Economic Crime and Corporate Transparency Bill

Debate between Lord Johnson of Lainston and Lord Agnew of Oulton

Consideration of Commons amendments
Monday 11th September 2023 Lords Chamber

[The Minister of State, Department for Business and Trade (Lord Johnson of Lainston) (Con)]

My Lords, I shall also speak to Motions B, C, D and D1. I thank noble Lords for their extraordinarily high level of constructive input over the last few days as we have come to this point. I believe that together, across the House, we have created a truly powerful piece of legislation that will have a meaningful impact on how Companies House operates, how we deal with financial crime and how we make our system safer and cleaner.

I should declare my interests. I have interests in limited companies and other companies, but I do not believe there is any conflict of interest in this process today.

Motion A relates to Lords Amendment 23, tabled on Report by the noble Lord, Lord Vaux of Harrowden, which would require members of all UK companies to declare whether they were holding shares on behalf of, or subject to the direction of, another person or persons as a nominee and, if so, to provide details of the person or persons. We have been in conversation over the last few days about that amendment. While we understand the intention to tackle what we perceive to be an industry of nominee service providers prone to acting unlawfully, I am afraid we do not believe that the amendment is the appropriate way to achieve that goal.

However, the Government, via Motion A, have therefore tabled Amendments 23B and 23C in lieu of Commons Amendment 23A. I hope that is making sense to the noble Lord. The new amendments allow the Secretary of State to make regulations to make further provision for the purpose of enabling a company to find out who its PSCs are—that is, people of significant control—in cases where shares are held by a nominee. That could include, among other things, imposing further obligations on companies to find out if they have nominee shareholders and, if so, for whom they are holding shares, or imposing further obligations on nominee shareholders to disclose their status and for whom they are holding shares.

It is important that we make it clear that the reason for tabling the new amendments rather than accepting the noble Lord’s revised amendment is that we are slightly wary of imposing disproportionate burdens on business. There are a vast variety of nominee types which we need to make sure we have taken into account when ensuring that we are getting the right information from the right types of nominees. As I have said to the noble lord—at this Dispatch Box, I believe—the commitment in principle to try better to understand the route between the nominee and the beneficiary is an important one. We want to do it in the right way, and these amendments would give the Secretary of State the powers to do that. I hope that the noble Lord can agree that that is the right approach to take and, assuming that is so, can support the Government in this new amendment and consider withdrawing his own.

I turn to Motion B.

[Lord Agnew of Oulton (Con)]

My Lords, I apologise to my noble friend the Minister. I had been told that I needed to address my Motion D1 while Motion A was under discussion. I am very happy to wait but those were the instructions I had from the Table. Would anyone like to clarify?

Economic Crime and Corporate Transparency Bill

Debate between Lord Johnson of Lainston and Lord Agnew of Oulton

Report stage
Tuesday 20th June 2023 Lords Chamber

[Lord Johnson of Lainston (Con)]

My Lords, the amendments in this group relate to Part 2, which includes a number of reforms to prevent the abuse of limited partnerships. These measures are incredibly significant and will enable fundamental change in the transparency of limited partnerships while maintaining their crucial position as legitimate vehicles for doing business. They are the biggest changes to the legal framework for limited partnerships since the Limited Partnerships Act 1907.

We must keep in mind that limited partnerships, including Scottish limited partnerships, facilitate legitimate and important commercial activity. They are used across the UK in a variety of sectors, particularly in the private equity and venture capital industry, as well for a variety of other purposes, such as oil and gas exploration and production and real estate.

The measures in the Bill were formulated after several rounds of consultation to deliver the right balance of more transparency without undermining the use of these structures by legitimate business. The British Private Equity and Venture Capital Association reports that, in 2021, £17.3 billion was invested into UK companies from private equity and venture capital, with nine in 10 investments directed at small to medium-sized enterprises. We do not want to disrupt this activity, nor the 2 million or so people who are employed by companies backed by private equity and venture capital who use these vehicles.

Before I turn to the government amendments, it may be helpful to clarify a few points about the structure and principles of limited partnerships. These are business associations made up of one or more general partners who are responsible for the management of the partnership, and one or more limited partners who cannot partake in management and whose liability is limited to the amount they invest. In the Bill, to achieve more clarity over limited partnerships and those who have influence and control over the partnership, the Government have rightly focused on creating more transparency over the partners, and specifically the general partners. The Bill already ensures that, in future, we will know the names, addresses and dates of birth of all partners in a limited partnership, and all of this information will need to be confirmed at least annually. It is important to have these points in mind before we turn to the amendments tabled by my noble friend Lord Agnew.

In the meantime, I have a handful of minor government amendments to Part 2, which concerns limited partnerships—Amendments 58, 59, 60 and 61. These are required, in the most part, to correct drafting errors, by adding missing definitions and removing ones which are not essential. Amendment 60 is a minor change to the information that has to be delivered by general partners of a limited partnership when they give their annual confirmation statement. It means that a notice changing a general partner’s registered officer must be delivered at the same time as a confirmation statement, if the registered officer is not ID verified. I beg to move.

[Lord Agnew of Oulton (Con)]

My Lords, I shall speak to my Amendments 63, 69 and 70. Again, I am grateful to my noble friend the Minister for his engagement and for his detailed letter to me recently to allay many of my concerns.

The Bill goes a long way to deal with the opacity of LLPs and LPs. It is very important that we regard them as similar in the level of transparency needed as we would consider for a company. We know there have been plenty of examples in the past where they have been used as a front for a lot of very bad activity.

I am not going to press my amendments today, and I thank my noble friend the Minister for his amendments. He has said to me that the Government plan to bring forward some work very soon after the Bill. I would be quite interested if he could just give us some sense of the timescale for this work. His brief said:

“Following Royal Assent, the Government intend to bring into force provisions to require a company director to be a natural person, with limited exemptions for corporate directors”.


If my noble friend could give us a timeline for that, I would be most grateful.

Economic Crime and Corporate Transparency Bill

Debate between Lord Johnson of Lainston and Lord Agnew of Oulton

Committee stage
Thursday 20th April 2023 Grand Committee

[Lord Johnson of Lainston (Con)]

I greatly appreciate the noble Lord, Lord Faulks, flagging so well the sentence that I was about to deliver. I would like to investigate further, personally as a Minister and for the benefit of this Committee, a more detailed assessment of the crime-fighting efforts that we will employ around this.

I have some good information to impart to the Committee, which to some extent answers the questions. I have particularly looked into the comments by the noble Lord, Lord Wallace, about the UAE and so on. We have signed an anti-corruption pledge or framework with the UAE in the last few years. We have in the Foreign, Commonwealth and Development Office—

[Lord Agnew of Oulton (Con)]

My Lords—

[Lord Johnson of Lainston (Con)]

Can I just finish this particular flow of information, because I will cease to remember it if I do not get it out? I believe we have 12 Foreign Office crime experts located around the world. One of them is in the UAE, for example, and we work very hard with those countries that sit on the so-called grey list. It is important to note this. I am aware, as a Minister and a consumer, that the value and brand of a jurisdiction are extremely important. It is not effective for companies to operate easily in jurisdictions that have been classified as at risk or on the grey list.

There is clearly a hierarchy of regulatory power or brand, with the UK at the very top. When dealing with international companies, I personally always look at where a company is registered. If it is registered in the UK, we hope that the brand will grow to be even more enhanced; if it is registered in a jurisdiction about which you have doubts or that has been highlighted as at risk, it makes a significant difference to how you treat that information and the brand of that business.

[Lord Agnew of Oulton (Con)]

Given my noble friend the Minister’s commitment to give us some data on the whole disclosure exercise that has happened following the first economic crime Act, he mentioned that there has been a high level of compliance. We are all delighted with that, but my worry—to the point made earlier by the noble Lord, Lord Vaux—is what that actually means.

Transparency International estimates that there are at least 7,000 entities on which no light at all will be shed. In my example, JTC (Suisse) SA is a registered overseas entity. We now have that information but it means absolutely nothing, because beneath it is a cascade of other entities that we seem to have no visibility on. When the Minister puts together his reporting suite, can he let us know how many are essentially just a number or a name on a piece of paper?

Perhaps I should have raised this earlier, but in our very useful briefing with officials on Monday they explained that the ROE was set up specifically for property, and therefore a lot of the enforcement was around property assets. Property—real estate—is of course a much easier concept to deal with than the rest of the things we are talking about in commerce. A piece of paper or digital ownership of a share is much harder. I am interested to know what enforcement will happen for those much more invisible assets.

[Lord Johnson of Lainston (Con)]

I am constantly grateful to my noble friend Lord Agnew for his interventions and thoughtful input. I am pleased to say that we have to look forward—unfortunately not today, but maybe next week—to the section on crypto assets and similar assets. I believe that we have made great headway; this is technical and complex, and we welcome interventions and input from this Committee and anyone else that will allow us to more effectively police that area. I am very much on my noble friend’s side on this. It was certainly worth him mentioning that the register of overseas entities relates to property, which is true. I cannot comment on the specific case that he raises, but the assumption is that the data will be checked and verified. The whole point is that a registered overseas entity has to conform to our people with significant control regime and so on. That will allow us to make that assessment. I will confirm to the Committee what we are going to do in terms of reporting against that data.

As I say, there was a discussion earlier in the week about the budgetary allocations for economic crime fighting. It is very important that we show this House, and the nation at large, how much money the Government are putting into this area and how seriously we take it. I am proud of our record and want to put together a strong case to show your Lordships what we are doing. Can more resources be allocated to anything? All of us here have experience, if we have been in government, and of course it is possible. But the fact is that if I look magnitudinously over the last few years at the attention placed on this subject and the money put into it, it is a completely different story from, say, 2010—and for good reasons. It has become crucially apparent that the world has changed, and we need to react to that.

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[Lord Johnson of Lainston (Con)]

I am not surprised that the noble Lord and a Member of this Committee has corrected me on that specific point; my tone may have been misunderstood. However, I hope he understood what I was trying to get at when I differentiated trusts from corporate entities or corporations themselves. They do business, and they must be regulated. If I could differentiate my language again, between a debate and a discussion, I am very keen to have a discussion with Members of this Committee about this matter, so we can certainly get diaries out and find a time over the coming weeks to look into this in more detail. It is a very important debate to have, and I would welcome as many participants in the industry as possible to join us in that discussion.

Given what I have said and the fact that this is being actively explored by the Government, please do not think that this discussion is somehow being shut down. As I say, this policy area is controlled by the Treasury, and it is very specific about that. I am comfortable that we will have the powers in this Bill to have the flexibility to ensure that we can, when the decision is taken, provide the right amount of transparency around trusts. As a result, I ask the noble Lord to withdraw his amendment.

[Lord Agnew of Oulton (Con)]

My Lords, with very deep reluctance, I will withdraw it, but I want to leave on the record that the self-proclaimed “very good” Amendment 76H could be truly excellent if the Government added the simple two-line sentence that I have offered in my amendment. I suggest that there are rarely times in legislation where so much can be achieved with so little and so quickly.

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[Lord Johnson of Lainston (Con)]

Do we have some artificial intelligence in the Civil Service Box? I think that we have natural persons’ intelligence. While I have this opportunity—I am sure that I say this on behalf of the Committee—I would like to say that the officials behind this Bill are extremely hard-working and focused; they have done everything they can to deliver a very complex piece of legislation. They have been very helpful to me and my colleagues personally and to the Ministers taking the Bill through the other place. I hope noble Lords feel that they have interacted with them appropriately. I know that they continue to stand ready to support us as we craft what I think is a magnitudinous piece of legislation that will have significant positive ramifications in the decades ahead.

I turn to the amendments presented by my noble friend Lord Agnew. I have taken advice on elements of them and their technical relevance to the Bill so, when the noble Lord, Lord Coaker, suggested that they were somehow not relevant, that was a private, legal and specific statement; it was not a philosophical one. They are very relevant to the Bill and at the core of much of what we are trying to establish: who is behind the companies and corporate entities?

The comment from the noble Lord, Lord Fox, about the ownership of property following the Grenfell Tower tragedy is a very good example. We hope that the reforms that we are making will ensure that we know who is behind corporate activity and ownership of property in this country. We have made huge strides in doing so and the Bill is very important. That is not to say that it cannot be improved but, where we feel we are including these principles, we do not suggest that noble Lords unnecessarily improve it further or confuse it. I rely to some extent on the draftsmen who advised me on this; I hope that the Committee sees this as well intentioned, in the way it is being presented.

I will first speak to Amendment 74. I commend my noble friend’s intention to increase the transparency of limited partnerships. I stress again that there is a difference between a limited partnership in Scotland, a limited partnership in England, Wales and Northern Ireland, a limited liability partnership across the United Kingdom and a limited company. They all operate slightly differently in the different jurisdictions. Please bear this in mind, as we have drafted this legislation to ensure that we have transparency across all the different concepts and principles in the right way.

I know that my noble friend Lord Agnew shares the same concerns that Dame Margaret Hodge has expressed previously. I have had the privilege of meeting her personally, as well as hearing her views, which have been extremely helpful in informing my knowledge base around this debate.

The proposed new clause would duplicate the Scottish Partnerships (Register of People with Significant Control) Regulations 2017. Scottish limited partnerships have legal personality, as noble Lords will know, which means that, among other things, they are able to own assets, enter into contracts and hold bank accounts. This results in a greater degree of opacity around Scottish limited partnerships, which is one of the features that the Bill is specifically designed to tackle.

However, as noble Lords will know, English, Welsh and Northern Irish limited partnerships are required to register with Companies House. While they are, they do not possess a legal personality separate from that of their partners. This means that it is the general partners themselves who transact on behalf of the partners. One of our senior officials likened it to a marriage, if that helps to clarify that point, in the sense that, if you are married and you own a home, the marriage does not own the home, nor does the couple; the partners—the husband and wife—own the property. I hope that that makes it clearer to some extent; it certainly did for me, although I will not go into my own home ownership percentages during this debate.

I stress that this Government completely agree with the principle that we should have greater transparency over who is managing and controlling a limited partnership. There is much in the Bill that will achieve exactly that. This is very important. I know that my noble friend Lord Agnew and the noble Lords, Lord Coaker and Lord Fox—indeed, all noble Lords in the Committee—take this extremely seriously. In fact, it is the core principle of the Bill, which includes, to go back to the specific moment, a range of measures that will make it mandatory for limited partnerships to submit a much greater range of information about their partners, including their current and former names, addresses and dates of birth.

The general partners of limited partnerships who have management responsibility—there is, of course, a difference—will be required to have their identities verified. Where a general partner is a corporate entity, it must name a managing officer with a verified identity who can be contacted about the limited partnership. That is very important as well and goes significantly further.

[Lord Agnew of Oulton (Con)]

Can my noble friend confirm that all the information he has just listed will be available for public inspection so that we do not get back into this cul-de-sac of my earlier concerns?

[Lord Johnson of Lainston (Con)]

I believe that I can confirm that but I will ensure that those facts are properly presented. It is clearly helpful for us to be specific on that.

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[Lord Johnson of Lainston (Con)]

I thank the noble Lord, Lord Fox, for his question, which I am not able to answer as conclusively as he might wish. There may be alternative mechanisms to approach this if so desired, and if the Government believe it is the way forward and the House decides accordingly. I hope the Committee will forgive my language at the Dispatch Box and that they hear the tone of—

[Lord Agnew of Oulton (Con)]

I am sorry to interrupt my noble friend but, given that he is now embarking on an intellectual journey on this subject and that we are not sure when that journey may conclude, I want to add a couple of nuances. First, he is right to ask what the unintended consequences are of introducing a new step. I accept that that needs to be challenged but, to give a simple example, if you are buying a property and the conveyance has dragged on a while, I think the buyer is required to carry out further searches at the last minute to ensure that a new Tube line has not suddenly been announced under the building they are buying. There is a mechanism to do it.

The other area of interest to me goes back to the point I made earlier about the great things that have been achieved with the register of overseas entities, with its high level of compliance. None the less, Transparency International thinks that there may be up to 7,000 entities and that, although we might know their names, we do not know what they really are. The proposal of the noble Lord, Lord Vaux, would flush them out before the sale. I am sure that HMRC might be very interested in a lot of these organisations, so there would be a beneficial element which has not necessarily been thought about at the moment. I would like my noble friend to add to that to his contemplation.

Economic Crime and Corporate Transparency Bill

Debate between Lord Johnson of Lainston and Lord Agnew of Oulton

Committee stage
Tuesday 18th April 2023 Grand Committee

[Lord Cromwell (CB)]

I cannot promise to drag the Minister anywhere, but I, too, look forward to those discussions.

[Lord Agnew of Oulton (Con)]

The Minister very comprehensively dismissed my amendments, but earlier in the debate he committed to thinking much more carefully about bringing much more transparency to the regime that oversees ACSPs. I just want to make sure that is the case. I also want to offer a couple more anecdotes about why I believe this is so important.

The former chief executive of HMRC Sir Jonathan Thompson questioned the role of HMRC in regulating these people. He did not understand, or was not prepared to accept, that anti-money laundering duties were part of the core activities of HMRC. I gave earlier examples of the failings of oversight by HMRC. The Financial Action Task Force review stated that there were “significant weaknesses” among all supervisors, and specifically recommended that HMRC should consider

“how to ensure appropriate intensity of supervision”.

My point is that Companies House is going to be relying on what I believe to be a broken regulator at the moment. I am not suggesting that we create a new regulator, but that is why the risk assessment in Amendment 51 is so important. Who is minding the minders? At the moment, nobody seems to be. It is all moving at a glacially slow pace, and we keep being told that everything is okay, but I do not think that everything is okay. I accept that the protocol is that I do not move my amendment, but I would like a slightly stronger commitment from my noble friend that he really is going to kick the tyres on this and lift a few drain covers, if I can mangle my metaphors.

[Lord Johnson of Lainston (Con)]

I appreciate my noble friend’s mixed metaphors. I hope I have been clear that the process of making sure that the ACSPs operate in an environment that is trusted and clear is at the root of much of the activity we are discussing today. I will certainly make myself available for further inquiry but, as I hope I have made clear, ACSPs are regulated by the money laundering supervisory authorities and a review of that important process will begin in the summer.

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[Lord Johnson of Lainston (Con)]

I appreciate the noble Baroness’s point. As I said, the sunsetting effectively becomes business as usual, which is provided for to enable Companies House to report according to the criteria that have been established. I am happy to discuss what data it is useful to provide. That is a very important and relevant point. My assumption is that it will evolve over time to some extent, but we can be pretty comfortable that a great deal of information is already provided. It might be useful for us to assess that and then engage in further discussions with officials. We are very open-minded on the data provided. I am reluctant to legislate for this, since we are trying to make data useful rather than simply a legislative process.

[Lord Agnew of Oulton (Con)]

Is the Minister suggesting that he will clarify the noble Baroness’s point? The wording in Clause 187(1) it quite specific in saying “operation”. Is he saying that he wants this to drop away as part of the sunset clause, but that another report will endure and he will discuss it with us to ensure that it is fit for purpose for the longer term?

[Lord Johnson of Lainston (Con)]

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

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[Lord Johnson of Lainston (Con)]

My Lords, I thank your Lordships, as always, for this very passionate debate. I am struck, after however many pleasant hours we have been together debating in Committee, by the convinced passion and determination of Peers on all sides. An Economic Crime and Corporate Transparency Bill might be considered a dry, technical matter for specific and weighty thought, but the reality is that this is an emotive subject. It is important for all noble Lords to know the Government’s shared passion for stamping out illegal activity and economic crime in this country. From my point of view, it is extremely costly to the economy to enable financial crime to be enacted in the UK. It is not invisible, and every crime has a victim. I hope all noble Lords understand that my personal passion and that of the Government are allied in trying to make a Bill that is practical, will achieve its goals and will allow businesses to flourish.

I would also like to apologise. The noble Lord, Lord Faulks, mentioned the meeting which many officials here attended yesterday. I was unable to attend that meeting, for which I sent my apologies. That was the only morning that I have been away in the past six months. I hope all noble Lords will feel comfortable in contacting me directly to arrange further formal or informal meetings.

I now turn to the amendments. I thank the noble Lords, Lord Coaker and Lord Ponsonby, and the noble Baroness, Lady Blake, for their Amendment 65 on fees and penalties. I also thank my noble friend Lord Agnew, my noble and learned friend Lord Garnier, the noble Lord, Lord Cromwell, and the noble Baroness, Baroness Bowles, for their Amendments 69, 70, 71, which address the economic crime fund and the retention of fees by economic crime enforcement agencies. I also thank my noble friend Lady Altmann for her Amendment 106E on fees and an economic crime fund.

I shall attend initially to the fees and penalties element. The level of Companies House fees has been the subject of much speculation, and I know from our conversations and the amendments in this group that noble Lords have a significant interest in this. At no point do the Government believe, or could anyone in all seriousness believe, that £12 is a reasonable amount for setting up a company. People have suggested that if a commercial organisation cannot afford whatever arbitrary figure one may wish to pick—it could be £50, £100, £150 or £500—for the creation of a limited liability company, it should question whether a limited liability company is the right structure in which to operate.

However, it is very important that fees are set via regulations and that the Government have flexibly over the right level of fee, which has not yet been established. I was grateful to my noble and learned friend Lord Garnier for confirming his view that that is the most appropriate way to set fees. The fee will be determined following an analysis and appraisal of the volume of investigation and enforcement activity to be undertaken, the associated cost base, the timelines for recruitment and systems development and other factors which we have raised in this important debate. We are currently finalising our modelling but are increasingly confident that we can fully fund the reforms, including creating around 400 new roles at Companies House, while keeping fees low. Current estimates from Companies House suggest fees of no more than around £50.

I draw noble Lords’ attention to the annual administration fee. There is an establishment fee for setting up a company and then there is an annual fee, which is currently £13—it is more expensive to register your firm annually than it is to set it up in the first place. I am not entirely sure how we reached those figures, but we are not looking to enshrine a minimum level of fee in primary legislation because to do so would severely restrict flexibility which may be required at a future date. Fees will continue to be reviewed on a regular basis to ensure that they are providing the level of funding that Companies House needs. Companies House is able to retain incorporation fee income under current arrangements between it and HM Treasury, with the arrangement reviewed periodically. That is important. The current intention is that the fees will be used to pay for Companies House, so a raised fee is absolutely right. It is estimated to be used for the functioning of Companies House.

[Lord Agnew of Oulton (Con)]

Will my noble friend clarify the annual filing fee? He mentioned that the one-off fee will go up to around £50. Can he give us any sense about the second fee? I think it is more important because it is regular income. I think the stock of new companies will drop because of this legislation. It will stop very small actors, as we have discussed—the plumber, the painter or whatever—and bad actors will not come in, so annual new registrations will drop, but that is why the filing fee is very important. Will the Minister give the Committee some indication?

[Lord Johnson of Lainston (Con)]

I thank my noble friend. We do not have an estimate for the annual registration fee so I would not like to speculate on it, but clearly it would be raised to a level commensurate with the £50 initial fee. The Government set the fee levels, as is appropriate under legislation, but they will come from the recommendation from Companies House. We will look very closely to ensure that it has enough income to perform the functions that we want it to perform. I do not think it is anything more complicated than that.

I have had many enjoyable debates about what the fee should be. To some extent, we can enjoy those debates but they are slightly speculative. What is important is that the Government have the flexibility to ensure that the right level of fee is charged and to change that if necessary. I do not think that anyone in this Committee would disagree fundamentally with that principle. Setting a minimum fee level does not seem reasonable, given the flexibility that we wish to retain.

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[Lord Johnson of Lainston (Con)]

I do not have an interest to declare there, I might add. Using fines to fund other activities results in the perverse scenario of that funding being dependent on behaviour that we are actively trying to stop. I strongly believe that, in many ways, the principles we are talking about are negated by a well-intentioned concept: trying to make sure that there is enough money so that our law enforcement agencies are properly funded in order to achieve their ambitions.

Given the limitations that I have set out—this goes to the point about providing a report—I am not convinced that there would be merit in providing a report on the prospect of a fund or, indeed, providing for a fund. I hope that noble Lords understand my conclusion here.

[Lord Agnew of Oulton (Con)]

I am sorry to intervene but I just want to say something. The Minister agreed with all of us that the crime-fighting agencies need to be properly funded but he did not explain how that will happen because he does not accept that we should hypothecate. He gave some good examples of other situations where it was about not the hypothecation but the use of revenue for activities that were not part of the original source and funding litigation. In June last year, the Information Commissioner announced a new arrangement with DCMS in which it could keep some of its civil monetary penalties to fund it to take on large technology companies. All I am trying to do is ensure that we will have the resources to take on these bad actors.

The Minister and my noble and learned friend Lord Garnier mentioned ARIS. As I said earlier, the funding has declined by 35% in five years—that is without inflation—yet the problem is getting worse. I do not expect the Minister to come back to us on this tonight but I am looking for some reassurance around how we are going to fund these things properly because we are not doing so at the moment. Everybody seems to be in denial and the Minister has offered me no assurances that we are going to deal with this.

[Lord Johnson of Lainston (Con)]

I greatly appreciate my noble friend’s intervention. I hope that I have made clear to the Committee the importance that this Government place on fighting economic crime.

If I may—I am not sure of the protocol—I wish to question my noble friend’s intervention. He said that the asset recovery incentivisation scheme has seen a considerable drop in the monies deployed to law enforcement over the recent period. However, I have a figure here: since 2006-07, just under £1.3 billion—that is based on nominal values and not adjusted for inflation—has been returned to Proceeds of Crime Act agencies to fund further asset recovery capability and work that protects the public from harm. In 2021-22, £354 million was recovered under the Proceeds of Crime Act, of which £298 million was paid into the ARIS pot. So I certainly will research the figures given to me by my noble friend.

The point is that we are looking to provide funding of £400 million over the spending review in order to focus on fighting economic crime. I am happy to have further debates around this issue but I hope that I have made my point in relation to these amendments, minimum fee levels and creating a fund out of the fees, which would be completely contrary to the ambitions that we have set in our legislation around Companies House.

Economic Crime and Corporate Transparency Bill

Debate between Lord Johnson of Lainston and Lord Agnew of Oulton

Committee stage
Monday 27th March 2023 Grand Committee

[Lord Johnson of Lainston (Con)]

I appreciate that intervention. Our view is that if we legislate specifically for a risk-based approach, on top of what we believe is already a risk-based approach, we are not achieving our goals. The concern from the Government’s point of view—and mine, as someone who has registered companies with Companies House—is that you end up box-checking. The Bill is designed to ensure that the registrar is responsible for ensuring the integrity of the register and minimising criminal activity. In my view, those are the core functions of the registrar and the activity of Companies House, so we already have what one would describe as a risk-based approach built in. We feel very comfortable that this ambition, which is what this is all about, is well built into the legislation and will be the core function of the registrar—this is the essence of it—and we believe this to be well represented. Clearly, the ambition of the registrar will be to take a risk-based approach to her activities. We may be arguing over the same point, but I take it very seriously and am happy to consider it with more thought. As I said, this has been drafted effectively to encompass the concepts and points raised by noble Lords.

I believe I have covered most of the points raised. My last point was raised by the noble Lord, Lord Clement-Jones: we are trying to create the registrar as a proactive gatekeeper. That is at the core of the Bill’s ambition. We welcome input on how we can ensure this is done more specifically.

[Lord Agnew of Oulton (Con)]

My Lords, if my noble friend wants my amendment not to be moved, would it be possible for the registrar to write to us to explain her philosophy and how she is going to make this huge change to delivering a risk-based approach? I am very reassured by his comments, but having been in the trenches of government for 12 years, I just know that the reality is a long way from wise words in a process such as this. A simple letter to us saying, “This is my philosophy, what I am doing and how I am training people to cope with this enormous change”, would be very reassuring.

[Lord Johnson of Lainston (Con)]

I thank my noble friend for that comment, and I entirely agree that it would be extremely useful to have such a letter from the registrar. I take very seriously the comments about a cultural change at Companies House. We should be aware of where we are coming from. Not to repeat or labour the point, but Companies House is today simply a repository for information; it could practically be a static website. Having said that, in the conversations that I have had with Companies House, I have been very impressed by the tone of the officials I have spoken to there in terms of their determination to crack down on criminal activity around companies and Companies House. They currently make referrals to law enforcement agencies; they are not blind to the issues that present themselves, but they do not have the powers to do what we want them to do.

This Bill gives the registrar and her agents the concomitant powers to execute exactly on this mission that we wish. They talk boldly of a cultural change in Companies House, which we expect, as well as a technological change and a significant resource improvement—and under other amendments we will discuss the resourcing of Companies House. I feel confident that we are going to see a magnitudinous alteration in the relationship between the number of companies and number of directors performing their functions appropriately and providing relevant information to boost the economy, as soon as, or soon after, this Act is enabled—if I have got my terminology right.

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[Lord Johnson of Lainston (Con)]

My Lords, I begin by apologising for my lack of fluidity in the procedures of Committee stage—I have not taken such a complex and important Bill through before, so I am grateful for noble Lords’ indulgence and apologise for any confusion caused.

I speak now to the set of government amendments in this group: Amendments 9 to 12, 25 to 30, 40 and 41. These will replace existing Clauses 36 and 38. They create a completely new type of sanctions measure in the Sanctions and Anti-Money Laundering Act 2018 called “director disqualification sanctions”. It will be unlawful for a designated person subject to this new measure to act as a director of a company. These amendments improve and extend the existing clauses, which prohibit individuals who are subject to the asset freeze sanctions measure from acting as directors of companies. Instead of automatically applying director disqualification status to individuals who are subject to an asset freeze only, this amendment allows Ministers to apply the new measure on a case-by-case basis using the existing designation procedure within the Sanctions and Anti-Money Laundering Act 2018. That will ensure that the measure can be better targeted at those designated persons who are acting, or could act, as directors. It provides the Foreign, Commonwealth and Development Office with flexibility as to when to apply it and does not limit it in applying it only to people subject to an asset freeze. That is standard practice for our other designation-based sanctions measures, such as asset freezes and travel bans.

It will be for the Foreign Secretary to decide when and how to deploy the measure, alongside the full suite of other sanctions measures. For instance, this measure could be applied on its own or alongside an asset freeze, travel ban or other measures. While other countries may be able to prevent designated persons from acting as company directors through the effect of other prohibitions, we will be the first country to introduce this as a specific type of sanctions measure.

The amendment will utilise the procedures set out in the Company Directors Disqualification Act 1986 to disqualify the designated person from directorship of UK companies. An individual subject to this new measure will commit an offence if they act as a director of a company or take part in the management, formation or promotion of a company.

As with existing sanctions measures, the relevant authority will be able to issue a licence to an individual to allow them to undertake activity that is otherwise prohibited. This may be necessary, for instance, where the individual needs to continue to act as a director for a short period of time in order to wind down the company. Additionally, the Secretary of State can by regulations create exceptions to provide more general carve-outs from the sanction.

Information about individuals who are subject to this new sanction, and any relevant licences, will be published on the director disqualification register maintained by Companies House, as well as on the UK sanctions list. This will ensure that the use of the sanction is transparent. It will also make the information more easily accessible. Members of the public will be able to find all the relevant information on the existing register, and will not have to search unfamiliar sources to access information on disqualified directors.

Introducing this new director disqualification sanctions measure will be an important addition to the UK’s sanctions armoury. I beg to move Amendment 9 and very much hope that noble Lords will support the other government amendments in this group.

[Lord Agnew of Oulton (Con)]

My Lords, I shall speak to my amendment on designated persons. The Minister is already dealing with this issue in some of his own amendments, but I stress that mine would be a slight tweak to the system that would have enormous power over the very few people who would be impacted. Last year only 1,200 people were designated for the Russian activities—across the whole world, not just by us—so we are talking about low numbers of thousands of people relative to the 5 million on the register. We also know that some of these bad actors got wind of their designation before it happened and were able to reorganise their financial affairs, so the horse had well and truly bolted by the time we rumbled into action. This slight amendment would give much more transparency into what these people were doing and allow the enforcement agencies to act accordingly.

[Lord Wallace of Saltaire (LD)]

My Lords, I note that these various amendments cover England and Wales, Scotland and Northern Ireland, but the UK financial system very much includes Jersey and Guernsey for a great many company formations and associated company forms. I wonder whether at this stage the Minister could explain whether or not the disqualification of persons from being directors within the UK will in time apply to the Crown dependencies, or whether one will still be able to act as a director for companies formed in the Crowd dependencies while disqualified within the UK.

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[Lord Johnson of Lainston (Con)]

I thank the noble Lord, Lord Ponsonby, for that summation. I am very grateful to noble Lords for the powerful reason which they bring to bear on these amendments. The Government are delighted to have more discussions around how we ensure that we have full knowledge of people who have control of companies and of companies’ beneficiaries. I believe that the Bill as it stands gives us that level of security. The Government would be reluctant to set arbitrary levels in terms of that above a certain percentage one should have additional registration information, but I am happy to have a discussion around those principles, if that is helpful.

If people do not have confidence in Companies House, we will not have achieved part of our goal, which is to give people a sense of that the data has integrity and is true. The whole point about this exercise is to make sure that people put the right data in so that we know who the people are who are behind businesses and people can trust that information. I am very sympathetic to this discussion, which is extremely important.

To balance this, I say that this is about helping businesses function better in a lawful environment. One can go to the ultimate degree in terms of requirements for information and verification that do not necessitate greater degrees of security but cause significant burdens for businesses. This is not simply about satisfying our desire for excess information simply for the sake it; it must be linked to whether this is going to help us achieve our basic goals, which is to understand who owns these businesses, who is behind them and who is benefiting from them. With that in mind, I am open to having further discussions, as my colleagues would be.

[Lord Agnew of Oulton (Con)]

I thank the Minister for his offer to have an ongoing conversation about this, because that is how you achieve the best results in these things. This very formal and rigid process of trying to look at individual clauses in isolation does not solve the problem. We have had several clauses this afternoon that all mesh together with one objective, which is to improve transparency. I take my noble friend Lord Leigh’s point about creating a bureaucratic system that impacts adversely on thousands of decent people, particularly small businesses. However, the transaction of changing car ownership in this country, where you have an asset worth a few thousand pounds, it is a very simple process. You fill in a change of ownership form, you send it to the DVLA, and the job is done—so to the point made by my noble friend Lord Faulks, I do not believe that we have to create a bureaucratic system to get transparency.

I remind noble Lords of the downside of not having this information. A case study was given to me by Members in the other place. The awful ammonium nitrate explosion in Beirut a couple of years ago killed and wounded hundreds of people. It was eventually uncovered that the company that owned the warehouse was a British-registered company, Savaro Ltd, but it was almost impossible to find out who the shareholders of that company were and to get to grips with who were the people who caused that terrible accident.

There is a lot more to this issue. As someone who has created a lot of small businesses in my career, I do not want a heavy hand on this, but light-touch regulation done well is the answer. I urge my noble friend to have an open conversation with Members here as a way of solving the problem in a business sense, not in this very formal way.

[Lord Johnson of Lainston (Con)]

I appreciate my noble friend’s summation. Again, I hope that the Government have demonstrated today that the principles of the Bill conform to the expectations and desires of this Committee. Clearly, there are details that require further discussion, and that debate will help propagate the ambitions and values that we are trying to inject into the Bill. I am grateful for the comments but, in this instance, I ask my noble friend to withdraw his amendment, given that we will have further discussions to try to ascertain the right levels and what burdens we should impose on business to achieve our outcomes.

[Lord Agnew of Oulton (Con)]

I beg leave to withdraw the amendment.