Economic Crime (Transparency and Enforcement) Bill

Baroness Williams of Trafford Excerpts

2nd reading
Wednesday 9th March 2022 Lords Chamber

Moved by

[Baroness Williams of Trafford]

That the Bill be now read a second time.

[The Minister of State, Home Office (Baroness Williams of Trafford) (Con)]

My Lords, in light of Russia’s invasion of Ukraine, it is vital that we take new action to crack down on Russian dirty money and corrupt elites in the UK. The measures in the Bill—passed with cross-party support in the other place—will enable us to better identify, investigate and sanction the illicit wealth of those who wish to abuse our open economy. While we are rightly focused on taking action against Putin’s regime, these measures will strengthen our framework for tackling economic crime for the long term.

I have been heartened by the previous offers from those across all parties, including on the Opposition Front Benches, to support and co-operate with the Government on emergency legislation and to offer practical support to ensure that the Economic Crime (Transparency and Enforcement) Bill is implemented. I very much hope that we can continue to work in this spirit.

The Bill comprises some emergency measures, developed in light of Putin’s outrageous actions in recent weeks, and other measures that have been planned for quite some time. The first is a new register of overseas entities, which will require overseas companies owning or buying property in the UK to give information about their true owners to Companies House. This will provide more information to help law enforcement identify those using UK property as a money laundering vehicle.

Secondly, there will be reforms to unexplained wealth orders, which are a key tool for the investigation of suspicious assets. Through this Bill, we will improve their effectiveness and make sure that they can be applied to complex ownership structures.

Thirdly, we will streamline the sanctions Act to enable even swifter sanctioning of oligarchs and businesses associated with the Russian Government. The Bill also includes amendments to financial sanctions legislation, including strengthening the Treasury’s power to impose monetary penalties on those who violate our financial sanctions laws.

These are the actions that we can take most swiftly but they are not the sum total of our ambition. We will introduce a second economic crime Bill with further measures as early as we can in the next Session. This will include major reform of Companies House, reforms to prevent the abuse of limited partnerships, new powers to make it easier to seize crypto assets from criminals and measures to provide businesses with more confidence to share information on suspected money laundering. This second Bill will be a substantial piece of legislation. I know that some of the measures it contains have long been called for. I can assure the House that drafting is under way and we will bring it forward as soon as we are able.

I will now provide more detail on the measures in today’s Bill. The Bill will create a register of overseas entities which will require anonymous foreign owners of UK property to reveal their real identity, ensuring that they can no longer hide behind secretive chains of shell companies. We know that corrupt wealth is stored in property in this country, and this new register will help us to find it. Too often, investigators at the National Crime Agency and other bodies reach a dead end when they find that a property of interest to them has its title registered in the name of a foreign company. It can be very difficult to obtain adequate information about that company, depending on where it is registered.

This new register would apply essentially the same beneficial ownership requirements to these companies as already apply to domestic companies registered at Companies House. An overseas entity that owns or wishes to own land in the UK will be required to take steps to identify its beneficial owner or owners and register them with Companies House. They will be required to verify that information and evidence that verification, and they will be required to update information annually. The provisions will apply retrospectively as far as Land Registry data allows: 1999 in England and Wales, and 2014 in Scotland. Should a foreign company not comply with these new obligations or submit false filings, its managing officers can face criminal or civil penalties. In many cases, these officers may be overseas and beyond the reach of UK law enforcement. That is why the key sanction will be the loss of rights to sell or lease the property until the register is populated with verified information.

I emphasise to the House that this is an information measure—an additional tool for law enforcement to use to inform investigations, including the case for making an unexplained wealth order. It is not a necessary underpinning of the actions we are taking right now to sanction allies of Putin. Rather, it will help to clean up our property market over the long term. However, I am mindful that many in your Lordships’ House will want to see it implemented as swiftly as possible, and I can assure the House that work to deliver the register will begin as soon as the Bill receives Royal Assent. A transition period will be in place as an essential protection for the many legitimate businesses and individuals who are likely to be holding property through overseas entities. Noble Lords will know that the Government have already amended the Bill in the other place to reduce this period to six months. We have committed to looking at how any entity in scope of the register selling its property before the register is operational should not be able to evade that scrutiny.

I turn now to the reforms to remove barriers to the use of unexplained wealth orders. These changes will increase the time available to law enforcement to carry out investigations, allowing them to be more comprehensive. We will also reform cost rules so that agencies will not be required to pay respondents’ costs unless they act dishonestly, unreasonably or improperly. This will remove a key barrier that discourages the use of UWOs and will increase and reinforce operational confidence in their use.

With this legislation, unexplained wealth orders will become more effective against those who hold property in the UK through trusts and other complex ownership structures. By targeting those who manage the properties on behalf of the beneficiaries, law enforcement will be able to obtain information that may be obscured by the beneficiaries. Individuals will not be able to hide behind shell companies and foundations any more.

I turn now to the amendments introduced to the Bill in the other place by which we propose to revise the sanctions Act. They will allow us to sanction oligarchs and businesses associated with the Russian Government even more swiftly, in concert with our allies. The new measures will ensure that we have the power to use urgent designation procedures to temporarily mirror the listings that have already been adopted by our allies. The United States, Canada, Australia and the EU are listed in the Bill, and others may be added by regulation.

We will remove the statutory test of appropriateness for making designations, thus simplifying the process. Ministers will still need to be satisfied that there are reasonable grounds to suspect that the person to be designated is “an involved person”, usually on the basis that have been involved in a specified activity. In the context of Russia, the activities specified in regulations include destabilising Ukraine, undermining or threatening its territorial integrity and supporting the Government of Russia. This is the right test to focus on in sanctioning an individual, without unnecessary statutory hurdles.

The Bill will remove some of the constraints on designations by description so that the Government can designate groups of individuals more quickly—for example, members of defined political bodies such as the Russian Federation Council. The Bill will also remove burdensome requirements to formally review each and every sanction every three years, freeing up vital resource to focus on developing new designations. However, designated persons will continue to have the opportunity to ask for their designation to be reviewed through an administrative review, and for the outcome of that review to be considered by the courts. Ministers will continue to be under a duty to revoke a designation where the relevant tests are no longer met in respect of it. The Bill will streamline reporting requirements while ensuring that Parliament can continue, rightly, to hold Ministers to account.

We are seeking to protect the public purse by permitting the payment of damages in connection with designations only in the case of bad faith. The Bill also provides a power to impose a cap on damages applying to any proceedings issued after 4 March, when the amendments were originally tabled in the other place. This will limit the ability of deep-pocketed oligarchs to claim massive payouts from sanctions challenges.

The Bill will also enhance the enforcement of financial sanctions. It will make it easier for the Treasury to impose significant monetary penalties, to name publicly those who have breached financial sanctions and to expand information-sharing powers.

We are collaborating with the devolved Administrations on this Bill. Provisions in it relating to the register of overseas entities and unexplained wealth orders engage devolved powers in both Scotland and Northern Ireland. We will continue to work with them on implementation and I am confident that we can rely on their continued support, for which I am very grateful.

The Government have consulted on the measures in the Bill. The register of overseas entities was the subject of extensive consultation and pre-legislative scrutiny. The Government accepted and acted on most of the Joint Committee’s recommendations. We have designed the reforms of unexplained wealth orders in close consultation with law enforcement agencies and representatives from the accountancy, financial and legal sectors. The Treasury will engage with industry on updating the guidance for financial sanctions before this reform takes effect. I can therefore assure the House that the Government are not acting rashly, and I urge it to support the Bill.

The Bill will ensure that our economy becomes more transparent and stronger at the same time. It will give our enforcement agencies the powers they need to effectively tackle dirty money. The House will be in no doubt, and will have noted, that the other place overwhelmingly supported the Bill when it was considered there on Monday. The Government worked with the Opposition there to strengthen and accelerate the package, and there was a clear and strong desire across party lines to present a united front by passing the legislation as swiftly as possible. I urge noble Lords to take a similar approach in this House. With that, I beg to move.

Economic Crime (Transparency and Enforcement) Bill

Baroness Williams of Trafford Excerpts

Committee stage
Monday 14th March 2022 Lords Chamber

[Baroness Smith of Basildon (Lab)]

My Lords, I will be brief. I have listened very careful to the noble Lord, Lord Clement-Jones, and my understanding is that the Government are seeking to protect the enforcement bodies, such as the National Crime Agency, from the costs of legal action. Clearly, it is important to provide these agencies with an element of cover from being pursued for costs, as they must be free to investigate activities as they see fit and not fear the potential costs of bringing what they believe to be a legitimate case. As we have heard already tonight, the resources available to those being investigated is often hugely significant.

The noble Lord, Lord Clement-Jones, is proposing a much broader approach on this than in the government clauses, applying the principle to all civil recovery proceedings under Part 5 of the Proceeds of Crime Act 2002, not just to unexplained wealth orders. The Bill is quite narrow in scope, and the Government may not see fit to put this into this legislation, but I hope that there is an opportunity to debate this further. I would be grateful if the Minister could say something not just on whether it fits into this Bill but on the Government’s general approach to the issue.

[The Minister of State, Home Office (Baroness Williams of Trafford) (Con)]

My Lords, I thank both noble Lords for their points on this amendment. The Government are as one with the noble Lord, Lord Clement-Jones, that agencies must not be limited in their efforts to investigate wrongdoing and protect the public from harm. He has tabled an amendment which touches on this very concern.

The noble Lord will be aware of the significance of the amendments that the Government have introduced to reform the cost rules as applied to UWO cases. Protection from costs mean that the court only has discretion to award costs against an enforcement agency, as he knows, if it acted dishonestly, unreasonably, improperly, or not on grounds that appear to be reasonably sound. The UWO procedure is an investigative tool and is not determinative of civil rights or obligations. It is used to obtain information about the ownership of certain property that may not otherwise be available to an enforcement agency.

Existing case law—as the noble Lord has pointed out, in magistrates’ courts through Part 5 applications—enables them to routinely adopt a position that they will not order costs against law enforcement where the agency has acted honestly, reasonably, properly and on grounds that reasonably appeared to be sound. However, this does not occur in High Court cases, where the costs involved are often much higher and for which protection is now given in the Bill in relation to UWO cases. The Government will ensure we are doing everything appropriate to ensure law enforcement agencies are equipped to take on corrupt elites, and their costs liabilities are appropriately mitigated. I hope that gives the noble Lord the comfort that he needs.

[Lord Fox (LD)]

I just have a question. In the context of this Bill, the choice of UWOs was regarded by many as curious because it was a niche activity until such time as it was plunged centre stage by this Bill. There is a whole range of other things. In choosing to deal with cost protection for one element, there seems to be an imbalance. My noble friend used the words cost protection regime. Would the Minister acknowledge that there is scope for going away and spending time on a review of the overall cost protection landscape and coming back with something that is joined up rather than piecemeal—which is what we have got here?

[Baroness Williams of Trafford (Con)]

Yes, I think I was clear in my opening remarks that I am not at odds with the noble Lord, Lord Clement-Jones, at all. The noble Lord, Lord Fox, is absolutely right that, in the longer term, we should look across the whole cost landscape. What I am trying to say is that, in protecting agencies incurring costs in Part 5, it unintentionally removes the current clauses relating to Part 8. I am trying to differentiate between Part 8 and Part 5 of POCA. It is utterly unintentional, I am sure, but I hope that helps the noble Lord.

[Lord Clement-Jones (LD)]

My Lords, the Minister is speaking the language I understand now—if it is technically flawed, then of course it is ripe for withdrawal. I welcome what the Minister said about getting consistency across the landscape, because that is clearly important. There is absolutely no reason why it should not be across the whole of the proceeds of crime landscape.

Perhaps I can squeeze a commitment out of the Minister. We managed to get the noble Lord, Lord Callanan, to commit to looking at certain aspects of enablers in the second economic crime Bill—I think we need to call it the ECB 2 now. If the Minister could give us a commitment that the Government will look at this question of the cost landscape as part of the second round, when we can consider these issues in much greater detail and at greater length, then I would be entirely satisfied.

[Baroness Williams of Trafford (Con)]

I am very happy to explore the cost landscape after this Bill because, as I said, I am principally not at odds with the noble Lord at all.

[Lord Faulks (Non-Afl)]

I was somewhat concerned by the lack of response to what the noble Lord, Lord Fox, said about UWOs being a niche activity. I hope the Minister can reassure the Committee that one of the effects of the change in the Bill will be that they will very much not be a niche activity. Certainly the original intention—I understand, having read the legislation that brought them in—was that there would be 20 per year. Can we have some reassurance that there are going to be a great deal more and it will not be a niche activity?

[Baroness Williams of Trafford (Con)]

I share the sentiment of my noble friend that they will not be a niche activity. The measures in this Bill, particularly in terms of costs, will make it far easier for our law enforcement agencies to not be stymied by costs in bringing these things forward.

[Lord Clement-Jones (LD)]

My Lords, I am grateful to the Minister for her responses. As she understands, one of my main motives is to bring pleasure to the Treasury. Given that the NCA’s budget—we talked about its budget—for crime prevention is, I think, something like £4 million and there was £1.5 million in costs in the Aliyev case, we would clearly all be winners if this review takes place. I thank the Minister for that commitment and, in the meantime, beg leave to withdraw the amendment.