Economic Crime and Corporate Transparency Bill

Lord Etherton Excerpts

Committee stage
Tuesday 25th April 2023 Grand Committee

Moved by

[Lord Etherton]

81: Clause 180, page 164, line 33, leave out paragraph (a) and insert—
“(a) constitutes the offences of fraud, false accounting, money laundering or offences under any binding sanctions regime, whether at common law or in primary or secondary legislation,”Member’s explanatory statement
This amendment provides for a shorter and more focused definition of “economic crime” than is presently to be found in Clause 180(1)(a) and Schedule 9.

[Lord Etherton (CB)]

I preface my remarks by emphasising that what I say about this amendment and the other amendments in this group is not intended in any way to qualify or undermine the broad objectives of the legislation. They are intended to make the legislation better.

I will focus for the moment on Amendment 81, which addresses the definition of economic crime to be found in Clause 180. The amendment has the support of the Law Society and the Bar Council. In the current wording of the Bill, the definition relates to only three matters. The first is the disclosure obligations under Clauses 175 to 178; the second is that by virtue of Clause 181(2C) it applies to the Law Society’s powers to impose a fine in cases relating to economic crime; the third circumstance is that it applies to the new legal services regulatory objective in Clause 183 of promoting the prevention and detection of economic crime.

Under the current definition in Clause 180, economic crime is defined by reference to a long list of offences, common law and statutory, extending over two and a half pages in Schedule 9. The definition of economic crime would be further extended under the Government’s proposal to add a new Schedule 10, which is directed to the failure to prevent fraud. As we heard in the last debate, although I think it is right to say that none of the amendments relating to SLAPPs is tied to any definition of economic crime in the existing Bill, SLAPPs would have to be in some way connected to some definition, and that may be wider than one would otherwise contemplate economic crime to comprise.

The definition of economic crime in Clause 180, by reference to Schedule 9, and its extended meaning by reference to the proposed Schedule 10, raises the fundamental question of what this Bill is actually about. Under Schedule 9, for example, it includes theft, and under the proposed Schedule 10 it includes false statements by company directors.

The Government’s intention, however, as I understood it, is that the Bill is directed to a specific type of criminal activity—fraud, false accounting, money laundering and the breaches of sanctions. Those are the activities which Amendment 81 sets out. Those elements were identified in a meeting which I had with Dame Margaret Hodge, who has played a significant role in the promotion of this type of legislation. Those activities—fraud, false accounting, money laundering and the breach of sanctions—chime with the Bill’s three key objectives, mentioned at the very beginning of the Explanatory Notes, which are focused on the abuse of corporate structures. That is what the Bill is about: the abuse of corporate structures to launder money, hide assets obtained unlawfully and prevent restitution of such assets by making them irrecoverable. To include theft under Schedule 9 goes far outside that type of activity, as it would embrace, for example, a straightforward theft of any object in any circumstances, which has no economic significance other than the loss of value to the owner of the object.

Further, Section 19 of the Theft Act 1968, mentioned in Schedule 10, as I have said, makes it an offence for any officer of a company or unincorporated association knowingly to make a false or deceptive written account with intent to deceive members or creditors. This is a very broad offence, and again not necessarily related to the objectives of the Bill, as they are explained in the Explanatory Notes, and as I understand them to be. I suggest, therefore, that the Government should focus on the real objective of the Bill and define economic crime accordingly and consistently, rather than by reference to a long list of common-law and statutory offences, which are diffuse and wide-ranging.

That brings me to my next point, which concerns good legislation and proper drafting. To define economic crime by reference to a wide range of offences over two and a half pages is not good drafting.

It complicates rather than simplifies the law. It also gives rise to potential difficulties if any legislation mentioned is repealed and re-enacted in the same or a different way. Of course, in these circumstances there is provision by way of regulation for the Secretary of State to add to or detract from Schedule 9, but there has to be an alteration. By defining the constituent elements of economic crime, as is done in Amendment 81, there is a clear steer as to the objectives of the Bill, and any change in legislative offences will not require an alteration to the Bill. Schedule 9 and proposed Schedule 10 would cease to be relevant. Amendments 82, 83 and 84 are all consequential on Amendment 81.

I now move to the next substantive amendment to Clause 183, which introduces a new regulatory objective into the Legal Services Act. Amendment 90 is signed by my noble friends Lord Verdirame and Lord Pannick and the noble and learned Lord, Lord Goldsmith. Unfortunately, none of them is able to be here today. I am very grateful to them for their support. This amendment also has the support of the Law Society and the Bar Council. Currently, the provisions in Clause 183 relating to the new regulatory objective are far too wide in the following respects. First, it is not confined to the conduct of the lawyer but is expressed as general enforcement of the law relating to economic crime. It turns the regulator of legal services into a general enforcer of the law. Secondly, Clause 183 is not confined to legal activity as defined by Section 10 of the Legal Services Act 2007. In broad terms, legal activity is defined in the 2007 Act to mean the conduct of litigation, advocacy and legal advice and assistance.

Thirdly, the clause does not focus on what is critical, namely the misconduct of the lawyer in this context, which is facilitation or collusion by that lawyer in economic crime. Facilitation or collusion by lawyers in economic crime are the principal areas of misconduct in relation to lawyers mentioned to me in my meeting with Dame Margaret Hodge. Fourthly, it does not make clear that the proposed legislation on economic crime does not trump legal professional privilege where that applies or to the “professional principles”, which will remain one of the regulatory objectives under Section 1 of the 2007 Act.

Just addressing this last point, in any legal proceedings legal professional privilege precludes the usual obligation to disclose and permit the inspection of all relevant documents. The privilege, which is the privilege of the client, not their lawyer, is a fundamental common-law constitutional right on which the proper administration of justice rests. There are two aspects to the right—first, legal advice privilege, which applies to communications made confidentially for the purpose of seeking or giving legal advice, whether or not litigation is contemplated or pending and, secondly, litigation privilege, which applies to communications which come into existence for the purpose of litigation.

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For those reasons, while completely understanding why the amendments have been proposed, I respectfully ask the noble and learned Lord not to press Amendment 90 or his other amendments, and to withdraw Amendment 81.

[Lord Etherton (CB)]

Perhaps I should first take the opportunity to answer the question of the noble Lord, Lord Fox. I think the answer is that if somebody goes to a solicitor for advice on a potential course of action, it may be clear that it is unlawful, in which case legal professional principles would require the solicitor not to act for that client in relation to that. But there may be gradations of arguability about whether it is lawful or not; I gave the example of things going up and down, and he would be perfectly entitled to advise on those degrees of legality and prospects of success in litigation. My point was simply that that should not render the solicitor in any way concerned about committing any breach of a regulatory duty. That is the way it would work, and it would be the same for a barrister.

Turning to the Minister’s comments, I am afraid he has not really addressed the point that I made, which is that, in paragraph 2, the Explanatory Notes say that the Bill has three key objectives. That is the Government’s definition of what it is about:

“a. Prevent organised criminals, fraudsters, kleptocrats and terrorists from using companies and other corporate entities to abuse the UK’s open economy. This Bill will reform the powers of the Registrar of Companies and the legal framework for limited partnerships in order to safeguard businesses”.


Then it deals with strengthening

“the UK’s broader response to economic crime”

by seizure of crypto assets and so on. The extension of the definition of economic crime to matters such as I mentioned, for example representations of directors or theft, is way outside that. It is nothing to do with London as the place where people launder money, for example, and I do not accept that there may be some difficulty in distinguishing fraud and theft. A fraud may involve a theft, but fraud is quite clear as to what it is.

Amendment 81 is not an attempt to narrow the definition, except in relation to what I understand to be the essential elements: fraud, false accounting, money laundering and offences under any binding sanctions regime. If it is something more than that, then that ought to appear in the Explanatory Notes or be clearly stated by the Minister at the Dispatch Box. It should be made clear. You could combine a statement such as that—the broad objectives—together with various bits of legislation, but actually the advantage of expressing it in these generic ways is that it would make it far simpler and easier to understand, and would not require changes to the Act when there are legislative changes, with regard to the various offences currently listed in Schedule 9.

Having said that, I have made perfectly clear what the primary objections are to the new regulatory offence, which does not concentrate on the actual personal collusion or facilitation by the solicitor but could cover, for example, information that the solicitor receives in the course of advice from the client about some third party—because it is that wide, I say it would be an abuse of the legal regulation to leave it in that way rather than confine it to a personal involvement.

But I have made those points. I have listened to the Minister and certainly, so far as today is concerned, I beg leave to withdraw the amendments.

Amendment 81 withdrawn.

Economic Crime and Corporate Transparency

Lord Etherton Excerpts

Committee stage
Thursday 27th April 2023 Grand Committee

If they are not already doing so, I suggest the Government adopt that approach to economic crime, in full, and that they bring to Parliament, if they need to, changes in legislation that will interdict this behaviour at the earliest possible stage of that pathway. If we do that, we will not spend—as we otherwise will—a long time talking about accountability, recovery of money and all the things that are most expensive and difficult to achieve. That is how we could easily save the bulk of the £350 billion that economic crime is costing this country.

[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.

Economic Crime and Corporate Transparency Bill

Lord Etherton Excerpts

Report stage
Tuesday 27th June 2023 Lords Chamber

Moved by

[Lord Etherton]

95: Clause 187, page 176, line 33, leave out paragraph (a) and insert—
“(a) constitutes the offences of fraud, false accounting, money laundering or offences under any binding sanctions regime, whether at common law or in primary or secondary legislation,”Member’s explanatory statement
This amendment provides for a shorter and more focused definition of “economic crime” than is presently to be found in Clause 187(1) and Schedule 10.

[Lord Etherton (CB)]

I tabled all the amendments in this group. I am very grateful to those who have added their names to them: the noble Lords, Lord Verdirame, Lord Pannick and Lord Anderson of Ipswich. I am also very grateful to the Minister, the noble and learned Lord, Lord Bellamy, for meeting me and senior representatives of the Law Society and of the Bar Council to discuss what is now Clause 197.

All these amendments relate to the new regulatory objective in Clause 197 that amends the Legal Services Act 2007 by inserting for the Legal Services Board a new objective:

“promoting the prevention and detection of economic crime”.

As I said in Committee, this proposed new regulatory objective is extraordinarily wide and imprecise. The meaning of the word “promoting” lacks any clarity or certainty. It raises legitimate concerns about a potential lack of proportionality and overregulation by regulators, and about a lack of evidential risk as to those sectors most likely to come into contact with economic crime—for example, advisers rather than advocates. And even in the area of advisers, it is hardly likely to involve experts in the environment or town planning.

As the MoJ’s impact assessment of the new regulatory objective makes clear, the front-line regulators of the legal profession are already implicitly under a duty to ensure that lawyers are not breaching economic crime rules. The provisions in Clause 197 are merely to make explicit what is already implicit, and it is important that the Legal Services Board and the front-line regulators understand that this is the case.

The definition of economic crime for the purposes of Clause 197 is provided in Clause 187(1) by mean of cross-reference to Schedule 10, which contains a long list of statutes. This provides no focus on what is really at issue and should be the concern of regulators. That is spelled out clearly in my Amendment 95—namely,

“the offences of fraud, false accounting, money laundering or offences under any binding sanctions regime, whether at common law or in primary or secondary legislation”.

This lack of focus could well promote overregulation and a lack of proportionality.

What is needed is a clear statement from the Minister, which I would very much welcome today, on the following. First, regulators must understand that this is not a new regulatory duty but one that states explicitly what is already implicit. Secondly, there should be a focus on the particular criminal activity which is relevant: fraud, false accounting, money laundering and offences under any binding sanctions regime. Thirdly, there is a need for evidence-based regulation according to evidence of risk in particular areas of work and practice, as I described, such as transactional work rather than contentious and court-based work, and areas of advisory work which might be relevant in which economic crime might well occur. Fourthly, there will also be a need for proportionality by regulators. Fifthly, the regulators must understand, as the Minister said before, that there is to be no interference with the principle of legal professional privilege. Finally, there is a need for consultation with the profession to ensure that the new objective successfully tackles economic crime in the proportionate and evidence-based way I have described.

I hope the Minister will be able to make those points clear to the profession to enable a proper regulatory framework to work. I beg to move.

[Lord Bellamy (Con)]

I thank the noble and learned Lord, Lord Etherton, for his engagement on this topic throughout the Bill and for his remarks today. I briefly reiterate that the definition of economic crime is deliberately widely drawn. It applies not only to the regulatory objective but to several other clauses of the Bill, including the information-sharing measures between various financial institutions at Clauses 182 and 183. The Government do not believe that restricting that definition would be right.

It is true that there is a long list of offences in Schedule 10, including the reference to theft. Sometimes it is difficult to distinguish between fraud and theft, but I am happy to acknowledge that typical forms of theft, including low-level theft such as shoplifting or street crime or similar activities, are most unlikely to be relevant to anything in the Bill. Therefore, the Government do not feel able to change the definition of economic crime specifically for the legal sector, and the regulators must be able to respond to circumstances as they develop.

I shall address in a little more detail some of the points raised by the noble and learned Lord, Lord Etherton, this afternoon. I hope to cover all those points one way or another. First, in relation to legal professional privilege, the regulatory objective already requires adherence to professional principles under the Legal Services Act. In the Government’s view, there is no need for a specific reference to legal professional privilege, but I can make it absolutely clear that the Government do not consider that the Bill makes any difference to the principle of legal professional privilege. It is in no way an assault or attack on that fundamental principle of English law. The protection of legal professional privilege, as developed in the courts, will continue to apply in this area, as in many other areas. That is the Government’s position, and I hope that it is clear

As to how the regulatory objective and the provisions of the Bill will operate in practice, and in response to the noble and learned Lord, Lord Etherton, who made various entirely fair points, the intention and purpose of the regulatory objective is to put the onus on legal services regulators to be active in promoting and upholding adherence to the economic crime regime. The new objective will put beyond doubt and clarify that securing compliance is explicitly part of the regulatory role. We expect regulators to use all the tools available to them, but their activity should be appropriately targeted and not in any sense just a box-ticking exercise. The objective does not directly place new duties on lawyers. It is directed to the legal services regulators, and existing safeguards remain.

All those regulators will still be bound by public law principles, which will ensure that any regulation of legal services is proportionate and fair. Proportionality is particularly important. Section 3 of the Legal Services Act already requires the Legal Services Board to have regard to the principle that regulatory activity should be transparent, accountable, proportionate, consistent and targeted only for cases where action is required. The new regulatory objective on economic crime fits within this framework and existing objectives, such as supporting the rule of law, promoting the public interest and improving access to justice.

It is understood and expected that the Legal Services Board will work closely with the professions in developing guidance to support the new objective. This will include a public consultation on any necessary policy statement or guidance to ensure that the regulatory objective is implemented in a targeted and proportionate way. This will allow the LSB to capture and analyse any concerns that professional bodies or others may have, or continue to have, in relation to the new objective.

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I hope that I clarified those aspects and, with these reassurances, I hope that the noble and learned Lord may be persuaded to withdraw his amendments.

[Lord Etherton (CB)]

I am extremely grateful to the Minister for all those assurances. They are extremely helpful, and I do think that they will assist in settling the concerns of many of those in the legal profession. On the basis of the assurances that he has given, I am very happy to indicate that I will withdraw my amendment.

Amendment 95 withdrawn.