Economic Crime and Corporate Transparency Bill

Lord Vaux of Harrowden Excerpts

Committee stage
Tuesday 25th April 2023 Grand Committee

[Lord Agnew of Oulton (Con)]

My Lords, I speak in favour of my own amendment, which is part of this group—Amendment 86, which is about asking for prioritisation of SARs reporting. Just to set the scene for noble Lords, according to the UK Financial Intelligence Unit, the praetorian guard of the NCA in this respect, there were 901,000 SAR reports in 2021-22, 70% of which related to banks. That is a number far in excess of what institutions can meaningfully deal with, so huge opportunities are being missed.

The Home Office itself has just produced its own report, called Transparency Data: Accounting Officer Memorandum: Suspicious Activity Reports (SARs) Reform Programme, published on 24 February, just a few weeks ago. It accepts that there are at least four problems in our management of the SAR regime:

“Inconsistent levels of compliance reporting in some parts of the regulated sector … Insufficient human resource capacity within the UKFIU which limits their ability to analyse financial intelligence or engage with partners to improve the quality of SARs … Under-utilisation of SARs by law enforcement … Legacy IT systems which cause inefficiency and ineffectiveness throughout the regime”.


That is in the words of the Home Office, from literally only a few weeks ago. What is so frustrating is that the Government have been talking about this for at least four years. In April 2019, a strategic outline business case for the programme was reviewed by the Home Office. An economic crime plan was produced in July 2019 and then the full business case was subsequently reviewed and approved by the Home Office in April 2021. Yet we still do not seem to have a lot of action.

All my amendment is trying to do is to push the machine to get on with this. Of course, the Minister will ask me not to press the amendment, but I would ask him whether, in so doing, he can give us a date—maybe not today but in writing to the Committee—by when all this stuff will start to happen, because we are missing huge opportunities to identify economic crime. My simple proposal is to triage the SARs, so that the shortage of resource, which no doubt will remain for a while, can at least be concentrated on areas of greatest risk to our system.

[Lord Vaux of Harrowden (CB)]

First, the noble Lord, Lord Agnew, makes a very interesting point and I should like to hear the Minister’s views on it. I should also be interested to hear how many of the 900,000-odd SARs are acted on and followed up each year. That would be an interesting statistic to understand.

I wish to ask about Amendment 78E, which I do not fully understand. It would remove the reference being inserted into the Proceeds of Crime Act to predicate offences. I am not sure why we should take it out. It would be interesting to understand from the Minister why it was in the Bill in the first place and why the Government have now changed their mind and are taking it out. As I understand it, a predicate offence is the offence that creates the finances that are then laundered. It must in many cases be quite hard to untie those two things. I should have thought that it must be useful to any crime agency looking into these things to understand the full chain, from the original offence to the laundering of the funds. Clause 172 is talking only about information orders, not about creating new offences or anything else, so I am unclear why we would want to remove the predicate offence from the information order and would like to understand it a little more.

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I chaired the Economic Affairs Finance Bill Sub-Committee, which looked at research and development issues. The level of fraud in research and development tax credits is so great that HMRC’s accounts are qualified, because it does not know how much fraud there is. As my noble friend Lord Agnew said, more pressure on HMRC to put greater effort and time into detecting fraud, money laundering and other such matters would be time well spent. I encourage my noble friend to accept this amendment.

[Lord Vaux of Harrowden (CB)]

My Lords, I will briefly support this amendment. As I said on a previous group, I was surprised to discover that the vast majority of small accountancy firms are not regulated by the Institute of Chartered Accountants in England and Wales, of which I am a member—fortunately, I am not also a member of the Chartered Institute of Taxation.

That majority of small firms are the ones doing the verification under the overseas entity register and will be the authorised corporate service providers. They are, or will be, regulated by HMRC for anti-money laundering purposes, and that is the qualification they need to be able to do the verification. If HMRC is not carrying out this role seriously—which it is not—then all the safeguards built into this Bill on verification become meaningless. It is incredibly important that HMRC’s resolve in terms of its responsibilities as an AML regulator is sufficiently stiffened to mean something for all these ACSPs and the due diligence verifiers in the overseas entity register. Without that, this Bill loses an awful lot of teeth.

[Lord Fox (LD)]

My Lords, it is true that the Minister is being asked to take on Treasury functions—having first talked about cryptocurrency, we are now dealing with this issue—and I look forward to his response. I, too, support the noble Lord, Lord Agnew, who has been consistent in his theme that, without due, proper and improved enforcement, the Bill that we are spending all these hours debating will have very little effect on the outside world. This is one element of the enforcement story.

The noble Lord’s point is bang on: where there is a finite resource—which, of course, there always is—HMRC will target what it believes benefits the country most. As the noble Lord pointed out, that tends to be tax generation rather than AML functions. For this Bill to be successful, something needs to change to refocus the Treasury on AML issues, as we have heard. If that is not to be the noble Lord’s amendment, what will it be?

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[Lord Vaux of Harrowden (CB)]

I have to say that I am becoming increasingly concerned as we go through this process that, every time we raise concerns about things, we are told that everything is fine. That is what we are being told now—that HMRC is doing a really good job of the ML regulation. The truth is that we have massive quantities of money laundering going through the UK market, and in many cases that is enabled by people who are regulated by the HMRC—a lot of the small entities particularly. So there is a problem, and we keep being told that it is not that serious. It worries me substantially that we are not really taking this seriously or trying to solve the serious problem that this country has. We have become a laughing stock and are known as the “London laundromat”. It is embarrassing.

Can I ask a supplementary question? As I mentioned before, the ACSPs are going to be performing the verification processes, which are not actually going to be covered by the anti-money laundering regulations. The people doing it have to be registered with an anti-money laundering regulator, but the regulators themselves do not actually have any process set out for ensuring that the verification processes put in this Bill are covered. How do we bridge that gap?

[Lord Sharpe of Epsom (Con)]

I have to say to the noble Lord that I did not anywhere say that the Government say that everything is under control and perfectly fine. As the noble Lord will be aware, the anti-money laundering regulations themselves are due to be looked at.

The second part of his question relates to why HMRC does not supervise the TCSPs properly, allegedly —but it does.

[Lord Vaux of Harrowden (CB)]

I am looking forward to when this Bill goes through and becomes an Act as to the verification processes being put in place by the Bill by the ACSPs.

[Lord Sharpe of Epsom (Con)]

Ah, the noble Lord said ACSPs—my apologies. I misheard an acronym. In that case, I shall have to write on that, because I do not know the answer.

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[Baroness Altmann (Con)]

My Lords, I add my support to my noble friend Lady Stowell’s Amendments 87, 88 and 89 and congratulate her and her committee on their work. I also support Amendment 80 from the noble Lord, Lord Thomas, and Amendments 105 and 106 from the noble Lord, Lord Cromwell. As I said at Second Reading, this is a vital issue that must be covered in this Bill. In this group, we are discussing threats and lawsuits whose intention is to silence, intimidate or censor critics such as investigative journalists. So often, as the noble Baroness, Lady Wheatcroft, explained so well, they stem from economic crime.

This issue is not just about actual lawsuits. As others have said, often the matter will start with a threatening letter or even a phone call, which is enough to stop journalists or investigators from pursuing inquiries. That is why so few SLAPPs have come to court. I respectfully disagree with my noble and learned friend Lord Garnier on whether the few cases are any indication of whether this legislation and these amendments are required. These threats and vexatious potential lawsuits threaten not just journalists, campaigners, authors or academics but everyone’s rights in this country. They limit the rights of the public to have matters exposed, such as bribe-taking, poisoning water supplies with toxic chemicals, or general economic wrongdoing, which falls squarely within the remit of this Bill. Our courts are supposed to be there to protect ordinary people and small companies without large resources against those with more power, money and influence. Without these amendments, that protection will be fundamentally weakened when we have an opportunity to strengthen it.

I am not a lawyer, but Amendment 80 seems sensible to me. I believe that the Law Society supports judiciary-led gatekeeping. Amendments 87, 88 and 89 from my noble friend Lady Stowell seek to remove the incentives to issue these kinds of threats by introducing properly meaningful fines and intend that payments should not be able to come from the proceeds of economic crime. Again, that seems eminently sensible. I will listen carefully to my noble and learned friend but, equally, I urge him to listen carefully to the powerful arguments across all sides of this Committee and either accept these amendments or introduce his own.

[Lord Vaux of Harrowden (CB)]

My Lords, I am not sure whether I can speak to this, being neither a journalist nor a lawyer. I am very sympathetic to what these amendments are trying to do. It must be right to try to prevent the abuse going on. However, I confess to feeling some niggling doubts. Journalists do not get everything right, and there are those who are not above embellishment or exaggeration. The balance of power is not only one way. A small company or individual may well find themselves up against a large media organisation, for example. Whatever we do, we must not make it harder or more expensive for innocent parties to defend themselves from unfair reporting, pre-emptively if necessary.

There is a balance to be found, and I am not yet convinced that these amendments quite reach it. That said, I agree that there is a problem with the current situation. It is being abused, and we need action sooner rather than later. So let us have the discussion and get something into the Bill. If not now, when?

[Baroness Stowell of Beeston (Con)]

I shall just add briefly a comment before we get to the wind-ups, in response to something that my noble and learned friend Lord Garnier said when he urged us not to overstate the problem of SLAPPs. I just wanted to make two brief points.

One has been made by many people already, which is that in fact, when it comes to SLAPPs we do not really know the scale of this problem, because so many of these cases never make it to a court of law. I wanted to make a second point in response to what my noble and learned friend said about not seeking to overstate the problem, and his questioning my and others’ ingenuity in bringing forward amendments in the Bill. My understanding of the reason for the Bill is that economic crime is a real problem. So, if we are legislating because that is the real problem, and we are aware that some of the most significant perpetrators of economic crime have ways of preventing the evidence that would lead them to be potentially subject to the justice system because they operate in that kind of market, as it were, surely we ought to seek to close that gap. Whether or not the number of them that might qualify under that heading is large or small, there is a gap. As I say, the objective here is tackling economic crime, and our amendments are only about economic crime.

I understand very much that the broader question of SLAPPs will have to be returned to, because the whole issue of SLAPPs cannot be addressed in an economic crime Bill. However, my amendments and others in this group are trying to make sure, in the context of economic crime, that those who may be the most significant perpetrators of it on a large scale have nowhere to hide.

Queen’s Speech

Lord Vaux of Harrowden Excerpts

Tuesday 18th May 2021 Lords Chamber

[Lord Vaux of Harrowden (CB) [V]]

My Lords, I will talk about fraud, which is one of the great scourges of modern life but was largely ignored in the gracious Speech. More than 822,000 frauds were reported to Action Fraud in 2019-20, totalling £2.3 billion, but only a fraction of frauds are reported. It is estimated that the real number is around five times that. That is seven frauds every minute, and accounts for more than a third of all crime in England and Wales. These numbers represent people losing their life savings, their pensions, their house deposits. It is not just about money; being the victim of a scam is deeply traumatic and wrecks lives.

Why has fraud become so commonplace? There are two reasons: it is easy and it is low risk. Why is fraud easy? It is because so many businesses profit from facilitating it and have little or no incentive to stop it. I will give a few examples. Search engines and social media platforms take money to advertise fake pension and investment sites, fake online shopping sites, fake holiday letting sites and so on. To add insult to injury, they then make more money from the regulators. The FCA apparently paid £600,000 last year to post warnings on Google.

Web-hosting platforms are paid to host the scam websites. Telecom providers are paid for the calls and texts that plague us, and make things worse by failing to prevent false caller IDs. The banks are also facilitating frauds. All that stolen money has to be received somewhere, and most is processed through UK bank accounts. Instant payments allow the stolen money to be whisked away through multiple accounts and overseas before the victim has even realised that they are a victim.

Why is fraud low risk? The statistics speak for themselves: fewer than one in 13 reported frauds is actually investigated and less than 4% lead to a prosecution. Anyone who has dealt with the laughably named Action Fraud will understand why that is.

I welcome the fact that the Government have at last agreed that the online safety Bill will cover user-generated frauds, but they have chosen—it is a choice—to exclude most types of economic crime from the Bill, including frauds arising from fake adverts. It is perverse that the tech companies will be responsible for scammers’ social media posts but not for the adverts they are actually paid to publish.

The Government say that they will publish a fraud action plan, but only after the 2021 spending review, and that DCMS will consult on online advertising, but only starting later this year. This is not good enough. Every day that passes without action means more than 10,000 more frauds, more than £6 million more stolen, and more people losing their life savings and having their lives wrecked. We must push the risk of fraud back on to those facilitating it. The big tech companies, telecoms companies and the banks, with all their resources and know-how, could easily find ways to make life harder for the fraudsters, but they have proved that they will not do it voluntarily, so the time has come to create a real financial stick to encourage them.

At the same time, we must stop blaming the victims and make it easier to recover losses. The banks’ voluntary code has failed and should now be replaced with a compulsory code, under which the bank that received and processed the stolen money has to refund the loss automatically. Policing of fraud is critically underfunded. Training and resources are urgently needed so that scammers actually face some risk of being caught and prosecuted.

Fraud has become an epidemic that is wrecking lives. It must be made a much more urgent priority.