Economic Crime and Corporate Transparency Bill

Kevin Hollinrake Excerpts

Consideration of Lords message
Wednesday 25th October 2023 Commons Chamber

[The Parliamentary Under-Secretary of State for Business and Trade (Kevin Hollinrake)]

I beg to move,

That this House insists on its amendment 151A and disagrees with the Lords in their amendments 151E and 151F.

[Mr Speaker]

With this it will be convenient to discuss amendment (a), and the following motion:

That this House insists on its Amendment 161A in lieu and disagrees with the Lords in their Amendment 161D in lieu.

[Kevin Hollinrake]

I am pleased to bring this important Bill back to the House this afternoon, for what I sincerely hope is the last time, given that this will be the third time we have debated and voted on similar issues. I urge Opposition Front-Bench Members and those in the other place not to risk the safe passage of this hugely significant, near-400 page Bill by continuing to press these amendments.

The Government have appreciated the input of right hon. and hon. Members from both sides of the House—including the right hon. Members for Barking (Dame Margaret Hodge) and for Birmingham, Hodge Hill (Liam Byrne), my right hon. and learned Friend the Member for South Swindon (Sir Robert Buckland) and my hon. Friend the Member for Bromley and Chislehurst (Sir Robert Neill)—to help change the Bill for the better. We are discussing failure to prevent, together with the identification of doctoring. The Government are taking world-leading measures—I think this is the first time that a major economy such as ours has implemented them—which we should be proud we are implementing through the Bill. Of course, if the elected Chamber expresses its strong will on these remaining issues for the third time, I very much hope that the other place will agree that now is the time for it to accept that position. I think we would all rather have what we have done than see all this good work being in vain by letting the legislation fall.

Let me discuss the two issues in turn. I will keep my remarks brief as the arguments remain the same as on the preceding two times we have discussed them. I will first address Lords amendments 151E and 151F on the “failure to prevent” threshold. I will also address amendment (a), tabled last night by the right hon. Member for Barking, on a Government review of the threshold. While my noble Friend Lord Garnier’s amendment has moved closer yet again to the Government’s position by exempting micro-entities and small organisations from the offence, I am afraid that the Government will not support the lowering of the threshold at this time. Let me repeat the reasons why. It is already an offence to perpetrate fraud. The objective of the new offence is to ensure that there is accountability where fraud occurs in large organisations. There is simply no need to apply any such offence to smaller organisations.

Every time such an offence is introduced, business owners end up distracted from running their businesses by taking time to reassess their compliance risks, which often involves taking professional advice. We assess that the revised threshold proposed by Lord Garnier would cost medium-sized enterprises £300 million in one-off costs and nearly £40 million in annual recurring costs. We should be making it easier for businesses to operate in the UK and only imposing additional regulatory burdens when absolutely necessary. The Government completely reject the notion of using such an offence simply to raise awareness among business owners of the seriousness of the problem of fraud. There would be other, more proportionate ways to do that if necessary.

In response to the amendment tabled by the right hon. Member for Barking, the Government have already future-proofed the Bill by including a delegated power to allow the Government to raise, lower or remove the threshold altogether. Of course, as with all legislation, the Government will keep the threshold under review. I make a personal commitment to do that and to make changes if evidence suggests that they are required. I do not think that a Government review is necessary for that to take place, so I ask the right hon. Member not to move her amendment. We must bear in mind that a review does not guarantee change anyway. What guarantees change is having the right people at the Dispatch Box making changes, whether those are people from her party or my party, and both parties are equally exercised by these concerns. I urge all right hon. and hon. Members to support the Government motion to disagree with the Lords amendments to ensure that we take a proportionate approach and do not impose unnecessary measures on legitimate businesses that would curb our economic growth.

I turn to Lords amendment 161D, tabled by Lord Faulks, on cost protection in civil recovery cases. The Government remain of the view that such an amendment would be a significant departure from a fundamental principle of justice—that the loser pays—and therefore not something that should be rushed into without careful consideration. Furthermore, as I set out when we last debated this issue, we have seen no clear evidence that the amendment would increase the number of cases taken on by law enforcement. However, that is not to say that such an amendment is necessarily a bad idea. That is why we previously added to the Bill a statutory commitment to review the payment of costs in civil recovery cases in England and Wales by enforcement authorities, to publish a report on the findings and to lay that before Parliament within 12 months.

With regard to civil costs reform in England and Wales, the Government would normally look to consult appropriate consultees, including the senior judiciary, the Law Society and the Bar Council. Enacting the reform now without a full review would not allow judges and relevant organisations, or indeed their counterparts in Northern Ireland and Scotland, to comment on how it would be read and applied in practice. We therefore feel it would be irresponsible for us to rush into making such a significant change at the end of a Bill’s passage without full consideration by Government and further scrutiny by Parliament. I very much hope that all right hon. and hon. Members will agree that that is the responsible approach to take and therefore support the Government’s position.

[Jim Shannon (Strangford) (DUP)]

The Minister said clearly that there has been consultation with Scotland and Northern Ireland. Will he indicate who those discussions have taken place with? Was it banks, or the Departments looking after matters in the absence of a functioning Northern Ireland Assembly? I am keen to know who does the work to ensure that there is accountability for everyone.

[Kevin Hollinrake]

That is a good point. There are clearly different legal jurisdictions in Northern Ireland and Scotland, with of course the Court of Session in Scotland. From a legal perspective, the counsel in those jurisdictions are the people who discuss this. In wider issues such as failure to prevent, banks and many other stakeholders have people who will consult during the process. I am happy to keep up the conversation with the hon. Gentleman.

[Jim Shannon]

The reason I asked the question is quite specific, although it might not necessarily relate to the issue directly. The Minister refers to banks. A number of local organisations and community groups back home, which are registered and constituted as community institutions, have had their bank accounts closed. Banks have closed their accounts down because they say they are non-profitable. Is it right that banks should be able to do that? I know the Minister understands the matter—

[Mr Speaker]

Order. Can I just help a little bit? The hon. Gentleman is very good, but his intervention is very long. Why does he not put down to speak? It might be easier. I have to get other people in as well.

[Kevin Hollinrake]

The hon. Gentleman raises a very important issue relating to the concerns about de-banking that we have across the economy. The Economic Secretary to the Treasury, my hon. Friend the Member for Arundel and South Downs (Andrew Griffith) is looking at it, as is the Treasury. In future, it is our intention to ensure that when banks close accounts they give a valid reason why, rather than closing them summarily. He is absolutely right to raise the point and I am very happy to engage with him on it, because it affects businesses as well as community groups.

To conclude, I encourage everyone to agree with the Government’s position on these two areas. It is vital that we achieve Royal Assent without delay, so we can proceed to implement the important reforms in the Bill as quickly as possible.

[Rushanara Ali (Bethnal Green and Bow) (Lab)]

It is an honour to speak on the Bill again. I was hoping that we could conclude the proceedings on the Bill as soon as possible and it is disappointing that the Government are yet to make further compromises. The Bill is welcome in principle, but it should not have taken the war on Ukraine to prompt the Government into action. I am grateful to my right hon. Friends the Members for Barking (Dame Margaret Hodge) and for Birmingham, Hodge Hill (Liam Byrne), and to Members across the House for working together to improve the Bill.

Economic crime poses a threat to our country’s national security, our institutions, our economy, and causes serious harm to our citizens and wider society. Conservative estimates place the cost of economic crime at £290 million a year, according to the National Crime Agency, and the failure to stop criminals benefiting from the proceeds of their crime can fund further criminality. That can include offences such as funding organised crime groups, terrorist activity, drug dealing and people trafficking—this is a very serious issue.

Economic crime, as the Minister knows, has many victims. For too long, the Government have turned a blind eye to corrupt and dirty money, allowing Russian illicit finance to flood into Britain. That lets Putin’s cronies stash ill-gotten gains and even recycle the proceeds of crime into luxury properties. That is well documented and has been highlighted by many Members across the House, as well as in Select Committees. According to analysis by Transparency International, properties to the tune of £6.7 billion have been bought through suspicious wealth. Of those, almost a quarter in value were

“bought by Russians accused of corruption or links to the Kremlin.”

Most are held via secretive offshore companies. That drives up property prices for ordinary people in our country. More than two-thirds of English and Welsh properties held by foreign shell companies do not report their true owners. Research by the London School of Economics and Warwick University shows that the Register of Overseas Entities is not fully effective. For 71% of such properties, essential information about their beneficial owners remains missing or publicly inaccessible, despite the register. That means we still cannot know whether sanctioned individuals, money launderers or other corrupt individuals are benefiting from those properties.

We must not sustain economic growth off the back of dirty money. The Government have already delayed the Bill and these actions for too long. In that time, money has been lost, economic crime has become ingrained and the UK economy has once again lost out. Given that the nature and necessity of the Bill has already been discussed at length, I will focus on addressing the two amendments.

During the passage of the Bill, helpful alterations have been made to ensure that it is robust. The Lords amendments before us today seek to address two omissions. We are very disappointed that the Government are not willing to compromise and not willing to heed the wise and expert input of the Lords. That is deeply disappointing, because a great deal could be achieved if the Minister and his Government took note, including from hon. and learned Members on their own side.

[Kevin Hollinrake]

rose—

[Rushanara Ali]

If the Minister is brief, rather than talking the Bill out like he did last time, I will give way.

[Kevin Hollinrake]

I will be very brief. On the question of compromise, the hon. Lady will have noticed that there was no “failure to prevent” offence when the legislation was first tabled, nor was there an identification doctrine. There has been significant compromise on the Government side. Our preference, clearly, is to move forward in that spirit of compromise. We have achieved a great deal with the Bill, which has moved from under 300 pages to 400 pages. I do not think it is right to say that the Government have not compromised.

--- Later in debate ---

[Kevin Hollinrake]

The right hon. Lady is making very important points. However, the “failure to prevent” offence, as drafted, would not cover that situation, because it covers only situations where the benefit is to the corporation concerned or an officer within it. A situation in which a third party hijacked systems would not be covered, whatever the threshold.

[Dame Margaret Hodge]

That is an interesting point. The simple response is that, obviously, the drafting of the “failure to prevent” offence needs further improvement to ensure that it covers that sort of instance.

There were similar arguments about the burden on SMEs when we introduced the Bribery Act 2010. In 2015, a survey of SMEs found that nine out of 10 had no concerns or problems with the Act, and 90% also said that it did not affect their ability to export. Although fears are expressed before legislation is introduced, once it is on the statute book people find that it actually helps them. Under the terms of the Bill, SMEs already have an appropriate defence, as the Minister well knows: that they should only take actions that are reasonable in all circumstances. That test of reasonableness would protect microbusinesses and SMEs from having to engage in overly bureaucratic procedures.

Although the argument is overwhelming, the Minister does not agree. We had hoped that the Government would support and accept our amendment. If they were to do so, we would not put all these amendments to the vote. This means that the next Government—a Labour Government, we all hope—will seize the opportunity that the Minister has missed and grasp the issue. Labour will become the anti-corruption champions, saving our country and our economy.

This Bill arrived in a sorry state and we have improved it—I accept that—with the identification doctrine, clauses on strategic lawsuits against public participation, the improvement of accountability with an annual report to Parliament, and the reluctant acceptance that there may be an increase in fees for Companies House. But there are still large gaps. Trusts have not been covered, as they should be, and authorised corporate services providers could end up with a future dud register. Cost caps, which other hon. Members have alluded to, are not in there, the whistleblower regime is not in place, and asset seizure still has to be tackled.

We hear whispers that there is a third economic crime Bill. I am pleased about that, but if we had achieved more with this Bill, we might not have needed another one. After all the work that all of us have done to achieve cross-party consensus, and given the values that we all share, I would hope that the Minister would be bold enough to accept our tiny little compromise and put this Bill to bed so that the proposed legislation could be passed by the time we prorogue.

--- Later in debate ---

[Liam Byrne]

My right hon. Friend is absolutely right. This is a point of cross-party consensus. I know it is a point of cross-party consensus because it was the Minister who used to use precisely the same argument to argue for some of the changes that we see in the Bill.

We all know that our country does well, because, by and large, we have a reputation for clean trade around the world. When companies file and incorporate in this country, that is a credential that does them well around the world. That is a credential that we must do everything in this House to protect, which is why the amendment is so important. We cannot leave a weakness in our armour as crime and fraud multiplies.

The Minister said that the proposal would be a cost to British business that we could not withstand or sustain, but the truth is that, while it might be a cost to some British businesses, it would also be a saving to British business, to the British economy and to British taxpayers, because it is always cheaper and more effective to prevent fraud in the first place than to have to police it or to prosecute fraud after the event. When 64% of businesses—small businesses—in this country are victims of fraud, we can only imagine how widespread that cost of fraud has now become. That average is much higher than international averages and therefore there is an additional argument that we need to go that one step further to make sure that we are doing everything in our power to prevent fraud from arising in the first place.

All we ask in this amendment is for the Minister to face the facts. He should bring the facts together, put them in a report, assess them, analyse them and present some conclusions to the House. How can we have a situation where the Minister is essentially asking for the freedom to look away? That simply cannot be the basis of good policy. I am grateful to my new colleagues on the Business and Trade Committee who agreed yesterday that we will ask representatives of Companies House to come before us for hearings. Frankly, if the Minister is not prepared to put the facts around fraud in one place, I shall ask the Select Committee to do the job for him.

[Kevin Hollinrake]

With the leave of the House, I wish to thank Members who have contributed to the debate. We have much in common, despite the fact that some small differences still remain. As I said earlier, the Government have come a long way since the original tabling of the legislation. The number of pages have increased by more than 100, so the contents of the Bill now stand at nearly 400, which shows the importance of the legislation that we are debating.

I did not agree with the shadow Minister when she said that the Government have not been willing to compromise—that is not the case at all. The “failure to prevent” offence, particularly the identification doctrine, are key, world-leading measures. In my opening remarks, I made the commitment—and I make it again—that will we keep this matter under review, and that includes, in particular, the threshold. Even if there were a requirement for review in statute, there is no requirement on the Government to make changes following that review, so it is important to maintain the goodwill that we have experienced during the passage of the Bill.

[Dame Margaret Hodge]

Perhaps the Minister can tell me what he means when he says that he will keep this matter under review. What precisely does that mean?

[Kevin Hollinrake]

The way that we have legislated here, and the reason for doing so in that way, have always been informed by information that has come from third parties—from Spotlight on Corruption, Transparency International and others—that have been interested in the Bill. The right hon. Lady and I have worked together on this issue in the past in various all-party groups. Those are the kind of bodies that will inform progress as we implement this legislation, which again I say is world leading.

The shadow Minister talked about a level playing field and said that these measures move away from that. I could not disagree more. The key thing is that we do not have a level playing field now. In small companies, it is much easier to identify who is responsible for a fraud. That is why it is more difficult in large companies, which is why we are applying this to large companies. Fraud is fraud whatever the size of the company. This legislation does not allow smaller or medium-sized companies to facilitate fraud—if they are guilty of fraud, they are guilty of fraud and it is far easier to identify the people concerned.

Let me address the comments of my hon. Friend the Member for Bromley and Chislehurst (Sir Robert Neill) and thank him for all the work that he has done on this legislation and on the Justice Committee. I ask him not to doubt my motives; I have not been influenced by the Treasury at all. I am influenced by wanting to do the right thing in terms of both tackling economic crime and making sure that we do not put undue burdens on businesses. I can assure him that, for as long as I am in this role, we will keep this under review and make sure that the threshold is fit for purpose.

My hon. Friend talks about good business, but it is good business to make sure that we do not put undue burdens on business. I can promise him that, from my experience—while I was chief executive of my company—we implemented the rules on bribery and tax evasion, which were significant in our business. These would be significant measures for businesses. I say to him and to my right hon. and learned Friend the Member for South Swindon (Sir Robert Buckland) that they will have a real impact on businesses and significant costs of implementation. I do not think that they would be proportionate or needed within smaller enterprises, because of the ease of identifying the people responsible if fraud were facilitated in an organisation.

I appreciate the kind words of my right hon. and learned Friend and the work that he has done. I remember lobbying him on this issue when he was the Secretary of State for Justice—and a fine job he did. We have got much further this time than we did at that time, which shows our collegiate way of working all the way through the Bill’s passage.

The hon. Member for Glasgow Central (Alison Thewliss) has also done fantastic work in this area, and I appreciate all her efforts. She says that we do not agree. We have a right to disagree where we disagree, and we honestly disagree about whether this proposal is required. We do not want to put unnecessary burdens on businesses.

I completely understand the strength of feeling of the right hon. Member for Barking (Dame Margaret Hodge) on this matter. I, too, feel strongly about implementing the right measures to tackle economic crime while not putting undue burdens on businesses, so I say to her again, in the spirit of good will that we have operated under for many years, we will keep this under review. If the threshold needs to be changed, we can do that under secondary legislation.

I congratulate the right hon. Member for Birmingham, Hodge Hill (Liam Byrne) on his election as Chair of the Business and Trade Committee. I know that he will do a fine job. He is right that, in that spirit of good will, we have achieved much in the manifesto that we launched just over the road. Again, I hope that he does not doubt my motives in what we are doing to tackle economic crime without putting undue burdens on business.

I urge everyone to support the measures that we have in place already, and I ask those in the other place to respect the clear will of this House.

Question put, That the amendment be made.