Criminal Finances Bill

Baroness Bowles of Berkhamsted Excerpts

2nd reading (Hansard): House of Lords
Thursday 9th March 2017 Lords Chamber

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I will address the corporate liability aspects of the Bill, and therefore declare my interests in the register, in particular as a company director of companies large and small. I welcome the Bill, but it should go further to establish transparency on the beneficial ownership of companies in overseas territories, to enable corporate liability over a wider range of economic crimes in the future and to provide a less circuitous procedure for considering disqualification of directors when a company has already been found guilty of an economic crime.

The UK has made progress on tackling economic crime and improving transparency, but it is hard to get credit for that in the international arena when we are still seen as sponsoring tax havens. I was directly reminded of my country’s record many times—with varying degrees of friendliness or otherwise—while I was chair of the European Parliament’s Committee on Economic and Monetary Affairs, including in a public hearing with the OECD. We have not gone far enough yet. The bottom line is that people have a right to know who owns companies—not only would I say that is part of the incorporation licence and the fundamental bargain with society, but it would tackle tax evasion, money laundering and other offences.

We have had plenty of experience recently of how hard it can be to pin blame on large companies. The “directing mind and will” or the “identification doctrine”, as it is called, of responsibility is straightforwardly applicable to small companies, but for large companies it becomes almost impossible to find a chain of responsibility up to the board. Even if you do, collective failure does not count: you have to pin it on an individual. It is completely unfair, and divisive, for the law to bear down on small companies but not on multinationals. Sometimes the issue may be negligence more than criminal intent, which makes it entirely appropriate to address it with a “failure to prevent” offence. However, it is rather disappointing that only bribery and now tax avoidance are to be covered. I am aware that the Government have launched a call for evidence on corporate liability for economic crime, and that document usefully draws together several strands. The culture breakdown that led to the financial crisis brought about the senior managers and certification regime for banks, soon to be implemented for other financial institutions as well. There is a case to say that all large companies should have something similar. However, not all companies are regulated, and we do not have a proper company regulator—at least not yet—and a senior responsibility regime will have to attach to something.

We already have a list of financial and economic crimes elaborated in Part 2 of Schedule 17 to the Crime and Courts Act 2013, and there must be a strong case to say that all those should be treated consistently. The call for evidence puts forward some other liability options than the failure to prevent an offence, but in every liability option it suggests that a due diligence defence should be considered, rendering them very similar. The other options are fixing the identification regime, which needs doing separately anyway, or sectoral regimes such as the senior managers regime, which again falls into the “also needed” rather than the “instead” category.

Since Brexit makes a further Bill unlikely, why not enable further economic crimes to be introduced to this Bill through statutory instrument, enabling account to be taken of the call for evidence? Economic crimes can already be added to the Crime and Courts Act by order, so why not have something broadly similar in this Bill, with some safeguards about which I have some ideas? Companies should already have measures in place to prevent crimes done in their name, so for good companies it should not be a burden. For others it should engender a change in culture so that economic crime procedures are properly implemented and overseen. We must get rid of protective ignorance. You cannot get away with it in the US, so why here?

That leads me to the point about director disqualification. Section 8 of the Company Directors Disqualification Act 1986 enables the Secretary of State to instigate disqualification procedures in the public interest. These procedures then go to the court to determine whether a director is unfit. This recently expanded scope is a powerful backstop. That is all well and good, but if a company is found to be in breach of serious legislation, why should it need the intervention of the Secretary of State to activate review of the directors? That could be resolved at the time the company is found to be in breach. I do not see why it has to go around the loop of the Secretary of State being tipped off somehow, picking it up and then sending it back to the court, which is the main area that is going to tip the Secretary of State off in the first place. The court has more expertise and would have got a long way towards the answer already.

Section 9A of the Company Directors Disqualification Act, regarding competition policy, already adopts a straight-through consideration of the directors, if that appears appropriate. I cannot see the justification for economic crime being a follow on, always requiring the intervention of the Secretary of State.