me if I am wrong—is that the clauses will allow

“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—

--- Later in debate ---
None Portrait The Chair
- Hansard -

For the final question I come to Tom Tugendhat.

Tom Tugendhat Portrait Tom Tugendhat
- Hansard - - - Excerpts

Q Clearly, Liam’s point is entirely valid, but it is worth pointing out that that was a scandal in Estonia, which was very strongly dealt with by the Estonian Government. It is important to recognise that it is not just a UK issue. That being said, the Bill does open up an awful lot of information. Mr Hames, can you tell me how your organisation is going to use that information to start to address some of those issues?

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 Portrait Tom Tugendhat
- Hansard - - - Excerpts

Q Your point that this is a partnership is entirely correct. The Government have approached the issue in the way that we spoke about, you will remember, when I was doing a different job, as Chair of a different Committee. We spoke about the fact that the UK is a hub for so much of that crime for very obvious historical reasons, such as the depth of our capital markets, the use of the English language, the openness of our financial system and the importance of the rule of law. It is not simply a legal question—it is a cultural and a deep historic one as well.

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 Portrait Tom Tugendhat
- Hansard - - - Excerpts

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 Portrait Tom Tugendhat
- Hansard - - - Excerpts

Q You will forgive me for recognising that there may be other jurisdictions closer to their home that are also involved in that.

Duncan Hames: But this is the jurisdiction that Members of our Parliament are responsible for.

Tom Tugendhat Portrait Tom Tugendhat
- Hansard - - - Excerpts

Q We must get this right, but it is an international problem that we must all get right.

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 Portrait Tom Tugendhat
- Hansard - - - Excerpts

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.

None Portrait The Chair
- Hansard -

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.

--- Later in debate ---
Seema Malhotra Portrait Seema Malhotra
- Hansard - - - Excerpts

Q I have a couple of specific questions. First, do you think there should be any sort of limit on the number of companies or partnerships registered at one address? Secondly, should there be any sort of limit—perhaps one beyond which there needs to be an application to increase, under specific criteria— on the number of directorships that any one director can hold?

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 Portrait Tom Tugendhat
- Hansard - - - Excerpts

Q I am very interested in some of the identification elements that are raised. How much of a difference will the verified identification make to the identification of individuals?

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 Portrait Tom Tugendhat
- Hansard - - - Excerpts

Q Mr Taggart, you will be aware that there is wider debate about unique identifiers because it ties in personal privacy aspects in healthcare, insurance and, in fact, every part of your life. Every single country that has introduced them has had a privacy pay-off. That is one that you may or may not be willing to address, but it is not just simply a question of companies.

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—

None Portrait The Chair
- Hansard -

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.

--- Later in debate ---
James Daly Portrait James Daly
- Hansard - - - Excerpts

Thank you, Graham.

Tom Tugendhat Portrait Tom Tugendhat
- Hansard - - - Excerpts

Q Could you give some live examples as to how you would use various aspects of the powers in the Bill to improve your ability to track? Of course, we have spoken on numerous occasions about the partnership that we need. If I may say so, Graham, you are an extremely active tracker of companies, and, I would therefore say, one of the top of the class in the public-private partnership.

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 Portrait Tom Tugendhat
- Hansard - - - Excerpts

Q I am very pleased to hear that. You are challenging me as Security Minister. You speak against cyber-security, which is an enormous element of the defences that we need for other areas of crime. I am sure you would not be recommending to anybody that they should never use VPNs or encrypted emails.

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 Portrait Tom Tugendhat
- Hansard - - - Excerpts

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 Portrait Tom Tugendhat
- Hansard - - - Excerpts

Q I am very grateful for your input. I wonder whether you could say a little bit more on the issue of shell companies and how they are used. You will know very well the work of people like Oliver Bullough, Tom Keatinge and Luke Harding.

Graham Barrow: They are good friends.

Tom Tugendhat Portrait Tom Tugendhat
- Hansard - - - Excerpts

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 Portrait Tom Tugendhat
- Hansard - - - Excerpts

I should put on the record that he is a friend of mine as well.

Margaret Hodge Portrait Dame Margaret Hodge
- Hansard - - - Excerpts

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 Portrait Tom Tugendhat
- Hansard - - - Excerpts

Q Thank you very much indeed. The amount of data coming out suggests that this legislation may do something to inform people about things such as phoenixing, which you have mentioned. Clearly, there are many aspects to that and I am not going to pretend for a second that the Bill answers every single one—it does not—but it certainly goes some of the way towards ensuring that people can be better informed when they enter into future agreements. How would you say that the information alongside the verification assists you?

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.

Margaret Hodge Portrait Dame Margaret Hodge
- Hansard - - - Excerpts

Q I want to take you back to the work you did on Deutsche Bank. First, what additional powers did it lead you to think you needed? Secondly, how did the FCA respond—what was lacking or worked well there?

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.

Economic Crime and Corporate Transparency Bill (Fifth sitting)

(Limited Text - Ministerial Extracts only)

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Committee stage
Tuesday 1st November 2022

(1 year, 6 months ago)

Public Bill Committees
Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 1 November 2022 - (1 Nov 2022)

This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.

In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.

This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here

This information is provided by Parallel Parliament and does not comprise part of the offical record

Margaret Hodge Portrait Dame Margaret Hodge (Barking) (Lab)
- Hansard - - - Excerpts

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.

Kevin Hollinrake Portrait The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
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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 Portrait Liam Byrne (Birmingham, Hodge Hill) (Lab)
- Hansard - - - Excerpts

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 Portrait Kevin Hollinrake
- Hansard - - - Excerpts

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.

Margaret Hodge Portrait Dame Margaret Hodge
- Hansard - - - Excerpts

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 Portrait Kevin Hollinrake
- Hansard - - - Excerpts

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.

--- Later in debate ---
Liam Byrne Portrait Liam Byrne
- Hansard - - - Excerpts

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 Portrait Kevin Hollinrake
- Hansard - - - Excerpts

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.

Margaret Hodge Portrait Dame Margaret Hodge
- Hansard - - - Excerpts

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 Portrait Kevin Hollinrake
- Hansard - - - Excerpts

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 Portrait Liam Byrne
- Hansard - - - Excerpts

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 Portrait Kevin Hollinrake
- Hansard - - - Excerpts

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 Portrait Seema Malhotra
- Hansard - - - Excerpts

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 Portrait Kevin Hollinrake
- Hansard - - - Excerpts

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 Portrait Liam Byrne
- Hansard - - - Excerpts

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 Portrait Kevin Hollinrake
- Hansard - - - Excerpts

The shadow Minister also wants to intervene, so I shall take the interventions together.

Seema Malhotra Portrait Seema Malhotra
- Hansard - - - Excerpts

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 Portrait Kevin Hollinrake
- Hansard - - - Excerpts

Those words will live with me as long as I am in Parliament.

Seema Malhotra Portrait Seema Malhotra
- Hansard - - - Excerpts

They are good words.

Kevin Hollinrake Portrait Kevin Hollinrake
- Hansard - - - Excerpts

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 Portrait Liam Byrne
- Hansard - - - Excerpts

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 Portrait Kevin Hollinrake
- Hansard - - - Excerpts

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—

Liam Byrne Portrait Liam Byrne
- Hansard - - - Excerpts

We do. That is exactly what we want to do.

Kevin Hollinrake Portrait Kevin Hollinrake
- Hansard - - - Excerpts

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.

--- Later in debate ---
None Portrait The Chair
- Hansard -

Before I call the Minister, may I say that interventions need to be brief?

Kevin Hollinrake Portrait Kevin Hollinrake
- Hansard - - - Excerpts

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 Portrait Alison Thewliss
- Hansard - - - Excerpts

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.

Division 1

Ayes: 7


Labour: 5
Scottish National Party: 2

Noes: 8


Conservative: 8

Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake Portrait Kevin Hollinrake
- Hansard - - - Excerpts

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 Portrait Seema Malhotra
- Hansard - - - Excerpts

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.

--- Later in debate ---
Liam Byrne Portrait Liam Byrne
- Hansard - - - Excerpts

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 Portrait Kevin Hollinrake
- Hansard - - - Excerpts

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 Portrait Seema Malhotra
- Hansard - - - Excerpts

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.

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Liam Byrne Portrait Liam Byrne
- Hansard - - - Excerpts

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 Portrait Kevin Hollinrake
- Hansard - - - Excerpts

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.

Margaret Hodge Portrait Dame Margaret Hodge
- Hansard - - - Excerpts

Is the Minister minded to use that power to enter the nationality of individuals on a company’s register of members?

Kevin Hollinrake Portrait Kevin Hollinrake
- Hansard - - - Excerpts

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 Portrait Liam Byrne
- Hansard - - - Excerpts

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 Portrait Kevin Hollinrake
- Hansard - - - Excerpts

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.

Liam Byrne Portrait Liam Byrne
- Hansard - - - Excerpts

Such as Russia.

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Kevin Hollinrake Portrait Kevin Hollinrake
- Hansard - - - Excerpts

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 Portrait Liam Byrne
- Hansard - - - Excerpts

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 Portrait Kevin Hollinrake
- Hansard - - - Excerpts

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.

Margaret Hodge Portrait Dame Margaret Hodge
- Hansard - - - Excerpts

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 Portrait Kevin Hollinrake
- Hansard - - - Excerpts

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.

Margaret Hodge Portrait Dame Margaret Hodge
- Hansard - - - Excerpts

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 Portrait Kevin Hollinrake
- Hansard - - - Excerpts

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 Portrait Alison Thewliss
- Hansard - - - Excerpts

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?

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Kevin Hollinrake Portrait Kevin Hollinrake
- Hansard - - - Excerpts

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 Portrait Seema Malhotra
- Hansard - - - Excerpts

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.

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Liam Byrne Portrait Liam Byrne
- Hansard - - - Excerpts

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 Portrait Kevin Hollinrake
- Hansard - - - Excerpts

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 Portrait Liam Byrne
- Hansard - - - Excerpts

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 Portrait Kevin Hollinrake
- Hansard - - - Excerpts

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.

Liam Byrne Portrait Liam Byrne
- Hansard - - - Excerpts

And the target?

Kevin Hollinrake Portrait Kevin Hollinrake
- Hansard - - - Excerpts

It is 28 days.

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None Portrait The Chair
- Hansard -

With this it will be convenient to consider clauses 10 to 13 stand part.

Kevin Hollinrake Portrait Kevin Hollinrake
- Hansard - - - Excerpts

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 Portrait Seema Malhotra
- Hansard - - - Excerpts

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.

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Seema Malhotra Portrait Seema Malhotra
- Hansard - - - Excerpts

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 Portrait Kevin Hollinrake
- Hansard - - - Excerpts

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.

Liam Byrne Portrait Liam Byrne
- Hansard - - - Excerpts

Will the Minister give way?

Kevin Hollinrake Portrait Kevin Hollinrake
- Hansard - - - Excerpts

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 Portrait Liam Byrne
- Hansard - - - Excerpts

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 Portrait Kevin Hollinrake
- Hansard - - - Excerpts

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.

Margaret Hodge Portrait Dame Margaret Hodge
- Hansard - - - Excerpts

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 Portrait Kevin Hollinrake
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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)

(Limited Text - Ministerial Extracts only)

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Committee stage
Tuesday 1st November 2022

(1 year, 6 months ago)

Public Bill Committees
Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 1 November 2022 - (1 Nov 2022)

This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.

In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.

This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here

This information is provided by Parallel Parliament and does not comprise part of the offical record

Stephen Kinnock Portrait Stephen Kinnock
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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.

Kevin Hollinrake Portrait The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
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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 Portrait Stephen Kinnock
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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 Portrait Kevin Hollinrake
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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 Portrait Stephen Kinnock
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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 Portrait Kevin Hollinrake
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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.

--- Later in debate ---
Stephen Kinnock Portrait Stephen Kinnock
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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 Portrait Kevin Hollinrake
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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.

--- Later in debate ---
None Portrait The Chair
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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 Portrait Seema Malhotra (Feltham and Heston) (Lab/Co-op)
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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 Portrait Kevin Hollinrake
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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.

Margaret Hodge Portrait Dame Margaret Hodge
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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 Portrait Kevin Hollinrake
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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 Portrait Seema Malhotra
- Hansard - - - Excerpts

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 Portrait Kevin Hollinrake
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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.

None Portrait The Chair
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Order. May I remind the Minister and other Members to speak through the Chair?

Kevin Hollinrake Portrait Kevin Hollinrake
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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 Portrait Stephen Kinnock
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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 Portrait Kevin Hollinrake
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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 Portrait Stephen Kinnock
- Hansard - - - Excerpts

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 Portrait Kevin Hollinrake
- Hansard - - - Excerpts

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.]

None Portrait The Chair
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Order. If Members wish to contribute, they should do so in the usual way.

Kevin Hollinrake Portrait Kevin Hollinrake
- Hansard - - - Excerpts

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 n