Criminal Finances Bill

Lord Eatwell Excerpts

Committee: 2nd sitting (Hansard): House of Lords
Monday 3rd April 2017 Lords Chamber

[Lord Eatwell (Non-Afl)]

My Lords, I regret that I did not have the opportunity to participate in the Second Reading debate on this Bill as I was abroad. I have, however, read with care the record in Hansard, in particular those speeches by noble Lords who referred to the matters under consideration in this group of amendments. I wish to speak to Amendment 169 and do so because I have a particular interest to declare. I am the chairman of the Jersey Financial Services Commission. The company register in Jersey, which maintains the register of beneficial ownership, is a division of the Financial Services Commission and hence Amendment 169 refers to matters which are my direct personal responsibility.

I should say at the outset that I will not comment on the main issue of this debate, which is whether a register should be publicly available, other than to comment on the claims by Her Majesty’s Government that link public availability to effective verification. The issue of public availability is a political matter. The JFSC is an independent regulator; that is, it is independent of the political authorities in Jersey and hence the question of public availability is not a matter for me. What is a matter for me is subsection (4) of the proposed new clause in this amendment which states that,

“‘a publicly accessible register of the beneficial ownership of companies’ means a register which, in the opinion of the Secretary of State, provides information broadly equivalent to that available in accordance with the provisions of Part 21A of the Companies Act 2006”.

It is of course this information that forms the basis of the register at Companies House. I regret that this subsection reflects a serious lack of relevant understanding of the issue of reliability both of the Jersey register of beneficial ownership and of the Companies House register of People with Significant Control. Reliability depends upon verification, whether the information is true or false. The Panama papers were so successful in revealing ill-doing because they happened to contain information that was broadly true. I am afraid that this is not the case in the Companies House register.

Jersey has maintained a register of beneficial ownership since 1989. Initially, the legal requirement was for a statement of beneficial ownership when a company was first registered. That statement had to be updated when there was a change in circumstances amounting to a 25% change in ownership. Today, the requirement is for regular updating. At this very moment a detailed survey of beneficial ownership is under way to provide a complete picture of the state of affairs on 30 June this year. Thereafter, it will become a requirement to update information in Jersey on a 21-day limit when information is available.

This information is subject to detailed supervision and verification. For example, trust companies are required under the money laundering order to obtain and maintain beneficial ownership information. Client files are checked on supervisory visits to ensure that they have done so. Record-keeping failures are subject to enforcement action with failures resulting in individuals being banned from the industry and firms being subject to significant remediation. As was noted earlier, the Jersey register is available to all relevant authorities, including the National Crime Agency’s financial intelligence unit, and in the next year or so will be available in real time. In addition to current procedures, an annual validation process on beneficial ownership and control is to be introduced in 2019 to replace annual company returns.

Jersey not only maintains a detailed register of beneficial ownership, but subjects that register to detailed supervision and verification. Compare this state of affairs with the UK’s register of People with Significant Control. Almost all UK companies are required to maintain registers of people with significant control, known as PSCs. This information is maintained on the Companies House register and is available publicly through the Companies House website. But note: Companies House carries out no noticeable verification of the information provided. It certainly does not in terms of annual returns or regular confirmation. Companies House has always seen itself as a repository of information—a library, if you like, but not a regulator. Of course, company formation agents are often used in the UK and they are subject to anti-money laundering supervision by Her Majesty’s Revenue & Customs. However, I understand it is standard practice for such agents to argue that setting up a company is a one-off transaction and thus exempt from anti-money laundering requirements. So HMRC does not verify either.

Just as in Jersey, it is of course an offence to submit false information to Companies House and a company will commit an offence if it does not declare its beneficial ownership information accurately. But I am afraid that enforcement of this offence is akin to the enforcement of the offence of not putting the ball in straight at a rugby scrum. The consequences for the UK register are well known. For example, an investigation in November last year by the organisation Global Witness noted that with respect to the UK register there were,

“2,160 beneficial owners born in 2016. Now either these are a very precocious bunch of toddlers or the data has been entered incorrectly”—

there is no verification. It continued:

“We also had people who listed 9988 as their year of birth—clearly a visitor from the future”.


It will not surprise noble Lords that the UK register has been the subject of some criticism, notably in the recent consultation on the fourth money laundering directive. Referring to such criticism in the consultation, Her Majesty’s Treasury argued:

“Some responses argued that consideration should be given to the accuracy of data on the PSC register, and the benefit of introducing verification measures in the incorporation process conducted by Companies House. The government is confident that maintaining one of the most open and extensively accessed registers in the world is a powerful tool in identifying false, inaccurate, or possibly fraudulent information. With many eyes viewing the data, errors, omissions or worse can be identified and reported. This means that the information held on the register can be policed on a significant scale by a variety of users. Ongoing consideration is being given as to whether this could be complemented by any additional measures”.


With all due respect, this is just wishful thinking. It amounts to saying that it is the responsibility of civil society to find out for itself what the structure of beneficial ownership might be, because our register is unreliable. Unearthing the reality of beneficial ownership requires the advanced skills of a financial services supervisor or, as I have learned, a forensic accountant. The deliberate provision of false, inaccurate or possibly fraudulent information is to deceive the authorities and civil society. We are not talking about simple mis-registration of a date of birth; it is false information which is the key. It is fanciful to suppose that many untutored eyes will identify clever fraud. I regret to say that, as a regulator, it is my personal opinion that Her Majesty’s Government’s unwillingness to verify the register of PSCs is a dereliction of regulatory duty.

Indeed, it is evident that, in reality, Her Majesty’s Treasury has no confidence in the Companies House register. In the draft regulations published by Her Majesty’s Treasury for the implementation of the fourth money laundering directive, Regulation 28 sets out the requirements for a firm to carry out due diligence on its customers. In doing so, Regulation 28(9) states that firms,

“do not satisfy their requirements … by relying only on the information … contained in … the register of people with significant control kept by a company under section 790M of the Companies Act 2006”.

In other words, Her Majesty’s Treasury will not accept information taken from the register at Companies House as fulfilling any due diligence responsibility. It does not believe the register.

Given that Her Majesty’s Treasury clearly regards the Companies House register as inadequate, I would be grateful if the Minister would tell the House what are the current conclusions of Her Majesty’s Government’s “considerations” as to whether the Companies House register will be verified. When will the UK produce a register that can be believed in?

To return to the main point, I hope that it is now clear that proposed new subsection (4) in Amendment 169, which calls for information in Crown dependency registers to be “broadly equivalent” to the Companies House register, would result in a major deterioration in the quality of the Jersey register. The amendment calls for the replacement of information that is subject to detailed and regular supervisory scrutiny with information that is not verified at all. I hope that, on this basis, noble Lords will not press their amendment, having been made aware of the damage that it would do to the cause of the availability of accurate and verified information on beneficial ownership.

[Lord Naseby (Con)]

My Lords, it is always a pleasure to follow the noble Lord, Lord Eatwell. I apologise to the noble Baroness for not hearing the totality of her speech.

I shall not repeat what the noble Lord has just said. He cited in particular Jersey. I declare an interest as vice-chairman of the All-Party Group for the Cayman Islands, and I necessarily had some discussions about this Bill. I also have a member of my family working in the Cayman Islands. As to verifying beneficial ownership, which is what we are primarily talking about here, the situation in the Cayman Islands is that it has been a legal requirement there for 10 years now, and the authorities do verify the accuracy of the information that is given, in contrast to what the noble Lord rightly says about UK Companies House, which is basically a self-registration system. That is clearly nowhere near comparable to the norm in the best of the overseas territories.

Criminal Finances Bill

Lord Eatwell Excerpts

3rd reading (Hansard): House of Lords & Report stage (Hansard): House of Lords
Tuesday 25th April 2017 Lords Chamber

[The Earl of Kinnoull (CB)]

My Lords, I declare my interests as set out in the register of the House and, in particular, that I was chief executive of a class 1 major reinsurer in Bermuda for a number of years and have very wide experience of financial services in that country and generally.

I pay tribute to the Minister and also to the noble Baroness, Lady Stern, in their respective ways. I am afraid that I can pay tribute to the noble Baroness, Lady Stern, but I disagree with her fundamentally. While I feel that the appalling catalogue of problems that she read out is terrible, worrying, vile and awful, Amendment 14 is not a good way of addressing the issue. She challenged me to try to provide a better way, and I will in the course of my remarks.

People often do not understand how big a jurisdiction Bermuda is. Bermuda overtook London as a centre of reinsurance in 2004. London remains number two in the world. No major insurer in this country would be able to trade without the reinsurance that it purchases from Bermuda. The amount of money, capital and sophistication in Bermuda is enormous. The BMA—the chief regulator there, of which more in a second—is an extremely professional and very tough regulator. Bermuda was not responsible for even one of the revelations in the Panama papers and is a very clean jurisdiction, and it is particularly unfair that it is named in this amendment.

I have four particular points, on two of which I can be very quick. The first is a general point about interference by Westminster in the affairs of these self-governing regimes. I agree with the Minister, and I will say no more. The second is a general point about shifting the problem to another jurisdiction. I agree that shifting a bad thing is a good thing in many ways, but shifting a good company is a bad thing because you are simply damaging the jurisdiction. There are many good companies, and I will explain in a second why this amendment would have the effect of shifting good companies. It would be very wrong for us to impose damage on our loyal overseas territories and possessions.

My third point is about the three things that control and look at naughtiness in financial services, which are the tax authorities, the police authorities and the regulators. As a chief executive of a big company, of course one is worried by tax authorities and policemen, but the person who can walk into your office and stop you trading immediately is the regulator. He has the most power, and he is the toughest. I regret that in the many debates we have had the power of regulators has not really been discussed, nor has how sophisticated they are and how close they are to what is going on. It is not possible for one of these shell companies to be set up without a regulator being involved because that company will require a bank account. Banks are heavily regulated. If the shell company does not require a bank account, it will require a fund manager to look after its money. They are very heavily regulated. A person running the support business in a high-integrity environment such as Bermuda would not allow someone —one bad client—to come in and kill off their whole business. They would be very careful to make sure that that does not happen. You are scared of regulators. You are of course scared of tax and police authorities, and you are more than willing to give up any information that will protect your business because no one client is worth it. Your business is your business; your staff are your staff. That is how everyone feels—I hope noble Lords can hear a level of emotion in my voice.

A sub-point is that in our society we rely on the forces of law enforcement to deal with naughtiness on our behalf. We do not have vigilante posses running around trying to do things. I worry that if everything were publicly available people would suddenly see themselves as being promoted into some sort of enforcement environment. That is wrong. We should leave these things to the professionals—the tax authorities, the police authorities and the regulators—and trust. If they do not do a good enough job, we should bash them. We should not allow vigilante posses.

I move to my fourth point, which is the most worrying point for me. I have mentioned it to the noble Baroness, Lady Stern. For many years, Hiscox, the group I worked for for so long, looked after the possessions of well-off people all over the world. It is also the leading kidnap and ransom insurer throughout the world. During my time at Hiscox, we logged 40,000 man days of kidnap problems around the world. Hiscox’s market share was more than 50%, so it understood the issues. In this country, we are very lucky to live in an environment where we are safe and secure. I will walk home tonight and think nothing of it. I can get into a smart car and think nothing of it. That is not the case in countries such as Mexico. In Mexico, you cannot keep your company with a local bank or keep your money there. In quite a lot of countries, you need to go to offshore environments, and you are a good client because you have earned your money. Hiscox’s perfect client was someone who owned a beer factory in Mexico or something because it knew they were straight and honest and could see how they had made their money. People were very scared. Part of kidnap and ransom is advising clients. Hiscox advised them to keep quiet about it and to be discreet. That is the chief weapon that will stop nastiness going on. When the nastiness happens, it happens not to the guy running the beer factory but to his daughter. It happens in a nasty way. I worry that the effect of this sort of thinking, without a proper impact assessment being sorted out and thought about very carefully, could be that we would be sentencing some people who have made their money honestly to physical harm and the invasion of their homes.

I finish by saying that of course I do not want any of this naughtiness to go on, but I feel strongly that Amendment 14 is not the way to go about it. We should rely on the police, the tax authorities and the regulators to do it for us. We should look very carefully at their performance in all of these countries and carry on, as the Government have been doing so successfully, getting incremental improvement. This House should make sure we carry on pushing the Government to push the authorities to get that incremental improvement. But I plead with the House not to support Amendment 14.

[Lord Eatwell (Non-Afl)]

My Lords, first, I declare an interest as chairman of the Jersey Financial Services Commission and therefore the person responsible for the beneficial ownership register in Jersey. The question addressed in Amendment 14, of public access to registers of beneficial ownership, is not one for me, and I will not address the value or otherwise of making a register public—that is a political issue. The regulator in Jersey is independent, and I therefore have no role in those political decisions, but I am concerned about whether a register of beneficial ownership is accurate and therefore useful.

A number of speakers have referred to the public availability of the register of beneficial ownership here in the UK—essentially the Companies House register. As I pointed out in Committee, that register is not a useful one, since it is not verified and, because of that, the information in it can be seriously misleading. Indeed, because it is not verified, the people in developing countries and indeed civil society as a whole are on their own with respect to attempting to identify wrongdoing through the structure of the register. The register does not do the job. Regrettably, the UK is not a leader in providing verified, accurate information about beneficial ownership.

I want to address two issues with respect to the amendments. First, what I have just said will make clear why I regard Amendment 14 as seriously defective in not including the word “verified”. The characterisation of the information in proposed new subsection (4) is of a,

“publicly accessible register of beneficial ownership”,

with information “equivalent” to that under the Companies Act. The word “verified” does not appear. Therefore, the information can be inaccurate and misleading, with nobody required here to check it.

For the second point, I go back to the Minister’s amendment. Amendment 8, which has not been discussed very much up until now, says not only that “relevant” territories will provide information to the UK and we will have a report on how that information is provided but that the UK will provide “beneficial ownership information” to the relevant territories. I presume that includes my registry in Jersey. But I would like to know what information is going to be provided. If it is the Companies House information, we should really not bother; if it is some verified information, I will be very pleased to receive it. I would be grateful if the Minister, when she sums up, could tell us exactly what information is going to be provided by the UK, whether it is going to be verified and, if so, by what authority. Only if we have accurate information will the objective of those supporting Amendment 14—the revelation of wrongdoing —be achieved. If information is not verified, that goal is not achieved. Amendment 14 is defective in that respect, and I would be grateful if the Minister, when summing up, would tell me exactly what sort of information will be provided by the UK to my registry in Jersey and by whom it will be verified.