Economic Crime and Corporate Transparency Bill

Lord Coaker Excerpts

Committee stage
Thursday 20th April 2023 Grand Committee

[Lord Johnson of Lainston (Con)]

I greatly appreciate the comments from the noble Lord, Lord Fox; I am so glad that he said that. I do not mind if some friction is sometimes required in order to make sure that the messages are heard loud and clear. I am glad that the noble Lord has reaffirmed his position, that of his party and that of the main opposition party. We all agree on this, but it is important because I was picked up on it today. It sounds as if we are at war with a legitimate sector and the legitimate concept of how to structure companies, which are at the very core of our capitalist system and have created so much wealth for us. I am glad that we are united on this point.

I was asked by the noble Baroness, Lady Blake, about the number of entities that have registered with the register of overseas entities. I have a figure of 27,000, which represents a high level of compliance. I hope that figure satisfies her request, but I would be happy to publish further figures or to answer her in writing on that.

[Lord Coaker (Lab)]

I will just reinforce the point that the noble Lord, Lord Fox, made. To be honest, I do not think the Minister was implying that we were condemning the whole of business, but the noble Lord, Lord Fox, made an important point. The Committee is trying to say that, overall, we all support the Bill but we want to ensure that it is effective, understandable and enforced. In challenging the Government, we seek not to undermine business but to improve what most of us regard as a reasonable Bill.

The only other point I make to the Minister is that—I think we all accept this—public opinion is frustrated about what it sees as a lack of action in respect of certain bad business practices, such as the laundering of money. Lots of fraud and economic crime takes place but is not seen as a priority by the state—irrespective of whether you mean Labour, the Liberal Democrats, the Conservatives, the Scottish nationalists or whoever—which does not take this seriously. I suggest to the Government that, if I were a government Minister, I would parade much more powerfully than the Government have done that we are trying to ensure that public anger is assuaged by the fact that we are no longer prepared to see Russian money used in the way it has been nor to see bad practice, which means, frankly, that good business is undermined.

This is the point made by the noble Lord, Lord Fox. Good businesses, which represent the majority of the country, want something done about bad business because it undermines them. This is a really important point; I think it is the point that the Minister was trying to make. This is a good Bill but it needs to be improved. From what he has said to us, I think the Minister will take on board many of the comments that have been—and will be—made and change the Bill. But it is also about saying, “Of course the majority of business is good, but there is bad practice out there and it needs sorting out”. Good business wants that to happen as much as members of this Committee do.

[Lord Wallace of Saltaire (LD)]

My Lords, as I said in moving this amendment, our concern is around the Bill, when it becomes an Act, having the resources and the international co-operation structure to make it effective.

The Minister talked about exchanging information, but there is also the question of enforcement. If we are trying to enforce on someone who is based in the UAE, Panama or Singapore—let alone Hong Kong—these things are not easy. We all recognise that since 1989 a number of mistakes have been made. This Government—and this country under different parties in government—made a succession of mistakes in our handling of Russian money as it came into the country. Many of those mistakes have now been corrected, but we have to admit that we did not handle this very well and we now find ourselves in a situation in which other financial centres are extremely difficult to investigate. One looks at the Wirecard scandal, for example. One of the world’s major accounting firms failed to discover that a substantial chunk of the assets that Wirecard was declaring, which were alleged to be in Singapore and Malaysia, did not exist.

Clearly, the need for active exchanges between Governments, central banks and others is vital in this situation. That is what we are trying to ensure happens. Yes, it is a small number of companies, but it is not a small amount of money. That, therefore, has to concern us if the Bill is to be a useful reform and a worthwhile Act.

I remind the Minister that that the FATF grey list at the moment includes the Cayman Islands and Gibraltar, as well as the United Arab Emirates, Turkey and a number of other countries with which we have close ties. I am conscious that 100,000 British citizens now live in the United Arab Emirates, many of whom are actively engaged in the international financial industry. That has to be a matter of concern to us. Not very long ago, some in the House were talking about the activities of UAE intelligence services with regard to UAE nationals on British soil. There are a great many difficult issues that we have to cope with here. We also understand that this situation is not static. The communications revolution has already made the transfer of money around the world much faster than it was 10 to 20 years ago, and we need to keep up with that.

I should have mentioned another OECD initiative that is related to economic crime, on base erosion and profit shifting. It is concerned with tax evasion, which I include as part of economic crime. That is another area in which Governments are beginning to co-operate. It is very difficult to gain co-operation. The entire British Government are not always as keen on co-operation as some parts are, because some departments naturally have different interests from those of others. I raised the question of Whitehall co-ordination and where its leadership sits, and it probably needs to change, as it just has in America, because the nature of the problems we face is also changing.

I withdraw my amendment, but I hope that these conversations will continue. I express our shared concern that legitimate international finance will prosper and that aspects of international finance that are illegitimate will be carefully monitored and prevented.

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[Lord Coaker (Lab)]

My Lords, I do not know whether the amendments from the noble Lord, Lord Agnew, are flawed but, if I followed them correctly, Amendments 75 and 76 in particular seek to put a human face on limited partnerships, so that at list one partner is a natural person and they are not all corporate entities.

Before I make a couple of general comments about that, can I ask the Minister a question? I could not make out from the various debates I have read about this whether the Government are saying that they will look at it in secondary legislation or that they are not going to do it. I will be corrected if I am wrong, but I thought I had read that the Government are intending to require this, but by secondary legislation.

I do not think it is adequate to require this by secondary legislation. What the noble Lord, Lord Agnew, alighted on goes to the point made earlier by the noble Lord, Lord Vaux, which has run through all the Committee—namely, who is the ultimate beneficiary? Who, in the end, gains from these various business practices? The most obvious way around that is to require a human face or somebody who is actually real.

The Minister, who is a businessman himself as well as a government Minister, said that he understands the importance of keeping public opinion on side. The public have lost trust in business from the many ways in which bad business is conducted. We had debates earlier about trusts and about privacy, and I think the Minister disappointed the Committee by saying that this was not the place for a debate about privacy and that that would be for a further debate.

The Minister is saying that the amendment from the noble Lord, Lord Agnew, is flawed because this will be dealt with through secondary legislation. My view is that it is of such symbolic importance that, somewhere along the line, the Bill requires a human face. I know that this is in respect to limited partnerships, but I think the noble Lord, Lord Agnew, has alighted on quite an important point. We continually go back to this: how do we get transparency, restore public confidence and hold bad businesses to account? How do we overcome the fact that large numbers of people, including me, think that trusts, corporate entities, limited partnerships, et cetera, are in some instances set up to hide what is actually going on? That is something that the amendment from the noble Lord, Lord Agnew, is trying to do. Ultimately, it makes a human face, somebody who is a Mr, Ms, Mrs or whatever, responsible for this aspect of business. They will be held to account.

I say to the noble Lord, Lord Agnew, that there is nothing flawed about making at least one partner in a limited partnership a natural person. It is a really important statement about how business ought to operate, which should be required not through secondary legislation but in the Bill, to show how the Government intend to ensure that we have proper business practice that is consistent with the will of Parliament. One of the ways of doing that is to ensure that, instead of some faceless bureaucracy somewhere, however it is dressed up legally, we actually have an individual who can be held to account.

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[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.

[Lord Coaker (Lab)]

If somebody fails to comply properly with registering their PSC, that is a criminal offence, as I understand it. Can the Minister confirm that failing to register the PSC properly is a criminal offence? Secondly, what are the penalties for that offence?

[Lord Johnson of Lainston (Con)]

I am going through a slightly different point in this amendment, if the noble Lord will forgive me. I can confirm that it is a criminal offence. There is a published tariff that varies according to jurisdiction. If noble Lords do not mind, we will present that. I believe that there might be sections of the criminal tariffs in the Bill, but it is important as this is criminality. Perhaps one of the noble Lords in the Committee will be able to extract the tariff from the Bill but I will certainly write to noble Lords. They are significant penalties and fines; it is more than six months in prison in some jurisdictions. It depends on whether it is tried in Scotland and so on. I do not have all those details to hand but we will clarify that.

This is very serious. Criminality in the corporate world is an important element of what we are trying to prevent. As noble Lords know, we will discuss the “failure to prevent” principles in the next day of Committee. It changes significantly, as has been seen to be successful, in jurisdictions such as the United States of America. As the noble Lord has raised before in terms of public participation in our belief in a liberal, democratic, property-owning capitalist system, it is felt that, if we do not punish the perpetrators of financial crimes and it is felt that they are getting away with it, through either their being unable to easily prosecuted or their not being punished severely, it brings the system into disrepute and causes significant long-term philosophical and societal damage.

We look across the Atlantic at the United States and feel that it takes a different view. Financial crime is treated there as serious and significant crime, and commensurate penalties go with it. The case of Madoff was raised, where the initial tariff was a pretty significant landmark sentence—many hundreds of years, if I am not mistaken. It was certainly over 100 years or close to it, which obviously shows the principles by which that country approaches this point. While we are not operating under similar tariffs, it is important that we see criminal acts in financial crimes as significant. The tariffs around that need to reflect it, but I am happy to provide further information.

Perhaps I may finish this piece, because I hope it is relatively straightforward and that Committee members will be reassured by what we are doing. We will not support this amendment and I will ask the noble Lord to withdraw it, but the principles around making sure that we have transparency and identifiable actors in corporate structures are clearly made.

On the case of the two month-old married individual who was registered as a beneficial owner of the entity that my noble friend Lord Agnew cited, the point actually raised is that it has been recorded. It will certainly now be possible, if not essential—to some extent, with a situation as significant as that, it should have been possible—that Companies House now investigates that type of registered entry. I raise that in the sense that we are trying to ensure that the information is provided, which will set off alarm bells and allow for inquiry. We cannot prevent people from false entry. What we can do is to ensure that the penalties are there to discourage it, the investigative powers and data-scraping are sufficient to enable us to pursue it, and the data we have is clean and clear.

I do not have too long to go on these two amendments, if noble Lords will indulge me. I wish to stress to my noble friend Lord Agnew 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 this Bill which will achieve exactly that. The Bill includes a range of measures that will make it mandatory—I restate this—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 will be required to have their identities verified. The PSC regulations apply to certain legal entities, including incorporated bodies such as companies and LLPs, and are about exposing who controls them. This can be otherwise unclear, given the corporate structure of those entities. While companies and partnerships share many similar characteristics, they are nevertheless fundamentally different. A limited partner, for example, does not have voting rights in the way that a shareholder does and, unlike an LLP, there is nothing in law which would force a limited partnership to have a written partnership agreement—I think this dates back to the 1880s—though many will have one.

As I have said, partnerships in England, Wales and Northern Ireland are registrable business relationships, not separate legal personalities. As such, they cannot be beneficially owned in the same way that companies and LLPs can. It would take a fundamental review of partnership legislation more broadly to apply beneficial ownership-style transparency measures to English and Welsh, and Northern Irish, limited partnerships in the way that my noble friend intends. For these reasons, I ask my noble friend to withdraw his amendment but I am very comfortable about discussions to ensure that he and any other members of the Committee are comfortable that what we are doing achieves these ends.

Amendments 75 and 76, also tabled by my noble friend Lord Agnew, would require limited partnerships and limited liability partnerships to have at least one partner who is a natural person. The Government consulted extensively on the reforms to these corporate structures. It was clearly found that corporate partners can be a legitimate and critical part of certain UK fund structures, allowing them to operate effectively. While I understand the intent of these amendments and share the desire to tackle opaque chains of corporate partners in partnerships, as with companies, having discussed the principles of these structures, it is difficult to suggest that now would be an appropriate time to make such a change.

Clause 144 already contains powers which will enable restrictions to be placed on corporate partners, as with corporate directors of companies. However, limited partnerships and limited liability partnerships have very different corporate structures to companies. Therefore we must have careful consideration and consultation is needed before any restrictions are made.

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[Lord Fox (LD)]

I thank the Minister for introducing his amendments. I broadly support them from these Benches. I note, not churlishly, that this again boosts what Companies House knows but not what it publishes. I make the point again that perhaps the default position should be the other way around.

I particularly welcome Amendment 77K. Consultation with the Scottish and Northern Ireland Governments is an important feature of what should happen.

My noble friend Lady Bowles of Berkhamsted co-signed two of the amendments and, were she here, I am sure that she would have something important to say in addition to what the noble Lord, Lord Vaux, said, but I do not. However, I have a memory of history which the Minister did not experience because he was not here at the time—namely, the process we went through to pass the precursor to this Bill.

The reason why many of us stayed our hands on this issue at the time was that the Government intended to put this through in two days: one day in the Commons and one day in the Lords. We went through all the processes in one day. The passing of amendments would have seriously jeopardised that process and none of us on opposition Benches, the Cross Benches or indeed the Government Benches wanted to do that. The Government made one or two changes to the Bill on their own account, but the promise was that, come this Bill, we would have the opportunity to revisit some of those issues.

To accommodate the point made by the noble Lord, Lord Vaux, the noble Lord, Lord Callanan, was pretty explicit about the opportunity we would have in this Bill to have the debate. That is why we are having this debate and why we all have some expectation that the Minister should be able to help us along these lines.

[Lord Coaker (Lab)]

My Lords, I will very briefly support the remarks made by the noble Lords, Lord Faulks and Lord Fox, and the amendments tabled by the noble Lord, Lord Vaux. I look forward to the Minister’s response.

I also broadly welcome the Minister’s amendments. I have just one question, on Amendment 77L, to which I am sure there is an easy answer. It says:

“In this Schedule ‘the relevant period’ means the period … beginning with 28 February 2022 … ending with 31 January 2023”.


How were those dates arrived at?

[Lord Johnson of Lainston (Con)]

I appreciate the input of all noble Lords in this Committee. That period comprises the implementation, when the Act came into force, and the compliance date. Effectively, the law announced that you had to be compliant by a certain date. There is a seven-month lead-in time and the Government are concerned that people used that time to avoid the date at which they have to declare. We are, in effect, backdating the transparency, which is very sensible. I hope the noble Lord supports that.

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[Lord Johnson of Lainston (Con)]

I appreciate that comment; I had not thought about that. We have not done a government impact assessment that could be published, such as the ones relating to the trade Bills that I have worked on, but if we can provide useful feedback on how we have come to some of our conclusions it would be helpful to do that. I would have thought that, in the lead-up to this, noble Lords would have made inquiries from some of the key sectors to gain good information from them, as we have.

I know for a fact that not every element, clause or amendment has been specifically consulted on because that would be impractical but, broadly speaking, we have received a great deal of information, as I understand it. My noble friend Lord Leigh’s amendment, on the publication of auditor changes, which we discussed earlier, came from our consultation with whatever august body of auditors it was that we discussed. As all noble Lords here know, I am comfortable being as open as possible. However, if I may, I will bring us to a conclusion because I would like to finish our last piece of business today, without a cost to democratic scrutiny.

I will attend to the comment from the noble Lord, Lord Vaux, about Amendment 77AA. I refute his point that this information can be a year old because that cannot be the case. The application for removal must contain information about the state of affairs at the date of the application. I do not mean to be pugnacious, but I believe that I am correct in saying that, in terms of removal from the register, the information that the noble Lord wishes to see—as we do—to prevent exactly the sorts of things that he is talking about will be there. I am very happy to double-confirm after the debate that, broadly speaking, I am right in my commitment. I would not like to give false promises, but the assumption—I have been reassured by officials during this debate—is that we are in line.

[Lord Coaker (Lab)]

May I just make one point about process? I think my noble friend Lord Ponsonby made this point earlier, and we have just heard it again. On quite a large number of occasions the Minister has said that he will write, provide reassurances, come back to Peers, and share letters, information, how various conclusions have been arrived at and what consultations there have been. I know that the Minister and his officials will do that but, to help move us to Report, I ask them to reflect on how to do all that in as short a period of time as possible to allow those of us who want to to consider what happened in Committee and the various conclusions. That is important so that we have a manageable Report and we deliver the sort of Bill that we want.

[Lord Johnson of Lainston (Con)]

I am grateful to the noble Lord for those points. As I have made clear, I hope noble Lords do not think that I am kicking the can down the road.

[Lord Coaker (Lab)]

I honestly do not think that the Minister is doing that; I was just trying to stress to him the importance of that process.