Economic Crime and Corporate Transparency Bill

Baroness Bowles of Berkhamsted Excerpts

Report stage
Tuesday 27th June 2023 Lords Chamber

[Baroness Morgan of Cotes (Con)]

My Lords, I will speak briefly to this group. I thank my noble friend the Minister for the steps that the Government have taken in relation to the failure to prevent fraud offence and the identification doctrine. These are significant steps, and he is right to say that they will obviously be followed up in future Bills.

It is worth remembering the scale of fraud in England and Wales in particular. Some 40% of crime is fraud against individuals, and clearly the scale of the cases against small, medium-sized and large businesses is also devastating. On Friday, we will debate the wider issues relating to fraud looked at by the committee on digital fraud, which I was privileged to chair. I am grateful that, from that committee and the work with my noble friend, the Fraud Strategy was published in early May.

I support my noble and learned friend Lord Garnier’s Amendment 110 and the associated Amendment 121, and have added my name to them. He and the noble Lord, Lord Vaux, set out clearly why these amendments are necessary. There is no SME exemption in the Bribery Act or in relation to tax evasion.

I want to take on one of the points raised by my noble friend Lord Leigh. He talked about the survival of SMEs, and he is of course right to do so. I have not set up a small business but I have set up a small charity, and many of the issues are similar. If that small business or small charity were the victim of fraud, it would be absolutely devastating. One of the arguments here is the burden on small businesses of having to set up fraud-prevention measures, but they have to do it anyway these days because they have to be very cautious about anyone attempting invoice fraud or utility fraud. If they have an employee, they have to make sure that they are making best use and correct use of the corporate credit card, for example.

Noble Lords rightly referred to Clause 192 and the guidance that the Government will publish. We already have an example of it, as the Government have published the outline of how it would look. If this amendment is passed, it would be perfectly within the rights of the Government to set out clearly how that guidance should be interpreted by small and medium-sized enterprises, which are quite used to reading extensive amounts of guidance. If we want to have a broader debate about red tape and regulation, that is perhaps for another day, but they are used to dealing with much guidance. If they are likely to be victims of fraud, they will take that guidance very seriously.

I support these amendments and I support my noble and learned friend’s Amendment 125A on expanding the failure to prevent offence to money laundering. If we are going to introduce the failure to prevent offence, which I thoroughly welcome, we might as well do it properly and expand it to money laundering, which is also a huge a problem and one that the Bill seeks to tackle as well.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, my name is on several amendments relating to failure to prevent fraud, and I support what has been said already and what was said extensively in Grand Committee on both failure to prevent fraud and the identification doctrine. If the noble and learned Lord, Lord Garnier, moves his Amendments 110 and 125A, we on these Benches will support them.

I retabled my amendment on regulatory failure to prevent, which was well supported in Committee. I do not intend to move it but I have tabled it as a reminder that we have not yet covered the enablers, as the noble Lord, Lord Vaux, spoke about. This is probably the best route to do so, with regulators being perhaps best able to understand where actions could or could not have been taken. This recommendation was encompassed within the Fraud Act report.

We have, I suppose, gone a long way, and the Government have gone a long way within the remit covered by the Law Commission, which unfortunately included the harm aspect. As a lot of the crime that has come about through this enabling channel has been since that report was commissioned, this is unfinished business; we will necessarily have to come to this again. For now, we should strengthen the government proposals through Amendments 110 and 125A.

[Baroness Blake of Leeds (Lab)]

My Lords, I start by acknowledging the great progress that has been made on the failure to prevent process through the debates in the House of Commons. There was significant movement there, which we of course welcome.

I say at the outset that if the noble and learned Lord, Lord Garnier, is minded to divide the House on Amendments 110 and 125A, he will have the support of these Benches. There are very good reasons for that, as have been outlined in the debate today. The statistics, particularly the 0.5% figure, are startling. Surely, we all need to take this incredibly seriously if, as the noble Baroness, Lady Morgan, said, we are serious about tackling the wider fraud issues, which seem to be growing daily. The numbers of people we all know personally who are affected by this shows the sheer extent of the problem.

I will make the very strong point that the issue of costs and burdens on SMEs has been overemphasised. If these processes are tightened in the way proposed, those very businesses will themselves be protected by the action taken on other companies. In particular, I completely support the extension to the money laundering provision in Amendment 125A.

We have had a really good debate throughout our proceedings on these measures. It would be so disappointing if, at this final stage, we did not go the full distance we can at this point, recognising, as we know, that more will need to be done in the future. We have the opportunity now and we should seize it.

Economic Crime and Corporate Transparency Bill

Baroness Bowles of Berkhamsted Excerpts

Committee stage
Tuesday 9th May 2023 Grand Committee

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I, too, added my name to this amendment, which is supported by these Benches. This issue gets us back to David versus Goliath, which we have mentioned in previous groups. Unfortunately, the culprits are Goliath, and our prosecutors are left having to face culprits with far deeper pockets than theirs. There are alternatives, such as creating larger budgets for prosecutors, that have already been dismissed.

Maybe within asset recovery there is some glimmer of attracting a better recompense, but that is not a perverse incentive because if the prosecuting authorities took actions improperly and overreached themselves, the safeguarding clause in this amendment would come into operation. In the way the amendment is drafted, there are not perverse incentives but good incentives to bring more actions that are presently not brought simply because they are unaffordable. It makes us a bit of a laughing stock that we have very strong laws in parts but cannot enforce them.

Everything else has been said. I commend this amendment and await with interest to see what excuses the Government come up with not to accept it when the precedent and the need are there and the amendment contains a safeguard and therefore it could be put into operation very effectively and swiftly.

[Lord Trevethin and Oaksey (CB)]

My Lords, I will say a few brief words in support of this amendment and place it in its proper legal context. When it was mentioned at Second Reading, the Government’s response was simply to say that the principle that the loser pays the costs of unsuccessful litigation or an unsuccessful application was regarded as a valuable principle and that they did not see sufficient reason to move away from it in this field. It is a salutary principle and it operates in civil litigation for the most part, but there are exceptions. There are already statutory precedents for a regime of the type that this amendment seeks to create, namely a regime in which the enforcement agency will not invariably have to pay the costs if an application is unsuccessful.

I will say a few words about a different, but quite closely related, area of law in which a regime of the type that this amendment contemplates has been created by the judges. In the field of professional discipline and professional regulation, there has been for some time a well-established principle that the regulator will not automatically have to pay costs merely because the application or prosecution that it has commenced has proved to be unsuccessful. It is known as the Baxendale-Walker principle and works perfectly well in practice.

I shall explain shortly how it works in practice. The proceedings are initiated and the respondent, being a professional person, is expected to engage properly and conscientiously with the regulator and to respond candidly, or with a reasonable degree of candour, to the points being made against him or it. If the regulator then continues unreasonably with the prosecution or disciplinary action and fails, it will be made to pay the costs of the matter. However, if the regulator at all times acts reasonably, the presumption will be that it will not be made to pay the costs of the matter.

The reason why the law has created that regime is precisely the reason that is contemplated by this amendment—namely, that it is strongly in the public interest that regulators and enforcement agencies should not be deterred from bringing proper proceedings by the risk of paying exorbitant costs bills to respondents who manage to successfully resist the application in question.

I think I have said enough to convey the point. I really do not understand why the Government are so reluctant to consider introducing a regime of this sort more widely across the field of economic crime. It already exists in relation to certain types of economic crime, and it works well in the field that I have mentioned. I would be very interested to hear the Minister’s response.

[Lord Sharpe of Epsom (Con)]

My Lords, I thank my noble friend Lord Agnew for tabling this amendment and all noble Lords for the points they have raised in this debate. Again, I reassure the Committee that the Government take economic crime very seriously and are taking the necessary steps to ensure that enforcement agencies can tackle illicit financial activities while upholding the fundamental principles that govern our entire civil justice system.

In civil legal proceedings the loser generally pays the legal costs of the winning party, as has been acknowledged. The “loser pays” principle is a fundamental pillar on which the whole basis of civil litigation operates. It helps to ensure that only stronger cases are brought and that the winning party is able to recover reasonable costs of vindicating their case, save for in exceptional circumstances, to ensure access to justice for individuals with very limited resources. While important, civil recovery proceedings brought by enforcement agencies are not so exceptional as to warrant undermining the “loser pays” principle.

Several noble Lords have raised with me, and during this debate, the changes made to the unexplained wealth order regime by the Economic Crime (Transparency and Enforcement) Act 2022. These amended provisions in the Proceeds of Crime Act—POCA—introduce “costs protection” for enforcement agencies in cases of UWOs, unless they act unreasonably. This aimed to remove barriers to the use of UWO powers by relevant law enforcement teams. This was done on the basis that they were exceptional and likely to be low in volume in comparison to other types of civil recovery and, furthermore, that the relevant cost rules would be positioned as a novel and unique proposal, thereby maintaining the overall integrity of the “loser pays” principle in all other civil recovery proceedings. In the last five years, agencies with civil recovery powers—the Crown Prosecution Service, the National Crime Agency, the Serious Fraud Office, the Financial Conduct Authority and HM Revenue and Customs—have not paid any adverse costs for civil recovery proceedings.

There is also no guarantee that the introduction of further costs protection would lead to enforcement agencies pursuing more cases, as they report that each case must be assessed on its own merits considering numerous factors independent of costs liability, including gathering sufficient evidence to pursue a case and internal resourcing capability.

It is also worth bearing in mind that the Civil Procedure Rules, which guide the courts in procedural matters—I think this goes some way to answering the points raised by the noble Lord, Lord Oates—

[Baroness Bowles of Berkhamsted (LD)]

As I interpret what the Minister has said, if the regulator is taking the costs risk into account, that means it will take into account the question: am I up against a really wealthy opponent? Therefore, we will not have equal justice. You are saying that if the person from whom you are trying to recover the asset is particularly wealthy, they will be able to string out the process and do more appeals. That increases your costs risk and, therefore, the wealthy will not be pursued as much as the less wealthy. That is a very bad precedent and another reason why the amendment in the name of the noble Lord, Lord Agnew, is surely needed.

[Lord Sharpe of Epsom (Con)]

The noble Baroness makes an interesting point. I was talking about unexplained wealth orders in respect of the Economic Crime (Transparency and Enforcement) Act 2022. To go over that again, it aimed to remove barriers to the use of UWO powers by relevant law enforcement teams, but it was done on the basis that these were exceptional and likely to be very low in volume in comparison to other types of civil recovery. I do not think that is inconsistent with the argument about this amendment.

Going back to the procedural rules, which guide the courts in procedural matters, these enable judges to use their discretion to limit legal costs in certain circumstances. In appropriate cases, they may be used by agencies when pursuing asset recovery cases and are therefore a more suitable way of limiting costs liability in the few circumstances where this may be needed rather than through wholesale reform of the loser pays principle in civil recovery.

The amendment would overturn the very basis on which the entirety of civil costs and funding is built. It would negatively affect every other category of civil litigation, all for minimal, if any, financial savings in a very limited number of cases—

Economic Crime and Corporate Transparency

Baroness Bowles of Berkhamsted Excerpts

Committee stage
Thursday 27th April 2023 Grand Committee

[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.

--- Later in debate ---

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.

--- Later in debate ---

[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.

Banks: Forged Customer Signatures

Baroness Bowles of Berkhamsted Excerpts

Monday 16th January 2023 Lords Chamber

[Lord Sharpe of Epsom (Con)]

My Lords, my noble friend makes a very sensible point. However, fraud falls within the Financial Conduct Authority’s objective of reducing the risk of financial crime, which impacts its consumer protection objectives. Obviously, the FCA will not hesitate to take the appropriate action against firms which do not meet its standards.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, since the Minister has just raised the Financial Conduct Authority, should it not have a clear objective to prevent fraud, rather than it just being under consumers? Much of this fraud has been perpetrated against small and medium-sized businesses, which are not covered by the consumer protections.

[Lord Sharpe of Epsom (Con)]

The noble Baroness makes an interesting point, which I will happily take back to those who are responsible for overlooking and overseeing the FCA.

Proceeds of Crime Act 2002 (Cash Searches: Code of Practice) Order 2021

Baroness Bowles of Berkhamsted Excerpts

Monday 17th May 2021 Grand Committee

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, I thank the Minister for introducing these instruments, which stem from the Criminal Finances Act. The Minister will no doubt recall that I spent a fair bit of time trying to encourage more and faster steps during the passage of that Act. However, today’s instruments relate to the codes of practice for enforcement, and I wish to speak around that more generally rather than on the particular extension to Northern Ireland.

The codes are important because they give guidance on how officers exercise their functions, and are of interest to persons who may be the subject of the powers. While I have little sympathy for wrongdoers, functions must be exercised lawfully and proportionately. There may also be parties inadvertently dragged into scope. I therefore have no quarrel with the content of these instruments as such, but there are surrounding matters of interest and I am taking the opportunity of the time available for this debate to see whether the Minister can provide some more information.

My first point is that the code of practice will be of use only if it is backed up with a proper and robust training package by the NCA’s Proceeds of Crime Centre. The Home Office’s Asset Recovery Action Plan of July 2019 stated that the Government would conduct an independent review of the Proceeds of Crime Centre by March 2020. Earlier this month, the Government released a statement of progress on the economic crime plan, which states that this review has been completed and its recommendations are being implemented. The fact of that follow-up is good, one supposes, but the review has not actually been published and requests for its release under the Freedom of Information Act have been rejected. Therefore, it is not possible to know what the recommendations from the review that are being implemented are, what the background to those recommendations is or how effective they will be, because the information is not published. Given the centrality of the Proceeds of Crime Centre to ensuring effective training on the code of practice, will the Government make public that review and put a copy in the House of Lords Library? If that is not being done, can the Minister explain why not and what other information is available to Parliament?

My second point relates to the first: these powers will also be effective only if the UK has properly resourced financial investigators and law enforcement to investigate and prosecute for proceeds of crime. Again, there is an unpublished review, in Sir Craig Mackey’s independent review into law enforcement capabilities for tackling serious and organised crime and the cost of implementing the 2018 serious and organised crime strategy. The Government published the executive summary of Sir Craig’s review in March 2021, but that summary does not cover one of the key areas of the review’s terms of reference: the funding for law enforcement to tackle serious and organised crime. That is despite the fact that the review was specifically commissioned in 2019 in the context of the comprehensive spending review. Again, requests for the report or a summary of its recommendations on those matters to be released under the Freedom of Information Act have been rejected.

The Government have committed in their economic crime plan to develop a sustainable long-term resourcing model for economic crime reform. As part of that they have announced that they will introduce an economic crime levy, which they expect to bring in £100 million per year. The consultation closed in October last year and we are still waiting for its results. They have also made a one-year £63 million settlement with the Home Office to tackle economic crime, but the director-general of the NCA said in 2019 that the UK needed a £2.7 billion investment over three years in tackling serious and organised crime, which was estimated to cost the UK at least £37 billion a year. Without serious funding, these codes of practice will surely be used a lot less than they might be.

Will the full review be published? If not, why not? What further information will be given to Parliament? Without publication of the reviews, one is left to postulate that the content is embarrassing, but right now the embarrassment is in the extent of organised crime, and that ultimately it falls as a cost on society and the individual, yet the numbers indicate it should be possible to recover far more.

Finally, the code of practice lays out how law enforcement can use unexplained wealth orders, among other investigative tools. However, recent case law, the Baker judgment, has exposed significant gaps in the legislation for implementing unexplained wealth orders and exposed how, without greater protection against costs, law enforcers are unlikely to use these tools against wealthy, litigious kleptocrats, if at all. It has been suggested that there might be additional reforms, such as allowing production orders to be used before an account freezing order needs to be made. Is that reform something that the Government intend to pursue?

[The Deputy Chairman of Committees (Lord Haskel) (Lab)]

The noble Baroness, Lady Eaton, has withdrawn, so I call the noble Lord, Lord Dodds.

Criminal Finances Bill

Baroness Bowles of Berkhamsted Excerpts

Committee: 2nd sitting (Hansard): House of Lords
Monday 3rd April 2017 Lords Chamber

Moved by

[Baroness Bowles of Berkhamsted]

161: Clause 42, page 107, line 27, at end insert—“(9) The Secretary of State may by regulations made by statutory instrument create, amend or remove further facilitation offences in respect of economic crimes other than UK tax evasion.(10) Regulations under subsection (9) may create offences conferring liability on a relevant body where a person commits an economic crime when acting in the capacity of a person associated with the relevant body.(11) Regulations made under subsection (9) must contain the safeguards set out under subsections (2) to (8) and sections 44 to 47.(12) For the purposes of subsections (9) and (10), “economic crimes” means any of the offences listed 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) with the exception of an offence under section 1 of the Theft Act 1968.(13) A statutory instrument containing regulations under subsection (9) may not provide for more than one facilitation offence, but, for the avoidance of doubt, more than one statutory instrument may be made under subsection (9).(14) A statutory instrument containing regulations under subsection (9) 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 Bill creates a second failure to prevent or facilitation offence for tax evasion, the first such offence being in the Bribery Act. It therefore makes sense to have an extended family of failure to prevent offences for other serious crimes for which the UK has spectacularly failed to prosecute large companies. The purpose of this type of offence, along with a defence of due diligence, is to make companies have better prevention procedures as well as providing deterrent and punishment. These offences have a far-reaching effect on corporate governance and culture, encouraging own-up instead of cover-up, responsibility instead of denial. I do not know how many more times it is necessary to listen to the public outcry, but public trust in business is at an all-time low, as reported in the International Business Times in January. There is an urgent need to fix a problem we have known about for a long time.

Amendment 161 and Amendment 163—the alternative, narrower version—explore putting additional failure to prevent offences into the Bill and bringing them into effect later. I suggest creating an option in this way because it gives time to evaluate the recent call for evidence and because of the limited legislative opportunities due to Brexit. Amendment 161 is broader and more flexible and uses a statutory instrument to introduce further failure to prevent-type offences. I know that sounds a bit scary, so I encourage noble Lords to look at the whole of the amendment, because there are significant constraints on the SI’s content. First, as specified in proposed new subsection (11), the new offences “must” have the same safeguards and procedures that the Bill introduces for tax avoidance. Importantly, this will include due diligence defence and provision of guidance concerning procedures for preventing the offence.

Secondly, the new offences are not plucked from thin air. Proposed new subsection (12) states that they have to be from the serious crimes listed in the Crime and Courts Act for which deferred prosecution agreements are possible. That list can be added to under that Act, but it will always be for serious crimes. Thirdly, to compensate for the flexibility, proposed new subsection (13) provides that each SI should introduce only one offence. The idea here is that each receives individual consideration and scrutiny.

Amendment 163 is the narrowest way I can see to pursue the same objective. It creates four specific additional offences and provides for separate commencement from the general commencement provisions in the Bill. There is also a sunset clause so that, if the decision is not to commence, there is no hanging about. The four offences are those named in the Government’s call for evidence: common law fraud, statutory fraud, money laundering and Theft Act false accounting. These are the high-profile and costly areas where we have failed to prosecute large companies. As before, the defence guidelines and procedures follow the same pattern. That is important for businesses so that there is no additional complexity.

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[Baroness Williams of Trafford]

My Lords, I would say that the statement a company makes reflects the company, and if a statement of no effort is made, it will be for others to judge the efficacy of that company.

[Baroness Bowles of Berkhamsted]

My Lords, I thank the Minister and other noble Lords for this debate and of course I appreciate that it is a little awkward that the call for evidence and consultation process are lagging behind the progress of the Bill. That is why I had my novel idea that we could put in place a framework here which is only an option. The circumstances are such that it would not be an outcry if the decision was that you had to do it in a different way, so as in my Amendment 163, the provision would just fall away. Of course, that provision would not be introduced by statutory instrument, it is just a delayed commencement. I still feel that there is some mileage in taking a further look at this kind of provision.

As a result of this debate, I think we have the answer to one of the questions in the call for evidence because of what the Government have said that they are thinking of introducing for the four criminal offences I have picked up on and that it may be by statutory instrument for the others. We have heard some good reasons as to why statutory instruments are not such a good idea, and indeed I think the Minister has conceded that. That may be the outcome of the ticks in the call for evidence. I would like to know how many ticks were made in that box; perhaps she could count them and let me know.

I reserve the right to have another go along the lines of Amendment 163, but at this stage I beg leave to withdraw the amendment.

Amendment 161 withdrawn.

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[Lord Kennedy of Southwark]

My Lords, Amendment 164, proposed by myself and my noble friend Lord Rosser, seeks to add a new clause to Part 3 of the Bill requiring the Secretary of State to publish a report on the number of companies that have been excluded from tendering for public sector contracts, or had an existing contract terminated as a result of being charged with the offence of failing to prevent the facilitation of UK or foreign tax evasion offences. The more light that is shone into the whole area of corporate failure in respect of tax evasion, the better, as this in itself would force companies that are sloppy or that do not follow procedures to take more notice of the provisions, take greater care and be clear that the Government and the tax authorities do not take such matters lightly.

Amendment 165, again in my name and that of my noble friend Lord Rosser, would be, in effect, a supervision order imposed by a court on a company convicted of a serious offence in these matters. The court could appoint a third party, such as an expert or body, to supervise the probation period of companies that co-operate with law enforcement bodies to the extent that they are offered a deferred prosecution agreement. Companies convicted under the Corporate Manslaughter and Corporate Homicide Act 2007 may have an order imposed on them to remedy the management system that allowed the manslaughter to occur. However, there are currently no powers available to a court to impose such an order on companies convicted of non-manslaughter offences which have not co-operated sufficiently with law enforcement agencies for a DPA. The perverse result is that companies that co-operate with law enforcement bodies have greater external scrutiny of their corporate governance programmes than companies that do not co-operate with enforcement agencies. This lack of scrutiny represents a missed opportunity to improve corporate governance among convicted companies, but also a powerful disincentive for companies to co-operate with enforcement authorities.

Corporate probation orders are used in other jurisdictions. The US Sentencing Commission, for instance, has given the courts the power to introduce any probationary condition relating to the nature and circumstances of the entire case when sentencing companies convicted of criminal offences. Introduction of such a power in the UK would add another significant tool to the armoury of courts and prosecutors in dealing with financial crime and ensure that the discrepancy of treatment for companies that co-operate with law enforcement authorities and those that do not is evened out, creating a more level playing field for business.

Amendment 170, in the names of the noble Baronesses, Lady Bowles of Berkhamsted and Lady Kramer, and the right reverend Prelate the Bishop of Oxford, addresses the very real issue that senior executives rarely face any consequences when companies they run engage in criminal activity—a point made numerous times from all sides in Committee. The lack of senior executives being held to account properly is a serious matter of public concern. I look forward to the contribution of the noble Baroness, Lady Bowles, who will shortly be speaking to her amendment, and I beg to move.

[Baroness Bowles of Berkhamsted]

My Lords, I shall indeed speak to Amendment 170 and I thank the noble Lord for his comments on it. This concerns the procedure for disqualification of directors where there has been a criminal conviction of a company, or a deferred prosecution agreement. The amendment seeks to make it possible, following a criminal conviction of a company, for the court to consider whether any directors should be disqualified. This is not seeking to make a criminal conviction against directors—disqualification is a civil procedure—but to put company criminality procedures on a par with that which exists when there is a breach of competition law.

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I hope that, with those words, noble Lords are satisfied with my responses and feel able not to press their amendments.

[Baroness Bowles of Berkhamsted]

The point is that a procedure exists when there is a breach of competition law. That does not have to be referred back to the Secretary of State. There is a subsequent hearing as to whether the director was culpable by not having established the right procedures. It does not automatically say that, if the company is guilty, the directors are guilty. If the circumstance is such that the judge says, “I think we should look further at this”, why should it not then be in the prosecutor’s toolbox to say, “We want to continue smoothly on to the next stage”, which the prosecutor has probably already investigated? It is a civil procedure to disqualify a director, I remind the Minister, so the human rights implications are slightly different. If it works for competition, why can it not work for criminality? It seems to be saying that there is a stricter rule, where directors sit up and take notice of the fact that it looks a little bit more automatic even though the same defence is there. Therefore, it has a huge impact on corporate governance in making sure that the procedures are there. It may even be on a piece of paper on the boardroom table. I have personally heard, “Oh, this is something we can get disqualified for if we don’t get it right”. That is exactly how more boards should be thinking. This kind of procedure induces that. Maybe the Minister can write to me and explain why it is good for competition and not for criminality.

[Baroness Williams of Trafford]

The noble Baroness foxed me when she asked that question the first time and she is still foxing me. I shall write to her before Report because I really do not know the answer.

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.