Economic Crime and Corporate Transparency Bill

Lord Coaker Excerpts

Committee stage
Thursday 11th May 2023 Grand Committee

Moved by

[Lord Coaker]

106D: After Clause 187, insert the following new Clause—
“Compensation for victims of economic crime
(1) The Secretary of State must, within the period of 180 days beginning with the day on which this Act is passed, publish and lay before Parliament a strategy for the potential establishment of a fund for the compensation of victims of economic crime.(2) Any such fund must comprise the proceeds of property recovered under the Proceeds of Crime Act 2002 in relation to economic crime.”Member’s explanatory statement
This new Clause would require the Secretary of State to prepare and publish a strategy on the potential establishment of a fund to provide compensation to victims of economic crime within 180 days of this Act being passed.

[Lord Coaker (Lab)]

Good afternoon, everyone. I want to make just a few remarks on my Amendment 106D, which is obviously a probing amendment seeking some information on the Government’s thinking with respect to compensation for victims of economic crime. The proposed new clause to be inserted by this amendment would require the Government to prepare and publish a wide-ranging strategy on efforts to ensure that the necessary financial compensation is made available to victims of economic crime, wherever they may be. This could and should be applied to victims of international crimes, of which the war in Ukraine is without doubt an example, but it could also be applied more broadly as a means of providing a measure of justice to the victims of any other kleptocratic regime around the world. As I say, the proposed new clause would provide a mechanism for compensating victims of economic crime in the UK, including thousands of British victims of online scams every year. That briefly sets out the purpose of my Amendment 106D.

I thought it might also be helpful to the Committee for me to read into the record from the Government’s Fraud Strategy. As the Minister will know, it is dated May 2023; it does not state the day so I do not know whether there is a later version but that is where we are. I want to do so in case the Committee has not had an opportunity to read the report. I have not read all of it—I have just dipped into it for the purposes of this amendment—but it is quite staggering when you read the statistics. I will quote the report; I hope that the Committee will bear with me because it is important for those who read our proceedings, as many people do, to see the facts as laid out by the Government.

The report—the Government’s own words—states:

“In the year ending December 2022, 1 in 15 adults were victims of fraud. 18% of those victimised became victims more than once. The sums of money involved are staggering. The total cost to society of fraud against individuals in England and Wales was estimated to be at least £6.8 billion in 2019-20. This includes the money lost by victims, the cost of caring for victims, and the costs of recovery, investigation and prosecution of fraudsters”.


It continues:

“In the year ending March 2021, Action Fraud received victim reports totalling a loss of £2.35 billion … There is also considerable cost to business and enterprise. UK Finance, the trade body for the banking and finance industry, reported that in 2021 its members lost over £1.3 billion to fraud”.


The figures just go on. Clearly, this is a huge problem, as all of us recognise.

Can the Minister outline something for us? Among all the points made in the strategy, I could not find anything concrete and specific with regard to compensation. It would be helpful if the Minister could spell out the current arrangements on compensation for victims of fraud. Given the scale of the problem, which the Government have helpfully just published in their Fraud Strategy, what are their proposals in respect of compensating individuals? I know from speaking to Members of the Committee here and many people, including friends and family, that the cost to individuals is immense. It is not just a financial cost but an emotional one; I know that the Minister understands that. It is important for us to know the answers to these questions.

The other point is what the current rules on compensation are, how much someone could expect to get back, what the Government propose to improve that situation, and the perennial question we keep coming back to: how that will be made real.

I found paragraph 7, on page 4 of the strategy, particularly interesting. The Government say:

“We will ensure victims of fraud are reimbursed and supported”.


Again, we go back to previous questions: does that mean under the current reimbursement regime, or are the Government proposing a new one? How will people be “supported”?

I think the noble Lord, Lord Agnew, will be particularly interested in the next sentence, the first part of which says:

“We will … Change the law so that more victims of fraud will get their money back”.


Where in the Bill before us is this change to the law so that more victims of fraud will get their money back? It may well be in here. I am not trying to trip anyone up; I just could not find it myself. It would be helpful if the Minister could point out where it is. If it is not in the Bill, where will that change in the law be put, when is it coming and what change do the Government propose?

The second part says that the Government will:

“Overhaul and streamline fraud communications so that people know how to protect themselves from fraud and how to report it”.


Again, how will the Government “overhaul” and “streamline” those communications? Added to that, how do people know what their rights are and—a question we keep coming back to—how does an individual citizen take on a bank, financial institution or whoever to assert the rights that the Government say they will give them to get compensation back for the money they have lost through fraud? Those are really important questions.

I will stop there. I could go on and on repeating the same thing in different words, but I think the Minister gets the nub of what I am saying, and I think the Committee would be interested to hear the Government’s views, as well as those of other Members of the Committee. With that, I beg to move Amendment 106D.

[The Lord Bishop of St Albans]

I am sorry I have been unable to engage more fully and consistently with this Bill, but this amendment prompted me to come here when I had a few minutes. I was recently speaking to someone I met at a social gathering. In the course of the evening, we were talking about a whole range of things, and he was talking about the fact that he had been defrauded of some money and how it is now materially affecting his retirement. His comment was: “I feel so embarrassed, because I’ve always tended to think it was simple people who didn’t understand financial matters who were likely to lose money. I’m highly literate, I’ve done all the right things, but I’ve been defrauded”. This is having a big effect.

Also, as we are becoming increasingly cashless and more and more transactions are online—it looks like that will be the trajectory for quite some while—there is far more potential for these sorts of frauds. For example, I note that fraud on lost and stolen cards had increased by 30% by 2022 and card ID theft, where a criminal opens or takes over a card account, had almost doubled in the previous year. In other words, this crime is getting worse.

It is in everybody’s interests that we encourage people to use what is, for most of us, a great convenience being able to pay with our cards—but we need to make sure that people have confidence. The statistic that the noble Lord, Lord Coaker, gave us—that one in 15 adults has been a victim—is particularly interesting. In other words, it is now widely assumed among groups of ordinary people chatting that this is a very real problem. There is a good side to that—hopefully, we are being far more cautious and savvy—but, nevertheless, that will not encourage people to invest and use some of the financial services that we might hope they will as they plan their retirements.

I just want to add my words of encouragement and ask the Government whether they can give us some idea about whether this amendment, or something similar, might be a way forward. It would give people confidence if they knew that there was clear and simple way to find redress when they were a victim of fraud. Also, could this be built on in some way, not least because the proceeds of property recovered under this future Act could then be directed towards compensation?

--- Later in debate ---

[The Parliamentary Under-Secretary of State for Migration and Borders (Lord Sharpe of Epsom) (Con)]

My Lords, I thank the noble Lord, Lord Coaker, for this amendment. Of course, the Government take the compensation of victims of economic crime very seriously, as it is crucial for limiting the harm of these ruthless crimes.

The noble Lord referred to the fraud strategy. I will come back to that in a second. Of course, the object of that exercise, as well as going after stolen money, is to prevent it happening in the first place. So this has to be considered in the round. These are obviously anti-crime measures, as well as enforcement and mitigation measures.

I completely agree with the noble Lord, Lord Fox: fraud is an attack on growth and we should bear in that in mind. Fraud and the reimbursement of fraud, as we know, costs the banks many billions a year already under the existing arrangements, which I will come back to. Clearly, somebody has to pay for that and it is not easy for society to bear, never mind the banks themselves.

Asset recovery powers under the Proceeds of Crime Act 2002 already provide the court with the ability to prioritise the payment of compensation orders to victims. We have had extensive conversations on all manner of asset seizures and reimbursements, including on the Ukraine question, to which the noble Lord, Lord Fox, just referred. I have absolutely no doubt that those conversations will continue. We are looking at the situation that he described, which developed, as I understand it, overnight. I do not know the details—we will find out.

The Government are legislating, through the Financial Service and Markets Bill, to remove any regulatory barriers to the Payment Systems Regulator making reimbursement mandatory for victims defrauded through the faster payments system. We are therefore already taking active steps to improve compensation routes and consider that there are already means of redress available.

Having said that, I also point to the fraud strategy, which the noble Lord, Lord Coaker, referred to. There is only one relatively small paragraph on this but if he goes to page 24, he will see that the City of London Police

“are also working with the private sector on a limited pilot to explore whether civil debt recovery and other powers can recover more of victims’ money. As this pilot develops, we will review whether there are further civil enforcement powers that could be applied to fraud”.

I will come back to that in more detail, obviously, but clearly it is very much at the pilot stage at the moment. That is explicit in the text. But the interests of victims are being actively considered via the fraud strategy. Again, there is more to be said on that, which I will do shortly.

As I have said before in Grand Committee, victims’ interests are at the heart of the new powers introduced by Part 4 of the Bill, which will allow applications for stolen crypto assets or funds in accounts to be released to victims at any stage of civil forfeiture proceedings. This will ameliorate the negative impacts of criminal conduct, including economic crime.

More widely, and I have referred to this from the Dispatch Box in the Chamber, victims need to have the confidence and trust to come forward to report fraud and to know that their case will be dealt with. That is why we are providing £30 million to the City of London Police to upgrade Action Fraud, which, as noble Lords will know, has not been widely applauded in this House. The new service will use the latest technology to drastically improve reporting and support for victims and provide far greater intelligence to policing, which will allow greater prevention and disruption at scale. The upgrade is already happening. It will be fully operational in 2024 and we are implementing consistent support for victims across England and Wales by expanding the National Economic Crime Victim Care Unit, to which I have also referred.

Where there are overseas victims in bribery, corruption and economic crime cases, the Serious Fraud Office, Crown Prosecution Service and National Crime Agency compensation principles have committed law enforcement bodies to ensuring that compensation is considered in every relevant case, and to using whatever available legal mechanisms to secure it where appropriate.

The Government are also fully committed to utilising suitable means to return the proceeds of corruption to their prior legitimate owner and/or to compensate victims, in line with international obligations under the UN Convention against Corruption. This is set out in detail in the Government’s Framework for Transparent and Accountable Asset Return.

Of course, the private sector also has responsibility for the protection of its customers, and we are increasing that further. Victims of unauthorised fraud, where payment has been taken without the victim’s permission, are already reimbursed by payment service providers. The contingent reimbursement model code has improved the reimbursement by payment service providers of victims of authorised fraud where a fraudster has manipulated the victim into approving the payment.

On the subject of PSPs, the right reverend Prelate made a good point about consumers becoming more savvy. I recently read in a briefing—I cannot remember whether it comes from the Fraud Strategy or some other current initiative—about the level of information sharing by PSPs, which will enable potential victims to identify the platforms that tend to be the most used. If they can be appropriately savvy when looking at those platforms and, perhaps, a little more suspicious and questioning, that will help enormously in stopping this happening in the first instance. I will come back with more detail on that, because I cannot quite remember under which regime that sits.

On the contingent reimbursement model, in 2021, £583 million was lost to APP scams. According to UK Finance data, the faster payment system was used in 97% of APP scams by volume in 2021. Under the contingent reimbursement model code, which is the voluntary scam reimbursement code signed by several major banks, the level of reimbursement is just over 50% of total APP scam losses for those signatory firms. Following PSR action, we expect that consumers will be reimbursed more consistently and comprehensively.

I realise that there is a lot more work to do on this. Clearly, the picture is fast evolving, as I am sure all noble Lords would acknowledge. There is clear intent on the part of the Government to make sure that victims are front and centre in the current regimes and all future planning. With that, I hope that the noble Lord, Lord Coaker, feels reassured and able to withdraw his amendment.

[Lord Coaker (Lab)]

I thank the Minister for that response. I am somewhat reassured, because I believe he has his own personal commitment to this. However, as with many amendments that we have discussed here, you get the feeling that it needs a bit of a boost a surge of urgency.

There is clearly a lot of good will and a lot of good government policy. There is nothing in particular wrong with the Fraud Strategy, which has some really good stuff in it, but the example that the Minister gave from page 24, which was perfectly reasonable, is a pilot. It does not say, “We will change the law”, but “we will review” what the pilot tells us, whereas, if you go back to the much stronger commitment at the beginning of the Fraud Strategy, it gives you some expectation that something will happen. It does not say, “We will review” but “We will ensure”—which is the sort of language that people want to hear—that

“victims of fraud are reimbursed and supported”.

It does not say, “We will review the law” but

“We will … Change the law so that more victims of fraud will get their money back”.


I get what the Minister said—that it is a pilot and a review, which is good—but a pilot and a review is not the same as what is promised in paragraph 7 on page 4 of the Fraud Strategy. We are talking about colossal sums of money and, as the right reverend Prelate the Bishop of St Albans pointed out to us, people are embarrassed; large numbers do not know what their rights are under the current law and cannot get their money back. That is the reality. The simple question for the Government, who I am sure want to improve it—there is no doubt about that—is: what five practical things will it mean? We cannot change the past, but we could do something about the future.

I also take the Minister’s point that this is about prevention, too. I absolutely accept that; we need double authentication and so on. I thank the right reverend Prelate the Bishop of St Albans for his support and helpful comments in this short but important debate. I also thank the noble Lord, Lord Fox, for reminding us that businesses and enterprises are also subject to fraudulent activity and that this is about them too. That was an important point to make.

To conclude, I thank the Minister for his response but ask him to speak to his department about how we get that surge of energy into the Bill and make what the Fraud Strategy says a reality so that we make a real difference. With that, I beg leave to withdraw my amendment.

Amendment 106D withdrawn.

--- Later in debate ---

[Lord Agnew of Oulton (Con)]

My Lords, I rise because I hope that I might be able to provide some help to my noble friend the Minister, as this is obviously not his area of expertise; this is at the Companies House end.

Right at the beginning of Committee, I tabled Amendment 44. Its explanatory statement says:

“This amendment mandates companies to disclose whether their shareholders are acting as nominees. Nominee shareholders protect the identity of the beneficiary of the shareholding. This measure will help mitigate the risk of abuse through nominee shareholders. Failure to comply would incur a penalty”.


Last night, I met the Minister, my noble friend Lord Johnson, who indicated to me that the Government were sympathetic to this approach. I do not want to put words into his mouth, as he is not here now, but I suggest to the Minister, my noble friend Lord Sharpe, that he talks to my noble friend Lord Johnson to see whether there is any way that we could look at this; that would deal with the specific concern raised by the noble Baroness, Lady Kramer, in relation to freeports.

[Lord Coaker (Lab)]

I was not going to say very much but I have been provoked by what the noble Baroness, Lady Bennett, and the noble Lord, Lord Agnew, have said.

I very much support the thrust of what the noble Baroness, Lady Kramer, said. One wonders why transparency is such a difficult notion for the Government. I suspect that the Minister will send up smoke by saying that we are all in favour of freeports, that they are a great way of generating employment, and so on. It is certainly what I would say if I were him—that freeports are a great thing for creating jobs and that we should not stand in the way of free enterprise, which is developing enterprise zones in some of the most difficult and challenging areas in the country. However, this is not about that—it is about transparency and knowing how this is funded—so I hope that the Minister does not send up smoke. The issue is transparency; the noble Baroness, Lady Kramer, was right to point that out.

I will not repeat the list from the noble Baroness, Lady Bennett, of concessions and allowances made to ensure that businesses can operate—perhaps in an area that they would not operate in—as that is something for the Minister to discuss.

On what the noble Lord, Lord Agnew, said, has the Minister had discussions with the noble Lord, Lord Johnson? Is it right that the Government are considering some concessions? Is that what the Minister is going to tell us—that he is going to go away and talk to the noble Lord, Lord Johnson, about what we have just been informed about? Is there hope for this amendment or will the Minister just reject it? Is it something that we will hear more about as we go to Report? Will we get a government amendment on transparency around this issue, if not from the Minister then from the noble Lord, Lord Johnson?

With those questions, I will listen to the Minister with care.

[Lord Sharpe of Epsom (Con)]

I thank the four noble Lords who have spoken in this debate. I also thank the noble Baroness, Lady Kramer, for her Amendments 106EC and 106ED. Amendment 106EC would require an overseas entity to apply for registration in the register of overseas entities if it is operating in a freeport. Amendment 106ED would require an overseas entity to apply for registration in the register of overseas entities if it is operating in an investment zone tax site. I thank the noble Lord, Lord Coaker, for his eloquent support for freeports.

[Lord Coaker (Lab)]

Can I clarify that I was saying what I thought the Minister would say, not what I think?

[Lord Sharpe of Epsom (Con)]

It was spot on so I suspect that the noble Lord has nobbled my notes at some point.

The economic merits of and progress in delivering freeports and investment zones remain at the heart of the Government’s levelling-up agenda, and good progress is being made. However, that is not quite within the scope of this Bill, so I will focus on the core points raised in relation to corporate transparency and illicit finance. I will endeavour to answer the questions asked of me while noting, as my noble friend Lord Agnew has, that this is not necessarily my specialist subject.

Turning first to Amendment 106EC, I am assured that, throughout the bidding prospectus and subsequent business case processes, freeports were required to set out how they will manage the risk of illicit activity. I will go into this in some detail because it is important and, as I am not a specialist in this subject, I asked for extra detail. These plans were approved by officials in the Border Force, HMRC, the NCA and other relevant crime prevention bodies, including the Home Office, the police, the Department for Transport and DLUHC.

At business case stages, freeports are required to commit to further requirements to mitigate risk. That includes commitments to the OECD’s code of conduct for clean free trade zones and they were required to establish robust local governance structures in place to monitor risk and ensure effective co-operation between relevant bodies with remits to prevent illicit activity. In most cases, that included most of the bodies I have already referenced—the police, NCA, and so on. Those plans were approved by officials who have responsibility for security and preventing illicit activity across government, and they are also required to carry out an annual audit of security each year to ensure that these structures remain effective and the risk mitigations remain robust and relevant. These audits will be reviewed by the Government annually.

Freeport status in no way undermines or weakens existing port security arrangements. Special customs status, which has been noted, builds on, rather than radically departs from, facilitations available elsewhere in the UK, and is available only on specific customs sites within the wider freeport footprint. These are secure sites administered by a specially authorised customs site operator—CSO. CSOs are required to obtain AEO or equivalent authorisation from HMRC, an international gold standard for safety and security, and remain subject to robust ongoing oversight from HMRC. Freeport customs sites therefore uphold the UK’s high standards on security and preventing illicit activity and should not be conflated with some entirely different international free trade zones.

I hope I have been clear that the Government require each freeport governance body to undertake reasonable efforts to verify the beneficial ownership of businesses operating within the freeport tax site. As I have said, freeports uphold the UK’s high standards on security, safety, workers’ rights, data protection, biosecurity, tax avoidance and evasion, and the environment. They are subject to the same legislation and regulation to protect them as the rest of the country. To impose additional requirements on businesses investing in freeport tax sites would directly undermine the objective of freeports: to facilitate investment and regenerate some of the most deprived areas of the UK. The Government therefore do not think it is proportionate to impose this additional cost and administrative burden on freeports compared to elsewhere in the UK, which would also risk acting as a disadvantage for bringing in investment.

I turn to investment zones. The Chancellor announced in the Autumn Statement that the investment zones programme was being refocused to catalyse the development of clusters in areas in need of levelling up in order to boost productivity, growth and jobs. At the Spring Budget, the Government announced eight areas in England that it had identified to co-develop an investment zone proposal with the Government, with a view to agreeing proposals by the end of the year, subject to requirements being met. The Government will work with these places to co-develop proposals, ensuring that the same high standards that are required for freeport tax sites are met for any investment zone tax sites designated.

Given the early stages of policy development on investment zones, it is too early to set out the governance arrangements in any detail. However, I am clear that businesses within investment zone tax sites will need to comply with the same laws and high standards regarding transparency as any other business investing in the UK. I am also afraid that both amendments would duplicate existing requirements on UK-registered businesses. If a business in either a freeport or an investment zone, once established, is a UK-registered company, it is already bound by the requirements to report its people with significant control to Companies House. This information is publicly available on the Companies House register.

It would also partially duplicate the requirements of the register of overseas entities. Any overseas entity owning, buying or leasing land or property in a freeport or an investment zone, once established, would be required to give information about their beneficial owners to Companies House. This information is also available to the public and would help law enforcement track down those abusing freeports for money laundering or other nefarious purposes. In both cases, all information held by Companies House is available to law enforcement, even information which is not publicly available; for example, the information about trusts.

I also draw noble Lords’ attention to the far-reaching impact of the amendments, which refer to “businesses operating” in free ports and zones. A “business” goes beyond companies and similar corporate entities and includes, for example, sole traders; “operating” is also an imprecise term. Let us imagine a truck of goods arriving at a freeport: the amendment would require the freeport governance board to determine the beneficial ownership of the haulage company owning the truck as well as the beneficial ownership of every business whose goods are being carried on that truck. One company may own the truck and another the trailer, both are caught. Under this scenario, even the delivery driver bringing sandwiches to the businesses located in the zone would be impacted by the amendment. I am sure that was not the noble Baroness’s intention and she will say that it could be improved at the drafting stage, but it is worth pointing that out.