Criminal Finances Act 2017 and Economic Crime and Corporate Transparency Act 2023 (Consequential Amendments) Regulations 2024

Lord Hanson of Flint Excerpts

Monday 11th November 2024 Grand Committee

Moved by

[Lord Hanson of Flint]

That the Grand Committee do consider the Criminal Finances Act 2017 and Economic Crime and Corporate Transparency Act 2023 (Consequential Amendments) Regulations 2024.

[The Minister of State, Home Office (Lord Hanson of Flint) (Lab)]

It is a pleasure to be here today, with the interest in the instrument before us, and I am pleased to see members of the Front Benches here with us this afternoon.

I shall give a little background to the regulations, if possible. The Economic Crime and Corporate Transparency Act 2023 contained a wide range of measures of reforms to reduce economic crime and increase transparency over corporate entities conducting business in the United Kingdom. That included a range of measures enabling targeted information-sharing, tackling money laundering and removing reporting burdens on businesses. Additionally, the Act introduced new intelligence-gathering powers for law enforcement and reform of outdated criminal corporate liability laws. It also introduced reforms to unexplained wealth orders, corporate liability laws and targeted information-sharing, which are already in force.

More recently, guidance for the new offence of failure to prevent fraud was published last week, and I was pleased to support that on 6 November. The offence itself comes into effect in September 2025, helping to support fraud prevention measures before this offence comes into force. The Act also introduced the new regime to tackle criminal and terrorist crypto assets; this is relevant to the debate today. The use of crypto assets in illegal activity is sadly increasing and, when introducing and reviewing legislation, we want to consider the emerging technologies and how they can be harnessed by criminals to commit crime or indeed hide their illegal gains.

The previous Government introduced a bespoke regime to the Proceeds of Crime Act 2002, which allowed effective seizure of both criminal and terrorist crypto assets. This regime was introduced in the Economic Crime and Corporate Transparency Act 2023 to make it easier to confiscate crypto assets from criminals and to forfeit crypto assets obtained from, or indeed to be used in, crime or terrorism. On 26 April, the crypto assets measure that this debate relates to came into force. The powers are operational in England and Wales and, as of the end of October, over 80 cases have exercised the new powers, including crypto asset seizures or confiscation cases involving crypto assets.

I want briefly to outline the purpose of this instrument, however. The regulations here will make a set of amendments that are consequential on the Criminal Finances Act 2017 and on the Economic Crime and Corporate Transparency Act 2023. The regulations make consequential amendments to the Proceeds of Crime Act 2002 and will ensure that the investigative powers of that Act include, for example, reference to crypto asset investigations in all the necessary sections for the powers to function properly and in accordance with their policy intention.

This draft instrument is required to complete that commencement of the Economic Crime and Corporate Transparency Act 2023, and will ensure that all the necessary legislation is now in place and there is legal certainty about how cases will be dealt with. I hope that noble Lords will see that this is an important aspect in the fight against crime, and particularly in the use of crypto assets. I commend the statutory instrument to the Committee.

[Lord Sharkey (LD)]

We support this statutory instrument but have a few observations and questions. It is clear that more needs to be done to combat fraud, now our most frequent crime. Fraud accounts for around 40% of all crimes in England and Wales, with an estimated 3.2 million offences per year, and was said by the previous Government in February to cost society about £6.8 billion a year. There are, in fact, much larger estimates. The Annual Fraud Indicator estimated that UK annual losses to fraud could be £219 billion in total, with £8.3 billion coming from individuals.

It is also clear that our current armoury needs extending. Both POCA and the Economic Crime and Corporate Transparency Act are either defective or inadequate, or both. It is not surprising that POCA 2002 requires updating—22 years is an aeon when it comes to the more exotic and newer means of being scammed. However, it is rather surprising that the Economic Crime and Corporate Transparency Act 2023, which received Royal Assent on 26 October last year, did not incorporate some of the variations introduced by this SI. The Act did, after all, deal with the seizure of assets, including crypto assets, in its Schedule 8. The Explanatory Memorandum, at paragraph 5.1, says that,

“a huge rise in the use of digital technologies in crypto assets has provided new methods to conduct crime and deposit gains from criminality”.

Paragraph 5.3 says that,

“consequential amendments are required … so that search and seizure are exercisable and effective for the purpose of crypto asset investigations”.

Could the Minister expand on all this? Where were the provisions of the ECCT Act inadequate? What events or information triggered the realisation that the amendment was needed? The fact that the amendments were needed raises the question of what else was wrong or missing from POCA or the ECCT Act. What reassurance can the Minister give us that all the defects in these Acts are remedied by this SI? Do further aspects of either Act need at least an attempt at future-proofing?

I would be grateful for an explanation from the Minister of some of the detailed provisions in the SI. The term “substantial value” is used as a qualifier four times in Regulation 2(4); it is obviously an important qualification. What is the test for

“is likely to be of substantial value”,

and is it the same test—or tests—in all four appearances of the phrase in this instrument? Who decides what the threshold is in each case?

I have a couple more questions about interpretation. Regulation 2(4)(b) inserts new subsection (7G)(a), which refers to

“any other question as to its derivation”.

Does “derivation” here mean provenance, or has it some alternative meaning? The same question applies to the use of “derivation” in Regulation 2(6). Is not the phrase “any other question” in itself extremely wide in scope? What questions, if any, are excluded by this phrasing?

I was pleased to see the attempt at an impact assessment incorporated in the EM. I wondered, however, what weight to give to the assessment of benefits. The range offered is very large, even if the lower bound quoted in the EM, of £107.60, is a misprint of £107.6 million. The difficulty in assessing the usefulness and reliability of these estimates is exacerbated by the qualifying sentences in paragraph 9.2 of the EM, which say:

“The data and assumptions surrounding cryptoassets are limited due to the technology being relatively new and rapidly changing. It is also sensitive, and many figures and police data are not suitable for the public domain”.


This seems rather opaque. Can the Minister say whether enforcement authorities are significantly disadvantaged when it comes to dealing with likely crypto asset issues? Can he be a little less mysterious about that final sentence in paragraph 9.2 of the EM—in particular, is it reasonable to rely on unspecified and apparently secret data whose reliability we cannot estimate or properly qualify? After saying all that, I should repeat that we support this SI.

--- Later in debate ---

I welcome these regulations as a necessary evolution of our legislative response to economic crime and a reaffirmation that, no matter how clever criminals may think they are, the Home Office will always catch up with them.

[Lord Hanson of Flint (Lab)]

I am grateful for noble Lords’ contributions. I welcome the noble Lord, Lord Murray, to his new position. I wish him well—as well as I can do in government. I hope that he enjoys his position. He used to hold my position in government; he will know how challenging, diverse and enjoyable it is.

The noble Lord, Lord Sharkey, asked about the discussions in relation to the crypto asset legislation and why this instrument is being brought forward. The asset legislation is extensive. It branches into three detailed schedules on the new regime, covering criminal, civil and investigatory powers. I hold my hands up: at the time of drafting, some small omissions were made; for example, references to what a crypto asset investigation is are not included. That predates me, but these things happen. Legislation is for discussion. The noble Lords, Lord Murray and Lord Sharpe, were in office at the time, but it is not for me to throw rocks in this case. I simply say that we must tighten the regulations as best as we can.

The omissions were a drafting oversight, the reason for which is the complex, technical nature of legislation—in particular, the crypto asset provision. As the noble Lord, Lord Murray, will know, the legislation came into force on 26 April 2024. This instrument was scheduled to be debated prior to the general election but it fell with the election. It ha, therefore fallen to new Ministers to take the omission forward; that is what we have accordingly done.

The noble Lord, Lord Sharkey, asked about fraud generally. I accept fully the points that he made. He recognises, I hope, that I am now the first specific Fraud Minister. I have been tasked by the Prime Minister and the Home Secretary to look at fraud in particular. The Minister in the Commons, my honourable friend Dan Jarvis, is looking at economic crime. We have established a mechanism to review the fraud strategy put in place by the previous Government, which was published in May 2023. It had a number of strands of activity in it. Roughly 27 or 28 of those strands have now been completed, and another 17 or so are in the process of being completed.

I have committed to see through the previous Government’s fraud strategy. We are now refreshing it to look at a number of key areas, including data sharing, international co-operation and the technical abilities of both telecommunications companies and tech companies. We will revise the fraud strategy at some point during the first half of this Parliament to ensure that we address some of the issues and take it forward still further.

The noble Lord, Lord Sharkey, mentioned “substantial value”. Again, if he will let me, I will reflect with officials on how we can interpret that, but it is important to note the asset seizures that have taken place this year; this also goes back to the point that the noble Lord, Lord Murray, mentioned. Between April and October, 23 crypto asset seizures, with a value of £2.5 million, and 64 confiscation cases, involving identification of crypto assets totalling £6 million, have taken place. I regard those as substantial value in the terms of the instrument. I am pleased to have the noble Lord’s support for this instrument. If he will let me reflect with officials on whether we can define that further then I will certainly write to him, but I hope that will not be a bar to passing the instrument.

The noble Lord raised a number of other important but technical points on some of the issues in the economic statement. Again, if he will let me reflect on those I will make sure that he gets a full answer, but I hope they will not prevent him supporting this instrument.

I am grateful for the support for the instrument from the noble Lord, Lord Murray. I have tried to answer the points he raised relating to the seizures that have taken place. It is not for me to determine the number of prison sentences that might accrue as a result of that and of the changes we are making, but he needs to know, as I am sure he understands, that the Government, in passing this instrument and taking the action that we are on fraud, want to send a very strong signal to those who trade in or hold their criminal assets in crypto assets that we will come looking for them. If he wishes to know the impact of that, I can tell him that, under his Government between 2018 and 2024, £1.6 billion was recovered from criminals using asset recovery powers under POCA, and £140.7 million was paid in victim compensation from confiscation orders. With this statutory instrument, we want to ensure that we do not have that narrow misidentification that allows a problem to exist when we can take action under legislation that had mutual support from all parties in this House and in the Commons in the previous Parliament.

I hope that, with those points, I can assure both Front Benches that this is an important instrument that tightens a loophole and redresses the powers that were missing in the previous legislation. It is done for a purpose, which is to ensure that those who use and benefit from crypto assets have the ability to have those crypto assets identified and, if necessary, taken as assets.

Motion agreed.