Economic Crime and Corporate Transparency Bill

Baroness Bowles of Berkhamsted Excerpts

Committee stage
Tuesday 18th April 2023 Grand Committee

The Government intend to determine via secondary regulations how much of the data collected should be published, and we will settle on a way forward only after comprehensive engagement with business. Companies House and the Department for Business and Trade will continue to consider and engage stakeholders on these risks as secondary legislation develops. There is a broad existing power in Section 468 of the Act that enables changes to be made to Part 15 of the Act through regulations, subject to the affirmative procedure. I therefore ask my noble friend Lord Sarfraz not to oppose this clause.

[Baroness Bowles of Berkhamsted (LD)]

Regarding the position of micro-entities, I spent a great deal of my time as a micro-entity in a partnership. I did not avail myself of limited liability provisions but, when people do avail themselves of the privilege of limited liability, they must recognise that there is an extra public interest requirement upon them because they have been freed from the prospect of personal ruin. Nowadays, we tend to forget about that balance—that bargain—and I just put in a plea that that is not forgotten. There is a bit of a quid pro quo for limited liability when it comes to transparency because you have to protect the public from otherwise unscrupulous people who just willy-nilly go easily bankrupt.

[Lord Johnson of Lainston (Con)]

I am grateful to the noble Baroness for her intervention. In discussions about the Bill, that philosophy has been raised. I may have mentioned on our previous day in Committee—I certainly mentioned it in private—that, given the very large number of companies registered in this country, one has to ask whether they are all necessary for the function that they purport to perform. Many individuals may be better off as sole traders or in other forms of partnership that do not need to go through these registration processes.

I am also aware of the privileges that limited liability offers, as a result of which there is a fair exchange in terms of the amount of information to be released. I absolutely agree with these principles that we have discussed. However, in this specific instance, it is absolutely right to have a thorough and deep consultation to make sure that through our actions we are not prohibiting people from running legitimate businesses and at the same time compromising their personal privacy or security. That is a sensible debate to have. The point, which is not necessarily specific to this amendment, is about the information that we collect. The Government are absolutely committed to ensuring that we collect the right amount of information so that we can increase fundamental corporate transparency and reduce abuse of the system.

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[Lord Agnew of Oulton (Con)]

My Lords, I apologise; I should have dealt with my amendments when I stood up originally. I will deal with the three that I think are relevant now: Amendments 49, 51 and 63.

I want to stress to noble Lords just how broken the system is at the moment. The ACSPs are not being supervised adequately. A 2021 review found that 81% of professional body supervisors were not supervising their members effectively; just to add to the confusion, there are more than 20 supervising bodies. Half of these supervisors were found not to be ensuring that their members take timely action to improve their money laundering procedures. A third of those procedures still do not have an effective separation between advocacy and regulatory functions.

Let me drop into some details here. Essentially, HMRC marks its own homework on this once a year. In its report last year, it owned up to at least six problems. Regulation 58 of the MLR—the money laundering regulations—requires HMRC to carry out fit and proper testing. This year’s assessment revealed HMRC’s failure to keep pace with the requirement to register a business within 45 days, with its performance worsening over the year, down from 78% in 2021 to 70% in 2021-22. In practice, this means that more businesses—in fact, nearly a third of them—are operating outside the scope of the supervision for longer than in previous years.

There is an issue with recruitment and staff training; I will quote from its report in a minute. There also continue to be delays in publishing sectoral guidance for businesses under supervision. The volume of face-to-face visits in its investigations has collapsed. Yes, we have had Covid, but we are beyond Covid now. There were 1,265 face-to-face visits in 2018-19 but last year, in 2021-22, that was down to 289. Lastly, HMRC has censuring and injunction powers that it is not using. These things just are not happening.

Just read the report that it has written, which I think is a master of the English language. It states:

“The AMLS team largely has effective managers”.


What is that saying? It also states:

“However, it is clear that performance is not consistent across the team, which has made it harder at times to make improvements to supervision”.


Those are its own words. It goes on to announce a case study, which happens to be on TCSPs. It had a concentrated week—one week—in which it suddenly found that it could issue 12 warnings and one penalty. Also, 23 compliant businesses were identified as needing regulation and 14 cases were identified as requiring further investigation—and that is in just one week.

Let us look at who is keeping an eye on HMRC: the Treasury. Every year, it produces a supervision report entitled Anti-money Laundering and Countering the Financing of Terrorism. In it, the Treasury says that, despite some improvements, improvement is required in several areas. It stated:

“Many PBSs had not implemented a risk-based approach that effectively prioritised their AML supervisory and enforcement work”


and highlighted

“Gaps and inconsistencies in many PBSs’ approaches to information sharing”

and

“Gaps in most PBSs’ enforcement frameworks”.

It continued by saying that

“the prioritisation of supervisory activity in high-risk areas, such as Trust and Company Service Provider … supervision”

is weak, so on and on we go. I know that my noble friend the Minister will pour balm on my words and say that everything will be all right, but this is a once-in-a-decade opportunity to deal with these things.

The noble Lord, Lord Vaux, touched on some of the bad things coming out of this. I will give a couple of examples. In 2020, TCSPs played a crucial role in something called the FinCEN files. There was one example of a single formation agent setting up 385 companies. An analysis of these companies showed that just nine of them were linked to $4 billion-worth of missing income.

We then come to the Pandora papers, which came out only two years ago. Owners of more than 1,500 UK companies were using 716 offshore firms, including individuals accused of corruption. Offshore companies could be traced to a variety of jurisdictions. Most of these—678 of the 716—were registered in the BVI. All these companies were set up by just 14 offshore TCSPs, five of them owned by Russian citizens.

On and on we go, which is why my amendment tries to say, “Stop. Do not let this legislation take effect until we have cleaned up this sector”. I would be keen to hear from my noble friend the Minister why the Government are taking such a complacent approach to this. It is really not difficult or expensive. As the noble Lord, Lord Vaux, said, we are a laughing stock around the world, being called Londonistan, Londongrad or whatever else anyone chooses to use. We have this huge conduit of these offshore entities, which are feeding all this stuff in because they all want to use English law. We are a wonderful place for them, but they have to play by the rules as well. It is a whole ecosystem and this Bill is the opportunity to clean it up. I beg to move.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I agree with an awful lot of what the noble Lord, Lord Agnew, said—in fact, with all of it. He laid out in some detail the fact that anyone could be one of these verification agencies, because there are 20 supervisors of all kinds of businesses where there could potentially be money laundering. It might be an accountant, a company formation agent or an estate agent. All kinds of people could become an authorised corporate service provider.

It is then quite important to be able to do the analysis to find out whether some are shadier than others, and whether there is a connection between businesses discovered to be less than spick and span and, perhaps, the precise identity—or maybe just the nature—of the type of verification agent. What on earth is the reason for keeping this secret? Who wants to keep it secret? Maybe it is HMRC, because it does not want us to know how bad it is, following on from the disclosure of the noble Lord, Lord Agnew. That is about the only explanation I can come up with, because it is such a vital piece of information. It makes me suspicious as to why it has to be secret. The other side of that is: who will be privy to the information? Presumably it will be Companies House. Will special checks be going on that it does not want us to know about? It is hard to imagine a reason, so the mood of the Committee on this is quite clear.

Most of the rest follows: I have added my name to some of these amendments but could have added it to them all. I would be curious to know the likelihood of the types of organisations that will be verifying identities getting penalties for when they get it wrong. If landlords get it wrong and rent out to illegal immigrants there are quite severe penalties, so what are the penalties for people who have a quick flick of the passport, think that is okay and register the company? If we do not know who they are, what are the penalties? Do they face penalties similar to those that landlords face, for example, when they have to do checks? It is very important. Most of us have had PEP checks, unfortunately. We have probably been to all kinds of places and had all kinds of documents looked through. I cannot say that it has been really thorough, even within banks. How thorough will this be and what happens when it is got wrong?

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To the question from the noble Lord, Lord Browne, on the consultation, we consulted widely with the ACSPs and numerous stakeholders; I think we had more than 1,000 consultation pieces to consider for this Bill. So we have been closely engaged with them and I am contented to go back and continue engaging with them on this single point. I would be delighted to return to the Committee with any specific reasons that are raised so that we can debate them and decide whether they are legitimate. I hope noble Lords hear the principle on which I am committed.

[Baroness Bowles of Berkhamsted (LD)]

On that same point, following on from what the Minister said about the vast majority of these organisations being good, trustworthy and so on, is it that the risk of one mistake being associated with them, because their name would be available, means that people would not want to do it? I asked this associated question: what is the consequence or penalty for getting an identification verification wrong? I made the parallel with the rental side of things, where landlords are expected to be able to know whether they are looking at forged documents and that kind of thing. Are we trying to protect the reputations of organisations in case they make the odd mistake but it blows them out of the water? I am still grasping for reasons but I wondered whether that was part of the response. It is the inverse of what the Minister was referencing.

[Lord Johnson of Lainston (Con)]

I appreciate the noble Baroness’s intervention. I do not have an answer to the question as to whether there was concern over reputational damage but I personally do not see that as a particularly significant reason to withhold one’s identity. If you are an auditor of a corporate account, your name is public. As I am sure we have found with some auditors relating to some national political parties, their embarrassment will be palpable but at least it will be public for us all to see.

To answer the noble Baroness’s other point on penalties, just so she is aware, it is an offence falsely to confirm the identity of an individual. I am unable to make comparisons with the private landlord sector but it is very clear that falsely identifying an individual would be a serious offence. That is part of the legislation we are providing for.

On Amendment 50A, I consider that the measures included in and added to the Bill provide a significant amount of transparency. I will come on to discuss that in a moment. To look at the process that allows an individual to become an authorised corporate service provider, they have to be supervised under the money laundering regulations. They are already required under those regulations to take appropriate steps to identify and assess the risk that their customers would have on their business. Although I understand the noble Lord’s intention, I do not think that this is the right place to consider publishing information about risk assessment processes. In our view, it is beyond the role of the registrar to gather and store this information, or to question it.

The right place to consider the quality of risk assessments is through money laundering supervision. Supervisors are already empowered to compel this information and take enforcement action against firms found to be non-compliant. I have well heard the comments around the money laundering process and whether the supervision regime is adequate. A review is being undertaken at the moment, which is raised in one of the amendments we are about to cover. It makes sense to include discussion of how ACSPs are monitored in that review.

I turn to the suggestions from the noble Lord, Lord Cromwell, around standard industrial classification, or SIC, codes and the publication of this information. SIC codes allow Companies House to track what a business does and are used primarily to indicate emerging trends and the strength of the UK economy. I support the noble Lord’s intention to have clear information about the activities that companies are undertaking. Through the Bill, the Government are extending the requirement to provide a SIC code to limited partnerships. As my noble friend Lord Leigh rightly pointed out, such provision is already obligatory for companies. Companies House already runs reports on how SIC codes are being used and will be capable of filtering these to show only the SIC codes of companies that were registered by ACSPs, for example. I therefore consider that requiring ACSPs to provide this information as well would be duplicative.

I also consider it disproportionate to require ACSPs to provide annual reports to the registrar on the SIC codes associated with the companies that they have registered. It is possible that thousands of ACSPs will be registered and it would not be possible for these reports to be regularly monitored. This is a concern in terms of the cost and burden to Companies House.

Furthermore—this is a very relevant point for me that has been made; it does not negate the necessity to assess the process of SICs but it is important in the context of this debate—a company’s SIC code can and often does change. There is a great deal of—I do not necessarily know the right word—greyness about how people classify their business activities. In my investment career, I looked at a tank company that was classified as a consumer discretionary and I saw a military defence business that had a lingerie subsidiary. I am still trying to work out whether that was related to distracting the enemy but the point is that, in many cases, it is very difficult to be absolutely certain about the occupation or classification of a business.

On noble Lords’ comments about companies obfuscating their actions, this amendment does not necessarily provide a solution. It is not necessarily the role of ACSPs or Companies House to determine the specific validity of every claim made; that would be extremely difficult, particularly where there are grey areas around activities. That change may or may not be presented by an ACSP; it would be unreasonable to expect an ACSP to be responsible for monitoring this.

I am therefore not clear what benefits this amendment would bring and request that the noble Lord does not press it, but I am happy to have a further discussion about SIC codes if they fall within the Department for Business and Trade, which they probably do. At the same time, I am happy to have further discussions with noble Lords about the review of money laundering processes and the supervision environment.

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[Lord Vaux of Harrowden (CB)]

My Lords, I rise to move Amendment 53; I hope to be fairly brief. It is related, in a way, to Amendment 48A in the name of the noble Lord, Lord Coaker, which we spoke about earlier. In effect, it attacks the issue of unique identifiers from the opposite direction.

Clause 67(3) ensures that the unique identifiers allocated to companies and others, including ACSPs, are not available on the public register. I was rather surprised to find this. My amendment is really a probing amendment to find out the rationale for hiding unique identifiers and discuss whether that is the right thing to do. It seems to me that the unique identifier would be a helpful tool to assist civil society organisations, journalists, analysts and, indeed, AML regulators to discover trends and connections in the information held on companies on the register.

One person can easily have a number of versions of their name—A Jones, Andrew Jones, AJ Jones and so on. It is not necessarily dishonest. I have two names myself: my title and my real name. I hope that that is not dishonest. My amendment would make it much easier to search using the unique identifier and would avoid the problems of potentially having multiple names or versions of names and people being missed off. It would allow an AML regulator quickly to search for all situations where a particular ACSP has acted, or a journalist to identify ACSPs that act regularly for companies in particular industries, and to be sure that they have caught all the instances.

When I met the Minister previously, for which I thank him again, he explained that the unique identifier is used as the login for the relevant entity. If that is the case, I understand why it should not be public, but I strongly question whether that is sensible. Very few organisations would use a number such as a unique identifier for login purposes; it would go against commonly accepted security practices. The Government do not do it in other systems, as far as I am aware. Would it not make more sense for the unique identifier to be public, and therefore useful, to allow the greatest transparency that I have described and to have a more secure method of logging into Companies House accounts? I beg to move.

[Baroness Bowles of Berkhamsted (LD)]

I will speak briefly on this amendment because key to it is: what is the purpose of the unique identifier? Perhaps like the noble Lord, Lord Vaux, I thought that it was like the resource identifier that you use for searching. I know that if you search on my name, you do not find all my directorships. I keep amending my name to try to make sure that they are all the same, but you still cannot find them in Companies House, so I was thinking that it was a better way than names of finding out all the companies that people were involved in, and so on.

I can see that, if it is more of a login approach, that might be different, but that then begs the question: is there not a better way of identifying companies and individuals that works on the searches? If you are searching to see whether somebody is doing something in a different company, or how many directorships they have, simply going by name means that too often there are minor variations, and it will not flag up what you are looking for. Like the noble Lord, Lord Vaux, I am curious about what the purpose of this identifier is, and therefore why it is confidential.

[Lord Johnson of Lainston (Con)]

I thank the noble Lord, Lord Vaux, for his Amendment 53. Unique identifiers are unique codes allocated on an individual basis. The Bill will allow unique identifiers to support the effective operation of identity verification, such as allowing Companies House to link an individual’s verified identity across multiple roles and companies. I like to look at it as operating as a username. That is important; it is not a public but a private number that the individual will have allocated to them.

I reassure the noble Baroness, Lady Bowles of Berkhamsted, and the noble Lord, Lord Vaux of Harrowden, that this amendment is not necessary to achieve the objectives that they have described—although I am concerned about the noble Baroness’s difficulty in tracing herself in the records of Companies House. This will be a good test as to whether the systems work. Companies House will be making changes to how members of the public view the register so that, although the unique identifiers themselves will not be public, it will be possible to see accurately connections between individuals and entities. That is the central point of the reforms being made to Companies House. This includes how many companies for which an individual is a director or person with significant control.

From my own experience of using the Companies House database, I come up under the various different forms of my name: D Johnson, Dominic Johnson, DRA Johnson or whatever it may be. It works in that instance, but it is absolutely right for noble Lords to be concerned about whether the system will work. We have undertaken to make sure that it does. It is the cornerstone of our activities and everything that the Bill points towards.

Regulations made under Section 1082 will govern the use of unique identifiers. We intend to prevent individuals from having more than one unique identifier, as the name denotes, and anyone submitting a statement with an incorrect unique identifier will commit a false filing offence. Furthermore, the primary purpose of a unique identifier is to allow its owner to communicate securely and privately with Companies House; as I said, it should be looked upon as a username. Unique identifiers can be considered personal data so making them public could expose the registrar to data protection breach risks, in the same way that it would be inappropriate to publish individuals’ national insurance numbers.

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[Lord Garnier (Con)]

My Lords, I, too, have put my name to my noble friend’s Amendment 72. He is quite right: in business, what gets measured gets done. That is also true of politics: one has only to set down a requirement and have it followed up and measured to see an improvement in the performance of a government department or a public authority such as Companies House. I entirely agree with the thoughts put forward by my noble friend and the noble Lord, Lord Cromwell, in support of this amendment, and by the noble Lord, Lord Coaker, in addressing his amendment.

For my own part, I do not necessarily think that we need to see the terms of these amendments set out in legislation, but we do need a public recognition that the elements that the noble Lord, Lord Coaker, and my noble friend Lord Agnew spoke about are publicly recognised as goals and things that will be measured and reported on annually.

Nowadays, annual reports are made not only by company chairmen. The Lord Chief Justice makes an annual report, as do various other public figures dotted about our constitution, so we should not run shy of requiring that. Indeed, Clause 187 makes clear that the Secretary of State will make a report. The main thing to do is to get the information out there regularly and publicly so that the public know what is being done in their name.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I support what others have said. If we take these amendments as essentially saying that Clause 187 needs to be amplified, I, like the noble Lord, Lord Agnew, do not see the reason for sunsetting in 2030. It is not that far away given that, although this might commence immediately on Royal Assent, there are quite a lot of regulations and other things—and I do not know what the timescale of those will be—before everything is up and running.

As I see it, Clause 187 is about monitoring progress, getting everything up and running and seeing that it is okay, then just saying “that is fine”, but I think there is a case for ongoing monitoring to see what is changing and whether there is a need for any further update. The annual report seems to be a vehicle for that and, like others, I say that that is a good reason for it to continue, rather than being sunsetted, and if need be, perhaps to list a few more things that it will cover. Clause 187 could stay silent on that as it is quite broad, talking about

“the implementation and operation of Parts 1 to 3”.

If you took away the sunset clause, I could probably be quite satisfied.

[Baroness Altmann (Con)]

I briefly thank my noble friend for Clause 187. It is a valid attempt to achieve some of the aims of these amendments, although I wholeheartedly agree that the sunset clause is puzzling. I ask my noble friend to bear in mind that the expertise being offered by this Committee and Amendment 65 in the name of the noble Lord, Lord Coaker, as well as the amendment tabled by my noble friend Lord Agnew, are attempting to assist the Government in achieving the objectives that we all wish to see by injecting the difference between theory and practice. The Government want these measures to succeed. The Committee is trying to suggest that there are, in practice, a number of measures identified in each of these amendments—which, of course, could be combined—to guide those overseeing or producing the reports about what the important elements will be if we want to make this work well.

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[Lord Johnson of Lainston (Con)]

As always, I offer my thanks to noble Lords for their participation and to the noble Lords, Lord Coaker and Lord Ponsonby, and the noble Baroness, Lady Blake, for their Amendment 64. I also thank my noble friend Lord Agnew, my noble and learned friend Lord Garnier and the noble Lord, Lord Cromwell, as well as the noble Baroness, Lady Bowles, for their Amendment 72—if I have got that correct. These amendments address reporting requirements in similar ways and are very relevant and important.

I agree that it is important that Parliament is informed about the implementation and delivery of these reforms. That is why the other place agreed to add an amendment to this effect on Report, which noble Lords have discussed. Companies House already reports on many of the items set out in these new amendments and, in many cases, actually goes much further, either through its annual report or via quarterly and annual statistical releases. Legislating to duplicate this, given the new reporting duty at Clause 187, seems unnecessary.

It is important that any report is holistic and of use to Parliament and the wider public. It should provide the necessary context to facilitate an informed view of performance, which would be difficult based solely on the raw data that these amendments propose. However, I agree that some of the new items of data identified in these amendments could be of interest. The noble Lord, Lord Vaux, raised some specific points, which I believe are already covered in part in some of the quarterly filings. In any event, if they are not, they are certainly worthy of discussion. I am happy to explore with Companies House officials how they might incorporate these into their reporting without the need for this statutory requirement.

It may be worth returning to some of the comments from the noble Lord, Lord Coaker, to cover some of the key points raised. Under Amendment 72, each report must

“provide annual data on … the number of cases referred by the registrar to law enforcement bodies and anti-money-laundering supervisors”.

As I understand it, this is already enabled via the Commons amendment and is expected to be included. Also in Amendment 72, each report must provide annual data on

“the total number of company incorporations to the registrar, and the number of company incorporations by authorised corporate service providers to the registrar”.

These incorporations are published quarterly via the statistical release. The amendment says that each report must

“detail all instances in which exemption powers have been used by the Secretary of State”—

which is also covered by the government amendment—and

“confirm that the registrar has sufficient financial resources to meet its objectives”.

The registrar’s resources will continue to come from fees, which will be set according to how much activity Ministers want to be undertaken. Also, each report must

“provide annual data on … the number of companies that have been struck off by the registrar”

and

“the number and value of fines”.

Removals from the register are already reported on quarterly. The number and value of late-filing penalties are published in annual management information tables.

That just gives the Committee reassurance that there is already a great deal of detail published, and we will be looking to publish more. I look forward to a discussion with noble Lords on specific areas that we can cover; I am sure that my officials are looking forward to those discussions. This is all about the sort of data we provide that allows us to run an effective and transparent company system in this country. But I am very reluctant to legislate specifically, according to these amendments, given what I have said and our commitment to making sure that we are publishing useful information.

I will cover the comments from some of your Lordships relating to the supposed sunsetting of requirements to report. As I understand it—I may have misunderstood, but I hope I have not—the purpose of the clauses on six-month and annual reporting relates to the implementation of changes in Companies House that will bring it up to the standards at which we wish to see it operating. At that point, the reports will be included in annual and/or regular reports. It is not that reporting ends, but that it becomes commonplace to report on the data rather than necessarily on the changes that we are instigating to Companies House. I am happy to clarify that further, if my description was not accurate enough.

[Baroness Bowles of Berkhamsted (LD)]

Clause 187 says

“on the implementation and operation”.

Therefore, I hoped there would be ongoing commentary and reporting on the operation. I accept that the sunset clause implies that it is about transient stuff, but if the operation—it must be the ongoing operation because it might break down; we do not know—is included in other reports, I would be satisfied. If it is not, I suggest that we need to keep Clause 187 going.

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[Lord Johnson of Lainston (Con)]

I believe we will have further discussions on that point, yes.

[Baroness Bowles of Berkhamsted (LD)]

When the Minister replied to me he used the word “data” rather than “operation”. There is a difference between data and operation. This might not be something that he can instantly resolve, but the ongoing concern is about not just the data but the operation of Companies House. Those are two different things.

[Lord Johnson of Lainston (Con)]

I thank the noble Baroness for that point. There are two separate components to that, one of which is the data and/or requirements tabled in these amendments, which are relevant to understanding the activities of Companies House and ensuring that we have a comprehensive assessment of what they are. The second point is that there is the assumption that, over the next six or seven years, Companies House will have reached its operational capability to deliver on providing the relevant data, so we have a good deal of time to assess whether that has been achieved. There is a potential for Companies House to achieve its ambitions before 2030, at which point it would settle into business as usual reporting.

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I think it was the noble Lord, Lord Browne, who mentioned the Prime Minister’s five objectives. I am delighted when a Member of the Opposition refers to the Prime Minister in such complimentary terms. There are four objectives in this Bill, in Clause 1. Let us get them right. Let us fund them and ensure that the way in which we create and enact this Bill enables Companies House and our law enforcement authorities to do a real job—and do it properly and quickly.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I signed the amendments in the name of the noble Lord, Lord Agnew. I am generally in favour of what has been said already regarding the need to increase the funding for Companies House. I was a member of the fraud committee. When we were looking at Companies House, we were astonished that we still had this ridiculously small registration fee. We thought that Companies House needed more to upgrade in the way now envisaged in this Bill; we did recommend an increase.

We were also taken to some extent with the notion of hypothecation of funds. One might say that nobody likes that idea because they think that they are getting perverse incentives and things are going wrong from that perspective, as the noble and learned Lord, Lord Garnier, elaborated. However, the fact is that our prosecutors are underresourced. When recommending these hypothecations, some us may feel that it is a last resort. Well, that is what it is; there is no other way to get the sort of money that will allow adequate prosecutions into the system.

From my point of view, it does not matter how you get the money in. We have to accept that we need better-funded regulators and better-funded prosecutors in general. It is no coincidence that, whenever there is any kind of scandal, as happens a lot in financial services—about which I know rather more—it is always in the United States that they manage to prosecute them. That is because they have this hypothecation of fines, they have lots of money and they can pin them down. We cannot do that for all kinds of reasons. We cannot keep on being the poor, weak cousins where you will never be for the high jump, you will never be prosecuted and we are still the financial laundromat.

Hypothecation may not be ideal; the Treasury would lose the money, of course, so it would still come from the public purse. Well, why not put it there adequately from the public purse in the first place? I do not see the raising of Companies House fees to £100 as money for legal enforcement; I see it as raising money so that Companies House can be much better and much more advanced and do all the things it needs to do, perhaps more quickly, because a lot of expenditure will be required on technology. It is ridiculous to have this £10; it could be £100, and we could deal with the issue of getting decent enforcement separately.

[Lord Faulks (Non-Afl)]

My Lords, to take up the noble Baroness’s final point on technology, in the very helpful session we had yesterday—unfortunately the Minister could not be there—we were provided with some written information about the use of technology that was going to develop. I asked about artificial intelligence. Either in the course of answering these amendments or generally, could the Minister assist us as to how, with this increasing amount of information that Companies House will now have, artificial intelligence will allow it and the prosecuting authorities to have a great deal more information to put two and two together, which will assist with this legislation’s overall objectives?

Economic Crime and Corporate Transparency Bill

Baroness Bowles of Berkhamsted Excerpts

Committee stage
Monday 27th March 2023 Grand Committee

[Lord Leigh of Hurley (Con)]

When my noble friend the Minister replies to this debate, I wonder whether he would consider accepting the amendment in due course with a de minimis size qualification. This would be quite onerous for a large number of private companies, such as family businesses, where ownership changes quite regularly, and small businesses that have enough to do without worrying about perfectly innocent share transfers. For larger companies—public companies in particular—this may not be too onerous. I remind the House of my comments at Second Reading that the Quoted Companies Alliance had calculated that the average public company accounts now comprise 95,000 words—no one is keen to add any more words to that. I would certainly not wish to see this apply to private and SME businesses.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I support these amendments. I have listened to what the noble Lord, Lord Leigh, has said and will perhaps think about that. I should declare my interest as a director of the London Stock Exchange. At 5% ownership, there are significant things that can be done: if it is a public company, at 5% you can apply to the court to prevent it going private. That is a significant power, and we ought to know that it is applied properly. I guess the court would find out if you were not who you said you were; nevertheless, you might be masquerading as such and could still have influence—you could call general meetings and propose resolutions. These are all events that could have a significant effect on companies of all sizes. I tend to feel, therefore, that other shareholders need to know that things have been properly verified.

I have sympathy for the SME angle and will think about it further. However, just because you are small does not mean that you do not need to know some of these things, including who might have an exercisable right which you know has been verified. I would probably follow suit in the decision on persons with significant control: if you are going to exempt SMEs, they should be exempted for both; if they are going to be included, they should be included in both. I am still veering towards including them, simply because it is a substantial power. There are plenty of private SMEs in which people have significant sums invested, and I do not really see that they should be protected any less from not having full awareness of who really holds these powers to do things or of whether they are sheltering a nominee.

At the moment, my tendency is to support both of these amendments as they stand, with the caveat that I will go away and think a bit about whether this would be too onerous for SMEs. We have to remember, however, that the “M”s of SMEs can be quite big.

[Lord Faulks (Non-Afl)]

I am not wholly convinced that what you would be required to do under this amendment is very onerous. I remember looking at this when we were examining the desirability of transparency in relation to ownership of shares. Presuming bad actors—although this is, I hope, infrequently the case—it is very easy for someone to, as it were, redistribute their shares to smaller packages if they wanted to conceal their identity. I am not saying that that is what people do most of the time, but it would be more difficult if there were an obligation to disclose of the sort contained in this amendment.

--- Later in debate ---

[Lord Thomas of Gresford (LD)]

My Lords, to add to the point that has been made, if the burden of proof is going to be changed so the defendant has to prove his innocence, it is essential that the clause be carefully drafted to make that clear. Otherwise a judge who is trying to direct a jury really does not know how to do it.

[Baroness Bowles of Berkhamsted (LD)]

I am struggling, as are others, with the wording in subsection (2) about

“every officer of the entity who is in default”

because I do not know what “default” means. In most of these circumstances, this may be something that is filled in by the company secretary and they do not necessarily get the approval of everybody who might end up being in default. I would like to know more about that.

In his introduction, the Minister said this was bringing the Bill into line with what was in the Economic Crime (Transparency and Enforcement) Act 2022. I am afraid I have been rather busy on other Bills so maybe I have not read everything that I should have about this one. I did the last economic crime Bill but I am not sure what is being referenced there, will the Minister elaborate on what this is being brought into line with because I am a bit confused? If what is said here is exactly the same as what has been said in that Act then we also have a mistake there that we need to correct if its wording is as ambiguous as this.