Economic Crime and Corporate Transparency

Committee stage
Thursday 27th April 2023 Grand Committee

Committee (5th Day)

Relevant document: 27th Report from the Delegated Powers Committee

13:00

Amendment 84A

Moved by

[Lord Sharpe of Epsom]

84A: After Clause 180, insert the following new Clause—
“Failure to prevent fraudFailure to prevent fraud
(1) A relevant body which is a large organisation is guilty of an offence if, in a financial year of the body (“the year of the fraud offence”), a person who is associated with the body (“the associate”) commits a fraud offence intending to benefit (whether directly or indirectly)—(a) the relevant body, or(b) any person to whom, or to whose subsidiary, the associate provides services on behalf of the relevant body.(2) But the relevant body is not guilty of an offence under subsection (1)(b) if the body itself was, or was intended to be, a victim of the fraud offence.(3) It is a defence for the relevant body to prove that, at the time the fraud offence was committed—(a) the body had in place such prevention procedures as it was reasonable in all the circumstances to expect the body to have in place, or(b) it was not reasonable in all the circumstances to expect the body to have any prevention procedures in place.(4) In subsection (3) “prevention procedures” means procedures designed to prevent persons associated with the body from committing fraud offences as mentioned in subsection (1).(5) A “fraud offence” is an act which constitutes—(a) an offence listed in Schedule (Failure to prevent fraud: fraud offences) (a “listed offence”), or(b) aiding, abetting, counselling or procuring the commission of a listed offence.(6) For the purposes of this section a person is associated with a relevant body if—(a) the person is an employee, agent or subsidiary of the relevant body, or(b) the person otherwise performs services for or on behalf of the body. (7) Whether or not a particular person performs services for or on behalf of a relevant body is to be determined by reference to all the relevant circumstances and not merely by reference to the nature of the relationship between that person and the body. (8) Where a relevant body is liable to be proceeded against for an offence under subsection (1) in a particular part of the United Kingdom, proceedings against the body for the offence may be taken in any place in the United Kingdom.(9) Where by virtue of subsection (8) proceedings against a relevant body for an offence are to be taken in Scotland—(a) the body may be prosecuted, tried and punished in a sheriff court district determined by the Lord Advocate, as if the offence had been committed in that district, and(b) the offence is, for all purposes incidental to or consequential on the trial or punishment, deemed to have been committed in that district.(10) A relevant body guilty of an offence under this section is liable—(a) on conviction on indictment, to a fine;(b) on summary conviction in England and Wales, to a fine;(c) on summary conviction in Scotland or Northern Ireland, to a fine not exceeding the statutory maximum.(11) In this section—“relevant body” means a body corporate or a partnership (wherever incorporated or formed);“sheriff court district” is to be read in accordance with the Criminal Procedure (Scotland) Act 1995 (see section 307(1) of that Act).(12) In this section “financial year”—(a) in relation to a UK company, has the meaning given by the Companies Act 2006 (see section 390 of that Act);(b) in relation to a relevant body that is not a UK company means—(i) any period in respect of which a profit and loss account of the relevant body is required to be made up (by its constitution or by the law under which it is established), whether that period is a year or not, or(ii) if the body is not required by its constitution or the law under which it is established to draw up a profit and loss account, a calendar year.”Member’s explanatory statement
This clause together with new clauses (Fraud offences: supplementary) to (Failure to prevent fraud: miscellaneous), Lord Sharpe of Epsom’s amendments at page 173 lines 21, 33, 36 and 37 and page 315 line 20 and new Schedule (Failure to prevent fraud: fraud offences) provide for a new offence of failure to prevent fraud.

[The Parliamentary Under-Secretary of State, Home Office (Lord Sharpe of Epsom) (Con)]

My Lords, in moving government Amendment 84A, I will also speak to other government amendments in this group, which create a failure to prevent fraud offence. I first thank the many noble Lords in Committee today for their continued engagement on these amendments and corporate criminal liability more generally. These conversations have been robust but constructive, and I am sure that we will have a lively debate today.

Let me start by reiterating the Government’s commitment to reform of corporate criminal liability— CCL—and to tackling fraud. That is why, in 2017, the Ministry of Justice issued a call for evidence; then, in November 2020, the Government commissioned the Law Commission to explore further this area. The Law Commission report was published in June last year. The Government have been reviewing the report and its extensive consultation and working with relevant stakeholders, including prosecuting agencies, to explore options for reform. My ministerial colleagues and I are of course also grateful for the extremely helpful insight and input from various noble Lords in this House and Members in the other place.

The tabling of these amendments to introduce a new failure to prevent fraud offence is a major and tangible demonstration of action. This offence will crack down on fraudulent practices by corporations. It is one part of the Government’s wider fraud strategy, due for publication shortly. Under the new offence, a large organisation will be liable to prosecution where fraud was committed by an employee, for the organisation’s benefit, and the organisation did not have reasonable fraud prevention procedures in place. The new offence will help to protect victims and cut crime by driving a culture change towards improved fraud prevention procedures in organisations and by holding organisations to account through prosecutions if they profit from the fraudulent actions of their employees. We are giving law enforcement and prosecutors the powers they have asked for to tackle organisations that defraud consumers, other businesses, investors and the taxpayer.

The offence has been designed to drive change and facilitate prosecutions without duplicating existing regulation or placing unnecessary burden on legitimate business. It will therefore apply only to large organisations, to avoid disproportionate burdens on small and medium-sized enterprises. A strong UK economy must be an environment that supports people to open and grow businesses. Of course, we encourage small organisations to take steps to prevent fraud and learn from the guidance that the Government publish. There are also existing powers to prosecute them and their employees if they commit fraud, but we need to keep the burden on business in check. The new offence covers fraud and false accounting, while keeping money laundering responsibilities contained under the existing regulatory regime. This ensures that the offence is targeted, focused on offences most likely to be committed by corporations and where prevention can have the most impact, and not duplicative of existing regimes.

The amendments include a statutory duty to publish guidance to set out what would be considered reasonable fraud prevention procedures, making the expectations on business clear. There have been cross-party calls for this measure, both in this House and the other place. I look forward to debating the detail today, but I trust that your Lordships will overall welcome and support these amendments, to ensure that we tackle fraud in corporate bodies. I beg to move.

Amendment 84AA

Moved by

[Lord Fox]

84AA: After Clause 180, in subsection (1), leave out “which is a large organisation”
Member’s explanatory statement
This amendment, along with consequential amendments to Amendment 84C, would extend the Government’s failure to prevent offence to all relevant organisations regardless of size. Instead of allowing the Government to amend or remove the applicability to large organisations, these amendments would apply the offence to all organisations by default, with the Government able to restrict it to large organisations by affirmative resolution.

[Lord Fox (LD)]

My Lords, I rise to speak to the amendments in my name. As the Minister has set out, amendments were brought forward in the other place on Report by Sir Robert Buckland and Sir Bob Neill. The Government undertook to produce their own amendments, which they have indeed done. We should recognise that these amendments, on failure to prevent fraud, are a positive move forward, but they are overdue. Without sounding too churlish, had this offence been in place at the time of the financial crisis, the authorities could have had effective prosecutions during, for example, the Libor and Euribor scandals. So, good news, but there are some qualifications, as set out in my amendments.

The government amendments have a considerably reduced scope in limiting it to large businesses, which was certainly not the intention of the Buckland/Neill process in the other place. As we have heard, there is an exemption for small and medium-sized businesses, but it does not address the fact that SMEs are just as much, if not more, at risk of fraud as big companies. It is just as important to encourage them to have the right procedures in place as it is large companies.

Hence my Amendments 84CA, 84CB and 84CC. Together, they seek to amend the Government’s amendments, extending their failure to prevent offence to all relevant organisations regardless of size. Instead of allowing the Government to amend or remove the applicability to large organisations, these amendments would apply the offence to all organisations by default. However, the Government would be able to restrict it to large organisations by a subsequent affirmative resolution, if experience required them to do so.

The Minister said that small and medium-sized enterprises had been excluded to avoid a disproportionate burden on them. It would be useful for him to explain on what basis that assessment has been made and what evidence there is to support that. We have not seen it, so it would be very useful to know. In my view and that of others, the carve-out for SMEs is short-sighted and unnecessary. The Law Commission did not accept arguments for thresholds to apply to failure to prevent offences in its June 2022 options paper and the House of Lords rejected exemptions for SMEs when scrutinising the Bribery Act 2010. SMEs are not excluded from AML or the National Security and Investment Act, so why have the Government taken this view in this case?

There is also concern that this amendment is limited to offences that take place in the UK or have UK victims. If the offence takes place abroad, in cases where a UK company has failed to prevent fraud and there are no UK victims, UK enforcement agencies would have no grounds to pursue the corporate body. This lack of extraterritoriality is not present in already existing FTP, bribery and tax evasion offences. It is unclear why the Government are creating such inconsistencies in the corporate criminal liability framework. Why have they made this carve-out? There is a lot of expertise waiting to speak on this group, so I will stand aside, except to say that I strongly support Amendments 96, 97, 98, 99, 100 and 101.

[Lord Garnier (Con)]

My Lords, I thank my noble friend Lord Sharpe for the courtesy he has shown to me and other noble Lords in holding meetings, along with his officials, to explain the Government’s case on failure to prevent and the adjustment of the law of corporate liability. It has been very helpful to have some understanding of where they are coming from and where they intend to go. It is fair to say that he was more forthcoming in those meetings than he was in providing an explanation for the SME carve-out this afternoon. I thank not only him but the noble Lord, Lord Fox, for tabling his amendments, which I support, and for his mention of the amendments I have tabled.

The amendments that I have tabled are exactly the same, almost to the semicolon, as amendments that I have tabled not only in this Parliament, since the 2019 general election, to Bills dealing with economic and financial crime, but also to Bills that I spoke to when a Member of the other place. I have taken an interest in how we deal with economic crime since I became the Solicitor-General in 2010. I appreciate that that was a long time ago and that my noble friend the Minister probably did not have a particular interest in the subject all that time ago. None the less, I appreciate that many will find what I have to say unoriginal, not least because I have said it so many times before but also because it aligns with what others on all sides of the House and in both Houses have been advocating for some little while.

I will first deal with the SME carve-out, which is provided for in one of the government amendments. I suppose it is fair to say that half a loaf is better than no loaf and that a bird in the hand is better than two in the bush. However, after nearly 15 years, following the banking crash of 2008-09, the subject of economic crime and corporate misfeasance has been if not on the top of everyone’s agenda every day then certainly close to it. For the Government to come up with a carve-out in the way that they have—bear in mind that we are only talking about failure to prevent fraud at the moment—is disappointing.

What we are here required to understand by Amendment 84C, proposed by the Government, is that if a company or business has a turnover of less than £36 million, has a balance sheet total of less than £18 million and has fewer than 250 employees, it should not be caught by the failure to prevent fraud.

[Lord Leigh of Hurley (Con)]

Two or more of those.

[Lord Garnier (Con)]

My noble friend Lord Leigh is entirely right: you have to pick two of this lucky trio and you are away.

One only has to think briefly about start-up businesses and the pressures that they come under when they may have very few employees and a turnover of much less than the Government indicate to realise that the danger of an associated person committing an act of fraud is not predicated on the size of the company. It is also possible to say that there will be people who will so construct their corporate affairs that each bit of their corporate existence is by some happenstance just below or well below the Amendment 84C cut-offs.

In any event—I have bored my noble friend the Minister with my feeble sense of humour on a number of occasions—there is no similar cut-off for failure to prevent bribery under the Bribery Act 2010 and no equivalent cut-off under the Criminal Finances Act 2017. Although my noble friend tells me that, after much consultation and because they do not wish to impose unnecessary burdens on business, the Government have come up with these numbers, as I think the noble Lord, Lord Fox, indicated, I have yet to hear a reason why they have landed on those figures or why as a matter of principle they have chosen to have a carve-out at all.

Here comes my feeble joke, so stand by. A burglar of five foot four should be prosecuted just as vigorously as a burglar of six foot six. There is no carve-out for small people committing crimes and there should be no carve-out for small businesses that fail to prevent crimes. When the prosecuting authorities—I look with respect at the noble Lord, Lord Macdonald of River Glaven—come to consider whether it is in the public interest, assuming that there is evidence, to initiate the prosecution, no doubt one of the factors that they will take into account is whether it is in the public interest to pursue that prosecution, bearing in mind the small size of the company and the mitigating steps that it took to do its best to avoid an associated person committing a criminal offence.

13:15

One looks at the guidance to the Bribery Act 2010. Throughout that document, there are references to proportionality and essentially, in longer words, to common sense. Is it common-sensical to prosecute a company, no matter what its size, that has done its best to avoid associated people committing crimes of one sort or another? Here we have, out of the blue, not on the recommendation of the Law Commission or of any other sentient organisation that I can think of, a decision to produce the carve-out in Amendment 84C. It seems to me that the Government are missing a trick here and that, in pursuing that amendment, they will send a message, in the modern jargon, to all sorts of bad actors that the way to get around the tedium of complying with the law is just to have a very small company, or at least one that employs only 249 people. I express my deep disappointment that the amendment is before us, just as my noble friend is no doubt disappointed that he has to listen to me talking about it.

The second area of concern is that, although there is some acknowledgement in the Government’s set of amendments of criminal offences other than fraud, we are way short of the list that can be found in the schedule to the Crime and Courts Act 2013, where there are, as I indicated in an earlier session in Committee, approximately 50 criminal offences that have to do with economic crime. Some are as simple as theft and some go right the way through, including fraud, to matters such as false accounting. But in that list are plenty of criminal offences that would be appropriate to add in to the “failure to prevent” regime. If we do not do it now—it is unlikely that there would be a vote in this Committee—I fear that the subject will be revisited on Report, where a Division may loom rather more obviously. I have a suspicion that a well-advised House of Lords might find it convenient to vote in favour of more aggressive reform in this area.

I shall not go on for too long about the principle behind failure to prevent. I have mentioned the SME carve-out, which I think is a mistake, and the limited number of criminal offences covered in the Government’s case by failure to prevent. What we need to be more sensible about is the fact that my noble friend Lady Morgan and her committee have produced a thoroughly thought-through and valuable report, explaining why the Government are not going fast enough and far enough and why this is timely—and, indeed, why we are late—and why this Parliament should grasp this opportunity in its last 18 months or so to move things along. There are plenty of people out there who will be itching to see that we take only a half or a quarter of a step, which would give them that freedom to misbehave. It is time that we did something about it.

I accept that my amendments dealing with the adjustment of the law on corporate criminal liability are there as a wish—I have absolutely no doubt that they will not find the Government’s approval—but they are also proposed as a spur to encourage the Government to make proper, timely and expeditious use of the failure to prevent regime. I know very well that the Victorian identification principle for establishing corporate liability worked well in the 1830s, 1840s, 1850s and 1860s, when most businesses were small in terms of the number of directors—the people who made up the directing mind and will of the company—so it was not as difficult then as it is now, with vast international companies with regional, national and continental boards, to work out where the directing mind and will is to be located. In the Victorian era, you would probably get two or three men—very often two or three brothers—who essentially ran the company, and they were the directing mind and will. If they oversaw a criminal act by the company, it was easy to nail the company.

In 1912, the United States decided that the directing mind and will—the identification principle—was no longer apt to deal with corporate criminal liability and it went across to a vicarious liability system. All things being well, I would advocate support for that system, but we are not going to get that politically and I do not think the legal establishment is yet ready for a vicarious liability system. So the failure to prevent regime is a compromise between Victorian criminal law and the American law of 1912.

I know I am a young man in a hurry, but I think the time has come when this Parliament and this Government should understand that the clock has moved on a bit and we are now ready to change the law of this country to deal with bad actors, who are much cleverer than many of the public authorities they have to deal with. I agree that it is not going to happen today, but we have to get on with it. Report is not far away, so the Government have time to think about this again, and they know that the elected House is keen to see this happen as well. You have only to read the Official Report of the Bill Committee in the other place to see that.

That is enough from me. I apologise for going on so long, but I promise that I shall remain for the remainder of the sitting of the Committee, unlike on Tuesday. I urge my noble friend the Minister to take a deep breath and to accept that if he agrees with me, my noble friends Lady Morgan, Lord Sandhurst and Lord Agnew, the noble Lord, Lord Fox, and, no doubt, other noble and noble and learned Lords, he will never find a friendlier group of collaborators. I urge him—perhaps while nobody is looking—to grasp this opportunity and move corporate criminal law somewhere close to the 20th century, even if he will not come as far as the 21st.

[Lord Browne of Ladyton (Lab)]

My Lords, I associate myself entirely with the remarks of appreciation and thanks made by the noble and learned Lord, Lord Garnier, to the Minister and his team for their engagement on all aspects on the Bill—to the extent that I have been engaged in them, but I think I speak for everyone when I say that.

To summarise in a blunter way what the noble and learned Lord, Lord Garnier, was saying, I suspect that if we in this Committee voted on this issue, and indeed on all the amendments tabled by members of the Committee, the Minister would find himself in a minority of two. My sense—to the degree to which I can be relied upon to have the ear of Parliament—is that, when this comes back on Report, it will not be difficult to persuade a substantial majority in your Lordships’ House to vote for these. There is also a strong echo of support coming from the other House; anyone who has read the Commons Report stage from 25 January will know that there is overwhelming support there for this trend, if not the specifics.

I intend to restrict my remarks to the two halves of the loaf described by the noble and learned Lord, Lord Garnier, but I support all the other amendments. I do not need to go through them, although I may have something to say before I sit down about the amendments from the Select Committee that I had the pleasure to serve on, since for personal reasons I may need to leave the Committee earlier than I would have hoped.

As we have heard, the new clauses are welcome in so far as they impose a duty to prevent fraud in large organisations. Helpfully, the main amendment and consequential amendments from the noble Lord, Lord Fox, would invert the Government’s approach whereby we can amend to remove the applicability to large organisations. I have to say that the existence of that provision suggests that the Government think they may need to do that. Instead, the amendments would extend the Government’s failure to prevent offences to all relevant organisations regardless of size.

If the Bill is to fashion the real cultural change that has been promised, that approach is surely better calculated to achieve a sweeping change, analogous to that achieved by the Health and Safety at Work etc. Act, which has been referred to in debates. It is not just about imposing these measures on the companies and associates themselves, but ensuring that this becomes part of public, business and, in particular, corporate consciousness, empowering individuals to identify and report crime—particularly fraud and money laundering, which are the main crimes being committed in the economic crime environment—they feel is taking place.

In support of the remarks of the noble Lord, Lord Fox, about the vulnerability of SMEs to crime, I shall refer to a couple of headline statistics that could be useful for context. For example, the US-based Association of Certified Fraud Examiners found that private companies and small businesses have the most fraud simply because of the lack of internal controls, which we see as a regulatory burden, but they do not need to be as they would help these businesses to protect themselves from fraud. Fraud was proportionally significantly greater in these businesses than it was in larger companies.

On 25 January, on the second day of Report in the other place, John Penrose’s argument in his intervention on Stephen Kinnock is an interesting one, in that it fundamentally challenges the Government’s assumption about a duty to prevent imposing an unreasonable and unbearable burden upon small businesses. It suggests instead that a simple duty to prevent could not only reduce the burden of criminality but

“sweep away a raft of largely ineffective and deeply costly measures, and replace them with something that is simpler”

and “more effective” for small businesses.

In a statement on 11 April, Spotlight on Corruption stated:

“The carve out for SMEs is … desperately short-sighted and entirely unnecessary … By including this exemption, the government has deprived the corporate sector as a whole of the full benefit of this offence. SMEs are known to be at a high risk of fraud, and encouraging them to have appropriate anti-fraud procedures would not only help prevent fraud, but also better protect them from becoming victims of fraud”.


As Robert Buckland reminded the Minister on 25 January, the 2015 Conservative manifesto

“rightly committed the Government to make it illegal for companies to fail to put in place measures to prevent economic crime”.—[Official Report, Commons, Economic Crime and Corporate Transparency Public Bill Committee, 25/1/23; cols. 1057-61.]

In what respect does that commitment not find an echo in calls to ensure that this failure to prevent is in operation throughout the economy, rather than just in companies that sit above what appears to be an arbitrarily drawn threshold?

The Government’s attempt to draw a false dichotomy between corporates and smaller companies fails to appreciate that all these sectors are inextricably linked. There is no Chinese wall between corporates and small businesses. In terms of fraud and money laundering, money is directed to where its origins and purpose will get the smallest amount of scrutiny. It would be extremely easy for companies to restructure themselves to ensure that they could limbo under the bar of meeting the test of being a large organisation and ensure that they avoid being subject to this duty to prevent. There is certainly no shortage of people out there who seem willing to enable them to restructure their businesses in ways that achieve this objective, directing them to where the origins and purposes will receive the smallest amount of scrutiny.

13:30

As part of the argument that I am pursuing, it may be worth echoing the point made by Susan Hawley, the executive director of the campaign group Spotlight on Corruption. She said that any such exemption would send “entirely the wrong message” that fraud, for example, is not a problem for small and medium-sized enterprises. She said:

“It would be much more sensible … to provide strong guidance for SMEs on what these procedures”

that we appear to be protecting them from should be, rather than

“exempting them from the legislation”.

That would support them and make sure that they can do properly what is expected of them. I had intended at this stage to quote my good friend, the right honourable Margaret Hodge, but I am sure all noble Lords will have read everything she said on 25 January, so I will spare the Committee that.

Before I sit down, as I do not think I will be here later when the relevant group is debated, I say now that I strongly support Amendment 94 in the name of my friend, the noble Baroness, Lady Morgan, who led expertly the Select Committee on fraud, which I had the privilege of sitting on. We made this recommendation unanimously because of the overwhelming evidence we heard from people who understood these risks. They recommended it to us and convinced us. I do not think we had one witness who said otherwise. I may be wrong on that; there may have been someone—maybe a Minister—but we did not hear any credible evidence, anyway.

I know that the noble Baroness will explain it fully, so I do not intend to draw on the evidence, but while I am on my feet, I commend the approach the Select Committee took to its work, led by the noble Baroness and a brilliant group of officials. We were easily persuaded to follow the pathway of the fraud and, in doing so, were exposed to the way in which the crime developed, from conception all the way to the money being taken out of the country and moved around by mules, bank accounts and various other methods. It enabled us to identify where the weaknesses were in that process and where we could direct our recommendations.

If they are not already doing so, I suggest the Government adopt that approach to economic crime, in full, and that they bring to Parliament, if they need to, changes in legislation that will interdict this behaviour at the earliest possible stage of that pathway. If we do that, we will not spend—as we otherwise will—a long time talking about accountability, recovery of money and all the things that are most expensive and difficult to achieve. That is how we could easily save the bulk of the £350 billion that economic crime is costing this country.

[Lord Etherton (CB)]

My Lords, I hope that noble Lords will permit me to speak now, because I may not be able to stay for the whole of the debate on this group. I apologise to those who still have to speak to their amendments. I will comment on two aspects of these amendments. The first is the carve-out for organisations that are not large.

The original legislation that provided for a prevention of crime scenario was the Bribery Act 2010. I was the chairman of the Law Commission when that project began, under pressure from the OECD on the Government because of this country’s poor rating on bribery. As at least two noble Lords have pointed out, there was no carve-out for small organisations. I am satisfied in my own mind that, had we created such a carve-out, it would not have satisfied the OECD. It is important that there be consistency in the law. If there is to be a change from the position on bribery to the position here on fraud, there must be a good reason to do so. To produce inconsistency in broadly comparable situations seems bad law. That is the only thing I wanted to say about that.

As a member of what I am afraid the noble and learned Lord, Lord Garnier, would describe as the legal establishment, I urge some caution in changing the principles of vicarious liability in relation to criminal responsibility for companies. Again, the question of consistency is important; if this is to move forward, we must look at the ramifications across the whole of criminal law, and there has to be a very good reason why this area is selected for different treatment. I know that this is anathema to so many people here, but it would be a good subject for the Law Commission to look at. Of course, it would not be able to do so by Report. However, if the proposal has merit, it warrants a much wider investigation for its impact elsewhere.

[Lord Agnew of Oulton (Con)]

My Lords, first, I congratulate the Government on bringing forward an amendment—it is at least a start. My noble friend the Minister said that he enjoys a lively debate and was looking forward to another one today, so I do not want to disappoint him. I speak as an SME; cut me in half, and that is what I am, and have been all my life. Indeed, my interest in SMEs long predates my noble and learned friend Lord Garnier’s interest in bribery, as I set up my first business in 1978.

My point is that I absolutely understand how SMEs think, so it is not credible to say, “Oh, we must protect them”. For a start, the way in which the categories are set excludes probably 90% of businesses in this country. I cannot work it out exactly, but it is the vast majority of commercial activity, so that makes a nonsense, frankly, of what is being suggested. On the fair application of law, to respond to my noble and learned friend Lord Garnier, a 5 foot 3 inch burglar can do just as much damage as a 6 foot 6 one. There is no logic to that—and I speak not as a lawyer but as a simple businessman.

More profoundly, unless we bring about this culture change, we are not going to get the SME community to think about fraud. If you are a victim of fraud and have the mechanisms in place to detect it because of other people doing it to you, you are far less likely to have it committed against you. All we are doing is creating an artificial bubble for people who are victims. I keep banging on about this figure, but 40% of crime in this country is now economic crime, of which fraud is a large part. So as for the idea that we are protecting SMEs in any way—we are not.

Perhaps the most important element is the professional enabler—the accountant and solicitor. We heard from the noble and learned Lord, Lord Thomas, the other day that the behaviour of the legal profession is not perhaps as pristine as it was 20 years ago. If it can take short cuts because someone looks like a juicy client, then the temptation exists. Only 100 of the 10,000 law firms in this country would have to comply with this carve-out—so that is nonsense, too. Then we come to public procurement. I was procurement Minister, and we have had a great success in government in the last few years, doubling the amount of money going from public procurement to SMEs from £20 billion to nearly £40 billion. If this provision comes in, it will have a kind of freezing effect on government. I know what officials are like—they are very cautious people and, if they feel they are taking a risk by contracting with SMEs because they, in turn, are not doing proper fraud checks, it will be another reason not to use them. So there is that perverse impact.

If we go a bit further, large corporations will find ways round this. They can create separate subsidiaries and they can use all the things we have been talking about, such as different ownership in different jurisdictions, so this will not solve the problem. The point has also been made about inconsistency: bribery has not had a carve-out for SMEs, so why should this? I ask my noble friend to put a cold towel round his head and those of his officials and come up with a credible explanation.

[Lord Vaux of Harrowden (CB)]

My Lords, I, too, welcome the government amendment. It is a step in the right direction, but I think the Minister will hear fairly similar arguments from all of us as to why it does not go far enough—I will be doing the same thing. In simple terms, the offence that the amendment creates is that the company becomes liable if an employee of the company commits a fraud offence with the intention to benefit the company. I am struggling to understand why, if the employee of a smaller company with, say 25 or even 200 employees, commits fraud intended to benefit the company, that company should not be guilty.

At the risk of introducing a new question at this point in the debate, which I am quite pleased to be able to do, I do not understand how this works for groups of companies. Are the numbers calculated on the basis of consolidated figures or, as the noble Lord, Lord Agnew, suggested, could you just create a subsidiary specifically for the purpose of carrying out the fraud? If it is not on a consolidated basis, it cannot make sense at all.

I have worked for both large and small companies in my career and the reality is that it is much more likely that the directors of a small company will know what their employees are up to than those with a big company. They do not necessarily need burdensome processes to know what has happened. They are in the same office, they are walking the same floor and they are hearing the phone calls. In any event, it should be the responsibility of any company to have in place reasonable procedures to ensure that its employees do not commit fraud on its behalf. Frankly, that should be a basic minimum to be allowed to be in business. Because of the defences that are included, all that is required is to have in place

“such prevention procedures as it was reasonable in all the circumstances to expect”,

or to have no such procedures in place if that would be reasonable. Whether those procedures are considered reasonable in all the circumstances will be driven in part by the size and activity of the company. The Government have also given themselves power to provide guidance as do what would be reasonable and they could easily tailor that for smaller companies, so we really do not need to remove them from scope. In the absence of compelling reasons from the Minister, I would be minded to support the amendments of the noble Lord, Lord Fox.

The other element that seems to be missing from the government amendment is any personal liability of the company management. Without this, those who turn a blind eye to fraud can hide behind the limited liability of the company. If someone has been involved in the decision-making process that led to the failure to take reasonable steps to prevent fraud from being carried out on behalf of the company, they should personally be on the hook. Personal liability concentrates minds wonderfully. Finally, as we have heard, the amendment does not deal with the identity doctrine, which the amendment of the noble and learned Lord, Lord Garnier, tries to. Again, why not?

At Second Reading, the Minister, the noble Lord, Lord Johnson, said that this Bill

“will bear down even further on kleptocrats, criminals and terrorists who abuse our open economy, and it will strengthen the UK’s reputation as a place where legitimate business can thrive, while ensuring that dirty money has no place to hide … The Bill will ensure that law enforcement and the private sector have the tools needed to help tackle economic crime, including fraud and money laundering”.—[Official Report, 8/2/23; col. 1250.]

As currently drafted, it does not achieve those aims. The UK, sadly, does not have a reputation as a place where

“dirty money has no place to hide”—

depressingly, the opposite is true. If we want to make a real difference and repair our damaged reputation, we must take genuinely robust steps.

Throughout our debates in Committee, the Government have resisted a whole range of sensible suggestions that would strengthen our fight against economic crime. Here we are again, with a set of amendments from the Government that are just too weak. The suggestions of the noble Lord, Lord Fox, the noble and learned Lord, Lord Garnier, and others would not create a disproportionate burden on businesses but would strengthen our reputation. I am becoming baffled and rather depressed by the Government’s continued reluctance to take genuinely strong action to reduce the levels of economic crime and, without genuinely compelling reasons from the Minister, I will support the noble Lords’ amendments. We have heard many times in our debates that this is a once in a decade opportunity to tackle this. We really have to take it.

13:45

[Baroness Morgan of Cotes (Con)]

My Lords, I will have more to say shortly on Amendments 91 and 94, but I will make some brief points on the Government’s proposed offence. I also take this opportunity to thank the noble Lord, Lord Browne—in case he is not here later—for his support not only for the committee but for Amendment 94.

Like others, I welcome the Government’s proposed offence. As we have heard, it is a long-overdue step in the right direction. My noble and learned friend Lord Garnier set out quite how long he and others have been calling for such an amendment. In looking at this, I was drawn to the fact sheet on the failure to prevent offence published by the Government on GOV.UK, which rightly says:

“Fraud is the most common offence in this country, amounting to 41% of all crime”


in England

“in the year ending September 2022”.

That is absolutely right, but the trouble with this amendment—to introduce a new point, which is quite good, rather than repeating and supporting what everybody else has said—is that, as we found in the inquiry, the 41% referred to in the fact sheet would not, on the whole, be caught by it. That is because the government amendment requires the company whose employee has committed the fraud to have benefited from it. As we will discuss later, the vast majority of frauds are not committed in a way that benefits the company, which often is the platform used to perpetrate a fraud on innocent victims.

My noble friend the Minister mentioned the forthcoming fraud strategy, which I am sure he will be as relieved as the rest of us finally to see, not least because we will all stop asking him when it will be published. I understand that “imminently” really does mean quite imminently, but we are all dependent on the Downing Street grid. However, it is important that we see it before Report, because it will be difficult for the Government to resolve these issues in a way that will keep both Houses happy—as we have heard, the House of Commons wants to see change on this—without seeing that strategy, which will provide part of an answer as to how this country will tackle fraud.

I have talked about why the drafting of this proposed offence is insufficient in requiring an employee or associated person to benefit the company. We have heard much from noble Lords about the small companies exemption. I support the queries raised about why that has been introduced. When listening to my noble and learned friend Lord Garnier, it occurred to me that part of the problem, and perhaps the reason why the Government think it is acceptable to have this exemption and others do not, is that, as we found in the inquiry, there is a total lack of research into who is committing these frauds—the types of companies involved and how big they are—who is benefiting and the size of those companies. The Government need to commission far more research into this whole area.

As we have heard, this offence is about driving cultural change. That is needed in companies of all sizes, not just the very largest. I was struck by my noble friend Lord Agnew’s comment about the significant number of law firms that would be exempted if this exemption were to take place. Speaking as a former solicitor, I think that he is absolutely right. Most solicitors’ firms are tiny; we know that they and others can be enablers of fraud and other economic crime, so to exempt them makes absolutely no sense.

I add my support to calls for, if not reform of the identification doctrine, at least commissioning to look seriously at how this might be changed. The trouble with this offence is partly that in proposing it many years after it was first called for, the Government are late in solving this problem and therefore late in realising just how much corporates have changed. The lack of a directing mind in corporate bodies is much harder to discern in the 21st century than it would have been in the 19th century.

[Lord Thomas of Cwmgiedd (CB)]

May I just briefly make four points? First, as regards exempting small companies, as a director of one or two small companies that are charities, I can see no reason at all why we should exempt them. Your accountant always goes through what measures you have in place to prevent fraud, and it is extraordinarily difficult to understand what the costs are.

Secondly, from the way in which the Bill is drafted, it plainly means a single body corporate. There is a whole host of good reasons why you would structure your corporate activities over a host of different companies. It is critical that, if you are to have a limit, it must include all associated companies. You can see a good illustration of the way this is done in the provisions of the Building Safety Act 2022 that deal with remediation in relation to cladding. The Government dealt with it there because so many SPVs—special purpose vehicles—are used in the property industry, and you simply cannot permit them to be treated separately. Certainly, there are extremely good reasons sometimes to structure your partnerships as a whole lot of separate partnerships, partly to limit your liability for negligence. However, it should not apply in relation to fraud.

Thirdly, dealing with two out of three tests is not sensible. Looking at the way in which you suggest fines be imposed on companies, if you are to go down this route, the variety of the ways in which companies operate is so enormous that if you are to have an exemption, you should catch as many as possible. Again, if you do not have a structure that brings in everyone, the position is more complex.

Lastly, I will say something about the reform of the doctrine of corporate responsibility. Of course, I agree with my noble and learned friend, and former colleague, Lord Etherton that we need to be very careful. However, we are trying to tackle economic crime, and there is therefore a special case to be made for dealing with that. If we say that we have to wait until we have the whole of the criminal law sorted out, although one or two people in this Room may see it in their lifetime—I see that the Minister has a young team behind him—the law moves with incredible slowness in reforming criminal justice, and if we do not go through with this in this Bill, I doubt whether even the young members of the team will see any change, not merely during their time at the Home Office but in their lifetimes. We ought to move now.

[Lord Macdonald of River Glaven (CB)]

My Lords, against the extraordinarily high rate of fraud offending, we have to set the fact that fraud is the most under-prosecuted offence within this jurisdiction. There is no doubt about that, and no doubt that people in the country understand it, are aware of it and are extremely angry about it, particularly victims of this crime. I would hazard a guess that virtually everybody present knows at least one person who has been the victim of a fraud that has not been prosecuted; I know several. That is a lot of people who are not getting justice—on both sides of the transaction, I might say. I therefore welcome this amendment but I am disappointed that SMEs have been carved out, largely because, on the Government’s own figures, no less than 99.9% of businesses in the UK are SMEs. That is a significant statistic when we are considering the size of this carve-out and the impact it is likely to have on the Government’s objectives.

Some comparisons have been made with the Bribery Act 2010, specifically Section 7, and the “failure to prevent” offence in that legislation. Similar arguments about SMEs were made during the debates that led to that legislation, including the claim that if SMEs were included within it then that would impact on their ability to export. I am sure these are the sorts of arguments the Government have in mind when excluding SMEs from this legislation—that somehow it would be too burdensome for SMEs, some of which, to most of us, are very large companies indeed. So it is germane that in 2015, the government survey of SMEs and the impact of the Bribery Act on them found that nine out of 10 had no concerns or problems whatever with the Act, and that 89% felt it had had no impact on their ability to export.

As the Committee has heard, when your Lordships’ House undertook post-legislative scrutiny of the Bribery Act, it concluded that there was no need for any statutory exemption for SMEs from the Act. The Law Commission similarly received submissions arguing that SMEs should be excluded from corporate liability reform. It disagreed and did not recommend any statutory exemption for SMEs. Furthermore, government research on SME adoption of preventive procedures in relation to the Bribery Act found that the average cost for an SME was £2,730, with medium-sized enterprises spending an average of £4,610. These are tiny figures that could not conceivably justify exclusion of SMEs from this legislation on the basis that it would be too burdensome for them. Points have already been made about the extent to which the Government are encouraging the placing of public procurement contracts with SMEs, and that is also highly significant.

Since the noble and learned Lord, Lord Garnier, has raised the question of prosecutorial discretion—it seems only yesterday that he was Solicitor-General, but that may be a sign of my age as much as his— I say in support of him that the amendment as drafted places a great deal of discretion at the disposal of prosecutors. The defence set out under new subsection (3)(b) is:

“It is a defence for the relevant body to prove that, at the time the fraud offence was committed … it was not reasonable in all the circumstances to expect the body to have any prevention procedures in place”.


That is a potential carve-out that would deal with any problem or concern the Government have that the amendment’s impact might be disproportionate on SMEs. For all the reasons I have set out, I do not believe that it would be. I believe the real effect would be to leave whole swathes of business activity completely unaffected by this legislation so that, in effect, fraud would continue—disgracefully, in my view—to be an under-prosecuted offence.

[Lord Cromwell (CB)]

The noble and learned Lord, Lord Garnier, referred earlier to making feeble jokes. Anyone who was here on Tuesday heard my feeble joke for this year, so the Committee will be relieved to know that I am not going to make any more.

I agree with all the previous speakers that the idea of creating a legal cliff edge, with whole, untouched schools of fish swimming in the sea below the cliff, is both problematic and fundamentally pointless. I agree with the noble Lord, Lord Agnew, and the noble Baroness, Lady Morgan, about enablers; we will be coming to that issue later, and it is a real concern. To me, it is rather like saying that SMEs do not need to worry about health and safety or do not need cyber security, and only the big firms do. Both those assertions are patently nonsense, but that seems to be the flavour of what we are faced with here with this cliff edge. I hope the Committee enjoyed my analogy about the fish.

[Lord Sandhurst (Con)]

I apologise for not speaking to the Bill at Second Reading. I was unable to take part because I could not commit to be at both the start and the finish that day. I hope noble Lords will forgive me. I declare my interest as a member of last year’s Select Committee, chaired so ably by my noble friend Lady Morgan, who is sitting beside me.

I shall speak to all the amendments in this group, which are directed globally at the failure to prevent fraud. Some of what I will say now will be relevant to what I will say in respect of Amendments 91 and 94, when I shall be much briefer. It is much easier to get the whole thing over at this point.

Amendment 84A is a start, but I am afraid it is an inadequate start. I wonder, with all respect, whether the Government actually read carefully and understood our committee’s substantial report. The committee heard a welter of evidence from everyone across the whole gamut. It was absolutely plain to us that a vast amount of fraud is happening and nothing is being done.

14:00

Let me set the context. As we have heard, fraud accounts for 41% of all crime against individuals in England and Wales. It costs the economy billions of pounds. In the year ending March 2022, fraud had increased by 25% since the pre-pandemic year ending March 2020. Most fraud happens online; it is very easy. The exponential growth in fraud and scams has been invisible and, as we know and the committee found, fraudsters face little risk of being caught. Online banking and shopping are now mainstream. As our committee said, the tendrils of organised crime groups, wherever they are based,

“are being extended to reach victims in the UK”.

Some 80% of fraud is cyber-enabled. We also know from the evidence that vast proceeds are being used to fund further, different serious criminal activity: human trafficking, the drugs trade and a whole gamut of other things.

We can no longer shilly-shally. Only 1% of law enforcement is focused on tackling economic crime. Digital investigation remains outside the capacity of mainstream policing. The criminal justice system is unable to keep pace with the threat. There has been a general failure to find and prosecute fraudsters. As our committee said,

“we cannot arrest our way out of this challenge”.

Since we cannot catch them, we have to prevent them, so I applaud this amendment for at least aiming to do that but, as others have said, we need a culture change. We found that, for too long, businesses have failed to put in place adequate systems to prevent fraud. They have been allowed to enable and facilitate fraud.

The telecoms sector, which I pick out for reasons that will become clear, has no real incentive to prevent fraud. It gets money from the charges every time a fraudster uses one of its phones. It has allowed the blame to be placed elsewhere. It has to, and could, do much more to tackle phishing emails and texts before they reach their victims. It must be placed under a duty to prevent fraudsters making spoof phone calls using easily accessible technology to manipulate vulnerable victims. It is absolutely plain that the amendment will not bite on them at all because they will not be “associated” persons within the meaning of these provisions. It will not hit them because they are not part of the company. The telecoms company, however, will get a benefit.

Web-hosting providers must prevent fraudsters registering fraudulent website demands. As the committee said in its report:

“The tech sector must slam the brakes on fraudsters using online advertising and social media platforms to reel in consumers”.

It may be that certain provisions in the Online Safety Bill, if suitably amended, will bite on web-hosting providers, but nothing in this Bill or the current Online Safety Bill will get the telecoms companies, to name just one sector. That is a huge gap, as anyone who has received a spoof phone call will know.

Something has to be done. The private sector has to be encouraged with sticks as well as carrots to combat fraud, through the threat of corporate liability, being named and shamed, and by regulatory action. Until all industries that enable fraud fear significant financial legal and reputational risk for their failure to prevent fraud, they will not act, or they will act inadequately.

I shall explain why the Government’s amendment is inadequate—I can do that quite briefly. First, the definition of those classed as associated persons is too narrow. For example, it does not include a person using the services provided by the relevant body from which that body benefits commercially. A fraudster using the telephone pays something to the telephone company. We know that there are hordes of people sending out calls—and, no doubt, they will use artificial intelligence to do it on a vast scale shortly. Every time, the telecoms company gets 5p, or whatever it is, which adds up to large sums of money. But those are not people within the definition of new subsection (6); they are not in that category, as you can see the moment you look at it, but they generate fee income for the relevant body. This is a serious issue and has to be addressed.

Secondly—I need say very little here—Amendment 84C is wrong to restrict applications to so-called large organisations. Many other noble Lords today have explained that, and I shall add nothing more than to endorse them.

In short, there are two major flaws: the limitation to large bodies and the scope of those who are to be within the amendment. To refer to associated persons is fine as far as it goes, but it does not extend to all the people you really need to capture.

[Lord Leigh of Hurley (Con)]

I find some of these amendments tricky, really. Clearly, we are all keen to prevent fraud but I frequently wear the hat of the SME company. I should make the further declaration that I am the director of a number of SMEs and an investor in many more—not many successful ones but, none the less, I put my money in and hope. I have read the Law Commission’s options paper and the briefing papers from the APPG on Anti-Corruption and Responsible Tax, and I have had the pleasure of innumerable discussions with the very persuasive Margaret Hodge and her extremely capable team. Congratulations to them; they have got the Government to move to the much-promised amendments from the other place, the debate on which I read carefully. Clearly, we all want to beef up failure to prevent and the amendments go a long way to doing that.

I broadly support the principle of excluding small companies and I shall explain a bit more about why. However, I agree that the terms here are a bit odd. Needless to say, I am a bit worried about a company with 250 employees turning over only £36 million—it is more bust than small. I suspect, however, that these are EU figures, translated from the euro; I do not how they were arrived at but they may need some polish. They are definitely more “M” than “S”, and thought might be given to restricting ourselves to “S” rather than “M”. Needless to say, one looks at one’s business to see whether one is within scope —and, of course, I was reminded that the problem is with the balance sheet qualification. Ordinarily, I never thought that it would apply but, as fellow members of the Institute of Chartered Accountants in England and Wales will recall, the recent brilliant accounting standards brought in require one to capitalise leases in the balance sheet, meaning that companies’ assets are, frankly, grossly inflated. This definition refers only to gross assets, not net assets, so you will capture many more companies than you thought you might if you stick to that definition. I urge another look at the actual definition, if this route is taken.

It is certainly possible for large companies to develop procedures and systems, but smaller ones are, frankly, stretched with other matters, such as, essentially, how to pay the next payroll and survive. It is not reasonable to expect many of them to stop working, sit down and have a cup of tea and dream up preventive procedures. Of course, business owners do not want to see fraud because, at the end of the day, they will be the main losers. However, I can see lawyers advising on the purchase of massive amounts of belts and braces, given the penalties, which could be a massive distraction from the incredibly challenging job of trying to run a business and make a profit, which is difficult enough. I suggest that we see how large companies cope with the Bill, what it means in practice, what “preventive measures” —the guidance is yet to come—actually means, and then give ourselves the power to bring in small companies if we feel it is appropriate at a later stage, once we see what happens in practice.

I also have some concerns about Amendment 101, on the senior manager responsibilities. Of course, I strongly support measures which are likely to reduce economic crime. However, I note that an assessment produced by the Law Commission on individual criminal liability concluded that

“in principle, directors etc, should not be personally criminally liable on the basis of neglect if the offence is one which requires proof of a particular mental state. Liability for directors on the basis of neglect should be restricted to offences of strict liability or negligence”.

We have some way to go to make me feel comfortable that those are right.

There are other outstanding issues concerning senior manager liability, specifically how this would be monitored and enforced. The legal obligations on senior managers at the moment affect the UK’s competitiveness, particularly when trying to recruit talent at senior levels. So I would be reticent to encourage the introduction of significant legislative change without a broad assessment, which I would welcome, of the likely impact. That means consulting with industry and an official impact assessment that considers international comparisons of the effect, particularly on recruiting senior staff. Therefore, I would welcome some more consultation and consideration of the consequences of this reform.

On the proposed changes to the “identification doctrine”, clearly, amending it is essential to tackle the most egregious intentional behaviour; I get that. Here, of course, it is easier to see that in a small company—the Victorian brothers example—the directors could be guilty of this behaviour and, in an overzealous environment of trying to score wins, they could be prosecuted first, quickly and more easily. However, where you have a company consisting of tens of thousands or even hundreds of thousands of people, can we be certain that the act of a few rogue managers or even one manager a long way down the reporting structure should rightly lead to the sort of punishments suggested in some of these amendments?

That does not sit easily with me, and again, I still want to be convinced that we are in sync with our major international competitors. Let us not forget that while FDI into the UK has historically been very high, it is not now. The UK stock market is out of fashion, and countries all around the world are seeking to attract our businesses to set up offshore. Any legislation we bring in has to be very mindful of that.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I think it falls to me to start the winding-up speeches, but noble Lords will be pleased to know that I will not try to repeat everything that everybody else has said. I declare my interest as a director of both a large company and small companies; I set up my own first business in 1981, so I have spent most of my life as a business owner.

In this group I support the amendments mainly led by the noble and learned Lord, Lord Garnier. I hate to break with the gentle congratulations that have been given to the Government for at least doing something, but having such a weak amendment could well be counterproductive. The Government could think that they have done something when, as has already been exposed by many colleagues, it does very little. It will exempt most companies and it probably will not touch where action is needed most.

14:15

I see no reason to limit this to large companies and, therefore, I support my noble friend Lord Fox’s amendment. Like the noble and learned Lord, Lord Garnier, I have looked at economic crime for a very long time, both previously in the European Parliament and since I have been in this House. I have tried several times to address the problems of the identification regime, which makes it impossible to hold company directors to account, except for small companies where it can be said that the directors are the company. I responded personally to the call for evidence on corporate liability in 2017 and, frankly, I questioned many times why we waited so long after that for anything to happen. It was too large an interval before we got the Law Commission working. I therefore put myself on the hawkish side of law change on these matters, and it is for that reason that I also support Amendments 100 and 101.

We have examples from elsewhere of liability being attributed without having to find fault. Health and safety is the obvious example—you do not think, “Aha! I am deliberately going to make something unsafe”. There is not any intent. With fraud, we have the same situation. In many instances, there is not necessarily the intent of fraud—certainly when it is a case of the enablement, as we will come on to later. There might be the intent to make profit and have customers, in the routine manner of business, but it is negligent then if your products are being used improperly, just as, in health and safety, if somebody harms themselves. We need to concentrate more on making sure that we can look at harm.

I have studied the Law Commission report, which suffers from being cast too much around the existing offences; that is perhaps inevitable, in the context of reviewing those offences. However, it might also be said that the report is in the shadow of the mess that is anti-money laundering. The rules around that have been burdensome, bureaucratic and ineffective. In earlier debates on the Bill, we have touched on that being because we have the international level, the European level and everybody wanting things ruled down. I wonder at times how useful it is to say that the Government must provide guidance. Some guidance is good, just as prosecutors have guidance in order to be proportional, but what tends to happen is that large companies in particular—where you do not know what everybody is doing—say, “Please can we have the procedures and the guidance, so that we will know what everybody is supposed to be doing?” You then get these detailed and complex rules, fit for a large company, which are applied to the small companies whose directors—especially of the very small ones—really do know what is going on. Because of that, they can be caught by the identification doctrine. We need to think about the proportionality of guidance and rules. What is appropriate for a large company will not necessarily be so for medium and small ones.

In a recent meeting with officials, one response as to why only large companies were included was that small companies were already caught more by way of the identification doctrine. I am well aware of that unfairness, but the new offences would amplify it. Large businesses will have a corporate “reasonable steps” defence, while small company directors will be pursued personally. That exaggerates the existing unfairness in the identification doctrine.

I am not quite sure where medium-sized businesses will be in this; they are a bit piggy in the middle. They may well be covered—or perhaps not—but limiting this to large businesses may be a way of ticking a minimising-the-burden box but it also ticks the unfairness box and the limiting-of-effectiveness box. I do not think that that is what the Government would want to say that they have achieved.

The limitation to fraud also troubles me because there are other economic crimes. It seems to originate for two reasons, the first of which is the much-lauded—well, decried—figure of 41%, but as the noble Baroness, Lady Morgan, explained, most of that will not be touched by this because of the whole construct of the amendment. The scourge of scams touches everyone but will fall outside the definitions in this offence. We will deal with that later, in the third group of amendments.

Secondly, the Law Commission was concerned that it might interfere with where there are already offences, such as money laundering, which, in essence, also follows a preventive structure. But it is not beyond our wit to devise legislation that takes account of the guidance and other things that already exist. We have statutory instruments to bring forward other things and it is quite easy to blend them in with what already exists to make sure that there is no duplication. It is not suggested that there should be duplication; you tie it together.

As far as possible, we should have consistency across all economic crime, as has already been argued, because it is all economic crime that burdens the economy, HMRC, good businesses—whether large or small—and the public. That is what we have to address. Those burdens must count more than this notional burden on SMEs. It should not be a burden for companies to do the right thing, protect their own interests and have due regard to protecting their customers and the public. We cannot grow a successful and shared economy on the principles of caveat emptor, spivs and cheating.

Having a few more pages of legislation to read, which change the assessment costs, is not a good reason to exclude either other crimes or sizes of business from the scope of effective legislation. It is a type of legislation which, as the noble Baroness, Lady Morgan, said, aims to bring about culture change and a reduction of offending. It is indeed about catching people, but the big win is culture change and not getting the offences in the first place.

Although it would make sense simultaneously to develop a wider suite of offences for failure to prevent economic crime, and prevention guidance of the form necessary, it is possible to make provision to widen the regime further than has presently been provided for. That approach has already been taken in the context of being able to expand the scope of the size of the business and of the fraud definitions by statutory instrument. Why not use that mechanism, as a minimum, to expand the scope of the crimes that could be covered? That would be relatively easy to draft; I will certainly have a go at it on Report.

A further specific point that concerns me about the drafting—really, these are the same arguments in another form—derives from the Law Commission analysis of the previous offences and therefore the table that it prepared regarding what you expect to see in a “failure to prevent” offence, which is the intent to benefit. That comes from the mens rea and identification. I understand the reasons for that and how it derives from a criminal offence, but that is not always necessary when you are looking at things that veer more towards negligence than towards intent and you are not quite sure where it will be on that spectrum. It is obvious in bribery, where someone is saying, “Here, I’m going to hand you some money”, and it is obvious in the facilitation of tax evasion, where the assumption is that there is connivance in trying to develop a smart scheme to get around something. But for aspects of fraud, it is far less clear because you have to look at where there is asymmetry of information and abuse of power.

To put it bluntly, abuse of power and asymmetry of information are used every day in business—you have only to look at banks’ business lending to see that—but of course you cannot pin down the intent, or if you do then it will be on someone way down the food chain. Anyway, the regulator, the FCA, says that business lending is outside the perimeter. It is fraud in financial services but it is outside the perimeter. We will come on to what regulators are in charge of within their own remits in the next area.

We have to take a much broader view. We have to look at the lessons from things such as health and safety. We have to cover many more of the economic crimes that exist, and we have to get a handle on a “failure to prevent fraud” measure that touches all the parts where fraud occurs.

Overall, I prefer to say to the Minister: please think again. Do not bother with this amendment and come back with better proposals.

[Lord Coaker (Lab)]

My Lords, I thank the Minister for his introduction. Various contributions that have been made show that we should see the Government’s amendments as a starting point, but they have considerable work to do. I have decided that I shall not make the speech I was going to make because that is such an important point.

I support the amendments tabled by the noble Lord, Lord Fox, and the noble and learned Lord, Lord Garnier. I looked again at the report that the noble Baroness, Lady Morgan, brought forward last November, and I have been struck by the point made by the noble Baroness, the noble Lord, Lord Sandhurst, and the noble Baroness, Lady Bowles, about cultural change and how important it is that that is taken forward.

I have two specific questions for the Minister that have not been mentioned in the debate so far. First, I think the Committee’s plea to the Minister is that the Government have an opportunity now to make a real difference through the Bill. As the noble and learned Lord, Lord Thomas, and the noble Lord, Lord Vaux, asked, are we going to miss that opportunity? Are we going to think in a few months’ time, after it has passed, that we had a legislative vehicle by which some of these issues could have been sorted out but this was the Government’s position?

I have been a Member of the other place as well, as have other Members of the Committee, and I know that a Government have not only to look at the votes but to reflect on what is being said. You can tell from the discussions that we all have with our colleagues in the other place that there is a mood for change. To an extent, that has been brought about by what the Government have done but it simply does not go far enough. If the Government set their face against this, whip the votes in the other place and say, “We’re just going to drive this through. We don’t care what the reports have said or what the arguments are. This is where we are”, this will have been a real missed opportunity.

Politically I differ from the noble Lord, Lord Sharpe, but his approach should give this Committee hope. In other Bills that we have debated, change has been brought about by speeches made in Committees such as this one, and indeed by votes lost in the other Chamber.

The Government have to move on some of this—they simply do. I agree that the SME carve-out is flawed and should not be there, and the Government need to move on that; they cannot just set their face against it and say, “Everybody else is wrong and we’re right”. Usually, if everybody is telling you that you are wrong, you are wrong, frankly, whether you are in government or in a family. The Government are being told, in report after report and in interview after interview, by virtually everyone without exception—there may be one—that they have to change. The question is really not whether the amendments are flawed or inadequate or whether a sentence needs changing here or there; government lawyers can sort that out. In Committee the Minister will read out his brief, but between Committee and Report, will the Government at least try to adapt and change and listen to some of the points being made? That is the fundamental question, and that is why I decided that I would not repeat what has been said.

14:30

I support the amendments proposed by the noble Lord, Lord Fox, and the noble and learned Lord, Lord Garnier—they are absolutely right. But instead of repeating the arguments that have been well made by many noble Lords, I challenge the Government by asking whether they are prepared to listen, or will they just drive forward and carry on? I disagree slightly, in that the failure to prevent offence is a step forward, and we have a government amendment. However, it does not go far enough in tackling the very real problems laid out in the report from the noble Baroness, Lady Morgan, and many other reports.

As the noble and learned Lord, Lord Thomas, and the noble Lord, Lord Vaux, said, we are missing an opportunity here, and we will come back with a third economic crime Bill—although I hope not—or with something else to plug the gaps. I cannot tell the Minister how important this is. The truth is—to make my final point before I ask my two specific questions—that the public want us to get a move on. They get frustrated, even though they understand that you have to do things methodically and take everything into account. But everyone knows there is a problem, that this is not working as it stands and that certain businesses and business practices are undermining the vast majority of businesses, which work and function according to the law. Those good businesses want bad businesses and bad business practices sorted out as much as anybody here. The Government have an opportunity to tackle that, and we all worry that we will miss the boat.

I support the amendments from the noble Lord, Lord Fox, and the noble and learned Lord, Lord Garnier, and I know that other noble Lords support them, too. I shall not repeat everyone else’s questions, but I have two additional questions about the Government’s amendments. First, the Government have published a factsheet confirming that the new offence

“will apply to conduct which takes place outside the UK where an overseas organisation or employee commits fraud under UK law or targets UK victims. The specific jurisdictional scope is yet to be determined”.

Can the Minister say a little more about what the problem is and what jurisdictional scope we are talking about? How will that function overseas?

Obviously, the legislation is waiting to become an Act, but the factsheet also says that the offence, in the Minister’s outline, will not come into force without guidance being published and consulted on about what reasonable fraud prevention measures are. That will be the defence for somebody who is being investigated for fraudulent behaviour—they will have a reasonable fraud prevention defence. When does the Minister estimate that all that will be done? Obviously, the offence cannot come into force until all that is done, so what is the timescale for consultation on the guidance, for the guidance be sent back and to be further consulted on, and for businesses to have the opportunity to adapt their practices? How long will it be after the Bill is enacted before the failure to prevent offence comes into force?

Perhaps the Government will say something about my general point. Guidance is mentioned in many places in the Bill but as far as I can see, there is very little information about what much of that guidance will look like. It is therefore difficult for us to comment, because guidance is everything. Often, we get draft lines—even if they are very draft—with Bills, or at least some indication of what the guidance will be. Over the past 15 or 20 years, guidance has become ever more important. Will the Minister consider providing an opportunity, particularly before Report, to see some of the guidance the Government are referring to? That would help our deliberations.

I finish where I started. In the end, the challenge for the Committee is that all these amendments are virtually universally supported here, but what difference will that make to the Government’s thinking on adapting their own amendments before Report, so that we get the Bill we want, because we all want it to be successful?

[Lord Leigh of Hurley (Con)]

Before the noble Lord sits down, will he clarify Labour’s position from the Dispatch Box: that it would be happy with one clause that requires prevention procedures to apply to an extremely large, multinational financial services company, for example, and to a local sweet shop which was incorporated? The noble Lord says that everyone agrees. According to the soundings I have taken from small business organisations, they would not be happy with that.

[Lord Coaker (Lab)]

I said everyone on the Committee —with the possible exception of the noble Lord. I was talking about how people feel about the Bill as drafted, with the carve-out for small and medium-sized enterprises. The noble Lord was referring to something that might include not the small but the medium, and that is a matter for debate, but the general view of the Committee was that the Government’s current carve-out is not acceptable. Where you put the threshold—whether you apply to a little sweet shop at the end of the road with a turnover of a few thousand pounds the same regulation you apply to a multinational company—could be sorted out in regulations, and if we saw them, we could suggest that they take into account the small sweet shop to which the noble Lord referred.

[Lord Sharpe of Epsom (Con)]

My Lords, I thank all noble Lords—too numerous to mention—who have participated in this debate, and I shall try to address all the points put to me, but I apologise if I do not name everybody individually.

I feel I should declare an interest: I have owned and been a director of small businesses, not all of them successful—like my noble friend, Lord Leigh—and to my noble and learned friend Lord Garnier, I declare an interest as a tall man.

I will start with the amendments linked specifically to failure to prevent offences. I welcome the broad support today for the government amendments, which would, I emphasise, cover all sectors, and that includes telecoms companies. I hope that they deliver most of what the other amendments intend. However, I have noted that concerns remain. Obviously, I listened to the debate very carefully, including on the scope and reach of the new offence.

Before I turn specifically to the amendments, I reassure my noble friend Lady Morgan that the fraud strategy really is imminent. She is absolutely right: I am really keen to see it. I say to my noble friend Lord Leigh that his point about accounting principles was very interesting, but the design of the definition of large companies comes from the Companies Act 2006.

I note the wider offence lists put forward in Amendments 96, 97, 98 and 99, tabled in the names of my noble and learned friend, Lord Garnier, my noble friend Lord Agnew, the noble Lord, Lord Faulks, and the noble Baroness, Lady Bennett of Manor Castle. In particular, noble Lords seek to ensure that money laundering is covered by the new failure to prevent offence. The Government have consulted with law enforcement and prosecutors, and we are satisfied that all the priority offences have been included.

We have carefully examined the wider offence list and determined that they are not appropriate to include because they would duplicate existing regimes, cause repetition with other existing offences, are too broad or relate to preparatory offences. It is also worth noting that the Law Commission report published in June 2022 agrees with this. It highlighted that Part 2 of Schedule 17 to the Crime and Courts Act 2013, as Amendment 98 suggests, while a good starting point for considerations, would be too broad.

I turn to the proposed failure to prevent money laundering offence, as in Amendment 99, tabled by my noble and learned friend Lord Garnier. The UK already has a strong anti-money laundering regime which requires regulated sectors to implement a comprehensive set of measures to prevent money laundering. Corporations and individuals can face serious civil and criminal penalties if they fail to do so.

A failure to prevent money laundering offence would duplicate the systems, controls and penalties of the existing regime. Furthermore, it would extend anti-money laundering obligations to organisations with very low risk, which would be disproportionate. Any necessary anti-money laundering measures can be implemented through the existing regime. The Law Commission agreed with this point, noting that any offences to cover breaches of money laundering would create additional positive duties on organisations which would overlap with the duties under the anti-money laundering regime.

The Government’s review of the UK’s anti-money laundering regime, published in June 2022, concluded that existing regulatory requirements allow for businesses to take a risk-based approach to their obligations, meaning their compliance activities can be targeted at areas of highest risk of money laundering and terrorist financing. The review also committed the Government to further analysis and public consultation to identify the best path for reform of the anti-money laundering supervisory regime. Further improvements to the UK’s anti-money laundering framework are therefore best targeted by strengthening and improving the existing regime, rather than by the creation of a new parallel regime. The Government have already committed to undertake further consultation on the anti-money laundering supervisory regime and continue to review the anti-money laundering framework.

Amendment 99 in the name of my noble and learned friend Lord Garnier also proposes a failure to prevent sanctions evasion offence. The UK can already impose a range of criminal and civil penalties against corporations and individuals for breaches of UK sanctions. Powers were strengthened last year when we moved civil penalties for financial sanctions on to a strict liability basis. Introducing a failure to prevent offence would duplicate the existing regime. On the scope of the offences, government Amendment 84B contains a power in secondary legislation to update the list when required.

I turn to Amendments 84AA, 84CA, 84CB and 84CC, on the threshold for the new offence, tabled by the noble Lord, Lord Fox. I thank him for talking me through his concerns last week and I note that most other noble Lords have supported its intention. I will endeavour to set out the Government’s position on this. Our analysis shows that small businesses would be disproportionately affected by the costs of complying with a failure to prevent fraud offence. The total cost to small and medium-sized enterprises would amount to billions of pounds in year one and hundreds of millions in each subsequent year. This would significantly increase the cost of the measure, which is £98.5 million per annum with the threshold included. An affirmative power—

[Lord Vaux of Harrowden (CB)]

If the Government have done some analysis on that, could they share it with us? That would be very helpful.

[Lord Sharpe of Epsom (Con)]

I am happy to investigate whether that is possible. If it is, I will do so.

An affirmative power to add a threshold in future, as proposed by the noble Lord’s amendments, would have limited impact on this burden, with the highest costs already borne should the offence apply to smaller organisations in year one. It is also important that we consider the cumulative compliance cost for SMEs across multiple government regulations, rather than seeing these fraud measures in isolation. Excluding SMEs from the new offence does not mean they can get away with fraud; powers already exist to prosecute small companies, their owners and their employees for criminal acts. It is currently easier to hold these companies to account than larger organisations with complex structures.

The Government’s proposed failure to prevent fraud offence will strengthen powers to tackle fraud by large organisations, ensuring that companies with the biggest customer bases which risk causing the most harm take extra steps to prevent fraud.

We will keep the threshold under review and can amend it through secondary legislation, if required. I know that some noble Lords argue that this power should be used the other way. However, given the potentially chilling impact on small businesses, I hope that noble Lords will agree that it is better to understand the impact on large companies once the measures are implemented, as my noble friend Lord Leigh has highlighted—as well as any trickle-down effect on smaller companies—before applying it more widely. The regulation-making power in the Government’s Amendment 84C enables this approach. The Government therefore firmly consider that the proposed failure to prevent fraud offence strikes an appropriate balance between the crime prevention benefits and the burden placed on business.

14:45

The noble Lord, Lord Browne, and my noble friend Lord Agnew asked about subsidiaries of parent companies. A parent company can still be held responsible for a failure to prevent fraud offence by a subsidiary or one of its employees. The subsidiary is defined as an “associated person” of the parent company; an employee of the subsidiary is a person providing services on behalf of the parent and is, therefore, an associated person.

The noble Lord, Lord Fox, made reference to the Law Commission. The commission identified the inherent unfairness in the current system whereby small organisations are more readily held to account using existing corporate liability offences whilst large multi-national companies evade action due to complex structures. Of course, we encourage small organisations to take steps to prevent fraud and learn from the guidance the Government publish, but we need to keep the burden on business in check.

I thank my noble and learned friend Lord Garnier for tabling Amendment 100, which would reform the mechanism for corporate attribution—the “identification doctrine”.

[Lord Browne of Ladyton (Lab)]

I apologise to the Minister; I should have intervened slightly earlier. If the Minister has data on the likely cost of the extension of the provisions in the Government’s amendment to small and medium-sized enterprises, I think that all Members of the Committee would like to see it, including how it could be disaggregated. To make a proportionate decision, surely it would need to be accompanied by the Government’s estimate of the loss to small and medium-sized enterprises caused by fraud. Given the scale of fraud in this country, it must be significant. Personally, I would like to have the opportunity to compare what this is likely to cost against what fraud already costs small and medium-sized enterprises.

[Lord Sharpe of Epsom (Con)]

The noble Lord makes a good point. As I have said, I will endeavour to find some more figures and share them more broadly. I do not know whether it will take into account the precise analysis that the noble Lord seeks, but the fraud strategy is imminent and it would be strange to publish a strategy without saying what the strategy is there to address. Once again, I am piling all my faith into the fraud strategy—possibly misplaced faith, who knows?

[Lord Agnew of Oulton (Con)]

Can my noble friend confirm the figure the noble Lord, Lord Macdonald, put forward: that about 99% of businesses will be excluded? That was the figure that I found, but I would like to hear that from the Minister, as well as whether he thinks that is proportionate in the carve-out.

[Lord Sharpe of Epsom (Con)]

I am afraid that I cannot confirm that. I do not know, but I will find out.

I will go back to Amendment 100 and talk about the identification doctrine. As noble Lords are aware, prosecuting corporates for serious crimes is challenging, largely as a result of the identification doctrine. This principle dictates that the acts and minds of the individuals who represent the directing mind and will are treated as the acts and minds of the corporate itself. In practice, it can be difficult to determine the “directing mind and will” of a corporation. Large and sometimes opaque governance structures make it challenging to identify a senior manager in charge of specific operations. This means that the current law applies unfairly to smaller business. As set out at Second Reading, the Government are fully committed to addressing this problem and to bringing forward legislative reform to achieve it. However, as noble Lords are aware through the amendments that they have tabled, whereas the identification doctrine currently applies to all crimes, the scope of this Bill can permit reform only for economic crime offences. I am as frustrated about that as other noble Lords.

While this amendment would improve the law for economic crimes, it would not remedy the current issues faced by prosecutors for all other sectors of criminal law. However—and I take a partial deep breath here for my noble and learned friend Lord Garnier—given our shared overall ambitions for reform, I would welcome further conversations ahead of Report on this subject. My officials are working through the list of offences with practitioners to determine whether the offences can be reformed without impacting the wider criminal law. My noble and learned friend will also be aware that we are committed to introducing reforms that can be effectively used by prosecuting agencies over a broad range of business. I am sure that he will also agree that is vital that any unintended consequences or risks be identified and understood. I hope that noble Lords are satisfied that the Government are absolutely committed to reform in this area, but that we want to ensure that any reform can be effectively utilised.

Turning to Amendment 101—

[Lord Macdonald of River Glaven (CB)]

Before the Minister moves to another area, the figure I gave that SMEs account for 99.9% of all companies and business organisations in the UK comes from government statistics—namely, business population estimates for 2022.

[Lord Sharpe of Epsom (Con)]

I thank the noble Lord for that information; I will come back on that.

[Lord Fox (LD)]

Will the Minister go and count them again?

[Lord Sharpe of Epsom (Con)]

Absolutely; I shall get my abacus out. I turn to Amendment 101 on senior managers’ liability for failing to prevent economic crime, also tabled by my noble and learned friend Lord Garnier.

I agree that it is important that individuals, particularly the most senior ones, do not go unpunished for their involvement in committing economic crimes. Prosecutors already have a range of powers at their disposal to pursue decision-makers who enable or commit criminal offences in a corporate setting. This includes the power to prosecute individuals for substantive offending. For example, last year an individual was jailed for 12 years following a Serious Fraud Office investigation into a £226 million fraud.

Additional powers also exist which enable senior managers and directors to be prosecuted where they consent or connive in fraud, theft, money laundering or bribery. A director or manager who is convicted on the basis of their consent, connivance or neglect can be dealt with accordingly by the courts, including being sentenced to imprisonment. Also, under the Serious Crime Act 2007, a person, including a senior manager, is liable for encouraging or assisting the commission of a criminal offence. That includes fraud, false accounting or money laundering—the offences captured by the amendment tabled by my noble and learned friend Lord Garnier. The individual found to be encouraging or assisting the commission of the offence can be prosecuted in the same way as if they commit the offence itself.

This amendment seeks to extend liability for senior managers on a lower basis for culpability than is normally provided for. It would allow a senior manager who takes a decision to be imprisoned for taking that decision, even if the offence is the action of a rogue employee. That would place a disproportionate burden on corporations and their senior management, which is likely to deter legitimate business from seeing the UK as a fair and safe place to conduct business. This amendment is therefore not appropriate.

The noble Lord, Lord Coaker, asked about extraterritoriality. Our approach is focused on cutting crime in the UK and protecting UK victims. As he noted, the powers have sufficient extraterritorial extent to do this, even if the perpetrators or the organisation is based outside the UK. Other countries can take steps to prosecute fraud under their own law. As for the precise mechanics of how it would work, it would be on a case-by-case basis, so it is pointless to speculate.

The noble Lord also asked for more detail about guidance. As he knows, we intend to publish guidance setting out reasonable prevention procedures before the offence of failure to prevent fraud comes into force. It will give organisations clarity about what they need to do. It is important that we engage and consult the right stakeholders in this process and that we engage further with the organisations this will impact. Once the Bill has received Royal Assent, we will start engaging with law enforcement, prosecutors, relevant government departments, public sector organisations, trade associations for businesses, other organisations in scope and other experts to draft the guidance.

We anticipate that the guidance will follow similar themes to those seen in many regulatory regimes—albeit that in this case they are not requirements—and to guidance for existing failure to prevent offences. This includes regular risk assessments to establish the level and type of fraud risks to be addressed; establishing fraud controls and due diligence processes designed to prevent fraud or spot it in the early stages before the offence is carried out; leadership and training to ensure that employees implement controls and create a culture within the organisation that does not accept fraudulent practices as a route to boosting performance and profits; and monitoring and review to ensure that procedures remain effective. I am happy to hold further discussions on this subject at the noble Lord’s convenience.

[Lord Sandhurst (Con)]

I was waiting to hear the tenor of my noble friend’s response. He opened by saying that a relevant body includes a telecoms company. That is not my point. A telecoms company is obviously likely to be a relevant body. My complaint is that those within scope include only associated persons and not the fraudster who actually makes money indirectly or directly by paying charges to the telecoms company. That target is missed altogether by this Bill and the Online Safety Bill. Is it the intention that telecoms companies will continue to have no responsibility at all for spoof calls and so on?

[Lord Sharpe of Epsom (Con)]

We will come on to this in more detail on a later group. Perhaps we should leave the detail of this debate until the third group, which we will get to at some point.

[Lord Vaux of Harrowden (CB)]

The Minister referred earlier to questions about groups of companies and the fact that an employee of a subsidiary would still be an associate of a holding company. That does not address the question that I was asking. Are the thresholds in Amendment 84C on an individual entity basis or a consolidated basis? There is a big difference between the two. A group could happily have a small subsidiary and say, “An employee of that did it, so we are off the hook”.

[Lord Sharpe of Epsom (Con)]

I appreciate the point that the noble Lord was making and apologise for not addressing it more directly. I will refrain from answering that now and will write. I think I know how it is done, but I am not an accountant and I do not want to say something that he will pick apart. If he will indulge me, I will write on that subject with greater clarity to make sure that I am not making a mistake.

I thank all noble Lords for their participation in this debate and for their patience as I have taken them through a fairly long speech on the Government’s positions on these issues. We agree that reform is needed and, as we have made clear, the Government’s amendments represent a major step in delivering it. I hope that further explanation has reassured noble Lords on why we have presented the amendments with the scope and reach that they contain, and that the Government are committed to reform of the identification doctrine. I therefore very much hope that noble Lords will support the government amendments and not seek to move their own.

[Lord Leigh of Hurley (Con)]

I appreciate that my noble friend is at the Home Office, but none the less can he give us a commitment that the Government will look again at the definitions used in the Government’s clause for SMEs? I appreciate that they come from the Companies Act 2006, which themselves were cut and pasted from EU regs, but now that we are out of the EU we are free to choose definitions that suit our circumstances and our institutes’ accounting standards.

[Lord Sharpe of Epsom (Con)]

Yes, I am happy to give that reassurance.

[Lord Fox (LD)]

My Lords, I think I was right at the very beginning not to speak for long on this set of amendments. Your Lordships filled in for me very adequately and expertly.

The Minister came back with a couple of points that I want to refer to. He explained that aspects of the amendments from the noble and learned Lord, Lord Garnier, were not necessary because there would be duplication. It would be helpful for us to understand that duplication. Perhaps between now and Report he could provide a list of all the prosecutions that have happened with the existing legislation, proving that the new legislation would not be necessary, so that we can understand that his point is correct.

He also talked about the chilling effect on small companies. This legislation is designed to chill fraud. Taking up the challenge set by the noble Lord, Lord Leigh, about his perfectly innocent sweet shop, legislation that excludes that sweet shop will also exclude all the other small companies that are perpetrating fraud. The skill is in the proportionate application of this legislation. To pick up the point made by the noble Lord, Lord Coaker, it is also about the proportionate advice that is being given. Not all companies are getting the same level of advice on how they should approach this legislation. There is no one-size-fits-all approach, as my noble friend Lady Bowles said.

15:00

The point about small companies being disproportionately prosecuted is a good one but it comes back to the point of enforcement and enforcement resources, which we have discussed largely due to amendments tabled by the noble Lord, Lord Agnew. If the enforcement authorities had the resources, they would be better able to take on the more complex cases. That is the problem. The problem lies in where enforcement is easiest to deliver; that is the point the Minister made. We have to arm our enforcement authorities and organisations with the resources so that the measures do not have that disproportionate effect.

It is normal for the proposer of an amendment to say that they will go away, read Hansard and come back. I am going to say something else. The Minister needs to go away and read Hansard, as does the Bill team, because a lot of expert advice has been given today which the response from the Minister, pre-cooked and on the hoof as it often is, was not able to take on board. The Minister would be well advised to take that on before we get to Report. That said, I beg leave to withdraw Amendment 84AA.

Amendment 84AA (to Amendment 84) withdrawn.

Amendment 84A agreed.

Amendment 84B

Moved by

[Lord Sharpe of Epsom]

84B: After Clause 180, insert the following new Clause—
“Fraud offences: supplementary
(1) The Secretary of State may by regulations amend Schedule (Failure to prevent fraud: fraud offences) by—(a) removing an offence from the list in the Schedule, or(b) adding an offence to that list.(2) The power in subsection (1) is exercisable by the Scottish Ministers (and not by the Secretary of State) so far as it may be used to make provision that would be within the legislative competence of the Scottish Parliament if contained in an Act of that Parliament.(3) The power in subsection (1) is exercisable by the Department of Justice in Northern Ireland (and not by the Secretary of State) so far as it may be used to make provision that—(a) would be within the legislative competence of the Northern Ireland Assembly if contained in an Act of that Assembly, and(b) would not, if contained in a Bill for an Act of the Northern Ireland Assembly, result in the Bill requiring the consent of the Secretary of State.(4) An offence added under subsection (1)(b) must be—(a) an offence of dishonesty,(b) an offence that is otherwise of a similar character to those listed (on the passing of this Act) in paragraphs 1 to 6 of Schedule (Failure to prevent fraud: fraud offences), or(c) a relevant money laundering offence.(5) The Secretary of State may from time to time by regulations restate Schedule (Failure to prevent fraud: fraud offences) as amended by virtue of subsections (1) to (3) (without changing the effect of the Schedule).(6) For the purposes of section (Failure to prevent fraud) (1), where a fraud offence is found to have been committed over a period of 2 or more days, or at some time during a period of 2 or more days, and that period of days straddles the beginning of a financial year of the relevant body in question, the fraud offence must be taken to have been committed on the last of those days.(7) In this section “relevant money laundering offence” means an offence under any of the following sections of the Proceeds of Crime Act 2002—(a) section 327 (concealing etc);(b) section 328 (arrangements);(c) section 329 (acquisition, use and possession).” Member’s explanatory statement
See the explanatory statement for new clause (Failure to prevent fraud).

Amendment 84B agreed.

Amendment 84C

Moved by

[Lord Sharpe of Epsom]

84C: After Clause 180, insert the following new Clause—
“Section (Failure to prevent fraud): large organisations
For the purposes of section (Failure to prevent fraud) (1) a relevant body is a “large organisation” only if the body satisfied two or more of the following conditions in the financial year of the body (“year P”) that precedes the year of the fraud offence—

Turnover Balance sheet total Number of employees

More than £36 million More than £18 million More than 250.

(2) For a period that is a relevant body’s financial year but not in fact a year, the figure for turnover must be proportionately adjusted.(3) In subsection (1) the “number of employees” means the average number of persons employed by the relevant body in year P, determined as follows—(a) find for each month in year P the number of persons employed under contracts of service by the relevant body in that month (whether throughout the month or not),(b) add together the monthly totals, and(c) divide by the number of months in year P.(4) In this section—“balance sheet total”, in relation to a relevant body and a financial year—(a) means the aggregate of the amounts shown as assets in its balance sheet at the end of the financial year, or(b) where the body has no balance sheet for the financial year, has a corresponding meaning;“turnover”—(a) in relation to a UK company, has the same meaning as in Part 15 of the Companies Act 2006 (see section 474 of that Act);(b) in relation to any other relevant body, has a corresponding meaning;“year of the fraud offence” is to be interpreted in accordance with section (Failure to prevent fraud) (1).(5) The Secretary of State may by regulations modify this section (other than this subsection and subsections (6) and (7)) for the purpose of altering the meaning of “large organisation” in section (Failure to prevent fraud) (1).(6) The Secretary of State may (whether or not the power in subsection (5) has been exercised) by regulations—(a) omit the words “which is a large organisation” in section (Failure to prevent fraud) (1), and(b) make any modifications of this section (other than this subsection) that the Secretary of State thinks appropriate in consequence of provision made under paragraph (a).(7) Regulations under subsection (5) or (6) may make consequential amendments of section (Failure to prevent fraud: minor definitions).”Member’s explanatory statement
See the explanatory statement for new clause (Failure to prevent fraud).

[Lord Sharpe of Epsom (Con)]

I beg to move.

Amendments 84CA to 84CC (to Amendment 84C) not moved.

Amendment 84C agreed.

Amendments 84D to 84G

Moved by

[Lord Sharpe of Epsom]

84D: After Clause 180, insert the following new Clause—
“Offences under section (Failure to prevent fraud) committed by partnerships
(1) Proceedings for an offence under section (Failure to prevent fraud) alleged to have been committed by a partnership must be brought in the name of the partnership (and not in that of any of the partners).(2) For the purposes of such proceedings—(a) rules of court relating to the service of documents have effect as if the partnership were a body corporate, and(b) the following provisions apply as they apply in relation to a body corporate—(i) section 33 of the Criminal Justice Act 1925 and Schedule 3 to the Magistrates’ Courts Act 1980;(ii) section 18 of the Criminal Justice Act (Northern Ireland) 1945 (c. 15 (N.I.)) and Schedule 4 to the Magistrates’ Courts (Northern Ireland) Order 1981 (S.I. 1981/1675 (N.I. 26));(iii) sections 34(2), 66(6AA) and 72D(2) of the Criminal Procedure (Scotland) Act 1995.(3) A fine imposed on the partnership on its conviction for an offence under section (Failure to prevent fraud) is to be paid out of the partnership assets.”Member’s explanatory statement
This amendment supplements new clause (Failure to prevent fraud).

84E: After Clause 180, insert the following new Clause—
“Guidance about preventing fraud offences
(1) The Secretary of State must issue guidance about procedures that relevant bodies can put in place to prevent persons associated with them from committing fraud offences as mentioned in section (Failure to prevent fraud) (1).(2) The Secretary of State may from time to time revise the whole or any part of the guidance issued under this section.(3) The Secretary of State must publish—(a) any guidance issued under this section;(b) any revision of that guidance.(4) Before issuing or revising guidance under this section the Secretary of State must consult—(a) the Scottish Ministers, and(b) the Department of Justice in Northern Ireland.(5) The requirement to consult those persons may be satisfied by consultation carried out before this section comes into force.”Member’s explanatory statement
This amendment supplements new clause (Failure to prevent fraud).

84F: After Clause 180, insert the following new Clause—
“Failure to prevent fraud: minor definitions
(1) This section applies for the purposes of sections (Failure to prevent fraud) to (Guidance about preventing fraud offences). (2) References to a person “associated with” a relevant body are to be interpreted in accordance with section (Failure to prevent fraud)(6).(3) “Financial year” has the meaning given by section (Failure to prevent fraud) (12).(4) “Fraud offence” has the meaning given by section (Failure to prevent fraud) (5).(5) “Modify” includes amend or repeal (and references to modifications are to be interpreted accordingly).(6) “Partnership” means—(a) a partnership within the meaning of the Partnership Act 1890;(b) a limited partnership registered under the Limited Partnerships Act 1907;(c) a firm or other entity of a similar character to one within paragraph (a) or (b) formed under the law of a country or territory outside the United Kingdom.(7) “Relevant body” has the meaning given by section (Failure to prevent fraud) (11).(8) “Subsidiary” has the same meaning as in section 1159 of the Companies Act 2006.(9) “UK company” means a company formed and registered under the Companies Act 2006.”Member’s explanatory statement
This amendment sets out definitions for the purposes of new clauses (Failure to prevent fraud) to (Guidance about preventing fraud offences).

84G: After Clause 180, insert the following new Clause—
“Failure to prevent fraud: miscellaneous
(1) In section 61(1) of the Serious Organised Crime and Police Act 2005 (offences to which certain investigatory powers apply), at the end insert—“(k) an offence under section (Failure to prevent fraud) of the Economic Crime and Corporate Transparency Act 2023 (failure to prevent fraud offences).”(2) In Schedule 1 to the Serious Crime Act 2007 (offences which are serious offences for purposes of serious crime prevention orders)—(a) in Part 1 (serious offences in England and Wales), in paragraph 7, after sub-paragraph (2) insert—“(2A) An offence under section (Failure to prevent fraud) of the Economic Crime and Corporate Transparency Act 2023 (failure to prevent fraud offences).”;(b) in Part 1A (serious offences in Scotland), in paragraph 16J, after sub- paragraph (1) insert—“(1A) An offence under section (Failure to prevent fraud) of the Economic Crime and Corporate Transparency Act 2023 (failure to prevent fraud offences).”;(c) in Part 2 (serious offences in Northern Ireland), in paragraph 23, after sub-paragraph (2) insert—“(2A) An offence under section (Failure to prevent fraud) of the Economic Crime and Corporate Transparency Act 2023 (failure to prevent fraud offences).”(3) In Part 2 of Schedule 17 to the Crime and Courts Act 2013 (offences in relation to which a deferred prosecution agreement may be entered into), after paragraph 27A insert—“27B An offence under section (Failure to prevent fraud) of the Economic Crime and Corporate Transparency Act 2023 (failure to prevent fraud offences).””Member’s explanatory statement
This new clause makes consequential amendments of other legislation in consequence of new clause (Failure to prevent fraud).

Amendments 84D to 84G agreed.

Amendment 85

Moved by

[Lord Alton of Liverpool]

85: After Clause 180, insert the following new Clause—
“Duty to disclose funds and economic resources
After section 16 of the Sanctions and Anti-Money Laundering Act 2018, insert—
“16A Duty to disclose funds and economic resources(1) Any regulations made under section 1 must, for the purposes of preventing an offence under those regulations, make provision requiring designated persons—(a) to report to the Treasury or another competent authority, within three months after such regulations are made or within three months from the date of designation, whichever is the latest, the funds or economic resources that—(i) are currently held, owned or controlled by them within the United Kingdom, and(ii) were held, owned or controlled by them within the United Kingdom six months prior to the date of designation, and(b) to cooperate with the Treasury or other competent authority in any verification of such information.(2) A failure to comply with a requirement in subsection (1) may be considered as participation in activities the object or effect of which is (whether directly or indirectly) to circumvent such requirement.(3) Where a designated person has been convicted of an offence by virtue of subsection (2), a court proceeding under section 6, 92 or 156 of the Proceeds of Crime Act 2002 (confiscation orders) must consider such person as benefitting by the value of any assets concealed through such criminal conduct.(4) Assets concealed as a result of a failure to comply with a requirement in subsection (1) constitute recoverable property for purposes of Part 5 of the Proceeds of Crime Act 2002.(5) Regulations under subsection (1) may also be made in relation to a person who is subject to an International Criminal Court warrant for an offence that would constitute an economic crime in the United Kingdom.””Member’s explanatory statement
This amendment says that sanctions regulations must, for the purposes of preventing an offence under those regulations, require designated persons to disclose all assets they own or control in the UK. Failure to disclose such assets is defined as a form of sanctions evasion, which is already criminalized under UK law, and which could result in asset recovery under the Proceeds of Crime Act.

[Lord Alton of Liverpool (CB)]

My Lords, I apologise for not being able to speak at Second Reading, but I was overseas—I had been invited to speak at the National Assembly in Seoul—and, relevant to this amendment, among the subjects which we discussed was the hacking of cryptocurrency, cybercrime, human rights violations and the failure to apply proper sanctions. North Korea—I declare a non-financial interest as the co-chair of the All-Party Parliamentary Group for North Korea—has produced the original playbook for many of the evasive actions that have been taken by other authoritarian regimes in the world.

In moving Amendment 85, I will try to explain its genesis and why we need to strengthen the sanctions regime. Although it stands alone on the Marshalled List, it is not unconnected to the important issues raised in Committee thus far, especially in relation to amendments debated on Tuesday on anti-money laundering measures and strategic lawsuits against public participation, or SLAPPs. On Tuesday, the noble Lord, Lord Ponsonby, was right to say that the House is fortunate to have the insights and collective wisdom of noble Lords in ensuring that the Bill has what he called “proper teeth”. Amendment 85, which bears the names also of the noble Lords, Lord Coaker and Lord Fox, and my noble friend Lord Stevens of Birmingham, enjoys support from across the House. Significantly, it also enjoys support from all sides in another place. It is designed to give the sanctions regime proper teeth and to deal with dirty money.

I should say that I have skin in the game as someone sanctioned by authoritarian regimes—a distinction I share with the right honourable Sir Iain Duncan Smith MP. He suggested that I meet Dame Margaret Hodge MP, former chair of the House of Commons Public Accounts Committee, who served on the Standing Committee in another place on this Bill. She and Margot Mollat from her office have been tireless in their efforts to build a non-partisan alliance championing greater accountability and countering malign forces which manipulate and enjoy our British freedoms while collaborating in the denial of those same freedoms to millions of people elsewhere.

Subsequently, I met Helen Taylor, senior legal researcher at Spotlight on Corruption, and her colleagues, and Maria Nizzero, a research fellow at the Royal United Services Institute’s Centre for Financial Crime and Security Studies. I draw attention to her important paper, How to Seize a Billion: Exploring Mechanisms to Recover the Proceeds of Kleptocracy, recently published in the New Law Journal. I have also previously met Bill Browder, author of Red Notice, and Evgenia Kara-Murza, the wife of Vladimir Kara-Murza, a British citizen and champion of democracy in Russia who only last week was sentenced to 25 years in jail on so-called charges of treason. In a book published last year, I also detailed our state’s failures to hold to account those responsible for international crimes—notably genocide—and the way in which we persist in doing business as usual with the actors who perpetrate many of those crimes.

Yesterday, I was grateful to the Minister for providing the opportunity to discuss Amendment 85 with him and to explore some of the issues that inevitably arise—everything from proportionality, touched on in the previous group, and capacity for enforcement to European Union requirements on mandatory disclosure. He was accompanied by the able Corrie Monaghan from the Bill team. I was glad to learn from her about the continuing work going on across departments to address the issues raised in the amendment and the Government’s willingness to consider what more might be done. I know that the Minister will try to plug some gaps through Amendment 91A and bring clarity, although I think he himself would say that it does not specifically do anything new.

My Amendment 85 seeks to go further than that by requiring disclosure and enabling asset recovery under the Proceeds of Crime Act where there has been deliberate concealment rather than disclosure. This Committee is well aware that Russia’s illegal and tragic invasion of Ukraine on 24 February last year exposed the uncomfortable reality that our country has been welcoming Russian money and at times facilitating the concealment of illicit funds, earning us the infamous nickname of “Londongrad”. The Minister knows that; I recognise and applaud the Government’s introduction of two welcome pieces of legislation aimed at combating economic crime and enforcing transparency. Their swift legislative action in the form of the Economic Crime (Transparency and Enforcement) Act and this Economic Crime and Corporate Transparency Bill are a good beginning but, as the noble Lord, Lord Coaker, said on the previous group, we must go further.

Amendment 85 would allow the seizure of assets when deliberate attempts had been made to escape the enforcement of sanctions. I should add that, in addition to these important legislative efforts, the Government have imposed sanctions on nearly 1,500 individuals, including 120 oligarchs with a net worth of over £140 billion. However, to put that in perspective, the Office of Financial Sanctions Implementation—OFSI—reports that, in total, just £18 billion of assets associated with Russia’s regime have been frozen since the beginning of the war—compare that with the net worth of £140 billion.

In the meantime, the oligarchs have found increasingly sophisticated ways to weaken our sanctions response: moving assets just before sanctions hit; exploiting loopholes to put assets out of reach; and concealing assets to hinder the enforcement of sanctions. Oligarchs such as Abramovich, for example, were able to bypass the sanctions by handing over their wealth and companies to family members just a few weeks before the sanctions hit. Just before the war began, Abramovich restructured at least $4 billion of his personal wealth and transferred it to his children, who are now the owners of trusts, luxury yachts, private jets and mansions—all out of reach of UK sanctions. Had Amendment 85 been in place, these funds, which by contrast amount to more than the UK’s present commitment in military aid to Ukraine, would not have escaped freezing orders and could potentially have been seized.

I give the Committee another example. Mikhail Fridman’s personal assistant, Nigina Zairova, took control of several entities previously owned by that sanctioned oligarch, including a £65 million mansion in Highgate. She was belatedly sanctioned, but the costs of constantly being one step behind are clear. Recent investigations by Transparency International UK found that luxury homes worth £700 million previously linked to sanctioned oligarchs were not flagged as restricted on the UK property register. I would love to hear from the Minister, when he comes to reply, what is being done about that and what the current position is when it comes to properties on that register.

This is not just about the war in Ukraine. The Minister and I share a passion for and love of Hong Kong. I am a patron of Hong Kong Watch. At an event last night, I pointed out that at least five Hong Kong officials and six legislators who are complicit in the ongoing human rights crackdown currently own property in the UK. I strongly welcomed the Magnitsky sanctions—named for Bill Browder’s lawyer, Sergei Magnitsky, who was tortured to death in pre-trial detention in 2009—but the failure to use targeted sanctions against those responsible for the destruction of Hong Kong’s freedom underlines the case for parliamentary accountability and oversight of the sanctions regime. I find it extraordinary that no Select Committee of either House, or Joint Committee of both Houses, even meeting in camera is able to discuss the nature of the Magnitsky sanctions, including why they are so random and often arbitrary—some are included, and some are not.

Indeed, we even provide red-carpet treatment for officials such as Christopher Hui, who met not just one but three United Kingdom Ministers last week, while his regime has denied Hong Kong BNOs access to more than £2.2 billion of pension savings. A letter signed by 110 parliamentarians, including the noble Baroness, Lady Bennett, who is co-chair of the All-Party Parliamentary Group on Hong Kong, of which I am an officer, urged the Government to undertake an audit of UK assets of Hong Kong and Chinese officials linked to human rights violations. No response has been received and no action has been taken. I hope that, with his customary diligence and commitment, which I applaud, the Minister will attend to that and help us to get a response.

Assets are clearly slipping through the cracks of our sanctions regime, but we do not currently have any legislative tools to seize assets that remain concealed. Amendment 85 proposes a minor but significant change to our current legislation that would put us on the front foot in pursuing sanctioned assets. The amendment has what the noble Lord, Lord Ponsonby, described on Tuesday as “teeth”, and would help us seize concealed assets by expanding the scope of sanctions evasion—evasion is, of course, already a criminal offence in the UK. By extending the definition of what constitutes evasion, we can increase the pressure on those who seek to conceal their assets here.

15:15

Specifically, the amendment would require all designated individuals to declare any assets they control in the UK to OFSI. They would also be required to provide a list of assets held in the six months prior to designation. Failure to disclose these assets within a specified timeframe would be criminalised as a form of sanctions evasion. As a result, undisclosed assets would be made susceptible to seizure using existing procedures under the Proceeds of Crime Act. These procedures already have safeguards in place for courts to ensure that a person is not arbitrarily deprived of their private property. I know that the Minister is rightly concerned about that issue, and I would be too. That would be disproportionate and not in the public interest. I would therefore be very open, if the amendment does not entirely achieve that purpose, to having further discussion with the Minister as we move from Committee to Report to ensure that it achieves that objective.

I address another point raised with me by the Minister yesterday. This amendment would also provide greater transparency about what assets are caught by sanctions, as it places the onus on the sanctioned individual to report their assets to the authorities. This would allow OFSI to ensure better compliance with the sanctions regime and give law enforcement agencies valuable intelligence to tackle evasion. It deals with the capacity issue that many noble Lords have raised.

It is clear that our law enforcement agencies are currently struggling to take effective action against oligarch assets because they lack the time and resources to trace the assets. With this amendment, we would put the odds more in their favour, as the oligarchs would have to disclose their assets upfront. This would help meet the urgent need of targeting sanctioned Russian assets, but the amendment also has within its sights the longer-term need to strengthen all of our sanctions regimes and to enhance the fight against corruption.

I draw to a close by referring to best practice elsewhere. Our allies have already taken steps to move from “freeze” to “seize”. Last year, the European Union introduced a similar duty to disclose sanctioned assets, and sanctions evasion has been standardised as a criminal offence across all member states. The EU Commission has committed to work with international partners to seize more than €19 billion of Russian oligarchs’ funds for the reconstruction of Ukraine. Meanwhile, our Government are asking the taxpayer to foot the bill.

This is not to say that our efforts in support of Ukraine are not highly commendable; it is something I very much applaud the Government for having done. It is something to be proud of that the UK has come only second to the USA in its contributions. In 2022, the UK committed £2.3 billion in military aid, as well as £220 million in humanitarian assistance. However, this amendment would open a potential route to hold to account some of those who have been responsible for all the human misery and economic damage inflicted on so many. They are the people who should pay. Let me underline again that none of the £18 billion has been frozen so far; indeed, none of the £140 billion has been frozen—it is time that it was.

I urge the Minister to continue the discussions about what more can be done and to give serious consideration between now and Report to including this amendment, or something like it, in the Bill as it proceeds to the statute book. I beg to move.

[Baroness Bennett of Manor Castle (GP)]

My Lords, it is a great pleasure to follow that powerful, comprehensive and, I think, highly persuasive speech from the noble Lord, Lord Alton. I will be extremely brief but, given there was not space to attach my name to this amendment, I wanted to briefly offer Green support. I hardly need to declare my position as co-chair of the All-Party Parliamentary Group on Hong Kong, as the noble Lord, Lord Alton, has already done that, but I will do so for the record.

I just want to make two points. I am perhaps slightly less optimistic than the noble Lord, Lord Alton, who said that if we create this law, the sanctioned individuals will declare. However, this amendment would create a weapon to use against them when they do not. So I would perhaps frame that slightly differently. This really relates to the debate on the previous day in Committee when we talked about SLAPPs. We know the limitations—we have just been discussing the limitations of the resourcing and capacity of our enforcement vehicles. It will likely very often be NGOs and journalists who expose this, but if we bring in the anti-SLAPP rules and this rule, we will see the seizures actually happening and the Bill being effective.

Secondly, through this Bill we are aiming—as we aimed with the previous economic crime Bill—to close lots of loopholes. I assume, however, that not even the Minister will say that, once we have done all this, everything will be fixed and we will not have any future problems. As evidence for that, in August last year the register of overseas entities came in and yet the figures show that little more than half the relevant properties owned by overseas companies have been declared.

We in this Committee are looking at making a difference not just in theory but in practice, and that is what this amendment would do.

[Lord Fox (LD)]

My Lords, it is a great pleasure to support the noble Lord, Lord Alton, on this amendment. I have supported him on a number of amendments in other areas, and I have learned not to do too much research because however much you have done, he will have said it by the time you get the chance to say it.

The Government have recognised the importance of asset seizure. Back in the heady days of March 2022, the then Exchequer Secretary to the Treasury, James Cartlidge—he has of course moved on since then—said that the Government were looking at

“how we can go further to crack down on illicit money in British property, including considering temporary asset seizures beyond the freezing regime that we already have in place”.—[Official Report, Commons, 22/3/22; col. 147.]

However, that is not an easy task, and this is a bit more than closing a few loopholes. Many experts have flagged risks relating to seizing assets—I am sure that the Minister will remind us of that when we come to it—particularly without the necessary proof of criminality. For assets belonging to individual oligarchs, concerns have been raised over the rule of law, due process and property rights. In the case of state assets, objections include sovereign immunity—something that I think I mentioned in a previous debate—and the fear that other states may withdraw their reserves. This is a big issue, as the noble Lord, Lord Alton, mentioned. When we focus on the Russian sanctions, for example, we see that the UK has frozen billions of pounds of Russian assets under the sanctions following the invasion of Ukraine. The Office of Financial Sanctions Implementation—OFSI—has reported that £18 billion owned by individuals and entities associated with Russia’s regime has been frozen since the beginning of that war. Some estimates suggest that more than £40 billion could be frozen or immobilised if further sanctions were put in place.

However, assets frozen under sanctions are passive. Funds frozen under the UK sanctions regime cannot be retrieved or repurposed. In fact, these should be returned at the end of the war if sanctions are lifted. Meanwhile, as the noble Lord, Lord Alton, pointed out, the UK is asking the taxpayer to fund the war effort and, no doubt, the repair of Ukraine if and when we get to that point. So, there is quite a lot at stake.

Amendment 85 is a way of trying to do this and cut through the complication relatively simply and ingeniously —for which I claim no credit. It seeks to strengthen the UK sanctions regime and find a route that allows us to recover these frozen assets, which have been concealed in the past. As we have heard, the mechanism we propose would impose a duty on sanctioned persons proactively to disclose all their assets held in the UK and criminalise the failure to disclose such assets as a form of sanctions evasion.

If a sanctioned person fails to declare all their assets and further assets are uncovered by the authorities, they are guilty of a criminal offence—sanctions evasion. Those undisclosed assets may then be seized under the Proceeds of Crime Act 2002. This seizure would be subject to the same safeguards that courts currently uphold in criminal and civil recovery processes, following due process and ensuring that any deprivation of private property is not disproportionate to the public interest in seizing the proceeds of crime.

Given that sanctions evasion is already a criminal offence in the UK, this amendment would be a straightforward way rapidly to scale up assets that may be susceptible to seizure. Adding a requirement to disclose all assets held within six months prior to designation would also capture assets such as those set out by the noble Lord, Lord Alton. It is for these reasons that we support this amendment.

[Lord Coaker (Lab)]

My Lords, I rise briefly to support Amendment 85 from the noble Lord, Lord Alton, to which I have added my name, and to support the comments of the noble Lord, Lord Fox, and the noble Baroness, Lady Bennett.

As my noble friend Lord Ponsonby said, the question for the Government concerns giving teeth to the sanctions regime in respect to designated individuals. If it is not dealt with like this, what do the Government propose to do? There is clearly a gap, sanctioned individuals are finding ways around the law and we are not able to confiscate or seize the assets we want to seize. Criminalising a failure to disclose as a form of sanctions evasion, so that those assets can be seized, as referred to by the noble Lord, Lord Alton, is a very important step forward. Although this is just one amendment, Amendment 85 is really important.

As I said, if the Government do not believe that this amendment is appropriate, what are we going to do about the situations and individuals the noble Lord, Lord Alton, spoke about, and the huge sums of money, which are beyond the scope of the British state to collect from individuals? We all think we should be able to do something about that.

Just so the noble Lord does not feel on his own in being sanctioned, I am sanctioned as well, so we are in good company, as is the noble Lord, Lord Faulks. We could have a sanctions party here.

[Lord Leigh of Hurley (Con)]

I join the sanctions party. I rise to say that, as this amendment has the support of Cross-Bench, Lib Dem and Labour Peers, I add my support, even if I missed out on adding my name to those proposing it.

[Baroness Altmann (Con)]

I too add my support, as a further person in the sanctioned party. I congratulate the noble Lord, Lord Alton, on moving this amendment and on his excellent speech. I also congratulate him on all the work he does in some most important areas.

[Lord Sharpe of Epsom (Con)]

My Lords, I thank the noble Lord, Lord Alton of Liverpool, for his amendment and for his kind words. I echo the words of my noble friend Lady Altmann about his work in so many areas. I also thank the others who have spoken in this brief debate—the noble Baroness, Lady Bennett, the noble Lords, Lord Fox and Lord Coaker, and my noble friend Lord Leigh.

I reassure the noble Lord that the Government are sympathetic to using frozen funds to assist with Ukrainian reconstruction. Currently, government authorities have the powers to utilise various enforcement tools to investigate breaches of sanctions and, in criminal cases, to confiscate relevant assets. As has been noted, that has resulted in over £18 billion of Russian assets being frozen in the United Kingdom.

The Government are also considering lawful routes to making Russian assets available for Ukrainian reconstruction. We must ensure that any solution is legal, safe and robust, and we will continue to work with G7 partners to make progress.

15:30

In answer to the question about how the register of overseas entities has been used for sanctions, beneficial owners are required to state whether they are a designated person within the meaning of Section 9(2) of the Sanctions and Anti-Money Laundering Act 2018 where that information is publicly available. This is displayed publicly on the register of overseas entities and is then used by relevant law enforcement agencies as necessary.

The Government also have a range of powers to ensure that there is transparency around assets held by designated persons in the United Kingdom. Each year, OFSI—the Office of Financial Sanctions Implementation —publishes an annual review which includes details of assets frozen under UK financial sanctions, most recently in November 2022. Relevant firms, for example financial firms, law firms and estate agents, have an obligation to report to OFSI information concerning funds or economic resources belonging to or owned, held or controlled by a designated person or where they have cause to suspect a sanctions offence has been committed. Those relevant firms are under that obligation to deliver the information as soon as practicable.

On receipt of these reports, OFSI carries out a review to update its records to reflect any changes to these assets during the reporting period, and it does not disclose its specific processes for the implementation of sanctions and monitoring of frozen assets, to avoid either prejudicing those processes or assisting those seeking to circumvent financial sanctions—or commit other criminal sanctions offences.

We are exploring options to continually improve transparency around assets held by sanctioned persons. This includes considering potential routes to mirror the EU’s mandatory disclosure proposal in UK legislation. However, the noble Lord’s amendment is not guaranteed to increase the scope for, or the volume of, deprivations of assets held in the UK. The Government believe that the amendment as currently drafted does not make it clear how proportionality and enforcement issues would be addressed. This is critical, as all noble Lords have noted, in the context of a measure that proposes permanent deprivation of assets or property.

Before committing to any legislative change, we must carefully evaluate any possible operational, legal or implementation challenges to the successful delivery of this measure. Any investigations will require significant resource from the enforcing agency. We must ensure that it would be a proportionate and effective use of its resources relative to any impact it would have. As I have set out, I am not convinced that this amendment as drafted would achieve this intention.

If I may digress briefly to answer the noble Lord’s questions on Hong Kong, we will continue to consider designations under the Global Human Rights Sanctions Regulations, but we do not speculate about future sanctions designations as to do so could reduce their impact. Sanctions are just one tool at our disposal. The noble Lord will be well aware that, as a demonstration of our commitment to Hong Kong and its people, the UK has opened its doors to the people of Hong Kong who are looking for a home where their fundamental rights and freedoms are respected, via a bespoke immigration channel. We have suspended the UK-Hong Kong extradition treaty indefinitely and extended the arms embargo applied to mainland China since 1989 to include Hong Kong.

As regards the audit of Hong Kong officials located in the UK, all relevant factors are considered when deciding whether to pursue any potential designations. Guiding considerations include whether the available evidence demonstrates that the relevant designation criteria are met and whether designating will help achieve the objectives of the relevant sanctions regime. I hope that answers the noble Lord’s questions.

I am under no illusions that these discussions will continue—I say to the noble Baroness, Lady Bennett, that even Ministers get that. However, given those reasons, I respectfully ask the noble Lord to withdraw his amendment.

[Lord Faulks (Non-Afl)]

Before the noble Lord sits down, during the passage of the first economic crime Bill, when the question of sanctions was discussed, much reference was made to the very lengthy Explanatory Notes which accompanied that Bill—the longest I have ever seen—particularly as regards the human rights implications of depriving people of their assets in the sort of way that the noble Lord, Lord Alton, envisages in his amendment, in particular A1P1 of the European convention and various other rights. Is it part of the Government’s position that the sort of suggestions made in this amendment are in fact stymied or may be frustrated by the provisions of the European convention and the Human Rights Act?

[Lord Sharpe of Epsom (Con)]

The noble Lord has strayed into an area with which I am not familiar. I shall have to write to him.

[Lord Alton of Liverpool (CB)]

My Lords, I think that the whole Committee would be interested to see the reply that the noble Lord receives from the Minister on that point.

I thank all noble Lords who participated in this short debate, including the noble Baroness, Lady Bennett, and the noble Lords, Lord Faulks and Lord Coaker, and thank the noble Lord, Lord Leigh, and the noble Baroness, Lady Altmann, for their brief but helpful interventions. I thank her especially for her personal remarks.

On Tuesday, some noble Lords will have seen sitting with me in the strangers’ area at the back of our proceedings a young man called Sebastian Lai. His father, Jimmy Lai, is incarcerated in a prison in Hong Kong. He had confiscated from him Apple Daily. He was a journalist, media owner and the leading voice for the pro-democracy movement in Hong Kong. Imagine how that family feel as their father, a British citizen, languishes in a jail in Hong Kong—likely, at the age of 75, to die there—knowing that some of those responsible for what has happened to him and who have brought about his incarceration in what is, and I use the word deliberately, a complete corruption of the once illustrious legal system in Hong Kong, have properties, portfolios and massive assets in the United Kingdom. It is high time that we took this issue even more seriously than we have hitherto.

I was not saying this for purely rhetorical reasons earlier—I mean it when I say that I know that the Minister is passionate about people such as Jimmy Lai and the terrible things that have happened in Hong Kong. I was pleased that he did not rule out the possibility that we might be able to overcome some of the issues, particularly around proportionality, which he raised and which we discussed yesterday—and maybe the need for other safeguards, perhaps to deal with the issue that the noble Lord just raised. I hope that, therefore, he will agree to a meeting with some of the legal team that I have met from Spotlight on Corruption, RUSI and the others to which I referred earlier. Sanctions must not just be about virtue signalling—they have to be real and have the teeth to which we have referred in today’s debate.

I am grateful that the noble Lord has not ruled out doing more, but I hope that what more we do will be truly effective and that we will pause and consider further action between now and Report. Perhaps a meeting could even be arranged in the margins of this Committee, where we can discuss this together, for those who are genuinely interested in finding a solution. Perhaps we could invite some of the Members from another place who are so interested in this issue, too. I know that the Committee has a lot of other business to attend to. On that basis, I beg leave to withdraw the amendment.

Amendment 85 withdrawn.

Amendment 86 not moved.

Schedule 9: Economic crime offences

Amendment 86A

Moved by

[Lord Sharpe of Epsom]

86A: Schedule 9, page 315, line 20, at end insert—
“20A_ An offence under section (Failure to prevent fraud) of this Act (failure to prevent fraud).” Member’s explanatory statement
This amendment is supplementary to new clause (Failure to prevent fraud). It adds the new offence of failure to prevent fraud to the list of offences that constitute “economic crime” for the purposes of clauses 175 to 178.

Amendment 86A agreed.

Schedule 9, as amended, agreed.

Amendment 86B

Moved by

[Lord Sharpe of Epsom]

86B: After Schedule 9, insert the following new Schedule—
     “SCHEDULE 10FAILURE TO PREVENT FRAUD: FRAUD OFFENCESCommon law offences
1_ Cheating the public revenue.2_ In Scotland, the following offences at common law—(a) fraud;(b) uttering;(c) embezzlement.Statutory offences
3_ An offence under any of the following provisions of the Theft Act 1968—(a) section 17 (false accounting);(b) section 19 (false statements by company directors etc).4_ An offence under any of the following provisions of the Theft Act (Northern Ireland) 1969—(a) section 17 (false accounting);(b) section 18 (false statements by company directors etc).5_ An offence under section 993 of the Companies Act 2006 (fraudulent trading).6_ An offence under any of the following provisions of the Fraud Act 2006—(a) section 1 (fraud);(b) section 9 (participating in fraudulent business carried on by sole trader);(c) section 11 (obtaining services dishonestly).”Member’s explanatory statement
This new Schedule sets out the list of “fraud offences” for the purposes of new clause (Failure to prevent fraud).

Amendment 86B agreed.

Clause 181: Law Society: powers to fine in cases relating to economic crime

Amendments 87 and 88 not moved.

Clause 181 agreed

Clause 182 agreed

Amendment 89 not moved.

Clause 183: Regulators of legal services: objective relating to economic crime

Amendment 90 not moved.

Clause 183 agreed.

Clauses 184 and 185 agreed.

Amendment 91

Moved by

[Baroness Bowles of Berkhamsted]

91: After Clause 185, insert the following new Clause—
“Regulatory failure to prevent economic crime and failure to prevent facilitation of economic crime
(1) The Secretary of State may by regulations—(a) confer on any supervisory or regulatory bodies a duty to prevent economic crime and to prevent facilitation of economic crime within their supervisory or regulatory scope;(b) establish an offence of—(i) regulatory failure to prevent economic crime; and(ii) regulatory failure to prevent the facilitation of economic crime.(2) Regulations must be made within 18 months of the day on which this Act is passed conferring duties under subsection (1)(a) and creating offences under subsection (1)(b) in respect of—(a) OFCOM and other regulators of communication platforms including telecommunications;(b) financial services regulators;(c) the Financial Reporting Council in respect of auditors;(d) the Solicitors Regulation Authority and other relevant regulators of legal representatives;(e) the Institute of Chartered Accountants in England and Wales and other relevant regulators of accountants.(3) Regulations must be made in respect of any other regulator that notifies the Secretary of State that they wish to be bound by such duties, within 18 months of such notification.(4) Regulations under this section may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.”

[Baroness Bowles of Berkhamsted (LD)]

My Lords, the amendments in this group were inspired by the work of what we call in shorthand the Fraud Act review committee, chaired by the noble Baroness, Lady Morgan. Several members of the Committee were also on that Select Committee. At Second Reading, several of us spoke ahead of the noble Baroness and stole her thunder, so I am going to—

[Lord Fox (LD)]

Do the same again.

[Baroness Bowles of Berkhamsted (LD)]

In order not to do the same again, I will concentrate mainly on the mechanics of this first amendment, which is a regulatory failure to prevent amendment. Both amendments in the group are targeted at the same issue—that is, enablers or suppliers of services where the perpetrators, the fraudsters, as has already been explained in the earlier group by the noble Baroness, Lady Morgan, are not associated with the company. Largely, they will be customers, so they fall outside many of the provisions of the failure to prevent regime, as has already been discussed.

In the Select Committee, as well as recommending a failure to prevent criminal regime, we saw the benefit of regulators having powers to intervene, and we broadly favoured there being a comparable regulatory failure to prevent regime. We did not actually say that it was a recommendation because, at that stage, from the evidence that we had heard, we were led to believe—I think this is clear in the report—that the Online Safety Bill might provide a similar result. It is now clear that that is not the case, certainly not with regard to the telecoms operators, so I have tabled this amendment. My amendment has been put in what I call a “sunrise” form where the detail comes from the statutory instruments, which would enable the Government to do the right kind of consultation and specifically tailor the regimes. It could also be done in the light of deferring to whatever happens in all the relevant Bills presently going through, because there are aspects covered in the Financial Services and Markets Bill and the Online Safety Bill as well as this one.

The issue that we are aiming to cover is where the services provided by others are used for fraud, not in active participation by the service provider but in the passive sense, and they are not intervening even when they know that their services are being abused. Email, phone and text scams are the notable examples. While banks have been on the front line of defending against scams and are paying compensation where people have been tricked into transferring money—which is also now being legislated for—it is fair to say that we on the Select Committee were shocked by the complacency of the telecoms companies in particular. We were not convinced that enough, or indeed anything, was really being done. It seemed to be deliberate negligence; there is no other way to explain it.

My amendments would enable the Government to confer on regulators a duty and a power relating to failure to prevent and failure to prevent facilitation of fraud. I am sure that the Minister will say that regulators generally have powers concerning fraud in their sectors already; the Law Commission’s report referenced the case of sewage discharges and Southern Water. However, fraud is not generally stated in regulators’ headline duties. For example, it does not appear in the objectives or principles of the Financial Conduct Authority, which claimed in the instances of fraud around the RBS Global Restructuring Group to be powerless to intervene, although fraud was pretty clear, because business lending was outside the scope of the regulatory envelope.

15:45

It should be put beyond doubt—which, I am afraid, means writing it into legislation—that regulators can all have a duty relative to fraud in their remit. If that is not put in, such as in the case of the FCA, they can establish their own restricted interpretation of where they will investigate. Perhaps they will have to harness their resources; they do not necessarily have to be hugely active in the supervision to dig out the fraud but, when it is discovered and becomes apparent, they must have the powers to act—and use them. We have run up against that issue several times with the Financial Conduct Authority and I do not think for a minute that it would be different with other regulators.

I suggest that regulators have a duty to prevent fraud and other economic crime and its facilitation within their industry. My amendment would enable the Secretary of State to confer this duty on any regulatory or supervisory body and the creation of corresponding regulatory offences. I have suggested that this must happen within 18 months for certain key regulators where there is a perceived danger. The Secretary of State would be enabled by my amendments to do this for any regulator but, if a regulator should wish it, then it could go to the Secretary of State and ask for it to be brought forward for its sector. The intention is that any regulation could be cross-referenced, as I suggested, to already established provisions. That could include linking to provisions in the Bill relating to the Solicitors Regulation Authority. I do not want duplication but would like some uniformity in the provision of these powers and the corresponding rules.

I am not suggesting that a regulatory offence in any way negates having a criminal offence. Both are needed and should be pursued, but the regulatory intervention can be faster, cheaper and more flexible. When it comes to responding to abuses of services by fraudsters, for example, the regulator can draw attention to an issue first, warn the industry and expect action and precautionary measures within a reasonable amount of time. That process will not always necessarily happen in the absence of this duty and power. It will lend heft to regulatory nudges and can deal with economic crime where the amounts involved individually are smaller than justifies the cost of a criminal prosecution. If many people are being defrauded of small sums, prosecutors will not find getting the evidence and proof for those small sums cost effective, but a regulator would be well placed to do it.

My key point is that we must ensure that regulators are empowered and incentivised. I will leave the criminal side to the noble Baroness, Lady Morgan. I beg to move.

[Baroness Morgan of Cotes (Con)]

My Lords, it is a pleasure to follow the noble Baroness, Lady Bowles, who, along with other noble Lords, made an excellent contribution to the work of the fraud inquiry, which I will return to in a moment. For the sake of good order, I declare again my interests, which are as a non-executive director of the Financial Services Compensation Scheme, chair of the Association of British Insurers and a non-executive director of Santander UK.

I will speak first to Amendment 91, which has just been so ably moved. I do not wish to duplicate or repeat but, exactly as the noble Baroness said, Amendments 91 and 94 are grouped together because they are about the services or channels being used for the commission and perpetration of fraud on victims. I entirely take her point that the ability of the regulators to have “failure to prevent” offences would be faster, while criminal sanctions and penalties for the offence potentially take time to bed in.

However, I will confine my remarks mainly to Amendment 94 so as not to detain the Committee too long. It was a huge pleasure to be asked to chair the House of Lords Fraud Act 2006 and Digital Fraud Committee inquiry last year. I thank all my fellow members of the committee and our truly excellent staff, who worked over and above—committee members are nodding—and made a significant contribution. I also thank all the witnesses and those who gave evidence.

It is a thick report—if you are suffering from any sort of insomnia, it might help, or it could work as a doorstop—but we took a deliberate decision to make it comprehensive, rather than just talk about certain areas. I have had very positive feedback from outside, with people saying that, for the first time, it brought together the problem of fraud, particularly digital fraud, and the way in which the whole chain works. That was exactly what we wanted to look at. It was deliberately called, Fighting Fraud: Breaking the Chain, because, as we have heard, there is a whole chain involved before we get to the fraudsters potentially realising their proceeds. On page 23, we set out the whole chain, starting with the inbound route, which includes phishing, smishing and fraudulent advertising; then the interaction, which includes number spoofing, social engineering and fraudulent websites; before you get to the cashing out, where the money moves, perhaps via mule accounts, to the fraudsters.

As we heard in the debate on a previous group—I will not repeat it—the reason we are talking about these amendments, apart from their being long overdue, is that we will not crack down on or stop the UK being the fraud capital of the world, which I am afraid it is at the moment, if we do not go right upstream and prevent the frauds happening in the first place, rather than just dealing with the consequences at the end. This has already happened in some ways, with the introduction of chip and PIN technology in cards a number of years ago, which cut down on the number of fraudulent transactions. It is possible to get ahead of these things, but it requires looking at the whole system.

There is an extremely good article in today’s Financial Times by the head of Demos, which generally asks: why do we, as a country and a Government, not prevent problems as opposed to just dealing with them as and when they occur? As we heard from the noble Lord, Lord Coaker, we have a real opportunity with these amendments and debates to prevent people becoming victims of fraud, rather than just dealing with it at the end.

We have heard that 41% of crime in England and Wales is fraud. Paragraph 4 of the report states:

“In the first half of 2022, it is estimated that over 40 million UK adults were targeted by scammers and data shows that a total of £609.8 million was lost to all types of fraud”.


Over 40 million adults were not necessarily defrauded but targeted, and the argument for this amendment and Amendment 91 is that, unless we deal with the contact by the fraudsters, we will not prevent fraud, and more people will become victims.

We have not yet talked enough in this debate, although it has been talked about before, about the impact on those who are defrauded—the victims. I know from when I chaired the Treasury Select Committee in the other House and from this inquiry that the testimony of victims is always incredibly powerful. Sometimes, as we heard in some evidence, because fraud does not “bang, bleed or shout” it is regarded as somehow a victimless crime. But for those to whom it has happened—not just elderly people, as it is commonly believed, but right the way through the age groups—there is a loss of trust when you are defrauded, particularly in your bank but also just generally in the messages that you receive; we know about scams whereby people pretend to be members of the family. After that, it is difficult to learn to trust again any information that you receive in WhatsApp messages, text messages or phone calls. So I appeal to the Minister and the Government: if, as we have heard, we do not take action on this and pass a comprehensive “failure to prevent” offence, that will be a missed opportunity not just for us and the country but potentially for 40 million or more people who will be targeted by scammers in future.

I turn to the amendment. The important difference between this and the government amendment in particular is that our draft—I thank the noble Lord, Lord Vaux, the noble Baroness, Lady Bowles, and my noble and learned friend Lord Garnier for adding their support—would not require the company to benefit from the fraud that had been committed or attempted to be committed. The company or channel would not have to be the victim of the fraud. We also cover having officer liability as well as the company.

My noble friend said he was going to return to the issue of telecoms companies in this part of our proceedings. The point is that telecoms companies and social media platforms are an important early part of the fraud chain. That is where people are first contacted and are then often taken off those platforms or services and put into further contact, which is where they pass on their details and ultimately get defrauded.

We have heard why Ofcom is going to be an important regulator. In March it published important research that said:

“Nearly 43 million UK adult internet users have encountered suspected scams online … Among those who had experienced an online scam or fraud, nearly a quarter (23%) first encountered it on social media—the second most common channel after email … Potential victims were most commonly contacted via a direct message, or a mass message posted to a group … A fifth were reached through online advertisements … while others were targeted through user-generated and influencer posts or videos”.


This area—of fraudsters using these channels to contact people—is only going to grow. My noble friend Lord Sandhurst has already asked about telecoms companies, which are responsible for many of the smishing texts. My suspicion is that the Online Safety Bill will not catch telecoms companies or emails. It potentially does not catch those internet service providers that host fraudulent websites. The position is unclear about intermediary sites such as Airbnb and Amazon, which people use in order to post, if not a fraudulent advertisement, then enough information to inveigle a potential victim into ultimately sharing their details.

I am not going to labour this point, but the need for cultural change is very real. In the report—and this is the reason why we are talking about these companies—we say:

“Until all fraud-enabling industries fear significant financial, legal and reputational risk for their failure to prevent fraud, they will not act. Companies continue to play their part in public-facing talking shops whilst at the same time relying on individually managed consumer awareness campaigns that shift the blame onto victims”.


I hope the Minister has a look at this report, although I know he is a busy person. Paragraphs 520 and 521 are relevant here. We say:

“Some sectors have less liability for fraud than others and are not held to account effectively for their role in facilitating this crime. We recognise that the role of failure to prevent offences is primarily to inspire behaviour change rather than criminal prosecutions”.


Behaviour change and cultural change are very important, and they are what noble Lords are saying today that they want to see.

16:00

I am not going to go on for ages. I am sure that others will speak and I think that the Minister has got the message by now about how the Committee feels this afternoon, but I want to make a suggestion to him, because I am also in the business. When I chaired this inquiry, I did not want to publish a report that just sits on a shelf and gathers dust—I am sure that noble Lords who were a part of it did not want to either. This will be answered in part by the fraud strategy, which we are due to see. It does not just cover “failure to prevent” offences, but that is important for the reasons already outlined. I want to see some action on this. It would be good for this Parliament, this House and the Government to be shown to be taking real action on an issue that affects so many millions of people.

I therefore say to the Minister: as the noble Baroness, Lady Bowles, has already outlined, there are a number of Bills going through the House at the moment that touch on this area. There is this Bill, the Financial Services and Markets Bill and the Online Safety Bill, and I am sure that there will be others as well. On page 22 of the report, we set out what we call “common fraud typologies”: advance fee fraud; banking and credit fraud; business fraud; charity fraud; customer fraud; cyber fraud; investment fraud; insurance fraud; pension fraud; and telecoms fraud. I am sure that there are more. I suggest to the Minister—I think his officials are moving towards this—that, between now and Report, he writes to us, working through those different types of fraud and how he and the Government think those various bits of legislation will help to make sure that the figure of 40 million victims is not repeated again. I think that he would find that helpful in terms of managing expectations as well as potential opposition to his amendment and to other amendments put down to other Bills. If we can have that information and then have a discussion about it, we could have—as the noble Lord, Lord Coaker, suggested—perhaps some other amendments to the government amendment, and we could feel at the end of this Bill that we have really got somewhere in the UK signalling its intention to tackle fraud and to stop being the fraud capital of the world.

[Lord Vaux of Harrowden (CB)]

My Lords, it is a pleasure to follow the noble Baroness, Lady Morgan, who so ably chaired the Fraud Act 2006 and Digital Fraud Committee of which I was also a member. She has given a lot of detail, so I will try to slash out bits of my speech that she has already covered and not repeat too much—I apologise if I fail slightly in that.

I think that we all know about the scale of fraud in this country. However, I think it is worth repeating what the noble Baroness, Lady Morgan, said about the impact that fraud has on the victims. This is not just a financial crime and “Oh, I’ve lost some money”. We heard stories about mental health issues, even suicide, arising from frauds. It is a really serious matter. Losing your life savings is serious but it goes way beyond that.

Yet we do not seem to have taken much action. We have heard several times about the 1% of law enforcement resources that are focused on it. The government response has been fragmented—we refer in our report to an “alphabet soup” of bodies dealing with it. Our report referred to this creating

“a permissive culture across Government and law enforcement agencies towards fraud and the criminals who perpetrate it”.

At the risk of sounding like a stuck record, we have been waiting for months for the national fraud strategy—I think I detect that the Minister is as frustrated as we are about the delay. I am pleased that it has moved from “shortly”, as he said on 15 November last year, to “genuinely imminent” today. We look forward to it. However, the delay does not inspire huge confidence in how seriously the Government are taking this.

The noble Baroness, Lady Morgan, described what we called the “fraud chain” in our report. It is sometimes known as the “kill chain”; we decided that that was not a particularly pleasant phrase, but it again conveys the seriousness of it. Some parts of the chain are, at last, taking action. In particular, the banking sector has taken a number of actions that have had a positive impact; the introduction of the confirmation of payee process is a good example. But why has that sector in particular taken action? I would argue it is because it has had, almost alone in the chain, a real financial incentive to do so with the voluntary reimbursement code. It has been on the hook for paying back and reimbursing, therefore it is trying to do something to stop it. The voluntary code is now becoming mandatory under the Financial Services and Markets Bill, which is welcome.

It is also interesting to see, in the financial services and banking area, some competitive elements creeping in. The TSB uses the fact that it now reimburses all APP fraud losses as a selling point, which is encouraging. On the other hand, those banks that did not sign up to the voluntary reimbursement code are often cited as being more likely to see greater fraud levels on their customers; with less incentive to take action, they have taken less action. Making the code mandatory will, I hope, force them to start to do so.

We have heard about the other players in the fraud chain, those who make it possible for the fraudster to carry out the fraud—the enablers, if you like. They have no such incentive to act at the moment and, as a result, they have not acted, or not in any meaningful way. These enablers are players such as social media companies, search engines, online dating companies, the telecoms industry, website hosting companies, email platforms, ISPs, online gaming platforms, intermediary platforms and those selling bulk SIM cards or SIM farms, which the fraudsters use—and many more. I am sure that, as this area moves and changes, as it does very rapidly, we will see fraudsters constantly jumping into new areas and doing new things. They will react; there will be plenty more that we have not thought about.

From speaking to a major UK fintech, I know that around half the frauds it sees start from platforms operated by Meta, and more than half arise on just four platforms. In a debate on protecting vulnerable people from fraud on 2 December 2021, the noble Baroness, Lady Williams of Trafford, answering for the Government, said:

“As for discussions with Facebook, I have lost count of the number of discussions that I have had. One thing that we said way back in the day was, ‘Look, if you don’t sort some of these problems out, we’re going to legislate to sort them out’—and this is where we are now”.—[Official Report, 2/12/21; col. 316GC.]


A year and half later, we are still there.

As we have heard, we were particularly unimpressed with the telecoms industry, which was at best depressingly complacent. Who in this Room has not received a fraudulent SMS message or phone call appearing to come from a UK number such as HMRC or Royal Mail? I guarantee that nobody in this Room has not. To be fair, some telecoms companies are now taking action. EE, for example, flags suspicious calls, which proves that it can be done. But most have not taken action. They are paid for all these calls and texts, as the noble Lord, Lord Sandhurst, has said but, because there is no come-back on them at all, they have taken little or no action to stop them. I have not been able to find reliable data as to what proportion of scams originate from telecoms companies; rough data seems to indicate that it is somewhere around 20% to 25%.

Amendment 94 aims to create an incentive for all players in the fraud chain to take action. Effectively, it creates an offence of failing to take reasonable steps to prevent the use of a company’s services for the purpose of committing fraud—by a third party; it does not have to be related to the company. The amendment is deliberately scoped widely, rather than industry by industry; it tries to make it so that anyone providing a service that could reasonably be expected to be used by fraudsters should have to take reasonable steps to detect and prevent that use. That does not seem particularly extreme. It creates a defence that the company had in place such procedures as it was reasonable, in all the circumstances, to expect to detect and prevent the use of its services for the purposes of committing fraud, or that it could not reasonably have known that they were being used for such purposes.

When we get to the discussion that we will no doubt have about this being disproportionate, I will disagree. Any court is going to look at a small company, and that is one of all the circumstances that it will take into account when deciding what would be reasonable for detecting and preventing fraud. It cannot be too much to ask that companies should have to put reasonable procedures in place. I think that it is a pretty low bar, but I am sure that we would all be very happy to discuss how the amendment might be tweaked or changed to ensure that it does not have a disproportionate impact on businesses. But it would be good to hear whether, first, the Minister agrees that there is genuinely a problem in this area and, secondly, whether he agrees conceptually that creating a real incentive for companies to take more care to ensure that their services are not being used by criminals is necessary.

The Online Safety Bill goes some way to achieving this in some respects—and I thank the Minister for arranging for me to meet officials yesterday, who were extremely helpful in getting me up to speed on what that Bill does. It does that especially in relation to fraudulent advertising, and that is very welcome, but it does not cover all the enabling industries, even the ones we know about now, let alone those in future. It does not cover telecoms, email providers or web-hosting companies, for example, and is more focused on the large players. It also does not cover all the activities. Previously I mentioned people selling SIM farms or other tools used by fraudsters. They would not be caught by it. It will not catch the SMS with a link to a fake Royal Mail site, for example.

What worries me is that the approach of using lots of different pieces of legislation to deal with this problem, such as the Online Safety Bill and the others that the noble Baroness, Lady Morgan, mentioned, leaves us in danger of creating a piecemeal approach, mirroring the alphabet soup of responsible bodies that I mentioned. This amendment would create an overarching obligation on any business to take reasonable steps to prevent the use of its services by fraudsters, whether on or offline.

Amendment 91, in the name of Baroness Bowles, attacks the problem from the point of view of regulators, conferring a duty on them, or giving them the option, to create a duty to prevent or facilitate crime regulation. It names a number of regulators, including Ofcom in respect of telecoms and other communications platforms. It mentions the ICAEW, so I should remind the Committee of my interest as a member of that body—I keep doing that, I am very boring. Personally, I think these two amendments would actually work quite well together. If Ofcom, for example, set out a code of conduct for telecoms companies to follow, that could work as the defence mentioned in Amendment 94.

However we do it, we must incentivise all enablers in the fraud chain to do the right thing. There is an excellent opportunity in this Bill to do it now. Further delay will lead to countless more innocent people losing their savings and being traumatised. I very much hope the Minister will be willing to approach this constructively, even if he does not like some of the specifics in the amendments. I support the noble Baroness’s suggestion about the analysis of how all these Bills work together, which would be very helpful.

[Baroness Bennett of Manor Castle (GP)]

My Lords, it is a pleasure to follow the noble Lord, Lord, Lord Vaux, and everyone who has contributed to this crucial debate. I feel I should begin with an apology for not taking part in the debate on the failure to prevent in the first group, but that is because I was in the debate on the Online Safety Bill, with an amendment to which I had attached my name. It is a grave pity that we are debating two such important and closely linked Bills on a Thursday, with the pressures that is putting on your Lordships’ House, but in this group we have seen that we are overcoming those challenges and doing a great job of scrutiny, as we should be doing.

I will be quite brief and again try not to go over any of the same ground as others, but something that struck me when I looked at the Online Safety Bill was that action against fraud and other crime was utterly missing from it. In fact, I considered tabling amendments, but the drafting job was, frankly, beyond the capabilities available to me. The way it has worked out fits very well with this Bill and draws on the capacity of people involved with this Bill, whereas the other Bill has been taken in a somewhat different direction. It is worth noting that this is a safety issue—the noble Baroness, Lady Morgan, and the noble Lord, Lord Vaux, referred to this. The noble Baroness said that it does not only affect older people, but it is worth noting that it is particularly an issue for them. If you are hit by a fraud when working in a system that you already found challenging and difficult to engage with, you lose confidence in your ability to operate in the world. We have a loneliness epidemic, with many people struggling to survive, with the Government stressing digital first, digital first. The impact on older people in particular is an earthquake through their lives, and that needs to be noted.

Lots of people talked about the scale of that problem, but I do not think anyone has mentioned that UK Finance, the trade association for the UK banking and financial sectors, said that financial fraud is now a national security threat. That ties in with the earlier amendment of the noble Lord, Lord Alton. In the first half of 2021, more than £750 million was stolen, and that was a 30% increase on the same period from the previous year, so we are looking at something that is escalating and absolutely demands action.

16:15

My chief and perhaps original contribution to this debate comes in drawing on some terminology that comes from my days in women’s development. Way back a long time ago, there was a big thing about mainstreaming women in every area of development effort. What we are trying to do here is to mainstream tackling fraud and economic crime into all elements of public life. They are now so pervasive across national life that every part of the nation, every regulator and every law needs to contain elements to enable it to tackle them.

It is worth looking back on the history of this—your Lordships may have covered some of this in the earlier group, for which I apologise. Looking at the existing framework of specific “failure to prevent” offences, I see that there is the failure to prevent bribery in the Bribery Act 2010, and the failure to prevent facilitation of tax evasion in the Criminal Finances Act 2017. However, a tiny number of cases have been brought, and there have been very few successful prosecutions under both those Acts. The fact is, as we have discussed in so many other groups, that there is very limited capacity within law enforcement and those bodies to act. We know that we cannot just keep boosting the resources of law enforcement endlessly; in the interest of being emolliative, I will not get into police numbers—I will be very good. We are starting to create a different landscape, but we do not have the tools to deliver what we are saying we want to do.

As the noble Lord, Lord Vaux, said, these two amendments together—I put my name to Amendment 91 because there was not space on Amendment 94—tackle all the enablers in the fraud chain, taking us forward with the whole of society to tackle a problem that threatens all of us.

[Lord Sandhurst (Con)]

My Lords, I will speak with a particular focus on Amendment 91 but, in so doing, it should not be thought that I do not think that Amendment 94 is important; the two run together, as other noble Lords have said—we want them, so to speak, before and after, for reasons I shall explain. We need to do something now to prevent fraud. In this context, I make no apology for reminding my noble friend the Minister of what my noble friend Lady Morgan said about page 22 of our report and paragraph 520, which, helpfully, is in bold. I ask the Minister and his officials, in the words of the collect, to

“read, mark, learn, and inwardly digest”

what we have to say, and then act on it with both the regulatory and the criminal proposals.

We need the criminal offence but also need the flexibility that proper regulation will give and the culture change that it will bring by the regulators talking to and influencing how the different industries behave. We know that regulators can achieve much in advance and drive changes in behaviour; that is important because we know that prosecuting fraud is very difficult and too often ends in failure—and anyway the resources are not there to do it. We have to stop it happening in the first place. You have the criminal offence as a backup when someone who could have prevented it has not done so, but that is very much the last resort. Regulators are fleeter of foot and can move with more flexibility, and they can influence behaviour.

The sort of regulations we have in mind would mirror what is said in Amendment 94, particularly in subsection (3) regarding the statutory defence—“Do you have in place such procedures as it is reasonable in all the circumstances to expect?”, and so on. Our regulations would say that that was what you had to do. Then the regulator would know what was going on because it would have all the data and the picture of what was happening in the particular regulatory sphere in which it was operating. The regulator could say to a particular operator or someone in the industry, “Look, others are doing this but you’re not”, or it could say to the whole industry, “Look, there’s a new scam about and you have to take steps to stop it. We’re going to call you together. What are you going to do, what do you think you can do, and what technology is out there?”, and so on. That is not covered directly by the criminal offence—it is very much a longstop—but the sorts of fines and penalties that a regulator can impose, and the regulatory damage to the reputation of large organisations in particular, are important and have great influence, as we know. If a company is small or indeed a one-man band then the regulator would approach it differently, because of course it does not have the resources to look everywhere and man every pump.

We have to do something. I suggest that what is reasonable will take into account the size of the potential offending business; the measures that it has in place to prevent fraud that are proportionate to its size; those which it does not have in place but could have; the prevalence of the offence within that particular field of activity; and, if it is looking at regulatory enforcement, and indeed in terms of criminal offence, the regulatory compliance history of the company and what others in that area are doing by way of comparison. I need not go on in more detail.

As I said, the regulators have flexibility. They can influence behaviour. They can pick up the telephone to a company and say, “We’ve seen this is going on. Unless you do something, we’ll be down like a ton of bricks”, or they can act directly. Unless we have the package that these two amendments would give, we are not going to see any important change in outcomes.

That is all I need to say. Everything else has been covered. As I hope I have made plain, I see Amendments 94 and 91 running in tandem.

[Lord Garnier (Con)]

My Lords, I agree with my noble friend Lord Sandhurst that they run in tandem. I was not able to run quick enough to be able to sign Amendment 91 but I managed to get my bulk into the relevant Room in order to sign Amendment 94, and I am happy that I managed to do so.

Public opinion must influence policy-making. Whereas 300 or perhaps 250 years ago, anyone who thought about it probably thought it was not a good idea, and certainly not a humane thing to do, to send small children up chimneys or down mines, it took a little while for the legislation to change. I make that exaggerated point—well, it was not an exaggerated point; it was a very bad thing. [Laughter.] I was not alive 250 years ago. I make that point to illustrate that we in this Parliament are in danger of allowing the Government to drag their feet reluctantly and, worse, to appear as if they are being reluctant to do the modern equivalent of stopping children being sent up chimneys. The modern equivalent is that the public, and I as a citizen, disapprove of companies failing to conduct their business in such a way that crimes are not committed by associated people. However, we mitigate the difficulties that these new laws may pose for a company by putting in the defence of reasonable provision.

If you look at the guidance published in conjunction with the Bribery Act 2010—my noble friend Lord Sandhurst mentioned some of the sensible work that has been highlighted in my noble friend Lady Morgan’s report—you can see that it is all there. If your company is one that has no risk of committing bribery, you do not have to have anything other than the most minor provision to satisfy the defence provision under the Act—and ditto in the Criminal Finances Act. So it is even in the government amendments that we discussed earlier. For example, to go back to government Amendment 84A, which we discussed earlier, new subsection (3) says that:

“It is a defence for the relevant body to prove that, at the time the fraud offence was committed … (a) the body had in place such prevention procedures as it was reasonable in all the circumstances to expect the body to have in place, or … (b) it was not reasonable in all the circumstances to expect the body to have any prevention procedures in place”.


The Government accept quite a liberal and permissive defence regime there, so we do not need to be frightened or to frighten SMEs, or the people to whom my noble friend’s report is addressed, about people being overburdened by regimes which will cause them to be distracted from earning profits and getting on with the job that they are primarily there to do.

The noble Lord, Lord Macdonald of River Glaven, highlighted, thanks to Sue Hawley from Spotlight on Corruption, the very small cost involved in running a compliance regime. If you have a small company, with no risk of committing bribery or fraud or whatever else it may be, the chances are that you will spend very little, and you may have to spend it only once.

I come to Amendments 91 and 94 with a sense of desperation that we are now providing the Government with yet another opportunity not to do very much, and they ought to be doing a lot more. When it came to the passage of what became the Health and Safety at Work etc. Act 1974, I can assure noble Lords that the corporate world said, “Oh no, you mustn’t do this—it’s going to make us spend money, look at lawyers, put bolts on doors and put safety notices down chimneys and near machinery. It is all far too expensive—we can’t be doing all that”. I think of the Corporate Manslaughter and Corporate Homicide Act 2007; in the lead-up to that—I was in the shadow Cabinet of my party in those days—we had anxious discussions about the hideous nature of the impositions that would be put on the corporate world to make things safe so that people did not get killed at work and factories were safe places to go to work in. Here we are again having to worry about companies being asked to behave themselves and not to commit crimes or to prevent others committing crimes to their advantage. It seems absurd.

There have been two good non-legislative reports in the last short period. First, there is the one from my noble friend Lady Morgan, which she introduced us to. I urge my noble friend the Minister, if he has time to read nothing else, to look at page 22 and paragraphs 496 to 498 and 520 to 522. It will take him three minutes—he should look at it, read it, learn it, and inwardly digest it.

The other one was the Joint Committee chaired by my noble friend Lord Faulks, of which I was privileged to be a member, on the draft Registration of Overseas Entities Bill, which sat in 2019-20. We heard all the same evidence as I am sure my noble friend did in her committee, and we heard all the same complaints about the burdens and expense of compliance that will have been heard every time these sorts of things come along. Yet every time, all you have to do is go back and look at the simple, common-sense guidance attached to the Bribery Act 2010; you will see how that Act has come into force and been implemented and worked through, and no one now fusses at all.

16:30

There will come a time when this Economic Crime and Corporate Transparency Bill becomes an Act, but it will be an Act on three legs rather than four. One important leg will be missing, and it is that limb—I hope am not mixing my metaphors too excessively—it is the part of the Bill that will not be there, which we are now discussing through this amendment, that we discussed in the earlier amendment. Time will move on and we will have missed the opportunity again, which will haunt us.

I urge the Minister to see if he can be a little braver, and persuade his ministerial colleagues to do the same, in grasping this opportunity, and to fashion this himself rather than allowing it to be fashioned for him by others later. There is nothing to be lost but much to be gained by grasping this opportunity now.

[Lord Coaker (Lab)]

My Lords, given the time of day, I shall make a brief comment. I agree with Amendments 91 and 94. On Amendment 94, spoken to by the noble Baroness, Lady Morgan, I ask the Minister directly: why would he not ensure that this Economic Crime and Transparency Bill currently before Parliament did exactly what Amendment 94 suggests? It just does not seem logical. If the Minister and the Government do not do it, this will have been a missed opportunity, and we will come back to this issue and ask why we did not do it now. The amendment is reasonable and makes perfect sense and no doubt the Minister agrees with it, but it needs the Government to say, “We’re going to do it”. If it is flawed then the government lawyers can sort it out, but it is a perfectly reasonable amendment and, in my view, the Government should have no difficulty in accepting it. With that brief comment, I will sit down.

[Lord Sharpe of Epsom (Con)]

My Lords, I thank the noble Baroness, Lady Bowles of Berkhamsted, and my noble friend Lady Morgan of Cotes for their amendments on failure to prevent economic crime, and all noble Lords who have spoken in this debate.

I hope that my comments during our debate earlier today will have provided some reassurance on the Government’s ambitions to take action in this area, including the introduction of a new offence of failure to prevent fraud. These amendments obviously cover some of the same ground so I will seek not to repeat myself too much on issues such as the scope and threshold of the Government’s amendments but to focus more on what I understand to be the wider thrust of Amendments 91 and 94.

Before I get on to that, I reassure the noble Lord, Lord Vaux, that the fraud strategy is a couple of hours closer. I remind noble Lords that there is an all-Peers drop-in session on 9 May to discuss the three Bills that are currently under way through Parliament: this Bill, the Online Safety Bill and the Financial Services and Markets Bill. That will bring some of the discussions together, as suggested by my noble friend Lady Morgan. I refute the allegation that the Government are not doing very much. Those three Bills themselves prove that we are indeed intent on fixing many or all of the problems that have been identified—the Government of course take these problems seriously.

I turn to the amendments in this group. The Government’s offence does not extend to services that facilitate fraud—that is, companies whose services are misused by third parties to carry out fraud. Examples include social media and telecoms companies whose services are used to promote fraudulent schemes, as has been pointed out, and banks and crypto exchanges, which fraudsters use to process the payments. If these companies or their employees commit fraud, they will be in scope, but not where their services are misused by others.

The Government agree that companies that facilitate fraud, even if they are not complicit in the offending, must do more to prevent and detect it. In doing so, they can protect their customers and the wider public from fraud, which, as has been discussed at length, causes significant damage to wider society and individuals —we must not forget them. However, we intend for this to be achieved by seeing through existing plans for regulatory and voluntary activity, rather than by creating a new offence which risks duplicating those existing approaches.

Amendment 91, tabled by the noble Baroness, Lady Bowles of Berkhamsted, proposes a regulatory duty to prevent economic crime, enforced by regulators. In relation to organisations that commit fraud, we can achieve a similar effect that incentivises organisations to put fraud controls in place through the Government’s approach: an offence enforced by law enforcement. Our approach allows all sectors to be in scope, not just regulated bodies, and is less resource-intensive for business and the public sector than establishing new regulatory approaches. In relation to the facilitation of fraud, I reassure the noble Baroness, Lady Bowles, that action is already under way to tackle this. I will address some of the sectors mentioned in today’s debate and Amendment 91, which I hope will provide some further reassurance.

The Online Safety Bill will require all in-scope tech companies, including social media companies, to take action to tackle fraud where it is facilitated through user-generated content or via search results. They must put in place systems and processes to prevent users encountering fraudulent content through their platforms and to swiftly remove any such content available through their platform. Without wishing to single out any particular company for attention, I reassure my noble friend Lady Morgan that Airbnb, which she referenced, would of course be in scope.

Additionally, there will be a duty on the largest social media and search engines requiring them to prevent fraudulent adverts appearing on their services. The Bill gives Ofcom, as regulator, robust enforcement powers, allowing it to impose significant financial penalties on services that do not fulfil its duties. Ofcom will publish codes of practice to set out further details on what platforms must do to meet their duties under the Online Safety Bill.

The “failure to prevent” offence operates in a similar way to the Online Safety Bill, by setting out reasonable steps to be taken, with the ability to fine companies that fail to fulfil their duties. Expanding the “failure to prevent fraud” offence in the ECCT Bill to cover facilitation of fraud would create duplication for tech companies, which would have to follow two parallel regimes in relation to facilitation of fraud, potentially creating confusion for businesses.

Noble Lords also raised the role of telecoms companies, including the content of messages passed over their networks. The telecoms industry is already extensively regulated by Ofcom, which is active in encouraging the industry to tackle scam calls and texts, including through regulation and guidance. This includes new measures that will take effect shortly to tackle the spoofing or disguising of UK telephone numbers from overseas. As it should be, the telecoms industry has been an active partner in the fight against scams, with broadband and mobile providers signing up to the Home Office’s Telecommunications Fraud Sector Charter and committing to work with the Government to reduce the use of their networks by criminals.

However, it is important to recognise that telecoms operators are not able to view the content of messages passing over their networks. While they employ sophisticated algorithms to identify and block hundreds of millions of fraudulent or scam messages and calls, the rapid evolution of threats creates challenges to pre-emptive action. This means that a facilitation offence could potentially have a disproportionate effect on the industry and the operation of telecommunications in the UK.

Amendment 91 also references the Financial Conduct Authority. The FCA is working closely with banks and other financial institutions to reduce the role they play in facilitating fraud and to identify further controls that can be put in place to protect the public from scams. In addition, the Payment Systems Regulator is introducing new requirements for financial institutions to reimburse fraud victims, which will create strong incentives to improve fraud controls, as noted by the noble Lord, Lord Vaux.

In respect of the Solicitors Regulation Authority, noble Lords will be aware from Tuesday’s debate that Clause 183 of the Bill already inserts a regulatory objective in the Legal Services Act 2007, focusing on promoting the prevention and detection of economic crime. This measure affirms the duties of the regulators, the Legal Services Board and the regulated communities to uphold the economic crime agenda.

The noble Lord, Lord Vaux, also referenced the Institute of Chartered Accountants in England and Wales. Amendment 91 also references that organisation and other relevant regulators of accountants. As I said, I am aware that several noble Lords have declared their association with that organisation.

As noble Lords will be aware, ICAEW is a professional and supervisory body for chartered accountants. Its work in areas regulated by law—for example, audit, anti-money laundering, local audit, investment business, insolvency and probate—is monitored by oversight bodies such as the Insolvency Service, the FCA, the Office for Professional Body Anti-Money Laundering Supervision, the Civil Aviation Authority and the Legal Services Board. ICAEW has been proactive in the industry fight against fraud, leading the sector in negotiating and delivering the Accountancy Fraud Sector Charter, published in 2021, and is an active member of the counter-fraud community, contributing to all levels of governance across the threat landscape. It is a co-signatory to the Economic Crime Plan and associated actions.

As I set out in our earlier debate, the offence introduced via the Government’s amendments covers fraud and false accounting, while keeping money-laundering responsibilities contained under the existing regulatory regime. That ensures that the offence is targeted, focused on offences most likely to be committed by corporations and where prevention can have the most impact and not duplicative of existing regimes.

I note the wider offence lists put forward under the noble Baroness’s amendment, but—as we debated at length earlier today—we are satisfied through discussions with law enforcement and prosecutors that all the priority offences have been included. There is a power in secondary legislation to update the list when required. We have also touched on the issue of the threshold in the government amendment that means it applies—at least initially—only to large organisations. As I set out earlier, this is to avoid disproportionate burdens on small and medium-sized enterprises and ensure our economy encourages people to open and grow businesses. Of course, we encourage small organisations to take steps to prevent fraud and there are, as I mentioned in an earlier group, existing powers to prosecute small organisations and their employees if they commit fraud, but we need to keep the total regulatory burden in check.

There have been cross-party calls for the Government’s failure to prevent fraud offence both in this House and in the other place, as well as across civil society. The Government have listened and introduced amendments. In addition to the legislative measures proposed, the Government continue to work closely with regulators and wider sectors to tackle fraud and set out the actions expected of industry. I am afraid that the Government therefore view these amendments as duplicative of measures already being taken forward—

[Lord Vaux of Harrowden (CB)]

I am a little confused, because we seem to be talking now about the previous amendments, where an associate of the body commits fraud with the intention to benefit the body, which is a very different thing to the amendments we are looking at at the moment. The situations we have been talking about—the scams, and so on—would not, as I think we established fairly clearly in debate on the first group, be covered by that. Will the Minister please address the issue of scams and what these amendments are trying to address, rather than the rather different offence that was created by the first group of amendments?

[Lord Sharpe of Epsom (Con)]

My Lords, I think I have already addressed that a little earlier when I was talking about the various codes that we are asking telecoms companies to sign up to via Ofcom. I am wrapping up now, so I am bringing it all together—or attempting to.

The Government therefore view these amendments as duplicative of measures already being taken forward and not achieving their intentions. I of course commit to read page 22, in answer to my noble friend, but I ask the noble Baroness, Lady Bowles, and my noble friend Lady Morgan not to press their amendments.

[Baroness Morgan of Cotes (Con)]

I thank my noble friend very much for what he said; I will read it very carefully. I wanted to wait for the end of his speech, but he mentioned a meeting that is being held on 9 May to bring together at least three pieces of legislation and, who knows, we might even have had the fraud strategy by that point and be able to talk about that. I suggest that he looks at that meeting the other way round and, as I suggested, go through the different types of fraud—they will not be exhaustive—and work out what the Government think the relevant legislation is tackling. Then we will be able to see what the gaps are. I think one of the gaps is exactly what the noble Lord, Lord Vaux, just said, which is where services are being used to perpetuate fraud that are definitely not caught by the Government’s proposed amendment. That would enable us to have a much better informed debate before and at Report about whether we will really use the opportunity of this Bill. I invite my mobile friend to say that he will ask officials to work that way round: looking at the frauds and then seeing what the Government have already proposed to tackle them.

[Lord Sharpe of Epsom]

My noble friend will be aware that this will be a cross-departmental meeting, and I have not seen the proposed agenda, but I will certainly take her comments back. I meant to say that the noble Lord, Lord Vaux, made reference to the technical meeting he had on the Online Safety Bill, and I obviously extend the offer of a similar meeting, if anyone else would like it.

16:45

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I thank everybody who has spoken in this debate. I will not attempt to summate what everybody has said and will concentrate on responding to the Minister.

I have to say that I am not reassured. I do not believe that anything powerful is going on that will address the hole that has been elaborated on at great length in the report by the committee, never mind by what other noble Lords and I have said today. All we seem to have are amendments from the Government which do not catch this and do not catch a lot else either, so they do not matter. We do not have anything that deals with third-party use other than, if I heard correctly—like the noble Baroness, Lady Morgan, I will have to read through everything the Minister said in Hansard—the fact that the Government are speaking to the telecoms companies and trying to come up with some kind of voluntary agreements. Well, good luck; we found them less than enthusiastic. There are things they can do to stop spoofing; they can update their systems and some of their codes sooner rather than later, but they think they can get away with it by waving their hands and saying, “It’s technically difficult”. There are some people, myself included, who have technical degrees and can see through the rot. Frankly, the Government should not put up with back-pedalling. Yes, it will cost them money, but they have to spend that money to help protect the 40 million-plus people who are not just being sent a text, a scam, a spoof or a phish every now and then but are incessantly getting them. It needs technical intervention to help. Until there is a stick as well as the carrot of discussions, that will not happen.

I will of course withdraw my amendment for now, but we must return to this subject on Report, as well as to the inadequacies of the other “failure to prevent” offences. They should be the central theme of what we are doing now; we cannot just put up with a fig leaf and say, “It’s been done”. We need a lot more than a fig leaf. I beg leave to withdraw the amendment.

Amendment 91 withdrawn.

Clauses 186 and 187 agreed.

Committee adjourned at 4.48 pm.