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.