Economic Crime and Corporate Transparency Bill

Debate between Baroness Bowles of Berkhamsted and Lord Johnson of Lainston

Committee stage
Tuesday 18th April 2023 Grand Committee

[Baroness Bowles of Berkhamsted (LD)]

Regarding the position of micro-entities, I spent a great deal of my time as a micro-entity in a partnership. I did not avail myself of limited liability provisions but, when people do avail themselves of the privilege of limited liability, they must recognise that there is an extra public interest requirement upon them because they have been freed from the prospect of personal ruin. Nowadays, we tend to forget about that balance—that bargain—and I just put in a plea that that is not forgotten. There is a bit of a quid pro quo for limited liability when it comes to transparency because you have to protect the public from otherwise unscrupulous people who just willy-nilly go easily bankrupt.

[Lord Johnson of Lainston (Con)]

I am grateful to the noble Baroness for her intervention. In discussions about the Bill, that philosophy has been raised. I may have mentioned on our previous day in Committee—I certainly mentioned it in private—that, given the very large number of companies registered in this country, one has to ask whether they are all necessary for the function that they purport to perform. Many individuals may be better off as sole traders or in other forms of partnership that do not need to go through these registration processes.

I am also aware of the privileges that limited liability offers, as a result of which there is a fair exchange in terms of the amount of information to be released. I absolutely agree with these principles that we have discussed. However, in this specific instance, it is absolutely right to have a thorough and deep consultation to make sure that through our actions we are not prohibiting people from running legitimate businesses and at the same time compromising their personal privacy or security. That is a sensible debate to have. The point, which is not necessarily specific to this amendment, is about the information that we collect. The Government are absolutely committed to ensuring that we collect the right amount of information so that we can increase fundamental corporate transparency and reduce abuse of the system.

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[Baroness Bowles of Berkhamsted (LD)]

On that same point, following on from what the Minister said about the vast majority of these organisations being good, trustworthy and so on, is it that the risk of one mistake being associated with them, because their name would be available, means that people would not want to do it? I asked this associated question: what is the consequence or penalty for getting an identification verification wrong? I made the parallel with the rental side of things, where landlords are expected to be able to know whether they are looking at forged documents and that kind of thing. Are we trying to protect the reputations of organisations in case they make the odd mistake but it blows them out of the water? I am still grasping for reasons but I wondered whether that was part of the response. It is the inverse of what the Minister was referencing.

[Lord Johnson of Lainston (Con)]

I appreciate the noble Baroness’s intervention. I do not have an answer to the question as to whether there was concern over reputational damage but I personally do not see that as a particularly significant reason to withhold one’s identity. If you are an auditor of a corporate account, your name is public. As I am sure we have found with some auditors relating to some national political parties, their embarrassment will be palpable but at least it will be public for us all to see.

To answer the noble Baroness’s other point on penalties, just so she is aware, it is an offence falsely to confirm the identity of an individual. I am unable to make comparisons with the private landlord sector but it is very clear that falsely identifying an individual would be a serious offence. That is part of the legislation we are providing for.

On Amendment 50A, I consider that the measures included in and added to the Bill provide a significant amount of transparency. I will come on to discuss that in a moment. To look at the process that allows an individual to become an authorised corporate service provider, they have to be supervised under the money laundering regulations. They are already required under those regulations to take appropriate steps to identify and assess the risk that their customers would have on their business. Although I understand the noble Lord’s intention, I do not think that this is the right place to consider publishing information about risk assessment processes. In our view, it is beyond the role of the registrar to gather and store this information, or to question it.

The right place to consider the quality of risk assessments is through money laundering supervision. Supervisors are already empowered to compel this information and take enforcement action against firms found to be non-compliant. I have well heard the comments around the money laundering process and whether the supervision regime is adequate. A review is being undertaken at the moment, which is raised in one of the amendments we are about to cover. It makes sense to include discussion of how ACSPs are monitored in that review.

I turn to the suggestions from the noble Lord, Lord Cromwell, around standard industrial classification, or SIC, codes and the publication of this information. SIC codes allow Companies House to track what a business does and are used primarily to indicate emerging trends and the strength of the UK economy. I support the noble Lord’s intention to have clear information about the activities that companies are undertaking. Through the Bill, the Government are extending the requirement to provide a SIC code to limited partnerships. As my noble friend Lord Leigh rightly pointed out, such provision is already obligatory for companies. Companies House already runs reports on how SIC codes are being used and will be capable of filtering these to show only the SIC codes of companies that were registered by ACSPs, for example. I therefore consider that requiring ACSPs to provide this information as well would be duplicative.

I also consider it disproportionate to require ACSPs to provide annual reports to the registrar on the SIC codes associated with the companies that they have registered. It is possible that thousands of ACSPs will be registered and it would not be possible for these reports to be regularly monitored. This is a concern in terms of the cost and burden to Companies House.

Furthermore—this is a very relevant point for me that has been made; it does not negate the necessity to assess the process of SICs but it is important in the context of this debate—a company’s SIC code can and often does change. There is a great deal of—I do not necessarily know the right word—greyness about how people classify their business activities. In my investment career, I looked at a tank company that was classified as a consumer discretionary and I saw a military defence business that had a lingerie subsidiary. I am still trying to work out whether that was related to distracting the enemy but the point is that, in many cases, it is very difficult to be absolutely certain about the occupation or classification of a business.

On noble Lords’ comments about companies obfuscating their actions, this amendment does not necessarily provide a solution. It is not necessarily the role of ACSPs or Companies House to determine the specific validity of every claim made; that would be extremely difficult, particularly where there are grey areas around activities. That change may or may not be presented by an ACSP; it would be unreasonable to expect an ACSP to be responsible for monitoring this.

I am therefore not clear what benefits this amendment would bring and request that the noble Lord does not press it, but I am happy to have a further discussion about SIC codes if they fall within the Department for Business and Trade, which they probably do. At the same time, I am happy to have further discussions with noble Lords about the review of money laundering processes and the supervision environment.

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[Baroness Bowles of Berkhamsted (LD)]

I will speak briefly on this amendment because key to it is: what is the purpose of the unique identifier? Perhaps like the noble Lord, Lord Vaux, I thought that it was like the resource identifier that you use for searching. I know that if you search on my name, you do not find all my directorships. I keep amending my name to try to make sure that they are all the same, but you still cannot find them in Companies House, so I was thinking that it was a better way than names of finding out all the companies that people were involved in, and so on.

I can see that, if it is more of a login approach, that might be different, but that then begs the question: is there not a better way of identifying companies and individuals that works on the searches? If you are searching to see whether somebody is doing something in a different company, or how many directorships they have, simply going by name means that too often there are minor variations, and it will not flag up what you are looking for. Like the noble Lord, Lord Vaux, I am curious about what the purpose of this identifier is, and therefore why it is confidential.

[Lord Johnson of Lainston (Con)]

I thank the noble Lord, Lord Vaux, for his Amendment 53. Unique identifiers are unique codes allocated on an individual basis. The Bill will allow unique identifiers to support the effective operation of identity verification, such as allowing Companies House to link an individual’s verified identity across multiple roles and companies. I like to look at it as operating as a username. That is important; it is not a public but a private number that the individual will have allocated to them.

I reassure the noble Baroness, Lady Bowles of Berkhamsted, and the noble Lord, Lord Vaux of Harrowden, that this amendment is not necessary to achieve the objectives that they have described—although I am concerned about the noble Baroness’s difficulty in tracing herself in the records of Companies House. This will be a good test as to whether the systems work. Companies House will be making changes to how members of the public view the register so that, although the unique identifiers themselves will not be public, it will be possible to see accurately connections between individuals and entities. That is the central point of the reforms being made to Companies House. This includes how many companies for which an individual is a director or person with significant control.

From my own experience of using the Companies House database, I come up under the various different forms of my name: D Johnson, Dominic Johnson, DRA Johnson or whatever it may be. It works in that instance, but it is absolutely right for noble Lords to be concerned about whether the system will work. We have undertaken to make sure that it does. It is the cornerstone of our activities and everything that the Bill points towards.

Regulations made under Section 1082 will govern the use of unique identifiers. We intend to prevent individuals from having more than one unique identifier, as the name denotes, and anyone submitting a statement with an incorrect unique identifier will commit a false filing offence. Furthermore, the primary purpose of a unique identifier is to allow its owner to communicate securely and privately with Companies House; as I said, it should be looked upon as a username. Unique identifiers can be considered personal data so making them public could expose the registrar to data protection breach risks, in the same way that it would be inappropriate to publish individuals’ national insurance numbers.

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[Lord Johnson of Lainston (Con)]

As always, I offer my thanks to noble Lords for their participation and to the noble Lords, Lord Coaker and Lord Ponsonby, and the noble Baroness, Lady Blake, for their Amendment 64. I also thank my noble friend Lord Agnew, my noble and learned friend Lord Garnier and the noble Lord, Lord Cromwell, as well as the noble Baroness, Lady Bowles, for their Amendment 72—if I have got that correct. These amendments address reporting requirements in similar ways and are very relevant and important.

I agree that it is important that Parliament is informed about the implementation and delivery of these reforms. That is why the other place agreed to add an amendment to this effect on Report, which noble Lords have discussed. Companies House already reports on many of the items set out in these new amendments and, in many cases, actually goes much further, either through its annual report or via quarterly and annual statistical releases. Legislating to duplicate this, given the new reporting duty at Clause 187, seems unnecessary.

It is important that any report is holistic and of use to Parliament and the wider public. It should provide the necessary context to facilitate an informed view of performance, which would be difficult based solely on the raw data that these amendments propose. However, I agree that some of the new items of data identified in these amendments could be of interest. The noble Lord, Lord Vaux, raised some specific points, which I believe are already covered in part in some of the quarterly filings. In any event, if they are not, they are certainly worthy of discussion. I am happy to explore with Companies House officials how they might incorporate these into their reporting without the need for this statutory requirement.

It may be worth returning to some of the comments from the noble Lord, Lord Coaker, to cover some of the key points raised. Under Amendment 72, each report must

“provide annual data on … the number of cases referred by the registrar to law enforcement bodies and anti-money-laundering supervisors”.

As I understand it, this is already enabled via the Commons amendment and is expected to be included. Also in Amendment 72, each report must provide annual data on

“the total number of company incorporations to the registrar, and the number of company incorporations by authorised corporate service providers to the registrar”.

These incorporations are published quarterly via the statistical release. The amendment says that each report must

“detail all instances in which exemption powers have been used by the Secretary of State”—

which is also covered by the government amendment—and

“confirm that the registrar has sufficient financial resources to meet its objectives”.

The registrar’s resources will continue to come from fees, which will be set according to how much activity Ministers want to be undertaken. Also, each report must

“provide annual data on … the number of companies that have been struck off by the registrar”

and

“the number and value of fines”.

Removals from the register are already reported on quarterly. The number and value of late-filing penalties are published in annual management information tables.

That just gives the Committee reassurance that there is already a great deal of detail published, and we will be looking to publish more. I look forward to a discussion with noble Lords on specific areas that we can cover; I am sure that my officials are looking forward to those discussions. This is all about the sort of data we provide that allows us to run an effective and transparent company system in this country. But I am very reluctant to legislate specifically, according to these amendments, given what I have said and our commitment to making sure that we are publishing useful information.

I will cover the comments from some of your Lordships relating to the supposed sunsetting of requirements to report. As I understand it—I may have misunderstood, but I hope I have not—the purpose of the clauses on six-month and annual reporting relates to the implementation of changes in Companies House that will bring it up to the standards at which we wish to see it operating. At that point, the reports will be included in annual and/or regular reports. It is not that reporting ends, but that it becomes commonplace to report on the data rather than necessarily on the changes that we are instigating to Companies House. I am happy to clarify that further, if my description was not accurate enough.

[Baroness Bowles of Berkhamsted (LD)]

Clause 187 says

“on the implementation and operation”.

Therefore, I hoped there would be ongoing commentary and reporting on the operation. I accept that the sunset clause implies that it is about transient stuff, but if the operation—it must be the ongoing operation because it might break down; we do not know—is included in other reports, I would be satisfied. If it is not, I suggest that we need to keep Clause 187 going.

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[Lord Johnson of Lainston (Con)]

I believe we will have further discussions on that point, yes.

[Baroness Bowles of Berkhamsted (LD)]

When the Minister replied to me he used the word “data” rather than “operation”. There is a difference between data and operation. This might not be something that he can instantly resolve, but the ongoing concern is about not just the data but the operation of Companies House. Those are two different things.

[Lord Johnson of Lainston (Con)]

I thank the noble Baroness for that point. There are two separate components to that, one of which is the data and/or requirements tabled in these amendments, which are relevant to understanding the activities of Companies House and ensuring that we have a comprehensive assessment of what they are. The second point is that there is the assumption that, over the next six or seven years, Companies House will have reached its operational capability to deliver on providing the relevant data, so we have a good deal of time to assess whether that has been achieved. There is a potential for Companies House to achieve its ambitions before 2030, at which point it would settle into business as usual reporting.