Economic Crime and Corporate Transparency Bill

Debate between Baroness Hodge of Barking and Stephen Kinnock

Report stage
Wednesday 25th January 2023 Commons Chamber

[Stephen Kinnock]

That is precisely the point. There is an opportunity to generate revenue that could be deployed to address the causes of the problem. It is a win-win. We have criminals. We need to crack down on those criminals. We need to ensure that the agencies are given the resources to do that. It is the criminals who should be paying for that process. That seems logical to me.

[Dame Margaret Hodge]

Further to that point, does my hon. Friend agree, and I hope that the Government agree, that if they were more assertive in pursuing the people who enable economic crime and those who commit economic crime, more fines could be generated, which they could ringfence for a fund to be used in part to compensate victims of crime? It need not be a burden on the taxpayer and it could be a just way of ensuring that the victims of economic crime do not suffer inappropriately.

[Stephen Kinnock]

Again, my right hon. Friend has hit the nail on the head. We need a war chest and that should be built up on the basis of moneys paid by criminals. That war chest should also be looked at and used, where possible, to support the compensation of innocent victims of economic crime. The new clause is a two-pronged attack on the issue. The opportunity is there because the better we get at going after these criminals, the more we will have coming into the war chest.

Economic Crime and Corporate Transparency Bill (Nineteenth sitting)

Debate between Baroness Hodge of Barking and Stephen Kinnock

Committee stage
Tuesday 29th November 2022 Public Bill Committees

[Dame Margaret Hodge]

Anyway, I thought it was a speech in favour of the intent of this new clause.

Failure to prevent offences have proved effective elsewhere, as the Minister himself has said. We use them to tackle bribery and tax evasion, and the Minister always raises the best example when he refers to what used to go on in the construction industry. In my youth, people would regularly have terrible accidents on construction sites, some of which were fatal. It was only when a duty was introduced for those who ran construction companies to ensure the health and safety of their workers in the workplace, meaning it would be a criminal offence if they failed to do so, that miraculously, overnight, deaths on building sites came almost to a 100% halt. We have lots of examples of where a failure to prevent does not end up with people being locked up but does change behaviour. That is what we are trying to do.

I have lots of examples of areas where the Bribery Act 2010 has been successful and this is not one. This is the last legislative opportunity we will have in this Parliament to put into effect something that Members across the House think is important. There is so much evidence from so many bodies emphasising the importance of this bit of legislation. I cannot see any argument for delay. Before they reached their great, really important roles on the Front Bench, both Ministers argued passionately, frequently and loudly for this reform. I hope they will accept the new clauses, together with new clause 79, on the identification principle. With the inclusion of those three new clauses, we can hold our heads up high and say that we have done good work in Parliament.

[Stephen Kinnock (Aberavon) (Lab)]

It is a pleasure to serve under your chairship, Mr Robertson. I pay tribute to my right hon. Friend the Member for Barking. The passion and eloquence with which she spoke was exemplary in terms of reminding us about what is at the heart of the Bill and one of the top priorities that we want to achieve. I do not want to say much more; how can I follow that?

New clause 73 would introduce a new offence of failing to prevent fraud, false accounting or money laundering, and new clause 74 would extend that offence, so I shall take them together. In effect, the new clauses would extend current failure to prevent offences beyond bribery and tax evasion to other economic crimes, money laundering and fraud. The offences would be applicable both to companies themselves and to senior managers or directors.

The Labour Front Bench team welcomes the new clauses tabled by my right hon. Friend the Member for Barking as vital to help to drive cultural change and corporate governance standards for the prevention of economic crime in the UK. They would also standardise criminal rules for holding companies to account across different economic crimes.

The call for this change is supported by a number of stakeholders, including Spotlight on Corruption, which made the following argument in written evidence to the Committee:

“Most urgently, a new failure to prevent fraud offence would help address the UK’s serious fraud epidemic. Fraud accounts for 40% of all recorded crime, but fraud prosecutions have fallen from 42,000 in 2011, to 13,500 in 2021 in the last decade, a 67% decrease. According to the Crown Prosecution Service (CPS): ‘an extension of the “failure to prevent” model to fraud, false accounting and money laundering would be unlikely to require companies to do more than what they would already be expected to do under the current law (which relies on the identification doctrine) but it would enable prosecutors to hold them to account more effectively where they fail to do so’. The heads of the Serious Fraud Office (SFO) and the CPS have both recently called for new failure to prevent offences.”

I refer the Minister, in addition to the stakeholders that support the call for change, to his own words on Second Reading. I will not replay his greatest hits—that my right hon. Friend the Member for Barking has already done so—but he has stated clearly that he sees this offence as “the No. 1 measure” that we need. The Opposition fervently hope that both Ministers will agree with their former selves that this is the No. 1 measure we need in the prevention and detection of economic crime. We urge the Conservative Front-Bench team to accept the new clause as a necessary and urgent provision to tackle economic crime that would have support across the board.

--- Later in debate ---

[Dame Margaret Hodge]

I beg to move, That the clause be read a Second time.

I have been promoting accountability for years now. In the work that I did with the Minister as we thought about how we could tackle economic crime and turn round the tanker, we always said there were four ways in which we had to respond. One was through having not more regulation, but smart regulation. The second was through tough enforcement. The third was through broad transparency—the ruling of the European Court of Justice last week is an absolute nightmare that could create real difficulties for us in the economic crime space. The fourth was accountability, and with the new clause we are suggesting a way for us to have that accountability.

There is interest in this subject across the House. The hon. Member for Hitchin and Harpenden (Bim Afolami) has written a paper on these issues. Can we find a mechanism for holding the regulatory bodies properly accountable to Parliament for what they do?

A lot of these questions arose when I chaired the Public Accounts Committee and we first started looking at tax avoidance. The rule is that everybody should be equal before the law in tax, but there was always a suspicion that sweetheart deals were being struck with certain big corporations and high net worth individuals. In fact, early on we came across one involving Goldman Sachs; on the back of a story in Private Eye, we uncovered a sweetheart deal. To this day, though, I do not understand whether Google is paying the correct tax or whether there is a deal there, and I could say the same about a lot of the big multinational companies. Because of the confidentiality of taxpayers’ interests, Parliament has no way to get the information that it needs to assure itself that the tax authorities are treating all taxpayers equally.

I have worked with all the agencies in this area—the NCA, the Serious Fraud Office, the Metropolitan police and so on—so whistleblowers, or just people who come across something that is wrong, often come to me, and I give the case to one of the agencies—and that is the last I ever hear of it. I always pursue the cases, but all too often I get the response, “Oh, there are security reasons for you not being given the information.” There was the Savaro case, which I referred to BEIS at the time. It went through BEIS and I still do not know whether anybody was pursued. Certainly, there were people behind that explosion in Lebanon, which led to so many deaths and loss of property.

I think that Parliament needs a better hold on what is happening and better accountability around how those agencies are operating. In the new clause, we suggest that we mirror the Intelligence and Security Committee, which meets under Privy Council terms. The proposed economic crime committee could be a Committee of both Houses, meeting under Privy Council terms and overseeing all the regulatory bodies in this space—in financial services and economic crime. It could call for papers relating to individual cases, which would remain confidential because the ECC would meet in private. The ECC could then produce reports on systemic changes that are necessary, arising from consideration of those individual cases.

I think that that would massively improve accountability, as well as the performance and effectiveness of the agencies. With that information, members of the ECC would have a better understanding of what, if anything, they needed to do as legislators to improve the situation. I believe that this committee will happen one day, but I am proposing it today as a new clause in this Bill. I know that the hon. Member for Hitchin and Harpenden and those who support him in this mission would be happy to support me today, and I hope that Ministers give it a good hearing.

[Stephen Kinnock]

I am happy to support new clause 75, tabled by my right hon. Friend the Member for Barking, which would require the Secretary of State by regulation to establish a body to be known as the economic crime committee of Parliament.

The new clause is driven by and based on the fundamental principles of transparency and accountability. Our call for those two principles to be adhered to is important because it recognises that the structures for reviewing progress, and scrutinising and reviewing economic crime, are simply not good enough. There is too much siloed thinking. This aspect of scrutiny does not sit neatly within BEIS, the Treasury, the Home Office, or the Ministries of Defence and of Justice; it really spans the waterfront, yet those Departments are all vital parts of what should be a systemic approach to tackling economic crime.

The proposed committee would consist of nine Members drawn from the House of Commons and the House of Lords, with each member of the ECC appointed by their respective House of Parliament. The ECC would have the power to meet confidentially; it could examine or otherwise oversee any regulatory enforcement or supervision agencies involved in work related to, but not limited to, tax avoidance and evasion by corporations, illicit finance, money laundering, fraud, kleptocracy, corruption, and whistleblower protection.

We welcome the new clause as it would introduce a vital mechanism for transparency and accountability within the Bill. If the Minister does not agree with it, we hope that he will acknowledge that the existing mechanisms are unfit for the kind of joined-up, systemic, expert-driven scrutiny that is needed to keep pace with and keep ahead of economic crime. Throughout this Committee’s proceedings, my colleagues and I have tabled amendments and new clauses designed to increase the scrutiny and transparency of the measures that the Bill will introduce, so as to ensure that when they are implemented, they are as effective as possible. If the Minister is not able to support the new clause, Parliament and the country more broadly would need him to come up with something better.

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[Dame Margaret Hodge]

Yes, because I want it on the record. I am just conscious that Members want to get on, and that the argument is the same.

[Stephen Kinnock]

We fully welcome the new clause, which we think is very important to ensure that all perpetrators of economic crime are caught and dealt with.

[Tom Tugendhat]

I merely point out that, while the new clause addresses many of the points that the right hon. Member for Barking has raised before, it also raises many of the same challenges. For that reason, I will object to it.

--- Later in debate ---

[Dame Margaret Hodge]

I will speak to this very quickly, too. This is an interesting new clause, because its purpose is to tackle the issue of suspicious wealth remaining frozen in bank accounts and serving no useful purpose. We propose a new, more straightforward, pragmatic solution to deal with suspicious wealth, enabling our enforcement agencies to confiscate the moneys in the bank and repurpose them so that much of the wealth can be used to fund and strengthen our anti-money laundering enforcement capacity and perhaps be given back, in some cases, to the nations from which it has been stolen.

When a banker sees a suspicious transaction, he or she is required to ask for consent from the police to allow the transaction to go ahead. If the police officer refuses consent, the moneys can be frozen in the bank account. Under our new clause, the money would then remain frozen for six months, and the director of the Serious Fraud Office could apply to the courts to confiscate or seize the moneys. They will be granted that application unless the respondent proves to the court that the funds do not have a criminal origin. The onus is on the respondent to prove that he or she has obtained the assets legitimately. The SFO does not have to prove that the respondent committed a criminal activity; it is up to the respondent to prove that the funds are legitimately and honestly acquired and are not linked to acts of criminality. The new clause is modelled on unexplained wealth orders.

This would add an important new weapon to our arsenal in the fight against economic crime, as it provides for the non-conviction-based confiscation of frozen assets. Although they are not my favourite people, the people of Jersey have introduced a very similar law and recently managed to secure £1.7 million that was frozen in accounts there. That was money paid to Lieutenant General Jeremiah Useni, who had held office in the Abacha regime in Nigeria, and the allegation was that it was the proceeds of corruption. Although he tried to get his money back, he could not, and a lot of the £1.7 million went back to Nigeria.

The British Bankers’ Association thinks that we have up to £50 million held in frozen accounts, untouched. We need a little touch of boldness from the Minister. He should not just accept the message of “resist” that he gets from his officials. He should give good consideration to this sensible, practical, good idea of seizing money stolen by bad people and giving it back to the citizens who have been robbed, or repurposing it to strengthen the fight against economic crime.

[Stephen Kinnock]

We welcome these new clauses, which would give effect to the Government’s stated intention to unlock the proceeds of crime held in bank accounts to fund law enforcement efforts to tackle economic crime. Their adoption would also optimise the potential of the defence against money laundering regime and streamline the process of UK law enforcement identifying tainted wealth and being able to seek its forfeiture.

[Tom Tugendhat]

I thank the right hon. Member for Barking. While I agree with the intent behind her new clauses, I argue that they narrow slightly the scope in which the state can already recover much of the proceeds of crime. While they attempt to simplify, the reality is that we are already recovering large sums. I am not saying that we could not do more—we certainly could—but I am not convinced that the new clauses would add significantly to existing legislation. Last year, for example, a record £115 million of proceeds of crime were recovered under existing powers.

[Dame Margaret Hodge]

That is not a brilliant argument, but I will pursue this issue on Report, as we are doing with other issues around seizing and freezing assets. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 84

Compensation for Victims of Economic Crime

‘(1) The Secretary of State must, no later than 90 days from the date on which this Act comes into force, publish and lay before Parliament a strategy for the potential establishment of a fund for the compensation of victims of economic crime.

(2) The strategy may include provisions on the management and disposal of any assets realised by the government, or any body with law enforcement responsibilities in relation to economic crime, under relevant UK legislation.’—(Stephen Kinnock.)

This new clause would require the Secretary of State to prepare and publish a strategy on the potential establishment of a fund to provide compensation to victims of economic crime.

Brought up, and read the First time.

[Stephen Kinnock]

I beg to move, That the clause be read a Second time.

As this is the last time I will be on my feet, I thank the Committee; it has been an excellent set of debates, and I look forward to further constructive engagement with the Government on these matters.

The context of new clause 84 is the devastation caused by Putin’s barbaric and illegal war for the lives and livelihoods of Ukraine’s population. This demands a concerted cross-party and international effort, of which the UK should be at the forefront, as the staggering costs of reconstruction are sure to remain a key challenge long after the war itself has reached its inevitable end.

The new clause would require the Government to prepare and publish a wide-ranging strategy for efforts to ensure that the necessary financial compensation is made available to victims of economic crime, wherever they may be. This could and should be applied to victims of international crimes, of which the war in Ukraine is without doubt an example, but it could be applied more broadly as a means of providing a measure of justice to the victims of any other kleptocratic regimes around the world. The new clause would provide a mechanism for compensating victims of economic crime in the UK, including the thousands, or perhaps even millions, of British victims of online scams and other kinds of fraud. We therefore commend the new clause to the Committee, and I look forward to the Minister’s response.

Economic Crime and Corporate Transparency Bill (Eighteenth sitting)

Debate between Baroness Hodge of Barking and Stephen Kinnock

Committee stage
Thursday 24th November 2022 Public Bill Committees

[Dame Margaret Hodge (Barking) (Lab)]

I would.

[Stephen Kinnock]

My right hon. Friend may well wish to do so.

I think that any member of this Committee will understand what I mean when I refer to certain “usual suspects” in cases involving financial dealings that, even with the most charitable interpretation, can only be described as being questionable at best.

The language that was ultimately added to the Sanctions and Anti-Money Laundering Act 2018 reflected a recognition from Members of all parties and in both Houses that the same standards requiring open, publicly accessible registers of beneficial ownership should apply to both the UK and its overseas territories. It also reflected the widespread consensus that if we wanted to ensure that the overseas territories played by the same standards, we should be prepared to use sticks as well as carrots.

The result of that consensus was the provision in section 51 of the 2018 Act that any overseas territory that had not established a beneficial ownership registry in line with the standards of our own by the end of 2020 should be subject to direct legislation by an Order in Council. As I have already mentioned, the Government practically had to be dragged kicking and screaming to the point where they accepted that provision in the first place. However, as subsequent events have demonstrated, the real problem is that Ministers have interpreted section 51 of the Act so creatively that in effect they have completely undermined if not the letter then certainly the spirit of the law.

It seemed clear to those who pushed for section 51 of the 2018 Act that what it required was for beneficial ownership registries to be in place by the end of 2020, whether as a result of the overseas territories’ own legislation or an Order in Council. According to the spin the Government chose to put on it, its obligation had been met simply by the publication of a draft Order in Council, regardless of when, or even whether, such an order might actually come into force. The result is that we are here yet again—almost five years later—still discussing how to ensure the implementation of registers to the same standards across all of the UK’s territories. Surely it should not be beyond the wit of Ministers—even in this Government—to have sorted this out by now—[Interruption.] I am just checking that hon. Members are still awake on the Back Benches.

Economic Crime and Corporate Transparency Bill (Seventeenth sitting)

Debate between Baroness Hodge of Barking and Stephen Kinnock

Committee stage
Thursday 24th November 2022 Public Bill Committees

[Dame Margaret Hodge]

Thank you very much, Sir Christopher. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 50

Requirement for UK-resident director

‘(1) The Companies Act is amended as follows.

(2) In section 156B of the Companies Act 2006, inserted by section 87 of the Small Business, Enterprise and Employment Act 2015, after subsection (4) insert—

“(4A) The regulations must also include provision to require all companies to have at least one director who is ordinarily resident in the UK.”’—(Stephen Kinnock.)

This new clause would amend the Small Business, Enterprise and Employment Act 2015 to require all companies to have at least one person who ordinarily resides in the UK as a director.

Brought up, and read the First time.

[Stephen Kinnock]

I beg to move, That the clause be read a Second time.

New clause 49 sought to ensure that the provisions of the Small Business, Enterprise and Employment Act 2015, which require company directors to be natural persons, would be brought into force. The Opposition welcomed the Minister’s commitment to introducing the necessary regulations to enact that measure in the near future, and we are very pleased to have that on the record. At the same time, however, the Opposition remain convinced that there is much more that the Government could and should be doing to reduce the risks of money laundering and economic crime within the company registration requirements. The new clauses we are about to discuss provide a number of different means by which the law could be further strengthened against the risk of such abuses.

New clause 50 would make it a requirement that every company registering in the UK has at least one director who is ordinarily resident here. I have already spoken in Committee about the risks that often come with a system that allows companies to register in places to which they have a tenuous connection in terms of actually doing business there. Although there may be certain limited circumstances in which it might be legitimate for a company with no UK-based directors to register with Companies House, I am struggling to see what they might be. On the other hand, I can think of plenty of reasons why the fact that a company has no UK-based directors might be considered a red flag for money laundering risks, calling for additional scrutiny from the registrar.

Economic Crime and Corporate Transparency Bill (Fifteenth sitting)

Debate between Baroness Hodge of Barking and Stephen Kinnock

Committee stage
Tuesday 22nd November 2022 Public Bill Committees

[Stephen Kinnock]

Clause 147 raises a number of concerns for us, which I hope the Minister will be able to address. It aims to change the procedure for updating the Treasury’s list of countries designated as high risk due to serious deficiencies in their anti-money laundering and counter-terrorist financing systems, which was established by the Sanctions and Anti-Money Laundering Act 2018. The clause will enable the Treasury to update the list directly, without the need for regulations, in effect removing the opportunity for Parliament to scrutinise any changes to the list.

During the passage of the 2018 Act, there was cross-party consensus on the need for any UK list of designated high-risk countries to reflect international standards, primarily by mirroring the lists maintained by the Financial Action Task Force. The problem with clause 147 is that it appears to enable the Treasury to make any future updates to the UK list, even in ways that diverge from the FATF lists, without any opportunity for Parliament to scrutinise or debate the proposals. Given the zeal for deregulation that we have often seen from the current Government, it takes no great stretch of the imagination to foresee a situation in which the Treasury determines that the FATF lists are unduly stringent and that certain countries and territories should be removed from the UK’s list of high-risk countries, even in cases where issues identified by the FATF remain unresolved.

Looking at the relevant impact assessment, it seems that the intention is to enable Ministers to update the list “more swiftly” when needed, thus making the UK’s list more “responsive” to emerging developments than is possible under the current system. But even if the aim is reasonable, the methods are questionable. For one thing, the 2018 Act stipulates that regulations updating the list of high-risk countries are subject to the affirmative procedure, under which Parliament is given the opportunity to retrospectively review changes that have already been made by the time the regulations are published. Together with the fact that updates are generally needed no more frequently than once every three months, this does not seem to place an undue burden on Ministers.

The changes made by clause 147 do not seem proportionate to any identifiable problem with the current system. The Opposition therefore strongly encourage the Minister and his colleagues to revisit the clause, on the basis that a convincing case for the need to remove Parliament’s oversight of this process has not been made.

[Dame Margaret Hodge (Barking) (Lab)]

I concur entirely with the remarks by my hon. Friend the Member for Aberavon, but I want to ask a couple of questions.

First, the Minister will know that we are considering how we can move from freezing the assets of people who are sanctioned to seizing them. One of the ways in which that could be facilitated, from the advice I have received from various non-governmental organisations and lawyers, is to have a sort of kleptocrats list. I wonder if he would take that idea away and, in considering the request for greater parliamentary oversight, look at whether we could designate particular jurisdictions as kleptocracies. All the advice I get indicates that that would make it easier to do the seizing as well as freezing. Of course, in relation to Ukraine, that would mean that some of the £18 billion that has been seized from Russia could be recommissioned and used to help us rebuild Ukraine.

Economic Crime and Corporate Transparency Bill (Eleventh sitting)

Debate between Baroness Hodge of Barking and Stephen Kinnock

Committee stage
Tuesday 15th November 2022 Public Bill Committees

[Dame Margaret Hodge]

The Minister knows that that is not necessarily to fight economic crime, but to fight other crimes. I was talking about the economic crime levy and those are the figures that I have.

It is irritating but understandable that the enforcement agencies prioritise other crimes in their day-to-day work; they do not prioritise economic crime. Despite the lack of funding, a lot of money is brought in by the enforcement agencies. Between 2018 and 2021, £3.9 billion was brought in in fines, confiscation and forfeiture. If all of that had been reinvested, all of the agencies would have had an extra £748 million to fight economic crime over that period. That would have had a fantastic impact on our ability to fight, detect and prevent economic crime.

It has been said in previous debates that money from fines cannot be hypothecated in that way, but I draw the Minister’s attention to three precedents that negate that claim. In June 2022, the Information Commissioner announced a new arrangement allowing the office to keep some of the proceeds of its civil penalties to fund its work with the big tech companies. In 2019, Ofwat kept the proceeds of penalties it had raised on Southern Water to pay out to and reimburse customers. The Gambling Commission can also require payments rather than penalties to compensate victims or make payments to charities. Those are three precedents on which the Minister could build the argument that it would be perfectly appropriate for the proceeds of fines to be kept in order to resource the fight against economic crime.

I also draw the Minister’s attention to a report on fraud published by the House of Lords last week, which states:

“To support the forthcoming fraud strategy”,

which is only a part of addressing economic crime,

“with adequate resources, the Government must commit to a long-term funding strategy with an increased offer for law enforcement agencies”—

and this is the important bit—

“focussed primarily on recycling revenue collected by law enforcement agencies back into law enforcement activity.”

The House of Lords has, therefore, come to the same conclusion as we have in tabling this amendment.

The UK’s asset recovery incentivisation scheme ensures that some assets are recycled. Most of them go to the Treasury. Of the £354 million recovered in 2021-22 from confiscation orders, forfeiture orders and civil recovery orders, only 40% went back into fighting crime. If we compare ourselves with the Americans, we will see that all of their forfeiture proceeds go back into enforcement.

Under our proposal, money would be ring-fenced and it would be a cross-Government fund to finance enforcement against fraud and dirty money. The Minister knows that if the UK is to tackle economic crime effectively, far greater ambition is needed on the scale of public investment, and establishing an economic crime fund is the radical response that we need.

[Stephen Kinnock]

I would like to add some comments to the eloquent remarks of my right hon. Friend the Member for Barking.

In clause 96, the Government provide a framework for the registrar, within parameters to be set out by the Secretary of State in regulations, to impose direct financial penalties for many offences without the need for lengthy and often costly court proceedings. That is surely a welcome development, at least in so far as it should enable the registrar to take swifter action to deal with any offences involving false representations made to Companies House.

Of course, we will need to look closely at the details of how that will work in practice. In that respect, it is right that the Bill provides for parliamentary scrutiny of the relevant regulations via the affirmative resolution procedure. If the Minister could give a rough indication of when we can expect those regulations to be published, I am sure that the Committee would be grateful.

One thing that clause 96 makes clear is that any civil penalties imposed by the registrar will not exceed £10,000. I would be grateful for an explanation from the Minister about how that figure was arrived at, and whether he is confident that the power to impose a fine at that level will act as a deterrent to would-be offenders. Given the profit margins involved in some of the most serious crimes, we must ensure that the threat of civil penalties is both real and sufficient in terms of its potential to take a meaningful chunk out of criminals’ assets. I am not entirely convinced that the threat of a £10,000 fine will be taken all that seriously by some of the intended targets, but if the Minister is aware of any convincing evidence to the contrary, I would be glad to hear it.

Even if we assume that the Government make rapid progress with the regulations enabling the registrar to impose civil penalties, we must then address—not for the first time in Committee—what happens to any funds raised from civil penalties. In amendments 84 and 80 and new clause 29, my right hon. Friend the Member for Barking has once again provided the Committee with an eminently reasonable and sensible answer to that question. Taken together, these amendments would require any fines paid to the registrar to be specifically designated and ring-fenced for the purposes of tackling economic crime.

The asset recovery incentivisation scheme, introduced by the previous Labour Government, provides a template of sorts, but given the scale of the threat that we now face from economic crime, we need to go further. It is surely a no-brainer that any fees paid to the registrar, together with penalties for those who break the rules, should be reinvested in broader cross-Government efforts to tackle economic crime. That would provide a stronger incentive for tougher enforcement and a more sustainable long-term funding model for Companies House and other enforcement bodies at no additional cost to the taxpayer. Opposition Front Benchers therefore fully support these amendments. We hope that Members on the Government Benches will do the same.

Economic Crime and Corporate Transparency Bill (Eighth sitting)

Debate between Baroness Hodge of Barking and Stephen Kinnock

Committee stage
Thursday 3rd November 2022 Public Bill Committees

[Dame Margaret Hodge]

I am grateful to the Minister for saying that he will return to Parliament, but new clause 27 is designed to ensure that there is an annual report to Parliament. That means that our successors—certainly mine—will be able to hold Companies House to account over time. He knows that accountability is absolutely vital to ensuring the integrity of the system.

Question put and agreed to.

Clause 61 accordingly ordered to stand part of the Bill.

Clause 62

Procedure etc for verifying identity

[Stephen Kinnock]

I beg to move amendment 108, in clause 62, page 47, leave out lines 14 and 15.

--- Later in debate ---

[Stephen Kinnock]

I have spoken at some length about the Opposition’s concerns about the provisions in clauses 62 and 63 to authorise third-party trust or corporate service providers—or authorised corporate service providers, as they are described in the Bill—to carry out ID checks on the Government’s behalf. Amendments 108, 109 and 110 to 112 would simply remove those provisions from the Bill in the hope of prompting a rethink by the Government.

I should like to explain the thinking behind the amendments tabled by me and my hon. Friend the Member for Feltham and Heston. The purpose of amendment 107 goes back to what I have said about the surprising lack of specific details on the proposed verification process. As I have said, it is not as though the Government have not had enough time to think through what procedures might be necessary; four consultations have already taken place on the topic. Amendment 107 would incorporate into the Bill requirements for some form of official identification, including photo ID, to be submitted to the registrar. That should not be controversial. In fact, the amendment would merely reflect international best practice guidelines, including those published by the Financial Action Task Force, the IMF and the World Bank, among others, and the commitments made in the Government’s own White Paper.

[Dame Margaret Hodge]

It is a pleasure to rise to speak under your chairmanship, Mr Robertson, and I do so to speak to amendment 78. The amendment is part of a batch of amendments that we will get to later. I hope that hon. Members will bear with me if I speak longer on amendment 78, so that amendments 79, 82 and 83 will not require a long explanation.

This is one of the most important series of amendments that we have placed before the Committee. The purpose is to ensure that we close any loopholes, so that we do not find ourselves back in debate in a couple of years’ time, bemoaning the fact that we failed to create watertight legislation and that we do not have the information and data that we need to hold businesses to account.

I stress that our aim is not to be bureaucratic. The last thing anybody wants is bureaucratic regulation. However, if we do not have effective, smart regulation, we will not achieve the objective, which is shared across the House, of bearing down on illicit finance and on the abuse of our corporate structure system by ne’er-do-wells. Today, we are paying the price of those who came before us, from both political parties, who thought that by simply deregulating the whole of the financial services sector, they would encourage growth in the economy. They did encourage growth, but they also made us a destination of choice for too much illicit finance. That has come into focus with the war in Ukraine and the role of Russians in bringing their financing here. That money is used to fund Putin and his allies in the attack on Ukraine.

The Government have decided to outsource responsibility for checking the unique identification of beneficial owners. I can see why they have done so. It is quicker to do it that way than to build up the necessary resources in Companies House. Like my hon. Friend the Member for Aberavon, I would have had more confidence if we had done it in house, but that was the Government’s decision. The purpose of my amendment is not to challenge that decision. However, we need to trust the corporate service providers. We need to trust both the professionals and the others involved, whether they are lawyers or accountants, to do the job properly and honestly. At present, confidence and trust are not there.

I thought that the Government were on the same page on this issue. From all the leaks, and from all the information and intelligence about how illicit wealth from all the kleptocracies has reached our shores, I thought that they understood the role played by the TCSPs. I thought they understood the role that the TCSPs play, and therefore shared our concern that we need to get that regulatory framework right before we unleash a new system that, if it is not right, could lead to us peopling the new Companies House register with dud information that we do not want.

--- Later in debate ---

[Stephen Kinnock]

No. I have made clear to the Minister that we are deeply unhappy, particularly with the failure to take on board the recommendations under amendment 107 and the very important points my right hon. Friend the Member for Barking made.

[Dame Margaret Hodge]

Similarly, I will take the matter up elsewhere during the course of the Bill.

[Stephen Kinnock]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 62 ordered to stand part of the Bill.

Clause 63

Authorisation of corporate service providers

[Dame Margaret Hodge]

I beg to move amendment 81, in clause 63, page 49, line 38, at end insert—

“(3A) When an application is made under this section, the registrar may request evidence from HMRC that a fit and proper person test has been carried out on the applicant.”

This amendment allows the registrar to request evidence from HMRC that a fit and proper person test has been carried out on a person applying to be an authorised corporate service provider.

--- Later in debate ---

[Dame Margaret Hodge]

I will look in detail later to ensure that what I asked for is there, but I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: 8, in clause 63, page 50, line 23, leave out “registered or”.—(Kevin Hollinrake.)

This amendment would mean that a firm applying to become an authorised corporate service provider would always have to state its principal office, rather than having the option of stating its registered office.

[Stephen Kinnock]

I beg to move amendment 98, in clause 63, page 53, leave out from line 29 to line 5 on page 54.

This amendment removes the provision enabling the authorisation of foreign corporate service providers.

Economic Crime and Corporate Transparency Bill (Seventh sitting)

Debate between Baroness Hodge of Barking and Stephen Kinnock

Committee stage
Thursday 3rd November 2022 Public Bill Committees

[Stephen Kinnock]

I do understand that; the Minister makes a valid point. As I was saying, this is what one might describe as a probing amendment to try to get from him a sense of the proactive action the Government are going to take to go after those enablers.

[Dame Margaret Hodge]

The Minister is quite right to say that the powers are there, but I hope he agrees that a way to facilitate this would be to introduce a new criminal offence of failure to prevent economic crime. In that case, the enablers to whom my hon. Friend refers could be caught and rightly punished for their role in colluding or facilitating economic crime.

--- Later in debate ---

[Dame Margaret Hodge]

rose—

[Stephen Kinnock]

I will stand up and then allow my right hon. Friend to intervene.

[Dame Margaret Hodge]

As I understand it, if the owner of a company is an opaque company in the British Virgin Islands or another one of our tax havens, the ability to get behind that and see the person of significant control is pretty nigh impossible, so there is still a mechanism there. People could intentionally set up a company in the UK that is totally owned by a company established in the BVI. That information is not currently on the public register, although we are anxiously waiting for it to be so in 2023. There is no way of getting the persons of significant control verified, because it is outside our control.

Economic Crime and Corporate Transparency Bill (Sixth sitting)

Debate between Baroness Hodge of Barking and Stephen Kinnock

Committee stage
Tuesday 1st November 2022 Public Bill Committees

[Stephen Kinnock]

rose—

[Dame Margaret Hodge (Barking) (Lab)]

Will my hon. Friend give way?

--- Later in debate ---

[Stephen Kinnock]

You are absolutely right to keep us in line, Ms Bardell. We need to ensure we can operationalise the Bill in the clearest and most succinct way that leaves absolutely no room for doubt. The Bill is designed to regulate a sector of the economy that is like water; if it can find cracks to slip through, it will find them. We are trying to close those loopholes.

[Dame Margaret Hodge]

I am bewildered. The Minister may be too. Proposed new subsection (4A) in clause 14(5)(b) sets out that an application must be made “within the period of three weeks”. Obviously the lawyers do not think it is bad to put “within a period of three weeks” in that particular context. If someone says “at least”, that is a minimum, not a maximum. At least is a minimum. I cannot think that a lawyer would not have common sense about it. Perhaps the Minister wants to go away, reflect on this and move an amendment later. I do not believe lawyers are quite that removed from reality and common sense. It literally says in that clause “made within”. The lawyers do not mind using that term sometimes, so why can they not use it always?

[Stephen Kinnock]

My right hon. Friend has hit the nail on the head. I hope the Minister will reflect on that.

Moving on to clauses 15 to 22, we are content with clause 15, which would allow for objections based on the company name being misleading outside the UK and for the shareholders and directors of said company to be joined as respondents or defenders in the claim. In their February 2022 White Paper, the Government explained the rationale for expanding the grounds for objections to be made to a company’s name. It was broadly accepted that the current restrictions, for instance on names that imply a link to the UK Government, were too narrowly drawn.

Responses to the consultation reflected widespread concern about the impact company names that are clearly deliberately misleading might have on legitimate businesses in cases where rogue companies try to suggest they have a connection to a well-known business and thus benefit from wider public recognition of, and perhaps even loyalty to, an established brand. Such appropriation of company names is now understood as a means of scamming would-be investors out of their money. Earlier this year, for example, there were high-profile reports of a scam involving a company calling itself Diageo Partners Ltd. It attempted to solicit an investment by presenting itself as an arm of the well-known drinks company of that name. Another case flagged by the Financial Conduct Authority in January involved similar attempts by scammers to link themselves with the financial institution Wells Fargo.

Clause 15 is a welcome recognition of those issues and should go some way toward addressing them. However, many legitimate companies that raise objections via the Company Names Tribunal are currently facing delays of three months or more before they can get a decision. I wonder whether the Minister could explain what steps the Government will take to help speed up the Company Names Tribunal process and ensure that fraudulent company names are corrected as quickly as possible.

--- Later in debate ---

[Dame Margaret Hodge]

I am very happy to do that. I think we all want the same thing. All we are trying to do is find the best way of doing it. I will be pressing this amendment to a vote, I am afraid. My warning to the Minister is that if he does not do the work in this area, he will find that he has left a very wide loophole, which will be exploited by those who want to use us as a destination for illicit finance.

[Stephen Kinnock]

It is difficult for me to match what my right hon. Friend the Member for Barking has so eloquently said and what other colleagues have said. I think we need to reinforce the point that we need somewhere in the Bill a very clear indication that it is the duty of the registrar to conduct risk-based assessments. If not, the Bill will leave a loophole, and we should not allow that to happen. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment proposed: 94, in clause 28, page 17, line 32, at end insert—

‘(4A) After section 87, insert—

“87A  Duty of the registrar to verify appropriateness of address of registered office

(1) This section applies where the registrar has received—

(a) a statement of the intended address of a company’s registered office (under section 9(5)(a)), or

(b) notice of change of address of a registered office of a company (under section 87(1)).

(2) The registrar must assess the risk that the company is involved in economic crime.

(3) If following the assessment required by subsection (2) the registrar considers that there is a real risk that the company is involved in economic crime, the registrar must—

(a) take steps to determine whether the address which has been supplied is an appropriate address within the meaning of section 86(2), and

(b) refer the matter to the relevant law enforcement agency.”’—(Dame Margaret Hodge.)

Economic Crime and Corporate Transparency Bill (Second sitting)

Debate between Baroness Hodge of Barking and Stephen Kinnock

Tuesday 25th October 2022 Public Bill Committees

[Stephen Kinnock]

Q The challenge that we have is that money laundering prosecutions have dropped by 35% over the last five years in the UK, and the number of crimes being investigated—[Interruption.]

[Dame Margaret Hodge]

I will read out the two figures. The number of crimes under investigation has halved in the past three years, and convictions for fraud offences, according to national crime statistics, have decreased by 67% since 2011. What you are talking about is theoretical; it is not what is happening. At the same time, fraud is going up and up.

[Stephen Kinnock]

Will you say a word about why that is? The system seems not to be working, so what do we need to do to fix it?

Commander Adams: I will start and then bring in Simon, who is an expert on money laundering. The first thing to say is that fraud is getting increasingly complex. About 70% of all fraud emanates from overseas and, as Adrian touched on, it is very difficult for us to obtain prosecutions and convictions across jurisdictions. That is a real challenge for us, as are the growth in technology, the way in which fraudsters are now exploiting people and the changes in tactics.

Fraudsters are moving away from unauthorised payment fraud, where people’s details are stolen and used fraudulently—banks are now preventing somewhere in the region of 65p in every pound of that type of activity—and we are now seeing much more sophisticated frauds, where people are socially engineered, or manipulated, into physically approving transactions. That of course is much harder for technological solutions to prevent, when the target is a human being.

Of course, all that complexity requires a much more complex and sophisticated policing response. As I described, the growth that is coming down the line—in particular the proactive growth—will not start landing until the end of this year and then, of course, we are several years before we have fully experienced and really competent and effective investigators working on those crimes. All those things will layer on over a period. We anticipate that the technological advances will continue, both in support of us and in challenging us in how we can investigate and progress these crimes. Simon, do you want to comment specifically on money laundering?

Simon Welch: On money laundering, the amount of offences—detected offences—is going down. Criminals are getting a lot more savvy about our tactics and things like that, so we find that they are not having assets in their own names so much—vehicles, houses, things like that—and our opportunities for confiscation are probably going down a bit. However, what you can see from the seizure figures is that the cash value is up, but the volume is down. We are targeting and getting good results from the cases, but it is a smaller number of cases. In reality, POCA is now quite old, and people are used to us going after the money, so they take far more steps to protect that money from us being able to confiscate it.

Economic Crime and Corporate Transparency Bill (First sitting)

Debate between Baroness Hodge of Barking and Stephen Kinnock

Committee stage
Tuesday 25th October 2022 Public Bill Committees

[Dame Margaret Hodge]

Q So crypto is a bad thing, is it? It goes very quick. There is no friction.

Nigel Kirby: Respectfully, I think that is a different question.

You asked me to put my other hat on, Dame Margaret. Looking at the scale of fraud—you know, you have got it here; you are familiar with it—and the number of victims and the cost to the UK, it is time for the UK and those with the power to do so to either think about fraud as a strategic policing requirement or, going even further, ask whether it is now a national security threat. I do not just mean with that label—that is really important. You can put a label on these things, but if it could be classed as a national security threat and have the available resources brought together from our national agencies and national policing, that might have a greater impact for the public.

[Stephen Kinnock]

Q Thank you, Mr Kirby. You have used terms such as “world-leading” and spoken quite positively about what is happening in the UK. I have to say, as an interested observer, it does not look like that to me. London has generally become known as the laundromat for dirty money, particularly from Russian oligarchs and others. Money laundering prosecutions have dropped by 35% over the past five years in the UK. In March 2022, the budget of the NCA’s international corruption unit was cut by 13.5% to £4.3 million, leaving corruption investigators massively outgunned by the oligarchs.

I have two questions. First, I am trying to understand why you have this sense of optimism, because it looks like a pretty dire situation to me. Our enforcement agencies have been starved of the resources and capabilities they need. Secondly, you have had a long career in the NCA and in enforcement; I am sure you are still in touch with some of your former colleagues. If you had to define the resources they need, what extra would they need to be able to turn this situation around? It would be great to hear from you on that.

Nigel Kirby: For clarity, I used “world-leading” specifically in reference to private-public partnerships and what we are doing for voluntary information sharing. Look at the joint money laundering intelligence taskforce and the facts in that space: it has supported 950 investigations that have led directly to 280 arrests, with £86 million secured. There are some hard figures around here that are different. When I was in law enforcement, we had law enforcement from other countries coming to ask how we did it, including Singapore and Holland. I am in the private sector now, and we have private sector colleagues coming to ask us how do we do that part. That is just a part of the ecosystem that is important—

--- Later in debate ---

[Dame Margaret Hodge]

Q I will ask you just one more question, which is a little bit off piste. The Bill puts new duties on lawyers to ensure that they can be fined if they engage in work that facilitates crime, or they fail to prevent crime. I gather the Bar Council is a bit iffy about this; I wondered whether they thought it was interfering with access to justice. Where do you stand on that? Lawyers certainly come up constantly as facilitators, giving opinions that underwrite either unlawful behaviour in the tax field or illegal behaviour elsewhere. I do not know if you can help us on that—it is a bit off piste.

Jonathan Hall: The funny thing is that there is a principle in law that, if someone is giving advice to someone in order to commit a crime, legal professional privilege does not apply. It is quite hard to find examples of cases in which that doctrine has been applied, so I do not know whether it is about law enforcement having the confidence, when they have a lawyer who is deeply engaged in advising someone to break the law, to say, “We don’t care that you are saying this is privilege because we are going to run the case and say it is for a criminal purpose”. Beyond that, I do not know. I am a lawyer and I completely support maintaining access to justice—of course I do. But you are also completely right that lawyers and trust companies are at the heart of this issue, and I am afraid there are professional enablers.

[Stephen Kinnock]

Q This is the same question that I asked our previous witnesses: if you had the opportunity to amend the Bill, what would you do? You have flagged up one area in which you are worried the Bill goes too far, so obviously we need to look at that, but my question is more about how you would make it go further to achieve the outcomes we are looking for in terms of the role that crypto plays, particularly in financing terrorism.

Jonathan Hall: I have not got an answer beyond the one I gave before, I am afraid. I am sorry; I have not thought of a positive thing. I would just remove that subsection (b) from the definition of UK-connected cryptoasset service provider.

Economic Crime and Corporate Transparency Bill (Second sitting)

Debate between Baroness Hodge of Barking and Stephen Kinnock

Committee stage
Tuesday 25th October 2022 Public Bill Committees

[Stephen Kinnock]

Q The challenge that we have is that money laundering prosecutions have dropped by 35% over the last five years in the UK, and the number of crimes being investigated—[Interruption.]

[Dame Margaret Hodge]

I will read out the two figures. The number of crimes under investigation has halved in the past three years, and convictions for fraud offences, according to national crime statistics, have decreased by 67% since 2011. What you are talking about is theoretical; it is not what is happening. At the same time, fraud is going up and up.

[Stephen Kinnock]

Will you say a word about why that is? The system seems not to be working, so what do we need to do to fix it?

Commander Adams: I will start and then bring in Simon, who is an expert on money laundering. The first thing to say is that fraud is getting increasingly complex. About 70% of all fraud emanates from overseas and, as Adrian touched on, it is very difficult for us to obtain prosecutions and convictions across jurisdictions. That is a real challenge for us, as are the growth in technology, the way in which fraudsters are now exploiting people and the changes in tactics.

Fraudsters are moving away from unauthorised payment fraud, where people’s details are stolen and used fraudulently—banks are now preventing somewhere in the region of 65p in every pound of that type of activity—and we are now seeing much more sophisticated frauds, where people are socially engineered, or manipulated, into physically approving transactions. That of course is much harder for technological solutions to prevent, when the target is a human being.

Of course, all that complexity requires a much more complex and sophisticated policing response. As I described, the growth that is coming down the line—in particular the proactive growth—will not start landing until the end of this year and then, of course, we are several years before we have fully experienced and really competent and effective investigators working on those crimes. All those things will layer on over a period. We anticipate that the technological advances will continue, both in support of us and in challenging us in how we can investigate and progress these crimes. Simon, do you want to comment specifically on money laundering?

Simon Welch: On money laundering, the amount of offences—detected offences—is going down. Criminals are getting a lot more savvy about our tactics and things like that, so we find that they are not having assets in their own names so much—vehicles, houses, things like that—and our opportunities for confiscation are probably going down a bit. However, what you can see from the seizure figures is that the cash value is up, but the volume is down. We are targeting and getting good results from the cases, but it is a smaller number of cases. In reality, POCA is now quite old, and people are used to us going after the money, so they take far more steps to protect that money from us being able to confiscate it.