Economic Crime and Corporate Transparency Bill

Liam Byrne Excerpts

Consideration of Lords message
Wednesday 13th September 2023 Commons Chamber

The Deputy Speaker put forthwith the Questions necessary for the disposal of the business to be concluded at that time (Standing Order No. 83G).

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

On a point of order, Mr Deputy Speaker. The inexplicable delay in counting votes has now risked denying the House a vote on ensuring that this Bill to tackle economic crime is as strong as it could be. Will you therefore advise the House on what action we can now take to ensure that in the debates that lie ahead we can come back to this question and make sure we have the right provisions in place in statute and that this country is no longer a soft touch for economic crime?

[Mr Deputy Speaker (Mr Nigel Evans)]

I thank the right hon. Gentleman for his point of order. As he knows, we are now going to move on to the motion on amendment 161B, and if that is annulled there will be other opportunities, I am sure.

After Clause 187

Civil recovery: costs of proceedings

Resolved,

That this House disagrees with the Lords in their amendment 161B in lieu of Commons amendment 161A and insists on amendment 161A in lieu.—(Kevin Hollinrake.)

Motion made, and Question put forthwith (Standing Order No. 83H(2)), That a Committee be appointed to draw up Reasons to be assigned to the Lords for disagreeing with their amendments 151B, 151C and 161B.

That Kevin Hollinrake, Scott Mann, James Sunderland, Jane Stevenson, Rushanara Ali, Taiwo Owatemi and Alison Thewliss be members of the Committee;

That Kevin Hollinrake be the Chair of the Committee;

That three be the quorum of the Committee.

That the Committee do withdraw immediately.—(Kevin Hollinrake.)

Question agreed to.

Committee to withdraw immediately; reasons to be reported and communicated to the Lords.

Economic Crime and Corporate Transparency Bill

Liam Byrne Excerpts

Consideration of Lords amendments
Monday 4th September 2023 Commons Chamber

[Kevin Hollinrake]

The vast majority of the business community is honest and upstanding—that is the point. What we are trying to ensure is that those businesses are not disproportionately affected by putting in controls, checks and balances. I speak as a businessperson who did have to implement failure to prevent bribery and tax evasion measures in our business, and I tell the right hon. Member that there were significant administrative burdens around that legislation, and I believe they would be more so for fraud. I will come to that point in more detail.

I turn to Lords amendment 23. The inclusion of lines 84 to 96 would require all UK companies to declare whether they are holding shares on behalf of or subject to the direction of another person or persons as a nominee, and if so to provide details of the person or persons. Fundamentally, that is not necessary. Provisions in the person with significant control framework, as strengthened through the Bill, already require the disclosure of a person of significant control behind a nominee on pain of criminal sanction for non-reporting. That achieves the same intent. A combination of measures already in the Bill, the material discrepancy reporting regime in the Money Laundering and Terrorist Financing Regulations 2022 and Companies House’s new intelligence hub will more effectively flush out undeclared PSCs and deter the provision of false information.

I am afraid that the proposed approach is something of a blunt instrument. It would apply to all shareholders, when we should be focusing on the transparency of individuals exerting significant influence as already provided for under the PSC framework. As such, we would risk burdening millions of companies and their shareholders with new information requirements for no useful purpose. The proposition may sound sensible, but nominee arrangements can be complex, including having multiple layers of nominees and large numbers of beneficiaries for entirely legitimate reasons. For example, pension funds that own shares in a company would be caught. Listed companies would be particularly impacted as their shares are often held by nominee arrangements for legitimate administrative reasons—for example, in stocks and shares individual savings accounts, by custodian banks and by corporate sponsored nominees.

Listed companies report similar information about those owning 3% or more of their shares to the Financial Conduct Authority, so the Lords amendment would partly duplicate existing arrangements. In summary, lines 84 to 96 of the amendment risk disproportionate burdens on legitimate actors and would most likely be ignored by illegitimate actors. Those acting as nominees on behalf of shady individuals behind the scenes are already adequately on the hook if found to have provided false information, as is the company itself.

The effect of inserting those lines into part 8 of the Companies Act 2006 would be to cut across a tenet of UK company law: those running a company—usually the directors—must know its legal owners and act in the interests of the legal owners of the company. Those legal owners are recorded on the register of members. Companies shall have regard to their members record and not, for example, to anyone holding any underlying beneficial interest in their shares.

Lords amendment 115 would introduce two new duties for overseas entities. It would first require event-driven updates on beneficial ownership information and, secondly, require overseas entities to update their record no more than 14 days before the completion of a land transaction rather than the existing requirement to do so annually. Although the amendments are well intentioned, they would significantly increase burdens on both overseas entities and third parties transacting with them, as well as introduce an element of risk in land transactions that the annual update prevents.

As my ministerial colleague Lord Johnson of Lainston explained in the other place, in the case of an overseas entity that owns large commercial premises split into units, the amendment could result in the entity needing to provide updates twice a month, which is a disproportionate burden. There are a number of other technical challenges and impracticalities with setting such a duty on these entities. The Government are not alone in those views. The Law Society of Scotland, the Law Society of England and Wales and the British Property Federation have all expressed their concerns. The Government therefore cannot support the amendment.

Lords amendment 117 would make information about trusts submitted to the register of overseas entities publicly available by removing it from the list of material listed as unavailable for public inspection. It is important to note that the information on trusts is already provided to the registrar when an overseas entity registers on the register. Furthermore, the registrar already discloses trust information to His Majesty’s Revenue and Customs, law enforcement and other persons with functions of a public nature if and when necessary and appropriate. This is not a loophole.

In the other place and in this House, including from the right hon. Member for Barking, the Government have heard and acknowledged that there is a case for broader transparency over trust arrangements beyond law enforcement agencies. The Government therefore added a regulation-making power in the law to allow third-party access to trust data in certain circumstances. That will enable individuals such as civil society organisations and investigative journalists to access such information under certain circumstances.

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

I am grateful to the Minister for his thanks for the progress we have made together on SLAPPs. Because of the amendment made on SLAPPs, we are now providing journalists and other truth-tellers with important protections when it comes to investigating economic crime. The Lords amendment is a complement to that. The truth is, there will never be enough enforcement resources for Companies House, HMRC and others, so we do need civil society to be able to bring the disinfectant of sunlight and undertake investigations. It is therefore vital that trust information is provided. Has he seen the new research published by Arun Advani, Andy Summers and their colleagues that shows that the current arrangements shield something like 152,000 properties from that transparency? If we genuinely want to be able to investigate where things are going wrong, where there is corruption, surely it is in the national interest for us to make that information more widely available.

[Kevin Hollinrake]

I thank the right hon. Member for his intervention. I have seen the report and the media release around it and we do not accept those numbers or the interpretation of beneficial ownership used in drafting the report. Nevertheless, we share his concerns and absolutely want to ensure that transparency will be greater than it is today.

The Government have every intention of exercising the power and intend to ensure that access can be granted in a straightforward way. Information currently held by Companies House was submitted by overseas entities in the expectation that it would not be available for public inspection. Making such information available for public inspection would come with a number of risks, including the possibility of legal challenge. Moreover, publishing the data by default would likely have significant unintended consequences, including potentially exposing information about vulnerable individuals and minors. It is therefore right that the Government take the time to consult properly on this important issue to address the benefits and risks of greater transparency and how this can be achieved.

--- Later in debate ---

[Kevin Hollinrake]

It would be if the hon. Gentleman’s numbers were right, but that is not what I said. Three thousand entities are not currently registered, to our knowledge. Many of those will have already ceased to exist or will have disposed of the property they owned. We are trying to find out the exact numbers. That is about the enforcement action. We have had 100,000 communications with those 3,000 entities, and half a million pounds of fines so far, but those fines can rise exponentially if they continue not to comply properly with the legislation.

[Liam Byrne]

The Minister has wisely equipped himself with an order-making power, which he referred to earlier. He told the House that he plans to undertake a consultation. It would be of comfort to some in the House—not to all—if he could tell us when he plans to launch that consultation and, in his own mind, when he would like the consultation to be implemented through the power with which he has equipped himself.

[Kevin Hollinrake]

We intend to launch the consultation by the end of the year, and we would like the regulations in place as soon as possible. It is quite clear that we want to do that. We all agree on the transparency—I agree with the right hon. Gentleman’s point that sunlight is the best disinfectant. I am absolutely keen to do it, but we must make sure we do it right. We do not want any unintended consequences. It is right that we consult widely with the different sectors to make sure that this legislation—and the regulations, when they come—are fit for purpose.

--- Later in debate ---

[Kevin Hollinrake]

The threshold is set at one of these three: 250 employees, £36 million turnover or £8 million in gross assets. We think that is the right level. We always listen to what the right hon. Lady has to say. The legal sector is covered by current money laundering regulations, as is the estate agent sector, for example. It is not right to say that they are not covered by money laundering regulations.

[Liam Byrne]

The Minister is being characteristically generous. I, too, respect what he is trying to do with the regulatory burden. I have taken a business from two people and a business plan and grown it into a multi-million pound organisation, so I respect what he is trying to do on regulation. However, does he not risk the growth of businesses with a turnover just below £36 million—perhaps £35 million—explicitly set up to be the conduits for bad behaviour? He will remember at the public Bill evidence sessions that representatives from the financial services community told us about the way in which money came into a bank and was split up between several different organisations and their bank accounts to blur what was really going on before the money went on to be laundered. Is there not a risk that clever people who are corrupt will just set up a whole hive of small businesses with a turnover below £35 million, to circumvent the safeguards that we are all trying to put in place?

[Kevin Hollinrake]

I do not accept that. It would be extraordinary if someone set up a business just for the purpose of keeping turnover below £36 million. Besides, it is already much easier to pinpoint fraud in small organisations than larger organisations. That is already the case. It is easier to take forward those kinds of prosecutions on that basis.

--- Later in debate ---

[Richard Fuller]

The Economic Crime and Corporate Transparency Bill is an important Bill that has cross-party support. I do not know whether it is appropriate to say that the right hon. Member for Barking (Dame Margaret Hodge) is in many ways its godmother, but she is certainly one of the key drivers of this important legislation. Whether it is perfect in her regard or nearly perfect in her regard, I would like to put on record that for all of us her efforts have been to the benefit of the country as a whole.

It is with some temerity that I wish to make a few points perhaps not in accordance with some of the comments made particularly by my right hon. and learned Friends the Members for Kenilworth and Southam (Sir Jeremy Wright) and for South Swindon (Sir Robert Buckland), who make the case for extending the failure to prevent fraud provisions to smaller businesses. I must say that they have not convinced me of the merits of their argument at this stage, and I think on balance I am with the Minister on this.

I am a Conservative and therefore change is perhaps always difficult for me, but I think particularly of what the implications may be for smaller businesses. I have not been persuaded by the other examples put forward of health and safety or bribery; I think there will be quite a chilling effect if the responsibilities for preventing fraud are extended to small business owners. I think it is appropriate and prudent that we build the measures, as the Minister has said, in his amendment (a) to Lords amendment 151. That is all I will say on Lords amendment 151,

However, I want to talk about another amendment that affects small businesses, which no other hon. Member has referred to in this debate: Lords amendment 30 regarding the disclosure of profit and loss accounts for certain companies, which the Bill will require of small businesses and microbusinesses that had previously been exempt. It potentially causes considerable concerns for owners of very small businesses if they are to have their profit and loss and their balance sheets publicly declared through Companies House reporting.

I ask hon. Members to imagine, if they will, that in a town or a community there are two or three competing laundries or plumbers, all of them maybe husband and wife, father and son or whatever—concentrating on what I want to say of a small business—or just sole proprietors, competing with each other in a small market. If their profit and loss statements were to be a matter of public knowledge, that would have very serious implications for local understanding of that person’s or that family’s personal wealth. It would have significant implications for local competition. The provisions that were in place in the Bill originally provided no protection for people in those circumstances. Yes, they will still provide the information, but surely it makes sense for companies in those circumstances not to have all their very specific financial information in the public domain.

I believe Lords amendment 30—the Minister might refer to this if he has time—seeks to provide a mechanism for a restriction on that disclosure of such personal information. The amendment lays out in proposed new subsections 468A(1) and (2) of the Companies Act 2006 that the Secretary of State

“may by regulations make provision requiring the registrar, on application or otherwise”,

and goes on further to say that regulations

“which provide for the making of an application may make provision”

as to who may make an application, the grounds on which an application can be made, the information to be included in it, the notice to be given, how an application is to be done and so on. My concern here is that Lords amendment 30, in seeking to correct the over-disclosure of public information, has put in its place quite a complicated application procedure.

Therefore, it would be helpful if the Minister could say what he has or what the Government have in mind about that application process. It would be ideal if that process were just a tick box. It would be ideal if that information could be communicated to accountants across this country who regularly have to file accounts on behalf of very small businesses, and it would be helpful if the Minister could advise that it is the Government’s intent that very small businesses in the circumstances I have outlined will not have very private personal financial information put in the public domain, although their information will still be required by Companies House and therefore placed under the protection that the Bill seeks to address.

[Liam Byrne]

I rise to endorse 100% the brilliant speech by my right hon. Friend the Member for Barking (Dame Margaret Hodge). Let me take this moment to pay tribute to her stalwart leadership of this agenda over a long time. Our country is a better and fairer place thanks to her extraordinary work.

The Minister is not too bad, either. I think that he has done a Herculean job over quite a long time, and he has sought to do the right thing with the Bill. Crucially, he took the time to reach out and listen to members of the Committee and Members across the House to ensure that we were up to speed with where he was going and what he was trying to achieve. The result is a better piece of legislation. However, it is not yet perfect, and we are here tonight to encourage him, having gone so far, just to go those final few yards and give us a Bill that will truly be a legacy to his work here in Parliament.

Mine is a starting point that we have not yet talked about in this debate: the terrible state of wealth inequality in this country. It is so bad because economic crime is so bad. Since 2010, the wealth of the top 1% in this country has multiplied by 31 times that of the rest of us. That is, in part, because of the problem of economic crime. It is a problem that our country is a global capital of money laundering and fraud reckoned to be worth some £350 billion a year—that is a mark of national shame. It is a problem that we potentially allow the ownership of more than 100,000 of our most prestigious and expensive properties by names we just do not know. It is a problem that, last year alone, nearly £7 billion of property was bought with what Transparency International calls “suspicious wealth”.

What unites us all in this debate—indeed, what unites us all in this House—is that we know that, if we want to be a country of free trade, we have to be a country of fair trade. But if we are to be a country of fair trade, we need to be a country of clean trade, and that is why the Bill, and getting it right, is so important. When we leave holes, gaps and spaces in our defences, dirty money floods through and pollutes both our economy and our democracy. We have already passed an Elections Act that did not put in place tough enough safeguards on the kind of money that could be used to elect people to this House. We risked an Elections Act too weak to protect our democracy from dirty money, and tonight we risk compounding the error by failing to ensure that we have an Economic Crime and Corporate Transparency Bill strong, tough and robust enough to stop our economy being polluted by dirty money.

The Bill is welcome, and the Minister has done a good job. He has taken forward many of the ideas that have been discussed for a long time on all sides of the House. I am particularly grateful to him for the way in which he has used the Bill, in the SLAPP clauses, to put in place protections for truth-tellers. We know that it is not yet job done and that there is further to go, but free speech will be freer because of the provisions in the Bill. We need now to work together to finish a job that is almost complete; we need to ensure that, for once and for all, we end the ludicrous secrecy around trusts; we need to strengthen the declarations of nominees so that we truly know who owns what; we need to ensure that failure to prevent fraud is something that bites on 100% of companies and does not provide carte blanche for 99% of companies to behave without that obligation; and we need to defend our law enforcers and equip them with the tools that they need to police the legislation that we plan on passing tonight and in the days and weeks to come.

I will underline three points very quickly, Mr Deputy Speaker. The first is about secrecy. The London School of Economics report from Andy Summers, Arun Advani and their colleagues is compelling reading, and I am interested in the Minister’s take on it. The report states that we are missing information about more than 70% of the 152,000 properties that are owned by trusts standing behind overseas entities, which means that

“even law enforcement agencies do not know the true identities of the beneficial owners.”

That is of real concern, especially when we know how many billions in wealth are owned in this country by people who are bad actors and who made their money by, frankly, stealing it from people abroad. If we have learned anything from tackling economic crime, passing tougher sanctions legislation and voting for new budgets for our law enforcers, we surely have to recognise the reality that we cannot have a situation where we do not know who owns what.

Draft Register of Overseas Entities (Penalties and Northern Ireland Dispositions) Regulations 2023

Liam Byrne Excerpts

Monday 22nd May 2023 General Committees

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

It is a pleasure to serve with you in the Chair, Dame Angela. I wish to add three points to the excellent speech by my hon. Friend the Member for Feltham and Heston. The Minister knows that I am a fan of his work. In many ways, I wish that the Government had seen fit to appoint him as a Minister some years ago. If that had been the case, perhaps we would not be the talk of the world when it comes to money laundering and kleptocracy, but here we are, and the Minister is trying to make progress and we should support him in that endeavour.

The Minister said some significant things that I want to probe him on. First, I think he told us that 15% of overseas entities are still not registered. At the end of January, the estimate was that something like 30,000 or 32,000 overseas entities needed to be registered. At the end of January just 19,000 had registered. He told us that that number has now gone up to 27,000. The implication is that there are still 15,000 overseas entities that are not registered. Will he reassure us that that very large number of overseas entities are not all organisations that have dissolved or moved on, and update us on how many overseas entities are still in business and have not met the deadline?

The Minister made a second admission. If 19,000 had registered at the end of January and we are now up to 27,000, there are 7,000 or 8,000 that registered late, yet I think he told us that there has not been a single prosecution. That is an extraordinary admission. What kind of signal does that send to kleptocrats around the world—that if they want to join the ranks of the thousands of overseas entities that cannot be bothered to comply with laws in this country, they will get off scot-free? The Committee would be sympathetic if the Minister held up his hands and said, “We just do not have the resources to enforce the rules,” and of course that would be true. That is why many of us are continuing to press him to use the Economic Crime and Corporate Transparency Bill, which is in the other place, to ensure that there is a registration fee that provides a proper supply of finance to tackle the outrageous level of money laundering and kleptocracy that is centred on the City of London.

The final point, which I would be grateful if the Minister could enlighten us on, is about how the penalty regime that he set out tackles the problem of rogue proxies. Let us say that someone wanted to buy a £24 million house, which is the average cost of a house on Britain’s most expensive street, Phillimore Gardens. Very often, they would buy it through a company, which may well be registered in the British Virgin Islands, and may then be owned by a trust that is held in another tax haven, but it may be controlled by proxy directors who are somewhere else. If the penalty regime that the Minister set out takes aim at the entities, the risk is that the proxy directors get away scot-free. As my right hon. Friend the Member for Leeds Central said, it may well be impossible to carry on trading with entities under the regime that the Minister set out, but it may well still be possible to continue trading with proxy directors or the individuals who sit behind those proxy directors.

Finally, the Minister might also want to tell us how he is getting on with cracking down on tax abuse and bad behaviour in our overseas territories. I think there was some opposition in some of the overseas territories to the introduction of registers such as this one. If we are to crack down on the absence of beneficial ownership registers here in this country, as he is seeking to do, we want to ensure that our overseas territories are not simply a back door through which bad people can do bad things.

[Kevin Hollinrake]

It is a pleasure to respond to the important points raised in the debate. The shadow Minister, the hon. Member for Feltham and Heston, asked when the draft regulations come into force. The date they come into force is 21 June. Companies House will be able to impose financial penalties from that date forward. On warning letters, on different occasions Companies House has written to entities that have not registered—to the property of the address they own or to the service address provided to the registry.

The right hon. Member for Birmingham, Hodge Hill asked about the number of overseas entities that are not registered. We estimate that there are 32,000 entities and that 29,000 are now compliant, so it is 3,000. We think that a significant number of those might not have received the communications and might not be deliberately not co-operating. It is important that any enforcement action taken is proportionate. That is what Companies House is there for.

The right hon. Gentleman also made an important point about resources. As he knows, I am totally aligned with him on ensuring that Companies House has the right resources. We are undertaking a body of work with Companies House to determine what resources it needs and how we apply the right registration or incorporation fee—it will be a higher fee than the current £12. There are also annual fees—recurrent fees—for filing, which can also be used to ensure that Companies House has the right level of resources. We think that that is the horse before cart approach; we are seeing what resources it needs for this and its other work to ensure that the register is accurate.

The shadow Minister mentioned the £2,500—the daily fine for the failure to update offence. The other fines for failing to register are much more significant. The bands I set out earlier are based roughly on council tax bands: A to C will be the £10,000 fee, D to F £20,000 and G to H £50,000. That fine would apply to each property in the portfolio. If we imagine a portfolio of three properties in the mid-range, that would be an initial fine of £60,000, which could be doubled subsequently for non-compliance. The fines are not insignificant and we think that they are at the right level to encourage compliance.

The shadow Minister also made a point about the 750 who have provided the details as required by Companies House, in which they basically say that they no longer hold the properties—the properties have been disposed of—and we therefore feel they are compliant. The 28 days is the time to respond; that was the response time required after the request by the registrar.

On the proxy directors, I understand the point made by the right hon. Member for Birmingham, Hodge Hill, but that does not obviate the requirement for the beneficial owner to be named. Whatever proxy directors there might be, the requirement is for the beneficial owner to be named in any circumstance. That is in existing ownership or future ownership. Someone cannot technically hide behind the proxy director without being guilty of a false filing offence.

[Liam Byrne]

I am grateful for the clarification. Will the Minister also clarify whether, if the penalty regime stops people trading with an unregistered overseas entity, they could still trade with a beneficial owner who was standing behind an entity based overseas that had not fulfilled its obligations?

[Kevin Hollinrake]

Either way, if it were an entity established now or in future, it would be in breach of the legislation—it would be breaking the law by doing that, by not declaring who the beneficial owner was, in any circumstance. Whether that is through shareholders or directors, it is about the person with significant control. That person does not even have to have a shareholding to be a beneficial owner or a person with significant control, if they exert influence by other means. The legislation is in the right place, though enforcement is a different matter, of course, and we must ensure that the relevant enforcement agencies have the resources they need.

The final point was on concerns about trusts. The Economic Crime and Corporate Transparency Bill, which is going through the Lords, includes some additional mechanisms to ensure that we get behind trusts so that they are not used as a vehicle for non-compliance or to avoid the rules. His Majesty’s Revenue and Customs has a great deal of information that is not publicly available for good reason—some people have trusts to protect individuals, such as minors.

To conclude, the draft regulations will complement the measures in the Economic Crime (Transparency and Enforcement) Act 2022 to ensure that the register is as effective as possible. I commend them to the Committee.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Register of Overseas Entities (Penalties and Northern Ireland Dispositions) Regulations 2023.