Economic Crime and Corporate Transparency Bill

Lord Faulks Excerpts

Committee stage
Monday 27th March 2023 Grand Committee

[Lord Faulks (Non-Afl)]

So that the Minister does not have to answer questions seriatim, as it were, I endorse that. I am not sure that I have heard persuasive objections to the amendment tabled by the noble Lord, Lord Coaker. I understand what he says about risk-based, but sharing information with relevant public bodies and law enforcement agencies surely does not tie the registrar’s hand in any way. It must be remembered that while we can all applaud what has happened in Companies House and the change in culture that will follow, this is really a second attempt to tie things up. We should not forget that there was the first economic crime Bill, before the Minister came to his post, where much was promised, so this is the final word on it and the time to crystallise where we are on those things. Objective 5 is another step. If the Minister is saying that Companies House is coming a long way and it is further step to ask it to do this, that is an answer, but I do not think it is an answer that satisfies the Committee.

[Lord Johnson of Lainston (Con)]

I appreciate my noble friend’s comments. I do not believe that I suggested at any point that this was not baked into the cake of what Companies House is expected to deliver. I would be delighted to have further dialogue with Members around this but, in my humble opinion, the entire Bill is designed to ensure that the registrar takes a risk-based approach to ensuring the integrity of the information at Companies House. I am very comfortable on that, and the Government are very clear on it. We are wary of having duplicative statements in the Bill because that causes more complications when we are trying to create the enforcement regime and the integrity regime that we want to bring to bear.

On the key clauses and the language therein, I am certainly happy to consult my dictionary as noble Lords suggest. I am sorry that I was unable to bring one with me. It would be unusual for us to be quite so prescriptive in part 3 of the four objectives. I am delighted to have further conversations if noble Lords feel that that would be more helpful in setting the right cultural change at Companies House, but I am wary of being too prescriptive. I hope this is not misunderstood by Members of this Committee, but we want to avoid a box-ticking exercise because that is exactly what criminals like, as they can then navigate the system. We want to allow the registrar and her officers to use their judgment because that will lead to far better outcomes when it comes to achieving the mission that all of us are embarking on together.

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[Lord Vaux of Harrowden (CB)]

The noble Lord is quite right. What we are really trying to get to here is the ultimate beneficial owner, which is a problem that sits throughout this and the overseas property register. Neither of them really gets to that point. The wording requires refinement, but that is what I was trying to get to—that the ultimate beneficial owner, the directing mind behind the shareholding, is disclosed.

[Lord Faulks (Non-Afl)]

Does the noble Lord think this goes far enough? I chaired the Joint Committee on the Draft Registration of Overseas Entities Bill, and one of our recommendations was that there should be improved verification procedures for Companies House. We also thought it was well worth considering ensuring that regulated professionals acting should also provide statements, which would concentrate the minds of those advising who are responsible for providing this information.

[Lord Vaux of Harrowden (CB)]

I made exactly the same argument during the passage of what we used to call ECB 1—the first economic crime Bill. I entirely agree, and noble Lords will see that I have a number of later amendments dealing with those issues of the verification statements and the authorised corporate service providers being named publicly as opposed to—as is proposed at the moment—not being named on the register. That is really important. I agree that this probably does not go far enough. I am mindful of the Minister’s comments about not making this overly burdensome—if we do, it will not work—but we need to find a way to make sure that we understand who owns the shares.

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[Lord Johnson of Lainston (Con)]

I thank the noble Lords, Lord Vaux and Lord Leigh, the noble Baroness, Lady Blake, and the noble Lords, Lord Thomas and Lord Clement-Jones, for their contribution to the debate on this issue.

The Government’s view is that Clause 29 already introduces a revised Section 86 to the Companies Act 2006 in an effort to introduce a definition of what constitutes an acceptable and effective address for a company’s registered office. The amendment seeks to define the opposite: what would not represent an appropriate address. I hope your Lordships will agree with the following argument for why that is unnecessary.

I begin with the suggestion that PO box addresses be explicitly forbidden. We do not believe there is a need for this. A PO box address cannot be an address at which deliveries can be acknowledged, nor an address to which a sender can be assured that what is sent will find its way to the hands of a company representative. It is therefore clearly not an appropriate address—we very much agree with the noble Baroness on that.

I turn to the “reasonable suspicion” element of the amendment. Where the registrar has reasonable grounds to suspect that the company does not have permission to use an address, she will almost inevitably conclude that the conditions that I have just mentioned will not be capable of being met and, again, she will be within her rights to reject or force the company to change it as appropriate.

The other element of the amendment would prevent companies having their registered office address anywhere other than their main place of business. There are, frankly, many reasons why a company may choose to separate the two, so this could be problematic for many companies. That includes, for example, particularly small enterprises that carry out businesses from home but choose to register the company at the premises of their accountant in order to protect their residential address details, which I think we would agree is perfectly reasonable. We have been at pains elsewhere in the Bill to introduce measures to extend, where appropriate, the ability to suppress addresses that the public have access to which might jeopardise the safety or security of individuals. There are elements of the amendment that we believe would run contrary to those aims.

I hope the Committee will be reassured that new Section 86 will be an effective means by which to monitor and police the accuracy of company address information and that the noble Baroness will feel able to withdraw her amendment. As a final point, I personally have great sympathy with the ambitions of the amendment to make sure that the right address is being provided for the company register, but I hope I have laid out the reasons why the processes that the Government have put in the legislation should be sufficient to ensure that real addresses are given and other protections are employed.

[Lord Faulks (Non-Afl)]

Personally, I am convinced by what the Minister has said about the substitute for Section 86. I just have one query. It creates an offence whereby a person is guilty on summary conviction. The offence appears to be committed by a company and

“every officer of the company who is in default.”

Could the Minister help with who the statute envisages will be an officer of the company who is in default?

[Lord Johnson of Lainston (Con)]

I appreciate that comment. I will come back to the noble Lord with more detail, if that is possible.

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[Baroness Bowles of Berkhamsted (LD)]

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

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

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

[Lord Faulks (Non-Afl)]

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

[Lord Vaux of Harrowden (CB)]

My Lords, very quickly, I will not repeat what we said on an earlier group, but these two amendments cover very much the same sort of areas of transparency. I ask the Minister—probably as a matter of relative urgency, given the discussions we have had—whether he could facilitate a meeting of the various interested parties so that we can try to thrash out where we want to start to coalesce around these issues, as that would be helpful.

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[Lord Thomas of Gresford (LD)]

My Lords, I do not really understand this provision. The purpose is to create a basic offence of strict liability—that is what the Minister and the Explanatory Notes say—but the wording that inserts the basic false statement offence says:

“A person commits an offence if, in purported compliance with a notice … or in purported compliance with a duty imposed… and without reasonable excuse, the person makes a statement that is misleading, false or deceptive in a material particular.”


It is the words “without reasonable excuse” that bother me. I do not see how a strict liability offence can have an excuse. Last week it was well-publicised that someone in the other place said, “Yes, I misled, but I had a reasonable excuse because no one told me. Indeed, I was advised that there was nothing wrong.”

What is meant by a reasonable excuse? How can it be, as put forward, a strict liability offence in circumstances like that? This of course goes to officers who are in default, which is another contradiction within that proposed new paragraph. I ask the Minister to take this proposed new clause back to those advising him and ask whether it is correctly drafted. I do not think it is.

[Lord Faulks (Non-Afl)]

Further to what the noble Lord, Lord Thomas, has said, the use of the phrase “false statements” rather than “inaccurate statements” is quite significant. A false statement carries with it the connotation of a deliberate inaccuracy, whereas simply getting something wrong is rather different. I agree with him that without reasonable excuse the prosecution would have to prove the absence of a reasonable excuse, which is contrary to the concept of a strict liability offence.

[Lord Trevethin and Oaksey (CB)]

I agree with what the noble Lords say. It occurs to me that the intention of calling this a strict liability offence but including the concept of “reasonable excuse” might be to impose a burden on the person who is responsible for filing the misleading statement to demonstrate a reasonable excuse—shifting the presumption, as it were. That might work. It would not quite be a strict liability offence, but it would make it relatively easier to prosecute the matter where a false statement was filed, and it would cater for the rare case—like the person trying to persuade a committee in the other place a few days ago—where the person filing the statement was entirely blameless because they had acted honestly and reasonably in reliance on information supplied by someone else. In that rare case, where the person who had made an error and filed a false statement but was entirely blameless could demonstrate that, it seems right that they should avoid a conviction.

To echo a point made in relation to a different amendment by the noble Lord, Lord Faulks, I am slightly troubled by the further subsection that talks about an offence being committed by

“every officer of the entity who is in default”.

At the moment I am not certain what that is getting at, and I simply seek clarification.

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[Lord Faulks (Non-Afl)]

I do not get the impression that the Committee is against the idea; there is simply a lack of clarity as it is currently formulated as to what constitutes “false” and a “reasonable excuse”, and what is inaccurate. I think the Committee is generally in favour of this provision and understands why it is there; we are just not quite sure that this captures it, as currently drafted.

[Lord Clement-Jones (LD)]

My Lords, the procedure in Grand Committee is quite clear: there has to be unanimity for an amendment to proceed.