Economic Crime (Transparency and Enforcement) Bill

Kevin Hollinrake Excerpts

Committee stage
Monday 7th March 2022 Commons Chamber

[Sir Iain Duncan Smith]

They should, because the individual has to declare the whole chain. “Not knowing” would be no excuse. It would be the responsibility of individuals to know who those nominees were and to declare them They could not defend themselves. What my right hon. and learned Friend the Member for South Swindon (Sir Robert Buckland) suggested might be a better way of doing this, but my point is that my amendment would nevertheless address it.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

I am not sure that my right hon. Friend is correct. The Bill defines a legal entity as

“a body corporate, partnership or other entity”.

rather than an individual. I am not sure that, in those circumstances, the amendment would cover the individual.

[Sir Iain Duncan Smith]

It might not, but I think it would, because it covers the information that individuals are asked to declare. It may not cover the sanction on the individual, but it covers the knowledge of who that individual is. If there is a better way to do it, however, I am up for it. That is feasible, and it may be that my right hon. and learned Friend’s way of doing it is a better way.

--- Later in debate ---

[Mr Davis]

It would be good. It would allow us to crack down more effectively; not so much more quickly but more effectively.

What will we see during the months it takes to get people to the legal point at which they are sanctioned? We will see Russians scrambling to sell off their houses, dispose of their businesses and offload their football clubs. In respect of many of the measures, we will know a lot more about it and be much better informed, if none the wiser, with respect to what they are doing. Multimillion-pound car collections will be loaded into jets; anchors will be weighed on superyachts; priceless artworks will be squirrelled away—all to wend their way back to Russia or some other safe haven for these people. By the time our sanctions have taken effect on not all but many of the oligarchs, the horse will have well and truly bolted. Indeed, the background noise is currently the sound of a stampede of horses bolting as the door on the stables creaks shut. That is what we have to put right.

My new clause will help to prevent all that. It will not do everything, because it is only one piece of the repertoire of things we need to do, but it will allow the Government to publish a hitlist—forgive the tabloid term—or a list of individuals who are being considered for sanctions. In the same way as someone may wait on bail before they face trial, the freedoms of those on the list will be restricted for the period so that they do not flee. Once a person’s name appears on the list, their ability to sell, liquidate or transfer out of our jurisdiction their assets—cars, homes, businesses, jets, investments, cash and so on—will be frozen. They will then be unable to sell those assets or move them out of the UK. They will still be able to use them—there will be beneficial advantage to them—but their ability to thwart what we are trying to do today will be restricted.

Given my history in this House, some may be rather surprised that I am willing to see a restriction of a specific human property right—that is what my new clause amounts to and that is quite unusual for me—but we need to take action now; otherwise, any sanctions that the Government seek to impose will be entirely meaningless for a large number of these people. We see Chelsea being sold today and all sorts of actions going on that cannot be helpful to what we are trying to achieve. My new clause would give the Government breathing space—time to go through the legalities of formally sanctioning the oligarchs and pals of Putin who rightly deserve to be the target of sanctions.

Although the Government have identified 100 oligarchs to sanction, other countries have identified more. This is going to be a long war. The sanctions are going to be in place for years, not months. They will have effect only if we move more quickly than the targets.

[Kevin Hollinrake]

Will my right hon. Friend give way?

[Mr Davis]

Not for the moment; I am just about to finish the point. To move rapidly is the only way to ensure that our sanctions actually hit Putin where it hurts. I will now give way—I have never not given way in my life.

[Kevin Hollinrake]

I am most grateful. My right hon. Friend’s new clause is very important but, as he would probably concede, a difficulty with it is that we need alongside it transparency in respect of beneficial ownership; otherwise, we will not know who owns the assets. The problem is that the ownership of a lot of the assets is hidden. Does he agree that for his new clause to be truly effective we need a day-one capability to see who owns the assets?

[Mr Davis]

Yes, I do, but my hon. Friend must bear in mind that the burden in the new clause—the responsibility and requirements—falls on the person who is sanctioned.

--- Later in debate ---

[The Chairman of Ways and Means (Dame Eleanor Laing)]

We have a great many amendments to consider this evening, and it would not be right if the people who tabled those amendments did not have the chance to speak to them so that the Committee can be helped to make its decisions on them, so I must appeal for shorter speeches now. I am not complaining, because so far we have had substantial speeches about substantial amendments, but will Members who are supporting amendments rather than speaking to their own amendments please consider making shorter speeches?

[Kevin Hollinrake]

It is a real pleasure to speak after the right hon. Member for Barking (Dame Margaret Hodge). We have worked together on so much, and we have worked on this legislation for a long time.

I will talk about new clause 2 when I come to my comments on whistleblowers, but the main thing I want to talk about is amendment 64. Many hon. Members have spoken about the danger of asset flight. In reality, we know it is happening already; people are not going to wait for this legislation to come into effect to try to hide their money. Whether the transition period is 18 months, six months or 28 days does not really matter, because the individuals in question can move their money around so quickly that much of it will have happened already.

I have supported amendment 16 in the name of the official Opposition, but I would like to think that my manuscript amendment 64, which I am very grateful to Mr Speaker and the Deputy Speakers for selecting, might be more effective. There are some other important amendments that have been tabled, such as new clauses 28 and 29, on freezing orders, but the difficulty with those new clause, as I said in my earlier intervention, is that we cannot freeze something that we do not know exists. That is very difficult to do. We need to look behind the curtain at who owns the assets. That is obviously what this Bill does; it is primarily about transparency and being able to see who owns what.

I am grateful for the support of many people on manuscript amendment 64, including my hon. Friend—he should be right honourable—the Member for Weston-super-Mare (John Penrose), the Government’s anti-corruption champion. We have worked closely on this, and as soon as we looked at the Bill we thought, “There’s something missing here. Clearly, these people are going to move this money around very quickly to make sure it’s not touched.”

I think this amendment probably does something, although I am not a lawyer—I looked at this over the weekend and I did not have any legal input, so I cannot say it is totally fit for purpose and I am interested to hear what the Minister has to say about it. He has engaged on this issue all the way through and been willing to discuss with me, as we did yesterday, what we can do to close this potential loophole. The amendment would simply require beneficial ownership to be registered with Companies House, which links into the Land Registry’s requirement to ensure that something is properly registered with Companies House before it allows a transfer or a sale to happen. Without the Land Registry doing that, of course, people cannot sell or transfer a piece of land or property.

[Lloyd Russell-Moyle]

The hon. Gentleman is making a very good speech on the importance of that relationship between the Land Registry and Companies House. Does he agree that the requirement still to pay to access the Land Registry dims the light that is shone, rather than enhancing it, and that making it an open registry, with Companies House as an open registry as well, would aid the process of light-shining?

[Kevin Hollinrake]

That is what it will do. It is a public register, of course, so the beneficial owner will be revealed and, if that person is on the sanctioned list, that asset can be frozen. That is how it would work. In the legislation, schedule 3 paragraph 6 requires the Land Registry to do that, and it can prohibit or restrict a transfer or a sale. That is the key to this. The only respect in which the legislation is not currently fit for purpose, in my view, is that that does not take effect for 18 months. If we took those clauses out or changed the timescales so that it came into immediate effect on the commencement date of the legislation—that is, from day one—it would potentially prevent that sale or transfer of assets from one person or entity to another and the moving of those assets around, and thus prevent what we are all concerned about—asset flight.

I know the Minister has responded to this question a couple of times from the Dispatch Box, but I think there is a good chance this particular amendment would pass if pushed to a vote. I would appreciate confirmation from the Minister at the Dispatch Box whether the Government will, as he has indicated they would, table an amendment in the Lords that has a similar effect, so that we have a day one restriction or prohibition on the sale or transfer of assets from one to another. If he is willing to do that—[Hon. Members: “Do it now!”]

[The Chairman of Ways and Means (Dame Eleanor Laing)]

Order. We are not having this—we are getting on with things. Otherwise, people who have something to say will not get a chance to say it. Mr Hollinrake, come on!

[Kevin Hollinrake]

I was just trying to establish whether this would be done in the Lords if it was not done here tonight, Dame Eleanor. Perhaps the Minister will say it later in his summing-up.

[Paul Scully]

indicated assent.

[Kevin Hollinrake]

He is nodding—thank you very much. Hansard have got it on record that he is nodding. That is very important.

I want to mention one other important thing that is often missed. Many hon. Members in all parts of the House have talked about resources, and they are absolutely right. New clauses 2 and 9 deal with that. There are nowhere near enough resources applied to economic crime: it represents 40% of all crime, but 1% of the resources. For example, last year I think the Office of Financial Sanctions Implementation, one of the bodies charged with enforcement, sanctioned two individuals or companies with collective fines of £85,000. In the US, a similar body levied 87 fines totalling £1.5 billion, because it is properly resourced. That is hugely important.

New clauses 14 and 27 seek to approach the problem in a different way, because they would provide protection for whistleblowers. It is pointless having lots of law enforcement people charging around not knowing where to look. Whistleblowers tell us where to look. Some 43% of all financial crimes are identified through whistleblowers, yet it is something we do not talk about. We do not just need more regulators; we need somebody to point us in the right direction. Regulators will always be watchdogs, never bloodhounds. We need the bloodhounds in the organisations who are willing to speak up if things are going wrong.

Every single economic crime I have dealt with in my work on the banking side of things has come to light as the result of information provided by whistleblowers. On GPT Special Project Management, it was my own constituent Ian Foxley. Airbus paid $3 billion in fines internationally and £900 million to the UK Treasury, and all that money came as a result of a disclosure from whistleblowers. In every single case you can think of, whether HBOS or the PPI scandal, they were all about whistleblowers. Yet the protection and compensation that we offer whistleblowers in the UK is pretty much non-existent. In the case of Lloyds/HBOS, the FCA itself was guilty of not protecting the whistleblower. Barclays tried to identify the whistleblower in a case within Barclays. Yet very little or nothing is done. So if you are thinking of blowing the whistle, will you do it? My constituent, Ian Foxley, who was involved in the GPT Special Projects case that resulted in £28 million of financial sanctions at Southwark court last year, has been 11 years without a single penny. That man was earning £200,000 a year. Do you think he would step forward next time, or somebody else would do the same? We have to make sure that we protect whistleblowers.

[Philip Dunne (Ludlow) (Con)]

My hon. Friend—by the way, I support enormously what he has been saying about the banking frauds—is making a very important point in relation to whistleblowers in a domestic context. In this context, we are talking about sanctions against people who potentially undermine the law of this country, as we saw in Salisbury, by taking action into their own hands against whistleblowers—trying to take them out. It is entirely appropriate to defend the personal safety of people who undertake whistleblowing.

[Kevin Hollinrake]

I am grateful for my right hon. Friend’s support.

I will press new clauses 14 and 27 to a vote. It is very important that this is included in part 2 of the Bill. We need modernised legislation, an office for the whistleblower, to provide protection, and a compensation regime so that these people are fairly compensated for bringing forward information that leads to prosecution of these crimes. That will lead to resources for the National Crime Agency, the Serious Fraud Office and others. One thing will lead to another. The US Securities and Exchange Commission, which is hugely successful in imposing fines on financial organisations, was a relatively small organisation before the US’s whistleblower legislation came into effect. That is one for later, but now, in this Bill, the change has to be made through amendment 64 or something similar. I would really appreciate the Minister’s confirmation that we will do that in the Lords as the Bill progresses.

[Stella Creasy]

We are all acutely aware of just how important this Bill is. In less than 24 hours, this House will be addressed by President Zelensky, and we all want to be able to look him in the eye knowing that we have done everything we possibly can to help him and his people, and knowing how urgent the situation is—that we are days if not hours away from further atrocities in Kyiv, let alone across the country.

It is in that spirit of the urgency of getting this legislation right and making it as powerful as it can be that many of us have tabled amendments, many of which are cross-party. Sadly, my next-door neighbour, the right hon. Member for Chingford and Woodford Green (Sir Iain Duncan Smith), is not in his place. I want to follow up on the conversation about “carelessly or recklessly” by talking about the amendments I have tabled that try to learn from tax legislation. I hope the Minister will take that spirit forward, as he has made the commitment that he is going to bring forward further amendments on this in the other place to look at what we can learn from tax legislation. The difficult truth for all of us, as all these speeches are highlighting, is that if these amendments do not go into the Bill, many of us feel that the legislation will be toothless, and that brings the shame that means that we cannot look President Zelensky in the eye.

I particularly want to draw the Minister’s attention to amendments 29, 30, 34 and 31, which are about what we might do instead of having the omission of “carelessly or recklessly”. However, I support the new clause tabled to remove those three words. The amendments recognise what all of us recognise in our day jobs: the difference between tax avoidance and tax evasion; between people acting deliberately and people acting carelessly. Our constituents understand all too well—I am sure we see many cases of this in our casework—that if they have acted carelessly they still face penalties under the law just as if they have acted recklessly. But right now this Bill does not apply the same test to the oligarchs that we are trying to challenge. It does not recognise where somebody may have acted carelessly—although many of us might think that carelessness does not come into it when you are paying that amount of money to the enablers that we are talking about—and might be able to say it was a mistake that they had not declared who the person of significant control would be and who the beneficiaries are. It is clearly a breach of the rules when that happens, but as the Bill currently stands, many, when they are challenged, would no doubt say that it was just an unfortunate accident, what a pity it was and they would put it right. If our constituents cannot get away with that excuse with regard to their tax returns, then certainly an oligarch should not be able to get away with it. We should make sure that we show that we are not just focused on those excuses but that we care about those excuses.

Since 2016, the Government have made it compulsory for anyone setting up a company to name the individual who actually controls it—the PSC, or person with significant control—but nobody checks the accuracy of the information. As we have said, we could pretty much register companies in everybody else’s names in the Chamber and nobody could claim that that was impossible to do. Someone might claim that it was a mistake, but if they are an oligarch, how do we make sure that that person does not do that? The amendments I have tabled also address the nature of the penalty. We have not really talked about that. It is welcome that the Government have increased the penalties, but I still fear that we are talking about people for whom billions of pounds are the standard currency that they are dealing with. Amendment 31 refers to the market value of the properties at stake and the market value of the properties that are not registered. Subsequent amendments recognise the difference between carelessness and recklessness so that if somebody has accidently not registered a company, the penalty they might face would be lower than if they had deliberately not done it.

All this only works if we also bring in the other part of civil law, which is the balance of probabilities, because, again, our constituents do not get the benefit of the doubt but right now, under the Bill, oligarchs would. The amendments bring in the balance of probabilities to give the law enforcement agencies—I completely support those who are calling for additional resources for them—the ability to go after people on the balance of probabilities: not to have to hope that they have the evidence but to recognise the same test and threshold that we set in civil law with regard to our tax returns. For minor errors such as submitting a late return, there is usually a fixed penalty of a few hundred pounds, but if a tax return is intentionally wrong, or there has been a lack of reasonable care, HMRC levies penalties as a percentage of the tax due—up to 30% for carelessness and up to 70% for deliberate inaccuracy. The Government warn:

“Penalties can apply if your client does not tell HMRC if an assessment is too low. This type of penalty is known as an ‘inaccuracy penalty’ and applies to…taxes and duties”.

I hope the Minister can understand that point and why, with regard to deleting “carelessly or recklessly” we might also want to be clear about where people act with intent and where they act as though they do not care because frankly they have so much money that this is just an occupational surcharge that they may take on. Other amendments that I have tabled reflect that differential. I have also tabled amendment 34 to recognise where an adviser is part of that, because many of us are concerned about those who enable oligarchs to get away with this but would perhaps live in the land of the accidental omission rather than deliberate, reckless omission.

The other amendments I want to flag up to the Minister are about some of the other loopholes. Many of us have spoken about our fear that assets will be taken abroad, taken away or hidden, and particularly the idea that people will hide them among their family members. If we were in a proper Committee, I would say that amendment 39 was a probing amendment to see where the Government are going on this. It talks about connected parties. It is about recognising that there is a history among these people of registering and hiding assets not just in shell companies but in the names of their family members. Two years ago, the anti-corruption campaign group Global Witness looked at this and found that 4,000 of the people registered as a person of significant control were under the age of two, while one had not even been born yet. At the opposite end of the spectrum, its researchers found that five individuals each controlled more than 6,000 companies. There are more than 4 million companies registered at Companies House. That is a very large haystack in which to hide needles. If those needles happen to be connected to an individual, we should be able to track that fact and acknowledge it through this legislation. According to The New York Post, the former owner of Chelsea football club transferred £92 million of New York City property to his ex-wife, Dasha Zhukova, just before the 2018 round of sanctions was announced. Those sanctions were designed to affect people close to Putin and

“to counter and deter malign Russian activities”

that were harming democracy around the globe.

Our counterparts in America have already sanctioned family members alongside oligarchs. The American Treasury announced that Nikolay Petrovich Tokarev, the president of Transneft, has been sanctioned, but so too has his daughter Maiya and his wife Galina. Maiya’s real estate empire covers more than £50 million-worth of property in Moscow alone and includes at least three companies, including Katina, which owns prime oceanfront real estate in Croatia. The EU and Canada have also sanctioned this family, and Canada has also designated Galina and Maiya, but as far as I can see, we have not yet sanctioned a single family member. Amendment 39 would make sure we have information about those connected parties. It is not perfect, but I hope that in his response, the Minister will explain how the Government intend to ensure we can avoid oligarchs hiding money not just in shell companies, but with shell relatives.

As part of that effort, I put on record my support for new clauses 29 and 2, which deal with resources and asset freezing. This is not just about bolting the stable door; it is about the people who are now running for their lives. We in this place have ruled out military intervention, as has NATO, because we have rested our hopes on economic sanctions as the way to bring Putin to a halt and stop what he is doing. We have to get this right, because there are people sat in Calais tonight, looking to this Government who have failed to give them a visa. There are people sat in Kyiv tonight, waiting for the air raid sirens to go off, who are asking what we are doing. This legislation is what we are doing, so if we do not make sure it is watertight, we are giving a green light to Putin to carry on. Nobody in this House wants to do that.