Economic Crime and Corporate Transparency Bill

Alison Thewliss Excerpts

Report stage
Tuesday 24th January 2023 Commons Chamber

[Harriett Baldwin]

That is my point—my hon. Friend has made it much better than I was. This is an offer to the Minister for a significant increase in the budget of one of the agencies for which he is responsible, Companies House, and it would be feasible without putting any further burden on the hard-pressed taxpayer. That is why I support the new clause and why I am looking forward to the Minister accepting the principle of it. I acknowledge that we may be talking about plus or minus a few quid around that £100, but that is a good starting point.

[Alison Thewliss (Glasgow Central) (SNP)]

I am glad to rise on this auspicious day to discuss this auspicious Bill. Today is auspicious not just because we have this Bill back in the House today, but because it is my mum’s 70th birthday. I am sure all Members from across the House would like to wish her many happy returns. [Hon. Members: “Hear, hear!”] Thank you.

The Bill presents a significant opportunity for the Government, and for all of us, in tackling economic crime across these islands. We have tabled many different amendments during the Bill’s various stages, including yet more today, but we very much encourage the Government to look at these amendments in good faith. As Ministers and anybody looking at the amendment paper will see, they are very much cross-party amendments. There is a lot more we agree with in the amendments to this Bill than I have seen in respect of just about any other Bill that has come before this House. The Government would do well to reflect on quite how cross-party the amendments are—there is very little to choose between us.

I pay tribute to the right hon. Member for Barking (Dame Margaret Hodge) for the important work she has done in her all-party group, which has been significant in bringing so much cross-party agreement together on the direction of travel here. I hope very much that the Minister will be listening to her, as we all will be, when she speaks later, because the amount of work that has gone into considering what would make the Bill stronger is significant; it is not a light job that has been done there. The Bill would be strengthened all the more if these amendments were accepted.

[Clive Efford (Eltham) (Lab)]

I pay tribute to the Minister for the work he has done on this issue when he was one of us on the Back Benches. When the hon. Lady was speaking about the cross-party nature of the amendments, I could not help but think that if the situation were slightly different, the Minister’s name would be on those amendments.

[Alison Thewliss]

Yes. I have remarked in Committee, as the Minister will well remember, on the number of occasions when he agrees with himself, but not as a Minister. It is a curious situation and I will return to that when we get to the part of the Bill with which he is most associated.

As the Minister said, and as we all acknowledge, there is a lot here that we can agree on. It is unfortunate that more of the amendments have not been taken on board, because gaps remain in the Bill. We are all concerned that there will not be another opportunity to look at these issues again in this detail; unfortunately, parliamentary time does not work like that, so getting it right this time is important. We could get it right today or tomorrow, or if the Lords come forward with some useful amendments—as little as I like to give credit to the unelected peers along the hall, if amendments are tabled there, I would encourage the Government to accept them and make sure that they are acknowledged.

SNP Members have tabled a number of amendments, where we seek to create a unique identifier for directors; to put a limit on the number of directorships an individual can hold; to prevent directors in breach of their duties from taking public funds; and to prevent the practice of phoenixing, which causes so much harm to many of our constituents. It is not often talked about in the same bracket as economic crime generally, but phoenixing causes huge distress. My hon. Friend the Member for Paisley and Renfrewshire North (Gavin Newlands) will certainly return to this point in his remarks later.

Government new clause 8, on persistent breaches of companies legislation and the disqualification of company directors, is very important, because we have seen numerous reports in the press of people who repeatedly breach the law. There are huge issues of enforcement, and I intend to address those too. The Bill should include consequences for people who breach the rules.

I wonder what the House and the Minister think about a compliance case raised earlier today by Tortoise. It mentioned Balshore Investments Ltd Gibraltar, which in 2017 listed itself at Companies House as a person of significant control of a different company, Crowd2Fund. Its name was then removed in 2020, and that removal was backdated to 2016. In 2022 two directors, named on the register as Nadjat Al Zahawi and Hareth Nadhim Al Zahawi, were named as PSCs of Crowd2Fund.

Graham Barrow has told Tortoise that the retrospective changing of directors means that Balshore’s filings

“leave a huge gap of six years when, despite Balshore owning 40 per cent of Crowd2Fund, no declaration of the underlying owners of Balshore has been made, as required by UK law”.

This is a very interesting and topical case. I wonder what the consequences might be for, and what might befall, those who fail to comply with company law in this way under the new legislation.

Government new clause 15 is important in ensuring that this House is accountable on the measures within the Bill. I think that is fine as far as it goes, but Labour’s new clause 16 would go much further. It is important that the Minister looks at these measures and asks, “What does the House need to know?” Yes, there will be reports, but there is a good deal more detail in new clause 16, and I think it is important to look at that and think, “Actually, this is what the House might find useful and interesting to look at as regards the effectiveness of the Bill.”

[Liam Byrne]

Does the hon. Member agree that waivers for warlords is exactly the kind of information that the House would be interested in, to understand how effectively we are prosecuting economic crime and how well our sanctions are actually biting?

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[Alison Thewliss]

The right hon. Member makes an incredibly important point. The case reported in the press today shows people getting around the rules that we set up for very important reasons—the House should be aware of these things. This information should not have to be squirreled out by investigative journalists—as wonderful and well informed as they are. It should come to the House as a right. It should not have to be exposed. It is something we should know as elected Members in this Parliament.

On new clause 17, on PSC status and verification, it is incredibly important that there are cross-checks on identity and that we understand who those people are. One of the big holes in the system now is the lack of cross-checking and ensuring that the rules are being followed. We must ask Companies House to be more inquisitive of the information it receives, and I think new clause 17, tabled by the hon. Member for Barrow and Furness (Simon Fell), would have that effect. It is very important that Companies House has a risk-based approach to looking at organisations and ensures that what is there is actually factual.

Moving to new clause 19, on the accounts of dissolved companies, Graham Barrow, who is the expert on many things to do with Companies House and to whom we are all very grateful, pointed out in evidence to the Bill Committee that there is such thing as a burner company, whereby a company is set up without there being a real intention of it becoming a real, live company out there trading in the world. It is set up and then disposed of, without the obligation to file any accounts, because that is done within the timescale.

New clause 19 would go some way to dealing with those burner companies. If somebody is setting up and dissolving companies—on and off, on and off all the time—it can be difficult under the current system to know that that is happening. If there is a means of examining the accounts—if those accounts exist— of dissolved companies, it might be easier to track them and establish whether any economic crime is involved within them.

As Graham Barrow often points out, companies are being set up in their hundreds every day by organisations that do not really exist—organisations with suspicious names and suspicious addresses. Hundreds of them are registered to one tiny shop or a post office box somewhere. That has to be stamped out. This is the opportunity to do so. We do not know what those companies are for, why they exist, what they will be used for, and whether it will be our constituents who will lose out as a result.

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[Alison Thewliss]

I agree. The hon. Gentleman is anticipating my moving on to new clause 20, which talks to some of those issues in great detail, and a very good amendment it is, too. We have talked about whether the fee of £100 is arbitrary, a finger in the wind. But it is a figure that we can put in the Bill to say, “Let’s start here”. It gives Companies House the resource with which it can do work.

It was pointed out by some of those who gave evidence to the Bill Committee that, if we are seeking to clamp down on those hundreds of companies being set up every day at £12 a pop, we need to replace that money with legitimate money; £100 would go some way to dealing with that gap and that discrepancy. We need to ensure that that money goes to increasing the staff at Companies House, and the capacity, ability and expertise of the people Companies House hires, because much of this is becoming incredibly technical. It is important that it has the resource to do that. All the agencies involved need that money, but Companies House, as the front door to a lot of this stuff, needs to be properly resourced to be able to do that.

I note that the Minister talked about not wanting to put in legislation the sum of money that that fee would require, but that is not quite how other parts of the system work. I have sat on Statutory Instrument Committees that set the value of passport fees. I understand that the House sets the value of visa fees. Therefore, within the immigration system, the House decides what that fee is and sets that fee. Yet it is not deciding to do so for companies.

I do not know whether the Minister intends the matter of setting a fee —at £100, or whatever it might be—to come before an SI Committee at some point, but that is not what the Bill says he is going to do. It is important to recognise that, in one area of government, the Government are setting a fee and deciding how much people should pay for things and that other parts of the system should have cost recovery. The visa fee goes way above cost recovery; the passport fee perhaps less so. We are talking about £75.50 for a passport, compared with £12 to register a company and £1,538 for a visa. Those things are not quite the same. The company fee could bear being significantly higher than the £12 it is at the moment, and there is a place in legislation where we could set that because that is what the Government do in other areas of legislation.

New clause 22 tabled by the Official Opposition—entitled “Person convicted under the Minimum Wage Act not to be appointed as director”—is laudable in its aims because the people flouting the rules should not get to be company directors. Being a company director is a privilege, not a right. For those people who have been convicted of not complying with the legislation, it is perfectly reasonable that they could be disqualified for a serious breach of the National Minimum Wage Act 1998. It is reasonable to disqualify them.

On the issue of trust and company service providers, there is more that the Bill should and must do. It is unfortunate that the consultation on the Office for Professional Body AML Supervision is still ongoing, I understand, or certainly not concluded, because that should form part of this Bill. It has been widely acknowledged that OPBAS is not effective and is not working as the Government intended, but the Government do not yet know what they are going to do, how they will fix OPBAS, whether it will require further legislation in this House, whether it will involve stripping OPBAS of its AML supervision responsibilities and duties and, if it does, where those responsibilities will lie.

Our suggestion in new clause 35 is to make Companies House the AML supervisor in its own right. I have asked various questions on why the Government do not believe that Companies House should be an anti-money laundering supervisor. It seems to us on the SNP Benches that, if Companies House is the front door for every company registered in the United Kingdom, it should be liable for anti-money laundering regulations. If we are asking banks and other institutions to look at that, why not the Government agency responsible for the registration of every company on these islands?

That would give Companies House more duties and stop the flow of guff companies, terrible information and people who seek to defraud our constituents at the front door. It seems bizarre to me that the Government would not want to shut the front door firmly in the face of the crooks and the people who want to do that. There is also more that could be done, as mentioned in some of the Labour amendments, on the duty and powers of Companies House. We think Companies House should have powers, and not only powers, but duties—it should have to do those things.

I do not see why there is ambiguity in this legislation. If the Government are saying Companies House should do it, they should make Companies House do it, rather than leaving it up to interpretation or somebody’s decision further down the line. They should make Companies House do it. We all know that, if we are not forced to do a thing, we might not do a thing. We might not do the dishes, or the laundry, but if we are forced to, we certainly will. There is more that can be done to shut the door and tighten the regulations.

Through our amendments, we also seek to tighten the integrity of the register. That includes new clause 36 and our amendment 109. They reflect Labour’s amendment 103 and some of the other amendments that speak to the importance of identification numbers and the integrity of the register itself.

Much of the evidence we heard in the Bill Committee, as well as at various APPG events and other online events, indicates that the register as it stands is full of absolute guff. It has had—[Interruption.] The Minister waves the legislation, but the difficulty is that he is not intending to fix all that guff. He is allowing that guff to live on the register forever, because there is not enough in the Bill about the retrospective action Companies House has to take, looking through all the hundreds and thousands of companies that, over many years, have been allowed to filter on to the register unheeded.

Graham Barrow’s Twitter account is full every single day of companies being registered with information that is absolute rubbish. We must have a means of putting a duty and an obligation on Companies House to go back through the register, to clear it out and to say, “There’s no point having that stuff on there, because it is in effect meaningless and it’s gumming up the system for those who want to use the register in legitimate ways.”

We must be able to keep a check on Companies House: that is why new clause 36 says that it should seek to ensure that registrations contain accurate, up-to-date information and that it comes back to update Parliament on its progress updating that register. We cannot expect these things to happen overnight, because it is a big register and there is an awful lot on it, but we must ensure that it is accurate. If it is not, there are very real consequences for our constituents, as Graham Barrow pointed out. People have found themselves being defrauded when their names, their addresses or both have been used inaccurately. Those people have been chased or pursued by criminals and all kinds of things have happened to them because of fraudulent information on the Companies House register.

Someone may not even find out that their name has been used fraudulently. If they have a name such as James Smith, they may never find out. There are only three Alison Thewlisses on the register, but they are all me. There should be one identification—I should not be on the register as three people—and that is why we seek a unique identifier to track people throughout their lives. If someone’s name has been registered and used without their knowledge, with an address that is not theirs—a mailbox perhaps—they may not find out about it but may end up being liable for the actions of the fraudsters, so a lot more can be done on that.

We are also seeking through amendment 111 to limit the number of directorships that people can have. People may have multiple directorships, but is the director of 300 companies really able to do that job properly? Probably not. Those are probably not real companies and that person is probably not acting as a proper director. Again, on the Companies House register, many people are registered for hundreds of companies. As a red flag in the system, that should stand out to Companies House, which should be able to ask, “Is this person a real director?” and do more investigation. Our amendment would encourage that.

I am quite pleased to see that Government amendments 30 and 32 would give Scottish Ministers the power to present a petition to wind up Scottish limited partnerships, which have been comprehensively abused for several years now. That has been a real problem, and giving Scottish Ministers the power to do something about it is important. Although they are called “Scottish limited partnerships”, they have in practice very little to do with the Scottish Government, who can do little about them at the moment, so that is an important power. I am grateful to Michael Clancy of the Law Society of Scotland, who I hope is correct in his belief that that is a practical and useful measure. Will the Minister outline whether he has had any further discussions with Scottish Ministers, and how he thinks the power would work in practice?

I am prepared to leave my remarks at that—I appreciate that other Members want to get in and discuss other things—but I will leave the Minister with a quote from a Bill Committee evidence session on 25 October. Bill Browder, who has been a great champion of corporate transparency and standing against corruption internationally, told the Committee:

“You can write as many great laws as you want—there is some good stuff in this law, and good stuff in the previous laws—but if no one is going to enforce it, then you are never going to change the risk-reward and people are going to carry on doing stuff. All this will continue, and I will sit here 10 years from now making the same allegations about how this is a centre of money laundering.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 69, Q144.]

Nobody wants to be sitting here in 10 years—well, certainly not those of us on the SNP Benches—seeing money laundering going on unabated. We want the Government to take the opportunity that the Bill presents to close loopholes. To get that right, and get it right now, they should take the advice and knowledge that Members from across the House, and external organisations, have brought to the Bill. If the Government make the amendments and fix the Bill, they will have cross-party support for it.

[Mr Deputy Speaker (Mr Nigel Evans)]

Before I call Dame Andrea Leadsom, I remind everybody that a number of cases are still before the courts, and we do not know all the cases that there are. Even though the sub judice rule does not apply when we are legislating, Mr Speaker has urged caution for those live cases. If Members could do us a favour and look up cases that they intend to mention, that would be really useful.

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[Gavin Newlands (Paisley and Renfrewshire North) (SNP)]

I rise to speak to new clauses 37 and 38. May I start by informally correcting the record? The Hansard report of the Committee stage noted that I had said, “The Bill is excellent”, and indeed, the Minister jumped on that—unsurprisingly, given those comments—when he responded to my contribution. Perhaps characteristically, I had mumbled, “The intent of the Bill is excellent.” And it is no doubt excellent in places, but as it stands, it is a good Bill that could be made excellent with further provisions.

The Minister has—certainly from an Opposition point of view—gone through what amounts to an extended honeymoon period, given the acclaim with which he has been addressed by Members from across the Chamber. Like those who are more expert in the general area addressed by the Bill, and its provisions, I absolutely do not doubt the Minister’s intent, but in the end, he will be measured by the final Act and its implementation.

I accept that the Government have made a big concession on directorate exceptions, but many of the areas to which Opposition parties sought to draw the Government’s attention in Committee remain unchanged or not strong enough—the Minister himself campaigned on some of them just a few weeks prior to the Bill. In the end, 69 pages were added to what is now quite a hefty Bill, but some areas of Companies House policy remain largely unaddressed. The one I will focus on—and the subject of new clause 37—is phoenixing.

The right hon. Member for South Northamptonshire (Dame Andrea Leadsom), who is no longer in her place, described phoenixing for us, so I do not have to. I am sad to see that her amendment 112, which I sponsored, has not made the final agenda, but new clause 37 is, in many ways, wider than her amendment. My hon. Friend the Member for Glasgow Central (Alison Thewliss) made the point about how serious phoenixing is to all our constituents. As laudable and important as the aims of the Bill are, many of the issues that it addresses do not impact day to day on the vast majority of our constituents, whereas issues such as phoenixing do.

As I have said, I accept the laudable intentions behind the Bill, which contains provisions on unique identifiers and so on that would help to block some of the more obvious means of phoenixing—as we discussed when we took oral evidence and throughout our line-by-line scrutiny—but my view, and that of many others, is that we are missing a golden opportunity to fully address phoenixing and tighten up all parts of the regulation relating to Companies House. The genesis of new clauses 37 and 38 is, as I mentioned in Committee, a specific director and company that, unfortunately, harmed hundreds of my constituents and thousands across Scotland and the UK.

New clause 37 would stop those who have burned through multiple limited companies, leaving a trail of destruction in their wake with little or no recourse for the authorities. It would deal with the worst of those culprits by specifying those who are

“subject to winding up procedures under the Insolvency Act 1986 on more than three occasions in the preceding five years”,

so we have gone for the particular egregious end of phoenixing. It would not prevent those who have no nefarious or ill intent but find that their company is unsuccessful, even on more than occasion. It would not apply automatically to any individual who hits the three winding-ups limit. It would only allow the registrar to act if there were grounds to do so.

Around 10 years ago a company called Home Energy and Lifestyle Management Systems, controlled and operated by a man called Robert Skillen, went door-to-door in my constituency offering solar panels and home insulation as part of the now scrapped UK Government green deal scheme. Hundreds of my constituents and thousands across the UK are still paying the price to the tune of thousands of pounds each. Skillen was able to wind up HELMS, move on to his latest venture with millions in his back pocket and face no consequences whatsoever for his personal actions. There are thousands of individuals like him with a long track record of extracting maximum value from scams via limited companies and then setting up shop for a new crack at the very same thing, having defrauded thousands of people. Skillen even had the cheek to set up a company to assist those who had been defrauded by his previous company to receive compensation, from which he would receive a cut. It is extraordinary.

That type of individual is currently beyond the reach of the law, so hopefully provisions such as the new clause would assist with that. Mr Skillen was fined £200,000 by the Information Commissioner’s Office and £10,500 by the then Department of Energy and Climate Change, but the fact is that he only paid £10,000 of that £200,000 before winding the company up. That led the ICO to lobby the Government to enable it to fine individuals such as Mr Skillen up to half a million pounds. In respect of cases such as Mr Skillen and many others who make sharp practice look easy and do so without any care or remorse, the new clause would act as a deterrent to the manipulation of company registration for personal gain and prevent those who have used multiple company identities for malfeasance or sinister purposes from continuing that pattern of behaviour ad nauseam.

I stress that the point of the new clause is not to prevent those who have genuinely unsuccessful businesses from starting afresh. The registrar should be able to separate those cases from those of people with evil intent. Companies House already has the ability to disqualify directors, and the new clause would simply allow it to consider slightly wider grounds on which such a disqualification could rest. It would help put an end to the cases that every Member of this House will no doubt have encountered in their constituencies of companies taking payment for goods and services, shutting up shop with the cash pocketed and popping up again under a different name, but carrying out exactly the same work.

As it stands, there is no prohibition on being a director of a new company while another director is subject to insolvency procedures, as far as I am aware, unless the Minister can tell us differently. I have looked through the Bill and there are no provisions within the current Bill that would change that situation. In Committee, the Minister said, in responding to the new clause we were discussing at the time, that he was

“keen to look at not just phoenixing but other types of situation where people deliberately take risks like that that have devastating consequences for consumers and businesses in our constituencies.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 29 November 2022; c. 601.]

Moreover, he said:

“There is a wider issue…Certainly, a piece of work is needed to look at this in detail.” ––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 29 November 2022; c. 602.]

Can he tell us what work that is? When might it be brought forward? If it is not dealt with in the Economic Crime and Corporate Transparency Bill, then where? I hope that Members in the other place will give phoenixing the attention that it demands.

[Alison Thewliss]

My hon. Friend is making a good case on the impact of phoenixing on individuals and our constituents. Is he aware also of cases where companies have employed subcontractors, they have done all the work and then the company goes bust before they have been paid? Does he agree that it is important that the Bill tackles that kind of practice, too, which can put those subcontractors at risk of going bust?

[Gavin Newlands]

I absolutely agree with my hon. Friend. Subcontractors also come to us with these issues. As well as the customer or consumer, there are currently no protections for those subcontractors at the end of the day. New clause 37 would go some way to addressing that.

I will deal with new clause 38 in short order. It proposes to turn off the tap of public funding to those who have failed to discharge their duties to their company’s staff under the Companies Act 2006. I mentioned Mr Skillen; a local constituent got in touch to tell me that he is back in business. The company that he is currently a director of is in receipt of public funds. Mr Skillen is a director of four limited companies, each one coming after winding up a firm. Those companies are interlinked via control and ownership structures. Through that, Government loan funding was applied for and granted just before Mr Skillen became a director and owner of a large chunk of the new enterprise.

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[Kevin Hollinrake]

I am happy to have a meeting with the hon. Lady to discuss the different things that she thinks should be reported. Clearly, the annual report should be comprehensive and cover many of the matters that she raises.

Much has been made about creating duties and obligations for Companies House. As my hon. Friend the Member for Huntingdon (Mr Djanogly) said, we should not assume that these things will happen by right. Oversight by Ministers, Parliament, public and press is needed to ensure that these measures are properly implemented. Companies House is an Executive agency of my Department, and I can commit that it will be obliged by the Government to deliver on the policy intent and resourced to do so, which I will talk about in a second. Government new clause 15 is not just about process; it will ensure that Parliament is provided with reassurance on the further work that will be required after Royal Assent, such as the laying of secondary legislation or the development of IT.

[Alison Thewliss]

The Minister talks about the need for secondary legislation. Does he have an idea of the timescale for that coming before the House, so that we know how long it will be before things actually happen?

[Kevin Hollinrake]

I cannot give a fixed timescale for the regulations, but clearly the quicker we get the Bill to Royal Assent, the better. I am sure that the hon. Lady will assist with that; she has been very co-operative in the past, despite the lengthy debates we have had about various matters.

The Opposition’s new clause 16 would require the report to set out the number of fines issued by the registrar. Companies House not only already does that but goes much further, publishing annual data on the fines issued by the registrar broken down by type of company. For example, in the last financial year, 171 penalties of £1,500 were issued to companies registered in England and Wales for filing their accounts up to three months late.

I can reassure Members that it is the Government’s policy to issue unique identifiers to all individuals who will be required to verify their identity. That includes new and existing directors of companies, as well as anyone filing information with Companies House. These unique identifiers will mean that Companies House can link an individual’s verified identity across multiple data points, roles and company associations, to enable users of the register to search for an individual and find all relevant records.

[Alison Thewliss]

I made the point earlier about my name appearing in three places on the register, with three different addresses where I have lived at different points of my life. How will Companies House tell me that my entries have been consolidated, and how will it contact me?

[Kevin Hollinrake]

As the hon. Lady knows, the unique identifier will not be public, because we think that could increase the chances of fraud. It is already possible to search the Companies House database to a certain extent; for example, if she searches my name, my previous directorships all link together. We intend to improve the database by linking the hon. Lady’s name, year and month of birth, address and any other companies she may be associated with. That will link those records, to give a holistic overview of her company associations.