Economic Crime (Transparency and Enforcement) Bill

Lord Fox Excerpts

2nd reading
Wednesday 9th March 2022 Lords Chamber

[Lord Fox (LD)]

My Lords, it is a pleasure to follow the noble Lord, Lord Macdonald. I think it is the first time I have ever had to do so; it is quite a daunting prospect having heard such an important speech. We on these Benches welcome the belated realisation by this Government that the City of London and other parts of the economy in this country need to be cleaned up. Just as the noble Baroness, Lady Williams, asked, we certainly aim to support this Bill practically.

This has been a strong debate. Some of your Lordships—the noble Lords, Lord Faulks and Lord Rooker, and the noble Viscount, Lord Waverley, to name but three—have, with justification, been able to say that this issue has been on their agendas for some time. Others, such as the right reverend Prelate the Bishop of Leeds, have highlighted the purpose of and focus on ethics that we should also dwell on. There was a sense of frustration in all the speeches that it has taken the terrible events in Ukraine—the onslaught on civilians—to cause this Government finally to act. They are acting, and we should take advantage of that, but it is awful that it has taken that to get to this point.

In welcoming this Bill, we are not blind to its shortcomings. Your Lordships have been wise to set out whole areas of action that need to be resolved before we can start the process of cleaning out the dirty money in the United Kingdom’s economy. I will not seek to paraphrase everything that was said but we heard about SLAPPs and the use of lawfare from the noble Lords, Lord Thomas and Lord Cromwell, and the noble Viscount, Lord Colville. We heard about company shells from the noble and learned Lord, Lord Garnier, and about trusts, freeports and whistleblowers from my noble friend Lady Kramer. The need to be more deeply retrospective was introduced by the noble Viscount, Lord Waverley, and the noble Baroness, Lady Bennett, as well as the issue of speeding up disclosure from Crown dependencies and overseas territories. Those are just some of the issues put by your Lordships before this House.

Virtually none of those substantive issues appear in Part 1 of this Bill. It seems that most of them might turn up in Part 2 but we heard the curriculum that the noble Baroness, Lady Williams, is putting forward for that part: limited partnerships, crypto assets, money laundering and Companies House. To digress on Companies House, the noble Lord, Lord Eatwell, very much paraphrased the issue: this is not just about resources. The cultural change required to make that organisation in any sense capable of doing any of the things that this legislation asks of it is huge. By the way, it is not just Russians; if Companies House had been doing what it should have, literally billions of pounds would not have been defrauded from taxpayers during the Covid crisis. A small fraction of that money could have been used as seed to produce a Companies House that is fit for purpose. Now we have lost that money but we still need to do the job.

Coming back to the Bill, all the issues that have been set out need to be tackled in its second part. I am looking for the Minister to acknowledge that, although the four issues set out by his colleague, the noble Baroness, Lady Williams, are important, a number of really important issues need to be added to that list. If it becomes an even bigger and more complicated Bill, I guarantee that those on these Benches will work hard to make sure that we can get that legislation through as quickly as possible. As the noble Lord, Lord Vaux, and the noble and learned Lord, Lord Garnier, said, we also need a process that reviews how Part 1 is getting along because it is clear that the speed with which this legislation is being implemented—and, indeed, the fact that it was written for one purpose and is being delivered for another—will inevitably mean that there are things not right with it.

We will work to help ensure that when the final Act—this part of the process—emerges, the Government will get the tools they say they need. When they get those tools, there will be no excuses for not following up on the people we have heard described to your Lordships this afternoon. As we have also heard, to do that will take well-resourced, highly qualified and motivated people to investigate and prosecute. The noble Lords, Lord Macdonald, Lord Carlile and Lord Empey, to name but three, set out the issue here. Unless the agencies tasked with cleaning up the kleptocrats have the resources and the support, the Bill does not amount to a hill of beans.

To date, this is an area the Government have been defunding. For example, the National Crime Agency—the principal body leading this fight, as we have heard—has seen its overall budget fall in real terms. The last inspection by Her Majesty’s Inspectorate of Constabulary and Fire & Rescue Services in July 2021 pulled no punches and highlighted how resource limited the NCA is. Further, the inspection also noted the difficulty in recruiting staff for investigating roles. There are remuneration and status issues around why that is not happening. It gets worse: within the NCA, the body specially configured to investigate kleptocrats is the international corruption unit. As we know, the ICU’s role is to investigate money laundering resulting from corruption by high-ranking overseas officials, bribery involving UK-based companies or nationals that has an international element, and cross-border bribery where there is a link to the UK. I am afraid the ICU seems to have fared even worse. Can the Minister confirm that it has had its budget slashed by 13.5% this year?

Meanwhile, over the past couple of weeks the Government have said they will set up a new kleptocracy cell within the NCA to target sanctions evasion and corrupt Russian assets hidden in the UK. The press release said that oligarchs in London will have “nowhere to hide”—there is a joke in there, but I decided not to use it. How exactly will the new NCA kleptocracy unit mesh with the existing ICU? For that matter, how will the kleptocracy unit relate to the complex web of underfunded joint committees and task forces that litter this area of investigation? The agencies we have are underfunded and there is a confusing web of different organisations and crossing accountabilities. Together, this adds up to the enforcement agencies being massively outgunned by the oligarchs, as we see and have heard from your Lordships. Is it any wonder that so few unexplained wealth orders have been issued?

The Government do not have to wait for the passage of the Bill. They could say now that they are going to reverse their defunding of the international corruption unit and announce now a funding boost for the NCA. We do not need a new unit or a new invention. We need the organisations that we have to be properly funded, targeted and supported to deliver the outcomes that I think your Lordships all hope for.

Next Monday we will have the opportunity to address the Bill before us in some detail. One thing is clear: the Government should embrace the issue of enablers more firmly. As we have heard, these are the lawyers, estate agents and accountants helping the kleptocrats. This theme, among others, was picked up in the Chatham House paper entitled The UK’s Kleptocracy Problem. It noted:

“Financial and professional services firms have long made the UK a comfortable home for dirty money.”


That is Chatham House, not some campaigning organisation that people might feel free to dismiss.

This Bill needs to explicitly target those professional services that knowingly create the comfort that has been enjoyed by Russian kleptocrats, and indeed by other thieves from around the world. They need to feel the heat. This is an issue that we will come back to on Monday, following up the excellent speech by my noble friend Lord Clement-Jones and the amendment that I know he has tabled.

Then there is the self-created loophole that was referred to by the right reverend Prelate the Bishop of Leeds: Clause 18. This allows all aspects of the register to be ignored if the Secretary of State decides that it is in the interests of national wealth to hide an oligarch’s assets. How big does the factory have to be for the theft to be ignored? How many jobs can a kleptocrat wash their soul with in this country? That is the nature of that clause—it hits right at the heart of what the right reverend Prelate had to say. It is, frankly, a continuation of what happens now; in other words, “The money is all right, so we won’t look at where it has come from.” My noble friend Lady Kramer was very strong on that issue. If we are to allow this line to continue in the Bill, it would essentially mean selling our moral soul in a different way—and it would put it into statute. We will have to address this issue when we get there.

There are issues that, following the debate in the Commons, we are looking forward to seeing how the Government will address. One is whistleblowers and another is freezing assets. We are looking forward to the Minister responding on that today or tabling some amendments before close of play tomorrow so that we can see where the Government are headed.

Finally, I know that the noble Lord, Lord Callanan, is an experienced Minister who knows how to read a room. If he is reading this Room, he knows that six months will not wash with your Lordships; that is very clear from almost every speaker, for lots of practical reasons. Money is already moving; the kleptocrats are cutting and running. To give them another six months’ head start essentially makes most of this pointless. I am sure that noble Lords on the adjacent Bench will be bringing forward an amendment, which we will certainly support when it comes before your Lordships’ House.

As the noble Lord, Lord Carlile, put it, in participating on this Bill in the way that we are—speeding it through Parliament—we are putting a lot of trust in the Government. We hope that trust is justified. We look forward to further constructive discussions on this Bill on Monday.

--- Later in debate ---

[Lord Callanan (Con)]

Let me come back to the noble Lord on that. I certainly commit to full scrutiny of the Bill when it is ready, which I think the noble Baroness, Lady Chapman, also asked me about. It will not be emergency legislation; we expect it to have the full scrutiny of this House. I think that pre-legislative scrutiny would probably be a bit time-consuming; it is probably better just to bring the legislation forward, then it will get its full scrutiny. However, as I say, we are getting it drafted as quickly as possible. It is something like 150 pages of legislation so it will be substantial.

[Lord Fox (LD)]

About that: with many other Bills, the Government go out for consultation for six or eight months, redraft the Bill, then have two more White Papers. Then, sometime after three Christmases, we get the Bill. So, does “as quickly as possible” mean a few months or weeks? Are we looking at the latter half of the next Session, or are we looking at it being one of the first Bills to come out in the next Session?

[Lord Callanan (Con)]

I cannot win on this one: if I give too much time to pre-legislative scrutiny, for consultation et cetera, I will be criticised. I cannot give the noble Lord, a definitive time because, of course, it is not purely in my hands; it depends on parliamentary time, on the Whips, on the usual channels and on the availability of the House of Commons. It is certainly my intention to get it in front of noble Lords in a matter of months but I cannot be more specific than that. It will depend on when it gets drafted and when we can get parliamentary time. It is a firm commitment that we will bring it forward in the next Session—ideally towards the start of the next Session, if that helps the noble Lord.

I welcome the support from across the House, particularly from the Opposition Front-Benchers—I thank them very much. As I just said, I can reassure the noble Baroness, Lady Chapman, and the noble Lord, Lord Vaux, that the economic crime Bill will progress under normal procedures. I am sure there will be a full and detailed discussion about it. I will speak later to some of the points of the noble Baroness, and the noble Baroness, Lady Kramer. The noble Baroness, Lady Kramer, also raised the subject of the Crown dependencies. I can tell her that I spoke to the Crown dependency Ministers earlier today, just before I came in for this debate, and they are also fully on board with these measures, looking to help wherever they can and to progress similar measures in their own jurisdictions.

Moving on, many noble Lords, including my noble and learned friend Lord Garnier and the noble Lords, Lord Rooker and Lord Faulks, raised the legitimate question of why it has taken the Government so long to introduce the legislation. I can assure them it is not for the want of trying on my part; it is purely about the pressure on the legislative programme. They, as well as the right reverend Prelate the Bishop of Leeds, stressed the importance, and I totally agree, of stopping dirty money flowing from Russia and, indeed, other countries. This is not just about Russia. It benefits us in terms of Russia but, frankly, this reform is long overdue and it will also help us in the fight against money laundering from other jurisdictions. What matters is that, despite the long delay, we are now urgently bringing this legislation forward. We were planning to put this in the wider economic crime Bill but we decided to introduce these measures earlier, to put them into effect shortly. I am grateful for the support of the Opposition in doing that, and the wider economic crime Bill measures will follow in due course.

I take the opportunity to thank my noble friend Lord Faulks again, for all his work to develop the legislation and for some of the powerful points he made today. I reassure him that since we took the measure thorough pre-legislative scrutiny, we have been able to improve the legislation to reflect some of the pre-legislative scrutiny committees’ recommendations and to align it with the broader reform of Companies House, which I completely agree we need to do, to make the measure effective. I think the legislation as a whole will be more effective as a result of the scrutiny that has taken place. This has been central to ensuring the new requirements are workable and proportionate and that the register strikes the right balance between improving transparency and minimising burdens on legitimate economic and commercial activity.

I thank the noble Baroness, Lady Kramer, the noble Lords, Lord Hannay and Lord Vaux, and my noble and learned friend Lord Garnier for their points on the transition period. I think the noble Lords, Lord Coaker and Lord Fox, made similar points. Let me explain our logic on this. We have already reduced the transition period from 18 months to six months. I understand the importance that noble Lords attach to this, but it is important to remember that the majority of properties held via overseas entities will be owned by entirely law-abiding businesses and people. To give noble Lords an idea of the scale, we are talking about roughly 95,000 properties in England and Wales owned by some 32,000 overseas entities. It is a fact that only a tiny fraction of these are likely to be held by criminal or corrupt interests.

The transition period is an important protection for the rights of those legitimate owners of property and we have to be careful about interfering with individuals’ property rights, interference that could not reasonably have been expected when those rights over the properties within scope of the register were originally acquired. This legislation has considerable retrospective effects. We have to ensure that we are respecting those rights in a way that cannot be challenged—not least under human rights legislation. No doubt, those who wish to avoid these requirements and are able to afford expensive legal teams will take advantage of any opportunity to do so.

Many of the ultimate owners will be law-abiding British companies that have adopted these structures for legitimate commercial reasons. They could include real estate investment trusts, which are public companies whose core business is to manage and own properties that generate income, or particular pension schemes that hold land and properties. Others will be British nationals who have adopted the arrangements for legitimate reasons of privacy—a point made from the Cross Benches but I forget who made it. That may involve, for instance, celebrities who do not want their address to be known publicly.

As the noble Lord, Lord Fox, observed, I am aware of the strength of feeling expressed that corrupt people must not be allowed to sell up and escape the transparency that the register will bring. The Government see merit in requiring all those selling property to submit a declaration of their details at the point of transfer of land title during the transition period. This would mean that a zero-day transition period to provide certain information immediately would be given to anyone selling. They would have to register ownership if selling, and that way we either get their ownership details immediately or, if they do not sell, we get it at the end of the transition period but in a way that still protects legitimate owners. We are urgently looking at this idea and giving it some serious consideration, but we need to get the drafting right and legally watertight, so that it is workable, effective and achieves what we want to achieve. Officials are working on this at the moment and I hope to get the proposal to noble Lords for consideration before we reach Committee.

Although the register will not be operational immediately, we expect the measures to have an immediate dissuasive effect on those who are intending to buy UK property with illicit funds. I can assure the noble Lord, Lord Faulks, that work on implementing the new register will begin as soon as we have achieved Royal Assent, and we will look to have the new register in place as soon as practicably possible—as soon as this House is able to consider and pass the relevant statutory instruments, and when some of the other measures are put in place. I should also add in response to many of the comments that all conveyancers and estate agents are already required to assess transactions for money-laundering risks and to alert authorities about suspicious activity.

I turn to the question from the noble Baroness, Lady Bennett, on the retrospective application of the register. It will apply retrospectively, thereby compelling overseas entities to register if they have property bought since January 1999 in England and Wales and December 2014 in Scotland. Those dates have been selected because they relate to when jurisdiction of incorporation was originally required by Her Majesty’s Land Registry and the Registers of Scotland when registering title documents for land. This information has never been recorded by the Northern Ireland land registry, so we are unable to make any retrospection apply there.

As set out in the Bill, if a foreign company does not comply with the new obligations, every officer in default can face criminal sanctions, including fines of up to £2,500 per day or a prison sentence of up to five years. We have also included a power to make secondary legislation that can allow the registrar to impose financial penalties for non-compliance without the need for criminal prosecution. Critically, non-compliant overseas entities will face significant restrictions over dealing with their land. That is important because by their very nature, it might be difficult to impose criminal penalties on people who are overseas. But a restriction on them being able to deal with and dispose of their land will be particularly important because that will in effect prevent sales and render the property worthless.

I thank noble Lords and others who have made insightful and important points on the importance of robust supervision and the need to tackle the so-called professional enablers. Those noble Lords include the noble Baroness, Lady Bennett, the noble Lords, Lord Londesborough and Lord Cromwell, the noble Baroness, Lady Chapman, the noble Lords, Lord Faulks, Lord Carlile, Lord Thomas and Lord Rooker, and others.

The UK supervisory regime is comprehensive. The UK regulates and supervises all businesses most at risk of facilitating money laundering, including accountants, estate and letting agents, high-value dealers, trust or company service providers, the art market and so on. We strengthened the money laundering regulations in June 2017, thereby bringing UK legislation in line with the latest international standards. This includes requiring estate agents to carry out due diligence on both buyers and sellers of property.



To be very clear to the noble Viscount, Lord Waverley, any money obtained through corruption or criminality is not welcome in the United Kingdom, including that linked to Russia or other countries. That is why we are at the forefront of global action, spanning the operational, policy and diplomatic communities to target the money launderers and enablers who underpin corrupt elites and serious and organised crime.