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.

--- Later in debate ---

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.