Economic Crime and Corporate Transparency Bill

Lord Leigh of Hurley Excerpts

Committee stage
Monday 27th March 2023 Grand Committee

[The Deputy Chairman of Committees (Lord Geddes) (Con)]

My Lords, before opening this debate, I advise the Grand Committee that, if Amendment 1 is agreed to, I will not be able to call Amendment 2, due to pre-emption.

[Lord Leigh of Hurley (Con)]

My Lords, I again welcome this Bill, as I set out at Second Reading. My noble friend is right: it has all-party support and is sorely needed. Likewise, it is reassuring to see the large number of amendments tabled by the Government, reflecting, no doubt, the views that your Lordships expressed at Second Reading and possibly some of those from the other House earlier.

My noble friend says that the aim is to improve the system through the legislation and I believe that my Amendment 2, supported by Amendments 55, 57 and 58, goes some way to help that. Likewise, I declare a conflict of interest, in that I am a shareholder and a director of a number of small private companies. One large company might be in the book, but they are mostly SMEs. Therefore, my relationship with Companies House is, like that of every director of every company, important. In my day-to-day activity as an investment banker, I frequently look to accounts in Companies House for information. It is an invaluable tool; compared to arrangements in other countries, particularly the United States, it is a real asset for information flow about businesses.

My amendment seeks to ensure accuracy, specifically in respect of tagging. As I explained at Second Reading, this is key. Company accounts used to be provided on paper or on a PDF, which is essentially paper form, and they are now filed using digital formats that tag each item with a label so that it can be recognised by downstream processing systems. Unfortunately, as I read it, there is no requirement in the Bill for internal consistencies, so tagging errors will not be picked up. That is needed to ensure that none of the data is self-contradictory and that it matches other data in the previous year’s accounts or tags internally to the document. I note that my noble friend’s amendment is a sweep-all amendment, covering wider matters, but the amendment that I am proposing is specific.

Perhaps it will help if I give an example. Imagine that an oligarch is a director of a company and his name, quite correctly, appears on the accounts, but the name has not been tagged or has been tagged as something other than his correct name. When a smart fraud detection mechanism is used by way of a search, that name will not emerge. Accountants will argue that the accounts are complete as the name is there, but if that name has not been tagged correctly, the filing will be of no use electronically, and therefore it is essential that the accounts are consistent internally. At the moment, the registrar can refuse to accept accounts only where they are inconsistent with outside information, so my amendment seeks to close what I see as that loophole.

I welcome the amendment to this clause tabled by the noble Lord, Lord Coaker, but I do not believe it covers my point. Likewise, I particularly welcome my noble friend Lord Agnew’s amendment, which sets the tone but, again, does not cover this point.

[Lord Agnew of Oulton (Con)]

My Lords, I have tabled Amendment 63 to Clause 90. I refer to my interests as set out in the register. I am a director of several companies and a person with significant control of an LLP, so I have had a lot of interaction with Companies House over the years.

My amendment might sound rather anodyne, but the amendments I have tabled to the Bill are the first building blocks of the transformational change that will be needed in Companies House once this Bill has been passed. We are taking an organisation that ever since its creation has simply been a passive receiver of data and has never had any cultural inclination to challenge it. This Bill changes that, which we welcome, and I am most grateful to my noble friend the Minister for all his positive engagement so far. What I am asking for here is a direct and specific requirement for the registrar to construct a process that will enable her essentially to triage the cases that are coming through the system. As my noble friend the Minister said, there are 5 million companies on the register and some 300,000 to 400,000 new companies are created annually.

When the Bill is passed we will have a problem with what I call stock and flow—in other words, a huge cleaning-up operation of the 5 million companies that are already there will be needed, and that will take some time. We also need to ensure, as quickly as possible after the Bill has passed, that the new registrations coming through are of the highest standard possible. Essentially, I am asking for the registrar to be required to make a risk assessment of new companies being created. One example that is well known in the financial word is that of Danske Bank in Denmark, which was the largest ever anti-money laundering fraud case in Europe, worth some €200 billion. Much of that started here through our LLP and LP structures. It would not have been difficult to have seen that there were trends among a lot of the LLPs that were being created. Many of them were coming from the same registration agent and with similar, often the same, addresses. That would have been a serious red flag that could have been investigated.

I am trying not to the rewrite the past but to set the tone for the future. It will not be realistic for the registrar to go into enormous detail on every registration, but if she builds a triaging system at the beginning, with a series of red flags, in aggregate the ones with the most red flags will be the ones that need priority. When I was the Minister for Grants, I discovered that we were doling out £30 billion a year in grants, but we had no system to assess the validity of the people receiving the grants. We put in place one very simple piece of software called Quantexa which shows immediately all the connections of the person making the grant to other people who are not necessarily good actors in the system. It cost £1 or £2 a go, or maybe £5 a go, but it had a dramatic impact very quickly. It is those sorts of tools that Companies House in its new format will need to use. I am not specifying an app, but I am most anxious that the Minister considers my amendment and includes it as one of his own.

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I suggest that these amendments, or something like them, would provide a relatively simple way of achieving that without being any real burden on legitimate businesses. I urge him to consider them seriously.

[Lord Leigh of Hurley (Con)]

As a fellow chartered accountant, can I ask the noble Lord how his amendment would work in respect of trust? Does it mean that trustees are disclosed or that beneficiaries are disclosed? Clearly, one would want to have beneficiaries disclosed, and I am not sure that this achieves that.

[Lord Vaux of Harrowden (CB)]

The noble Lord is quite right. What we are really trying to get to here is the ultimate beneficial owner, which is a problem that sits throughout this and the overseas property register. Neither of them really gets to that point. The wording requires refinement, but that is what I was trying to get to—that the ultimate beneficial owner, the directing mind behind the shareholding, is disclosed.

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[Baroness Blake of Leeds (Lab)]

My Lords, Amendment 23 is tabled in the name of my noble friend Lord Coaker, which my noble friend Lord Ponsonby and I have signed in support. The amendment does not form part of a group. It seeks to clarify the Bill’s definition of an appropriate address for company registration. It is aimed in particular at trying to stop the terrible practice—which is widespread, as we heard at Second Reading—of companies using false addresses. Although Clause 28 defines an appropriate address, our amendment goes further in defining what is not an appropriate address, including a Post Office box.

In terms of public awareness of the debate that we are having as the Bill goes through, the use of false addresses is one of the most publicly well-known issues with Companies House, and we really should be putting all our efforts in to try to prevent it. People trying to prove that companies are registering falsely at their address often have to go to far greater lengths to prove that they are the proper residents of the said address than the person setting up the company. I hope that this amendment provides an opportunity to talk about the use of false addresses and, therefore, the impact that it has on the public. It is one of the most visible parts of the current failure of Companies House. As things stand, Companies House does not do any detailed check on an address where a company is registered, particularly if it uses the basic criteria laid down by Companies House.

I am sure that I am not alone in having listened to many of the different programmes in the media, particularly on the radio but on other outlets as well, which have had this vexed issue as their subject. You hear about the absolute distress caused to people, who are completely innocent in the process, who come home and find letters sent to their address and many other factors which lead them to understand that someone has falsely set up a company using their name or address—and on this occasion we are talking about their address. The most important issue to recognise here is that this can take years to disentangle, and it can cause distress and untold misery, and we have a collective responsibility, with the passage of this Bill, to make sure that Companies House does all the work that it can to help.

The important issue to bear in mind is that the onus should be on the businesses to prove that they are legitimate rather than it being on individuals to prove it is a scam and their innocence. I hope that other noble Lords will comment on this amendment, and I hope that collectively we can work together to make sure that innocent members of the public are given the full protection possible by the new legislation. I beg to move.

[Lord Leigh of Hurley (Con)]

I take up the noble Baroness’s invitation to comment on this amendment, although I have just received a text from my mother who says that, having been called a business guru by the Minister, I should keep quiet and not say any more. However, this is a very important issue on which I spoke at some length at Second Reading, and quoted an article in the Times highlighting the problem. The noble Baroness is quite right that it blights people’s houses when they find it to be a registered office, which they had not intended it to be and, of course, the information does not go to the right person.

Nevertheless, I am very concerned by this amendment as worded, because it says:

“An address is not an “appropriate address” if … it is not a place where the business of the company is regularly carried out”.


I assume that paragraphs (a), (b) and (c) in the amendment would be separated by an “or”, because many companies choose as their registered office their solicitor or accountant, with good reason, particularly in these days of working from home, start-ups and virtual companies, where they do not have a single office space but move around the place. The main place of business may be an apartment where they happen to live, so it is convenient and sensible to choose a solicitor’s or accountant’s office as their base. Indeed, when I worked as a chartered account in a large accountancy firm some 35 years ago, that was very common.

Sadly, I do not think the amendment as worded achieves what the noble Baroness seeks, but neither does the Bill: with the greatest respect to the Minister,

“would be expected to come to the attention of a person acting on behalf of the company”

is a bit convoluted for what we know we want to achieve. Although I cannot support this amendment at this time, I very much hope that before the next stage, we might come up with some wording that achieves where we all want to go.

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[Lord Leigh of Hurley (Con)]

When my noble friend the Minister replies to this debate, I wonder whether he would consider accepting the amendment in due course with a de minimis size qualification. This would be quite onerous for a large number of private companies, such as family businesses, where ownership changes quite regularly, and small businesses that have enough to do without worrying about perfectly innocent share transfers. For larger companies—public companies in particular—this may not be too onerous. I remind the House of my comments at Second Reading that the Quoted Companies Alliance had calculated that the average public company accounts now comprise 95,000 words—no one is keen to add any more words to that. I would certainly not wish to see this apply to private and SME businesses.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I support these amendments. I have listened to what the noble Lord, Lord Leigh, has said and will perhaps think about that. I should declare my interest as a director of the London Stock Exchange. At 5% ownership, there are significant things that can be done: if it is a public company, at 5% you can apply to the court to prevent it going private. That is a significant power, and we ought to know that it is applied properly. I guess the court would find out if you were not who you said you were; nevertheless, you might be masquerading as such and could still have influence—you could call general meetings and propose resolutions. These are all events that could have a significant effect on companies of all sizes. I tend to feel, therefore, that other shareholders need to know that things have been properly verified.

I have sympathy for the SME angle and will think about it further. However, just because you are small does not mean that you do not need to know some of these things, including who might have an exercisable right which you know has been verified. I would probably follow suit in the decision on persons with significant control: if you are going to exempt SMEs, they should be exempted for both; if they are going to be included, they should be included in both. I am still veering towards including them, simply because it is a substantial power. There are plenty of private SMEs in which people have significant sums invested, and I do not really see that they should be protected any less from not having full awareness of who really holds these powers to do things or of whether they are sheltering a nominee.

At the moment, my tendency is to support both of these amendments as they stand, with the caveat that I will go away and think a bit about whether this would be too onerous for SMEs. We have to remember, however, that the “M”s of SMEs can be quite big.

Economic Crime and Corporate Transparency Bill

Lord Leigh of Hurley Excerpts

Committee stage
Tuesday 18th April 2023 Grand Committee

Moved by

[Lord Leigh of Hurley]

45: Clause 54, page 38, line 40, at end insert—
“(6) Electronic documents delivered to the registrar under this section must comply as to accuracy, completeness and consistency with the registrar’s requirements.”Member’s explanatory statement
This amendment creates an obligation for documents delivered to satisfy the registrar’s requirements as to digital formatting.

[Lord Leigh of Hurley (Con)]

My Lords, I confess that these amendments essentially offer me another bite of the cherry because they are almost exactly the same as amendments that appeared last time in respect of non-micro accounts, but for completeness I had to put them in here again to cover micro-companies. That was fortuitous because, given that the Minister so eloquently batted away my amendments last time, this gives me another opportunity to make pretty much the same case.

Completeness is defined in Sections 444 onwards of the Companies Act—for example, the balance sheet that was signed by the directors—but the Act and this Bill say nothing about tagging that information. It says that the registrar can require an electronic format, but the legislation does not really tell us what completeness means; in particular, electronic completeness and the area I highlighted, which is inconsistencies within the accounts. For example, an oligarch is a director of a company and his name quite correctly appears on the accounts, but that name has not been tagged or it has been tagged as something other than the director’s name so when one searches for that name, it will not be found; so not tagged means it is not complete or tagged wrongly means that it is not self-consistent. It is no good accountants arguing that the accounts are complete because the director has been named because if the name has not been tagged, it will not be found. I hope that before Report there will be some focus on this issue for micro- and other accounts to ensure that full advantage is taken of electronic filing so that searches can be made easier and the registrar has the responsibility to make sure that the accounts are correct.

I am minded to speak on my noble friend Lord Sarfraz’s intention to oppose the Question that Clause 54 stand part, which is in this group. I am aware that he is not in his place, but, first, having thought about this for some time and prepared some notes on it and, secondly, to avoid it becoming an issue down the line, I want to make the point that I do not think micro-companies should be excluded. They were not excluded, I think, until about 2013. Micro-company accounts can cover revenues in millions of pounds. There could be a temptation to form a number of micro-companies which in aggregate are quite substantial, so I urge the Minister to allow Clause 54 to stand part. I beg to move.

[Lord Naseby (Con)]

My Lords, I apologise for not taking part at Second Reading due to other parliamentary commitments. I have a couple of small questions, but one of them is quite important.

First, if we are dealing with micro-companies, they are not likely to have substantial staff. There must be some safeguard so that the authorities do not change the requirements for reporting and leave these poor micro-entities with perhaps two or three months to totally amend their software. That has happened in certain other areas, so there must be some requirement that, while it is quite right that the registrar’s requests should be met, there must be some safeguards and those having to do the returns must be given adequate time to do them.

Secondly, I have one small point in relation to new Section 443A(2) inserted by Clause 54. At the end, it says, “(and any directors’ report”). I assume the directors’ report refers to the accounts, but that is not totally clear.

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[Lord Johnson of Lainston (Con)]

I am grateful to the noble Baroness for her intervention. In discussions about the Bill, that philosophy has been raised. I may have mentioned on our previous day in Committee—I certainly mentioned it in private—that, given the very large number of companies registered in this country, one has to ask whether they are all necessary for the function that they purport to perform. Many individuals may be better off as sole traders or in other forms of partnership that do not need to go through these registration processes.

I am also aware of the privileges that limited liability offers, as a result of which there is a fair exchange in terms of the amount of information to be released. I absolutely agree with these principles that we have discussed. However, in this specific instance, it is absolutely right to have a thorough and deep consultation to make sure that through our actions we are not prohibiting people from running legitimate businesses and at the same time compromising their personal privacy or security. That is a sensible debate to have. The point, which is not necessarily specific to this amendment, is about the information that we collect. The Government are absolutely committed to ensuring that we collect the right amount of information so that we can increase fundamental corporate transparency and reduce abuse of the system.

[Lord Leigh of Hurley (Con)]

I thank my noble friend for his reply and repetition of some of the remarks he was kind enough to make at our last meeting. He has prompted me to remind the Committee, for the record, of my commercial interests, as noted on the register, which include directorships and shareholdings of micro-entities. I will read Clause 73 again more carefully, and we might return to this on Report if I am not satisfied with that explanation.

On the micro-entity point, the noble Lord, Lord Ponsonby, is right. Those bands are correct, but it is two out of three: one could have a small balance sheet and a small number of employees but a huge turnover and be under the net. I was going to make the same point as that raised by the noble Baroness, Lady Bowles of Berkhamsted: that is the bargain that a proprietor of a limited company makes with the public. You are protected by limited liability, but there must be disclosure. In fact, as I understand it, the information has to be prepared and disclosed to HMRC in pretty much the same format, so there is no extra burden in submitting it to Companies House. With that, I beg leave to withdraw my amendment.

Amendment 45 withdrawn.

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[Baroness Bennett of Manor Castle (GP)]

My Lords, I have added my name to Amendment 54 and those of the noble Lord, Lord Vaux, and the noble Baroness, Lady Bowles. I will be fairly brief, as this is an extremely unusual situation in that I agree with everything that has been said from all sides of the Committee. I will simply set out a couple of extra points.

I pick up particularly the points from the noble Lord, Lord Vaux, that journalists, campaigners and groups such as Transparency International have frequently and very bravely—at considerable financial and other risk to themselves—helped to uncover the situation that we have with the London laundromat, the centre of global corruption or whatever you call it. Many labels have been applied. These amendments, particularly Amendment 54, open this up so that people such as those can see and examine what is happening. We can see that the regulators have failed utterly to provide the sorts of checks that they should, and transparency at least enables NGOs, campaigners and others to do what should be the regulators’ work for them.

I would like to see Companies House not relying on any independent certification practices but doing its own checks. However, I acknowledge that the practical reality of that would require an enormous institutional set-up. You might ask who would pay for that. I say that, if you are going to benefit from being a limited liability company, the costs should cover it fully—but I can see that that is not going to happen. As it is not, the best possible thing is at least to make sure that these authorised corporate service providers are open to scrutiny from others.

We must not forget that we are asking those that have been the enablers of corruption, fraud and sheer robbery to become the enforcers. That is what we are doing now—asking the poachers to become gamekeepers, in more traditional terms. That carries a high level of risk. Your Lordships’ Committee has a huge responsibility to do everything we can to make sure that we have full oversight of that.

I will comment briefly on Amendment 51A in the names of the noble Lord, Lord Coaker, and others. It takes a risk-based approach in looking at the many industries we have that have huge problems. Some are identified here; the situation with car washes is a clear one. A recent study by Nottingham Trent University showed that only 11% of workers in hand car washes were getting payslips, which is the most basic arrangement to enable you to see what is going on. Not even that is happening there.

We have a huge problem in many sectors of our society. Just a couple of weeks ago, Farmers Weekly exposed huge levels of fraud and, as a result, significant public health risks in our food sector. We know what has happened in the building sector, where local councils, without the resources, have stepped away as we move to self-certification. We have huge problems with standards in that sector. These problems are there and many of them go back to the financial sector. These amendments are crucial to deal with problems right across our economy.

Finally, it sometimes seems like this is all financial, that it is not really related to people’s lives and that it is somehow a victimless crime. The reality is that we are robbing poor people around the world by enabling London to be a centre in which corrupt money is placed. In our own society, we are enabling whole sectors of our economy to be consumed by businesses built on fraud, corruption and the exploitation of workers. I have forgotten which, but a noble Lord opposite said that that makes it difficult or impossible for honest businesspeople to set up, run and thrive.

[Lord Leigh of Hurley (Con)]

My Lords, I will not join the complete love-in but I will focus on the amendment tabled by the noble Lord, Lord Cromwell, in particular on his provision that covers the point about SIC codes and the requirement that those are accurate. I will echo and perhaps take further his remarks about the problems that exist with SIC codes.

I appreciate that it would not be in the Minister’s remit to answer on this during our debate, but perhaps he might take time to write to us afterwards to comment on SIC codes. As he knows, they came into operation in 1948, when there was a very different business environment. They have been refreshed since then but the last refresh was in 2007 and a huge amount has happened since then. The Ron Kalifa report commented that about 50% of fintech companies do not have an appropriate SIC code. Many companies fall into a number of SIC codes, but a company can choose only four. In fact, out of the 5.3 million companies at Companies House, 3.9 million have chosen only one code, which says to me that they are just not taking it seriously.

Companies are not taking it seriously because they do not see SIC codes as particularly relevant or helpful to them. They often just repeat the previous year’s one, or indeed the one of incorporation, which an accountant may have chosen almost at random. As a result, many companies are choosing the SIC codes starting with “Other”, such as 82990 for other business services. In some areas, one-third of companies are going just for “Other”.

The reason this is important is that a whole lot of government decisions are made on understanding what businesses do and how many are in a particular sector. During Covid, it was apparent from the events industry that large numbers of events companies had not properly registered their business within the SIC codes, so the Government were not able to assess the needs of those companies. Likewise, for searches helping businesses to market to other businesses, unless they know what those other businesses, particularly conglomerates, undertake it is difficult for such businesses to make progress.

Private enterprise has come up with its own version of SIC codes: rating agencies and others, such as The Data City, have created their own codes that they apply to businesses. I very much hope that this might be an area of focus in the near future, so that we can enhance the existing SIC codes and give effect to the amendment tabled the noble Lord, Lord Cromwell. Then we can see what businesses actually do here in the UK.

[Lord Fox (LD)]

My Lords, speaking to the Minister before the Committee commenced, I predicted that this group would be crucial, certainly to what we will be discussing in today’s set of amendments. Your Lordships have demonstrated that through the detail and the concern expressed on identity verification and more general issues. I am sure the Minister will have picked up that right across the Room, this is not a political issue. It is a practical issue about how this Bill, when it becomes an Act, will work—or, indeed, whether it will.

It is worth emphasising that authorised corporate service providers can and do provide legitimate services for businesses. We know that and that they are important. However, research by very many civil society organisations, not least Transparency International, has shown that in many cases those providers are at the spearhead of the abuse that happens in our society and have been the key enabler of the money laundering that we have seen across this country. They have built shell organisations of thousands of companies to be able to do that process, which is why, taken separately and together, these amendments all have something which I hope the Minister will be able to take away and discuss with your Lordships, with his colleagues and with the team. We have had some excellent speeches here.

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[Lord Johnson of Lainston (Con)]

I am very grateful for the noble Lord’s intervention, as with all interventions today. The ACSPs are already supervised by the money laundering supervisory authority. Should there be a discussion over some type of more effective oversight of ACSPs, in the view of this Committee? We will no doubt discuss that in the future. But as it stands, they are regulated and if any noble Lord is involved with such a business—if they have a financial services business or have been involved in financial services—they will know the strength of the regulator and the fear in which decent, law-abiding firms hold their regulator when it comes to enacting the necessary practices to perform their duties and tasks.

The final amendment that I have in my notes is Amendment 52, tabled by the noble Lords, Lord Coaker and Lord Ponsonby, and the noble Baroness, Lady Blake. It would require a report on foreign ACSPs to be made one year after this Act is passed. I do not consider this amendment to be necessary, the main reason being that colleagues in the other place have already agreed to the addition of Clause 187, requiring the Secretary of State to prepare reports on the implementation and operation of Parts 1 to 3 of the Bill and to lay a copy of them before Parliament within six months of the Act being passed and every 12 months thereafter. Since authorised corporate service providers are provided for in Part 1, they should already be captured.

For the reasons given, therefore, I do not support these amendments. I ask the noble Lord, Lord Vaux, to withdraw Amendment 48.

[Lord Leigh of Hurley (Con)]

Captivated as I was by the Minister’s mellifluous tones, I am not quite clear if he is saying that he is prepared to write to us about proposals for SIC codes or to meet us or both. I totally accept that it is within the scope of the Bill and certainly within the scope of the purpose of the Bill, but it is an extra exercise, an extra burden. None the less, I wonder whether he feels it is something he could take on.

[Lord Johnson of Lainston (Con)]

I am grateful to my noble friend for raising this point, and I hope I have not overpromised. Personally, I am very keen to make sure that every part of the Bill is discussed and I am very happy to ensure that the comments we have raised in this debate today are passed on to the right office, which in this case is the Office for National Statistics, which falls under the Treasury rather than the Department for Business and Trade. I am sure it will welcome involving itself in this discussion.

I would like to make a correction: the consultation on the money laundering oversight regime will begin in the summer, not conclude in the summer. I apologise for that.

Economic Crime and Corporate Transparency Bill

Lord Leigh of Hurley Excerpts

Committee stage
Thursday 20th April 2023 Grand Committee

Moved by

[Lord Leigh of Hurley]

73AA: After Clause 106, insert the following new Clause—
“Requirement to notify registrar of change of auditor
(1) The Companies Act 2006 is amended as follows.(2) In section 485 (appointment of auditors of private company), at the end insert— “(6) Following the appointment of a new auditor or auditors of the company, the company must give notice to the registrar within 10 working days of the date of change, along with the name and address of the auditor or auditors.”(3) In section 489 (appointment of auditors of public company), at the end insert—“(6) Following the appointment of a new auditor or auditors of the company, the company must give notice to the registrar within 10 working days of the date of change, along with the name and address of the auditor or auditors.””Member’s explanatory statement
This new Clause introduces a requirement for private and public companies to notify Companies House within 10 working days of the appointment of a new auditor or auditors, and provide the registrar with associated details.

[Lord Leigh of Hurley (Con)]

My Lords, for this amendment, I will add to my previous disclosures that I am a member of the Institute of Chartered Accountants in England and Wales. By qualification, 40 years ago, I rummaged around companies Acts hoping never again to see them. Sadly, here I am again, but hey ho. In fact, I rummaged around Sections 516 and 517 of the Companies Act 2006, as amended by the Deregulation Act 2015. This imposes an obligation on a company to tell Companies House if there has been a change of auditor, but not an obligation about the details of that change.

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[Lord Johnson of Lainston (Con)]

I thank my noble friend and guru Lord Leigh for his Amendment 73AA, and the noble Lords, Lord Fox and Lord Ponsonby, for their contributions. I assure my noble friend that this amendment is not necessary. The Government hear his comments loud and clear but, as with all outings at this Dispatch Box as a Minister, I am unable to give the purity of the answer that we might all prefer to hear.

However, I will say that the Government are taking forward reforms to audit and corporate governance regulation separately following the publication last year of our response to the White Paper consultation on restoring trust in audit and corporate governance. The White Paper considered the information that must be provided to Companies House when an auditor leaves office, so this covers the point about the auditor leaving office rather than necessarily the appointment of a new one; that is a core point that has been raised and heard. The Institute of Chartered Accountants in England and Wales—many noble Lords in this Room have declared an interest as being a member of that august body so they will know this already, although I am not—has raised with my officials the lack of up-to-date information on the Companies House register about the appointment of new auditors.

The Government are therefore already considering how the public record might be improved in respect of appointments of auditors, including possibly via a combination of notifying the appointment when it is made, as well as updating the register if needed as part of the annual confirmation statement. We covered the point about the auditor stepping down or leaving office. This could work in much the same way that it does for the identities of company directors, which I believe will satisfy this Committee. There are already secondary legislative powers in the Companies Act 2006 on the content of the confirmation statement, and amendments to this framework are already being considered as part of the implementation of the Government’s White Paper proposals on restoring trust in audit and corporate governance.

I hope that satisfies the Committee and I therefore ask my noble friend kindly to withdraw his amendment.

[Lord Leigh of Hurley (Con)]

I thank my noble friend. I am not surprised by his response, although one would have thought that a Bill on corporate transparency might stretch itself this far. In answer to what we might call the Vaux-Fox syndicate, when an auditor resigns, the company has to notify the Registrar of Companies of that within 14 days. I think it is a criminal offence not to do so, for both the company and the officer. That is pretty tight; it is just what is in the notice and making sure we are aware of what is going on thereafter. However, given the reassurances from my noble friend that the Government are beavering away day and night on the audit reform, I beg leave to withdraw my amendment.

Amendment 73AA withdrawn.

Economic Crime and Corporate Transparency Bill

Lord Leigh of Hurley Excerpts

Committee stage
Tuesday 25th April 2023 Grand Committee

[Lord Agnew of Oulton (Con)]

My Lords, my Amendment 79 asks that HMRC be given a specific requirement to prioritise the exercise of its AML supervisory role. The reason I ask is the criticism that the Government have raised against HMRC. The Financial Action Task Force observed that tax issues

“carried too much weight compared to other”

money laundering risk factors. It is concerning that HMRC has a repeated tendency to view AML risks from a more narrow tax perspective instead of considering a broader set of AML risks, despite being identified as a weakness. That is not my diagnosis but the Government’s diagnosis of the problem.

I raised several specific issues in our previous days in Committee, but they are absolutely relevant to support this amendment. The most recent assessment of HMRC’s effectiveness in this area showed that it was failing to keep pace with the requirement to register a business within 45 days, with performance worsening over the year from 78% in 2020-21 to only 70.71% in 2021-22. In practice, this means that more businesses—nearly one-third—are operating outside the scope of its supervision for longer periods than in previous years.

The next point is that the self-assessment highlights issues in the ECS recruitment process and delays in appointing staff, which have resulted in existing staff members being asked to fill in with training duties. That goes back to my earlier point on the last amendment about the lack of qualified resource. HMRC discloses that there continues to be delays in publishing guidance for businesses under its supervision on the steps required to meet their regulatory obligations as well as on responding to specific money laundering risks.

Fourthly, the volume of face-to-face visits conducted by HMRC has slowed down—there has been a downward tendency in the number of on-site visits. There were 1,265 in 2018-19, and in the year 2021-22 that had slumped to 289—for most people, Covid was behind us, so I am not sure that that is an entirely legitimate explanation.

The next point is that HMRC has not yet used civil powers it has at its disposal to issue censuring statements for failing to comply with the MLR, or injunction powers to prevent a future breach. Again, I am sure that is happening because it simply does not have the resources available.

Lastly, an increase shows signs that HMRC is ramping up its enforcement as a supervisor, but the penalty amounts being recovered are reducing. A total of £44.8 million in fines were issued between 2018-19 and 2021-22 have now been revised down to just £8.6 million. Again, I am sure that this all goes back to resource and specifically to focus.

As I said in my opening comments—I know this from my experience of being an HMRC oversight Minister for Brexit border readiness—there is a huge cultural focus on tax collection in HMRC. There is nothing wrong with that, but this is a first cousin and it is HMRC’s responsibility to look after this stuff, and, frankly, it is not doing the job properly. My amendment would simply put some focus on that in the Bill. Again, I know from my experience as a Minister for five years that officials respond to these kinds of controls in the way they manage the resources in their department. I hope my noble friend the Minister will listen. I beg to move.

[Lord Leigh of Hurley (Con)]

My Lords, I will make a disclosure further to my subsequent disclosure of being a member of the Institute of Chartered Accountants in England and Wales; I am also a member of the Chartered Institute of Taxation, also by examination, which means that in theory I am capable of giving tax advice but, sadly, not in respect of anything after 1985. None the less, I feel that I should disclose that when discussing this issue.

It is customary to congratulate a noble friend on the introduction of an amendment, and I very much congratulate my noble friend on the introduction of this amendment. He speaks with great knowledge of the inside track of what is going on in the Treasury, and he is the one person who stood up against potential fraud taking place. As such, I hope that my noble friend the Minister, the noble Lord, Lord Sharpe of Epsom, will listen to my noble friend’s words. I appreciate that this has been thrust upon the Minister and it is not normal Home Office territory; it is not even the Business and Trade territory of my noble friend Lord Johnson of Lainston but Treasury territory.

However, this amendment is particularly important. It seeks to amend the HMRC Act of 2005. The problem with the Act as it stands is that it does not make stopping tax avoidance or even evasion a big enough priority for HMRC, and as a result HMRC views it as part of a sort of cost-benefit analysis rather than as a deterrent. This is particularly worrying with regards to VAT, where VAT avoidance can distort competition. As a result, the EU Commission used to occupy an oversight function with regard to the application of VAT and would always take action where a member state did something with VAT that distorted competition. For example, Italy tried to give an amnesty to companies which had not paid VAT in order to save money in Italy, but the Commission stepped in and stopped that. However, now it has lost that oversight, so the question is: who polices HMRC with regard to the application of VAT?

Noble Lords will recall that we discussed at Second Reading the case of 11,000 Chinese businesses that registered themselves at the flat of a Mr Dylan Davies in Wales, who was subsequently pursued by HMRC and the bailiffs for unpaid VAT. When we discussed the issue, we referred to it from a Companies House perspective, which had not picked up that 11,000 companies were registered in a two-bedroom flat in Wales. Actually, HMRC should have picked up on that; had this amendment been in place, maybe it would have done so. There is a history of HMRC not seeking to pursue fraud, never mind money laundering, so the very least we can do is make sure that it has a duty to detect money laundering where it sees it. I am indebted to Richard Allen of RAVAS, who has pretty much run a one-man campaign against VAT fraud and highlighted these sorts of issues. There are clearly other issues in the 2005 Act, but this is an opportunity to plug one very important hole.

Economic Crime and Corporate Transparency

Lord Leigh of Hurley Excerpts

Committee stage
Thursday 27th April 2023 Grand Committee

[Lord Garnier (Con)]

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

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

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

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

[Lord Leigh of Hurley (Con)]

Two or more of those.

[Lord Garnier (Con)]

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

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

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

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

--- Later in debate ---

In short, there are two major flaws: the limitation to large bodies and the scope of those who are to be within the amendment. To refer to associated persons is fine as far as it goes, but it does not extend to all the people you really need to capture.

[Lord Leigh of Hurley (Con)]

I find some of these amendments tricky, really. Clearly, we are all keen to prevent fraud but I frequently wear the hat of the SME company. I should make the further declaration that I am the director of a number of SMEs and an investor in many more—not many successful ones but, none the less, I put my money in and hope. I have read the Law Commission’s options paper and the briefing papers from the APPG on Anti-Corruption and Responsible Tax, and I have had the pleasure of innumerable discussions with the very persuasive Margaret Hodge and her extremely capable team. Congratulations to them; they have got the Government to move to the much-promised amendments from the other place, the debate on which I read carefully. Clearly, we all want to beef up failure to prevent and the amendments go a long way to doing that.

I broadly support the principle of excluding small companies and I shall explain a bit more about why. However, I agree that the terms here are a bit odd. Needless to say, I am a bit worried about a company with 250 employees turning over only £36 million—it is more bust than small. I suspect, however, that these are EU figures, translated from the euro; I do not how they were arrived at but they may need some polish. They are definitely more “M” than “S”, and thought might be given to restricting ourselves to “S” rather than “M”. Needless to say, one looks at one’s business to see whether one is within scope —and, of course, I was reminded that the problem is with the balance sheet qualification. Ordinarily, I never thought that it would apply but, as fellow members of the Institute of Chartered Accountants in England and Wales will recall, the recent brilliant accounting standards brought in require one to capitalise leases in the balance sheet, meaning that companies’ assets are, frankly, grossly inflated. This definition refers only to gross assets, not net assets, so you will capture many more companies than you thought you might if you stick to that definition. I urge another look at the actual definition, if this route is taken.

It is certainly possible for large companies to develop procedures and systems, but smaller ones are, frankly, stretched with other matters, such as, essentially, how to pay the next payroll and survive. It is not reasonable to expect many of them to stop working, sit down and have a cup of tea and dream up preventive procedures. Of course, business owners do not want to see fraud because, at the end of the day, they will be the main losers. However, I can see lawyers advising on the purchase of massive amounts of belts and braces, given the penalties, which could be a massive distraction from the incredibly challenging job of trying to run a business and make a profit, which is difficult enough. I suggest that we see how large companies cope with the Bill, what it means in practice, what “preventive measures” —the guidance is yet to come—actually means, and then give ourselves the power to bring in small companies if we feel it is appropriate at a later stage, once we see what happens in practice.

I also have some concerns about Amendment 101, on the senior manager responsibilities. Of course, I strongly support measures which are likely to reduce economic crime. However, I note that an assessment produced by the Law Commission on individual criminal liability concluded that

“in principle, directors etc, should not be personally criminally liable on the basis of neglect if the offence is one which requires proof of a particular mental state. Liability for directors on the basis of neglect should be restricted to offences of strict liability or negligence”.

We have some way to go to make me feel comfortable that those are right.

There are other outstanding issues concerning senior manager liability, specifically how this would be monitored and enforced. The legal obligations on senior managers at the moment affect the UK’s competitiveness, particularly when trying to recruit talent at senior levels. So I would be reticent to encourage the introduction of significant legislative change without a broad assessment, which I would welcome, of the likely impact. That means consulting with industry and an official impact assessment that considers international comparisons of the effect, particularly on recruiting senior staff. Therefore, I would welcome some more consultation and consideration of the consequences of this reform.

On the proposed changes to the “identification doctrine”, clearly, amending it is essential to tackle the most egregious intentional behaviour; I get that. Here, of course, it is easier to see that in a small company—the Victorian brothers example—the directors could be guilty of this behaviour and, in an overzealous environment of trying to score wins, they could be prosecuted first, quickly and more easily. However, where you have a company consisting of tens of thousands or even hundreds of thousands of people, can we be certain that the act of a few rogue managers or even one manager a long way down the reporting structure should rightly lead to the sort of punishments suggested in some of these amendments?

That does not sit easily with me, and again, I still want to be convinced that we are in sync with our major international competitors. Let us not forget that while FDI into the UK has historically been very high, it is not now. The UK stock market is out of fashion, and countries all around the world are seeking to attract our businesses to set up offshore. Any legislation we bring in has to be very mindful of that.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I think it falls to me to start the winding-up speeches, but noble Lords will be pleased to know that I will not try to repeat everything that everybody else has said. I declare my interest as a director of both a large company and small companies; I set up my own first business in 1981, so I have spent most of my life as a business owner.

In this group I support the amendments mainly led by the noble and learned Lord, Lord Garnier. I hate to break with the gentle congratulations that have been given to the Government for at least doing something, but having such a weak amendment could well be counterproductive. The Government could think that they have done something when, as has already been exposed by many colleagues, it does very little. It will exempt most companies and it probably will not touch where action is needed most.

--- Later in debate ---

I finish where I started. In the end, the challenge for the Committee is that all these amendments are virtually universally supported here, but what difference will that make to the Government’s thinking on adapting their own amendments before Report, so that we get the Bill we want, because we all want it to be successful?

[Lord Leigh of Hurley (Con)]

Before the noble Lord sits down, will he clarify Labour’s position from the Dispatch Box: that it would be happy with one clause that requires prevention procedures to apply to an extremely large, multinational financial services company, for example, and to a local sweet shop which was incorporated? The noble Lord says that everyone agrees. According to the soundings I have taken from small business organisations, they would not be happy with that.

[Lord Coaker (Lab)]

I said everyone on the Committee —with the possible exception of the noble Lord. I was talking about how people feel about the Bill as drafted, with the carve-out for small and medium-sized enterprises. The noble Lord was referring to something that might include not the small but the medium, and that is a matter for debate, but the general view of the Committee was that the Government’s current carve-out is not acceptable. Where you put the threshold—whether you apply to a little sweet shop at the end of the road with a turnover of a few thousand pounds the same regulation you apply to a multinational company—could be sorted out in regulations, and if we saw them, we could suggest that they take into account the small sweet shop to which the noble Lord referred.

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[Lord Sharpe of Epsom (Con)]

I appreciate the point that the noble Lord was making and apologise for not addressing it more directly. I will refrain from answering that now and will write. I think I know how it is done, but I am not an accountant and I do not want to say something that he will pick apart. If he will indulge me, I will write on that subject with greater clarity to make sure that I am not making a mistake.

I thank all noble Lords for their participation in this debate and for their patience as I have taken them through a fairly long speech on the Government’s positions on these issues. We agree that reform is needed and, as we have made clear, the Government’s amendments represent a major step in delivering it. I hope that further explanation has reassured noble Lords on why we have presented the amendments with the scope and reach that they contain, and that the Government are committed to reform of the identification doctrine. I therefore very much hope that noble Lords will support the government amendments and not seek to move their own.

[Lord Leigh of Hurley (Con)]

I appreciate that my noble friend is at the Home Office, but none the less can he give us a commitment that the Government will look again at the definitions used in the Government’s clause for SMEs? I appreciate that they come from the Companies Act 2006, which themselves were cut and pasted from EU regs, but now that we are out of the EU we are free to choose definitions that suit our circumstances and our institutes’ accounting standards.

[Lord Sharpe of Epsom (Con)]

Yes, I am happy to give that reassurance.

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[Lord Coaker (Lab)]

My Lords, I rise briefly to support Amendment 85 from the noble Lord, Lord Alton, to which I have added my name, and to support the comments of the noble Lord, Lord Fox, and the noble Baroness, Lady Bennett.

As my noble friend Lord Ponsonby said, the question for the Government concerns giving teeth to the sanctions regime in respect to designated individuals. If it is not dealt with like this, what do the Government propose to do? There is clearly a gap, sanctioned individuals are finding ways around the law and we are not able to confiscate or seize the assets we want to seize. Criminalising a failure to disclose as a form of sanctions evasion, so that those assets can be seized, as referred to by the noble Lord, Lord Alton, is a very important step forward. Although this is just one amendment, Amendment 85 is really important.

As I said, if the Government do not believe that this amendment is appropriate, what are we going to do about the situations and individuals the noble Lord, Lord Alton, spoke about, and the huge sums of money, which are beyond the scope of the British state to collect from individuals? We all think we should be able to do something about that.

Just so the noble Lord does not feel on his own in being sanctioned, I am sanctioned as well, so we are in good company, as is the noble Lord, Lord Faulks. We could have a sanctions party here.

[Lord Leigh of Hurley (Con)]

I join the sanctions party. I rise to say that, as this amendment has the support of Cross-Bench, Lib Dem and Labour Peers, I add my support, even if I missed out on adding my name to those proposing it.

Economic Crime and Corporate Transparency Bill

Lord Leigh of Hurley Excerpts

Committee stage
Tuesday 9th May 2023 Grand Committee

[Lord Fox (LD)]

My Lords, I will speak briefly because we have heard some excellent speeches from the noble Lords opposite.

I just want to say, observationally, that we have debated a number of different groups where inequality of arms has been at the centre. When we talked about SLAPPs, we talked about inequality of resources. We have just talked about whistleblowing, where it is the same issue, and here we are again. In a sense, the Government are in different places with different elements of this. We need to have some sort of integrated response on how all people can be equal before the law because they can afford to do it—in other words, they can afford not to win, which is the issue here. We have our law enforcement agencies, we have perfectly innocent people going about their businesses trying to blow a whistle, and we have people who are trying to report issues publicly but are being SLAPPed. All of these important elements are being blocked through the inequality in access to the courts.

To refer back to this group of amendments, it seems to me that, if this amendment is not the answer, there must be some other answer. I look forward to the response from the noble Lord, Lord Sharpe, because it is quite clear that unexplained wealth orders have failed to deliver on whatever promise they may have had. Perhaps the Minister can explain how many of them there have been and what exactly the barrier has been, as well as what the cost per prosecution would be; that is an interesting point of view.

In the end, this is about inequality of arms. The first point here is that the Government must recognise that this is an issue; they then have to settle down and find ways of working with people who understand the law in order to eliminate that inequality. Otherwise, most of what we are talking about here will not happen.

[Lord Leigh of Hurley (Con)]

My Lords, I am prompted to rise by the words of the noble Lord, Lord Trevethin and Oaksey. I think he was referring to Amendment 106C, which we will come on to later this afternoon and which would extend the costs cap beyond UWOs. In the certainty that my noble friend the Minister will seek to ensure that Amendment 106C is agreed to, let me simply say that the amendment we are debating now, in the names of the noble Lord, Lord Faulks, and my noble and learned friend Lord Garnier, would be complementary and extremely helpful to Amendment 106C.

[The Parliamentary Under-Secretary of State, Home Office (Lord Sharpe of Epsom) (Con)]

My Lords, I thank noble Lords for proposing their amendments. I thank the noble Lord, Lord Coaker, for moving Amendment 93 on behalf of the noble Lord, Lord Hunt of Kings Heath. I also thank the noble Lord, Lord Faulks, for Amendment 95, which was spoken to by my noble friend Lord Young. Both amendments relate to reports connected with unexplained wealth orders, henceforth known as UWOs.

I turn first to Amendment 93, which would require the Government to lay annual reports on UWOs where the property has been obtained through economic crime and taken from vulnerable adults. Economic crimes not only result in financial gain for criminals but leave a trail of suffering. They inflict financial and personal loss, including on the most vulnerable members of our society, which this amendment importantly recognises.

--- Later in debate ---

[Lord Leigh of Hurley (Con)]

I share the disappointment expressed by other noble Lords. When UWOs first came out, I was very pleased to see them. They are a classic accountancy tool to establish what is going on in respect of an individual who may have accumulated wealth in an unexplained way. It is incredibly disappointing to learn that so few have been issued with, frankly, teeny sums of money, given the nature of the world that we are discussing. Can my noble friend take back our concerns to his colleagues and, in particular, ask whether targets could be set for the coming year on the number of UWOs that might be issued and the amount of funds that they might realise?

[Lord Sharpe of Epsom (Con)]

I am certainly happy to take my noble friend’s concerns back but, as regards targets, that would invite me to stray into operational matters, which I will not do.

--- Later in debate ---

That is why I support these amendments that my noble friend Lord Coaker has tabled and ably explained. I hope that the Government will engage with these and other aspects of the Bill, with the strong, cross-party power that they have in Parliament, to make the Bill work as they want it to and protect our country from the £300 billion a year—I think—that we are losing to economic crime.

[Lord Leigh of Hurley (Con)]

My Lords, I rise briefly to urge the Minister to not allow the concept of a tier 1 investor visa scheme to be rubbished. This country has benefited enormously from foreign direct investment. I have seen a large number of UK small and medium-sized businesses benefiting from individuals coming to and living in the UK and putting money into and running the businesses, and those businesses flourishing thereafter. It is an important part of what we offer overseas investors, if done correctly.

I am a little disappointed that the noble Lord, Lord Fox, seemed to imply—and probably stated it; I may have missed it—that the reason that this information has not been published is that the Home Secretary is worried about disclosure of people who may have made donations to the Conservative Party. I do not think that is in the spirit of the debate; I do not think it is correct. The noble Lord laughs, but it is particularly surprising from the Lib Dems, which took money from Michael Brown, to make allegations like that, and it is a shame because I think there is great consensus in the Committee about the purpose and merits of the Bill.

[Lord Sharpe of Epsom (Con)]

My Lords, I thank all noble Lords, who have made some extremely thought-provoking points in this debate. I will do my best to address them all.

Scrutinising the activity of government is obviously a key function of Parliament, and of course the Government are entirely supportive of it. I reassure the noble Lord, Lord Browne, that this particular part of the government machinery is always grateful for any help that is offered and will receive it in that spirit. However, the amendments in this group are unnecessary, as they are duplicative of existing reporting arrangements and scrutiny structures.

On investor visas, I take my noble friend Lord Leigh’s points. If done in the right way, they are potentially an important engine of economic growth—that should be acknowledged. Of course, we should not forget that they were introduced by a Labour Government and maintained during the coalition years. However, on Amendment 102, tabled by the noble Lord, Lord Wallace of Saltaire, and moved by the noble Lord, Lord Fox, I am aware that there are concerns about how the now-closed tier 1 investor route operated—in particular, that it was used by those relying on funds that had been illegitimately acquired and those who may have posed a wider risk to the UK’s national security.

It was because of those concerns that the Government committed in the first place to the review of the visas issued under the route between 2008 and 2015. As has been acknowledged, the Home Secretary made a Written Ministerial Statement on 12 January setting out the findings of that review. This included that the review had identified a minority of individuals connected to the tier 1 investor visa route who were potentially at high risk of having obtained wealth through corruption or other illicit financial activity or being engaged in serious and organised crime. The Statement of 12 January represents the Government’s substantive response to the commitment to undertake a review and publish its findings, including its findings in respect of economic crime.

Obviously, there was a delay; we are aware that considerable time elapsed between the commissioning of the review and the setting out of those findings. However, delay is regrettable but not unreasonable when issues of national security are at stake. Let me expand on that a little, if I may. It would have been preferable had the review been able to include more information about specific individuals but we have had to act sensibly and responsibly with regard to the UK’s national security; this includes striking the right balance between setting out the review’s broad findings and observing the constraints on disclosing sensitive details, which must be withheld, at the request of our operational partners, to protect our border and the vital work of our law enforcement agencies.

The noble Lord, Lord Fox, raised the subject of party-political donations. Without getting into a slanging match on this subject, I think it is worth restating that UK electoral law already sets out a stringent regime of spending and donation controls that prioritise transparency and safeguard the integrity of our elections. All political parties recognise that third-party campaigners and candidates must record their election spending and report it to either the Electoral Commission or their local returning officer. This information is all publicly available. The measures in the Elections Act 2022 also updated the political finance regulatory framework by increasing transparency and fairness and strengthening the controls against ineligible foreign spending on electoral campaigning. That is a fairly comprehensive transparency regime concerning the funding of political parties.

The House has considered similar amendments to other legislation, most recently during the passage of the National Security Bill. As before, the Government’s view is that this amendment is not necessary. The Government have set out the key findings of the review of the operation of this route and have acted to close it. I therefore ask the noble Lord, Lord Fox, to withdraw the amendment.

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[Lord Agnew of Oulton (Con)]

My Lords, this amendment would help to protect enforcement bodies from the serious risk of high adverse costs when undertaking recovery action against deep-pocketed suspects who can afford the very best legal representation. This risk creates a huge downward pressure on law enforcement activity. The Government introduced a new costs order in March last year for the use of unexplained wealth orders; we have talked about those a lot. It ensured that costs would not be awarded unless the law enforcement authority had acted unreasonably, dishonestly or improperly.

UWOs are just one tool for recovering assets in the UK’s recovery regime and, as we have discussed this evening, are arguably less important in the eyes of law enforcement than other recovery tools. Extending the costs orders introduced in the ECA 2022 would significantly increase the appetite for undertaking recovery cases and inevitably lead to more asset recovery. Even the Law Commission in a recent report recommended that in confiscation hearings following a criminal trial, if the prosecution is unsuccessful but can argue that their application was reasonable, each side bears its own costs. Given that this is a Law Commission recommendation for criminal confiscation and that limited liability for costs has been introduced for UWOs, we are proposing to extend this limited liability to all cases of civil criminal asset recovery.

Civil society and civil servants at the NCA and the SFO have all reported that adverse costs can play an important role in cutting agencies’ appetite to pursue costs. In fact, no cases seem to have been undertaken against Russians in the UK since the outbreak of the Ukrainian invasion. Evidence I have heard from law enforcement bodies suggests that there is a significant caseload of potentially high-risk cases in the pipeline which bring significant cost risks. This includes more than 60 cases being reviewed by one prosecution authority with close to £1 billion in assets frozen by an enforcement body.

Tackling kleptocrats and politically exposed persons will involve going against the very best and most expensive lawyers, unpicking complex corporate vehicles and reams of evidence. Cost exposure poses a real hurdle to the use of civil recovery. In addition, as we have heard so often during this series of Grand Committees, this is not a party-political issue. Indeed, it has been raised previously by Conservative MP Nigel Mills, who sought an amendment during the passage of the Criminal Finances Act 2017, which we heard about briefly from the noble Lord, Lord Faulks, so that the costs could be awarded on an indemnity basis.

In the six years or so that have elapsed since then, we have had the huge move in principle by the Government to allow this capping to take effect for UWOs. Given that that Rubicon has been crossed, I simply do not understand why the Government are reluctant to extend it. We hear so often in the rebuttal of our amendments that it is not the right time, there is no room in the legislative calendar, the cost is too great and the principles are not there, but this is a situation where none of those issues exists. The Government accept that the principle can apply in some forms of recovery. All I ask for in this amendment is that we broaden the scope of the cost capping, which will dramatically improve our ability to go after some of these bad actors. I beg to move.

[Lord Leigh of Hurley (Con)]

My Lords, I will speak to this amendment, which I have signed. Once again, I find myself agreeing with every word that my noble friend Lord Agnew has said, so I will be very brief.

The extension of a new cost regime to all of Part 5 of POCA in the case of economic crime would encourage law enforcement bodies to act ambitiously but also reasonably in bringing civil recovery cases, and it has the potential to ensure that significantly more stolen assets and proceeds of fraud and corruption can be recovered and returned to the victims—as we would all want—but also reinvested back into law enforcement agencies themselves, which is the major problem, through the asset recovery incentivisation scheme. That would help them enhance their capacities and give them the confidence to go after cases which they are not doing at the moment.

A number of us had the honour to be briefed by Bill Browder on the Bill. Of the many subjects that we discussed, this was the one amendment that he felt would be helpful and useful for us to pass. What greater man is there than Bill Browder to suggest to us that we adopt a particular route? If the man can create a Magnitsky Act which has been adopted by pretty much every civilised country in the world, perhaps we can just take one clause in this Bill to enhance our fight against economic crime.

Economic Crime and Corporate Transparency Bill

Lord Leigh of Hurley Excerpts

Report stage
Tuesday 20th June 2023 Lords Chamber

[Lord Leigh of Hurley (Con)]

My Lords, there seems to be a gap, so I will happily fill it. I remind the House of my declaration of interests in the register, which discloses that I am a director of a number of private and public companies, and I am a person with significant control of rather a large number of private companies that should really be consolidated, but there you are. Now that Companies House has made it easier, perhaps I shall do that.

I thank the Minister for the discussions that he has held with me and others between Grand Committee and today. I congratulate him on most of these amendments. It really shows that he and his colleagues have listened, and it is really pleasing to know that our House has contributed to improving this Bill in such a dramatic way, with so many government amendments to the Bill at this stage. Nearly all of them—if not all of them—are going to be welcomed by this House.

There are a few points and comments that I would like to make. We do not have the consistency point that I wanted in the objectives, but the proposals that the Government are making on the objectives are tremendous and will make a big difference to the quality of the Bill. On Clause 40, perhaps the Minister could explain—now or later—that if we are going to have a power to strike off companies registered on a false basis, what about those companies that submit accounts on a false basis? The clause addresses when the companies are created; it does not deal with—I do not think it does, unless it is dealt with elsewhere—those regular company accounts. Perhaps I have misunderstood, and the Minister could clarify.

I turn to my noble friend Lord Agnew’s Amendment 49; he has not had a chance to speak to it, so it is perhaps not right for me to comment on it. There is obviously going to be extra work to do this risk assessment, and I would not want the registrar to be let off the hook by just doing a risk assessment, so perhaps he could clarify that that was not his intention by inserting that clause.

I welcome the discretion that the registrar is given throughout the clauses, especially Clauses 54 to 56. I think that giving the registrar much more discretion is a very good thing. As a result, I would suggest, in advance of my noble friend Lord Agnew’s words, that his idea of a review is a very good idea because, if the registrar is going to be given this discretion and so much is going to happen, it would be helpful for us to see what is happening. We all remember how disappointing the unexplained wealth order legislation is in practice in that nothing much has happened. It would be helpful for us to have an annual or regular update on the implementation of this Bill when it is enacted.

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[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 Vaux of Harrowden (CB)]

My Lords, may I very briefly support what the noble Lord, Lord Leigh, has just said? This amendment troubles me a little bit. The Companies House information is important for people who are dealing with those companies, be they suppliers or customers. When we were doing the inquiry into digital fraud for the committee on digital fraud, we met a range of fraud victims. For those where it was relevant, what was interesting was that every single one of the people whom we met, before they parted with their money, had gone to Companies House and had a look at the company. They took comfort from that and lost their money. The information there is important, and reducing the amount of information on it should be done only with real thought and consideration.

I get it that in certain circumstances it makes sense for companies to be able to apply that certain information should not be made available—there are plenty of situations where one could think that makes sense. However, this amendment goes a lot further than that. It gives the Government the power to make regulations to allow micro and small companies to make all or parts of their accounts public on application or otherwise. In theory, therefore, those regulations could simply say that no micro or small entity needs to publish anything. That would be going far too far, so it would be good to understand from the Minister what is actually intended here.

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[Baroness Altmann (Con)]

My Lords, I thank the Minister and congratulate him on this suite of amendments. I know that my noble friend is keen that this should be a really landmark Bill and that he has worked really hard to listen carefully and ensure that it is as robust as it can be. I know his dedication to this matter, and I thank him for it.

[Lord Leigh of Hurley (Con)]

Although my noble friend the Minister has described me in very flattering terms today, for which I am grateful, I will not add to the flattery, as his noble kinsman is no longer sitting next to me. I just want to add a note of caution, because it is on the record in Amendment 93 from my noble friend Lord Agnew, on the possibility of HMRC taking AML to be of equal priority to tax collecting, essentially. I declare an interest as chairman of the Finance Bill Sub-Committee of the Economic Affairs Committee that investigated R&D tax credits, which led to HMRC’s accounts being qualified given the level of uncertainty. I just want to put it on the record that we all want HMRC to focus on tax collection, with fraud focused on in other areas.

[Lord Fox (LD)]

The Minister will be blushing with the fulsome praise that he has received. I think he described it as a significant package of improvements and as major steps. The noble Lord, Lord Agnew, went further and described them as revolutionary changes. The Minister can be sure that he has hit an important nail very firmly on the head with this set of amendments. I think we all believe that this makes the Bill a much better Bill, and for that, we are very pleased.

Economic Crime and Corporate Transparency Bill

Lord Leigh of Hurley Excerpts

Report stage
Tuesday 27th June 2023 Lords Chamber

This is very simple. All businesses should take reasonable steps to stop economic crimes such as fraud and money laundering being committed on their behalf by their employees. I hope that the noble and learned Lord will insist on these amendments, and I will support him if he does.

[Lord Leigh of Hurley (Con)]

My Lords, my noble and learned friend Lord Garnier wonders why the noble Baroness, Lady Bennett of Manor Castle, supports his amendment. I have heard wags tell me that he is referred to as a Green Peer, on account of the number of times he recycles his gags. That might be a little unfair—I hear disapproval, but never mind.

I will speak to these amendments, having followed the Bill extremely closely. The noble Lord, Lord Vaux of Harrowden, is of course right to pinpoint what we are debating: fraud perpetrated to benefit a relevant body. However, the noble Lord actually said “on the company’s behalf”, and that is not right. I do not think it is necessarily to capture exclusively where a company seeks to benefit itself; it could also, quite rightly, seek to capture an employee who commits fraud to benefit himself or herself because of a bonus arrangement or other matters. So it is not just on a company’s behalf.

In Grand Committee and elsewhere, I have argued that there should be exemptions for small and medium-sized companies, in opposition to Amendment 110. I totally agree with my noble and learned friend Lord Garnier that the numbers proposed by the Government—any two of the following: a turnover of £36 million; a balance sheet of £18 million, which is undefined; and 250 employees, which is easy to define—are not appropriate. As he said, they capture only 0.5% of companies, but of course they capture the most important companies, which is where this legislation is perhaps intended to attack—it covers pretty much every FTSE and AIM company, which would perhaps have someone to put their mind to undertaking a fraud.

Although I have reservations about Amendment 110, curiously enough I support my noble and learned friend Lord Garnier’s Amendment 117, which is eminently sensible and deals with the issue. He has specified a turnover of more than £10 million, a balance sheet of more than £3 million, and more than 25 employees, which is sensible and fair. However, that applies only to fraud. His Amendment 125D does not have any SME exemption but simply says that the Secretary of State must issue guidance specifically for SMEs and particular micro-enterprises. He recognises that there is a difference for SMEs and micro-enterprises, and I think we should do so. I am nervous about this legislation: we just do not know what that regulation might be and do not understand what the guidance might be, how it might work and what effect it will have on SMEs and micro-enterprises.

I had a micro-enterprise at one point; I started a business. I refer your Lordships to the register of interests, which discloses that the business grew quite substantially, but it was originally micro by any definition. I do not know how many of your Lordships have started and run a micro-business, where everything revolves around survival and one’s entire life revolves around next week’s and next month’s wages, paying suppliers and creditors, and dealing with HMRC. There are so many pressures on micro-businesses, growing through to SME businesses, and we should think very carefully about putting another hurdle in place, however small, that makes an entrepreneur say, “You know what? Maybe I won’t bother. The Government are saying that I’ve got to take care about failure to prevent fraud. Really? Is that something I should worry about at this micro level? Have I not got enough to do to try to survive?”

I urge caution in adopting Amendment 110. If it is passed, I urge the House to adopt Amendment 117. I would be very careful about adopting Amendment 125 without clarification of exactly what will be in Amendment 125B.

[Baroness Morgan of Cotes (Con)]

My Lords, I will speak briefly to this group. I thank my noble friend the Minister for the steps that the Government have taken in relation to the failure to prevent fraud offence and the identification doctrine. These are significant steps, and he is right to say that they will obviously be followed up in future Bills.

It is worth remembering the scale of fraud in England and Wales in particular. Some 40% of crime is fraud against individuals, and clearly the scale of the cases against small, medium-sized and large businesses is also devastating. On Friday, we will debate the wider issues relating to fraud looked at by the committee on digital fraud, which I was privileged to chair. I am grateful that, from that committee and the work with my noble friend, the Fraud Strategy was published in early May.

I support my noble and learned friend Lord Garnier’s Amendment 110 and the associated Amendment 121, and have added my name to them. He and the noble Lord, Lord Vaux, set out clearly why these amendments are necessary. There is no SME exemption in the Bribery Act or in relation to tax evasion.

I want to take on one of the points raised by my noble friend Lord Leigh. He talked about the survival of SMEs, and he is of course right to do so. I have not set up a small business but I have set up a small charity, and many of the issues are similar. If that small business or small charity were the victim of fraud, it would be absolutely devastating. One of the arguments here is the burden on small businesses of having to set up fraud-prevention measures, but they have to do it anyway these days because they have to be very cautious about anyone attempting invoice fraud or utility fraud. If they have an employee, they have to make sure that they are making best use and correct use of the corporate credit card, for example.

Noble Lords rightly referred to Clause 192 and the guidance that the Government will publish. We already have an example of it, as the Government have published the outline of how it would look. If this amendment is passed, it would be perfectly within the rights of the Government to set out clearly how that guidance should be interpreted by small and medium-sized enterprises, which are quite used to reading extensive amounts of guidance. If we want to have a broader debate about red tape and regulation, that is perhaps for another day, but they are used to dealing with much guidance. If they are likely to be victims of fraud, they will take that guidance very seriously.

I support these amendments and I support my noble and learned friend’s Amendment 125A on expanding the failure to prevent offence to money laundering. If we are going to introduce the failure to prevent offence, which I thoroughly welcome, we might as well do it properly and expand it to money laundering, which is also a huge a problem and one that the Bill seeks to tackle as well.