Economic Crime and Corporate Transparency Bill

Debate between Lord Agnew of Oulton and Lord Leigh of Hurley

Committee stage
Tuesday 9th May 2023 Grand Committee

[Lord Agnew of Oulton (Con)]

My Lords, this amendment would help to protect enforcement bodies from the serious risk of high adverse costs when undertaking recovery action against deep-pocketed suspects who can afford the very best legal representation. This risk creates a huge downward pressure on law enforcement activity. The Government introduced a new costs order in March last year for the use of unexplained wealth orders; we have talked about those a lot. It ensured that costs would not be awarded unless the law enforcement authority had acted unreasonably, dishonestly or improperly.

UWOs are just one tool for recovering assets in the UK’s recovery regime and, as we have discussed this evening, are arguably less important in the eyes of law enforcement than other recovery tools. Extending the costs orders introduced in the ECA 2022 would significantly increase the appetite for undertaking recovery cases and inevitably lead to more asset recovery. Even the Law Commission in a recent report recommended that in confiscation hearings following a criminal trial, if the prosecution is unsuccessful but can argue that their application was reasonable, each side bears its own costs. Given that this is a Law Commission recommendation for criminal confiscation and that limited liability for costs has been introduced for UWOs, we are proposing to extend this limited liability to all cases of civil criminal asset recovery.

Civil society and civil servants at the NCA and the SFO have all reported that adverse costs can play an important role in cutting agencies’ appetite to pursue costs. In fact, no cases seem to have been undertaken against Russians in the UK since the outbreak of the Ukrainian invasion. Evidence I have heard from law enforcement bodies suggests that there is a significant caseload of potentially high-risk cases in the pipeline which bring significant cost risks. This includes more than 60 cases being reviewed by one prosecution authority with close to £1 billion in assets frozen by an enforcement body.

Tackling kleptocrats and politically exposed persons will involve going against the very best and most expensive lawyers, unpicking complex corporate vehicles and reams of evidence. Cost exposure poses a real hurdle to the use of civil recovery. In addition, as we have heard so often during this series of Grand Committees, this is not a party-political issue. Indeed, it has been raised previously by Conservative MP Nigel Mills, who sought an amendment during the passage of the Criminal Finances Act 2017, which we heard about briefly from the noble Lord, Lord Faulks, so that the costs could be awarded on an indemnity basis.

In the six years or so that have elapsed since then, we have had the huge move in principle by the Government to allow this capping to take effect for UWOs. Given that that Rubicon has been crossed, I simply do not understand why the Government are reluctant to extend it. We hear so often in the rebuttal of our amendments that it is not the right time, there is no room in the legislative calendar, the cost is too great and the principles are not there, but this is a situation where none of those issues exists. The Government accept that the principle can apply in some forms of recovery. All I ask for in this amendment is that we broaden the scope of the cost capping, which will dramatically improve our ability to go after some of these bad actors. I beg to move.

[Lord Leigh of Hurley (Con)]

My Lords, I will speak to this amendment, which I have signed. Once again, I find myself agreeing with every word that my noble friend Lord Agnew has said, so I will be very brief.

The extension of a new cost regime to all of Part 5 of POCA in the case of economic crime would encourage law enforcement bodies to act ambitiously but also reasonably in bringing civil recovery cases, and it has the potential to ensure that significantly more stolen assets and proceeds of fraud and corruption can be recovered and returned to the victims—as we would all want—but also reinvested back into law enforcement agencies themselves, which is the major problem, through the asset recovery incentivisation scheme. That would help them enhance their capacities and give them the confidence to go after cases which they are not doing at the moment.

A number of us had the honour to be briefed by Bill Browder on the Bill. Of the many subjects that we discussed, this was the one amendment that he felt would be helpful and useful for us to pass. What greater man is there than Bill Browder to suggest to us that we adopt a particular route? If the man can create a Magnitsky Act which has been adopted by pretty much every civilised country in the world, perhaps we can just take one clause in this Bill to enhance our fight against economic crime.

Economic Crime and Corporate Transparency Bill

Debate between Lord Agnew of Oulton and Lord Leigh of Hurley

Committee stage
Tuesday 25th April 2023 Grand Committee

[Lord Agnew of Oulton (Con)]

My Lords, my Amendment 79 asks that HMRC be given a specific requirement to prioritise the exercise of its AML supervisory role. The reason I ask is the criticism that the Government have raised against HMRC. The Financial Action Task Force observed that tax issues

“carried too much weight compared to other”

money laundering risk factors. It is concerning that HMRC has a repeated tendency to view AML risks from a more narrow tax perspective instead of considering a broader set of AML risks, despite being identified as a weakness. That is not my diagnosis but the Government’s diagnosis of the problem.

I raised several specific issues in our previous days in Committee, but they are absolutely relevant to support this amendment. The most recent assessment of HMRC’s effectiveness in this area showed that it was failing to keep pace with the requirement to register a business within 45 days, with performance worsening over the year from 78% in 2020-21 to only 70.71% in 2021-22. In practice, this means that more businesses—nearly one-third—are operating outside the scope of its supervision for longer periods than in previous years.

The next point is that the self-assessment highlights issues in the ECS recruitment process and delays in appointing staff, which have resulted in existing staff members being asked to fill in with training duties. That goes back to my earlier point on the last amendment about the lack of qualified resource. HMRC discloses that there continues to be delays in publishing guidance for businesses under its supervision on the steps required to meet their regulatory obligations as well as on responding to specific money laundering risks.

Fourthly, the volume of face-to-face visits conducted by HMRC has slowed down—there has been a downward tendency in the number of on-site visits. There were 1,265 in 2018-19, and in the year 2021-22 that had slumped to 289—for most people, Covid was behind us, so I am not sure that that is an entirely legitimate explanation.

The next point is that HMRC has not yet used civil powers it has at its disposal to issue censuring statements for failing to comply with the MLR, or injunction powers to prevent a future breach. Again, I am sure that is happening because it simply does not have the resources available.

Lastly, an increase shows signs that HMRC is ramping up its enforcement as a supervisor, but the penalty amounts being recovered are reducing. A total of £44.8 million in fines were issued between 2018-19 and 2021-22 have now been revised down to just £8.6 million. Again, I am sure that this all goes back to resource and specifically to focus.

As I said in my opening comments—I know this from my experience of being an HMRC oversight Minister for Brexit border readiness—there is a huge cultural focus on tax collection in HMRC. There is nothing wrong with that, but this is a first cousin and it is HMRC’s responsibility to look after this stuff, and, frankly, it is not doing the job properly. My amendment would simply put some focus on that in the Bill. Again, I know from my experience as a Minister for five years that officials respond to these kinds of controls in the way they manage the resources in their department. I hope my noble friend the Minister will listen. I beg to move.

[Lord Leigh of Hurley (Con)]

My Lords, I will make a disclosure further to my subsequent disclosure of being a member of the Institute of Chartered Accountants in England and Wales; I am also a member of the Chartered Institute of Taxation, also by examination, which means that in theory I am capable of giving tax advice but, sadly, not in respect of anything after 1985. None the less, I feel that I should disclose that when discussing this issue.

It is customary to congratulate a noble friend on the introduction of an amendment, and I very much congratulate my noble friend on the introduction of this amendment. He speaks with great knowledge of the inside track of what is going on in the Treasury, and he is the one person who stood up against potential fraud taking place. As such, I hope that my noble friend the Minister, the noble Lord, Lord Sharpe of Epsom, will listen to my noble friend’s words. I appreciate that this has been thrust upon the Minister and it is not normal Home Office territory; it is not even the Business and Trade territory of my noble friend Lord Johnson of Lainston but Treasury territory.

However, this amendment is particularly important. It seeks to amend the HMRC Act of 2005. The problem with the Act as it stands is that it does not make stopping tax avoidance or even evasion a big enough priority for HMRC, and as a result HMRC views it as part of a sort of cost-benefit analysis rather than as a deterrent. This is particularly worrying with regards to VAT, where VAT avoidance can distort competition. As a result, the EU Commission used to occupy an oversight function with regard to the application of VAT and would always take action where a member state did something with VAT that distorted competition. For example, Italy tried to give an amnesty to companies which had not paid VAT in order to save money in Italy, but the Commission stepped in and stopped that. However, now it has lost that oversight, so the question is: who polices HMRC with regard to the application of VAT?

Noble Lords will recall that we discussed at Second Reading the case of 11,000 Chinese businesses that registered themselves at the flat of a Mr Dylan Davies in Wales, who was subsequently pursued by HMRC and the bailiffs for unpaid VAT. When we discussed the issue, we referred to it from a Companies House perspective, which had not picked up that 11,000 companies were registered in a two-bedroom flat in Wales. Actually, HMRC should have picked up on that; had this amendment been in place, maybe it would have done so. There is a history of HMRC not seeking to pursue fraud, never mind money laundering, so the very least we can do is make sure that it has a duty to detect money laundering where it sees it. I am indebted to Richard Allen of RAVAS, who has pretty much run a one-man campaign against VAT fraud and highlighted these sorts of issues. There are clearly other issues in the 2005 Act, but this is an opportunity to plug one very important hole.

Economic Crime and Corporate Transparency Bill

Debate between Lord Agnew of Oulton and Lord Leigh of Hurley

Committee stage
Monday 27th March 2023 Grand Committee

[Lord Leigh of Hurley (Con)]

My Lords, I again welcome this Bill, as I set out at Second Reading. My noble friend is right: it has all-party support and is sorely needed. Likewise, it is reassuring to see the large number of amendments tabled by the Government, reflecting, no doubt, the views that your Lordships expressed at Second Reading and possibly some of those from the other House earlier.

My noble friend says that the aim is to improve the system through the legislation and I believe that my Amendment 2, supported by Amendments 55, 57 and 58, goes some way to help that. Likewise, I declare a conflict of interest, in that I am a shareholder and a director of a number of small private companies. One large company might be in the book, but they are mostly SMEs. Therefore, my relationship with Companies House is, like that of every director of every company, important. In my day-to-day activity as an investment banker, I frequently look to accounts in Companies House for information. It is an invaluable tool; compared to arrangements in other countries, particularly the United States, it is a real asset for information flow about businesses.

My amendment seeks to ensure accuracy, specifically in respect of tagging. As I explained at Second Reading, this is key. Company accounts used to be provided on paper or on a PDF, which is essentially paper form, and they are now filed using digital formats that tag each item with a label so that it can be recognised by downstream processing systems. Unfortunately, as I read it, there is no requirement in the Bill for internal consistencies, so tagging errors will not be picked up. That is needed to ensure that none of the data is self-contradictory and that it matches other data in the previous year’s accounts or tags internally to the document. I note that my noble friend’s amendment is a sweep-all amendment, covering wider matters, but the amendment that I am proposing is specific.

Perhaps it will help if I give an example. Imagine that an oligarch is a director of a company and his name, quite correctly, appears on the accounts, but the name has not been tagged or has been tagged as something other than his correct name. When a smart fraud detection mechanism is used by way of a search, that name will not emerge. Accountants will argue that the accounts are complete as the name is there, but if that name has not been tagged correctly, the filing will be of no use electronically, and therefore it is essential that the accounts are consistent internally. At the moment, the registrar can refuse to accept accounts only where they are inconsistent with outside information, so my amendment seeks to close what I see as that loophole.

I welcome the amendment to this clause tabled by the noble Lord, Lord Coaker, but I do not believe it covers my point. Likewise, I particularly welcome my noble friend Lord Agnew’s amendment, which sets the tone but, again, does not cover this point.

[Lord Agnew of Oulton (Con)]

My Lords, I have tabled Amendment 63 to Clause 90. I refer to my interests as set out in the register. I am a director of several companies and a person with significant control of an LLP, so I have had a lot of interaction with Companies House over the years.

My amendment might sound rather anodyne, but the amendments I have tabled to the Bill are the first building blocks of the transformational change that will be needed in Companies House once this Bill has been passed. We are taking an organisation that ever since its creation has simply been a passive receiver of data and has never had any cultural inclination to challenge it. This Bill changes that, which we welcome, and I am most grateful to my noble friend the Minister for all his positive engagement so far. What I am asking for here is a direct and specific requirement for the registrar to construct a process that will enable her essentially to triage the cases that are coming through the system. As my noble friend the Minister said, there are 5 million companies on the register and some 300,000 to 400,000 new companies are created annually.

When the Bill is passed we will have a problem with what I call stock and flow—in other words, a huge cleaning-up operation of the 5 million companies that are already there will be needed, and that will take some time. We also need to ensure, as quickly as possible after the Bill has passed, that the new registrations coming through are of the highest standard possible. Essentially, I am asking for the registrar to be required to make a risk assessment of new companies being created. One example that is well known in the financial word is that of Danske Bank in Denmark, which was the largest ever anti-money laundering fraud case in Europe, worth some €200 billion. Much of that started here through our LLP and LP structures. It would not have been difficult to have seen that there were trends among a lot of the LLPs that were being created. Many of them were coming from the same registration agent and with similar, often the same, addresses. That would have been a serious red flag that could have been investigated.

I am trying not to the rewrite the past but to set the tone for the future. It will not be realistic for the registrar to go into enormous detail on every registration, but if she builds a triaging system at the beginning, with a series of red flags, in aggregate the ones with the most red flags will be the ones that need priority. When I was the Minister for Grants, I discovered that we were doling out £30 billion a year in grants, but we had no system to assess the validity of the people receiving the grants. We put in place one very simple piece of software called Quantexa which shows immediately all the connections of the person making the grant to other people who are not necessarily good actors in the system. It cost £1 or £2 a go, or maybe £5 a go, but it had a dramatic impact very quickly. It is those sorts of tools that Companies House in its new format will need to use. I am not specifying an app, but I am most anxious that the Minister considers my amendment and includes it as one of his own.

Covid-19: Public Wealth Investment Fund

Debate between Lord Agnew of Oulton and Lord Leigh of Hurley

Tuesday 9th June 2020 Lords Chamber

[Lord Agnew of Oulton [V]]

I agree with the noble Lord on the role of the British Business Bank, which has played an extremely important part in the economy over the last few years. It has given some £7 billion of finance to almost 95,000 SMEs and has been part of the distribution for much of the support over the last few months. We will continue to review the greater part that it can play.

[Lord Leigh of Hurley (Con) [V]]

My Lords, I refer to my register of interests. There is no question that we need some sort of public wealth investment bank to replace CBILS—perhaps using the old model that 3i had. However, the BBB is not the answer. It does not have the mechanics, the experience or the expertise to make the direct investments in SMEs that are badly needed. Would my noble friend meet me and other practitioners to discuss the mechanics of how we can get relatively small equity investments into SMEs in the very near future?

[Lord Agnew of Oulton [V]]

I am very happy to meet my noble friend to discuss that, but I stress that we expect the private sector to step up to the mark in investing in these small businesses in future. We have the EIS and the SEIS, and we will continue to review them.