Economic Crime and Corporate Transparency

Baroness Morgan of Cotes Excerpts

Committee stage
Thursday 27th April 2023 Grand Committee

[Baroness Morgan of Cotes (Con)]

My Lords, I will have more to say shortly on Amendments 91 and 94, but I will make some brief points on the Government’s proposed offence. I also take this opportunity to thank the noble Lord, Lord Browne—in case he is not here later—for his support not only for the committee but for Amendment 94.

Like others, I welcome the Government’s proposed offence. As we have heard, it is a long-overdue step in the right direction. My noble and learned friend Lord Garnier set out quite how long he and others have been calling for such an amendment. In looking at this, I was drawn to the fact sheet on the failure to prevent offence published by the Government on GOV.UK, which rightly says:

“Fraud is the most common offence in this country, amounting to 41% of all crime”


in England

“in the year ending September 2022”.

That is absolutely right, but the trouble with this amendment—to introduce a new point, which is quite good, rather than repeating and supporting what everybody else has said—is that, as we found in the inquiry, the 41% referred to in the fact sheet would not, on the whole, be caught by it. That is because the government amendment requires the company whose employee has committed the fraud to have benefited from it. As we will discuss later, the vast majority of frauds are not committed in a way that benefits the company, which often is the platform used to perpetrate a fraud on innocent victims.

My noble friend the Minister mentioned the forthcoming fraud strategy, which I am sure he will be as relieved as the rest of us finally to see, not least because we will all stop asking him when it will be published. I understand that “imminently” really does mean quite imminently, but we are all dependent on the Downing Street grid. However, it is important that we see it before Report, because it will be difficult for the Government to resolve these issues in a way that will keep both Houses happy—as we have heard, the House of Commons wants to see change on this—without seeing that strategy, which will provide part of an answer as to how this country will tackle fraud.

I have talked about why the drafting of this proposed offence is insufficient in requiring an employee or associated person to benefit the company. We have heard much from noble Lords about the small companies exemption. I support the queries raised about why that has been introduced. When listening to my noble and learned friend Lord Garnier, it occurred to me that part of the problem, and perhaps the reason why the Government think it is acceptable to have this exemption and others do not, is that, as we found in the inquiry, there is a total lack of research into who is committing these frauds—the types of companies involved and how big they are—who is benefiting and the size of those companies. The Government need to commission far more research into this whole area.

As we have heard, this offence is about driving cultural change. That is needed in companies of all sizes, not just the very largest. I was struck by my noble friend Lord Agnew’s comment about the significant number of law firms that would be exempted if this exemption were to take place. Speaking as a former solicitor, I think that he is absolutely right. Most solicitors’ firms are tiny; we know that they and others can be enablers of fraud and other economic crime, so to exempt them makes absolutely no sense.

I add my support to calls for, if not reform of the identification doctrine, at least commissioning to look seriously at how this might be changed. The trouble with this offence is partly that in proposing it many years after it was first called for, the Government are late in solving this problem and therefore late in realising just how much corporates have changed. The lack of a directing mind in corporate bodies is much harder to discern in the 21st century than it would have been in the 19th century.

[Lord Thomas of Cwmgiedd (CB)]

May I just briefly make four points? First, as regards exempting small companies, as a director of one or two small companies that are charities, I can see no reason at all why we should exempt them. Your accountant always goes through what measures you have in place to prevent fraud, and it is extraordinarily difficult to understand what the costs are.

Secondly, from the way in which the Bill is drafted, it plainly means a single body corporate. There is a whole host of good reasons why you would structure your corporate activities over a host of different companies. It is critical that, if you are to have a limit, it must include all associated companies. You can see a good illustration of the way this is done in the provisions of the Building Safety Act 2022 that deal with remediation in relation to cladding. The Government dealt with it there because so many SPVs—special purpose vehicles—are used in the property industry, and you simply cannot permit them to be treated separately. Certainly, there are extremely good reasons sometimes to structure your partnerships as a whole lot of separate partnerships, partly to limit your liability for negligence. However, it should not apply in relation to fraud.

Thirdly, dealing with two out of three tests is not sensible. Looking at the way in which you suggest fines be imposed on companies, if you are to go down this route, the variety of the ways in which companies operate is so enormous that if you are to have an exemption, you should catch as many as possible. Again, if you do not have a structure that brings in everyone, the position is more complex.

Lastly, I will say something about the reform of the doctrine of corporate responsibility. Of course, I agree with my noble and learned friend, and former colleague, Lord Etherton that we need to be very careful. However, we are trying to tackle economic crime, and there is therefore a special case to be made for dealing with that. If we say that we have to wait until we have the whole of the criminal law sorted out, although one or two people in this Room may see it in their lifetime—I see that the Minister has a young team behind him—the law moves with incredible slowness in reforming criminal justice, and if we do not go through with this in this Bill, I doubt whether even the young members of the team will see any change, not merely during their time at the Home Office but in their lifetimes. We ought to move now.

--- Later in debate ---

My key point is that we must ensure that regulators are empowered and incentivised. I will leave the criminal side to the noble Baroness, Lady Morgan. I beg to move.

[Baroness Morgan of Cotes (Con)]

My Lords, it is a pleasure to follow the noble Baroness, Lady Bowles, who, along with other noble Lords, made an excellent contribution to the work of the fraud inquiry, which I will return to in a moment. For the sake of good order, I declare again my interests, which are as a non-executive director of the Financial Services Compensation Scheme, chair of the Association of British Insurers and a non-executive director of Santander UK.

I will speak first to Amendment 91, which has just been so ably moved. I do not wish to duplicate or repeat but, exactly as the noble Baroness said, Amendments 91 and 94 are grouped together because they are about the services or channels being used for the commission and perpetration of fraud on victims. I entirely take her point that the ability of the regulators to have “failure to prevent” offences would be faster, while criminal sanctions and penalties for the offence potentially take time to bed in.

However, I will confine my remarks mainly to Amendment 94 so as not to detain the Committee too long. It was a huge pleasure to be asked to chair the House of Lords Fraud Act 2006 and Digital Fraud Committee inquiry last year. I thank all my fellow members of the committee and our truly excellent staff, who worked over and above—committee members are nodding—and made a significant contribution. I also thank all the witnesses and those who gave evidence.

It is a thick report—if you are suffering from any sort of insomnia, it might help, or it could work as a doorstop—but we took a deliberate decision to make it comprehensive, rather than just talk about certain areas. I have had very positive feedback from outside, with people saying that, for the first time, it brought together the problem of fraud, particularly digital fraud, and the way in which the whole chain works. That was exactly what we wanted to look at. It was deliberately called, Fighting Fraud: Breaking the Chain, because, as we have heard, there is a whole chain involved before we get to the fraudsters potentially realising their proceeds. On page 23, we set out the whole chain, starting with the inbound route, which includes phishing, smishing and fraudulent advertising; then the interaction, which includes number spoofing, social engineering and fraudulent websites; before you get to the cashing out, where the money moves, perhaps via mule accounts, to the fraudsters.

As we heard in the debate on a previous group—I will not repeat it—the reason we are talking about these amendments, apart from their being long overdue, is that we will not crack down on or stop the UK being the fraud capital of the world, which I am afraid it is at the moment, if we do not go right upstream and prevent the frauds happening in the first place, rather than just dealing with the consequences at the end. This has already happened in some ways, with the introduction of chip and PIN technology in cards a number of years ago, which cut down on the number of fraudulent transactions. It is possible to get ahead of these things, but it requires looking at the whole system.

There is an extremely good article in today’s Financial Times by the head of Demos, which generally asks: why do we, as a country and a Government, not prevent problems as opposed to just dealing with them as and when they occur? As we heard from the noble Lord, Lord Coaker, we have a real opportunity with these amendments and debates to prevent people becoming victims of fraud, rather than just dealing with it at the end.

We have heard that 41% of crime in England and Wales is fraud. Paragraph 4 of the report states:

“In the first half of 2022, it is estimated that over 40 million UK adults were targeted by scammers and data shows that a total of £609.8 million was lost to all types of fraud”.


Over 40 million adults were not necessarily defrauded but targeted, and the argument for this amendment and Amendment 91 is that, unless we deal with the contact by the fraudsters, we will not prevent fraud, and more people will become victims.

We have not yet talked enough in this debate, although it has been talked about before, about the impact on those who are defrauded—the victims. I know from when I chaired the Treasury Select Committee in the other House and from this inquiry that the testimony of victims is always incredibly powerful. Sometimes, as we heard in some evidence, because fraud does not “bang, bleed or shout” it is regarded as somehow a victimless crime. But for those to whom it has happened—not just elderly people, as it is commonly believed, but right the way through the age groups—there is a loss of trust when you are defrauded, particularly in your bank but also just generally in the messages that you receive; we know about scams whereby people pretend to be members of the family. After that, it is difficult to learn to trust again any information that you receive in WhatsApp messages, text messages or phone calls. So I appeal to the Minister and the Government: if, as we have heard, we do not take action on this and pass a comprehensive “failure to prevent” offence, that will be a missed opportunity not just for us and the country but potentially for 40 million or more people who will be targeted by scammers in future.

I turn to the amendment. The important difference between this and the government amendment in particular is that our draft—I thank the noble Lord, Lord Vaux, the noble Baroness, Lady Bowles, and my noble and learned friend Lord Garnier for adding their support—would not require the company to benefit from the fraud that had been committed or attempted to be committed. The company or channel would not have to be the victim of the fraud. We also cover having officer liability as well as the company.

My noble friend said he was going to return to the issue of telecoms companies in this part of our proceedings. The point is that telecoms companies and social media platforms are an important early part of the fraud chain. That is where people are first contacted and are then often taken off those platforms or services and put into further contact, which is where they pass on their details and ultimately get defrauded.

We have heard why Ofcom is going to be an important regulator. In March it published important research that said:

“Nearly 43 million UK adult internet users have encountered suspected scams online … Among those who had experienced an online scam or fraud, nearly a quarter (23%) first encountered it on social media—the second most common channel after email … Potential victims were most commonly contacted via a direct message, or a mass message posted to a group … A fifth were reached through online advertisements … while others were targeted through user-generated and influencer posts or videos”.


This area—of fraudsters using these channels to contact people—is only going to grow. My noble friend Lord Sandhurst has already asked about telecoms companies, which are responsible for many of the smishing texts. My suspicion is that the Online Safety Bill will not catch telecoms companies or emails. It potentially does not catch those internet service providers that host fraudulent websites. The position is unclear about intermediary sites such as Airbnb and Amazon, which people use in order to post, if not a fraudulent advertisement, then enough information to inveigle a potential victim into ultimately sharing their details.

I am not going to labour this point, but the need for cultural change is very real. In the report—and this is the reason why we are talking about these companies—we say:

“Until all fraud-enabling industries fear significant financial, legal and reputational risk for their failure to prevent fraud, they will not act. Companies continue to play their part in public-facing talking shops whilst at the same time relying on individually managed consumer awareness campaigns that shift the blame onto victims”.


I hope the Minister has a look at this report, although I know he is a busy person. Paragraphs 520 and 521 are relevant here. We say:

“Some sectors have less liability for fraud than others and are not held to account effectively for their role in facilitating this crime. We recognise that the role of failure to prevent offences is primarily to inspire behaviour change rather than criminal prosecutions”.


Behaviour change and cultural change are very important, and they are what noble Lords are saying today that they want to see.

--- Later in debate ---

[Lord Sharpe of Epsom (Con)]

My Lords, I think I have already addressed that a little earlier when I was talking about the various codes that we are asking telecoms companies to sign up to via Ofcom. I am wrapping up now, so I am bringing it all together—or attempting to.

The Government therefore view these amendments as duplicative of measures already being taken forward and not achieving their intentions. I of course commit to read page 22, in answer to my noble friend, but I ask the noble Baroness, Lady Bowles, and my noble friend Lady Morgan not to press their amendments.

[Baroness Morgan of Cotes (Con)]

I thank my noble friend very much for what he said; I will read it very carefully. I wanted to wait for the end of his speech, but he mentioned a meeting that is being held on 9 May to bring together at least three pieces of legislation and, who knows, we might even have had the fraud strategy by that point and be able to talk about that. I suggest that he looks at that meeting the other way round and, as I suggested, go through the different types of fraud—they will not be exhaustive—and work out what the Government think the relevant legislation is tackling. Then we will be able to see what the gaps are. I think one of the gaps is exactly what the noble Lord, Lord Vaux, just said, which is where services are being used to perpetuate fraud that are definitely not caught by the Government’s proposed amendment. That would enable us to have a much better informed debate before and at Report about whether we will really use the opportunity of this Bill. I invite my mobile friend to say that he will ask officials to work that way round: looking at the frauds and then seeing what the Government have already proposed to tackle them.

[Lord Sharpe of Epsom]

My noble friend will be aware that this will be a cross-departmental meeting, and I have not seen the proposed agenda, but I will certainly take her comments back. I meant to say that the noble Lord, Lord Vaux, made reference to the technical meeting he had on the Online Safety Bill, and I obviously extend the offer of a similar meeting, if anyone else would like it.

Economic Crime and Corporate Transparency Bill

Baroness Morgan of Cotes Excerpts

Report stage
Tuesday 27th June 2023 Lords Chamber

[Lord Leigh of Hurley (Con)]

My Lords, my noble and learned friend Lord Garnier wonders why the noble Baroness, Lady Bennett of Manor Castle, supports his amendment. I have heard wags tell me that he is referred to as a Green Peer, on account of the number of times he recycles his gags. That might be a little unfair—I hear disapproval, but never mind.

I will speak to these amendments, having followed the Bill extremely closely. The noble Lord, Lord Vaux of Harrowden, is of course right to pinpoint what we are debating: fraud perpetrated to benefit a relevant body. However, the noble Lord actually said “on the company’s behalf”, and that is not right. I do not think it is necessarily to capture exclusively where a company seeks to benefit itself; it could also, quite rightly, seek to capture an employee who commits fraud to benefit himself or herself because of a bonus arrangement or other matters. So it is not just on a company’s behalf.

In Grand Committee and elsewhere, I have argued that there should be exemptions for small and medium-sized companies, in opposition to Amendment 110. I totally agree with my noble and learned friend Lord Garnier that the numbers proposed by the Government—any two of the following: a turnover of £36 million; a balance sheet of £18 million, which is undefined; and 250 employees, which is easy to define—are not appropriate. As he said, they capture only 0.5% of companies, but of course they capture the most important companies, which is where this legislation is perhaps intended to attack—it covers pretty much every FTSE and AIM company, which would perhaps have someone to put their mind to undertaking a fraud.

Although I have reservations about Amendment 110, curiously enough I support my noble and learned friend Lord Garnier’s Amendment 117, which is eminently sensible and deals with the issue. He has specified a turnover of more than £10 million, a balance sheet of more than £3 million, and more than 25 employees, which is sensible and fair. However, that applies only to fraud. His Amendment 125D does not have any SME exemption but simply says that the Secretary of State must issue guidance specifically for SMEs and particular micro-enterprises. He recognises that there is a difference for SMEs and micro-enterprises, and I think we should do so. I am nervous about this legislation: we just do not know what that regulation might be and do not understand what the guidance might be, how it might work and what effect it will have on SMEs and micro-enterprises.

I had a micro-enterprise at one point; I started a business. I refer your Lordships to the register of interests, which discloses that the business grew quite substantially, but it was originally micro by any definition. I do not know how many of your Lordships have started and run a micro-business, where everything revolves around survival and one’s entire life revolves around next week’s and next month’s wages, paying suppliers and creditors, and dealing with HMRC. There are so many pressures on micro-businesses, growing through to SME businesses, and we should think very carefully about putting another hurdle in place, however small, that makes an entrepreneur say, “You know what? Maybe I won’t bother. The Government are saying that I’ve got to take care about failure to prevent fraud. Really? Is that something I should worry about at this micro level? Have I not got enough to do to try to survive?”

I urge caution in adopting Amendment 110. If it is passed, I urge the House to adopt Amendment 117. I would be very careful about adopting Amendment 125 without clarification of exactly what will be in Amendment 125B.

[Baroness Morgan of Cotes (Con)]

My Lords, I will speak briefly to this group. I thank my noble friend the Minister for the steps that the Government have taken in relation to the failure to prevent fraud offence and the identification doctrine. These are significant steps, and he is right to say that they will obviously be followed up in future Bills.

It is worth remembering the scale of fraud in England and Wales in particular. Some 40% of crime is fraud against individuals, and clearly the scale of the cases against small, medium-sized and large businesses is also devastating. On Friday, we will debate the wider issues relating to fraud looked at by the committee on digital fraud, which I was privileged to chair. I am grateful that, from that committee and the work with my noble friend, the Fraud Strategy was published in early May.

I support my noble and learned friend Lord Garnier’s Amendment 110 and the associated Amendment 121, and have added my name to them. He and the noble Lord, Lord Vaux, set out clearly why these amendments are necessary. There is no SME exemption in the Bribery Act or in relation to tax evasion.

I want to take on one of the points raised by my noble friend Lord Leigh. He talked about the survival of SMEs, and he is of course right to do so. I have not set up a small business but I have set up a small charity, and many of the issues are similar. If that small business or small charity were the victim of fraud, it would be absolutely devastating. One of the arguments here is the burden on small businesses of having to set up fraud-prevention measures, but they have to do it anyway these days because they have to be very cautious about anyone attempting invoice fraud or utility fraud. If they have an employee, they have to make sure that they are making best use and correct use of the corporate credit card, for example.

Noble Lords rightly referred to Clause 192 and the guidance that the Government will publish. We already have an example of it, as the Government have published the outline of how it would look. If this amendment is passed, it would be perfectly within the rights of the Government to set out clearly how that guidance should be interpreted by small and medium-sized enterprises, which are quite used to reading extensive amounts of guidance. If we want to have a broader debate about red tape and regulation, that is perhaps for another day, but they are used to dealing with much guidance. If they are likely to be victims of fraud, they will take that guidance very seriously.

I support these amendments and I support my noble and learned friend’s Amendment 125A on expanding the failure to prevent offence to money laundering. If we are going to introduce the failure to prevent offence, which I thoroughly welcome, we might as well do it properly and expand it to money laundering, which is also a huge a problem and one that the Bill seeks to tackle as well.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, my name is on several amendments relating to failure to prevent fraud, and I support what has been said already and what was said extensively in Grand Committee on both failure to prevent fraud and the identification doctrine. If the noble and learned Lord, Lord Garnier, moves his Amendments 110 and 125A, we on these Benches will support them.

I retabled my amendment on regulatory failure to prevent, which was well supported in Committee. I do not intend to move it but I have tabled it as a reminder that we have not yet covered the enablers, as the noble Lord, Lord Vaux, spoke about. This is probably the best route to do so, with regulators being perhaps best able to understand where actions could or could not have been taken. This recommendation was encompassed within the Fraud Act report.

We have, I suppose, gone a long way, and the Government have gone a long way within the remit covered by the Law Commission, which unfortunately included the harm aspect. As a lot of the crime that has come about through this enabling channel has been since that report was commissioned, this is unfinished business; we will necessarily have to come to this again. For now, we should strengthen the government proposals through Amendments 110 and 125A.