Economic Crime and Corporate Transparency Bill

Debate between Baroness Hodge of Barking and Tom Tugendhat

Report stage
Wednesday 25th January 2023 Commons Chamber

[Tom Tugendhat]

The Bill is concerned only with economic crime and corporate transparency, and the regulations will cover only that. Many Ministers, including the Lord Chancellor, have spoken about SLAPPs—I will touch on them later—but the reality is that they require a separate jurisdiction and a separate Bill.

Government amendments 48 and 49 concern information sharing. In Committee, Opposition Members rightly pointed out that our proposed definition of large accountancy firms did not include insolvency practitioners, auditors and tax advisers. I thank them for that. These amendments will rectify that omission by expanding the scope of the indirect information sharing clauses to include those sectors.

In addition to the Government amendments, several other amendments on a broad range of topics will be debated today. As in Committee, I look forward to what I anticipate will be a lively but extremely well-considered debate. The contributions of all hon. Members who participated in earlier debates have helped to shape the Bill into an effective tool to tackle illicit finance and ensure that the UK is a great place to do legitimate business.

I know that there are places where hon. Members would like the Bill to go further and do more. Indeed, I am as keen as many of them to solve some of the outstanding problems that we all wish to address, but we need to ensure that those ambitions are delivered in the most effective way and that we use the appropriate legislative vehicles to ensure that they have the desired outcome. Limiting the scope to just economic crime can, in several cases, create more problems than it solves, and I assure right hon. and hon. Members that I have strenuously tested what can be effectively delivered within the scope of the Bill.

[Dame Margaret Hodge (Barking) (Lab)]

Will the Minister expand on that interesting point? How would any of the amendments on SLAPPs, a duty to prevent or seizing assets limit what could be done in future?

[Tom Tugendhat]

The question is at what stage do we bring a Bill forward—do we wait for it to be perfect or do we bring forward what we can get at a certain point? The right hon. Lady raises some interesting points. She knows my views on SLAPPS; indeed, in a former incarnation, I may have expressed them extremely clearly. She knows that we share views on asset seizures too. I should point out, however, that no common law jurisdiction has successfully solved the question of asset seizures, although many of us have tried and, indeed, some of us are in conversation with others to try to work out ways of doing it—forfeiture and seizure are not quite the same thing.

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[Dame Margaret Hodge]

I shall be very brief, because I took a lot of time in the House yesterday. I strongly support many of the new clauses being moved by Back Benchers across the Chamber today. If I can just say something about politics, this heartens me and shows that there are ways in which we can work together to pursue the national interest across the political divide. It breathes a bit of confidence and life back into the political process that we have all chosen to join in our careers, so I commend those individual Back Benchers who have put themselves forward and who are speaking today.

The proposals from the hon. Member for Cheadle (Mary Robinson) on strengthening the support for whistleblowing are hugely important. Whistleblowers are an essential part of our armoury in the fight against money laundering and fraud, and we know that, despite all the legal rights, they are not protected. People lose their jobs, their families get destroyed and they are left penniless. Therefore, the establishment of a capability that will do nothing other than protect and promote whistleblowers in the crucial work they do is really important, and I hope that it will be adopted.

The importance of legislating to tackle the abuse of our legal system by oligarchs and others, which the right hon. Member for Haltemprice and Howden (Mr Davis) has just talked about so eloquently, is also really important. I want to be blunt about this and say to those on the Government Front Bench that, if they do not accept this new clause, they will not get a Bill during this Parliament. I bet that is right, so for heaven’s sake let us use this opportunity to get this bit of legislation in. It does not cover everything we would like it to cover, but it will have an impact. It will also give us the experience to see whether we have got the legislation right. I am sure that all the lawyers who helped to draft these new clauses put their best brains into them, but if they have not got them right, we will be able to learn those lessons when we come to extend these measures beyond economic crime.

The right hon. and learned Member for South Swindon (Sir Robert Buckland) made an excellent contribution on the reform of criminal corporate liability, and I want to say something about that. It is not that we want to suddenly bang up a whole load of lawyers, accountants, companies, service providers and all those people who we know are the ones that facilitate or collude with much of the economic crime that takes place. Only the best preventive mechanism that we can think of will force a change of behaviour, and we are not doing that on the back of hope; we are doing it on the back of reality. We know from the Bribery Act 2010 and from the regulations on tax evasion and on health and safety at work that putting this sort of liability on individuals and corporations is the only way to transform behaviour. Last week’s amendment to the Online Safety Bill by the Conservative rebels showed the mood of the House, and I would urge Ministers to think about that. The mood of the House is to use this effective tool to try to transform behaviour in all spheres of life, whether in relation to online harms or to economic crime.

I hope that we will hear from the hon. Member for Huntingdon (Mr Djanogly) soon on the issue of “freeze not seize”. I know he is going to make a number of propositions, and I hope he will not mind if I say something about this. We have been working with an extensive group of lawyers to see whether we can move to a position where we do not just freeze the assets but seize them in order to repurpose them and, particularly in the current context, use them to support the reconstruction of Ukraine. We have finally got a chink in the armour in that regard, but let me say something else first. The lawyers we have talked to work with non-governmental organisations in this field, and the advice they give is always going to be slightly different from the advice that comes from the lawyers working in the Government service. I think we bring a new perspective, and I urge Ministers to listen to what we have to say. The chink is worth examining at this stage, even if we do not go for the further propositions, to show that we mean it when we say that we want to seize this money.

[Tom Tugendhat]

If the right hon. Lady can come up with a way to seize assets and use them for the purposes we have been discussing—notably for the reconstruction of Ukraine, but for other purposes, too—I am all ears. I have had long conversations with the representatives of Governments around the world, and I am yet to hear an idea that works. If she has one, I am happy to hear it.

[Dame Margaret Hodge]

This is not our idea. It comes from a recent seminar we held with lawyers who support the Royal United Services Institute and Spotlight on Corruption. I will leave it to the hon. Member for Huntingdon to expand on it, but I think it is a very interesting chink that we can exploit, although it is not the total answer.

A draft Bill is being prepared by another group of lawyers, but I do not think we can add it to this Economic Crime and Corporate Transparency Bill. I am sceptical that we will find a chance to introduce the draft Bill in this Parliament, but I assure the Minister that we will pursue it after this Bill has passed. I just hope the Government examine the chink we have identified and run with it.

New clause 21 on cost caps, which stands in my name, is part of the way in which we could better fund the enforcement agencies in their fight against economic crime while also preventing economic criminals from exploiting our legal system. At the moment, we have a “loser pays” law, which has two consequences. First, when our enforcement agencies embark on litigation and lose, there is a massive cost to the public purse. We saw that with the unexplained wealth order against Kazakhstan’s Nazarbayeva family. Subsequent investigative journalism suggested that the family told mistruths to the court, but that has never been rectified. Nevertheless, the costs vary from £1.5 million to £2 million.

The SFO took a similar case against Serco involving prisoners who were—I have forgotten the word.

[Tom Tugendhat]

Tagged.

[Dame Margaret Hodge]

I thank the Minister. I am having a senior moment.

The SFO had clearly prepared the case badly, but there was a discovery point that got the litigation thrown out of court, and a huge sum was claimed in costs. The cost to the public purse is enormous.

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[Tom Tugendhat]

My right hon. and learned Friend is certainly more learned than me, and I will certainly be listening to his views. There are a number of areas that I am sure we will be able to discuss, and I am sure we will reach a conclusion that is acceptable to all sides.

[Dame Margaret Hodge]

I am grateful for the assurance that an amendment will be introduced in another place, but may I also have an assurance that it will cover both corporations and individual directors?

Economic Crime and Corporate Transparency Bill (Nineteenth sitting)

Debate between Baroness Hodge of Barking and Tom Tugendhat

Committee stage
Tuesday 29th November 2022 Public Bill Committees

[Dame Margaret Hodge]

We all think that SARs is a helpful regime. I wonder whether the Minister has been given the information by the NCA. It got more than half a million SARs, but how much of that data did it use to get the millions that it got in? That is a heck of a lot of data, which should yield a huge amount of valuable information.

[Tom Tugendhat]

First, not every SAR leads to an actionable offence. Many of them are simply, and quite rightly, reports. They are reports because there are suspicions, but suspicion does not necessarily mean guilt. Many times these are companies that are taking on clients or that have clients who are suspicious, and they want to be sure they are doing the right thing so, responsibly, they report in. We should not confuse the absolute number of reports with a level of criminality. That would not be fair on the British population, those doing the reporting or the NCA, which is looking into these things.

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[Tom Tugendhat]

I am delighted to speak on the new clause. As the right hon. Member for Barking correctly identifies, it touches on many areas that my hon. Friend the Under-Secretary and I have spoken about on numerous occasions, and we are not alone in having done so. Section 172(1)(b) and (d) of the Companies Act 2006 speaks about the interests of employees and of the community being the responsibility of directors as well, so having an emphasis on directors’ responsibility in corporate legislation is not new. My hon. Friend the Under-Secretary has also spoken about it in building safety legislation, which the right hon. Lady cited.

There are many different examples of our recognition that the interests of the whole of society and of the whole United Kingdom are better protected when directors understand that they are there not simply to advance shareholder value, but to further the interests of the whole community of their employees and wider society in actions and responsibilities they undertake. Although I see all of the responsibility laid out and I take very seriously the point the right hon. Lady made, we still need to do a little bit of work on how this can be made to work. There are arguments, some of which hold water, about whether the 2017 money laundering regulations include elements that already cover some of these areas, and there are arguments about whether the Law Commission will want to look at different bits of this. I can assure the right hon. Lady that I will look at this extremely seriously, because she is absolutely right that the Bill offers an opportunity to introduce different reforms. I will look to make sure that any opportunity is fulfilled as quickly as possible.

[Dame Margaret Hodge]

I am grateful for that. The hon. Gentleman referred to the Companies Act 2006—I cannot remember which section. In the days when Tony Blair changed our jobs every year, I was lumbered with taking through the biggest Act in Parliament. We deliberately put that section in, in the face of massive opposition. At the time there was a front page story in the FT that said, “How dare you talk about any interest but shareholder interest?” But the provision has stood the test of time, I am pleased to say, and I am glad to hear him cite it.

I do not want to embarrass Ministers today by putting the issue to a vote. I know that they feel strongly about this, but so do we—really strongly. The Bill will not pass any litmus test of its potency if the new clause is not included. I know there will be resistance because the professions that would be subject to the new potential criminal liability are very strong in lobbying. They are probably strongly lobbying the Department for Business, Energy and Industrial Strategy, as well as the Treasury and other Government Departments. I say to Ministers that they have to resist that lobbying with every bone in their bodies, because this is not an attack on any profession. There ought to be a new offence that cleans up the profession, and we will pursue this issue right through every phase and stage of the Bill’s passage.

I want to say one final thing to the Minister. Of course we need to make the new clause work, but for goodness’ sake, we have the same offence in the Bribery Act and the tax evasion legislation, and it works perfectly well.

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[Tom Tugendhat]

Of course.

[Dame Margaret Hodge]

What we are seeking is scrutiny by the legislature. I take what he said, and will reflect on it. There is cross-party support for this concept; whether we have got it quite right is open to debate, and we will have to find another means of getting it debated in the House. On that basis, I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 76

Whistleblowing: economic crime

“(1) Whistleblowing is defined for the purposes of this section as any disclosure of information suggesting that, in the reasonable opinion of the whistleblower, an economic crime—

(a) has occurred,

(b) is occurring, or

(c) is likely to occur.

(2) The Secretary of State must, within twelve months of the date of Royal Assent to this Act, set up an office to receive reports of whistleblowing as defined in subsection (1) to be known as the Office for Whistleblowers.

(3) The Office for Whistleblowers must—

(a) protect whistleblowers from detriment resulting from their whistleblowing,

(b) ensure that disclosures by whistleblowers are investigated, and

(c) escalate information and evidence of wrongdoing outside of its remit to another appropriate authority.

(4) The objectives of the Office for Whistleblowers are—

(a) to encourage and support whistleblowers to make whistleblowing reports,

(b) to provide an independent, confidential and safe environment for making and receiving whistleblowing information,

(c) to provide information and advice on whistleblowing, and

(d) to act on evidence of detriment to the whistleblower in line with guidance set out by the Secretary of State in regulations.

(5) The Office for Whistleblowers must report annually to Parliament on the exercise of its duties, objectives and functions.” —(Dame Margaret Hodge.)

Brought up, and read the First time.

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[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.

[Dame Margaret Hodge]

I will not at this point press the new clause to a vote, so I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 80

Forfeiture of recoverable property obtained through economic crime

“(1) Where the conditions in paragraph(2) are fulfilled, a notice may be served in accordance with subsection(4) by the Director of Public Prosecutions, the Director of Serious Fraud Office, or the Director General of the National Crime Agency (hereafter, ‘the Director’) upon the holder of an account held at a bank in the United Kingdom.

(2) The conditions mentioned in paragraph(1) are that—

(a) the Director has reasonable grounds to believe that property held in the bank account is recoverable property obtained as a result of an economic crime offence;

(b) in relation to the bank account or any property in the bank account, a consent request has been made to an authorized officer under Section 335 of the Proceeds of Crime Act;

(c) an authorized officer refused the consent requested;

(d) a court has granted an extension of a moratorium period for 186 days under section 336A of the Proceeds of Crime Act 2002; and

(e) a court has granted approval to the Director to serve the notice.

(3) A notice under this section shall be a notice by way of representation and shall—

(a) state the name of the holder of the bank account to whom it is addressed;

(b) specify the details of the bank account and of the property or part of the property in the bank account which in the opinion of the Director is recoverable property;

(c) state a date on which, and a place and time at which, the holder of the bank account is required to attend a hearing of the Court to show cause why the property so specified is not recoverable property and should not be forfeited; and

(d) be served on—

(i) the holder of the bank account, and

(ii) the bank at which the account in question is held,

and if an address for service on the holder of the bank account is not known, service on the bank only shall be taken as sufficient for the purposes of this paragraph.

(4) In this section and section [ Forfeiture of recoverable property obtained through economic crime: summary procedure ]—

(a) ‘economic crime offence’ means an offence listed in Schedule 8 of this Act; and

(b) ‘recoverable property’ has the meaning given in section 304 of the Proceeds of Crime Act 2002.”—(Dame Margaret Hodge.)

Brought up, and read the First time.

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[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.

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[Tom Tugendhat]

As this is probably the last time I will speak in the Committee, I thank you, Mr Robertson. I also thank the right hon. Member for Barking for her input into the Bill not just today, but over many years and as Chair of the Public Accounts Committee. The way in which she has championed tackling economic crime, drawn the House’s attention to it, and focused the country on the real threats that we have faced has been impressive to us all, and I am personally enormously grateful to her. She certainly helped my work enormously when I chaired the Foreign Affairs Committee, and she has now helped to focus my work as a Minister. I am very grateful that I have had the privilege of working with her.

[Dame Margaret Hodge]

I forgot to thank you, Mr Robertson, for chairing the Committee and for showing such an interest in what we are doing. I also thank the Ministers and Members of all parties who have spoken and participated. I look forward to working further to get even more into the Bill.

[Tom Tugendhat]

If anybody thinks that I was trying to soft-soap the right hon. Lady in order to shut her up in future sittings, they do not know her very well. It would have not worked, and I have not tried it. All I have done is to pay credit to somebody who has definitely earned it. I also thank my fellow Minister and the Whips, who have got us through at lightning speed.

On the new clause, the powers in part 4 already increase the focus on victims. The compensation principles of the Serious Fraud Office, CPS, the National Crime Agency and others have committed law enforcement bodies to ensuring that compensation for economic crime is considered in every relevant case, including where there are overseas victims, so I believe that the Bill already focuses on many of the aspects that we have discussed. That said, we are coming to Report. As always, I will be listening, but I have yet to be convinced about the new clause, because I believe that it has largely been covered.

Economic Crime and Corporate Transparency Bill (Eighteenth sitting)

Debate between Baroness Hodge of Barking and Tom Tugendhat

Committee stage
Thursday 24th November 2022 Public Bill Committees

[Tom Tugendhat]

He knows very well that I am not going to accept it. The way in which the new clause is set out cuts across many other aspects of law, and it would quite severely affect jurisprudence in this country. However, he is absolutely right to point out the issue, and it is worth taking a bit of time to explain how we intend to address it.

The right hon. Gentleman is correct that the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Thirsk and Malton, and I are extremely clear that this is an important aspect of legal reform that we need to see in the United Kingdom. It is important because it affects freedom of speech in this country, as the right hon. Gentleman rightly says, and because it has a certain negative influence on the legal environment in which, sadly, people have to operate. He rightly spoke about Catherine Belton, whose work in exposing many of the crimes of the Putin regime has been frankly exemplary and heroic.

It is important that we address this. The way to do that is not to treat it simply as an economic crime, which it is not. It is not just a crime that affects the economy of our country or the movement of dirty money. It is a crime that is about freedom of speech and the access to justice that many people in our county need. We should look at it more as an offence against a fundamental democratic value than as an economic crime. That is why the work is being done with the Ministry of Justice, for rather obvious reasons. We are ensuring that we have a piece of anti-SLAPPs legislation, as the right hon. Gentleman correctly calls it, that addresses the whole problem.

The UK is still leading the way on the issue at national level. We are not yet where we wish to be, but we are doing better than many others. It is worth remembering that many different groups are working on this. The Solicitors Regulation Authority is already doing a lot of work to review the 20 firms suspected of involvement in SLAPP activity. The SRA is shortly to issue its regulated professionals with another warning notice, which will provide guidance on conduct in such disputes. It has already outlined guidance on certain oppressive behaviours, and has expressly linked those to the growing focus on the use of SLAPPs in England and Wales.

As the right hon. Member for Birmingham, Hodge Hill knows, there are many different tactics—aggressive letters, labelling correspondence and seeking to run up bills, as he rightly identified—that challenge people’s access to justice. They are exactly what the SRA is looking at and will be communicating with the MOJ about.

[Dame Margaret Hodge]

First, will the Minister describe the action that, according to him, the Government are taking? I do not understand what action they are taking.

Secondly, the new clauses that my right hon. Friend the Member for Birmingham, Hodge Hill tabled were written by a group of lawyers who support the UK Anti-SLAPP Coalition. They are not like the new clauses that we put together—they have been given considerable consideration—so I do not quite see how they could be bad law. They have thought this through.

Thirdly, there is a real tendency—I say this with the greatest respect and affection for the Minister’s work—for Ministers to shift a bit a paper to the left or right and do nothing with it. It is the easiest thing to do. We have described this as a once-in-a-lifetime opportunity to change the world; I plead with the Minister to grasp it and accept the new clauses. Let us move forward, rather than shifting the paper aside.

[Tom Tugendhat]

I am surprised to hear the right hon. Lady speak so negatively about her other amendments and new clauses. New clause 64 is not the only one that is well drafted; others have been as well. New clause 64 focuses, quite rightly, on getting anti-SLAPP provisions into the Bill, but it would extend the reach a bit further than we could take. I am happy to look further at the issue. I am happy to listen carefully to the opinions not only of the right hon. Lady, but of the people who advised the right hon. Member for Birmingham, Hodge Hill, on different approaches to the question. I am extremely happy to listen, but I am afraid we will not accept the new clause.

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[Tom Tugendhat]

I am grateful for the intent behind new clause tabled by the right hon. Member for Birmingham, Hodge Hill. He has an absolutely valid point—we need to equalise the firepower between some of the organisations. We have a fundamental challenge, because we cannot assume that arising from the actions of a UWO, which is not a human rights action but to do with civil litigation, costs should fall on the losing party. We must look at how to balance the different elements.

My own inclination would be look more at how we fund our agencies to do this work. Some members may have heard that I once was in the Army. The way the armed forces does such things is by having two different forms of budget—the ongoing budget and the war reserve. I am much more inclined, and much more persuadable, towards the argument that we should be making sure that the agencies that take on such claims have a war reserve to ensure that they can meet the costs without that affecting their ongoing work, rather than changing the law in a way that would affect civil liabilities in many different areas.

[Dame Margaret Hodge]

To be honest, I do not think that would prevent the impact that the fear of incurring costs would have on how any of the agencies operate. Everyone in the House has great respect for Bill Browder, and I am sure that the Minister will have talked to him about the issue, and I know that the Under-Secretary has, too. Bill Browder is completely shocked and astounded by the fact that we allow any costs at all to be claimed by successful litigants when they challenge Government action.

I do not know whether either Minister had the chance to meet Judge Mark Wolf, who is over here campaigning for an international anti-corruption court. I do not know whether they have come across him. He was here last week and, when we talked about such litigation, he expressed absolute astonishment that defendants in any of these cases, have the right to any of their costs being met. In America, looking at those figures, great success comes from that hugely important lack of ability to claim costs.

[Tom Tugendhat]

It is worth pointing out that the Americans do not use unexplained wealth orders, which, after all, are civil litigation, because they do not have them. Therefore, the question of costs does not apply in the same way.

[Dame Margaret Hodge]

I would not use the example of unexplained wealth orders. They have not worked in the way that we had all hoped and intended. On the failure to prevent bribery, if we think of the acts that the Serious Fraud Office has been engaged in—I think it is with Serco, where they face a couple of million pounds in claims and costs. It goes right across the panoply of tools that we have to fight economic crime.

Economic Crime and Corporate Transparency Bill (Seventeenth sitting)

Debate between Baroness Hodge of Barking and Tom Tugendhat

Committee stage
Thursday 24th November 2022 Public Bill Committees

[The Minister for Security (Tom Tugendhat)]

I thank the right hon. Member for Birmingham, Hodge Hill and for Barking for their amendments, and I welcome the effort and energy they put into the oversight mechanisms that are so important in ensuring that the Bill is effective. That is the nice bit. They know what is coming next.

I do agree enormously on the importance of supervision, which has been emphasised, but I am afraid I cannot support new clause 44. Despite what the right hon. Member for Barking says, HMRC already has an anti-money laundering supervisory function and it does take its responsibilities extremely seriously. It supervises nine sectors and is the default supervisor for trust and company service providers where they are not already subject to supervision by the FCA or one of the 22 professional bodies.

[Dame Margaret Hodge]

I wish I had brought some of my previous notes with me. What evidence does the Minister have of that, apart from HMRC telling us that?

[Dame Margaret Hodge]

I am amazed that it did. Is there evidence of the number of visits or assessments carried out? I can remember a quote from the previous permanent secretary, who said, “It is not our core business.”

[Tom Tugendhat]

The core business of HMRC is raising money and ensuring that that money is clean. That is absolutely essential. Until HMRC works out whether or not the money is clean, it is hard to raise money. I would be hard pressed to describe my hon. Friend the Under-Secretary as a dodgy individual, but if he is going through these AML checks I think it is a good indication that HMRC is taking such matters very seriously. As I say, the checks are already being done and the responsibilities are held by branches of the Government, including HMRC and other professional bodies.

The amendments are therefore a duplication. The reality is that HMRC carried out 3,500 formal compliance inspections with businesses last year and issued over £2.5 million of penalties in 2021-22. That demonstrates that the business checks are not symbolic. They are not minor. They are extremely serious. HMRC takes them very seriously. I think the Government is entirely in agreement with the right hon. Lady that these checks need to happen, but the scale and type of reform to improve effectiveness and solve these problems is not yet clear. The Treasury will no doubt have many views when its formal consultation on the possible options opens. The consultation will ensure that the risks and implications of each option are fully understood before the Government commit to any particular model. The right hon. Lady knows very well that we need to get this right, not just to be quick.

On new clause 72, I welcome the desire to strengthen the UK’s anti-money laundering regime. I also share the support for the work OPBAS does. However, it is not yet the right time for the proposed changes, and I cannot support the suggested amendment. In June of this year, the Treasury published a review of the UK’s anti-money laundering regime, which considered the performance of the supervisory regime, including the work of OPBAS. It concluded that although there have been significant improvements in recent years, further reform is necessary to ensure effective supervision across the regulated sector. The review set out four options for reform, ranging from strengthening OPBAS to structural reform to establish a new statutory supervisor. Further policy work to develop these options is already under way, and the Treasury has committed to publishing a consultation before a decision on the direction for reform is made. It would be wrong to preclude the ongoing policy analysis and public consultation by making the changes proposed by the amendment.

[Dame Margaret Hodge]

I heard the Minister’s words with gloom. Initially, the Government put out a consultation with four options, and to speed it up, we decided to go with the weakest of the options—the one to which there would be the least objections. What I think I just heard him say, which is so gloomy, is that the Government will now publish a further consultation. All this stuff in the Bill will come into being and we will have absolutely no assurance that proper checking, regulation and supervision will be carried out on company service providers.

[Tom Tugendhat]

As I say, this is really a matter for the Treasury, and it has committed to publishing a consultation before the decision is made. It would be wrong of me to preclude the ongoing policy analysis and public consultation by making—

[Tom Tugendhat]

I have had many conversations with Treasury colleagues in recent weeks and months on various aspects of the challenges that economic crime poses to the UK. Many of us are committed—in fact, the Treasury is very committed—to ensuring that economic crime is reduced in this country. The support that the Treasury has given in various different ways has resulted in many things, including a very successful operation conducted this morning by the Metropolitan police that resulted in the arrest of many people connected to economic crime. That may sound tangential on the grounds that it is about fraud, but the reality is that all of it is connected. We see a very strong overlap between money laundering, fraud and various other different forms of economic crime. The Treasury, unsurprisingly, is extremely committed to making sure that economic crime in this country reduces. The Home Office and the Department for Business, Energy and Industrial Strategy are absolutely committed to making sure that we considerably reduce the level of fraud in this country.

What is important now is to ensure that we make OPBAS as effective as possible, and that we look for some of the reforms that we have started to highlight, because that means that the changes required by the amendment will be unnecessary. I hope that we can focus on that aim.

I have just been given a statistic that records that in October 2022, HMRC named 68 estate agents that had breached anti-money laundering regulations, and fined them a collective total of £519,000. We can see that the supervision of estate agents is not just conducted by my hon. Friend the Under-Secretary but by many others around the country and is taken extremely seriously.

[Dame Margaret Hodge]

I hear what the Minister says, but I think we will just be setting up another duff register unless we get the regulation of those company service providers toughened up at the same time as we introduce the Bill. I want to press new clause 72 to a vote.

Economic Crime and Corporate Transparency Bill (Fifteenth sitting)

Debate between Baroness Hodge of Barking and Tom Tugendhat

Committee stage
Tuesday 22nd November 2022 Public Bill Committees

[Dame Margaret Hodge]

We have raised a number of amendments to the Bill during the course of consideration in Committee, many of which I consider to be technical and things that would improve the processes. All those amendments so far have been rejected. I wonder whether, rather than bringing us back at a later stage as the clause proposes, the Minister would undertake, together with his ministerial colleague, to look again at some of those amendments, which are really just practical, pragmatic amendments, with a view to bringing them back. Would he bring them back on Report?

[Tom Tugendhat]

I will answer the second question first, if I may. I am absolutely certain that my hon. Friend the Member for Thirsk and Malton and I will look with great interest at the suggestions that the right hon. Lady has made. As she knows, we share many similar ambitions. We will have a look at those suggestions with officials. Certainly, there are some that we think could improve the Bill—I do not think there is any great debate about that—and I will make sure that we keep her informed. Her contribution and help, not just today and on the Bill, have been enormous, and I pay enormous tribute to the work that she has done over many years in fighting money laundering and different forms of economic crime.

On this specific power, the hon. Member for Feltham and Heston raises a very important point, which is that the clause does give large consequential provision to the Government to change aspects of the Bill. I understand the concerns that she raises. The nature of the Bill, however, is that it has quite a consequential impact on other elements of legislation, as she herself has highlighted. Therefore there are knock-on elements that will no doubt require minor redrafting and changes at various different points as the Bill goes into law. I am afraid that is slightly the nature of these operations, as she understands extremely well. That is what this power is for.

It is worth saying that any significant or substantial changes that really do change the intent of the Bill should be brought back in primary legislation, because this is clearly a provision in order to enable the Bill to operate, not to change the intent that this House gives it.

Economic Crime and Corporate Transparency Bill (Third sitting)

Debate between Baroness Hodge of Barking and Tom Tugendhat

Committee stage
Thursday 27th October 2022 Public Bill Committees

[Dame Margaret Hodge (Barking) (Lab)]

Q I hope the Committee will look at our amendments on information sharing, the funding of enforcement agencies, shareholder information, Companies House checks and AML supervision; we tabled them in a spirit of improving the situation. I agree with all that.

I am going to ask about another issue, just to get it on the table. People engaged in the debate over dirty money are very anxious that we should move from just freezing the assets, particularly of the Russian Government and Russian oligarchs, to seizing the money so that we can use it—particularly for the reconstruction of Ukraine, when that war comes to an end. Can I have your views on that, starting with you, Duncan?

One final thing: a big thank you to both of you for the work your organisations do in exposing a lot of the problems and for the very positive attitude you have taken to establish solutions. Thank you to both of you, individually and to your organisations.

[Tom Tugendhat]

Hear, hear!

Duncan Hames: Thank you. I think it is important that we should continue to respect the rule of law and have a judicial basis for asset recovery. Too often, it is tempting to have a more administrative approach, and with that comes risks. It is very important that, as well as having the clarity of purpose to designate a whole substantial raft of individuals and entities for Russia sanctions, we have the determination to make those sanctions work.

We published some research just last month that found hundreds of millions of pounds’ worth of UK real estate that we were fairly sure was owned and controlled by individual entities that have been named under Russia sanctions. However, if you check on the Land Registry, there are not any of the typical markers to say that you cannot sell or transfer or trade this property. That is partly because of some of the very clever and complicated arrangements for their ownership, including using trusts.

In the work you are doing on the Bill, there is an opportunity to ensure that really important measures for global security, such as our Russian sanctions, actually work, bite and make it impossible for those who have moved large amounts of wealth out of Russia to continue to control it in the interests of their political sponsors.

Helena Wood: I could not agree more that we need to start moving from freeze to seize, but I echo Duncan’s sentiments that we must do so in a way that protects the very things we are trying to protect and do: the rule of law, due process and democracy. We should not push towards measures that effectively put in place a ministerial decree for confiscating individual assets and run roughshod over A1P1 principles.

That said, there is further we could go in UK legislation. Even with the advent of the much vaunted unexplained wealth order, our law enforcement agencies remain on the back foot. There is more we can do within the confines of European rights compliance-tested laws of reverse burden mechanisms to put law enforcement on the front foot.

Fundamentally, though, it is not going to be an easy fight to link those assets back to the criminality from which they once derived, given the difficulties of gaining evidence across borders. However, there are models we could replicate that have been tested for ECHR compliance, such as in Italy and Switzerland—I could name others. If the Committee will forgive me for trailing some forthcoming RUSI work, a paper is coming in November or December this year that sets out some recommendations of where part 5 of the Proceeds of Crime Act 2002 could replicate some of the principles of other regimes and push forward to at least put law enforcement on the front foot.

The other issue I would point to, which has already been partly legislated for, is cost protection for our law enforcement agencies. We have legislated for cost capping in cases involving UWOs, but they are not the right tool to use in all cases; I particularly point to the oligarchs, who do not fit under the definition of PEPs in UWO legislation. There is an argument for the Bill to potentially push for full cost capping of part 5 cases to increase the risk appetite of our law enforcement agencies to take those cases on in the first place.

--- Later in debate ---

[Tom Tugendhat]

I should put on the record that he is a friend of mine as well.

[Dame Margaret Hodge]

Of lots of us around the table.

Graham Barrow: Shell companies are containers. Effectively, it is a container for assets. They are used in a whole variety of ways. They are used, clearly, as conduits for corrupt and criminal funds to be moved around the world. They are also used just as a container to access banking and do as I have just described—a one-off hit to get a bank account open and get an overdraft.

I have seen physical evidence of a company being incorporated to an address of somebody in Cardiff who knows nothing about it; on the same day, they open a bank account with one of our high street banks, and on the same day, they remove the automatic £8,000 overdraft that came with that bank account. Then they disappear, and of course it turns out that they were untraceable because none of the details they provided were real. That is a shell company, because that is not doing any normal commercial activity.

The Committee mentioned addresses earlier. I am sure some members of the Committee will know that there are addresses in central London that are home to 100,000 companies. That is clearly a matter of concern, particularly with the proportion of those companies that are registered from some of the more remote parts of the world—places you would struggle to find on a map—that concentrate at those addresses.

We need to be quite clear about the legitimate use of corporate service provider addresses. Some of our banks now provide that as a service. That is fine. There is one firm that offers this thing called a non-resident package, which should immediately make your ears prick up. Somebody from outside the country can register a business and be given the business bank account for a fixed fee. That bothers me hugely, because it makes me ask why.

The thing about shell companies is that they are not always easy to identify at the point of incorporation. We are getting very good at it, but it is still not an exact science. It is about lifetime analysis of a company’s behaviour, as well as some of the red flags that are raised at the point of incorporation.

[Tom Tugendhat]

Q Thank you very much indeed. The amount of data coming out suggests that this legislation may do something to inform people about things such as phoenixing, which you have mentioned. Clearly, there are many aspects to that and I am not going to pretend for a second that the Bill answers every single one—it does not—but it certainly goes some of the way towards ensuring that people can be better informed when they enter into future agreements. How would you say that the information alongside the verification assists you?

Graham Barrow: It probably does not assist me an awful lot, because I do not have access to a lot of the other data that particularly members of JMLIT, and other law enforcement and Government organisations, have access to. As a private citizen, I will not have access to that much more information. That is probably a good thing, because I am already drowning in information. For a man who is going to be 70 next birthday, it is not exactly the retirement that I had planned. In a way, I think the best thing I can do is help to inform and educate others so that as the Bill starts to generate that information, some of which I will not be privy to, I can at least help people to understand better how to analyse and aggregate that information to extract signals.

Ultimately, there will be too much information to do everything with, so it is about how we organise ourselves, particularly at the point of incorporation, so that instead of waiting for a problem and going back to see how it happened, we identify that problem in the process of being set up, and start proactively managing the people who are part of organised crime or corruption and are using or abusing Companies House to do that. We have never done that before, to the best of my knowledge, but we are now in a situation where we can start doing it.

[Dame Margaret Hodge]

Q I want to take you back to the work you did on Deutsche Bank. First, what additional powers did it lead you to think you needed? Secondly, how did the FCA respond—what was lacking or worked well there?

Graham Barrow: Dame Margaret, you ask me a tricky question because I worked at Deutsche Bank, and some of what I know is privileged and I cannot talk about it. In fact, my work in Deutsche Bank is what has led me to be sitting here, because it was while I was there working on the Russian mirror trades that I realised that two completely different firms had filed exactly the same set of accounts—identical accounts—signed by the same person. My rather naive reaction then was, “How on earth did this happen?” I know better now. That person’s name is in the public domain: it is Ali Moulaye. He is a dentist who currently lives in Belgium and has been written about frequently. I kind of discovered him, in a way. He has signed more than 10,000 sets of accounts on Companies House on behalf of at least 2,500 limited liability partnerships, a significant proportion of which have, sadly, been named as being involved in various laundromats.

One issue was that all those accounts were filed on paper and were then scanned in as an image, not as a machine-readable document. That is a really big disadvantage, because it prevents people such as me, or those with access to clever technology, from reading those documents into artificial intelligence engines and performing deeper analysis on them. It is a very difficult problem. It would be a wonderful thing—although I suspect quite labour intensive—to retrospectively digitise all those old PDFs, because there is a huge wealth of intelligence still residing in them that we truly do not understand. That is also very much true of limited partnerships, which still can only file on paper. The only way to incorporate a limited partnership is on a paper application. That makes reading the data on those registration forms extremely difficult, which is why lots of it has remained hidden for so long.