Economic Crime (Transparency and Enforcement) Bill

Lord Callanan Excerpts

2nd reading
Wednesday 9th March 2022 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

I start by thanking all noble Lords for their constructive engagement in advance of and during today’s debate, and for the support generally expressed for the swift passage of this Bill. The noble Baroness, Lady Jones, was right—she is occasionally—that this was a good debate with many insightful points. I would not go so far as to say that I enjoyed it but it was nevertheless a good debate. It has underlined the importance of taking action on the dirty money flowing through the UK, following Russia’s brutal and barbaric invasion of Ukraine. I totally agree with the noble Lord, Lord Coaker, that it is more important than ever to ensure that we have the powers we need to take swift action to tackle economic crime. In doing so, we should ensure that the UK remains the place for legitimate investment to flourish. I am confident that this legislation strikes the right balance.

I know that many noble Lords—the noble Lord, Lord Fox, in particular—have a strong interest in Companies House reform and limited partnership reform. So do I, as the Minister responsible for implementing these important policies. Let me assure the House that these measures will be included in a wider Bill in the coming months. They will come alongside new powers to make it easier to seize crypto assets from criminals and measures to provide businesses with more confidence to share information on suspected money laundering.

[Lord Eatwell (Lab)]

Will the Minister give way?

[Lord Callanan (Con)]

I may be about to address some of the noble Lord’s points about Companies House reform so let me finish this paragraph; if I do not address his points, I will come back to him, if that would be helpful.

I can say to the noble Lords, Lord Fox and Lord Coaker, and others that reform is already under way at Companies House. It has received £20 million for this financial year. A further £63 million was announced at the spending review. However, the full Economic Crime Bill will be very significant. I understand why noble Lords are questioning me about why it is not being included at this time; to be frank, it is purely a matter of drafting time. This will be the biggest change to our system of company registration in some 170 years—the biggest change to limited partnership law since 1907. Drafting has already begun and I can assure the House that we will bring it forward as soon as we possibly can in the next Session. I hope that what I have been able to say will provide some reassurance to the noble Lords, Lord Eatwell and Lord Coaker, the noble Baroness, Lady Jones, and the House as a whole.

[Lord Eatwell (Lab)]

Given the wide level of expertise evident in this debate, will the Minister commit to pre-legislative scrutiny of the new economic crime Bill? That would be the way both to exploit the talents available in this House and to ensure that the Bill, when it arrives on the Floor, will have a smooth passage.

[Lord Callanan (Con)]

Let me come back to the noble Lord on that. I certainly commit to full scrutiny of the Bill when it is ready, which I think the noble Baroness, Lady Chapman, also asked me about. It will not be emergency legislation; we expect it to have the full scrutiny of this House. I think that pre-legislative scrutiny would probably be a bit time-consuming; it is probably better just to bring the legislation forward, then it will get its full scrutiny. However, as I say, we are getting it drafted as quickly as possible. It is something like 150 pages of legislation so it will be substantial.

[Lord Fox (LD)]

About that: with many other Bills, the Government go out for consultation for six or eight months, redraft the Bill, then have two more White Papers. Then, sometime after three Christmases, we get the Bill. So, does “as quickly as possible” mean a few months or weeks? Are we looking at the latter half of the next Session, or are we looking at it being one of the first Bills to come out in the next Session?

[Lord Callanan (Con)]

I cannot win on this one: if I give too much time to pre-legislative scrutiny, for consultation et cetera, I will be criticised. I cannot give the noble Lord, a definitive time because, of course, it is not purely in my hands; it depends on parliamentary time, on the Whips, on the usual channels and on the availability of the House of Commons. It is certainly my intention to get it in front of noble Lords in a matter of months but I cannot be more specific than that. It will depend on when it gets drafted and when we can get parliamentary time. It is a firm commitment that we will bring it forward in the next Session—ideally towards the start of the next Session, if that helps the noble Lord.

I welcome the support from across the House, particularly from the Opposition Front-Benchers—I thank them very much. As I just said, I can reassure the noble Baroness, Lady Chapman, and the noble Lord, Lord Vaux, that the economic crime Bill will progress under normal procedures. I am sure there will be a full and detailed discussion about it. I will speak later to some of the points of the noble Baroness, and the noble Baroness, Lady Kramer. The noble Baroness, Lady Kramer, also raised the subject of the Crown dependencies. I can tell her that I spoke to the Crown dependency Ministers earlier today, just before I came in for this debate, and they are also fully on board with these measures, looking to help wherever they can and to progress similar measures in their own jurisdictions.

Moving on, many noble Lords, including my noble and learned friend Lord Garnier and the noble Lords, Lord Rooker and Lord Faulks, raised the legitimate question of why it has taken the Government so long to introduce the legislation. I can assure them it is not for the want of trying on my part; it is purely about the pressure on the legislative programme. They, as well as the right reverend Prelate the Bishop of Leeds, stressed the importance, and I totally agree, of stopping dirty money flowing from Russia and, indeed, other countries. This is not just about Russia. It benefits us in terms of Russia but, frankly, this reform is long overdue and it will also help us in the fight against money laundering from other jurisdictions. What matters is that, despite the long delay, we are now urgently bringing this legislation forward. We were planning to put this in the wider economic crime Bill but we decided to introduce these measures earlier, to put them into effect shortly. I am grateful for the support of the Opposition in doing that, and the wider economic crime Bill measures will follow in due course.

I take the opportunity to thank my noble friend Lord Faulks again, for all his work to develop the legislation and for some of the powerful points he made today. I reassure him that since we took the measure thorough pre-legislative scrutiny, we have been able to improve the legislation to reflect some of the pre-legislative scrutiny committees’ recommendations and to align it with the broader reform of Companies House, which I completely agree we need to do, to make the measure effective. I think the legislation as a whole will be more effective as a result of the scrutiny that has taken place. This has been central to ensuring the new requirements are workable and proportionate and that the register strikes the right balance between improving transparency and minimising burdens on legitimate economic and commercial activity.

I thank the noble Baroness, Lady Kramer, the noble Lords, Lord Hannay and Lord Vaux, and my noble and learned friend Lord Garnier for their points on the transition period. I think the noble Lords, Lord Coaker and Lord Fox, made similar points. Let me explain our logic on this. We have already reduced the transition period from 18 months to six months. I understand the importance that noble Lords attach to this, but it is important to remember that the majority of properties held via overseas entities will be owned by entirely law-abiding businesses and people. To give noble Lords an idea of the scale, we are talking about roughly 95,000 properties in England and Wales owned by some 32,000 overseas entities. It is a fact that only a tiny fraction of these are likely to be held by criminal or corrupt interests.

The transition period is an important protection for the rights of those legitimate owners of property and we have to be careful about interfering with individuals’ property rights, interference that could not reasonably have been expected when those rights over the properties within scope of the register were originally acquired. This legislation has considerable retrospective effects. We have to ensure that we are respecting those rights in a way that cannot be challenged—not least under human rights legislation. No doubt, those who wish to avoid these requirements and are able to afford expensive legal teams will take advantage of any opportunity to do so.

Many of the ultimate owners will be law-abiding British companies that have adopted these structures for legitimate commercial reasons. They could include real estate investment trusts, which are public companies whose core business is to manage and own properties that generate income, or particular pension schemes that hold land and properties. Others will be British nationals who have adopted the arrangements for legitimate reasons of privacy—a point made from the Cross Benches but I forget who made it. That may involve, for instance, celebrities who do not want their address to be known publicly.

As the noble Lord, Lord Fox, observed, I am aware of the strength of feeling expressed that corrupt people must not be allowed to sell up and escape the transparency that the register will bring. The Government see merit in requiring all those selling property to submit a declaration of their details at the point of transfer of land title during the transition period. This would mean that a zero-day transition period to provide certain information immediately would be given to anyone selling. They would have to register ownership if selling, and that way we either get their ownership details immediately or, if they do not sell, we get it at the end of the transition period but in a way that still protects legitimate owners. We are urgently looking at this idea and giving it some serious consideration, but we need to get the drafting right and legally watertight, so that it is workable, effective and achieves what we want to achieve. Officials are working on this at the moment and I hope to get the proposal to noble Lords for consideration before we reach Committee.

Although the register will not be operational immediately, we expect the measures to have an immediate dissuasive effect on those who are intending to buy UK property with illicit funds. I can assure the noble Lord, Lord Faulks, that work on implementing the new register will begin as soon as we have achieved Royal Assent, and we will look to have the new register in place as soon as practicably possible—as soon as this House is able to consider and pass the relevant statutory instruments, and when some of the other measures are put in place. I should also add in response to many of the comments that all conveyancers and estate agents are already required to assess transactions for money-laundering risks and to alert authorities about suspicious activity.

I turn to the question from the noble Baroness, Lady Bennett, on the retrospective application of the register. It will apply retrospectively, thereby compelling overseas entities to register if they have property bought since January 1999 in England and Wales and December 2014 in Scotland. Those dates have been selected because they relate to when jurisdiction of incorporation was originally required by Her Majesty’s Land Registry and the Registers of Scotland when registering title documents for land. This information has never been recorded by the Northern Ireland land registry, so we are unable to make any retrospection apply there.

As set out in the Bill, if a foreign company does not comply with the new obligations, every officer in default can face criminal sanctions, including fines of up to £2,500 per day or a prison sentence of up to five years. We have also included a power to make secondary legislation that can allow the registrar to impose financial penalties for non-compliance without the need for criminal prosecution. Critically, non-compliant overseas entities will face significant restrictions over dealing with their land. That is important because by their very nature, it might be difficult to impose criminal penalties on people who are overseas. But a restriction on them being able to deal with and dispose of their land will be particularly important because that will in effect prevent sales and render the property worthless.

I thank noble Lords and others who have made insightful and important points on the importance of robust supervision and the need to tackle the so-called professional enablers. Those noble Lords include the noble Baroness, Lady Bennett, the noble Lords, Lord Londesborough and Lord Cromwell, the noble Baroness, Lady Chapman, the noble Lords, Lord Faulks, Lord Carlile, Lord Thomas and Lord Rooker, and others.

The UK supervisory regime is comprehensive. The UK regulates and supervises all businesses most at risk of facilitating money laundering, including accountants, estate and letting agents, high-value dealers, trust or company service providers, the art market and so on. We strengthened the money laundering regulations in June 2017, thereby bringing UK legislation in line with the latest international standards. This includes requiring estate agents to carry out due diligence on both buyers and sellers of property.



To be very clear to the noble Viscount, Lord Waverley, any money obtained through corruption or criminality is not welcome in the United Kingdom, including that linked to Russia or other countries. That is why we are at the forefront of global action, spanning the operational, policy and diplomatic communities to target the money launderers and enablers who underpin corrupt elites and serious and organised crime.

[Baroness Kramer (LD)]

I am sorry to intervene, but perhaps the Minister could explain why, if there is such an effective system in place, we have a problem today. Surely there is a flaw.

[Lord Callanan (Con)]

This is what we are attempting to address in this legislation. We are trying to make the system as transparent as possible, to improve the action on unexplained wealth orders, et cetera.

[Lord Clement-Jones (LD)]

My Lords, the noble Lord has contradicted himself. He said that there was a robust system in place, but he has just talked about money laundering for enablers.

[Lord Callanan (Con)]

I said there was a robust system in place under the money laundering regulations in response to the various points that were made about financial services professionals, estate agents, et cetera. That is not to say that we cannot improve the system; we certainly look to do that. Providing information and transparency on property ownership, unexplained wealth orders and the sanctions regime, which is what we are doing, will help to supplement that system.

In July 2021, the CPS amended its legal guidance on money laundering offences for prosecutors to make it clear that it is possible to charge someone under Section 330 of POCA, which relates to the failure to disclose money laundering in the regulated sector. This closes a long-standing gap in law enforcement’s toolkit, which will better enable us to tackle the small minority of complicit professional enablers.

In addition, the Solicitors Regulation Authority—the largest legal PBS which supervises approximately 75% of regulated legal service providers in the UK—undertook a broad range of enforcement action in 2021. This included issuing 14 fines totalling £163,000, suspending membership three times and cancelling membership 13 times, effectively preventing an individual conducting regulated activity.

To take another example, the Institute of Chartered Accountants in England and Wales—the largest accountancy PBS—undertook a broad range of enforcement action. This included issuing 59 fines, totalling £178,000, and cancelling the membership of firms six times—again, effectively preventing an individual conducting regulated activity.

The noble Lord, Lord Carlile, suggested that we should consider how we can make legal professionals report matters relating to national security in a structured way and without the benefit of legal professional privilege. This is a complicated matter and not for this Bill, but I certainly welcome his contribution and his engagement, and we will certainly look at that.

The noble Baroness, Lady Kramer, raised an important point on protecting whistleblowers. We recognise how valuable it is that whistleblowers are prepared to shine a light on wrongdoing and believe that they should be able to do so without fear of recriminations. The whistleblowing regime enables workers to seek redress if they are dismissed or suffer detriment because they have made a so-called protective disclosure about wrongdoing. It is right and proper that the Government review the whistleblowing framework once we have had sufficient time to build the necessary evidence of impact of the most recent reforms. We are considering the scope and timing of a review.

A number of noble Lords—the noble Lord, Lord Macdonald, in particular— raised an important point concerning the wording “knowingly and recklessly”. The wording is drafted on precedent, coming from the Companies Act. This clause is intended to provide a necessary and proportionate deterrent to those who may otherwise provide inaccurate or misleading information on the register of overseas entities. This was debated at length in the other place and the Government have already made a commitment to reconsider the drafting. I also welcome the comments of the noble Lord, Lord Macdonald, on the sanctions proposals.

The noble Baroness, Lady Kramer, and the noble and learned Lord, Lord Garnier, asked about the issue of the register and trusts. If the assets are owned via an overseas legal entity, then this entity is within the scope of the draft Bill and will be required to register the trustees as beneficial owners with Companies House and state the reason that they are the beneficial owner—that is, because they are the trustees of that trust.

Her Majesty’s Revenue and Customs introduced a register of trusts in 2017. Trustees of trusts that acquire UK land or property are required to register and provide information on the beneficial ownership of the trust. The information on the register can be shared with law enforcement authorities and enables them to access information on the trustees and beneficiaries of all trusts. Reforms to unexplained wealth orders will also allow law enforcement to investigate the origin of any property held via trusts.

I now turn to the points raised by the noble Lords, Lord Vaux and Lord Eatwell, on verification. Clause 16 requires the Secretary of State to make regulations requiring the verification of information before an overseas entity makes an application for registration, complies with the updating duty or makes an application to be removed from the live register. To ensure that regulations are laid in a timely way, we have added a requirement for regulations to be made before applications may be made for registration in the register of overseas entities. We expect that UK anti-money laundering supervised professionals may have a part to play in this, and we will set out details on the verification scheme in regulations. Overseas entities will be required to update their information annually, and Companies House will be given broad powers to query information it holds via the further legislation to come later in the year. Also, the very public nature of the register means that there will be many eyes viewing the data, which will of course aid in identifying any inaccuracies. I thank my noble and learned friend Lord Garnier for his comments on whether we are capturing the ultimate beneficiaries of property. This is an important point.

[Lord Vaux of Harrowden (CB)]

The Minister has not answered the question about why the register is updated annually, not 14 days after a transaction in the way that the PSC rules have to be updated.

[Lord Callanan (Con)]

I will come to that in a second. The new register is designed to allow investigators to get behind opaque companies. Whether a title is held by a company or an individual, the noble Lord is right that there may be a different beneficiary of the property. That is something investigators may explore further. The task of this register is to look through the company, and that is where we are focused in scope. The question of recording the ultimate beneficiaries of property is a far wider point and would apply to properties held by individuals and UK companies too.

I thank the noble Lord, Lord Carlile, for sharing his experiences with Companies House. We have outlined in the White Paper, published last week, what we are proposing to do under register reform. We are seeking to limit the risk of the misuse of companies by ensuring more reliably accurate information on the companies register, reinforced by identity verification of people who manage or control companies and other UK- registered entities. We will give greater powers to Companies House to query and to challenge the information it receives, and we will give enhanced protection of personal information provided to Companies House. There will be more effective investigation and enforcement and better cross-checking of data with other public and private sector bodies. Companies House will be able to proactively share information with law-enforcement bodies where they have evidence of anomalous filings or suspicious behaviours.

I move on to unexplained wealth orders. I thank the noble Baroness, Lady Chapman, the noble Lords, Lord Vaux and Lord Carlile, and my noble and learned friend Lord Garnier for the points that they raised on the use of UWOs. The threat of substantial legal costs has been a barrier to the use of UWOs. Likely subjects of UWOs are the most litigious persons. To ensure that unexplained wealth can be investigated in the maximum number of cases, we are reforming the cost rules to ensure that agencies will not be burdened with high legal costs if they act with integrity. If an agency acts dishonestly, unreasonably or improperly, it may still be ordered to pay the costs of those subject to a UWO, which is to ensure fairness. An important point to raise regards the changes to the cost rules to limit law-enforcement liability following an adverse court ruling. Protection from costs means that the court has discretion to award costs against an enforcement agency only if it acted dishonestly, unreasonably or improperly. This will remove a key barrier that has discouraged the use of UWOs, while of course providing a safeguard against arbitrary use of the powers.

The noble Lords, Lord Vaux and Lord Carlile, expressed concerns relating to resourcing for law enforcement agencies. The Government have developed a sustainable funding model that demonstrates our commitment to tackling economic crime. The combination of this year’s spending review settlement and private sector contributions through the levy will provide economic crime funding totalling around £400 million over the spending review period. That includes the £63 million that I mentioned earlier for Companies House reform. Since 2006-07 nearly £1.2 billion of the assets recovered under the Proceeds of Crime Act has been returned to law enforcement agencies, prosecutors and the courts to fund further asset-recovery capability or work that protects the public from harm.

Account freezing and forfeiture orders are a hugely impactful tool in the law enforcement toolkit. AFOs have proved their worth in a wide range of cases and are seen by law enforcement agencies as a quick and effective method of disrupting criminals and recovering their assets. In 2020-21 just under £219 million of the proceeds of crime were recovered within England, Wales and Northern Ireland. This continues the general trend of improved performance since 2016-17.

The noble Baroness, Lady Kramer, raised an important point on Clause 18 of the Bill and the exemptions for which it provides. The phrase used in the draft Registration of Overseas Entities Bill, published in 2018, was that the Secretary of State may exempt a person from the requirement to register only for “special reasons”. This was intended to mirror the wording used in the Companies Act 2006 in respect of the persons with significant control regime. However, the pre-legislative scrutiny committee that examined the draft Bill in 2019 was of the opinion that the reasons why an exemption could be granted should be explicit in the Bill. The Government accepted the committee’s concern that otherwise the power may be too wide, and we amended the Bill accordingly—I think that also addresses some of the points made by the noble Lord, Lord Carlile. The circumstances outlined in the Bill have been carefully considered to provide clarity but also flexibility for unforeseeable but legitimate scenarios. Given that the key objectives of this register are to improve transparency and combat money laundering, these exemptions will be used very carefully, and only for evidenced and legitimate reasons.

The noble Baronesses, Lady Bennett and Lady Kramer, raised the subject of freeports. Throughout the bidding prospectus and subsequent business-case processes, prospective freeports were required to set out how they would manage the risk of illicit activity. Those plans were scrutinised by officials in Border Force, HMRC, the National Crime Agency and others. The Government already require each freeport governance body to take reasonable efforts to verify the beneficial ownership of businesses operating within the freeport tax site and to make that information available to HMRC, law enforcement agencies and other relevant public bodies. Given the nature of the information, we do not think it would be appropriate for the freeport governance body to release that information publicly because it is a third party and does not have the locus to release such information about a business to the public. Furthermore, the requirement would also partially duplicate the people with significant control register at Companies House, where there is already an onus on the company itself to provide information.

I fear that I am running out of time—

[Viscount Waverley (CB)]

My Lords, I apologise. Would the Minister consider this as a subject for the upcoming Commonwealth Heads of Government Meeting in Kigali? Will he represent the Government in fully engaging with all Commonwealth countries, including the Overseas Territories, so as to encourage the English-speaking world to understand fully all these measures, because they should all engage with this, and we do after all share a common judicial system?

[Lord Callanan (Con)]

I am sure we will want to engage with all other parts of the world, not just the English-speaking world, through the Commonwealth Heads of Government Meeting. We will want to engage with as many countries as possible to see that this regime is extended.

I apologise; there were a number of other points made that I wanted to answer, but I have run out of time. However, I shall pick up one point made by the noble Lord, Lord Empey, about Northern Ireland. We are working with Northern Ireland Ministers on the devolved matters in the Bill. As he will be aware, due to the ongoing situation with the Northern Ireland Executive we are unable to formally seek a legislative consent Motion, but the noble Lord can be assured that we would not proceed without the support of Northern Ireland Ministers. I have had meetings with Ministers from Northern Ireland and from Scotland to discuss this matter.

I know I have not addressed some points, but I am sure we will examine them in Committee. I have already been speaking for 30 minutes, the hour is late and the Chief Whip is getting unsettled, so I will draw my remarks to a close. We have to respond to this illegal invasion and the Bill enables us to do so. We need to rid this country of dirty money, and I am greatly encouraged by the support given to us by all parts of the House. I apologise for taking a long time over my response, but I commend the Bill to the House.

Bill read a second time and committed to a Committee of the Whole House.