Brexit: Benefits to Economy and Society

Lord Wallace of Saltaire Excerpts

Wednesday 6th March 2024 Lords Chamber

Asked by

[Lord Wallace of Saltaire]

To ask His Majesty’s Government whether they plan to report to Parliament on the benefits that leaving the European Union has brought to the United Kingdom’s economy and society in the past four years; and if so, when.

[The Parliamentary Under-Secretary of State, Department for Business and Trade and Scotland Office (Lord Offord of Garvel) (Con)]

In January 2024, my department published an overview of the benefits of Brexit, on its fourth anniversary, to the UK economy. Since the referendum, the UK economy has grown faster than those of Germany, Italy and Japan, and is equal with the French. The IMF is now predicting that the UK will have the fastest growth in the G7 in the next five years. Meanwhile, our exports have reached £870 billion, and we are well on target to reach our overall target of £1 trillion. That growth in trade is greatly assisted by our free trade agreements, now signed with 73 countries globally plus the EU.

[Lord Wallace of Saltaire (LD)]

My Lords, I am extremely sorry that the Minister’s department gave such little publicity to its fourth anniversary paper. Given that the Government fought the last election, very successfully, on getting Brexit done, and we are now coming up to an election in which they will want to say again that Brexit was a success, should they not be making a major theme of what the benefits have been in a report on the last five years? Does the Minister agree that the public are more aware of the costs than the benefits of Brexit? Good balance in a report to show that there have been at least some benefits might help the Conservatives regain a little support in the opinion polls.

[Lord Offord of Garvel (Con)]

I thank the noble Lord. The major benefit that we must be better at communicating is certainly around our international trade. We all know that when the UK voted to join the Common Market in the 1970s, Europe accounted for one-third of global trade at that point. When we left in 2019 it was 16% of global trade, and the forecast is that it will be 9% in 2050. Putting aside the cultural, political or geographical issues, the British people have made a savvy business decision to tilt to where the trade is—the Indo-Pacific—and we should be better at communicating that to people.

Economic Crime and Corporate Transparency Bill

Lord Wallace of Saltaire Excerpts

Report stage
Tuesday 20th June 2023 Lords Chamber

[Lord Agnew of Oulton (Con)]

My Lords, I shall speak to my Amendment 73A, which I apologise is a late manuscript amendment, with two supporting amendments. This is not in any way a change of the wording of my original Amendment 89, but I apologise to my noble friend the Minister that this was tabled only at around lunchtime today as I was only alerted by the Public Bill Office very late last night.

To remind noble Lords what I am worried about, which this amendment seeks to deal with, the amendment requires Companies House to publish information about trusts obtained in the newly created register of overseas interests that is not available for scrutiny. Nearly half of all trusts now registered with Companies House are shown to own assets anonymously. That is the background, and we heard just now from the noble Lord, Lord Vaux, about the so-called lacuna which is being advertised brazenly by large firms of solicitors—I have seen the same briefing notes and these are not back-street operators. That is the picture today.

My noble friend the Minister has tried very hard to deal with this within the limitations of his department, let alone his own ability to influence what seems to be a very entrenched position across government. But the amendment that he is proposing simply does not cut the mustard because it talks about “may” use a power—not “will”, “can” or “does”, but “may”. The other concern is that it then talks about a consultation, but we know that consultations are the oldest trick in the book, frankly, for kicking cans down the road, so I do not get much reassurance from that.

I also have practical concerns also about how the—albeit improved—access to the register is likely to work in a practical way. We have seen with HMRC how badly it works at the moment, and it is very hard to get information. It seems that, under the new regime, we might be able to get information only one request at a time, which means that it will be impossible to get a full picture of what is going on, so you will not be able to carry out large-scale investigations to uncover wrongdoing.

I do not like to put forward a sour note, because I know how hard my noble friend has worked on this Bill and in his engagement with all noble Lords, particularly me, but I really feel that, as my noble and learned friend Lord Garnier said in Committee, we can register as much as we like, but if we cannot see what is inside then the whole thing is a futile exercise. I ask my noble friend the Minister to reconsider. I am afraid I am minded to divide the House on this, unless I hear something convincing.

[Lord Wallace of Saltaire (LD)]

My Lords, I am neither a lawyer nor a company formation specialist although, in a career as an international policy researcher, I have not only dealt with the Crown dependencies and some of the overseas territories but also spent some time in conferences with senior Swiss bankers, from which I benefited both from learning an enormous amount about their charm and discretion and from eating a number of wonderful meals.

In opening, the Minister said there will be nowhere to hide; the noble Lord, Lord Vaux, has said there will be always somewhere else to hide. At present we are engaged in doing our best to make it more difficult, and as difficult as possible, to hide who owns what, particularly when they are overseas, in the expectation that we will never succeed entirely in catching everyone because the cascade abilities of trusts in one place, partly owned by trusts in somewhere else, will always defeat us in some instances. We on these Benches will support Amendment 72 and Amendment 89 if it is pressed.

The statement that the Government will consult further on how to ensure that these measures can be used to maximise transparency is encouraging, but I share the limited scepticism expressed by the noble Lord, Lord Agnew, of how far that will take us when we are involved in this rather important Bill. We are in support of the maximum possible transparency. We know that the purpose of a great many overseas trusts is precisely to conceal, and we wish to extend that transparency as far as possible. Therefore, we on these Benches will support these amendments.

[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.

Register of Overseas Entities (Penalties and Northern Ireland Dispositions) Regulations 2023

Lord Wallace of Saltaire Excerpts

Tuesday 13th June 2023 Grand Committee

[The Minister of State, Department for Business and Trade (The Earl of Minto) (Con)]

My Lords, I beg to move that these regulations, which were laid before the House on 26 April 2023, be considered. They form part of a series of secondary legislation needed to effectively implement the register of overseas entities. The register of overseas entities, which I will refer to as the register, was created under Part 1 of the Economic Crime (Transparency and Enforcement) Act 2022, which I will refer to as the Act.

The register will help crack down on dirty Russian money in the UK and corrupt foreign elites abusing the openness of our economy. Overseas entities owning or buying property or land in the UK must give information about their beneficial owners or managing officers to Companies House. Law enforcement agencies now have a wealth of new information to help them track down criminals using UK property or land as a vehicle for money laundering.

On 1 August 2022, the register went live, with the deadline for registering set at 31 January this year. There has been a high level of compliance, with more than 28,100 overseas entities already registered to date. Entities that disposed of land before the end of the transitional period were required to provide statements with information about their beneficial owners and details of the land disposals, such as the title numbers. More than 750 have provided details to Companies House, having disposed of all their interests before the end of the transition period. This means that just under 29,000 entities have complied with the requirements. While that leaves up to a few thousand entities still to register, some of these are believed to have been dissolved or struck off and others have not kept their addresses up to date with the land registries. This means that they may not have received letters from Companies House.

I know noble Lords will want reassurance that compliance and enforcement action is being taken. This takes time but is well under way. Companies House continues to work to increase compliance even further and is preparing cases for enforcement action. Any overseas entity that has failed to register is already restricted from selling, leasing or raising charges over land that they own. Overseas entities are also unable to register any new purchase of UK land without first registering. These are novel and severe sanctions.

It is worth reminding noble Lords that, when the draft Registration of Overseas Entities Bill was scrutinised by Parliament in 2019, the Joint Committee on Human Rights warned of the severity of these restrictions, in particular the “chilling effect” that this would have. The Government took these concerns seriously but felt that the sanction was proportionate given the register’s policy objectives. This shows the seriousness of the sanction and the need for the Government to balance our approach to enforcement so as not to deter legitimate investment into the UK.

Once the Economic Crime and Corporate Transparency Bill receives Royal Assent, a further enforcement tool will be added to our arsenal. A person who receives a financial penalty from the registrar or is convicted of an offence may be disqualified from acting as a UK director. Once that Bill receives Royal Assent, I will also bring forward further regulations under new and amended powers to further strengthen the register’s requirements.

I now turn to the details of this instrument. These regulations deal with two main areas: financial penalties arising from offences in relation to the register; and the treatment of land disposed of in Northern Ireland by overseas entities and the rights of those acting in good faith. The Bill sets out that the registrar may impose a financial penalty as an alternative to criminal prosecution. This instrument sets out the procedure for imposing and enforcing these financial penalties. A financial penalty could be imposed on a variety of persons depending on the offence in question. For example, it could be imposed on the entity and its officers where an overseas entity has failed to register, a verifier who has knowingly submitted a false filing or a person who has failed to respond to an information notice sent by an overseas entity.

If the registrar suspects that a person has committed an offence, she may issue them with a written warning, giving them 28 days to make representations about their conduct. If the registrar is satisfied beyond reasonable doubt that the person has committed an offence, she may issue a penalty notice in writing to that person, giving them 28 days to pay the penalty. If a person fails to pay, interest will accrue at the statutory interest rate of 8% per annum.

The instrument sets out that financial penalties imposed by the registrar may be fixed, set at a daily rate or a combination of both. Where the criminal fine set out in the Act is a fixed penalty, the registrar may impose multiple penalties in relation to the same conduct if the contravention continues. Subsequent penalties could be of increasingly higher amounts to encourage compliance. The instrument does not prescribe the specific financial penalties that may be imposed on each offence. Instead, it states that a financial penalty must not exceed the maximum fine that a court in the jurisdiction in which the offence was committed could impose under criminal proceedings. This flexibility allows non-compliant persons to be targeted proportionately and effectively and allows for penalties to be adjusted according to the seriousness and specifics of the case.

I will now briefly set out the approach that the registrar will take. Given that financial penalties are an alternative to criminal prosecution, the registrar will bear in mind the process that a court would follow. They will be proportionate, as the goal of the financial penalty regime is to encourage ongoing compliance with the requirements of the register. When deciding whether to prosecute and what sentence to give, courts follow sentencing guidelines to ensure that it is in the public interest to prosecute and that the sentence is proportionate to the seriousness of the offence. The registrar will also consider the public interest and be proportionate when imposing financial penalties.

The Act provides different maximum fine amounts and prison sentences commensurate with the nature of the offence. Contrary to recent reports, the Act does not set out that courts may impose daily fines for the failure to register offence. This means that the registrar cannot impose daily penalties either. Instead, the instrument allows the registrar to impose more than one penalty if non-compliance is ongoing.

For the failure to register offence, the Act sets out that, in England, Wales and Scotland, courts can impose an unlimited fine. In theory, this means that the registrar may impose an unlimited financial penalty if an overseas entity fails to register. As an indication of the seriousness of this offence, the registrar will review portfolios owned by overseas entities that fail to register.

The registrar will use a range of sources to estimate the value of the portfolio in question, including the UK house price index and data on business rates bands. The registrar will then apply different starting points for the financial penalties, depending on whether the estimated value of each property or piece of land falls into one of three bands. If its value is estimated to be in the lower band, the starting point for the penalty will be £10,000. If it is estimated to be in the middle band, that rises to £20,000. If it is estimated to be in the higher band, it rises again to £50,000.

If an overseas entity owns more than one property or piece of land, the penalty values will be added up to calculate its starting point. Given that interest will accrue at the statutory interest rate of 8% per annum, if an overseas entity fails to pay, the penalty will rise quickly. The registrar may also consider other aggravating factors, such as whether the person has committed the offence previously.

Where any financial penalty remains unpaid, it can be enforced as if it were a judgment debt, including by registering a charge against the property or land owned by an overseas entity. The registrar will keep the model under review before imposing financial penalties for failure to file the annual update on time. If the registrar finds that the level of penalties needs to be reviewed because they are not providing a sufficient deterrent, this instrument gives her the flexibility to do so.

The instrument gives the registrar the power to vary or revoke financial penalties on a case-by-case basis, for example if new information comes to light that aggravates or mitigates any offence. The instrument also sets out the grounds for appeal and the court’s powers in relation to that appeal.

This measure adds to the tools at the registrar’s disposal to promote compliance and maintain the register’s credibility as a vehicle for improving transparency and reducing the misuse of UK property by overseas entities. Companies House has been preparing to operationalise these regulations and will be ready to issue notices as soon as they come into force.

The second part of this instrument sets out the grounds for registering dispositions in Northern Ireland that would otherwise be prohibited. It amends Schedule 8A to the Land Registration Act (Northern Ireland) 1970 to provide a mechanism to allow the Secretary of State to consent to the registration of a land transaction that would otherwise be prohibited.

If a third party transacts with an overseas entity at a time when that entity is non-compliant with the register’s requirements, the third party will be prohibited from registering the transaction. For example, if they have purchased land from a non-compliant overseas entity, they will be unable to register themselves as the new proprietor. The intention of this sanction is to disincentivise anyone from transacting with non-compliant overseas entities. However, in certain circumstances, it is possible that a third party may transact in good faith without knowing that the overseas entity was non-compliant, resulting in their acquisition of a land title that cannot be registered with the Land Registry. The Act is not intended to penalise innocent third parties, so this mechanism is necessary for the effective functioning of land transactions. A similar mechanism is already available in England and Wales, and in Scotland.

The Bill’s expedited passage through Parliament last year left no time to include this mechanism in the draft Bill for Northern Ireland. Instead, a power was taken to make regulations, ensuring that consistency in the application of the requirements could be maintained across the UK. The instrument also inserts a regulation-making power into Schedule 8A to enable regulations to be made to specify how applications should be made, and makes other consequential amendments to Schedule 8A.

I close by emphasising once again that the measures in these regulations are crucial for the effective operation of a register that will crack down on dirty Russian money in the UK and corrupt foreign elites abusing the openness of our economy. I hope noble Lords will support these measures and their objectives. I commend these draft regulations to the Committee.

[Lord Wallace of Saltaire (LD)]

My Lords, I thank the Minister for that extremely clear and helpful explanation of the statutory instrument. As he will be well aware, we are now in the middle of considering the second economic crime Bill in two years. This deals with a number of issues that overlap with those two pieces of legislation, in particular the position of Companies House and how far it will have the additional staff needed to handle its new responsibilities and ensure that this SI and the other elements of those two pieces of legislation will be effectively enforced. I would welcome any reassurance he might give on that.

It is encouraging how much compliance there has been so far. It will be interesting and useful to know how stubborn the remaining non-compliant areas are. What is the scale of the unregistered land and properties that we still face in England, Scotland and Northern Ireland? We are all aware of stories of large houses in Hampstead that have been unoccupied for many years and whose ownership is unclear. Is this SI likely to end that situation so that business rates can be properly levied, and so that ownership will be clear and, if necessary, come under scrutiny and be changed?

I am interested in the remark about an alleged chilling effect from forcing everyone to comply. I have a certain interest in this, since my wife and I are thinking about downsizing and are looking at aspects of the London property market. On looking at a major new development on the South Bank some months ago, we were told that just over 40% of the apartments had already been sold to foreign buyers. I wonder whether the Government have looked at the impact of full compliance with the new overseas ownership regulations and whether they think that will have a marked effect on the London housing market—and possibly on London house prices, which the Wallace family would welcome.

The extent to which over the last 20 years a number of new housing developments in London have been built specifically to be sold to foreign owners rather than to serve the needs of people who need housing here has been one of the scandals of our housing market, and we very much welcome this position now changing.

Register of Overseas Entities (Definition of Foreign Limited Partner, Protection and Rectification) Regulations 2023

Lord Wallace of Saltaire Excerpts

Tuesday 2nd May 2023 Grand Committee

[The Minister of State, Department for Business and Trade (The Earl of Minto) (Con)]

My Lords, I beg to move that these regulations, which were laid before the House on 15 March 2023, be considered. These regulations form part of a series of secondary legislation needed to effectively implement the register of overseas entities, which I will refer to as the register.

The register was created under Part 1 of the Economic Crime (Transparency and Enforcement) Act, which gained Royal Assent last year. The register will help to crack down on dirty Russian money in the UK and corrupt foreign elites abusing the openness of our economy. It requires overseas entities owning or buying property in the UK to give information about their beneficial owners or managing officers to Companies House, and provides greater information for law enforcement officers to help them track down those using UK property as a vehicle for money laundering.

The register went live on 1 August 2022 and the deadline for registration was set at 31 January this year. There has been a high rate of compliance, with over 27,500 overseas entities registering to date. A further 700 have provided details to Companies House, having disposed of all their interests in land before the end of the transitional period. This means that over 28,000 entities have complied with the requirements. While that likely leaves a few thousand entities still to register, some of these are believed to have been dissolved or struck off while others have not kept their address details up to date with the Land Registry. Companies House continues to work to increase compliance even further; it is now also assessing cases for compliance action.

Noble Lords will recall my noble friend Lord Callanan introducing the first tranche of regulations last year. These included the Register of Overseas Entities (Delivery, Protection and Trust Services) Regulations, the Register of Overseas Entities (Verification and Provision of Information) Regulations, and the Land Registration (Amendment) Rules. The subject of today’s debate is the first regulations in the latest tranche that is subject to the affirmative resolution procedure. Other instruments are being prepared to ensure that the register can function even more effectively.

I turn to the details of this instrument. These regulations are laid under the powers of the Economic Crime (Transparency and Enforcement) Act 2022, which I will refer to as the Act. They deal with three main elements: first, prescribing the characteristics of a foreign limited partner for the purposes of the Act; secondly, allowing for information held within the register to be removed on application under circumstances; and, thirdly, amending the protection elements of the Register of Overseas Entities (Delivery, Protection and Trust Services) Regulations 2022.

The first part of this instrument sets out the characteristics of a foreign limited partner for the purposes of the register. These regulations provide that such individuals participate in a foreign limited partnership as a limited liability participant or hold shares or a right, either directly or indirectly, in a legal entity that participates in a foreign limited partnership as a limited liability participant. The regulations also define exactly what is meant by a foreign limited partnership and how a person would qualify as a limited liability participant in such a partnership. These provisions will assist overseas entities in identifying registerable beneficial owners under the legislation for the register.

As regards the measure on rectification, Regulation 4 sets out the grounds for rectifying the register. There may be occasions when information submitted to and visible on the register is factually inaccurate, forged, or has been submitted without the consent of the overseas entity. This regulation therefore allows for the register to be rectified by removing such information.

Regulation 5 of the instrument establishes the criteria for those entitled to receive notice of an application for rectification. It also specifies the information that must be included in the notice.

Accordingly, Regulation 6 lays down the grounds for interested parties objecting to such an application while confirming how objections should be made and the time limit for making them. Regulation 6 also sets out how the register is to determine whether to accept an application for rectification where an objection has been received.

Without these regulations, it would not be possible for a person to apply for the removal of inaccurate or forged information from the register. These measures therefore strengthen the accuracy and utility of the register.

On the third measure, on protection, Regulation 7 sets out details of an amendment to the existing protection regime. The regime deals with the protection of personal information from public inspection; “protection” means that information is not displayed by Companies House on the public register, although protected information must be provided to Companies House and is available to law enforcement. As it stands, protection can be granted only on an application subject to strict criteria. Applicants must provide evidence that they are, or a person living with them is, at risk of serious violence or intimidation if their details are publicly disclosed. Such a disclosure must result directly from their link with the overseas entity.

The amending provision will remove the requirement to demonstrate the risk of violence or intimidation arising directly from the individual’s association with the overseas entity. The measure will subsequently allow applications for protection that are needed because an individual is at serious risk. They would still need to demonstrate that risk before protection is granted but the risk would no longer need to be linked to the overseas entity.

The amendment will also allow for relevant individuals’ usual residential addresses to be protected if, for example, an individual provides a usual residential address as a service address without realising that it will be displayed on the public register. The person will then have to provide an alternative address to protect their usual residential address. These changes are necessary because it has become apparent that the current criteria lack flexibility. Without these changes, there is a real risk that, by publicly disclosing their details, some people will be in danger of serious violence or intimidation due to the ease with which a link could be made to their residential address.

To sum up, the measures in these regulations are crucial for the effective operation of the register of overseas entities. I hope that noble Lords will support these measures and their objectives. I commend these draft regulations to the Committee.

[Lord Wallace of Saltaire (LD)]

My Lords, we welcome this small adjustment to last year’s Act. I think we all approach it from the angle of the Committee on this year’s economic crime Bill, and the Minister is well aware that the largest concern coming out of its successive sittings is about how serious the Government are on enforcement. That question will continue all the way through our consideration of that Bill and it relates to this SI a little.

We are aware of the problem we have with properties in London owned by foreign companies, particularly where it is not clear who owns them, and, to a more limited extent, with land across the UK. We are conscious that this leads to a loss of tax revenue because, if you cannot identify the owner, you cannot get the rates paid or whatever. I have not yet seen an assessment of how much revenue is being lost to local councils and others from this hole, but it must be considerable.

I was told that 40% of properties in the Nine Elms development around Battersea Power Station have been sold to people from outside the UK. That is a large amount, and we know that there are a considerable number of areas, including Belgravia, where the lights are off.

Over the weekend, I was quite surprised to get some interesting statistics from an organisation with which I was not previously familiar called Open Ownership. I note that Transparency International is one of the entities that funds and supports this new body. It gave me some very interesting figures including that, of the beneficial owners personally registered, some 70 appear to be under the age of 12, one appears to have been born in 1897, which makes him 126 now, and another was born in 1907, which makes him 116. There are possibly one or two inaccuracies in what is being reported. Perhaps the Minister will say a little about how checks will be made on what comes in, so that rectification can take place.

I was even more interested to discover that the overwhelming majority of individuals identified as beneficial owners so far were British, by both nationality and residence. I had expected more to be from Asia—Hong Kong, mainland China and Singapore—and areas of eastern Europe, Cyprus and elsewhere. The large majority of companies mentioned as beneficial owners were registered in either the UK or the three Crown dependencies. If what I have received is accurate, it suggests a considerable amount of a different sort of economic crime under way here, which is called tax evasion. There may be a substantial loss of revenue to the United Kingdom that, as we proceed further down this line, we might at last begin to tackle.

While I welcome this small step forward, we have a long way to go. There are a lot of questions about what we do with this information as we gather it and if this information is correct. One of the questions raised in the Committee on the Bill was how much capacity Companies House will have to go through this and trigger action on it, and with which agencies the Government will then pursue that action.

I apologise to the Minister for not having given notice of the questions I have just thrown at him, but I received this SI only two or three days ago. I welcome the regulations, but we still have a lot of other things to do in this large and complicated area in which the United Kingdom Government and, as we know from other areas of economic crime, British citizens lose a lot of money.

--- Later in debate ---

[The Earl of Minto (Con)]

I thank both noble Lords for their valuable contributions to the debate. The Government are committed to ensuring that the register of overseas entities is robust and effective at tackling the use of UK property to launder money. These regulations provide the mechanisms that ensure that the register of overseas entities operates effectively. A clear definition of “foreign limited partner” provides greater certainty concerning registrable beneficial owners of overseas entities; I have a full definition for the noble Baroness that I can share. Applicants will be able to identify registrable beneficial owners more easily with a definition that is recognisable across multiple jurisdictions.

The amendment to the protection regime will address the unintended consequences of the regulations as they stand, by removing the requirement to demonstrate the risk of violence or intimidation arising directly from the individual’s association with the overseas entity. The measure on rectification ensures that errors on the register, whether deliberate or accidental, are identified and removed. The points raised by noble Lords highlight the necessity of the measures in these regulations, and I will answer some of them now.

The noble Lord, Lord Wallace, raised the question of accuracy—that is definitely ongoing. I do not think Companies House fully knows the number of inaccurate entries, but it still stands by the estimate it has used before of there being 32,000 registrable entities in total. We are up above 28,000 now. Although there will be some inaccuracies, I hope that by continuing to approach these organisations, Companies House will iron them out. I have not been involved in this sort of thing before but, despite the fact that it has taken some time to get there—it took the atrocious situation in Ukraine to bring this to the fore—it has certainly made some significant progress in getting that many people to register in such a short period of time. However, the point is well made that the accuracy of the register is paramount, including in terms of lost revenue.

On the younger people mentioned, I understand there are issues of family trusts, particularly with UK beneficial owners. That point, too, was well made. I could go through what is meant by the “foreign limited partner”, but I would rather share that with the noble Baroness. I hope that answers some of the more direct questions, and I will write to noble Lords if there is anything that I have not answered.

[Lord Wallace of Saltaire (LD)]

May I ask two questions, not to be answered now but perhaps in a letter? First, checking the accuracy of everybody’s name on the register will not be easy. Particularly for those that are not registered in Britain—those relying on co-operation from foreign authorities—it raises a large number of questions about how we get other authorities to co-operate with us and what multilateral network there is to ensure that they provide accurate information. I would appreciate knowing more about that.

Secondly, we are all familiar with the cascade of companies that one often finds—you go to the first company, which is owned by two different companies in two different jurisdictions and so on. If we are serious about this, how are we going to work through that, given that we are dealing not simply with overseas territories officially under British sovereignty but with other offshore financial centres which do not have a good record of co-operating to provide accurate information?

[The Earl of Minto (Con)]

Behind the noble Lord’s question is the question of resource. Companies House has 120 full-time equivalent staff working on this and pursuing precisely what the noble Lord referred to. I hope that will continue to improve the situation as time moves on, but the point was very well made.

Economic Crime and Corporate Transparency Bill

Lord Wallace of Saltaire Excerpts

Committee stage
Thursday 20th April 2023 Grand Committee

Moved by

[Lord Wallace of Saltaire]

68: After Clause 99, insert the following new Clause—
“Overseas companies: international co-operation
Within six months of the day on which this Act is passed, the Secretary of State must report to Parliament on what arrangements with foreign states and international organisations have been agreed to verify information about overseas companies within the scope of this Act, and the identity of their directors.”Member’s explanatory statement
Verification of information about companies and directors based overseas will require co-operation with foreign governments and with organisations responsible for monitoring cross-border finance, trade and crime. This amendment seeks to probe that the government is putting such arrangements in place, and will report them to Parliament.

[Lord Wallace of Saltaire (LD)]

My Lords, this amendment is to ask for much more information from the Government on the international implications of the Bill, which is a way of asking whether the Bill is serious in terms of enforcement. Most serious economic crime—indeed, all serious economic crime nowadays—is cross-border: the money is taken out of your bank account and rapidly moved to another jurisdiction. One of the huge problems we all face in a globalised economy is that policing is bounded by sovereign borders and criminals are not. Therefore, Governments are forced to co-operate across them.

One of the questions I hope we will pursue on these amendments and the ones that follow on the overseas territories is how Whitehall ensures that the various parts of it that deal with the various parts of our international efforts to combat different forms of crime—terrorist financing, drug smuggling, people smuggling, et cetera—co-ordinate, and which are the lead departments for what. Reference has already been made to HMRC and the Treasury. I note that, in Washington, the US State Department has now established a State Department-led but cross-department anti-corruption board to deal with these necessarily cross-border problems. I hope the Minister will be able to tell us—if not now then perhaps, as I asked at Second Reading, in a briefing in the context of the Bill—how Whitehall will make the necessary changes to ensure that different departments work together coherently in coping with these very complex problems.

It might help if I remark briefly on how I became involved in some of these problems of international crime. In 1989 I was director of research at Chatham House, the international affairs think tank. I was approached by a chief inspector who was then head of the strategy unit at the Metropolitan Police to ask if we could run a seminar on the international dimensions of policing, now that it seemed likely that the Berlin Wall might come down. As it happened, I was then attached briefly to an institute in Germany, in Bavaria, and when I asked it whether I could get any briefing on the subject, which I knew nothing about, I found myself very rapidly being taken to the Bundesnachrichtendienst headquarters and given a very thorough intelligence briefing on how the German Government were approaching the likely explosion of cross-border crime that would accompany the end of that very hard border that had kept a lot of crime away from western Europe.

Since then, we have had 30 years of globalisation, the communications revolution, digitisation and international banking deregulation, which have made cross-border economic crime far easier, far faster and far harder to keep up with. It is no accident that the Financial Action Task Force, one of the main mechanisms for international intergovernmental co-operation in combating money laundering, was also founded in 1989 by the G7; it saw what was coming. Perhaps the Minister can consider whether we could have a briefing on this to be told more about how effective the Financial Action Task Force is.

When I looked rapidly for an update on the FATF, I was a little worried to find that there is rather more up-to-date information on Wikipedia than there is in statements from GOV.UK, which tend to be from 2015, 2018 or 2019. The Wikipedia comments say that the FATF is now pretty good at setting standards and maintaining a blacklist and a grey list of countries that do not observe basic international standards. Some of your Lordships will have seen the article in the Financial Times yesterday about the Government of Panama hoping that it may finally be about to be taken off the grey list, which has clearly damaged its position as an international financial centre. But apart from reporting and setting standards, the FATF does very little in terms of enforcement. The question of enforcement, verification and the exchange of information is extremely relevant to whether the Bill is really going to make a difference to our pursuit of economic crime.

I followed the development of international police co-operation in the 1990s, partly because, when I came here, I became chair of the sub-committee of the European Union Committee that dealt with justice and home affairs, and thus followed quite closely the development of Europol, the Schengen Information System and those other forms of European police co-operation. I was struck by the extent to which progress was driven not by any commitment to some fantasy of a European superstate but by the demands of police forces and intelligence agencies in different countries. They needed to share information—in good, constant time if possible—and share activities and operations, as they now do. Of course, we have now left Europol and the Schengen Information System, which has denied the British authorities access to one of the closest ways in which we used to share information on transborder economic crime. I am not very well informed about the other mechanisms, apart from the OECD’s various activities on beneficial ownership and the FATF, which we find useful.

As the noble Baroness, Lady Blake, may remind us, David Lammy, the shadow Secretary of State for Foreign Affairs, proposed some weeks ago that there should be a transatlantic anti-corruption council to bring together more closely the various agencies, authorities and law enforcement bodies concerned with these areas. I am not aware that the British Government are actively engaged in all this, so my amendment asks the Government to tell us what the current situation is, what their strategy is and how this intrinsic element of any serious approach to economic crime will be treated. If they are unable to do that, they cannot be very serious about the enforcement of action against economic crime, which is not, after all, primarily a domestic matter. I beg to move.

[Baroness Blake of Leeds (Lab)]

I will respond to the comments made by the noble Lord, Lord Wallace, in moving his Amendment 68. I was very struck, looking back at the comments from Second Reading. He very forcibly talked about the international dimension and how important it is, and the fact that the international dimension in the Bill generally is thin; I think those were the words he used. I think we all knew that we would require amendments to look at this area. I am keen to understand from the Minister what actually is being proposed.

We talk a great deal about collecting data, but one of the rules of thumb I have always worked with is that data is of use only if it is open and transparent, there is a responsibility for the data to be analysed and, where things are held up as being untoward, appropriate action is taken.

I do not want to draw out the debate, but this could be an opportunity for the Minister to give us an update about the progress made since the Government launched the register of overseas entities on 1 August. What is the Government’s assessment of the success of the register and of the beneficial ownership registration being set at 25%? Do we know whether many companies are avoiding this by spreading out shares throughout a family? We know that there were significant concerns about nominee arrangements being used to disguise true beneficial owners. What is the Government’s assessment of this, now that the register has been introduced, and will they use the regulation-making powers in the existing economic crime Act to address this?

I anticipate a full response to the issues raised by the noble Lord, Lord Wallace. I would like to understand and am seeking reassurance that the Government are putting arrangements in place. As we have heard, the scale of the co-operation is quite significant. It needs constant review, and it needs to relate to finance, trade and crime. I look forward to the Minister’s response.

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[Lord Coaker (Lab)]

I will just reinforce the point that the noble Lord, Lord Fox, made. To be honest, I do not think the Minister was implying that we were condemning the whole of business, but the noble Lord, Lord Fox, made an important point. The Committee is trying to say that, overall, we all support the Bill but we want to ensure that it is effective, understandable and enforced. In challenging the Government, we seek not to undermine business but to improve what most of us regard as a reasonable Bill.

The only other point I make to the Minister is that—I think we all accept this—public opinion is frustrated about what it sees as a lack of action in respect of certain bad business practices, such as the laundering of money. Lots of fraud and economic crime takes place but is not seen as a priority by the state—irrespective of whether you mean Labour, the Liberal Democrats, the Conservatives, the Scottish nationalists or whoever—which does not take this seriously. I suggest to the Government that, if I were a government Minister, I would parade much more powerfully than the Government have done that we are trying to ensure that public anger is assuaged by the fact that we are no longer prepared to see Russian money used in the way it has been nor to see bad practice, which means, frankly, that good business is undermined.

This is the point made by the noble Lord, Lord Fox. Good businesses, which represent the majority of the country, want something done about bad business because it undermines them. This is a really important point; I think it is the point that the Minister was trying to make. This is a good Bill but it needs to be improved. From what he has said to us, I think the Minister will take on board many of the comments that have been—and will be—made and change the Bill. But it is also about saying, “Of course the majority of business is good, but there is bad practice out there and it needs sorting out”. Good business wants that to happen as much as members of this Committee do.

[Lord Wallace of Saltaire (LD)]

My Lords, as I said in moving this amendment, our concern is around the Bill, when it becomes an Act, having the resources and the international co-operation structure to make it effective.

The Minister talked about exchanging information, but there is also the question of enforcement. If we are trying to enforce on someone who is based in the UAE, Panama or Singapore—let alone Hong Kong—these things are not easy. We all recognise that since 1989 a number of mistakes have been made. This Government—and this country under different parties in government—made a succession of mistakes in our handling of Russian money as it came into the country. Many of those mistakes have now been corrected, but we have to admit that we did not handle this very well and we now find ourselves in a situation in which other financial centres are extremely difficult to investigate. One looks at the Wirecard scandal, for example. One of the world’s major accounting firms failed to discover that a substantial chunk of the assets that Wirecard was declaring, which were alleged to be in Singapore and Malaysia, did not exist.

Clearly, the need for active exchanges between Governments, central banks and others is vital in this situation. That is what we are trying to ensure happens. Yes, it is a small number of companies, but it is not a small amount of money. That, therefore, has to concern us if the Bill is to be a useful reform and a worthwhile Act.

I remind the Minister that that the FATF grey list at the moment includes the Cayman Islands and Gibraltar, as well as the United Arab Emirates, Turkey and a number of other countries with which we have close ties. I am conscious that 100,000 British citizens now live in the United Arab Emirates, many of whom are actively engaged in the international financial industry. That has to be a matter of concern to us. Not very long ago, some in the House were talking about the activities of UAE intelligence services with regard to UAE nationals on British soil. There are a great many difficult issues that we have to cope with here. We also understand that this situation is not static. The communications revolution has already made the transfer of money around the world much faster than it was 10 to 20 years ago, and we need to keep up with that.

I should have mentioned another OECD initiative that is related to economic crime, on base erosion and profit shifting. It is concerned with tax evasion, which I include as part of economic crime. That is another area in which Governments are beginning to co-operate. It is very difficult to gain co-operation. The entire British Government are not always as keen on co-operation as some parts are, because some departments naturally have different interests from those of others. I raised the question of Whitehall co-ordination and where its leadership sits, and it probably needs to change, as it just has in America, because the nature of the problems we face is also changing.

I withdraw my amendment, but I hope that these conversations will continue. I express our shared concern that legitimate international finance will prosper and that aspects of international finance that are illegitimate will be carefully monitored and prevented.

Amendment 68 withdrawn.

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[Lord Garnier (Con)]

My Lords, I entirely agree with what the noble Lord has just said. Trusts are and have been frequently discussed in this Bill and its predecessors as one of the most effective ways of hiding information that ought to be made public. Clearly, some matters are properly to be kept confidential, but much of the material covered by the law of trusts ought, in the public interest, to be disclosed.

I happily support the amendment that my noble friend Lord Agnew moved a moment ago. Like him, I want to know whether the Government’s Amendment 76H renders his amendment redundant. I do not think it does, because it seems to me that there is a difference between the publication of information about trustees, which is what my noble friend talks about, and the registration of information about trusts in the Government’s proposed new clause. We can register as much as we like, but if you cannot open the box and see what is inside and has been registered, it is a pretty futile exercise. Public opinion, public policy and an assessment of the public interest suggest to me—for the reasons already given by the noble Lord, Lord Vaux, and my noble friend Lord Faulks—that the Government, if they want to maintain the difference between registration and publication, are behind the curve.

We learned a lot in my noble friend’s committee in 2019 about the huge amounts of real estate, particularly within London and a couple of its boroughs, which are owned by people, companies and trusts of which we know nothing. Many of these houses and properties were unoccupied; they were merely the physical dumping grounds for money. Obviously, they had to be paid for.

The committee on which the noble Lord, Lord Faulks, and I served was not able to discover, but sought to encourage the then Government to expose, the route by which criminal funds were laundered into London by money launderers. Any number of blocks of flats and very expensive houses, all year round, 24 hours a day, never have a single light on. You can go down smart squares in Kensington or Westminster and see places that look utterly unoccupied—because they are. They are dumps for dosh. We need to make sure that this new law is effective at exposing and, if not exposing, inhibiting before it gets here, the translation of laundered money from dodgy jurisdictions into ours. It is as simple as that. I hope the Minister is able to persuade the Committee that my noble friend’s amendment is redundant, because the Government’s amendment comprehensively and effectively does what we would like.

[Lord Wallace of Saltaire (LD)]

I will just add to this. As it happens, the other week my wife and I were going around the Nine Elms development, Battersea Power Station, et cetera, with an eye to when we downsize. We were told that, until then, over 40% of the apartments had been sold to people living abroad. That partly explained why it was so very quiet there; not many people were present in the complex. That raises all sorts of large questions about housing practices in London, which we need not touch on at the moment.

I want to pick up on the point made by the noble Lord, Lord Agnew, about how one establishes the ultimate beneficiary when one company is owned by another company, which is owned by a trust in another jurisdiction. That is part of what my amendment was trying to get at, as a key element before one can even begin to enforce is accurate information from regulators in other jurisdictions and territories, and how we do our best to ensure that the information we are receiving is accurate. That requires active diplomacy and co-operation between the financial parts of different Governments. We are looking for some assurance from the Minister that that is part of what is intended when the Bill becomes an Act and that we will know which parts of Whitehall will be pursuing it.

On the first day in Committee, there were some references to the role of HMRC. We have been told that Companies House will not be concerned with regulation or enforcement, but we need to know a little more about which parts of our government machine will take the lead on ensuring that we begin to unpick the cascade of trusts and companies referred to by the noble Lord, Lord Agnew, and will tell us who, in effect, the beneficial owners are.

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Is there not a serious risk that when the coming timeline passes, we will need to come back with another amendment, perhaps to another Bill, pointing out that this matter still has not been sorted? In these discussions we keep stressing the need to make transformational progress, particularly now that the spotlight has been shone on the scale of the issues that we are facing. Should we not encourage acting immediately, where we have the powers to do so? I beg to move.

[Lord Wallace of Saltaire (LD)]

My Lords, I support this amendment. I will speak to my Amendment 108, and first make a couple of preliminary observations.

The Minister referred to “eradicating” corruption—a wonderful aim. I do not recall any economy or political system that has entirely eradicated corruption, but minimising corruption is a necessary part of any market economy. I grew up within Barclays Bank. They moved us every five years; they moved their local staff because it was a way of minimising corruption—stopping my parents getting too close to their clients. That was the sort of petty corruption that unavoidably crept into the British financial system.

Now that we have an entirely different financial system the opportunities for corruption are very different. What we are trying to do here is minimise levels of corruption in a globalised economy and financial system. I say to the Minister: even if we were to succeed in eradicating corruption entirely in this country, which would require some quite astonishing changes in our culture, we would still import corruption from abroad, as we have painfully discovered in the past 30 years. The best that we can do is to hope to mitigate and minimise.

On trusts, secrecy is often an aid to tax avoidance or tax evasion. We all know that the boundary between avoidance and evasion is very delicate, managed by large numbers of well-paid accountants and lawyers based in London, the Crown dependencies and elsewhere, and that tax evasion is an economic crime.

I have been concerned by extent clauses in a number of Bills since I entered this House. I have been increasingly puzzled by the way in which such clauses are used, partly because they normally come at the end of a Bill by which time everyone is exhausted and does not want to discuss them. I note that, in the National Security Bill—the last Bill that I dealt with—Jersey and Guernsey were included in the extent clause, but the Isle of Man was not. Moreover, the sovereign base areas of Cyprus were included in the extent of the Bill but not most of the other overseas territories; I was unable to discover why the other overseas territories in which we have military bases, such as the Falklands, Tristan da Cunha and Ascension Island, were not included. The Minister then was unable to answer that question.

This is an area of quite astonishing ambiguity—deliberate ambiguity, in a sense. The Crown dependencies and the overseas territories are not part of the United Kingdom, but they are not foreign. They are governed under British law, but they do not immediately implement all changes in British law, as my noble friend remarked. That is very convenient but, occasionally, it leaves room for ambiguity, which can be exploited.

I remind the Minister that there have been substantial problems in some overseas territories; for example, the Turks and Caicos Islands and the BVI. There are, of course, enormous temptations in territories with a small population and a huge amount of money going through. We have seen that in the past in the Channel Islands—we very much hope that things are much better there now—and more recently in some of the Caribbean territories. So we must be careful and well aware that, if this Bill is to become a successful Act with enforcement, our close financial connections with the overseas territories and Crown dependencies must form part of what we address and part of what we make sure they follow.

In one of our briefings, we were told:

“We are comfortable with the journey that the overseas territories are on, but they are not yet there.”


We are concerned that they should get there, and in good time. We are all conscious that the overwhelming majority of properties owned by overseas entities are registered in the overseas territories, primarily the BVI. So why are they not in the extent clause, given that some Crown dependencies and overseas territories have been included in the extent clauses of other Bills passed in this Parliament? How are the Government going to ensure that the commitments made that the territories will follow changes in British legislation are carried through? How will we ensure that we follow up on that? I say that with a degree of embittered experience: I recall several occasions over the past 15 years on which Ministers from different Governments promised that changes in British law would be followed within a limited period by the overseas territories, only for us to discover three or four years later that those changes had not been implemented by some of them.

This is an important area; I know that the Minister will recognise how important an area it is. The personal, financial, accountancy and legal links between Britain, the Crown dependencies and the overseas territories are extremely close, intricate and fairly opaque. We therefore need, again, some reassurance that this Bill, when it becomes an Act with the hope that it will be enforced effectively, will be enforced throughout those British territories that are not part of the United Kingdom.

[Baroness Bennett of Manor Castle (GP)]

My Lords, it is a pleasure to follow the noble Lord, Lord Wallace of Saltaire, and to speak chiefly to Amendment 108, to which I attached my name. I entirely agree with everything he said, and indeed with the introduction to the group. I will just add a couple of points.

My first point is about the cost. A few years ago, Transparency International calculated that the economic damage resulting from corporate secrecy in the UK’s overseas territories alone significantly exceeded the UK aid budget. These are crimes that have real victims and real costs. We must not forget that. The fact is that one hand is operating one way and the other another way, unless we take some action.

The Atlantic Council is not necessarily an organisation with which I am always 100% in agreement, but it produced an article in January entitled “Authoritarian kleptocrats are thriving on the West’s failures. Can they be stopped?” It recommended that the UK should

“address the close connections between the City of London and British Overseas Territories and Crown Dependencies”.

A further recommendation was that the UK should:

“Reduce regulatory mismatches between the primary UK jurisdictions and the Crown Dependencies.”


There is a real hole here. We can drive a cart and horses through the gaps between what is happening here and what is happening in the Crown dependencies and overseas territories. To extend the metaphor a little, for which I apologise, we might be slamming the stable door, but we are leaving the barn door open unless we address this issue.

In thinking about how these two amendments are connected, and to join them up, let us be really charitable about the capacities of these overseas territories and Crown dependencies. The population of the 14 overseas territories is 270,000 people; that of the Crown dependencies is rather less. Let us be charitable when we think of the size of their Administrations and their capacities, and think about the extreme inequality of arms between the kleptocrats and their enablers and those organisations. Even if those territories and dependencies want to do something, with the best will in the world, how can they conceivably have the capacity to do it? We have a responsibility, given the UK Government’s role, for this economic crime Bill to include this coverage. This is protection, support and assistance, as well as something that protects the whole world.

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[Lord Faulks (Non-Afl)]

I will, then, as I usually accept that invitation. As I understand the position, an Order in Council is the mechanism. The convention and the arrangement with the Crown dependencies that I spoke of is not the same with the overseas territories, although the points made about consulting them very much apply.

[Lord Wallace of Saltaire (LD)]

If I may respond to the noble and learned Lord, Lord Garnier, since I have been involved in discussion on this on a number of previous Bills, we are normally assured by the Government as a Bill goes past that there are ongoing consultations with the CDs and the OTs, and that they have been assured that the key proposals will be incorporated into their domestic law within a limited period. As I said, there have been a number of occasions when that has not happened in some territories. It has often been the weakest territories concerned and, after all, this Government have spent a good deal of money on taking over the government of the Turks and Caicos—having to intervene where things have failed. This is rather like saying, “On most occasions, we do not expect most banks or overseas territories to be involved in any form of corruption, but sometimes some will be tempted”. Some may be overcome and that is what we are trying to guard against.

[Lord Garnier (Con)]

The noble Lord is right, and it has not been an easy history, but these small jurisdictions have a choice. I am well aware of the criminal cases currently going on in the Turks and Caicos, and the need for direct rule there. But I have seen too many occasions—not a vast number, but too many none the less—when these small jurisdictions are prepared to be seduced by China rather than maintain their relationship with the United Kingdom. We need to be careful that we do not force these smaller jurisdictions into the arms of the Chinese, when it would be much better for their well-being and ours if we were to maintain them within our own family. I will leave it there.

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I want to make a few concluding points on tackling economic crime, enhancing corporate transparency and enforcing sanctions: under the Russia sanctions regime, the Crown dependencies and overseas territories have frozen in excess of £1 billion and £7 billion respectively. That is a huge amount. If we ask the question, “Compared to five years ago, are we working with our Crown dependencies and overseas territories effectively to manage transparency in corporate entities and reduce financial crime?”, clearly the answer is yes. As I said at the beginning of my remarks, we have come a huge distance in encouraging them to conform to our necessary frameworks. It is the mood music of this current time, in any event, in terms of how businesses can be transacted. I am very optimistic that we will meet our target of the end of the year for ensuring that they are in compliance with our ambitions. I am sensitive to the fact that it has been discussed many times, that we have been told that it will happen by a certain time and that there have been delays; no one is keener than me to see these reforms enacted but I feel very positive about the engagement that we have had. We support our Crown dependencies and overseas territories where necessary but, frankly, I do not think that it would be appropriate for us to legislate on their behalf. Although the intention behind this amendment is reasonable, I ask for it to be withdrawn.

[Lord Wallace of Saltaire (LD)]

I will simply comment on the capacity question, which the Minister raised. There is a clear distinction between our Crown dependencies and some of our smaller overseas territories. The Crown dependencies have a lot of qualified people, and I am well aware that, in recent years, they have increased their staff capacity to cope with the rising amount of international financial business they have been dealing with. One regrets that, in some of the smaller and, I have to say, weaker overseas territories, there is not enough capacity and trained staff. They are further away from the United Kingdom. There are reputational questions and costs if and when a major scandal breaks out, as in the Turks and Caicos Islands, to the UK’s standing in the world because they are under our protection, they follow UK law and they have the reputation of having UK law.

I am conscious that this is part of a wider problem in the global financial system. The argument has been made to me in the past by people from these territories: “After all, if people do not come here as their offshore financial centre, they’ll go to somewhere dodgier and smaller, perhaps in the Pacific rather than the Caribbean.” We are all conscious of there always being that set of issues, but the UK and its associated territories need to ensure that, in managing a complicated global financial system, our overall contribution is one of which we continue to be proud and that all those territories for which we are responsible maintain higher standards. That is what this is really about.

We recognise how much has been done and how well Crown dependencies have improved the quality of their oversight in recent years, but some territories will simply not have enough people who are prepared to live there for 12 months a year to deal with the quantity and complexity of the financial movements through them. That has to be a matter for our long-term concern. I would love to hear more about the Open Ownership charity that is involved in helping them with this, because we clearly have to assist them to develop their capacity to cope with an increasingly complicated, and often dodgy, set of offerings from countries with which we have to deal but which do not have the same standards as us.

[Baroness Blake of Leeds (Lab)]

I thank all noble Lords who have contributed to this group of amendments. We have uncovered some important areas, but the overarching consideration, as we know and as has been mentioned, is the damage to our reputation if this matter is not addressed.

I take some comfort from the Minister’s offer to meet us to talk this through in more detail, but I remain concerned about the very real question of progress. If the necessary progress has not been made across the piece by the end of the year, I would like to know exactly what the Government are intending.

Given the sensitivity about relationships and the different stages that places are at, which has been highlighted so well, it would be useful to know whether there is an established framework around support and approach to make sure there is consistency in achieving this. This is not a terribly ambitious request; it should be straightforward. I look forward to our further discussions and, with those comments, beg leave to withdraw my amendment.

Economic Crime and Corporate Transparency Bill

Lord Wallace of Saltaire Excerpts

Committee stage
Tuesday 18th April 2023 Grand Committee

We think these measures would be duplicative. The entities that would be ACSPs will already be subject to risk assessments by their supervisors. Not only would this therefore be an ineffective use of resource; it would have the effect of turning Companies House into a regulator. By the way, this has come up over the last few weeks in discussion on the Bill. Companies House is a repository for information that we wish to make as accurate, clear and transparent as possible. It is not a regulator of ACSPs. That is not its role and, frankly, we do not intend it to be so, certainly not in this Bill. I am confident that the powers set out in the Bill will give the registrar the powers she needs—

[Lord Wallace of Saltaire (LD)]

Does the Minister think that there is a case for there being some form of regulation of ACSPs, or does he think that that is not needed?

[Lord Johnson of Lainston (Con)]

I am very grateful for the noble Lord’s intervention, as with all interventions today. The ACSPs are already supervised by the money laundering supervisory authority. Should there be a discussion over some type of more effective oversight of ACSPs, in the view of this Committee? We will no doubt discuss that in the future. But as it stands, they are regulated and if any noble Lord is involved with such a business—if they have a financial services business or have been involved in financial services—they will know the strength of the regulator and the fear in which decent, law-abiding firms hold their regulator when it comes to enacting the necessary practices to perform their duties and tasks.

The final amendment that I have in my notes is Amendment 52, tabled by the noble Lords, Lord Coaker and Lord Ponsonby, and the noble Baroness, Lady Blake. It would require a report on foreign ACSPs to be made one year after this Act is passed. I do not consider this amendment to be necessary, the main reason being that colleagues in the other place have already agreed to the addition of Clause 187, requiring the Secretary of State to prepare reports on the implementation and operation of Parts 1 to 3 of the Bill and to lay a copy of them before Parliament within six months of the Act being passed and every 12 months thereafter. Since authorised corporate service providers are provided for in Part 1, they should already be captured.

For the reasons given, therefore, I do not support these amendments. I ask the noble Lord, Lord Vaux, to withdraw Amendment 48.

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[Lord Johnson of Lainston (Con)]

I am grateful to the noble Lord, Lord Browne, for suggesting the creation of another authority but, in this instance, I would be reluctant to do that. As I said, I have noted his comments very carefully, and I will be happy to have further discussions with noble Lords around this issue. I am sure it will be a matter of debate, but the important point is that I do not believe that we should be setting minimum costs by legislation. It would be completely impractical and would remove the flexibility and purpose.

I now come to the economic crime fund and economic crime enforcement agencies Amendments 69 and 71 tabled by the noble Lord, Lord Agnew, and the economic crime fund Amendment 106E tabled by my noble friend Lady Altmann, which are very relevant. As we have discussed—and I take this view personally—we can have as many rules and regulations as we want, but if they are not enforced properly, they will have no value. That is why when noble Lords come to me with new ideas—there is an ever-bubbling font of new ideas—for new regulations, strictures and penalties that could be imposed upon businesses to reduce economic crime, I sometimes push back. I say that it is not necessarily about introducing new regulations and rules but about making sure we have the resources, focus and capabilities successfully to prosecute existing crimes.

That is at the core of my next comment: the Government are committed to ensuring that law enforcement agencies have the funding they need. The combination of the 2021 spending review settlement and private sector contributions through the new economic crime levy will provide funding of £400 million over the spending review period. The levy applies to the AML-regulated sector and will fund new or uplifted activity to tackle money laundering, starting from 2023-24. I believe that the levy is expected, or targeted, to raise £100 million. I am not sure whether that figure is confirmed; I will come back to noble Lords if it is wildly inaccurate.

In addition to this, a proportion of assets recovered under the Proceeds of Crime Act 2002 are already reinvested in economic crime capability. Under the asset recovery incentivisation scheme mentioned already by the noble and learned Lord, Lord Garnier, and some other noble Lords, receipts that are paid into the Home Office are split 50:50 between central government and operational partners, based on their relative contribution to delivering receipts.

Proceeds from fines issued by Companies House are placed into the Consolidated Fund, which is used for financing the expenditure of government departments on important public services. The proposed amendments would see the incorporation fees, all fees paid under regulations made under Section 1063 of the Companies Act and all penalties paid under regulations made under Section 1132A of that Act being surrendered into an economic crime fund. This would be contrary to the fundamental principle that the fees are paid for the benefit of incorporated status and would fall foul of long-established Treasury rules preventing fees being used to fund activities that may be completely unconnected. I am happy to be corrected, but I do not believe that this is pushing back against the concept of hypothecation. The point is simply that these are fees to be paid for a service, and it would not be appropriate for them to be directed to another function.

This would also encompass almost the entirety of Companies House’s income, leaving it with no resources, and it would require funding from elsewhere, primarily from the taxpayer, so going completely against what many noble Lords, this Government and I want, which is to use the fees to pay for the functioning of Companies House. The fees would then go into a fund, so we would have to pay for Companies House on top of that. I am sure that is quite clear. The Government do not believe it is appropriate to place the burden of funding Companies House on the taxpayer, and this would be contrary to the fundamental principle that the fees are paid for the benefit of incorporated status.

I would like to attend now to some comments made by the noble Lord, Lord Browne.

[Lord Wallace of Saltaire (LD)]

My Lords, I do not know whether the Minister is familiar with the Home Office practice on this. The Home Office has a very clear practice of full-cost charging for visas for entry to this country. I think it now costs £2,000 to £3,000, for example, for the spouse of a British citizen returning to this country to get settled status in Britain. If some parts of government are now insisting on full recovery of costs, perhaps this is a model that could be applied here as well.

[Lord Johnson of Lainston (Con)]

I thank the noble Lord; that is exactly what I am saying. The whole point about the fees is that they are charged in order to pay for Companies House; that is precisely the same principle. Unless I have misunderstood the intervention, this goes directly against the amendment that introduces a fund that has to be paid for by the fees levied on people who are setting up companies or annually registering.

I want to attend to a point made by the noble Lord, Lord Browne. He said—rightly—that the whole point of this legislation is not to profit or make money from it but to stop the bad practice happening in the first place. The fines and penalties to be issued by Companies House are designed to drive a change in behaviour, not be a revenue-raising tool. I was grateful to my noble and learned friend Lord Garnier for raising the point around how these fines could or should be used. It is possible to suggest that the same situation happens with speed cameras. The theory there is that we want to reduce speed on the roads, not raise revenue—at least, that is my personal opinion.

Economic Crime and Corporate Transparency Bill

Lord Wallace of Saltaire Excerpts

Committee stage
Monday 27th March 2023 Grand Committee

[Lord Vaux of Harrowden (CB)]

I made exactly the same argument during the passage of what we used to call ECB 1—the first economic crime Bill. I entirely agree, and noble Lords will see that I have a number of later amendments dealing with those issues of the verification statements and the authorised corporate service providers being named publicly as opposed to—as is proposed at the moment—not being named on the register. That is really important. I agree that this probably does not go far enough. I am mindful of the Minister’s comments about not making this overly burdensome—if we do, it will not work—but we need to find a way to make sure that we understand who owns the shares.

[Lord Wallace of Saltaire (LD)]

My Lords, I am here as an international policy wonk, and I am very conscious that, in economic crime, a great deal goes on cross-border and outside the jurisdiction of the UK. I have therefore tabled two later amendments: one concerns the Crown dependencies and the overseas territories and the other concerns the levels of international co-operation that will be desirable and necessary if we are to crack some of these problems.

I strongly support what the noble Lord, Lord Faulks, has said about the requirements for those agents—or enablers, if you like—in setting up what are very often cascades of companies that disappear outside the jurisdiction of the United Kingdom to our various overseas territories or beyond. The question, therefore, is how we ensure the maximum amount of transparency and make the risk of crime as minimal as possible by putting heavily on those who are engaged in setting up these trust companies and further arrangements the responsibility of declaring clearly that these are legitimate and sound.

[Lord Macdonald of River Glaven (CB)]

My Lords, I apologise for not being able to be present at Second Reading. In support of the noble Lords, Lord Faulks and Lord Vaux, I simply say that I really could not count the number of criminal cases in which I have been involved where it is precisely the concealment of beneficial ownership that is the driving force of the strategy behind the crime. This happens repeatedly. Anything that can be done to strengthen the Bill in this area—I am particularly attracted by the suggestions of the noble Lord, Lord Vaux—should be entertained seriously by the Government.

--- Later in debate ---

[Lord Agnew of Oulton (Con)]

My Lords, I shall speak to my amendment on designated persons. The Minister is already dealing with this issue in some of his own amendments, but I stress that mine would be a slight tweak to the system that would have enormous power over the very few people who would be impacted. Last year only 1,200 people were designated for the Russian activities—across the whole world, not just by us—so we are talking about low numbers of thousands of people relative to the 5 million on the register. We also know that some of these bad actors got wind of their designation before it happened and were able to reorganise their financial affairs, so the horse had well and truly bolted by the time we rumbled into action. This slight amendment would give much more transparency into what these people were doing and allow the enforcement agencies to act accordingly.

[Lord Wallace of Saltaire (LD)]

My Lords, I note that these various amendments cover England and Wales, Scotland and Northern Ireland, but the UK financial system very much includes Jersey and Guernsey for a great many company formations and associated company forms. I wonder whether at this stage the Minister could explain whether or not the disqualification of persons from being directors within the UK will in time apply to the Crown dependencies, or whether one will still be able to act as a director for companies formed in the Crowd dependencies while disqualified within the UK.

[Lord Johnson of Lainston (Con)]

I appreciate the noble Lord’s comment about the Crown dependencies. I am happy to confirm that this debate develops the specific answer to his question. My assumption would be that they fall under the register of overseas entities and the requirements placed around them, but I will confirm that. The noble Lord makes a very valid point. It would be peculiar if we did not include the Crown dependencies of Jersey and Guernsey in our legislation. My assumption is that they are well covered, and I hope that is the case.

I thank my noble friend Lord Agnew of Oulton for his Amendment 24. I assure him that I do not think it is necessary to achieve his intentions. Provisions in the Bill already allow Companies House proactively to share data more widely for purposes connected with its functions. Data sharing will also be permitted to assist public authorities with exercising their own functions. This will include government bodies such as OFSI, which is part of His Majesty’s Treasury, the National Crime Agency and so on. Examples of data sharing could be for the purpose of confirming the accuracy of data provided to the registrar to ensure the register is kept up to date or for passing on intelligence to law enforcement agencies to minimise criminal activity.

Companies House will operate a risk-based approach targeting its efforts primarily in those areas where information and intelligence gleaned through new data-sharing powers and through Companies House’s own systems and processes suggest that particular scrutiny is warranted. The Government believe that this amendment, while well intentioned, is overly prescriptive and would lead to Companies House having to share potentially irrelevant and unnecessary information with OFSI and NCA. This would be an inefficient use of government resources and could lead to more serious intelligence that needs to be shared being missed. Although Companies House already works very closely with government departments, including HM Treasury’s OFSI and law enforcement agencies, this Bill will strengthen these existing relationships through enhanced data-sharing provisions.

This amendment seeks to impose a duty on the registrar only with regard to material information, which it leaves undefined. The imposition of such a vague duty could lead to confused and ineffective results and underlines the importance of the registrar being able to share data using a risk-based approach. Furthermore, information about individuals who are subject to this new sanction and any relevant licences will be published on the director disqualification register maintained by Companies House as well as on the UK sanctions list to ensure that the use of the sanctions measure is transparent. Discussions about implementing the new sanctions measure, including data sharing between Companies House, the Department for Business and Trade and the Foreign, Commonwealth and Development Office, are already under way to ensure that the new measure is effective. For the reasons set out above, I ask my noble friend not to move his amendment.