Lord Watson of Invergowrie
Main Page: Lord Watson of Invergowrie (Labour - Life peer)Small Business, Enterprise and Employment Bill
Lord Watson of Invergowrie Excerpts
Baroness Neville-Rolfe
My Lords, this group of amendments responds to recommendations of the Delegated Powers and Regulatory Reform Committee and to a number of issues raised in Committee. I thank the DPRRC for its diligent scrutiny of the Bill and am happy to accept all its recommendations relating to Parts 7 to 9 of the Bill.
Amendments 54 and 57 mean that regulations to provide for exceptions to the ban on corporate directors, and orders modifying Schedule 1 to the Company Directors Disqualification Act 1986, will be subject to the affirmative resolution procedure. Amendments 47 to 50 provide that the statutory guidance on the meaning of “significant influence and control” for the register of people with significant control will be subject to the negative resolution procedure, instead of merely being laid before Parliament.
I have also reflected on certain amendments tabled in Committee by the noble Lords, Lord Mitchell, Lord Watson of Invergowrie, Lord Phillips of Sudbury and Lord Stevenson of Balmacara, who is sitting opposite. The noble Lords called for information in the central register to be kept up to date. The Bill contains a power for the Secretary of State to increase the frequency with which PSC information is filed at Companies House. I can now confirm the Government’s intention to use that power to do this.
Having discussed the issue with Companies House, we intend to allow the central register to operate for around 12 months before using the power—in other words, in 2017. This will allow the system to bed in, thereby helping companies’ transition to the new requirements. In 2017, we will in any case need to increase the frequency with which PSC information is filed at Companies House. This is because proposals in the EU’s soon-to-be-adopted fourth money laundering directive will require all EU member states to have company beneficial ownership information in central registers that is “current”. This means that we could not rely on an annual update to the central register.
Some noble Lords were concerned that the requirement for a person accessing PSC information from the company’s own register to tell the company whether they would disclose information to any other person would be unduly restrictive. On reflection, I agree that requiring those wishing to inspect the register to say whether they would disclose that information to someone else and, if so, to whom, was unnecessarily burdensome. Amendment 42 therefore removes proposed Section 790O(4)(d) of new Part 21A of the Companies Act. However, I can reassure noble Lords that safeguards are still in place around inspection of the company’s own PSC register. The person wanting access must provide his name and address, and the purpose for which the information will be used. If the company suspects the information is not sought for a proper purpose, it may apply to the court to refuse access.
Individuals at serious risk of harm will be able to apply to the registrar to have their information protected from public disclosure. If granted, their information will not be disclosed on the register at Companies House or the company’s own PSC register. To ensure appropriate levels of transparency, noble Lords argued that the fact of a person’s information being protected from public disclosure should be stated on the company and central PSC register. I agree that this is important. It will ensure that users of PSC information know whether a company has PSCs, thereby preventing the company being unfairly accused of having failed to identify its PSCs because there is no information in its register. It will also act as a safeguard against erroneous disclosure of information by a company or Companies House. Amendments 35 and 45 provide for this.
Amendments 44 and 46 are technical. They make clear that a company must not make available for public inspection PSC residential address information, or information protected from public disclosure because the individual is at serious risk of harm.
I turn finally to Amendments 51 and 52. These enable investors in certain non-UK arrangements to be treated in the same way as limited partners in English limited partnerships—an issue raised by my noble friends Lord Flight and Lord Leigh of Hurley in Committee. I agree that we must ensure that investors in foreign limited partnerships that operate in broadly the same way as English limited partnerships are treated in the same way. At the same time, we must ensure that this does not open up a convenient loophole for criminals to exploit. I am satisfied that setting out the characteristics of such arrangements in secondary legislation is the best way to avoid this risk.
It may be helpful if I explain to noble Lords why we have not made equivalent provision for other UK and non-UK structures used for investment purposes. In cases where an individual holds, in the words of the Bill, a “majority stake”—that is, more than 50%—in a fund, and where that fund owns more than 25% of a UK company, we would expect that individual to be disclosed on the register. However, we do not expect companies to look through every investor in a fund to check whether there is a PSC. Nor do we expect investors continually to monitor their holdings in UK companies. I intend to ensure that this point is made clear in guidance and hope that my noble friends are reassured by this explanation. I beg to move.
Lord Watson of Invergowrie (Lab)
My Lords, I offer my support to the Government on Amendments 35 and 42; I very much welcome both. I accept that individuals may have their details protected from being published in the PSC register in exceptional circumstances, and I have been reassured by Ministers’ comments in your Lordships’ House and another place stating that exemptions will be given only in such circumstances. I am sure that that will remain the case. In this respect, the Government have strengthened the Bill during its passage through both Houses. In another place, the Government accepted an amendment from the Member of Parliament for Hartlepool, whereby proposals for classes of companies to be exempted from the register should be subject to the affirmative procedure, which will allow greater scrutiny and debate.
I am also pleased that the Government have introduced Amendment 35 today, which will highlight in the register where a protection exists. This is a real step forward for transparency and accountability.
I have argued at previous stages of the Bill that the public interest test must always be available to challenge an exemption when new evidence comes to light. I ask the Minister whether she will undertake to keep this matter under consideration and to do likewise with regard to publishing a list of broad categories under which exemptions can be given.
Turning to Amendment 42, the requirements associated with proposed new Section 790O(4)(d) to the Companies Act really were quite prohibitive and ran counter to the spirit of the introduction of a register. Removing that proposed new section will have a significant effect. It will allow organisations and members of the public to view businesses’ registers and publish the information where they deem it necessary.
I tabled a similar amendment to this in Committee, and I appreciate the Minister listening and acting on it. I also want to record my thanks to noble Lords from across the House who spoke in favour of that amendment in Committee.
“(i) where the control is exercised through a chain of legal entities (as described in Schedule 1A), details of name, service address and jurisdiction of registration of all legal entities in the chain”
Lord Watson of Invergowrie
My Lords, I begin by again stressing my strong support for the introduction of a register of people with significant control, and the enthusiastic welcome for it from the All-Party Group on Anti-Corruption, of which I am a member. Indeed, I believe that the PSC register should be overwhelmingly welcomed—I would even go so far as saying to the extent that we should be somewhat suspicious of the motives of those who oppose it in principle.
The introduction of the register is a step forward, and a big one at that, because it will frustrate people who hide or seek to hide criminal activities behind shell companies—a big and increasing problem that stretches across different parts of the world. For example, the UN has reported that Ukrainian arms licences are being given to UK shell companies involved in supplying helicopter parts to Assad in Syria, military kits to Gaddafi’s Libya and nuclear technology to Lithuania, all of which I believe should give noble Lords genuine cause for concern.
The legislation we are considering represents a significant step forward because the PSC register will record the ultimate beneficial owners of our companies and the public will be able to examine it. That said, the Bill leaves what I believe is an important gap: where the chain of ownership extends to foreign companies, not all of the links in the chain will be recorded. This will allow corruption to remain hidden away, out of sight of the UK authorities. These amendments aim to close this gap. Their implementation would involve a minimal burden for a small percentage of the most complex businesses. I very much hope that we can make some progress on this issue today.
Amendments 36, 37 and 38 seek to ensure that, where control of a UK company involves intermediaries in a chain, all the links in the chain should be revealed and exposed to scrutiny, because knowing and understanding the chain of ownership is, I believe, necessary to enable information on the register to be checked. I also believe that the importance of that has been acknowledged by the Government, because the Bill already requires that the method of control be declared, accepting that how control is exercised is important. These amendments seek to make sure that that will be made clear in the small number of cases where there is a chain of entities as part of the method of control. It would make a big difference. For example, developing countries require such information to bring legal action against a person of significant control—something they have often been unable to do in the past, often at great cost to their fragile economies.
When speaking about the register on 31 October 2013, the Prime Minister stressed that it would be publicly accessible and went on to say the following:
“It’s better for businesses here, who’ll be better able to identify who really owns the companies they’re trading with. It’s better for developing countries, who’ll have easy access to all this data without having to submit endless requests for each line of inquiry. And it’s better for us all to have an open system which everyone has access to, because the more eyes that look at this information the more accurate it will be”.
Needless to say, I thoroughly agree with the Prime Minister, but without placing on record the chain of ownership there will not be sufficient information available on the register to enable third parties to verify it properly. I believe that it is self-evident that the success of the register will rest on how accurate it is. To ensure that it is as accurate as possible, there is a need to maximise opportunities to ensure a higher level of accuracy from day one. That is what these amendments are designed to achieve.
The noble Lord, Lord Phillips, and I tabled similar amendments in Committee. The Minister said then that our amendments would be costly. Yet those amendments would have amounted to a minimal burden for a small number of companies—the most complexly structured companies at that. We estimate that only about 2% of UK businesses would need to provide only a very small amount of additional information when submitting their annual reports. The company should already have collected this information in confirming its person of significant control. The only extra demand would involve including this information in its annual report. This is such a minor requirement that I do not believe that it even merits being categorised as a “burden”, but it is a requirement that would fall exactly on the type of company that is most likely to be of concern. For that reason, I believe that it is proportionate.
In Committee, the Minister said that this would be confusing. On the contrary: surely the chain of ownership would be presented more clearly in the register, reducing the likelihood of confusion. The Minister also said in Committee that this would be seen as gold-plating. I agree with her, but is that not to be welcomed? I contend that it is not so much gold-plating as the rather more prosaic—and certainly cheaper—copper-bottoming: ensuring that the register achieves what it is designed to achieve. We are the first country in the world to introduce a public register. I believe that we should be proud of that and I also believe that we should get it right first time.
These three amendments would make a significant difference to developing countries at minimal cost to a small number of UK companies. Having listened to the Minister in Committee, the noble Lord, Lord Phillips, and I have scaled them back from the amendments that we tabled then. I very much hope that they will now find favour with the Minister. If they do not, I look forward from hearing from her how the Government intend to address this issue, perhaps in secondary legislation, so that the register can be established on the firmest possible foundations.
I turn briefly to Amendment 53. The intention of this amendment is to make a very simple point that the noble Lord, Lord Phillips, and I feel has not been properly addressed yet during the Bill’s consideration: that it should be the Secretary of State who is responsible for the operation of the PSC register, rather than Companies House. We suggest an annual report to Parliament from the Secretary of State to highlight this point, allowing parliamentarians to hold the Secretary of State to account on the operation of the register. Since this will be the world’s first public register of beneficial ownership, I believe that it is really important that we get it right.
The Secretary of State must ensure that information in the register is properly verified and that it is kept as up to date as possible. I welcome the comments that the Minister made just a few minutes ago in respect of another amendment about increasing the number of times that it is updated. Throughout the various stages of the Bill, MPs, noble Lords, interested organisations and, indeed, to a significant extent, members of the public have made the point that the public register should be updated more than annually. As things stand, it would be out of date almost as soon as it is published, so again, the Minister’s remarks are to be welcomed.
I hope that the Minister will accept what I think is a relatively straightforward and simple amendment, which will clarify ministerial responsibility for the register and increase parliamentary scrutiny of it. If not, I hope that she will outline how she or the successors of the Secretary of State would ensure that the public register is kept as accurate as possible and that the information contained within it is properly verified. I beg to move.
Lord Phillips of Sudbury (LD)
My Lords, my name stands with that of my noble friend Lord Watson of Invergowrie on these amendments. He has introduced them with great panache, and I do not have a great deal more to say but I think that the issues are so important that a few more points are necessary and worth while.
First, I shall give the House some of the facts that point to the scale of the problem of fraud and tax avoidance, which I do not think many of our fellow country people understand. My noble friend Lord Watson and I have been hugely helped by the Anti-Corruption APPG of this House, which, in turn, has been supported by Global Witness and Christian Aid, and a wonderful job they have done. One of the statistics they have produced for us—I think that Transparency International has had some part in this as well—is that the best estimate is that $21 trillion to $32 trillion of private financial assets rest in tax havens, and that 20% to 30% of that huge corpus of assets is corruptly diverted. Of that, they reckon that $120 billion to $180 billion per annum, which is far more than the entire global aid budget, is diverted unlawfully from developing countries. This is a rather poignant day on which to say that, as the Bill concerning the 0.7% contribution to aid has just been passed.
Another fact which I find rather depressing because it affects the UK is that it is reckoned that the Crown dependencies and overseas territories are host to one-third of all the world’s shell companies. On top of that, more than 36,000 properties, which are mainly in the most expensive parts of this wonderful city, are owned by overseas owners but are placed in shell companies in tax havens, 38% of them in the British Virgin Islands, 16% in Jersey, 9.5% in the Isle of Man and 9% in Guernsey. In addition, the World Bank’s review of the 200-plus biggest corporation corruption cases shows that 70% use shell companies as their vehicles of fraud. Therefore, the background to this amendment could not be more important and striking.
At this point, I have to own up to something from my dim and distant legal past. In the mid-1960s I was what was then called a tax mitigation lawyer. I notice a groan from behind me.
Lord Forsyth of Drumlean
Indeed, but my noble friend must not tempt me to get away from the amendment and from this Bill. When it comes to compliance costs, the Government are going to have to find £109,000 just for,
“the IT development of the registry and communication to industry”.
My experience of government IT programmes is that they usually cost considerably more than estimated. Then we have £220,000 for ongoing maintenance. In addition, it is stated:
“Costs to businesses are estimated to be £417.4m set up cost, and £77.7m pa”.
This is a country that is not able to meet its expenses and these are businesses which, certainly outside London, are under severe stress.
My noble friend and the noble Lord argue that we need to add further to the burden put on these businesses to deal with the problem of international tax evasion by large companies around the world. I intervened to ask him how—even assuming that everything that he claims for his system works once it is up and running in Britain and we have spent the £1 billion—it would help prevent the crooks and people who wish to behave in this way operating out of a different jurisdiction. Surely, the only way this Utopian view of how to tackle the issue will be achieved is if every country does this, but I do not see any evidence of other countries rushing to implement this legislation. As far as I am aware, there is no great programme to do this among the other countries that were at the G8, so all we would be doing is hobbling honest, hard-working small businesses in this country to deal with a problem that needs—
Lord Watson of Invergowrie
I am grateful to the noble Lord for giving way. I always listen to the noble Lord, Lord Forsyth, carefully. He always makes very considered contributions to the House, although I may not agree with him very often. This is one of those occasions. I regret that he seems to be making a speech that should have been made three months or so ago at Second Reading, because he is not arguing specifically against the amendments that I have put down; he is arguing against this section of the Bill in its entirety. I accept that he is perfectly entitled to do that, but these arguments have already been given a considerable airing.
I just would draw his attention to the amendments, which say, “where the control”—that is, the control of a company—
“is exercised through a chain of legal entities”.
That will not impact on many small and medium-sized enterprises. This is for large, complex organisations, which is why I mentioned the figure of some 2% that it has been estimated would be affected. The other companies will have to say who their person of significant control is anyway, whatever the size of the company. In most cases, it will be the chief executive. This part of the Bill will not be a burden to any significant extent on smaller companies. The bigger companies, which have an international dimension and therefore will have a complex structure, are those that we are trying to catch with these amendments. It is not in any sense about companies based in the UK that have no ownership outside the UK.
Lord Watson of Invergowrie
My Lords, this has been a longer and more vigorous debate than had been anticipated. I feel like a guest at my own party such is the distance we have travelled from the narrow effects of the amendments.
The noble Lord, Lord Forsyth, made an important point: a number of companies will be involved in the register and there will be some costs. I fully accept that. However, it is a central part of the Bill. It has come a considerable way down the road now and has been broadly accepted. The noble Lord said that he was not aware of any disquiet about it. That suggests to me that not many companies are making a great deal of noise about it. Yes, there are costs, but they have realised that benefits will follow the introduction of the register.
I disagree with the noble Lord when he says that we are the only country doing this. Yes, the UK is taking a lead—that is commendable—but someone has to start. There is considerable opposition to this within the EU, never mind beyond it, but we have to start somewhere. If we do not, it will never happen. From that point of view I give the Government credit for grasping the issue and taking it forward. Where it goes from here we do not know. Indeed, in doing research for this evening I noticed that since the Committee stage in January four Crown dependencies have come forward and said, “We have looked at the idea of a public register but, frankly, we do not think it is a good idea and we are not going to do it”. Also since the Committee stage the leader of the Opposition has said that, should he be in a position to do so after 7 May, he will make it a requirement on the overseas territories and the Crown dependencies that they have such a public register. I accept that there is opposition to a register but the UK is due credit for leading the way in this.
As to what the amendments seek to do, I was surprised that the Minister said she was concerned that if too much information came forward it might obscure the situation rather than clarify it. That is similar to the argument that there is no point in having a 50 pence tax rate because people will not pay it; that you will get more tax if it is only 40p or 45p. If you set laws in any civilised country you expect people to obey them and for those laws to have the effect intended. If information is sought, it has to produce the clarity that is the intention of the amendments.
I repeat that it is anticipated that about 2% of all UK companies would be caught by these amendments should they be accepted and added to the Bill—not small companies and the small and medium-sized enterprises, because they do not have a complex international structure in which to hide aspects of their business, even if they wanted to.
I am disappointed that the Minister is not prepared to accept the amendment. It is a narrow point and would not add a great deal to what the Bill is trying to achieve. I accept that she will not change her position and I respect that. I also respect the fact that she said there will be a review within three years and that will give the opportunity to look at the situation again.
During the debate on these provisions I have noticed that in fact three new sections in the Bill would allow secondary legislation to address the question of foreign companies and ownership issues. I just highlight new Section 790K(5), new Section 790L and new Section 790M(7). I agree with the noble Lord, Lord Forsyth, that it is indeed a beast of a Bill, although recently I was involved with the Deregulation Bill, which is every bit as complex and fat a document. There are opportunities, should the Minister feel that they are worth pursuing, but obviously it would be better if this was included in primary legislation. However, I accept what she has said and I look forward to the review of the legislation. There will be a lot of valuable impact as regards this part of the Bill. With those remarks, I beg leave to withdraw the amendment.
Lord Naseby
My Lords, I, too, pay tribute to my noble friend on the Front Bench. I thank her for arranging the briefing session last week that I took part in, which helped me understand this in greater depth. It did not assuage many of my worries but at least I understood more clearly where Her Majesty’s Government were coming from. I think that the House should be indebted to my noble friends Lord Flight and Lord Borwick, who have taken a detailed interest in the Bill. Both have raised issues that have always been there. I listened to my noble friend Lord Flight and, indeed, corresponded with him at an earlier stage.
Since the Bill was conceived several things have happened. First, we should be aware that the United States proposes to take no action at all. The President of the United States maintains that he is there as a central body, and that he is not permitted by law and statute in the United States to take any similar action because it is a state matter. As far as the states of Delaware, Wyoming and at least two others are concerned, they are going to carry on business as usual and, in fact, probably benefit from any Bill that we start off as a wonderful, transparent initiative.
The other dimension that has been clarified is that the OECD has indicated that if the United States is not going to comply, it sees no reason why it should. That is a second block. The G20 and the G8 have already been referred to; there does not seem to be much movement there other than what is likely to come out of the EU. That seems to be a very strong case for waiting to see exactly what comes out of the EU in preference to going forward on our own. At least then there would be a significant number of countries that would have come to a conclusion about what can be done and what is proper and ideal in terms of helping the law enforcement agencies. That to me is absolutely crucial.
Perhaps I could raise a point about timing. I listened to what my noble friend on the Front Bench said about timing. I do not know how closely she knows the timings of the implementation of the pensions Bill, but small businesses are currently having to register—as far as I know, by 1 April. It all has to be done online—it is not an easy thing for anybody to do; it is not the most user-friendly process—but those small businesses are registering for a policy to be implemented in 2017. Obviously, that department, in a fairly complicated area, has decided that it needs a couple of years to get the whole thing up and running properly. But my noble friend on the Front Bench seems to be saying that, although we are starting later with this Bill—it has not even had Royal Assent yet—the whole thing is going to be up and running by 2016. I just wonder how realistic that timescale is.
I know that Her Majesty’s Government want to do everything online but, frankly, the software that has been produced in a number of areas leaves much to be desired. Can my noble friend reassure me that the software that is associated with this is almost ready to be set forward for the market to use, or is it still being produced somewhere? Has it been trialled yet? I do not know but I am asking my noble friend to have a close look at timing. Finally, I repeat that for small business to have to face a charge of over £1 billion when this is supposed to be an enterprise country is, frankly, absolutely ridiculous.
Lord Watson of Invergowrie
My Lords, I oppose the amendments in the name of the noble Lord, Lord Flight. Frankly, they are quite in contradiction to the whole thrust of the Bill, which is to increase transparency. They would have the opposite effect and I very much regret that. I am not going to rehearse the arguments that we traded in Committee a couple of months ago but I would just like to point out that he has brought up a new point about proper purpose. I dare say we could be here till this time next week before getting any sort of consensus on what a proper purpose was—in fact, we might not have succeeded even by then. I really think that that would be a backward step.
Surely the basic premise of the legislation is that public scrutiny will root out corruption more effectively, and indeed quickly, than the legal authorities themselves could do. I cannot understand noble Lords being opposed to that. To a certain extent, as far as companies are concerned, there is a case of, “If you have nothing to hide, you have nothing to fear”—but, equally, what do companies have to fear from transparency? The analogy with the former Prime Minister Tony Blair was not particularly apt in this situation. Personal privacy is one thing but companies have to be prepared to be open about the way in which they operate. Commercial confidentiality is one thing, but it has its limits.
My final point is about removing the requirement for a business to make its register publicly available. That is an essential element of this part of the Bill. I find it strange that the noble Lord, Lord Borwick—
Lord Flight
My suggestion was that we fell in with the new arrangements, which are not complete but which use the language of a public register while stating very correctly that it should not be available to any old Tom, Dick and Harry but should be available for legitimate purposes. That seems to me to be the essence of what we are here to do.
Lord Watson of Invergowrie
Yes, but defining what is a proper purpose is simply not achievable. People will ask for information. If they use that information in a way that is against the law, they leave themselves open to action. That is a protection.
The noble Lord, Lord Borwick, said that he did not understand why the Liberal Democrats or the Labour Party were supporting this legislation. I have to remind him that it is a government Bill, and it is a government Bill with different aspects to it. It did not emanate from his coalition partners or from the Opposition. However, this is one aspect of the Bill which all parts of the House should get behind, because it seeks to achieve transparency. In terms of the way in which British business operates, surely that has to be a positive development.
Baroness Neville-Rolfe
My Lords, I am grateful to the noble Lords, Lord Flight and Lord Borwick, for their amendments. I thank them and the noble Lord, Lord Naseby, for the many points that they have made at a series of meetings and in correspondence, and express the hope that they will encourage business representatives with an eye for simplicity to help with the implementation process so that it is as business- friendly as possible.
We are reasonably confident about our 2016 timeline. We have clear plans in place at Companies House which are already being implemented. All being well, we are on track to meet our 2016 deadline. I know that there can be problems with software, but that is the plan.
Amendments 39 and 40 would allow a company’s own PSC register to be held solely at Companies House. I agree that flexibility is important. That is why the Bill gives private companies the option of holding their company registers solely at Companies House. However, it is important that companies can continue to hold their own register at their registered office, service provider’s office or other suitable location should they wish to do so.
Amendments 41 and 43 would restrict access to a company’s own PSC register to law enforcement and tax authorities. Amendments 55 and 56 would do likewise in respect of PSC information held centrally at Companies House. As I explained during our Committee debates, reducing the level of access to PSC information runs entirely counter to our public commitments on this reform.
Company transparency matters, and it is not just about tackling criminals. The Prime Minister set out the rationale for this back in October 2013. He said that transparency of company control allows businesses better to identify who really owns the companies they are trading with, that it gives developing countries easy access to data without having to submit endless requests for information, and that a public register allows public scrutiny and therefore supports data accuracy.
I know that there are concerns about the impact on privacy of this reform. We are satisfied with the balance that we have struck. We will not, for example, place residential addresses in the public domain, and we will put in place a protection regime that allows individuals at serious risk of harm to apply for their information not to be disclosed.
Of most practical importance, in the coming months the EU will adopt the fourth anti-money laundering directive, which will require member states to implement semi-public central registers of company beneficial ownership. This will ensure that all with a “legitimate interest” can access the register. My noble friend Lord Flight asked what “legitimate” meant. We believe that a legitimate interest would include civil society organisations and journalists in the context of their money-laundering investigations. He also asked what “proper purpose” means. The term is intended to have a wide interpretation and application. We are satisfied that there is no need to define it in the Bill. This is in line with the approach taken for the inspection regime for the register of members. I was reassured to know that if a company suspected that a person wanted access to a company’s PSC register for the purpose only of carrying out identity theft or fraud or using junk mail, that would not be a proper purpose.