Economic Crime and Corporate Transparency Bill

Lord Trevethin and Oaksey Excerpts

Committee stage
Tuesday 9th May 2023 Grand Committee

[Lord Young of Cookham (Con)]

My Lords, I shall speak briefly to Amendments 93 and 95. Amendment 95, in the names of the noble Lord, Lord Faulks, and my noble and learned friend Lord Garnier—who, sadly, cannot be here—is closely related to Amendment 93 but has a key difference in that subsection (3) of the proposed new clause says that the annual report must detail how much money has been brought in and how much has been spent in securing it.

UWOs were introduced by the Criminal Finances Act 2017. At the time, I was Treasury spokesman in your Lordships’ House. I have no recollections of piloting this legislation through, but I have some memories of some of the statutory instruments that flowed from it. The background was that this had been tried in other countries with varying degrees of success. I do not think anyone can argue with the principle: an individual has at his or her disposal substantial sums of money for which there is no reasonable explanation—they may be an official working for, or who used to work for, some totalitarian Government, whose official salary in no way could support their standard of living. I see the case for UWOs but, as we just heard from the noble Lord, Lord Coaker, they have not been a stunning success.

When the Bill was going through, the noble Lord, Lord Faulks, tabled some amendments to give the SFO more powers but also to understand the ambition of the Home Office with that legislation. A Home Office assessment in 2017 predicted that there would be about 20 UWO applications per annum. We just heard from the noble Lord, Lord Coaker, that, to date, there have been nine applications against four individuals, with not a lot of money realised. In fact, in one case, the cost of failure against the Aliyev family was about £1.5 million. Since then, we have a cap on the costs that can be awarded against the SFO or the prosecuting authority, but I wonder whether that goes far enough and whether we should not provide that there should be no order for costs against the SFO unless the proceedings were brought maliciously or without any reasonable justification. That would place a burden on the person against whom the UWO was claimed to show, in effect, that the institution of proceedings was abusive.

Related to this, last year the register of overseas entities was introduced, following the invasion of Ukraine. A Joint Committee, chaired by the noble Lord, Lord Faulks, looked into the register of overseas entities and to what extent it could relate to the UWOs. Can my noble friend the Minister update us on that? The register should provide some valuable information in seeking an UWO, and a failure to provide relevant details, or the provision of inadequate details, would clearly be of immense value.

However, at the heart of the problem is something that the noble Lord, Lord Browne, referred to in a previous debate: the inequality of arms in the firepower available to each side. The targets, by definition, will be well resourced, and the SFO considerably less so. This is not the first time in our debates on this Bill that we have emphasised the importance of resources in the fight against economic crime.

My final point is this: we have had two Bills in quick succession on economic crime, and I think we can now expect a legislative silence in this area while Governments of whatever complexion concentrate on other issues. Hence the importance of a provision to keep the Government up to the mark in telling Parliament how they are using the valuable powers that Parliament gave them with the UWOs. That, in effect, is what these two amendments seek to do.

[Lord Trevethin and Oaksey (CB)]

My Lords, having spoken briefly to the noble and learned Lord, Lord Garnier, who regrets that he is not able to speak to his amendment, I think I know broadly what he would have said, and I agree with him. I shall try to articulate it briefly.

The point made by the noble Lord, Lord Cookham, about inequality of arms in this area, is critical. It is very strange and troubling that there have been so few applications of this nature since the jurisdiction came into existence, and the reason, unquestionably, is that the SFO, which is responsible for deciding whether to make these applications, is understandably very wary of the cost consequences of losing.

As the noble Lord, Lord Young, said, by definition, the respondents to these applications will be well resourced. They will retain City firms whose partners charge £600, £700 or £800 an hour or more—and, in responding to the applications, which will tend to raise quite tricky points of fact and complex issues of foreign law, they will swiftly run up legal bills that extend to hundreds of thousands, even millions, of pounds. If the principle that the loser pays applies to these applications without qualification, the cost consequences of losing, from the point of view of the regulator or prosecutor, will be a considerable deterrent to making applications, even when there is obviously a good reason to do so.

The points that I am considering in these short remarks may come into focus later on this afternoon when we discuss another amendment. The reason for me making them now is that it seems to me that the information that would be yielded by the amendment in the names of the noble Lord, Lord Faulks, and the noble and learned Lord, Lord Garnier, would be of great value both to Parliament and to those who make decisions in this area in deciding how the regime needs to be restructured so that applications are made when they should be made.

[Lord Fox (LD)]

My Lords, I will speak briefly because we have heard some excellent speeches from the noble Lords opposite.

I just want to say, observationally, that we have debated a number of different groups where inequality of arms has been at the centre. When we talked about SLAPPs, we talked about inequality of resources. We have just talked about whistleblowing, where it is the same issue, and here we are again. In a sense, the Government are in different places with different elements of this. We need to have some sort of integrated response on how all people can be equal before the law because they can afford to do it—in other words, they can afford not to win, which is the issue here. We have our law enforcement agencies, we have perfectly innocent people going about their businesses trying to blow a whistle, and we have people who are trying to report issues publicly but are being SLAPPed. All of these important elements are being blocked through the inequality in access to the courts.

To refer back to this group of amendments, it seems to me that, if this amendment is not the answer, there must be some other answer. I look forward to the response from the noble Lord, Lord Sharpe, because it is quite clear that unexplained wealth orders have failed to deliver on whatever promise they may have had. Perhaps the Minister can explain how many of them there have been and what exactly the barrier has been, as well as what the cost per prosecution would be; that is an interesting point of view.

In the end, this is about inequality of arms. The first point here is that the Government must recognise that this is an issue; they then have to settle down and find ways of working with people who understand the law in order to eliminate that inequality. Otherwise, most of what we are talking about here will not happen.

--- Later in debate ---

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I, too, added my name to this amendment, which is supported by these Benches. This issue gets us back to David versus Goliath, which we have mentioned in previous groups. Unfortunately, the culprits are Goliath, and our prosecutors are left having to face culprits with far deeper pockets than theirs. There are alternatives, such as creating larger budgets for prosecutors, that have already been dismissed.

Maybe within asset recovery there is some glimmer of attracting a better recompense, but that is not a perverse incentive because if the prosecuting authorities took actions improperly and overreached themselves, the safeguarding clause in this amendment would come into operation. In the way the amendment is drafted, there are not perverse incentives but good incentives to bring more actions that are presently not brought simply because they are unaffordable. It makes us a bit of a laughing stock that we have very strong laws in parts but cannot enforce them.

Everything else has been said. I commend this amendment and await with interest to see what excuses the Government come up with not to accept it when the precedent and the need are there and the amendment contains a safeguard and therefore it could be put into operation very effectively and swiftly.

[Lord Trevethin and Oaksey (CB)]

My Lords, I will say a few brief words in support of this amendment and place it in its proper legal context. When it was mentioned at Second Reading, the Government’s response was simply to say that the principle that the loser pays the costs of unsuccessful litigation or an unsuccessful application was regarded as a valuable principle and that they did not see sufficient reason to move away from it in this field. It is a salutary principle and it operates in civil litigation for the most part, but there are exceptions. There are already statutory precedents for a regime of the type that this amendment seeks to create, namely a regime in which the enforcement agency will not invariably have to pay the costs if an application is unsuccessful.

I will say a few words about a different, but quite closely related, area of law in which a regime of the type that this amendment contemplates has been created by the judges. In the field of professional discipline and professional regulation, there has been for some time a well-established principle that the regulator will not automatically have to pay costs merely because the application or prosecution that it has commenced has proved to be unsuccessful. It is known as the Baxendale-Walker principle and works perfectly well in practice.

I shall explain shortly how it works in practice. The proceedings are initiated and the respondent, being a professional person, is expected to engage properly and conscientiously with the regulator and to respond candidly, or with a reasonable degree of candour, to the points being made against him or it. If the regulator then continues unreasonably with the prosecution or disciplinary action and fails, it will be made to pay the costs of the matter. However, if the regulator at all times acts reasonably, the presumption will be that it will not be made to pay the costs of the matter.

The reason why the law has created that regime is precisely the reason that is contemplated by this amendment—namely, that it is strongly in the public interest that regulators and enforcement agencies should not be deterred from bringing proper proceedings by the risk of paying exorbitant costs bills to respondents who manage to successfully resist the application in question.

I think I have said enough to convey the point. I really do not understand why the Government are so reluctant to consider introducing a regime of this sort more widely across the field of economic crime. It already exists in relation to certain types of economic crime, and it works well in the field that I have mentioned. I would be very interested to hear the Minister’s response.

[Lord Ponsonby of Shulbrede (Lab)]

My Lords, I support this amendment. As the noble Lord, Lord Agnew, said when he introduced it, cost exposure for prosecuting authorities can pose a real hurdle to their pursuing those prosecutions. As he also said, the Rubicon has been crossed in allowing cost capping, which the Government did in March 2022. This amendment has real legs—if I can use that phrase—and I hope the noble Lord presses the matter further, perhaps at later stages of the Bill.

I too was at the briefing with Bill Browder. I am currently reading his second book, having read his first, and it is compelling reading. He is a very brave man. I also agree with the comments made by the noble Baroness, Lady Bowles. I think she said: the precedent and the need are there, and the solution is here. I agree with those sentiments.

Finally, I thank the noble Lord, Lord Trevethin and Oaksey, who set out, interestingly, that some judges in the civil courts have developed their own law on this matter regarding the enforcement agencies not necessarily having to bear all their costs. He gave an interesting example of a further precedent, if you like. I too will be interested to hear the Minister’s response to that. The matter will be considered very carefully with regard to the later stages of the Bill.

Economic Crime and Corporate Transparency Bill

Lord Trevethin and Oaksey Excerpts

2nd reading
Wednesday 8th February 2023 Lords Chamber

[Lord Trevethin and Oaksey (CB)]

My Lords, it is a great pleasure to follow the noble Baroness. I am happy to say that she has spared your Lordships some of my remarks, because I agree with everything that she said about whistleblowing and so shall say nothing about that at all. I also agree entirely with what she has said about the niche but important issue of the fees that are charged to individuals who register companies in this country.

I had a note, which I have mislaid, of the number of companies that were registered in the last 12 months. Somebody in the House may know the figure. It is quite astonishing; I think it runs to hundreds of thousands. That represents about 10% or 20% of the number of companies on the register. I refer to that because obviously the employees at Companies House who will be called on to discharge the duties that this Bill rightly places on them face a very challenging job indeed, which is nothing like the job that Companies House has been doing over the last 50 or 100 years. Funding and resources are obviously a very significant issue and it seems right that at least some of the necessary funding should be raised by a proper increase in those fees. That is one practical point that I shall get out of the way.

I declare an interest. For once it is a real interest, because I am a practising barrister, and a high proportion of my cases involve claims for compensation arising ultimately out of some form of economic crime. So, in a sense, I do pretty well out of economic crime. But I am against it, like every other speaker in this debate, even given that—I feel it is right to make that declaration.

I want to say something briefly about a matter that has not really been touched on in this debate so far, which is the wider context. This Bill contains many admirable and valuable measures. They are mostly concerned with issues relating to the fruits of economic crime and the tools that are used to perpetrate economic crime: in particular, companies which are opaquely structured so as to conceal the beneficial ownership thereof. All that is good, but the Bill says nothing much, and it probably could not say anything very valuable, about the detection of economic crime and about the proper prosecution of economic criminals.

That is not directly the subject matter of this Bill, but I will share with the House something of my experience of cases involving economic crimes over the last 10 or 20 years. I have done hundreds of cases arising out of some form of economic crime. The law moves slowly, and the case comes to trial—if it gets to trial—five, six or seven years after the relevant events. Almost invariably, the fraudster or fraudsters are still cruising around the country, apparently more or less immune to the risk of prosecution. I can think of only a very small number of cases of this type in which proper steps have been taken by the authorities to investigate the relevant frauds and to bring the fraudsters to justice.

Briefly, I will give your Lordships details of one case in which a prosecution was brought. It is a very recent case in which I had some collateral involvement. It involved a solicitor who manifestly was guilty of stealing a significant number of millions of pounds from a client. The solicitor came before a High Court judge in committal proceedings, based on breaches of undertaking, and the High Court judge was so disturbed by the evidence before the court that he jailed the solicitor for contempt for 18 months and referred the papers to the relevant prosecuting authorities.

When I was a youthful barrister, 20 or 25 years ago, if that had happened in the High Court, it would have been automatic for the prosecuting authorities to take action—and to take it fast. On this occasion, even though the fraud was patent, the matter was referred to the prosecuting authorities. They did nothing and then, after 12 months or so, they announced that it was not considered to be in the public interest to prosecute. All this is known and something that I can tell the House about because the aggrieved American client of the solicitor then brought a private prosecution, which is increasingly common in this country because the prosecutors do not do their job. The solicitor was finally brought before the court and the judge was so concerned about the facts of the case that he imposed a sentence of 12 years’ imprisonment—which is a long stretch for that sort of crime.

My noble friend Lord Macdonald of River Glaven, who is not in the Chamber and has not spoken in this debate, was speaking recently on a podcast with the distinguished criminal KC Clare Montgomery. Some of your Lordships may have seen this reported in the press. Ms Montgomery said—she would know; I know only indirectly, but I am quite sure that she is right—that the police no longer appear to have a real interest in investigating, let alone prosecuting, economic crime. I understand that economic crime amounts to 39% or 40% of all crimes. I am not sure how that percentage is calculated but it shows the size of the problem. The corresponding percentage of police resources, in terms of police officers who focus on or are devoted to the detection of economic crime, is at 0.9%. The House will see the imbalance there.

I mention those matters because they set a rather dark and troubling context for the issues that we are considering on this Bill. When amendments are brought forward to put a little more steel into the Bill, I will support them, unless they trespass on the rule of law. They are clearly needed and may have an indirect beneficial effect on the culture or climate that now obtains because, at the moment, the authorities do not seem to realise fully just how serious this problem is.

It is getting late, so I will quickly move on to one or two practical points, bearing in mind the injunction of the noble Lord, Lord Clarke, that our task when looking at and trying to improve this Bill is to try to make sure that it has a real, practical effect. I will say something briefly about SLAPPs, which have been the subject of a number of telling remarks and analyses, particularly in the speech of the noble Lord, Lord Cromwell. This is a tricky area but, I think like all noble Lords, I find these pieces of litigation, which are clearly designed to achieve a wholly illegitimate purpose, objectionable. If possible, steps should be taken to enable defendants to have the relevant pieces of litigation struck out.

How is that to be done? As the noble Lord, Lord Faulks, observed, SRA guidance emphasises the relevant obligations on solicitors in this context, in particular the obligation not to act for a client who is pursuing a claim for illegitimate collateral purposes. That is all well and good, but it is very difficult for a regulator to enforce such obligations, partly because the relevant information will be on the solicitor’s file and protected by client privilege. There are only limited circumstances in which a regulator can lift up the cloak of privilege to see what is really there. In practice, it is very difficult for regulators to enforce the proper performance of solicitors in this area.

What can be done? It may be possible, as this Bill moves forward, subject to issues of scope, for a provision to define more precisely than the current rules what constitutes abusive litigation, where the abuse consists of pursuing litigation not to restore the claimant’s reputation or to recover proper compensation for a real loss but to shut down criticism and inquiry. The provision will require exceptionally careful drafting. It may also be worth the relevant authorities considering—I doubt whether this is a matter for primary legislation— the appointment of a small body of specialist judges, probably in the Commercial Court, to consider applications to strike out for abuse of this nature. They would do so at the outset of the relevant litigation.

My only other practical point, briefly, is to take up a point made by the noble Lord, Lord Agnew, about costs and the disincentive that operates on authorities that might make civil recovery applications related to economic crime. At the moment, Section 52 of the 2022 Act creates a special costs regime for unexplained wealth orders. This means that the applicant, the prosecutor, will be liable for the costs of a successful respondent only if the applicant has acted unreasonably. A similar costs regime operates successfully in a field in which I practise, namely disciplinary and regulatory investigations and prosecutions. In that field, the regulator is normally liable for costs only if it has acted unreasonably. In due course, if not tonight, I would be interested to learn from the Minister what the Government’s view is on this. I can see no reason why that sort of costs regime should not be extended more widely, certainly to applications of any type brought under the provisions in Part 5 of the Proceeds of Crime Act.

I recognise the assistance I have had and will continue to have from a useful briefing paper prepared by Spotlight on Corruption. I have one or two further points to make, but I will not make them because I have been on my feet for far too long and others will make them better.