Economic Crime and Corporate Transparency Bill

Lord Fox Excerpts

2nd reading
Wednesday 8th February 2023 Lords Chamber

[Lord Fox (LD)]

My Lords, it is a great pleasure to follow the noble Lord, Lord Ponsonby, and to associate myself with his remarks about why the Bill is so important and why its effectiveness is essential. I also agree with him on welcoming the noble Lord, Lord Johnson, to his new and expanded role. It is lucky he did not have much to do on his first day in office, and we welcome him.

Over the years, as we have heard, the United Kingdom has, wittingly or unwittingly, become a haven for economic activity that should not be acceptable or legal in our country. We have become a haven for stolen wealth for some of the worst regimes in the world. That is why we want the Bill to succeed and for the objectives set out in it to be achievable. We will be supporting and working constructively with the Minister and across the House to make sure that the Bill that leaves your Lordships’ House is fit to deliver the things that have to happen.

When your Lordships’ House fast-tracked the first economic crime Bill through this House, and we all worked hard and very quickly to make sure we were able to deliver the sanctions immediately and quickly, there was much talk about what the next Bill should achieve. This is that next Bill, so we will be examining it on the basis of the hopes that were expressed during that debate: is it capable of achieving the objectives we discussed then and will be discussing now? The Minister in his introduction—and, indeed, his predecessor, when we met—laid great stress on the changes being brought to Companies House. This was, of course, a source of great discussion during the previous Bill, with many of us outlining the scale of the challenge that organisation faces, particularly given from where it was starting. With this Bill, that challenge has not got any less, but I think many of us fear that the journey that Companies House needs to take, from being a passive paper repository to becoming a data-led investigative doorkeeper, is still not fully appreciated. The scale of cultural change required for this to happen is great, and I think this is something we will come back to time and again through this debate.

Perhaps the first test was the UK property register. Only last week we learned from the Financial Times, and I think there was a report this week from the BBC, that thousands of offshore companies have missed the UK property registration deadline. It was aimed at identifying owners of around an estimated £100 billion of illicit financing, much of which is channelled through British real estate. The new register requires previously anonymous foreign owners or buyers of UK property to reveal their identity, yet thousands of offshore companies owning properties in the UK had not declared their real ownership on the new government register by the deadline, which was a couple of weeks ago. The previous Minister is on the record as saying that the Government

“will be using all the tools at our disposal, including fines and restrictions, to crack down on foreign companies who have not complied.”

Can his successor explain how anonymous foreign owners will be fined? Can he tell your Lordships’ House how many Companies House employees are currently investigating the unregistered owners?

According to data taken from Companies House at the end of December and analysed by the research organisation Open Ownership, some 2,800 companies had said they were based in the British Virgin Islands, with Jersey and the Isle of Man also at the top of the league. I am sure my noble friend Lord Wallace will expand in due course on the role of overseas territories.

Looking forward, I note that new purchases that involve anonymous foreign buyers should now disclose the beneficial owners to Companies House before any application can be made to the UK’s various land registries. Can the Minister tell your Lordships’ House whether this is now happening in all cases, and how he knows it is happening? In other words, what is the reporting structure and data structure that the Government have on the performance of Companies House?

The Minister mentioned the excellent debate at Report stage in the Commons. During that debate, MPs called for stronger reporting to hold the whole of Companies House’s works to account. As Dame Margaret Hodge MP put it, it should

“ensure that it delivers what we have in mind in being at the front end of fighting economic crime through the data that it collects.”—[Official Report, Commons, 24/1/23; cols. 916.]

In other words, we believe this Bill needs to be strengthened in terms of the reporting regime to Parliament from Companies House.

As the Minister highlighted, identity verification is a vital tool in the policing of the sector, if it is to be successful. On that basis, I would have thought that it should be a core competence of the new model Companies House. However, it seems that much of this work is being outsourced to corporate service providers. These are the same firms and sector that provide identity support for at least 50% of the applications that Companies House is supposed to verify. To hand the role of identity verification to the very sector that is seeking to obscure identity for its clients is absurd. I believe the Minister should look again at what is happening on this front. I would like to hear the justification for outsourcing what should be a core competence of Companies House.

We then turn to the funding of Companies House and related activities. In the Commons, there was considerable debate about the fees paid to register. The current level is ludicrously low. The Commons proposed £100, which to my mind remains a relatively small sum and in no way a barrier to serious players. I understand why the Minister may not want to enshrine this in primary legislation, but I would ask that the Minister tells your Lordships’ House—either now or perhaps in Committee—what figure the Government intend to bring forward, and will the Government commit to linking this to inflation and ring-fencing it from HMRC siphoning off, because the money is needed to bolster the whole process of policing this?

I have allowed Companies House to dominate much of this speech as its effectiveness is key. I know that my noble friend Lady Bowles will look at this more, and there are other issues too that my noble friends and your Lordships will no doubt raise, both today and in Committee.

We were heartened that the Government took on the challenge laid down in the amendment moved by Robert Buckland MP and supported across the Commons. This sought to address the need to make a failure to report into an offence. The aim is to start to better address the role of enablers—the lawyers, the accountants and other professional services—in the laundering of dirty money. The details in this are key and, like others in this House, we will look at the Government’s version of this amendment. Can the Minister undertake to have it published well before the first day of Committee? I expect my noble friend Lord Clement-Jones to speak to this in more detail in Committee, and I am afraid he is unable to participate today.

One of the ways that service providers will be brought to book is through whistleblowers. My noble friend Lady Kramer has been the lead in the debate to better facilitate and protect whistleblowers. I am afraid she also is unable to attend the Second Reading, but I know that both she and the noble Lord, Lord Clement-Jones, are following this debate very closely. Whistle- blowing is crucial in the fight against economic and financial crime. Unfortunately, many of the whistleblowers who have come forward and contributed vital evidence have suffered from the consequences of doing so. This Bill should do more to reinforce their position and encourage others to step up. We believe that, so far, the Bill fails to do that.

In the Commons, Dame Margaret Hodge MP, again explained that all the work on economic crime done by the Public Accounts Committee in her time as its chair came from whistleblowers. Similarly, Kevin Hollinrake MP, now the Parliamentary Under-Secretary of State at the Department for Business—at least, I think he is; the Minister is nodding to confirm—asserted that he believed that 100% of economic crime detection could be attributed to whistleblowing. This is important. That is why Mary Robinson MP, chair of the APPG for Whistleblowing, moved an amendment in the House of Commons to provide meaningful protection to whistleblowers by creating an office of the whistleblower. Even Tom Tugendhat, the Minister of State for Security, while refusing to accept the amendment, conceded that the country needs an office for whistleblowers. There is work to do on this, and we should address this hole.

Moving on, none of this matters a jot if there is no effective enforcement. We have to ask ourselves: why does Latvia have a better record of enforcement on economic crime than we seem to have in the United Kingdom? According to my reading, there have been essentially no economic crime cases brought in this country since Putin came to power. Why? One of the most charitable explanations is that the fear of costs generated by super-rich litigants in the setting of a civil court can lead to budget-busting costs if they are awarded against the prosecuting authorities. This fear that the costs will be so high breeds a risk-averse attitude in the prosecuting authorities, but this would not be a problem if it was happening in a criminal court. I am sure we will want to try to find ways of probing this in Committee.

Then there is the role of lawyers in intimidating people such as journalists seeking to shine a light on the sort of practices that have shamed our country. Essentially, this is legal bullying. It has another name in this country: SLAPPs, or strategic lawsuits against public participation. As we will hear from my noble friend Lord Thomas, SLAPPs are a form of legal intimidation used by wealthy persons to avoid what often turns out to be the truth from coming out. There has to be action to stop this, and I am sure he and other noble Lords will raise this.

To speak briefly on crypto assets, there were something close to 50 amendments to the Bill brought in the House of Commons on this subject. I am intrigued by the idea of what is a UK-connected crypto asset and how the Government will go about seizing a crypto asset when it certainly does not reside within a UK-governed territory and often does not really reside anywhere at all. The intentions within the part of the Bill on crypto assets are good, but I think the practicalities may be well beyond the words we see in it. I am interested to hear about that.

Finally, I will mention the issue of seizing assets that have been frozen, as the noble Lord, Lord Ponsonby, also raised. Very few of us who witnessed it could not have been moved by what President Zelensky had to say today, but we need to match our applause with action. One issue he raised was compensation; one way to do this is to use frozen assets to effect some sort of redress. In the case of Ukraine, I believe there is some $350 billion of Russian assets currently in the international freezers. As I am sure the Minister is aware at the moment, moving assets from being frozen—perhaps interminably so—into a place where they can be legally redistributed is fraught with legal problems. Before the Minister tells me that this is because of sovereign immunity and above our respective pay grades—it is certainly above mine—I agree. But that is why an amendment was tabled in the Commons to propose that the Government look into this and report back to Parliament within six months on how these assets can be put to use to make good some of the harm that has been caused to Ukraine. There is a Private Member’s Bill in the Commons on this topic, so perhaps the Minister, either now or otherwise, could come back with some idea of what the Government’s feeling on that Bill is or how some of the debate around it might be incorporated into what we are talking about here.

To conclude:

“The UK’s and its overseas territories’ lax laws on company formations, trusts, our financial centre, our huge expertise, our lack of resources for enforcement and our weak whistleblower protections enables economic crime, probably more than any other nation on earth.”


Those are not my words but those of Kevin Hollinrake MP, before he came Under-Secretary, who now has some responsibility for the Bill. We agree with him: now is the time for his department to rise to the challenge that he himself so savagely outlined when on the Back Benches. We commit to help the Government make the important strengthening that this legislation needs.

--- Later in debate ---

[Lord Sharpe of Epsom (Con)]

But it is important, so I am going to do it. A significant proportion of the first 106 clauses are given over to verification and related matters. Companies House will be using leading technology and will meet current ID verification industry standards on how to prove and verify someone’s identity. More information was set out in the Government’s White Paper last year and we will be happy to say more in Committee.

[Lord Fox (LD)]

The Minister does not have to answer the noble Lord, Lord Sikka, on this one, because I raised the issue of outsourcing and insourcing verification.

--- Later in debate ---

[Lord Sharpe of Epsom (Con)]

I am afraid that I genuinely do not know the answer to that, but I will come back to the noble Lord. I would certainly hope so.

The Government and law enforcement gather fraud data from multiple sources but we recognise that there is more to be done to understand the threat, which we intend to address through the strategy. I can confirm that the new strategy will include updated statistics on the social and economic costs of fraud.

The noble Lord, Lord Ponsonby of Shulbrede, the noble and learned Lord, Lord Brown of Eaton-under-Heywood, and the noble Lord, Lord McDonald of Salford, asked about the Government’s plans on asset seizure. I assure them that nothing is off the table. His Majesty’s Government continue actively to explore options to enable permanent deprivation of assets associated with designated persons which are currently frozen, including jointly with international partners. That includes actively considering potential routes to mirror the EU’s directive on mandatory disclosure in UK legislation. In the meantime, government authorities have the powers to utilise various enforcement tools to freeze assets and in criminal cases confiscate relevant assets, including those associated with Russian designated persons.

[Lord Fox (LD)]

A number of noble Lords mentioned the Private Member’s Bill that was introduced yesterday, I think. We asked for some sense of the Government’s view on that and whether it could be helpful in the whole seizure debate.

[Lord Sharpe of Epsom (Con)]

I will come back to the noble Lord on that in writing.

To respond to the point raised by the noble and learned Lord, Lord Etherton, the inclusion of an explicit regulatory objective will put it beyond doubt that it is the front-line regulators’ duty to promote adherence to the economic crime rules set out in the relevant guidance and legislation, and that they may carry out such regulatory action as appropriate to carry out this objective. That should avoid unnecessary challenge in relation to regulators’ compliance activity, which can make monitoring and enforcement costly. These types of activities could include, for example, the imposition of financial penalties, requesting information—the type of information will obviously differ on a case-by-case basis—awareness-raising and all other supervisory monitoring work that regulators may carry out in promoting the regulatory objectives.

I thank my noble friend Lady Stowell of Beeston for raising the issue of regulation of the legal and accountancy sector. The money laundering regulations 2017 ensure that key professionals identify their customers and understand the purpose behind transactions, including the source of funds. While regulated businesses have legal requirements under the MLRs to implement robust anti-money laundering policies, controls and procedures and to identify and verify the identity of their customer, any money laundering is a criminal offence under the prevention of organised crime Act, and businesses outside the regulated sector may still choose to implement AML controls. Measures in this Bill will aid legal services regulators in upholding the economic crime rules, including for money laundering, and remove the cap on SRA fines for breaches of these rules.

As already acknowledged by my noble friend and colleague Lord Johnson, the Bill forms a key part of the wider government approach to tackling economic crime, sitting alongside the national security Bill, the Online Safety Bill, the Data Protection and Digital Information Bill, and the forthcoming economic crime plan 2 and fraud strategy. The Online Safety Bill is ambitious and forward-looking legislation that will tackle online harms, including fraud and fraudulent advertising. It will bring fraudulent user-generated content and fraudulent online advertising within scope of the online safety regulatory framework in order to increase people’s protection from the devastating impact of scams posted across the biggest websites; that will include social media apps and dating sites. Also included are romance scams, which can cause devastating psychological harm and are estimated to cost £60 million a year.