Economic Crime and Corporate Transparency Bill (Seventh sitting)

Liam Byrne Excerpts

Committee stage
Thursday 3rd November 2022 Public Bill Committees

[Kevin Hollinrake]

That is perfectly reasonable. I tried to set out those kinds of example earlier, so I am very happy to clarify that in a letter to both the hon. Lady and the right hon. Member for Barking. Our position is that somebody might be subject to a travel ban for a number of reasons, and that does not necessarily exclude them from being a fit and proper person to run a company. Now, Members may think of some reasons why that individual should not be a fit and proper person, but I will set out why that person may still be fit and proper, and then we can all either agree, disagree or find a way of dealing with it.

[Liam Byrne (Birmingham, Hodge Hill) (Lab)]

It seems that if somebody is subject to a travel ban, they will fail pretty much every “know your customer” rule for every financial institution in the country. Indeed, we have set out regulations precisely to ensure that there are those tripwires. How will a company director be able to fulfil their duties? If the Minister cannot answer now, perhaps he can set that out in the correspondence to follow.

[Kevin Hollinrake]

That is exactly what I have already agreed to do. We will move on from that point, but, briefly, there will be instances where that person is not necessarily described as unfit or not proper to run a company, but we will set that out.

Amendment 83, tabled by the right hon. Member for Barking, introduces enhanced data sharing provisions to enable Companies House to more proactively identify and exchange information regarding suspicious activity with partners, including with law enforcement agencies. That is in addition to existing information sharing gateways and arrangements.

The Government believe it is better and more flexible to allow relevant operational agencies to formulate their own preferred approach to information exchange, rather than to define it inflexibly in primary legislation—[Interruption.] The right hon Member for Barking looks at me quizzically. I think she has picked up on one particular situation where she wants Companies House to act in a certain way, but she must agree that we could pick up myriad different situations where we might want Companies House to do something if we sat down and made a list. I am sure she does not want to get into the micromanagement of what Companies House should do in every circumstance. There will be millions of different things we expect Companies House to do. We prefer to give Companies House the objective of promoting the integrity of the registers and then hold it to account through the objectives and the provisions of the Bill. Specifying every single condition that we expect Companies House to operate in a certain situation is the wrong thing to do.

[Liam Byrne]

The last Bill Committee I had the pleasure of serving on was for the Data Protection Act 2018, which implements the general data protection regulation and prescribes all manner of protections for data privacy. This is our worry. When the new duty set out by the Minister for Companies House clashes with GDPR legislation, how do we resolve those clashes of principles to allow Companies House to share the data they need to share with the people they need to share it with in order to pinpoint the bad guys?

[Kevin Hollinrake]

That is a fair point and it is covered in the Bill, which seeks to make it easier for Companies House to share information proactively with other organisations or, indeed, commercial organisations and vice versa. Here, we are talking about specifying the exact circumstances in which that should happen, which we think is the wrong approach.

I now turn to amendment 93, which seeks to expand the criteria for disqualifying individuals from being company directors to include people suspected of facilitating evasion of UK sanctions by sanctioned individuals, in addition to the sanctioned individuals themselves. Any person enabling or facilitating the evasion of certain sanctions would already be committing an offence, for example, under regulation 19 of the Russia (Sanctions) (EU Exit) Regulations 2019. The maximum penalty on indictment is seven years in prison or a fine. Those are already dissuasive measures to ensure compliance with sanctions.

It is not appropriate and proportionate to apply director disqualification and offences to an individual who is only suspected of facilitating the evasion of sanctions. It is not clear what would constitute such suspicion and at what point a person would be prohibited to act. That could mean exposing an individual to criminal liability in circumstances reliant on suspicion alone, which I am sure the right hon. Member for Barking would not want to see. The uncertainty of what would constitute the criminal offence and potential interference with presumption of innocence has implications for the rule of law. I therefore ask hon. Members not to press their amendment.

I will now speak to clause 33. New section 11A of the Company Directors Disqualification Act 1986, introduced by the Bill, prohibits individuals subject to relevant financial sanctions, such as asset freezes, from acting as directors of companies. The clause limits the scope that prohibition by disapplying it for building societies, incorporated friendly societies, NHS foundation trusts, registered societies, charitable incorporated organisations, further education bodies and protected cell companies. The Secretary of State may, by regulations, repeal any of the subsections in the section, therefore applying the prohibition on individuals subject to an asset freeze from acting as directors in any of the organisation types in the clause. That allows the Secretary of State to apply those measures only to company directors in line with the policy focus of the measures in the Bill, without that unnecessarily applying to other entities currently not in scope. That will take effect in England and Wales and Scotland. Clause 35 makes equivalent provision for Northern Ireland.

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[Stephen Kinnock]

The hon. Lady raises an extremely important point and illustrates the absurdity of the situation we have got into. There seems to be a “wild west” approach to running corporate affairs in the UK and it is simply not acceptable. I thank her for that intervention and reiterate my hope that the Minister can give us an absolute reassurance that the issue of nominee directorships will be dealt with firmly and clearly in the Bill, without any loopholes. I also hope he will share any other thoughts he may have on the matter.

[Liam Byrne]

It is a pleasure to serve under your chairmanship, Ms Elliott. I am sorry that I have not checked the sartorial guidance for the Committee, but I assume it is okay for me to speak without a jacket on. I defer to the Chair if she wants me to clothe myself more adequately.

[The Chair]

It is very warm in here.

[Liam Byrne]

The Minister probably did not intend to set hares running, but he certainly has with his suggestions this morning. I know he will be alive to the Foreign Affairs Committee report on illicit finance that was published under the chairmanship of the right hon. and gallant Member for Tonbridge and Malling (Tom Tugendhat), who is now the Minister for Security, but I wish to share some of its headlines to underline a point that was wholly missing from the Minister’s presentation.

Let us start with the really bad news. First, the Select Committee concluded that

“assets laundered through the UK are financing President Putin’s war in Ukraine.”

Secondly, the report said:

“The Government’s unwillingness to bring forward legislation to stem the flow of dirty money is likely to have contributed to the belief in Russia that the UK is a safe haven for corrupt wealth.”

It is very welcome that the Government introduced sanctions and have brought forward this Bill, but I am afraid the Foreign Affairs Committee came to the conclusion that our sanctions regime was “underprepared and under-resourced.” We on the Select Committee found that there was not the capacity in the FCDO to match the speed and power of the sanctions regime brought into force by our American colleagues and, indeed, the EU. That is why the House was treated to the spectacle of a piece of enabling legislation that allowed us simply to copy and paste the sanctions regime from other countries into UK law.

There is a serious worry that the FCDO is not equipped to drive through the requisite disqualification of directors at the speed at which it should if it takes decisions on sanctions. I hear what the Minister says about creating some—I guess he would say—safeguards against the automatic suspension of directors, but in the absence of such a regime there is a real concern about an enforcement gap, because the FCDO sanctions and compliance team simply does not have the capacity to work things through with Companies House to ensure that the consequentials are followed through and that directors are disqualified when it is appropriate.

Among the measures that we in the House have previously invented are some of the provisions that I took through in the UK Borders Act 2007. We basically wrote into law the automatic consideration of sanctions such as the suspension of directorships. Many Opposition Members would be an awful lot more confident that bad people would be disqualified from directorships if they were sanctioned if we had some kind of legislative provision that created a duty, and therefore a burden, on Ministers and their officials to automatically consider people for the suspension of their directorships if a sanction of any description was imposed upon them.

This Committee is a chance for us to air different points of view about how we ensure that, as the Minister wants, London is a world capital of clean trade. I put this case before him so that he can reflect on it and perhaps come back to the Committee with further thoughts.

[Dame Margaret Hodge]

It is a pleasure to serve under your chairship, Ms Elliott.

I rise to speak to amendment 83. I did not quite understand the Minister’s attack on or dismissal of it on the basis that it was somehow an attempt to provide a detailed way for authorities to act. That is way beyond what we are attempting to do; all we want to do is make sure the authorities are aware. The Minister and I know, from working in this policy area for a long, long time, how poor all the enforcement agencies are at sharing information. When whistleblowers and others provide information about wrongdoing, too often that falls between the various enforcement agencies, gets lost and nothing ever gets done. We are not here to tell those agencies how to carry out their work, but to ensure that there is better communication.

The amendment addresses some of the issues my right hon. Friend the Member for Birmingham, Hodge Hill just raised. It tries to strengthen the sanctions regime against individuals and to stop those individuals moving their assets before they get sanctioned. Under the FCDO, the sanctions process inevitably takes a long time and people know they are about to be on the sanctions list, so they have time to rearrange their affairs so their assets cannot be frozen.

All the amendment would do—it is very simple—is put a duty on Companies House to tell the enforcement authority, whether that is the Foreign, Commonwealth and Development Office, the Office of Financial Sanctions Implementation, the National Crime Agency or whoever, about any changes that may have occurred in the accounts held by Companies House of individuals who have been sanctioned and whose assets have been frozen in the three months prior to those sanctions being put in place. That is crucial, but why?

In July 2022, OFSI and other UK Government agencies, together with the Joint Money Laundering Intelligence Taskforce, issued a red alert, which I hope the Minister has had a chance to look at. His colleague, the Minister for Security, the right hon. Member for Tonbridge and Malling (Tom Tugendhat), will certainly have done that. It sets out the evasion tactics that individuals use and that enablers, whom my hon. Friend the Member for Aberavon mentioned, take to support that evasion. The action that designated individuals take, supported by their advisers, includes the transfer of assets, such as shareholdings, to trusted proxies, such as relatives or friends. To quote the red alert, they will

“sell or transfer assets at a loss in order to realise their value before sanctions take effect”

and they will

“divest investments to ensure ownership stakes are below the 50% threshold”

needed for sanctions.

There are numerous other examples—the red alert includes a list of about 15 such examples—of ways that people avoid sanctions and avoid their assets being taken. The individuals may seem to have got rid of their assets, but they will retain control. They will have simply hidden their control and the form that that control takes, but in reality they will still have control. In some instances, assets have been transferred or directed to jurisdictions where sanctions are not in place, such as China, Brazil, India or the United Arab Emirates, or have been converted into cryptoassets, which we will come to later in our discussions about the Bill.

I came upon such tactics in the case of Usmanov, as we have discussed before, who dodged the sanctions, particularly in relation to his Mayfair mansion—I cannot remember how many millions that is worth. The shares in his London property firm were transferred to his Russian business empire on 21 February, less than a fortnight before he was sanctioned. The transfer involved property owned by Klaret Services UK Limited being sold to Russia’s largest iron ore company, Metalloinvest, in which Usmanov has a 49% share. That is just below the 50% threshold, although it is in Russia. That transfer is legal—he was able to act legally and within our law—and he was able to do it because we were so slow to sanction.

The sanctions against Usmanov did not cover his companies, so when he transferred the Mayfair property to a company, a different mechanism would have had to be adopted to capture its owner. As he had a 49% share in that company, it would have been difficult to pursue that. Both the shareholding in the company and the transfer mattered. Under our amendment, Usmanov would not have got rid of the property. Companies House would have had to give the enforcement agencies information about the transactions that had been undertaken in the three months prior to the sanctions, and those agencies could have taken action on it.

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[Kevin Hollinrake]

I am still not sure I agree. Of course there are elements of our enforcement agencies that we are all frustrated by at times, but to my mind nobody goes to work to do a bad job. People are doing their best, often in very difficult circumstances. We all agree that we need to hold our enforcement agencies to account and properly resource them. What we are trying to do is provide them with more powers and ability, and then hold them to account for the use of those powers.

[Liam Byrne]

The Minister is being characteristically generous. As he reflects on the huge wisdom of the amendments tabled by my right hon. Friend the Member for Barking and perhaps returns to the Committee with some of his own, could he share with us how many of the 1,200 individuals and 120 businesses that have been sanctioned since Russia’s invasion of Ukraine have had directorships suspended?

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[Liam Byrne]

Right. hon, I am afraid.

[Kevin Hollinrake]

Quite right, too; the right hon. Gentleman was Chief Secretary to the Treasury—I will go no further. The Foreign and Commonwealth Office is not responsible for the Office of Financial Sanctions Implementation—that is a function of His Majesty’s Treasury—which determines how the sanctions regime works once people are sanctioned. The OFSI ensures that the regime works effectively. It is fair to say that when that organisation was established fairly recently, it was not ready for the amount of work it had to do. It has been scaled up to make it a more effective organisation, which has been discussed in the context of resources generally.

[Liam Byrne]

Let me give the Minister a bit of feedback from my time as Chief Secretary to the Treasury. If a spending Minister comes before the Chief Secretary to say: “I’m really sorry, but we have a legal duty to do this”, it is an awful lot easier for them to win the case for the resource that they need than when they do not have the weight of that legal duty on their shoulders. Therefore, automatic consideration of a sanctioned individual for suspension of a directorship is a good thing to enshrine in a legal duty. I am trying to be helpful to the Minister, because I want him to be able to win arguments with the Treasury for the resources that he needs to achieve the objectives we both share.

[Kevin Hollinrake]

Yes, but we have to make careful use of our resources, otherwise there would be no money left.

We agree that sanctioned individuals should not be allowed to be directors of companies. That is what we are talking about, so there is no disagreement. Our disagreement is about how we share information between different agencies, and whether we should tell them how to do it, or they should do it themselves. We are parliamentarians; we are not experts in financial crime or how the financial system works. Wherever we can, we should leave it to the experts to determine the best way to share the information between agencies and—the important thing we are doing here—give them the powers to do that.

Question put, That the amendment be made.