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.

Industrial Action

Alison Thewliss Excerpts

Tuesday 10th January 2023 Commons Chamber

[Grant Shapps]

As the hon. Lady will know, various different unions have been invited in, there have been discussions across the different sectors and we are doing everything we can to encourage a settlement. I do need to gently point out to Opposition Members that this is not a Government who have ignored the independent pay review bodies, come up with our own number and, say, halved the amount of money that was suggested should be paid. We have actually accepted in full the recommendations of those independent pay review bodies, so we are actually following the science and following the evidence. She is wrong to suggest, and to continue frightening people by saying, that their jobs could be at risk. Nobody’s job is at risk. I have already explained that we are hiring more, particularly nurses and doctors, and this legislation will simply say that, if we cannot get there voluntarily across the country—not just, for example, in the constituency of the hon. Member for Weaver Vale (Mike Amesbury), but everywhere—we will have legislative power to make sure we are able to require minimum safety levels for everybody, not just some.

[Alison Thewliss (Glasgow Central) (SNP)]

Teaching staff at my daughter’s school are on strike today and staff at my son’s school are on strike tomorrow, and I fully support their right to do so. We all know the Scottish Government’s budget is constrained, having been short-changed and underfunded in the face of soaring inflation. What discussions has the Secretary of State had with the Chancellor to ensure a fair funding settlement for the Scottish Government so that Scottish public sector workers can get the pay rise they deserve to deal with the Tory cost of living crisis?

[Grant Shapps]

All of us want our kids to be able to get to school, and the example in Scotland demonstrates that strikes occur regardless of who is in power at a particular moment, but the hon. Member and those on the Opposition Front Bench are wrong to suggest this is a UK problem that does not affect other parts of the world, because exactly the opposite is the case. We are in this situation and have this level of inflation because of the war in Ukraine, because Putin illegally invaded his neighbours’ country, because it pushed up energy prices, and because that pushed up inflation. It makes all of us poorer when that happens. If Members think the solution is simply not to worry while people’s livelihoods and safety are put at risk, that will be up to them to decide when they vote. This party will be voting to ensure people’s security and safety no matter which strikes come next.

Economic Crime and Corporate Transparency Bill (Nineteenth sitting)

Alison Thewliss Excerpts

Committee stage
Tuesday 29th November 2022 Public Bill Committees

[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.

[Alison Thewliss (Glasgow Central) (SNP)]

I did not mean to stop the Minister in mid-flow. He says that the number does not necessarily correlate to criminality. Is he concerned to hear that trust and company service providers have provided only 31 SARs, according to Graeme Biggar when he gave evidence to the Treasury Committee? A total of 31 seems impossibly low for the number of trust and company service providers, compared with what comes in from others.

[Tom Tugendhat]

The hon. Lady makes a fair point, but as she knows well that is not the point of the new clause, which is about the supervision of SARs and the ways in which they are checked and verified. That said, I have listened carefully to her and will have a look at that, because I do appreciate the point she makes. That said, I think these codes already enable the NCA to triage effectively, although if she has better ideas I am happy to listen and look at them further. However, I am to be convinced, because I think the Bill already addresses the areas she indicates. I get the point she is trying to make, but I am not sure that her suggestions would lead to a significant improvement on what is already there.

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[Alison Thewliss]

I, too, rise to support the new clauses, which are incredibly important.

“Of all the measures we have talked about today, this would have the biggest effect in terms of cutting down on economic crime, because lots of our financial organisations are complicit when it suits their interests to be so.”—[Official Report, 13 October 2022; Vol. 720, c. 309.]

If the Under-Secretary recognises those words, it is because they are his own from just a few weeks ago, on 13 October 2022. What a long time it has been; here we are today at the end of November.

It is important that we use the new clauses as an opportunity. As the right hon. Member for Barking said, this is an opportunity to make this change now and get it right. It cannot be said that the Ministers present do not agree with the measures. The Under-Secretary argued for a failure to prevent economic crime offence not just on 13 October 2022 but on 7 July 2022 and 1, 22 and 28 February 2022, on 2 December 2021, on 9 November 2021, on 22 September 2021, on 18 May 2021, on 9 November 2020, on 25 February 2020, on 19 July 2019, on 23 April 2019, on 18 December 2018 and on 9 October 2018. Why have we got to the point today where he is arguing against something that he has argued for so consistently and repeatedly in this House?

[Kevin Hollinrake]

Will the hon. Lady give way?

[Alison Thewliss]

I will if the Minister can give me an explanation as to why he is not going to back the new clause.

[Kevin Hollinrake]

When have I argued against it?

[Alison Thewliss]

I suspect that if it goes to a vote, he will vote against the new clause, so he does not even need to argue against it. If it goes to a vote, he and his colleagues will vote against something that he has consistently and repeatedly supported in this House. He knows in his heart of hearts that this is the right thing to do. I am very interested to know whether, if the Government will not support the new clause—whether it goes to a vote or not—they will introduce something similar on Report. Both Ministers know that this is the right thing to do. The opportunity is here in the Bill. If the opportunity is there and the will is not, that leaves huge questions for the credibility of the entire Bill.

[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.

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[Stephen Kinnock]

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

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

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

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

[Alison Thewliss]

I wholeheartedly agree with the new clause. When the Treasury Committee looked at this issue, what struck me was that economic crime was nobody’s priority. Our report said:

“Economic crime seems not to be a priority for law enforcement. The number of agencies responsible for fighting economic crime and fraud is bewildering.”

If it is bewildering in that sense, it is bewildering to Parliament, too. This is a BEIS and Home Office Bill, yet it has huge Treasury implications and huge security implications, and that gets to the heart of why this new clause is so important. There needs to be a body in Parliament that holds all these agencies to account in one place. If BEIS does a little bit, and the Home Office does a little bit, and security does a little bit, and the Treasury does a little bit, there will not be the cohesive scrutiny of all those agencies that is needed. Committees could well be palmed off with different responses by different agencies, with nobody consistently holding them to account.

The work of the Treasury Committee is very wide ranging. We have two meetings a week, and that is not enough to cover all the issues we need to cover. Setting up a bespoke Committee that could build up expertise on this issue would allow for that accountability. It could meet in private if it needed to, although it would ideally meet in public. The point is that it would keep an eye on all the things that we have agreed to in the Bill, and we would be holding all these agencies and Ministers to account in a consistent way. The reports of the ECC would also, we hope, be taken seriously, and its recommendations implemented.

It is not really enough that the Treasury Committee or another Committee looks at economic crime every once in a while and sees how things are going. The Treasury Committee has done that previously, looking back at previous reports and asking, “How are things going now?” but there is not that week in, week out consistent scrutiny of what is happening. Without scrutiny and consistency, it is difficult to see how the Government will get this right. We are legislating here, but legislation cannot be put on a shelf and left; it has to be living legislation that is scrutinised on a regular basis. A committee of sort proposed in the new clause really would give Parliament a lot of power to ensure that these measures are implemented correctly and that the agencies responsible for economic crime, which affects all of our constituents, continue to be held to account.

[Tom Tugendhat]

The right hon. Member for Barking will not be surprised to hear that I am a huge fan of parliamentary scrutiny, not just of Government but of various issues that others have sometimes felt are not in the immediate remit of the scrutinising Committee. As she will be aware, I received some criticism when the Foreign Affairs Committee, which I was fortunate to chair, focused so clearly on economic crime in 2017-18—in fact, it was some of the first work that we did—because of the national security threat that it poses to the United Kingdom. Its importance in foreign policy is very clear.

The Treasury Committee has done an awful lot of extremely good work on this issue; over the years, it has done some excellent reports on economic crime. The Public Accounts Committee, the Justice Committee and others have also focused on economic crime at various points. However, while I completely understand the right hon. Lady’s argument, I cannot support the new clause, because it is simply not up to a Secretary of State to set up a Committee of the House. As she knows very well, that is a decision for the House; it would therefore not be appropriate to have that provision in the Bill.

I would add that there are various other elements that already scrutinise quite a lot of the agencies referred to. There is the Economic Crime Strategic Board, co-chaired by the Chancellor and the Home Secretary—I know it is within Government, but it is still a challenging body because it supervises the agencies of Government. Various other levels of scrutiny appear at different points, which help to oversee the function of the agencies and different elements that the Government are trying to deliver—that the ministerial element of the Government is trying to get the bureaucratic element of the Government to deliver. It is really important that we keep those intentions.

--- Later in debate ---

[Alison Thewliss]

We also support this important new clause. In a recent speech, the Minister said that 43% of all economic crime was identified by whistleblowers, which illustrates why the new clause belongs in the Bill. We all know from whistleblowers’ stories that doing the right thing comes often at a significant cost personally, professionally and financially. It is important that we do anything we can to support those whistleblowers and to make sure they feel comfortable to go ahead and do what they do to ensure that we are all protected. I look forward to hearing the Minister supporting the new clause, because he has supported it umpteen times in the past.

[Kevin Hollinrake]

I think this is the last occasion I have to address the Committee, so I thank all Members for their contributions. We have had very constructive debates throughout the days that we have looked at the Bill. I thank the officials for all their work in these areas.

Not for the first time, I am very sympathetic to the new clause and to the previous one on failure to prevent. Nothing I have seen or heard since I started as a Minister only a few weeks ago has changed my mind on the things I have said in the House and other places about the need for whistleblower reform and failure to prevent reform. There is no conspiracy behind the scenes here. There is a difference between arguing against the principle of something and arguing against the provisions of something. That is where we probably differ a little.

As the hon. Member for Glasgow Central said, I have said before that 43% is the stat for the discovery of financial crime. In my experience, it is much higher than that—about 100%. Everything I have dealt with has been brought to the attention of authorities through whistleblowers, not least Ian Foxley, my constituent who was very important to the case on GPT Special Project Management Ltd that the right hon. Member for Barking referenced. He was the bloodhound in that case. We need those bloodhounds.

Since taking over as Minister with whistleblowing in my portfolio, I have asked officials to prioritise this review and to get it moving properly, and that is what we have committed to do. There are differences in where we go with it: do we do something to address the cases like Ian Foxley’s and the others the right hon. Lady references? Sally Masterton addressed those cases. Do we do something longer term and more complex? It is either low-hanging fruit or something more radical.

My hon. Friend the Member for Cheadle has done fantastic work in this area. I am keen to engage with her and my hon. Friend the Member for Weston-super-Mare (John Penrose) to make as much progress as we can as quickly as we can. Ian Foxley’s case is interesting because he was prevented from getting compensation. He was very successful in getting that case highlighted and the authorities successfully prosecuted it, but he was denied compensation because the PIDA rules on what it describes as an employee did not cover his particular category. That is a relatively easy issue to fix and something I want to look at.

The other part of the current legislation is around prescribed persons. There are 80 prescribed persons at the moment: people to whom others can make a protected disclosure. We are extending that this week when I introduce a statutory instrument on extending the number of prescribed persons to whom whistleblowers can go to seek assistance. Indeed, some of those prescribed persons are in this room. Members of Parliament are prescribed persons, as are some Ministers, but so too are our agencies. That is probably my biggest concern.

I took the case of Sally Masterton, who was key to highlighting the HBOS Reading scandal, which I have referred to many times in Parliament, to the Financial Conduct Authority. When I asked Andrew Bailey, who was then the chief executive of the FCA, whether he had followed his own whistleblowing procedures in relation to Sally Masterton, who was terribly mistreated by Lloyds Banking Group, he refused to answer the question because I was not a relevant person, under the relevant legislation. That is quite astounding, when it was Parliament that legislated to introduce the whistleblowing protections in the first place.

There are things that we need to do quickly that would address many of the problems, but we have done much. We have improved the guidance on what a prescribed person needs to do. We have a requirement on people to make public annual reports on what they have done in terms of whistleblowers, but I am keen to hold regulators’ feet to the fire in this area. I ask the right hon. Member for Barking not to pre-empt the review that I am urgently undertaking, because she knows how serious I am. I would like to bring forward effective reform very quickly, and to effect change more quickly. I fear that the new clause would delay the reform, when we can make progress by other means.

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[Alison Thewliss]

If this is indeed the last opportunity I have to speak in the Committee, I thank the Ministers. I hope they have been listening closely to what we recommend and will bring back amendments on Report. I also thank my hon. Friend the Member for Paisley and Renfrewshire North for being so patient and helpful in supporting me throughout the passage of the Bill.

The new clause gets to the heart of the matter. Victims of economic crime often receive very little compensation but suffer greatly from the impact of the crime. It can be devastating for people, both financially and personally, and they are deeply affected by it for the rest of their lives, so anything that will go towards helping to compensate those victims seems like a sensible prospect.

[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.

Economic Crime and Corporate Transparency Bill (Seventeenth sitting)

Alison Thewliss Excerpts

Committee stage
Thursday 24th November 2022 Public Bill Committees

Brought up, and read the First time.

[Alison Thewliss (Glasgow Central) (SNP)]

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

The new clause is designed to ensure disclosure of information relating to bank accounts held by subscribers to a memorandum of association. Like many of the amendments that the Opposition have proposed, it is aimed at tightening up loopholes, making things just that wee bit more transparent, and flagging up any issues to Companies House. The issue of bank accounts and people carrying on business at a particular address in the UK has been discussed previously. Adding a bank account to that, so that one can go, “This is a bank account. This bank account is held in the UK,” and one can find that account quite easily as a result, seems to be a sensible way to close down yet another loophole in the Bill. It will continue the jurisdiction of the issuing bank of each account, which goes to some of the other points made about Companies House registration being used and abused as a means of setting up bank accounts in other jurisdictions. People were abusing the veneer of respectability afforded to them by a company registration in the UK to then set up bank accounts in other countries, which affects those other countries through the perpetration of fraud or dubious activities in those countries by those using that Companies House veneer of respectability.

The new clause would provide a bit more transparency by giving the company registrar more information, which would be useful in terms of those red flags and making it clear where companies are actually based and carrying on their business. If, for example, a company’s bank account is held in Mauritius and it claims to carry out its business in the UK, Companies House could query that and ask, “If you are really carrying on your business in the UK, why is your bank account held in Mauritius?” That would be a red flag for the registrar and would be an extra small but significant hoop that a company would have to jump through to make the situation clearer and to give Companies House a bit more reassurance that the business that is registering is indeed legitimate. It adds a helpful grip within the system, and helps Companies House to identify any red flags. I urge the Minister to consider whether this is a measure that would help Companies House in its work.

[Stephen Kinnock (Aberavon) (Lab)]

It is a pleasure to serve under your chairship, Sir Christopher. New clause 24, tabled by SNP Members, would add to the transparency of the companies register and enhance the ability of law enforcement to identify suspect registrations. It would do so by requiring the subscribers or initial shareholders of a company to provide information on the location of any bank account held either by the individual shareholders or in the name of the company itself.

The new clause reflects an acknowledgement of the realities that have been exposed by many of the recent leaks and investigative reporting by the media of the widespread criminal use of bank accounts registered in jurisdictions known for exercising minimal oversight over financial activity and for lax controls on money laundering offences. Given that the entire point of the Bill is to clamp down on the ability of criminals to exploit gaps in laws and regulatory approaches to economic crime across different countries, the Opposition sincerely hope that the Government welcome proposals that are intended to provide law enforcement with as much information as possible to facilitate the detection of economic crime. Requiring Companies House to record information on the location of relevant individuals’ bank accounts seems like an eminently reasonable measure that could make a valuable contribution to the fight against economic crime.

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

It is a pleasure to serve with you in the Chair, Sir Christopher. I thank the hon. Member for Glasgow Central for the new clause, which raises an interesting point. I have concerns about the privacy issues involved in putting this information in the public domain, and I wonder whether she has considered that. We are potentially talking about personal bank accounts rather than company bank accounts.

A similar proposal to require the disclosure of bank account information relating to companies was included in the 2019 corporate transparency and register reform consultation, as the hon. Member mentioned. Respondents did not on balance support the proposal and the Government subsequently agreed that the proposal did not offer sufficient benefits to justify the additional burden being imposed on companies. There is also concern that there would be practical difficulties with implementation, such as the inability to confirm information provided, or to identify where it is missing, which would reduce the effectiveness of the proposal.

There are some other measures we can use. The European Union’s fifth anti-money laundering directive required the UK to build a centralised automated mechanism, a bank account portal, designed to help law enforcement and AML supervisors to access information on the identity of holders and beneficial owners of bank accounts and safe deposit boxes. Following the UK’s exit from the EU and the agreement of the trade and co-operation agreement in January 2021, the Government reviewed the case for building the portal. At that point, law enforcement did not believe there was a strong rationale for an alternative, centralised mechanism in order to support its work and the Government concluded that we should not build a bank account portal. UK money laundering regulations have been amended to remove redundant obligations.

I would be grateful if the hon. Member withdrew her amendment, but I would like to explore the issue further, certainly as it relates to company bank accounts, so we will perhaps return to it at a later stage.

[Alison Thewliss]

I thank the Minister for his consideration of this proposal. I would be interested to know what has changed since the previous consideration was arrived at that such provisions were not necessary. He suggests he will weigh that up and perhaps bring forward some amendments on Report, I beg to ask leave to withdraw the amendment.

Clause, by leave, withdrawn.

New Clause 26

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 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 as a result of the registrar’s powers as set out in this bill.

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

(6) Each report must provide annual data on the total number of company incorporations to the registrar, and the number of company incorporations by Authorised Company Service Providers to the registrar.

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

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

(9) The Secretary of State must lay a copy of each report before Parliament.”—(Seema Malhotra.)

This new clause would add a requirement on the Secretary of State to report on the powers available to the Secretary of State, the Department for Business, Energy and Industrial Strategy, and Companies House in relation to the registrar’s powers to achieve their objectives set out in clause 1.

Brought up, and read the First time.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

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

--- Later in debate ---

The principal purpose of the new clause is to ascertain whether any assets from companies struck off the register are being recouped on behalf of the creditors, so that the directors of those companies are properly penalised and held accountable for their actions, and creditors are not left wrongly out of pocket. I would be grateful for the Minister’s response on these issues. Importantly, new clause 28 requires that the report makes recommendations as to whether further legislation is needed to reform the automatic strike-off process, so that an alternative process could instead be adopted and Parliament could act swiftly in relation to recommendations.

[Alison Thewliss]

I rise to support the new clauses in the name of the official Opposition, because Parliament will need to keep a close eye on how a lot of things in this Bill are being implemented and whether they are effective at tackling economic crime. We had a lot of debate in previous sessions about powers versus duties in the Bill and said, “If they are powers, that is one thing but if they are duties, that is quite another.” If these powers are being exercised, we need to be certain of that and keep a close eye on this Bill. These useful new clauses would allow Parliament to keep a close eye on these things, because they would require the Secretary of State to publish these annual reports to give more granular and specific detail on whether the measures brought forward in the Bill are being used and are effective.

[Dame Margaret Hodge (Barking) (Lab)]

It is a pleasure to serve under your chairship, Sir Christopher. I rise to make the simple point that the new clause is not a technical amendment; it is about an issue of principle. It is about transparency and accountability. It is not a provision that improves things at the margin; it is about making the legislation fit for purpose. Without it, the legislation will not be fit for purpose.

Throughout my history of learning about dirty money and money laundering, it has been absolutely clear to me that we have a range of tools already in legislation. As we do not have any accountability to Parliament as to how and whether those tools are employed, we do not know how effective we are in the battle against dirty money. Let me give three examples. There is now a new bit of legislation on unexplained wealth orders; it is the first time that I have known Ministers to agree to an annual report to Parliament. They agreed to it when we did the emergency legislation. I have been arguing for that for years, so I was pleased to see it, but until that moment we did not know, and we have not seen the report yet.

A better example is golden visas. We are still waiting for the report on golden visas, how they were abused, misused and used during that period, and who was let into the country on one. Another example is the amount of money that has been frozen from people who have been sanctioned by this Government. We do not have a clue how much that is. The Government put out a figure the other day for how much Russian state money had been frozen—£18 billion—but we do not have a clue how much money we have managed to get off some of the characters we know are sitting on billions.

If there is going to be effective legislation, we need clear transparency and proper accountability. That is something that the Opposition feel incredibly strongly about. We will be pressing the new clause to a Division, because it is a sensible, pragmatic and practical provision that should be in the Bill.

--- Later in debate ---

In the Treasury’s June review of the UK’s AML supervisory regime, the Government recognised that that regime needed much improvement. Consultation after consultation is not going to cut it. We have an opportunity now to do something specific, proportionate and important to improve the Bill’s outcomes.

[Alison Thewliss]

I support the new clauses. The anti-money laundering supervisory duties are incredibly important, as they are part of firmly closing the door on economic crime. It is important that we use this opportunity to strengthen the powers in the Bill. Frankly, if we do not do it now, when will we get round to it again?

New clause 44 asks HMRC to prioritise its AML supervisory function. That seems sensible. I would note that some additional resources will be needed; the Treasury Committee’s economic crime report points to the fact that some 30,000 businesses fall into this bracket.

I note the ongoing review of OPBAS. I do not want the Minister to get ahead of the review, but it might be useful to get a perspective on the direction of travel. At the most extreme end of that review—the Committee heard evidence on this point recently—the Government could propose that OPBAS loses its AML supervisory function. It would be interesting to hear the Minister’s perspective on where he thinks the review will end up. It is quite awkward that the review does not tie in with the Bill’s timetable: the review is ongoing, we are legislating here and we do not quite know where it will end up.

I wonder whether the Minister could clarify a point that the FCA’s chief executive, Nikhil Rathi, could not clarify when he came to the Committee. The most recent report about the performance of OPBAS is dated September 2021. It feels to me that we are overdue a report on the effectiveness of OPBAS. Is the delay a result of the ongoing review or is there some other reason for it? The September 2021 report stated that:

“The vast majority (just over 80%) of PBSs had not implemented an effective risk-based approach. Only a third of PBSs were effective in developing and recording in writing adequate risk profiles for their sector”.

The report also raised various other points about the effectiveness of OPBAS. It has been operating for several years now, but we still do not feel that it is doing what it should to supervise and ensure that the anti-money laundering responsibilities of those it supervises are carried out. If the Minister does not have information on the status of that report today, I would be perfectly content for him to write to me.

Maybe OPBAS has upped its game incredibly since the last report came out—we just do not know. That also hinders our approach to the Bill, because we do not know whether these functions are being adequately carried out. While the FCA chief executive was able to say that there has been improvement, he was not able to say what that improvement looks like. Have 100% of PBSs now implemented an “effective risk-based approach” or is it 50%, or somewhere in between? We just do not know.

It is important that we use all the opportunities we have in the Bill to up the resources for the FCA, OPBAS and HMRC to carry out their functions. As I say, anti-money laundering supervision is the key to ensuring we close the door on money laundering. Those bodies are meant to stop it, and if we do not tighten the legislation and provide the resource there is very little point having the Bill.

[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.

Economic Crime and Corporate Transparency Bill (Twelfth sitting)

Alison Thewliss Excerpts

Committee stage
Tuesday 15th November 2022 Public Bill Committees

[Seema Malhotra]

I thank the Minister for his remarks. I have some brief comments to make about clauses 103 and 104 stand part. The Minister has outlined what the clauses do. Clause 103 inserts a new section into the Limited Partnerships Act 1907 that establishes on general partners of limited partnerships a duty to ensure that the firm’s registered office is at all times an appropriate address at which to receive correspondence. The clause introduces a new power for the Secretary of State to make regulations giving the registrar the power to change a limited partnership’s registered office address. The appropriate address is supposed to be within the original jurisdiction.

While new regulations on the addresses of limited partnerships are needed, Elspeth Berry, a legal expert on limited partnerships, set out in her written evidence to the Committee concerns about this element of the Bill. She said:

“The requirements for an “appropriate” registered office address or email are an improvement but do not guarantee a genuine economic link to the UK…The “appropriate” address for the registered office, and email address, ensure that the address is used with consent, and someone will answer. However, the provisions still lend themselves to maildrops, with no real economic presence. None of the options intended to link an LP to the UK demonstrate a real economic link. Option 1 is apparently already complied with by most rogue LPs already, because they have no real place of business in the UK, so anywhere can be the “principal” place. Option 2, the usual residential address of a partner, can be redacted, so redaction must not apply if it is also chosen as the registered office. Option 3 is the address of a corporate general partner, with all the lack of transparency that entails. Option 4 is an ACSP address, which can be a maildrop.”

Will the Minister respond to those concerns? What assurances have the Government received that the provisions in the clause will genuinely guarantee the economic link to the UK that is intended? If not, will he look again at this part of the Bill? It would be a shame to get to the point of the Bill becoming an Act without it being able to do what is intended.

Clause 104 provides for a six-month transitional period during which the general partners of existing firms must submit a statement specifying the firm’s registered office, per the regulations set out in clause 103. Will it really take six months to specify an address? Is that not something that the Minister can look at? Other provisions of the Bill refer to 28 days, so why this six-month period? Perhaps six months emerged from a consultation as the most effective option, or it has simply been passported into the Bill because that is in alignment with some other regulation. Was it just cut and paste? If, however, not much thought has gone into this transition period, and if there are no downsides to doing so, we have an opportunity to amend,. Again, I will be grateful for the Minister’s response.

[Alison Thewliss (Glasgow Central) (SNP)]

I very much agree with the hon. Member for Feltham and Heston. Without rehashing our previous arguments about addresses—checking whether they are real addresses and whether someone can pick up mail there, which requires people going to make such checks—I note the concerns of the Law Society of Scotland that “principal place of business” could still be a bit unclear. It points out in its briefing that a number of other concepts already exist in legislation, such as “head office”, “establishment” or “centres of main interest”. That makes things confusing and more easy to get around if people wish to do so.

The society believes that another issue has emerged, in part owing to covid: not everybody has a principal place of business as we used to understand it—a head office with a sign above the door. That is what we were used to seeing, but now that people work remotely, sourcing a principal place of business might become more difficult. Businesses have adapted, so it will be useful to understand from the Minister whether such things will be caught by the legislation. Someone might not have a traditional headquarters in the old way, and so might not be caught by the legislation. I seek his assurance about the intention of the Bill.

The Law Society of Scotland briefing also points out that members of a management team might not all be based in the same location; they might be working remotely or in different countries around the world. Again, sourcing that person who has responsibility at a principal place of business has become a little murkier as a result of changes in working practices. We need to ensure that legislation keeps pace with that and that there is not a workaround for those who want to avoid scrutiny.

[Kevin Hollinrake]

A few minor points have been made additional to the ones that have been discussed before. The shadow Minister, the hon. Member for Feltham and Heston, asked about the corporate general partner. Clearly, there is still a person behind a corporate general partner—an officer has to register their identity behind the corporate general partner, so there is an actual person behind it.

The shadow Minister also referred to the six months. As I said, I think that is a reasonable period, but she might think differently and seek to amend it on that basis. To me, it is not just about the time period, but about the other points—the foundations of the Bill, which are the sanctions, the red flags and the sharing of information. Those are the important things. The downside she mentioned is the impact on legitimate businesses, for which the time period may not be sufficient.

Clearly, there is a link to the UK in terms of how the entity is established. The limited partnership is established and has to maintain its registered address. I do not think that any of these measures contain a requirement to have an economic link to the UK, but I will discuss that with officials.

Economic Crime and Corporate Transparency Bill (Eleventh sitting)

Alison Thewliss Excerpts

Committee stage
Tuesday 15th November 2022 Public Bill Committees

[Stephen Kinnock]

It is a pleasure to serve under your chairship, Mr Robertson. I rise to introduce amendment 115. When considering any piece of legislation that creates new criminal offences, one of the most important questions we have to ask is how confident we can be that the offences will be adequately policed and enforced. The question is particularly relevant in our deliberations on this Bill, because there is such a wealth of evidence that the laws we already have on economic crime are not being enforced as rigorously as we would hope. The reason is clear: the chronic under-resourcing of the various law enforcement bodies in recent years—or, to put it another way, under this Government.

I am sure that the Minister needs no convincing on this point. In fact, some of the most compelling arguments for greater resourcing for economic crime enforcement have been made by the Minister himself. Just over four months ago, he joined my right hon. Friend the Member for Barking in leading a debate on this issue. The motion for that debate pointed out that

“law enforcement agencies are significantly under-resourced to deal with the scale of the problem”.

In speaking to the motion, the Minister pointed out:

“We know that roughly 40% of our crime is economic crime, yet only 0.8% of our resources in man hours are dedicated to tackling economic crime, so there is a huge disparity.”—[Official Report, 7 July 2022; Vol. 717, c. 1042.]

Those figures are striking, and it should alarm Committee members that the Bill is likely to widen that disparity even further. The reforms to Companies House set out in part 1 of the Bill represent

“its biggest upgrade in 170 years”.

Again, I am quoting the Government’s own words. It is still the case today that if someone goes to the official Companies House website to search the register, they find a disclaimer stating:

“Companies House does not verify the accuracy of the information filed”.

Of course, one of the most important goals of the Bill is to change that, through new requirements on Companies House to verify the accuracy of new filings, and to continuously monitor and update records; but despite that fundamental shift in the scale and scope of its responsibilities, there is nothing in the most recent corporate plan for Companies House, published in July this year, on increasing either its budget or workforce in the light of those changes.

Not only is there unlikely to be additional Treasury funding for Companies House, but it appears there may even be cuts. Given the repeated warnings from the Chancellor to expect “eye-watering” decisions on public spending in this week’s fiscal statement, it seems unlikely, to say the least, that Companies House can expect a financial settlement that is even remotely commensurate with its obligations under the Bill. If the Minister could provide any reassurance to the contrary, it would certainly be welcomed by the Opposition—but we are not holding our breath.

In the absence of more resources from the Treasury, we are left with just one option, which is for Companies House to generate more income from registration fees. The case for higher fees is compelling. Not only is there the increased workload that the Bill will create for Companies House, but it has been abundantly clear for some time that the fees charged for registration are ludicrously low. The Minister is aware that it is undeniably too cheap, quick and easy to form a new company in the UK; there is minimal to non-existent verification or oversight.

For evidence of what appears to be emerging cross-party consensus on the necessity for higher fees, we need look no further than the exceptionally thoughtful and balanced report on economic crime published by the Treasury Committee in February this year, which stated:

“The low costs of company formation, and of other Companies House fees (such as filing fees), present little barrier to those who wish to set up large numbers of companies for dubious purposes…The Government should…review…Companies House fees to bring them closer to international standards.”

As a member of the Treasury Committee at the time of the report’s publication, the Minister presumably agreed with that statement back in February. I see no good reason why the position would have changed since then.

It is striking that the Bill does not address the question of fees payable to Companies House until clause 89. Even then, the clause sets out what costs may be taken into account in setting future fees, but avoids the next logical question of what an appropriate fee might be. Like so many fundamental details of how the legislation will work when in force, that has been left up to regulations that will be made at some indeterminate point in the future. It does not seem unreasonable to expect, or at least hope for, more detailed provisions on the subject in the Bill.

Clause 89 refers to the need for future regulations setting new fee levels to reflect the expanded responsibilities of Companies House under the Bill and other recent legislation. That is welcome as far as it goes, but unfortunately it does not go far enough. Through amendment 115, the Opposition seek to fill some of the gaps left open by the Bill by introducing an explicit requirement for the Secretary of State to consult with the registrar before changing fees. It would also require the Secretary of State to set out explicitly in writing the justification for any changes to the functions and workload of Companies House.

The amendment would provide a stronger statement of the necessity of setting fees at a level commensurate with the actual day-to-day needs of Companies House in carrying out its responsibilities under this and other relevant legislation. It should go without saying that fees should not be set at such low rates that we become a magnet for dodgy business dealings by criminals in search of the weakest possible regulatory environment; but it is not by any means clear that we can trust the Government’s wisdom in determining appropriate fees. A clearer, stronger set of criteria for such decisions should be incorporated into the Bill. Amendment 115 provides what we hope is a useful way forward.

Turning to new clauses 25, 33 and 40, there are strong arguments in favour of setting a specific level of fee as a baseline for any future changes. We should all be in agreement by now that the current fee—it is just £12 to register a company—is far lower than it should be. Certainly, that was the message from the many expert witnesses who gave evidence to the Committee last month. I recall in particular the testimony of Nick Van Benschoten of UK Finance, who pointed out that the UK’s £12 fee puts it in closer alignment with countries such as Benin and Turkmenistan than with comparably well-developed economies in Europe and North America, where fees roughly in the range of £50 to £100 are the general rule.

New clause 25, tabled by Scottish National party Members, suggests a minimum fee of £50. That would certainly be a good start, but the Bill could and should go further. New clause 33, tabled by my right hon. Friend the Member for Barking, would require a fee of at least £100 to be charged for company formation, with annual increases based on inflation. On behalf of the official Opposition, my hon. Friend the Member for Feltham and Heston and I are pleased to add our names to the proposed new clause, which we believe is a necessary and proportionate solution to the problem at hand.

It should be pointed out that the figure of £100 has not been plucked out of thin air. It is useful to return to the report that I mentioned by the Treasury Committee, of which the Minister was a member at the time. It concluded that a £100 fee for company formation would not deter genuine entrepreneurs, and would raise significant additional funding for Companies House and the fight against economic crime. It would be helpful if the Minister could confirm whether that remains his view. If he has changed his mind, he may wish to say a little about the basis on which he has done so.

New clause 40, also tabled by my right hon. Friend the Member for Barking, would add a further requirement on the Government to review and report on the case for measures to ensure that any future revenue from fees can be retained by Companies House for reinvestment in its work to police and enforce our laws against economic crime, under its remit as set out in the Bill and elsewhere. Again, this is a common-sense proposal that we should all welcome. It should not continue to be the default position that either all or a large part of any fees payable to Companies House go straight to the Treasury, with no guarantee that there will be any reinvestment into efforts to tackle economic crime. New clause 40 would make an important contribution by addressing that problem. I look forward to hearing the Minister’s response.

[Alison Thewliss (Glasgow Central) (SNP)]

New clause 25 is a probing amendment. I am minded to have a higher fee than £50, but what does the Minister think the baseline ought to be? Is it £100 or £50, or is he not prepared to put a number on the minimum price for registering a company? By way of contrast, a provisional driving licence fee application is £34, a passport is £75.50, and citizenship is £1,330 pounds. The Government are prepared to levy a whole range of fees for a whole range of privileges to do with living in this country; £12 to register a company seems miraculously low in comparison to all the other fees that the Government are willing to charge. In all those cases, I am sure that the Government would say that they are trying to recover costs, but they are not prepared to say how much it would cost to run Companies House in such a way that it can prevent economic crime, although that is pretty crucial to the whole endeavour.

I agree with everything the hon. Member for Aberavon has said, and I support the amendments from the right hon. Member for Barking, who is, I am sure, absolutely correct in everything she is about to say; I often agree with everything she says. I draw the Government’s attention again to the written evidence from UK Finance, which says:

“Clause 89 should be amended to ensure an initial increase in registration fees within six months of commencement, and to ensure annual reporting on planned investment, fee increases and scheduled implementation of new powers.”

If we set a minimum in legislation and do not update it, the problem is that often prices increase—mostly artificially, but also through factors such as the runaway inflation that we see in the UK at the moment. It is important to commit to an annual increase and annual reporting to ensure that fees keep pace with changes in a way that is considered reasonable.

Twelve pounds to register a company is really nothing in the grand scheme of things. I ask the Minister to consider how we can better ensure that the Companies House registration scheme forms part of the deterrent. Rather than allowing the bulk creation of lots of small companies at £12 a pop, we can ensure that people say, “This is a real company. There is a real financial commitment to it.” I do not think that any company will be deterred by a fee of £100 rather than £12.

[Dame Margaret Hodge (Barking) (Lab)]

On a point of order, Mr Robertson. Why is new clause 29 not included in this group?

--- Later in debate ---

Better information sharing is surely a prerequisite for more effective enforcement against economic crime. The intelligence gathered by councils in Westminster and elsewhere could play a vital role in supporting enforcement action at a national level, while information held by Companies House, His Majesty’s Revenue and Customs and others would undoubtedly make a huge difference to councils’ efforts to deal with such problems as the phoenixing of companies in local communities. As things stand, there does not appear to be an adequate framework for a joined-up approach to economic crime across central and local government. New clause 36 would be an important step toward addressing this challenge.

[Alison Thewliss]

I very much agree with the hon. Member for Aberavon. As a former local government councillor, I can confirm that there definitely needs to be an interface between central Government and local government and it needs to look at economic crime. I was curious about previous discussions we have had about fit and proper persons. The fit and proper person test applies to parts of licensing within local government, but there is not necessarily any way of linking that with Companies House information.

The point about phoenixing is also important. Local businesses often come to local government for support, particularly during the pandemic or other times of crisis, and quite rightly so. Councils may hold information about the legitimacy of companies that have perhaps phoenixed many times—they applied for Government grants but the previous directors of the company dissolved it when business rates were due. Local government will have information, but there is not necessarily a place for it to reside. The Government need to think about how that information goes between the two levels of government.

With companies involved in property or homes of multiple occupation, there may be concerns about the fit and proper persons test and how that interacts with the companies engaged in housing provision. There needs to be some thought as to how those bits interact. We very much encourage the Minister to look at how the Government can be involved in that, and we support the Opposition new clause.

[Kevin Hollinrake]

I shall respond briefly to the queries raised. All the information must be handled in accordance with the Data Protection Act 2018. The way the Bill operates is consistent with similar legislation that deals with data sharing.

The hon. Member for Feltham and Heston raised the issue of the protection of information. The provision applies in a situation of risk of harm or serious risk of violence or intimidation—for example, in respect of domestic abuse victims.

Data sharing was raised by both shadow Ministers—the hon. Members for Feltham and Heston and for Aberavon. It is permitted to assist public authorities when they exercise public functions, such as confirming the accuracy of data or providing intelligence to law enforcement agencies.

--- Later in debate ---

[Alison Thewliss]

I am glad that an aggravated offence is included in clause 94, on general false statement offences, because quite clearly there are some people who are absolutely taking the piss in terms of their company registration.

The false filing bit leads me to the topic of enforcement, which is the other side of the puzzle. Out of interest, I tabled a written parliamentary question to the Minister to ask

“how many fines have been levied in each of the past ten years for the offence of false filing to companies house, and what estimate he has made of the value of those fines.”

His response was quite interesting. In 2012, the number of fines levied was nil, as it was in 2013. In 2014, 2015, 2016 and 2017 it was also nil. In 2018, things got slightly better, because one fine of £1,602 was levied. In 2019, there was a much better £15,000 fine for false filing. In 2020 and 2021, the number of fines was nil, and up to 31 October 2022 there was one fine of £500.

I guess there have been far more instances of false filing to Companies House in the past 10 years than those fines suggest. I do not believe that there have been only three cases of false filing to Companies House, because all the evidence suggests that it is absolutely rife. Will the Minister tell us more about how, in looking at the false statement offences, the aggravated offences and the fines that will be levied for non-compliance, he intends to pursue those who file false statements? Currently, they are not being pursued at all.

[Kevin Hollinrake]

I think the shadow Minister, the hon. Member for Aberavon, had two main queries. On the type of circumstance in which a certificate would be issued, it is impossible to predict other than to say that it would be when it is in the interests of national security or in the case of a serious crime, which is defined in the clause. The actual circumstances around that are incredibly difficult to predict. It is fair to say that we expect such a certificate to be issued on extremely rare occasions, but we cannot rule out the possibility of our needing to do so. Ultimately, it has to be a judgment for the Secretary of State.

On false filing, I well remember responding to the written question from the hon. Member for Glasgow Central. It was a very fair question. That is why we are in this Committee Room: it is about not just legislation but implementation. There have to be the proper resources for Companies House to do that job and I absolutely want to make sure that it has not just the powers but the resources to interrogate the database, make sure it is accurate and share the data information, because it is critical to look at the context. A number of things align in this respect: it is about the powers, the resources, the data-sharing capability and, for the first time, the sanctions of up to two years in prison on individuals who file falsely.

We absolutely want to ensure that the figures improve. I absolutely agree with the hon. Lady that there will be many more cases of false filing than those that have been identified, but to be fair to Companies House, without the resources to do it, which it has never been given before, that is a pretty difficult job for it to do. Companies House does publicly report annually, and I would very much like to see that kind of accountability in future reports, in terms of its efficacy in this area.

Question put and agreed to.

Clause 94 accordingly ordered to stand part of the Bill.

Clause 95 ordered to stand part of the Bill.

Clause 96

Financial penalties

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[Seema Malhotra]

The clause inserts the definition of limited partnership into the Bill and makes clear that the registrar is obliged to maintain only those limited partnerships registered under the 1907 Act within the registrar’s index of names.

Limited partnerships are a specific type of business structure in UK law that confer limited liability on some partners and therefore have to be registered with Companies House in line with the Limited Partnerships Act 1907 and the Partnership Act 1890, but numerous reports and consultations by the Government have identified the risk of economic crime through limited partnerships and Scottish limited partnerships. As I know the Minister will be well aware, the consultation in 2018 also emphasised the apparent attractiveness of such partnerships as vehicles for organised crime, and I am sure we will come back to that when we consider amendments to this part of the Bill. The consultation noted specifically that the National Crime Agency reported a high volume of suspected criminal activity involving Scottish limited partnerships. It also referred to claims made in an investigation that 113 SLPs were involved in a much larger money laundering scheme that transferred more than $20 billion out of Russia between 2010 and 2014.

Limited partnerships and Scottish limited partnerships have been identified by the Government for some time as high-risk corporate structures when it comes to facilitating and enabling economic crime. It is positive that we have reached this point, but it is disappointing how long it has taken. The clause is important, as it ensures that the registrar is obliged to maintain those limited partnerships that are registered as such, thereby ensuring that the registrar is not under any obligation to maintain names of defunct limited partnerships.

[Alison Thewliss]

My views on the abuse of Scottish limited partnerships are on the record, and the Minister is well aware of them. Anything that will help to tighten up protection against that abuse is welcome, but again, a lot of this goes to enforcement. It is not good enough just to legislate. There has to be enforcement, and the current enforcement has been absolutely woeful, with just one fine for failing to register a person with significant control. When the legislation started in January 2018, 7,078 people were not registered as they should have been as persons with significant control. That now stands at 201, but 201 is still too many, and the Government are still not issuing any fines for not complying with the obligations under that law. As with all the measures within this part of the Bill, my concern is about enforcement and making sure that everything is absolutely watertight, because if there is no consequence—at the moment, there is no consequence for non-compliance—people will continue to abuse the systems.

I caution the Minister also that when the rules around Scottish limited partnerships were tightened, people just moved to the next structure, and the next structure was limited partnerships in Ireland. Ireland has seen a huge surge in people abusing its corporate structures, which are similar to ours for historical reasons, but nobody warned the Irish that this was coming. I would be interested to know how the Government intend to monitor the tightening up of this legislation so that we are not just pushing down the bubble in the wallpaper for it to come up somewhere else.

Economic Crime and Corporate Transparency Bill (Tenth sitting)

Alison Thewliss Excerpts

Committee stage
Tuesday 8th November 2022 Public Bill Committees

[Alison Thewliss (Glasgow Central) (SNP)]

I have some questions about new clause 7. I am reading through it and trying, as I have done with many of the amendments, to put myself in the scenario of being the person who is carrying on business in the United Kingdom. It says that as that person, I am obliged to

“obtain specified information about a customer (or prospective customer)…before entering into a business relationship with them, or…during a business relationship with them”

and I have to identify any discrepancies and report them to the registrar. I get that: if I do that and I see a discrepancy, I have an obligation to report it. It feels as though the Minister is bringing forward a very soft version of a failure to prevent offence, which of course I am fine with.

I want to double-check something, however. The new clause goes on to talk about offences that might be created for failure to comply with the requirements, and I want to know what happens if I, as the person carrying on the business, do not spot a discrepancy. How is it ascertained whether I did not spot the discrepancy—whether it was a genuine mistake on my part—or whether I failed to report something that somebody else later picked up?

We are talking here about convictions, punishable as set out near the end of the new clause, and I am curious about how the regulations will work in practice. If I do not spot a discrepancy and report it, how does the law know that I did not spot it? Perhaps I ignored it because I thought it was not relevant or important, or perhaps I did it deliberately. If I come back after the fact and say, “I didn’t report it because I didn’t see it,” or “I didn’t report it because I didn’t want to,” those are two very different things.

I do not quite understand how the new clause will work. Some people might think it is good and beneficial to go clyping and grassing up people who do not comply, and that is fine, but it is quite a different thing if a discrepancy has been overlooked. I would like the Minister to explain how that will work in practice.

[Kevin Hollinrake]

I will first take the latter point, which covers some of the shadow Minister’s points as well. There will be more detail in secondary legislation about how new clause 7 is expected to operate, but it is quite reasonable to think that third party business entities will understand how this should work. Within that, we would expect there always to be a reasonableness defence if an error was made or something was done in good faith. We would not expect a penalty to be applied in that case, but there will be more detail on that in secondary legislation.

The shadow Minister asked what would happen if an organisation failed to comply with a notice within the 14-day period that it is given to respond. There is an unlimited fine, potentially, for failure to comply. Other situations might even lead to somebody facing a prison sentence of up to two years, in certain instances. A lot would depend on the circumstances involved. That also relates to what the hon. Member for Glasgow Central asked.

The shadow Minister asked for more detail about how the relationship between the registrar and third party companies would work. This does not just refer to the financial sector; it also refers to the legal sector. It would pertain to any organisation that is supervised by money laundering regulations. I think that is the extent to which companies would be bound by the rules on checking discrepancies.

The shadow Minister asked whether there would be a flag if a record was removed. Clearly, there will be a red flag for the registrar themselves, depending on the reason why that record has been removed, and that may be something we cover in further detail in secondary legislation. My immediate reaction is that we would not want red flags to be set against a company that had made an honest mistake, because that might unreasonably set some hares running. I am a little concerned that that might happen if we did as the shadow Minister described.

--- Later in debate ---

[Dame Margaret Hodge]

I will move on to new clause 37, which has the aim of checking that the stated person of significant control really is the person who controls the company. Powers to get information, to reject documents, to require information and to remove documents all sit in the Bill. The new clause would ensure that, through a risk-based assessment—I just reiterate that for the Minister—Companies House would proactively check that the person named as the PSC was the PSC in reality. Current legislation requires the ID verification of a company owner, but not the verification of their status as a company owner, so the risk remains that nominees will continue to be put forward as owners of companies despite the real control being elsewhere. The risk is heightened if the Minister does not move to ensure that company service providers are properly regulated, supervised and vetted before the whole system comes into force.

In the current system, there are endless examples that demonstrate the extent of the problem that the Minister and the Government are trying to tackle—we are trying to contribute to that process. One is the famous dentist in Belgium. From an interrogation of the Companies House register, we know that five beneficial owners control more than 6,000 companies, which is a huge red flag. Some 4,000 of them are under the age of two, and 400,000 companies—almost 10% of the total—still do not declare a person of significant control. We have the Azerbaijan laundromat example, where a lorry driver in Baku was named as the person of significant control and had no idea that kleptocrats from Azerbaijan were taking all the money out of the banks and money laundering it elsewhere.

There is one filing in Companies House for which I thought I would name the person of significant control. The company is called Global Risks Reduction Funding Ltd, and the name is listed as—I will take a deep breath—

“Neutral-Claimant-Federal-Witness-Director-Captain-Postmaster-Bank-Banker-Plenipotentiary-Notary-Judge-Vassalee For The Vessel-Phouthone-Thone: Siharath.”

I do not think anybody has questioned that as the person of significant control. The whole thing is absurd.

An important point for the Minister is that, in 2019, Transparency International did a quick Google search and found 23 active company service providers that were offering the service of nominee persons of significant control—that was one quick search of one directory. When Global Witness undertook research on Scottish limited partnerships, it found that 40% of the beneficial owners of Scottish limited partnerships were either a national of a former Soviet country, or a company incorporated in the former Soviet Union.

[Alison Thewliss]

I have been tracking for some time the number of times when a person of significant control for Scottish limited partnerships has not even been registered. Does the right hon. Lady agree that it is ridiculous that there are still 201 companies for which a person of significant control does not exist at all?

[Dame Margaret Hodge]

Yes. The law is being broken but nobody is pursuing those who are guilty.

These are all reasons for closely monitoring data on persons of significant control. The measure would simply put a duty on Companies House to be proactive and to check the status of the person named on a risk-based basis, not just via their personal details.

New clause 38 deals with dissolution, which has been raised with me by a number of stakeholders. We know of numerous instances of bad people dissolving companies for nefarious purposes. The new clause would ensure that the registrar looks at the accounts of a company seeking to dissolve to ensure that no fraud or other crime has occurred. If the registrar found such cause for concern, she would have to pass the information on to relevant enforcement agencies.

We are all very familiar with the phoenixing of companies and the role that that practice has played in facilitating fraud. I have chosen as an example the case of Rodney and Pauline Williams, which is typical. They ran a company called Curio Bridal Boutique Ltd. They made false representations to take money out of the company and put it into another company in anticipation of winding up Curio Bridal Boutique. They took £111,000, of which they put £42,000 into the pockets of their own family. They were detected and convicted, but sadly the successful detection of such cases is all too rare and the practice happens all too often.

The Troika Laundromat—another of the laundromats that has hit us over the last 10 years or so—is another example of where a leak of documents showed how one of Russia’s largest investment banks, Troika Dialog, was central to the channelling of billions of dollars out of Russia. That leak covered 1.3 million transactions. It involved more than 1,000 UK limited liability partnerships, and it was found that the UK had been handling nearly £10 billion of dodgy Russian money. One UK-based company was found to have made payments totalling £360 million, although it filed accounts each year and dared to declare itself dormant. It then dissolved itself in 2014. That company was called Stranger Agency LLP.

Economic Crime and Corporate Transparency Bill (Ninth sitting)

Alison Thewliss Excerpts

Committee stage
Tuesday 8th November 2022 Public Bill Committees

[Alison Thewliss (Glasgow Central) (SNP)]

I exist three times.

[Seema Malhotra]

Right, her name is registered three times, rather than having one entry noting that she has three directorships. With identity verification and the issuance of unique identifiers, Companies House will know exactly how many directorships an individual has. Companies House may plan to update pages showing people’s total directorships once it issues unique identifiers, but that certainly is not clear.

An alternative is to have some form of proxy ID, which is becoming increasingly common. That is a unique ID linked to the director’s unique ID, which can keep the director’s ID itself private, but has a unique public identifier that is searchable and uniquely linked to the underlying identifier. That happens increasingly for email addresses, for example, when someone may not want their email address to be public, so a pseudo or proxy address is created so that the one that someone might publicly enter and others might publicly see is not the underlying email address, but is uniquely linked to it. There are ways in which technology can be used simply and easily. That is not a high-cost option and it can be built in to have what we need for public purposes—a unique identifier for a director that links all their directorships, if published, and is searchable.

I hope that those constructive suggestions and the way we laid out our reply when the Minister asked in a previous debate what we were not fully happy with in clause 66 mean that things are perhaps clearer. I look forward to the Minister’s response.

--- Later in debate ---

[Alison Thewliss]

I support the excellent amendments tabled by the hon. Member for Feltham and Heston. It is incredibly important that clarification is given through the register, for a number of reasons. A unique identifier that follows a person through their whole life as a company director is important. I mentioned before that I appear in the register three separate times. It would make sense for that to be consolidated in one entry so that people could see the course of that.

The identifier should go through all of the directorships that people have. We know—it has been raised previously in Committee—that some directors have many hundreds, or even thousands, of directorships to their name. It seems sensible to have clarity to ensure that they are the same person. A name such as mine is reasonably unusual—it is quite easy to find—but if a John Smith is on the register, it is much more difficult to establish that they are the right John Smith, the one who is the director of a company. Therefore the identifier becomes all the more important, particularly if that person changes their name. If Jane Smith becomes Jane Jones through marriage, it becomes more difficult to chase her through the register. It would therefore make sense, particularly for women, who are most likely to change their name, but also for other people who may change their names for a variety of reasons—perfectly honest ones, or, in some cases, to divert attention from their previous directorships, perhaps, or any previous misbehaviour—that that person’s ID should follow them around. Anybody doing due diligence on that person as a director could then find them on the register quite easily.

That goes to the point made by my hon. Friend the Member for Paisley and Renfrewshire North about phoenixing. If a company director has been involved in many phoenix companies, it would make sense for people to know that, and to know that they might well carry out that behaviour in future. It would enhance the clarity of the register against such fraud and poor behaviour. The example that the hon. Member for Feltham and Heston gave, of the Charity Commission register, was a good and relevant one, because it is about somebody’s appropriateness and that wider sense of understanding somebody’s behaviour through the register.

It is very important to make the change from “power” to “duty”. A person can have the power to do lots of things, but if they have no obligation to do them, that is quite a different scenario. Lots of the issues that the Companies House register has got itself into are down to those duties not having existed. It is important that those duties exist, and that we set them down in the Bill. I am not hugely confident that what we are talking about will happen if the duties and responsibilities are not set down in law. Future Ministers may decide not to bother with them. I am sure that the Minister would; future Ministers might not.

It is incredibly important that we do everything we can to make the Bill as tight as possible, and that we take all precautions against the abuse of the register. We must get rid of those abuses. We must make a better register, and better legislation, to ensure the integrity of the register in the future.

[Kevin Hollinrake]

I think that we are trying to achieve the same thing, just in different ways. We discussed this issue at length in previous sittings. Companies House is already actively working on unique identifiers. It is not credible to think that, having legislated for them, we will not implement them. A basic principle of the Bill is to be able properly to link individuals on the Companies House register, so that company directors have a better experience and so that it is easier for the public to identify the connection between directors, including persons of significant control, and companies.

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[Kevin Hollinrake]

I am keen to make sure that the system works, whether by licensing or by some other means. There are lots of different options for what might be described as a system that is fit for purpose. Of course, in common with all Members of this House, we are keen to avoid unnecessary bureaucracy, but nevertheless we want a system that works and that we have faith in, so, in my view, all options should be on the table.

[Alison Thewliss]

I have a small query and seek clarification from the Minister. In clause 69(3), proposed new section 1067A(2) states:

“An individual may not deliver documents to the registrar on behalf of another person unless—

(a) the individual’s identity is verified”.

Will the identity of those entitled to deliver documents be added to the register, and will they have to be separately verified? I am not clear on the mechanism.

[Kevin Hollinrake]

Will the hon. Lady ask the question again? I did not quite get it.

--- Later in debate ---

[Alison Thewliss]

Yes, of course. I understand that if someone is delivering documents on behalf of themselves, there will be a check to see whether they are verified, but if someone is delivering documents on behalf of somebody else, the Bill seems to say that they also need to be verified. Is that subject to a separate verification list? That person would not be registering to be a company director in their own right; they would be delivering the documents to register somebody else, so is there now going to be a separate list for that?

[Kevin Hollinrake]

I think I have understood the hon. Lady’s question. Clearly, all directors and company service providers need to have their identity verified too. If that is what the hon. Lady is referring to, that is absolutely contained in the provisions of the Bill.

--- Later in debate ---

[Kevin Hollinrake]

Companies House already has the capability to accept documents filed digitally—89% of companies already do that. Therefore, it is not an IT development requirement; it is just a requirement for companies to file documents digitally rather than using paper. It puts the onus on the companies rather than on Companies House itself.

In relation to authenticity, we are again back to the red-flag approach. Companies House has a requirement, an objective, to oversee the integrity of the register. There is definitely a risk-based approach to that. The aim is to try to put the red flags in place to ensure that we are identifying documents that are not authentic. Also, there are penalties for false filing of documents, which I think we went through previously.

[Alison Thewliss]

I have a brief point on a technical issue. It was flagged in evidence that some documents submitted electronically or posted on the Companies House website in electronic format were image files rather than searchable documents. I wonder what consideration the Minister has given to mandating the type of files that can be filed electronically, because it would make sense to accept them in a format that can then be searched online.

[Kevin Hollinrake]

The hon. Lady makes a good point. I do not know the detail behind that, but I am happy to go away and look at that for her.

Question put and agreed to.

Clause 72 accordingly ordered to stand part of the Bill.

Clauses 73 to 75 ordered to stand part of the Bill.

Clause 76

Power to reject documents for inconsistencies

Question proposed, That the clause stand part of the Bill.

Economic Crime and Corporate Transparency Bill (Seventh sitting)

Alison Thewliss Excerpts

Committee stage
Thursday 3rd November 2022 Public Bill Committees

[Stephen Kinnock]

I thank the Minister; I think he has just provided clarification that he is confident that there is now a ban on the use of nominee directors as a front to obscure true beneficial ownership. We are grateful for that absolute reassurance. There was perhaps a misunderstanding on our side of some of the technicalities in the Bill that I am seeking to probe, so I am grateful to the Minister for that clarification.

It is worth noting that the World Bank published a report just a few months ago that explained how, under current UK law, nominee directors of UK companies can neglect their duties by failing to submit accounts and certify companies as dormant, even though tens of millions of pounds are passing through those accounts. A crucial point is that the impunity of delinquent nominee directors is especially pronounced if such nominees are not UK residents. On the rare occasions that they are questioned, such directors tend to make the legally false argument that because they are only nominees they have no responsibility to know anything about the company, let alone control its actions.

The lack of progress on this issue—certainly until the Bill’s introduction—has raised concerns with us. Again, perhaps the Minister will say a little more about the Government’s thinking. What does he think has been the impact of not implementing the regulations from the 2015 Act? Can he reassure us with absolute confidence that the issue of delinquent nominee directors will be eradicated by the passing of the Bill?

[Alison Thewliss (Glasgow Central) (SNP)]

The hon. Gentleman is making a really important point about nominee directors. Is he aware of a “File on 4” programme —I believe it was aired last year—about nominee directors being recruited via Facebook groups and paid to take on that role? Is he concerned that it may still be possible to do that? Does the Bill need to do more to clamp down on the recruitment of nominee directors who get some money for taking on that role?

[Stephen Kinnock]

The hon. Lady raises an extremely important point and illustrates the absurdity of the situation we have got into. There seems to be a “wild west” approach to running corporate affairs in the UK and it is simply not acceptable. I thank her for that intervention and reiterate my hope that the Minister can give us an absolute reassurance that the issue of nominee directorships will be dealt with firmly and clearly in the Bill, without any loopholes. I also hope he will share any other thoughts he may have on the matter.

--- Later in debate ---

[Kevin Hollinrake]

A change of directorship, yes, but I do not think that is the situation the right hon. Lady was describing. She was talking about a movement of assets, as I understand it. I do not know the detail of the case she is talking about—[Interruption.] May I finish? If she is trying to prevent a person from moving assets around on the basis that Companies House needs to know about that as it is happening, that situation cannot be delivered. Companies can move assets around without asking the permission of Companies House or notifying it, so her amendment does not serve any purpose in that regard.

The right hon. Lady is absolutely right that any information that Companies House is made aware of and deems to be pointing to some kind of risk should be shared with the relevant agencies. We all agree with that point, and the Bill allows Companies House to do that for the first time. That is what we are trying to facilitate, but directing it to act in a certain way on a certain piece of information will lead us down a million rabbit holes, and we do not have the time or the ability to implement that through the Bill. We have to give it the powers and then let it get on with it while holding it to account against those broader objectives.

[Alison Thewliss]

My reading of the amendment is that it relates to a person changing any details relating to any company in the register in the three months prior. One of the red flags that Graham Barrow raised when he gave evidence was companies that switch their name backwards and forwards multiple times within a short space of time. Surely that would be a useful red flag for Companies House to report on, and the amendment would empower it to do that.

[Kevin Hollinrake]

That situation would be covered under the Bill because company naming is part of it. That is a different thing from what the right hon. Member for Barking was describing. She was taking about the movement of assets, and Companies House would not have access to that information on a dynamic basis. It clearly would have information on a name or director change, and it can act as it deems appropriate, in terms of notifying authorities or making further enquiries about what the company is doing.

Economic Crime and Corporate Transparency Bill (Eighth sitting)

Alison Thewliss Excerpts

Committee stage
Thursday 3rd November 2022 Public Bill Committees

[Seema Malhotra]

The Minister asks a fair question. He is not necessarily stating a cap. Given what has come out in the consultation, and what has been in the articles about whether there should be a cap and what would be right for British companies, it is certainly open to further conversation. It is interesting that in the Government’s consultation many were suggesting between 15 and 25, which is in the ballpark of what has been happening in other countries. The make-up of our economy could be slightly different. We have to understand it in the round, and in the context of our economy, but it is a question of a scale of 400 to 1,000.

If the Minister is saying that there might be a level at which there starts to be a red flag, and implicitly that Companies House may implement the legislation, perhaps Companies House and the registrar will say, “Maybe we’ll just do a procedural check if we have 25-plus directorships.” I do not know. That is where data and analytics help, rather than a ballpark figure. It must be within a considered understanding of how our economy works, and how and where legitimate business is carried out, with a view from directors as well. We might find that it is an easier answer to reach, because it does not have to be one that only we, as Members of Parliament, comment on; it has to be informed.

We are not arguing for a hard cap. We are saying that, as the logic of the SNP amendment outlines, rather than managing on a case-by-case basis, having a way to manage risk structurally and procedurally is an important response to the evidence, the nature of use that we have seen and the situation we find ourselves in today. There is room to learn from the experience of other countries.

Amendment 69 would insert a provision into schedule 2, requiring that:

“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.”

Amendment 70 follows from that, and would provide penalties for anyone failing to provide their unique identification number to the registrar. We support the spirit of the amendments, but I refer the Committee to our amendments 102 and 103, which we will be speaking to in later debates. Our amendments take a slightly different approach and place a duty on the registrar to give every director a unique identification number, which is published on the registrar’s website. I think that approach is tighter.

I hope in his response that the Minister will be clear about what the registrar is required to do versus what they can do, and what will be and will not be published on the unique identifiers for directors.

[Alison Thewliss (Glasgow Central) (SNP)]

I rise to speak to amendments 69, 68 and 70. These are connected amendments to schedule 2. I appreciate the point about clause 66, but we will get to that when we get to it, and we are here now.

The evidence from various witnesses last week, which I have heard over many years, is that the Companies House register is a mess. The amendments seek to tidy it up to some extent. A unique identifier that follows a person all the way through, from becoming a director of a company to perhaps resigning as a director of that company and going on to be a director of a different company at a later stage, would help to trace that person through the Companies House system.

I have mentioned in previous debates that there are three Alison Thewlisses on the Companies House register. They are all me, but they appear three times, and nobody would necessarily know that they are the same person. It would make sense to have a unique identifier attached to me as a person so that people can easily find and trace my history as a company director.

I looked up the Minister on the Companies House register. He is there five times. There are five Kevin Paul Hollinrakes out there in the world. It would be useful for companies doing due diligence or for people seeking to look at somebody’s directorship history if there was only one Kevin Paul Hollinrake on the register and we could see a complete picture of all those registrations over the course of his life and career.

That is the main purpose of the amendments—to make registrations traceable and to make the system easier for users and for me, if I want to be a company director, to provide the correct information. I could say, “I am already a director—here’s my number; just add it on to the previous things I have.”

Amendment 70 seeks to prevent people getting around that system and trying to register themselves perhaps by using their middle name or a different name, as if they were a different person. The unique identifier, once allocated to a person, should always follow that person through the system. If I try to register with my middle name or a married name rather than my maiden name, the system should pick it up. That is often an issue for women in the system. They might look very much like two separate people, with a married name and a maiden name, but they are in fact the same person. That unique identifier within the system would help trace people through, simplifying it for everyone.

[Kevin Hollinrake]

The hon. Lady has obviously read clause 66, “Allocation of unique identifiers”, which I think is what she is seeking to achieve. What about that clause does she not like?

[Alison Thewliss]

Broadly, I support clause 66. The amendments are not to that clause, but to schedule 2, to tighten it up and to improve it in any way we can. I accept what the Minister says. Labour, too, has an amendment to tighten the provisions, and I dare say I will support that as well, when we get to that stage, because all such amendments are to press the Government to tighten things up and to improve the Bill.

On amendment 68 and the number of directorships held, in evidence we heard Bill Browder suggesting the scenario of a drunk Latvian having their passport taken and being registered as a director in hundreds and hundreds of companies. Bill Browder said rightly:

“Why is it okay to have a person be a director of 400 companies?” ––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 74, Q151.]

Clearly, that is ridiculous. There is no way that someone could fulfil their obligations as a director if they were the director of 400 companies at once. It would be impractical to suggest that anyone could.

Also, Thomas Mayne said:

“On the point about directors, there certainly should be”

a limit—

“it is crazy that you have these people with 1,000 companies.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October; c. 79, Q162.]

It really is.

I do not want to put a specific number in the Bill—that would be something for Companies House and regulations to decide—but we clearly all understand what an excessive number of companies is. Four hundred is excessive and 1,000 is ludicrous. Perhaps the cut-off could be at 20 or 30, although even at that I would struggle to say that someone could make a good job as a company director keeping an eye on all those companies. It is worthwhile looking at the issue, because it is a red flag in the system: if one person is registered to multiple companies, that is a red flag, and it should be something that triggers Companies House to look into them in more detail.

[Seema Malhotra]

The hon. Lady is making a powerful argument. The Minister asked her what she thought was not sufficient about clause 66. Does she agree that arguing for a unique identifier is about ensuring that it actually happens? The wording of proposed new paragraph (d) in clause 66(2)(c) is to

“confer power on the registrar…to give a person a new unique identifier”.

It is a power, rather than a duty. That seems to be at the heart of the disagreement—is it a power or is it a duty?

[Alison Thewliss]

I agree. I do not want to go too far on clause 66, as we have not reached it, but this is about ensuring that something is in the Bill, that it is hard and fast that it happens, rather than having a suggestion, something that the registrar might like to consider, or some kind of “have regard to”. It needs to be there and specified. That is what we are trying to achieve.

Proposed new subsection (3) in amendment 68, on what Companies House should take into account in making its determination under the clause, specifies the “experience, expertise and circumstances” of a director. If someone has long-term experience of running companies that actually existed and have filed accounts, there is something tangible there and then Companies House can say: “Oh yes, that person has 30 directorships, but they are active in all those directorships, and we know what they are.” However, if someone has no active activity that Companies House can fill in, that becomes a red flag under amendment 68. It would give Companies House a degree of discretion. Wherever it might want to put the number is also a factor.

The Minister is trying to suggest that having such a check would be an inhibition to business. I do not believe that, and I am interested to hear what evidence the Minister has to suggest that such a limit on directorships would inhibit businesses in any way. As the Labour spokesperson, the hon. Member for Feltham and Heston, mentioned, other countries have such a rule. Those restrictions are in place elsewhere around the world, so the comparison would be interesting: do they feel that businesses, directorships and the involvement of people in companies are inhibited by having such a rule? We are proposing a change to the Bill to help Companies House do its job, to help it with the red flags and to give it an action to take once it has seen the red flags and identified them through something such as holding multiple directorships.

[Kevin Hollinrake]

Let me quickly respond. The shadow Minister wanted to know the date of the consultation that the three out of four figure came from. It happened between 2019 and February 2021, so it was pretty recent.

The issue of whether there should be a cap and where it should be set has been raised by both hon. Members. We think it is wrong to set a cap. The hon. Member for Glasgow Central asks the interesting question of, “Why do we need all these companies, and why do they need to be registered?” We believe that it is ours not to reason why. We believe in freedom and that people should be allowed to live their lives as they choose. We do not seek to put restrictions on people for no good reason.

[Alison Thewliss]

Will the Minister give way?

[Kevin Hollinrake]

I will go on. We think there may be a nefarious reason why a person is a director of many companies. The hon. Member for Glasgow Central mentioned red flags in her speech, and that is exactly how we see this operating. It may well be that Companies House determine that there is a cap of 20, and when somebody gets to 20 directorships, then they become a risk. It may then look further into what that person is doing and share that information with law enforcement agencies. We would rather leave it to the discretion of the registrar to determine where the red flags should be, rather than impose it through the Committee.

The hon. Member for Glasgow Central took the opportunity to google my directorships, and she found that incredibly easy to do. Just type in “Kevin Hollinrake directorships” and it lists all my directorships.

[Alison Thewliss]

indicated dissent.

[Kevin Hollinrake]

It is my name and all my directorships are listed underneath.

[Alison Thewliss]

But they are separately listed.

[The Chair]

Order. One at a time.

[Kevin Hollinrake]

I am sure it is on Companies House right now. There are 20 records. The hon. Member for Glasgow Central would maybe say that I cannot be director of any more companies, as I am already director of 20, but I have valid reasons for being directors of all those. I can promise her that none of it was for criminal purposes. The hon. Lady may say there should be a limit, but we think that basically we should leave it to the discretion of Companies House and the registrar to do the right thing—set the red flags where most appropriate and then identify risk and act accordingly.

[Alison Thewliss]

The Minister talks about not wanting to look at someone’s motivation for having, say, 400 company directorships. It is really is a case of, “There might be a reason, but we’re not going to ask about it. Why should we?” I think Companies House should be inquisitive about somebody who has 400 directorships, but the Minister is not tasking it to be inquisitive through the legislation. Tasking Companies House to be specifically inquisitive on that point is important, because the Bill does not put a duty on it or give it the right to be inquisitive.

Looking at the Companies House register, it appears that the Minister is listed five separate times—with one appointment, with zero appointments, with one appointment, with another appointment and with 18 appointments. They all appear as separate entries, not as one single person. A unique identifier would seek to grab those entries and put them in one place. That would make more sense. It would make it more traceable. I gave the example of myself being in there three separate times with three separate directorships, which are from very different points in time. If the entries were all in one place, it would be a neater and tidier way of logging them.

[The Chair]

Does the Minister wish to speak again? No, okay.

Question put and agreed to.

Clause 50 accordingly ordered to stand part of the Bill.

Schedule 2

Abolition of certain local registers

Amendment proposed: 69, in schedule 2, page 148, 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.”—(Alison Thewliss.)

Question put, That the amendment be made.

--- Later in debate ---

[Stephen Kinnock]

Thank you, Chair.

[Alison Thewliss]

I wholeheartedly support Labour’s new clause. There is an awful lot more that needs to be done to tighten up the measure on verification. Nick Van Benschoten, in his evidence, said:

“On the verification measures, one of the key points is that they fall short of minimum industry standards. Verification of identity is necessary but not sufficient. A key thing we have noted is that the Bill does not provide for order-making powers to allow Companies House to verify the status of directors or beneficial owners, and for that sort of requirement on company information agents and so on. That seems an odd gap.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 7, Q3.]

I wholeheartedly agree with that. It is the key part of the Bill. If we are not going to verify people on the register, there is almost no point in having the legislation. It is the verification that is crucial.

Hand in hand with that are the fines for not complying with the verification. I draw the Minister’s attention, again, to the people with significant control over Scottish limited partnerships. There has been one fine of £210 since the rules came into place. That is no kind of deterrent whatsoever. The rules need to be here, the verification needs to be right, and the sanctions for not complying must be enforced. I would say that even the sanctions are far too low.

Leaving trust and company service providers to verify identity leaves the door wide open to abuse. There is already abuse, and the Government’s position in the Bill is to continue to allow that to happen. As the hon. Member for Aberavon said, trust and company service providers have been identified in numerous Government documents as being the gap that allows money laundering and international crime. That cannot be allowed to continue in the Bill. If the Government leave the door open for the trust and company service providers, they will continue to abuse the system and the register will continue to be full of absolute guff.

I raised the issue of verification in the House, albeit, I appreciate, with a different Minister, the hon. Member for Torbay (Kevin Foster). He suggested that a decision had not yet been made on how the verification system would work. My suggestion was that it go through the UK Government’s existing verification scheme, which is used for passports, driving licences and tax returns, because that system is already up and running. The response suggested that that had not yet been decided.

However, it was drawn to my attention today that Companies House has already put out a tender for a verification system. A tender went out on 10 October and closed on 24 October for an “authentication digital delivery partner”, looking for people to come and work on this system. I am curious to know why, when we have not yet got this legislation in place, the Government have tendered the contract and closed the application process for the company to build the system.

I would be grateful for some clarification from the Minister on exactly what the status is of that £3.7 million contract, which Companies House has already put out to tender. Why has it gone out before the Bill has concluded if Companies House does not know what it is building yet, and when amendments are still being tabled? I appreciate that the Government want to move at speed, but putting the cart before the horse in this way seems quite wrong.

We would like the verification to be strengthened, but if the Government have already instructed a contractor on what it will build, why are we even here this afternoon?

[Dame Margaret Hodge]

I seek your guidance, Mr Robertson: we are talking about clause 60, are we not?

--- Later in debate ---

[Kevin Hollinrake]

I will deal first with amendment 78, tabled by the right hon. Member for Barking. As she knows, it would place a restriction on the permitted ID verification processes set out elsewhere in the Bill. It would allow a person such as a company director or beneficial owner seeking to verify their identity through an authorised corporate service provider to do so only once His Majesty’s Treasury had completed its review of the AML supervisory regime and laid the report before Parliament. I think that if the right hon. Lady thinks about it, she will probably want to go further than that, based on her remarks. I think she wants to go ahead only once the AML regime is properly supervised generally, not just to the point where we have the report from the Treasury. We are potentially talking about getting some way down the line before we are in a situation where she would be happy with the regime.

I take on board many of the comments the right hon. Lady made. Parts of the regime are not operating as they should—I quite agree. We absolutely need to fix that. As with other amendments proposed today, I am sympathetic to the intention; however, I think that there better ways to do it.

The practical effect of the amendment would be to place a temporary restriction on the functions that legitimate businesses may carry out. That restriction is unrelated to and may be unaffected by the publication of the review to which it is linked. It is anomalous and unfair that those businesses affected will still be subject to their current regulatory obligations to carry out ID checks. However, they will be prevented from making a statement reporting to Companies House that such checks have taken place, effectively delaying the whole regime. I also draw attention to the impact of the right hon. Lady’s amendment on those people who use agents to manage their interests. I accept that some are shady characters, but, as my hon. Friend the Member for Bury North stated, the overwhelming majority are not.

[Alison Thewliss]

The Home Office report, “National risk assessment of money laundering and terrorist financing 2020,” states:

“Company formation and related professional services are therefore a key enabler or gatekeeper of”

trade-based money laundering activity. Should that not raise more concerns for the Minister?

[Kevin Hollinrake]

The hon. Lady is mixing up two different things. I am not saying that some company formation agents are not shady—I have just said that. However, not all service providers are company formation agents. Many are bona fide solicitors or accountants that are household names. I think we need to keep this in perspective. The hon. Lady cites statistics on the capability of some of the sector in terms of proper supervision. According to OPBAS, 50% of professional body supervisors were “fully effective”. I think that figure should be much higher, but in its opinion 50% are fully effective, so it is not as if there are not some actors in this area that are doing the job absolutely right.

Many company directors and people with significant control that are currently registered at Companies House, all of whom will need to verify their identity under the transitional provisions post enactment, would prefer to do so by using their professional adviser. They will suddenly find that their long-established legal adviser is deemed fit by the Government to verify their identity for money laundering purposes, but unfit to report that to Companies House. The amendment would therefore create considerable inconvenience to individuals, as well as to corporate service providers.

I can assure the right hon. Member for Barking and the Committee that I will urge my counterparts at the Treasury to bring forward their consultation as quickly as officials can ready it. I also point to the powers in the Bill that will enable the registrar to keep an audit trail of the activity of agents to support the work of supervisors both immediately and following any changes from the Treasury’s review. I hope my explanation has provided reassurance.

Let me touch on one or two of the right hon. Lady’s other comments. On the light-touch financial services regulation that I think she was suggesting was responsible for the global financial crisis, this is not deregulation. This is the opposite of deregulation; we are making regulations about the verification of ID. I would also point to the penalties for wrongdoing. In certain circumstances, if someone is found guilty of the aggravated offence of false filing under these rules—I think some of the examples she gave would constitute that—the sanction would be two years in jail. That is not for fraud, but for the false filing. There are real teeth to this legislation, which will reduce the likelihood of this stuff happening in future.

The right hon. Lady’s amendment would effectively delay the whole regime we are talking about. She talks about Transparency International. As I said earlier, TI welcomes the reforms to the operation of Companies House that will effectively help to prevent money launderers from abusing the UK’s system. We need to ensure that this happens as effectively as possible. I agree with many of the concerns that she raises, but it is wrong to delay implementation as she suggests.

I turn to amendments 107 to 112. I thank hon. Members for their contributions. The procedure for ID verification, including the evidence required, will be set out in secondary legislation under the powers in new section 1110B of the Companies Act 2006 inserted by clause 62 of the Bill. The regulations will set out the technical detail of ID verification procedures, which will reflect evolving industry standards and technological developments. The regulations can specify the process of ID verification and the evidence of identity that individuals will be required to provide when verifying their identity with the registrar. The amendments, particularly amendment 107, would limit the documents acceptable for the purposes of ID verification to photographic IDs issued by Government agencies and identity documents issued by a recognised official authority. That would exclude individuals who do not have a photo ID, such as a passport, from verifying their identity.