Economic Crime and Corporate Transparency Bill

Lord Ponsonby of Shulbrede Excerpts

Committee stage
Tuesday 18th April 2023 Grand Committee

[Lord Fox (LD)]

There appears to be a chorus of agreement, so I will not add terribly to its length. This is just to thank the noble Lord, Lord Leigh, from whose knowledge of this area we benefit. We should be in a position to listen.

We had a meeting with officials yesterday, and my read-out is that the reason for the government resistance to the previous versions of these amendments referred to by the noble Lord, Lord Leigh, was, in a sense, practical. The accounts are signed off by the board and auditors, and something needs to be done thereafter to tag them. The departmental team seemed worried that something might go wrong in that tagging process, so we should not go down this route.

Having prepared more than 20 company accounts—I concede that they were largely for large businesses—this always happens. The board signs off a set of accounts and then prepares to communicate it in a number of different media. The accounts are put in an annual report, a Stock Exchange announcement system and a website. In each case, there is a process to make sure that the read-across is performed correctly. I suggest that the practical constraint that somebody might do something wrong does not outweigh the benefit of mandating this tagging process across the board.

I agree with the noble Lord, Lord Leigh, and others that micro-companies should still be included in this process.

[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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The role of ACSPs is so central to the success of the Bill that we must do everything reasonable to make sure that they do their job honestly and diligently. At the very least, it makes sense to make sure that their activities are transparent, so that we can see how well they are carrying out their roles. Amendments 48 and 54 would add no additional burden or cost; they simply allow a little daylight to be shone on the activities of ACSPs and would bring the companies register in line with the overseas entities register. I therefore urge the Minister to accept them. I beg to move.

[Lord Ponsonby of Shulbrede (Lab)]

My Lords, I will speak to the amendments in this group in my name and those of my noble friends. In opening, I agree with everything that was said by the noble Lord, Lord Vaux. It was a compelling speech and I will listen to the Minister’s response to it with great interest. In fact, I will go further: in these amendments are the types of issues that may well be voted on, on Report. Of course, this is not up to me, but I can talk with confidence about my party’s point of view.

Amendment 48A in my name would provide an extra layer of protection when it comes to unique IDs. It would ensure that a proposed director would sign a document to state whether or not they had a unique ID, even under a different name. In the event of an individual giving fraudulent details, this provides another piece of evidence so that even if names, details or passports had changed, there would be a way of retrieving the identity of the original person.

Amendment 50B was provided to me by Westminster City Council. It would strengthen the Bill to ensure that third-party agents provide an annual risk assessment and summary of fees charged, which will help the registrar identify questionable practices. The purpose of this is to raise a red flag if fees are either too high or too low. This may help the people who need to pursue enforcement procedures in identifying businesses that are not set up for the purposes they are claiming. That would help enforcement agencies based in local authorities, and others.

Amendment 51A would allow the Secretary of State to create, in essence, a dodgy business list. It requires the identification of a legally liable individual, so that local authorities and HMRC know who to pursue for taxes, business rates, et cetera. Westminster City Council, for example, would like to see included things such as the American candy stores, vape stores, souvenir shops and car washes that are likely to be involved in fraudulent businesses.

Amendment 52 centres on the ability of ACSPs, foreign ACSPs in particular, to undertake identity verification procedures on behalf of the registrar. Using ACSPs will work only if they are effectively regulated and trusted. This amendment would first ask the Secretary of State to list the number of foreign corporate service providers, as the regulations allow for service providers outside the UK to undertake verification checks and to incorporate a company in the UK.

Secondly, Clause 64 creates the ability of the Secretary of State to allow someone to register as a foreign ACSP, even if the person is not a relevant person as defined by Regulation 8(1) of the money laundering regulations. This mechanism is allowed if the Secretary of State believes that the regulatory regime governing the person in their own territory has similar objectives to the regulatory regime under the money laundering regulations.

This amendment would ask the Government to list the number of foreign ACSPs approved through this mechanism and in which countries they are based. It is absolutely right that the Government are specific about which regulatory regimes they believe meet the standard of our own regime. Additionally, we believe that the language is woolly when it says that similar objectives do not take into account the effectiveness of that regulatory regime.

My amendments, together with the others in this group, try to enhance the role of the ACSPs to use this tool to crack down on businesses, both large and small, involved in illegal behaviour—to stop people taking advantage of the opportunities available in our country through Companies House and the facilities available in the City of London. I hope that the Minister will consider these amendments in a positive light and seek to enhance the protections we can get for our businesses, which we have an opportunity to do in this Bill.

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Moved by

[Lord Ponsonby of Shulbrede]

50: Clause 64, page 48, line 13, at end insert—
“(2A) The Secretary of State must by regulations make provision for the evidence required to verify an individual’s identity for the purposes of subsection (2)(a) to include—(a) an identity document with a photograph of the individual’s face, and(b) an identity document issued by a recognised official authority.(2B) In subsection (2A)(b), “recognised official authority” includes—(a) a department or agency of UK government;(b) a department or agency of any of the devolved nations;(c) a department or agency of the government of another country.”

[Lord Ponsonby of Shulbrede (Lab)]

My Lords, this will be a much briefer group. The purpose of Amendment 50 is to ensure that

“an identity document with a photograph of the individual’s face, and … an identity document issued by a recognised official authority”

form part of the registrar’s identity verification procedure. The amendment would specifically allow for two separate documents to be used to identify people rather than just limiting it to, for example, a passport or a driving licence.

An identity verification procedure that involves photographic ID is explicitly committed to on page 43 of the corporate transparency White Paper and reflects international best practice guidelines. What reasoning do the Government have for weakening this aspect of the verification process? They clearly believe that, in the case of voting in local elections, there should be photographic ID. Why not make it explicitly part of the process here? I beg to move.

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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.

Amendment 50 withdrawn.