Economic Crime and Corporate Transparency Bill

Baroness Winterton of Doncaster Excerpts

Report stage
Tuesday 24th January 2023 Commons Chamber

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)]

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

[Madam Deputy Speaker (Dame Rosie Winterton)]

With this it will be convenient to discuss the following:

Government new clause 9—Disqualification on summary conviction: GB.

Government new clause 10—Disqualification for persistent breaches of companies legislation: NI.

Government new clause 11—Disqualification on summary conviction: NI.

Government new clause 12—A limited partnership’s registered office: consequential amendments.

Government new clause 13—Removal of limited partnership from index of names.

Government new clause 15—Reports on the implementation and operation of Parts 1 to 3.

New clause 16—Reporting requirement (objectives)—

“(1) The Secretary of State must publish an annual report assessing whether the powers available to the Secretary of State and the registrar are sufficient to enable the registrar to achieve its objectives under section 1081A of the Companies Act 2006 (inserted by section 1 of this Act).

(2) Each report must make a recommendation as to whether further legislation should be brought forward in response to the report.

(3) Each report must provide a breakdown of the registrar’s annual expenditure.

(4) Each report must contain the details of the steps the Registrar has taken to promote the registrar’s objectives under this Act; and

(5) Each report must provide annual data on the number of companies that have been struck-off by the registrar, the number and amount of fines the registrar has issued, and the number of criminal convictions made, and of cases of suspected unlawful activity identified by the registrar as a result of the registrar’s powers as set out in this Act.

(6) Each report must provide annual data on the number of cases referred by the registrar to law enforcement bodies and anti-money laundering supervisors.

(7) Each report must provide annual data on the total number of company incorporations to the registrar, and the number of company incorporations by authorised corporate service providers to the registrar.

(8) Each report must detail all instances in which exemption powers have been used by the Secretary of State, as introduced by this Act.

(9) The first report must be published within one year of this Act being passed.

(10) A further report must be published at least once a year.

(11) The Secretary of State must lay a copy of each report before Parliament.”

This new clause creates an obligation on the Secretary of State to submit an annual report to Parliament on progress of the reforms in this Bill, data on the register, breaches, use of exemption powers by the Secretary of State and penalties imposed.

New clause 17—Checks on persons with significant control status—

“(1) The Companies Act 2006 is amended as follows.

(2) After section 790LP (Offence of failing to comply with sections 790LI to 790LN) insert—

‘790LQ Duty to check person of significant control status

(1) This section applies when a registrable person’s identity is verified under section 1110A(1) and a risk assessment carried out under section 1062A(1A) has identified a matter of concern in relation to the registrable person.

(2) The registrar must take steps to ensure that the registrable person whose identity is being verified is a person with significant control over the company.

790LR Duty of registrar to cross-check identity of person with significant control

(1) This section applies where—

(a) the registrar has received—

(i) the information required by subsection (6) of section 853G (Duty to deliver shareholder information: certain traded companies), or

(ii) relevant membership information as required by subsection (2) of section 49 (Membership information: one-off confirmation statement) of the Economic Crime and Corporate Transparency Act 2023; and

(b) the risk assessment carried out under section 1062A(1A) has identified a matter of concern in relation to any of the information in paragraph (a).

(2) The registrar must carry out a further assessment to establish whether the people notified to the registrar as persons with significant control of the company are not people notified to the registrar as holding at least 5% shares of the company, and that the reason for the discrepancy is 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 people notified to the registrar as persons with significant control of the company are not people notified to the registrar as holding at least 5% shares of the company, the registrar must carry out the check required by subsection (4).

(4) If this subsection applies, the registrar must take steps to ascertain whether the people notified to the registrar as persons with significant control of the company are people notified to the registrar as holding at least 5% shares of the company.’”

This new clause creates a duty on the registrar to check whether the person declared as the “person of significant control” (PSC) does indeed have significant control of a company, by cross checking company records, on a risk-based approach.

New clause 18—Disclosure of control of 5% or more of shares in a public company—

“(1) This section applies to shareholdings in public companies as defined by section 4 of the Companies Act 2006.

(2) A person who controls 5% or more of the shares in a public company must declare this fact to the registrar.

(3) The duty in subsection (2) applies whether the person controls the shares directly or indirectly.

(4) The registrar may impose a penalty on any person who fails to comply with the duty in subsection (5).

(5) Subsection (6) applies where—

(a) a person has made declaration under subsection (2), and

(b) the registrar has identified a matter of concern under subsection 1062A(1A) of the Companies Act 2006 in relation to the person or the declaration.

(6) The registrar must—

(a) verify the identity of the person, and

(b) verify the number of shares the person claims to control.”

This new clause requires any person holding 5% or more shares in a public company to declare this fact, and empowers the registrar to penalise non-compliance.

New clause 19—Risk-based examination of accounts of dissolved companies—

“(1) The Companies Act 2006 is amended as follows.

(2) After section 1062A (analysis of information for the purposes of crime prevention and detection) insert—

‘1026B Risk-based examination of accounts of dissolved companies

(1A) In a case where the registrar’s risk assessment under section 1062A(1A) has identified a matter of concern in relation to a dissolved company, the registrar must examine the accounts of the dissolved company with a view to establishing whether any economic crime has been committed.

(1B) The registrar must share details of any evidence gathered under subsection (1A) with the relevant law enforcement agencies.’”

This new clause creates new duties for the registrar to examine the accounts of dissolved companies with a view to establish whether an economic crime has been committed, using a risk-based approach.

New clause 20—Fees and penalties—

“(1) Section 1063 (Fees payable to registrar) of the Companies Act 2006 is amended in accordance with subsections (2) to (4).

(2) Before subsection (1) insert—

‘(A1) The registrar must charge a fee of £100 for the incorporation of a company.

(B1) The Secretary of State must once a year amend the fee in subsection (A1) to reflect inflation.’

(3) In subsection (1)—

(a) after ‘fees’ insert ‘other than the fee in subsection (A1)’,

(b) in paragraph (a) after ‘functions’ insert ‘other than the incorporation of a company’.

(4) In subsection (5), in paragraphs (a) and (b) after ‘regulations’ insert ‘or subsection (A1)’.

(5) The Secretary of State must lay before Parliament a report examining the case for fees paid under section 1063 of the Companies Act 2003 being paid into a fund established for the purposes of tackling economic crime.

(6) The report must also examine the case for penalties received by the registrar under section 1132A of that Act being paid into the same fund.

(7) The report must be laid before Parliament within six months of this Act being passed.”

This new clause raises the fee to incorporate a company to £100 (amended annually for inflation), and requires the Secretary of State to report on the case for these fees, along with penalties received by the registrar, to be paid into a fund to be used for tackling economic crime.

New clause 22—Person convicted under National Minimum Wage Act not to be appointed as director—

“(1) The Company Directors Disqualification Act 1986 is amended as follows.

(2) After Clause 5A (Disqualification for certain convictions abroad) insert—

‘5B Person convicted under National Minimum Wage Act not to be appointed as director

(1) A person may not be appointed a director of a company if the person is convicted of a criminal offence under section 31 of the National Minimum Wage Act 1998 on or after the day on which section 32(2) of the Economic Crime and Corporate Transparency Act 2022 comes fully into force.

(2) It is an offence for such a person to act as director of a company or directly or indirectly to take part in or be concerned in the promotion, formation or management of a company, without the leave of the High Court.

(3) An appointment made in contravention of this section is void.’”

This new clause would disqualify any individual convicted of an offence for a serious breach of the National Minimum Wage Act 1998, such as a deliberate refusal to pay National Minimum Wage, from serving as a company director.

New clause 24—Application for administrative restoration to the register—

“In section 1024 of the Companies Act 2006 (application for administrative restoration to the register), for subsection (3) substitute—

‘(3) An application under this section may only be made by a former director, former member, former creditor or former liquidator of the company.’”

This new clause would make it possible for a creditor or liquidator to apply to restore a company administratively.

New clause 34—Report on the authorisation of foreign corporate service providers—

“(1) Within six months of the day on which this Act is passed, the Secretary of State must publish a report on the authorisation of foreign corporate service providers.

(2) The report in subsection (1) must include but is not limited to—

(a) the number of authorised corporate service providers with a head office based in a territory outside the United Kingdom,

(b) the number of foreign corporate service providers authorised as set out in section 1098I(1) of the Companies Act 2006, and

(c) the number of foreign corporate service providers identified in subsection (2)(b) by territory.”

This new clause creates an obligation for the Secretary of State to publish a report into the number of Authorised Corporate Service Providers with a head office based outside the United Kingdom and the number of foreign corporate service providers authorised by the regulations set out in new section 1098I(1) of the Companies Act 2006.

New clause 35—Supervisory functions of registrar—

“(1) The Companies Act 2006 is amended as follows.

(2) After section 1081A (inserted by section 1 of this Act) insert—

‘1081B Supervisory functions of registrar

(1) The registrar must carry out supervisory duties, and must uphold standards and compliance with money laundering and terrorist financing legislation.

(2) The Secretary of State must ensure that the registrar has adequate resources to enable them to carry out this new role.’”

This new clause seeks to make the Registrar an AML supervisor in their own right.

New clause 36—Integrity of the register—

“(1) The registrar must ensure that information set out in the register prior to the provisions of this Act coming into force is accurate, up to date, and meets the requirements set out in the Act.

(2) The duty under subsection (1) includes ensuring that each entry lists the unique identification number of the Director of a company.

(3) The registrar will also make an annual report to Parliament on the status of its work to update existing company registrations.

(4) The report under subsection (3) must include—

(a) information on how many existing company registrations the registrar has evaluated to check the accuracy of the information provided, and

(b) details of how many existing company registrations have still to be evaluated by the Registrar to check the accuracy of the information provided.”

This new clause seeks to ensure that existing company registrations contain accurate, up to date information. It also imposes a requirement for the Registrar to update Parliament on the progress of updating the register.

New clause 37—Prevention of continued trading for companies repeatedly declared insolvent—

“(1) A company may not be registered under the Companies Act 2006 if, in the opinion of the registrar, it is substantially similar to a company which has been subject to winding up procedures under the Insolvency Act 1986 on more than three occasions in the preceding five years.

(2) For the purposes of subsection (1), ‘substantially similar’ can include, but may not be limited to, a company having the same or similar—

(a) name;

(b) registered office;

(c) proposed officers; or

(d) principal business activities

as another company.”

This new clause seeks to prevent companies from repeatedly becoming insolvent and then continuing to carry on the same business activities through a new company (the practice of “phoenixing”).

New clause 38—Bar on directors in breach of duties receiving public funds—

“(1) A company with a director or directors which are in breach of the general duties outlined in Chapter 2 of the Companies Act 2006, or who have been found to have committed statutory breaches of employment law or avoided taxation, may not receive Government provided funds or financial support, unless subsection (2) applies.

(2) A company whose director or directors meet the criteria outlined in subsection (1) may receive Government provided funds or financial support if such funds or support are provided solely and specifically for the direct benefit of the company’s employees.”

This new clause seeks to prevent directors who fail to comply with their duties as a company director or with employment law provisions and/or tax obligations from being able to access funds in instances where these funds are for the benefit of the company and not the company’s employees.

Amendment 104, in clause 1, page 2, line 13, at end insert—

“Objective 5

Objective 5 is to act proactively by—

(a) making full use of the information, intelligence and powers available to the registrar in order to identify issues of concern, and

(b) sharing information about any issues of concern with relevant public bodies and law enforcement agencies.

(4) In this section, an ‘issue of concern’ includes—

(a) inaccurate information,

(b) information that might create a false or misleading impression to members of the public,

(c) an unlawful activity.”

This amendment would insert a fifth objective requiring the registrar to act proactively.

Government amendments 1 to 9.

Amendment 108, in clause 62, page 46, line 41, at end insert

“and that the individual has signed a confirmation statement stating whether they already have a unique ID on the register.”

This amendment would add a requirement on ACSPs to confirm the individual they’re verifying has signed a confirmation statement stating whether they already have a unique ID on the register.

Amendment 101, page 46, line 41, at end insert—

“(2A) No verification statement may be made by an authorised corporate service provider until—

(a) the Treasury has laid before Parliament a report confirming that the Treasury’s reform of the UK’s anti-money laundering supervisory regime, as set out in the document entitled ‘Review of the UK’s AML/CFT regulatory and supervisory regime’ published by the Treasury in June 2022, has been completed and implemented; and

(b) the registrar has put in place a risk-based approach to review the work of authorised corporate service providers which includes spot checks of providers’ data to ensure providers are properly and accurately carrying out processes to verify identification documents and other data submitted by authorised corporate service providers.”

This amendment would ensure that Corporate Service Providers are not authorised to carry out ID verification until the consultation on anti-money laundering supervision announced by the Government is completed and implemented.

Amendment 103, in clause 63, page 52, leave out from line 20 to line 4 on page 53, and insert—

“1098H Duty to provide information

(1) The registrar must carry out a risk assessment in relation to any authorised corporate service provider to establish whether the verification of identity by the authorised corporate service provider is likely to give rise to a risk of economic crime.

(2) If the risk assessment identifies a real risk of economic crime, the registrar may—

(a) require an authorised corporate service provider to provide information to the registrar; or

(b) require a person who ceases to be an authorised corporate service provider by virtue of section 1098F—

(i) to notify the registrar;

(ii) to provide the registrar with such information relating to the circumstances by virtue of which the person so ceased as may be requested by the registrar.

(3) The registrar may require information to be provided on request, on the occurrence of an event or at regular intervals.

(4) The circumstances that may be specified under section 1098F(2) or 1098G(1) (ceasing to be an authorised corporate service provider and suspension) include failure to comply with a requirement under subsection (1)(a).

(5) A person who fails to comply with a requirement to provide information under this section commits an offence.

(6) An offence under this section is punishable on summary conviction by—

(a) in England and Wales a fine;

(b) in Scotland and Northern Ireland a fine not exceeding level 5 on the standard scale and, for continued contravention, a daily default fine not exceeding one-tenth of level 5 on the standard scale.”

This amendment creates an obligation on the registrar to carry out a risk assessment to establish whether the identity checks carried out by authorised corporate service providers are accurate and valid.

Government amendment 10.

Amendment 105, in clause 66, page 55, line 14, leave out “power” and insert “a duty”.

This amendment would ensure that all directors would be issued with a unique director identifier to be used for all their directorships regardless of whether they or an ACSP form the company.

Amendment 106, page 55, line 18, at end insert—

“(iii) To link the unique identifier to the person and to any other entries they have on the register under the same name or a different name.”

This amendment would allow the registrar to link all unique identifiers to any other entries the person has on the register whether under the same name or a different name.

Government amendments 11 and 12.

Amendment 102, in clause 89, page 68, line 37, at end insert—

“(1A) As part of the risk-based approach under subsection (1), the registrar must carry out a risk assessment to identify where the information it holds might give rise to a matter of concern.

(1B) Where the assessment identifies a matter of concern, the registrar must—

(a) carry out whatever further analysis it considers necessary; and

(b) share any evidence of unlawful activity it identifies with the relevant law enforcement agency.

(1C) For the purposes of this section, a ‘matter of concern’ includes—

(a) inaccurate information;

(b) information that might create a false or misleading impression; or

(c) evidence of economic crime.”

This amendment requires the registrar to carry out a risk assessment of the information it holds, and act on any matters of concern identified.

Government amendments 13 to 38.

Amendment 107, in clause 136, page 123, line 28, at end insert

“and,

(d) be published on the registrar’s website and remain published on the registrar’s website for a minimum of 20 years from the date on which it was first published.”

This amendment would require the limited partnership dissolution notice to be published on the registrar’s website and remain published for a minimum of 20 years.

Government amendments 39 to 43, 52 and 53.

Amendment 109, in schedule 2, page 172, line 40, at end insert—

“167GA Unique identification number for directors

(1) On receipt of notification of a person becoming a director, the registrar must allocate that director a unique identification number, unless such a number has already been allocated to that person.

(2) Any information supplied to the registrar under or by virtue of this Act about a person who has been allocated a unique identification number under subsection (1) must include that number.

(3) The Registrar should ensure existing registrations allocate a unique identification number to Directors.”

Government amendment 54.

Amendment 111, page 174, line 38, at end insert—

“167KA Limit on number of directorships held

(1) Where notice has been given to the registrar that a person (P) has become a director, the registrar may determine that P may not hold that directorship.

(2) The registrar may make a determination under subsection (1) if the registrar considers that P holds an excessive number of directorships.

(3) The factors that the registrar may take into account in making a determination under subsection (1) are the experience, expertise and circumstances of P, as well as the nature of the industry/company they are operating within and the time commitment their role as a director requires.

(4) If the registrar makes a determination under subsection (1), P may not hold office as a director of the company.”

Amendment 110, page 174, line 41, after “167G,” insert “167GA”.

This amendment would provide for penalties to apply to anyone failing to provide their unique identification number to the registrar.

Government amendments 55 and 56.

New clause 26—Beneficial owners in overseas territories—

“(1) The Sanctions and Anti-Money Laundering Act 2018 is amended as follows.

(2) In section 51, after subsection (5) insert—

‘(5A) The Secretary of State must ensure that the Order in Council under subsection (2) above comes into effect on date no later than 30 June 2023.’”

This new clause would amend the Sanctions and Anti-Money Laundering Act 2018 to ensure that an Order in Council requiring open registers of beneficial ownership in the British Overseas Territories comes into force no later than 30 June 2023.

Government amendments 50 and 51.

[Kevin Hollinrake]

It is a pleasure to speak to the Government’s amendments to the Economic Crime and Corporate Transparency Bill. I know that all hon. Members agree with its core ambition to bear down on the kleptocrats, criminals and terrorists who abuse our open economy and, critically, to strengthen the UK’s reputation as a place where legitimate business can thrive.