Economic Crime and Corporate Transparency Bill Debate
Full Debate: Read Full DebateDepartment: Department for Business and Trade
Lord Johnson of Lainston
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Economic Crime and Corporate Transparency Bill
Lord Johnson of Lainston ExcerptsTuesday 20th June 2023
(1 year, 5 months ago)
Lords ChamberRead Full debate Economic Crime and Corporate Transparency Act 2023 View all Economic Crime and Corporate Transparency Act 2023 Debates Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: HL 138-I(a) Amendments for Report (Supplementary to Marshalled List) - (20 Jun 2023)
Member’s explanatory statement
This brings the wording of objective 3 into line with objectives 1 and 2.
The Minister of State, Department for Business and Trade (Lord Johnson of Lainston) (Con)
My Lords, before we begin proceedings, I draw your Lordships’ attention to my interests as set out in the register of interests, including as a director and person with significant control of AMP Ventures Ltd, a person with significant control of Cigarkeep and as a shareholder of several other companies, including a previous shareholder and person of significant control of Somerset Capital Management. As I have set out before, I believe these interests serve only to increase my enthusiasm for this Bill to ensure that the UK remains the best place to start and grow a business while driving dirty money out of the UK. It is at the absolute core of this Government’s mission that we help legitimate business thrive.
I express my gratitude for the vast amount of engagement that has taken place since we concluded Committee in May, and the constructive way in which your Lordships have worked with me, my noble friend Lord Sharpe, my noble and learned friend Lord Bellamy, and all our exceptionally hard-working officials to ensure this Bill reaches its full potential. I am pleased that the Opposition Front Benches remain supportive of the intentions of the Bill and that they desire to ensure it works effectively. I am particularly grateful for the focus they have brought to bear on the drafting of the new objectives for the Registrar of Companies and for the constructive dialogue they have had with the registrar and me in recent weeks. I also give particular thanks to my noble friends Lord Agnew of Oulton and Lord Leigh of Hurley and the noble Lord, Lord Vaux of Harrowden, for their scrutiny of the Bill and their amendments on shareholder transparency, authorised corporate service providers and the register of overseas entities, which we will debate shortly.
Before I turn to the government amendments in this group, I briefly remind the House of the key principles of this Bill. It builds on last year’s Economic Crime (Transparency and Enforcement) Act, which contained key measures to help crack down on dirty money, including from Russia and other foreign elites abusing our open economy. That Act introduced reforms to the UK’s sanctions framework and to unexplained wealth orders and it provided for the introduction of the register of overseas entities.
Forming a key part of the wider government approach to tackling economic crime and sitting alongside the recently published economic crime plan, this Bill will further tackle economic crime, including fraud and money laundering, by delivering greater protections for consumers and businesses, boosting the UK’s defences, and allowing legitimate businesses to thrive.
I direct noble Lords to read the economic crime plan, if they have not already done so, as it contains a significant set of actions. Soon after the plan came out, our Home Office colleagues supplemented it with the launch of the new fraud strategy and in the coming months the Treasury will consult on the future of the anti-money laundering supervisory framework. These are relevant points because they fit within the debate today. My own department will conclude its review of the whistleblowing framework. This is a lot of activity and rightly so, because economic crime is a growing issue and affects people of all backgrounds and businesses large and small.
This Bill will make an immediate difference to real people. For example, we have discussed the problems of fraudsters creating companies using an individual’s or business’s personal details or address without their consent, including to obscure ownership and control of a company. Innocent citizens have been left seriously distressed by huge volumes of post for fake companies arriving through their letterbox and finding to their horror that their credit reference scores have suffered because they have been appointed a director of a debt-ridden company without their knowledge. The Bill introduces safeguards to put an end to these issues.
Elsewhere, the Bill provides vital new powers to underpin our law enforcement agencies; for example, over crypto assets, and to address corporate criminal liability. The powers supplement the £400 million package the Government have allocated to tackle economic crime over the spending review period, including support for the National Economic Crime Centre, reform of suspicious activity reporting and upgrading the Action Fraud service.
The Bill also supports our national security by making it harder for kleptocrats, criminals and terrorists to engage in money laundering, corruption, terrorism financing, illegal arms movements and ransomware payments. We have continuously sought to improve the Bill as it has progressed through Parliament. As noble Lords will know, the Government have tabled a number of significant amendments to be considered at Lords Report stage, including on strategic lawsuits against public participation, corporate criminal liability, the role of authorised corporate service providers and the transparency of information on trusts on the register of overseas entities. We believe these present a significant, meaningful package of measures that demonstrates that we have listened carefully to the concerns of this House.
Yet, throughout the passage of this Bill, it has also been essential to hold uppermost in our minds the fact that the vast majority of businesses are entirely law-abiding, and that the 350 or so pages of the Bill as it now stands and the dozens of secondary regulations which will follow it represent a lot for the business community to grapple with. The reforms in this Bill will touch every company in the country—nearly 5 million of them. The Government have worked very hard to ensure that, despite the length of the Bill, the burdens it will place on businesses are slight. As the FSB has tweeted today:
“The Economic Crime Bill must work for small businesses”.
The estimated net direct cost to the business community of the package of reforms to Companies House is less than £20 million a year. Indeed, these reforms will underpin systems changes that will improve the user experience for company directors. Elsewhere, the Home Office measures in Part 5 will reduce the reporting burdens on businesses, enabling the private sector to work with law enforcement more efficiently and effectively.
I am therefore extremely pleased that we have been able to maintain the support of the business community as the Bill has progressed. Indeed, the Institute of Directors very recently said:
“The UK is rightly seen as a country which champions high standards of business conduct. The IoD welcomes this legislation as a measure that will help maintain the integrity of the UK business system”.
However, that support cannot be taken for granted. As we reach the concluding phases of the Bill’s passage, I hope that noble Lords will work with the Government to ensure that what emerges is an Act which works for the law-abiding majority at a time when so many businesses and businesspeople are under strain. We are doing a great deal, and we need to bed it in and monitor how this will affect businesses before going significantly further.
Turning to the reforms in Parts 1, 2 and 3, which we will debate today and which are the responsibility of my department, I say that noble Lords will know that these measures will fundamentally change the role of Companies House, transforming it from a passive recipient of the data it receives to a proactive gatekeeper that upholds the integrity of the companies register—the most significant reform to the UK’s framework for registering companies in some 170 years. This, of course, means significant changes for Companies House as an organisation—to its systems, processes and culture. Investment in new capabilities is already under way, with a £63 million allocation to Companies House across the spending review period and the creation of some 400 new roles to ensure delivery of the registrar’s new objectives. Furthermore, through additional investment of up to £20 million of allocated spending on economic crime, new anti-money laundering intelligence teams are being created at both Companies House and its close partner the Insolvency Service to tackle the misuse of UK companies, corporate entities and property.
Having met with the registrar, Louise Smyth, several times in recent weeks—I express my gratitude to her and her team for their time; I am sure noble Lord will join me in doing so—I am convinced that she is well aware of both the challenges and opportunities this brings. These are transformative changes that will require a step change in the capabilities and practices of Companies House staff and its systems and users.
I hope that noble Lords who joined our session with the registrar and her team a fortnight ago share my conviction that the registrar and her team will rise to these challenges. Those who attended heard how, even before the reforms reach the statute book, Companies House is breaking new ground with HMRC, the National Crime Agency and others to maximise the power of its data to tackle criminality. The amendments we are about to debate get to the core of these changes.
I turn first to the government amendments in this group, starting with Amendments 1 and 2. The Bill introduces a wholly new set of objectives for the registrar. These are: to ensure that any person who is required to deliver a document to the registrar does so and that the requirements for proper delivery are complied with; to ensure that documents delivered to the registrar are complete and contain accurate information; to ensure that records kept by the registrar do not create a false or misleading impression to members of the public; and to prevent companies and others carrying out unlawful activities or facilitating others carrying out unlawful activities. These objectives were warmly welcomed across the House, as were the amendments tabled in Committee to broaden and strengthen the scope of those objectives.
However, in the interesting and lively debate we had on the subject in Grand Committee, it was apparent that a number of noble Lords felt we could have been more ambitious in the tone the registrar’s objectives set. Mindful of the need to strike a balance between that which is sensibly aspirational and what is simply unachievable, we have looked closely at the drafting once more.
I recall that the language of “ensuring” found your Lordships’ favour in the context of the first two objectives, concerning compliance and accuracy respectively. I trust, therefore, that the House will similarly support our amendment to replicate that language in objective 3, which is concerned with the risk of register records creating a false or misleading impression to members of the public. Instead of tasking the registrar “to minimise that risk”, the intention is that she will now have the more stretching objective “to ensure” that it does not happen. Furthermore, we understand the strength of feeling on the wording of the fourth objective and recognise that noble Lords wanted an alternative to “minimising” the extent of companies’ and others’ unlawful activities.
We have been cautious here for good reason, not wishing to subject the registrar to either unrealistic expectations or the risk of unnecessary legal challenge. However, following dialogue with the registrar, we have resolved to replace the wording
“minimise the extent to which”
with “prevent” in objective 4. I know that the noble Lords, Lord Coaker and Lord Fox, in particular, felt strongly about that point. I hope these amendments will be welcomed as a further demonstration both that we have listened to the views of the House and of the commitment on the part of both the Government and the registrar to improve the quality of register information and work proactively in combating economic crime.
I turn to government Amendments 46 to 48, 51, 54 to 56, 64, and 80 to 82. Companies legislation contains various regulation-making powers allowing the Secretary of State to delegate duties and functions to the Registrar of Companies. For efficient administration, there are instances where it is appropriate for such powers to allow the Secretary of State to confer on the registrar discretion as to how she discharges her statutory duties.
We have identified various new delegated powers within the Bill where such discretion would be beneficial to efficient delivery. The common thread linking them is that they determine, at a high level, how various statutory mechanisms for applications, notifications and appeals to the registrar shall be established through secondary legislation. Although we strive to establish the parameters of such mechanisms as precisely as possible, operational experience shows that sometimes being overprescriptive can hinder efficient administrative delivery.
The primary legislation is not consistent. In some cases, it allows the registrar discretion on all aspects of processes, in other cases only some aspects, and in others, none. These amendments will give the Secretary of State the ability to delegate consistent discretions. These will cover matters such as who she gives notice to when she exercises her powers, periods allowed for certain objections and what material is required to substantiate applications and objections.
Briefly, on government Amendment 40, the Bill provides the registrar with new powers to examine and query applications for company incorporation and restoration and verify certain information. Although it is expected that this will significantly improve the integrity of the register, it is inevitable that criminals will try and, in some cases, succeed in finding ways to circumvent these checks and file under false, deceptive or misleading pretences.
Existing powers, further enhanced by the Bill, allow for the removal of false information from the register—for example, directors’ names and registered office addresses. However, the circumstances in which the registrar can, by her own action, remove a company itself from the register through the process of strike-off are limited. She must be satisfied that the company is no longer operating and is effectively defunct. Forming that judgment and seeing the process to a conclusion is a relatively lengthy process, involving various statutory notification obligations.
It will be immensely beneficial for the registrar to be able to act more quickly than current processes allow. This amendment will allow the registrar to act expeditiously where there is reasonable cause to believe that the incorporation or restoration of a previously struck-off company is based on a false premise. This will mean that she can act much more quickly to expunge potentially fraudulent companies from the register.
Finally, this group contains several minor and technical amendments to Parts 1 and 2 to correct drafting errors or ensure that the drafting works properly—namely, government Amendments 3, 4, 18 and 38. Amendments 3 and 18 correct cross-references in Clause 4 and Schedule 2. Amendment 4 changes the definition of “the registrar” in Clause 30 so that it does not refer to the Companies Act—which is itself not defined. Amendment 38 corrects a mistake in Section 1082(1) of the Companies Act 2006 by spelling out that the power conferred by that subsection is exercisable by regulations—that this was always the intention is clear from the subsequent subsections.
In combination, these amendments will further improve the registrar’s objectives and powers, enabling her to better fulfil her new role. I therefore hope that your Lordships will support these amendments and I beg to move.
Baroness Blake of Leeds (Lab)
My Lords, I add my thanks to the Ministers for their regular updates, and the access we have had to their officials. The ability to meet the team from Companies House was particularly helpful and instructive. I too believe that we have a better Bill before us.
Having said that, we must not forget the scale and severity of the consequences of actions of bad actors, particularly the exposure of the public to fraud, nor the victims, who have suffered so appallingly over many years. As we know, the Ukraine war has brought all these issues to a head, necessitating a swift response. I thank everyone involved for responding positively to some of the many proposals that we have put forward.
I will refer particularly to Amendment 2, with regard to the fourth objective. It would be wrong of me not to mention the fact that the noble Lord, Lord Coaker, as has been mentioned, was very forceful in his views that the objective surely must be to prevent unlawful activities rather than to minimise them, as was the earlier wording. I also welcome the change to the third objective, and the increase in the ability of the registrar to strike off companies and take swift action. Again, I think that running through this is the emphasis on the ability to act quickly with clarity.
I acknowledge the amendments in the name of the noble Lord, Lord Agnew, which would bring in a framework of intervention criteria to assist the registrar, and particularly Amendment 57, which recognises the sheer scale of the task ahead of Companies House and seeks full, regular scrutiny. I want to put on record our concern about the sheer scale of the task ahead of Companies House and make it plain that we must communicate to everyone involved that there is a fallback position and that it can come back if the resources are not adequate for the job it has in hand. The scale of change it has to go through, from being a receiver of information to a proactive partner, is quite significant.
I again thank the Ministers involved for their openness and for having moved on a number of our suggestions.
Lord Johnson of Lainston (Con)
I am extremely grateful to all noble Lords who participated in this debate. I shall answer their questions in order.
The financial guru, my noble friend Lord Leigh of Hurley, pointed to Amendment 40. He is right that it does not specifically mention submitting misleading information—this is related specifically to the filing of accounts—but I believe that the Companies Act enables the Secretary of State to issue a winding-up order if there are materially inaccurate filings in the accounts. I am happy to write to him specifically on that issue.
I am grateful to my noble friend Lord Agnew for his comments. I am extremely pleased to come back to the noble Baroness, Lady Blake, about the objectives. We had long and specific discussions about the difference between the words “minimise” and “prevent”. I think the House understood clearly from my approach that I was being carefully guided by our legal advisers. It is right that we should be, and it is also right that we found a word that would be suitable in how the noble Baroness saw the Bill being presented. We want to make sure that we get the language right. It is important that we have remained in our current function to ensure that there is flexibility for the registrar to perform her duties while at the same time sending the appropriate signal.
The noble Baroness, Lady Bennett, rightly commented on the need to continue to review the situation as we see it. I hope that the noble Baroness has been reassured by my attitude to the Bill as it has progressed through the stages in this House. My point was to ensure that we do not deluge businesses with unnecessary obligations at this stage before we know how this process will transpire. I am also very aware of the dangers of being too prescriptive. Technology changes and the activities of criminals change, and it is important that we assess the situation as it stands and work out how to ensure that we can confront those challenges as and when they arise.
I turn specifically to the amendment tabled by my noble friend Lord Agnew, Amendment 57. Reporting by Companies House is an extremely important element of its activities, and I agree that it is important that Parliament is informed about the implementation and delivery of the reforms that we are undertaking. That is why the Government brought forward an amendment in the other place to that effect, which is now Clause 187. I am aware of the comments made about the cultural and operational changes linked to Companies House’s new responsibilities. I hope that through meeting the registrar we felt a sense of reassurance that the head of investigations is extremely dedicated to his task. We believe that the amount of money we are applying to Companies House and the fees, which we will discuss later, will amply cover expenditure, and could be increased if necessary. It is up to Companies House to ensure that it presents to the Government its funding requirements to ensure that it can do its job and perform its tasks.
It might be helpful for me from the Dispatch Box to go through some of the points formally so there is a record of what we expect Companies House to report when it has finished reporting on what it is intending to do—the inputs—and then turn our attention to the outputs, which is the difference between what it is obliged to report to Parliament for the first three years of operation, I think, and what we then expect to be business as usual.
From the discussions with Companies House to date, I can commit that, subject to the successful implementation of the necessary information systems, early reports will cover items such as: the number of documents rejected for not being properly delivered or for a discrepancy; rejected incorporations and name changes; the number of documents removed from the register for being inaccurate, incomplete or fraudulent; and the number of times the querying power is used and the resulting actions taken by Companies House. We are also looking into how we might report on the number of times Companies House has shared data with other organisations and vice versa. I would be happy to explore with Companies House officials how they might incorporate some of the new items in this amendment into its reporting without the need for this statutory requirement, and of course we listen to all sides of the House about other areas where noble Lords feel it would be beneficial for Companies House to report.
“Objective 4 is to prevent companies and others from—(a) carrying out unlawful activities, or(b) facilitating the carrying out by others of unlawful activities.”Member’s explanatory statement
At the moment the registrar’s fourth objective is to minimise the extent to which companies and others carry out unlawful activities etc. This amendment makes it an objective to prevent companies and others from carrying out unlawful activities etc.
Member’s explanatory statement
This amendment corrects a cross-reference in Clause 4 of the Bill.
Member’s explanatory statement
This amendment changes the definition of “the registrar” so it does not refer to the Companies Acts (which is itself not defined).
Member’s explanatory statement
This amendment makes it clear that a person who is subject to director disqualification sanctions will be so subject both for the purposes of section 11A of the Company Directors Disqualification Act 1986 and for the purposes of Article 15A of the Company Directors Disqualification (Northern Ireland) Order 2002.
Lord Johnson of Lainston (Con)
My Lords, the amendments in this group relate to the new director disqualification sanctions measure introduced in Committee. This measure created a completely new type of sanction in the Sanctions and Anti-Money Laundering Act 2018 called director disqualification sanctions. It will be unlawful for a designated person subject to this new measure to act as a director of a company. I welcome the support this measure received from this House in Committee.
Government Amendments 5 to 11 address some technical drafting concerns raised by Northern Ireland officials. The amendments clarify that the definition of a
“person who is subject to director disqualification sanctions”
encompasses disqualification for the purposes of the Company Directors Disqualification Act 1986, which applies in England, Wales and Scotland, and the Company Directors Disqualification (Northern Ireland) Order 2002, which applies in Northern Ireland. This does not alter the legal consequences of the measure but simply clarifies that the definition relates to both Great Britain and Northern Ireland legislation.
The amendments also make clear that the Department for the Economy in Northern Ireland will now be required to maintain information about individuals subject to the new director disqualification sanction in the department’s register of disqualified directors. This mirrors the requirement for the Secretary of State to update the UK-wide director disqualification register, ensuring consistency between GB and NI legislation.
Lastly, these amendments clarify when a designated person, or a person acting on the instructions of a designated person, is responsible for the debts of a company. The current drafting does not address the liability of a third party who acts on the instructions of a designated person. These amendments therefore specify the circumstances in which a third party acting under instructions from a designated person may be liable and clarifies the defences that may relieve the designated person or the third party from personal liability.
The amendments mean that a person will not be responsible for debts incurred when they could not reasonably have known they were subject to director disqualification sanctions. And a third party who acts on instructions that were given by a person who they did not know was subject to director disqualification sanctions, or who they reasonably believed was acting under the authority of a licence, will similarly not be responsible. As a package, these amendments improve the coherence of the new director disqualification sanctions measure.
Government Amendments 52 and 53 amend Clause 101 of the Bill, which inserts new Section 1132A into the Companies Act 2006. Government Amendment 83 inserts into the Bill after Clause 169 a new clause which amends Section 39 of the Economic Crime (Transparency and Enforcement) Act 2022. Both new sections allow the Secretary of State to make regulations which confer power on the registrar to impose a financial penalty on a person if satisfied, beyond reasonable doubt, that the person has engaged in conduct amounting to an offence. These amendments align the drafting with the drafting of Clause 202 of this Bill, which inserts new Section 17A into the Sanctions and Anti-Money Laundering Act 2018. These amendments mean that regulations must provide that no financial penalty may be imposed on a person in respect of whom criminal proceedings are ongoing, or if a person has been convicted of an offence. At the moment, it is the other way around, so criminal proceedings cannot be continued once a penalty is imposed. This is clearly unhelpful, as without amendment, prosecutors’ discretion to prosecute could be infringed upon.
Government Amendment 50 relates to the setting of Companies House fees. It will allow the Secretary of State to take into account additional costs incurred, or likely to be incurred, in relation to the new disqualified directors sanction which the Bill is introducing. Specifically, this amendment will ensure the costs of delivering the licensing function for this sanction can be covered by Companies House fees. Without this amendment, the costs of this licensing regime would fall on the taxpayer. We have made great strides through this legislation to require those that benefit from incorporated status to contribute towards maintaining the integrity of the register and a healthy business environment. It therefore seems reasonable for this to extend to the funding of the licensing regime that enables sanctioned directors to remain compliant and continue lawfully to carry out certain activities within the limitations set out in the licence.
I hope noble Lords will support these amendments. I beg to move.
Lord Fox (LD)
My Lords, again this is a group of amendments with which we can thoroughly agree, which is a nice position to be in. Government Amendments 5 to 11 speak for themselves in the sense of tidying up the situation in Northern Ireland. The one amendment that is worth dwelling on a little bit is government Amendment 50, which gets to the point around resources and having sufficient resources for Companies House to be able to do what it needs to do.
There is a certain irony that, if the Companies House team is successful, there will be fewer companies on the register. So one of the things they will need to consider about fees is that they will be reducing the number of companies or the amount of income that will come per company. One of the issues in setting them is that, if estimates of 5% of companies being fraudulent are right, there will be 5% fewer companies paying the annual renewal. Some people, and some organisations, put that number much higher, so I suggest that the Government think about the success that Companies House will hopefully have in order to set a fee that does not become self-defeating if it removes companies.
The more companies the team removes from the register, the less money Companies House receives in annual renewal. That is the point I am making. I am assuming that this number will come quite soon after this Bill becomes an Act, and it would be useful for the Minister to update us on when we think the secondary legislation will come, because, clearly, Companies House and others will rely on this money for planning ahead. I am assuming the money goes to Companies House and not the Treasury, but perhaps the Minister could confirm that.
If the Minister could say a little around the operation of Amendment 50, that would be helpful—so that I understand it even if everybody else already does. He could say a little about how much money and how changeable it will be in the event that more money is needed to support the drive to remove criminality from our companies. I think that everything else is broadly very welcome.
Lord Ponsonby of Shulbrede (Lab)
My Lords, we agree with all the amendments in this group. This group is all government amendments which make minor changes to ensure that penalties align with previous legislation, that they are taken into account when setting fees and that penalties do not stop criminal proceedings, as the noble Lord explained introducing the amendments.
I take the point the noble Lord, Lord Fox, made about Amendment 50. I presume fees can be updated as the situation evolves regarding the number of companies on the register. Nevertheless, we support this group of amendments and look forward to the Minister’s response to the questions asked by the noble Lord, Lord Fox.
Lord Johnson of Lainston (Con)
As always, I am extremely grateful to noble Lords for their interventions and the points raised in debate.
I turn to government Amendment 50. It is not a technical point, but it would not, in my view, be a point of significant consequence. It is just to ensure that when the Secretary of State has a licensing regime for directors who have been disqualified but whom she may require to perform a director’s duties, such as winding up a business—it is practical to allow disqualified directors in some instances to perform certain functions—the cost for administering that process is met by the fees. I do not imagine that would be a significant component of the Companies House fees. This is a tidying-up point more than anything else. It just means that the taxpayer does not have to pay the bill. If I am wrong in my expectations, I will certainly correct that for the House, but I do not think that is the case. It is a technical point.
We have discussed at great length what we feel the Companies House fees should be. I do not think there is a single similar opinion; every noble Lord in this House has a different view on the exact amount to the nearest 50p it should cost to register a company and to reregister it or confirm the registration each year. The fact is that Companies House now has a licence to propose its budget, which must be agreed. That budget will be met through the fees charged to companies using its services.
The noble Lord, Lord Fox, raised a good point. It is anticipated that some companies will leave the register. I hope that there will not be a significant number of companies forced to leave the register because they are not legitimate companies, but it is right that this investigative power will encourage those companies that should not be on the register to leave. The quantum of the number of companies—I think there are nearly 5 million companies—at any reasonable fee rate, which the discussions established is between £50 and £100, would allow there to be ample funding for Companies House.
To answer the question the noble Lord, Lord Fox, asked about what happens to any excess money raised by fees, there is only one place excess money raised by anything in this great nation of ours goes: His Majesty’s Treasury. We would clearly wish to avoid that. We would rather make sure that the fees were set at the right level.
To end on a serious note, we are not looking to have a fee rate. This is why the Government have been careful not to hypothecate fees for Companies House activity with other activities. It is not right, in our view, to charge legitimate businesses excess amounts of money to cover other things unrelated to their Companies House registration. We have tried to set this in the right fashion. I think this will result in the right outcome. I hope very much that the House will support what are seen as largely technical amendments.
(i) the instructions are given by a person whom they know at that time to be subject to director disqualification sanctions (within the meaning of section 11A),(ii) the giving of the instructions does not fall within any exception from section 11A(1) created by virtue of section 15(3A) of the Sanctions and Anti-Money Laundering Act 2018, and(iii) the instructions are not authorised,(but see subsection (3A)).”Member’s explanatory statement
This amendment ensures that a person who acts on instructions that were given by a person that they did not know was subject to director disqualification sanctions would not be responsible for all of the relevant debts, and is otherwise consequential on my amendment to page 27, line 16.
Member’s explanatory statement
This amendment makes it clear that a person who is subject to director disqualification sanctions will be so subject both for the purposes of section 11A of the Company Directors Disqualification Act 1986 and for the purposes of Article 15A of the Company Directors Disqualification (Northern Ireland) Order 2002.
Member’s explanatory statement
This amendment means that only non-traded companies are required to keep old information about their members (eg old addresses).
Lord Johnson of Lainston (Con)
My Lords, before we turn to the amendments tabled by my noble friend Lord Agnew of Oulton and the noble Lord, Lord Vaux of Harrowden, I shall briefly outline government Amendments 12, 13, 14 and 15 in this group. Clause 46(4) amends Section 113 of the Companies Act 2006, including by inserting new subsection (6A). This will require all companies to retain information about a member in their register of members where it changes, and to note the date on which the information changed and was entered into the register by the company. The requirements apply only prospectively, not retrospectively. The government amendments target the scope of this requirement, so it applies only to non-traded companies, to ensure that excessive burdens on traded companies with large numbers of shareholders are avoided.
However, these amendments do include a power for the Secretary of State to make regulations which allow for a full or partial reversal of this scope restriction, allowing this requirement to retain old information and note the dates of changes to also be applied in future to traded companies, should it be judged to be useful and proportionate. In considering all the amendments in this group, I remind noble Lords that the UK already has one of the most open and accessible shareholder registers in the world. Disclosure of shareholder information is far from a global norm. In fact, the UK is one of relatively few international countries to have any publicly available shareholder information for companies not listed on its stock exchange. Noble Lords will know that many countries do not even disclose major shareholders or beneficial owners publicly.
The UK led by example with its public register of PSCs. We were the first G20 nation to institute such a register, back in 2016, and we have been a strong voice ever since in promoting the importance of collecting and sharing beneficial ownership information. Numerous jurisdictions, including the EU, the US and Australia, have been influenced by our approach. But a responsible Government must weigh carefully the benefits of further transparency regulations, and the inevitable rules, forms and penalties that would follow, against the costs and impact. The Government support the publication of accurate and useful shareholder information and we are one of the most open countries in the world in this respect—but do we need to go further, and if so how far? What really are we seeking to achieve?
There are over 10 million shareholders of UK companies. At a time when this Government are looking to reduce regulatory constraints on business, even small cost changes to shareholder obligations could very quickly add up to a large drag on our economy. I ask noble Lords to reflect carefully on the value of the amendments we are about to discuss. I beg to move.
Lord Vaux of Harrowden (CB)
My Lords, I shall speak to the amendments in this group in my name, Amendments 16 and 17. I should remind the House of my interest in the register as a non-practising member of the Institute of Chartered Accountants in England and Wales. I also take the opportunity, since it is the first time I have spoken so far, to thank the various Ministers and their officials, and indeed the registrar and her staff, for their constructive engagement and the generosity they have shown with their time. The engagement process on the Bill has been exemplary. We are helped by the fact that this is generally agreed to be a fundamentally good Bill: we are all on the same side here, just trying to ensure that it is as good as it can be.
These two amendments are designed to improve the transparency of ownership of our companies, to ensure we know who really owns or controls them. I remind the House of the words of the Minister at Second Reading:
“The use of anonymous or fraudulent shell companies and partnerships provides criminals with a veneer of legitimacy and undermines the UK’s reputation as a sound place to do business”.—[Official Report, 8/2/23; col. 1250.]
I think we all agree with that.
One of the classic ways to hide the real ownership of a company is through the use of undisclosed nominee arrangements, where a shareholder is named on the register but is in fact holding the shares on behalf of another person. At present, while the company must try to identify any persons with significant control, or PSCs, according to the guidance, all it really needs to do is look at its shareholder register: if there is no shareholder with 25% or over, it can reasonably conclude that there is no person of significant control. For example, if a company has five shareholders, each with 20%, the company can reasonably conclude that there is no person with significant control that needs to be named or verified.
However, what if those five shareholders were in fact holding the shares on behalf of a single third party? That third party would then control 100%. There is an obligation under the PSC rules for that third party to tell the company, but a dishonest actor probably would not do so. The problem is that there is no obligation for the person who is acting as the nominee to disclose that fact, which makes it far too easy for a dishonest actor to hide their identity. The company has the right to ask the nominees, but, remember, the company in my example is controlled by the dishonest actor—so it will not do that. If it is asked, it can point to the fact that it has followed the guidance, having checked its register and not found anyone with a share of 25% of more. In fact, all the dishonest actor has to do to hide their ownership is find five willing people who are prepared to have their name on the shareholder register and hold the shares on behalf of the dishonest actor. There is no comeback for these nominees. They have no obligation to disclose.
Where does one find five such willing people? I suggest that noble Lords would find it interesting to google “nominee shareholders”. They will find pages and pages of businesses that will do this, with few questions asked, for around £200 to £300 a year. They advertise specifically that the nominee service is for the purpose of hiding the true identity of the shareholder. In passing, it is worth saying that many of the people offering such services are the same people who will be the authorised corporate service providers and will carry out the ID verification under this Bill. That introduces an interesting conflict, but I stress: under the current proposals, these people will be doing nothing wrong.
Amendment 16 aims to close this loophole by making it a requirement for shareholders to state, as well as their name and address, whether they are—or, importantly, are not—acting as a nominee. If they are acting as a nominee, they would have to provide the name and address of the person on whose behalf they are holding the shares. I said that it was important that they should state that they are not holding the shares on behalf of someone else; that is because they would then have to lie actively if they are a nominee but do not disclose it. I believe that there is a real difference between lying actively and just keeping quiet passively—that is, turning a blind eye, as has happened all too often in the past.
This simple step of making people declare whether they are a nominee should make it much more difficult for dishonest actors to find people willing to act as nominees. They will need to find someone who is willing actually to lie on the record rather than just to keep quiet. Having this information will make it much easier for companies to identify hidden PSCs. Knowing which shares are held by nominees will also assist Companies House and organisations such as Transparency International to focus their attention where the risk is greatest.
We have heard the Minister telling us that we have to be careful not to create too great a burden on legitimate businesses. I agree with him, but I do not think that this would do that. Shareholders already have to provide their name and address. I struggle to understand why it would add any material extra burden to have to make a simple declaration—perhaps even as simple as ticking a box—and to provide the details of the actual beneficial owner. I really do not see that as adding any significant additional effort. In any event, there are significant benefits that arise from a company structure; it really cannot be too much to ask that the beneficial owner of the shares is disclosed in return for having those benefits.
I turn now to my second amendment in this group, Amendment 17. The Bill introduces a welcome identity verification requirement for persons with significant control, but that applies only to shareholders who own 25% or more. I should say that I know the Minister will correct me on that point, because it also applies to those who might have below 25% of the shares but otherwise exert control. He would be right, but in practice the 25% level is the driver. As my previous example shows, it is quite easy to structure a company so that there is no apparent 25% shareholder. There is certainly a legitimate debate to be had over where the correct level to trigger identity verification should lie, but I do not hear many people arguing that it should be as high as 25%.
Amendment 17 would reduce the level to require identity verification from 25% to 5%. Why 5%? There are a number of precedents. For UK listed companies, 3% shareholdings must be disclosed, with an exemption for fund managers, who must disclose at 5%, so 5% is deemed of sufficient importance for all listed companies to disclose. The rules around entrepreneur relief, which gives a reduction in capital gains tax payable on a disposal, state:
“A company is your personal company if you hold at least 5% of the ordinary share capital and that holding gives you at least 5% of the voting rights in the company”.
So tax rules consider that 5% gives sufficient influence for the company to be treated as your personal company, and there is a high degree of consistency supporting a 5% level. As I say, though, there is potentially a debate to be had about that level.
Again, I am sure we will hear that we should not create an undue burden on innocent parties, so let us consider the impact of that. I understand that the average number of shareholders for UK companies is two, so for the average company the amendment would create no additional burden; they already have to verify the identity of their shareholders. It would apply only where a more complex shareholder structure has been created with a greater number of shareholders. Yes, it would create a little more work for them, but in fact it would only increase the maximum number of ID verifications required by a company from a maximum of four to a maximum of 20, which should be easily manageable. We are not talking about companies having to verify hundreds of IDs.
Both these amendments would make a significant difference to the transparency of the register, helping to ensure—to get back to the Minister’s words that I referred to earlier—that we make it more difficult for criminals to use anonymous or fraudulent shell companies. I will listen carefully to what he has to say in response, but I give notice that I intend to divide the House on at least Amendment 16 unless he is able to provide very strong assurances.
Baroness Blake of Leeds (Lab)
I thank the Minister for his comments on the government amendments. We support Amendments 16, 17 and 19. They would significantly help improve the integrity of the register. This issue has been raised in amendments throughout the passage of the Bill. While we welcome many of the other changes that the Government have made and the manner in which they have collaborated with colleagues to make the Bill stronger, the issue of nominees represents a weak point in the Bill. We must know which bad companies and actors are acting fraudulently in order to fight fraud, corruption and economic crime.
A point that has repeatedly been made is that, as things stand, shareholder information is incomplete. It is difficult to identify the real owners of certain companies, which reduces the reliability of shareholder information published by Companies House, which we are all determined to improve. That undermines the corporate register as a whole.
As I said, we support Amendments 16, 17 and 19. I was struck by the comments of the noble Lord, Lord Agnew, about the cost of fraud to the economy, which we need to keep front of mind when we are told to be concerned about the cost of putting these measures in place. I confirm that, if the noble Lord, Lord Vaux, is minded to test the opinion of the House on Amendment 16, these Benches will support him.
Lord Johnson of Lainston (Con)
I thank the noble Lord, Lord Vaux of Harrowden, and my noble friend Lord Agnew of Oulton for their amendments. If noble Lords allow me to, I will just set the scene.
We have made some significant advances in understanding who is behind a company and who is running these organisations, which is at the core of these measures. By understanding who the people with significant control are, we will be able to crack down on crime and the dirty money going through the system. That is at the core of it, as far as we are concerned; any other changes around that are fundamentally peripheral.
On a comment made by the noble Lord, Lord Vaux, a nominee is obliged to declare if they acting on behalf of a person with significant control, as is the company collecting the data. If they are acting as a nominee in a collective way to achieve a threshold of 25% or above, or acting as a person of significant control, that nominee has to declare themselves a person of significant control. There is no additional benefit from changing the rules to see how people who stand as nominees are listed as such. It is important for me, for Companies House, for this Government, for the House and, frankly, to reduce crime with this Bill to understand who is behind the companies, and these measures do that.
My concern, if we try to track every move, is that we will bring into the criminal and penalties regime a large number of people who do not necessarily know that they have to register—for example, if they are a registered nominee on behalf of a very small shareholder. We are concerned that we may go too far at this stage. We need to see how the work that Companies House does develops before expanding the regime.
I stress that the work that we have done on PSCs is at the core of the Bill. Most of the government amendments reframe the existing PSC information gathering and disclosure rules to make them clearer and to work more effectively with a centrally held PSC register. This may be covered a little later, but it is worth noting that it is not necessarily for the company to hold the register of PSCs any more; the registrar will now hold this information centrally.
The amendments we are proposing make provision to require more information to be provided by UK companies concerning the transparency of their ownership, including full explanations to be given by companies which claim they are exempt from the PSC requirements, and for notifications to be made to the registrar where a company believes it has no PSC. That is a relatively unique point but it is certainly possible, and so the company has to then explain why it has none. Every company will have a person of significant control listed and registered de facto; if it does not, it will have to explain why that is the case.
My noble friend Lord Agnew rightly pointed out that the average number of shareholders is two—I think it is actually 2.2. If you look at the 4.8 million or so companies that are registered and add up the numbers of companies with one, two or three shareholders, from memory—no doubt my officials will correct me—you would account for 80% of all companies, at around 4.1 million or 4.2 million. Some 3.7 million companies are held by one shareholder, who will automatically be a person of significant control. If you have two shareholders, the assumption is that you will probably have two shareholders with significant control, and so on. You are looking at a relatively small number of shareholders in the 10 million or so shareholders of the 4.8 million or so companies who would not necessarily fall, specifically and immediately, without debate, into the PSC legislation.
I turn to Amendments 19 and 16, put forward by my noble friend Lord Agnew and the noble Lord, Lord Vaux. I have some specific text about the improvements we are going to make to the Bill, and I will read it out to make sure I get the wording right on what we believe we can take to Third Reading. I stress that we welcome greatly the work we have done in this area, and I hope the noble Lord, Lord Vaux, sees the spirit with which I have entered into the debate, particularly around the issue of classifying who is a nominee and who is not. The Government have great sympathy with the intention around that, and I will come on to talk about it in a moment.
As I say, these amendments are not ones that we would be keen to accept. I do not believe they achieve their intent, and they risk disproportionate burdens on legitimate actors and Companies House. The Government considers that further amendment is not warranted because the provisions in the person with significant control framework already require the whole process of disclosure of a PSC behind a nominee. To reaffirm, if a nominee does not declare that they are acting on behalf of a PSC, or becomes a PSC on account of their nominee holdings, then they are committing an offence. I believe the company is also required to collect the information, so there are a number of tiers around this structure.
I emphasise to noble Lords one more time how the existing requirements achieve what we in this House want to achieve. Where a company sees that it has a shareholder with over 25% of the shares or voting rights, or otherwise knows or has reasonable cause to believe the shareholder may fall under the definition of a PSC, the company is obliged to check with the shareholder whether they are in fact a PSC, and the shareholder is obliged, on pain of criminal sanction, to respond.
It is worth mentioning to the House that we talk at length about the 25% threshold but, as the House well knows, a person with significant control can own one share in a shareholding of a billion shares and would still be registered as the PSC if they controlled the business. This legislation is quite well crafted, if I may say so, to ensure that we catch the people who are exercising control over these businesses.
I repeat that the shareholder is obliged, on pain of criminal sanction, to respond. If the person responds to deny that they are a PSC, despite meeting the share-ownership voting rights threshold for qualification, the implication is that they are holding the shares as a nominee for a PSC. Under the Bill, shares held by a person as nominee for another are treated as held by that other and not by the nominee for the purposes of assessing who a company’s PSCs are. That is an important point, and I hope it gives noble Lords some reassurance.
The Bill gives companies the power to require third parties to provide information about the PSC they are holding the shares for. The nominee commits an offence if they fail to respond or give a false statement in response. Amendments I will bring forward at Third Reading will make it easier to prosecute these offences—I will come on to this momentarily. The Government’s position is that it would not be proportionate to require all shareholders to state whether they are nominees or to provide information about who they are holding the shares for. If a company had cause to believe a minority shareholder knew who its PSCs were, the company already has the power to require the shareholder to provide that information.
If noble Lords’ proposals became law, they would be difficult to enforce effectively, and it is unlikely that bad actors would comply with the new requirements. This measure would create a large and expensive haystack with few, if any, needles to find inside. It would therefore serve only to impose new undue burdens on the law-abiding majority, which the Government are actively seeking to avoid. As several noble Lords heard directly from Companies House executives earlier this month, gathering more and more information on shareholders would risk diverting its resources away from material intelligence work and more harmful cases and into more administrative work. An important point to emphasise is that we want Companies House to focus on running an effective companies register and on catching the criminals who are abusing our system.
I am sure that noble Lords who have greater experience than me in this House—looking around, I cannot see one with less experience sitting on the Benches—will know that, if we make too prescriptive legislative statements for these operational entities, they can easily become distracted by the minutiae to try to get to the nth degree and, because of the implementation of the legislative processes placed upon them, not necessarily focus on the core tasks. I repeat again my sympathy and empathy with noble Lords putting these amendments forward. However, I am extremely concerned that they would place undue burdens on individuals, and in particular on Companies House, which would then be distracted from its duties. At the same time, we believe that we have brought in a strong framework which will ensure that we deter crime while allowing legitimate businesses to function.
I appreciate noble Lords’ concerns that the current framework may not always lead to the disclosure of all PSCs, and that having further information about minority shareholders acting as nominees could in theory be useful to help flush out undeclared PSCs. However, the Government’s position is that there is no evidence that any additional benefit would outweigh the costs to all companies and that the totality of measures in the Bill, such as the registrar’s new objectives and powers, will serve better to deter non-compliance and flush out such persons.
I now come to the undertaking to bring forward amendments at Third Reading. The amendment in the name of the noble Lord, Lord Vaux, has stressed the importance of the transparency of ownership and control of companies. The Bill already makes great strides forward in this area, as I am sure the noble Lord knows. However, after further review of the PSC framework and the changes made to it by the Bill, the Government have identified a number of necessary improvements, and I undertake to bring forward amendments to address this at Third Reading.
The current legislation allows companies to maintain their own PSC registers and to then notify the registrar of changes to those locally held registers. The Bill changes that framework so that after it is brought into force the registrar will maintain a central PSC register for all companies. Most of the amendments will reframe the existing PSC information-gathering and disclosure rules to make them clearer and work more effectively with a centrally held PSC register.
The amendments will include provisions which will enable those persons thought to be PSCs to confirm that they are, and to confirm their details before those are published. The amendments will also make provision to require more information to be provided by UK companies concerning the transparency of their ownership, including for explanations to be given by companies which claim they are exempt from the PSC requirements, and for notifications to be made to the registrar where a company believes it has no PSC. The amendments will align the drafting of false statement offences relating to the PSCs of UK companies with other similar offences in the Bill.
I regret that these amendments could not be finalised for Report, but, given the strength of feeling that noble Lords have demonstrated today on ensuring that this legislation is as robust as possible, I trust they will welcome them. We of course stand ready to engage with noble Lords on these amendments ahead of Third Reading.
Finally, on Amendment 17, put forward by the noble Lord, Lord Vaux, my officials have analysed what the cost to businesses would be should identity verification requirements extend beyond directors, PSCs and filers. As I mentioned to noble Lords, the individuals—as in the numbers of companies covered—will be broadly covered, in my estimation, to the tune of about 80% of the number of people who are single shareholders or shareholders of companies containing one, two or three, and then of course all the other companies, in theory except in rare circumstances, would have PSCs associated with them. The verification process will be deep and significant, and will cover many millions of people who will be required to formalise their identity through these processes.
This analysis estimates that introducing identity verification for all shareholders in non-traded companies could have a net annual direct cost to business of up to around £150 million. I will say that again, so that noble Lords may hear it: we believe that these measures, if introduced, could have a net annual direct cost to business of up to around £150 million. The costs and methodology have been published on GOV.UK, and I am happy to share them directly with noble Lords, if that would be of use.
Member’s explanatory statement
This is consequential on my amendment to Clause 46, page 35, line 29.
Member’s explanatory statement
This amendment corrects a cross-reference in Schedule 2 to the Bill.
“Use or disclosure of profit and loss accounts for certain companies
(1) The Companies Act 2006 is amended as follows.(2) After section 468 insert—“468A Use or disclosure of profit and loss accounts for certain companies(1) The Secretary of State may by regulations make provision requiring the registrar, on application or otherwise—(a) not to make available for public inspection profit and loss accounts, or parts of them, delivered to the registrar under—section 443A (micro-entities), orsection 444 (other small companies);(b) to refrain from disclosing such accounts, or parts of them, except in specified circumstances.(2) Regulations under subsection (1) which provide for the making of an application may make provision as to—(a) who may make an application;(b) the grounds on which an application may be made;(c) the information to be included in and documents to accompany an application;(d) the notice to be given of an application and of its outcome;(e) how an application is to be determined;(f) the duration of, and procedures for revoking, any restrictions on the making of information available for public inspection or its disclosure.(3) Provision under subsection (2)(e) or (f) may in particular provide for a question to be referred to a person other than the registrar for the purposes of determining the application or revoking the restrictions.(4) The circumstances that may be specified under subsection (1)(b) by way of an exception to a restriction on disclosure include circumstances where the court has made an order, in accordance with the regulations, authorising disclosure.(5) Regulations under subsection (1)(b) may not require the registrar to refrain from disclosing information under section 1110F (general powers of disclosure by the registrar).(6) Regulations under this section may in particular confer a discretion on the registrar.(7) Regulations under this section are subject to affirmative resolution procedure.”(3) In section 1087 (material not available for public inspection), in subsection (1), after paragraph (bb) insert—“(bba) the following— (i) any application or other document delivered to the registrar under regulations under section 468A (regulations protecting profit and loss accounts for certain companies);(ii) any information which regulations under section 468A require not to be made available for public inspection;”.”Member’s explanatory statement
This allows the Secretary of State to make regulations requiring the registrar not to disclose profit and loss accounts for micro entities and other small entities. The regulations might cover all such accounts or only accounts relating to certain descriptions of company (see section 1292 of the Companies Act 2006).
Lord Johnson of Lainston (Con)
My Lords, government Amendment 20 will give the Secretary of State the ability to make regulations to specify what aspects of the profit and loss account delivered by companies that qualify as micro-entities or small companies might be withheld from public inspection. Such regulations would also set out the parameters and circumstances in which the information may be withheld.
Currently, Section 468 of the Companies Act gives us the power to specify the form and content of the profit and loss account that is to be delivered to Companies House. However, it does not provide us with the power to collect information and then withhold it from public inspection. Making the profit and loss accounts of micro-entities and other small companies available to the public benefits users of the register, such as credit agencies. It is a highly valuable data source and would aid the detection of economic crime.
We are of the firm belief that the Bill’s provisions requiring such accounts to be delivered to Companies House are important additions to transparency requirements. We know that the minimal requirements that currently exist make incorporating as a micro-entity, or as another small company, open to abuse by those who wish to present a false picture of a company’s financial position. However, I am mindful of the concerns raised by some noble Lords and stakeholders about the potentially negative impacts on privacy and competition for small business owners; they point to the risk that increased transparency might lay SMEs open to unwelcome commercial pressures.
We have also received some correspondence from small business owners who are concerned that publishing accounts will, in effect, reveal their personal salary. For example, the director of a small accountancy company from London wrote to us to complain that publishing their profit and loss account would let their neighbours and competitors know what they earn. The owners of a small company from Shoreham-by-Sea have written to us to express their discomfort with their earnings being viewed by clients and subcontractors, who might seek to gain commercial advantage with the information. The Federation of Small Businesses today tweeted:
“Requirements to declare profits and losses would leave small firms open to a high level of risk. … Commercially sensitive information could be used against them by competitors and suppliers”.
To recap, we are not looking not to collect this information; we are looking to ensure that there is a full review in terms of what level of information we publish.
Following Royal Assent to the Bill, and prior to exercising this power, the Government will consult further with business groups, credit lenders, the accountancy sector, enforcement agencies and others to understand what, if any, information should be withheld from the public register. The amendment therefore gives the right level of flexibility to enable the Government to formulate a balanced approach between the information required to be included on the public register and the privacy of small businesses. I beg to move.
Lord Leigh of Hurley (Con)
My Lords, we have discussed this concept of disclosure at earlier stages. Of course, if a person does not want anything disclosed, they could become a sole trader or a limited liability partnership or a partnership, in which case very little, if anything, needs to be disclosed. My question and concern is just to understand the approach that government will take to this. Is it the intention just to give a blanket exemption for, perhaps, companies in defence or companies with complicated IP or companies in sensitive sectors? Is it to respond to those who make the request generally in the affirmative or to ask further questions to determine why a company should be exempted from disclosure? If a company simply asks to be exempted because it does not want its competitors to know, will that open the floodgate to everybody to do the same? I am not sure that “because we don’t want our competitors to know” is a particularly good reason, to be honest. I am therefore a little nervous about this clause, particularly because it is a bit vague. It just talks about regulations, and Section 1292 of the Companies Act 2006 is just an empowering section on regulations. We are opening the door very wide, and I hope that the Minister, in due course, will be able to give us some very clear guidance on what the Government have in mind.
Lord Johnson of Lainston (Con)
I thank my noble friend Lord Leigh and the noble Lord, Lord Vaux, for their comments. It is absolutely right that we have this brief discussion about this point. Just to reaffirm, the intention of the amendment is not to suppress information or increase opacity. It is to give the opportunity to be discretionary in terms of what is published and what is not published. Section 468 of the Companies Act provides us with the power only to prescribe the format that small and micro entity accounts are received in but not to differentiate between what is received and what is included on the public register. The first point, therefore, is that it just gives flexibility, which, I think, noble Lords will agree is sensible.
The second point is that we have received a number of representations from small and micro-entities that are naturally concerned about the publishing of information that relates specifically to their own wealth. There is concern that they may be open to a higher degree of fraud and that they will receive undue commercial pressures as a result of, say, a landlord being able to see what their turnover is and so adjusting their rent upwards accordingly, and so on. The point is that I am speculating.
If noble Lords will allow me to say so, the intention of this amendment is to allow us the flexibility to consult broadly with all stakeholders—I listed clearly that these include credit lenders, enforcement agencies, small businesses, micro-entities and others—in order to work out what the right level of information is. It may be all of it, but this amendment certainly gives the Secretary of State, in some situations and for some specific cases, an opportunity not to publish this information, although it will still be retained by Companies House. That flexibility is absolutely right; it is right that this House allows the Secretary of State that level of flexibility. It is also right that this House will no doubt engage in a meaningful and useful debate on levels of transparency, but at least we now have flexibility.
Member’s explanatory statement
This has the effect that the registrar is required to make verification statements available for public inspection. A “verification statement” is the statement that an authorised corporate service provider is required to make to confirm that it has verified an individual’s identity.
Lord Johnson of Lainston (Con)
My Lords, as we discussed in Committee, identity verification is at the heart of the reforms in this Bill. It is essential that the framework for this is robust and reliable, including the role of authorised corporate service providers. I am therefore grateful for noble Lords’ continued input to ensure that the Bill is as effective as possible in this area, making sure that we really know who is interacting with Companies House.
This group of amendments contains several measures to strengthen arrangements, including in response to sensible suggestions put forward by the noble Lord, Lord Vaux of Harrowden, and my noble friend Lord Agnew of Oulton. This is a significant package of measures from the Government to improve the Bill and address the concerns of the House. I very much hope that the House will therefore support these amendments.
I turn first to government Amendments 21 and 22. This group of amendments relates to the verification statements that authorised corporate service providers, known as ACSPs, must deliver to the registrar when they verify an individual’s identity. Amendment 21 will require that all verification statements are made publicly available on the register. This responds directly to concerns raised by Members of both this House and the other place—including the noble Lords, Lord Vaux and Lord Fox—by increasing the transparency of the verification checks carried out by ACSPs. The statements will be made public.
Amendment 22 requires ACSPs to specify their anti-money laundering supervisor—or supervisors if they have more than one—on the statement. It also enables the Secretary of State to make further provisions regarding the contents of the statements via regulations so that this can be adapted if there is ever a need for different information to be available in the public domain. These regulations will be subject to the affirmative procedure to ensure appropriate scrutiny. Our intention is to align ACSP verification statements with those required for overseas entities under Section 16(2) of the Economic Crime (Transparency and Enforcement) Act 2022. Given that this area was previously discussed in Committee, I very much hope that noble Lords will support these amendments.
I turn now to government Amendments 34, 35 and 37. Reflecting on contributions made by noble Lords in Committee, for which I express my gratitude, my officials have been scrutinising the ACSP framework and looking for ways to strengthen it. Amendment 34 therefore clarifies that regulations can be made that impose duties on ACSPs to provide information to the registrar where this relates to monitoring compliance with any requirements under any part of the Companies Act 2006. This includes the requirement to carry out identity checks to the correct standard. It removes any ambiguity in the original drafting, ensuring that the information that can be requested is not limited to information relating specifically to Clause 64 only.
This is important as it means that there is no uncertainty regarding the use of the power to make ACSPs provide information on the identity checks that they carry out, the detail of these checks being in Clause 63. Tightening up the wording in this manner therefore ensures that the registrar will have the right tools to monitor ACSP compliance—something that the Government take very seriously. We want only legitimate actors to perform these identity checks and make filings on behalf of others.
Baroness Blake of Leeds (Lab)
I rise just to add our support for the amendments. I emphasise the concern that has been raised in Amendment 93 from the noble Lord, Lord Agnew, in terms of recognising the significant function that HMRC has. I listened to the noble Lord, Lord Leigh, with interest. I think there is some issue with looking at the two functions equally and making sure there is no conflict between them.
Lord Johnson of Lainston (Con)
I thank all noble Lords who have spoken during this debate, and I am grateful, personally, for the kindness they have shown to me as a new Minister on this Bill over the last few months. I am grateful for the high degree of collaboration and the sense of common purpose that all Members of this House have shown in trying to create a truly effective Bill to change—after 170 years—Companies House and what it can do for companies and to eradicate crime at the same time. I thank all noble Lords, my officials and the Government for the work we have done together.
However, we have not finished; we are only half way through. I thank my noble friend Lord Agnew for his Amendment 33. I appreciate the strength of feeling, but we would not wish to impose a duty on Companies House to carry out, as he has described, risk assessments. All ACSPs must be supervised for anti-money laundering purposes, and supervisors will already carry out risk assessments on them. I am aware of the concerns surrounding the supervisory regime, and I can confirm that the Treasury will publish a consultation on its structural reform. I believe this is to take place within the next month, which is very important and will be welcomed by this House and help inform further debate.
As I have just set out, the Government have tabled amendments to strengthen the ACSP regime, enabling Companies House to act if it has knowledge that a person is not fit and proper to carry out the functions of an ACSP, and to strengthen the registrar’s powers to request information. We are enabling the registrar to focus her attention on high-risk ACSPs rather than making it a duty to do so. A duty would reduce her operational flexibility—for example, inadvertently preventing her spot-checking the identity verification done by lower-risk ACSPs. We engaged with the registrar fruitfully on this subject only a few weeks ago. It is for these reasons that I urge my noble friend not to move his amendment.
I turn to Amendment 93. While the Government agree wholeheartedly on the crucial role that supervision must play in tackling economic crime, we are not keen to support this amendment. Under money laundering regulations, HMRC already has anti-money laundering supervisory functions and it takes them very seriously. HMRC is one of 25 supervisors of the money laundering regulations, alongside the Financial Conduct Authority, the Gambling Commission, and 22 accountancy and legal professional bodies. HMRC supervises around 30,000 businesses across nine sectors.
HMRC’s anti-money laundering supervisory function is resourced through the fees that it collects from the businesses it supervises, and these fees are solely for use by HMRC’s anti-money laundering supervisory function. HMRC attaches great importance to its anti-money laundering work, including its supervisory function. For example, in 2022-23, HMRC carried out over 3,200 anti-money laundering compliance interventions, including desk-based reviews and face-to-face visits. It also refused 439 applications to register from businesses considered inappropriate or unsuitable. The number of staff working on supervisory activity has more than doubled from 197 in 2018 to 397 in 2023; in 2022-23, they issued a total of 770 penalties, totalling £5.5 million. Specifically, £1.2 million of this amount came from trust or company service providers.
HMRC also works to help businesses understand the risk of money laundering. In 2022-23, its relevant web pages saw nearly 475,000 hits and it issued 850,000 alerts to businesses telling them about changes to law, inviting them to webinars or raising awareness of emerging risks.
The proposed amendment would duplicate the work that HMRC already does. It could make HMRC responsible for all anti-money laundering supervision, when Regulation 7 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 states that certain persons are subject to supervision by certain supervisors. For example, it states that
“the FCA is the supervisory authority for … credit and financial institutions”.
So it would not make sense to mandate that HMRC supervises them. HMRC would not necessarily have the expertise that it would need to supervise all sectors—for example, lawyers or large-scale financial institutions—and it would cut across existing regulatory relationships such as those between the banks and the FCA.
In conclusion, I urge noble Lords once more to support the government amendments that I outlined earlier, which address specific concerns raised during our debates. I believe they will deliver our shared ambition for a robust ACSP framework.
“(2A) A verification statement must also specify the authorised corporate service provider’s supervisory authority or authorities for the purposes of the Money Laundering Regulations.(2B) The Secretary of State may by regulations make further provision about the contents of verification statements (including provision amending this section).”Member’s explanatory statement
This amendment requires a verification statement to specify the authorised corporate service provider’s supervisory authority or authorities. It also confers a regulation-making power to make further provision about the contents of verification statements.
Member’s explanatory statement
This amendment is consequential on my amendment to page 59, line 36.
Member’s explanatory statement
This ensures that the registrar can obtain information about compliance with provisions such as new section 1110B of the Companies Act 2006 (see Clause 63), including from former authorised corporate service providers (including suspended providers).
“(zi) after “may” insert “by regulations”;”Member’s explanatory statement
This amendment corrects a mistake in section 1082(1) of the Companies Act 2006 by spelling out that the power conferred by that subsection is exercisable by regulations (that this was always the intention is clear from the subsequent subsections).
Member’s explanatory statement
This is consequential on my amendment to Clause 69, page 64, line 10.
“Registrar’s power to strike off company registered on false basis
(1) The Companies Act 2006 is amended as follows.(2) After section 1002 insert—“Registrar’s power to strike off company registered on false basis1002A Power to strike off company registered on false basis(1) The registrar may strike a company’s name off the register if the registrar has reasonable cause to believe that—(a) any information contained in the application for the registration of the company, or in any application for restoration of the company to the register, is misleading, false or deceptive in a material particular, or(b) any statement made to the registrar in connection with such an application is misleading, false or deceptive in a material particular. (2) In subsection (1) the reference to an application includes any documents delivered to the registrar in connection with the application.(3) The registrar may not exercise the power in subsection (1) unless—(a) the registrar has published a notice in the Gazette that, at the end of the period of 28 days beginning with the date of the notice, the name of the company mentioned in the notice will, unless cause is shown to the contrary, be struck off the register and the company will be dissolved, and(b) the period mentioned in paragraph (a) has expired.(4) If the registrar exercises the power in subsection (1), the registrar must publish a notice in the Gazette of the company’s name having been struck off the register.(5) On the publication of the notice in the Gazette the company is dissolved.(6) However—(a) the liability (if any) of every director, managing officer or member of the company continues and may be enforced as if the company had not been dissolved, and(b) nothing in this section affects the power of the court to wind up a company the name of which has been struck off the register.”(3) In section 1024 (application for administrative restoration to the register), in subsection (1), for the words from “section” to the end substitute “—(a) section 1000 or 1001 (power of registrar to strike off defunct company), or(b) section 1002A (power of registrar to strike off company registered on false basis).”(4) In section 1025 (requirements for administrative restoration), for subsection (2) substitute—“(2) The first condition is that—(a) in the case of a company struck off the register under section 1000 or 1001, the company was carrying on business or in operation at the time of its striking off;(b) in the case of a company struck off the register under section 1002A, at the time of its striking off, the registrar did not have reasonable cause to believe the matter set out in section 1002A(1)(a) or (b).”(5) In section 1028A (administrative restoration of company with share warrants), in subsection (1), for “or 1001” substitute “, 1001 or 1002A”.(6) In section 1029 (application to court for restoration to the register), in subsection (1)(c)—(a) omit the “or” at the end of sub-paragraph (i);(b) after that sub-paragraph insert—“(ia) under section 1002A (power of registrar to strike off company registered on false basis), or”.(7) In section 1030 (timing for application to court for restoration to the register), in subsection (5)(a), after “company)” insert “or section 1002A (power of registrar to strike off company registered on false basis)”.(8) In section 1031 (decision on application for restoration by the court), in subsection (1)—(a) after paragraph (a) insert—“(aa) if the company was struck off the register under section 1002A (power of registrar to strike off company registered on false basis) and the court considers that, at the time of the striking off, the registrar did not have reasonable cause to believe the matter set out in section 1002A(1)(a) or (b);”; (b) in paragraph (c), for “other case” substitute “case (including a case falling within paragraph (a), (aa) or (b))”.”Member’s explanatory statement
This Clause amends the Companies Act 2006 to confer on the registrar a power to strike off a company where the company was registered on a false basis, and makes provision for restoration of such a company to the register.
“(1A) In section 9 (registration documents), omit subsection (3).”Member’s explanatory statement
This is consequential on the other amendments made by Clause 69.
Member’s explanatory statement
This allows officers as well as employees or authorised corporate service providers to deliver documents on behalf of a disqualified person.
“(4A) Regulations under this section may in particular confer a discretion on the registrar.” Member’s explanatory statement
This amendment enables any provision made by regulations under new section 1094A of the Companies Act 2006 to confer a discretion on the registrar.
Member’s explanatory statement
This amendment is consequential on my amendment to Clause 88, page 76, line 11.
“(ba) any function of the Secretary of State under or in connection with regulations under section 1 of the Sanctions and Anti-Money Laundering Act 2018 that make provision in connection with licences of the kind mentioned in section 15(3A) of that Act;”Member’s explanatory statement
This enables fees set under the Companies Act 2006 to be set at a level to cover the Secretary of State’s costs in connection with licences for people who are subject to director disqualification sanctions under the Sanctions and Anti-Money Laundering Act 2018.
“(1A) In section 243 (permitted disclosure by registrar), for subsection (6) substitute—“(6) Regulations under subsection (4) may in particular confer a discretion on the registrar.(6A) Provision under subsection (5)(d) may in particular provide for a question to be referred to a person other than the registrar for the purposes of determining the application.””Member’s explanatory statement
This amendment enables any provision made by regulations under section 243 of the Companies Act 2006 to confer a discretion on the registrar.
(i) proceedings have been brought against the person for that offence in respect of that conduct and the proceedings are ongoing, or(ii) ”Member’s explanatory statement
This amendment and my other amendment to Clause 101 would mean that regulations must provide that no financial penalty may be imposed on a person in respect of whom criminal proceedings are ongoing; at the moment it is the other way around so that criminal proceedings cannot be continued once a penalty is imposed.
“(4C) Regulations under this section may in particular confer a discretion on the registrar.”Member’s explanatory statement
This amendment enables any provision made by regulations under section 1097A of the Companies Act 2006 to confer a discretion on the registrar.
“(11A) Regulations under this section may in particular confer a discretion on the registrar.”Member’s explanatory statement
This amendment enables any provision made by regulations under section 1097B of the Companies Act 2006 to confer a discretion on the registrar.
“(11A) Regulations under this section may in particular confer a discretion on the registrar.” Member’s explanatory statement
This amendment enables any provision made by regulations under section 1097C of the Companies Act 2006 to confer a discretion on the registrar.
“(3) In this section “the Companies Acts” has the meaning given by section 2(1) of the Companies Act 2006.”Member’s explanatory statement
This amendment inserts a definition of “the Companies Acts” into the Limited Partnerships Act 1907.
Lord Johnson of Lainston (Con)
My Lords, the amendments in this group relate to Part 2, which includes a number of reforms to prevent the abuse of limited partnerships. These measures are incredibly significant and will enable fundamental change in the transparency of limited partnerships while maintaining their crucial position as legitimate vehicles for doing business. They are the biggest changes to the legal framework for limited partnerships since the Limited Partnerships Act 1907.
We must keep in mind that limited partnerships, including Scottish limited partnerships, facilitate legitimate and important commercial activity. They are used across the UK in a variety of sectors, particularly in the private equity and venture capital industry, as well for a variety of other purposes, such as oil and gas exploration and production and real estate.
The measures in the Bill were formulated after several rounds of consultation to deliver the right balance of more transparency without undermining the use of these structures by legitimate business. The British Private Equity and Venture Capital Association reports that, in 2021, £17.3 billion was invested into UK companies from private equity and venture capital, with nine in 10 investments directed at small to medium-sized enterprises. We do not want to disrupt this activity, nor the 2 million or so people who are employed by companies backed by private equity and venture capital who use these vehicles.
Before I turn to the government amendments, it may be helpful to clarify a few points about the structure and principles of limited partnerships. These are business associations made up of one or more general partners who are responsible for the management of the partnership, and one or more limited partners who cannot partake in management and whose liability is limited to the amount they invest. In the Bill, to achieve more clarity over limited partnerships and those who have influence and control over the partnership, the Government have rightly focused on creating more transparency over the partners, and specifically the general partners. The Bill already ensures that, in future, we will know the names, addresses and dates of birth of all partners in a limited partnership, and all of this information will need to be confirmed at least annually. It is important to have these points in mind before we turn to the amendments tabled by my noble friend Lord Agnew.
In the meantime, I have a handful of minor government amendments to Part 2, which concerns limited partnerships—Amendments 58, 59, 60 and 61. These are required, in the most part, to correct drafting errors, by adding missing definitions and removing ones which are not essential. Amendment 60 is a minor change to the information that has to be delivered by general partners of a limited partnership when they give their annual confirmation statement. It means that a notice changing a general partner’s registered officer must be delivered at the same time as a confirmation statement, if the registered officer is not ID verified. I beg to move.
Lord Agnew of Oulton (Con)
My Lords, I shall speak to my Amendments 63, 69 and 70. Again, I am grateful to my noble friend the Minister for his engagement and for his detailed letter to me recently to allay many of my concerns.
The Bill goes a long way to deal with the opacity of LLPs and LPs. It is very important that we regard them as similar in the level of transparency needed as we would consider for a company. We know there have been plenty of examples in the past where they have been used as a front for a lot of very bad activity.
I am not going to press my amendments today, and I thank my noble friend the Minister for his amendments. He has said to me that the Government plan to bring forward some work very soon after the Bill. I would be quite interested if he could just give us some sense of the timescale for this work. His brief said:
“Following Royal Assent, the Government intend to bring into force provisions to require a company director to be a natural person, with limited exemptions for corporate directors”.
If my noble friend could give us a timeline for that, I would be most grateful.
Member’s explanatory statement
This amendment removes the definition of a term that is no longer used in the section.
Member’s explanatory statement
This amendment means that notice changing a general partner’s registered officer must be delivered at the same time as a confirmation statement, if the registered officer is not ID verified.
Member’s explanatory statement
This amendment corrects a mistake. A statement under 8R(4) is not required to confirm that an individual is an individual whose identity is verified.
Member’s explanatory statement
This is consequential on my amendment to Clause 91, page 77, line 34.
Member’s explanatory statement
This is consequential on my amendment to Clause 142, page 138, lines 18 to 25.
“Information about changes in beneficiaries under trusts
(1) Schedule (Duty to deliver information about changes in beneficiaries) (duty to deliver information about changes in beneficiaries) imposes further duties on registered overseas entities to deliver information.(2) The amendments made by paragraph 2 of Schedule (Duty to deliver information about changes in beneficiaries) do not apply in relation to any statements or information delivered to the registrar under section 7 of the Economic Crime (Transparency and Enforcement) Act 2022 during the period of 3 months beginning when that paragraph comes fully into force.”Member’s explanatory statement
This introduces the new Schedule to which it refers and makes transitional provision.
Lord Johnson of Lainston (Con)
My Lords, as noble Lords well know, the Economic Crime (Transparency and Enforcement) Act 2022 created a new register of overseas entities, requiring overseas companies owning or buying property in the UK to give information about their beneficial owners to Companies House. The register launched successfully on 1 August 2022, and companies in scope that already owned property had until 31 January 2023 to apply for registration. As of 18 June, more than 28,000 entities out of some 30,000 had registered, which represents a very good rate of initial compliance. Since 1 February, all non-compliant companies have been restricted in their ability to sell, lease or raise finance over their land; this remains the case until they comply. Companies House is beginning the process of assessing cases for additional action. This second economic crime Bill we are debating today makes a number of changes to further strengthen the register.
I will speak first to Amendment 85, a fairly minor amendment that the Government have tabled to strengthen the register. Schedule 6, which was inserted into this Bill in Committee, sets out the anti-avoidance measures that we debated a few weeks ago. These measures require that beneficial owners must report every change in beneficiary for the relevant period to Companies House. The anti-avoidance measures are effectively time limited because they impose a requirement on overseas entities to make a one-off submission to Companies House as part of their annual update. The Government have decided that it is therefore appropriate to limit the time within which the power related to them can be exercised; this demonstrates the Government’s intention to use the power only for the purposes that I described during our previous debate. The measures include a power to exclude descriptions of beneficial owners from the requirement to comply with Schedule 6. As I set out in Committee, this power will be used to exclude structures such as large pension trusts, where this requirement would be disproportionately burdensome.
Furthermore, turning to Amendment 86, because regulations made using this power may engage issues of devolved competence in Scotland, we have inserted a mechanism to ensure that Scottish Ministers must be consulted before regulations are made, if those regulations would be within Scottish legislative competence. These minor changes to the power will have no impact on the effectiveness of the anti-avoidance measures. I hope noble Lords will agree that they are appropriate.
During the passage of this Bill many concerns have been expressed about the use of trusts. I note that my noble friend Lord Agnew of Oulton has tabled Amendment 89, which would require Companies House to publish information about trusts that is obtained for the register of overseas entities but that is not available for scrutiny. The Government have tabled a number of amendments that are intended to address concerns in this area.
Amendment 71 will strengthen the reporting requirements and close a potential gap in the information provided to Companies House. Overseas entities registered on the register of overseas entities are required to update annually the information that they have provided to Companies House. They must provide an update that includes all in-year changes to the entity’s beneficial owners. Where the entity is associated with a trust, only a snapshot of the trust information is currently required to be provided with the annual update. This leaves a small risk that a beneficiary determined not to be registered might use convoluted means to ensure that they are not a beneficiary at the time of the update but become so immediately afterwards.
We have discussed this issue at length, and I hope noble Lords are pleased with the amendment that we are bringing forward at this time. It will ensure that in-year changes to beneficiaries must be reported to Companies House in the same way as is required for beneficial owners. There is nowhere to hide. Information supplied to Companies House via this amendment will be required to be verified along with all the other information that is being provided.
The amendment also includes a power for the Secretary of State to make exceptions to the duty to provide the in-year beneficiary information. This power will be used to exempt structures such as large pension fund trusts, where it would be disproportionate to expect them to provide every change that occurs in a given period. A number of multinational corporations use trust structures for their pension funds. One example we are aware of, which is a British multinational, is a fund registered on the register of overseas entities with over 8,000 beneficiaries. There are numerous and regular changes to the beneficiaries in circumstances such as this and the Government consider it unreasonable to expect such structures to deliver the new information that will be required.
Before regulations under this power are made, the Secretary of State must consult the Scottish Ministers and Northern Ireland Department of Finance. This is because these issues may engage areas of devolved competence. A number of consequential amendments, Amendment 76, 77 and 84, are also required so that the new provisions work as intended.
I turn to government Amendment 78. We have listened to the strength of feeling among parliamentarians, on all sides and in both Houses, that information about trusts supplied to Companies House as part of the registration of an overseas entity should not be withheld from public inspection. I stress that all the information held by Companies House about trusts is available to HMRC and law enforcement bodies. While the Government remain of the view that, in most circumstances, it is appropriate to withhold information about trusts, good arguments have been made that more transparency is required. In particular, it would seem appropriate to allow certain people, such as investigative journalists, to access the information under certain circumstances.
That is why we are tabling an amendment to create a regulation-making power by which the Secretary of State can set out details of who may apply to access trust information, how to apply and the circumstances in which an application can be made. To achieve this, we will also need to widen the scope of the protection regime in Section 25 of the Economic Crime (Transparency and Enforcement) Act to allow for people who are involved in trust arrangements—settlors, beneficiaries et cetera—to make an application. This does not require an amendment to this Bill as it can be achieved via regulations using the Section 25 power.
The Government intend to use this new power to provide a mechanism for access that is as straightforward as possible. My officials will work with Transparency International and other stakeholders and prepare regulations as soon as possible. I am happy to commit to keeping interested Peers informed and involved. Minister Hollinrake and I will keep a close eye to ensure that the processes Companies House put in place off the back of these regulations are indeed straightforward.
There will be some information that will not be appropriate for release, such as the day of date of birth of a person or their usual residential address. These will remain protected. In addition, given that most trusts are family affairs, and many are set up for minors or other vulnerable people, there may be other reasons why a given piece of information may not be suitable for release.
Before regulations under this power are made, the Secretary of State must consult with the Scottish Ministers and the Northern Ireland Department of Finance. This is because these issues may engage areas of devolved competence.
Finally, this group contains minor and technical Amendments 87 and 88. I hope that these amendments, in addition to the mechanisms already in place on the register of overseas entities, will provide sufficient reassurance to noble Lords and I beg to move.
Lord Vaux of Harrowden (CB)
My Lords, I have submitted Amendments 72 and 73 in this group.
Amendment 72 is designed to close an anomaly that arose in part because of the rushed nature of the emergency first Economic Crime Act. Unlike any other corporate register that I can think of, the register of overseas entities is required to be updated only annually. In contrast, the register of persons with significant control of UK Companies must be updated within 14 days of the company becoming aware of the change. This does matter. It means that the register can be as much as a year out of date, with changes potentially made to who owns or controls the overseas entity in the meantime.
The purpose of the register is to ensure that we know who owns UK property, so this anomaly creates a very real gap. There is a risk, for example, that an innocent third party could unknowingly find themselves buying a property from a sanctioned individual, thus allowing that sanctioned individual to realise and export the value of the property. By the time the register is updated, perhaps many months later, the money will be long gone.
There was a rather technical reason why we could not close this anomaly at the time of the first Act. The main penalty for failing to update the register is that property transactions cannot be registered. That would create a risk for an innocent buyer, if the register had to be updated within 14 days, because the innocent buyer could not know whether or not the company was in breach, and therefore the innocent party might not be able to register the transaction.
Lord Ponsonby of Shulbrede (Lab)
My Lords, we too will support the amendments if they are pressed by both noble Lords in due course.
The government amendments in this group are technical in nature and address the issues to do with overseas trusts, trust transparency and various anti-avoidance mechanisms.
I am glad to hear about the wonderful meals that the noble Lord, Lord Wallace, has had in Switzerland over the years, but I am sure that you learn a lot from those sorts of experiences about the sophistication of the types of arrangements which we are talking about.
As usual, the noble Lord, Lord Vaux, has done the House a favour, and we will support Amendment 72 if he presses it to a vote. He is proposing a practical solution to a current anomaly in the register, which he explained very fully. I know that the noble Lord, Lord Agnew, has been working tirelessly on the issues to which he just spoke, and if he indeed chooses to press his Amendment 73A to a vote, we will support him there as well.
Lord Johnson of Lainston (Con)
I thank noble Lords for their input to this important debate and, as always, I thank the noble Lord, Lord Vaux, and my noble friend Lord Agnew.
I will first attend to the matter of information transparency in respect of trusts on the register. It is important to clarify a few points. First, this information is being recorded at Companies House, so at no point are trusts or individuals able to conceal the information from law enforcement authorities or from the registrar, and that is an incredibly important point that noble Lords made. We are not discussing here about not collecting information or about not enforcing the collection of information—the liabilities and penalties that go with non-application of the information. We are talking about the publication of information, and it is important that we make that clear.
Secondly, we have listened carefully to all sides of this House and have introduced an additional amendment to enable interested or relevant parties to access the information held at Companies House on these trusts. This was not initially in the Bill either in the other place or here but, after very sensible discussions with myself—I hope noble Lords will agree that they were sensible—it is absolutely right that there is an opportunity for people to access the register. That is an important point again; I would not like this debate to be one-sided. This is not a situation where a Government are somehow trying to protect people or to allow them to obscure their assets or to commit crimes through opacity. This is about a workable system that allows our economy to function but at the same time provides essential safeguards that no Member of this House would like to see derogated. We have introduced a public interest access amendment, which will enable investigative journalists and other specific entities to access and make inquiries as to the beneficial ownership of trusts.
My noble friend Lord Agnew made an inquiry as to the use of the word “may” in giving permissions. As I understand it, that is simply the legal term that is used in these cases. I am happy to seek further advice around that but I do not think that necessarily changing one word would make the difference that my noble friend seeks. The important point is that we have made this commitment. This is a dramatic change from two months ago, when we started having these conversations. The Government as a whole, and many individuals within that Government, are extremely keen to see transparency brought to bear on this register and to enable people access to trust beneficiaries. There has been a fruitful and deep debate about it.
Lord Johnson of Lainston (Con)
My apologies, it is the register of overseas entities. I thank the noble Lord for the correction.
I can see where the noble Lord is coming from here, but I think we have to be quite careful. Perhaps I might be allowed to go through some specific points which may help this House come to a better conclusion, and then the final point is relatively brief.
It remains the case that the Government do not believe that these amendments will achieve their aim without causing additional burdens on both overseas entities and third parties, or without adding a further layer of risk and complexity for third parties transacting with the entity. Again, I stress my significant sympathy with the noble Lord for this amendment and with the people who support this amendment. Personally, I am extremely desirous of making sure that we have timely information that could be presented, but there are specific technical reasons why we would resist this. However, we would be delighted to have further conversations. It is important that the Government get the balance right between ensuring that we know who the beneficial owners of these entities are and continuing to provide a welcoming investment environment. I would not underestimate the need for a simple structure that enables people to use our systems as company structures in order to do business here and in the rest of the world.
In England and Wales, the Land Registry estimates that it receives around 3,000 applications each month affecting titles registered to overseas entities. Around two-thirds of these are registrations of leases, transfers or charges. Each of these transactions would trigger the proposed requirements. This is the point of having to register at each transaction. Even if the update is simply a statement confirming that there are no changes to report, the statement must be verified each time, filed at the right time and repeated if the completion date of the transaction changes. That is important to note, because anyone who has been involved in a property transaction knows that the transaction date can change regularly and I do not think it is necessarily proportionate for these entities, particularly when we have made it very clear—and this is thanks to the interventions of noble Lords on all sides of the House—that we are ensuring that the history of activity in these trusts is properly recorded, so there is, as I believe the noble Lord, Lord Fox, said, nowhere to hide. Also, 14 days is considered to be a challenging timeframe within which to require an update, especially given that it is required to be verified before submission to Companies House. Again, I sympathise with the concept, but the practicalities and mechanics of this are believed to be highly impractical.
As I have mentioned, some overseas entities would have to make many updates each year. Any noble Lords who have bought a property will know that completion dates can change, which can be very frustrating. Every time they change you would be required to provide the register with further information no more than 14 days before the new completion date and have that information verified. This would be burdensome.
My officials have also informed me that, in discussions on this amendment, while the Law Society understood the purpose of the amendment, it also highlighted how onerous it could be in least some situations. It expressed serious concerns about the drafting of the amendment relating to the provision of a statement no more than 14 days before the completion date of a transaction. The Law Society of Scotland, in discussion with my officials, also expressed reservations—so we have the Law Society and the Law Society of Scotland expressing significant reservations. I do not think any noble Lord in this House would want to go against the significant reservations of either the Law Society or the Law Society of Scotland, which have significant concerns about the potential negative impact on the Land Register of Scotland and people transacting with overseas entities.
I believe that this amendment would be disproportionate. We have made significant changes to how activities are reported, so that no one can hide in the accounts of these entities, which previously they could, by selling and buying during the process of the annual update. I ask the noble Lord, Lord Vaux, not to move his amendment.
I thank the noble Lord, Lord Vaux, for tabling Amendment 73. It relates to scenarios in which land is held by an overseas entity under a nominee arrangement. For example, a trust can instruct a law firm to act on its behalf as a nominee and the law firm therefore appears on the register in its capacity as the registered beneficial owner of the overseas entity holding the land. The overseas entity is required to provide information about its beneficial owners to Companies House. However, in this case, because the law firm nominee is not a trustee of the trust that has instructed it, no information about the trust is required to be provided.
We agree that this gap in the requirements should be closed. I thank the noble Lord for his input and, along with Transparency International, for bringing it to our attention. However, the drafting of the amendment is not quite right, so I cannot accept it today. Instead, the Government will undertake to table an amendment to address this gap at Third Reading. I trust this will satisfy the noble Lord. and respectfully ask him not to move his amendment.
“(ba) any application or other document delivered to the registrar under regulations under section 23(1A) (disclosure of protected trusts information);”Member’s explanatory statement
This means that applications or other documents delivered to the registrar under new section 23(1A)(inserted by my other amendment to Clause 162) are not to be made available for public inspection as part of the register of overseas entities.
Member’s explanatory statement
This is consequential on my amendment to insert a new Schedule before Schedule 6.
“24 Consultation about regulations under section 23(1) The Secretary of State must consult the Scottish Ministers before making regulations under section 23 that contain provision that would be within the legislative competence of the Scottish Parliament if contained in an Act of that Parliament.(2) The Secretary of State must consult the Department of Finance in Northern Ireland before making regulations under section 23 that contain provision that—(a) would be within the legislative competence of the Northern Ireland Assembly if contained in an Act of that Assembly, and(b) would not, if contained in a Bill for an Act of the Northern Ireland Assembly, result in the Bill requiring the consent of the Secretary of State under section 8 of the Northern Ireland Act 1998.””Member’s explanatory statement
This requires the Secretary of State to consult before making regulations about the disclosure of protected trusts information (see my amendment to Clause 162, page 152, line 16) if that provision would be within the legislative competence of the Scottish Parliament or Northern Ireland Assembly.
Member’s explanatory statement
This amendment is consequential on my amendment to page Clause 163, page 153, line 21.
“(4A) Regulations under this section may in particular confer a discretion on the registrar.”Member’s explanatory statement
This amendment enables any provision made by regulations under new section 28A of the Economic Crime (Transparency and Enforcement) Act 2022 to confer a discretion on the registrar.
“Financial penalties: interaction with offences
In section 39 of the Economic Crime (Transparency and Enforcement) Act 2022 (financial penalties), in subsection (4)—(a) for paragraph (a) (but not the “and” at the end) substitute—“(a) no financial penalty may be imposed under the regulations on a person in respect of conduct amounting to an offence if—(i) proceedings have been brought against the person for that offence in respect of that conduct and the proceedings are ongoing, or(ii) the person has been convicted of that offence in respect of that conduct,”;(b) in paragraph (b), omit “or continued”.”Member’s explanatory statement
This amendment provides that regulations must provide that no financial penalty may be imposed on a person in respect of whom criminal proceedings are ongoing; at the moment it is the other way around so that criminal proceedings cannot be continued once a penalty is imposed.
“SCHEDULE 5A DUTY TO DELIVER INFORMATION ABOUT CHANGES IN BENEFICIARIES1_ The Economic Crime (Transparency and Enforcement) Act 2022 is amended as follows.2_(1) Section 7 (updating duty) is amended as follows.(2) In subsection (1)(a) and (b), for “statement and information mentioned” substitute “statements and information mentioned”.(3) In subsection (3)—(a) omit the “and” at the end of paragraph (a);(b) at the end of paragraph (b) insert “, and(c) the statement in row 1 of the table set out in subsection (4A), or the statement and information listed in row 2 of that table.”(4) In subsection (4)—(a) omit the “and” at the end of paragraph (a);(b) at the end of paragraph (b) insert “, and(c) in the case where the information provided under subsection (1)(b) includes information that a person who ceased to be a registrable beneficial owner was a trustee, the statement in row 1 of the table set out in subsection (4A), or the statement and information listed in row 2 of that table.”(5) After subsection (4) insert—“(4A) This is the table referred to in subsections (3)(c) and (4)(c)—
Statement | Information | |
1 | A statement that the entity has no reasonable cause to believe that anyone became or ceased to be a beneficiary under the trust at a time during the relevant period when the trustee was a registrable beneficial owner of the overseas entity. | |
2 | A statement that the entity has reasonable cause to believe that at least one person became or ceased to be a beneficiary under the trust at a time during the update period when the trustee was a registrable beneficial owner of the overseas entity. | 1. The information specified in paragraph 8(1)(d) of Schedule 1 about each such person, or so much of that information as the entity has been able to obtain. 2. The date on which that person became or ceased to be a beneficiary under the trust, if the entity has been able to obtain that information.” |
Statement | Information | |
1 | A statement that the entity has no reasonable cause to believe that anyone became or ceased to be a beneficiary under the trust at a time during the relevant period when the trustee was a registrable beneficial owner of the overseas entity. | |
2 | A statement that the entity has reasonable cause to believe that at least one person became or ceased to be a beneficiary under the trust at a time during the relevant period when the trustee was a registrable beneficial owner of the overseas entity. | 1. The information specified in paragraph 8(1)(d) of Schedule 1 about each such person, or so much of that information as the entity has been able to obtain. 2. The date on which that person became or ceased to be a beneficiary under the trust, if the entity has been able to obtain that information.” |
This requires an overseas entity that has a beneficial owner who is a trustee to provide information about changes in beneficiaries under the trust that take place during an update or other period (rather than just providing a snapshot of the beneficiaries at the end of the period).
“(1A) No regulations may be made under sub-paragraph (1) after the end of the period of two years beginning with the day on which the Economic Crime and Corporate Transparency Act 2023 is passed.”Member’s explanatory statement
This provides that the power to make regulations under new paragraph 9 of Schedule 6 to the Economic Crime (Transparency and Enforcement) Act 2022 (exclusion of descriptions of registrable beneficial owner) cannot be used after the end of the period of two years beginning with the day on which the Bill receives royal assent.
“““the Companies Acts” has the meaning given by section 2(1) of the Companies Act 2006;”Member’s explanatory statement
This amendment inserts a definition of “the Companies Acts” into the Economic Crime (Transparency and Enforcement) Act 2022.
“(1A) In section 21 of the Land Registration etc. (Scotland) Act 2012 (application for registration of deed), the subsection (5) inserted by the Economic Crime (Transparency and Enforcement) Act 2022 is renumbered subsection (4A).”Member’s explanatory statement
This amendment renumbers a provision to avoid two subsections which were inserted into a section by different Acts at around the same time from having the same subsection number.