Economic Crime and Corporate Transparency Bill

Debate between Lord Johnson of Lainston and Lord Ponsonby of Shulbrede

Report stage
Tuesday 20th June 2023 Lords Chamber

[Lord Fox (LD)]

My Lords, again this is a group of amendments with which we can thoroughly agree, which is a nice position to be in. Government Amendments 5 to 11 speak for themselves in the sense of tidying up the situation in Northern Ireland. The one amendment that is worth dwelling on a little bit is government Amendment 50, which gets to the point around resources and having sufficient resources for Companies House to be able to do what it needs to do.

There is a certain irony that, if the Companies House team is successful, there will be fewer companies on the register. So one of the things they will need to consider about fees is that they will be reducing the number of companies or the amount of income that will come per company. One of the issues in setting them is that, if estimates of 5% of companies being fraudulent are right, there will be 5% fewer companies paying the annual renewal. Some people, and some organisations, put that number much higher, so I suggest that the Government think about the success that Companies House will hopefully have in order to set a fee that does not become self-defeating if it removes companies.

The more companies the team removes from the register, the less money Companies House receives in annual renewal. That is the point I am making. I am assuming that this number will come quite soon after this Bill becomes an Act, and it would be useful for the Minister to update us on when we think the secondary legislation will come, because, clearly, Companies House and others will rely on this money for planning ahead. I am assuming the money goes to Companies House and not the Treasury, but perhaps the Minister could confirm that.

If the Minister could say a little around the operation of Amendment 50, that would be helpful—so that I understand it even if everybody else already does. He could say a little about how much money and how changeable it will be in the event that more money is needed to support the drive to remove criminality from our companies. I think that everything else is broadly very welcome.

[Lord Ponsonby of Shulbrede (Lab)]

My Lords, we agree with all the amendments in this group. This group is all government amendments which make minor changes to ensure that penalties align with previous legislation, that they are taken into account when setting fees and that penalties do not stop criminal proceedings, as the noble Lord explained introducing the amendments.

I take the point the noble Lord, Lord Fox, made about Amendment 50. I presume fees can be updated as the situation evolves regarding the number of companies on the register. Nevertheless, we support this group of amendments and look forward to the Minister’s response to the questions asked by the noble Lord, Lord Fox.

[Lord Johnson of Lainston (Con)]

As always, I am extremely grateful to noble Lords for their interventions and the points raised in debate.

I turn to government Amendment 50. It is not a technical point, but it would not, in my view, be a point of significant consequence. It is just to ensure that when the Secretary of State has a licensing regime for directors who have been disqualified but whom she may require to perform a director’s duties, such as winding up a business—it is practical to allow disqualified directors in some instances to perform certain functions—the cost for administering that process is met by the fees. I do not imagine that would be a significant component of the Companies House fees. This is a tidying-up point more than anything else. It just means that the taxpayer does not have to pay the bill. If I am wrong in my expectations, I will certainly correct that for the House, but I do not think that is the case. It is a technical point.

We have discussed at great length what we feel the Companies House fees should be. I do not think there is a single similar opinion; every noble Lord in this House has a different view on the exact amount to the nearest 50p it should cost to register a company and to reregister it or confirm the registration each year. The fact is that Companies House now has a licence to propose its budget, which must be agreed. That budget will be met through the fees charged to companies using its services.

The noble Lord, Lord Fox, raised a good point. It is anticipated that some companies will leave the register. I hope that there will not be a significant number of companies forced to leave the register because they are not legitimate companies, but it is right that this investigative power will encourage those companies that should not be on the register to leave. The quantum of the number of companies—I think there are nearly 5 million companies—at any reasonable fee rate, which the discussions established is between £50 and £100, would allow there to be ample funding for Companies House.

To answer the question the noble Lord, Lord Fox, asked about what happens to any excess money raised by fees, there is only one place excess money raised by anything in this great nation of ours goes: His Majesty’s Treasury. We would clearly wish to avoid that. We would rather make sure that the fees were set at the right level.

To end on a serious note, we are not looking to have a fee rate. This is why the Government have been careful not to hypothecate fees for Companies House activity with other activities. It is not right, in our view, to charge legitimate businesses excess amounts of money to cover other things unrelated to their Companies House registration. We have tried to set this in the right fashion. I think this will result in the right outcome. I hope very much that the House will support what are seen as largely technical amendments.

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[Lord Ponsonby of Shulbrede (Lab)]

My Lords, we too will support the amendments if they are pressed by both noble Lords in due course.

The government amendments in this group are technical in nature and address the issues to do with overseas trusts, trust transparency and various anti-avoidance mechanisms.

I am glad to hear about the wonderful meals that the noble Lord, Lord Wallace, has had in Switzerland over the years, but I am sure that you learn a lot from those sorts of experiences about the sophistication of the types of arrangements which we are talking about.

As usual, the noble Lord, Lord Vaux, has done the House a favour, and we will support Amendment 72 if he presses it to a vote. He is proposing a practical solution to a current anomaly in the register, which he explained very fully. I know that the noble Lord, Lord Agnew, has been working tirelessly on the issues to which he just spoke, and if he indeed chooses to press his Amendment 73A to a vote, we will support him there as well.

[Lord Johnson of Lainston (Con)]

I thank noble Lords for their input to this important debate and, as always, I thank the noble Lord, Lord Vaux, and my noble friend Lord Agnew.

I will first attend to the matter of information transparency in respect of trusts on the register. It is important to clarify a few points. First, this information is being recorded at Companies House, so at no point are trusts or individuals able to conceal the information from law enforcement authorities or from the registrar, and that is an incredibly important point that noble Lords made. We are not discussing here about not collecting information or about not enforcing the collection of information—the liabilities and penalties that go with non-application of the information. We are talking about the publication of information, and it is important that we make that clear.

Secondly, we have listened carefully to all sides of this House and have introduced an additional amendment to enable interested or relevant parties to access the information held at Companies House on these trusts. This was not initially in the Bill either in the other place or here but, after very sensible discussions with myself—I hope noble Lords will agree that they were sensible—it is absolutely right that there is an opportunity for people to access the register. That is an important point again; I would not like this debate to be one-sided. This is not a situation where a Government are somehow trying to protect people or to allow them to obscure their assets or to commit crimes through opacity. This is about a workable system that allows our economy to function but at the same time provides essential safeguards that no Member of this House would like to see derogated. We have introduced a public interest access amendment, which will enable investigative journalists and other specific entities to access and make inquiries as to the beneficial ownership of trusts.

My noble friend Lord Agnew made an inquiry as to the use of the word “may” in giving permissions. As I understand it, that is simply the legal term that is used in these cases. I am happy to seek further advice around that but I do not think that necessarily changing one word would make the difference that my noble friend seeks. The important point is that we have made this commitment. This is a dramatic change from two months ago, when we started having these conversations. The Government as a whole, and many individuals within that Government, are extremely keen to see transparency brought to bear on this register and to enable people access to trust beneficiaries. There has been a fruitful and deep debate about it.

Economic Crime and Corporate Transparency Bill

Debate between Lord Johnson of Lainston and Lord Ponsonby of Shulbrede

Committee stage
Thursday 20th April 2023 Grand Committee

[Lord Ponsonby of Shulbrede (Lab)]

My Lords, I agree with everything that has been said. I too was going to allude to the case of the SNP and to make the point about auditors resigning before they are replaced. That is obviously a warning sign. I am intrigued to hear the Minister’s response. It seems such a practical suggestion. I will leave it at that, because the ball is in his court.

[Lord Johnson of Lainston (Con)]

I thank my noble friend and guru Lord Leigh for his Amendment 73AA, and the noble Lords, Lord Fox and Lord Ponsonby, for their contributions. I assure my noble friend that this amendment is not necessary. The Government hear his comments loud and clear but, as with all outings at this Dispatch Box as a Minister, I am unable to give the purity of the answer that we might all prefer to hear.

However, I will say that the Government are taking forward reforms to audit and corporate governance regulation separately following the publication last year of our response to the White Paper consultation on restoring trust in audit and corporate governance. The White Paper considered the information that must be provided to Companies House when an auditor leaves office, so this covers the point about the auditor leaving office rather than necessarily the appointment of a new one; that is a core point that has been raised and heard. The Institute of Chartered Accountants in England and Wales—many noble Lords in this Room have declared an interest as being a member of that august body so they will know this already, although I am not—has raised with my officials the lack of up-to-date information on the Companies House register about the appointment of new auditors.

The Government are therefore already considering how the public record might be improved in respect of appointments of auditors, including possibly via a combination of notifying the appointment when it is made, as well as updating the register if needed as part of the annual confirmation statement. We covered the point about the auditor stepping down or leaving office. This could work in much the same way that it does for the identities of company directors, which I believe will satisfy this Committee. There are already secondary legislative powers in the Companies Act 2006 on the content of the confirmation statement, and amendments to this framework are already being considered as part of the implementation of the Government’s White Paper proposals on restoring trust in audit and corporate governance.

I hope that satisfies the Committee and I therefore ask my noble friend kindly to withdraw his amendment.

Economic Crime and Corporate Transparency Bill

Debate between Lord Johnson of Lainston and Lord Ponsonby of Shulbrede

Committee stage
Tuesday 18th April 2023 Grand Committee

[Lord Ponsonby of Shulbrede (Lab)]

My Lords, I think the consensus continues. I thank the noble Lord, Lord Leigh, for introducing this group. As he said, this set of amendments really repeats those spoken to earlier, but in this case concerns micro-entities. He made the points about either accidentally or deliberately tagging wrongly, and that not seeming a substantial argument against increasing its use. As the noble Lord, Lord Fox, said, companies are well used to producing and presenting accounts in different media and ensuring that they are presented consistently across them. This tool should extend their use.

I also agree with the noble Lord, Lord Leigh, and others that the Clause 54 stand part debate in the name of the noble Lord, Lord Sarfraz, is not appropriate for the Bill. As others have said, micro-companies are not actually that small. Some numbers have been presented, but the figure I have is that 1.3 million micro-entity accounts were filed in 2019-20, the largest proportion of accounts filed with Companies House. The figures I have are of a turnover of less than £632,000 on a balance sheet of £316,000 with 10 or fewer employees. Over the years, I have been involved in a number of businesses of that sort of size, but they can and do sometimes grow into much larger businesses. There needs to be consistent tracking of these companies to see where they have come from and make predictions about where they might go, so I agree with the point on that made by the noble Lord, Lord Leigh.

Other noble Lords agreed with this point, so I hope that the Minister will resist the argument that Clause 54 should not stand part, if the noble Lord, Lord Sarfraz, chooses to speak to it, and is sympathetic to the amendments from the noble Lord, Lord Leigh.

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

My Lords, I draw attention to my interests as set out in the register of interests, including as a director and person with significant control at AMP Ventures and as a shareholder of several other businesses and companies. I do not believe I have any personal conflicts represented today.

I also thank all Members of the Committee who participated in our useful and instructive discussions over the past month or so. I am sorry that the Easter break we enjoyed sort of broke our continual discussions, but I hope that we will reinstigate them in the near future. I am fully available over the next few days, particularly before the next series of Committee amendments and over this process, to make sure that the House collaborates together to reform Companies House for the first time in nearly 100 years, and that we bring to bear the crucial reforms that will enable us to have a transparent business environment that allows businesses to flourish and the data that they provide to Companies House to be used more effectively to create greater wealth and private enterprise in this country. I hope that, in my actions, noble Lords see my desire to collaborate very closely with all your Lordships to ensure that we all reach the same end.

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[Lord Johnson of Lainston (Con)]

I thank the noble Lords, Lord Coaker and Lord Ponsonby, and the noble Baroness, Lady Blake, for Amendment 50. As has been discussed, it seeks to require that the new identity verification process includes the use of photographic ID issued by a recognised authority. Although I welcome our shared ambition to ensure that identity verification will be a robust process, I am concerned about noble Lords’ proposed approach to limit the acceptable documents in primary legislation. Under Clause 64 of the Bill, the procedure for identity verification, including what evidence will be required, will be set out in secondary legislation.

I apologise, as always, for not answering noble Lords’ questions. The noble Lord, Lord Vaux, raised how I dodged his question the first time. I hope I am not dodging it a second time but I would be delighted to write to noble Lords with some further information on the specific detail that is required for identity verification. Let me be very clear: we assume that it will include a photograph. However, I will come on to explain why that may not necessarily be the case in every instance.

Setting this out in secondary legislation will allow for flexibility and ensure that the technical detail of the identity verification process can be adapted to meet evolving industry standards and technological developments. Parliament will have the opportunity to scrutinise these regulations via the affirmative procedure. I assure noble Lords that, for the majority of individuals, photographic ID will be used. The primary identity verification route will be via the so-called “selfie verification” method, which will involve the person providing documents such as a passport or driving licence. The person undergoing identity verification will take a photograph or scan of their face—my noble and learned friend Lord Garnier may be pleased by this specificity—and the identifying document. The two will be compared using likeness-matching technology, and the identity verified.

However, I am concerned that the proposed amendment would exclude individuals who do not have photographic ID. Restricting the acceptable documents could inadvertently discriminate against a number of people and raises equality concerns. For example, would it be fair for the law to prevent individuals setting up a company simply because they do not have a passport or a driving licence? Should an individual who has owned the freehold of their home for decades via a company now be forced to apply for photographic ID despite there being no other statutory requirement to have one? This is why, for individuals who cannot provide such documentation, there will be alternative options available. I assure the Committee that these will be robust and proportionate.

Most importantly, all providers will conduct checks in line with the cross-government identity proofing framework—the GPG 45—which will be comparable to verification checks conducted elsewhere in government. Under the GPG 45 framework, a combination of non-photographic documents, including government, financial and social history documents, can be accepted to achieve a good-level assurance of identity. ID documentation from an authoritative source such as the financial sector or local authorities is also recognised under the cross-government identity proofing framework and is routinely used to build a picture of identity.

For the reasons I have set out, I hope that noble Lords will understand the philosophy of my approach and agree that requiring in primary legislation that an individual provide official photographic ID to verify their identity would be unnecessarily restrictive and potentially unfair. I am afraid that I must therefore ask the noble Lord to withdraw his amendment.

[Lord Ponsonby of Shulbrede (Lab)]

My Lords, I thank the Minister for that serious answer to the amendment that I have just moved. I am also grateful that he has said that the Government’s intention is to harmonise the identity-checking methods across a number of different parts of the government process, if I can put it like that. I acknowledge that the technology for identifying individuals is evolving and that photography itself is not the end of the story; that part of the identification process is evolving as well. I will reflect on the Minister’s answer to that point. I need to look at other pieces of legislation and see whether the way in which identity is going to be checked is explicitly put on the face of the Bill in other Bills. Nevertheless, as I have said, I thank the Minister for the serious way in which he has answered the points that I have raised. I beg leave to withdraw my amendment.

Economic Crime and Corporate Transparency Bill

Debate between Lord Johnson of Lainston and Lord Ponsonby of Shulbrede

Committee stage
Monday 27th March 2023 Grand Committee

[Lord Ponsonby of Shulbrede (Lab)]

My Lords, this is a wide-ranging group of amendments which focuses mostly on the amount of information given about subscribers, founding shareholders and limited companies when registering a company and ongoing shareholders. The amendments in the names of the noble Lords, Lord Vaux and Lord Agnew, are aimed at making it transparent whether subscribers and shareholders are holding shares on their own behalf or on behalf of others.

Currently, information about subscribers is very limited. The amendment in my noble friend’s name, and other Back-Bench amendments, are aimed at helping provide more information. The amendment would require the nationality and country of residence of subscribers. There has been a huge increase in the number of shell companies with directors based abroad. This is one step we can take to increase transparency and fight against the UK’s reputation for tolerating dirty money. The theme of this group as a whole is increasing transparency; there are various specific amendments with that aim in mind. I beg to move.

[Lord Johnson of Lainston (Con)]

I am grateful to the noble Lord for accommodating this intervention. I thought it would aid noble Lords in having a productive debate if I set out up front the intention of the government amendments in this group, given that it contains a significant number and, as I understand it, the amendments in the name of the noble Lord, Lord Vaux of Harrowden, seek to build on them.

The government amendments seek to further strengthen transparency of shareholder data on the company register. I hope they will reassure noble Lords that the Government take this topic very seriously. A core purpose of the register of companies is to provide details of company ownership. However, users of the register have reported some problems with the way in which company ownership data is recorded. That is why the Bill contains measures to increase the usefulness of the information held on the shareholders, subscribers and guarantors—also known as members—of companies.

The Government appreciate the concerns expressed during the passage of the Bill by expert witnesses and parliamentarians about member information. However, I stress that we are also mindful of stakeholder concerns about imposing disproportionate burdens on businesses. The 2019 corporate transparency and register reform consultation proposed that non-traded companies, such as companies that are not listed on any regulated market, be required to collect the usual residential address and date of birth of their members. Consultation responses were mixed, and the Government concluded that the case had not adequately been made for the collection of the information, given the potential burden on businesses.

The Government consider that the approach taken with these amendments balances competing stakeholder concerns proportionately. The amendments will help to ensure that the policy intent of provisions in the Bill and the Companies Act 2006 are met without imposing undue burdens on business before further consultation is carried out.

Amendment 31 inserts a new clause into the Bill, which will amend the Companies Act 2006 to create an express requirement that old information must be retained where it changes. So, if a member’s name, address or shareholding changes, that old information must be retained for as long as the Companies Act 2006 allows. That is currently implied by other sections of the Companies Act 2006, but the law is unclear. For example, Section 121 states that an “entry” relating to a former member of a company may be removed from the register after the expiration of 10 years from the date on which he ceased to be a member. The retention of old information should already be current practice as it is in a company’s own interests to retain such information for audit purposes. Retrospective disputes relating to votes, dividends, and tax could all hinge on who owned shares at a point in time.

The new clause inserted into the Bill by Amendment 31 will also amend the Companies Act 2006 to provide powers to companies to ensure that member information is provided and kept up to date. The amendments also provide duties for members to provide their information and keep it up to date. There are offences for companies and members failing to comply with the new requirements without a reasonable excuse. That will ensure that the requirements are taken seriously by both companies and members and will enable more effective enforcement activity.

Amendments 6, 31, 34, 59 and 66 restructure existing provisions in the Bill that in turn amend the Companies Act 2006. They also provide powers to strengthen the regime by regulations. The powers allow regulations to require more information to be provided and to ensure that any new personal information is protected as appropriate. That would allow the Government to act swiftly to require more information to be provided if it is deemed proportionate to do so—again, following further consultation. Equally, law enforcement agencies may identify additional types of information that the registrar could require the collection of, which would help them in the prevention and detection of crime.

If new information is later required, it may not be appropriate for it to be made available for public inspection or disclosed except in specified circumstances—for example, if regulations later require a person’s personal email address to be provided, as that could have unintended consequences with spam mail and so on. These amendments ensure that personal information can be protected where appropriate, applying the principles from similar provisions in the Companies Act 2006 and this Bill to these measures.

I want to highlight that the power in new Section 113C could be used to limit any additional information requirements to companies that are not traded on any listed market, as those companies are already subject to similar disclosure requirements. That would reduce the burden on business, in line with the proposals in the 2019 consultation.

These amendments set up the framework for the policy intent to be met and leave the heavy lifting to regulations, once consultation has been carried out. The Government consider that to be an appropriate balance, as all regulations will be subject to the affirmative resolution procedure such that Parliament will have its say when those regulations are made.

The Government intends to remove Clauses 2, 4, 46 and 47 from the Bill because the provisions of those clauses are amended and/ or incorporated into the new clauses that I have described. Amendments 35 to 38, 60 to 62 and 67 allow the provisions to be sequenced more coherently and make consequential drafting tweaks.

I hope that noble Lords will support the amendments, and I look forward to the rest of this debate.

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[Lord Johnson of Lainston (Con)]

I appreciate the noble Lord’s intervention. I expect some of this comes down to nominee companies and the roles that they perform on shareholder registers, but I am happy to look in more detail at this point. We had the good fortune to have a conversation about this some days ago and came to the conclusion that it was certainly worth further investigation to ensure that anyone who puts information on to the Companies House website has to ascertain whether they are acting on behalf of other people. However, I believe, and very much hope, that the answer will lie in the depths of the legislation.

My noble friend Lord Agnew’s amendment is very similar. I hope I have covered this point, particularly in relation to the PSC framework already in place.

I turn to Amendment 5, and thank the noble Lord, Lord Ponsonby, for his helpful replacement of the noble Lord, Lord Coaker, in speaking to it. The amendment would require a memorandum of association to include the nationality and country of ordinary residence of each subscriber. A memorandum of association is a memorandum stating that the subscribers wish to form a company, and they agree to become members of that company. Their names are then entered into the company’s register of members.

This amendment, if I may be so bold, would not require the same information to be provided by persons who later become members. Frankly, it is considered that that would create inconsistency between the information requirements of members who were subscribers and other members. The Government consider that any new information requirements should be consistent between the two.

The Government appreciate the intent behind the amendment, but we consider that this would be better addressed by consulting stakeholders about what additional information, if any, it would be proportionate to require every company to provide about all its members, rather than just subscribers who are individuals. To reinforce that point, we would look to consult stakeholders about what additional information it would be proportionate to require.

This Bill, and government amendments to it, provide the powers to require additional information to be provided via regulations. This discussion can happen on an ongoing basis, and we welcome that. The government amendments that I outlined earlier signal our willingness to review the position on this issue, albeit having first consulted stakeholders, given the potential burdens involved. I know we all agree about the importance of keeping the legislation sensible so that it does not impinge on our entrepreneurial spirit and the creation of companies in this country. That is absolutely right, and noble Lords would expect the Government to consult in ensuring that we get the right information registered in the right way. I hope this reassures the noble Lord and that he will withdraw his amendment.

[Lord Ponsonby of Shulbrede (Lab)]

My Lords, I thank all noble Lords who have spoken in this relatively short but important debate. I make it clear to the Minister that I do not think anyone contributing to this discussion was questioning the underlying philosophy of the Bill. Indeed, we were trying to enhance its underlying philosophy, which is to provide greater transparency about who the ultimate beneficial owners of all these companies are.

The Minister’s response to the various amendments was about disproportionality. He said that they would put disproportional burdens on smaller companies, that personal information may be made available, and that people should be protected from spam, promoters and so on. I do not think anyone is questioning that. Various amendments put forward by various noble Lords try to increase transparency and to stop people being able to hide behind layers and layers of nominee companies.

I was drawn to what the noble Lord, Lord Vaux, said: “Having to lie in public is very different from just keeping quiet”. That is a very sound principle to operate on. He also made the point that identifying shareholders should be the same as identifying directors or people with significant control. That is a second principle behind his amendments.

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[Lord Ponsonby of Shulbrede (Lab)]

This has been an interesting debate—and a very lawyer-heavy debate —on the juxtaposition of “strict liability” with “reasonable excuse”. I can claim some knowledge here as a sitting magistrate in that I deal with those sorts of things quite regularly, frequently with respect to knife crime and traffic matters. It is a conundrum; it is worth examining further and I hope the Minister will take it further.

The noble Lord, Lord Clement-Jones described this as above his legal pay grade. Talking as a magistrate, I am an unpaid legal practitioner. Nevertheless, the Minister should take up the invitation of members of the Committee to look at this further. I can see that it is open to confusion, and I also take the point made by the noble Baroness, Lady Bowles, about putting other officers in default. I hope that the Minister will take these comments in the spirit in which they were made and that there may be further opportunity for discussion on the points raised.

[Lord Johnson of Lainston (Con)]

I greatly appreciate the input from noble Lords. Knowing my record over the last hour, I will probably vote against this in any event.

I shall just explain this in my own words, if noble Lords will tolerate my lack of legal expertise. The point was that, until this amendment, you had to prove—I welcome interventions from noble Lords if they feel that I am straying into their legal territory—either dishonesty or recklessness, rather than simply misfiling, in order for there to be a prosecution, which set a very high bar for prosecution. As I understand it, a number of important prosecutions—which is the whole principle for us being here—failed because they were unable to prove that exceptionally high bar.

This therefore makes it an offence to misfile which, as has been rightly pointed out, is a statutory event. However, it would seem to be unreasonable that, if you accidentally put your address down as “46B” when it should be “46C”, you then receive a two-year prison sentence or indeed a significant fine. It is right in this instance that “reasonable excuse” is brought to bear.