Economic Crime and Corporate Transparency Bill

Lord Agnew of Oulton Excerpts

Committee stage
Monday 27th March 2023 Grand Committee

[Lord Leigh of Hurley (Con)]

My Lords, I again welcome this Bill, as I set out at Second Reading. My noble friend is right: it has all-party support and is sorely needed. Likewise, it is reassuring to see the large number of amendments tabled by the Government, reflecting, no doubt, the views that your Lordships expressed at Second Reading and possibly some of those from the other House earlier.

My noble friend says that the aim is to improve the system through the legislation and I believe that my Amendment 2, supported by Amendments 55, 57 and 58, goes some way to help that. Likewise, I declare a conflict of interest, in that I am a shareholder and a director of a number of small private companies. One large company might be in the book, but they are mostly SMEs. Therefore, my relationship with Companies House is, like that of every director of every company, important. In my day-to-day activity as an investment banker, I frequently look to accounts in Companies House for information. It is an invaluable tool; compared to arrangements in other countries, particularly the United States, it is a real asset for information flow about businesses.

My amendment seeks to ensure accuracy, specifically in respect of tagging. As I explained at Second Reading, this is key. Company accounts used to be provided on paper or on a PDF, which is essentially paper form, and they are now filed using digital formats that tag each item with a label so that it can be recognised by downstream processing systems. Unfortunately, as I read it, there is no requirement in the Bill for internal consistencies, so tagging errors will not be picked up. That is needed to ensure that none of the data is self-contradictory and that it matches other data in the previous year’s accounts or tags internally to the document. I note that my noble friend’s amendment is a sweep-all amendment, covering wider matters, but the amendment that I am proposing is specific.

Perhaps it will help if I give an example. Imagine that an oligarch is a director of a company and his name, quite correctly, appears on the accounts, but the name has not been tagged or has been tagged as something other than his correct name. When a smart fraud detection mechanism is used by way of a search, that name will not emerge. Accountants will argue that the accounts are complete as the name is there, but if that name has not been tagged correctly, the filing will be of no use electronically, and therefore it is essential that the accounts are consistent internally. At the moment, the registrar can refuse to accept accounts only where they are inconsistent with outside information, so my amendment seeks to close what I see as that loophole.

I welcome the amendment to this clause tabled by the noble Lord, Lord Coaker, but I do not believe it covers my point. Likewise, I particularly welcome my noble friend Lord Agnew’s amendment, which sets the tone but, again, does not cover this point.

[Lord Agnew of Oulton (Con)]

My Lords, I have tabled Amendment 63 to Clause 90. I refer to my interests as set out in the register. I am a director of several companies and a person with significant control of an LLP, so I have had a lot of interaction with Companies House over the years.

My amendment might sound rather anodyne, but the amendments I have tabled to the Bill are the first building blocks of the transformational change that will be needed in Companies House once this Bill has been passed. We are taking an organisation that ever since its creation has simply been a passive receiver of data and has never had any cultural inclination to challenge it. This Bill changes that, which we welcome, and I am most grateful to my noble friend the Minister for all his positive engagement so far. What I am asking for here is a direct and specific requirement for the registrar to construct a process that will enable her essentially to triage the cases that are coming through the system. As my noble friend the Minister said, there are 5 million companies on the register and some 300,000 to 400,000 new companies are created annually.

When the Bill is passed we will have a problem with what I call stock and flow—in other words, a huge cleaning-up operation of the 5 million companies that are already there will be needed, and that will take some time. We also need to ensure, as quickly as possible after the Bill has passed, that the new registrations coming through are of the highest standard possible. Essentially, I am asking for the registrar to be required to make a risk assessment of new companies being created. One example that is well known in the financial word is that of Danske Bank in Denmark, which was the largest ever anti-money laundering fraud case in Europe, worth some €200 billion. Much of that started here through our LLP and LP structures. It would not have been difficult to have seen that there were trends among a lot of the LLPs that were being created. Many of them were coming from the same registration agent and with similar, often the same, addresses. That would have been a serious red flag that could have been investigated.

I am trying not to the rewrite the past but to set the tone for the future. It will not be realistic for the registrar to go into enormous detail on every registration, but if she builds a triaging system at the beginning, with a series of red flags, in aggregate the ones with the most red flags will be the ones that need priority. When I was the Minister for Grants, I discovered that we were doling out £30 billion a year in grants, but we had no system to assess the validity of the people receiving the grants. We put in place one very simple piece of software called Quantexa which shows immediately all the connections of the person making the grant to other people who are not necessarily good actors in the system. It cost £1 or £2 a go, or maybe £5 a go, but it had a dramatic impact very quickly. It is those sorts of tools that Companies House in its new format will need to use. I am not specifying an app, but I am most anxious that the Minister considers my amendment and includes it as one of his own.

[Lord Clement-Jones (LD)]

My Lords, I thank the noble Lord, Lord Johnson, for his introduction today, and I acknowledge the work of the noble Lord, Lord Callanan, on the previous Bill and in the run-up to today. I am very sorry that my noble friend Lord Fox is unable to be here to help kick off proceedings. I am merely his understudy today—but he will, I am assured, be back with a vengeance after Easter.

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[Lord Johnson of Lainston (Con)]

I appreciate that intervention. Our view is that if we legislate specifically for a risk-based approach, on top of what we believe is already a risk-based approach, we are not achieving our goals. The concern from the Government’s point of view—and mine, as someone who has registered companies with Companies House—is that you end up box-checking. The Bill is designed to ensure that the registrar is responsible for ensuring the integrity of the register and minimising criminal activity. In my view, those are the core functions of the registrar and the activity of Companies House, so we already have what one would describe as a risk-based approach built in. We feel very comfortable that this ambition, which is what this is all about, is well built into the legislation and will be the core function of the registrar—this is the essence of it—and we believe this to be well represented. Clearly, the ambition of the registrar will be to take a risk-based approach to her activities. We may be arguing over the same point, but I take it very seriously and am happy to consider it with more thought. As I said, this has been drafted effectively to encompass the concepts and points raised by noble Lords.

I believe I have covered most of the points raised. My last point was raised by the noble Lord, Lord Clement-Jones: we are trying to create the registrar as a proactive gatekeeper. That is at the core of the Bill’s ambition. We welcome input on how we can ensure this is done more specifically.

[Lord Agnew of Oulton (Con)]

My Lords, if my noble friend wants my amendment not to be moved, would it be possible for the registrar to write to us to explain her philosophy and how she is going to make this huge change to delivering a risk-based approach? I am very reassured by his comments, but having been in the trenches of government for 12 years, I just know that the reality is a long way from wise words in a process such as this. A simple letter to us saying, “This is my philosophy, what I am doing and how I am training people to cope with this enormous change”, would be very reassuring.

[Lord Johnson of Lainston (Con)]

I thank my noble friend for that comment, and I entirely agree that it would be extremely useful to have such a letter from the registrar. I take very seriously the comments about a cultural change at Companies House. We should be aware of where we are coming from. Not to repeat or labour the point, but Companies House is today simply a repository for information; it could practically be a static website. Having said that, in the conversations that I have had with Companies House, I have been very impressed by the tone of the officials I have spoken to there in terms of their determination to crack down on criminal activity around companies and Companies House. They currently make referrals to law enforcement agencies; they are not blind to the issues that present themselves, but they do not have the powers to do what we want them to do.

This Bill gives the registrar and her agents the concomitant powers to execute exactly on this mission that we wish. They talk boldly of a cultural change in Companies House, which we expect, as well as a technological change and a significant resource improvement—and under other amendments we will discuss the resourcing of Companies House. I feel confident that we are going to see a magnitudinous alteration in the relationship between the number of companies and number of directors performing their functions appropriately and providing relevant information to boost the economy, as soon as, or soon after, this Act is enabled—if I have got my terminology right.

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[Lord Cromwell (CB)]

My Lords, if we achieve nothing else today, it will be getting the name of the noble Lord, Lord Vaux, right in future—you take what victories you can. One amends government amendments at one’s peril, as I am sure the noble Lord recognises, but this Bill is about transparency, so I speak in support of his Amendments 7 and 32. Amendment 7 is about who a person is really subscribing for and Amendment 32 is about who they are really holding for. Those surely play directly into the objectives that we were discussing a few minutes ago regarding complete and accurate records and not giving a misleading impression. They could be tied to objective 4 as well. These are not onerous requirements. I note the challenges put down by the noble Lord, Lord Leigh, and others, but they are not onerous; they are a basic feature of transparency. I therefore hope that the Minister will get behind these two amendments.

[Lord Agnew of Oulton (Con)]

My Lords, I will speak to my amendment. The noble Lord, Lord Vaux, has done a lot of the heavy lifting, so I will not repeat all his arguments. I take some comfort that he makes me look moderate in my requests for further transparency—that is not how I am normally referred to by noble friends and Ministers. The title of the Bill specifies “Corporate Transparency” and, as the noble Lord, Lord Cromwell, has just said, it is not an onerous requirement to state whether the shares are owned by the individual or somebody else. The suggestion by the noble Lord, Lord Vaux, of a simple affirmation statement is even more powerful, so that the enabler who is setting up the entity simply has to answer “yes” or “no” to whether the shares are for the beneficial ownership of the name on the share register. My noble friend now has a choice of routes down which he could go if he is minded to take on board either of our amendments.

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[Lord Johnson of Lainston (Con)]

My Lords, I begin by apologising for my lack of fluidity in the procedures of Committee stage—I have not taken such a complex and important Bill through before, so I am grateful for noble Lords’ indulgence and apologise for any confusion caused.

I speak now to the set of government amendments in this group: Amendments 9 to 12, 25 to 30, 40 and 41. These will replace existing Clauses 36 and 38. They create a completely new type of sanctions measure in the Sanctions and Anti-Money Laundering Act 2018 called “director disqualification sanctions”. It will be unlawful for a designated person subject to this new measure to act as a director of a company. These amendments improve and extend the existing clauses, which prohibit individuals who are subject to the asset freeze sanctions measure from acting as directors of companies. Instead of automatically applying director disqualification status to individuals who are subject to an asset freeze only, this amendment allows Ministers to apply the new measure on a case-by-case basis using the existing designation procedure within the Sanctions and Anti-Money Laundering Act 2018. That will ensure that the measure can be better targeted at those designated persons who are acting, or could act, as directors. It provides the Foreign, Commonwealth and Development Office with flexibility as to when to apply it and does not limit it in applying it only to people subject to an asset freeze. That is standard practice for our other designation-based sanctions measures, such as asset freezes and travel bans.

It will be for the Foreign Secretary to decide when and how to deploy the measure, alongside the full suite of other sanctions measures. For instance, this measure could be applied on its own or alongside an asset freeze, travel ban or other measures. While other countries may be able to prevent designated persons from acting as company directors through the effect of other prohibitions, we will be the first country to introduce this as a specific type of sanctions measure.

The amendment will utilise the procedures set out in the Company Directors Disqualification Act 1986 to disqualify the designated person from directorship of UK companies. An individual subject to this new measure will commit an offence if they act as a director of a company or take part in the management, formation or promotion of a company.

As with existing sanctions measures, the relevant authority will be able to issue a licence to an individual to allow them to undertake activity that is otherwise prohibited. This may be necessary, for instance, where the individual needs to continue to act as a director for a short period of time in order to wind down the company. Additionally, the Secretary of State can by regulations create exceptions to provide more general carve-outs from the sanction.

Information about individuals who are subject to this new sanction, and any relevant licences, will be published on the director disqualification register maintained by Companies House, as well as on the UK sanctions list. This will ensure that the use of the sanction is transparent. It will also make the information more easily accessible. Members of the public will be able to find all the relevant information on the existing register, and will not have to search unfamiliar sources to access information on disqualified directors.

Introducing this new director disqualification sanctions measure will be an important addition to the UK’s sanctions armoury. I beg to move Amendment 9 and very much hope that noble Lords will support the other government amendments in this group.

[Lord Agnew of Oulton (Con)]

My Lords, I shall speak to my amendment on designated persons. The Minister is already dealing with this issue in some of his own amendments, but I stress that mine would be a slight tweak to the system that would have enormous power over the very few people who would be impacted. Last year only 1,200 people were designated for the Russian activities—across the whole world, not just by us—so we are talking about low numbers of thousands of people relative to the 5 million on the register. We also know that some of these bad actors got wind of their designation before it happened and were able to reorganise their financial affairs, so the horse had well and truly bolted by the time we rumbled into action. This slight amendment would give much more transparency into what these people were doing and allow the enforcement agencies to act accordingly.

[Lord Wallace of Saltaire (LD)]

My Lords, I note that these various amendments cover England and Wales, Scotland and Northern Ireland, but the UK financial system very much includes Jersey and Guernsey for a great many company formations and associated company forms. I wonder whether at this stage the Minister could explain whether or not the disqualification of persons from being directors within the UK will in time apply to the Crown dependencies, or whether one will still be able to act as a director for companies formed in the Crowd dependencies while disqualified within the UK.

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Moved by

[Lord Agnew of Oulton]

39: After Clause 51, insert the following new Clause—
“Disclosure of control of 5% or more of shares in a private or public company
(1) A person who controls 5% or more of the shares in a company must declare that fact to the registrar.(2) The duty in subsection (1) applies whether the person controls the shares directly or indirectly.(3) The registrar may impose a penalty on any person who fails to comply with the duty in subsection (1).(4) Subsection (5) applies where—(a) a person has made a declaration under subsection (1), and(b) the registrar has identified a matter of concern under subsection 1062A(1A) of the Companies Act 2006 in relation to the person or the declaration.(5) The registrar must—(a) verify the identity of the person, and(b) verify the number of shares the person claims to control.”Member’s explanatory statement
This creates a duty of disclosure on shareholders holding more than 5% of shares in a company. Non-compliance may incur a penalty. The registrar must verify the declarant’s identity, and the number of shares they control by cross referencing against other documents, such as company records. The reference to 1062A(1A) relates to the amendment tabled by Lord Agnew to Clause 90, page 69, line 27.

[Lord Agnew of Oulton (Con)]

My Lords, this amendment builds on my opening comments in relation to Amendment 44 and goes to the core of the Bill and transparency. It asks that shareholders with more than a 5% shareholding are disclosed on the register. I am conscious of burdens that that might impose on businesses, but the reality is that it is a maximum of 20 entities per company and, in reality, it would be far less than that. Any business in operation maintains its own cap table—the “cap” is the capitalisation of the company—so my proposal is that that is made available on public records. I do not see why we cannot have this. I am sure that my noble friend will ask me to withdraw the amendment, and I simply ask him to explain how we are going to have a comparable level of transparency if this sort of mechanism is not available. So much of the trouble is lurking in the undergrowth in my experience. This is a one-off opportunity to surface this sort of information to help us track bad actors.

Amendment 43 has a similar theme about persons of significant control. It is part of the replumbing of Companies House, which needs to carry out some analysis of the identity of people who are claiming significant control to make sure they are people whose identity, and the connections they have to other entities, is known and on the register. I return to my earlier comment that, if my noble friend does not want to do this, what is the strategy for this kind of understanding of the behaviour of these sorts of organisations? If we are not going to have the amendment that I am proposing, what is the alternative? What are the mechanisms that are going to give us some reassurance that we have control and understanding of the people on the Companies House register? I beg to move.

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[Lord Johnson of Lainston (Con)]

I thank the noble Lord, Lord Ponsonby, for that summation. I am very grateful to noble Lords for the powerful reason which they bring to bear on these amendments. The Government are delighted to have more discussions around how we ensure that we have full knowledge of people who have control of companies and of companies’ beneficiaries. I believe that the Bill as it stands gives us that level of security. The Government would be reluctant to set arbitrary levels in terms of that above a certain percentage one should have additional registration information, but I am happy to have a discussion around those principles, if that is helpful.

If people do not have confidence in Companies House, we will not have achieved part of our goal, which is to give people a sense of that the data has integrity and is true. The whole point about this exercise is to make sure that people put the right data in so that we know who the people are who are behind businesses and people can trust that information. I am very sympathetic to this discussion, which is extremely important.

To balance this, I say that this is about helping businesses function better in a lawful environment. One can go to the ultimate degree in terms of requirements for information and verification that do not necessitate greater degrees of security but cause significant burdens for businesses. This is not simply about satisfying our desire for excess information simply for the sake it; it must be linked to whether this is going to help us achieve our basic goals, which is to understand who owns these businesses, who is behind them and who is benefiting from them. With that in mind, I am open to having further discussions, as my colleagues would be.

[Lord Agnew of Oulton (Con)]

I thank the Minister for his offer to have an ongoing conversation about this, because that is how you achieve the best results in these things. This very formal and rigid process of trying to look at individual clauses in isolation does not solve the problem. We have had several clauses this afternoon that all mesh together with one objective, which is to improve transparency. I take my noble friend Lord Leigh’s point about creating a bureaucratic system that impacts adversely on thousands of decent people, particularly small businesses. However, the transaction of changing car ownership in this country, where you have an asset worth a few thousand pounds, it is a very simple process. You fill in a change of ownership form, you send it to the DVLA, and the job is done—so to the point made by my noble friend Lord Faulks, I do not believe that we have to create a bureaucratic system to get transparency.

I remind noble Lords of the downside of not having this information. A case study was given to me by Members in the other place. The awful ammonium nitrate explosion in Beirut a couple of years ago killed and wounded hundreds of people. It was eventually uncovered that the company that owned the warehouse was a British-registered company, Savaro Ltd, but it was almost impossible to find out who the shareholders of that company were and to get to grips with who were the people who caused that terrible accident.

There is a lot more to this issue. As someone who has created a lot of small businesses in my career, I do not want a heavy hand on this, but light-touch regulation done well is the answer. I urge my noble friend to have an open conversation with Members here as a way of solving the problem in a business sense, not in this very formal way.

[Lord Johnson of Lainston (Con)]

I appreciate my noble friend’s summation. Again, I hope that the Government have demonstrated today that the principles of the Bill conform to the expectations and desires of this Committee. Clearly, there are details that require further discussion, and that debate will help propagate the ambitions and values that we are trying to inject into the Bill. I am grateful for the comments but, in this instance, I ask my noble friend to withdraw his amendment, given that we will have further discussions to try to ascertain the right levels and what burdens we should impose on business to achieve our outcomes.

[Lord Agnew of Oulton (Con)]

I beg leave to withdraw the amendment.

Amendment 39 withdrawn.

Economic Crime and Corporate Transparency Bill

Lord Agnew of Oulton Excerpts

Committee stage
Tuesday 18th April 2023 Grand Committee

[Lord Browne of Ladyton (Lab)]

My Lords, I rise to speak to the amendments in the name of the noble Lord, Lord Leigh of Hurley, together with the notice given by the noble Lord, Lord Sarfraz, that he intends to oppose the Question that Clause 54 stand part of the Bill; I suspect that in his absence this will not be part of the process but I will cover the issues that are raised.

I will confine myself to a few observations. First, no one wishes to stifle micro-enterprises with too onerous a set of reporting duties but, in a Bill that has the word “transparency” in its very name, it is surely important that micro-entities are not exempted from such a reporting duty. That small businesses are not merely the flywheel but the very motor of the UK economy is well known and constantly rehearsed. I have no need to go through all that but flourishing surely cannot come at the price of opacity when that opacity will be exploited in the way in which the noble Lord, Lord Vaux, suggests it has been in the past and we know is a problem.

The amendments from the noble Lord, Lord Leigh, do not merely serve as a symbolic recognition of this fact but serve a useful practical purpose, which I will turn to. It is the stated aim of the Government for Companies House to be a fully digital organisation by 2025. The amendments under discussion ensure that electronic documents submitted to the registrar not only conform with its standard electronic format but ensure that they meet standards of accuracy, completeness and consistency. Surely, each of these measures is desirable and, taken together, they are more desirable still.

If the Government are not minded to accept the noble Lord’s amendments, it would be useful to know which of these requirements they regard as superfluous. It would also be helpful to know how the Government feel that these amendments fail to assist Companies House in meeting its own target of becoming fully digital in the next two years, which seems a very challenging target.

[Lord Agnew of Oulton (Con)]

My Lords, I just want to come in on the point made by the noble Lord, Lord Vaux, on micro-accounts. It was actually 11,000 companies that were registered to this poor man’s residential address in Wales. It all relates to a new loophole, which has been discovered by foreign traders selling on the internet. Up until Brexit, they were essentially avoiding VAT because there was no real mechanism for HMRC to recover it all around the world but, when we left the European Union, we brought in our own regulations. There is a loophole that if, as in this case, you are a Chinese trader and you register a company in the UK, you do not have to pay VAT through the platform on which you are selling the goods.

HRMC is completely floored by this. In its letter to Meg Hillier, it said simply that it had not recognised any fraud so far. Let us get real. Part of the problem is that it is not getting the data. If it could scrape all the data off those 11,000 company accounts, it would very quickly see the pattern.

[Lord Fox (LD)]

There appears to be a chorus of agreement, so I will not add terribly to its length. This is just to thank the noble Lord, Lord Leigh, from whose knowledge of this area we benefit. We should be in a position to listen.

We had a meeting with officials yesterday, and my read-out is that the reason for the government resistance to the previous versions of these amendments referred to by the noble Lord, Lord Leigh, was, in a sense, practical. The accounts are signed off by the board and auditors, and something needs to be done thereafter to tag them. The departmental team seemed worried that something might go wrong in that tagging process, so we should not go down this route.

Having prepared more than 20 company accounts—I concede that they were largely for large businesses—this always happens. The board signs off a set of accounts and then prepares to communicate it in a number of different media. The accounts are put in an annual report, a Stock Exchange announcement system and a website. In each case, there is a process to make sure that the read-across is performed correctly. I suggest that the practical constraint that somebody might do something wrong does not outweigh the benefit of mandating this tagging process across the board.

I agree with the noble Lord, Lord Leigh, and others that micro-companies should still be included in this process.

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[Lord Agnew of Oulton (Con)]

My Lords, I support the comments made by the noble Lord, Lord Ponsonby. I will deal with my own suggestions in a bit more detail in a moment but I want to shake the Government out of any sense of complacency in this area. We have a once in a five or 10-year opportunity to sort these problems out easily, as the noble Lord, Lord Vaux, said, without imposing unnecessary costs on organisations. I support the amendment.

[Lord Cromwell (CB)]

My Lords, I rise to speak to Amendment 50A in my name, to which the noble Lord, Lord Fox, and the noble Baroness, Lady Bowles, have kindly added their names. I also thank the noble Lord, Lord Vaux, for his supportive comments a few moments ago. Before I turn to my amendment, I should like to add my support, as others have, for the noble Lord’s Amendments 48 and 54 in this group.

Like the noble Lord, I do not understand why there is any objection to the name of the firm paid to register a company being included by that firm as part of registration. Any product typically has the manufacturer’s name on it; indeed, in some cases, it is a form of advertising. The identification of the firm would enable more efficient contact between the registrar and that firm, and would make visible patterns of registration, which are so important in risk-based analysis of likely fraud and, therefore, the necessary enforcement.

Amendment 50A would mean that any authorised corporate service provider registering companies would be required to make transparent to the registrar their client risk assessment processes; to identify annually in a simple electronic format how many times specific SIC codes have been used and that they are content that these codes are appropriately applied; and to disclose further details of specific company risk assessments to the registrar or other relevant bodies on request. Finally, the registrar would publish annually an aggregated summary of the SIC information.

Before proceeding further, I will say a word about the SIC codes themselves. These codes are in need of an update. I am sure that the registrar is aware of this and will get to it in good time but I am mindful that we cannot remedy everything in one giant leap. The codes are not perfect, but they are the right place to start in categorising companies’ activities. We have been urged by the Minister, in his letter to many of us of 12 April, to give practical assistance to the registrar in a way that is most efficient and flexible.

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[Lord Garnier (Con)]

My Lords, I agree with the arguments presented by the noble Lords, Lord Cromwell and Lord Vaux, in respect of their amendments. I have a great deal of sympathy for the thrust of what they had to say. I hope I have not interrupted my noble friend Lord Agnew, who spoke a moment ago. It may well be that I am getting ahead of him by expressing my support for his Amendment 51.

It seems to me that what we are about today is not placing burdens on business. We are not anti business, we are pro honest business, we are pro clean business, and we are pro having a registrar who has the powers to ensure that what is done within our economy is necessarily cleaner than it might have been in the past.

I see no problem at all in requiring ACSPs to be identified. I see no real burden on businesses in requiring them to comply with the terms of these amendments. We need to grasp this opportunity, as my noble friend Lord Agnew said a moment ago, because these Bills come along very infrequently and these so-called burdens on business are brushed aside as matters which are far too burdensome; whereas, as the noble Lord, Lord Cromwell, pointed out, although I could not possibly do it myself, it took him 15 minutes to design a spreadsheet. If it took the noble Lord 15 minutes, I am sure there are people half our age who could do it in seven and a half minutes. It strikes me that there are people all across the business economy of this country who are just laughing at the sloth of Parliament in dealing with these matters.

My noble friend Lord Faulks and I sat on a committee dealing with the predecessor Bill to this one. We were told that things were going to happen with great speed. It was not until last year that my noble friend’s committee was able to see some of the benefits of the work that he did.

Now, we are waiting further and being told by a Conservative Government that we must not overdo the burdens on business. Frankly, business is big enough and ugly enough to look after itself. Our job is to make sure that the legislation is apt to do the job that we require of it: ensuring that we have a clean, honest business environment where financial crime is not just inhibited but publicly and expressly disapproved of. Whether we bite on these particular amendments or do it in some other way—I hope that the Government will come up with something that appeals to them between now and Report—I expect us, as one of the leading economies in the world, to be able to construct a system that does not allow bad actors to get away with doing bad things because we do not have the sense of purpose or initiative to deal with them.

[Lord Agnew of Oulton (Con)]

My Lords, I apologise; I should have dealt with my amendments when I stood up originally. I will deal with the three that I think are relevant now: Amendments 49, 51 and 63.

I want to stress to noble Lords just how broken the system is at the moment. The ACSPs are not being supervised adequately. A 2021 review found that 81% of professional body supervisors were not supervising their members effectively; just to add to the confusion, there are more than 20 supervising bodies. Half of these supervisors were found not to be ensuring that their members take timely action to improve their money laundering procedures. A third of those procedures still do not have an effective separation between advocacy and regulatory functions.

Let me drop into some details here. Essentially, HMRC marks its own homework on this once a year. In its report last year, it owned up to at least six problems. Regulation 58 of the MLR—the money laundering regulations—requires HMRC to carry out fit and proper testing. This year’s assessment revealed HMRC’s failure to keep pace with the requirement to register a business within 45 days, with its performance worsening over the year, down from 78% in 2021 to 70% in 2021-22. In practice, this means that more businesses—in fact, nearly a third of them—are operating outside the scope of the supervision for longer than in previous years.

There is an issue with recruitment and staff training; I will quote from its report in a minute. There also continue to be delays in publishing sectoral guidance for businesses under supervision. The volume of face-to-face visits in its investigations has collapsed. Yes, we have had Covid, but we are beyond Covid now. There were 1,265 face-to-face visits in 2018-19 but last year, in 2021-22, that was down to 289. Lastly, HMRC has censuring and injunction powers that it is not using. These things just are not happening.

Just read the report that it has written, which I think is a master of the English language. It states:

“The AMLS team largely has effective managers”.


What is that saying? It also states:

“However, it is clear that performance is not consistent across the team, which has made it harder at times to make improvements to supervision”.


Those are its own words. It goes on to announce a case study, which happens to be on TCSPs. It had a concentrated week—one week—in which it suddenly found that it could issue 12 warnings and one penalty. Also, 23 compliant businesses were identified as needing regulation and 14 cases were identified as requiring further investigation—and that is in just one week.

Let us look at who is keeping an eye on HMRC: the Treasury. Every year, it produces a supervision report entitled Anti-money Laundering and Countering the Financing of Terrorism. In it, the Treasury says that, despite some improvements, improvement is required in several areas. It stated:

“Many PBSs had not implemented a risk-based approach that effectively prioritised their AML supervisory and enforcement work”


and highlighted

“Gaps and inconsistencies in many PBSs’ approaches to information sharing”

and

“Gaps in most PBSs’ enforcement frameworks”.

It continued by saying that

“the prioritisation of supervisory activity in high-risk areas, such as Trust and Company Service Provider … supervision”

is weak, so on and on we go. I know that my noble friend the Minister will pour balm on my words and say that everything will be all right, but this is a once-in-a-decade opportunity to deal with these things.

The noble Lord, Lord Vaux, touched on some of the bad things coming out of this. I will give a couple of examples. In 2020, TCSPs played a crucial role in something called the FinCEN files. There was one example of a single formation agent setting up 385 companies. An analysis of these companies showed that just nine of them were linked to $4 billion-worth of missing income.

We then come to the Pandora papers, which came out only two years ago. Owners of more than 1,500 UK companies were using 716 offshore firms, including individuals accused of corruption. Offshore companies could be traced to a variety of jurisdictions. Most of these—678 of the 716—were registered in the BVI. All these companies were set up by just 14 offshore TCSPs, five of them owned by Russian citizens.

On and on we go, which is why my amendment tries to say, “Stop. Do not let this legislation take effect until we have cleaned up this sector”. I would be keen to hear from my noble friend the Minister why the Government are taking such a complacent approach to this. It is really not difficult or expensive. As the noble Lord, Lord Vaux, said, we are a laughing stock around the world, being called Londonistan, Londongrad or whatever else anyone chooses to use. We have this huge conduit of these offshore entities, which are feeding all this stuff in because they all want to use English law. We are a wonderful place for them, but they have to play by the rules as well. It is a whole ecosystem and this Bill is the opportunity to clean it up. I beg to move.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I agree with an awful lot of what the noble Lord, Lord Agnew, said—in fact, with all of it. He laid out in some detail the fact that anyone could be one of these verification agencies, because there are 20 supervisors of all kinds of businesses where there could potentially be money laundering. It might be an accountant, a company formation agent or an estate agent. All kinds of people could become an authorised corporate service provider.

It is then quite important to be able to do the analysis to find out whether some are shadier than others, and whether there is a connection between businesses discovered to be less than spick and span and, perhaps, the precise identity—or maybe just the nature—of the type of verification agent. What on earth is the reason for keeping this secret? Who wants to keep it secret? Maybe it is HMRC, because it does not want us to know how bad it is, following on from the disclosure of the noble Lord, Lord Agnew. That is about the only explanation I can come up with, because it is such a vital piece of information. It makes me suspicious as to why it has to be secret. The other side of that is: who will be privy to the information? Presumably it will be Companies House. Will special checks be going on that it does not want us to know about? It is hard to imagine a reason, so the mood of the Committee on this is quite clear.

Most of the rest follows: I have added my name to some of these amendments but could have added it to them all. I would be curious to know the likelihood of the types of organisations that will be verifying identities getting penalties for when they get it wrong. If landlords get it wrong and rent out to illegal immigrants there are quite severe penalties, so what are the penalties for people who have a quick flick of the passport, think that is okay and register the company? If we do not know who they are, what are the penalties? Do they face penalties similar to those that landlords face, for example, when they have to do checks? It is very important. Most of us have had PEP checks, unfortunately. We have probably been to all kinds of places and had all kinds of documents looked through. I cannot say that it has been really thorough, even within banks. How thorough will this be and what happens when it is got wrong?

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[Lord Cromwell (CB)]

I cannot promise to drag the Minister anywhere, but I, too, look forward to those discussions.

[Lord Agnew of Oulton (Con)]

The Minister very comprehensively dismissed my amendments, but earlier in the debate he committed to thinking much more carefully about bringing much more transparency to the regime that oversees ACSPs. I just want to make sure that is the case. I also want to offer a couple more anecdotes about why I believe this is so important.

The former chief executive of HMRC Sir Jonathan Thompson questioned the role of HMRC in regulating these people. He did not understand, or was not prepared to accept, that anti-money laundering duties were part of the core activities of HMRC. I gave earlier examples of the failings of oversight by HMRC. The Financial Action Task Force review stated that there were “significant weaknesses” among all supervisors, and specifically recommended that HMRC should consider

“how to ensure appropriate intensity of supervision”.

My point is that Companies House is going to be relying on what I believe to be a broken regulator at the moment. I am not suggesting that we create a new regulator, but that is why the risk assessment in Amendment 51 is so important. Who is minding the minders? At the moment, nobody seems to be. It is all moving at a glacially slow pace, and we keep being told that everything is okay, but I do not think that everything is okay. I accept that the protocol is that I do not move my amendment, but I would like a slightly stronger commitment from my noble friend that he really is going to kick the tyres on this and lift a few drain covers, if I can mangle my metaphors.

[Lord Johnson of Lainston (Con)]

I appreciate my noble friend’s mixed metaphors. I hope I have been clear that the process of making sure that the ACSPs operate in an environment that is trusted and clear is at the root of much of the activity we are discussing today. I will certainly make myself available for further inquiry but, as I hope I have made clear, ACSPs are regulated by the money laundering supervisory authorities and a review of that important process will begin in the summer.

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[Lord Coaker (Lab)]

My Lords, it is a pleasure to address the Committee for the first time this afternoon. The theme of the discussions earlier was transparency. The noble Lord, Lord Vaux, made an outstanding speech about why transparency is important. Other noble Lords talked about this being a once-in-a-lifetime opportunity for this Parliament to progress in a way that perhaps we have been slow to do, which has led to many of the things that the noble Lord, Lord Agnew, pointed out in his remarks about the exploitation of the economic and business laxness in London and beyond that has led to things that all of us deplore. The Bill gives us a real opportunity to tackle that. The Minister’s response is crucial for us to determine what we may wish to push the Government on on Report.

We have now moved from transparency to reporting, how the Bill will be implemented and how effective it will be, hence Amendment 64 in my name and those of my noble friends Lord Ponsonby and Lady Blake. I also support Amendment 72 in the names of the noble Lords, Lord Agnew and Lord Cromwell, the noble and learned Lord, Lord Garnier, and the noble Baroness, Lady Bowles, which is virtually the same.

I know that the Minister’s notes will tell him that there is no need to worry about this because he can just get up and tell Coaker that it is irrelevant, that there is no need for this because the Government proved that they are a listening Government in the House of Commons and introduced Clause 187, which, as noble Lords will have seen, talks about reports on the implementation of the operation of Parts 1 to 3. Indeed, I had not realised that the noble Lord, Lord Johnson, is as radical as he is, but the clause includes some of the amendments that I and other noble Lords tabled. I refer to the Minister’s radicalness because subsection (3) of the proposed new clause inserted by Amendment 64, states:

“The first report must be published within one year of this Act being passed”.


However, if we read what the Minister has put before us, it states

“The first report must be laid within the period of 6 months beginning with the day on which this Act is passed”.


It is good to see the Government moving further than they were pushed to do. The Minister no doubt has that in his notes.

However, the serious point is that it is good see Clause 187 in the Bill because it takes on board many of the points raised in the amendments about the effectiveness of the way in which the Bill will operate. The Bill says many things that we all agree with, but the concern is whether it will be enforced and will work in the way that the Government and, indeed, all of us wish it to. Hence Amendment 64 seeks to explore what the Government mean. Clause 187 states:

“The Secretary of State … must prepare reports”,


but through my proposed new clause, which would be placed after Clause 91, I am saying to the Government what such a report should include. I do not see why we would not report on the effective implementation of the Bill.

Let us look at why I am saying in Amendment 64, with the requirement to report on the way in which the four objectives laid out in Clause 1 are actually met. We had a debate earlier on in Committee about how effective those objectives are and whether the Bill would meet them. It is particularly important that these objectives are reported on—not just in some general report that the Government lay before us but in a specific report, given the fact that, in Committee, we have debated long and hard about why on earth the registrar of companies would have as an objective “to minimise the risk” rather than prevent it. We also debated why objective 4 says “minimise the extent” rather than “prevent it happening”. Given the concerns raised in this Committee about the loose language that the Government have employed in the very first clause of the Bill to determine the objectives of the registrar, it is especially important that we have laid before Parliament a full and frank report on how effective the registrar has been in achieving the four objectives in Clause 1.

Through the reporting requirements in my amendment, I have sought to say that these are the sorts of things that the Government should include. It starts with proposed new subsection (1). It would be interesting to hear what the Government think about it. Is this what is going to be included? That is the question around each of the various points that I have set down. Are they what the Government are going to report on or not? Are they what the Government are going to include in determining the Bill’s effectiveness? Is that what the Government are going to do? I would have thought that assessing whether the objectives have been achieved was an absolutely fundamental part of this. Is that what the Government will report on: whether the objectives have been achieved?

Is further legislation needed? All sorts of regulations are included in the Bill but, again in previous debates, noble Lords referred to this Bill as a once-in-a-lifetime opportunity. I think that the noble and learned Lord, Lord Garnier, mentioned that; if it was not him it may have been the noble Lord, Lord Leigh of Hurley, but a noble Lord certainly said it. He is quite right—indeed it is. However, perhaps the Bill will identify gaps that the regulatory powers in this legislation could seek to avoid.

On the breakdown of annual expenditure, we are going to have a discussion when we come on to the next clause and beyond about fees, where they should go and how they should be used. That will give us an opportunity to look at annual expenditure, where the charges for fees should be amended. The Government have a regulation-making power but perhaps the report could give the Government some information about that.

Again, I go back to the steps that the registrar takes to promote the objectives. Proposed new subsection (2)(e), to be inserted by my Amendment 64, refers to

“annual data on the number of companies”.

How will we know what is going to happen? We do not want bald statements; we want factual information so that we can base any decisions that we make on evidence.

Proposed new subsection (2)(f) is particularly important. It would require each report to

“provide annual data on the number of cases referred by the registrar to law enforcement bodies and anti-money laundering supervisors”.

It is crucial that the Bill has some teeth, is seen to be implemented and is seen to operate in a way that deters those who may wish to operate in a way that undermines the vast majority of good business. Is that the sort of thing that the Government are thinking of?

A whole range of points have been raised there. These are the sorts of things that should be reported on. These are the sorts of things that the Government need to reflect on and allow Parliament to reflect on to see how effective the Bill, when it becomes an Act, is in achieving the things that we all want it to achieve. As I said, in a later clause, the Government say that they will report. This amendment probes what the Government actually mean by that and what they seek to include. It would be helpful to the Committee for us to hear a bit more about what the Government think they are going to use as a way of determining whether the Bill is successful in the way that they want. I beg to move.

[Lord Agnew of Oulton (Con)]

My Lords, I do not want to speak for too long because the noble Lord, Lord Coaker, has covered it clearly and our amendments are very similar. Indeed, in a spirit of collaboration, I would be delighted to give ground and for my noble friend to accept amendment moved by the noble Lord, Lord Coaker, rather than my amendment.

There is a serious point to this. My noble friend will know that in business what gets measured gets done. Unless we are specific in the requirements of this annual report to Parliament, it will be fudged if the story is not a good one. Earlier, I read to the Committee some extracts from the internal HMRC report. It absolutely hates putting bad news out there and will use every bit of the English language to obfuscate as much as possible. Having a simple list of requirements that we expect to hear every year will reduce that—it is really that simple.

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[Lord Johnson of Lainston (Con)]

I appreciate the noble Baroness’s point. As I said, the sunsetting effectively becomes business as usual, which is provided for to enable Companies House to report according to the criteria that have been established. I am happy to discuss what data it is useful to provide. That is a very important and relevant point. My assumption is that it will evolve over time to some extent, but we can be pretty comfortable that a great deal of information is already provided. It might be useful for us to assess that and then engage in further discussions with officials. We are very open-minded on the data provided. I am reluctant to legislate for this, since we are trying to make data useful rather than simply a legislative process.

[Lord Agnew of Oulton (Con)]

Is the Minister suggesting that he will clarify the noble Baroness’s point? The wording in Clause 187(1) it quite specific in saying “operation”. Is he saying that he wants this to drop away as part of the sunset clause, but that another report will endure and he will discuss it with us to ensure that it is fit for purpose for the longer term?

[Lord Johnson of Lainston (Con)]

I believe we will have further discussions on that point, yes.

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[Lord Coaker (Lab)]

My Lords, I will be reasonably brief on Amendment 65, which is tabled in my name and those of my noble friends Lord Ponsonby and Lady Blake. Amendments 69 to 71 have some, if not many, similarities and, like Amendment 106E in the name of the noble Baroness, Lady Altmann, seek to do the same thing. I shall make a few introductory remarks.

I know the Government are resisting putting an amount in the Bill and are saying that they are going to do this by regulation, but I think it is important for Parliament to make a statement about what it thinks is a reasonable fee. As I understand it, the resolution is under the negative procedure. If it is not in the Bill and the Government propose £40 or £50, it may be that we do not think that is enough, but we will not have any way of changing that or dealing with that.

The research that I have had done shows that the current fee is £12, while the eurozone average is €300, and that £12 is the sixth-lowest incorporation fee in the world, so somewhere along the line, we have got this badly wrong. I do not think that £100, as my amendment suggests, is going to deter businesses or could be seen as anti-business. It is a reasonable fee in line with that charged in many other economies in the world. There would also be the opportunity to raise the fee in line with inflation and with various other changes made to the Companies Act.

Alongside this, Amendment 70, tabled by the noble Lord, Lord Agnew, Lord Cromwell and others, is about the establishment of an economic crime fund rather than reporting on the need for one and is something that we will need to reflect on from our position. However, I take the point that if there is a fee as laid out in Bill, it just goes into the Consolidated Fund to disappear without trace, whereas amendments in this group suggest not just reporting on it to see whether it is needed but establishing an economic crime fund which could then be used; in other words, it becomes a hypothecated fee. The Treasury will always say that it hates hypothecated taxes, that they go against the grain and are something that on principle it does not do. However, the Explanatory Memorandum shows examples of where the Treasury has agreed to the hypothecation of tax. A very effective argument is: as the principle of hypothecation has been accepted by the Treasury in the instances laid out in the Explanatory Memorandum, why should it not be accepted here?

I will not repeat all that has been said but the fundamental point is to create a framework within which economic crime can be investigated effectively and the law enforced effectively. That is essentially what this is all about. The Government will agree with that and say that that is their intention. The purpose of my amendment and the other amendments in this group is to give the Government the tools with which that can be achieved and the resources by which that can be done. In later amendments there is real concern about the effectiveness of the various bodies we already have to tackle economic crime; that concern will no doubt come up again on Report. This Bill will quite rightly say that more needs to be done. How is that going to be achieved? The fee suggested in my amendment and the establishment of an economic crime fund as suggested in Amendment 70 can be used to ensure that we have the resources to tackle the level of crime that we know is out there. It is something this Bill needs to address. It is a real priority. I beg to move.

[Lord Agnew of Oulton (Con)]

My Lords, to build on the comments made by the noble Lord, Lord Coaker, again, this is a wonderful opportunity to do something that will put our enforcement agencies on to a much sounder footing in future. They are very underresourced. For example, we know that 40% of crime in this country is economic crime yet we deploy only about 1% of our crime-fighting resources to combat it. By ring-fencing this, it gives us a chance to solve that problem.

There is currently a scheme called the asset recovery incentivisation scheme—ARIS—where the money goes to the Treasury and the Treasury hands some of it back. However, the amounts that come back have decreased by 34% in the past five years, at a time when we are seeing escalating volumes of economic crime.

I put in my explanatory statement examples of the hypothecation that the Treasury has agreed over the past few years. As noble Lords can see, there are several of them; some of them are very recent. I want to head off the excuse from the Treasury that “We never do it”, because it does do it, and does it regularly. I suggest that this is as good an opportunity as any to do it. I very much hope that my noble friend the Minister will consider this issue carefully over the next few weeks because, if we do not have the resources in our crime-fighting agencies, we will not be able to stamp out a lot of this. Back in 1984, the US introduced a scheme in which all forfeiture proceeds go back into an assets forfeiture fund. I very much hope that we can do something similar.

[Lord Cromwell (CB)]

My Lords, I have added my name to Amendments 69 to 71, which the noble Lord, Lord Agnew, has just described so powerfully. Those of us who participated in what we call ECB 1 will remember that there was a great deal of discussion and many points made around the fact that passing legislation is pointless if you do not resource the enforcement bodies that must then carry it out. Reading that debate back, this was covered in detail; I am simply making the point baldly again.

I have three further points to make. The fund would appear to need no new money. It would be funded and administered through the fines and incorporation fees. There may well be pushback on the hypothecation of funds in principle, but, as the noble Lord, Lord Agnew, just highlighted, his explanatory statement illustrates that there are plenty of precedents for such a fund. I would also suggest that, for the crime-fighting agencies—if I can call them that—being able to access this money swiftly and flexibly, rather than having to fight up hill and down dale with the Treasury in trying to extract the money from it, would be a great leap forward. After all, it will be they who will have achieved these funds through successful prosecutions.

Let me add one small but important qualification. We are going to need transparent processes and procedures, including audit, for how these funds are used and by whom. However, with that small and rather pedantic caveat, I lend my support to those three amendments.

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[Lord Johnson of Lainston (Con)]

My Lords, I thank your Lordships, as always, for this very passionate debate. I am struck, after however many pleasant hours we have been together debating in Committee, by the convinced passion and determination of Peers on all sides. An Economic Crime and Corporate Transparency Bill might be considered a dry, technical matter for specific and weighty thought, but the reality is that this is an emotive subject. It is important for all noble Lords to know the Government’s shared passion for stamping out illegal activity and economic crime in this country. From my point of view, it is extremely costly to the economy to enable financial crime to be enacted in the UK. It is not invisible, and every crime has a victim. I hope all noble Lords understand that my personal passion and that of the Government are allied in trying to make a Bill that is practical, will achieve its goals and will allow businesses to flourish.

I would also like to apologise. The noble Lord, Lord Faulks, mentioned the meeting which many officials here attended yesterday. I was unable to attend that meeting, for which I sent my apologies. That was the only morning that I have been away in the past six months. I hope all noble Lords will feel comfortable in contacting me directly to arrange further formal or informal meetings.

I now turn to the amendments. I thank the noble Lords, Lord Coaker and Lord Ponsonby, and the noble Baroness, Lady Blake, for their Amendment 65 on fees and penalties. I also thank my noble friend Lord Agnew, my noble and learned friend Lord Garnier, the noble Lord, Lord Cromwell, and the noble Baroness, Baroness Bowles, for their Amendments 69, 70, 71, which address the economic crime fund and the retention of fees by economic crime enforcement agencies. I also thank my noble friend Lady Altmann for her Amendment 106E on fees and an economic crime fund.

I shall attend initially to the fees and penalties element. The level of Companies House fees has been the subject of much speculation, and I know from our conversations and the amendments in this group that noble Lords have a significant interest in this. At no point do the Government believe, or could anyone in all seriousness believe, that £12 is a reasonable amount for setting up a company. People have suggested that if a commercial organisation cannot afford whatever arbitrary figure one may wish to pick—it could be £50, £100, £150 or £500—for the creation of a limited liability company, it should question whether a limited liability company is the right structure in which to operate.

However, it is very important that fees are set via regulations and that the Government have flexibly over the right level of fee, which has not yet been established. I was grateful to my noble and learned friend Lord Garnier for confirming his view that that is the most appropriate way to set fees. The fee will be determined following an analysis and appraisal of the volume of investigation and enforcement activity to be undertaken, the associated cost base, the timelines for recruitment and systems development and other factors which we have raised in this important debate. We are currently finalising our modelling but are increasingly confident that we can fully fund the reforms, including creating around 400 new roles at Companies House, while keeping fees low. Current estimates from Companies House suggest fees of no more than around £50.

I draw noble Lords’ attention to the annual administration fee. There is an establishment fee for setting up a company and then there is an annual fee, which is currently £13—it is more expensive to register your firm annually than it is to set it up in the first place. I am not entirely sure how we reached those figures, but we are not looking to enshrine a minimum level of fee in primary legislation because to do so would severely restrict flexibility which may be required at a future date. Fees will continue to be reviewed on a regular basis to ensure that they are providing the level of funding that Companies House needs. Companies House is able to retain incorporation fee income under current arrangements between it and HM Treasury, with the arrangement reviewed periodically. That is important. The current intention is that the fees will be used to pay for Companies House, so a raised fee is absolutely right. It is estimated to be used for the functioning of Companies House.

[Lord Agnew of Oulton (Con)]

Will my noble friend clarify the annual filing fee? He mentioned that the one-off fee will go up to around £50. Can he give us any sense about the second fee? I think it is more important because it is regular income. I think the stock of new companies will drop because of this legislation. It will stop very small actors, as we have discussed—the plumber, the painter or whatever—and bad actors will not come in, so annual new registrations will drop, but that is why the filing fee is very important. Will the Minister give the Committee some indication?

[Lord Johnson of Lainston (Con)]

I thank my noble friend. We do not have an estimate for the annual registration fee so I would not like to speculate on it, but clearly it would be raised to a level commensurate with the £50 initial fee. The Government set the fee levels, as is appropriate under legislation, but they will come from the recommendation from Companies House. We will look very closely to ensure that it has enough income to perform the functions that we want it to perform. I do not think it is anything more complicated than that.

I have had many enjoyable debates about what the fee should be. To some extent, we can enjoy those debates but they are slightly speculative. What is important is that the Government have the flexibility to ensure that the right level of fee is charged and to change that if necessary. I do not think that anyone in this Committee would disagree fundamentally with that principle. Setting a minimum fee level does not seem reasonable, given the flexibility that we wish to retain.

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[Lord Johnson of Lainston (Con)]

I do not have an interest to declare there, I might add. Using fines to fund other activities results in the perverse scenario of that funding being dependent on behaviour that we are actively trying to stop. I strongly believe that, in many ways, the principles we are talking about are negated by a well-intentioned concept: trying to make sure that there is enough money so that our law enforcement agencies are properly funded in order to achieve their ambitions.

Given the limitations that I have set out—this goes to the point about providing a report—I am not convinced that there would be merit in providing a report on the prospect of a fund or, indeed, providing for a fund. I hope that noble Lords understand my conclusion here.

[Lord Agnew of Oulton (Con)]

I am sorry to intervene but I just want to say something. The Minister agreed with all of us that the crime-fighting agencies need to be properly funded but he did not explain how that will happen because he does not accept that we should hypothecate. He gave some good examples of other situations where it was about not the hypothecation but the use of revenue for activities that were not part of the original source and funding litigation. In June last year, the Information Commissioner announced a new arrangement with DCMS in which it could keep some of its civil monetary penalties to fund it to take on large technology companies. All I am trying to do is ensure that we will have the resources to take on these bad actors.

The Minister and my noble and learned friend Lord Garnier mentioned ARIS. As I said earlier, the funding has declined by 35% in five years—that is without inflation—yet the problem is getting worse. I do not expect the Minister to come back to us on this tonight but I am looking for some reassurance around how we are going to fund these things properly because we are not doing so at the moment. Everybody seems to be in denial and the Minister has offered me no assurances that we are going to deal with this.

[Lord Johnson of Lainston (Con)]

I greatly appreciate my noble friend’s intervention. I hope that I have made clear to the Committee the importance that this Government place on fighting economic crime.

If I may—I am not sure of the protocol—I wish to question my noble friend’s intervention. He said that the asset recovery incentivisation scheme has seen a considerable drop in the monies deployed to law enforcement over the recent period. However, I have a figure here: since 2006-07, just under £1.3 billion—that is based on nominal values and not adjusted for inflation—has been returned to Proceeds of Crime Act agencies to fund further asset recovery capability and work that protects the public from harm. In 2021-22, £354 million was recovered under the Proceeds of Crime Act, of which £298 million was paid into the ARIS pot. So I certainly will research the figures given to me by my noble friend.

The point is that we are looking to provide funding of £400 million over the spending review in order to focus on fighting economic crime. I am happy to have further debates around this issue but I hope that I have made my point in relation to these amendments, minimum fee levels and creating a fund out of the fees, which would be completely contrary to the ambitions that we have set in our legislation around Companies House.

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The Government’s answer of £50 really says to the Committee that they are fixed on £50, but we do not think that is adequate. Unless we get some movement on this, we will have to come back to this on Report to ensure not only that the new Companies House is properly funded but that we get the law enforcement that we need to ensure that these measures are enforced so that we do not have another toothless tiger on our hands.

[Lord Agnew of Oulton (Con)]

I will just wrap up my amendments. I am afraid that I agree with both the noble Lords, Lord Coaker and Lord Fox, that there does not seem to be a strategy for fighting economic crime. I ask the Minister to think about this and come back to us. It could be something as simple as increasing the filing fee beyond whatever we think is the right figure by another £10. At 2 million filing fees a year, we would then have the start of a fund to fight economic crime. It could be something as simple as that, but I urge the Minister to give us something to get our teeth into. On that basis, I will not move my amendment.

[Lord Coaker (Lab)]

I beg leave to withdraw my amendment.

Economic Crime and Corporate Transparency Bill

Lord Agnew of Oulton Excerpts

Committee stage
Thursday 20th April 2023 Grand Committee

Moved by

[Lord Agnew of Oulton]

73: After Clause 106, insert the following new Clause—
“Publication of information about trustees
In section 22(1) of the Economic Crime (Transparency and Enforcement) Act 2022 (material unavailable for inspection), omit paragraph (c).”Member’s explanatory statement
This amendment would enable Companies House to publish the names of parties to trusts which own Overseas entities in the Register of Overseas Entities. Currently Companies House collects this information but does not publish it.

[Lord Agnew of Oulton (Con)]

My Lords, I probably ought to start by checking with my noble friend the Minister and his officials that his own amendment, Amendment 76H, does not solve the problem that I am seeking to solve. That will be a very quick answer from my noble friend if it does. It is Amendment 76H—I am slightly flummoxed by section numbers, clauses and subsections.

I will explain to the Committee why the amendment is important. Companies House now collects the information that I am keen for us to have more visibility of, but it does not publish it. I am asking simply that we allow for the information being collected to be published. The register of overseas entities that has just been created is working. I agree with all the comments made a few moments ago about most people involved in business being honest, but this Bill focuses on bad people.

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[Lord Johnson of Lainston (Con)]

I greatly appreciate the noble Lord, Lord Faulks, flagging so well the sentence that I was about to deliver. I would like to investigate further, personally as a Minister and for the benefit of this Committee, a more detailed assessment of the crime-fighting efforts that we will employ around this.

I have some good information to impart to the Committee, which to some extent answers the questions. I have particularly looked into the comments by the noble Lord, Lord Wallace, about the UAE and so on. We have signed an anti-corruption pledge or framework with the UAE in the last few years. We have in the Foreign, Commonwealth and Development Office—

[Lord Agnew of Oulton (Con)]

My Lords—

[Lord Johnson of Lainston (Con)]

Can I just finish this particular flow of information, because I will cease to remember it if I do not get it out? I believe we have 12 Foreign Office crime experts located around the world. One of them is in the UAE, for example, and we work very hard with those countries that sit on the so-called grey list. It is important to note this. I am aware, as a Minister and a consumer, that the value and brand of a jurisdiction are extremely important. It is not effective for companies to operate easily in jurisdictions that have been classified as at risk or on the grey list.

There is clearly a hierarchy of regulatory power or brand, with the UK at the very top. When dealing with international companies, I personally always look at where a company is registered. If it is registered in the UK, we hope that the brand will grow to be even more enhanced; if it is registered in a jurisdiction about which you have doubts or that has been highlighted as at risk, it makes a significant difference to how you treat that information and the brand of that business.

[Lord Agnew of Oulton (Con)]

Given my noble friend the Minister’s commitment to give us some data on the whole disclosure exercise that has happened following the first economic crime Act, he mentioned that there has been a high level of compliance. We are all delighted with that, but my worry—to the point made earlier by the noble Lord, Lord Vaux—is what that actually means.

Transparency International estimates that there are at least 7,000 entities on which no light at all will be shed. In my example, JTC (Suisse) SA is a registered overseas entity. We now have that information but it means absolutely nothing, because beneath it is a cascade of other entities that we seem to have no visibility on. When the Minister puts together his reporting suite, can he let us know how many are essentially just a number or a name on a piece of paper?

Perhaps I should have raised this earlier, but in our very useful briefing with officials on Monday they explained that the ROE was set up specifically for property, and therefore a lot of the enforcement was around property assets. Property—real estate—is of course a much easier concept to deal with than the rest of the things we are talking about in commerce. A piece of paper or digital ownership of a share is much harder. I am interested to know what enforcement will happen for those much more invisible assets.

[Lord Johnson of Lainston (Con)]

I am constantly grateful to my noble friend Lord Agnew for his interventions and thoughtful input. I am pleased to say that we have to look forward—unfortunately not today, but maybe next week—to the section on crypto assets and similar assets. I believe that we have made great headway; this is technical and complex, and we welcome interventions and input from this Committee and anyone else that will allow us to more effectively police that area. I am very much on my noble friend’s side on this. It was certainly worth him mentioning that the register of overseas entities relates to property, which is true. I cannot comment on the specific case that he raises, but the assumption is that the data will be checked and verified. The whole point is that a registered overseas entity has to conform to our people with significant control regime and so on. That will allow us to make that assessment. I will confirm to the Committee what we are going to do in terms of reporting against that data.

As I say, there was a discussion earlier in the week about the budgetary allocations for economic crime fighting. It is very important that we show this House, and the nation at large, how much money the Government are putting into this area and how seriously we take it. I am proud of our record and want to put together a strong case to show your Lordships what we are doing. Can more resources be allocated to anything? All of us here have experience, if we have been in government, and of course it is possible. But the fact is that if I look magnitudinously over the last few years at the attention placed on this subject and the money put into it, it is a completely different story from, say, 2010—and for good reasons. It has become crucially apparent that the world has changed, and we need to react to that.

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[Lord Johnson of Lainston (Con)]

I am not surprised that the noble Lord and a Member of this Committee has corrected me on that specific point; my tone may have been misunderstood. However, I hope he understood what I was trying to get at when I differentiated trusts from corporate entities or corporations themselves. They do business, and they must be regulated. If I could differentiate my language again, between a debate and a discussion, I am very keen to have a discussion with Members of this Committee about this matter, so we can certainly get diaries out and find a time over the coming weeks to look into this in more detail. It is a very important debate to have, and I would welcome as many participants in the industry as possible to join us in that discussion.

Given what I have said and the fact that this is being actively explored by the Government, please do not think that this discussion is somehow being shut down. As I say, this policy area is controlled by the Treasury, and it is very specific about that. I am comfortable that we will have the powers in this Bill to have the flexibility to ensure that we can, when the decision is taken, provide the right amount of transparency around trusts. As a result, I ask the noble Lord to withdraw his amendment.

[Lord Agnew of Oulton (Con)]

My Lords, with very deep reluctance, I will withdraw it, but I want to leave on the record that the self-proclaimed “very good” Amendment 76H could be truly excellent if the Government added the simple two-line sentence that I have offered in my amendment. I suggest that there are rarely times in legislation where so much can be achieved with so little and so quickly.

Amendment 73 withdrawn.

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[Lord Agnew of Oulton (Con)]

My Lords, I support the amendments and want to make a couple of points. First, it is not a very ambitious request that we are making of these territories: simply that they have proper anti-money laundering processes in place. If we link it to my own amendment, which I have withdrawn, we are now in a position where we have no knowledge of the ultimate owner of many of those assets and no reassurance that there is any anti-money laundering going on.

Secondly, we need to remember that it is our reputation being damaged by these territories which are not stepping up to the plate, because they are using the principles of English law and that is how they are making a very good living out of it. I again ask my noble friend the Minister what is happening to move this along. It has been sitting around for a long time and it is damaging the reputation of this country.

[Lord Garnier (Con)]

My Lords, I have an interest to declare in that I am presently instructed by the Government of the Isle of Man in a legal matter. Under the new rules of the House, that is declared specifically in my entry in the register—I have just been checking. It is not a very exciting piece of work: I am required to report to the Isle of Man Government on the state of their legal services sector—I know that many of you will be very jealous of that exciting piece of work. One thing that the Isle of Man is particularly keen to have recognised is that it is an independent jurisdiction. Yes, the United Kingdom and the Isle of Man share through the Lord of Mann—namely, the sovereign—a head of state. Yes, it shares many of the legal traditions and concepts that we recognise in this jurisdiction, but it is a separate jurisdiction. It has its own parliament; indeed, its parliament is probably older than this one: the Tynwald. I have received instructions, not recently but in the past, from states within the Channel Islands and from British Overseas Territories. They are all fiercely proud of their independence as separate jurisdictions. I fully understand the points and the thrust of the arguments made by noble Lords who have spoken ahead of me, but we need to be careful about how we approach extending the ambit of this legislation.

To look as though we are retaining some sort of colonial mastership over those fiercely proud and independent jurisdictions is not a good look. It does not matter whether you are in the BVI, the Cayman Islands, Guernsey, Jersey or the Isle of Man; we just need to tread politely, quietly and with consensus. I accept that noble Lords have said that this has been going on for far too long and it is time that the UK Government got their act together and started to do something about it. Of course, that would be the ideal, but, often, the best is the enemy of the good. I want the Minister to know that although this is a forum in which he might seem, from time to time, on his own, he is not. No matter of which party we are or whether we do not belong to any party at all, we are trying to achieve workable legislation which is not only comprehensive and comprehensible but carries the respect of the people against whom it might bite, because law which is not respected is law which does not have any value or purpose.

If my noble friend the Minister sometimes thinks that he is the only man standing at the gate as the barbarian hordes—the noble barbarian hordes—assail him, would he please accept from me that he has our personal friendship and our professional respect? I am sure that this sentiment covers the whole of the Committee. We know the difficult job that he is doing so please, when we come to discuss this amendment, will he accept from me that I understand it is not easy to tell the Channel Islands, the Isle of Man or the British Overseas Territories that they must do what this Parliament says?

There will therefore be many discussions, it seems to me, between his department, the FCDO and the Treasury with their counterparts in these various jurisdictions. If we can bring them with us, as opposed to clobbering them with unilateral legislation, we will achieve a much longer lasting result—albeit that I entirely accept the purpose of the amendments from the noble Lord, Lord Wallace, and the noble Baroness, Lady Bennett of Manor Castle. Here at least, going with and coming alongside, as opposed to hitting head-on, is the way to go forward.

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Moved by

[Lord Agnew of Oulton]

74: After Clause 133, insert the following new Clause—
“Limited partnerships: registration of persons of significant control
(1) The Secretary of State must by regulations make provision about the registration of persons of significant control in relation to limited partnerships. (2) For the purposes of regulations under this section, “persons of significant control” may include persons with a right to—(a) 25% or more of the surplus assets on winding up,(b) a voting share of 25% or more,(c) appoint or remove the majority of managers,(d) exercise significant influence or control over the business, or(e) exercise significant influence or control over a firm which would be a person of significant control if it were an individual.(3) No regulations to which this section applies may be made unless a draft of the statutory instrument containing the regulations (whether or not together with other provisions) has been laid before, and approved by a resolution of, each House of Parliament.”Member’s explanatory statement
This amendment creates an obligation on the Secretary of State to make new provisions for Limited Partnerships to be brought into the PSC register. This is intended to improve transparency in relation to Limited Partnerships in line with companies.

[Lord Agnew of Oulton (Con)]

My Lords, I will treat Amendments 74 to 76 together because they all try to achieve the same thing: to ensure a similar level of transparency for limited partnerships, limited liability partnerships and Scottish limited partnerships as we are trying to achieve for companies.

I had a brief discussion with my noble friend the Minister before we started, and he felt that I was flawed in my approach. I absolutely recognise that he has a more formidable intellect than I have and has at his disposal a very accomplished drafting team. I may not have the amendments exactly right, so I would rather consider them more as probing amendments to understand why we cannot not have the same level of transparency for these entities as we have for companies.

One of the points my noble friend made was that you should not have to have a natural person as one of the partners. My answer is that, if you do not, you are back to my original Amendment 73, because you just cascade off into another miasma of entities where there is no transparency. I would be interested to hear from the Minister how we will sort out this problem if my amendments are not adequate.

I have an example of an LLP, Atlas Integrate Services LLP, that was incorporated in September 2018, where the person of significant control was two months old. My noble friend said he wished his own children were showing such entrepreneurial flair so early in their careers. This person was also married at two months but, more importantly, the incorporation document stated:

“This person holds the right, directly or indirectly, to appoint or remove a majority of the persons who are entitled to take part in the management of the LLP”.


Will the Bill get rid of that sort of behaviour? That is my concern at the moment. There are apparently some 4,000 beneficial owners across the database who are aged two or less. This is an issue, and perhaps the brave new world of the Bill will eliminate it. I would be grateful for reassurance that that will happen or to hear what the plan is.

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[Lord Johnson of Lainston (Con)]

Do we have some artificial intelligence in the Civil Service Box? I think that we have natural persons’ intelligence. While I have this opportunity—I am sure that I say this on behalf of the Committee—I would like to say that the officials behind this Bill are extremely hard-working and focused; they have done everything they can to deliver a very complex piece of legislation. They have been very helpful to me and my colleagues personally and to the Ministers taking the Bill through the other place. I hope noble Lords feel that they have interacted with them appropriately. I know that they continue to stand ready to support us as we craft what I think is a magnitudinous piece of legislation that will have significant positive ramifications in the decades ahead.

I turn to the amendments presented by my noble friend Lord Agnew. I have taken advice on elements of them and their technical relevance to the Bill so, when the noble Lord, Lord Coaker, suggested that they were somehow not relevant, that was a private, legal and specific statement; it was not a philosophical one. They are very relevant to the Bill and at the core of much of what we are trying to establish: who is behind the companies and corporate entities?

The comment from the noble Lord, Lord Fox, about the ownership of property following the Grenfell Tower tragedy is a very good example. We hope that the reforms that we are making will ensure that we know who is behind corporate activity and ownership of property in this country. We have made huge strides in doing so and the Bill is very important. That is not to say that it cannot be improved but, where we feel we are including these principles, we do not suggest that noble Lords unnecessarily improve it further or confuse it. I rely to some extent on the draftsmen who advised me on this; I hope that the Committee sees this as well intentioned, in the way it is being presented.

I will first speak to Amendment 74. I commend my noble friend’s intention to increase the transparency of limited partnerships. I stress again that there is a difference between a limited partnership in Scotland, a limited partnership in England, Wales and Northern Ireland, a limited liability partnership across the United Kingdom and a limited company. They all operate slightly differently in the different jurisdictions. Please bear this in mind, as we have drafted this legislation to ensure that we have transparency across all the different concepts and principles in the right way.

I know that my noble friend Lord Agnew shares the same concerns that Dame Margaret Hodge has expressed previously. I have had the privilege of meeting her personally, as well as hearing her views, which have been extremely helpful in informing my knowledge base around this debate.

The proposed new clause would duplicate the Scottish Partnerships (Register of People with Significant Control) Regulations 2017. Scottish limited partnerships have legal personality, as noble Lords will know, which means that, among other things, they are able to own assets, enter into contracts and hold bank accounts. This results in a greater degree of opacity around Scottish limited partnerships, which is one of the features that the Bill is specifically designed to tackle.

However, as noble Lords will know, English, Welsh and Northern Irish limited partnerships are required to register with Companies House. While they are, they do not possess a legal personality separate from that of their partners. This means that it is the general partners themselves who transact on behalf of the partners. One of our senior officials likened it to a marriage, if that helps to clarify that point, in the sense that, if you are married and you own a home, the marriage does not own the home, nor does the couple; the partners—the husband and wife—own the property. I hope that that makes it clearer to some extent; it certainly did for me, although I will not go into my own home ownership percentages during this debate.

I stress that this Government completely agree with the principle that we should have greater transparency over who is managing and controlling a limited partnership. There is much in the Bill that will achieve exactly that. This is very important. I know that my noble friend Lord Agnew and the noble Lords, Lord Coaker and Lord Fox—indeed, all noble Lords in the Committee—take this extremely seriously. In fact, it is the core principle of the Bill, which includes, to go back to the specific moment, a range of measures that will make it mandatory for limited partnerships to submit a much greater range of information about their partners, including their current and former names, addresses and dates of birth.

The general partners of limited partnerships who have management responsibility—there is, of course, a difference—will be required to have their identities verified. Where a general partner is a corporate entity, it must name a managing officer with a verified identity who can be contacted about the limited partnership. That is very important as well and goes significantly further.

[Lord Agnew of Oulton (Con)]

Can my noble friend confirm that all the information he has just listed will be available for public inspection so that we do not get back into this cul-de-sac of my earlier concerns?

[Lord Johnson of Lainston (Con)]

I believe that I can confirm that but I will ensure that those facts are properly presented. It is clearly helpful for us to be specific on that.

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I look forward to further discussions on this issue in future, but I ask my noble friend to withdraw his amendment.

[Lord Agnew of Oulton (Con)]

I thank my noble friend the Minister for his comprehensive answer. He has been very reassuring.

I just want to re-emphasise the important points made by the noble Lords, Lord Coaker and Lord Fox, about the principle of accountability. If we go back to my slightly specious example of the two month-old child, we have the identity of that child so we have transparency but where is the accountability? That is what I am worried about. However, I accept that my noble friend is committed to both transparency and accountability and believes that this Bill, accompanied by the other partnerships Bill that he mentioned, will deliver them, so I beg leave to withdraw my amendment.

Amendment 74 withdrawn.

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[Lord Vaux of Harrowden (CB)]

My Lords, I rise to speak to the three amendments in my name in this group, Amendments 77AA, 77C and 77D. I thank the noble Baroness, Lady Bowles, for her support for the latter two. This group addresses flaws in the original economic crime legislation, the Economic Crime (Transparency and Enforcement) Act, and makes improvements to it. That Act was rushed through as emergency business, so I welcome the Government making these improvements, and I hope that the noble Lord recognises that my amendments are trying to do the same thing.

The noble Lord has said several times now that his Amendment 76H is very good. I echo the words of the noble Lord, Lord Agnew, that it is very good but could be so much better if this information was made public by default—but we have already been there.

With these amendments, I acknowledge that I am revisiting discussions that we had during the passage of the Economic Crime (Transparency and Enforcement) Act, and I apologise to noble Lords who may feel a sense of déjà vu in that respect. Normally, I would not revisit things that we have already discussed, but I am relying on the very clear commitment from the noble Lord, Lord Callanan, who reassured us at the time that we would be able to use this Bill as an opportunity to revisit matters that would perhaps have been the subject of Divisions in less of an emergency situation than last time. I remind noble Lords that he specifically indicated a willingness to revisit the matter that my amendments in this group are trying to address. So, while it is unusual to come back to the same thing, that is why I feel justified in doing so.

Amendments 77C and 77D are aimed at removing an anomaly, or loophole, in the overseas entities register. Amendment 77AA, which is an amendment to the Minister’s Amendment 77A, follows on from the same issue. Currently, if the details on the overseas entities register are changed—for example, if there is a change in beneficial ownership—that needs to be updated on the register only annually. This means that a person could register an entity, filing all the necessary details, and could then change the ownership or other details the very next day, but they would not need to inform the registrar until the end of the year. In my view, that is an unacceptable length of time for a register to remain out of date and inaccurate. Properties could be bought and sold during that period, without anyone knowing who is really behind those transactions.

As a comparison, the PSC rules require an update within 14 days of the company becoming aware of a change. Amendment 77C aims to bring the overseas entities register into line with the PSC register and require an update within the same 14 days. This amendment is identical to one that I tried to put to the previous Bill.

This matters for two reasons. The whole point of the register is to ensure that we know who the beneficial owner of the property held by the overseas entity is. If the information can be up to a year out of date that means we do not know. More importantly, this could lead to the risk of an innocent party who buys a property from an overseas entity unwittingly enriching a criminal or sanctioned person. That cannot be desirable.

The argument against accepting this amendment that the noble Lord, Lord Callanan, made last time we debated it was that, if there was a 14-day updating duty, a person buying a property from an overseas entity could not know if the entity would be in breach of the updating requirement. Because of the way the Act works, that could mean that the innocent party might not be able to register ownership of the property that they acquired. That is obviously very serious and it is a valid concern, which is why I did not push the matter last time round.

However, the Act actually includes a solution, in that it is possible for an overseas entity to shorten the annual reporting period, so a purchaser of the property could make it a condition of the purchase that the entity shortens the period and files an update before the purchase goes ahead. That would solve the problem, but I acknowledge that that requires the purchaser to be well advised and puts the onus on the purchaser, which is not right.

This time round, I have tried to address that problem by tabling Amendment 77D, which would require that, before an overseas entity can enter into an agreement to buy or sell a UK property, it must update the register no more than 14 days before entering into such an agreement. That would both safeguard any innocent purchaser and, combined with Amendment 77C, ensure that the register is kept up to date in the same way as the PSC rules are. I hope that would solve the problem that the noble Lord, Lord Callanan, highlighted last time round so that we can bring the overseas entities register into line with the PSC register to ensure that it is kept up to date and is not up to 12 months out of date at any one time.

Amendment 77AA aims to close the same loophole when an overseas entity applies to be deregistered. I welcome the Minister’s Amendment 77A—he said that I was nodding enthusiastically and he was right—but although that amendment would require any outstanding updates to be made before an entity can be deregistered, the same loophole exists. If no update is pending, the information on the register could be a whole year out of date because there is no requirement to update the register for a year.

Amendment 77AA would simply add a requirement that an entity should make a statement that the information on the register is up to date and accurate before deregistration can be accepted. That seems an incredibly simple way of ensuring that the register is up to date before the deregistration can happen, which is important.

I hope the Minister will see these amendments as helpful and intended to improve the overseas entities register, to remove a loophole and to make it the same as the PSC rules. It is very hard to see why it should not be. I hope he feels able to accept them.

[Lord Agnew of Oulton (Con)]

I strongly support these very sensible proposals from the noble Lord, Lord Vaux, which really show why hereditary Peers still have such an important role in this House. It will be very interesting to hear from my noble friend the Minister why he might wish to dismiss these amendments, because they make such a lot of sense: if you are buying from one of these opaque entities, why should all the responsibility lie with the buyer, not the seller?

[Lord Macpherson of Earl’s Court (CB)]

My Lords, I will very briefly support the proposals. It makes sense to ensure that people who think that they are buying something legitimately are adequately informed. I like the series of amendments from the noble Lord, Lord Vaux, to solve the problem that was pointed out on a previous day.

The fact is that those of us involved with companies and so on regularly have to update the Companies House register very quickly indeed. Fortunately, because of modern technology, that is relatively easy to do. Similarly, we have to update our register of interests on a regular basis, so I see no reason why this should not apply in this important, specific case.

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[Lord Johnson of Lainston (Con)]

I thank the noble Lord, Lord Fox, for his question, which I am not able to answer as conclusively as he might wish. There may be alternative mechanisms to approach this if so desired, and if the Government believe it is the way forward and the House decides accordingly. I hope the Committee will forgive my language at the Dispatch Box and that they hear the tone of—

[Lord Agnew of Oulton (Con)]

I am sorry to interrupt my noble friend but, given that he is now embarking on an intellectual journey on this subject and that we are not sure when that journey may conclude, I want to add a couple of nuances. First, he is right to ask what the unintended consequences are of introducing a new step. I accept that that needs to be challenged but, to give a simple example, if you are buying a property and the conveyance has dragged on a while, I think the buyer is required to carry out further searches at the last minute to ensure that a new Tube line has not suddenly been announced under the building they are buying. There is a mechanism to do it.

The other area of interest to me goes back to the point I made earlier about the great things that have been achieved with the register of overseas entities, with its high level of compliance. None the less, Transparency International thinks that there may be up to 7,000 entities and that, although we might know their names, we do not know what they really are. The proposal of the noble Lord, Lord Vaux, would flush them out before the sale. I am sure that HMRC might be very interested in a lot of these organisations, so there would be a beneficial element which has not necessarily been thought about at the moment. I would like my noble friend to add to that to his contemplation.

Economic Crime and Corporate Transparency Bill

Lord Agnew of Oulton Excerpts

Committee stage
Tuesday 25th April 2023 Grand Committee

[Baroness Altmann (Con)]

My Lords, I rise to express my concerns. It is not that I do not support the amendments or the comments made by other noble Lords, but calling these things crypto assets in an economic crime Bill, when we know that their origin seems to have been organised crime finding a way to money launder its ill-gotten rewards I find deeply troubling. A number of leading bankers, with whom I agree, have suggested that these things have no value. I urge the Government to be very alert to the potential risk of trying to make cryptocurrency—I am not talking about blockchain technology—and these so-called assets, which actually do not exist, appear to be reasonable things for British citizens to put their money into.

[Lord Agnew of Oulton (Con)]

My Lords, I support the noble Lord, Lord Fox, in his amendment to make sure we have a review point quite soon after this Bill. I acknowledge my noble friend Lady Altmann’s point about the strange context to put this in, but given that we have this Bill on the table, it would be very easy to put in a reference point because the climate for this asset is moving enormously fast. Between November 2021 and November 2022, the value of bitcoin fell by $2 trillion, which is not far short of the UK’s total annual GDP, although it has recovered a little since then. This is a vast sum of theoretical money that is swilling around, and we do not yet really understand how to manage it, so I strongly support the noble Lord, Lord Fox.

[Lord Sharpe of Epsom (Con)]

My Lords, I thank noble Lords for the points that have been raised in this debate so far, and I specifically thank the noble Lord, Lord Fox, for tabling Amendment 78. I also thank him for his kind words about the detailed technical briefing that he received from officials on these provisions, and I am glad it proved valuable.

The proposed clause seeks to impose a duty on the Secretary of State to lay before Parliament a report reviewing the definitions of crypto assets contained in the Bill within 18 months of its passage. We believe this is unnecessary. The definitions in the Bill are in line with existing definitions in the Proceeds of Crime Act 2002 and the Terrorism Act 2000 and follow the approach recommended by the joint Treasury, Financial Conduct Authority and Bank of England Cryptoassets Taskforce: Final Report in 2018—I imagine that goes some way towards answering the questions asked by the noble Lord, Lord Ponsonby.

As to the issue of UK-connected firms raised by the noble Lord, Lord Fox, the provisions enable the seizure of crypto assets from wallets and firms. They were developed with partners and were based on operational insights and are valuable and necessary. These definitions will be reviewed whenever and as often as needed. There is general agreement that the world is moving at an incredibly fast pace, and therefore there is a provision in the Bill for the Secretary of State to amend the definitions of crypto assets in future through regulations which will be subject to debate in Parliament.

To go into a little more detail on future-proofing, the specific delegated powers allow the Secretary of State to amend definitions associated with crypto assets as part of these new crypto-asset confiscation and civil recovery regimes. The definitions in the confiscation and civil recovery provisions reflect those already in POCA, TACT and other linked legislation. Home Office officials will be working closely with law enforcement agencies to monitor the effectiveness of the crypto-asset powers post-implementation and, if necessary, the Government would look to update crypto-asset definitions. Noble Lords made very good points about the pace of change, and this legislation recognises that. The regulation- making power is intended for the express purpose of being able to respond dynamically to changes in technology or criminal behaviour rather than at arbitrary points in time.

The noble Lord, Lord Ponsonby, asked about stable- coins and decentralised finance. He mentioned emerging technologies in the crypto-asset ecosystem. This Bill caters for criminal abuse of these as far as is practically possible. For example, stablecoins are captured by our definition of crypto assets. However, the definitions have been developed in consultation with industry so as not to stifle legitimate innovation.

Having mentioned “legitimate innovation”, I heard what my noble friend Lady Altmann had to say on the subject and she made some very good points.

I hope this provides reassurance that the definitions of crypto assets will remain subject to review with the ability to be updated in a responsive way. The provision to amend the definitions of crypto assets would be used appropriately and afford Parliament the opportunity for scrutiny, so I ask the noble Lord not to move his amendment.

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[Lord Sharpe of Epsom (Con)]

My Lords, I will speak first to the government amendments in this group. The first of these is Amendment 78C. This is intended to avoid unnecessary burdens on business from having to submit the same information for immigration purposes and under the SARs regime. The new clause creates a defence for people who fail to report money laundering if their knowledge or suspicion of money laundering arises solely as a result of an immigration check carried out using data supplied by the Home Office.

Under the Immigration Act 2014, banks and building societies are required to check whether their existing account holders or applicants for a current account are disqualified persons. Should banks match any of their existing customers against the disqualified persons list—the DPL—they will be required to notify the Home Office. At the same time, a match against the DPL could also trigger a requirement under the Proceeds of Crime Act 2002 to submit a suspicious activity report, known as a SAR, to the NCA. This would require banks and building societies to report the same information twice, placing a financial and administrative burden on both them and the NCA.

By creating a defence against the offence of failing to report in Section 330 or Section 331 of POCA when the suspicion is solely the result of an immigration check using information provided by the Home Office, we will essentially remove the requirement for banks and building societies to submit a SAR under those circumstances. This will help mitigate the burden of such reports and the potential for dual reporting in the case of existing accounts. This amendment modifies existing POCA obligations and provides certainty on reporting requirements; failure to provide this certainty risks reporters taking a risk-averse approach to reporting and continuing to overreport.

I turn to Amendments 78D and 78G, tabled by the Government. These amendments ensure that applications for information orders can be made only where an authorised NCA officer reasonably believes that the foreign Financial Intelligence Unit—FIU—is requesting the information for strategic or operational intelligence analysis.

These amendments seek to address concerns from stakeholders that information orders could be used for purposes beyond those for which they are intended—specifically, that they may otherwise be used by foreign FIUs to circumvent existing intelligence and information-sharing procedures, under mutual legal assistance processes, by using the information shared through the information order as evidence in legal proceedings. Although information-sharing between international FIUs is crucial to combating economic crime and terrorist financing at an international level, a foreign partner should use existing mutual legal assistance processes if they wish to request evidentiary material from the UK. This is because the mutual legal assistance process is tightly regulated and has appropriate procedures and safeguards in place for sharing information of this kind. This amendment is essential to ensure that the information order measures in the Bill work as intended and that applications made for the orders are proportionate and justified.

Amendment 78E amends Section 339ZH of the Proceeds of Crime Act to remove the extension of the definition of money laundering to include predicate offences. The inclusion of these offences in the definition of money laundering would have broadened the scope of the clause beyond its intended purposes. We will rely on the existing definition of money laundering in Section 340 of the Proceeds of Crime Act 2002; this will ensure there is a consistent definition of money laundering across the Act. The exclusion of predicate offences from the definition does not affect law enforcement’s ability to investigate or pursue cases of money laundering. It is for these reasons that I ask the Committee to support this government amendment.

Amendments 78F and 78H are small amendments to Section 339ZL of the Proceeds of Crime Act 2002 and Section 22F of the Terrorism Act 2000, allowing certain preliminary steps in relation to making a code of practice under these provisions, such as consultation on the draft code of practice, to be carried out prior to Royal Assent. This amendment will also bring the duty to issue a code into force on Royal Assent, ensuring that we avoid any unnecessary delays in laying a code of practice and operationalising the powers.

I hope that those explanations have provided further clarity on why these government amendments are needed, and I ask the Committee to support them. I beg to move.

[Lord Agnew of Oulton (Con)]

My Lords, I speak in favour of my own amendment, which is part of this group—Amendment 86, which is about asking for prioritisation of SARs reporting. Just to set the scene for noble Lords, according to the UK Financial Intelligence Unit, the praetorian guard of the NCA in this respect, there were 901,000 SAR reports in 2021-22, 70% of which related to banks. That is a number far in excess of what institutions can meaningfully deal with, so huge opportunities are being missed.

The Home Office itself has just produced its own report, called Transparency Data: Accounting Officer Memorandum: Suspicious Activity Reports (SARs) Reform Programme, published on 24 February, just a few weeks ago. It accepts that there are at least four problems in our management of the SAR regime:

“Inconsistent levels of compliance reporting in some parts of the regulated sector … Insufficient human resource capacity within the UKFIU which limits their ability to analyse financial intelligence or engage with partners to improve the quality of SARs … Under-utilisation of SARs by law enforcement … Legacy IT systems which cause inefficiency and ineffectiveness throughout the regime”.


That is in the words of the Home Office, from literally only a few weeks ago. What is so frustrating is that the Government have been talking about this for at least four years. In April 2019, a strategic outline business case for the programme was reviewed by the Home Office. An economic crime plan was produced in July 2019 and then the full business case was subsequently reviewed and approved by the Home Office in April 2021. Yet we still do not seem to have a lot of action.

All my amendment is trying to do is to push the machine to get on with this. Of course, the Minister will ask me not to press the amendment, but I would ask him whether, in so doing, he can give us a date—maybe not today but in writing to the Committee—by when all this stuff will start to happen, because we are missing huge opportunities to identify economic crime. My simple proposal is to triage the SARs, so that the shortage of resource, which no doubt will remain for a while, can at least be concentrated on areas of greatest risk to our system.

[Lord Vaux of Harrowden (CB)]

First, the noble Lord, Lord Agnew, makes a very interesting point and I should like to hear the Minister’s views on it. I should also be interested to hear how many of the 900,000-odd SARs are acted on and followed up each year. That would be an interesting statistic to understand.

I wish to ask about Amendment 78E, which I do not fully understand. It would remove the reference being inserted into the Proceeds of Crime Act to predicate offences. I am not sure why we should take it out. It would be interesting to understand from the Minister why it was in the Bill in the first place and why the Government have now changed their mind and are taking it out. As I understand it, a predicate offence is the offence that creates the finances that are then laundered. It must in many cases be quite hard to untie those two things. I should have thought that it must be useful to any crime agency looking into these things to understand the full chain, from the original offence to the laundering of the funds. Clause 172 is talking only about information orders, not about creating new offences or anything else, so I am unclear why we would want to remove the predicate offence from the information order and would like to understand it a little more.

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Moved by

[Lord Agnew of Oulton]

79: After Clause 174, insert the following new Clause—
“HMRC anti-money laundering function
After section 5 of the Commissioners for Revenue and Customs Act 2005 (Commissioners’ initial functions), insert—“5A Commissioners’ anti-money laundering functions (1) The Commissioners are responsible for anti-money laundering supervision.(2) The Commissioners must treat the function in subsection (1) as a priority equal to the functions in section 5.””Member’s explanatory statement
This amendment introduces a priority for HMRC to exercise its AML supervisory role. Having such a duty would ensure that HMRC fills an enforcement gap by generating more action against the promoters of aggressive tax avoidance schemes and the enablers of economic crimes in order to deter wrongdoing.

[Lord Agnew of Oulton (Con)]

My Lords, my Amendment 79 asks that HMRC be given a specific requirement to prioritise the exercise of its AML supervisory role. The reason I ask is the criticism that the Government have raised against HMRC. The Financial Action Task Force observed that tax issues

“carried too much weight compared to other”

money laundering risk factors. It is concerning that HMRC has a repeated tendency to view AML risks from a more narrow tax perspective instead of considering a broader set of AML risks, despite being identified as a weakness. That is not my diagnosis but the Government’s diagnosis of the problem.

I raised several specific issues in our previous days in Committee, but they are absolutely relevant to support this amendment. The most recent assessment of HMRC’s effectiveness in this area showed that it was failing to keep pace with the requirement to register a business within 45 days, with performance worsening over the year from 78% in 2020-21 to only 70.71% in 2021-22. In practice, this means that more businesses—nearly one-third—are operating outside the scope of its supervision for longer periods than in previous years.

The next point is that the self-assessment highlights issues in the ECS recruitment process and delays in appointing staff, which have resulted in existing staff members being asked to fill in with training duties. That goes back to my earlier point on the last amendment about the lack of qualified resource. HMRC discloses that there continues to be delays in publishing guidance for businesses under its supervision on the steps required to meet their regulatory obligations as well as on responding to specific money laundering risks.

Fourthly, the volume of face-to-face visits conducted by HMRC has slowed down—there has been a downward tendency in the number of on-site visits. There were 1,265 in 2018-19, and in the year 2021-22 that had slumped to 289—for most people, Covid was behind us, so I am not sure that that is an entirely legitimate explanation.

The next point is that HMRC has not yet used civil powers it has at its disposal to issue censuring statements for failing to comply with the MLR, or injunction powers to prevent a future breach. Again, I am sure that is happening because it simply does not have the resources available.

Lastly, an increase shows signs that HMRC is ramping up its enforcement as a supervisor, but the penalty amounts being recovered are reducing. A total of £44.8 million in fines were issued between 2018-19 and 2021-22 have now been revised down to just £8.6 million. Again, I am sure that this all goes back to resource and specifically to focus.

As I said in my opening comments—I know this from my experience of being an HMRC oversight Minister for Brexit border readiness—there is a huge cultural focus on tax collection in HMRC. There is nothing wrong with that, but this is a first cousin and it is HMRC’s responsibility to look after this stuff, and, frankly, it is not doing the job properly. My amendment would simply put some focus on that in the Bill. Again, I know from my experience as a Minister for five years that officials respond to these kinds of controls in the way they manage the resources in their department. I hope my noble friend the Minister will listen. I beg to move.

[Lord Leigh of Hurley (Con)]

My Lords, I will make a disclosure further to my subsequent disclosure of being a member of the Institute of Chartered Accountants in England and Wales; I am also a member of the Chartered Institute of Taxation, also by examination, which means that in theory I am capable of giving tax advice but, sadly, not in respect of anything after 1985. None the less, I feel that I should disclose that when discussing this issue.

It is customary to congratulate a noble friend on the introduction of an amendment, and I very much congratulate my noble friend on the introduction of this amendment. He speaks with great knowledge of the inside track of what is going on in the Treasury, and he is the one person who stood up against potential fraud taking place. As such, I hope that my noble friend the Minister, the noble Lord, Lord Sharpe of Epsom, will listen to my noble friend’s words. I appreciate that this has been thrust upon the Minister and it is not normal Home Office territory; it is not even the Business and Trade territory of my noble friend Lord Johnson of Lainston but Treasury territory.

However, this amendment is particularly important. It seeks to amend the HMRC Act of 2005. The problem with the Act as it stands is that it does not make stopping tax avoidance or even evasion a big enough priority for HMRC, and as a result HMRC views it as part of a sort of cost-benefit analysis rather than as a deterrent. This is particularly worrying with regards to VAT, where VAT avoidance can distort competition. As a result, the EU Commission used to occupy an oversight function with regard to the application of VAT and would always take action where a member state did something with VAT that distorted competition. For example, Italy tried to give an amnesty to companies which had not paid VAT in order to save money in Italy, but the Commission stepped in and stopped that. However, now it has lost that oversight, so the question is: who polices HMRC with regard to the application of VAT?

Noble Lords will recall that we discussed at Second Reading the case of 11,000 Chinese businesses that registered themselves at the flat of a Mr Dylan Davies in Wales, who was subsequently pursued by HMRC and the bailiffs for unpaid VAT. When we discussed the issue, we referred to it from a Companies House perspective, which had not picked up that 11,000 companies were registered in a two-bedroom flat in Wales. Actually, HMRC should have picked up on that; had this amendment been in place, maybe it would have done so. There is a history of HMRC not seeking to pursue fraud, never mind money laundering, so the very least we can do is make sure that it has a duty to detect money laundering where it sees it. I am indebted to Richard Allen of RAVAS, who has pretty much run a one-man campaign against VAT fraud and highlighted these sorts of issues. There are clearly other issues in the 2005 Act, but this is an opportunity to plug one very important hole.

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[Lord Sharpe of Epsom (Con)]

Ah, the noble Lord said ACSPs—my apologies. I misheard an acronym. In that case, I shall have to write on that, because I do not know the answer.

[Lord Agnew of Oulton (Con)]

I beg leave to withdraw my amendment.

Amendment 79 withdrawn.

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[Lord Lipsey (Lab)]

My Lords, I hate to intrude on disputes between lawyers, even though the lawyers in this case seem to be on different sides. Like the noble Baroness, Lady Wheatcroft, I will intervene briefly as a journalist. At times, I was deputy editor and had charge of all the libel cases that came before us. In truth, there was an inequality of armaments. We had wonderful lawyers in-house, Mr Murdoch’s very deep pockets and an evidential base which would normally have been compiled by a journalist working to good standards. Many of the people wanting to sue us were not in that position at all; they took offence at something, whether it was right or wrong, but if the paper took a hard line, then they would go away.

We need to emphasise that the world has changed. Not only—and this is a perfectly valid point—are newspapers poor, but there are a number of extremely unscrupulous, very rich people, be they Russian oligarchs or any kind of oligarch, who are prepared to try anything they can to get a journalist or, even better, to stop the journalist publishing. I admire the courage of the FT in going ahead with the case the noble Baroness, Lady Wheatcroft, mentioned. I do not think many editors would have been so brave. This is the modern world. I am always disappointed when I find that legal firms are willing to go along with this kind of stuff.

There are not many laughs in the committee chaired by the noble Baroness, Lady Stowell—not because of her, as she is an admirable chair, but because the subjects of the committee do not lead to a lot of laughs. However, I laughed out loud when I found that the maximum fine that can be applied by the Solicitors Regulation Authority is £25,000; that does not buy you a coffee with a decent KC any more. It is a different world with the people who are operating in it now.

I shall conclude as the noble Lord did. We have heard that it will take years before anything happens. It will not be this year because we are in recession, nor next year because there is a general election coming up; so it will go on, and those who are against making the change will continue their lobbying. We now have an opportunity, by the ingenious use of this Bill by the noble Baroness, Lady Stowell, to force action now. We should seize it.

[Lord Agnew of Oulton (Con)]

I support Amendment 80, tabled by the noble Lord, Lord Thomas, and the amendments tabled by my noble friend Lady Stowell and the noble Lord, Lord Cromwell. I think there is a strong consensus—I will come to my noble and learned friend Lord Garnier’s point in a moment—that we should not just keep kicking this can down the road.

To give the Committee a little perspective, we are dragging our feet relative to the rest of the civilised world. The EU took steps a year ago to propose an anti-SLAPP directive and 34 US states already have anti-SLAPP laws in place. The need for reform is urgent. The figures put forward by the Foreign Policy Centre and members of the UK Anti-SLAPP Coalition show that SLAPPs are on the rise and that the UK is the number one originator of abusive legal actions. In fact, the UK has been identified as the legal source of SLAPPs. It is almost as frequent a source as all European Union countries and the US combined. That is the reality.

On journalists, obviously I defer to the noble Baroness, Lady Wheatcroft, who has been in the hot seat herself. They play an important role in transparency and in shining a light on bad behaviour. We have heard before in this debate and in other committees about the Azerbaijani laundromat, which was investigated by the NCA only following the light that journalists shone on it.

I think my noble and learned friend Lord Garnier is misled in that the vast majority of these cases never get to court. They are invisible, other than to the person who has been subjected to that action. I can speak with some passion on this because it happened to me only a year or so ago by an organisation that had received billions of pounds of public money. The implication in the letter I received was essentially a SLAPP, so I had to take a view. No lawyer ever heard about that, let alone a judge. That is happening on a far more regular basis than people are prepared to accept.

We come to the last part, which the noble Lord, Lord Thomas, and others have talked about—that there is not enough room in the legislative calendar to get this done. But here we are: we have an economic crime Bill on the books, whose drafting work has been done by very clever people—at least as clever as parliamentary draftspeople. Surely, they and the Peers in this place can get together to get the right clauses and then we will have done it. I get so frustrated about this. The Government seem so feckless in not getting on with it. What is the excuse? It is crystal clear to any thinking person that we need to have some legislation on the statute book to contain this.

Of course, there must be safeguards against reckless accusations that damage the reputations of decent people and the right to recover costs where that happens. But, as we heard from the noble Lord, Lord Lipsey, and the noble Baroness, Lady Wheatcroft, the reality is that there is an asymmetric warfare going on today which is completely different from anything that existed probably 20 years ago.

Here we have the chance for a clause that is well drafted—although I am a non-legal person—by the noble Lord, Lord Thomas, with supporting clauses from my noble friend Lady Stowell and the noble Lord, Lord Cromwell. Why will the Government not sit down and have a proper, grown-up conversation about doing this? As the noble Lord, Lord Cromwell, said, please do not just fob us off with, “No, we’re not going to do it. Withdraw your amendment”. I am prepared to have a fight about this on Report and to lead a Division in the House, because I am sick of it. It is time for this Government to wake up from their complacency and always looking to delay until we do not exist any more. I strongly support these amendments and I hope the Minister will have a credible answer to the question of why they are not getting on with it.

[Lord Thomas of Cwmgiedd (CB)]

My Lords, I will make one or two brief observations, because almost everything that could be said has been said.

First, it is important to distinguish between the threat of litigation and the use of litigation. If you look at the threat of litigation, the arguments so powerfully put forward by the noble and learned Lord, Lord Garnier, go away. Going back more than 30 years, the late Captain Robert Maxwell MC was the past master in the use of threats. It was the courage of Bronwen Maddox of the Financial Times and her then editor that exposed him. She did not have to undergo an examination of what had happened because he died at almost exactly the same time. When people say, “This is very difficult. We need more time”, I say that we have had 30-plus years to deal with it.

Secondly, the problem of the use of litigation is, in a sense, a separate issue. As the amendment in the name of the noble Lord, Lord Thomas of Gresford, makes clear, it is important that this is looked at separately. Most urgent is dealing with the threat. I very much hope that the Bill will also deal with use, but that involves different considerations because, by that stage, you will have involved a court and the balance between the actions of the court and the regulator is more difficult.

However, saying “This is all very difficult” is no excuse for delay. This is damaging to the UK, and things have got worse in 30 years for two reasons. First, most lawyers jealously guarded their reputation, but I am afraid that a number now take the view that any publicity is good publicity and they do not guard their reputations as carefully as they once did. That is not true of many, but a few take that view. Secondly, the cost of litigation has escalated out of all proportion to the position 30 years ago.

In response to, “This is all too difficult. We need more time”, I say that we have had 30 years. Even for the Ministry of Justice, that is a very long time. At times I felt that it could be said of the Ministry of Justice what was said of Philip II of Spain: if death came from Spain, we would all be immortal. Let us therefore hope that the ministry will engage with this and get on with the matter.

I want to make one final observation. There is always this very real problem of lawyers using funds. However, the fact that it is a real problem means that we should investigate it and not just put it in the “Too difficult” box. I am afraid that the Ministry of Justice has too many large “Too difficult” boxes as an excuse for inaction, and the time for inaction has ended. I am very glad that the noble Lord, Lord Agnew, has taken the view that this is something on which we must make progress.

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[The Parliamentary Under-Secretary of State, Ministry of Justice (Lord Bellamy) (Con)]

My Lords, I warmly thank all noble Lords who have spoken in this debate and who have spoken to me directly on this issue. I also thank noble Lords for the enormous amount of thought and consideration that has been put into this issue by those who have spoken. There is significant strength of feeling across the Committee on this important issue. I begin by providing an assurance that the Government share those concerns and that it is clear to the Government that we should take legislative action against SLAPPs. As the Government have set out, for many reasons that have been mentioned in this debate, we are firmly committed to legislating effectively, comprehensively and without undue delay on this issue.

Noble Lords will not necessarily be entirely happy when I say that we do not think this Bill is the correct vehicle for tackling this issue. There are essentially two reasons for that. One is that here we are dealing with economic crime. I take my noble and learned friend Lord Garnier’s technical point about the scope of the Bill, but the major issue here is that, even if we were to put in an amendment to this Bill, it would still be too narrow because we are not covering matters that are not economic crime, such as freedom of expression, political interference, national security and so forth. The Government’s preference would be to handle the entire landscape of SLAPPs in one place, and that is not this Bill.

[Lord Agnew of Oulton (Con)]

The Minister talks about introducing some SLAPPs legislation “without undue delay”, but there is no possibility of a timetable to introduce that. We are only 15 or so months away from a general election, and the legislative timetable is jammed solid already. There is no fixed slot for it to come in. I utterly reject the idea that the Government want the perfect to be the enemy of the good: “We are going to do everything in one Bill”. Why not do this bit now, which will take very little parliamentary time? As the noble Lord, Lord Cromwell, said, it will deal with probably 80% of the problem, because we know that shutting down debate on economic crime is probably our biggest problem. When in 10 or 15 years’ time—this point was made by the noble and learned Lord, Lord Thomas—the Government finally find the perfect moment, although some of us will be dead by then, they could then repeal the relevant clauses of this Bill and do it all in one bit. But I utterly reject the pathetic excuse that this is not the right moment. I ask my noble and learned friend to be a little more straightforward in his commitment.

[Lord Bellamy (Con)]

My Lords, I entirely understand the frustrations felt by my noble friend Lord Agnew and others. It is not to be ruled out that we could find an appropriate legislative vehicle for this matter before the next general election. That is not to be ruled out. However, I cannot today go further than to say that this issue will be brought forward by the Government when parliamentary time allows. That is normally a long-grass phrase—kicking it into the long grass. I regard it today, and say it today, as a short-grass phrase because I am not at the moment giving up on having legislation relatively soon, but I can give absolutely no commitment on that matter.

Economic Crime and Corporate Transparency

Lord Agnew of Oulton Excerpts

Committee stage
Thursday 27th April 2023 Grand Committee

[Lord Etherton (CB)]

My Lords, I hope that noble Lords will permit me to speak now, because I may not be able to stay for the whole of the debate on this group. I apologise to those who still have to speak to their amendments. I will comment on two aspects of these amendments. The first is the carve-out for organisations that are not large.

The original legislation that provided for a prevention of crime scenario was the Bribery Act 2010. I was the chairman of the Law Commission when that project began, under pressure from the OECD on the Government because of this country’s poor rating on bribery. As at least two noble Lords have pointed out, there was no carve-out for small organisations. I am satisfied in my own mind that, had we created such a carve-out, it would not have satisfied the OECD. It is important that there be consistency in the law. If there is to be a change from the position on bribery to the position here on fraud, there must be a good reason to do so. To produce inconsistency in broadly comparable situations seems bad law. That is the only thing I wanted to say about that.

As a member of what I am afraid the noble and learned Lord, Lord Garnier, would describe as the legal establishment, I urge some caution in changing the principles of vicarious liability in relation to criminal responsibility for companies. Again, the question of consistency is important; if this is to move forward, we must look at the ramifications across the whole of criminal law, and there has to be a very good reason why this area is selected for different treatment. I know that this is anathema to so many people here, but it would be a good subject for the Law Commission to look at. Of course, it would not be able to do so by Report. However, if the proposal has merit, it warrants a much wider investigation for its impact elsewhere.

[Lord Agnew of Oulton (Con)]

My Lords, first, I congratulate the Government on bringing forward an amendment—it is at least a start. My noble friend the Minister said that he enjoys a lively debate and was looking forward to another one today, so I do not want to disappoint him. I speak as an SME; cut me in half, and that is what I am, and have been all my life. Indeed, my interest in SMEs long predates my noble and learned friend Lord Garnier’s interest in bribery, as I set up my first business in 1978.

My point is that I absolutely understand how SMEs think, so it is not credible to say, “Oh, we must protect them”. For a start, the way in which the categories are set excludes probably 90% of businesses in this country. I cannot work it out exactly, but it is the vast majority of commercial activity, so that makes a nonsense, frankly, of what is being suggested. On the fair application of law, to respond to my noble and learned friend Lord Garnier, a 5 foot 3 inch burglar can do just as much damage as a 6 foot 6 one. There is no logic to that—and I speak not as a lawyer but as a simple businessman.

More profoundly, unless we bring about this culture change, we are not going to get the SME community to think about fraud. If you are a victim of fraud and have the mechanisms in place to detect it because of other people doing it to you, you are far less likely to have it committed against you. All we are doing is creating an artificial bubble for people who are victims. I keep banging on about this figure, but 40% of crime in this country is now economic crime, of which fraud is a large part. So as for the idea that we are protecting SMEs in any way—we are not.

Perhaps the most important element is the professional enabler—the accountant and solicitor. We heard from the noble and learned Lord, Lord Thomas, the other day that the behaviour of the legal profession is not perhaps as pristine as it was 20 years ago. If it can take short cuts because someone looks like a juicy client, then the temptation exists. Only 100 of the 10,000 law firms in this country would have to comply with this carve-out—so that is nonsense, too. Then we come to public procurement. I was procurement Minister, and we have had a great success in government in the last few years, doubling the amount of money going from public procurement to SMEs from £20 billion to nearly £40 billion. If this provision comes in, it will have a kind of freezing effect on government. I know what officials are like—they are very cautious people and, if they feel they are taking a risk by contracting with SMEs because they, in turn, are not doing proper fraud checks, it will be another reason not to use them. So there is that perverse impact.

If we go a bit further, large corporations will find ways round this. They can create separate subsidiaries and they can use all the things we have been talking about, such as different ownership in different jurisdictions, so this will not solve the problem. The point has also been made about inconsistency: bribery has not had a carve-out for SMEs, so why should this? I ask my noble friend to put a cold towel round his head and those of his officials and come up with a credible explanation.

[Lord Vaux of Harrowden (CB)]

My Lords, I, too, welcome the government amendment. It is a step in the right direction, but I think the Minister will hear fairly similar arguments from all of us as to why it does not go far enough—I will be doing the same thing. In simple terms, the offence that the amendment creates is that the company becomes liable if an employee of the company commits a fraud offence with the intention to benefit the company. I am struggling to understand why, if the employee of a smaller company with, say 25 or even 200 employees, commits fraud intended to benefit the company, that company should not be guilty.

At the risk of introducing a new question at this point in the debate, which I am quite pleased to be able to do, I do not understand how this works for groups of companies. Are the numbers calculated on the basis of consolidated figures or, as the noble Lord, Lord Agnew, suggested, could you just create a subsidiary specifically for the purpose of carrying out the fraud? If it is not on a consolidated basis, it cannot make sense at all.

I have worked for both large and small companies in my career and the reality is that it is much more likely that the directors of a small company will know what their employees are up to than those with a big company. They do not necessarily need burdensome processes to know what has happened. They are in the same office, they are walking the same floor and they are hearing the phone calls. In any event, it should be the responsibility of any company to have in place reasonable procedures to ensure that its employees do not commit fraud on its behalf. Frankly, that should be a basic minimum to be allowed to be in business. Because of the defences that are included, all that is required is to have in place

“such prevention procedures as it was reasonable in all the circumstances to expect”,

or to have no such procedures in place if that would be reasonable. Whether those procedures are considered reasonable in all the circumstances will be driven in part by the size and activity of the company. The Government have also given themselves power to provide guidance as do what would be reasonable and they could easily tailor that for smaller companies, so we really do not need to remove them from scope. In the absence of compelling reasons from the Minister, I would be minded to support the amendments of the noble Lord, Lord Fox.

The other element that seems to be missing from the government amendment is any personal liability of the company management. Without this, those who turn a blind eye to fraud can hide behind the limited liability of the company. If someone has been involved in the decision-making process that led to the failure to take reasonable steps to prevent fraud from being carried out on behalf of the company, they should personally be on the hook. Personal liability concentrates minds wonderfully. Finally, as we have heard, the amendment does not deal with the identity doctrine, which the amendment of the noble and learned Lord, Lord Garnier, tries to. Again, why not?

At Second Reading, the Minister, the noble Lord, Lord Johnson, said that this Bill

“will bear down even further on kleptocrats, criminals and terrorists who abuse our open economy, and it will strengthen the UK’s reputation as a place where legitimate business can thrive, while ensuring that dirty money has no place to hide … The Bill will ensure that law enforcement and the private sector have the tools needed to help tackle economic crime, including fraud and money laundering”.—[Official Report, 8/2/23; col. 1250.]

As currently drafted, it does not achieve those aims. The UK, sadly, does not have a reputation as a place where

“dirty money has no place to hide”—

depressingly, the opposite is true. If we want to make a real difference and repair our damaged reputation, we must take genuinely robust steps.

Throughout our debates in Committee, the Government have resisted a whole range of sensible suggestions that would strengthen our fight against economic crime. Here we are again, with a set of amendments from the Government that are just too weak. The suggestions of the noble Lord, Lord Fox, the noble and learned Lord, Lord Garnier, and others would not create a disproportionate burden on businesses but would strengthen our reputation. I am becoming baffled and rather depressed by the Government’s continued reluctance to take genuinely strong action to reduce the levels of economic crime and, without genuinely compelling reasons from the Minister, I will support the noble Lords’ amendments. We have heard many times in our debates that this is a once in a decade opportunity to tackle this. We really have to take it.

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[Lord Sharpe of Epsom (Con)]

The noble Lord makes a good point. As I have said, I will endeavour to find some more figures and share them more broadly. I do not know whether it will take into account the precise analysis that the noble Lord seeks, but the fraud strategy is imminent and it would be strange to publish a strategy without saying what the strategy is there to address. Once again, I am piling all my faith into the fraud strategy—possibly misplaced faith, who knows?

[Lord Agnew of Oulton (Con)]

Can my noble friend confirm the figure the noble Lord, Lord Macdonald, put forward: that about 99% of businesses will be excluded? That was the figure that I found, but I would like to hear that from the Minister, as well as whether he thinks that is proportionate in the carve-out.

[Lord Sharpe of Epsom (Con)]

I am afraid that I cannot confirm that. I do not know, but I will find out.

I will go back to Amendment 100 and talk about the identification doctrine. As noble Lords are aware, prosecuting corporates for serious crimes is challenging, largely as a result of the identification doctrine. This principle dictates that the acts and minds of the individuals who represent the directing mind and will are treated as the acts and minds of the corporate itself. In practice, it can be difficult to determine the “directing mind and will” of a corporation. Large and sometimes opaque governance structures make it challenging to identify a senior manager in charge of specific operations. This means that the current law applies unfairly to smaller business. As set out at Second Reading, the Government are fully committed to addressing this problem and to bringing forward legislative reform to achieve it. However, as noble Lords are aware through the amendments that they have tabled, whereas the identification doctrine currently applies to all crimes, the scope of this Bill can permit reform only for economic crime offences. I am as frustrated about that as other noble Lords.

While this amendment would improve the law for economic crimes, it would not remedy the current issues faced by prosecutors for all other sectors of criminal law. However—and I take a partial deep breath here for my noble and learned friend Lord Garnier—given our shared overall ambitions for reform, I would welcome further conversations ahead of Report on this subject. My officials are working through the list of offences with practitioners to determine whether the offences can be reformed without impacting the wider criminal law. My noble and learned friend will also be aware that we are committed to introducing reforms that can be effectively used by prosecuting agencies over a broad range of business. I am sure that he will also agree that is vital that any unintended consequences or risks be identified and understood. I hope that noble Lords are satisfied that the Government are absolutely committed to reform in this area, but that we want to ensure that any reform can be effectively utilised.

Turning to Amendment 101—

Economic Crime and Corporate Transparency Bill

Lord Agnew of Oulton Excerpts

Committee stage
Tuesday 9th May 2023 Grand Committee

[Lord Agnew of Oulton (Con)]

My Lords, I support the amendment tabled by the noble Baroness, Lady Kramer. I welcome our new Minister to the hot seat. I will not speak for long because we have heard the main arguments but, for me, as a businessman, whistle- blowing is an extremely cost-effective way of uncovering bad practice at scale. We have so many examples, such as the Post Office Horizon scandal and the Danske Bank laundromat, one of the largest recent financial crimes in Europe, involving some $230 billion of illegal Russian money, which came alive because of whistle- blowing through UK limited partnerships.

We know that the system is not working. Only about 4% of whistleblowers who take cases at the moment end up being successful. They take huge risks, as we heard from the right reverend Prelate. As usual, we are falling behind in the world league of effectiveness. The US National Defense Authorization Act creates a new whistleblowing programme and establishes a private right of action for whistleblowers who have experienced retaliation.

I ask my noble friend the Minister why we are so timid about this. I accept that he is newly in post, but I would like some evaluation of why we are told that a new office for whistleblowers would be expensive. I do not believe that it would be expensive; it would save money because it would create one focal point for all those with legitimate claims to go to, in addition to the money that would be recovered from economic crime. As we also know, we are awash with economic crime, so why not take this simple step towards dealing with it?

[Baroness Blake of Leeds (Lab)]

I add my thanks to everyone who has put so much effort and work into this issue over a significant amount of time. I thank everyone for their contributions, which have given powerful testimony of those who have suffered. We should note the fact that so many noble Lords in this Committee alone personally know people to whom this has happened.

I confirm that we support this amendment and I look forward to the Minister’s comments about the request for creating an office for whistleblowers. As has been said throughout the debate, it is clear that facilitating whistleblowing would go a significant way to tackling economic crime, whether fraud, money laundering or other crimes. I thank the noble Baroness, Lady Kramer, in particular for her comments about the importance of the earliest possible notice of wrong- doing, which is a key point in this discussion.

I emphasise that the stakes remain too high for an informed insider wanting to blow the whistle. This amendment would be a good starting point. I am not convinced that it will solve all the problems, but we need to see some progress. Too many people are suffering and we need to recognise those individuals as well as the impact on the businesses involved. As the noble Baroness, Lady Altmann, said, the sad truth is that too many people wait until they are leaving a company—either moving on to another or, in the case she mentioned, retiring—before finding the courage to stand up.

I understand there is going to be a review, but surely we have an opportunity now, with this Bill, to make some bold change. I thank the charity, Protect, for its briefing under Speak Up, Stop Harm, which has some very important information that we should all consider. To reference the debate that took place in the Commons, there was strong cross-party support, encouraging support and advice for whistleblowers. I am concerned that the government line remains that taking these important steps is too expensive. I really cannot understand that line of argument. Surely, we should regard this as an investment and not a cost. Tom Tugendhat MP promised more discussion on these matters as part of the debate. Can the Minister inform us where this has got to?

We support the creation of an office to give encouragement and support making reports. We want an ability to provide advice and, most particularly, to act on evidence of detriment to whistleblowers where we know that it occurs. The point in the amendment about making an annual report to Parliament is also important. One area on which I think it would be possible to move is to bring forward the requirement for all organisations to have a proper policy in place as a vital and effective route to preventing crime, which would mean that the courts could use evidence of this as good practice.

As I am sure all noble Lords have seen, 65% of callers to Protect’s confidential advice line say that they have suffered for speaking out, which of course is in direct contravention to the Public Interest Disclosure Act and, therefore, as amended, the Employment Rights Act. This is a very serious issue, which should be picked up and dealt with immediately.

On furlough payments, 41% of clients who contacted the advice line who suspected that fraud was taking place were ignored; 90% attempted to raise concerns with their employer before going to the helpline but, unfortunately, many small organisations still have nowhere to go. It is a matter of how these changes could support businesses that want to do the right thing but do not have the wherewithal to do it.

I look forward to the Minister’s responses to all the points that have been made today. Let us treat this issue with the seriousness that it deserves, as it is an important way in which we can help those who have received information that they want to act on. In the spirit of the Bill itself, it is a vital and effective route to preventing crime.

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[Lord Faulks (Non-Afl)]

I want briefly to add to that. I am sure that the Serious Fraud Office is full of capable and conscientious men and women who go about their jobs with enthusiasm. However, they are often pitted against rather formidable adversaries in terms of lawyers and the resources that are available to those lawyers to defend people who are the potential targets of the Serious Fraud Office.

It may be that one of the problems with the Serious Fraud Office is the career structure. The American equivalent often engages lawyers with very considerable abilities who are at a relatively stage in their practice. They may not be paid particularly well when they do it, but it is a feather in their cap. In other words, the Serious Fraud Office’s equivalent in America often has extremely high-quality lawyers. I wonder whether thought has been given to restructuring our whole approach to those who prosecute these matters so that we can somehow incentivise the very best people to get engaged in this business to render the playing field a lot more level than it currently is.

[Lord Agnew of Oulton (Con)]

My Lords, I rise to support the amendments tabled by the noble Lord, Lord Coaker, in particular Amendment 106B. He is becoming quite an expert on an area that has troubled me for 18 months or so.

The figure of £37 billion used in Amendment 95 is only a small part of the story. The National Audit Office talks about a separate £30 billion bottom-end estimate of losses to fraud in the public sector, so this is a huge issue; that is why I have tried to put as much effort into it as I can. The noble Lord, Lord Coaker, made the point that it is a hotchpotch landscape. There are 22 economic crime-fighting agencies scattered across the whole landscape. They do not join up or talk to each other. They have different remits and different legislation to use to effect any kind of outcome.

A report of the kind that the noble Lord suggests would bring real clarity to this. It would explain to people what is going on. It would not cost very much; indeed, as usual, it would save money because there is, I am sure, a great deal of duplication going on in the system. I urge my noble friend the Minister not to respond today, because it is so hard to respond on the hoof to these sorts of things, but to take this away and write to us to explain what is against the logic of a single reporting point once a year for all the agencies involved in economic crime.

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[Lord Sharpe of Epsom (Con)]

I do not know. I will find out and write to the noble Lord. For now, I hope he will accept that it is not the role of the Government to set up parliamentary committees and so will not seek to press his amendment.

I turn now to Amendment 106EB concerning the Serious Fraud Office. Once again, I thank the noble Lord, Lord Coaker, for tabling this amendment, which would require the Government to lay in Parliament an annual report on the Serious Fraud Office. The effectiveness of the agencies tasked with fighting economic crime, including the SFO, is of critical importance and of interest to both Houses. That is why the SFO annual report and accounts—these set out much of the information in which the noble Lord is interested—are routinely laid in Parliament.

The law officers of England and Wales superintend the SFO. They oversee the performance of the SFO, including steps that they can take to improve that performance. Through the superintendence process, the law officers identified the need to expand the SFO’s pre-investigation powers, a change that appears in Clause 185 of this Bill. The law officers take steps to ensure transparency, including participating in Attorney-General’s Questions in the other place; publishing summaries of minutes from SFO ministerial strategic boards online; and addressing issues promptly through Written Ministerial Statements.

This is complemented by the work of HM Crown Prosecution Service Inspectorate, which inspects the SFO and publishes its findings alongside a set of recommendations. HMCPSI recently published an inspection of the SFO’s case progression—that is, the organisation’s ability to deliver its cases efficiently and effectively. Given our previous discussions, the tone of the debate and the views expressed, I understand that the intention of this amendment is to probe the Government on the resourcing of the SFO.

The noble Lord, Lord Faulks, made a very interesting point; he may have noticed that I wrote my note on the wrong page when I referred to it earlier. I am coming back to it now; it is an interesting idea and I will definitely take it back. There is a process in place to recruit a new director-general of the SFO. I would imagine that acute matters, human resources and future resources are a part of the remit for that person but the noble Lord certainly makes an interesting point. To go back to a conversation during a debate that the Lord, Lord Browne, and I had last week, my personal point of view is that it is about time we all sat down and started to think about recruitment in law enforcement more generally.

[Lord Agnew of Oulton (Con)]

Given that my noble friend the Minister is going to take the comments made by the noble Lord, Lord Faulks, on recruitment back, I encourage him to look at the report by Andrew Cayley KC, Chief Inspector of the Crown Prosecution Service, who has also done a report recently. Some of the problems in the SFO are case workers not being paid enough, churn and so on, which led to the collapse of the case against G4S. There is big piece of work there that we could be doing stuff with.

[Lord Coaker (Lab)]

What is the Government’s view on whether the SFO is working?

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Moved by

[Lord Agnew of Oulton]

106C: After Clause 187, insert the following new Clause—
“Civil recovery: costs of proceedings
After section 313 of the Proceeds of Crime Act 2002 insert—“313A Costs orders(1) This section applies to proceedings brought by an enforcement authority under Part 5 of the Proceeds of Crime Act 2002 where the property in respect of which the proceedings have been brought has been obtained through economic crime.(2) The court may not make an order that any costs of proceedings relating to a case to which this section applies (including appeal proceedings) are payable by an enforcement authority to a respondent or a specified responsible officer in respect of the involvement of the respondent or the officer in those proceedings, unless—(a) the authority acted unreasonably in making or opposing the application to which the proceedings relate, or in supporting or opposing the making of the order to which the proceedings relate, or(b) the authority acted dishonestly or improperly in the course of the proceedings.””Member’s explanatory statement
This amendment extends the costs cap for civil asset recovery cases beyond Unexplained Wealth Orders. It aims to create a consistent enforcement landscape that does not hinder law enforcement agencies' ability to recover the proceeds of crime. It retains safeguards on costs for improper action taken by prosecuting authorities.

[Lord Agnew of Oulton (Con)]

My Lords, this amendment would help to protect enforcement bodies from the serious risk of high adverse costs when undertaking recovery action against deep-pocketed suspects who can afford the very best legal representation. This risk creates a huge downward pressure on law enforcement activity. The Government introduced a new costs order in March last year for the use of unexplained wealth orders; we have talked about those a lot. It ensured that costs would not be awarded unless the law enforcement authority had acted unreasonably, dishonestly or improperly.

UWOs are just one tool for recovering assets in the UK’s recovery regime and, as we have discussed this evening, are arguably less important in the eyes of law enforcement than other recovery tools. Extending the costs orders introduced in the ECA 2022 would significantly increase the appetite for undertaking recovery cases and inevitably lead to more asset recovery. Even the Law Commission in a recent report recommended that in confiscation hearings following a criminal trial, if the prosecution is unsuccessful but can argue that their application was reasonable, each side bears its own costs. Given that this is a Law Commission recommendation for criminal confiscation and that limited liability for costs has been introduced for UWOs, we are proposing to extend this limited liability to all cases of civil criminal asset recovery.

Civil society and civil servants at the NCA and the SFO have all reported that adverse costs can play an important role in cutting agencies’ appetite to pursue costs. In fact, no cases seem to have been undertaken against Russians in the UK since the outbreak of the Ukrainian invasion. Evidence I have heard from law enforcement bodies suggests that there is a significant caseload of potentially high-risk cases in the pipeline which bring significant cost risks. This includes more than 60 cases being reviewed by one prosecution authority with close to £1 billion in assets frozen by an enforcement body.

Tackling kleptocrats and politically exposed persons will involve going against the very best and most expensive lawyers, unpicking complex corporate vehicles and reams of evidence. Cost exposure poses a real hurdle to the use of civil recovery. In addition, as we have heard so often during this series of Grand Committees, this is not a party-political issue. Indeed, it has been raised previously by Conservative MP Nigel Mills, who sought an amendment during the passage of the Criminal Finances Act 2017, which we heard about briefly from the noble Lord, Lord Faulks, so that the costs could be awarded on an indemnity basis.

In the six years or so that have elapsed since then, we have had the huge move in principle by the Government to allow this capping to take effect for UWOs. Given that that Rubicon has been crossed, I simply do not understand why the Government are reluctant to extend it. We hear so often in the rebuttal of our amendments that it is not the right time, there is no room in the legislative calendar, the cost is too great and the principles are not there, but this is a situation where none of those issues exists. The Government accept that the principle can apply in some forms of recovery. All I ask for in this amendment is that we broaden the scope of the cost capping, which will dramatically improve our ability to go after some of these bad actors. I beg to move.

[Lord Leigh of Hurley (Con)]

My Lords, I will speak to this amendment, which I have signed. Once again, I find myself agreeing with every word that my noble friend Lord Agnew has said, so I will be very brief.

The extension of a new cost regime to all of Part 5 of POCA in the case of economic crime would encourage law enforcement bodies to act ambitiously but also reasonably in bringing civil recovery cases, and it has the potential to ensure that significantly more stolen assets and proceeds of fraud and corruption can be recovered and returned to the victims—as we would all want—but also reinvested back into law enforcement agencies themselves, which is the major problem, through the asset recovery incentivisation scheme. That would help them enhance their capacities and give them the confidence to go after cases which they are not doing at the moment.

A number of us had the honour to be briefed by Bill Browder on the Bill. Of the many subjects that we discussed, this was the one amendment that he felt would be helpful and useful for us to pass. What greater man is there than Bill Browder to suggest to us that we adopt a particular route? If the man can create a Magnitsky Act which has been adopted by pretty much every civilised country in the world, perhaps we can just take one clause in this Bill to enhance our fight against economic crime.

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[Lord Sharpe of Epsom (Con)]

The noble Baroness makes an interesting point. I was talking about unexplained wealth orders in respect of the Economic Crime (Transparency and Enforcement) Act 2022. To go over that again, it aimed to remove barriers to the use of UWO powers by relevant law enforcement teams, but it was done on the basis that these were exceptional and likely to be very low in volume in comparison to other types of civil recovery. I do not think that is inconsistent with the argument about this amendment.

Going back to the procedural rules, which guide the courts in procedural matters, these enable judges to use their discretion to limit legal costs in certain circumstances. In appropriate cases, they may be used by agencies when pursuing asset recovery cases and are therefore a more suitable way of limiting costs liability in the few circumstances where this may be needed rather than through wholesale reform of the loser pays principle in civil recovery.

The amendment would overturn the very basis on which the entirety of civil costs and funding is built. It would negatively affect every other category of civil litigation, all for minimal, if any, financial savings in a very limited number of cases—

[Lord Agnew of Oulton (Con)]

Could my noble friend explain why this overturns precedence, while the Act last year on unexplained wealth orders does not? That is why I am so confused.

[Lord Sharpe of Epsom (Con)]

My Lords, I think I have already explained it, but I will endeavour to do so in greater detail in writing, if that is acceptable.

In a very limited number of cases, law enforcement would be involved. If parties in civil litigation do not fear having to pay adverse costs, it risks encouraging spurious and unmeritorious claims. On this basis—and I will write—I ask my noble friend to withdraw his amendment.

[Lord Agnew of Oulton (Con)]

I thank my noble friend the Minister for his explanation. I am afraid that I do not accept it, but I understand the convention that I need to withdraw my amendment. However, I will need to bring this back on Report; it is fundamental to our attempts to get a grip of economic crime in the system. I ask the Minister to reflect not only on my comments but those of other Peers who have supported the amendment and, indeed, the noble Lord, Lord Trevethin and Oaksey, who has come up with yet another example that I was not familiar with.

I was clear in my amendment that there is absolute protection against overreach by government agencies that are seen to act unscrupulously, so I do not accept that there is a risk. We know that we are not going to fund these agencies properly. Common sense tells us that they have to do a very careful risk analysis of any case they take on. If they think they have less than an 80% chance of winning it, they will not do it. I know that from my own experience as a Minister. Time and time again, early on in my career as the Academies Minister when I was trying to root out fraud there, I was told that the risks were too high and that we did not have the budget if we lost the case. It is not complicated.

I urge my noble friend the Minister to reconsider. My noble friend Lord Leigh was right—when we heard from Bill Browder a few weeks ago, he was adamant that, if there is one thing this Bill should do, it is to bring in this costs cap so that we can weaponise the agencies to go after economic crime. I beg leave to withdraw my amendment.

Amendment 106C withdrawn.

Economic Crime and Corporate Transparency Bill

Lord Agnew of Oulton Excerpts

Committee stage
Thursday 11th May 2023 Grand Committee

[Baroness Bennett of Manor Castle (GP)]

My Lords, I apologise to the noble Baroness, Lady Kramer, because I would certainly have attached my name to these two amendments had I been able to get my head sufficiently above the parapet in the face of the barrage of legislation that your Lordships’ House currently faces. They are terribly important amendments, as was highlighted yesterday in the other place in Prime Minister’s Questions, when the Prime Minister in response to a question about what is happening on Teesside said:

“Contracts at the site will be a commercial matter for the companies involved”.—[Official Report, Commons, 10/5/23; col. 334.]


There is great public concern about what is happening on Teesside, and it is at the moment extremely opaque.

I shall concentrate mostly on freeports, because, as the noble Baroness said, investment zones are such a “fluffy” area that is very hard to grasp on to it. As to what we know about freeports and what is happening, a lot of the questions are being asked by the independent media and the civil society organisations referred to by the noble Baroness. I would point anyone who is interested to an excellent, 44-page report from the Byelines Network that was put out by local journalists from around the country in areas directly affected. It does a great job of examining some of the issues, but butting up again and again against commercial confidentiality and lack of recording. One of those reports notes that in 2020, the Royal United Services Institute Centre for Financial Crime and Security Studies submitted evidence to the International Trade Committee saying that

“there is evidence of criminal activity taking place in multiple freeports around the world. It often involves trade in counterfeit goods, drug trafficking, smuggling of untaxed goods or trade-based money laundering”.

If we were to think of something that is essential to the purposes of the economic crime Bill now before us, shining the light, opening the doors and being able to see what is happening would clearly be it. What we are talking about with freeports are huge concessions from the Government. As the noble Baroness, Lady Kramer, said, they include freedom from all kinds of usual customs controls, but also stamp duty land tax relief, enhanced structures and building allowance, enhanced capital allowances, employer national insurance contributions relief, and business rates relief and retention. Those are huge concessions. Surely it would only be absolutely fair and reasonable to demand full transparency about who is responsible and who is making those decisions.

It is very evident that there is great public concern. This is one way that the Bill or some other mechanism—I directly put the question, “If not this Bill, where else?”, to the Minister—will make sure of what will happen if we create these structures. The reason why people are so suspicious about this seems to go back to an uncredited blog from 2010 on the website of a right-wing lobbying group, the TaxPayers’ Alliance, which raised the idea of charter cities. People are very suspicious. Surely the Government would want to dispel some of those suspicions by ensuring that there is absolute transparency and openness.

[Lord Agnew of Oulton (Con)]

My Lords, I rise because I hope that I might be able to provide some help to my noble friend the Minister, as this is obviously not his area of expertise; this is at the Companies House end.

Right at the beginning of Committee, I tabled Amendment 44. Its explanatory statement says:

“This amendment mandates companies to disclose whether their shareholders are acting as nominees. Nominee shareholders protect the identity of the beneficiary of the shareholding. This measure will help mitigate the risk of abuse through nominee shareholders. Failure to comply would incur a penalty”.


Last night, I met the Minister, my noble friend Lord Johnson, who indicated to me that the Government were sympathetic to this approach. I do not want to put words into his mouth, as he is not here now, but I suggest to the Minister, my noble friend Lord Sharpe, that he talks to my noble friend Lord Johnson to see whether there is any way that we could look at this; that would deal with the specific concern raised by the noble Baroness, Lady Kramer, in relation to freeports.

[Lord Coaker (Lab)]

I was not going to say very much but I have been provoked by what the noble Baroness, Lady Bennett, and the noble Lord, Lord Agnew, have said.

I very much support the thrust of what the noble Baroness, Lady Kramer, said. One wonders why transparency is such a difficult notion for the Government. I suspect that the Minister will send up smoke by saying that we are all in favour of freeports, that they are a great way of generating employment, and so on. It is certainly what I would say if I were him—that freeports are a great thing for creating jobs and that we should not stand in the way of free enterprise, which is developing enterprise zones in some of the most difficult and challenging areas in the country. However, this is not about that—it is about transparency and knowing how this is funded—so I hope that the Minister does not send up smoke. The issue is transparency; the noble Baroness, Lady Kramer, was right to point that out.

I will not repeat the list from the noble Baroness, Lady Bennett, of concessions and allowances made to ensure that businesses can operate—perhaps in an area that they would not operate in—as that is something for the Minister to discuss.

On what the noble Lord, Lord Agnew, said, has the Minister had discussions with the noble Lord, Lord Johnson? Is it right that the Government are considering some concessions? Is that what the Minister is going to tell us—that he is going to go away and talk to the noble Lord, Lord Johnson, about what we have just been informed about? Is there hope for this amendment or will the Minister just reject it? Is it something that we will hear more about as we go to Report? Will we get a government amendment on transparency around this issue, if not from the Minister then from the noble Lord, Lord Johnson?

With those questions, I will listen to the Minister with care.

Economic Crime and Corporate Transparency Bill

Lord Agnew of Oulton Excerpts

Report stage
Tuesday 20th June 2023 Lords Chamber

[Lord Agnew of Oulton (Con)]

My Lords, I thank my noble friend the Minister for all the engagement and patience he has shown over the last few weeks and months, not just with me but with a wide congregation. We now have something that is much better than when it began its journey through the House, so I thank the Minister for that.

I am very pleased with two particular changes in this batch of amendments from the Government. First, that key, vital objective has been added for the registrar, so that it is absolutely crystal clear culturally for the organisation Companies House to know what it has to do. Added to that, giving her more discretion on how she delivers on that is very sound because, of course, it will be a mobile battlefield and she will have to be more fleet of foot.

Lastly—and I have said this before, but I think it is important that it goes on the record—we should not underestimate the extent of the cultural change needed in Companies House to move from being, as my noble friend said, a passive recipient of data to something far more dynamic and intelligent. That is why this reporting to Parliament—albeit with a sunset clause up to 2030—is really important to keep driving the momentum of that change. Every single employee of Companies House will need to be thoroughly retrained in this new mission.

[Baroness Bennett of Manor Castle (GP)]

My Lords, I apologise for my croakiness; the hay fever is definitely winning. I join others in welcoming, in these government amendments, that we have seen significant change since Committee. It is worth highlighting a couple of comments from the Minister’s introduction. He said that the aim of the Bill to drive dirty money out of the UK; I hope we can all agree that that is essential. He also said that we had seen so many people abusing our open system; I think we have to acknowledge that we invited those people in, and that that is the situation we created. We are now trying to fix it.

In that light, I very much welcome the fact that the Minister said that we need to see how these changes bed in before going significantly further. I want to make sure that we acknowledge, and see on the record, the fact that the Government have acknowledged that this is not enough, and that a lot more will need to be done, in what is, after all, as described by UK Finance,

“the fraud capital of the world”.

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[Lord Vaux of Harrowden (CB)]

My Lords, I shall speak to the amendments in this group in my name, Amendments 16 and 17. I should remind the House of my interest in the register as a non-practising member of the Institute of Chartered Accountants in England and Wales. I also take the opportunity, since it is the first time I have spoken so far, to thank the various Ministers and their officials, and indeed the registrar and her staff, for their constructive engagement and the generosity they have shown with their time. The engagement process on the Bill has been exemplary. We are helped by the fact that this is generally agreed to be a fundamentally good Bill: we are all on the same side here, just trying to ensure that it is as good as it can be.

These two amendments are designed to improve the transparency of ownership of our companies, to ensure we know who really owns or controls them. I remind the House of the words of the Minister at Second Reading:

“The use of anonymous or fraudulent shell companies and partnerships provides criminals with a veneer of legitimacy and undermines the UK’s reputation as a sound place to do business”.—[Official Report, 8/2/23; col. 1250.]


I think we all agree with that.

One of the classic ways to hide the real ownership of a company is through the use of undisclosed nominee arrangements, where a shareholder is named on the register but is in fact holding the shares on behalf of another person. At present, while the company must try to identify any persons with significant control, or PSCs, according to the guidance, all it really needs to do is look at its shareholder register: if there is no shareholder with 25% or over, it can reasonably conclude that there is no person of significant control. For example, if a company has five shareholders, each with 20%, the company can reasonably conclude that there is no person with significant control that needs to be named or verified.

However, what if those five shareholders were in fact holding the shares on behalf of a single third party? That third party would then control 100%. There is an obligation under the PSC rules for that third party to tell the company, but a dishonest actor probably would not do so. The problem is that there is no obligation for the person who is acting as the nominee to disclose that fact, which makes it far too easy for a dishonest actor to hide their identity. The company has the right to ask the nominees, but, remember, the company in my example is controlled by the dishonest actor—so it will not do that. If it is asked, it can point to the fact that it has followed the guidance, having checked its register and not found anyone with a share of 25% of more. In fact, all the dishonest actor has to do to hide their ownership is find five willing people who are prepared to have their name on the shareholder register and hold the shares on behalf of the dishonest actor. There is no comeback for these nominees. They have no obligation to disclose.

Where does one find five such willing people? I suggest that noble Lords would find it interesting to google “nominee shareholders”. They will find pages and pages of businesses that will do this, with few questions asked, for around £200 to £300 a year. They advertise specifically that the nominee service is for the purpose of hiding the true identity of the shareholder. In passing, it is worth saying that many of the people offering such services are the same people who will be the authorised corporate service providers and will carry out the ID verification under this Bill. That introduces an interesting conflict, but I stress: under the current proposals, these people will be doing nothing wrong.

Amendment 16 aims to close this loophole by making it a requirement for shareholders to state, as well as their name and address, whether they are—or, importantly, are not—acting as a nominee. If they are acting as a nominee, they would have to provide the name and address of the person on whose behalf they are holding the shares. I said that it was important that they should state that they are not holding the shares on behalf of someone else; that is because they would then have to lie actively if they are a nominee but do not disclose it. I believe that there is a real difference between lying actively and just keeping quiet passively—that is, turning a blind eye, as has happened all too often in the past.

This simple step of making people declare whether they are a nominee should make it much more difficult for dishonest actors to find people willing to act as nominees. They will need to find someone who is willing actually to lie on the record rather than just to keep quiet. Having this information will make it much easier for companies to identify hidden PSCs. Knowing which shares are held by nominees will also assist Companies House and organisations such as Transparency International to focus their attention where the risk is greatest.

We have heard the Minister telling us that we have to be careful not to create too great a burden on legitimate businesses. I agree with him, but I do not think that this would do that. Shareholders already have to provide their name and address. I struggle to understand why it would add any material extra burden to have to make a simple declaration—perhaps even as simple as ticking a box—and to provide the details of the actual beneficial owner. I really do not see that as adding any significant additional effort. In any event, there are significant benefits that arise from a company structure; it really cannot be too much to ask that the beneficial owner of the shares is disclosed in return for having those benefits.

I turn now to my second amendment in this group, Amendment 17. The Bill introduces a welcome identity verification requirement for persons with significant control, but that applies only to shareholders who own 25% or more. I should say that I know the Minister will correct me on that point, because it also applies to those who might have below 25% of the shares but otherwise exert control. He would be right, but in practice the 25% level is the driver. As my previous example shows, it is quite easy to structure a company so that there is no apparent 25% shareholder. There is certainly a legitimate debate to be had over where the correct level to trigger identity verification should lie, but I do not hear many people arguing that it should be as high as 25%.

Amendment 17 would reduce the level to require identity verification from 25% to 5%. Why 5%? There are a number of precedents. For UK listed companies, 3% shareholdings must be disclosed, with an exemption for fund managers, who must disclose at 5%, so 5% is deemed of sufficient importance for all listed companies to disclose. The rules around entrepreneur relief, which gives a reduction in capital gains tax payable on a disposal, state:

“A company is your personal company if you hold at least 5% of the ordinary share capital and that holding gives you at least 5% of the voting rights in the company”.


So tax rules consider that 5% gives sufficient influence for the company to be treated as your personal company, and there is a high degree of consistency supporting a 5% level. As I say, though, there is potentially a debate to be had about that level.

Again, I am sure we will hear that we should not create an undue burden on innocent parties, so let us consider the impact of that. I understand that the average number of shareholders for UK companies is two, so for the average company the amendment would create no additional burden; they already have to verify the identity of their shareholders. It would apply only where a more complex shareholder structure has been created with a greater number of shareholders. Yes, it would create a little more work for them, but in fact it would only increase the maximum number of ID verifications required by a company from a maximum of four to a maximum of 20, which should be easily manageable. We are not talking about companies having to verify hundreds of IDs.

Both these amendments would make a significant difference to the transparency of the register, helping to ensure—to get back to the Minister’s words that I referred to earlier—that we make it more difficult for criminals to use anonymous or fraudulent shell companies. I will listen carefully to what he has to say in response, but I give notice that I intend to divide the House on at least Amendment 16 unless he is able to provide very strong assurances.

[Lord Agnew of Oulton (Con)]

My Lords, I support Amendments 16 and 17 from the noble Lord, Lord Vaux. I shall also speak to my Amendment 19.

I do not want to repeat everything that the noble Lord has said, but I received a letter from my noble friend the Minister yesterday on this subject that included the subheading, “Transparency over shareholders and nominees”, and one of the arguments that the Government are making is that this could cause a significant cost to the economy. We have just heard from the noble Lord, Lord Vaux, that that is, frankly, a fantasy; if the average number of shareholders per company is two—perhaps the Minister could confirm that, but it is certainly my instinctive understanding—then what is the cost?

In any case, that should be put against the cost to the economy of the fraud and economic crime that is happening at the moment at an increasing rate. We have endlessly reminded ourselves that 40% of all crime in this country is now economic crime. I know from my time in government that the loss to fraud in government alone each year—this is the bottom-end estimate by the NAO—is £30 billion, and a lot of that is facilitated through the holes in the Companies House structure. I urge the Minister to think hard about this because it is a great opportunity, at minimal cost to the economy or to business, to make a substantial change.

[Lord Fox (LD)]

I shall speak to Amendment 16, to which I have added my name, and I support the noble Lord, Lord Vaux, in his clear outline as to why this is an elegant solution. It is so because it would push the onus on to the supplier of the service and make them decide whether to lie or tell the truth. A lie detector, in a sense, for dishonest actors is a very good way of exposing this practice. It is not unreasonable to know who is behind a company; in fact, it is perfectly reasonable that we should.

Amendment 17 from the noble Lord, Lord Vaux, also contains an important point: at what point does the cut-off come? It will be interesting to hear what the Minister has to say about the continuum between 25% and 5%. The Government have chosen 25%, which is a very large number when you think about it. The numbers breakdown given by the noble Lord, Lord Vaux, is clear that it would not mean that a huge number of people had to be identified, even if his suggestion of 5% was adopted by the Government.

If the noble Lord chooses to move Amendment 16 then it is safe to say that we on these Benches will support it, and we will wait to hear what the Minister has to say on other matters.

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As I mentioned at the start of my speech, the Government have taken major steps through these amendments to make the ACSP regime work robustly and to address the concerns of the House. I therefore hope that noble Lords will support all the amendments I have outlined, and I beg to move.

[Lord Agnew of Oulton (Con)]

My Lords, I thank the Minister for a very comprehensive set of government amendments. He has completely revolutionised the impact of the Bill in relation to ACSPs. I congratulate him and his staff on that. It is important to remind noble Lords about why this is so important. Around half of all company formations occur through the offices of an ACSP. Frankly, it has been a cowboy environment. At the moment, they are not even required to be approved under the fourth anti-money laundering directive. So at one stroke with this Bill we will see a much cleaner field and a proper alignment of interests in that it will be in their interest to behave with integrity if they are to remain in business. I will not go through the comprehensive package, but my noble friend should be congratulated. This is probably the single biggest improvement to the Bill in the Companies House section.

[Lord Vaux of Harrowden (CB)]

My Lords, I also thank the Minister for having listened to the points that were made in our previous debates about the importance of ACSPs’ verification statements being made publicly available and for making this comprehensive suite of amendments. Indeed, I think he has gone further than my original amendments on the subject and the Bill is considerably strengthened as a result. I am extremely grateful.

Perhaps I may add one quick word in support of Amendment 93 from the noble Lord, Lord Agnew. A very high number of the ACSPs are going to be authorised and regulated by HMRC, and it is an unfortunate truth that such regulation is not the principal function of HMRC. Accordingly, that regulation has been somewhat light-touch. I ask the Minister to reassure us that considering how HMRC carries out this role will be an important part of the forthcoming consultation on AML regulation? The only requirement to become an ACSP is to be regulated for AML, so we need to make sure that regulation is robust and that only genuine, suitable persons are therefore authorised.

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[Lord Johnson of Lainston (Con)]

My Lords, the amendments in this group relate to Part 2, which includes a number of reforms to prevent the abuse of limited partnerships. These measures are incredibly significant and will enable fundamental change in the transparency of limited partnerships while maintaining their crucial position as legitimate vehicles for doing business. They are the biggest changes to the legal framework for limited partnerships since the Limited Partnerships Act 1907.

We must keep in mind that limited partnerships, including Scottish limited partnerships, facilitate legitimate and important commercial activity. They are used across the UK in a variety of sectors, particularly in the private equity and venture capital industry, as well for a variety of other purposes, such as oil and gas exploration and production and real estate.

The measures in the Bill were formulated after several rounds of consultation to deliver the right balance of more transparency without undermining the use of these structures by legitimate business. The British Private Equity and Venture Capital Association reports that, in 2021, £17.3 billion was invested into UK companies from private equity and venture capital, with nine in 10 investments directed at small to medium-sized enterprises. We do not want to disrupt this activity, nor the 2 million or so people who are employed by companies backed by private equity and venture capital who use these vehicles.

Before I turn to the government amendments, it may be helpful to clarify a few points about the structure and principles of limited partnerships. These are business associations made up of one or more general partners who are responsible for the management of the partnership, and one or more limited partners who cannot partake in management and whose liability is limited to the amount they invest. In the Bill, to achieve more clarity over limited partnerships and those who have influence and control over the partnership, the Government have rightly focused on creating more transparency over the partners, and specifically the general partners. The Bill already ensures that, in future, we will know the names, addresses and dates of birth of all partners in a limited partnership, and all of this information will need to be confirmed at least annually. It is important to have these points in mind before we turn to the amendments tabled by my noble friend Lord Agnew.

In the meantime, I have a handful of minor government amendments to Part 2, which concerns limited partnerships—Amendments 58, 59, 60 and 61. These are required, in the most part, to correct drafting errors, by adding missing definitions and removing ones which are not essential. Amendment 60 is a minor change to the information that has to be delivered by general partners of a limited partnership when they give their annual confirmation statement. It means that a notice changing a general partner’s registered officer must be delivered at the same time as a confirmation statement, if the registered officer is not ID verified. I beg to move.

[Lord Agnew of Oulton (Con)]

My Lords, I shall speak to my Amendments 63, 69 and 70. Again, I am grateful to my noble friend the Minister for his engagement and for his detailed letter to me recently to allay many of my concerns.

The Bill goes a long way to deal with the opacity of LLPs and LPs. It is very important that we regard them as similar in the level of transparency needed as we would consider for a company. We know there have been plenty of examples in the past where they have been used as a front for a lot of very bad activity.

I am not going to press my amendments today, and I thank my noble friend the Minister for his amendments. He has said to me that the Government plan to bring forward some work very soon after the Bill. I would be quite interested if he could just give us some sense of the timescale for this work. His brief said:

“Following Royal Assent, the Government intend to bring into force provisions to require a company director to be a natural person, with limited exemptions for corporate directors”.


If my noble friend could give us a timeline for that, I would be most grateful.

Amendment 58 agreed.

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I welcome the government amendments on trusts and I also strongly support Amendment 89 on trusts from the noble Lord, Lord Agnew—but I will leave him to speak to that.

[Lord Agnew of Oulton (Con)]

My Lords, I shall speak to my Amendment 73A, which I apologise is a late manuscript amendment, with two supporting amendments. This is not in any way a change of the wording of my original Amendment 89, but I apologise to my noble friend the Minister that this was tabled only at around lunchtime today as I was only alerted by the Public Bill Office very late last night.

To remind noble Lords what I am worried about, which this amendment seeks to deal with, the amendment requires Companies House to publish information about trusts obtained in the newly created register of overseas interests that is not available for scrutiny. Nearly half of all trusts now registered with Companies House are shown to own assets anonymously. That is the background, and we heard just now from the noble Lord, Lord Vaux, about the so-called lacuna which is being advertised brazenly by large firms of solicitors—I have seen the same briefing notes and these are not back-street operators. That is the picture today.

My noble friend the Minister has tried very hard to deal with this within the limitations of his department, let alone his own ability to influence what seems to be a very entrenched position across government. But the amendment that he is proposing simply does not cut the mustard because it talks about “may” use a power—not “will”, “can” or “does”, but “may”. The other concern is that it then talks about a consultation, but we know that consultations are the oldest trick in the book, frankly, for kicking cans down the road, so I do not get much reassurance from that.

I also have practical concerns also about how the—albeit improved—access to the register is likely to work in a practical way. We have seen with HMRC how badly it works at the moment, and it is very hard to get information. It seems that, under the new regime, we might be able to get information only one request at a time, which means that it will be impossible to get a full picture of what is going on, so you will not be able to carry out large-scale investigations to uncover wrongdoing.

I do not like to put forward a sour note, because I know how hard my noble friend has worked on this Bill and in his engagement with all noble Lords, particularly me, but I really feel that, as my noble and learned friend Lord Garnier said in Committee, we can register as much as we like, but if we cannot see what is inside then the whole thing is a futile exercise. I ask my noble friend the Minister to reconsider. I am afraid I am minded to divide the House on this, unless I hear something convincing.

[Lord Wallace of Saltaire (LD)]

My Lords, I am neither a lawyer nor a company formation specialist although, in a career as an international policy researcher, I have not only dealt with the Crown dependencies and some of the overseas territories but also spent some time in conferences with senior Swiss bankers, from which I benefited both from learning an enormous amount about their charm and discretion and from eating a number of wonderful meals.

In opening, the Minister said there will be nowhere to hide; the noble Lord, Lord Vaux, has said there will be always somewhere else to hide. At present we are engaged in doing our best to make it more difficult, and as difficult as possible, to hide who owns what, particularly when they are overseas, in the expectation that we will never succeed entirely in catching everyone because the cascade abilities of trusts in one place, partly owned by trusts in somewhere else, will always defeat us in some instances. We on these Benches will support Amendment 72 and Amendment 89 if it is pressed.

The statement that the Government will consult further on how to ensure that these measures can be used to maximise transparency is encouraging, but I share the limited scepticism expressed by the noble Lord, Lord Agnew, of how far that will take us when we are involved in this rather important Bill. We are in support of the maximum possible transparency. We know that the purpose of a great many overseas trusts is precisely to conceal, and we wish to extend that transparency as far as possible. Therefore, we on these Benches will support these amendments.

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Moved by

[Lord Agnew of Oulton]

73A: Clause 162, page 150, leave out line 34

[Lord Agnew of Oulton (Con)]

My Lords, I am most grateful to the Minister for his response to my opening comments on this amendment. However, I remain very concerned. I shall make four very quick points. I am very conscious that people want to get home; I was told we had to wrap things up by 7.30 pm, and we will not be far off that.

First, we already know how the register is working, as we have had real-life experience over the past year. Just to give noble Lords an idea of it at the moment so we know what needs to be improved, it is already possible to request information from HMRC if a trust is based outside the UK and the EEA. However, HMRC can provide this information only if it relates to very specific types of trust. Astonishingly, an overseas trust that owns an overseas company that holds UK land is not required to register with HMRC’s Trust Registration Service, so the information cannot be requested. We know that is happening now.

Then we can move beyond that. We talk about interested parties having access, and the Minister talks about widening that access, but we need to see how it has been working in reality. Transparency International has so far made six requests to HMRC for information under the Trust Registration Service. Every single one has been rejected. The reasons given were: “The trust is not required to register”; “The trust may not have registered”; “The details you have provided did not allow us to match a trust; “The trust may be registered but it is not covered by the data”; “The trust may be registered but is not recorded as having a controlling interest”; and “However we cannot confirm which specific reason or reasons apply”. That is how it works at the moment. I cannot see why the Government cannot improve that without a consultation.

I also reject the Minister’s comments on confidentiality and his assumption that this is about a completely open register for anybody to get any information. We repeatedly said at Second Reading and in Committee that there are many legitimate people who deserve confidentiality. The example I use is of a female popstar who buys a house. She does not want fans on her doorstep. There are people escaping bad experiences in other countries and so on. What the consultation should be about is transparency but what exceptions would exist for those who are legitimate in seeking them.

Let me sum up why I am so worried about a consultation. I take very seriously the commitments given to me by my noble friend, and I thank my noble friend the Chief Whip who took time to meet me a couple of hours ago and intervened to try to get some strong reassurances in the Bill. However, I say for those who have not been a Minister that the way consultations work in government is that if it is not primary legislation, there is a thing called a write-round. Round it goes to every department, but guess who sits at the top of the top trump game? It is our friends the Treasury. Having been a Treasury Minister for two years, I can offer the House three examples of why I do not think it will—

[Noble Lords]

No!

[Lord Agnew of Oulton (Con)]

Okay, I will not. I shall give one example, which is golden visas. Golden visas were known for five or more years to be a conduit for bad money into this country. Everybody knew that, but it took the Treasury five years to finally close that loophole. That is why I do not like the idea of a consultation. I would like to test the opinion of the House.

Economic Crime and Corporate Transparency Bill

Lord Agnew of Oulton Excerpts

Report stage
Tuesday 27th June 2023 Lords Chamber

[Lord Agnew of Oulton (Con)]

My Lords, I do not seek to press this amendment. I merely say that the fraud plan, which my noble friend the Minister worked so hard on, has produced a list of some 74 commitments. I certainly am not going to add to the agony of the House and list them; all I ask my noble friend to do is to ensure that there is a mechanism for his department to track the progress of all these commitments. In aggregate, they would entirely change the landscape, but if they are not pursued, we will not move forward.

[Baroness Blake of Leeds (Lab)]

Amendment 128 in the name of my noble friend Lord Coaker has a straightforward, clear ask: within a year of the Bill passing, the Secretary of State must publish a report on economic crime and investigation. It must include the performance of the framework for investigating crime, et cetera, and an assessment of the roles of the Serious Fraud Office in particular. Important elements mentioned in the amendment include the adequate resourcing of staff and the strategy for fees, which we have discussed elsewhere.

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Moved by

[Lord Agnew of Oulton]

129: After Clause 202, insert the following new Clause—
“Civil recovery: costs of proceedings
After section 313 of the Proceeds of Crime Act 2002 insert—“313A Costs orders(1) This section applies to proceedings brought by an enforcement authority under Part 5 of the Proceeds of Crime Act 2002 where the property in respect of which the proceedings have been brought has been obtained through economic crime.(2) The court may not make an order that any costs of proceedings relating to a case to which this section applies (including appeal proceedings) are payable by an enforcement authority to a respondent or a specified responsible officer in respect of the involvement of the respondent or the officer in those proceedings, unless—(a) the authority acted unreasonably in making or opposing the application to which the proceedings relate, or in supporting or opposing the making of the order to which the proceedings relate,(b) the authority acted dishonestly or improperly in the course of the proceedings, or(c) it would not be in the interests of justice.””Member’s explanatory statement
This extends the cost cap for civil recovery cases beyond Unexplained Wealth Orders. Part 5 of the Proceeds of Crime Act permits the recovery of criminal assets where no conviction has been possible. For example, because the individuals avoided conviction by remaining remote from the commission of the crimes but were beneficiaries of them, or having fled the country. It retains safeguards on costs for improper action taken by prosecuting authorities.

[Lord Agnew of Oulton (Con)]

My Lords, I shall be very brief. First, I thank my noble and learned friend the Minister for his active engagement on this; he knows how strongly I feel about it.

We have a complete mishmash on the principles of cost capping at the moment. For example, cases taken in the magistrates’ courts have cost capping, as do cases taken by the SRA. However, we do not have cost capping for the most important of all: those large cases where the enforcement agencies are trying to take on big-time oligarchs.

The only other thing I would say is that we have heard about Bill Browder tonight. I have spoken to him a lot over the past few months. He said, “The one clause you must get through in this Bill is the one on cost capping”. I beseech the Government to listen to us on this and bring forward a clause on cost capping.

[Lord Faulks (Non-Afl)]

My Lords, I rise briefly to support the noble Lord. Two key themes emerged from our lengthy debates on the Bill. The first was that the scale of economic crime is a major threat to the prosperity of the country. The second was that there is a significant inequality of arms between the enforcement authorities and the perpetrators of economic crimes. I could weary the House at length but I will not do so. This is an attempt to redress that inequality and not provide a disincentive for the authorities to pursue the perpetrators of economic crime.

[Lord Bellamy (Con)]

My Lords, unfortunately, the Government are not able to accept this amendment, although we are sympathetic to the points made by my noble friend Lord Agnew. The amendment is designed to protect public authorities from having costs awarded against them if they fail to recover the proceeds of economic crime under the Proceeds of Crime Act.

First, the Government are not persuaded that public authorities that lose their case should be protected in this way. Secondly, this is a major breach of the general principle applied in civil litigation in the High Court that the loser pays.

Thirdly, it is a major interference with the discretion of the court on the question of costs. Fourthly, if such a change were to be contemplated, it should be a matter for the Civil Procedure Rules and not something inserted without detailed reflection on Report in your Lordships’ House. Fifthly, it would produce even more inconsistency than allegedly we have already. I do not accept that there is material inconsistency, but you would have one rule for some POCA cases and another rule for other POCA cases, because not all POCA cases are economic crime cases.

However, the Government are prepared actively to consider a consultation to properly consider this matter and the evidence with a view to ensuring that there is a correct balance of justice and the proper consideration of the pros and cons. That, very briefly, is the Government’s position.

I will briefly deal with one or two points. This is not like unexplained wealth orders, which have been mentioned. Those are an investigative procedure and not determinative of civil rights and obligations. In some respects, the UWO procedure is closer to a search warrant than to a recovery of money in civil litigation. It does not provide an analogy to the present case.

It is true that there are various costs regimes in various cases. It is probably not useful to weary your Lordships with particular decisions, but it is not without interest that in the case of Pfizer and Flynn, which involved the Competition and Markets Authority, the authority lost at first instance and was ordered to pay some of the costs. The Court of Appeal overturned that on the basis that it did not want to have the “chilling effect” of public authorities having to pay the costs when they lose litigation. However, the Supreme Court restored the original judgment and said, “This so-called chilling effect is only one factor”. In other words, it is not decisive. You must consider in that jurisdiction all the factors. The Government draw from that case that the so-called chilling effect is not necessarily decisive, and that one must have a regime that enables the court to balance all the relevant effects.

With all respect for the motives behind it and the concerns that have been expressed, this amendment is too blunt an instrument to be a proper exercise of primary legislation in an area which very much calls for balanced consideration under the Civil Procedure Rules. As I said at the outset, the Government are perfectly prepared actively to consider reform of the Civil Procedure Rules with that aim in mind.

I hope that I have persuaded your Lordships that this is not an occasion to make an exception to the well-established rule that has stood for hundreds of years, whether it applies to HMRC, the National Crime Agency or the FCA. If they make a complete Horlicks of a case, there is no reason to let them off the costs. That is the Government’s position.

[Lord Agnew of Oulton (Con)]

I thank my noble and learned friend the Minister for his answer. He has always been entirely consistent, and I respect that. We have a genuine difference of views. English law has plenty of exceptions to the landscape which my noble and learned friend has set out—for example, when local authorities bring cases following the Booth case, law enforcement bodies when they bring cases in the magistrates’ court, the Law Society when it brings disciplinary action, its prosecutions that fail following the Baxendale-Walker case, and the Competition and Markets Authority, where the Competition Appeal Tribunal can rule in its favour when it is unsuccessful in bringing a case.

There are plenty of examples. I am not seeking to make the perfect the enemy of the good. We can bring this in with this Bill. It would send a very powerful signal. I seek to test the opinion of the House.

Economic Crime and Corporate Transparency Bill

Lord Agnew of Oulton Excerpts

Consideration of Commons amendments
Monday 11th September 2023 Lords Chamber

[The Minister of State, Department for Business and Trade (Lord Johnson of Lainston) (Con)]

My Lords, I shall also speak to Motions B, C, D and D1. I thank noble Lords for their extraordinarily high level of constructive input over the last few days as we have come to this point. I believe that together, across the House, we have created a truly powerful piece of legislation that will have a meaningful impact on how Companies House operates, how we deal with financial crime and how we make our system safer and cleaner.

I should declare my interests. I have interests in limited companies and other companies, but I do not believe there is any conflict of interest in this process today.

Motion A relates to Lords Amendment 23, tabled on Report by the noble Lord, Lord Vaux of Harrowden, which would require members of all UK companies to declare whether they were 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. We have been in conversation over the last few days about that amendment. While we understand the intention to tackle what we perceive to be an industry of nominee service providers prone to acting unlawfully, I am afraid we do not believe that the amendment is the appropriate way to achieve that goal.

However, the Government, via Motion A, have therefore tabled Amendments 23B and 23C in lieu of Commons Amendment 23A. I hope that is making sense to the noble Lord. The new amendments allow the Secretary of State to make regulations to make further provision for the purpose of enabling a company to find out who its PSCs are—that is, people of significant control—in cases where shares are held by a nominee. That could include, among other things, imposing further obligations on companies to find out if they have nominee shareholders and, if so, for whom they are holding shares, or imposing further obligations on nominee shareholders to disclose their status and for whom they are holding shares.

It is important that we make it clear that the reason for tabling the new amendments rather than accepting the noble Lord’s revised amendment is that we are slightly wary of imposing disproportionate burdens on business. There are a vast variety of nominee types which we need to make sure we have taken into account when ensuring that we are getting the right information from the right types of nominees. As I have said to the noble lord—at this Dispatch Box, I believe—the commitment in principle to try better to understand the route between the nominee and the beneficiary is an important one. We want to do it in the right way, and these amendments would give the Secretary of State the powers to do that. I hope that the noble Lord can agree that that is the right approach to take and, assuming that is so, can support the Government in this new amendment and consider withdrawing his own.

I turn to Motion B.

[Lord Agnew of Oulton (Con)]

My Lords, I apologise to my noble friend the Minister. I had been told that I needed to address my Motion D1 while Motion A was under discussion. I am very happy to wait but those were the instructions I had from the Table. Would anyone like to clarify?

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[Lord Vaux of Harrowden (CB)]

My Lords, I hope that Motion A1 is clear. Before I start, I remind the House of my interest as a non-practising chartered accountant.

On Report, your Lordships agreed Amendment 23, which included a requirement that shareholders should have to state whether they are holding shares on someone else’s behalf and, if so, on whose behalf they are holding them. This requirement was rejected, as we have heard, by the other place. Motion A1 aims to reverse that, while trying to take on board some of the matters raised in debate in the other place. If I may, given that the debate we had in this House was now some months ago, I will briefly remind the House of the issue that that amendment was trying to resolve.

One of the easiest ways to hide the true identity of an owner of a company is to use a nominee—somebody whose name will appear on the register of members but who is in fact acting under the instruction of and for the benefit of the actual beneficial owner. A substantial industry has grown up to provide these nominee services. There are of course legitimate reasons for using a nominee, such as an asset manager holding and managing a range of shareholdings, but it is quite revealing to do a Google search of nominee shareholding services.

A near-endless list of such services appears, and these services are usually sold very clearly as being primarily about creating anonymity for the true shareholder. Let me quote from one of them:

“The beneficial owner may choose to appoint a Nominee Shareholder because they do not want to register the shares in their own name. A Nominee Shareholder is a great way to keep shareholder information away from public records”.


Another one states:

“In the United Kingdom, the purpose of using nominees is confidentiality. Because of the confidentiality requirements, owners are reluctant to associate themselves with beneficial ownership, and the practice of nominating shareholders will hide their association”.


Most nominee service providers market their services in the same vein. A few of them refer to the PSC—persons with significant control—rules or to anti-money laundering in the marketing literature, but they are very much in the minority. As I said, there are legitimate reasons for holding shares through a nominee, but not wanting to register the shares in their own name and keeping shareholder information away from public records are not legitimate reasons. In fact, that is precisely what this Bill is trying to stop.

The amendment originally passed by this House was intended to strengthen the Bill to prevent the misuse of nominees to hide the true ownership. I continue to believe that this is a very real issue and, as a result, I have tabled Motion Al, which tries to reintroduce the original amendment, but changed to reflect some of the reasons for rejecting it made in the other place—in particular, the question of undue burden that the Minister referred to a moment ago.

However, since I tabled my Motion A1, I am very pleased to say that the Government has tabled Amendment 23C within their Motion A. It shows that they now recognise that there is a genuine issue here and, in particular, that the enabling industry needs to be incentivised to clean up its act. I especially welcome the fact that proposed new subsection (2)(b) will specifically allow the Government to impose obligations directly on those who act as nominees. The real flaw in the current rules is that those enablers face no real risk at all when acting as they do. I hope that this specific mention in the Government’s Amendment 23C will cause the nominee industry to take note and clean up its act, in the knowledge that if it does not, it will face regulation.

While I would have preferred to have taken action now and introduced something in the Bill, the fact that the Government recognise the issue and are proposing a regulating power to deal with it is most welcome. I very much welcome the commitments made by the Minister a moment ago. I thank him and, given that and what he has just said, I will not press Motion A1. I thank him and his officials for their continuing very constructive engagement, which has been the case throughout the Bill. I look forward to seeing the proposed regulations before too long—he will know that I will not be dropping the issue until we see the regulations.

I shall also comment very briefly on Motion C, which moves an amendment passed in this House that aimed to fix an anomaly in the register of overseas entities, which is that it has to be updated only annually. First, I point out the reason given by the Commons:

“Because it would alter the financial arrangements made by the Commons, and the Commons do not offer any further Reason”.


That, frankly, is totally inadequate and nonsensical in this case. It has to be updated only annually. Other registers, such as the register of persons with significant control, have to be updated within 14 days of any change being identified. This anomaly means that the register of overseas entities can be up to a year out of date at any time. That introduces the risk that an innocent part might unknowingly find themselves entering into a transaction with a sanctioned person, for example.

Unfortunately, because of the way the register works in conjunction with the registration of property, this all becomes extremely complex. I thank the Law Society for its helpful and constructive engagement in many meetings over the Recess to try to find a solution to this. While we did find a possible way through, it was so convoluted as to be impractical—so I am not going to oppose the removal of this amendment, even if the issue it was trying to solve remains real.

The register of overseas entities is still in its early stage. While it has been successful up to a point, as I am sure we are going to hear from the noble Lord, Lord Agnew, there are still many properties the ownership of which is, at best, unclear. I am very pleased to hear the commitment the Minister made in his speech just now that they will keep this anomaly of annual updating under review. In the meantime, I caution any person who is buying or selling property from or to an overseas entity, or who is entering into a lease over a property with an overseas entity, to require it to be a condition of the transaction that the entity’s entry in the register is updated immediately prior to the transaction completing. Only by doing that can the innocent party know who they are actually transacting with. With that, I beg to move.

[Lord Agnew of Oulton (Con)]

My Lords, I shall speak in favour of my Motion D. I am grateful to my noble friend the Minister for his ongoing dialogue with me as we grind to the end of this Bill: he has been patient and courteous, as ever. My problem is that the Government continue to say one thing and then do something different. Just to remind noble Lords, the reason I pressed my original amendment was that a gaping hole had opened up in this newly created register of overseas interests. It is barely a year old and we have more than 50,000 properties owned by an entity whose beneficial owners are withheld from public view. That is approaching one-third of all entries. It is rapidly becoming the default advice from cute law firms to their overseas clients to use a trust structure that is opaque.

In rejecting my original Commons amendment, the Government claimed refuge behind the principle of financial privilege. This is bizarre, if not worse, but in a spirit of collaboration I will not use the word that I had planned to use. The costs to Companies House of publishing trust information are estimated on the back of an illusory envelope at between £600,000 and £2.8 million—a figure supported by absolutely no methodology—but under the Bill, Companies House funding is going to rise exponentially. The current filing fee of £13 will rise to anywhere between £60 and £90 if the guidance we have been given is followed. Taking the bottom-end number, £60 means an increase of £47 a year times 4 million companies, or £188 million a year, against this odd figure of £600,000 to £2.8 million. Even if the higher filing fees deterred some company creation or dissolution for non-viable entities, the additional cost, frankly, is a rounding error. Indeed, if the Government were to approach this logically and calculated that as a transparency cost, it would be around about 70p per registered company per year, or about 1.25%.

I give this example only because I continually worry that I get very clear assurances from the Minister but the actions taken by the Government are rather different. I accept through gritted teeth that we cannot debate that amendment as I was blocked from tabling it. This leaves us with a much watered-down proposal to try to hold the Government to account to get on with the consultation they say they need to ensure that there are no legal challenges. The Government have accepted that they need to start straightaway, in this calendar year, but they do not yet accept the principle of my proposed new subsection (2) that the consultation includes the principle of public access to protected data on a bulk basis.

This sounds arcane, but it is crucial because currently HMRC is not providing the information when requested, and it can be requested only on a case-by-case basis. As I have shown, there are already more than 50,000 hidden owners where the public are being denied the information, so doing it individually is simply not practical. I have consistently said that those with a bona fide need for confidentiality should have it, but this would be a very small proportion of the 50,000.

On the terms of the consultation, there are a couple of elephant traps that the Government should be aware of. A few years ago, when the consultation was issued to tighten up the non-dom loopholes, the lawyers’ excuse for not tightening them up was that anyone who declared non-dom status should have a reasonable expectation that it should last in perpetuity. That sounds pretty sinister to me, but apparently that argument has already been rolled out to civil servants on the issue of more transparency with trusts. I warn the Minister to be alert because, as I understand it, civil servants have already expressed their compliance with this idea. I hope that we as politicians are still running the country, not the civil servants.

We have heard from my noble friend the Minister and he has given commitments, which I very much appreciate. However, I hope he understands why I am extremely nervous: what he says and what the Government do are not always totally aligned. I will take his words exactly as he says them, though, and I ask him to keep a very careful eye on this process over the next few months. I think he has learned enough about me to know that, for all my many weaknesses, one thing I am is dogged. We will keep a careful eye on this. On that basis, I will withdraw my amendment.

[Lord Eatwell (Lab)]

My Lords, I strongly support the amendment from the noble Lord, Lord Agnew. I do this as a former chair of the Jersey Financial Services Commission. In Jersey we made a major effort to increase the transparency of trust information so that beneficial ownership could be accurately identified. One of the inhibitions for cleaning up, if you like, the register in Jersey was the behaviour of the Government in the United Kingdom, and their persistent obfuscation of the way in which trusts were to be treated.

The amendment from the noble Lord, Lord Agnew, contains exactly the process that needs to be dealt with in a consultation. I understand the assurances he may have received and that he may feel it appropriate to withdraw his amendment, but I hope he proves as dogged as we know him to be in pursuing this. I assure him of my continuing support.

--- Later in debate ---

I respectfully submit to your Lordships’ House—and I will be testing the opinion of the House on this—that this amendment, once tidied up, would provide proper assistance to the agencies as well as proper protection, and would none the less provide an appropriate safety valve in case of circumstances where justice needs to be done.

[Lord Agnew of Oulton (Con)]

My Lords, I rise briefly in support of my noble friend Lord Faulks on this amendment. I am particularly grateful to him; I was involved in the earlier amendments, but I realised that it needed a premier division lawyer rather than a second division entrepreneur to get this through.

In our discussion with Ministers, we were often told that the enforcement agencies did not want this; that seemed disingenuous to me. I now have some information. For example, law enforcement agents have shown a strong appetite for cost protection and civil recovery. The chief capability officer of the Serious Fraud Office told the economic crime Bill committee that the SFO would like to see this, while the head of the National Economic Crime Centre told the same committee that they found cost protection “an attractive proposal”. I do not think that is a searing insight. Spotlight on Corruption has identified 60 high-risk cases, with the potential of £1 billion of frozen assets, and the chilling effect is palpable among them.

I respectfully disagree with the Government on this. I am grateful to my noble friends the Ministers who have spoken several times to all of us, but I think they are on the wrong side of logic.

[Baroness Noakes (Con)]

My Lords, I have some very real concerns about the impacts of the new failure to prevent offence on small and medium-sized entities. If my noble and learned friend Lord Garnier’s Motion E1 is agreed to, I think it could be very significant. I believe that the other place was wise to restrict the offence to larger companies only. Setting the threshold at the micro-entity level would still leave very many small and medium-sized entities within the scope of the offence.

I did try to find out how many companies would be affected. My noble friend the Minister said 450,000 companies would be brought within the net of the offence. According to Companies House statistics, around 3.1 million active companies filed accounts last year. Of those, 1.6 million were for micro-entities, and would therefore be excluded, but 1.4 million were for small companies that took advantage of the audit exemption. That, very broadly, is the group of companies that would benefit from the changes made by the other place; it is obviously rather more than 450,000. Whatever the number, there will certainly be regulatory costs for those companies, whether 450,000 or 1.4 million. My noble friend the Minister has given his estimate of what those costs will be. I have never placed much faith in estimates made by Governments of the direct costs of regulatory burdens that Governments try to impose. I generally put a multiplier against them to arrive at a more realistic figure.

However, I believe the most important cost is the opportunity cost that is imposed by regulation. Every time a new regulation is imposed, the people who run small businesses have to spend time away from thinking about their core activities, which should be wealth-generating. Every moment spent thinking about whether they have reasonable prevention procedures in place, or implementing those procedures, is a moment spent not thinking about how to grow the business or how to make it more profitable. Large companies have specialists to cope with all this. Small businesses often have no one beyond the proprietor of the business itself, but they are the very people who are supposed to be spending their time growing their businesses, thereby helping the UK economy to grow—and my goodness me, do not we need growth in our economy?

The cumulative effect of incremental regulation on individual businesses is huge, as any small businessman will tell you, but the cumulative opportunity cost for those businesses of missing out on that growth, and the impact that will have on UK plc, simply cannot be ignored when we are looking at any form of legislation that imposes burdens on businesses. I urge noble Lords to accept the pragmatic solution that the other place has put forward.

Economic Crime and Corporate Transparency Bill

Lord Agnew of Oulton Excerpts

Consideration of Commons amendments
Wednesday 18th October 2023 Lords Chamber

[Lord Faulks (Non-Afl)]

My Lords, I shall speak to my Motion B1, as an amendment to Motion B, which is being debated within this group. It would

“leave out from ‘House’ to end and insert ‘do insist on its disagreement with the Commons in their Amendment 161A, do not insist on its Amendment 161B, to which the Commons have disagreed for their Reason 161C, and do propose Amendment 161D in lieu’”.

That is very clear.

We return to what has been described as a cost-capping amendment. Since this is not the first time that we have had the debate, I will try to be brief. This Bill has been a welcome, if late, addition to the government agencies in their fight to combat fraud. The scrutiny of the Bill through your Lordships’ House has been thorough and constructive. It has also been non-party political. I do not think that either the noble and learned Lord, Lord Garnier, or I would consider ourselves to be natural rebels.

All noble Lords have participated in this debate—and I very much include the Ministers in this—with a common purpose: to make this legislation as effective as it can be. Two themes emerged during the many debates. The first was the scale of the problem. The Government estimate, for example, that £100 billion was laundered through the United Kingdom last year, and yet under the Proceeds of Crime Act assets of only £345 million were recovered: that is 0.3%. The second theme was the frequent imbalance that exists between the resources available to enforcement agencies and those of the fraudsters, who may well employ expensive lawyers and have significant resources to enable them to do so. This modest amendment tries to do a little to restore that balance. I would have liked the enforcement agencies to have had complete protection against costs orders in the event that they lost a recovery claim, but in the course of ping-pong I have had to compromise somewhat, hence the form of the current amendment before your Lordships’ House.

The amendment does not prevent a judge from doing what is fair on costs in any particular case, but it is a nudge towards him or her to take into account the reasonableness of the agency bringing proceedings at all and the potential impact on its ability to carry out its functions if left with a substantial costs order. I struggle to understand the Government’s objection to this amendment and its predecessors; they seem, with respect, to be adopting a somewhat tender approach to fraudsters.

There is a clear precedent for this sort of amendment: when your Lordships’ House introduced a provision concerning the much-underused unexplained wealth orders. If it loses a case, the enforcement authority will have to pay costs only if it has acted unreasonably. As to the objection that it offends the “loser pays” principle, that is a misconceived argument. Judges regularly, in ordinary cases, make orders that each side bear their own costs, or make issue-based costs orders, or other orders which reflect the justice of the individual case. Parliament has legislated in ways that depart from this so-called principle: for example, QOCS—that is Qualified One-Way Costs Shifting—in personal injury litigation; or by Section 40 of the Crime and Courts Act; or in relation to unexplained wealth orders. This amendment is intended to reduce the possibility of an agency saying to itself, “We cannot afford the risk to the budget if we lose a case, even when we’ve got good evidence to bring it”.

Spotlight on Corruption suggests that a number of cases are in the pipeline which bear costs risks. These are said to include over 60 cases being reviewed by one agency, and close to £1 billion in assets frozen by an enforcement body.

Another advantage to this amendment is that those defendants or respondents to an application who defend these cases will know that, even if their legal strategy prevails, they may not recover their costs. This may mean that they are keener to reach a compromise.

The amendment has the support of all those bodies that are concerned with anti-corruption. Incidentally, it also has the support of Bill Browder, who regards it as one of the most significant potential improvements to the Bill. Let us please not kick this into touch and have yet another report, which is the Government’s suggestion. If necessary, I will move Motion B1 and test the opinion of the House.

[Lord Agnew of Oulton (Con)]

My Lords, I support both Motion A1 and Motion B1. I turn first to my noble and learned friend Lord Garnier’s Motion and offer three reasons why I believe the Minister is completely wrong.

First, the smallest SMEs include some of the most unscrupulous enablers. Take estate agents, for example: they are a conduit of bad money into this country from all over the world. The gaps that the Minister is proposing to leave in the Bill will ensure that this continues. I have seen one case, for which I had to sign an NDA, of an individual who spent £150 million buying property but is apparently allowed to take only $12,000 a year out of the country. How did he manage that? That is a perfectly good example and no doubt we will hear more like it.

Secondly, on this set of rules, I offer the Minister an example. We do not say to the manufacturers of small cars that they do not need seat belts and that for some reason they are exempted. That would be an absolute nonsense and the same applies here. He mentioned costs—£300 million and £40 million—but they are entirely specious. We have seen no proper analysis of these figures; they are just waved around as a convenient excuse not to do something.

My last reason is that these smaller businesses need to be most alert to fraud. A failure to prevent helps them to make sure that their own systems are able to face these risks. We know that 40% of crime in this country is economic crime, but we deploy less than 1% of our resources on dealing with it. Surely smaller businesses should be equipped to know when they are dealing with crooks. I will have to support my noble and learned friend Lord Garnier if the matter is put to a vote.

In relation to the Motion in the name of the noble Lord, Lord Faulks, we again pursued this relentlessly for six months. Bill Browder said to me on several occasions that, if this Bill is to go through, we must make sure that we have some cost capping in it. It is a war of very unequal proportions. We know that the agencies have small budgets and that they have to go cap in hand to the Treasury if they need more money, which is never given. They even have to return the costs they recover to the Treasury. All this is doing is sending a message to these bad actors that, if they take on this kind of behaviour, they will have significant risks. We have amended this on several occasions to give more discretion to the courts to ensure that, if an agency overreacts and behaves rapaciously or capriciously against individuals, those individuals are not penalised.

If we are serious about dealing with the tidal wave of economic crime that is coming to this country, the Minister will give us the assurance that this is being dealt with. If not, I will have to support the noble Lord, Lord Faulks, in his Division.

[Lord Wolfson of Tredegar (Con)]

My Lords, we have heard two different reasons for the proposed Motion from the noble Lord, Lord Faulks. He said that it was to give the courts a gentle nudge, but my noble friend Lord Agnew said that it would give fraudsters a significant warning that they might not get their costs. The same words cannot do both. The problem lies in the amendment being entirely unnecessary.

The previous version of the amendment said:

“The court should normally make an order that any costs of proceedings … are payable by an enforcement authority … unless it would not be in the interests of justice”.


We now have a list of factors—proposed new paragraphs (a) to (d)—but a court would always take those factors into account in its general discretion to make an appropriate costs order in a particular case.

My concern with this list is that it appears to be exhaustive and therefore does not include, for example, the result of the case or the effect on the successful party of not getting the legal costs which he has expended. I declare an interest as a lawyer, although not an expensive one in the category identified by the noble Lord. I therefore respectfully suggest that this amendment is entirely unnecessary. It reduces the discretion that we generally give the courts on matters of costs and omits factors that the courts should take into account in particular cases when considering costs. Therefore, I suggest that the House leaves this well alone and does not accept the amendment.