Economic Crime and Corporate Transparency Bill (Fourth sitting)

Baroness Hodge of Barking Excerpts

Thursday 27th October 2022 Public Bill Committees

[James Daly]

That is very helpful. Thank you.

[Dame Margaret Hodge (Barking) (Lab)]

Q ICAEW represents what proportion of the accountancy profession, do you reckon?

Angela Foyle: I do not know the proportion, but there are about a hundred and something thousand members.

Mike Miller: Yes, about 110,000 members. I am not sure of the proportion.

[Dame Margaret Hodge]

Q You do not know the proportion, but the truth is that there will be people who are financial advisers and accountants who are not members. You have a policing role, but if they are not your members, they are not policed.

Angela Foyle: Not by the ICAEW, but there are other institutes out there.

[Dame Margaret Hodge]

Q Yes, but you are the big one.

Angela Foyle: We are the bigger one, but they may be by someone else. There are also people who are not regulated by any professional body who can call themselves accountants as well.

[Dame Margaret Hodge]

Q Quite. We know that most accountants are brilliant people who make sure we do not make mistakes when we fill in our tax return and all that sort of stuff. However, we know from all the leaks that there are a lot of bad apples in the accountancy world.

There are two things I wanted to ask. One is about the current system of regulation. You as professionals play a role in the system. What changes would you make to ensure the current regulation encompasses all those who call themselves financial advisers or accountants? Secondly, how good are you at your policing role? You obviously have a lobbying role and looking at both your CVs, you are on the lobbying side to make sure regulation fits what your profession wants. I am much more concerned about the policing role. Can you tell me how many people in the last year have been suspended, or whatever it is you do to them, if they have been found guilty of engaging in, facilitating or colluding with economic crime or money laundering or anything like that?

Angela Foyle: I do not think we have the numbers for the people this year.

Mike Miller: We do not have the numbers up to date for this year.

[Dame Margaret Hodge]

Q I had them, but unfortunately I have lost them. I think it is about 10 or 15.

[The Chair]

I am going to have to curb this and move on very briefly to Tom because we have to finish.

--- Later in debate ---

[The Chair]

Thank you very much. That will be put on the record.

[Dame Margaret Hodge]

Can I ask something wicked? Can the witnesses provide written answers to my questions?

[The Chair]

They can indeed.

Mike Miller: I am very happy to.

Angela Foyle: Could we possibly have your question in writing, just to remind us?

--- Later in debate ---

[James Daly]

Q So such a process—light-touch regulation at its finest—is certainly open to fraudulent activities.

Peter Swabey: I think it is fair to say that at the moment it is nothing like as secure as any of us would like it to be, and the Bill is a big step forward in tightening that up. I would still like to see it go further in some ways.

[Dame Margaret Hodge]

Q It is the beneficial ownership that is revealed to Companies House, not necessarily even all the directors, as I understand it. The way you are talking, you obviously deal with big companies. The whole purpose, which I think we all share across the room, is that we want SMEs and the growth of new companies. The idea that every SME will have a company secretary is not really a viable alternative. That means it is really important that we can have faith in the company service providers, who are the people who check the data. Given the way the Bill is constructed, do you think you would have such faith, in particular given all we know from the Panama leaks onwards?

Peter Swabey: It is really important to make sure that the hoops through which those authorised company service providers go before they become authorised are significant, to make sure that we can have confidence in that.

[Dame Margaret Hodge]

Q What would that entail?

Peter Swabey: That would entail detailed verification of who people were, of who the ownership was and how that was structured and, effectively, Companies House having a bar to doing that. Where I would take issue slightly with the premise of your question is when you talked about SMEs not needing or not having space for a company secretary; most of them have an accountant and all sorts of other things. It does not have to be a full-time role; someone can be doing it part time, but what is important is that someone who knows what they are doing is looking after those issues.

[Dame Margaret Hodge]

Q Do you know how company service providers are regulated and supervised?

Peter Swabey: No, it is not something that our members—

[Dame Margaret Hodge]

Q They are supposedly regulated and supervised by HMRC. Previous witnesses talked about OPBAS, which in its most recent report said that 81% of those supervisory bodies did not have a proper risk-based approach to ensure that those people were lawyers, accountants, bankers or whatever, that they were legitimate people not colluding in or facilitating economic crime. What do you have to say about all that? Basically, supervision is in a mess. HMRC does nothing to supervise company service providers. What is your view on that?

Peter Swabey: I cannot help you much with that, because we are not a supervisory body in that sense.

[Dame Margaret Hodge]

Q You give advice on what makes good supervision.

Peter Swabey: We give advice on what is good governance for organisations, not on the supervisory role.

[Liam Byrne]

Q I want to pursue that point for a moment. In the interests of good governance, would it not make sense to strengthen some of the obligations on directors to include, for example, a duty to take steps to prevent corruption in their organisations? We have similar measures on corruption; we do not have similar measures on economic crime and fraud.

Peter Swabey: You have the directors’ duties under section 171 of the Companies Act and so on. Those are there, but it is difficult to identify exactly how those directors’ duties can be pursued against any defaulting director. For me, that is one of the challenges. Were you to introduce something extra on that, that would be a solution, but again you would need to look at how that could actually be enforced.

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[Liam Byrne]

Q I do not know whether you can see it, but the Bill is called the Economic Crime and Corporate Transparency Bill. How credible do you think corporate transparency in this country will be if we do not amend the Bill to include the protection of journalists like you, who have worked so hard and bravely to reveal the truth only to face legal action in English courts that sought to silence you?

Catherine Belton: I think it will be half-baked if it does not include that amendment. Obviously, it is great to have better laws, but when financial watchdogs, public oversight bodies and journalists are still unable to cast a light on some of the financial transactions of the super-rich, from fear of these crushing lawsuits, it means that you have a system that is only half working. Law enforcement relies, and has relied in the past, to a great degree on journalistic investigations, including for instance by the OCCRP; its reporting has led to some very important cases.

[Dame Margaret Hodge]

Q I will ask one question, Catherine, because many have been asked. I join with others who have met you, or read your book, and are full of admiration for your courage. For those who have not, and do not know your story, will you quickly tell us what happened to you in relation to the SLAPPs, and why it is important that we try to tackle those in the Bill? You can do it very briefly; I am conscious of time.

Catherine Belton: I wrote a book called “Putin’s People”, which was about Putin’s rise to power, the continued role of the KGB and how Russia was using oligarchs—Russian businessmen—to further Russian influence in the world. I was writing precisely about how many of the oligarchs, such as Roman Abramovich, were essentially forced to act as arms of the Kremlin, because otherwise their wealth could be jeopardised. Putin’s hold on power was such that anybody who did not obey his orders could face jail or the seizure of their companies.

Abramovich was very upset when I suggested in the book, quoting three former associates, that he had acquired Chelsea football club on Putin’s orders, in order to acquire soft power and influence in the UK. That, I believe, was public interest reporting. The allegation had been put to his spokesperson, and the response was in the book. He announced that he was suing me personally and HarperCollins—a statement that was swiftly followed by lawsuits from three other Russian billionaires, and then one from the Kremlin oil company Rosneft. The cases were very difficult to grapple with, because there were so many of them all at the same time.

[Dame Margaret Hodge]

Q How many were there altogether?

Catherine Belton: Five cases. It cost my publisher £1.5 million to deal with the cases, and they got only to the preliminary hearing stage before they were either settled or withdrawn. Rosneft’s case had to be withdrawn completely because there was no basis for any of its claims. The judge found that one of Abramovich’s claims was completely exaggerated, which allowed us to make minor amendments and avoid the enormous cost of having to continue to fight. Even though we believed that we had a very strong public interest case, our lawyers told us that it would have cost, at a minimum, £2.5 million to continue to defend the great deal of reporting that had gone into my book. It would have taken over a year. Abramovich had twice filed the exact same claim simultaneously in Australia as well, even though he had no business there, and therefore no reputation to protect.

Nineteen media rights organisations said that the cases against “Putin’s People” and my publisher, HarperCollins, bore all the hallmarks of a SLAPP case—that is, they were designed to intimidate the publisher, and they were abuse of process, particularly in the case of Abramovich.

Yes, the judge found that one of his claims was exaggerated, which, according to the Ministry of Justice’s proposal for the anti-SLAPP law, is one of the criteria under which SLAPP cases should be thrown out of court at an early stage. It introduced three criteria. One was that meanings were being inflated or exaggerated by a claimant; that was clearly the case for most of the oligarchs pursuing me. In Rosneft’s case, the judge found that what I had written about Rosneft, the Kremlin oil company, was not defamatory at all, yet my publisher had to spend hundreds of thousands of pounds just to get to the stage of a preliminary hearing, to get it thrown out of court. The proceedings demonstrated how many other UK media organisations had been censoring themselves because they did not want to deal with those enormously costly lawsuits—

[The Chair]

Catherine, I am really sorry, but I have two more people waiting to ask questions and there is only five minutes. I am so sorry to curtail you.

--- Later in debate ---

[James Daly]

Q Just in general, using the banks as an example, should we be looking to put in the Bill requirements for them to play their part in the partnership to tackle money laundering?

Professor Jason Sharman: Again, banks have had these requirements to establish the beneficial owners for a while. I think this is good, but it is the enforcement that is key there.

[Dame Margaret Hodge]

Q Following on from that, I completely take the point about enforcement, but would a failure to prevent power make any difference, assuming it was enforced?

Professor Jason Sharman: I probably differ from many of the other people who have spoken in that I am not a fan of failure to prevent. I think that the goal of these laws is to make life hard for bad people without making life hard for good people at the same time. To the extent that you have really onerous regulation or weaken the presumption of innocence, that is something of an own goal or collateral damage. Before you put people in jail, you should be pretty serious about it. There should be a mental intention there—a mens rea.

I am not really comfortable with the strict liability. There is strict liability in anti-bribery, which means I have to do pointless anti-bribery training every year for the University of Cambridge. It does not do me any good and it does not stop corruption, but it is one of the things that Cambridge feels it has to do because of the strict liability. Again, it is a cost to society that is not included in legislation or in regulatory impact assessments.

[Dame Margaret Hodge]

Q Because time is limited, I will not engage with that, but it is a really interesting view. I want to quote something to you that I think you said—apologies if I have got it wrong. You said:

“These host states now have a duty to block, trace, freeze, and seize these illicit funds and hand them back to the countries from which they were stolen.”

I do not know who you were referring to there, but, in our case, with the illicit Russian assets frozen in the UK, how do you suggest we seize those funds and how can we repurpose them?

Professor Jason Sharman: It depends. With the Russian assets that are criminal assets, eventually you need to go to a court of law to do that—

[Dame Margaret Hodge]

Q That is very hard—you know that.

Professor Jason Sharman: Indeed. That is hopefully something that the Bill will do something to correct. It may be different if you are talking about sanctions and the money that is currently frozen. It would depend. If we are talking about criminal money, there is an anti-money laundering process of confiscation—civil and criminal.

[Dame Margaret Hodge]

Q Sanctions.

Professor Jason Sharman: Sanctions. I think you cannot. There is proper process. As I understand it, unless there is a formal state of war that obtains between two states, on what basis are you going to take away—

[Dame Margaret Hodge]

Q That is the point. Did I quote you incorrectly, then?

Professor Jason Sharman: No, you quoted me correctly, but that is money that was stolen in one place and moved to another place, and you have to prove that it was stolen. That is different from saying, “You are a Russian oligarch and we are going to freeze your funds.” It is very different.

[Dame Margaret Hodge]

Q I accept it is different from a Russian oligarch, but according to Bill Browder we have something like £30 billion of Russian state assets sitting frozen at the moment. Of course, it needs to change. I totally accept that we are not at war with Russia, so those powers do not exist. Do you think it is appropriate to introduce any new powers that would enable us to seize as well as freeze those assets and then repurpose them for the reconstruction in Ukraine? There is certainly a desire across the political divide here in the UK to try to achieve something along those lines. Do you think that is possible?

Professor Jason Sharman: I would not shed a tear if Russian oligarchs lost their assets.

[Dame Margaret Hodge]

Q This is the state I am talking about.

Professor Jason Sharman: Okay, for the Russian state. In that case, I think that would be wonderful. I know Browder mentioned earlier central bank assets. But, again, there is a precedent here. To what extent would foreign Governments put money overseas? There is a lot of concentration on Russia as a corrupt regime, which I think it is, but it has plenty of company, many of which have assets in the UK.

[Dame Margaret Hodge]

Q The Italians appear to have conquered this—I do not know if you know about that—through the stuff they have done on the mafia. The Canadians appear to have introduced a new power that might take them there. The Americans are trying to think about it. The Europeans are. There is quite a lot of thinking. I am just picking your brain. Is there anything you have done in this field that could add value as we try to think about it?

Professor Jason Sharman: I think not, and I think that the British Government, at least when it comes to sanctioning oligarch assets, which I realise are different from state assets, are in a bind. I think they will have to return those assets to the oligarchs and that they may have to pay damages to the oligarchs. That would be a terrible injustice, but I really worry about what the end game for sanctions is.

[Liam Byrne]

Q Jason, you are a political scientist. Why are we in this position where we have such weakness? Why has our political system failed to address these weaknesses for so long?

Professor Jason Sharman: This is probably a typical social science answer, but there are quite a few reasons that make it difficult, because no one corrective, in and of itself, is going to fix the situation. There have been solutions, such as the persons of significant control registry, the unexplained wealth orders and so on, where it has been like, “This is the thing that will unlock the problem”. But instead it is a combination. First off, it is appropriately difficult to take away people’s property. Secondly, the bureaucratic incentives do not favour it. You have this very risk-averse culture within law enforcement agencies. Thirdly, as I said, there is a failure to harness the incredible investigative resources that lie outside the state, in the not-for-profit sector but also in the for-profit sector.