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.

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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”.

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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.