Economic Crime and Corporate Transparency Bill

Baroness Hodge of Barking Excerpts

Consideration of Lords message
Wednesday 25th October 2023 Commons Chamber

[Madam Deputy Speaker (Dame Eleanor Laing)]

Order. Before I call the next speaker, let me point out—it may not be obvious—that we only have until 1.51 pm to complete this business. I therefore appeal for brevity. I am not going to impose a time limit, because given that everyone present is a distinguished and experienced Member, we should not need one.

[Dame Margaret Hodge (Barking) (Lab)]

On a point of order, Madam Deputy Speaker. I just want to be clear about this. I assume that we can speak until 1.51 pm, and vote after that. Is that correct?

[Madam Deputy Speaker]

It is. Let me say for the purpose of clarity that the right hon. Lady is absolutely correct.

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[Sir Robert Buckland]

I think my right hon. Friend may suffer from the same affliction, dare I say; but I will draw a veil of charity over that.

My hon. Friend—and my friend—the Minister has campaigned assiduously with us in the trenches on this issue for many years. I yield to none in my admiration for him, and I want to put on record how grateful I am that he is in this place, in that spot, doing the job that he is doing. We have come a long way. I well remember being on the Parliamentary Business and Legislation Committee giving authorisation for this Bill in the first place, and knowing then that it would require heavy amendment during its course.

It was inevitable that, in the light of the appalling incidents in Ukraine and the changed world situation, the Bill would develop and mature, and mature it has. The identification principle changes are truly radical and reflect a view long held by the Law Commission and others that we needed to update the Tesco v. Nattrass principle, which is now 50 years old. I salute the Minister and colleagues in the Lords for making sure that that has happened, but I must press him again about the basis upon which the Government make assertions, very much at the last minute, about the regulatory or administrative cost burdens on small and medium-sized businesses. I do not think that they are going to be as dramatically high as they assert. We have not had proper time to test the estimates, and I do not think that they stand up to scrutiny. They do not reflect the Government’s position on previous “failure to prevent” offences—namely, for tax evasion and bribery—and this begs a huge range of questions.

There is no doubt that my colleagues in the legal profession—I refer the House to my entry in the Register of Members’ Financial Interests on every occasion, and I do so now—will feast upon these threshold definitions. Worse than that, unscrupulous operators in the field will exploit these threshold definitions and find clever ways around the law. We know what that means. We will see shell companies and people of straw. We will see the same behaviour that we are rightly trying to eradicate because we want this country to be one of the best places in the world to invest.

This is chiefly an economic argument. Yes, there is a morality to it, but chiefly it is an economic argument. That is why, at the last minute as we come up to Prorogation, I remind my hon. Friend the Minister of the increased majorities in the other place for these amendments and in particular of the attempt we have made to compromise with the Government. At the last minute, I imposed myself upon the goodwill of the Clerks in order to get a further amendment in before the time limit. It was a manuscript amendment to increase the period of one year mentioned in the amendment to 18 months. It has not been selected for debate, but the important political point that we wish to make is that we are seeking at the last minute to come up with reasonable compromises.

I will give the Minister another idea. Bills normally come in with Royal Assent, which we imagine will happen either today or tomorrow with the Prorogation ceremony. Two months is the normal period for Bills to then come into force but he has the power to lay commencement orders to ensure that certain parts of this Bill do not come into force until a statutory instrument has been laid. He has that power, so why not use it in this case and accept the amendment tabled in the name of my right hon. Friend the Member for Barking (Dame Margaret Hodge)? He can see that we are commanding all the ingenuity that we have to come up with reasonable compromises that will allow the Bill to pass in the best possible order. I make a last-minute plea to him to accept these exhortations and not to oppose the amendment in the name of my hon. Friend the Member for Bromley and Chislehurst (Sir Robert Neill) and me. I can say no more to my hon. Friend the Minister, other than to thank him and ask him to go that extra yard.

[Dame Margaret Hodge (Barking) (Lab)]

This is another leg in a long journey. I want to focus on the amendment that stands in my name, which is supported by the right hon. and learned Member for South Swindon (Sir Robert Buckland) and the hon. Member for Bromley and Chislehurst (Sir Robert Neill).

May I place on the record my thanks to everybody across the House, some of whom are here today, for the way in which we have managed to work together as Members of Parliament and put our political affiliations behind us in trying to find a common-sense, pragmatic way to tackle a horrific problem and to improve the Bill that was laid before us almost a year ago? I also pay special tribute to Members of the House of Lords, who have again worked incredibly hard to improve the Bill in a practical way. In particular, I thank Lord Garnier, Lord Agnew, Lord Vaux and Lord Edward Faulks, all of whom have moved important amendments that have been supported by Members across the House, many of whom are members of the all-party parliamentary group on anti-corruption and responsible tax.

I draw to Members’ attention what happened to the amendment to the “failure to prevent” measures. When it was first considered by the House of Lords it was passed by a majority of three. When it was considered a second time, it was passed by a majority of 26. When it was considered a third time, last week, it was passed by a majority of 41. So the strength of feeling in the other place about the importance of the propositions in the Bill simply grew over time, as the argument was heard by more and more members of the House of Lords, and I bet that if it goes back again, it will get through again with an even greater majority. I say to the Minister that people are voting for this and it is not just a partisan issue; Cross-Benchers and members of the Conservative party are either voting or choosing to abstain. That is why we are securing those majorities in the House of Lords.

Our amendment is moved in the spirit of compromise. All we are saying in that amendment is that we would require the Secretary of State to carry out a review a year after Royal Assent, with a report to Parliament within 18 months of Royal Assent, where it would assess the impact of excluding so many businesses from having duties to prevent fraud. It would also look at the impact of that on the incidence of fraud and assess the potential merits of bringing more companies into scope.

I want to take Members back to when the Government promised to introduce a “failure to prevent” offence on the basis of new clauses introduced by the right hon. and learned Member for South Swindon and the hon. Member for Bromley and Chislehurst when we considered the Bill on Report. They were detailed new clauses to which we had given great thought. The Government agreed at that point to adopt our proposals on the basis that we would not seek to divide the House on the issue. We kept our side of the bargain but, sadly, the Government have failed to deliver on their commitment. So Lord Garnier tried valiantly three times to hold the Government to their word, and every time he put it to a vote he got a greater majority in favour of what he was proposing.

This measure was first championed when the Minister was a Back Bencher, as he is well aware. He was the individual on our all-party parliamentary group who argued the case for it with the greatest passion and commitment, so it is especially sad that the effectiveness of the new offence has been so undermined and weakened by the changes he has chosen to make or been forced to make by colleagues in his own Department or in the Treasury. He often argues that we were the first country to introduce a “failure to prevent” offence. I agree with that, but I would simply say to him we are also the jurisdiction of choice for dirty money, so surely we have a duty, more than any other jurisdiction, to lead on reforms and to clamp down on this evil matter.

The Government’s changes have substantially weakened the power of the new offence, and the Minister has to accept that. He has taken out the failure to prevent money laundering, and the offence now covers only fraud. He has excluded all medium-sized, small and micro-businesses. That means that his carveout has excluded 99.9% of all businesses. It has excluded two thirds of all the people employed in private enterprise. It has excluded half the turnover that flows through private enterprise. I say to the Minister that this is a missed opportunity by his Government that represents a failure to act firmly and decisively against the scourge of dirty money.

The Government’s own report, “National SME Fraud Segmentation”, found that medium-sized companies employing between 50 and 250 employees were significantly more likely to experience fraud than larger companies. The Metropolitan police and UK Finance have warned that SMEs are particularly vulnerable to fraud, and the procedures to prevent companies from committing fraud are exactly the same as the procedures to prevent companies from experiencing fraud. Why on earth and on what basis have the Government chosen to excuse them? I cannot understand the logic.

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[Kevin Hollinrake]

The right hon. Lady is making very important points. However, the “failure to prevent” offence, as drafted, would not cover that situation, because it covers only situations where the benefit is to the corporation concerned or an officer within it. A situation in which a third party hijacked systems would not be covered, whatever the threshold.

[Dame Margaret Hodge]

That is an interesting point. The simple response is that, obviously, the drafting of the “failure to prevent” offence needs further improvement to ensure that it covers that sort of instance.

There were similar arguments about the burden on SMEs when we introduced the Bribery Act 2010. In 2015, a survey of SMEs found that nine out of 10 had no concerns or problems with the Act, and 90% also said that it did not affect their ability to export. Although fears are expressed before legislation is introduced, once it is on the statute book people find that it actually helps them. Under the terms of the Bill, SMEs already have an appropriate defence, as the Minister well knows: that they should only take actions that are reasonable in all circumstances. That test of reasonableness would protect microbusinesses and SMEs from having to engage in overly bureaucratic procedures.

Although the argument is overwhelming, the Minister does not agree. We had hoped that the Government would support and accept our amendment. If they were to do so, we would not put all these amendments to the vote. This means that the next Government—a Labour Government, we all hope—will seize the opportunity that the Minister has missed and grasp the issue. Labour will become the anti-corruption champions, saving our country and our economy.

This Bill arrived in a sorry state and we have improved it—I accept that—with the identification doctrine, clauses on strategic lawsuits against public participation, the improvement of accountability with an annual report to Parliament, and the reluctant acceptance that there may be an increase in fees for Companies House. But there are still large gaps. Trusts have not been covered, as they should be, and authorised corporate services providers could end up with a future dud register. Cost caps, which other hon. Members have alluded to, are not in there, the whistleblower regime is not in place, and asset seizure still has to be tackled.

We hear whispers that there is a third economic crime Bill. I am pleased about that, but if we had achieved more with this Bill, we might not have needed another one. After all the work that all of us have done to achieve cross-party consensus, and given the values that we all share, I would hope that the Minister would be bold enough to accept our tiny little compromise and put this Bill to bed so that the proposed legislation could be passed by the time we prorogue.

[Liam Byrne]

I rise to speak in favour of the amendment tabled by my right hon. Friend the Member for Barking (Dame Margaret Hodge), which gives me an opportunity to thank her for her extraordinary leadership on this agenda. Our country is safer and stronger for the work that she has helped lead in this House over a long period.

Like other right hon. and hon. Members, I am grateful to the Minister for ensuring that, by and large, we have approached this Bill in the spirit of compromise. My right hon. Friend is absolutely right to say that, unfortunately, the Bill arrived in this place in a sorry state. Of course, the best way to examine that is to look at the fantastic manifesto of the all-party parliamentary group on anti-corruption and responsible tax, which, of course, the Minister used to co-chair. When I look at that manifesto, which we launched together in Westminster Abbey not too long ago, I see that this Bill covers a fair number of its proposals, but not all of them. That is why something of a mystery still hangs over the Chamber today, and that mystery is that we know that the Minister probably wanted to go much further in this Bill. He has been collegiate enough not to explain to us, either in public or in private, just how his hands were tied and why he has pulled his punches on so many of the policy proposals, including those that we are debating this afternoon.

I want to underline why the “failure to prevent” clauses are so important and why the responsibility for failing to prevent fraud and money laundering should apply to all companies, not just 9% of UK plc. We know, as my right hon. Friend said, that unfortunately this country is now one of the two global centres for money laundering and fraud. That is a badge of shame. There are think-tanks in places such as Washington that now write reports about what they call the UK kleptocracy problem. That is because we have left our financial services and Companies House too weak to police what is a growing problem.

To underline how fast the risk to our country is growing, I asked the House of Commons Library to look at the amount of foreign direct investment that was coming into our country. Foreign direct investment comes into Britain through companies that are set up at a moment’s notice, from UK offshore accounts, from dictatorships and from countries that are only partially free, and the reality is that that money has grown fivefold since 2010. A quarter of a trillion pounds of foreign direct investment has come into Britain from UK offshore accounts, dictatorships and countries that are only partially free. Overwhelmingly, I am sure, that money is clean and good, but we all know in this House that some of it is not. We have a responsibility in this place to make sure that our regime for policing corrupt money is as strong as it possibly can be. This Bill, although it makes progress, still leaves weaknesses in the argument.

The Minister has based his arguments more recently on whether we are creating undue, over-burdensome costs to business. Like him, I was in business previously—I was in the wrong place at the wrong time—and was elected to this place in 2004. I know what it is like to grow a business from two people around a table to a multi-million pound enterprise that employs lots people. I know about the responsibilities on company directors, but we grant special privileges to company directors in this country and we grant special privileges to companies. That regime was introduced in 1855. When Viscount Palmerston moved that legislation through the House, he said that the Limited Liability Act 1855 was important, because it would act for the common good of the country. Yet, if we have a regime that does not ensure that directors have responsibilities that match those privileges, frankly, that common good is undermined.

As my right hon. Friend said, we already have a regime in this country that bestows some important responsibilities on directors, including the failure to prevent bribery and the failure to prevent tax evasion. Therefore, there are already important regulatory requirements on directors, which we as a House have judged to be essential to keep our economy clean. Asking those directors to take one more responsibility, which is to prevent fraud, is not a significant extra burden.

[Dame Margaret Hodge]

Does my right hon. Friend not agree that if we are to have a successful financial services sector, we will never get it on the back of dirty money? Therefore, it is ever more important that, in relation to both fraud and money laundering, we have a “failure to prevent” offence, which is not about banging up people in prison but about changing the behaviour of companies and those who work in them?

[Liam Byrne]

My right hon. Friend is absolutely right. This is a point of cross-party consensus. I know it is a point of cross-party consensus because it was the Minister who used to use precisely the same argument to argue for some of the changes that we see in the Bill.

We all know that our country does well, because, by and large, we have a reputation for clean trade around the world. When companies file and incorporate in this country, that is a credential that does them well around the world. That is a credential that we must do everything in this House to protect, which is why the amendment is so important. We cannot leave a weakness in our armour as crime and fraud multiplies.

The Minister said that the proposal would be a cost to British business that we could not withstand or sustain, but the truth is that, while it might be a cost to some British businesses, it would also be a saving to British business, to the British economy and to British taxpayers, because it is always cheaper and more effective to prevent fraud in the first place than to have to police it or to prosecute fraud after the event. When 64% of businesses—small businesses—in this country are victims of fraud, we can only imagine how widespread that cost of fraud has now become. That average is much higher than international averages and therefore there is an additional argument that we need to go that one step further to make sure that we are doing everything in our power to prevent fraud from arising in the first place.

All we ask in this amendment is for the Minister to face the facts. He should bring the facts together, put them in a report, assess them, analyse them and present some conclusions to the House. How can we have a situation where the Minister is essentially asking for the freedom to look away? That simply cannot be the basis of good policy. I am grateful to my new colleagues on the Business and Trade Committee who agreed yesterday that we will ask representatives of Companies House to come before us for hearings. Frankly, if the Minister is not prepared to put the facts around fraud in one place, I shall ask the Select Committee to do the job for him.

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[Dame Margaret Hodge]

Perhaps the Minister can tell me what he means when he says that he will keep this matter under review. What precisely does that mean?

[Kevin Hollinrake]

The way that we have legislated here, and the reason for doing so in that way, have always been informed by information that has come from third parties—from Spotlight on Corruption, Transparency International and others—that have been interested in the Bill. The right hon. Lady and I have worked together on this issue in the past in various all-party groups. Those are the kind of bodies that will inform progress as we implement this legislation, which again I say is world leading.

The shadow Minister talked about a level playing field and said that these measures move away from that. I could not disagree more. The key thing is that we do not have a level playing field now. In small companies, it is much easier to identify who is responsible for a fraud. That is why it is more difficult in large companies, which is why we are applying this to large companies. Fraud is fraud whatever the size of the company. This legislation does not allow smaller or medium-sized companies to facilitate fraud—if they are guilty of fraud, they are guilty of fraud and it is far easier to identify the people concerned.

Let me address the comments of my hon. Friend the Member for Bromley and Chislehurst (Sir Robert Neill) and thank him for all the work that he has done on this legislation and on the Justice Committee. I ask him not to doubt my motives; I have not been influenced by the Treasury at all. I am influenced by wanting to do the right thing in terms of both tackling economic crime and making sure that we do not put undue burdens on businesses. I can assure him that, for as long as I am in this role, we will keep this under review and make sure that the threshold is fit for purpose.

My hon. Friend talks about good business, but it is good business to make sure that we do not put undue burdens on business. I can promise him that, from my experience—while I was chief executive of my company—we implemented the rules on bribery and tax evasion, which were significant in our business. These would be significant measures for businesses. I say to him and to my right hon. and learned Friend the Member for South Swindon (Sir Robert Buckland) that they will have a real impact on businesses and significant costs of implementation. I do not think that they would be proportionate or needed within smaller enterprises, because of the ease of identifying the people responsible if fraud were facilitated in an organisation.

I appreciate the kind words of my right hon. and learned Friend and the work that he has done. I remember lobbying him on this issue when he was the Secretary of State for Justice—and a fine job he did. We have got much further this time than we did at that time, which shows our collegiate way of working all the way through the Bill’s passage.

The hon. Member for Glasgow Central (Alison Thewliss) has also done fantastic work in this area, and I appreciate all her efforts. She says that we do not agree. We have a right to disagree where we disagree, and we honestly disagree about whether this proposal is required. We do not want to put unnecessary burdens on businesses.

I completely understand the strength of feeling of the right hon. Member for Barking (Dame Margaret Hodge) on this matter. I, too, feel strongly about implementing the right measures to tackle economic crime while not putting undue burdens on businesses, so I say to her again, in the spirit of good will that we have operated under for many years, we will keep this under review. If the threshold needs to be changed, we can do that under secondary legislation.

I congratulate the right hon. Member for Birmingham, Hodge Hill (Liam Byrne) on his election as Chair of the Business and Trade Committee. I know that he will do a fine job. He is right that, in that spirit of good will, we have achieved much in the manifesto that we launched just over the road. Again, I hope that he does not doubt my motives in what we are doing to tackle economic crime without putting undue burdens on business.

I urge everyone to support the measures that we have in place already, and I ask those in the other place to respect the clear will of this House.

Question put, That the amendment be made.

Economic Crime and Corporate Transparency Bill

Baroness Hodge of Barking Excerpts

Consideration of Lords message
Wednesday 13th September 2023 Commons Chamber

[Sir Robert Buckland]

I will take that qualification. I was seeking a short cut because time is brief. My hon. Friend is right to mention the agency point, but it is still a much narrower ambit of the offence than fraud in general. That is the point I would ask him to take away, because I am not persuaded. I think the amendments should remain within the body of the Bill as amended, and I will be voting accordingly.

[Dame Margaret Hodge (Barking) (Lab)]

Mr Deputy Speaker, I am conscious that we must vote in five minutes to remain in order, so I will simply say that economic crime is a national security issue and should not be a partisan issue in this House. I urge the Minister to set aside the party political views that he is expressing and to go with the consensus that has been built, not just in the House of Commons but in the House of Lords and in the non-governmental organisation sector outside.

[Mr David Davis (Haltemprice and Howden) (Con)]

The right hon. Lady is right. It is not just the parties but the different sides of the natural arguments over authority, libertarianism and civil rights that are not divided. I am a strong defender of the right to be presumed innocent, but there needs to be a rebalancing in this area, where the criminals we are up against are very sophisticated and will use smaller companies to get around this if they need to.

[Dame Margaret Hodge]

In the interest of trying to get to the vote on time I will close my speech, but I urge all Members to please support the amendments proposed by Conservatives in the House of Lords, which are eminently sensible, rational and pragmatic.

[Kit Malthouse (North West Hampshire) (Con)]

I am afraid that I am going to disappoint the right hon. Member for Barking (Dame Margaret Hodge) and speak very strongly against Lords amendments 151B and 151C, and I refer the House to my entry in the Register of Members' Financial Interests. I am surprised at Lord Garnier’s lack of any conception of what it is like to run a small business and the cumulative impact of Government regulation thereupon. The limits that are drawn here will draw in all manner of businesses, not least some eminent barristers who will fall foul of some of the numbers. Indeed, the average town-centre or city-centre pub will be covered by these regulations, such is their level of turnover and employees. It is worrying that I am perhaps the only small-business voice here and that there are not enough small-business people in the House to point out the problems with this issue.

As the Minister has said, hundreds of thousands of businesses will be drawn into the net. This is not necessarily about the compliance cost. The kind of regulation that comes with the prospect of a criminal offence has a chilling effect on small businesses. I speak as somebody who has owned one for nearly 30 years. When the Revenue, health and safety or trading standards show up with some new regulation, a whole industry cranks into place to terrify the owners of small businesses into some kind of compliance. Then along come the consultants, the accountants, the webinars and the newsletters telling us what we do and do not have to do. All of this distracts us from what we should be doing, which is trying to create employment and wealth and paying tax to the rest of the country.

The other issue is that this misunderstands the dynamic of businesses of this size. If a business of this size is going to engage in fraud, it is very possible—more than likely, actually—that the principal will be the instigator of that fraud. The idea that, alongside all the other offences, they should take steps to prevent themselves from perpetrating fraud seems ridiculous. Added to those general difficulties are the specific ones presented by the Heath Robinson-type calculation that every business will have to undertake every month: adding together how many employees there are and how many are employed in each month in year P, then taking away the number you first thought of and dividing it by the number of months. We are all going to have to do this every single month to work out whether we are above the threshold or not. Should we have the steps? Should we not have the steps? It all seems particularly nonsensical.

We know that a vast amount of this fraud takes place in larger companies, and they have the capacity and the wherewithal to deal with it. If my hon. Friends really think that senior barristers, whose turnover and assets will be more than the threshold, should be taking and showing procedural steps to avoid conducting fraud—do not forget that they are sole practitioners—then I am afraid we have gone through the looking glass of what Conservative Members think is appropriate.

Economic Crime and Corporate Transparency Bill

Baroness Hodge of Barking Excerpts

Consideration of Lords amendments
Monday 4th September 2023 Commons Chamber

[Kevin Hollinrake]

My hon. Friend makes the other point, and these measures are about the delicate balance that we want to strike, ensuring that the right provisions are in place to prevent fraud without putting undue burdens on business. I am pleased that those interventions reflected both those positions so that we can see the legislation holistically rather than just through the lens of failing to prevent fraud.

[Dame Margaret Hodge (Barking) (Lab)]

Will the Minister give way?

[Kevin Hollinrake]

If I may, I will make a little progress on that point.

We believe that the six non-Government amendments for debate would pose significant and disproportionate burdens on business, penalising reasonable companies and businesspeople with limited evidence that the burdens would be outweighed by any meaningful benefits. I will go into each amendment in detail, but I will begin by emphasising the Government’s position. We must insist that the balance achieved in the Bill through Government amendments made in the other place is maintained.

[Dame Margaret Hodge]

I am grateful to the Minister for saying that, because it was on that point that I wanted him to give way. Does he not think that any honest, upright business, whether large, small or micro, would aim within its own procedures to avoid fraud or money laundering?

[Kevin Hollinrake]

The vast majority of the business community is honest and upstanding—that is the point. What we are trying to ensure is that those businesses are not disproportionately affected by putting in controls, checks and balances. I speak as a businessperson who did have to implement failure to prevent bribery and tax evasion measures in our business, and I tell the right hon. Member that there were significant administrative burdens around that legislation, and I believe they would be more so for fraud. I will come to that point in more detail.

I turn to Lords amendment 23. The inclusion of lines 84 to 96 would require all UK companies to declare whether they are holding shares on behalf of or subject to the direction of another person or persons as a nominee, and if so to provide details of the person or persons. Fundamentally, that is not necessary. Provisions in the person with significant control framework, as strengthened through the Bill, already require the disclosure of a person of significant control behind a nominee on pain of criminal sanction for non-reporting. That achieves the same intent. A combination of measures already in the Bill, the material discrepancy reporting regime in the Money Laundering and Terrorist Financing Regulations 2022 and Companies House’s new intelligence hub will more effectively flush out undeclared PSCs and deter the provision of false information.

I am afraid that the proposed approach is something of a blunt instrument. It would apply to all shareholders, when we should be focusing on the transparency of individuals exerting significant influence as already provided for under the PSC framework. As such, we would risk burdening millions of companies and their shareholders with new information requirements for no useful purpose. The proposition may sound sensible, but nominee arrangements can be complex, including having multiple layers of nominees and large numbers of beneficiaries for entirely legitimate reasons. For example, pension funds that own shares in a company would be caught. Listed companies would be particularly impacted as their shares are often held by nominee arrangements for legitimate administrative reasons—for example, in stocks and shares individual savings accounts, by custodian banks and by corporate sponsored nominees.

Listed companies report similar information about those owning 3% or more of their shares to the Financial Conduct Authority, so the Lords amendment would partly duplicate existing arrangements. In summary, lines 84 to 96 of the amendment risk disproportionate burdens on legitimate actors and would most likely be ignored by illegitimate actors. Those acting as nominees on behalf of shady individuals behind the scenes are already adequately on the hook if found to have provided false information, as is the company itself.

The effect of inserting those lines into part 8 of the Companies Act 2006 would be to cut across a tenet of UK company law: those running a company—usually the directors—must know its legal owners and act in the interests of the legal owners of the company. Those legal owners are recorded on the register of members. Companies shall have regard to their members record and not, for example, to anyone holding any underlying beneficial interest in their shares.

Lords amendment 115 would introduce two new duties for overseas entities. It would first require event-driven updates on beneficial ownership information and, secondly, require overseas entities to update their record no more than 14 days before the completion of a land transaction rather than the existing requirement to do so annually. Although the amendments are well intentioned, they would significantly increase burdens on both overseas entities and third parties transacting with them, as well as introduce an element of risk in land transactions that the annual update prevents.

As my ministerial colleague Lord Johnson of Lainston explained in the other place, in the case of an overseas entity that owns large commercial premises split into units, the amendment could result in the entity needing to provide updates twice a month, which is a disproportionate burden. There are a number of other technical challenges and impracticalities with setting such a duty on these entities. The Government are not alone in those views. The Law Society of Scotland, the Law Society of England and Wales and the British Property Federation have all expressed their concerns. The Government therefore cannot support the amendment.

Lords amendment 117 would make information about trusts submitted to the register of overseas entities publicly available by removing it from the list of material listed as unavailable for public inspection. It is important to note that the information on trusts is already provided to the registrar when an overseas entity registers on the register. Furthermore, the registrar already discloses trust information to His Majesty’s Revenue and Customs, law enforcement and other persons with functions of a public nature if and when necessary and appropriate. This is not a loophole.

In the other place and in this House, including from the right hon. Member for Barking, the Government have heard and acknowledged that there is a case for broader transparency over trust arrangements beyond law enforcement agencies. The Government therefore added a regulation-making power in the law to allow third-party access to trust data in certain circumstances. That will enable individuals such as civil society organisations and investigative journalists to access such information under certain circumstances.

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If the threshold is not reinserted, the new offence will apply to every single UK business and therefore increase the cumulative burden on UK businesses more than eightfold, from just under £500 million to £4 billion. That burden would disproportionately be shared by small business owners. All Members of this House will have hard-working businesses in their constituency, so we cannot support that. It cannot be taken in isolation; we must be aware of the cumulative compliance costs for SMEs across multiple Government requirements or regulations.

[Dame Margaret Hodge]

I hear the Minister’s plea on behalf of SMEs, and I have sympathy that we do not want to overburden them with regulation, particularly small businesses. However, the threshold that the Government have chosen to set for exclusion from the failure to prevent fraud is extremely high. If I take just one example, law firms—he will know as well as I do that lawyers are among the key enablers of many schemes that lead to both fraud and money laundering—out of the 10,400 law firms in the UK, only 100 will be caught by the legislation as it is currently framed. Is he willing to negotiate with us on the Back Benches and members of the House of Lords to look again at the level at which he defines an SME in this legislation?

[Kevin Hollinrake]

The threshold is set at one of these three: 250 employees, £36 million turnover or £8 million in gross assets. We think that is the right level. We always listen to what the right hon. Lady has to say. The legal sector is covered by current money laundering regulations, as is the estate agent sector, for example. It is not right to say that they are not covered by money laundering regulations.

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[Seema Malhotra]

I think that that will be covered in the points I am going to make, including around the steps that the Government need to take further.

[Dame Margaret Hodge]

On that point, there is discussion in the Bill about reasonable arrangements, which will be decided through secondary legislation. It will be necessary to ensure that the processes through which small and medium-sized enterprises show that they are preventing fraud and money laundering can be done in a way that is not burdensome on those businesses or a detriment to them. The same arguments took place over the bribery legislation, when there was concern about an attempt to have an SME exemption. That failed at that point, and all the research since that legislation was enacted shows there has been no detriment to SMEs or to their ability to export.

[Seema Malhotra]

I thank my right hon. Friend for her intervention. Indeed, she pre-empts some of the content of my speech, which is absolutely fine—we can reference it twice. She makes an important point about the Bribery Act 2010, which has also been referred to by the right hon. and learned Member for South Swindon.

The important point here is that it is for the Government to get this right, and I think we can all agree that there should not be disproportionate costs for small businesses. Lord Vaux, an experienced professional in these areas, also expressed concern over the credibility of the Government’s figures on the estimated costs for smaller businesses. Another important argument is that these policies can also protect SMEs, which are also the victims of fraud. We can sometimes lose sight of that. In 2022, 64% of UK businesses experienced fraud, corruption or other economic crime. That is much higher than the global average of 46%, and second only to South Africa. This is a matter of a cost to businesses as much as a cost for businesses, and what the extent of that would be in reality.

We have also looked at the safeguards—particularly since my conversation with the Minister last week—that are in place to avoid disproportionate costs for SMEs, which the Government can use to get the balance right. Spotlight on Corruption has noted:

“It is open to the government to make clear in guidance issued for the offence what reasonable procedures would be proportionate for SMEs, and in what circumstances it would be reasonable not to have them at all.”

The offence also contains a defence for companies to be able to argue, in the event of legal action, that its procedures were reasonable in all the circumstances or that it was not reasonable to expect the body to have any prevention procedures in place. That is important for informing the debate today and it is the reason that, after deliberations and listening to the Minister last week, we have decided that we should support the debate in the Lords and that we do not want to see the exemption for SMEs taken out of the Bill.

Amendment 159, on failure to prevent money laundering, was tabled by the noble Lord Garnier. It would expand the scope of the Government’s new offence of failure to prevent fraud so that the offence would also cover money laundering. The Government argue that this amendment is not needed as we already have an anti-money laundering supervisory regime, but I remind the Minister that a Treasury review into our anti-money laundering regulations published in June stated that

“significant weaknesses remain in the UK’s supervision regime.”

Hugely frustratingly, the Government have responded to that with yet another consultation.

In addition, since the most recent money laundering regulations were brought in, the UK has had only one corporate criminal conviction for money laundering, so it is pretty clear that the existing safeguards against money laundering are not enough. Here is a chance to take stronger action and to include in the new offence a failure to prevent money laundering, and the Government should take it. We will be supporting this amendment to stay part of the Bill.

--- Later in debate ---

[Sir Robert Buckland]

Exactly, and that is the point. What the Government have done is set up a legislative Aunt Sally. I welcome their putting in place mitigating measures to deal with parent companies and subsidiaries—Lord Bellamy explained that very well indeed—but the threshold they have set is entirely unnecessary. It does not reflect what the Law Commission said in its report. When I was in office, I was delighted to ask the Law Commission to do the work on failure to prevent fraud. It did the work and, hey presto, it produced proposals that had nothing about thresholds in them, so where on earth has that come from?

I am sorry if I might have inadvertently upset my hon. Friend the Minister by mentioning His Majesty’s Treasury, but I detect the hand of my friends in Parliament Street. I know their view about failure to prevent fraud; they do not like the offence and never have done. They have always put up arguments against it. Perhaps it is their role to do that—I do not know—but I detect their hand in this. That is an unfortunate coda to what would have been a magnificent symphony, had my hon. Friend the Minister stuck to the line and done what I thought he was going to do.

To return to the point made by my hon. Friend the Member for North East Bedfordshire, I agree that the United States is a litigious society. We, in the United Kingdom, do not necessarily want to go down that road when it comes to civil litigation, but what the United States does well is prosecution of fraud. It regularly and rigorously enforces the criminal law of fraud, particularly in the jurisdiction of New York and in other major financial centres, which enhances the reputation of that jurisdiction as a safe place to do business.

Here is the argument that you, Mr Deputy Speaker, do not hear, in contradistinction to the argument about the regulatory burden. Where there is a criminal legal framework that is clear, certain and stable, that can only encourage investment into the United Kingdom, not discourage it. A jurisdiction with a robust and independent judiciary and a fine legal tradition, which rigorously polices the law of corporate criminal liability, is one that investors can have the greatest confidence about investing in. What on earth is happening here to undermine that very powerful argument?

Prosecutors, including the Crown Prosecution Service and the Serious Fraud Office, have made the case consistently that a “failure to prevent” offence of this nature would help them in the important work they do in bringing wrongdoers to book. We do not want to be a jurisdiction where it is too easy to commit fraud that benefits corporates. We do not want to be that sort of place—that is not a healthy place within which we should be operating. If we are truly committed to a vigorous free market economy, then, in the traditions of Adam Smith, we should be absolutely committed to its policing and its boundaries. I sound a bit evangelical about this—a bit biblical, a bit Old Testament—because it is important that we get this right at this last stage of the Bill.

That brings me to my noble Friend Lord Garnier’s amendment about money laundering. He made the argument very well and, having read his entry in Lords Hansard, I will adopt it. I am in danger of sounding like a broken record, but I make no apology for that. Money laundering is already a criminal offence. The regulatory argument does not cover the full gamut of what we are dealing with, and Lord Garnier’s amendment is a sensible reflection of the importance of ensuring we cover offences of money laundering. Remember again that this is about benefiting the company; it is not money laundering in general, but a targeted offence, with the same caveats and qualifications that I mentioned in the context of the “failing to prevent fraud” offence. So I say to my hon. Friend, “Repent!”. He should follow the true path and come back and finish the job. We can all then take equal pride in the work that he and others have done to make sure that this jurisdiction is a fairer and better place in which to do business.

Let me end on this note. I will not dwell too much on the rather milquetoast amendment about the capping of cost orders for proceedings for civil recovery. We know that it is a problem. We know that it is a disincentive to the bringing of civil proceedings under the Proceeds of Crime Act 2002. We should just get on with it. The particular rules and proposals about costs are well reflected in other parts of legal procedure and other types of proceedings, so this is nothing new. I think that it is time that we grasped the nettle rather than having yet another report.

Finally, Lord Agnew made a very powerful point: just a few words is all it takes to make a difference when it comes to trusts and the arguments that have been very cogently made about that by others. Only a few small steps need to be taken by my hon. Friend and His Majesty’s Government to allow us to reach that promised land. I urge him to take us there and then we can all celebrate in a land of milk and honey.

[Dame Margaret Hodge]

I shall start where that brilliant speech by the right hon. and learned Member for South Swindon (Sir Robert Buckland) ended. I would also say to the Minister, and also to the Minister for Security, the right hon. Member for Tonbridge and Malling (Tom Tugendhat) were he still in his place, that they have shown from their time as Back Benchers a real understanding of all the issues around economic crime. They knew what needed to be done. They helped to develop the agenda that would work through smart regulation, transparency, tough enforcement and proper accountability. When the Bill arrived in the House, it was, I hope the Minister will agree, a bit half-baked. I am not blaming the civil servants in the box, but it was a bit half-baked. It was full of loopholes and serious omissions. But in this year that we have been considering the legislation, it has gone through tremendous transformations, so I salute the Minister for what he has done, but urge him to go that step further. I thank the Labour Front-Bench team for their assiduous and detailed work on this, but I particularly salute the Back Benchers—Back Benchers from all parts of this House who have joined together to bring forward a set of pragmatic, practical amendments that really will make this Bill fit for purpose. I also thank those in the House of Lords who have worked across parties, with the Cross Benchers, to ensure that we have some serious amendments that will give us a good framework to start the eradication of the malignant infection that we have with dirty money.

I say to the Minister: do not undo that good work; do not emasculate what has happened and where we have got to; and do not give into the voices of enablers who want to make a fortune on the back of dirty money. I wonder, as the right hon. and learned Member for South Swindon has wondered, why on earth is the Minister not listening to what we are saying. Everybody in Parliament wants this. Everybody in the country wants this. Nobody supports dirty money. As I have said time and again, the country will not sustain economic prosperity and wealth on the back of dirty money. There is no future in that. I give the Minister another commitment, which I really regret having to say. I will not be here, but I want a future Labour Government to commit to never having a system that allows any political party to exist on the back of donations of dirty money. I say: do not let this opportunity go. Do not betray the principles and do not cave into the lobbying. The Government should look at the excellent amendments and please go forward.

I wish to focus on some new points. Lord Agnew’s excellent amendment in relation to trusts needs to be considered. The Minister said that he did not accept the research that was published today by really respected academics. These are people I have worked with over the years in whose work I have total and utter confidence. I challenge the Minister to bring them in and talk to them and then see if he comes to the view that what they are saying is not true. What they are saying is that we do not know the beneficial owner of 70% of the properties identified as owned by an overseas entity. And we do not know the beneficial owner of two thirds of that 70% because there is a trust that hides the real beneficial ownership. The Minister should have regard to what they say, as they are distinguished. I urge him to talk to them. I am happy to join in a meeting with them. In 87% of cases where information is either missing or inaccessible, it is because of Government choices in the design of the scheme. It is not because people are not obeying the law. It is because the Government have chosen to design the scheme in that way.

[Kevin Hollinrake]

rose—

[Dame Margaret Hodge]

I am conscious of time, but I will give way to the Minister.

[Kevin Hollinrake]

When the LSE looked at beneficial ownership, I think that it included tenants of properties rather than the ownership of properties, and the register of overseas entities only deals with the ownership of those properties. There is definitely some disconnect between the Government’s position on this and the legislation and the interpretation that has been taken with this research from LSE.

[Dame Margaret Hodge]

I have met the key academics involved in this on a number of occasions, and I urge the Minister to do so as well. I think the differences are between the entities and the properties. We started asking for a register of properties that were owned by overseas entities in 2012, 2014 and 2016. It was absolutely ages ago. It was when David Cameron was Prime Minister. It was finally enacted last year, but it has been enacted badly. I have to say that it is the secrecy that matters. We can have transparency and we can protect vulnerable people. Transparency will enable all eyes—many, many more eyes—to interrogate the data and the Minister knows that to be true.

Let me put in this basic point. He and I own properties. We are not ashamed of showing the ownership of those properties. Why should we reveal the ownership of the properties in which we live, when rich people—often kleptocrats, often criminals, often money launderers—are able to use trusts as a mechanism to hide their ownership? That is a basic unfairness that the Minister should deal with. May I quote to him the words of one of the firms of lawyers that is exploiting the loophole? It is Payne Hicks Beach—Baroness Fiona Shackleton is a member of that firm. The firm says:

“On the face of it, the lacuna would seem to defeat the purpose of the legislation”—

this is lawyers saying this—

“so may be tightened up”—

hopefully tonight—

“in the future, but for the time being, using a nominee to hold UK property will continue to provide privacy as far as the ROE is concerned.”

Lawyers are exploiting that loophole, and we should stop it because—I hope that the Minster will agree with this—it is damaging our sanctions policy. Usmanov has been able to hide a lot of his wealth in property through trusts. Abramovich has done it, Fedotov has done it, and it is time that we brought it to a stop.

The other key issue is the failure to prevent. I will quote to the Minister what he said time and again. This is not about additional burdens on SMEs, or filling the courts with criminal cases; this is about trying to change the behaviour in our society, so that preventing fraud and money laundering becomes embedded in our culture, in the same way that preventing bribery has become embedded in business culture. The example that the Minister used when he was on the Back Benches is very potent. When we used to have a lot of accidents and deaths on construction sites, we reformed the health and safety at work legislation. We did not suddenly fill the courts with builders and construction people being taken to court, but overnight the number of accidents went down by over 90%. That is the principle that we are working on. That is the evidence that we want to use, and it is vital that we do it here.