Situation in the Red Sea
Debate between Lord Wallace of Saltaire and Earl of Minto(9 months ago)
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The Earl of Minto (Con)
The noble and gallant Lord makes an interesting point. As part of the international force dedicated to degrading the Houthis’ effectiveness, our partners are diverting and searching vehicles, both at sea and elsewhere, to ensure that as much as possible can be stopped from arriving in Yemen. At the same time, we are looking at disrupting the manufacturing capability behind this, which of course is based in Iran.
Lord Wallace of Saltaire (LD)
My Lords, in lessons learned, I hope the Government are also looking back at Operation Atalanta, which the noble Lord may recall was an EU operation commanded by the UK through Northwood, dealing with the Somali threat. Indeed, I recall—I was then a Minister—that there were some informal contacts between that UK-led force and Chinese naval vessels, which were also in the area. On the question of degrading, if the Houthis are mainly using speedboats and drones, how easy is it to degrade their capability over more than a very short period? Those are cheap and easy to move and therefore able to operate through all sorts of places. Are there limits to how far we can maintain having degraded them for more than a few weeks?
The Earl of Minto (Con)
My Lords, the point is extremely well made. All parties are conversing at a certain level. Degrading these small drones and unmanned boats is not just a question of physically destroying them but also of disrupting their ability to land where they are supposed to.
Register of Overseas Entities (Penalties and Northern Ireland Dispositions) Regulations 2023
Debate between Lord Wallace of Saltaire and Earl of Minto(1 year, 5 months ago)
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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
Debate between Lord Wallace of Saltaire and Earl of Minto(1 year, 6 months ago)
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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.
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.