Economic Crime and Corporate Transparency Bill

Lord Garnier Excerpts

Committee stage
Monday 27th March 2023 Grand Committee

[Lord Johnson of Lainston (Con)]

I thank the noble Lord for his comments. I do not want noble Lords at any point to think that I am being defensive in any way, as we are having a collaborative debate around the objectives of trying to improve company law and registration of companies and the integrity of the information stored at Companies House.

Objective 1 is pretty clear in referring to

“any person who is required to deliver a document to the registrar does so”,

and objective 2 is very clear and specific in saying

“to ensure that documents delivered to the registrar are complete and contain accurate information”.

They are unambiguous points—that is very clear. There is no question about there being some grey area around that. But with regard to objective 3 and

“creating a false or misleading impression to members of the public”,

clearly that is relatively subjective statement. It is clear that we have made efforts in this Bill to ensure that company names, for example, cannot be used to be misleading, and additional powers have been placed with the Secretary of State to ensure that companies have to change their names—but there is an element of subjectivity around a company name. To some extent, it is not totally prescriptive. Objective 4 then says,

“to minimise the extent to which companies and others … carry out unlawful activities, or … facilitate the carrying out by others of unlawful activities”.

These are complicated areas, in which, as the noble Lord, Lord Coaker, said, issues around forensic accounting, and so on, have been raised. Nothing is necessarily as straightforward as it seems. The principle here is to try to reduce the crime clearly to zero—so if the registrar reduced levels of criminal activity to a certain percentage, which they felt were somehow in a target range and then stopped their work, we would consider that to be entirely inappropriate. At the same time, they have a very clear objective, which is to minimise financial misconduct and criminality. That flexibility enables the registrar to perform her functions appropriately.

[Lord Garnier (Con)]

I do not want to prolong this debate because, although it is fascinating, it is something that can be dealt with in the period between now and Report. Perhaps my noble friend could, with his officials, run through the dictionary to find a slightly punchier verb. We all know what “minimise” means—to reduce to a minimum. I take the point that the noble Lord, Lord Coaker, is making. A slightly more aggressive approach to criminal activity or people’s misconduct in using the Companies House system is probably required. It is just a tweak in the language; we are not going to World War III over this—it is just a question of going back, having a look at a dictionary and seeing if they can find a slightly more aggressive word.

Economic Crime and Corporate Transparency Bill

Lord Garnier Excerpts

Committee stage
Tuesday 18th April 2023 Grand Committee

In short, the amendment painlessly and efficiently increases transparency and provides essential, quantitative information vital both to economic growth and to bearing down on opportunities for economic crime, while at the same time taking a realistic approach to the resources of the registrar. I hope that we will have an opportunity before Report to agree an amendment along these lines.

[Lord Garnier (Con)]

My Lords, I agree with the arguments presented by the noble Lords, Lord Cromwell and Lord Vaux, in respect of their amendments. I have a great deal of sympathy for the thrust of what they had to say. I hope I have not interrupted my noble friend Lord Agnew, who spoke a moment ago. It may well be that I am getting ahead of him by expressing my support for his Amendment 51.

It seems to me that what we are about today is not placing burdens on business. We are not anti business, we are pro honest business, we are pro clean business, and we are pro having a registrar who has the powers to ensure that what is done within our economy is necessarily cleaner than it might have been in the past.

I see no problem at all in requiring ACSPs to be identified. I see no real burden on businesses in requiring them to comply with the terms of these amendments. We need to grasp this opportunity, as my noble friend Lord Agnew said a moment ago, because these Bills come along very infrequently and these so-called burdens on business are brushed aside as matters which are far too burdensome; whereas, as the noble Lord, Lord Cromwell, pointed out, although I could not possibly do it myself, it took him 15 minutes to design a spreadsheet. If it took the noble Lord 15 minutes, I am sure there are people half our age who could do it in seven and a half minutes. It strikes me that there are people all across the business economy of this country who are just laughing at the sloth of Parliament in dealing with these matters.

My noble friend Lord Faulks and I sat on a committee dealing with the predecessor Bill to this one. We were told that things were going to happen with great speed. It was not until last year that my noble friend’s committee was able to see some of the benefits of the work that he did.

Now, we are waiting further and being told by a Conservative Government that we must not overdo the burdens on business. Frankly, business is big enough and ugly enough to look after itself. Our job is to make sure that the legislation is apt to do the job that we require of it: ensuring that we have a clean, honest business environment where financial crime is not just inhibited but publicly and expressly disapproved of. Whether we bite on these particular amendments or do it in some other way—I hope that the Government will come up with something that appeals to them between now and Report—I expect us, as one of the leading economies in the world, to be able to construct a system that does not allow bad actors to get away with doing bad things because we do not have the sense of purpose or initiative to deal with them.

[Lord Agnew of Oulton (Con)]

My Lords, I apologise; I should have dealt with my amendments when I stood up originally. I will deal with the three that I think are relevant now: Amendments 49, 51 and 63.

I want to stress to noble Lords just how broken the system is at the moment. The ACSPs are not being supervised adequately. A 2021 review found that 81% of professional body supervisors were not supervising their members effectively; just to add to the confusion, there are more than 20 supervising bodies. Half of these supervisors were found not to be ensuring that their members take timely action to improve their money laundering procedures. A third of those procedures still do not have an effective separation between advocacy and regulatory functions.

Let me drop into some details here. Essentially, HMRC marks its own homework on this once a year. In its report last year, it owned up to at least six problems. Regulation 58 of the MLR—the money laundering regulations—requires HMRC to carry out fit and proper testing. This year’s assessment revealed HMRC’s failure to keep pace with the requirement to register a business within 45 days, with its performance worsening over the year, down from 78% in 2021 to 70% in 2021-22. In practice, this means that more businesses—in fact, nearly a third of them—are operating outside the scope of the supervision for longer than in previous years.

There is an issue with recruitment and staff training; I will quote from its report in a minute. There also continue to be delays in publishing sectoral guidance for businesses under supervision. The volume of face-to-face visits in its investigations has collapsed. Yes, we have had Covid, but we are beyond Covid now. There were 1,265 face-to-face visits in 2018-19 but last year, in 2021-22, that was down to 289. Lastly, HMRC has censuring and injunction powers that it is not using. These things just are not happening.

Just read the report that it has written, which I think is a master of the English language. It states:

“The AMLS team largely has effective managers”.


What is that saying? It also states:

“However, it is clear that performance is not consistent across the team, which has made it harder at times to make improvements to supervision”.


Those are its own words. It goes on to announce a case study, which happens to be on TCSPs. It had a concentrated week—one week—in which it suddenly found that it could issue 12 warnings and one penalty. Also, 23 compliant businesses were identified as needing regulation and 14 cases were identified as requiring further investigation—and that is in just one week.

Let us look at who is keeping an eye on HMRC: the Treasury. Every year, it produces a supervision report entitled Anti-money Laundering and Countering the Financing of Terrorism. In it, the Treasury says that, despite some improvements, improvement is required in several areas. It stated:

“Many PBSs had not implemented a risk-based approach that effectively prioritised their AML supervisory and enforcement work”


and highlighted

“Gaps and inconsistencies in many PBSs’ approaches to information sharing”

and

“Gaps in most PBSs’ enforcement frameworks”.

It continued by saying that

“the prioritisation of supervisory activity in high-risk areas, such as Trust and Company Service Provider … supervision”

is weak, so on and on we go. I know that my noble friend the Minister will pour balm on my words and say that everything will be all right, but this is a once-in-a-decade opportunity to deal with these things.

The noble Lord, Lord Vaux, touched on some of the bad things coming out of this. I will give a couple of examples. In 2020, TCSPs played a crucial role in something called the FinCEN files. There was one example of a single formation agent setting up 385 companies. An analysis of these companies showed that just nine of them were linked to $4 billion-worth of missing income.

We then come to the Pandora papers, which came out only two years ago. Owners of more than 1,500 UK companies were using 716 offshore firms, including individuals accused of corruption. Offshore companies could be traced to a variety of jurisdictions. Most of these—678 of the 716—were registered in the BVI. All these companies were set up by just 14 offshore TCSPs, five of them owned by Russian citizens.

On and on we go, which is why my amendment tries to say, “Stop. Do not let this legislation take effect until we have cleaned up this sector”. I would be keen to hear from my noble friend the Minister why the Government are taking such a complacent approach to this. It is really not difficult or expensive. As the noble Lord, Lord Vaux, said, we are a laughing stock around the world, being called Londonistan, Londongrad or whatever else anyone chooses to use. We have this huge conduit of these offshore entities, which are feeding all this stuff in because they all want to use English law. We are a wonderful place for them, but they have to play by the rules as well. It is a whole ecosystem and this Bill is the opportunity to clean it up. I beg to move.

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[Lord Johnson of Lainston (Con)]

I am always grateful to the noble Lord, Lord Vaux, for his interventions. As I said, we are looking forward to having a full discussion about this issue in our proceedings over the next few weeks. From my personal point of view, it is right that there is a higher degree of transparency and it is absolutely right that we should look closely at trying to ensure that the identity of the verifier is also linked to the verification of the identity.

[Lord Garnier (Con)]

I was interested in the intervention from the noble Lord, Lord Vaux. I have been listening carefully to what my noble friend the Minister has been saying. When we have these further discussions, either in Committee or elsewhere, could he kindly come with a few reasons to support the arguments that he is currently putting forward? I do not get the impression that the cogs are quite meeting here. I know that the Minister is under some constraint because this Bill has been pushed here from the other place by the Secretary of State, but I would be interested in getting to grips with the underlying rationality that supports the words that the Minister is uttering. I do not intend to be rude—I hope that I am not coming across as such; it is probably my fault for being obtuse—but I am missing bits that might encourage me to think that we are moving forward.

[Lord Johnson of Lainston (Con)]

I thank my noble and learned friend for his intervention, as always. I am sorry if my words have not been clear enough. I hope that, over the next few weeks as the Bill proceeds through the House, we will have conversations that will allow us to come to a sensible conclusion on this issue. In trying to justify why we should not publish the name of an ACSP against the verified identity, we will of course provide reasons. The point is that we should have a sensible, legitimate discussion about this. It is not for me at this Dispatch Box to come up with a variety of reasons or excuses because this is an important point that we want to look into with great seriousness.

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[Lord Garnier (Con)]

To add further irrelevance—no, just irrelevance; I apologise to my noble friend—I am pleased that the noble Lord, Lord Ponsonby, and the Labour Party have moved this amendment. When we debated identity cards in the dim and distant days when Tony Blair was Prime Minister, one of the great things that was stressed by the then Labour Government was that there should be a photograph of the person in question, but they did not say that it should be of the person’s face. This enabled cheeky Members of the Opposition to tease—I cannot remember whether the noble Lord, Lord Coaker, was a Home Office Minister at the time—

[Lord Coaker (Lab)]

I am not admitting it.

[Lord Garnier (Con)]

We had a great deal of fun working out which part of the identified person’s anatomy should form the main part of the photograph. I am happy to say that the noble Lord, Lord Ponsonby, has obviously learned from that hideous experience. This seems an altogether better set of proposals.

[Lord Johnson of Lainston (Con)]

I thank the noble Lords, Lord Coaker and Lord Ponsonby, and the noble Baroness, Lady Blake, for Amendment 50. As has been discussed, it seeks to require that the new identity verification process includes the use of photographic ID issued by a recognised authority. Although I welcome our shared ambition to ensure that identity verification will be a robust process, I am concerned about noble Lords’ proposed approach to limit the acceptable documents in primary legislation. Under Clause 64 of the Bill, the procedure for identity verification, including what evidence will be required, will be set out in secondary legislation.

I apologise, as always, for not answering noble Lords’ questions. The noble Lord, Lord Vaux, raised how I dodged his question the first time. I hope I am not dodging it a second time but I would be delighted to write to noble Lords with some further information on the specific detail that is required for identity verification. Let me be very clear: we assume that it will include a photograph. However, I will come on to explain why that may not necessarily be the case in every instance.

Setting this out in secondary legislation will allow for flexibility and ensure that the technical detail of the identity verification process can be adapted to meet evolving industry standards and technological developments. Parliament will have the opportunity to scrutinise these regulations via the affirmative procedure. I assure noble Lords that, for the majority of individuals, photographic ID will be used. The primary identity verification route will be via the so-called “selfie verification” method, which will involve the person providing documents such as a passport or driving licence. The person undergoing identity verification will take a photograph or scan of their face—my noble and learned friend Lord Garnier may be pleased by this specificity—and the identifying document. The two will be compared using likeness-matching technology, and the identity verified.

However, I am concerned that the proposed amendment would exclude individuals who do not have photographic ID. Restricting the acceptable documents could inadvertently discriminate against a number of people and raises equality concerns. For example, would it be fair for the law to prevent individuals setting up a company simply because they do not have a passport or a driving licence? Should an individual who has owned the freehold of their home for decades via a company now be forced to apply for photographic ID despite there being no other statutory requirement to have one? This is why, for individuals who cannot provide such documentation, there will be alternative options available. I assure the Committee that these will be robust and proportionate.

Most importantly, all providers will conduct checks in line with the cross-government identity proofing framework—the GPG 45—which will be comparable to verification checks conducted elsewhere in government. Under the GPG 45 framework, a combination of non-photographic documents, including government, financial and social history documents, can be accepted to achieve a good-level assurance of identity. ID documentation from an authoritative source such as the financial sector or local authorities is also recognised under the cross-government identity proofing framework and is routinely used to build a picture of identity.

For the reasons I have set out, I hope that noble Lords will understand the philosophy of my approach and agree that requiring in primary legislation that an individual provide official photographic ID to verify their identity would be unnecessarily restrictive and potentially unfair. I am afraid that I must therefore ask the noble Lord to withdraw his amendment.

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[Lord Cromwell (CB)]

My Lords, as my name, among others, is attached to Amendment 72, I express my sympathy with it. In the previous day of debate, a great deal was said by the Minister and others about the importance of the guiding objectives to be given to the registrar. I suggest that much of the Bill and, in particular, the majority of the amendments that have been tabled are attempts to give practical effect to those objectives. I am sure the Minister welcomes the engagement of us all in seeking to achieve that, as he said.

I would expect the registrar and the Secretary of State to welcome an annual report reviewing the adequacy of the powers and progress, including, importantly, quantitative measures, as the noble Lord, Lord Agnew, outlined. Such reporting is a crucial part of reporting and being accountable to Parliament. Given that we are looking at a major overhaul of Companies House in the Bill, it is essential that we have proper reporting on progress. There are a number of probing amendments in this vein, including the amendment in the name of the noble Lord, Lord Coaker, and I hope that the Government will take the opportunity to blend them into a practical outcome.

[Lord Garnier (Con)]

My Lords, I, too, have put my name to my noble friend’s Amendment 72. He is quite right: in business, what gets measured gets done. That is also true of politics: one has only to set down a requirement and have it followed up and measured to see an improvement in the performance of a government department or a public authority such as Companies House. I entirely agree with the thoughts put forward by my noble friend and the noble Lord, Lord Cromwell, in support of this amendment, and by the noble Lord, Lord Coaker, in addressing his amendment.

For my own part, I do not necessarily think that we need to see the terms of these amendments set out in legislation, but we do need a public recognition that the elements that the noble Lord, Lord Coaker, and my noble friend Lord Agnew spoke about are publicly recognised as goals and things that will be measured and reported on annually.

Nowadays, annual reports are made not only by company chairmen. The Lord Chief Justice makes an annual report, as do various other public figures dotted about our constitution, so we should not run shy of requiring that. Indeed, Clause 187 makes clear that the Secretary of State will make a report. The main thing to do is to get the information out there regularly and publicly so that the public know what is being done in their name.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I support what others have said. If we take these amendments as essentially saying that Clause 187 needs to be amplified, I, like the noble Lord, Lord Agnew, do not see the reason for sunsetting in 2030. It is not that far away given that, although this might commence immediately on Royal Assent, there are quite a lot of regulations and other things—and I do not know what the timescale of those will be—before everything is up and running.

As I see it, Clause 187 is about monitoring progress, getting everything up and running and seeing that it is okay, then just saying “that is fine”, but I think there is a case for ongoing monitoring to see what is changing and whether there is a need for any further update. The annual report seems to be a vehicle for that and, like others, I say that that is a good reason for it to continue, rather than being sunsetted, and if need be, perhaps to list a few more things that it will cover. Clause 187 could stay silent on that as it is quite broad, talking about

“the implementation and operation of Parts 1 to 3”.

If you took away the sunset clause, I could probably be quite satisfied.

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[Lord Browne of Ladyton (Lab)]

My Lords, a packet of 20 Lambert & Butler or Marlboro cigarettes costs £12.65. That is how out of proportion the fee for setting up a limited company has become. It may well be that government taxation and inflation have influenced the price of cigarettes and that it does not reflect their real value, but that is the reality of the world that we live in. If you have £13 in your pocket, you can buy a pack of cigarettes or you can float a limited company.

This has got totally out of proportion. Businesses that have this limited liability have become a driver of our economy but a significant proportion of them have become a serious problem for our country. Not only has our international reputation been trashed by the people who abuse this, with us being trusted less as a centre of probity and good practice, but, if we accept the Government’s apparently accepted assessment of what this costs us annually, they are taking £350 billion out the economy on a regular basis. They are doing that in a series of economic activities in which they take the money but we count it as GDP. That is utterly ridiculous. Then, after the money goes out of the country—quite often as cryptocurrency—it comes back in and we count it as inward investment. They have distorted the reality of the economy of our country in a significant way and they have stolen significant amounts of money that could have been put to other purposes.

I support these amendments because these two issues need to be addressed. First, the process of setting up a limited company needs to force people to think more about what they are doing. It needs a quality about it and part of that has to be in the fee. The people whom we charge now with not only collecting this data but being the gatekeeper and inhibitor of crime—that is what we are asking Companies House to do—have to be resourced. That resource should come substantially from those people who wish to exercise the privilege of having limited liability in their companies because it is in their interests to have the ability to do that and not be characterised with the rest of these cheats and robbers. The way in which they conduct their business is being protected, and money is not being taken from them by fraud and the other activities that are manifestly going on. It is in their interest for this system to work properly; they should pay the appropriate fee so that that work can be done.

More importantly—this is the real issue that this amendment addresses—the measure of the ambition that we have, that Parliament has and that the Government say they have to interdict all this behaviour has an enormous prize at the end of it: £350 billion. This was described to me as relatively low-hanging fruit in my recent correspondence with one of your Lordships. We know how to interdict this behaviour, keep this money in our country and stop it from being stolen from our common resources in this way.

The measure of the Government’s priority for this is that it should have figured in Rishi Sunak’s five priorities. This is such an extraordinary series of things to be happening in our community, with such a dreadful effect. Economic crime—fraud is part of it, as 41% of crime against a person in our country now is fraud—is having an effect on almost every family in our country. If we do not know people in our families who have been defrauded, or if we have not been defrauded ourselves, we will live in constant fear of it. Every text we open or every email we get that we do not recognise immediately causes our heart to beat a bit faster, as it may have infected our electronic communications. We are all affected by this. There is a great delivery to be had for the people of this country, the way in which we trust each other and the way we live, but there is also a lot of money at the end of this.

A significant proportion of the money going out comes from the Government’s own coffers and we are not protecting ourselves against its loss. If they have an alternative way to convince us that this can be done differently than is proposed in these amendments, now is the time to tell the House of Lords. Like the House of Commons, the House of Lords is going to coalesce around these sorts of amendments—the difference being that support for them here will mean your Lordships’ House winning the day when it comes to counting the votes. We all collectively want the Government to bring these types of amendments and solutions to the House for approval, in their own words.

Can the Minister explain to us how we are going to move out of being a country that basically sells to people, for the price of a pack of cigarettes, this ability to do something that a lot of people are using for crime? Where is the money going to come from to ensure that the work that is needed is done in regulation, enforcement and prosecution but mostly by inhibiting this from happening in the first place? I am much less interested in prosecuting people who have done this than I am in stopping them doing it. We can stop them and give ourselves a resilience but we are going to have to invest a significant amount of money; the Government should see that money as a priority because the prize at the end of it is so significant. If there is no alternative, then this is the best way to do it and I would support and vote for it, but the Government have it in their gift to tell us how they will do it otherwise, if they can convince us that we can trust them to put their money where their mouth is.

[Lord Garnier (Con)]

My Lords, I have added my name in support of Amendments 69 to 71. I agree with what my noble friend Lady Altmann said in support of her own amendment and very largely agree with what the noble Lord, Lord Coaker, said from the Opposition Front Bench—supported, it is fair to say, by his noble friend, the noble Lord, Lord Browne.

These amendments are important not for what they say intrinsically but for what they say about us—as a Parliament and as people who make policy then implement it. The cigarette packet analogy is very telling: it is ridiculous that it costs the same to buy a packet of cigarettes as it does to register a company. That clearly has to change and I do not think that the Government believe that £12.50, or whatever the cost is, is the right price to register a company. There may well have to be a sliding scale, reflecting small and larger companies, but suffice to say that the current level of fees is ridiculous and the current level of fines could well be ridiculous.

Having signed these amendments, however, I do not want to be seen as a false friend. I take the point that putting on the face of primary legislation the fee, or the fine, makes lifting it higher annually—or whatever the relevant time is—much more difficult because the primary legislation will have to be amended. You might get a Bill like this—okay, we have had two in a year; we are all smiling but these two years are very unusual—but the next time we get to amend the level of the fine in primary legislation could be a long way off. I suggest that we use these amendments to prompt the Government to set realistic fees and fines, and to place those in a form of legislation that can be amended readily and quickly. That would presumably be under regulations, which is not an unusual state of affairs. The purpose behind these amendments, as I say, is to provoke or promote the Government into thinking about the levels of these fines and fees.

In relation to the question of hypothecation or whether the fines should go into the Consolidated Fund, again, I am going to demonstrate that I am a false friend to some extent because hypothecating fines or fees can sometimes create another form of sclerosis. It also creates an inability to be flexible in how one spends public money.

Our arguments in support of these amendments demonstrate what this Committee thinks—here, I agree with the noble Lord, Lord Browne: if this proposal was put to a vote on Report, it would win. I do not think that the Government need have any false hope about that; I suspect it would win. Of course, it would be overturned back in the other place but we would be saying to the Government, “We want real and meaningful action”. This Committee leaves it to the Government to come up with a scheme that avoids having a vote and meets the real nature of the problem that we face.

Economic Crime and Corporate Transparency Bill

Lord Garnier Excerpts

Committee stage
Thursday 20th April 2023 Grand Committee

[Lord Vaux of Harrowden (CB)]

My Lords, I support the amendment in the name of the noble Lord, Lord Agnew. To follow up on what has just been said, at the date of Second Reading, approximately half of the expected 32,000 companies that were going to register had done so. I gather that this figure is now 27,000, which is a good step forward. At that time, when it was a rather smaller number, I think 4,000 of those companies suggested that they were owned by trusts, which shows the scale of this issue.

I think it was the noble Lord, Lord Leigh of Hurley, on the first day in Committee, who was sceptical about whether my amendments identified the ultimate beneficial owners of trusts. He was right to be sceptical; I do not think they did. But that ultimate beneficial ownership and control is what we are trying to get to with this process. Trusts are probably the most common method used for hiding the ultimate true ownership. As I say, 4,000 out of the 16,000 companies that had filed at the time of Second Reading—a quarter—were owned by trusts, and we could no longer see where they went.

It seems very perverse that this information is hidden. I am keen to hear from the Minister a convincing explanation of why the Government feel that it should be hidden. Like the noble Lord, Lord Agnew, I see that the Minister has tabled Amendment 76H, which will extend the information required on trusts. That is very much to be welcomed. I am not at all clear—I do not think that the noble Lord, Lord Agnew, is either—on whether that information is intended to be transparent or hidden. Clearly, it should be public.

To be honest, there seem to be a lot of areas where information is hidden. We have had a number of discussions already in Committee about that. We need to step back and apply a simple principle that there should be maximum transparency, and that we should hide information only where there is genuinely a strong privacy issue. At the moment, it feels very much as if the balance is tipped too far towards privacy and too far away from transparency.

[Lord Garnier (Con)]

My Lords, I entirely agree with what the noble Lord has just said. Trusts are and have been frequently discussed in this Bill and its predecessors as one of the most effective ways of hiding information that ought to be made public. Clearly, some matters are properly to be kept confidential, but much of the material covered by the law of trusts ought, in the public interest, to be disclosed.

I happily support the amendment that my noble friend Lord Agnew moved a moment ago. Like him, I want to know whether the Government’s Amendment 76H renders his amendment redundant. I do not think it does, because it seems to me that there is a difference between the publication of information about trustees, which is what my noble friend talks about, and the registration of information about trusts in the Government’s proposed new clause. We can register as much as we like, but if you cannot open the box and see what is inside and has been registered, it is a pretty futile exercise. Public opinion, public policy and an assessment of the public interest suggest to me—for the reasons already given by the noble Lord, Lord Vaux, and my noble friend Lord Faulks—that the Government, if they want to maintain the difference between registration and publication, are behind the curve.

We learned a lot in my noble friend’s committee in 2019 about the huge amounts of real estate, particularly within London and a couple of its boroughs, which are owned by people, companies and trusts of which we know nothing. Many of these houses and properties were unoccupied; they were merely the physical dumping grounds for money. Obviously, they had to be paid for.

The committee on which the noble Lord, Lord Faulks, and I served was not able to discover, but sought to encourage the then Government to expose, the route by which criminal funds were laundered into London by money launderers. Any number of blocks of flats and very expensive houses, all year round, 24 hours a day, never have a single light on. You can go down smart squares in Kensington or Westminster and see places that look utterly unoccupied—because they are. They are dumps for dosh. We need to make sure that this new law is effective at exposing and, if not exposing, inhibiting before it gets here, the translation of laundered money from dodgy jurisdictions into ours. It is as simple as that. I hope the Minister is able to persuade the Committee that my noble friend’s amendment is redundant, because the Government’s amendment comprehensively and effectively does what we would like.

[Lord Wallace of Saltaire (LD)]

I will just add to this. As it happens, the other week my wife and I were going around the Nine Elms development, Battersea Power Station, et cetera, with an eye to when we downsize. We were told that, until then, over 40% of the apartments had been sold to people living abroad. That partly explained why it was so very quiet there; not many people were present in the complex. That raises all sorts of large questions about housing practices in London, which we need not touch on at the moment.

I want to pick up on the point made by the noble Lord, Lord Agnew, about how one establishes the ultimate beneficiary when one company is owned by another company, which is owned by a trust in another jurisdiction. That is part of what my amendment was trying to get at, as a key element before one can even begin to enforce is accurate information from regulators in other jurisdictions and territories, and how we do our best to ensure that the information we are receiving is accurate. That requires active diplomacy and co-operation between the financial parts of different Governments. We are looking for some assurance from the Minister that that is part of what is intended when the Bill becomes an Act and that we will know which parts of Whitehall will be pursuing it.

On the first day in Committee, there were some references to the role of HMRC. We have been told that Companies House will not be concerned with regulation or enforcement, but we need to know a little more about which parts of our government machine will take the lead on ensuring that we begin to unpick the cascade of trusts and companies referred to by the noble Lord, Lord Agnew, and will tell us who, in effect, the beneficial owners are.

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[Lord Johnson of Lainston (Con)]

I am just coming on to that. The noble Baroness, Lady Blake, is right to ask for there to be a running total, because a further 717 overseas entities have complied in the recent period since my own figures were updated—so it would be quite useful to see how that is going. I would also like to separate the comments of the noble Lord, Lord Vaux, about the ability to keep some information private from the presumption of this Bill, which is the presumption for privacy for trusts rather than it being the exception.

This matter was well debated in the other place during the passage of the Bill—I am sure that some of your Lordships have had the opportunity to read that debate—but the question was what level of information should be published. Let us remember that all this information is collected by Companies House, so it is on record. In terms of crime fighting, it will be fully available to Companies House for the processes that all companies are obliged to undergo. It is perfectly reasonable to have a debate about what level of transparency there should be when it comes to publishing information. As I said before an intervention, it may also be appropriate for there to be a presumption of privacy for small, micro-entity information, given that some of those very small businesses are in effect people’s private wealth.

We should not conflate the work that we are trying to do here on Companies House, corporate transparency and reducing crime with some of the powerful principles around privacy, investment, family and protection, which are not irrelevant. It is important that we have a debate about this. The Government have committed actively to explore levels of information that should be published. The Treasury is very specific on my mandate in this discussion. I am not mandated to commit to any level of transparency above and beyond what we are already doing, which is a significant change, yet, at the same time, I can, and am keen to, commit to further debate about the level of transparency.

[Lord Garnier (Con)]

My noble friend’s own Amendment 76H is in a different group to this one, but it is likely that we will debate it later today. By then, he may not have had time to take further advice about the default position that we would like to see; that is, everything should be made open unless there is a good reason for it not to be. I was struck by the expression that he used a moment ago, particularly when dealing with micro-companies, that the default position should be one of confidentiality—“secrecy” is an emotive word—in favour of the micro-company and its owners as opposed to the other way around.

We are looking for a general rule, a general default position, that there should be openness unless there is a very good reason for there not to be—and, as my noble friend pointed out, there will be occasions when there is a very good reason not to have an open-source register. Is my noble friend in a position, even if he is not able to do so later this afternoon when government Amendment 76H comes to be debated, to amend or clarify the Government’s position? Can he assure us that Report will be the occasion when this further debate will be held? To say that there will be opportunities for a debate about the default position does not pin it down to a particular date or time. My noble friend will know, and the usual channels will know, that time is precious and Governments can often find an excuse, based on inconvenience, not to allow a debate that is required to take place.

[Lord Johnson of Lainston (Con)]

I thank my noble and learned friend for that point. Going back to the comment the noble Baroness, Lady Blake, made about the statistics on registered entities, I understand that there is a website that tracks this, which the Committee can log on to each day to see progress. We will send that link around to encourage your Lordships to look at it, but at the same time we will make sure that we provide more information about the statistics.

I cannot commit to a debate on trust transparency at this stage, but what I can commit to is that the Government are exploring this topic, which I think is separate to some of the discussions we are having. I would like to clarify my own point, which the noble Lord raised, about micro-entities and the assumption of publishing. I believe that the assumption is that the information would be published. My point was that I think it is perfectly reasonable to have differing views over this on account of areas such as privacy, if I can have a personal view as a Minister. I am very happy to have a debate about whether there is a discussion to be had around privacy for micro-entities publishing all their information, given how personal that can be. I think it is perfectly legitimate for trusts, in many instances, to be considered private affairs, so long as the authorities themselves have the transparency of information that they need.

--- Later in debate ---

[Lord Agnew of Oulton (Con)]

My Lords, I support the amendments and want to make a couple of points. First, it is not a very ambitious request that we are making of these territories: simply that they have proper anti-money laundering processes in place. If we link it to my own amendment, which I have withdrawn, we are now in a position where we have no knowledge of the ultimate owner of many of those assets and no reassurance that there is any anti-money laundering going on.

Secondly, we need to remember that it is our reputation being damaged by these territories which are not stepping up to the plate, because they are using the principles of English law and that is how they are making a very good living out of it. I again ask my noble friend the Minister what is happening to move this along. It has been sitting around for a long time and it is damaging the reputation of this country.

[Lord Garnier (Con)]

My Lords, I have an interest to declare in that I am presently instructed by the Government of the Isle of Man in a legal matter. Under the new rules of the House, that is declared specifically in my entry in the register—I have just been checking. It is not a very exciting piece of work: I am required to report to the Isle of Man Government on the state of their legal services sector—I know that many of you will be very jealous of that exciting piece of work. One thing that the Isle of Man is particularly keen to have recognised is that it is an independent jurisdiction. Yes, the United Kingdom and the Isle of Man share through the Lord of Mann—namely, the sovereign—a head of state. Yes, it shares many of the legal traditions and concepts that we recognise in this jurisdiction, but it is a separate jurisdiction. It has its own parliament; indeed, its parliament is probably older than this one: the Tynwald. I have received instructions, not recently but in the past, from states within the Channel Islands and from British Overseas Territories. They are all fiercely proud of their independence as separate jurisdictions. I fully understand the points and the thrust of the arguments made by noble Lords who have spoken ahead of me, but we need to be careful about how we approach extending the ambit of this legislation.

To look as though we are retaining some sort of colonial mastership over those fiercely proud and independent jurisdictions is not a good look. It does not matter whether you are in the BVI, the Cayman Islands, Guernsey, Jersey or the Isle of Man; we just need to tread politely, quietly and with consensus. I accept that noble Lords have said that this has been going on for far too long and it is time that the UK Government got their act together and started to do something about it. Of course, that would be the ideal, but, often, the best is the enemy of the good. I want the Minister to know that although this is a forum in which he might seem, from time to time, on his own, he is not. No matter of which party we are or whether we do not belong to any party at all, we are trying to achieve workable legislation which is not only comprehensive and comprehensible but carries the respect of the people against whom it might bite, because law which is not respected is law which does not have any value or purpose.

If my noble friend the Minister sometimes thinks that he is the only man standing at the gate as the barbarian hordes—the noble barbarian hordes—assail him, would he please accept from me that he has our personal friendship and our professional respect? I am sure that this sentiment covers the whole of the Committee. We know the difficult job that he is doing so please, when we come to discuss this amendment, will he accept from me that I understand it is not easy to tell the Channel Islands, the Isle of Man or the British Overseas Territories that they must do what this Parliament says?

There will therefore be many discussions, it seems to me, between his department, the FCDO and the Treasury with their counterparts in these various jurisdictions. If we can bring them with us, as opposed to clobbering them with unilateral legislation, we will achieve a much longer lasting result—albeit that I entirely accept the purpose of the amendments from the noble Lord, Lord Wallace, and the noble Baroness, Lady Bennett of Manor Castle. Here at least, going with and coming alongside, as opposed to hitting head-on, is the way to go forward.

[Lord Fox (LD)]

I was going to take the benefit of what I hope will be some free consultancy, when it would otherwise be highly expensive, to ask a genuine question. Were His Majesty’s Government not to take the noble and learned Lord’s advice but wished to exert their will over these territories, is the means by which that is done through an order of the Privy Council or are there other ways of doing it? If the answer is yes—I see another noble Lord nodding—what are the precedents for that in recent times?

[Lord Garnier (Con)]

The noble Lord saw my noble friend Lord Faulks nodding. The fact that we went to the same school, the same college at Oxford and the same Inn of Court has absolutely no bearing on this, save to say that he will answer that question in a moment. I am sure he would wish to catch the Committee’s eye. That having been said, I want to finish on this rather wishy-washy point. I sympathise with what has been said in support of these amendments, but we need to take a step back and have a reality check to see how this would be received by the people against whom it will bite.

[Lord Faulks (Non-Afl)]

I will, then, as I usually accept that invitation. As I understand the position, an Order in Council is the mechanism. The convention and the arrangement with the Crown dependencies that I spoke of is not the same with the overseas territories, although the points made about consulting them very much apply.

[Lord Wallace of Saltaire (LD)]

If I may respond to the noble and learned Lord, Lord Garnier, since I have been involved in discussion on this on a number of previous Bills, we are normally assured by the Government as a Bill goes past that there are ongoing consultations with the CDs and the OTs, and that they have been assured that the key proposals will be incorporated into their domestic law within a limited period. As I said, there have been a number of occasions when that has not happened in some territories. It has often been the weakest territories concerned and, after all, this Government have spent a good deal of money on taking over the government of the Turks and Caicos—having to intervene where things have failed. This is rather like saying, “On most occasions, we do not expect most banks or overseas territories to be involved in any form of corruption, but sometimes some will be tempted”. Some may be overcome and that is what we are trying to guard against.

[Lord Garnier (Con)]

The noble Lord is right, and it has not been an easy history, but these small jurisdictions have a choice. I am well aware of the criminal cases currently going on in the Turks and Caicos, and the need for direct rule there. But I have seen too many occasions—not a vast number, but too many none the less—when these small jurisdictions are prepared to be seduced by China rather than maintain their relationship with the United Kingdom. We need to be careful that we do not force these smaller jurisdictions into the arms of the Chinese, when it would be much better for their well-being and ours if we were to maintain them within our own family. I will leave it there.

[Baroness Blake of Leeds (Lab)]

With apologies, as I am not sure whether this is an appropriate time to raise this, but given that our amendment refers to the Sanctions and Anti-Money Laundering Act, perhaps the Minister can explain what sensitive negotiations and discussions, as the noble and learned Lord, Lord Garnier, mentioned, have taken place and the reasons for the disappointing progress. It would be helpful to have a better understanding of why we have not been able to progress.

Economic Crime and Corporate Transparency Bill

Lord Garnier Excerpts

Committee stage
Tuesday 25th April 2023 Grand Committee

[Lord Thomas of Gresford (LD)]

My Lords, I will speak to my Amendment 80, in my name and those of the noble Lords, Lord Cromwell and Lord Agnew, and the right reverend Prelate the Bishop of St Albans, for whose support I am most grateful.

I will give a little background to set the amendment in context. In the 2021-22 Session, I drafted and introduced a Private Member’s Bill on the issue of SLAPPs, based on the Ontario model, as endorsed by the Supreme Court of Canada. Obviously, I had modified that model to suit the procedures of the civil justice system in England and Wales. Through the noble Lord, Lord Wolfson of Tredegar, I met with the Under-Secretary of State in the MoJ, James Cartlidge MP, and his officials, and had a very positive meeting with them.

My draft Bill was basically acceptable in principle, but there was one matter, they told me, it did not deal with: the scourge of pre-action threatening letters, designed to inhibit and intimidate journalistic or academic investigation. However, I was told that the Government were proposing a consultation on the issue, and indeed there was a call for evidence on 17 March 2022. It was wide-ranging; there were 48 questions asked of respondents. As it happens, not one referred to the issue of threatening letters prior to proceedings. However, one respondent suggested that any pre-action letter should require a statement of truth, so that any false allegations in the letter could be treated as a contempt of court.

The consultation finished in May of last year, and the MoJ published a full response in July. Dominic Raab said in the foreword:

“Strategic Lawsuits Against Public Protection, or SLAPPs, are a growing threat to freedom of speech and a free press – fundamental liberties that are the lifeblood of our democracy. Typically used by the super-rich, SLAPPs stifle legitimate reporting and debate”.


This is the point that I want to draw to your Lordships’ attention—he continued:

“They are at their most pernicious before cases ever reach a courtroom, with seemingly endless legal letters that threaten our journalists, academics, and campaigners with sky-high costs and damages”.


At the Second Reading of this Bill, the noble Lord, Lord Sharpe of Epsom, said:

“The Government are committed to tackling SLAPPs”


—I am sure that is right—

“but as the first country to pursue national legislation on such a complex issue”

—he ignored all the states of the United States, Canada and Australia, where such legislation exists, but never mind about that—

“it is right that we take the necessary time to consider this carefully and make sure we get it right. We will introduce primary legislation to tackle SLAPPs—this is where I am going to upset all noble Lords—as soon as parliamentary time allows”.

Now, I have to admit, I was upset. He continued:

“We are in the process of ensuring that we have anti-SLAPPs legislation which properly and comprehensively addresses the problem”.—[Official Report, 8/2/23; col. 1317]


So when will parliamentary time allow? Certainly not in this Session: it is highly unlikely that it will feature in a programme running up to a general election. So we are looking at years before this legislation can come to pass, although I guarantee that a Liberal Democrat-led Administration would deal with the matter as a priority.

I come to the substance of my amendment. I take the view that the endless stream of threatening letters—the “most pernicious” element, as Mr Raab described it, and really he should know—can be dealt with in the context of this Bill by criminalising their use in the investigation of the crimes set out in Schedule 9. I appreciate that may not cover the whole gamut of strategic litigation, and that a wider Bill will be necessary in due course, but investigative journalism is very much involved in turning over the stones of fraud, money laundering, bribery and the rest, and it is certainly in that area that SLAPPs have most frequently been used.

So the new offence that I propose could not be simpler:

“It is an offence for a person or entity without reasonable excuse to threaten civil litigation against another person or entity with intent to suppress the publication of any information likely to be relevant to the investigation of an economic crime”.


I think that is fairly understandable. The prosecution would have to prove a threat; a solicitor’s letter will speak for itself, and it will be for the jury to decide and judge its contents. Evidence will be necessary, of course, to prove intent, but that raises no more problems than in any other case in which intent has to be proved. Again, it will be a matter for a jury. An evidential burden would be placed on the defendant to raise a reasonable excuse for the prosecution to disprove, and the ultimate burden of proof of guilt would, of course, rest with the prosecution.

I believe that an offence of this nature, simply stated, would immediately result in a change of culture among those reputation lawyers who profited from this type of litigation. Their collective response to the consultation to which I referred was, “Nothing happening here, guv. Threatening? Oh, it’s just the rough and tumble of ordinary litigation”. No longer would the young Turk in the office be able to dash out on his laptop ill-considered threats. He would know that he will have a responsibility to interrogate his client thoroughly before committing his firm to intimidating conduct which would land both him and his senior partners in the dock, with all the reputational consequences for themselves. Further, it would be a great relief to threatened investigative journalists if, instead of having to consult their lawyers at considerable expense, they could make a complaint to the police and allow the criminal law to take its course. We can make this change now and let the great stew of reform of the civil procedure system which is slowly cooking in the MoJ follow “when parliamentary time allows”.

I conclude by strongly supporting the other amendments in this group for the same reasons. These are creating the means to tackle the SLAPPs problem of imbalance, as described in paragraph 15 of the Government’s response to the consultation. This is how the Government put it:

“the extreme power imbalance and inequality of arms between, on the one hand, media organisations, advocacy groups, academics, and journalists and, on the other, Claimant corporations or wealthy individuals who typically bring these cases”.

This group of amendments is designed to do something now—action, as the noble Lord, Lord Agnew, called for on an earlier amendment. I beg to move.

[Lord Garnier (Con)]

My Lords—

[Baroness Stowell of Beeston (Con)]

My Lords, I am grateful to my noble and learned friend Lord Garnier for allowing me to speak before him. I shall speak to the three amendments I have tabled in my name. I should declare that I chair the Communications and Digital Select Committee, and I have tabled those three amendments with the full authority of the committee, because they follow the work that we have done over the past year or so inquiring into the practice of SLAPPs. We have also been in correspondence with the Solicitors Regulation Authority, and that correspondence is available on the committee’s website. 

My amendments are Amendments 87, 88 and 89. I am very grateful to the noble Lord, Lord Cromwell, for signing all three of them and to my noble friend Lord Faulks and the right reverend Prelate the Bishop of St Albans for signing Amendments 87 and 88. I add, in a personal capacity, that I support the other amendments in this group, both that from the noble Lord, Lord Thomas, and the noble Lord, Lord Cromwell.

At Second Reading, we heard a comprehensive description of the impact of SLAPPs against journalists and public bodies, and the noble Lord, Lord Thomas, has given us a taste of that in his opening remarks, so I will not go over any of that again.

In very simple terms, looking at our different amendments, the noble Lord, Lord Thomas, is tackling this from the perspective of the rich and powerful who abuse the legal system; the noble Lord, Lord Cromwell, is seeking to introduce provisions that support journalists or public bodies in mounting a defence against that action; and, in my amendments, I am trying to deter and prevent solicitors from supporting anybody, normally the rich and powerful, in bringing forward this action in the first place.

In Amendments 87 and 88, I am trying to make it explicit that solicitors cannot accept clients who want to abuse the legal system and avoid and suppress information that could be relevant to economic crime, by giving the regulator clear power to fine and sanction solicitors who breach that rule. They also make it clear that dirty money cannot be accepted for fees when the purpose of the action could prevent someone being subject to the justice system.

To unpack that a little further and focus on those two amendments, at the moment the SRA can fine traditional law firms and solicitors up to £25,000—we know how small a sum that is for some of the very large and powerful legal firms involved. Strangely, the regulator can fine different types of law firms—what are known as alternative business structures—up to £250 million, but this applies only to that kind of category of firm. There is an odd discrepancy. The Solicitors Regulation Authority recently criticised the inadequacy of the £25,000 limit and called for it to be addressed.

My amendments are very much in line with the aims of the Bill, which already removes the regulator’s fining cap for a narrow set of economic crime transgressions but does not specify that this will be applicable to SLAPP cases relating to economic crime. The SRA has said that the Bill’s tests are tightly drawn and the numbers of relevant cases that will fall within them are limited. My Amendments 87 and 88 make it clear that measures to remove the fining cap for professional misconduct also apply specifically to cases that involve an abuse of the legal process to suppress legitimate reporting on economic crime. Not all SLAPPs are about economic crime but, importantly, the regulator says that around half of its current SLAPP investigations are linked to economic crime. Amendments 87 and 88 therefore provide a sensible and proportionate change that supports the spirit of the Bill and government policy to tackle SLAPPs.

Amendment 89 is about closing loopholes that allow the rich and powerful to abuse our legal system and use criminal funds to pay for it. Throughout our scrutiny of SLAPPs as a committee, I have learned that payment for legal advice is not subject to the same type of money laundering regulation checks as other legal services. The Proceeds of Crime Act apparently does not prevent lawyers accepting dirty money to pursue SLAPP cases or require them to report suspicious activity. We have held evidence sessions on this matter and our witnesses described it as a significant issue. Addressing this is complex because—I say this in a Committee of very distinguished lawyers—everyone should have a right to use our justice system and lawyers will need to be able to represent criminals without prejudicing confidentiality. I understand the argument that I expect lawyers to make on the need for criminals to be able to seek proper support and for questions not necessarily to be asked about money.

--- Later in debate ---

With this Bill, the Government are setting out their commitment and strategy to achieve a significant reduction in economic crime and to increase corporate transparency. A number of speakers on previous days have pointed out what a unique opportunity this Bill is to tackle economic crime. To leave SLAPPs, which protect economic crime and act against transparency, on one side for an undefined “later” to deal with them would be illogical to, frankly, the point of negligence. It would also fly in the face of all the previous government declarations on tackling this issue. Could the drafting of these amendments be improved? That is very likely, but that is not unusual in Committee. The House of Lords is a unique pool of legal expertise, some of it present here today. I know that noble and learned Members and others are interested in dealing the SLAPPS issue and in, above all, getting it right. Between now and Report I would like to draw on this pool, in particular as critical friends, as well as the Minister and his officials. I therefore appeal to the Minister not, as hitherto, just to read out a bland statement but to seize this opportunity to engage with the spirit of these probing amendments so that we arrive at an amendment that is satisfactory, unambiguous and fit for purpose to introduce on Report with government support.

[Lord Garnier (Con)]

My Lords, I begin by confessing to having been at the media law Bar for the past 45 years or so, so I know a little bit, but not a huge amount, about the subject we have been discussing. I want to salute the enthusiasm of the noble Lords, Lord Thomas of Gresford and Lord Cromwell, and my noble friend Lady Stowell of Beeston. As I said at Second Reading, this is a subject that needs to be discussed. It needs a through and very comprehensive debate.

The Long Title of the Bill is:

“A Bill to make provision about economic crime and corporate transparency; to make further provision about companies, limited partnerships and other kinds of corporate entity; and to make provision about the registration of overseas entities”.


Having read that, I go on to admire the ingenuity of the drafter of these amendments to fit them into the Long Title because, whereas there is a debate to be had, and it must be had, about SLAPPs, I question whether this Bill is the appropriate vehicle for that debate. That is a procedural issue.

My second point is that when I began at the defamation Bar in the mid-1970s, the economics of the media world were entirely different. Print media were riding high. They were selling millions of copies. The Sun was selling nearly 10 million copies a day. The Daily Mail, owned by Associated Newspapers, was selling a huge number of copies a day. Social media and online media had not been invented.

I used to be instructed by newspaper groups to go to the Queen’s Bench Masters’ corridor, acting for defendant newspapers, to run up legitimate legal arguments—they were not made up—which were there to starve the claimant, in those days called the plaintiff, out of the claim. The newspapers knew very well that they had a case to answer, but they had more money, so the police officer, schoolteacher or nurse who had allegedly been defamed in the local or national newspaper, unless they had an immensely rich backer, was never going to be able to withstand the onslaught of daily interlocutory applications made against them. Sometimes the master would accede to some of the applications that we made, and sometimes they did not, but the newspaper did not care because it had the cash. The individual—the claimant or plaintiff—did care, and sometimes was frightened off by the prospect of having to spend vast sums of money to recover his or her reputation in court.

The boot is now on the other foot. The print media is impoverished and no longer as rich as it used to be; the regional press is decimated, the local press more or less non-existent, and the national press is under some considerable strain. If you want to make money in the media world, you do not do it by publishing printed newspapers—you do it through the broadcast or online media. What we are now seeing is that those who are in the legitimate, perfectly lawful and praiseworthy business of writing as journalists, and those who publish written journalism in hard copy as publishing companies, are finding it increasingly difficult to withstand the economic might of those who disagree with what they have to say in their newspapers. Do not get me wrong: I entirely sympathise with people such as Catherine Belton, who was sued by various Russians—a range of very rich people. But one would get the impression from listening to the noble Lords who have spoken so far that the courts are weak and feeble arbitrators of the disputes that are before them.

For the last 45 years, I have seen cases struck out—I like the American expression, to strike, that the noble Lord, Lord Cromwell, used a moment ago. For the last 45 years, and long before that, before I was out of nappies, Queen’s Bench judges in the High Court in the High Court in London—and I dare say in Edinburgh and Belfast as well—have been striking out cases that were abusive, vexatious or frivolous. What the courts have to deal with is not just the law but the evidence. Just because a worthy defendant complains that they are the victim in a SLAPP case, the court cannot simply take the allegation on the face of it—it has to look at the evidence. By and large, evidence is something that you get to at trial, albeit it that evidence is occasionally tested at the interlocutory stages of an action.

While saluting the enthusiasm of the noble Lords who have spoken in favour of these amendments and who have ingeniously used this Bill to run the argument, I urge the Committee to be cautious, because the number of SLAPP cases is remarkably small compared to the number of writs issued each year. It is important that this Committee does not mislead the public about the extent of the problem. Legitimate claims have repeatedly been incorrectly described as SLAPPs by the media—but of course the media has an interest in calling them SLAPPs, for the economic reason that I have described.

In the recent case of Banks v Cadwalladr, decided by Mrs Justice Steyn only last year, she said:

“Ms Cadwalladr has repeatedly labelled this claim a SLAPP suit, that is a strategic lawsuit against public participation, designed to silence and intimidate her. I have set out a summary of my conclusions in paragraph 416 below. Although, for the reasons I have given, Mr Banks’s claim has failed, his attempt to seek vindication through these proceedings was, in my judgment, legitimate. In circumstances where Ms Cadwalladr has no defence of truth, and her defence of public interest has succeeded only in part, it is neither fair nor apt to describe this as a SLAPP suit”.


Despite this, Mr Banks’s claim continues to be referred to as a SLAPP by large sections of the media. Of even greater concern is the reference by some journalists to individuals taking out what they call SLAPP orders—whatever they might be—echoing the media’s disingenuous campaign against privacy rights, including by pejoratively referring to privacy injunctions or agreed confidentiality clauses as gagging orders.

I do not want to be misunderstood. SLAPPs are a problem, but their prevalence is wildly overstated, and it seems to me—after 45 years of jogging around this racecourse—that solicitors are unlikely to be complicit in many of them. I rather suspect that more solicitors are dealt with by the Law Society, the SRA or the police for stealing client money than for running SLAPP cases.

Let us please just settle down a bit and not get overexcited by the one, two or three Russian oligarchs who have made an allegation that they have been defamed and who, on the evidence, have sometimes been proven right and sometimes wrong. The essential point is that a dispassionate judge, dispassionately looking at the evidence, will make a dispassionate ruling on what he or she has found, as Mrs Justice Steyn did in the Banks case, and the world goes on.

Being sued is indeed expensive and annoying, and it enables lawyers to be instructed and charge fees—I am afraid that is part of the way we do things in this country—but to suggest that SLAPPs are a plague and a menace just on the say-so of one, two or three cases, of which a number of us may or may not disapprove, does not prove the case. There is much work to be done to look into the question of SLAPPs and much debate to be had, but this Bill is not the place to have that debate. I applaud the noble Lord, Lord Thomas, and other noble Lords who have brought forward these amendments because the matter needs to be discussed, but it is not properly discussed within the confines of this Bill.

[Baroness Wheatcroft (CB)]

My Lords, the noble and learned Lord, Lord Garnier, speaks as a lawyer. I speak as a journalist, with a long career in newspapers. I declare my interest as chair of the oversight committee at the Financial Times. I assure the noble and learned Lord that the very presence of the possibility of SLAPPs weighs very much on the minds of journalists. As he explained, newspapers no longer have the sort of money that might have funded the types of cases that he described and indeed worked on, but now there are some very important cases that they do need to pursue, and for that reason I very much support all the amendments in this group.

I will give just one example: the case of Wirecard, which was company fraud on a massive scale that cost a lot of people a lot of money. One brave journalist on the Financial Times had pursued the case for a long time, against huge opposition from the company and those around it who were making money from it. His editor was prepared to allow him to continue to pursue the case, at which point the German company hired a well-known London law firm which threatened all sorts of litigation and also criminal proceedings. It accused him, without any base, of having been interested in manipulating the share price of Wirecard in order to make a great deal of money. At that point, the Financial Times was risking a great deal of money and a huge hit to its reputation. The law firm bombarded the company and the journalist with letters threatening all sorts of things, but the Financial Times decided to stick with it. In the end, as we all know, that was the right decision and some people were able to salvage some honest money that would otherwise have been lost to an almighty fraud.

A lot of organisations, not just media organisations, do not have the wherewithal even to contemplate being put in that position. A lot of small NGOs investigating fraud—in many cases financial fraud—do not have the funds to risk getting to the stage where a court might well say that there was no basis to the litigation and throw it out. It is the intimidatory effect of the very existence of this sort of legislation that causes the problem. Therefore, we need to get this legislation on the books as quickly as possible. As noble Lords have said several times, we cannot afford to wait. Here is the perfect piece of legislation to make these few amendments. As the noble Lord, Lord Cromwell, said, improvements could be made to them, but the principle must be right. We should go ahead.

[Lord Garnier (Con)]

Before the next contribution, I apologise to the Committee but I must be in two places at once. I hope the Committee will forgive me for not being here when other speeches are made and the Minister winds up. If that is thought to be very rude, I shall sit here, and there we are, but if I may, would it be—

[Lord Thomas of Gresford (LD)]

It is unprecedented.

[Lord Garnier (Con)]

It is unprecedented and very rude of me, but there seems to be rather a lot going on at the moment.

[Lord Cromwell (CB)]

I will take 30 seconds to respond to a couple of the noble and learned Lord’s comments while the rest of the Committee decide whether they are happy. Apart from trying to remove from my mind the image that the noble and learned Lord planted earlier of him in his nappies and thanking him for his kind words, I say that he is exactly the kind of critical friend that we need to get this right. However, to suggest that it does not belong in this Bill, which is about economic crime and transparency, which SLAPPs directly impinge on, is disingenuously playing with words. SLAPPs are embedded in our system and directly relate to economic crime and transparency.

On his reference to there being very few cases, I made the point earlier that most cases never see the light of day because people are intimidated. That is exactly the point here. Our courts need defined tests to examine potential SLAPPs and sometimes say “That is not a SLAPP”, and sometimes say, “That is a SLAPP”. Some egregious cases will get that treatment. As my colleague to my left said, it is the threat of the sheer cost of getting to trial, along with all the other intimidatory tactics, such as of truckloads of documents turning up at your house on a Friday night, that we need to dissuade law firms pursuing.

Economic Crime and Corporate Transparency

Lord Garnier Excerpts

Committee stage
Thursday 27th April 2023 Grand Committee

[Lord Fox (LD)]

My Lords, I rise to speak to the amendments in my name. As the Minister has set out, amendments were brought forward in the other place on Report by Sir Robert Buckland and Sir Bob Neill. The Government undertook to produce their own amendments, which they have indeed done. We should recognise that these amendments, on failure to prevent fraud, are a positive move forward, but they are overdue. Without sounding too churlish, had this offence been in place at the time of the financial crisis, the authorities could have had effective prosecutions during, for example, the Libor and Euribor scandals. So, good news, but there are some qualifications, as set out in my amendments.

The government amendments have a considerably reduced scope in limiting it to large businesses, which was certainly not the intention of the Buckland/Neill process in the other place. As we have heard, there is an exemption for small and medium-sized businesses, but it does not address the fact that SMEs are just as much, if not more, at risk of fraud as big companies. It is just as important to encourage them to have the right procedures in place as it is large companies.

Hence my Amendments 84CA, 84CB and 84CC. Together, they seek to amend the Government’s amendments, extending their failure to prevent offence to all relevant organisations regardless of size. Instead of allowing the Government to amend or remove the applicability to large organisations, these amendments would apply the offence to all organisations by default. However, the Government would be able to restrict it to large organisations by a subsequent affirmative resolution, if experience required them to do so.

The Minister said that small and medium-sized enterprises had been excluded to avoid a disproportionate burden on them. It would be useful for him to explain on what basis that assessment has been made and what evidence there is to support that. We have not seen it, so it would be very useful to know. In my view and that of others, the carve-out for SMEs is short-sighted and unnecessary. The Law Commission did not accept arguments for thresholds to apply to failure to prevent offences in its June 2022 options paper and the House of Lords rejected exemptions for SMEs when scrutinising the Bribery Act 2010. SMEs are not excluded from AML or the National Security and Investment Act, so why have the Government taken this view in this case?

There is also concern that this amendment is limited to offences that take place in the UK or have UK victims. If the offence takes place abroad, in cases where a UK company has failed to prevent fraud and there are no UK victims, UK enforcement agencies would have no grounds to pursue the corporate body. This lack of extraterritoriality is not present in already existing FTP, bribery and tax evasion offences. It is unclear why the Government are creating such inconsistencies in the corporate criminal liability framework. Why have they made this carve-out? There is a lot of expertise waiting to speak on this group, so I will stand aside, except to say that I strongly support Amendments 96, 97, 98, 99, 100 and 101.

[Lord Garnier (Con)]

My Lords, I thank my noble friend Lord Sharpe for the courtesy he has shown to me and other noble Lords in holding meetings, along with his officials, to explain the Government’s case on failure to prevent and the adjustment of the law of corporate liability. It has been very helpful to have some understanding of where they are coming from and where they intend to go. It is fair to say that he was more forthcoming in those meetings than he was in providing an explanation for the SME carve-out this afternoon. I thank not only him but the noble Lord, Lord Fox, for tabling his amendments, which I support, and for his mention of the amendments I have tabled.

The amendments that I have tabled are exactly the same, almost to the semicolon, as amendments that I have tabled not only in this Parliament, since the 2019 general election, to Bills dealing with economic and financial crime, but also to Bills that I spoke to when a Member of the other place. I have taken an interest in how we deal with economic crime since I became the Solicitor-General in 2010. I appreciate that that was a long time ago and that my noble friend the Minister probably did not have a particular interest in the subject all that time ago. None the less, I appreciate that many will find what I have to say unoriginal, not least because I have said it so many times before but also because it aligns with what others on all sides of the House and in both Houses have been advocating for some little while.

I will first deal with the SME carve-out, which is provided for in one of the government amendments. I suppose it is fair to say that half a loaf is better than no loaf and that a bird in the hand is better than two in the bush. However, after nearly 15 years, following the banking crash of 2008-09, the subject of economic crime and corporate misfeasance has been if not on the top of everyone’s agenda every day then certainly close to it. For the Government to come up with a carve-out in the way that they have—bear in mind that we are only talking about failure to prevent fraud at the moment—is disappointing.

What we are here required to understand by Amendment 84C, proposed by the Government, is that if a company or business has a turnover of less than £36 million, has a balance sheet total of less than £18 million and has fewer than 250 employees, it should not be caught by the failure to prevent fraud.

[Lord Leigh of Hurley (Con)]

Two or more of those.

[Lord Garnier (Con)]

My noble friend Lord Leigh is entirely right: you have to pick two of this lucky trio and you are away.

One only has to think briefly about start-up businesses and the pressures that they come under when they may have very few employees and a turnover of much less than the Government indicate to realise that the danger of an associated person committing an act of fraud is not predicated on the size of the company. It is also possible to say that there will be people who will so construct their corporate affairs that each bit of their corporate existence is by some happenstance just below or well below the Amendment 84C cut-offs.

In any event—I have bored my noble friend the Minister with my feeble sense of humour on a number of occasions—there is no similar cut-off for failure to prevent bribery under the Bribery Act 2010 and no equivalent cut-off under the Criminal Finances Act 2017. Although my noble friend tells me that, after much consultation and because they do not wish to impose unnecessary burdens on business, the Government have come up with these numbers, as I think the noble Lord, Lord Fox, indicated, I have yet to hear a reason why they have landed on those figures or why as a matter of principle they have chosen to have a carve-out at all.

Here comes my feeble joke, so stand by. A burglar of five foot four should be prosecuted just as vigorously as a burglar of six foot six. There is no carve-out for small people committing crimes and there should be no carve-out for small businesses that fail to prevent crimes. When the prosecuting authorities—I look with respect at the noble Lord, Lord Macdonald of River Glaven—come to consider whether it is in the public interest, assuming that there is evidence, to initiate the prosecution, no doubt one of the factors that they will take into account is whether it is in the public interest to pursue that prosecution, bearing in mind the small size of the company and the mitigating steps that it took to do its best to avoid an associated person committing a criminal offence.

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[Lord Sandhurst (Con)]

My Lords, I will speak with a particular focus on Amendment 91 but, in so doing, it should not be thought that I do not think that Amendment 94 is important; the two run together, as other noble Lords have said—we want them, so to speak, before and after, for reasons I shall explain. We need to do something now to prevent fraud. In this context, I make no apology for reminding my noble friend the Minister of what my noble friend Lady Morgan said about page 22 of our report and paragraph 520, which, helpfully, is in bold. I ask the Minister and his officials, in the words of the collect, to

“read, mark, learn, and inwardly digest”

what we have to say, and then act on it with both the regulatory and the criminal proposals.

We need the criminal offence but also need the flexibility that proper regulation will give and the culture change that it will bring by the regulators talking to and influencing how the different industries behave. We know that regulators can achieve much in advance and drive changes in behaviour; that is important because we know that prosecuting fraud is very difficult and too often ends in failure—and anyway the resources are not there to do it. We have to stop it happening in the first place. You have the criminal offence as a backup when someone who could have prevented it has not done so, but that is very much the last resort. Regulators are fleeter of foot and can move with more flexibility, and they can influence behaviour.

The sort of regulations we have in mind would mirror what is said in Amendment 94, particularly in subsection (3) regarding the statutory defence—“Do you have in place such procedures as it is reasonable in all the circumstances to expect?”, and so on. Our regulations would say that that was what you had to do. Then the regulator would know what was going on because it would have all the data and the picture of what was happening in the particular regulatory sphere in which it was operating. The regulator could say to a particular operator or someone in the industry, “Look, others are doing this but you’re not”, or it could say to the whole industry, “Look, there’s a new scam about and you have to take steps to stop it. We’re going to call you together. What are you going to do, what do you think you can do, and what technology is out there?”, and so on. That is not covered directly by the criminal offence—it is very much a longstop—but the sorts of fines and penalties that a regulator can impose, and the regulatory damage to the reputation of large organisations in particular, are important and have great influence, as we know. If a company is small or indeed a one-man band then the regulator would approach it differently, because of course it does not have the resources to look everywhere and man every pump.

We have to do something. I suggest that what is reasonable will take into account the size of the potential offending business; the measures that it has in place to prevent fraud that are proportionate to its size; those which it does not have in place but could have; the prevalence of the offence within that particular field of activity; and, if it is looking at regulatory enforcement, and indeed in terms of criminal offence, the regulatory compliance history of the company and what others in that area are doing by way of comparison. I need not go on in more detail.

As I said, the regulators have flexibility. They can influence behaviour. They can pick up the telephone to a company and say, “We’ve seen this is going on. Unless you do something, we’ll be down like a ton of bricks”, or they can act directly. Unless we have the package that these two amendments would give, we are not going to see any important change in outcomes.

That is all I need to say. Everything else has been covered. As I hope I have made plain, I see Amendments 94 and 91 running in tandem.

[Lord Garnier (Con)]

My Lords, I agree with my noble friend Lord Sandhurst that they run in tandem. I was not able to run quick enough to be able to sign Amendment 91 but I managed to get my bulk into the relevant Room in order to sign Amendment 94, and I am happy that I managed to do so.

Public opinion must influence policy-making. Whereas 300 or perhaps 250 years ago, anyone who thought about it probably thought it was not a good idea, and certainly not a humane thing to do, to send small children up chimneys or down mines, it took a little while for the legislation to change. I make that exaggerated point—well, it was not an exaggerated point; it was a very bad thing. [Laughter.] I was not alive 250 years ago. I make that point to illustrate that we in this Parliament are in danger of allowing the Government to drag their feet reluctantly and, worse, to appear as if they are being reluctant to do the modern equivalent of stopping children being sent up chimneys. The modern equivalent is that the public, and I as a citizen, disapprove of companies failing to conduct their business in such a way that crimes are not committed by associated people. However, we mitigate the difficulties that these new laws may pose for a company by putting in the defence of reasonable provision.

If you look at the guidance published in conjunction with the Bribery Act 2010—my noble friend Lord Sandhurst mentioned some of the sensible work that has been highlighted in my noble friend Lady Morgan’s report—you can see that it is all there. If your company is one that has no risk of committing bribery, you do not have to have anything other than the most minor provision to satisfy the defence provision under the Act—and ditto in the Criminal Finances Act. So it is even in the government amendments that we discussed earlier. For example, to go back to government Amendment 84A, which we discussed earlier, new subsection (3) says that:

“It is a defence for the relevant body to prove that, at the time the fraud offence was committed … (a) the body had in place such prevention procedures as it was reasonable in all the circumstances to expect the body to have in place, or … (b) it was not reasonable in all the circumstances to expect the body to have any prevention procedures in place”.


The Government accept quite a liberal and permissive defence regime there, so we do not need to be frightened or to frighten SMEs, or the people to whom my noble friend’s report is addressed, about people being overburdened by regimes which will cause them to be distracted from earning profits and getting on with the job that they are primarily there to do.

The noble Lord, Lord Macdonald of River Glaven, highlighted, thanks to Sue Hawley from Spotlight on Corruption, the very small cost involved in running a compliance regime. If you have a small company, with no risk of committing bribery or fraud or whatever else it may be, the chances are that you will spend very little, and you may have to spend it only once.

I come to Amendments 91 and 94 with a sense of desperation that we are now providing the Government with yet another opportunity not to do very much, and they ought to be doing a lot more. When it came to the passage of what became the Health and Safety at Work etc. Act 1974, I can assure noble Lords that the corporate world said, “Oh no, you mustn’t do this—it’s going to make us spend money, look at lawyers, put bolts on doors and put safety notices down chimneys and near machinery. It is all far too expensive—we can’t be doing all that”. I think of the Corporate Manslaughter and Corporate Homicide Act 2007; in the lead-up to that—I was in the shadow Cabinet of my party in those days—we had anxious discussions about the hideous nature of the impositions that would be put on the corporate world to make things safe so that people did not get killed at work and factories were safe places to go to work in. Here we are again having to worry about companies being asked to behave themselves and not to commit crimes or to prevent others committing crimes to their advantage. It seems absurd.

There have been two good non-legislative reports in the last short period. First, there is the one from my noble friend Lady Morgan, which she introduced us to. I urge my noble friend the Minister, if he has time to read nothing else, to look at page 22 and paragraphs 496 to 498 and 520 to 522. It will take him three minutes—he should look at it, read it, learn it, and inwardly digest it.

The other one was the Joint Committee chaired by my noble friend Lord Faulks, of which I was privileged to be a member, on the draft Registration of Overseas Entities Bill, which sat in 2019-20. We heard all the same evidence as I am sure my noble friend did in her committee, and we heard all the same complaints about the burdens and expense of compliance that will have been heard every time these sorts of things come along. Yet every time, all you have to do is go back and look at the simple, common-sense guidance attached to the Bribery Act 2010; you will see how that Act has come into force and been implemented and worked through, and no one now fusses at all.

Economic Crime and Corporate Transparency Bill

Lord Garnier Excerpts

Report stage
Tuesday 27th June 2023 Lords Chamber

[Lord Cromwell (CB)]

My Lords, I start by sincerely thanking the noble and learned Lord, Lord Bellamy, and his team for meeting me and others to discuss SLAPPs and for the subsequent correspondence with me on areas of concern that remain, to some of which I will return briefly in a few moments.

As noble Lords will know, I have been rather tenacious in arguing for the inclusion of provisions against SLAPPs in the Bill, so I welcome government Amendments 102 and 103 before us today. They reflect positive listening by the Government, in particular the new Lord Chancellor, to a long campaign by Members of both Houses, as well as a coalition of non-governmental organisations. The amendments do not deliver everywhere —Scotland is excluded, I believe—nor do they cover everything that I and others have been seeking. I shall put these, as succinctly as I can, on the record.

My main concern, because it goes to the heart of SLAPP tactics, is the lack of sufficient provision in Amendment 102 for the courts to bring matters to a halt pending a decision on striking out under subsection (1) of the new clause inserted by the amendment. In his letter to me on this point, the Minister characterised such an approach as unfair and restrictive on the court, but as others have said, those using SLAPPs will do all they can to run up the costs of their opponent, not as a route to justice but as a tool of harassment. For example, in relation to new subsection (1)(b) in the amendment, deliberate pursuance of disclosure pending resolution of an anti-SLAPP motion can easily ratchet up costs.

To be effective in assessing cases and in preventing SLAPPs, to which Amendment 102 is directed, the court should be inclined to call a halt to the litigation process until it is decided whether the case should be struck out. I therefore ask the Minister whether he agrees that the courts, guided by the Civil Procedure Rules, should as a default position take the approach of putting a stop on proceedings pending a decision on striking out and allowing processes to proceed only where a very compelling reason exists for them to do so.

On Amendment 103, subsection (1)(d) of the new clause inserted by the amendment refers to harassment, expense and other harms which are

“beyond that ordinarily encountered in the course of properly conducted litigation”.

It is exactly the use of so-called “properly conducted litigation” that SLAPPers weaponise in order to intimidate their victims. While some amount of emotional and financial cost is inevitable in court proceedings, I do not accept that harassment should ever be part of properly conducted litigation. The phrasing of the amendment appears to suggest that it is acceptable. This creates a significant opportunity for the SLAPPer’s legal team to claim its harassment tactics are just part of the machismo and cut and thrust of legal process and, perhaps, as if a bit of harassment never really hurt anyone. That is the bully’s excuse.

It also leaves the courts struggling to make a subjective judgment about what is in the minds of the claimant and the defendant. In his helpful letter to me, the Minister stated that the courts are well versed in deciding such matters. However, I remind the House, as I elaborated at some length in Committee, that courts have always been very shy of inferring intention, and I am not aware of any instance where a court has struck out a case for improper purpose.

Even the recent case involving Charlotte Leslie and Mr Amersi was thrown out pursuant to CPR part 3.4 —namely, that the statement of case disclosed no reasonable grounds for bringing the claim. The court judgment was explicit that the court was not making a decision on whether the case constituted an abuse of process. The most the court judgment was willing to say was that there were several aspects of Amersi’s behaviour which gave “real cause for concern” that it was brought with an improper purpose. That illustrates how high a hurdle the test for improper purpose currently is.

The courts’ hands need to be strengthened here. Unless we enable the courts more effectively to label an action as an abuse of process, the current shyness about ever striking out a case on those grounds seems set to continue. I therefore ask the Government to reconsider my suggestion, which I have written to the Minister about, that the phrase about “properly conducted litigation” is removed and that the court, in considering the claimant’s behaviour, should decide if it could be reasonably understood as

“intended to cause the defendant … harassment”,

et cetera.

I have two other brief points. I understand that the intention of subsection (3) of the new clause inserted by Amendment 103 is to draw a wide definition of economic crime. However, in practice, it puts a potentially costly burden on the defendant to show that it is a SLAPP, and to require a subjective, and perhaps lengthy, assessment of intent by the court. Above all, it seems redundant, because subsection (1)(d) already establishes whether a case is a SLAPP. I therefore hope that the Minister will consider a revised drafting in order to encompass the purpose of having a wide definition of economic crime while not creating a new area of difficulty for the defendant.

Finally, subsection (4) of the new clause inserted by Amendment 103 covers factors for the court to take into account. It misses a typical SLAPP intimidatory tactic of bringing an action against individuals as well as their publishers. An example of the latter is the case brought in the UK against Swedish investigative journalists by a Swedish business. By bringing the claim in the UK, the claimant was able to sue not only the publication and its editor but the journalists as individuals. This would not have been possible in Sweden where, tellingly, the claimant decided not to sue. Individuals do not typically have legal insurance, and bringing individual action in this way is a classic intimidatory tactic. I therefore urge the Minister to include this as a factor for the court to take into account under subsection (4).

In conclusion, like the song by Messrs Jagger and Richards says,

“You can’t always get what you want

But if you try sometime …

You get what you need”,

these amendments give us a good chunk of what we need. By highlighting SLAPPs as unacceptable, they will make lawyers think harder about engaging in SLAPP tactics, as the noble Lord, Lord Faulks, highlighted. It is a great start, but there is more to do, as I and others have tried to outline today. I hope that these points will yet be reconsidered, either in the other place or in the wider legislation on this subject that the Government have promised. I look forward to the Minister’s response.

[Lord Garnier (Con)]

My Lords, I too declare an interest as a member of the Bar who has, over the past several decades, specialised in defamation.

I agree with quite a lot of what the noble Lord, Lord Cromwell, has just said in that, first, this is in essence economically driven; and that, secondly, the decision in Amersi v Leslie and others did not designate that particular claim as a SLAPP. None the less, there was plenty in the judgment of Mr Justice Nicklin to demonstrate that the judge was quite acute about the motivation behind the claim. Essentially, it was a claim that he considered to be bullying and designed to cause the defendants the most financial embarrassment possible; he saw through that.

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[Lord Sharpe of Epsom (Con)]

My Lords, my apologies again for my early start on this; my enthusiasm keeps getting the better of me today.

As I was saying, corporate criminal liability is a topic that many across the House care deeply about, and one where the Government are committed to making significant reforms. I thank noble Lords for the robust and constructive debate we had in Committee on this topic and for the ongoing engagement which many noble Lords have afforded me in the weeks leading up to this debate.

I reiterate the Government’s commitment to reforming corporate criminal liability and tackling fraud. Since this Bill was introduced, significant steps forward have been taken. I hope, with the further government amendments to which I will speak shortly, noble Lords will recognise that we have gone to great lengths to strengthen the Bill in this area. In addition, government action continues outside of this Bill. The recently published Fraud Strategy further demonstrates the ongoing work across government and with partners to take action to tackle fraud.

I will speak first to government Amendments 104, 105, 106, 109, 138, 139, 140, 144 and 145, which introduce new clauses to this Bill to reform the identification doctrine. As noble Lords will be aware, the identification doctrine is outdated and ineffective in the way in which it holds corporates to account, given the breadth of business we see in the 21st century. Companies have grown tenfold since the “directing mind and will” test was devised in the 1970s. As companies have grown, their operations and governance have become spread across different areas, making it incredibly difficult to pinpoint the directing mind of a company, particularly in a large organisation. Individuals with significant authority can escape corporate liability by asserting that the directing mind and will is elsewhere.

Meanwhile, there is an unfairness here. Smaller companies, perhaps with one or two directors, have much more easily identifiable directing minds, meaning that corporate liability is more easily attributable and a prosecution is more likely to be successful. It is this inequality in the law that we need to address. The government amendments place the identification doctrine on a statutory footing for economic crimes for the first time, providing legislative certainty that senior managers are within the scope of the rule.

Under these new measures a corporate will be held liable if a senior manager has committed an offence under the new schedule, or if they have encouraged or assisted an offence by another, or have attempted or conspired to commit an offence under the schedule. The corporate will be criminally prosecuted and, if convicted, will receive a fine, in addition to any sentences imposed for individuals who are separately prosecuted and found guilty of the same offence. The reform will apply to all corporate bodies and partnerships established in England and Wales, Scotland and Northern Ireland.

These amendments build on the extensive work and consultation conducted by the Law Commission in this area. Building on feedback from prosecuting bodies, business representatives and Members of both Houses, some tweaks have been made to the Law Commission’s proposal to ensure the reform is applicable to the widest set of cases. Under the Government’s reform, economic crime is defined according to a new schedule in the Bill—introduced via Amendment 109—which reflects existing Schedule 10 but without those offences that principally apply to a corporate body, such as failure to prevent bribery.

For the purpose of these amendments, “senior management” will be defined in accordance with the well-established definition provided for in the Corporate Manslaughter and Corporate Homicide Act 2007. This model considered the senior managers’ roles and responsibilities within the relevant organisation and the level of managerial influence they might exert, rather than their job title.

The clauses tabled by the Government also seek to capture instances where a senior manager commissions or encourages a lower-ranking employee to do their “dirty work” by making it clear that the corporate can also be held liable where the senior manager encourages or assists a listed offence in the schedule.

To be clear to the House, subsection (3) of the new clause introduced by Amendment 104 ensures that criminal liability will not attach to an organisation based and operating overseas for conduct carried out wholly overseas simply because the senior manager concerned was subject to the UK’s extraterritorial jurisdiction; for instance, because that manager is a British citizen. Domestic law does not generally apply to conduct carried out wholly overseas unless the offence has some connection with the UK. This is an important matter of international legal comity.

However, some offences, wherever they are committed, can be prosecuted against individuals or organisations who have certain close connections to the UK. Subsection (3) makes sure that any such test will still apply to organisations when the new identification doctrine applies. Extending the identification doctrine test to senior management better reflects how decision-making is often dispersed across multiple controlling minds, mitigating the ability to artificially transfer, remove or create titles to escape liability. This is a positive step to increasing lines of clear governance and accountability in corporations.

Looking forward, although these government amendments are a strong step to improving corporate criminal liability laws, they are not the final step. The Government have committed in the Economic Crime Plan 2 and the Fraud Strategy to introduce reform of the identification doctrine to apply to all criminal offences. This will take place when a suitable legislative vehicle arises.

I move on now to the government amendments on failure to prevent fraud. In Committee, the Government tabled amendments which introduced a new corporate offence of failure to prevent fraud. Under the new failure to prevent offence, a large organisation will be liable to prosecution where fraud was committed by an employee for the organisation’s benefit and the organisation did not have reasonable fraud prevention procedures in place. The new offence will help to protect victims and cut crime by driving a culture change towards improved fraud prevention procedures in organisations and by holding organisations to account through prosecutions if they profit from the fraudulent actions of their employees.

Following this, noble Lords have raised further points with me on where the Government clauses could be strengthened. I have listened to the points raised, and the Government have tabled further amendments on the definition of large organisations and the treatment of subsidiaries. I thank the noble Lord, Lord Vaux of Harrowden, for bringing this point to my attention.

As I have set out on many occasions, the failure to prevent fraud offence is designed to balance the fraud prevention benefits with minimising burdens on small business. Amendments 111, 112, 113, 114, 115, 116, 118, 119, 122, 123 and 124 will help prevent companies from avoiding responsibility by moving high-risk operations into subsidiaries that fall below the size threshold for the offence. They will also ensure that groups of companies with significant resources are incentivised to take steps to prevent fraud.

First, we have made a clarification to ensure that an assessment of whether an organisation meets the size criteria, and is therefore in scope of the offence, is made cumulatively across the parent company and its subsidiaries—that is, the group—rather than being based on each individual entity. We then have to consider where liability would attach within that group. The group itself is not a legal entity so cannot be liable. It may be more appropriate for the subsidiary or the parent to be accountable directly, depending on the circumstances. We have therefore clarified that whichever of the individual entities within a group was responsible for the fraud can be directly liable for a failure to prevent fraud, in the same way as any other entity in scope of the offence.

Additionally, we have clarified that an employee of a subsidiary can be an associated person of its parent or owning company. That makes it more feasible to attach liability to the parent company should the approach of targeting the specific subsidiary be inappropriate. A test would still have to be met that the fraud by the subsidiary employee intended to benefit the parent, and the parent would have the defence that it was reasonable to take no steps to prevent the fraud—for example, if the structure was such that the parent had no say over the activities of the subsidiary.

Finally, Amendment 120 ensures that the views of the Scottish and Northern Ireland Governments are taken into account before any future changes to the offence threshold based on organisation size.

I hope noble Lords will recognise that this is a hugely meaningful package of amendments. I recognise that a number of noble Lords will have hoped the Government would go further, particularly around the threshold in the failure to prevent fraud offence. However, I stress that we have already taken tremendous strides forward. The Government firmly believe that our reforms to the identification doctrine; the introduction of a failure to prevent fraud offence covering around 50% of economic activity; measures to prevent avoidance via subsidiaries; and our existing ability to identify and prosecute fraud more easily in smaller organisations will cumulatively have the desired effect of tackling and deterring economic crime, without unnecessarily imposing billions of pounds of burdens and bureaucracy on actual or potential small businesses. I hope noble Lords can recognise the great progress we have made, and I beg to move.

[Lord Garnier (Con)]

My Lords, I thank my noble friend the Minister for his opening remarks and for the advance that the Government have made on two fronts. The first is by clarifying the senior management officers within a company; in doing so, they have clarified the way in which the identification doctrine can be applied in modern Britain.

As I have said on previous occasions, I have an interest to declare. I will not specifically recite it again because I did so in Committee, at Second Reading and, I think, on the three or four previous pieces of legislation into which a failure to prevent amendment could have been inserted—but of course it was not the right Bill, the right vehicle or the right time, and in fact it was just not right. So here I am again.

I shall speak to my Amendments 110 and 125A, which at the appropriate time I will move to a Division unless the Government persuade me otherwise. I am not engaging here in party politics or even in a rebellion. I am doing nothing by surprise; anyone who has followed discussions on economic crime over the last 13 years will know precisely what I am going to say. Indeed, my noble friend the Minister is adept at moving from one corridor to the next to avoid having a yet further conversation with me about my favourite subject. He has also heard all my jokes before, but not every Member of our House has had that advantage so it may be that, unless the Government accept my amendment, my little Aunt Sally will have another canter around the course. However, I will take things in stages.

First, I thank the Government, as I hope I have done —and I mean it sincerely—for their Amendments 104 to 106 and 109—essentially, the modernisation of the identification principle, so far as it goes. We are now slowly catching up with the Americans; they did something similar to this in 1912, but this is the United Kingdom and we must not rush.

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I thank my noble and learned friend Lord Garnier and the noble Baroness, Lady Bowles, for their amendments, but I hope that they can recognise the need to strike the right balance and do not seek to press them.

[Lord Garnier (Con)]

My Lords, I thank my noble friend the Minister for his patience and tolerance in listening to my arguments over and over again—

[Lord Fox (LD)]

I am sorry, but it was the amendment of the noble Lord, Lord Sharpe, that was being moved.

[Lord Garnier (Con)]

We both seem to be making as many mistakes as each other.

Amendment 104 agreed.

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Moved by

[Lord Garnier]

110: Clause 188, page 177, line 23, leave out “which is a large organisation”
Member’s explanatory statement
This amendment, together with the amendment to leave out Clause 190, would remove the exemption for organisations that are not “large organisations” from the failure to prevent regime so that there are no exemptions, although the statutory defence will apply to all organisations.

[Lord Garnier (Con)]

My Lords, clearly, I have not persuaded the Government, but I hope that I have not treated their arguments with disrespect. We have had not a row but an honest disagreement. As with all sorts of disagreements, I invite the House to arbitrate and will press this amendment to a Division.

[The Deputy Speaker (Baroness Barker) (LD)]

I advise the House that, if Amendment 110 is agreed to, I cannot call Amendment 111 because of pre-emption.

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Moved by

[Lord Garnier]

125A: After Clause 194, insert the following new Clause—
“Failure to prevent fraud and money laundering
(1) A relevant body is guilty of an offence if a person who is associated with the body (“the associate”) commits a fraud or money laundering offence intending to benefit (whether directly or indirectly)—(a) the relevant body, or(b) any person to whom, or to whose subsidiary, the associate provides services on behalf of the relevant body.(2) The relevant body is not guilty of an offence under subsection (1)(a) where the conduct underlying the offence was intended to cause harm to the body.(3) It is a defence for the relevant body to prove that, at the time the relevant offence was committed— (a) the body had in place such prevention procedures as it was reasonable in all the circumstances to expect the body to have in place, or(b) it was not reasonable in all the circumstances to expect the body to have any prevention procedures in place.(4) In subsection (3) “prevention procedures” means procedures designed to prevent persons associated with the body from committing fraud or money laundering offences as mentioned in subsection (1).(5) A “fraud or money laundering offence” is an act which constitutes—(a) an offence listed in Schedule 11 (failure to prevent fraud: fraud offences) (a “listed offence”), or(b) aiding, abetting, counselling or procuring the commission of a listed offence.(6) For the purposes of this section a person is associated with a relevant body if—(a) the person is an employee, agent or subsidiary of the relevant body, or(b) the person otherwise performs services for or on behalf of the body.(7) Whether or not a particular person performs services for or on behalf of a relevant body is to be determined by reference to all the relevant circumstances and not merely by reference to the nature of the relationship between that person and the body.(8) Where a relevant body is liable to be proceeded against for an offence under subsection (1) in a particular part of the United Kingdom, proceedings against the body for the offence may be taken in any place in the United Kingdom.(9) Where by virtue of subsection (8) proceedings against a relevant body for an offence are to be taken in Scotland—(a) the body may be prosecuted, tried and punished in a sheriff court district determined by the Lord Advocate, as if the offence had been committed in that district, and(b) the offence is, for all purposes incidental to or consequential on the trial or punishment, deemed to have been committed in that district.(10) A relevant body guilty of an offence under this section is liable—(a) on conviction on indictment, to a fine;(b) on summary conviction in England and Wales, to a fine;(c) on summary conviction in Scotland or Northern Ireland, to a fine not exceeding the statutory maximum.(11) In this section—“relevant body” means—(a) a body which is incorporated under the law of any part of the United Kingdom and which carries on a business (whether there or elsewhere),(b) any other body corporate (wherever incorporated) which carries on a business, or part of a business, in any part of the United Kingdom,(c) a partnership which is formed under the law of any part of the United Kingdom and which carries on a business (whether there or elsewhere), or(d) any other partnership (wherever formed) which carries on a business, or part of a business, in any part of the United Kingdom,and, for the purposes of this section, a trade or profession is a business;“sheriff court district” is to be read in accordance with the Criminal Procedure (Scotland) Act 1995 (see section 307(1) of that Act).(12) It is immaterial for the purposes of section (1) whether— (a) any relevant conduct of a relevant body, or(b) any conduct which constitutes part of a relevant fraud or money laundering offence,takes place in the United Kingdom or elsewhere.”

[Lord Garnier (Con)]

With respect, I wish to test the opinion of the House.

Economic Crime and Corporate Transparency Bill

Lord Garnier Excerpts

Consideration of Commons amendments
Monday 11th September 2023 Lords Chamber

[Lord Garnier (Con)]

My Lords, I had the privilege of being a member of the noble Lord’s committee. I agreed with what he had to say then, and I agree with what he has just said now.

[Lord Fox (LD)]

My Lords, in his opening dispatch the Minister praised those involved for the way in which the Bill has been modified and changed. The noble Lord, Lord Agnew, needs to take a lot of credit for how that modification has gone ahead, and the work that he has done and will have to continue to do in his role overseeing the Government’s response to this. I will not repeat anything that has already been said, other than to say that I agree.

The reason we are concerned about this issue is that the Government will rightfully say that they know who the names are in these trusts, but the issue we are talking about is the publication. It has been the role of civil society and journalists to uncover problems, and that has been very important in issues around this. If the Government can demonstrate that their commitment to enforcement, getting behind these trusts and exposing people who are using them to avoid issues is fully funded and fully backed by them, our relying on civil society—which we have had to do to date—would be less of an issue. That is why we support the quest by the noble Lord, Lord Agnew, on this, and will support him as he seeks to make sure that further steps are appropriate and that enforcement is at the heart of what we seek to achieve here.

--- Later in debate ---

Moved by

[Lord Garnier]

Leave out from leave out from “House” to end and insert “do disagree with the Commons in their Amendment 151A and do propose Amendments 151B and 151C in lieu—

151B: As an amendment to Lords Amendment 151, in subsection (1), after first “body” insert “which is a non-micro organisation or which is a large organisation (see sections (Section (Failure to prevent fraud): non-micro organisations), (Section (Failure to prevent fraud): large organisations) and (Large organisations: parent undertakings))”

151C: After Clause 180, insert the following new Clause—
“Section (Failure to prevent fraud): non-micro organisations
For the purposes of section (Failure to prevent fraud)(1) a relevant body is a “non-micro organisation” only if the body satisfied two or more of the following conditions in the financial year of the body (“year P”) that precedes the year of the fraud offence—

Turnover	More than £632,000 and less than £36 million
Balance sheet total	More than £316,000 and less than £18 million
Number of employees	More than 10 and less than 250.

(2) For a period that is a relevant body’s financial year but not in fact a year, the figure for turnover must be proportionately adjusted.
(3) In subsection (1) the “number of employees” means the average number of persons employed by the relevant body in year P, determined as follows—
(a) find for each month in year P the number of persons employed under contracts of service by the relevant body in that month
(whether throughout the month or not),
(b) add together the monthly totals, and (c) divide by the number of months in year P.
(4) In this section—
“balance sheet total”, in relation to a relevant body and a financial year—
(a) means the aggregate of the amounts shown as assets in its balance sheet at the end of the financial year, or
(b) where the body has no balance sheet for the financial year, has a corresponding meaning;
“turnover”—
(a) in relation to a UK company, has the same meaning as in Part 15 of the Companies Act 2006 (see section 474 of that Act);
(b) in relation to any other relevant body, has a corresponding meaning;
“year of the fraud offence” is to be interpreted in accordance with section (Failure to prevent fraud)(1).
(5) The Secretary of State may by regulations modify this section (other than this subsection and subsections (6) and (8)) for the purpose of altering the meaning of “non-micro organisation” in section (Failure to prevent fraud)(1).
(6) The Secretary of State may (whether or not the power in subsection (5) has been exercised) by regulations—
(a) omit the words “which is a non-micro organisation or” in section (Failure to prevent fraud)(1), and
(b) make any modifications of this section (other than this subsection) that the Secretary of State thinks appropriate in consequence of provision made under quotegraph (a).
(7) Before making regulations under subsection (5) or (6) the Secretary of State must consult—
(a) the Scottish Ministers, and
(b) the Department of Justice in Northern Ireland.
(8) Regulations under subsection (5) or (6) may make consequential amendments of section (Failure to prevent fraud: minor definitions).””

[Lord Garnier (Con)]

My Lords, I begin by referring to my interest as a barrister in private practice and informing the House that that practice includes economic and corporate crime.

I wish to acknowledge the genuine attempts of my noble friends on the Front Bench to understand my concerns, expressed over a good many years and, more particularly, during the passage of this Bill, not only in this Chamber and in Grand Committee but in meetings with them and their officials, most recently on Friday. My noble friend Lord Sharpe has had to bear the brunt of my concerns, but he has never dissembled nor lost his sense of humour, even when listening to my jokes. It is regrettable that he has not been permitted any discretion by Ministers in the other place and has had to stick to his instructions on a matter that has nothing to do with party politics or manifesto commitments.

I know that your Lordships are interested only in creating good, coherent and comprehensible criminal law that meets the needs of the modern economy and is in line with public opinion and morality. Thanks to the support of your Lordships’ House—I am grateful to noble Lords of all parties and none—the Bill we are dealing with was altered on Report to delete the SME exemption from the failure to prevent fraud offences regime, while money laundering was added to the failure to prevent regime introduced by the Government; by that, I mean the substantive money laundering offences under Part 7 of the Proceeds of Crime Act 2002, not to be confused with the due diligence requirements under the more recent money laundering regulations.

Last Monday, despite the powerful arguments of my right honourable and learned friends Sir Jeremy Wright and Sir Robert Buckland, the other place refused to extend the proposed new offence of failure to prevent fraud to 99.5% of the corporate economy and deleted money laundering from the failure to prevent regime. Having won the Division in the other place last week, the Government now seek to sustain that position in your Lordships’ House today. I accept that democratic politics is as much about arithmetic as it is about sound arguments; if a majority prefers to do something unsatisfactory, whether or not it has listened to the arguments and the evidence in support of them, that is what will happen. Even as they stand, these limited proposals are well overdue and have been in the making since 2010.

In the spirit of compromise, those of us who voted for the extension of failure to prevent to money laundering on Report have agreed not to press the money laundering extension today. We happen to think that it should be extended to money laundering—I happen to think also that there are other substantive offences, such as those listed in the deferred prosecution agreements schedule to the Crime and Courts Act 2013, that could be included—but, on the basis that the best is often the enemy of the good, and in an attempt to meet the Government a lot more than half way down the road, we will not take that matter further on this occasion. However, I invite the Government and the other place to reconsider the SME exemption, subject to a further concession to exempt micro-businesses; I hope that this will allay the fear, albeit unfounded, that extending the failure to prevent regime further than the Bill currently permits will stifle small businesses. Absent any agreement from my noble friend the Minister, I will seek leave to test the opinion of the House at the appropriate time.

On Report, I spoke in support of a number of amendments or proposed new clauses to the Bill—a Bill which has much to recommend it, even if it has been slow to arrive. The defects that I intended to correct related to the failure to prevent regime. No one needs reminding of this but that regime is not a new provision stealthily added to the criminal law in the past few months by an eccentric Back-Bench Peer. It was first introduced into our criminal law with cross-party support—indeed, without a vote—via the Bribery Act 2010, which began its passage through Parliament under Gordon Brown’s Labour Government and was enacted under David Cameron’s coalition Government. Failure to prevent bribery under Section 7 of the 2010 Act, supported by all three major parties, as well as the Cross Benches and others, is now a tried and tested criminal offence, with an easily understood and practical defence for companies and partnerships that I and many other practitioners have not found difficult to advise on or to apply in particular cases, whether we have been acting for the Serious Fraud Office or for defendant companies.

The objective of the 2010 Act was and is not to bring the full force of the criminal law to bear on well-run commercial organisations that experience an isolated incident of bribery on their behalf. Therefore, to achieve an appropriate balance, Section 7 provides a full defence. This is in recognition of the fact that no bribery prevention scheme will be capable of always preventing bribery. However, the defence was also included to encourage commercial organisations to put procedures in place to prevent bribery by persons associated with them. The failure to prevent bribery offence is in addition to, and does not displace, liability that might arise under Sections 1 and 6 of the Act for direct bribery here or of a foreign public official where the commercial organisation itself commits an offence.

That was well understood as the Act progressed through Parliament and I hope it is well understood now. So too are the special nature and parameters of the statutory defence of “adequate procedures”. Note that the defence requires “adequate procedures”, not perfect procedures. There is no practical difference between “adequate procedures” in the 2010 Act and “reasonable procedures” in the Criminal Finances Act 2017 and in this Bill. The law requires no more than a proportionate approach to the facts relevant to the company or partnership in question.

The alarmist suggestion that a failure to prevent fraud offences regime that does not include SMEs—that is, it does not exempt 99.5% of companies and partnerships—will impose unbearable cost burdens running into multiple billions of pounds on those organisations is absurd. There will be some cost but since the guidance under the 2010 Act has been available since 2011, it is well understood and can easily be adapted to the failure to prevent offences under this Bill. The Bribery Act guidance will easily translate to fraud offences and the sooner it is published, the better. The best estimates are that SME companies will need to spend between £2,000 and £4,000 to prepare themselves and some will need to spend nothing because of their low risk profile. These costs are a legitimate business expense but, to put this in proportion, Lesley O’Brien, a director of Freightlink Europe, said in June 2022 that it costs £20,000 per year to run one heavy-goods vehicle. No sensibly run business should be trading abroad without taking proportionate precautionary steps to avoid the risk of bribery or fraud committed by its associates.

In the guidance to the 2010 Act, published in 2011 by my noble friend Lord Clarke of Nottingham, the then Justice Secretary, he explained that “procedures” is used to embrace bribery prevention policies and the procedures that implement them. Policies articulate a commercial organisation’s anti-bribery stance, show how it will be maintained and help create an anti-bribery culture. They are therefore a necessary measure in the prevention of bribery but they will not achieve that objective unless they are properly implemented. Adequate bribery prevention procedures, I repeat, ought to be proportionate to the bribery risks that the organisation faces. The same applies to the prevention of fraud offences and, where the guidance refers to “bribery”, one could in the context of this Bill substitute “fraud”.

The guidance says:

“To a certain extent the level of risk will be linked to the size of the organisation and the nature and complexity of its business, but size will not be the only determining factor. Some small organisations can face quite significant risks, and will need more extensive procedures than their counterparts facing limited risks. However, small organisations are unlikely to need procedures that are as extensive as those of a large multi-national organisation. For example, a very small business may be able to rely heavily on periodic oral briefings to communicate its policies while a large one may need to rely on extensive written communication … The level of risk that organisations face will also vary with the type and nature of the persons associated with it. For example, a commercial organisation that properly assesses that there is no risk of bribery”—


substitute “fraud”—

“on the part of one of its associated persons will, accordingly, require nothing in the way of procedures to prevent bribery”—

substitute “fraud”—

“in the context of that relationship. By the same token the bribery”—

substitute “fraud”—

“risks associated with reliance on a third party agent representing a commercial organisation in negotiations with foreign public officials may be assessed as significant and accordingly require much more in the way of procedures to mitigate those risks. Organisations are likely to need to select procedures to cover a broad range of risks but any consideration by a court in an individual case of the adequacy or reasonableness of procedures is necessarily likely to focus on those procedures designed to prevent bribery or fraud on the part of the associated person committing the offence in question”.

--- Later in debate ---

I urge all noble Lords to note the improvements that the Government have made to the Bill and I thank them for their extensive engagement on all these and other matters. We believe that these provisions strike the right balance between promoting economic growth and the all-important job of tackling economic crime, so I ask noble Lords to consider that when voting.

[Lord Garnier (Con)]

My Lords, I wish to press my Motion E1 and test the opinion of the House.

Economic Crime and Corporate Transparency Bill

Lord Garnier Excerpts

Consideration of Commons amendments
Wednesday 18th October 2023 Lords Chamber

Moved by

[Lord Garnier]

Leave out from “House” to end and insert “do insist on its disagreement with the Commons in their Amendment 151A, do not insist on its Amendments 151B and 151C, to which the Commons have disagreed for their Reason 151D, and do propose Amendments 151E and 151F in lieu—

151E: As an amendment to Lords Amendment 151, in subsection (1), after first “body” insert “which is not a small organisation or which is a large organisation (see sections (Section (Failure to prevent fraud): small organisations), (Section (Failure to prevent fraud): large organisations) and (Large organisations: parent undertakings))”

151F: After Clause 180, insert the following new Clause—
“Section (Failure to prevent fraud): small organisations
(1) For the purposes of section (Failure to prevent fraud)(1) a relevant body is a “small organisation” only if the body satisfied two or more of the following conditions in the financial year of the body (“year P”) that precedes the year of the fraud offence—

Turnover	Not more than £10.2 million
Balance sheet total	Not more than £5.1 million
Number of employees	Not more than 50.

(2) For a period that is a relevant body’s financial year but not in fact a year, the figure for turnover must be proportionately adjusted.
(3) In subsection (1) the “number of employees” means the average number of persons employed by the relevant body in year P, determined as follows—
(a) find for each month in year P the number of persons employed under contracts of service by the relevant body in that month (whether throughout the month or not),
(b) add together the monthly totals, and
(c) divide by the number of months in year P.
(4) In this section—
“balance sheet total”, in relation to a relevant body and a financial year—
(a) means the aggregate of the amounts shown as assets in its balance sheet at the end of the financial year, or
(b) where the body has no balance sheet for the financial year, has a corresponding meaning;
“turnover”—
(a) in relation to a UK company, has the same meaning as in Part 15 of the Companies Act 2006 (see section 474 of that Act);
(b) in relation to any other relevant body, has a corresponding meaning;
“year of the fraud offence” is to be interpreted in accordance with section (Failure to prevent fraud)(1).
(5) The Secretary of State may by regulations modify this section (other than this subsection and subsections (6) and (8)) for the purpose of altering the meaning of “small organisation” in section (Failure to prevent fraud)(1).
(6) The Secretary of State may (whether or not the power in subsection (5) has been exercised) by regulations—
(a) omit the words “which is not a small organisation or” in section (Failure to prevent fraud)(1), and
(b) make any modifications of this section (other than this subsection) that the Secretary of State thinks appropriate in consequence of provision made under paragraph (a).
(7) Before making regulations under subsection (5) or (6) the Secretary of State must consult—
(a) the Scottish Ministers, and
(b) the Department of Justice in Northern Ireland.
(8) Regulations under subsection (5) or (6) may make consequential amendments of section (Failure to prevent fraud: minor definitions).””

[Lord Garnier (Con)]

My Lords, the cracked record is up and at it yet again, but I make no apology because, although I fully understand the timetabling difficulties that the Government face—namely, that they would like to see this Bill receive Royal Assent before the close of the Session—I think we all ought to agree that it is better that, if we are to give this Bill a route through to Royal Assent, it should be a good Bill.

Most of the Bill is good, but this particular provision in relation to failure to prevent fraud offences falls down. I will not make the same speech that I made on 11 September, nor the same speech that I made in July, nor the same speech that I made in the spring, nor the same speech that I have made probably half a dozen times since I came into this House and probably a dozen times when I was a Member of the other place. Suffice to say that nothing I have heard from the Government, and nothing I have heard from those representing the Government in the other place, has come anywhere near meeting the case that has to be met.

First, it seems to me as a matter of straightforward principle that the criminal law should be uniform. It should apply to all in exactly the same way, and any defence that is available to a criminal offence should also be the same and applied to all uniformly. Of course, it will be up to the prosecuting authorities to consider the evidence and whether it is in the public interest to bring a prosecution on the evidence available, but we should not leave this Bill in a position where there is a different failure to prevent fraud offence for most companies than there is for 0.5% of the corporate and partnership economy.

I add this. There should be a form of consistency between each of the Government’s Bills dealing with failure to prevent. The Bribery Act 2010 has a failure to prevent bribery offence. The Criminal Finances Act 2017 has a failure to prevent the facilitation of tax evasion offences. Neither of those two failure to prevent offences is limited in its scope, in so far as neither of those Acts of Parliament provide an exemption for anybody, still less for 99.5% of the corporate economy. For some extraordinary reason which is yet to be explained this Bill provides that only 0.5% of the corporate and partnership economy should remain liable for any failure to prevent fraud offences. I have yet to find an answer.

I read in Hansard the House of Commons debate of 11 September which overturned my successful amendment. My right honourable friend Mr Kit Malthouse said that, clearly, I do not understand anything since I have never run a business. Well, he is wrong about that, quite apart from being offensive, because I have run my own business as a self-employed barrister for nearly 50 years. Furthermore, I have been a head of a set of chambers, which is, if I may say so, quite a respectable business to run.

[Noble Lords]

Hear, hear!

[Lord Garnier (Con)]

If one wants to learn anything from the speeches made in the House of Commons, I suggest that my noble friends on the Front Bench— and other noble Lords if they have a moment—read those of Sir Robert Buckland and Sir Jeremy Wright, two former law officers. They agree with my remarks of 11 September and find it puzzling that their own Government, a Government who are in favour of producing cogent and cohesive criminal law, have come up with this dog’s dinner.

I have done my best to be accommodating. It is not an accusation that is often levelled at me, but on this occasion, I think that it can be, justly. I have done my best to meet some of the Government’s less organised thinking. As I said at the outset, as a matter of principle. I cannot understand why there should be an exemption for anyone from the proposed criminal law, just as there is not under the Bribery Act and the Criminal Finances Act. However, to make life easier for the Government, on the last occasion I suggested that microbusinesses should be exempted from the failure to prevent fraud offences provision. I abandoned my provisions relating to the failure to prevent money laundering. The Government did not find that attractive, even though I tried to explain my abandoning of the principle on the basis that just as we have an age limit for criminal responsibility—10—we could perhaps also, by a rather clumsy analogy, exempt microbusinesses from criminal responsibility under the failure to prevent provision. That did not seem to go down very well with the Government—certainly not with Mr Kit Malthouse.

I have now moved a little further towards the Government. You may say, “Well, that’s a bit wet. If you’ve got any principles, why not stick to them?” Well, okay, accuse me of being wet, but I am doing my best to help the Government get out of an unnecessarily sticky hole. I have amended my proposal so that rather than microbusinesses being exempted, “small” businesses should be exempted—I define a small business on page 5 of the amendment paper, which states that, for the purposes of this provision,

“a relevant body is a ‘small organisation’ only if the body satisfied two or more of the following conditions in the financial year of the body … that precedes the year of the fraud offence”.

Those conditions are that the turnover of the business should be

“Not more than £10.2 million”,

the balance sheet should be

“Not more than £5.1 million”

and the number of employees should be “Not more than 50”.

In speaking against my own case, I rather wish that I had not put that down, but I have because I am trying to assist my noble friend on the Front Bench in getting his Bill enacted before the end of this Session.

I repeat that the criminal law should be uniform. Defences to the criminal law should be uniform. We should not have exemptions based on the size of the business. The Theft Act applies to all suspects—I am seeing whether my noble friend still enjoys my old joke about the six feet six burglar—regardless of whether they are six feet six or five feet six. We do not exempt people on the basis that they are small people or do not fit a particular height, so why are we doing it here? I have yet to find out. I am afraid that unless the Government move a little closer to me, I will invite your Lordships to join me in the Division Lobby.

[Lord Faulks (Non-Afl)]

My Lords, I shall speak to my Motion B1, as an amendment to Motion B, which is being debated within this group. It would

“leave out from ‘House’ to end and insert ‘do insist on its disagreement with the Commons in their Amendment 161A, do not insist on its Amendment 161B, to which the Commons have disagreed for their Reason 161C, and do propose Amendment 161D in lieu’”.

That is very clear.

We return to what has been described as a cost-capping amendment. Since this is not the first time that we have had the debate, I will try to be brief. This Bill has been a welcome, if late, addition to the government agencies in their fight to combat fraud. The scrutiny of the Bill through your Lordships’ House has been thorough and constructive. It has also been non-party political. I do not think that either the noble and learned Lord, Lord Garnier, or I would consider ourselves to be natural rebels.

All noble Lords have participated in this debate—and I very much include the Ministers in this—with a common purpose: to make this legislation as effective as it can be. Two themes emerged during the many debates. The first was the scale of the problem. The Government estimate, for example, that £100 billion was laundered through the United Kingdom last year, and yet under the Proceeds of Crime Act assets of only £345 million were recovered: that is 0.3%. The second theme was the frequent imbalance that exists between the resources available to enforcement agencies and those of the fraudsters, who may well employ expensive lawyers and have significant resources to enable them to do so. This modest amendment tries to do a little to restore that balance. I would have liked the enforcement agencies to have had complete protection against costs orders in the event that they lost a recovery claim, but in the course of ping-pong I have had to compromise somewhat, hence the form of the current amendment before your Lordships’ House.

The amendment does not prevent a judge from doing what is fair on costs in any particular case, but it is a nudge towards him or her to take into account the reasonableness of the agency bringing proceedings at all and the potential impact on its ability to carry out its functions if left with a substantial costs order. I struggle to understand the Government’s objection to this amendment and its predecessors; they seem, with respect, to be adopting a somewhat tender approach to fraudsters.

There is a clear precedent for this sort of amendment: when your Lordships’ House introduced a provision concerning the much-underused unexplained wealth orders. If it loses a case, the enforcement authority will have to pay costs only if it has acted unreasonably. As to the objection that it offends the “loser pays” principle, that is a misconceived argument. Judges regularly, in ordinary cases, make orders that each side bear their own costs, or make issue-based costs orders, or other orders which reflect the justice of the individual case. Parliament has legislated in ways that depart from this so-called principle: for example, QOCS—that is Qualified One-Way Costs Shifting—in personal injury litigation; or by Section 40 of the Crime and Courts Act; or in relation to unexplained wealth orders. This amendment is intended to reduce the possibility of an agency saying to itself, “We cannot afford the risk to the budget if we lose a case, even when we’ve got good evidence to bring it”.

Spotlight on Corruption suggests that a number of cases are in the pipeline which bear costs risks. These are said to include over 60 cases being reviewed by one agency, and close to £1 billion in assets frozen by an enforcement body.

Another advantage to this amendment is that those defendants or respondents to an application who defend these cases will know that, even if their legal strategy prevails, they may not recover their costs. This may mean that they are keener to reach a compromise.

The amendment has the support of all those bodies that are concerned with anti-corruption. Incidentally, it also has the support of Bill Browder, who regards it as one of the most significant potential improvements to the Bill. Let us please not kick this into touch and have yet another report, which is the Government’s suggestion. If necessary, I will move Motion B1 and test the opinion of the House.

--- Later in debate ---

[Lord Sharpe of Epsom (Con)]

My Lords, I thank all noble Lords who have contributed to this relatively short debate. Like my noble and learned friend Lord Garnier, I am in danger of sounding like a cracked record on this subject, so I will keep my remarks brief. I reassure my noble and learned friend that I still find his joke funny and I am glad he keeps making it. I thank him for being incredibly gracious although we continue to disagree on these matters. I have to say I do not believe the Bill is a dog’s dinner or that these arguments are dog’s-dinnery. We are not in a sticky hole on this; it is a difference of opinion, and I will make a couple of the arguments that I have rehearsed before in support of that.

I shall deal with my noble and learned friend’s amendment by first reminding him and the House that this may be a relatively small number of companies but, as I have said many times before from this Dispatch Box, they account for 50% of economic output in this country. The heart of the argument comes down to why there is a threshold for this offence but not for the offences of failing to prevent bribery or the criminal facilitation of tax evasion. As I have reminded the House on numerous occasions, the Law Commission has identified the disparity here: it is easier to prosecute smaller organisations under the current law, which this failure to prevent offence will address. The new offence is less necessary for smaller firms, where it is easier to prosecute individuals and businesses for the substantive fraud offence. The Government therefore believe it would be disproportionate to impose the same burden on them. The fact is that this is not an exemption from the law; the law applies in a different way to these smaller companies, as we have tried to explain on a number of occasions. I think I will leave that there.

On Motion B1 in the name of the noble Lord, Lord Faulks, I do not think that this represents a tender approach to fraudsters. As we have said and made the case on a number of occasions, fundamental changes are being proposed here, and the review that we have proposed seems like a fair way of assessing precisely the implications of making those changes.

I thank my noble friend Lord Wolfson for highlighting some of the complexities in this area in his particularly acute legal way, which I am not equipped to follow. However, I can perhaps answer the question about the difference in introducing the cost protection amendment for civil recovery compared with unexplained wealth orders. This issue has come up in previous debates as well. The fact is that the difference between the changes made to the unexplained wealth order regime by the first Economic Crime Act last year and what is proposed in this amendment is that unexplained wealth orders are an investigatory tool that do not directly result in the permanent deprivation of assets, whereas the civil recovery cases covered by the amendment could do so. There could therefore be a host of serious unintended consequences of such a change to the wider civil recovery regime, so the Government cannot support the amendment. A review is the appropriate way to look at this issue. As I tried to make clear in my opening remarks, that may well be a very good idea, but we would like to be convinced of that and to do the work before we actually accept it.

I thank the noble Lord, Lord Coaker, for generously accepting that we have made significant improvements to the Bill through its passage. I say to the noble Lord, Lord Wallace of Saltaire, that we have engaged extensively with all noble Lords in this House on the Bill. I thank him for his explanation of how he believes a revising Chamber should operate. The fact is that we are not sufficiently persuaded of the arguments against this, so there is a genuine difference of opinion. I do not think the noble Lord would mean to imply that this House should necessarily have a veto where there is such a difference of opinion. I think that is a fairly straightforward argument and a perfectly respectable one.

Throughout the passage of this Bill, the Government have worked hard to ensure the right balance between tackling economic crime and ensuring that the UK remains a place where law-abiding businesses can flourish without unnecessary burdens. The Motions tabled by the Government today achieve that balanced and proportionate approach. I therefore urge all noble Lords to support them.

[Lord Garnier (Con)]

My Lords, I will make one point in total agreement with my noble friend the Minister—we are not having a row, we are having an argument. He and I have a different view about the merits of our respective arguments. If the House listens to no other speeches, and if it wishes to forget mine, I urge noble Lords to remember what the noble Lord, Lord Eatwell, and my noble friend Lord Agnew said. From both sides of this House, they perfectly summed up the lacuna in the Government’s case.

I thank all noble Lords who have taken part in this short debate. Despite the fact that this is not an argument about party politics—it has nothing whatever to do with the Salisbury convention—I regret that I am insufficiently persuaded by my noble friend the Minister that he has quite got the point. I must therefore ask the House if it will join me in agreeing with my Motion by testing the opinion of the House.