Economic Crime and Corporate Transparency

Lord Cromwell Excerpts

Committee stage
Thursday 27th April 2023 Grand Committee

[Lord Macdonald of River Glaven (CB)]

My Lords, against the extraordinarily high rate of fraud offending, we have to set the fact that fraud is the most under-prosecuted offence within this jurisdiction. There is no doubt about that, and no doubt that people in the country understand it, are aware of it and are extremely angry about it, particularly victims of this crime. I would hazard a guess that virtually everybody present knows at least one person who has been the victim of a fraud that has not been prosecuted; I know several. That is a lot of people who are not getting justice—on both sides of the transaction, I might say. I therefore welcome this amendment but I am disappointed that SMEs have been carved out, largely because, on the Government’s own figures, no less than 99.9% of businesses in the UK are SMEs. That is a significant statistic when we are considering the size of this carve-out and the impact it is likely to have on the Government’s objectives.

Some comparisons have been made with the Bribery Act 2010, specifically Section 7, and the “failure to prevent” offence in that legislation. Similar arguments about SMEs were made during the debates that led to that legislation, including the claim that if SMEs were included within it then that would impact on their ability to export. I am sure these are the sorts of arguments the Government have in mind when excluding SMEs from this legislation—that somehow it would be too burdensome for SMEs, some of which, to most of us, are very large companies indeed. So it is germane that in 2015, the government survey of SMEs and the impact of the Bribery Act on them found that nine out of 10 had no concerns or problems whatever with the Act, and that 89% felt it had had no impact on their ability to export.

As the Committee has heard, when your Lordships’ House undertook post-legislative scrutiny of the Bribery Act, it concluded that there was no need for any statutory exemption for SMEs from the Act. The Law Commission similarly received submissions arguing that SMEs should be excluded from corporate liability reform. It disagreed and did not recommend any statutory exemption for SMEs. Furthermore, government research on SME adoption of preventive procedures in relation to the Bribery Act found that the average cost for an SME was £2,730, with medium-sized enterprises spending an average of £4,610. These are tiny figures that could not conceivably justify exclusion of SMEs from this legislation on the basis that it would be too burdensome for them. Points have already been made about the extent to which the Government are encouraging the placing of public procurement contracts with SMEs, and that is also highly significant.

Since the noble and learned Lord, Lord Garnier, has raised the question of prosecutorial discretion—it seems only yesterday that he was Solicitor-General, but that may be a sign of my age as much as his— I say in support of him that the amendment as drafted places a great deal of discretion at the disposal of prosecutors. The defence set out under new subsection (3)(b) is:

“It is a defence for the relevant body to prove that, at the time the fraud offence was committed … it was not reasonable in all the circumstances to expect the body to have any prevention procedures in place”.


That is a potential carve-out that would deal with any problem or concern the Government have that the amendment’s impact might be disproportionate on SMEs. For all the reasons I have set out, I do not believe that it would be. I believe the real effect would be to leave whole swathes of business activity completely unaffected by this legislation so that, in effect, fraud would continue—disgracefully, in my view—to be an under-prosecuted offence.

[Lord Cromwell (CB)]

The noble and learned Lord, Lord Garnier, referred earlier to making feeble jokes. Anyone who was here on Tuesday heard my feeble joke for this year, so the Committee will be relieved to know that I am not going to make any more.

I agree with all the previous speakers that the idea of creating a legal cliff edge, with whole, untouched schools of fish swimming in the sea below the cliff, is both problematic and fundamentally pointless. I agree with the noble Lord, Lord Agnew, and the noble Baroness, Lady Morgan, about enablers; we will be coming to that issue later, and it is a real concern. To me, it is rather like saying that SMEs do not need to worry about health and safety or do not need cyber security, and only the big firms do. Both those assertions are patently nonsense, but that seems to be the flavour of what we are faced with here with this cliff edge. I hope the Committee enjoyed my analogy about the fish.

[Lord Sandhurst (Con)]

I apologise for not speaking to the Bill at Second Reading. I was unable to take part because I could not commit to be at both the start and the finish that day. I hope noble Lords will forgive me. I declare my interest as a member of last year’s Select Committee, chaired so ably by my noble friend Lady Morgan, who is sitting beside me.

I shall speak to all the amendments in this group, which are directed globally at the failure to prevent fraud. Some of what I will say now will be relevant to what I will say in respect of Amendments 91 and 94, when I shall be much briefer. It is much easier to get the whole thing over at this point.

Amendment 84A is a start, but I am afraid it is an inadequate start. I wonder, with all respect, whether the Government actually read carefully and understood our committee’s substantial report. The committee heard a welter of evidence from everyone across the whole gamut. It was absolutely plain to us that a vast amount of fraud is happening and nothing is being done.