Economic Crime and Corporate Transparency Bill

Debate between Lord Johnson of Lainston and Lord Cromwell

Committee stage
Thursday 20th April 2023 Grand Committee

[Lord Johnson of Lainston (Con)]

I thank my noble and learned friend for that point. Going back to the comment the noble Baroness, Lady Blake, made about the statistics on registered entities, I understand that there is a website that tracks this, which the Committee can log on to each day to see progress. We will send that link around to encourage your Lordships to look at it, but at the same time we will make sure that we provide more information about the statistics.

I cannot commit to a debate on trust transparency at this stage, but what I can commit to is that the Government are exploring this topic, which I think is separate to some of the discussions we are having. I would like to clarify my own point, which the noble Lord raised, about micro-entities and the assumption of publishing. I believe that the assumption is that the information would be published. My point was that I think it is perfectly reasonable to have differing views over this on account of areas such as privacy, if I can have a personal view as a Minister. I am very happy to have a debate about whether there is a discussion to be had around privacy for micro-entities publishing all their information, given how personal that can be. I think it is perfectly legitimate for trusts, in many instances, to be considered private affairs, so long as the authorities themselves have the transparency of information that they need.

[Lord Cromwell (CB)]

To pick up on the noble and learned Lord’s point about consultation, I am sure we have all welcomed the multiple times that the Minister has referred to further discussion and further consultation about topics raised today and on the previous day of debate. I think we would welcome the chance to get our diaries out fairly soon and see when those discussions could actually take place.

The other separate and more pedantic point I wanted to make is that I think the Minister said—I agree with him largely on privacy, by the way—that the trusts are repositories of assets and do not transact business, although I am ready to be corrected. I am not sure that that is a fair representation. I think that many trusts own companies and the trustees run the companies and businesses that are held, as it were, in a holding group.

[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.

Economic Crime and Corporate Transparency Bill

Debate between Lord Johnson of Lainston and Lord Cromwell

Committee stage
Tuesday 18th April 2023 Grand Committee

[Lord Johnson of Lainston (Con)]

I thank my noble and learned friend for his intervention, as always. I am sorry if my words have not been clear enough. I hope that, over the next few weeks as the Bill proceeds through the House, we will have conversations that will allow us to come to a sensible conclusion on this issue. In trying to justify why we should not publish the name of an ACSP against the verified identity, we will of course provide reasons. The point is that we should have a sensible, legitimate discussion about this. It is not for me at this Dispatch Box to come up with a variety of reasons or excuses because this is an important point that we want to look into with great seriousness.

[Lord Cromwell (CB)]

I can perhaps come partially to the aid of the Minister by pointing out, and I do not want to be partisan, that if for some reason that we are all looking forward to hearing about it is felt that companies which are registering—these ACSPs—are right to be shy about having their name attached, I point out that Amendment 50A requires those companies simply to notify the registrar of how many companies they have registered and the codes that they have used. That will throw up the sorts of patterns that the crime agencies are very interested in. For example, if registering body X has registered 3,000 companies in a year or 300 companies under a particular code which is of interest, that will emerge very quickly from the data, even if it is not necessary for some reason to attach the name of the company to the companies it has registered, which I think, in line with my noble friend Lord Vaux’s amendment, it should be, but I appreciate that we are going to discuss that later. I want to draw to the Minister’s attention that the statistics that will enable those who are interested to focus on what companies are being registered by whom in what sectors would still emerge without having to attach the name of the registration body to the company.

[Lord Johnson of Lainston (Con)]

I thank the noble Lord for his intervention. I would like to clarify my point, which is that this is a very relevant point raised by a number of noble Lords in the Committee. I have been doing a great deal of investigation into this point over the past few weeks and have great sympathy with the sentiments expressed about making sure that the bodies that verify identity can be tracked in some way, in public as much as in private, because I feel that to be very important.

However, there may be technical points that I have overlooked, so I am reluctant to commit today to accepting an amendment, as noble Lords can imagine. It would be inappropriate for me to do so, but I hope noble Lords can hear from my clear words the commitment that we make to see whether the principle around this amendment could be made possible as we look into how the Bill will develop over the forthcoming period, so I greatly thank the noble Lord, Lord Vaux, for his amendment, and I look forward to having discussions over the next few weeks to see how we can find a way to try to implement the philosophy of the principles.

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[Lord Johnson of Lainston (Con)]

I appreciate the noble Baroness’s intervention. I do not have an answer to the question as to whether there was concern over reputational damage but I personally do not see that as a particularly significant reason to withhold one’s identity. If you are an auditor of a corporate account, your name is public. As I am sure we have found with some auditors relating to some national political parties, their embarrassment will be palpable but at least it will be public for us all to see.

To answer the noble Baroness’s other point on penalties, just so she is aware, it is an offence falsely to confirm the identity of an individual. I am unable to make comparisons with the private landlord sector but it is very clear that falsely identifying an individual would be a serious offence. That is part of the legislation we are providing for.

On Amendment 50A, I consider that the measures included in and added to the Bill provide a significant amount of transparency. I will come on to discuss that in a moment. To look at the process that allows an individual to become an authorised corporate service provider, they have to be supervised under the money laundering regulations. They are already required under those regulations to take appropriate steps to identify and assess the risk that their customers would have on their business. Although I understand the noble Lord’s intention, I do not think that this is the right place to consider publishing information about risk assessment processes. In our view, it is beyond the role of the registrar to gather and store this information, or to question it.

The right place to consider the quality of risk assessments is through money laundering supervision. Supervisors are already empowered to compel this information and take enforcement action against firms found to be non-compliant. I have well heard the comments around the money laundering process and whether the supervision regime is adequate. A review is being undertaken at the moment, which is raised in one of the amendments we are about to cover. It makes sense to include discussion of how ACSPs are monitored in that review.

I turn to the suggestions from the noble Lord, Lord Cromwell, around standard industrial classification, or SIC, codes and the publication of this information. SIC codes allow Companies House to track what a business does and are used primarily to indicate emerging trends and the strength of the UK economy. I support the noble Lord’s intention to have clear information about the activities that companies are undertaking. Through the Bill, the Government are extending the requirement to provide a SIC code to limited partnerships. As my noble friend Lord Leigh rightly pointed out, such provision is already obligatory for companies. Companies House already runs reports on how SIC codes are being used and will be capable of filtering these to show only the SIC codes of companies that were registered by ACSPs, for example. I therefore consider that requiring ACSPs to provide this information as well would be duplicative.

I also consider it disproportionate to require ACSPs to provide annual reports to the registrar on the SIC codes associated with the companies that they have registered. It is possible that thousands of ACSPs will be registered and it would not be possible for these reports to be regularly monitored. This is a concern in terms of the cost and burden to Companies House.

Furthermore—this is a very relevant point for me that has been made; it does not negate the necessity to assess the process of SICs but it is important in the context of this debate—a company’s SIC code can and often does change. There is a great deal of—I do not necessarily know the right word—greyness about how people classify their business activities. In my investment career, I looked at a tank company that was classified as a consumer discretionary and I saw a military defence business that had a lingerie subsidiary. I am still trying to work out whether that was related to distracting the enemy but the point is that, in many cases, it is very difficult to be absolutely certain about the occupation or classification of a business.

On noble Lords’ comments about companies obfuscating their actions, this amendment does not necessarily provide a solution. It is not necessarily the role of ACSPs or Companies House to determine the specific validity of every claim made; that would be extremely difficult, particularly where there are grey areas around activities. That change may or may not be presented by an ACSP; it would be unreasonable to expect an ACSP to be responsible for monitoring this.

I am therefore not clear what benefits this amendment would bring and request that the noble Lord does not press it, but I am happy to have a further discussion about SIC codes if they fall within the Department for Business and Trade, which they probably do. At the same time, I am happy to have further discussions with noble Lords about the review of money laundering processes and the supervision environment.

[Lord Cromwell (CB)]

I very much look forward to those discussions and certainly do not want the reporting burden here to be the straw that breaks the camel’s back. However, is the Minister saying that, if we have a problem with companies misallocating their codes, it is up to the company or the registration body to determine the code? If the registration body is deliberately miscoding companies, we have a problem. If companies are foolishly misqualifying themselves, we have a different type of problem. Either way, we have a problem, but the Minister seems to be saying that there is no problem in either case. Could he just confirm that situation?

[Lord Johnson of Lainston (Con)]

I appreciate the noble Lord’s intervention. As far as I am aware—I am comfortable to be corrected, as I am surrounded by so many experts in this area—it is the company that classifies itself, rather than the ACSP. If that is not correct, I will certainly come back to noble Lords. I repeat that we are happy to look at the issue of industry classification, which is very important in understanding the growth of the economy, new industry classifications and how businesses are performing, at the very least—separate from the opportunity it will give Companies House to assess high-risk areas.

I understand Amendment 50B in the name of the noble Lord, Lord Coaker, but I cannot support it. Information on the money laundering and terrorist financing risks associated with the TCSP—trust or company service provider—sector is already published in the national risk assessment of money laundering and terrorist financing. Risk assessment undertaken by firms on their clients can be shared with money laundering supervisors who are responsible for reviewing them as part of their supervision of TCSP policies, controls and procedures.

With respect to the proposal to provide information about the fees that they charge, I remind noble Lords that ACSPs are themselves businesses or consultants which are a part of a market economy. In our view, it would not be reasonable to expect ACSPs to disclose this information. There is nothing in the Bill which would oblige an individual to have their identity verified by an ACSP. Individuals will be at liberty to decide whether to pay any fee that an ACSP decides to charge, or to use the service that will be provided by Companies House. I am confident that, if a prospective customer considers an ACSP’s fees too high, we can trust them to vote with their feet.

Amendment 51A, also in the name of the noble Lord, Lord Coaker, is well intentioned. To some extent, we have already covered this, but I will go through these points to make sure that we are complete. I do not agree that the amendment would add value. There are over 600 SIC codes which are used to inform economic trends. Trying to adapt their usage for the purpose of fighting economic crime is unlikely to be successful. I am unclear as to how the Government would determine which SIC codes would be classified as “high risk” or how they could be applied fairly. Perfectly legitimate lower-risk businesses would almost certainly be inappropriately labelled high-risk. I hope that I have covered the other points relating to standard industrial classification codes.

I am grateful to the noble Lord, Lord Vaux, and the noble Baronesses, Lady Bowles and Lady Bennett, for Amendment 54. As I said, I hope that I have covered the points raised in enough detail to satisfy noble Lords present today that there will be a significant amount of work and inquiry in relation to that amendment.

Amendment 49, in the name of the noble Lord, Lord Agnew of Oulton, is about blocking the use of ACSPs until HMT’s supervisory reforms have taken place. It would be disproportionate to block all ACSPs from carrying out identity checks while the Treasury works through its reforms to the supervisory regime, which, as I said, I hope will conclude around the summer of this year. It would have a disproportionate effect on the thousands of high street accountants and solicitors, and their business clients, who operate entirely legitimately. I remind the noble Lord that ACSPs will be required to carry out checks to at least the same standard as the registrar and that she will keep an audit trail of their activity and will be able to query any activity that she thinks suspicious. She will be able to share information with the ACSP’s supervisor and suspend or deauthorise an ACSP, preventing it from conducting identity verification.

A delay in allowing ACSPs to carry out identity checks could also impact other areas of reform; for example, limited partnerships will be required to make certain filings via an ACSP and may wish to have their identity checks done simultaneously by an ACSP. The Bill already provides in Clause 65for secondary legislation to be made which would allow spot checks to be carried out by the registrar under Section 1098H. I am confident that, if any rogue agents slip through the net, they will soon be spotted by Companies House, which will have the powers to take appropriate action. In all honesty, I see no merit in delaying ACSPs making identity checks and beginning this important process of bringing transparency and clarity to the register at Companies House.

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[Lord Cromwell (CB)]

Will the Minister clarify something? I am sorry that I hesitated, but I am sort of in shock. Has the Minister just told us that he is not going to have consultations with us about so many of these points, but we are going to be talking with the Office for National Statistics about them?

[Lord Johnson of Lainston (Con)]

I hope that the noble Lord did not misunderstand my point. I think I referenced the fact that I assumed that SICs would fall under the Department for Business and Trade, but it turns out that that is not the case. I was mistaken in my knowledge of departmental structures and it turns out that they are under the Office for National Statistics, which is under the Treasury, so it would be wrong for me to suggest too much consultation on account of the fact that that is not my department. However, I have committed to making sure that we have further discussions around this. It is clearly very important, and if we are to make the function of SICs work properly, they need to be seen as effective and useful, so I am very comfortable to commit to ensure that a suitable discussion is held around that. I would be delighted to make sure that the relevant officials are brought before noble Lords to have a further discussion around how that can possibly be effected, but clearly I cannot commit another department to a specific activity.

[Lord Cromwell (CB)]

Will the Minister be joining those discussions or is he absenting himself from them?

[Lord Johnson of Lainston (Con)]

I thank the noble Lord for the point. I very much look forward to those discussions. I would have to be dragged away from such discussions, unless it turns out that it would be inappropriate that I should attend any part of them.

[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.